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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") (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

 

 

Q2 2019

 

Q3 2019

Summary of Operating Results:

 

 

 

 

GAAP Net Income/(Loss) Available to Common Stockholders

 

$

 

15.3

mm

 

$

 

6.3

mm

GAAP Net Income/(Loss) Available to Common Stockholders, per diluted common share(1)

 

$

 

0.47

 

 

$

 

0.19

 

 

 

 

 

 

Non-GAAP Results:

 

 

 

 

Core Earnings*

 

$

 

11.8

mm

 

$

 

13.0

mm

Core Earnings, per diluted common share(1)

 

$

 

0.36

 

 

$

 

0.40

 

*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)

THIRD QUARTER ACTIVITY

($ in millions)

 

Description

 

Purchased

 

(Sold/Payoff)

 

 

Net Activity

30 Year Fixed Rate

 

$

904.7

 

$

(118.1

)

 

$

786.6

 

Fixed Rate CMO

 

 

 

(40.1

)

 

 

(40.1

)

Inverse Interest Only

 

 

1.9

 

 

(5.0

)

 

 

(3.1

)

Interest Only

 

 

26.7

 

 

(31.9

)

 

 

(5.2

)

Fixed Rate 30 Year TBA

 

 

482.0

 

 

(454.4

)

 

 

27.6

 

Total Agency RMBS

 

 

1,415.3

 

 

(649.5

)

 

 

765.8

 

 

 

 

 

 

 

 

 

Prime

 

 

0.2

 

 

 

 

0.2

 

Alt-A/Subprime

 

 

14.6

 

 

(5.1

)

 

 

9.5

 

Credit Risk Transfer

 

 

13.3

 

 

(10.4

)

 

 

2.9

 

Non-U.S. RMBS

 

 

48.2

 

 

 

 

48.2

 

Re/Non-Performing Loans

 

 

200.6

 

 

(20.4

)

 

 

180.2

 

New Origination Loans

 

 

212.5

 

 

(185.1

)

 

 

27.4

 

Total Residential Investments

 

 

489.4

 

 

(221.0

)

 

 

268.4

 

 

 

 

 

 

 

 

 

CMBS

 

 

39.1

 

 

(15.5

)

 

 

23.6

 

CMBS Interest Only

 

 

 

(0.9

)

 

 

(0.9

)

Commercial Real Estate Loans

 

 

60.8

 

 

(32.8

)

 

 

28.0

 

Total Commercial Investments

 

 

99.9

 

 

(49.2

)

 

 

50.7

 

Total ABS

 

 

 

(8.1

)

 

 

(8.1

)

Total Q3 Activity

 

$

2,004.6

 

$

(927.8

)

 

$

1,076.8

 

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

 

6/30/2019

 

9/30/2019

Gross Carrying Value(a)

$

 

141.3

 

 

$

 

142.1

 

Accumulated Depreciation and Amortization(a)

 

(4.9

)

 

 

(6.0

)

Net Carrying Value(a)

$

 

136.4

 

 

$

 

136.1

 

Occupancy(b)

 

92.1

%

 

 

93.1

%

Average Square Footage(b)

 

1,455

 

 

 

1,458

 

Average Monthly Rental Income per Home(b)(c)

$

 

1,028

 

 

$

 

1,036

 

Operating Margin(11)

 

41.5

%

 

 

40.4

%

(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

KEY STATISTICS

($ in millions)

 

September 30, 2019

Investment portfolio(3) (4)

 

$

4,941.7

Financing arrangements, net(4)

 

 

3,823.0

Total Economic Leverage(6)

 

 

3,886.8

Stockholders’ equity

 

 

834.2

GAAP Leverage Ratio

 

4.6x

Economic Leverage Ratio(6)

 

4.7x

 

 

 

Yield on investment portfolio(9)

 

4.6%

Cost of funds(10)

 

2.6%

Net interest margin(5)

 

2.0%

Other operating expenses (corporate)(12)

 

1.3%

 

 

 

Book value, per share(1)

 

$

17.16

Undepreciated Book Value, per share(1)

 

$

17.34

Undistributed taxable income, per share(1) (13)

 

$

1.11

Dividend, per share(1)

 

$

0.45

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.

