Market Overview

AG Mortgage Investment Trust, Inc. Reports First Quarter 2019 Results

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AG Mortgage Investment Trust, Inc. ("MITT," "we," the "Company" or
"our") (NYSE:MITT) today reported financial results for the
quarter-ended March 31, 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.

FIRST QUARTER 2019 FINANCIAL HIGHLIGHTS

  • $0.84 of Net Income/(Loss) per diluted common share(1)
  • $0.45 of Core Earnings per diluted common share(1)
    • Includes $(0.01) retrospective adjustment
  • 4.4% Economic Return on Equity for the quarter, 17.6% annualized(2)
  • $17.44 Book value per share(1) as of March 31, 2019
  • $17.56 Undepreciated Book Value per share(1) as of
    March 31, 2019 versus $17.30 as of December 31, 2018
    • Undepreciated Book Value increased $0.26 or 1.5% from the prior
      quarter primarily due to:
      • $0.07 or 0.4% due to our investments in Agency RMBS and
        associated derivatives
        • Agency spreads stabilized in the first quarter, despite a
          decline in yields and a brief uptick in implied volatility
      • $0.33 or 1.9% due to our Credit Investments
        • CRT and Legacy RMBS spreads tightened during the quarter
          alongside broader market rallies
      • $(0.05) or (0.3)% due to core earnings below the $0.50
        dividend and $(0.09) or (0.5)% due to dilution from share
        issuance
  • Issued approximately 4 million shares of common stock at a weighted
    average price of $16.71 for net proceeds of approximately $66 million
    through underwritten public equity offering and ATM program
  Q4 2018   Q1 2019
Summary of Operating Results:
GAAP Net Income/(Loss) Available to Common Stockholders $   (41.6 )mm $   25.8 mm
GAAP Net Income/(Loss) Available to Common Stockholders, per diluted
common share(1)
$ (1.45 ) $ 0.84
 
Non-GAAP Results:
Core Earnings* $ 13.6 mm $ 13.6 mm
Core Earnings, per diluted common share(1) $ 0.47 $ 0.45

*A reconciliation of estimated net income/(loss) per diluted common
share to estimated core earnings per diluted common share for the
periods stated above, along with an explanation of this non-GAAP
financial measure, is provided at the end of this press release.

MANAGEMENT REMARKS

"We are pleased with MITT's performance during the first quarter, as
MITT generated an economic return of 4.4% and completed an overnight
common equity offering, raising approximately $57 million of net
proceeds," said Chief Executive Officer David Roberts. "During the
quarter, MITT continued to leverage the expertise and experience of the
Angelo Gordon platform to source assets. Alongside other Angelo Gordon
funds, we purchased Non-QM pools and sourced two new commercial real
estate loans."

"After a volatile fourth quarter, the financial markets recovered and
investor sentiment improved during the first quarter," said Chief
Investment Officer T.J. Durkin. "During the quarter, the Federal Reserve
pivoted from its more hawkish message by pausing its interest rate
tightening campaign, which removed fear of materially higher rates from
the market. Against this backdrop, spreads for credit sectors tightened
and Agency MBS spreads stabilized during the quarter. Going forward,
we remain focused on opportunistically increasing exposure to sectors we
believe have the best risk-adjusted return profiles."

INVESTMENT HIGHLIGHTS

  • $4.1 billion investment portfolio as of March 31, 2019 as compared to
    the $3.6 billion investment portfolio as of December 31, 2018(3)
    (4)
    • Increase in portfolio size primarily due to the purchase of Agency
      RMBS and To-be-announced securities ("TBA") as well as certain
      commercial and residential investments
  • 2.1% Net Interest Margin ("NIM") as of March 31, 2019(5)
  • 4.7x "At Risk" Leverage as of March 31, 2019(6)
  • 4.3% constant prepayment rate ("CPR") on the Agency RMBS investment
    portfolio for the first quarter(7)
  • Duration gap was approximately 0.95 years as of March 31, 2019(8)

FIRST QUARTER ACTIVITY

($ in millions)

     
 
Description Purchased (Sold/Payoff) Net Activity
30 Year Fixed Rate $

536.0

 

