TPG Mortgage Investment Trust, Inc. Q4 FY2024 earnings call

• TJ Durkin noted strong fourth quarter and full year financials, continued execution of core strategy amidst challenging macroeconomic backdrop, disciplined securitization strategy with economic leverage at 1.4 turns, unique positioning in asset allocation, and success of WMC acquisition with over 15% total stockholder returns since close.
• Nic Smith emphasized MITT's advantage due to TPG's capabilities: access to capital, ideas, and sourcing; deep expertise in structured credit and mortgage finance with a team of over four dozen professionals; and resources like custom-built residential mortgage asset manager Red Creek, state-of-the-art data science department, and deep bench of professionals. Highlighted key highlights including successful WMC acquisition, fluid equity deployment, disposition of mortgage servicing rights, rotation of legacy credit-sensitive loan investments, and launch of new channels/products at Arc Home.
• Anthony Rosiello stated 2024 was successful with strong asset appreciation, synergies from WMC acquisition, portfolio growth, six securitizations, incorporation of home equity loans, and raising senior unsecured notes. Q4 2024 book value increased by ~0.6% to $10.64 per share, GAAP net income available to common shareholders was ~$8.8 million or $0.30 per share, EAD was $0.18 per share, and economic leverage ratio was 1.4 turns at quarter end with $190 million of warehouse financing outstanding and $137 million of total liquidity.

In the fourth quarter of 2024, book value moved higher by 0.6% from $10.58 to $10.64. For the full year 2024, book value increased year-over-year by 4.3%. The investment portfolio saw growth, with the portfolio being increased by 13% to $6.7 billion in 2024. Arc Home contributed a loss to EAD but improved to profitability in December. The investment portfolio had activities like acquiring $359 million of agency-eligible loans and $153 million of home equity loans in Q4 2024, offset by the sale of $185 million of home equity loans.

• Nic Smith mentioned that there is $75 million to $100 million of deployable capital that could be rotated or newly deployed into the coming year, including $20-$25 million from CRE positions maturing, $25-$30 million from inefficient financings rolling off, and $30-$50 million from other rotations. - TJ Durkin expects continued growth from Arc Home's business model despite market conditions. - Anthony Rosiello discussed that Arc Home is transitioning from a negative EAD contributor to more of a positive contributor in 2025, with expectations of composite EAD north of the dividend in the future.

Q: How would you characterize your excess capital - you know, you noted the cash and liquidity, but when you think about deployable capital, how would you characterize that?

A: When we think about our deployable capital, we have CRE positions that will mature later this year, call it summertime into fall, and that represents probably $20 million, $25 million of equity capital returned. In addition, away from rotation, really newfound equity, when we acquired WMC, there was some inefficient financings that will roll off this summer, which will release another $25 million, $30 million of equity. Away from that, there’s another $30 million to $50 million of equity that can be rotated, so that sort of comes out to a range of, call it $75 million to $100 million that could be rotated or newly deployed into the coming year.

Q: Just in terms of the corporate leverage, the level of preferred, etc., how are you thinking about that now? Is this a level you’re comfortable with? Any changes you need to make?

A: I think we obviously saw the first new preferred deal come out last week, I believe, and it’s been a while there, so we’re actively monitoring the market. I mean, we’ve been running the company sort of with these ratios for quite some time now, so I think we’re comfortable - we’re obviously comfortable there and I think we’ve shown good performance in managing that overall leverage ratio to the common.

Q: This is Jake Katsikis on for Eric. Thanks for taking my questions. On Slide 14, you show that the yield on the securitized non-agency loans was 5.7%. I’m curious if you could kind of talk about what would have to happen in order for that yield to increase. Thank you.

A: Yes, so those are really our on-balance sheet GAAP accounting, so that’s really the securitization, so you’re going to see that’s really a function of 2021, 2022 type origination that is effectively term financed out, so that number is not going to move a lot until we either rotate out - you know, call the deals and sell the loans, etc. The ROE out to the right is probably what I would point to. That’s effectively neutralizing the lower coupon on the mortgages with obviously the cheaper financing that was issued at the time.

Q: Just wanted to get high level thoughts on origination volume in Arc Home into 2025 - obviously industry origination volumes have come down in recent months, given the back-up in rates. Just wanted to get your thoughts there as we look into 2025. Thanks.

A: Yes, look - we continue to think that Arc Home’s business model is somewhat immune, or more immune than the broader mortgage market, specifically more liquid products like agencies and jumbos and gove origination. I think it’s been well publicized that the non-QM and the non-agency markets are actually growing at a good amount relative to the other spaces, and we continue to expect that to be the case. Beyond that, as we mentioned in the prepared remarks, the investment we’ve made in the growth of that company, and we expect the combination of those two to really pay dividends in the future, so our expectation and what we’ve mapped out for this year is continued growth, no matter what the market is. Obviously interest rates matter, but we think that the company will be resilient.

Q: Can you speak on your current thoughts around the dividend and just what you would need to say in your rate outlook to continue covering the dividend and EAD?

A: Yes, I think we’ve talked about this in the past. When we think about the dividend, we’ve really been bifurcating the company’s portfolio and sort of what we call the investment portfolio, and then obviously the equity interest in Arc Home. To Nic’s point earlier, we’ve definitely faced a headwind in terms of negative EAD contribution coming from Arc over the past, call it four to eight quarters. We’re seeing that effectively come to neutral now over December-January, so we flipped from a negative to a positive. It’s not a huge positive, right, so I think we’re sort of in this transitional phase where, let’s just call it round numbers breakeven, and then I think as we fast forward into ’25, we expect that to be more of a positive contributor. If you look back at the last year as an example of performance, I think that is the tailwind that we would need to think about having a composite EAD north of where the dividend is. I hope that answers the question.