Granite Point Mortgage Trust Inc. Common Stock 2026 Q2 Earnings Call

Thank you. Good morning, everyone. Thank you for joining our call to discuss Granite Point's second quarter 2026 financial results. With me on the call this morning are Jack Taylor, our President and Chief Executive Officer; Stephen Alpart, our Chief Investment Officer and Co-Head of Originations; Blake Johnson, our Chief Financial Officer; Peter Morral, our Chief Development Officer and Co-Head of Originations; and Ethan Lebowitz, our Chief Operating Officer. After my introductory comments, Jack will provide a brief recap of market conditions and review our current business activities. Steve will discuss our portfolio, and Blake will highlight key items from our financial results. The press release, financial tables, and earnings supplemental associated with today's call were filed yesterday with the SEC, along with our Form 10-Q, and are available in the investor relations section of our website.

I would like to remind you that remarks made by management during this call and the supporting slides may include forward-looking statements, which are uncertain and out of the company's control. Forward-looking statements reflect our views regarding future events and are subject to uncertainties that could cause actual results to differ materially from expectations. Please see our filings with the SEC for a discussion of some of the risks that could affect results. We do not undertake any obligation to update any forward-looking statements. We will also refer to certain non-GAAP measures on this call. This information is not intended to be considered in isolation or as a substitute for the financial information presented in accordance with GAAP. The reconciliation of these non-GAAP financial measures to the most comparable GAAP measures can be found in our earnings release and slides, which are available on our website.

I'll now turn the call over to Jack.

Thank you, Chris, and good morning, everyone. We would like to welcome you and thank you for joining Granite Point's second quarter 2026 earnings call. U.S. commercial real estate credit continued to benefit from improving fundamentals and extended its positive trajectory during the second quarter. Geopolitical developments tied to the Iran war are influencing the U.S. capital markets as energy prices, along with tariffs, have sharpened investors' focus on inflation and contributed to greater uncertainty about the direction of interest rates. As a result, property values are facing potential headwinds as expectations are shifting from pricing near-term interest rate cuts to rate hikes. Nevertheless, capital continues to flow into commercial real estate assets. Debt markets have remained competitive, and lending spreads have continued a trend of tightening, helping to mitigate a potential rise in short-term rates that could impact refinancings.

Increases in the specific reserves in some situations involving a change of circumstances at the collateral or borrower level, and in others, where it was a result of more particular price discovery as processes proceeded. We will go into greater detail on these items. We do expect our nearer-term resolutions to offset much of these increases. Granite Point remains focused on our primary objective of resolving our legacy loans. Following on the activities of the first quarter, which included two large loan repayments and the sale of a B-note secured by a hotel at a price somewhat above par, during the second quarter, we completed the resolution of the Chicago retail loan above our carrying value, realized an office loan repayment, and successfully sold two participation interests in debt secured by an office property in Dallas, Texas, for a price in the low nineties.

During the quarter, loan demand generally broadened due to a pickup in acquisitions. Banks have been reporting net increases in commercial real estate loan demand for the first time since 2022. The CMBS market continues to be strong, with issuance on pace to surpass last year's post-GFC record volumes. The increase in acquisition volumes was driven by portfolio and entity-level megadeals, while the Iran war and other contributors to volatility in some instances paused and delayed individual asset sales, reducing volumes. Nevertheless, fundamentals and liquidity continue to improve in many office markets, which is a constructive sign for resolving legacy office loans. Our reserves increased during the quarter due to an increase in our general reserve caused in part by a more negative macroeconomic forecast utilized in our general reserve model.

These participation interests included a larger subordinate interest and an accompanying much smaller senior interest. These actions also furthered our goals of reducing higher cost debt. With respect to our two REO assets, we continue to make progress on maximizing value with the goal of exiting these properties opportunistically. As we continue to focus on our objectives, one of which is to lower our cost of funds, more recently, as announced in a recent press release, we refinanced the assets that were in our two legacy CLOs by extending and upsizing the JPMorgan financing facility, which reduced the cost of funds on these assets from SOFR plus 238 to SOFR plus 200. We are pleased to achieve this refinancing with one of our key lending partners at a favorable cost of funds, which also substantiates underlying value in these loan assets, which constitute a large subset of our portfolio.

