AG Mortgage Investment Trust, Inc. Reports Third Quarter 2019 Results

NEW YORK–(BUSINESS WIRE)–AG Mortgage Investment Trust, Inc. (“MITT,” “we,” the “Company” or “our”) (NYSE: MITT) today reported financial results for the quarter-ended September 30, 2019. AG Mortgage Investment Trust, Inc. is a hybrid mortgage REIT that opportunistically invests in, acquires and manages a diversified risk-adjusted portfolio of Agency RMBS, Credit Investments, and Single-Family Rental Properties. Our Credit Investments include our Residential Investments, Commercial Investments, and ABS Investments.

THIRD QUARTER 2019 FINANCIAL HIGHLIGHTS

• $0.19 of Net Income/(Loss) per diluted common share⁽¹⁾
• $0.40 of Core Earnings per diluted common share⁽¹⁾
  • Includes $(0.02) retrospective adjustment
• 1.3% economic return on equity for the quarter, 5.2% annualized⁽²⁾
• $17.16 Book Value per share⁽¹⁾ as of September 30, 2019
• $17.34 Undepreciated Book Value per share⁽¹⁾ as of September 30, 2019 versus $17.57 as of June 30, 2019
  • Undepreciated Book Value decreased $(0.23) or (1.3)% from the prior quarter primarily due to:
    • $(0.28) or (1.6)% due to our investments in Agency RMBS, Residential Loans^(a), mortgage servicing exposure and associated derivatives
      • Agency MBS spreads widened versus benchmarks as the rally in interest rates continued to apply pressure in the form of elevated gross supply, prepayment uncertainty and increased implied volatility
    • $0.08 or 0.5% due to Credit Securities
      • The rally in interest rates benefited Freddie Mac K-Series and CRT subordinates performed well with significant spread tightening. Legacy RMBS and CMBS spreads were generally unchanged during the quarter.
    • $(0.03)^(b) or (0.2)% due to core earnings below the $0.45 dividend
• Completed preferred stock offering on September 17, 2019 of our 8.000% Series C Fixed-to-Floating Rate Cumulative Redeemable Preferred Stock, raising net proceeds of $111.2 million

(a) Residential Loans includes Re/Non-Performing Loans and New Origination Loans

(b) Includes $0.01 or 0.1% due to equity based compensation and $0.01 or 0.1% due to cumulative and undeclared dividend on the Series C Fixed-to-Floating Rate Cumulative Redeemable Preferred Stock

*A reconciliation of net income/(loss) per diluted common share to core earnings per diluted common share for the three months ended September 30, 2019, along with an explanation of this non-GAAP financial measure, is provided at the end of this press release.

MANAGEMENT REMARKS

“We are pleased that during the third quarter, MITT raised approximately $111 million through a preferred stock offering,” said Chief Executive Officer, David Roberts. “This capital was fully invested into Agency RMBS with the intention to rotate much of these proceeds into credit investments over time. As part of the broader Angelo Gordon platform, we also participated in several credit investment opportunities underscoring our view that the opportunity set for credit is broad, diverse and growing.”

Roberts added, “MITT declared a $0.45 dividend for the quarter, which continues to reflect our view of core earnings over the near to intermediate term.”

“The third quarter continued to challenge levered investors as the spread between 10-year swap rates and the 3-month overnight indexed swap tightened,” said Chief Investment Officer, T.J. Durkin. “However, we produced a positive economic return of 1.3% during the quarter as a result of strong performance in our various credit portfolios and minimized Agency MBS underperformance due to the high percentage of quality specified pools in our Agency portfolio. Our year to date economic return was 8.6%. Additionally, we are excited that we were able to successfully complete our first rated reperforming loan securitization and our second rated non-QM loan securitization. We intend to remain active in utilizing the securitization markets to fund our various whole loan activities.”

INVESTMENT HIGHLIGHTS

• $4.9 billion investment portfolio as of September 30, 2019 as compared to the $4.0 billion investment portfolio as of June 30, 2019^{(3) (4)}
  • Increase due to deploying preferred equity raised during the quarter. See below for additional details.
• 2.0% Net Interest Margin (“NIM”) as of September 30, 2019⁽⁵⁾
• 4.7x Economic Leverage Ratio as of September 30, 2019⁽⁶⁾
• 9.8% constant prepayment rate (“CPR”) on the Agency RMBS investment portfolio for the third quarter⁽⁷⁾
• Duration gap was approximately 0.73 years as of September 30, 2019⁽⁸⁾

Note: The chart above is based on trade date for securities and settle date for loans.

