TPG Mortgage Investment Trust, Inc. Q4 FY2023 earnings call

• The successful acquisition of WMC in December 2023, which is a substantial step in positioning MITT as a premier pure-play residential mortgage REIT. The acquisition added over $81 million of equity and is expected to create annual expense savings of $5 million to $7 million.
• Balance sheet simplification through redeployment of capital into securitized residential whole loans, with the securitized loan portfolio growing by over $1.7 billion in 2023.
• Arc Home, MITT's proprietary origination channel, is well positioned to manage the origination landscape with ample liquidity and strong balance sheet, and is expected to be profitable in 2024.
• In the fourth quarter, MITT closed the WMC acquisition, raised $81 million of equity, reported GAAP net income of $1.35 per share (including a $30 million bargain purchase price gain), and had various cash proceeds from selling bonds and a CRE loan payoff.

In the fourth quarter and full year 2023, AG Mortgage Investment Trust Inc (MITT) had several key financial metrics. They ended the year with a book value of $10.46 per share and an adjusted book value of $10.20 per share. Total equity was over $528 million, and liquidity was $112 million with an economic leverage of 1.5 turns. During 2023, MITT acquired $1.2 billion of loans (excluding the WMC portfolio), securitized $1 billion of loans, and generated $53 million of net interest income. The WMC acquisition increased MITT's market cap by almost 50% and is expected to be accretive to 2024 earnings. The securitized loan portfolio grew by over $1.7 billion, or approximately 45%, during the year, with strong performance despite market volatility in the fourth quarter.

• Expect origination volumes to increase over 20% from 2023's cyclical low, with non-agency originations nearly doubling year-over-year.
• Arc Home is expected to be profitable in 2024.
• Plan to continue deploying capital into core strategies and opportunistically rotate equity as the portfolio's fundamental performance continues.

• Market volatility, as seen in the fourth quarter fixed income markets, which can impact the value of assets.
• Credit risks associated with non-QM loans, although delinquency rates remain low and are trending below original underwrite.
• Dependence on market conditions for refinancing, such as with the Series C preferred that resets to floating rate in September.

Q: Congrats on getting the WMC deal finished. Related to that, can you talk about how you're thinking about the legacy CRE portfolio of WMC and the returns of holding on to that versus potentially selling and redeploying into their residential assets?

A: T.J. Durkin said they view some CRE space loans as short duration and hold-to-maturity, with plans to monitor the CMBS space and opportunistically rotate capital if the market cooperates.

Q: And on the resi side, you guys noted that you opportunistically sold a little bit of the RMBS portfolio. Is there anything additional you guys are sort of looking to sell if the market is fairly strong? Or are you reasonably comfortable with pertaining residential assets?

A: T.J. Durkin said they will look to rotate capital into residential assets, with the goal of rotating equity into acquiring residential whole loans and executing the securitization strategy over time.

Q: You mentioned the $5 million to $7 million savings and cost synergies on expenses. Where are you guys expecting to see the most improvement from that $5 million to $7 million?

A: Anthony Rossiello said it comes from redundant costs like public company accounting fees, compensation, and external professional fees that won't need to be duplicated.

Q: Matthew Erdner asked about how Arc is positioned for increased non-Agency origination volume and when Arc might turn to profitability.

A: T.J. Durkin said they are emphasizing certain parts of the sourcing channel at Arc Home, already seeing gains, and expect Arc Home to be profitable this year.

Q: Doug Harter asked about the payback period from short-term dilution on the WMC acquisition and thoughts on the new baby bond issuance.

A: T.J. Durkin said the dilution is walked through on Page 7 and expected to be in a 1.5 to 2-year time frame, and they were happy with the baby bond issuance execution and plan to utilize the market further if open.

Q: Bose George asked about the Series C preferred that goes to floating in September and cash deployability.

A: T.J. Durkin said they are actively monitoring the capital markets for refinancing the Series C preferred and aim to keep $75 million to $85 million as a risk reserve with excess liquidity.

Q: Eric Hagen asked about loan sourcing for non-QM and credit performance in the portfolio.

A: Nick Smith said they are expanding the delegated or B2B channel through Arc Home, paying attention to regional bank pressures, and credit performance in non-QM loans is strong with delinquency trends below underwrite and outperforming comparables due to a tighter credit box.