INVESTMENT PORTFOLIO

The following summarizes the Company’s investment portfolio as of September 30, 2019(3) (4):

($ in millions)

Amortized
Cost

 

Net
Carrying
Value

 

Percent of
Net
Carrying
Value

 

Allocated
Equity(15)

 

Percent of
Equity

 

Economic
Leverage
Ratio*(6)

Agency RMBS

$

2,900.7

 

$

2,965.7

 

60.0

%

 

$

342.5

 

41.1

%

 

7.8x

Residential Investments

 

1,294.5

 

 

1,369.8

 

27.7

%

 

 

307.4

 

36.9

%

 

2.9x

Commercial Investments

 

429.2

 

 

457.8

 

9.3

%

 

 

145.9

 

17.4

%

 

2.2x

ABS

 

12.9

 

 

12.3

 

0.2

%

 

 

3.0

 

0.4

%

 

3.1x

Single-Family Rental Properties

 

136.1

 

 

136.1

 

2.8

%

 

 

35.4

 

4.2

%

 

N/A

Total

$

4,773.4

 

$

4,941.7

 

100.0

%

 

$

834.2

 

100.0

%

 

4.7x

*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:

($ in millions)

 

 

 

 

 

 

 

 

 

 

Agency

 

Credit

 

SFR**

Maturing Within:*

 

Amount
Outstanding

 

WA Funding
Cost

 

Amount
Outstanding

 

WA Funding
Cost

 

Amount

Outstanding

 

WA Funding
Cost

Overnight

 

$

 

111.8

 

 

2.6

%

 

$

 

 

 

%

 

$

 

 

 

%

30 Days or Less

 

 

2,163.1

 

 

2.3

%

 

 

615.9

 

 

3.1

%

 

 

 

%

31-60 Days

 

 

249.0

 

 

2.6

%

 

 

199.2

 

 

3.0

%

 

 

 

%

61-90 Days

 

 

 

%

 

 

47.4

 

 

3.2

%

 

 

 

%

91-180 Days

 

 

 

%

 

 

123.6

 

 

4.7

%

 

 

 

%

Greater than 180 Days

 

 

 

%

 

 

211.0

 

 

4.3

%

 

 

102.0

 

 

4.8

%

Total / Weighted Avg

 

$

 

2,523.9

 

 

2.4

%

 

$

 

1,197.1

 

 

3.5

%

 

$

 

102.0

 

 

4.8

%

*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:

($ in millions)

 

 

 

 

 

 

 

 

Maturity

 

Notional Amount

 

WA Pay-Fixed
Rate

 

WA Receive-
Variable Rate*

 

WA Years to
Maturity

2020

 

$

 

105.0

 

 

1.5

%

 

2.3

%

 

0.5

2022

 

 

682.2

 

 

1.7

%

 

2.2

%

 

2.9

2023

 

 

5.7

 

 

3.2

%

 

2.2

%

 

4.1

2024

 

 

375.0

 

 

1.5

%

 

2.1

%

 

4.9

2026

 

 

180.0

 

 

1.5

%

 

2.1

%

 

6.9

2029

 

 

90.0

 

 

1.7

%

 

2.2

%

 

10.0

Total/Wtd Avg

 

$

 

1,437.9

 

 

1.7

%

 

2.2

%

 

4.5

* 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.

