TPG Mortgage Investment Trust Inc Q3 FY2025 earnings call

Rotation

• Monetized close to $55 million market value of legacy WMC securitized non-QM positions and $11 million from a legacy WMC's CMBS position, freeing up nearly $66 million of equity for redeployment.

Investment Portfolio Growth

• Significantly increased the investment portfolio by over 20%, acquiring over $1.7 billion of residential mortgage loans, most of which were immediately financed into 4 separate securitizations.

Arc Home

• Acquired an additional 21.4% ownership, with earnings of over $2 million this quarter, contributing approximately $1.2 million to MITT, the highest since the end of 2021; achieved record HELOC volumes in September.

Financing

• Refinanced high-cost, inefficient debt backed by retained interest in WMC issued non-Agency securitization, freeing up $55 million of equity, lowering the cost of capital, and increasing market value advance.

The company's investment portfolio saw significant growth. They increased the investment portfolio by over 20% this quarter, acquiring over $1.7 billion of residential mortgage loans, with approximately $900 million allocated to agency-eligible investor loans and over $800 million to home equity loans (including closed-end seconds and HELOCs). Arc Home contributed $0.03 per share to EAD, supported by continued growth in originations and margins. The investment portfolio's revenue contribution is substantial, with the growth in mortgage loans driving earnings.

Securitizations

• Expect securitizations to be 1 to 2 per quarter going forward.

Arc Home

• EAD from Arc Home is expected to be flat to up going forward, given the trends seen.

Capital Recycling

• Potential to rotate equity capital currently invested in CRE loans into residential securitization strategy, unlocking more earnings power.

• Risks associated with forward-looking statements as actual results may differ materially.
• Market conditions impacting the performance of investment portfolios.
• Credit performance risks, including potential weakness in consumer or isolated production issues.
• Dilution from acquisitions, such as the 1.8% dilution from shares issued for the additional Arc Home interest.

Q: Hoping you could expand a little bit more about the call rights, either kind of the amount of capital that could be freed up or how you think about the return differential on the called deals versus freshly deployed capital?

A: Certainly. So near term, we see, call it, $15 million to $30 million of equity that can be redeployed, more of an intermediate term, call it, 3 to 4 quarters, that could be $50-plus million. If you think about sort of 2022 and '23, the capital markets were fairly inefficient, spreads were relatively wide. So given sort of where interest rates have retraced along with credit spreads, we see a good amount of upside to be able to unlock that and redeploy. The equity, obviously, we could just refinance those. But I think our current -- given sort of how those loans have performed well, there's a good chance that we'll look to recycle that equity via the sale of loans, but are open to other alternatives, but either way accretive versus how we currently hold those positions.

Q: First, can you just talk a little bit about securitizations, just how the receptivity has been, you did 4 in the quarter. And just as you look forward, what do you think a normal cadence could be on the securitization side?

A: Yes. The expectation going forward is probably not as many as we did this quarter, but it's probably more like 1 to 2 a quarter. The securitization markets themselves are healthy. If anything, we've sort of transitioned into positive net supply. And if anything, the inflows across different investment type vehicles, companies have been robust and have met that supply. We are off of sort of the beginning of the year's tights at the top of the capital stack, but at the bottom of the capital stack is a good amount tighter. We see issuance as a relatively healthy period.

Q: Just given the timing of the purchase of the Arc, the incremental piece, did you guys get the full quarter of that this quarter? Or is there sort of a catch-up on that as well?

A: No, the transaction was executed on August 1. So it's really only 2 months of that EAD that you see coming through. So to the extent performance continues, it will have a pickup in out quarters.

Q: Can you just give us an update on kind of where you guys see the ROE and economics on doing new securitizations given the spread tightening we saw during the third quarter and how it compares to kind of where things were earlier in the year?

A: So broadly where you can place debt versus the tightening still shakes out to largely similar equity returns. Obviously, that matters on what part of the capital stack you're attaching to and the amount of leverage you take. Given our current leverage profile and the assets that we're trafficking in, we still see comfortably equity returns with modest leverage in the mid- to high teens.