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Stonegate Capital Partners Updates Coverage on Arlington Asset Investment Corp. (NYSE: AI)

DALLAS, TX / ACCESSWIRE / August 27, 2019 / Arlington Asset Investment Corp. (AI)

The full report can be accessed by clicking on the following link: http://stonegateinc.com/reports/AI%20AUG%202019.pdf


Arlington Asset Investment Corp. is an investment firm that focuses on acquiring and holding a levered portfolio of residential mortgage-backed securities (RMBS), typically consisting of agency MBS and private-label MBS. The Company acquires residential mortgage backed securities from U.S. government agency or government sponsored enterprises (GSE), such as Federal National Mortgage Association and Federal Home Loan Mortgage. Importantly, agency MBS are guaranteed as to principal and interest by the U.S. government agency or U.S. government sponsored enterprise; whereas, private label MBS or non-agency MBS and are not backed by a GSE or U.S. government. Currently, the Company’s investment capital is allocated to agency MBS. Arlington Asset Investment Corp. is headquartered in Arlington, Virginia, and has elected to be taxed as a REIT for U.S. federal tax purposes for the year ending 12/31/19. Additionally, it is an internally managed company and does not have an external investment advisor.


Arlington Asset Investment Corp. (“Arlington”) is an internally managed investment firm focused on acquiring and holding a levered portfolio of RMBS. Using its long-term investment strategy, coupled with its hedging strategy, the Company is focused on maintaining its net interest income spread return and its consistency over an extended period of time. The Company believes this focus should drive a high return on capital for investors. We note the following for Arlington:

• It has a flexible investment approach to seek highest risk-adjusted returns

• The Company invests in highly liquid assets with substantial interest rate hedges

• AI has diversified repo funding sources to enable its RMBS investment strategy

• Arlington also has access to longer-term funding sources from its equity and preferred ATMs

• As of Q219, its portfolio was substantially hedged at 78%, helping mitigate impacts from rising interest rates

• The Company has elected to operate and be taxed as a REIT for US federal tax purposes for the year ending 12/31/19; as such, distributions will be generally taxable as ordinary income, although a portion of the distributions may be designated as long-term capital gain dividends

• Reported as of 6/30/19, the Company had $14.5M net operating losses, $411.4M net capital losses, and $9.1M ATM carryforwards that should help reduce taxable income and therefore its future REIT distribution requirements

• Its internally managed investment structure provides operating leverage to the Company

• Arlington’s internally managed structure also better aligns management’s interests as compensation is based on the Company and stock performance rather than capital raising and portfolio growth

• With AI’s election for REIT status, its book value will be equivalent to its tangible book value, which was $7.80 per share for both as of 6/30/19; the Company’s deferred tax assets and liabilities were eliminated as of year-end.

We employ a comparison analysis framework on page 7 of this report for valuation. Using current comps, along with historical valuation ranges, we believe using a P/TBV multiple range of 0.80x to 1.20x is reasonable. Using this range, we arrive at a valuation range of ~$6.24 to ~$9.36 with a mid-point of ~$7.80 for AI. Also, considering current and 3-year historical trading ranges of AI and comps, we believe using a P /E multiple range of 4.0x to 8.0x is reasonable. Using this range on our FY19 EPS estimate, we arrive at a valuation range of ~$4.09 to ~$8.18 with a mid-point of ~$6.14.

About Stonegate Capital Partners

Stonegate Capital Partners is a Dallas-based corporate advisory firm dedicated to serving the specialized needs of small-cap public companies. Since our inception, our mission has been to find innovative, undervalued public companies for our network of leading institutional investors who seek high-quality investment opportunities.


Stonegate Capital Partners
Laura Engel
(972) 850-2001

SOURCE: Stonegate Capital Partners

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