MITT AG Mortgage Investment Trust Inc

AG Mortgage Investment Trust, Inc. ("MITT," "we," the “Company” or "our") (NYSE: MITT) today reported financial results for the quarter-ended June 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.

SECOND QUARTER 2019 FINANCIAL HIGHLIGHTS

• $0.47 of Net Income/(Loss) per diluted common share(1)
• $0.36 of Core Earnings per diluted common share(1)
  • Includes $(0.04) retrospective adjustment
• Decrease in Core Earnings from last quarter primarily due to the flattening of the yield curve and a change in prepayment expectations
• 2.9% economic return on equity for the quarter, 11.6% annualized(2)
• $17.42 Book value per share(1) as of June 30, 2019
• $17.57 Undepreciated Book Value per share(1) as of June 30, 2019 versus $17.56 as of March 31, 2019
  • Undepreciated Book Value increased $0.01 or 0.1% from the prior quarter primarily due to:
    • $0.01 or 0.1% due to our investments in Agency RMBS, Residential Loans(a) and associated derivatives
      • Agency RMBS spreads widened versus benchmarks as the interest rate rally resulted in elevated gross supply, prepayment uncertainty and increased implied volatility offset by short-duration non-performing and re-performing loan spreads tightening during the quarter
    • $0.13 or 0.7% due to our Credit Investments excluding Residential Loans(a)
      • CRT and Legacy RMBS spreads tightened during the quarter, while CMBS spreads remained relatively unchanged despite some volatility in AAA rated securities
    • $(0.13)(b) or (0.7)% due to core earnings below the $0.50 dividend

(a)

Residential Loans includes Re/Non-Performing Loans and New Origination Loans

(b)

Includes $0.01 or 0.1% due to equity based compensation

 

 

Q1 2019

 

Q2 2019

Summary of Operating Results:

 

 

 

 

GAAP Net Income/(Loss) Available to Common Stockholders

 

$

 

25.8

mm

 

$

 

15.3

mm

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

 

$

 

0.84

 

 

$

 

0.47

 

 

 

 

 

 

Non-GAAP Results:

 

 

 

 

Core Earnings*

 

$

 

13.6

mm

 

$

 

11.8

mm

Core Earnings, per diluted common share(1)

 

$

 

0.45

 

 

$

 

0.36

 

*A reconciliation of net income/(loss) per diluted common share to core earnings per diluted common share for the three months ended June 30, 2019, along with an explanation of this non-GAAP financial measure, is provided at the end of this press release.

MANAGEMENT REMARKS

"MITT's undepreciated book value was relatively flat quarter over quarter, increasing by one cent to $17.57," said Chief Executive Officer, David Roberts. "While our core earnings during the quarter were less than our $0.50 dividend, that shortfall was made up by an increase in the value of our credit investments."

"Our core earnings decreased from the prior quarter by $0.09 to $0.36 per share, after a $0.04 negative retrospective adjustment. Asset yields decreased in the quarter while our funding costs remained sticky," Mr. Roberts continued.

Mr. Roberts added, "We anticipate that our Board will adjust our quarterly common dividend to $0.45 per share for the third quarter of 2019, subject to any changes in our outlook at that time. We believe that this level of dividend better reflects the modeled earnings power of our targeted asset portfolio, anticipated leverage, and projected funding costs in the current market environment."

"The mortgage-backed sector performed well during the second quarter," said Chief Investment Officer, T.J. Durkin. "The credit risk transfer market extended its first quarter spread tightening, which serves as a barometer of overall mortgage credit. During the quarter we rotated out of Agency RMBS into credit investments, increasing our exposure in newly originated non-QM loans, credit risk transfer securities, and commercial real estate loans, while also committing to purchase re/non-performing loans. Going forward, we continue to see a pipeline of credit opportunities at favorable risk-adjusted returns; and we intend to remain active in the securitization markets."

