Business context and reporting period
The filing is an unaudited Form 10-Q for the quarter ended September 30, 2018, with comparisons to the three and nine months ended September 30, 2017. The filing identifies the registrant as AG Mortgage Investment Trust, Inc. (NYSE: MITT), an externally managed REIT investing in Agency and non-Agency mortgage securities, loans, mortgage servicing rights, commercial real estate assets, and single-family rentals. This differs from the company name in the request metadata.
Key financial metrics
| Metric | Q3 2018 / September 30, 2018 | Comparable period or prior balance |
|---|---|---|
| Interest income / expense / net interest income | $39.7m / $18.7m / $21.0m | Q3 2017: $33.6m / $12.0m / $21.6m |
| Net income available to common stockholders; diluted EPS | $20.0m; $0.70 | Q3 2017: $32.6m; $1.17 |
| Nine-month net income available to common stockholders; diluted EPS | $29.7m; $1.05 | Nine months 2017: $84.2m; $3.03 |
| Core earnings, a non-GAAP measure | Q3: $16.7m, or $0.59 per diluted share; nine months: $48.7m, or $1.72 per share | 2017: Q3 $14.3m, or $0.51 per share; nine months $38.7m, or $1.39 per share |
| Total assets / stockholders’ equity | $3.895bn / $711.9m | December 31, 2017: $3.789bn / $714.3m |
| Financing arrangements, net; leverage | $2.913bn; GAAP leverage 4.0x and non-GAAP “at-risk” leverage 4.3x | December 31, 2017: $3.004bn; 4.2x and 4.4x, respectively |
| Net interest margin | Investment portfolio: 2.49%; GAAP investment portfolio: 2.47% | September 30, 2017: 2.57% and 2.37%, respectively |
| Cash and liquidity | $30.3m cash and cash equivalents; $45.9m restricted cash; management reported $121.1m available liquidity, including $90.8m of unpledged Agency securities | Cash, cash equivalents and restricted cash totaled $76.3m at quarter-end, versus $102.6m at September 30, 2017 |
| Cash flows, nine months | Operating +$57.1m; investing +$30.8m; financing −$64.4m | 2017: operating +$43.7m; investing −$770.1m; financing +$750.0m |
| Book value per common share | $19.16 | $19.62 at December 31, 2017; $19.35 at September 30, 2017 |
Material changes versus prior periods
- Q3 common earnings fell by $12.6m year over year; nine-month common earnings fell by $54.5m. Management attributed the decline mainly to weaker realized and unrealized results on securities, partly offset by gains on derivatives and higher affiliate earnings.
- For the nine months, net realized loss was $37.1m versus a $12.5m loss in 2017; unrealized losses on real estate securities and loans were $36.0m versus $53.2m of unrealized gains. Unrealized gains on derivatives and other instruments were $48.5m versus $4.2m.
- Interest income rose, but higher funding costs absorbed the increase: nine-month interest expense increased to $50.3m from $30.3m. Management cited higher financing rates and larger average financing balances.
- The company acquired 1,225 single-family rental homes in September for approximately $140.1m, financed with a $103m, five-year fixed-rate loan at 4.625%. The new portfolio generated $0.8m of rental income during the quarter; reported occupancy was 89.3% at quarter-end.
- Real estate securities fair value declined to $3.070bn from $3.513bn at year-end, while residential mortgage loans increased to $87.6m from $18.9m and Excess MSRs to $28.6m from $5.1m.
Outlook, risks, contingencies and unusual items
- No formal earnings or dividend guidance is provided. Management said available liquidity, operating cash flow and borrowing capacity were expected to cover anticipated liquidity requirements. Common dividends remain subject to board authorization; the declared Q3 dividend was $0.50 per share, payable October 31, 2018.
- Management described credit-sector spread tightening as supportive of book value, partly offset by wider Agency RMBS spreads as benchmark rates rose. The Federal Reserve raised its target range to 2.00%–2.25% in September 2018.
- Interest-rate sensitivity estimates showed that a parallel +50 basis-point shock could reduce market value by 2.9% of GAAP equity and projected net interest income by 2.1%; estimates are model-based and actual outcomes may differ.
- Key risks include short-term repo refinancing and margin calls, rising funding costs, interest-rate and spread volatility, prepayment and credit risk, and fair-value estimation uncertainty. Most repurchase financing matures within 30 days; the filing reports that the company had met all margin-call requirements at quarter-end.
- The company recorded $5.0m of securities impairment charges in Q3 and $6.7m for the nine months. It reported no residential-loan impairment for 2018. Certain remaining unrealized security losses were attributed to market conditions rather than credit deterioration, according to management.
- Unfunded commitments included $59.6m on a commercial loan, $18.9m for the MATT investment, $4.2m on a mezzanine loan and $2.0m on a variable funding note. A separate $20.0m commercial-loan commitment remained conditional and had not closed.
- The filing reports no litigation believed likely to have a material adverse effect and no defaults upon senior securities. Disclosure controls were assessed as effective, excluding the recently acquired rental portfolio, which the company was still incorporating into its control assessment.
Important facts for investors to verify
- Confirm the registrant’s identity: the filing is for AG Mortgage Investment Trust, Inc., whereas the request metadata names TPG Mortgage Investment Trust, Inc.
- Review the composition and valuation of the portfolio, particularly Level 3 assets, credit exposures and reported fair-value changes; compare GAAP earnings with management’s non-GAAP core earnings.
- Assess repo maturity concentration, collateral haircuts, margin-call capacity and the effect of further rate increases or spread widening on liquidity and book value.
- Evaluate the rental portfolio’s occupancy, rental economics, operating costs and integration risks, along with the company’s plans for the outstanding commitments.
- Check the sustainability of common distributions against taxable income, cash availability, financing costs and the REIT distribution requirements.