$ (229.3 ) $ 306.7
Inverse Interest Only (2.3 ) (2.3 )
Fixed Rate 30 Year TBA   672.1     (546.0 )   126.1  
Total Agency RMBS 1,208.1 (777.6 ) 430.5
 
Prime 17.0 (28.7 ) (11.7 )
Alt-A/Subprime (4.3 ) (4.3 )
Credit Risk Transfer 62.1 (9.0 ) 53.1
Re/Non-Performing Loans 19.7 19.7
New Origination Loans   34.8         34.8  
Total Residential Investments 133.6 (42.0 ) 91.6
 
CMBS 29.0 (20.3 ) 8.7
Commercial Real Estate Loans   21.8     (10.4 )   11.4  
Total Commercial Investments   50.8     (30.7 )   20.1  
Total ABS       (1.3 )   (1.3 )
Total Q1 Activity $ 1,392.5 $ (851.6 ) $ 540.9
 

Note: The chart above is based on trade date.

  • Deployed proceeds from the capital raise into Agency RMBS and TBA
  • Purchased several Non-QM pools alongside other Angelo Gordon funds
  • Purchased a pool of primarily RPL mortgage loans
  • Sourced two new CRE loans alongside other Angelo Gordon funds

SINGLE-FAMILY RENTAL PORTFOLIO UPDATE

  • Operational improvements helped to increase occupancy from 87.9% in
    the fourth quarter to 93.7% in the first quarter
  • Conrex quickly leased vacant homes while adhering to the enhanced
    tenant underwriting that had been implemented in prior quarters
  • While there were increased expenses related to the high volume of
    turnover during the quarter, the increase in occupancy improved the
    Operating Margin from 43.8% in the fourth quarter to 46.3% in the
    first quarter
  • Conrex has strategically re-organized staffing to manage the
    identified pipeline of lease expirations in the coming months
  • Conrex continues to focus on tenant communications and the tenant
    experience to retain tenants as well as achieve rent growth
  12/31/2018   3/31/2019
Gross Carrying Value(a) $   141.0 $   141.7
Accumulated Depreciation and Amortization(a) (2.3 ) (3.8 )
Net Carrying Value(a) $ 138.7 $ 137.9
Occupancy 87.9 % 93.7 %
Average Square Footage(b) 1,436 1,463
Average Monthly Rental Income per Home(b)(c) $ 1,020 $ 1,020
Operating Margin(11) 43.8 % 46.3 %

(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

KEY STATISTICS

 
 
($ in millions) March 31, 2019
Investment portfolio(3) (4) $   4,089.9
Financing arrangements, net(4) 3,392.4
Total financing(6) 3,463.1
Stockholders' equity 731.6
GAAP Leverage 4.3x
"At Risk" Leverage(6) 4.7x
 
Yield on investment portfolio(9) 5.2 %
Cost of funds(10) 3.1 %
Net interest margin(5) 2.1 %
Other operating expenses (corporate)(12) 1.5 %
 
Book value, per share(1) $ 17.44
Undepreciated Book Value, per share(1) $ 17.56
Undistributed taxable income, per share(1) (13) $ 1.29
Dividend, per share(1) $ 0.50

Note: Funding cost and NIM shown include the costs of our interest rate
hedges. Funding cost and NIM excluding the cost of our interest rate
hedges would be 3.3% and 1.9%, respectively.

INVESTMENT PORTFOLIO

The following summarizes the Company's investment portfolio as of
March 31, 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 $ 2,406.0 $ 2,439.5 59.6 % $ 271.6 37.1 % 8.2x
Residential Investments 1,045.3 1,100.3 26.9 % 285.5 39.0 % 3.0x
Commercial Investments 371.0 392.0 9.6 % 126.2 17.3 % 2.1x
ABS 20.5 20.2 0.5 % 10.6 1.4 % 0.9x
Single-Family Rental Properties   137.9   137.9 3.4 %   37.7   5.2 % 2.7x
Total $ 3,980.7 $ 4,089.9 100.0 % $ 731.6 100.0 % 4.7x

*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 $0.8 million of Agency RMBS,
$238.8 million of Residential Investments and $5.3 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 $(0.01) 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 2.8% as of March 31, 2019, slower actual or projected
prepayments can have a meaningful positive impact, while faster actual
or projected prepayments can have a meaningful negative impact, on the
Company's asset yields.