INVESTMENT HIGHLIGHTS

• $4.0 billion investment portfolio as of June 30, 2019 as compared to the $4.1 billion investment portfolio as of March 31, 2019(3) (4)
• 2.0% Net Interest Margin (“NIM”) as of June 30, 2019 (5)
• 4.4x “At Risk” Leverage as of June 30, 2019 (6)
• 7.1% constant prepayment rate ("CPR") on the Agency RMBS investment portfolio for the second quarter (7)
• Duration gap was approximately 0.98 years as of June 30, 2019 (8)
  • Duration gap is presented pro-forma for the purchase of $234.2 million of Re/Non-Performing Loans that we have committed to purchase but that have not settled as the hedges related to these purchases have already been added to the portfolio. The duration gap exclusive of these commitments would be 0.67.

SECOND QUARTER ACTIVITY

 

($ in millions)

Description

 

Purchased

 

(Sold/Payoff)

 

Net Activity

30 Year Fixed Rate

 

$—

 

$(123.6)

 

$(123.6)

Inverse Interest Only

 

—

 

(3.2)

 

(3.2)

Fixed Rate 30 Year TBA

 

746.6

 

(748.7)

 

(2.1)

Total Agency RMBS

 

746.6

 

(875.5)

 

(128.9)

 

 

 

 

 

 

 

Prime

 

1.2

 

(32.4)

 

(31.2)

Alt-A/Subprime

 

7.3

 

—

 

7.3

Credit Risk Transfer

 

53.1

 

(0.9)

 

52.2

Re/Non-Performing Loans

 

6.3

 

(13.1)

 

(6.8)

New Origination Loans

 

206.2

 

(181.9)

 

24.3

Total Residential Investments

 

274.1

 

(228.3)

 

45.8

 

 

 

 

 

 

 

CMBS

 

23.7

 

(21.1)

 

2.6

CMBS Interest Only

 

—

 

(1.7)

 

(1.7)

Commercial Real Estate Loans

 

7.8

 

—

 

7.8

Total Commercial Investments

 

31.5

 

(22.8)

 

8.7

Total Q2 Activity

 

$1,052.2

 

$(1,126.6)

 

$(74.4)

Note: The chart above is based on trade date for securities and settle date for loans.

Re/Non-Performing Loan Activity

• Participated in a term securitization alongside another Angelo Gordon fund in June which refinanced previously securitized primarily re-performing mortgage loans into a new lower cost, fixed rate long-term financing, returning $14.0mm of equity to MITT
  • MITT maintained exposure to the securitization through an interest in the subordinated tranches
• Entered into commitments to purchase two pools of Re/Non-Performing loans which are not included in the table above

New Origination Loan Activity

• Purchased several Non-QM pools alongside other Angelo Gordon funds
• Participated in Angelo Gordon's first rated Non-QM securitization alongside other Angelo Gordon funds in June, which refinanced Non-QM loans from repurchase agreement financing into lower cost, fixed rate, non-recourse long-term financing, returning $16.7mm of equity to MITT
  • MITT maintained exposure to the securitization through an interest in the subordinated tranches

SINGLE-FAMILY RENTAL PORTFOLIO UPDATE

• Occupancy remained stable throughout the 2nd quarter in the 92-93% range
  • The slight occupancy dip in June is related to seasonally higher number of lease expirations and lower renewal pull-through
• Decline in operating margin primarily due to the aging and subsequent write-off of certain rent receivables

 

3/31/2019

 

6/30/2019

Gross Carrying Value(a)

$

141.7

 

 

$

141.3

 

Accumulated Depreciation and Amortization(a)

(3.8

)

 

(4.9

)

Net Carrying Value(a)

$

137.9

 

 

$

136.4

 

Occupancy(b)

93.7

%

 

92.1

%

Average Square Footage(b)

1,463

 

 

1,455

 

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

$

1,020

 

 

$

1,028

 

Operating Margin(11)

45.2

%

(d)

41.5

%

(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

(d)

Includes a write-off of approximately $0.1 million of rental income receivable taken in Q2 2019