Taken together, we believe our initiatives are strengthening Granite Point's financial position and enhancing our ability to create long-term shareholder value. The board and management believe that the company's current market valuation does not fully reflect the underlying value of Granite Point and its assets, and we remain actively focused on narrowing that gap. We intend to do so in a variety of ways, including disciplined execution, resolving our legacy assets in a value-maximizing manner, reducing our cost of capital, maintaining balance sheet flexibility, and positioning the company to redeploy capital into attractive new investments. I would now like to turn the call over to Steve to discuss our portfolio activities in more detail.

Thank you, Jack, and thank you all for joining our second quarter earnings call. We ended the quarter with $1.5 billion in total loan portfolio commitments, inclusive of $1.4 billion in outstanding principal balance and about $57 million of future fundings, which accounts for only about 4% of total commitments. Our loan portfolio remains diversified across regions and property types and includes 38 investments, with an average UPB of about $37 million and a weighted average stabilized LTV of 66% at origination. As of June 30th, our portfolio weighted average risk rating remained stable at 3.2 quarter-over-quarter. The realized loan portfolio yield for the second quarter was 6%, which excluding non-accrual loans, would be 7.4% or 1.4% higher. We had an active quarter of loan repayments, resolutions, paydowns, amortization, and loan participation sales totaling about $160 million.

During the second quarter, we had a repayment of a $37 million loan secured by an office property in Richmond, Virginia. This property has been a strong performing property in a solid office market. However, until recently, we had not seen much liquidity in this market, either debt or equity. As Jack mentioned earlier, we are now seeing expanded capital available for office assets. In addition, we sold two interests in debt secured by a strong performing, well-occupied office property in Dallas, Texas, totaling $31 million. We achieved the final resolution on the $76 million Chicago retail loan via a property sale. We had about $8 million of future fundings and other investments, resulting in a net loan portfolio reduction of about $122 million for the second quarter. We'll now provide some color on the remaining risk-rated 5 loans.

At June 30th, we had five such loans with a total UPB of about $253 million. Three of the five are in active sales processes that we anticipate may be completed over the coming quarters. At quarter end, we downgraded a $65 million loan collateralized by a 384,000 square foot office property in the San Diego CBD from a risk rating of four to a rating of five. The office property was purchased by a West Coast institutional owner for a major hotel redevelopment strategy. This owner made a major equity investment in the property, as did the major hotel brand separately. However, more recently, as a result of rising construction costs and elevated financing costs, the sponsor believes that the original business plan may be difficult to achieve at this time, and as a result, we downgraded this loan from a four rating to a five rating.

We are in discussions with the borrower and pursuing several potential resolution alternatives. Regarding the $27 million Tempe hotel and retail loan, which we've discussed in prior quarters, we've been in active dialogue with the borrower and are reviewing resolution alternatives, which we expect will involve a sale of the property. The property securing the Atlanta multifamily loan, which we've also discussed in prior quarters, is now under contract with a hard deposit with a targeted close in the near term. We are in discussions with the borrower on the $15 million New Haven hotel loan, and as we mentioned last quarter, we expect to resolve this loan via a property sale by the borrower over the next couple of quarters.

The last five-rated loan is the $93 million Minneapolis office loan, where we are working collaboratively with current ownership to take the property back as REO in the nearer term. Resolving these remaining five-rated loans remains a top priority. At quarter end, we had two loans with a combined UPB of $68 million, which have risk ratings of four that are on non-accrual status. We are reviewing resolution alternatives for each of these loans and will provide additional information as the situations progress. Turning to the REO assets, we continue to have positive leasing momentum at the suburban Boston property and remain actively engaged with our partner and other third parties on several value-enhancing repositioning opportunities. The Miami Beach office property is a Class A asset located in a strong market. We are having positive leasing discussions with a variety of existing and new tenants.