AG Mortgage Investment Trust, Inc. and Subsidiaries

Consolidated Balance Sheets (Unaudited)

(in thousands, except per share data)

 

September 30, 2019

 

December 31, 2018

Assets

 

 

 

Real estate securities, at fair value:

 

 

 

Agency - $2,676,375 and $1,934,562 pledged as collateral, respectively

$

 

2,793,950

 

 

$

 

1,988,280

 

Non-Agency - $697,160 and $605,243 pledged as collateral, respectively

 

717,879

 

 

 

625,350

 

ABS - $12,292 and $13,346 pledged as collateral, respectively

 

12,292

 

 

 

21,160

 

CMBS - $288,645 and $248,355 pledged as collateral, respectively

 

305,367

 

 

 

261,385

 

Residential mortgage loans, at fair value - $126,312 and $99,283 pledged as collateral, respectively

 

379,377

 

 

 

186,096

 

Commercial loans, at fair value - $3,233 and $- pledged as collateral, respectively

 

146,518

 

 

 

98,574

 

Single-family rental properties, net

 

136,098

 

 

 

138,678

 

Investments in debt and equity of affiliates

 

141,249

 

 

 

84,892

 

Excess mortgage servicing rights, at fair value

 

18,155

 

 

 

26,650

 

Cash and cash equivalents

 

31,468

 

 

 

31,579

 

Restricted cash

 

36,373

 

 

 

52,779

 

Other assets

 

30,183

 

 

 

33,503

 

Total Assets

$

 

4,748,909

 

 

$

 

3,548,926

 

 

 

 

 

Liabilities

 

 

 

Financing arrangements, net

$

 

3,627,002

 

 

$

 

2,822,505

 

Securitized debt, at fair value

 

229,567

 

 

 

10,858

 

Dividend payable

 

14,731

 

 

 

14,372

 

Other liabilities

 

43,436

 

 

 

45,180

 

Total Liabilities

 

3,914,736

 

 

 

2,892,915

 

Commitments and Contingencies

 

 

 

Stockholders’ Equity

 

 

 

Preferred stock - $0.01 par value; 50,000 shares authorized:

 

 

 

8.25% Series A Cumulative Redeemable Preferred Stock, 2,070 shares issued and outstanding ($51,750 aggregate liquidation preference)

 

49,921

 

 

 

49,921

 

8.00% Series B Cumulative Redeemable Preferred Stock, 4,600 shares issued and outstanding ($115,000 aggregate liquidation preference)

 

111,293

 

 

 

111,293

 

8.000% Series C Fixed-to-Floating Rate Cumulative Redeemable Preferred Stock, 4,600 shares issued and outstanding ($115,000 aggregate liquidation preference)

 

111,183

 

 

 

Common stock, par value $0.01 per share; 450,000 shares of common stock authorized

and 32,736 and 28,744 shares issued and outstanding at September 30, 2019 and December 31, 2018, respectively

 

327

 

 

 

287

 

Additional paid-in capital

 

662,009

 

 

 

595,412

 

Retained earnings/(deficit)

 

(100,560

)

 

 

(100,902

)

Total Stockholders’ Equity

 

834,173

 

 

 

656,011

 

 

 

 

 

Total Liabilities & Stockholders’ Equity

$

 

4,748,909

 

 

$

 

3,548,926

 

AG Mortgage Investment Trust, Inc. and Subsidiaries

Consolidated Statements of Operations (Unaudited)

(in thousands, except per share data)

 

Three Months Ended

 

September 30, 2019

 

September 30, 2018

Net Interest Income

 

 

 

Interest income

$

 

 

40,735

 

 

$

 

 

39,703

 

Interest expense

 

23,134

 

 

 

18,692

 

Total Net Interest Income

 

17,601

 

 

 

21,011

 

 

 

 

 

Other Income/(Loss)

 

 

 

Rental income

 

3,309

 

 

 

794

 

Net realized gain/(loss)

 

(16,132

)

 

 

(14,204

)

Net interest component of interest rate swaps

 

2,179

 

 

 

1,816

 

Unrealized gain/(loss) on real estate securities and loans, net

 

11,726

 

 

 

700

 

Unrealized gain/(loss) on derivative and other instruments, net

 