KEY STATISTICS

($ in millions)

 

June 30, 2019

Investment portfolio(3) (4)

 

$3,951.8

Financing arrangements, net(4)

 

3,176.5

Total financing(6)

 

3,232.5

Stockholders’ equity

 

730.9

GAAP Leverage

 

4.1x

“At Risk” Leverage(6)

 

4.4x

 

 

 

Yield on investment portfolio(9)

 

5.0%

Cost of funds(10)

 

3.0%

Net interest margin(5)

 

2.0%

Other operating expenses (corporate)(12)

 

1.5%

 

 

 

Book value, per share(1)

 

$17.42

Undepreciated Book Value, per share(1)

 

$17.57

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

 

$1.28

Dividend, per share(1)

 

$0.50

Note: Cost of funds and NIM shown include the costs or benefits of our interest rate hedges. Cost of funds and NIM excluding the cost or benefit of our interest rate hedges would be 3.2% and 1.8%, respectively.

INVESTMENT PORTFOLIO

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

($ in millions)

Amortized Cost

 

Net Carrying Value

 

Percent of Net Carrying Value

 

Allocated Equity(15)

 

Percent of Equity

 

Leverage Ratio*

Agency RMBS

$2,211.6

 

$2,270.5

 

57.5%

 

$263.8

 

36.1%

 

7.5x

Residential Investments

1,047.6

 

1,119.7

 

28.3%

 

287.2

 

39.3%

 

3.1x

Commercial Investments

379.5

 

404.6

 

10.2%

 

133.0

 

18.2%

 

2.1x

ABS

20.7

 

20.6

 

0.5%

 

11.1

 

1.5%

 

0.9x

Single-Family Rental Properties

136.4

 

136.4

 

3.5%

 

35.8

 

4.9%

 

2.8x

Total

$3,795.8

 

$3,951.8

 

100.0%

 

$730.9

 

100.0%

 

4.4x

*The leverage ratio on Agency RMBS includes any net receivables on TBA. The leverage ratio by type of investment is calculated by dividing the investment type's total financing by its allocated equity.(15)

Note: The chart above includes fair value of $0.6 million of Agency RMBS, $239.1 million of Residential Investments and $5.6 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 $(0.04) 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 2.7% as of June 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 33 counterparties as of June 30, 2019. Our weighted average days to maturity is 138 days and our weighted average original days to maturity is 236 days. The Company's financing arrangements as of June 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

 

$

118.3

 

 

2.7%

 

$

—

 

 

—%

 

$

—

 

 

—%

30 Days or Less

 

999.2

 

 

2.7%

 

571.0

 

 

3.5%

 

—

 

 

—%

31-60 Days

 

428.1

 

 

2.6%

 

134.1

 

 

3.8%

 

—

 

 

—%

61-90 Days

 

147.2

 

 

2.6%

 

74.9

 

 

3.9%

 

—

 

 

—%

91-180 Days

 

249.0

 

 

2.6%

 

—

 

 

—%

 

—

 

 

—%

Greater than 180 Days

 

—

 

 

—%

 

352.7

 

 

4.5%

 

102.0

 

 

4.8%

Total / Weighted Avg

 

$

1,941.8

 

 

2.7%

 

$

1,132.7

 

 

3.9%

 

$

102.0

 

 

4.8%

*Amounts in table above do not include securitized debt of $8.6 million.

**Includes $0.9 million of deferred financing costs.

The Company’s interest rate swaps as of June 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%

 

2.6%

 

0.7

2022

 

778.8

 

 

1.9%

 

2.5%

 

3.0

2023

 

5.7

 

 

3.2%

 

2.6%

 

4.4

2024

 

345.0

 

 

2.0%

 

2.1%

 

5.0

2026

 

20.0

 

 

1.9%

 

2.5%

 

7.4

2027

 

10.0

 

 

2.2%

 

2.3%

 

8.0

2029

 

38.0

 

 

1.9%

 

2.3%

 

10.0

Total/Wtd Avg

 

$

1,302.5

 

 

1.9%

 

2.4%

 

3.6

* 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 June 30, 2019, the Company had estimated undistributed taxable income of approximately $1.28 per share.(1) (13)

DIVIDEND

On June 14, 2019, the Company’s board of directors declared a second quarter dividend of $0.50 per share of common stock that was paid on July 31, 2019 to stockholders of record as of June 28, 2019.

