Q1 2020 AG Mortgage Investment Trust Inc Earnings Call
Good morning, and welcome to the AG mortgage investment Trust first quarter 2020 earnings call. My name is bread and I'll be your operator for today at this time, all participants will listen only mode. Later, we will conduct a question and answer session during which again don't star one if you ask the question.
Please note this conference is being recorded.
Well now turn it over to roll right or you may begin sir.
Thank you Brenda and good morning, everyone.
And welcome to the first quarter 2020 earnings call for AG mortgage investment Trust.
Before we begin please note that the information discussed on today's conference call may contain forward looking statement.
Any forward looking statements made during today's call are subject to certain risks and uncertainties, which are outlined in the risk factors and Mdna section of our most recent SEC filings.
The companys actual results may differ materially from DC.
We encourage you to read the disclosure regarding forward looking statements contained in our earnings release in our earnings presentation, and then our SEC filings.
During the call today, we will refer to certain non-GAAP financial measures.
Please refer to our FCC filings for a reconciliation to the most comparable GAAP measures.
We will also referenced the earnings presentation that was posted to our website. This morning to.
To view the slide presentation, turning to our website www dot E.G.M.I.T. dot com and click on the Q1 2020 earnings presentation link on the home page.
Again, welcome and thank you for joining us today with that I would like to turn the call over to our CEO David Roberts.
Thank you Raul good morning.
The initial stages of the covert crisis in March disrupted the markets in every aspect.
EG mitts portfolio.
Normal two way markets evaporated in.
Securities in whole loans, both residential and commercial and even in the agency RMBS.
Small number of trade that did take place.
Were from the most distressed sellers and represented prices that where it's huge discounts from previous levels.
The reaction of our repo lenders with Swift.
Mitt began to receive a rising tide of margin calls.
We met the calls for as long as we prudently could using a portion of our cash reserves and selling those assets, we believe where the least worse to sell.
Most notably our portfolio of agency RMBS.
At a certain point however, the margin calls became overwhelming.
Accordingly, we announced that we would not meet margin calls and instead would seek a forbearance agreement from our repo lenders.
Most of our largest repo lenders agreed.
A few elected to season sell our collateral.
As detailed in our many 8-K filings we negotiated three forbearance agreement.
In order to induce our repo lenders to agreed to the Forbearances our manager a direct wholly owned subsidiary of Angelo Gordon made to $10 million subordinated loans as a key element of the negotiations.
As well Mitts manager also agreed to defer payments of both its management fees and Expensed Ria reimbursements until September Thirtyth of this year.
We're pleased to announce that we exit forbearance two days ago and reinstated bilateral agreements with all our current lenders.
Immediately prior to and during the two month period of our forbearance, we sold the majority of our assets.
Paid off the related financing.
And consolidated our remaining repo arrangements down to six lenders.
We did this so we could meet the previously unmet margin calls.
And so we could exit forbearance.
After these sales.
Mitt has a much smaller portfolio with lower leverage.
We also made substantial progress.
And settling deficiency claims with those lenders who would season sold collateral.
In downsizing our portfolio, mostly during a time of severe dislocation in our markets Mitt took substantial losses.
The company began the year with a common equity book value of $17.61 per share.
As we reported in our May seven 8-K.
We estimated that our common book value per share as of April thirtyth.
It wasn't a range from $1.80 cents per share to $1.90 cents per share.
I note that the majority of our losses have been realized through sales.
Based on our preliminary internal analysis.
We estimate that our common book value per share as of May 31st was in a range not substantially higher than it was on April thirtyth.
Going forward, we anticipate continuing to raise liquidity liquidity.
And reducing.
Debt through selected asset sales.
Based on current conditions for our company, we do not anticipate paying dividends on either our common or preferred stock for the foreseeable future.
We are evaluating various go forward plans for our business.
Whatever strategy, we choose we will work hard to improve book value per share.
That effort will take time creativity and the cooperation of the markets. Thank you for listening and I'll now turn the call over to T.J. Durcan.
Thank you David.
Briefly walk you through the portfolio on March 31st and where it stood as of May 31st.
Prior to March January and February were somewhat ordinary lots in terms of Mitt managing the investment portfolio.
In February admit along with other Angelo Gordon match funds price its fourth Nonqm securitization.
However, as the fears of cobot made their way into the U.S. domestic markets, even the most liquid asset classes, such as treasuries began to experience extreme price volatility and more importantly started losing their normal deep liquidity.
This quickly crossed over into the agency MBS market as the basis widened to levels not seen since the GFC, but also again, having liquidity evaporate in the market as well.