FINANCING AND HEDGING ACTIVITIES

The Company, either directly or through its equity method investments in
affiliates, had financing arrangements with 44 counterparties, under
which it had debt outstanding with 32 counterparties as of March 31,
2019. Our weighted average days to maturity is 140 days and our weighted
average original days to maturity is 222 days. The Company's financing
arrangements as of March 31, 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 $ 68.5 2.9 % $ % $ %
30 Days or Less 1,065.9 2.7 % 562.5 3.6 % %
31-60 Days 502.9 2.7 % 110.8 4.0 % %
61-90 Days 527.2 2.7 % 75.6 4.2 % %
91-180 Days % 25.0 4.7 % %
Greater than 180 Days   % 351.9   4.7 % 102.1   4.8 %
Total / Weighted Avg $ 2,164.5 2.7 % $ 1,125.8 4.0 % $ 102.1 4.8 %

*Amounts in table above do not include securitized debt of $10.5 million.
**Includes
$0.9 million of deferred financing costs.

The Company's interest rate swaps as of March 31, 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 % 2.7 %

0.9

 

2021 58.5 3.0 % 2.7 % 2.5
2022 635.0 2.0 % 2.3 % 3.2
2023 154.0 3.1 % 2.7 % 4.4
2024 280.0 2.2 % 2.7 % 5.2
2025 20.0 2.8 % 2.7 % 5.8
2026 195.0 2.4 % 2.7 % 7.2
2027 194.0 2.3 % 2.7 % 8.3
2028 25.0   2.5 % 2.8 % 8.8  
Total/Wtd Avg $ 1,666.5 2.2 % 2.6 % 4.7

* 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 March 31, 2019, the Company had estimated undistributed
taxable income of approximately $1.29 per share.(1) (13)

DIVIDEND

On March 15, 2019, the Company's board of directors declared a first
quarter dividend of $0.50 per share of common stock that was paid on
April 30, 2019 to stockholders of record as of March 29, 2019.

On February 15, 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 March 18, 2019 to stockholders
of record as of February 28, 2019.

STOCKHOLDER CALL

The Company invites stockholders, prospective stockholders and analysts
to participate in MITT's first quarter earnings conference call on
May 3, 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 7359519.

A presentation will accompany the conference call and will be available
on the Company's website at www.agmit.com.
Select the Q1 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 June 2, 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 7359519.

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. Our Credit Investments include our
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 & CO.

Angelo, Gordon & Co., L.P. is a privately held limited partnership
founded in November 1988. The firm currently manages approximately $32
billion with a primary focus on credit and real estate strategies.
Angelo Gordon has over 490 employees, including more than 190 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 and 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 newly acquired 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 May 2, 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)

 
  March 31, 2019   December 31, 2018
Assets
Real estate securities, at fair value:
Agency - $2,240,880 and $1,934,562 pledged as collateral,
respectively
$   2,287,981 $ 1,988,280
Non-Agency - $640,396 and $605,243 pledged as collateral,
respectively
659,340 625,350
ABS - $12,594 and $13,346 pledged as collateral, respectively 20,199 21,160
CMBS - $266,689 and $248,355 pledged as collateral, respectively 276,403 261,385
Residential mortgage loans, at fair value - $117,830 and $99,283
pledged as collateral, respectively
202,047 186,096
Commercial loans, at fair value - $2,467 and $- pledged as
collateral, respectively
110,223 98,574
Single-family rental properties, net 137,886 138,678
Investments in debt and equity of affiliates 102,099 84,892
Excess mortgage servicing rights, at fair value 24,301 26,650
Cash and cash equivalents 50,779 31,579
Restricted cash 37,266 52,779
Other assets 98,617   33,503  
Total Assets $   4,007,141   $ 3,548,926  
 