On May 17, 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 June 17, 2019 to stockholders of record as of May 31, 2019.

STOCKHOLDER CALL

The Company invites stockholders, prospective stockholders and analysts to participate in MITT’s second quarter earnings conference call on August 6, 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 5976527.

A presentation will accompany the conference call and will be available on the Company’s website at www.agmit.com. Select the Q2 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 September 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 5976527.

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 June 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 August 5, 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)

 

 

June 30, 2019

 

December 31, 2018

Assets

 

 

 

Real estate securities, at fair value:

 

 

 

Agency - $2,062,928 and $1,934,562 pledged as collateral, respectively

$

2,123,088

 

 

$

1,988,280

 

Non-Agency - $652,582 and $605,243 pledged as collateral, respectively

680,492

 

 

625,350

 

ABS - $12,781 and $13,346 pledged as collateral, respectively

20,571

 

 

21,160

 

CMBS - $258,424 and $248,355 pledged as collateral, respectively

281,040

 

 

261,385

 

Residential mortgage loans, at fair value - $127,854 and $99,283 pledged as collateral, respectively

199,970

 

 

186,096

 

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

118,005

 

 

98,574

 

Single-family rental properties, net

136,374

 

 

138,678

 

Investments in debt and equity of affiliates

99,955

 

 

84,892

 

Excess mortgage servicing rights, at fair value

20,893

 

 

26,650

 

Cash and cash equivalents

60,097

 

 

31,579

 

Restricted cash

32,853

 

 

52,779

 

Other assets

24,577

 

 

33,503

 

Total Assets

$

3,797,915

 

 

$

3,548,926

 

 

 

 

 

Liabilities

 

 

 

Financing arrangements, net

$

2,993,233

 

 

$

2,822,505

 

Securitized debt, at fair value

8,630

 

 

10,858

 

Dividend payable

16,355

 

 

14,372

 

Other liabilities

48,833

 

 

45,180

 

Total Liabilities

3,067,051

 

 

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

 

Common stock, par value $0.01 per share; 450,000 shares of common stock authorized and 32,709 and 28,744 shares issued and outstanding at June 30, 2019 and December 31, 2018, respectively

327

 

 

287

 

Additional paid-in capital

661,833

 

 

595,412

 

Retained earnings/(deficit)

(92,510

)

 

(100,902

)

Total Stockholders’ Equity

730,864

 

 

656,011

 

 

 

 

 

Total Liabilities & Stockholders’ Equity

$

3,797,915

 

 

$

3,548,926

 

AG Mortgage Investment Trust, Inc. and Subsidiaries

Consolidated Statements of Operations (Unaudited)

(in thousands, except per share data)

 

 

Three Months Ended

 

June 30, 2019

 

June 30, 2018

Net Interest Income

 

 

 

Interest income

$

40,901

 

 

$

36,012

 

Interest expense

24,277

 

 

16,271

 

Total Net Interest Income

16,624

 

 

19,741

 

 

 

 

 

Other Income/(Loss)

 

 

 

Rental income

3,162

 

 

—

 

Net realized gain/(loss)

(27,579

)

 

(11,060

)

Net interest component of interest rate swaps

1,800

 

 

1,262

 

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

43,165

 

 

(578

)

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

(10,839

)

 

4,781

 

Other income

346

 

 

20

 

Total Other Income/(Loss)

10,055

 

 

(5,575

)

 

 

 

 

Expenses

 

 

 

Management fee to affiliate

2,400

 

 