That's all happened very quickly and unfortunately, we were forced to sell our entire agency book in late March in order to de lever and raise liquidity as our credit.
Assets were completely illiquid.
Ultimately decide had stepped in step into fixed income and repo funding markets multiple times throughout the course of March to stabilize the plumbing of the fixed income markets.
By late April the agency market have largely returned to normal.
Turning to our presentation on page seven we had a fair value of approximately 1.6 billion.
As of 331, representing 3.3 turns of economic leverage.
The portfolio was approximately 80% residential and 18% commercial.
After the calibre eat the whole pools, we removed all other interest rate hedges and that positioning it remains true today.
As David mentioned post quarter end, we continued to de lever our portfolio in an orderly fashion and build liquidity.
Since quarter end the broader markets in structured credit markets have started to recover and we are continuing to see asset prices improved in the secondary market and seeing the new machine market return as well.
As a 531, we seen investment portfolio of approximately 1 billion comprised of 78% residential and 22% commercial.
Well this portfolio, we expect to run a router churn of recourse leverage.
I.
What any of cash and cash equivalents with approximately $45 million at that point.
Looking ahead, we will continue to look towards securitization to obtain term nonrecourse financing for a whole loan investments at the debt markets remain open.
With regards to the underlying fundamentals early data post kobin mortgage payments indicate residential delinquency and forbearance numbers are performing in line to slightly better than industry estimates, but we know theres still a long way to go.
We believe that story in commercial real estate will take much longer to play out as there is much more idiosyncratic risk among the different industries, comprising commercial real estate securities.
Lastly, our mortgage originator arc home is taking advantage of the rally in mortgage rates and it's currently on pace for a record origination volume in the second quarter.
During the call over to Brian. Thank you.
Thanks TJ.
Overall for the fourth quarter, we reported a net loss per common stockholders of 490 million or $14, a 90 cents per fully diluted share.
Our book value decreased from 17 61 at December 31st.
$2.63 at March 31st.
Total stockholder equity decreased by 58% in the first quarter.
Losses were primarily result of the global pandemic associated with over 19, and the drastic caused some financial and mortgage related asset market.
We do not disclose core earnings for the first quarter 2020, as we determined that this measure as we have historically calculated it not appropriately lack the economic impact of covert 19 pandemic on our results.
At financial markets stabilize.
We'll evaluate whether core earnings or other non-GAAP financial measures would help both management and investors evaluate our operating performance for future periods.
The draft on market quite the decrease in the prices of our assets as well as increased margin calls from our financing counterparties.
In order to satisfy these margin calls we sold.
A portion of our investment portfolio, resulting in a reduction of our economic leverage ratio from 4.1 times at December 31 to 3.3 times at March 31.
Additionally, we lowered the number of Counterparties with debt outstanding with 30 as of December 31st 18 as of March 31st.
In the second quarter, we continue to Delever, our balance sheet restructure our debt and consolidate our counterparties.
As part of the restructurings, we were able to reduce our recourse debt.
And then exited forbearance and only six lenders, who will we will look to partner with in the future.
At May 31, we have liquidity of approximately 45 million comprised entirely of cash cash equivalents.
That concludes our prepared remarks, and we'd now like to open the call for questions operator.
Thank you will not begin the question answer session. If you have to question. Please press star one on your telephone keypad, if you'd like to be removed from the Q. Please press the pound side or the ASCII there may be a delay before the first question does the notes if you had a speakerphone. Please pick up your hedge at first before dialing once again if you have the question. Please press.
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And from credit Suisse, we have Doug Harter. Please go ahead.
Thank you.
Just wondering if you could talk about kind of what weather conditions that kind of led to being able to get out from forbearance two days ago.
Kind of what if it if there any other concessions that you had to make to get out of forbearance.
PJ.
Yes, sure Doug I mean, it was a combination of multiple factors I mean.
We were de levering the portfolio.
Good.
Throughout March a up until this month.
You know we're building liquidity that way, we as David mentioned or Brian mentioned condensed lenders, which also made just operationally exiting much easier and lastly, you know to some extent the market coming back. Obviously also helps as well. So it was a combination of all those things.
Got it and then you mentioned that you would sort of look to continue to kind of reduce a assets and de levers and senses. The magnitude that that he would be looking there kind of where the portfolio size might build stabilized.
No no I don't see I don't think at this point, we're ready to say, where you know a stable long term.
Right size or leverage ratios.
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All right and then lastly from me do you have the ability to skewed.
Yeah.
Drilling well above book value.
I'm, sorry could you repeat that question.
Did you have the ability to use the aftermarket.