3,258

 

 

 

6,589

 

Foreign currency gain/(loss), net

 

667

 

 

 

Other income

 

243

 

 

 

1

 

Total Other Income/(Loss)

 

5,250

 

 

 

(4,304

)

 

 

 

 

Expenses

 

 

 

Management fee to affiliate

 

2,346

 

 

 

2,384

 

Other operating expenses

 

6,215

 

 

 

3,503

 

Equity based compensation to affiliate

 

76

 

 

 

66

 

Excise tax

 

186

 

 

 

375

 

Servicing fees

 

416

 

 

 

148

 

Property depreciation and amortization

 

1,013

 

 

 

494

 

Property operating expenses

 

1,986

 

 

 

320

 

Total Expenses

 

12,238

 

 

 

7,290

 

 

 

 

 

Income/(loss) before equity in earnings/(loss) from affiliates

 

10,613

 

 

 

9,417

 

 

 

 

 

Equity in earnings/(loss) from affiliates

 

(564

)

 

 

13,960

 

Net Income/(Loss)

 

10,049

 

 

 

23,377

 

 

 

 

 

Dividends on preferred stock (1)

 

3,720

 

 

 

3,367

 

 

 

 

 

Net Income/(Loss) Available to Common Stockholders

$

 

 

6,329

 

 

$

 

 

20,010

 

 

 

 

 

Earnings/(Loss) Per Share of Common Stock

 

 

 

Basic

$

 

 

0.19

 

 

$

 

 

0.70

 

Diluted

$

 

 

0.19

 

 

$

 

 

0.70

 

 

 

 

 

Weighted Average Number of Shares of Common Stock Outstanding

 

 

 

Basic

 

32,736

 

 

 

28,422

 

Diluted

 

32,748

 

 

 

28,438

 

(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. Items (i) through (vi) above include any amounts related to those items held in affiliated entities. Management considers the transaction related expenses referenced in (ii) above to be similar to realized losses incurred at acquisition or disposition and does not view them as being part of its core operations. Management views the exclusion described in (v) above to be consistent with how it calculates Core Earnings on the remainder of its portfolio. As defined, Core Earnings include the net interest income and other income earned on our investments on a yield adjusted basis, including TBA dollar roll income or any other investment activity that may earn or pay net interest or its economic equivalent. One of our objectives is to generate net income from net interest margin on the portfolio, and management uses Core Earnings to help measure this objective. Management believes that this non-GAAP measure, when considered with its GAAP financials, provides supplemental information useful for investors as it enables them to evaluate our current core performance using the same measure that management uses to operate the business. This metric, in conjunction with related GAAP measures, provides greater transparency into the information used by our management team in its financial and operational decision-making.

A reconciliation of GAAP Net Income/(loss) available to common stockholders to Core Earnings for the three months ended September 30, 2019 and September 30, 2018 is set forth below (in thousands, except per share data):

 

 

Three Months Ended

 

 

September 30, 2019

 

September 30, 2018

Net Income/(loss) available to common stockholders

 

$

 

6,329

 

 

$

 

20,010

 

Add (Deduct):

 

 

 

 

Net realized (gain)/loss

 

 

16,132

 

 

 

14,204

 

Unrealized (gain)/loss on real estate securities and loans, net

 

 

(11,726

)

 

 

(700

)

Unrealized (gain)/loss on derivative and other instruments, net

 

 

(3,258

)

 

 

(6,589

)

Property depreciation and amortization

 

 

1,013

 

 

 

494

 

Transaction related expenses and deal related performance fees

 

 

2,874

 

 

 

216

 

Equity in (earnings)/loss from affiliates

 

 

564

 

 

 

(13,960

)

Net interest income and expenses from equity method investments (a)

 

 

1,641

 

 

 

1,597

 

Foreign currency (gain)/loss, net

 

 

(667

)

 

 

Dollar roll income

 

 

138

 

 

 

453

 

Other Income

 