2,387

 

Other operating expenses

3,850

 

 

3,443

 

Equity based compensation to affiliate

73

 

 

94

 

Excise tax

186

 

 

375

 

Servicing fees

416

 

 

22

 

Property depreciation and amortization

1,180

 

 

—

 

Property operating expenses

1,946

 

 

—

 

Total Expenses

10,051

 

 

6,321

 

 

 

 

 

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

16,628

 

 

7,845

 

 

 

 

 

Equity in earnings/(loss) from affiliates

2,050

 

 

323

 

Net Income/(Loss)

18,678

 

 

8,168

 

 

 

 

 

Dividends on preferred stock

3,367

 

 

3,367

 

 

 

 

 

Net Income/(Loss) Available to Common Stockholders

$

15,311

 

 

$

4,801

 

 

 

 

 

Earnings/(Loss) Per Share of Common Stock

 

 

 

Basic

$

0.47

 

 

$

0.17

 

Diluted

$

0.47

 

 

$

0.17

 

 

 

 

 

Weighted Average Number of Shares of Common Stock Outstanding

 

 

 

Basic

32,709

 

 

28,201

 

Diluted

32,737

 

 

28,228

 

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 and realized gains/(losses) on the sale or termination of such instruments, (ii) beginning with Q2 2018, as a policy change, any transaction related expenses incurred in connection with the acquisition or disposition of our investments, (iii) beginning with Q3 2018, concurrent with a change in the Company's business, any depreciation or amortization expense related to the Company's 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), and (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. Items (i) through (v) 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 the Company's 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 the Company's 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 the Company's 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 the Company's 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 June 30, 2019 and June 30, 2018 is set forth below (in thousands, except per share data):

 

 

Three Months Ended

 

 

June 30, 2019

 

June 30, 2018

Net Income/(loss) available to common stockholders

 

$

15,311

 

 

$

4,801

 

Add (Deduct):

 

 

 

 

Net realized (gain)/loss

 

27,579

 

 

11,060

 

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

 

(43,165

)

 

578

 

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

 

10,839

 

 

(4,781

)

Property depreciation and amortization

 

1,180

 

 

—

 

Transaction related expenses and deal related performance fees(a)

 

484

 

 

314

 

Equity in (earnings)/loss from affiliates

 

(2,050

)

 

(323

)

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

 

1,352

 

 

2,326

 

Dollar roll income

 

363

 

 

656

 

Other Income

 

(114

)

 

—

 

Core Earnings (c)

 

$

11,779

 

 

$

14,631

 

 

 

 

 

 

Core Earnings, per Diluted Share (c)

 

$

0.36

 

 

$

0.52

 

(a)

For the three months ended June 30, 2018, the above chart was not adjusted for deal related performance fees as they did not have a material impact on Core Earnings for the period. Our policy with respect to deal related performance fees was modified in Q3 2018.

(b)

For the three months ended June 30, 2019 and June 30, 2018, $(4.8) million or $(0.15) per diluted share and $0.8 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.

(c)

The three months ended June 30, 2019 and June 30, 2018 include cumulative retrospective adjustments of $(1.3) million or $(0.04) per diluted share and $(0.1) million or de minimis 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 and 8.00% Series B 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 March 31, 2019 to June 30, 2019, plus the common dividends declared over that period, divided by undepreciated book value per share as of March 31, 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)

“At Risk” Leverage is calculated by dividing total financing including any net TBA position by our GAAP stockholders’ equity at quarter-end. Total financing at quarter-end includes 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, securitized debt, and any net TBA position (at cost). Total financing excludes any financing arrangements and unsettled trades on U.S. Treasuries.

(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 total financing outstanding at quarter-end and (ii) 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. Both elements of the cost of funds at quarter-end are weighted by the outstanding financing arrangements and securitized debt outstanding at quarter-end, 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 our 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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AG Mortgage Investment Trust, Inc. Investor Relations (212) 692-2110 ir@agmit.com