Equity issuance.
Program.
Given that you guys are trading well above book value.
We have up till now really been folk focused on a.
I'm getting a getting out of forbearance and then presenting this and.
Afterwards, we'll review all the different options that are available to us.
Great. Thank you.
From KBW, we have to air ticket. Please go ahead.
Hey, Thanks, Good morning, Oh, I'll start with one on the asset side on the current portfolio even to reflect any mark to market changes just during the first couple of weeks in June can you just give us a breakdown of what.
What the portfolio looks like right now.
Yeah sure I mean, that's about a high level June spin a constructive month and in the markets I think we.
We laid out just at a high level.
The break down between residential commercial I don't think we have anything prepared in terms of the sort of asset classes to update you at this point.
Or 531 way, we broke it out for a quarter end.
Okay, I mean, I would be helpful. I guess to see just a general sense between securities and loans.
On the ready at resi and commercial side I realize that you want to be you can't comment I guess at the end of May but.
Is there any any or any kind indication or breakdown that you can sort of guidance too.
We don't have that prepared now.
I think Eric I'm not in the 10-Q, you will be able to the little bit you, obviously see more detail on on that 331 some of the subsequent events.
You, probably especially with the large residential.
Loan sale that that we've talked about it now I think you'll be able to me make its way a little bit better than took from the the presentation that we posted in the earnings release.
I would say is what I called out later today, I would say as well Eric that were.
We're trying to be transparent, but we're also trying not to give any sort of ah.
Set any sort of a precedent in terms of the details that we're going to be a.
Hi, disseminating.
You know between quarters so.
Sure you can appreciate did you.
Hi, I can appreciate that.
You say that your Q is gonna be filed this afternoon.
Yep that's expectation.
Okay.
One or two on the repo side and the reinstatement there what what are the assets that are currently being funded on repo and are all of those subject to daily Mark to market margin calls.
And what's the funding cost expect on the reinstated repo.
Sure I mean, I mean, so we have a combination of of loan warehouses wireless just regular way security repo the majority of them our daily Mark to market.
Yes, there isn't one funding rate.
Between the different asset types or the for the life. It's returned to you know.
Somewhat regular way business on that side.
Okay, do but does most of the repo applied to the ready credit portfolio or is the bulk of that really in the commercial portfolio and what about the mark to market.
The frequency of Mark to market margin, yes daily Mark to market.
And yes, we do have.
Residential and commercial securities as well as residential and commercial whole loans on facilities.
Okay.
Got it.
Okay, great. Thank you very much.
[noise] from JMP Securities, we have Trevor Cranston. Please go ahead.
Hey, thanks.
Follow up on the question on the remaining repo facilities.
Yeah, we've seen some some peer companies move towards establishing on mark to market longer term.
Financing facilities for their assets.
Can you go to say if that is something you were intending to explore as you go forward now that you're out of forbearance or if you're comfortable with the remaining repo.
Being something that you could continue to remain in place for.
Apparently walker.
No I think I think that is something we definitely will continue to pursue.
On the whole loan side, where.
It's probably a bit more practical than on the security side at least based on what were seeing in here.
Okay got you.
And I think in the prepared remarks, you mentioned that you would.
Got a significant amount of work settling deficiency claims.
Can you just clarify if there are any remaining outstanding deficiency claims from from repo workers that Werent, we're burgers.
Yes, there, but at least probably solve the what we believe to be the majority of them, but we do have.
Shoe outstanding deficiency claims.
Yeah, and they came up later after the quarter. So you would you see the Q, you'll see that the two that we settled our were taken into kind of book value at March 31st and then the too.
The two that remain are still open and they were accrued for and are kind of estimate that we put forth that April thirtyth a car best.
Yes, so what we think it will be obviously, we disclose that it was.
There were estimates and there, but the April Thirtyth book value is reflective of what we think.
I would take to settle those.
Okay, great. Thank you guys.
Okay.
From jumps trading we have Jason Stewart. Please go ahead.
Okay. Thank you for.
Taking a question I appreciate there's a lot of complexity in this but the 180 to 190 range is post for 30 does that include the pretty substantial loan sale that was executed.
Yeah, Yeah. It was we at that point the way those types of loans that all kind of enter into the agreement.
We filed at the time, but then you are the buyer has has enhanced the due diligence that takes some time, but you you kind of agree on the price in advance so at that point, we knew what the.
The sales price would be maybe subject to a little full out to extend their was but we were able to take that into account.
Okay. So that book value range includes.
Your estimate for settlement on the core Barents includes one sale and any other.
Portfolio items that you've already executed or had planned on executing.