 

(37

)

 

 

Core Earnings (b)

 

$

 

13,003

 

 

$

 

15,725

 

 

 

 

 

 

Core Earnings, per Diluted Share (b)

 

$

 

0.40

 

 

$

 

0.56

 

(a) For the three months ended September 30, 2019 and September 30, 2018, $(2.8) million or $(0.09) per diluted share and $1.0 million or $0.03 per diluted share, respectively, of realized and unrealized changes in the fair value of Arc Home's net mortgage servicing rights and corresponding derivatives were excluded from Core earnings per diluted share as a result of our modification to the definition and calculation of Core Earnings in Q4 2018.

(b) The three months ended September 30, 2019 and September 30, 2018 include cumulative retrospective adjustments of $(0.6) million or $(0.02) per diluted share and $0.2 million or $0.01 per diluted share, respectively, on the premium amortization for investments accounted for under ASC 320-10.

Footnotes

(1) Diluted per share figures are calculated using weighted average outstanding shares in accordance with GAAP. Per share figures are calculated using a denominator of all outstanding common shares including vested shares granted to our Manager and our independent directors under our equity incentive plans as of quarter-end. Book value uses stockholders’ equity less net proceeds of the Company’s 8.25% Series A Cumulative Redeemable Preferred Stock, the 8.00% Series B Cumulative Redeemable Preferred Stock, and the 8.000% Series C Fixed-to-Floating Rate Cumulative Redeemable Preferred Stock as the numerator. Undepreciated book value per share is a non-GAAP book value metric which adds accumulated depreciation and amortization back to book value to present an adjusted book value that incorporates the Company's single-family rental property portfolio at its undepreciated basis. This metric allows management to consider the investment portfolio exclusive of non-cash adjustments and facilitates the comparison of our financial performance to peer REITs. Book value and Undepreciated book value include the current quarter dividend.

(2) The economic return on equity for the quarter represents the change in undepreciated book value per share from June 30, 2019 to September 30, 2019, plus the common dividends declared over that period, divided by undepreciated book value per share as of June 30, 2019. The annualized economic return on equity is the quarterly return on equity multiplied by four.

(3) The investment portfolio at period end is calculated by summing the net carrying value of our Agency RMBS, any long positions in TBAs, Residential Investments, Commercial Investments, ABS Investments, and our SFR portfolio, including securities and mortgage loans owned through investments in affiliates, exclusive of AG Arc LLC. Our Agency RMBS, Residential Investments, Commercial Investments, and ABS Investments are held at fair market value and our SFR portfolio is held at purchase price plus capitalized expenses less accumulated depreciation and amortization and any adjustments related to impairment. Our Credit Investments refer to our Residential Investments, Commercial Investments and ABS Investments. Refer to footnote (4) for more information on the GAAP accounting for certain items included in our investment portfolio. See footnote (14) for further details on AG Arc LLC.

(4) Generally, when we purchase an investment and finance it, the investment is included in our assets and the financing is reflected in our liabilities on our consolidated balance sheet as either “Financing arrangements, net” or “Securitized debt, at fair value.” Throughout this press release where we disclose our investment portfolio and the related financing, we have presented this information inclusive of (i) securities and mortgage loans owned through investments in affiliates that are accounted for under GAAP using the equity method and (ii) long positions in TBAs, which are accounted for as derivatives under GAAP. This press release excludes investments through AG Arc LLC unless otherwise noted. This presentation of our investment portfolio is consistent with how our management evaluates the business, and we believe this presentation, when considered with the GAAP presentation, provides supplemental information useful for investors in evaluating our investment portfolio and financial condition. See footnote (14) for further details on AG Arc LLC.

(5) Net interest margin is calculated by subtracting the weighted average cost of funds from the weighted average yield for the Company’s investment portfolio, which excludes cash held by the Company. See footnotes (9) and (10) for further detail. Net interest margin also excludes any net TBA position.

