AG Mortgage Investment Trust (NYSE:MITT), referred to as TPG Mortgage Investment Trust during its earnings call, reported a third-quarter decline in book value as higher interest rates and wider credit spreads weighed on its mortgage investments. Earnings available for distribution also fell short of the company’s dividend.
Book value declined 7.3% to $9.27 per share from $10 at the end of the prior quarter. Chief Executive Officer and President TJ Durkin said the entire decline occurred in September, when inflation concerns pressured mortgage markets. Including the $0.24 per-share common dividend, the company posted an economic return of negative 4.9% for the quarter.
The company reported a net loss available to common shareholders of approximately $15.7 million, or $0.49 per share. Chief Financial Officer Anthony Rossiello attributed the loss to unrealized mark-to-market losses across the investment portfolio as rates rose and spreads widened.
Earnings available for distribution, or EAD, were $0.21 per share, below the $0.24 dividend. Durkin said the result reflected a roughly break-even contribution from mortgage originator Arc Home, where September volatility erased profits from July and August.
Home Equity Remains Investment Priority
Despite the market volatility, management continued to direct capital toward residential credit, particularly home equity loans. Rossiello said the company acquired $317 million of home equity loans during the quarter and sponsored three home equity securitizations.
Chief Investment Officer Nick Smith said the company issued approximately $1.25 billion across the three securitizations. Economic leverage rose modestly to approximately 2 times from 1.8 times, which he described as within the company’s operating range.
Rossiello said the company consolidated one transaction backed by $327 million of home equity lines of credit. In two other transactions backed by $895 million of closed-end second liens, it retained $46 million of non-agency residential mortgage-backed securities without assuming the associated warehouse financing risk.
The investment portfolio totaled approximately $7.6 billion at quarter-end, with home equity representing 37% of the company’s equity allocation. The company also reported approximately $85 million of liquidity, consisting of $57 million in cash and $28 million of committed financing available on residential mortgage loans.
Smith said higher mortgage rates strengthen the case for home equity borrowing because many homeowners can retain low-rate first mortgages rather than refinance them at higher rates. He said the company has invested less in non-qualified mortgages because it sees better relative value in home equity.
Arc Home and Legacy Loan Sales
Arc Home originated approximately $1 billion during the quarter, up about 19% from a year earlier. Smith said its earnings trajectory in the first two months had been on track for a contribution of approximately $0.02 to $0.03 per share before September’s reversal. He said it was too early to assess how the fourth quarter would unfold.
The company is also working to resolve legacy commercial loans and redeploy the capital into residential investments. Durkin said a buyer’s deposit for one hospitality asset became nonrefundable after quarter-end, with a closing expected by year-end. A buyer has also been selected for a retail asset, he said.
Rossiello said resolving the non-accrual commercial loans could free approximately $28 million of capital. Durkin estimated that redeploying capital from the legacy positions could contribute $0.15 to $0.20 of incremental annual EAD in 2027, depending on the timing of the resolutions. He said the sales are expected to be staggered and that proceeds remain consistent with current carrying values.
Cherry Hill Merger Progress
Durkin said the company filed a joint proxy statement and prospectus for its potential merger with Cherry Hill in October, with stockholder meetings for both companies planned for December.
The company incurred approximately $2 million in transaction-related expenses associated with the acquisition during the quarter, reducing book value by approximately 0.6%, Rossiello said. Asked how the combined company might allocate Cherry Hill’s assets after closing, Durkin said management was focused on completing the deal before considering portfolio rotation.
Rossiello said the company did not have a quarter-to-date book value update. On dividend coverage, Durkin did not provide a fourth-quarter forecast, saying the outcome would depend in part on how the mortgage banking environment develops after recent volatility.
About AG Mortgage Investment Trust (NYSE:MITT)
AG Mortgage Investment Trust, Inc is a real estate investment trust that invests primarily in residential mortgage-related assets. The company seeks to generate income through a portfolio that may include agency and non-agency residential mortgage-backed securities, residential mortgage loans, mortgage servicing rights and other housing-related investments.
AG Mortgage Investment Trust’s investment activities are focused mainly on the U.S. residential mortgage market. Its portfolio may include loans and securities backed by a range of residential properties and borrowers, providing exposure to different segments of the housing and mortgage finance sectors.
Founded in 2011, the company is externally managed by AG REIT Management, LLC, an affiliate of Angelo Gordon, an alternative investment firm.