Well I mean, obviously this seemed a lot there was a lot of assumptions are baked into it it was off cycle.
Ended the month as opposed to ended the quarter.
But we divested our knowledge.
At the time, what we knew definitely went into their city extend we knew we were selling something at a couple of days later at a certain price. We certainly would have marked into that number at that price.
Okay.
Thank you appreciate it.
Thanks.
From Christopherson, Rob we have Brad Golding. Please go ahead.
Hi, guys. Thanks for taking my call.
I'm just looking at slide on on the income statement and they're still about.
Four and a half million.
Of kind of operational expenses.
The.
Net asset value.
Of the comment.
Clearly can't support.
That kind of expense space.
And the ratio of preferred so common it's obviously clearly out of whack.
I know you Didnt want to answer the question about capital raise we going forward.
But.
Is this a viable entity.
It's a time to just shut this down to return to capital to shareholders.
It's David Roberts, I'll take that Hi, David Bryson haven't talked for walnuts. Thank you.
We.
As we said.
I'd make I'd repeat two comments I guess in response to that a good question.
One is our focus first has been.
Two.
That forbearance.
And to to do that we.
As Weve detailed.
Had to take a number of steps with with the portfolio.
In terms of reducing it and reducing our.
Our our repo leverage.
So that really has been.
The focus over the past few months.
We are as I said in my prepared remarks about you waiting.
Various go forward plans for the business.
And.
We are really could not do that until we were out of.
Out of forbearance down there were out of forbearance.
We will be looking at looking at all all the various options and.
Well certainly communicate.
Hi to the market.
You know once we determine the best strategy for.
For our shareholders.
So it's a good question, but a preliminary one at this point.
Okay, just I'm I'm I'm somewhat concerned by the lack of structural support for the preferred.
And now that the market appears to be somewhat stable.
I would think you would have to make these decisions fairly quickly.
Either raise capital.
Were pulled the plug because obviously there's.
Don't want to sound.
Preachy or anything, but clearly there's an existential prices for the entity and.
Yes, it has to grow or or or protect the remaining value for for shared and preferred holders.
So thank you.
Thank you.
From KBW, we have a follow up from Eric Hagen. Please go ahead.
Thanks for taking the follow up can you just remind us the percentage of the affiliates that you guys own I think for arc home, but remember correctly, it's slightly less than.
Hi.
Is your ownership stake but.
I think its red creates in the remainder of the affiliates can you.
Remind us what.
What your ownership stake business there.
Sure.
Ryan.
So arc home as it took about their mortgage originator.
And quite busy.
We had mitt own inc. slightly under 50% of other that entity. The rest of the entities owned by other funds that are managed by Angelo Gordon.
And it.
Your second question on Red Creek, Brett Creek is actually a subsidiary of our manager Angelo Gordon and they.
Service residential mortgage loans for it and asset management fee.
So to extent that we have a residential mortgage loans that admit we would use them to service those fees and admit does not own any percentage of record.
Okay.
And can you remind us the.
The amount of your ownership that shows up for for Arc home is essentially the net asset value with your with your of your share.
Our share of net asset value.
Correct, Yes, Yep, that's what are.
The I think we.
20 million or south with the value.
At 331 and that truck so it's like anything else that we own in conjunction with with anybody else, we would only pick up our share of that value. Yes, yes, great. Thank you for clarify that yes, okay.
Thanks, Operator, we have we were almost at the top of the hour, but if there's a quick.
We see there's a quick follow up from Jason Stewart. So yes go ahead for the last question.
Jason Kim.
Thank you Brian I'd just to go back to book value I completely appreciate the intra quarter and then the nature of the estimates you are putting into these but not substantially higher than that range, including all the things that have happened, including exiting forbearance Hello. So that leaves a lot of room for people to guess what it is lower.
Is there any more detail you could provide us in terms of walking us maybe one or two big points to center around a new estimate for book value.
Well it's.
I'm going ask that question as David We you know, we we purposefully did not give a range to come up with a range that we feel comfortable with.
It takes a lot of estimating and we simply did not have Ah.
Time to do that with all the moving pieces on on the portfolio. So.
What we wanted to signaling we.
Shows our words carefully was it.
And ER.
That's what we felt comfortable saying.
Based on the estimating that we were able to to do.
Yeah.
Okay.
Thank you.
Welcome.
Okay well. Thanks. Thank you everyone. If your questions were answered.
You can.
Reach out and.
Yes, you ask your questions.
In terms of calling or Investor relations number so thank you.
Thank you ladies and gentlemen. This concludes today's conference. Thank you for joining you beat out just connect.
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