(6) The Economic Leverage Ratio is calculated by dividing total Economic Leverage, including any net TBA position, by our GAAP stockholders’ equity at quarter-end. Total Economic Leverage at quarter-end includes financing arrangements inclusive of financing arrangements through affiliated entities, exclusive of any financing utilized through AG Arc LLC, plus the payable on all unsettled buys less the financing on all unsettled sells and any net TBA position (at cost). Total Economic Leverage excludes any non-recourse financing arrangements and any financing arrangements and unsettled trades on U.S. Treasuries. Non-recourse financing arrangements include securitized debt and the term loan on our SFR portfolio. Historically, we reported non-GAAP "At-Risk" leverage, which included non-recourse financing arrangements, but we believe that the adjustments made to our GAAP leverage in order to compute Economic Leverage, including the exclusion of non-recourse financing arrangements, allow investors the ability to identify and track the leverage metric that management uses to evaluate and operate the business. Our obligation to repay our non-recourse financing arrangements is limited to the value of the pledged collateral thereunder and does not create a general claim against us as an entity.

(7) This represents the weighted average monthly CPRs published during the quarter for our in-place portfolio during the same period. Any net TBA position is excluded from the CPR calculation.

(8) The Company estimates duration based on third-party models. Different models and methodologies can produce different effective duration estimates for the same securities. Duration does not include our equity interest in AG Arc LLC or our investment in SFR.

(9) The yield on our debt investments represents an effective interest rate, which utilizes all estimates of future cash flows and adjusts for actual prepayment and cash flow activity as of quarter-end. The yield on our SFR portfolio represents annualized net operating income for the quarter divided by its carrying value, gross of accumulated depreciation and amortization. Net operating income on our SFR portfolio is comprised of rental income and other SFR related income less property operating expenses. Our calculation excludes cash held by the Company and excludes any net TBA position. The calculation of weighted average yield is weighted based on net carrying value.

(10) The cost of funds at quarter-end is calculated as the sum of (i) the weighted average funding costs on recourse financing arrangements outstanding at quarter-end, (ii) the weighted average funding costs on non-recourse financing arrangements, and (iii) the weighted average of the net pay rate on our interest rate swaps, the net receive rate on our Treasury long positions, the net pay rate on our Treasury short positions and the net receivable rate on our IO index derivatives, if any. The cost of funds at quarter-end are weighted by the outstanding financing arrangements at quarter-end, including any non-recourse financing arrangements and excluding financing arrangements associated with U.S. Treasury positions. The cost of funds excludes any net TBA position.

(11) Operating margin on our SFR portfolio is calculated as net operating income divided by revenues from our SFR portfolio adjusted for rent write-offs taken in the relevant quarter. Net operating income on our SFR portfolio is comprised of rental income and other SFR related income less property operating expenses.

(12) The other operating expenses (corporate) percentage at quarter-end is calculated by annualizing other operating expenses (corporate) recorded during the quarter and dividing by quarter-end stockholders’ equity.

(13) This estimate of undistributed taxable income per share represents the total estimated undistributed taxable income as of quarter-end. Undistributed taxable income is based on current estimates and projections. As a result, the actual amount is not finalized until we file our annual tax return, typically in October of the following year.

(14) The Company invests in Arc Home LLC through AG Arc LLC, one of its indirect subsidiaries.

(15) The Company allocates its equity by investment using the fair market value of our investment portfolio, less any associated leverage, inclusive of any long TBA position (at cost). The Company allocates all non-investment portfolio related items based on their respective characteristics, beginning by allocating those items within the Securities and Loans Segment and Single-Family Rental Properties Segment and then allocating Corporate between the Securities and Loans Segment and Single-Family Rental Properties Segment in order to sum to stockholders’ equity per the consolidated balance sheets. The Company's equity allocation method is a non-GAAP methodology and may not be comparable to the similarly titled measure or concepts of other companies, who may use different calculations and allocation methodologies.

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