Liabilities
Financing arrangements, net $ 3,214,909 $ 2,822,505
Securitized debt, at fair value 10,515 10,858
Dividend payable 16,352 14,372
Other liabilities 33,729   45,180  
Total Liabilities 3,275,505 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 32,703 and 28,744 shares issued and outstanding
at March 31, 2019 and December 31, 2018, respectively
327 287
Additional paid-in capital 661,561 595,412
Retained earnings/(deficit) (91,466)   (100,902 )
Total Stockholders' Equity 731,636   656,011  
     
Total Liabilities & Stockholders' Equity $   4,007,141   $ 3,548,926  
 

AG Mortgage Investment Trust, Inc. and Subsidiaries

Consolidated Statements of Operations (Unaudited)

(in thousands, except per share data)

 
 

Three Months Ended
March 31, 2019

 

Three Months Ended
March 31, 2018

Net Interest Income
Interest income $ 41,490 $ 39,357
Interest expense 23,341   15,326  
Total Net Interest Income 18,149   24,031  
 
Other Income/(Loss)
Rental income 3,397
Net realized gain/(loss) (20,610 ) (11,839 )
Net interest component of interest rate swaps 1,781 (1,470 )
Unrealized gain/(loss) on real estate securities and loans, net 46,753 (36,155 )
Unrealized gain/(loss) on derivative and other instruments, net (10,086 ) 37,090
Other income 596    
Total Other Income/(Loss) 21,831   (12,374 )
 
Expenses
Management fee to affiliate 2,345 2,439
Other operating expenses 3,830 3,223
Equity based compensation to affiliate 126 51
Excise tax 92 375
Servicing fees 371 62
Property depreciation and amortization 1,447
Property operating expenses 1,843    
Total Expenses 10,054   6,150  
   
Income/(loss) before equity in earnings/(loss) from affiliates 29,926   5,507  
 
Equity in earnings/(loss) from affiliates (771 ) 2,740  
Net Income/(Loss) 29,155   8,247  
 
Dividends on preferred stock 3,367 3,367
   
Net Income/(Loss) Available to Common Stockholders $ 25,788   $ 4,880  
 
Earnings/(Loss) Per Share of Common Stock
Basic $ 0.84 $ 0.17
Diluted $ 0.84 $ 0.17
 
Weighted Average Number of Shares of Common Stock Outstanding
Basic 30,551 28,196
Diluted 30,581 28,217
 

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 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 March 31, 2019
and March 31, 2018 is set forth below:

($ in thousands except per share data)    

Three Months Ended
March 31, 2019

Three Months Ended
March 31, 2018

Net Income/(loss) available to common stockholders $ 25,788 $ 4,880
Add (Deduct):
Net realized (gain)/loss 20,610 11,839
Dollar roll income 357 488
Equity in (earnings)/loss from affiliates 771 (2,740 )
Net interest income and expenses from equity method investments(a) 1,004 1,698
Transaction related expenses and deal related performance fees(b)(c) 458
Property depreciation and amortization 1,447
Other Income (147 )
Unrealized (gain)/loss on real estate securities and loans, net (46,753 ) 36,155
Unrealized (gain)/loss on derivative and other instruments, net 10,086   (37,090 )
Core Earnings (d) $ 13,621 $ 15,230
 
Core Earnings, per Diluted Share (d) $ 0.45 $ 0.54

(a) For the three months ended March 31, 2019 and March 31, 2018, $(2.8)
million or $(0.09) per diluted share and $1.3 million or $0.05 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.
(b) For the three months ended March 31, 2018,
the above chart was not adjusted for transaction related expenses of
$0.1 million, as they did not have a material impact on Core Earnings
for the period. Our policy with respect to transaction related expenses
was modified in Q2 2018.
(c) For the three months ended March 31,
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.
(d) The three months ended March 31, 2019 and March 31,
2018 include cumulative retrospective adjustments of $(0.3) million or
$(0.01) per diluted share and $0.4 million or $0.02 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 December 31, 2018 to March 31, 2019, plus the common
dividends declared over that period, divided by undepreciated book value
per share as of December 31, 2018. 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 employ leverage, the investment is
included in our assets and the leverage 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. 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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