TPG Mortgage Investment Trust Inc Q2 FY2025 earnings call

• Increased common dividend by 5% in the second quarter.
• Book value declined 2.4% due to market volatility in April, but the company maintained the increased dividend.
• Experienced a one-time drop in EAD mainly due to 3 CRE loans from the WMC acquisition hitting maturity and being taken off accrual, with expectation of resolution by year-end.
• Refinanced expensive structured repo from the WMC acquisition into current market terms, boosting future EAD.
• Announced acquisition of an additional 21.4% of Arc Home, with minimal dilution to book value and potential earnings accretion in 2026.
• Completed 2 securitizations during the quarter, closed 2 residential mortgage warehouse facilities, and refinanced high-cost debt, freeing up capital for redeployment.

During the second quarter, AG Mortgage Investment Trust (MITT) had a book value of $10.39 per share, a modest 2.4% decline from the prior quarter. The company increased its common dividend by 5% to $0.21 per share. Net interest income from residential investments was down due to certain commercial loans maturing and being placed on nonaccrual. EAD was $0.18 per share. The investment portfolio grew 2.3% to $7.3 billion during the quarter. MITT also acquired an additional 21.4% of Arc Home, with minimal dilution to book value.

• Expect to resolve the 3 CRE loans from the WMC acquisition by year-end.
• Refinancing of structured repo will significantly lift go-forward EAD.
• The acquisition of additional Arc Home stake is expected to be accretive to earnings in 2026 as Arc Home executes its strategic growth initiatives.

• Market volatility experienced during Liberation week in April, which affected the broader markets.
• Uncertainties around the resolution of the 3 CRE loans from the WMC acquisition.
• Restrictions in the registration rights agreement governing the sale of the newly acquired Arc Home shares, meaning sellers are not expected to sell meaningfully before year-end.

Q: Congrats on the additional Arc Home ownership. Just on Arc Home, can you talk a little bit about long-term plans there? Is it over time owning the whole company? Who owns the remaining portion today? And then can you just dig into a little bit of the accretion potential in earnings as you look over the near and long term?

A: So I think to answer your first question, other funds managed by TPG AG own the balance. At this point, there's no other transactions kind of pending or in the pipeline. And so they'll remain co-owners with MITT. I think as Nick mentioned, we're seeing -- we've been investing in Arc, both in people and process, and we're seeing the results. You see it in the volume kind of growth. And so assuming that trajectory holds, we're going from, call it, breakeven at Arc to a more profitable company, and we're largely hitting those goals. So that's what we see as the positive earnings contribution go forward in late '25 and really in earnest in '26. So strategic long-term hold. And we think just executing the business plan, not having to do anything additional will be positive to EAD in '26.

Q: Can you just talk about kind of the onetime book that you were able to acquire your additional stake? It seems like there were some other transactions that went for significant premiums in the market. Just kind of how you got to that price, how you're kind of arriving at the current carrying value?

A: Yes. So I think in terms of the transaction, the MITT Board engaged KBW actually for a fairness opinion and the Board, including all the independent directors sort of approved that. So we went to a true third party. I think all these originators are at different scale and profitability, which I think also factors into maybe what you've seen in some of the other recent transactions.

Q: Can you talk about your comfort level with the $89 million of liquidity here? And what sort of approach you're likely to take to adjust that? I know you have some things coming up in Q3, but with the deferral on the WMC and not having that capital come back in right away before year-end?

A: Yes. We're comfortable with the current cash positioning. We've enhanced some of the ways that we finance the balance sheet, as alluded to in the prepared remarks and think that this is a level that is likely to be a range that we'll be in and maybe even slightly lower in the future.

Q: At Arc Home, the pipeline hedging and volatility in April, does that impact the EAD or yes, does it impact the EAD?

A: Yes, Bose, that flows through EAD. You can see the impact to EAD from Arc Home this quarter was a loss of $130,000. So April was largely offset by positive earnings in May and June at Arc Home.

Q: Can you say what the return on capital was that you expect from the closed-end seconds that you picked up from redeploying that $40 million? And were those loans originated by Arc Home or by a third party?

A: Those loans were originated by third parties. We expect returns there to be blended across the different parts we provided in the mid- to high teens.