Residential Loan Activity

• Completed a rated RPL securitization in August which refinanced primarily re-performing mortgage loans into new lower cost, fixed rate non-recourse long-term financing, returning $11.1mm of equity to MITT. MITT is treating the securitization as a secured financing and is reporting the securitized loans and the secured financing on its balance sheet as “Residential mortgage loans, at fair value” and “Securitized debt, at fair value,” respectively.
  • MITT maintained exposure to the securitization through an interest in the subordinated tranches.
• Purchased two pools of Re/Non-Performing loans
• Continued to purchase Non-QM pools alongside other Angelo Gordon funds and participated in a rated Non-QM securitization alongside other Angelo Gordon funds in September, which refinanced Non-QM loans from repurchase agreement financing into lower cost, fixed rate, non-recourse long-term financing, returning $22.9mm of equity to MITT.
  • MITT maintained exposure to the securitization through an interest in the subordinated tranches.

Commercial Real Estate Loan Activity

• Originated a commercial real estate loan and received a payoff at par of a previously held commercial real estate loan
• Continued to fund existing commercial real estate loans

SINGLE-FAMILY RENTAL PORTFOLIO UPDATE

• Occupancy remained stable throughout the third quarter in the 92-93% range
• Decline in operating margin primarily due to elevated repair, maintenance and turnover expenses

(a) $ in millions

(b) Based on occupied residences as of each corresponding period end

(c) Based on straight-line rent as of each corresponding period end

Note: Cost of funds and NIM shown include the costs or benefits of our interest rate hedges. Cost of funds and NIM as of September 30, 2019 excluding the cost or benefit of our interest rate hedges would be 2.8% and 1.8%, respectively.

*The Economic Leverage Ratio on Agency RMBS includes any net payables or receivables on TBA. The Economic Leverage Ratio by type of investment is calculated by dividing the investment type’s total recourse financing arrangements by its allocated equity.⁽¹⁵⁾ The Economic Leverage Ratio excludes any non-recourse financing arrangements, including securitized debt and the term loan on our single-family rental properties. The Economic Leverage Ratio on single-family rental properties would be 2.9x if it included the term loan financing on the portfolio.

Note: The chart above includes fair value of $0.5 million of Agency RMBS, $272.4 million of Residential Investments and $5.9 million of Commercial Investments that are included in the “Investments in debt and equity of affiliates” line item on our consolidated balance sheet.

Premiums and discounts associated with purchases of the Company’s investments are amortized or accreted into interest income over the estimated life of such investments, using the effective yield method. The Company recorded a $(0.02) retrospective adjustment per diluted common share, excluding interest-only securities and TBAs. Since the cost basis of the Company’s Agency RMBS securities, excluding interest-only securities and TBAs, exceeds the underlying principal balance by 2.8% as of September 30, 2019, slower actual or projected prepayments can have a meaningful positive impact on the Company’s asset yields, while faster actual or projected prepayments can have a meaningful negative impact on the yields.

FINANCING AND HEDGING ACTIVITIES

The Company, either directly or through its equity method investments in affiliates, had financing arrangements with 45 counterparties, under which it had debt outstanding with 32 counterparties as of September 30, 2019. Our weighted average days to maturity is 101 days and our weighted average original days to maturity is 172 days. The Company’s financing arrangements as of September 30, 2019 are summarized below:

*Amounts in table above do not include securitized debt of $229.6 million.

**Includes $0.9 million of deferred financing costs.

The Company’s interest rate swaps as of September 30, 2019 are summarized as follows:

* 100% of our receive-variable interest rate swap notional resets quarterly based on three-month LIBOR.

TAXABLE INCOME

The primary differences between taxable income and GAAP net income include (i) unrealized gains and losses associated with investment and derivative portfolios which are marked-to-market in current income for GAAP purposes, but excluded from taxable income until realized or settled, (ii) temporary differences related to amortization of premiums and discounts paid on investments, (iii) the timing and amount of deductions related to stock-based compensation, (iv) temporary differences related to the recognition of certain terminated investments and derivatives, (v) taxes and (vi) methods of depreciation between GAAP and tax. As of September 30, 2019, the Company had estimated undistributed taxable income of approximately $1.11 per share.^{(1) (13)}

DIVIDEND

On September 6, 2019, the Company’s board of directors declared a third quarter dividend of $0.45 per share of common stock that was paid on October 31, 2019 to stockholders of record as of September 30, 2019.

On August 16, 2019, the Company’s board of directors declared a quarterly dividend of $0.51563 per share on its 8.25% Series A Cumulative Redeemable Preferred Stock and a quarterly dividend of $0.50 per share on its 8.00% Series B Cumulative Redeemable Preferred Stock. The preferred distributions were paid on September 17, 2019 to stockholders of record as of August 30, 2019.

STOCKHOLDER CALL

The Company invites stockholders, prospective stockholders and analysts to participate in MITT’s third quarter earnings conference call on November 5, 2019 at 9:30 am Eastern Time. The stockholder call can be accessed by dialing (888) 424-8151 (U.S. domestic) or (847) 585-4422 (international). Please enter code number 8242295.

A presentation will accompany the conference call and will be available on the Company’s website at www.agmit.com. Select the Q3 2019 Earnings Presentation link to download the presentation in advance of the stockholder call.

