Business Overview and History

AG Mortgage Investment Trust (MITT) has undergone a remarkable transformation in recent years, evolving from a traditional residential mortgage REIT into a diversified investment platform focused on the dynamic U.S. mortgage market. With a strategic shift towards acquiring and securitizing newly-originated non-agency residential mortgage loans, the company has established itself as a key player in the non-agency segment, leveraging its vertically integrated origination platform to access attractive investment opportunities.

AG Mortgage Investment Trust was incorporated in Maryland on March 1, 2011, and commenced operations in July of that year. The company was initially focused on investing in a diversified portfolio of residential mortgage-related assets, including Agency RMBS, non-Agency RMBS, and residential mortgage loans. Over the years, the company has strategically pivoted its investment strategy, placing a greater emphasis on the non-agency residential mortgage loan market.

From its early years, MITT established itself as an active acquirer and securitizer of newly-originated residential mortgage loans, particularly within the non-agency segment of the housing market. The company obtains these loans through its own mortgage originator, Arc Home, LLC, in which it owns an approximate 44.6% interest, as well as through other third-party originators.

In 2020, MITT faced significant challenges due to the COVID-19 pandemic, which caused substantial market disruptions and volatility. The company experienced significant declines in the value of its assets, leading to margin calls from its financing counterparties that resulted in the company having to sell assets at distressed prices. Despite these difficulties, MITT was able to work with its lenders to resolve the margin calls and defaults, though the size of its investment portfolio and market capitalization decreased significantly as a result.

In December 2023, AG Mortgage Investment Trust made a transformative move by acquiring Western Asset Mortgage Capital Corporation (WMC), an externally managed mortgage REIT that specialized in residential mortgage loans, real estate securities, and commercial real estate loans. This acquisition significantly expanded the company's investment portfolio, adding $1.2 billion in assets, primarily comprised of securitized non-agency loans. To facilitate the transaction, MITT issued additional common stock and worked with its manager to amend the management agreement, including a temporary reduction in the base management fee.

Today, AG Mortgage Investment Trust's asset portfolio is primarily focused on Residential Investments, which include newly originated non-agency loans, agency-eligible loans, and home equity loans. The company also maintains a position in Agency RMBS and Legacy WMC Commercial Investments, which it acquired through the WMC acquisition and expects to hold until maturity or opportunistically exit.

The company's investment strategy is centered on acquiring and securitizing newly-originated residential mortgage loans, leveraging its ownership interest in Arc Home, a vertically integrated mortgage origination platform, as well as partnerships with other third-party originators. By utilizing TPG Angelo Gordon's proprietary securitization platform, AG Mortgage Investment Trust is able to obtain long-term, non-recourse, non-mark-to-market financing for its loan portfolio as market conditions permit.

Throughout its history, MITT has maintained its status as a REIT, aiming to distribute at least 90% of its taxable income to shareholders. The company has also navigated the complex regulatory environment governing mortgage REITs, ensuring compliance with the Investment Company Act and other applicable laws and regulations.

Financial Snapshot

As of December 31, 2024, AG Mortgage Investment Trust reported total assets of $6.91 billion, with a significant portion comprising its Residential Investments portfolio, which stood at $6.42 billion. The company's GAAP leverage ratio was 11.0x, while its economic leverage ratio was 10.4x, reflecting its strategic use of leverage to enhance returns.

For the fiscal year ended December 31, 2024, the company reported net income available to common stockholders of $36.38 million, or $1.23 per diluted share. The company's annual revenue, operating cash flow, and free cash flow figures were not available in the provided data.

Quarterly Performance and Outlook

In the fourth quarter of 2024, AG Mortgage Investment Trust's net income available to common stockholders was $9.10 million, or $0.31 per diluted share. This represents a decrease from the $10.25 million, or $0.35 per diluted share, reported in the third quarter of 2024. The company's revenue for Q4 2024 was $14.95 million, with a net income of $16.64 million. Quarterly operating cash flow and free cash flow figures were not provided.

Looking ahead, the company has not provided specific financial guidance for the upcoming fiscal year. However, management has highlighted the continued challenges posed by sustained inflation, elevated mortgage rates, and the Federal Reserve's monetary policy actions, which may impact the credit risk of the company's credit-sensitive assets.

Investment Portfolio

AG Mortgage Investment Trust's investment portfolio is well-diversified, with a primary focus on residential mortgage-related assets. The company's segments include:

1. Residential Investments: This is the company's primary focus, accounting for the majority of its investment portfolio. As of December 31, 2024, this segment had a weighted average yield of 5.89% and an economic leverage ratio of 1.5x. It includes:

• Non-Agency Loans: These include Qualified Mortgage (QM) Loans and Non-Qualified Mortgage (Non-QM) Loans. - Agency-Eligible Loans: Loans underwritten in accordance with GSE guidelines, primarily secured by investment properties. - Home Equity Loans: Revolving lines of credit or closed-end loans secured primarily by a second lien on residential mortgaged properties. - Re- and Non-Performing Loans: Performing, re-performing, and non-performing residential mortgage loans collateralized by first lien mortgaged properties.

2. Agency RMBS: This segment includes interests in pools of residential mortgage loans guaranteed by GSEs. As of December 31, 2024, it had a fair value of $21.00 million and a weighted average yield of 10.35%.

3. Legacy WMC Commercial Investments: Acquired through the WMC acquisition, this segment had a fair value of $119.79 million and a weighted average yield of 13.19% as of December 31, 2024. The company plans to either hold these investments until maturity or opportunistically exit them.

The overall investment portfolio had a weighted average yield of 6.03% and an economic leverage ratio of 1.4x as of December 31, 2024.

Liquidity and Capital Structure

As of December 31, 2024, AG Mortgage Investment Trust reported $118.66 million in cash and cash equivalents. The company's current ratio and quick ratio both stood at 1.073, indicating adequate short-term liquidity. While the exact debt-to-equity ratio was not provided, the company disclosed that it has a material amount of corporate indebtedness.

The company relies on short-term financing arrangements, such as repurchase agreements, to fund its operations and investments. This approach exposes MITT to potential liquidity risks, including margin calls and the need to renew or replace maturing financing.

Risks and Challenges

AG Mortgage Investment Trust faces several key risks and challenges, including:

1. Interest Rate Risk: The company's investment portfolio and financing arrangements are susceptible to interest rate fluctuations, which can significantly impact the fair value of its assets and the cost of its borrowings.

2. Credit Risk: The company's investments in non-agency residential mortgage loans, including non-QM loans, expose it to credit risk, which could lead to increased delinquencies, defaults, and losses.

3. Liquidity Risk: The company's reliance on short-term financing arrangements, such as repurchase agreements, subjects it to the risk of margin calls and the potential inability to renew or replace maturing financing.

4. Regulatory and Legal Risks: The company's investments in non-agency residential mortgage loans are subject to various federal and state laws and regulations, which could expose it to monetary penalties, litigation, and other legal risks.

5. Competitive Landscape: AG Mortgage Investment Trust operates in a highly competitive market, where it faces competition from other mortgage REITs, specialty finance companies, and large commercial banks, which may have greater resources and access to capital.

Conclusion

AG Mortgage Investment Trust has navigated a transformative landscape in the residential mortgage market, evolving its investment strategy to focus on the non-agency segment. The company's acquisition of WMC has significantly expanded its investment portfolio and diversified its asset base. However, the company continues to face various risks and challenges, including interest rate volatility, credit risk, and regulatory uncertainties. As the company navigates this dynamic environment, its ability to generate attractive risk-adjusted returns for its shareholders will be crucial to its long-term success.