Business context and reporting period
The supplied filing is AG Mortgage Investment Trust, Inc. (NYSE: MITT), a hybrid mortgage REIT externally managed by AG REIT Management and Angelo Gordon. This does not match the request metadata naming TPG Mortgage Investment Trust, Inc.; verify the issuer identity. The unaudited Form 10-Q covers the quarter and nine months ended September 30, 2019. Its segments are Securities and Loans and Single-Family Rental Properties.
Key financial results and position
Unless noted otherwise, amounts are in millions of dollars.
| Metric | Q3 2019 / Sep. 30, 2019 | Comparable period / prior year-end |
|---|---|---|
| Interest income | $40.7 | $39.7 in Q3 2018 |
| Interest expense | $23.1 | $18.7 in Q3 2018 |
| Net interest income | $17.6 | $21.0 in Q3 2018 |
| Net income | $10.0 | $23.4 in Q3 2018 |
| Net income available to common stockholders | $6.3; diluted EPS $0.19 | $20.0; diluted EPS $0.70 in Q3 2018 |
| Nine-month net income / common income | $57.9 / $47.4; diluted EPS $1.48 | $39.8 / $29.7; diluted EPS $1.05 in 2018 |
| Total assets / stockholders’ equity | $4,748.9 / $834.2 | $3,548.9 / $656.0 at Dec. 31, 2018 |
| Financing arrangements / securitized debt | $3,627.0 / $229.6 | Financing arrangements $2,822.5 at Dec. 31, 2018 |
| Cash and cash equivalents / restricted cash | $31.5 / $36.4 | $31.6 / $52.8 at Dec. 31, 2018 |
- Quarter-end available liquidity was $147.1, comprising $31.5 of cash and $115.6 of unpledged Agency fixed-rate securities and CMOs. Restricted cash is not available for general corporate purposes.
- Nine-month cash flow: operating activities provided $33.8; investing activities used $1,198.1; financing activities provided $1,147.7. Cash, cash equivalents and restricted cash declined $16.6 to $67.8.
- Economic leverage was 4.7x, compared with 4.4x at year-end 2018; GAAP leverage was 4.6x versus 4.3x. The reported investment-portfolio net interest margin was 2.00%, down from 2.49% at September 2018; GAAP portfolio margin was 1.96%, versus 2.47%.
- Book value per common share was $17.16, versus $17.21 at Dec. 31, 2018 and $19.16 at Sep. 30, 2018.
- Common dividends declared during the first nine months totaled $1.45 per share; the Q3 declaration was $0.45. The filing estimates undistributed taxable income of about $1.11 per share, subject to final tax calculations.
Material changes versus comparable periods
- Q3 net interest income fell $3.4, as interest expense rose $4.4 while interest income increased only $1.0. Management attributed the higher expense to increased average financing rates and balances. For the nine months, net interest income fell $12.4.
- Q3 common earnings declined $13.7 year over year, including a $14.5 adverse swing in equity earnings from affiliates. Nine-month common earnings rose $17.7, supported by $101.6 of unrealized gains on securities and loans versus $36.0 of unrealized losses in 2018; derivative and other instrument results moved to a $17.7 loss from a $48.5 gain.
- Core Earnings, a company-defined non-GAAP measure, were $13.0 ($0.40 per diluted share) in Q3, down from $15.7 ($0.56) in Q3 2018. Nine-month Core Earnings were $38.4 ($1.20 per diluted share), versus $45.6 ($1.61).
- The portfolio expanded: total assets increased $1.2 billion from year-end, including higher Agency RMBS and residential loan balances. Common and preferred stock offerings generated net proceeds of approximately $57.4 and $111.2, respectively; the company issued 3.45 million common shares and 4.6 million Series C preferred shares.
- Agency RMBS CPR rose to 9.8% from 4.4% at year-end 2018. SFR occupancy increased to 93.1% from 87.9% at year-end; the portfolio comprised 1,222 stabilized properties at quarter-end.
Outlook, risks, contingencies and unusual items
- No specific earnings or return guidance is provided. Management said current liquidity, financing access and capital proceeds were expected to meet anticipated liquidity needs, including investment activity, distributions and expenses. The filing cautions that actual results may differ materially from forward-looking statements.
- Management described tighter spreads in many mortgage sectors during Q3, but Agency MBS spread widening, prepayment uncertainty, elevated supply and funding pressures. It cited global trade and Brexit uncertainty and a Federal Reserve rate cut in September. These conditions could affect asset values, funding costs and investment strategy.
- Interest-rate risk is material: a modeled instantaneous +75 basis-point move would reduce estimated GAAP equity fair value by 4.7% and projected net interest income by 8.3%; a −75 basis-point move was modeled to increase them by 1.7% and 6.7%, respectively. These are estimates based on assumptions, not forecasts.
- Most financing is short-term repurchase funding, typically rolling within 30–90 days. Falling collateral values, higher haircuts, margin calls, inability to renew financing, counterparty concentration and derivative collateral requirements could pressure liquidity. The company reported meeting all margin calls through quarter-end.
- Fair values for loans and many credit assets rely on Level 3 inputs and management estimates, including prepayments, defaults and loss severities. The company recorded nine-month OTTI charges of $14.2 on securities, $0.1 on residential loans and $2.6 on Excess MSRs.
- In August, the company securitized residential loans through a consolidated VIE, recording $221.6 of securitized debt; the debt has no recourse to the company’s general credit. At quarter-end, unfunded commitments totaled $104.4, including commercial loan and affiliate commitments. A further $12.4 revolving-loan funding commitment was entered into after quarter-end and remained unfunded at filing.
- After quarter-end, the company signed an agreement to sell its SFR portfolio for approximately $137. The filing does not report a completed sale or final proceeds. No material legal proceedings were reported. Disclosure controls were deemed effective, with no material change in internal control reported.
Important facts for investors to verify
- Confirm that this AG Mortgage Investment Trust filing—not a TPG Mortgage Investment Trust filing—is the intended issuer and reporting period.
- Check completion, final proceeds and any gain or loss on the announced SFR sale, along with the treatment of its related term debt.
- Assess refinancing and collateral risk across the $3.6 billion of financing arrangements, the short repo maturities, 4.7x economic leverage and $147.1 of reported available liquidity.
- Compare recurring earnings and cash generation with the $0.45 Q3 common dividend; distinguish GAAP results from Core Earnings and fair-value-driven gains and losses.
- Review the assumptions behind Level 3 valuations, credit impairment charges, unfunded commitments and the interest-rate sensitivity estimates.