An audio replay of the stockholder call combined with the presentation will be made available on our website after the call. The replay will be available until December 5, 2019. If you are interested in hearing the replay, please dial (888) 843-7419 (U.S. domestic) or (630) 652-3042 (international). The conference ID number is 8242295.

For further information or questions, please e-mail ir@agmit.com.

ABOUT AG MORTGAGE INVESTMENT TRUST, INC.

AG Mortgage Investment Trust, Inc. is a hybrid mortgage REIT that opportunistically invests in, acquires and manages a diversified risk-adjusted portfolio of Agency RMBS, Credit Investments, and Single-Family Rental Properties. Its Credit Investments include Residential Investments, Commercial Investments, and ABS Investments. AG Mortgage Investment Trust, Inc. is externally managed and advised by AG REIT Management, LLC, a subsidiary of Angelo, Gordon & Co., L.P., an SEC-registered investment adviser that specializes in alternative investment activities.

Additional information can be found on the Company’s website at www.agmit.com.

ABOUT ANGELO GORDON

Angelo, Gordon & Co., L.P. is a privately held limited partnership founded in November 1988. The firm manages approximately $33 billion as of September 30, 2019 with a primary focus on credit and real estate strategies. Angelo Gordon has over 500 employees, including more than 200 investment professionals, and is headquartered in New York, with offices in the U.S., Europe and Asia. For more information, visit www.angelogordon.com.

FORWARD LOOKING STATEMENTS

This press release includes “forward-looking statements” within the meaning of the safe harbor provisions of the United States Private Securities Litigation Reform Act of 1995 related to dividends, book value, our investments, our investment and portfolio strategy, investment returns, return on equity, liquidity, financing, taxes, our assets, our interest rate sensitivity, and our views on certain macroeconomic trends and conditions, among others. Forward-looking statements are based on estimates, projections, beliefs and assumptions of management of the Company at the time of such statements and are not guarantees of future performance. Forward-looking statements involve risks and uncertainties in predicting future results and conditions. Actual results could differ materially from those projected in these forward-looking statements due to a variety of factors, including, without limitation, changes in interest rates, changes in the yield curve, changes in prepayment rates, changes in default rates, the availability and terms of financing, changes in the market value of our assets, general economic conditions, conditions in the market for Agency RMBS, Non-Agency RMBS, ABS and CMBS securities, Excess MSRs and loans, our ability to integrate single-family rental assets into our investment portfolio, our ability to predict and control costs, conditions in the real estate market, and legislative and regulatory changes that could adversely affect the business of the Company. Additional information concerning these and other risk factors are contained in the Company’s filings with the Securities and Exchange Commission (“SEC”), including its most recent Annual Report on Form 10-K and subsequent filings. Copies are available free of charge on the SEC’s website, http://www.sec.gov/. All information in this press release is as of November 4, 2019. The Company undertakes no duty to update any forward-looking statements to reflect any change in its expectations or any change in events, conditions or circumstances on which any such statement is based.

(1) The three months ended September 30, 2019 include cumulative and undeclared dividends of $0.4 million on the Company’s 8.000% Series C Fixed-to-Floating Rate Cumulative Redeemable Preferred Stock as of September 30, 2019.

NON-GAAP FINANCIAL MEASURE

This press release contains Core Earnings, a non-GAAP financial measure. Our presentation of Core Earnings may not be comparable to similarly-titled measures of other companies, who may use different calculations. This non-GAAP measure should not be considered a substitute for, or superior to, the financial measures calculated in accordance with GAAP. Our GAAP financial results and the reconciliations from these results should be carefully evaluated.

We define Core Earnings, a non-GAAP financial measure, as Net Income/(loss) available to common stockholders excluding (i) unrealized gains/(losses) on real estate securities, loans, derivatives and other investments, realized gains/(losses) on the sale or termination of such instruments, and any OTTI, (ii) beginning with Q2 2018, as a policy change, any transaction related expenses incurred in connection with the acquisition or disposition of investments, (iii) beginning with Q3 2018, concurrent with a change in our business, any depreciation or amortization expense related to our SFR portfolio, (iv) beginning with Q3 2018, as a policy change, accrued deal related performance fees payable to Arc Home and third party operators to the extent the primary component of the accrual relates to items that are excluded from Core Earnings, such as unrealized and realized gains/(losses), (v) beginning with Q4 2018 and applied retrospectively, as a policy change, realized and unrealized changes in the fair value of Arc Home’s net mortgage servicing rights as well as realized and unrealized changes in the fair value of derivatives that are intended to offset changes in the fair value of those net mortgage servicing rights, and (vi) beginning in Q3 2019, concurrent with a change in our business, any foreign currency gains/(losses) relating to monetary assets and liabilities.

Contacts

AG Mortgage Investment Trust, Inc.
Investor Relations

(212) 692-2110

ir@agmit.com

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