AG Mortgage Investment Trust (MITT) is a residential mortgage REIT that has consistently demonstrated its ability to navigate the complex and volatile residential mortgage market. With a focus on investing in a diversified, risk-adjusted portfolio of residential mortgage-related assets, MITT has carved out a unique position in the industry, leveraging the resources and expertise of its external manager, TPG Angelo Gordon.
Company Background
AG Mortgage Investment Trust, Inc. (MITT) was incorporated in the state of Maryland on March 1, 2011, and commenced operations in July 2011. The company conducts its operations to qualify and be taxed as a real estate investment trust (REIT) under the Internal Revenue Code. MITT is an externally managed residential mortgage REIT that focuses on investing in a diversified risk-adjusted portfolio of residential mortgage-related assets in the U.S. mortgage market. The company's investment strategy centers around acquiring and securitizing newly-originated residential mortgage loans, primarily in the non-agency segment of the housing market. This approach has allowed MITT to capitalize on opportunities across different market cycles, seamlessly rotating its asset allocation to capitalize on the most attractive risk-adjusted returns.
MITT obtains its assets through Arc Home, LLC, a residential mortgage loan originator in which MITT owns an approximate 44.6% interest, as well as other third-party origination partners. This relationship has been instrumental in providing the company with a steady pipeline of investment opportunities and has contributed to its ability to maintain a diversified portfolio of residential mortgage-related assets.
Financials
MITT's financial performance over the years has been characterized by prudent risk management and strategic execution. In 2024, the company reported annual net income of $55.7 million, or $1.23 per share, and generated annual revenue of $65.9 million. The company's operating cash flow for the year reached $69.4 million, while its free cash flow stood at $69.4 million, highlighting the strength of its business model.
For the most recent quarter, MITT reported revenue of -$233.47 million, net income of $18.87 million, operating cash flow of $12.45 million, and free cash flow of $12.45 million. It's important to note that the negative revenue figure is likely due to specific accounting treatments or market fluctuations, which are common in the mortgage REIT sector.
The company's performance in 2024 was particularly strong, with MITT increasing its quarterly dividend by 5.6% and delivering an 11.7% economic return on equity for its shareholders. In the fourth quarter of 2024, MITT saw its book value increase by 0.6% from $10.58 to $10.64, while paying a $0.19 dividend and producing a 2.4% economic return on equity for the quarter.
Looking ahead, MITT has reported that its book value was flat for the month of January 2025, although it's too early to comment on February's performance. The company has identified $75 million to $100 million of equity that could be rotated or newly deployed in the coming year, based on maturing CRE positions, the rolloff of inefficient financings from the WMC acquisition, and additional equity that can be rotated.
One of the key drivers of MITT's success has been its ability to leverage the resources and expertise of its external manager, TPG Angelo Gordon. As part of the broader TPG platform, which manages over $90 billion in assets, MITT benefits from access to a deep bench of investment professionals, cutting-edge data and analytics capabilities, and a vast network of industry relationships. This advantage has allowed the company to identify and capitalize on compelling investment opportunities, even in the face of challenging market conditions.
MITT's investment portfolio is diversified across various asset classes, including non-agency loans, agency-eligible loans, home equity loans, and legacy commercial investments acquired through the acquisition of Western Asset Mortgage Capital Corporation (WMC) in 2023. As of the end of 2024, the company's investment portfolio stood at $6.7 billion, with a weighted average yield of 5.93%.
The Residential Investments segment, which is MITT's largest portfolio component, had a total fair value of $6.64 billion as of September 30, 2024. This segment includes $6.05 billion in Securitized Non-Agency Loans with a weighted average yield of 5.60%, $112.82 million in Agency-Eligible Loans with a weighted average yield of 6.76%, and $136.85 million in Home Equity Loans with a weighted average yield of 9.62%. The segment also includes $174.53 million in Securitized Re- and Non-Performing Loans with a weighted average yield of 6.10%.
In addition to the Residential Investments segment, MITT held $20.24 million in Agency RMBS with a weighted average yield of 7.95% as of September 30, 2024. The company also maintains a Legacy WMC Commercial Investments segment, which includes $66.88 million in Legacy WMC Commercial Loans with a weighted average yield of 9.63% and $52.69 million in Legacy WMC CMBS with a weighted average yield of 16.93%.
MITT finances its investments primarily through securitized debt, which is generally non-recourse and non-mark-to-market. As of September 30, 2024, the company had $5.50 billion in fair value of Securitized debt, with a weighted average cost of funds of 5.21%.
Liquidity
Liquidity and capital management have also been critical to MITT's success. The company ended 2024 with $137 million in total liquidity, consisting of $119 million in cash and $18 million in unencumbered agency RMBS. MITT's economic leverage ratio stood at 1.4 turns, reflecting its prudent approach to leverage and risk management. The company has stated that it is comfortable with its current corporate leverage ratios, which it has been managing for some time.
Strategic Acquisitions
One of the notable events in MITT's recent history was the acquisition of WMC in December 2023, which significantly expanded the company's investment portfolio and market presence. This transaction increased MITT's investment portfolio by $1.2 billion, which primarily consisted of Securitized Non-Agency Loans. The acquisition, which was facilitated by TPG Angelo Gordon's resources and expertise, has been a resounding success, contributing to MITT's strong financial performance and increasing its market capitalization by over 45%.
Challenges and Adaptability
Throughout its history, MITT has faced challenges, including navigating volatile market conditions and interest rate environments. However, the company has remained steadfast in its disciplined, programmatic securitization strategy and has been able to protect and grow its book value despite these challenges. MITT's relationship with its external manager, TPG Angelo Gordon, has been instrumental in providing the company with access, expertise, and resources to execute on its strategy effectively.
Future Outlook
Looking ahead, MITT remains well-positioned to capitalize on emerging opportunities in the residential mortgage market. The company's agility in asset allocation, combined with the support of its external manager, positions it to navigate the evolving market landscape and deliver attractive risk-adjusted returns to its shareholders.
MITT is actively monitoring the preferred market for potential opportunities. Additionally, the company's investment in Arc Home, LLC has reached a pivotal point in transitioning to profitability. MITT expects Arc Home to be a positive contributor to EAD (Economic Adjusted Distributable Earnings) going forward, after being a negative contributor in the past.
In conclusion, AG Mortgage Investment Trust has demonstrated its ability to thrive in the dynamic residential mortgage market, leveraging its differentiated strategy, prudent risk management, and the resources of its external manager, TPG Angelo Gordon. As the company continues to execute on its growth initiatives and adapt to changing market conditions, MITT is poised to remain a key player in the residential mortgage REIT space.