AG Mortgage Investment Trust Preferreds Reviewed (NYSE:MITT)

(This article was co-produced with HOYA Capital Real Estate.)

prologue

Based on the number of contributors reviewing preferred stock, especially stock issued by mREITs, there is a clear interest in these underperforming high-yield assets. Given that the FOMC has just raised federal funding With 7th interest rates and decidedly higher final rates, it’s understandable why these stocks have been crushed in 2022. Even those with fluctuating coupons are suffering despite the 3-month LIBOR gaining 450bps from late 2021.

Most preferred funds and such that I follow or know of have fallen over the past year, but mREIT issued funds have fallen even more. I think the concern here is how issuers make money. Long lending and short borrowing while utilizing assets. A flat or inverted yield curve will not help. Below is a sample price movement over the course of a year.

even if you like Morgan Stanley (MS) outperforms mREIT issuances with a 4% floor, but is down nearly 25%.

This article describes three preferred stocks available in the United States. AG Mortgage Investment Trust (MITT), along with MITT, to help readers understand the publisher. Priorities are:

• 8.25% Series A Cumulative Redeemable Preferred Stock (New York Stock Exchange: MITT.PA)
• 8.00% Series A Cumulative Redeemable Preferred Stock (MITT.PB)
• 8.00% Series C Fix/Float Cumul Redeem Prfd Stock (MITT.PC)

Understanding AG Mortgage Investment Trust

Seeking Alpha describes the mREIT as follows:

AG Mortgage Investment Trust, Inc. operates as a mortgage real estate investment trust in the United States. Its investment portfolio consists of residential investments, including non-qualified mortgage loans, non-owner-occupied loans in government-sponsored entities, rehabilitation/bad debts, land-related loans, and agency residential mortgage-backed securities. and commercial investments. MITT was started in his 2011.

Source: seekalpha.com MITT

MITT explains:

AG Mortgage Investment Trust Co., Ltd. (NYSE: me) is a mortgage REIT focused on investing in diversified, risk-adjusted portfolios of mortgage-related assets in the US mortgage market. The firm is externally managed and advised by AG REIT Management, LLC, a subsidiary of Angelo, Gordon & Co., LP, a leading privately held alternative investment firm focused on credit and real estate strategies.

Source: agmortgageinvestmenttrust.com/corporate-profile

The company data below is extracted from the quarterly report PDF from early November and begins with a statement from management.

Despite the continuing theme of inflation, volatility and uncertainty, combined with widening credit spreads, adjusted book value declined 4.2% in the third quarter. , a newly originated non-agency loan, we have been disciplined and successfully converted warehouse loans into securitizations. You can launch attacks in volatile markets and continue to invest excess capital in common stock repurchase programs.

Highlights from MITT and last quarter:

• Book value per share of $11.02 on September 30, 2022 compared to $11.48 on June 30, 2022(1)
• Down (4.2)% from June 30, 2022 Quarterly Return on Equity (2.3)%
• Net earnings/(loss) and core earnings per diluted share of common stock of $(0.33) and $(0.03), respectively
• Dividend of $0.21 per common share

As for the book value, it was hit hard by the impact of the new coronavirus and started to recover, and now short-term interest rates are rising faster than long-term interest rates, making life difficult for companies with short-term and long-term borrowing. I’m here.

The report included the following table comparing portfolio yields and funding costs.

The net interest margin is 110bps. Compare to the end of the last two years based on your investment portfolio.

Net interest margins have halved in less than two years as the yield curve has moved from flat to inverted. Not surprisingly, the statement shows its negative effects.

The distribution has been declining for almost a decade, and MITT made a 3-1 reverse split in July 2021. Considering this, payments are down more than 90% from their peak in 2013. Avisol Capital Partners recently announced AG Mortgage Investments: Relatively risky mREIT with high yields at risk-adjusted pricesgave MITT a HOLD rating.

Review and compare priorities

Here is the price chart for the 3 years:

The dividend improved the return by about 20%, but it was still negative in double digits. As expected, prices are falling as the FOMC raises interest rates.

QuantumOnline.com’s description could give the impression that ‘A’ was the only one who skipped payments due to COVID, but in reality all three skipped payments and ‘C ‘ skipped two payments made on 12/20.

element	“Ah”	“B”	“C”
coupon	8.25%	8.00%	8.00%
Coupon type	Repaired	Repaired	F-2-F 3mLIBOR+6.476%**
price	$16.04	$15.64	$16.75
yield	12.86%	12.79%	11.94%
YTC	37.63%*	39.05%	34.33%
date of call	past	past	24/9/17

click to enlarge

* Both A and B are now callable. YTC expects to be called on 9/17/24 like C.

** 3-month LIBOR is 4.75% with a coupon of 11.23%.

Possible action strategy

Before ‘C’ is callable, ‘A’ has a higher coupon and is therefore called before ‘B’. After 17 September 2024, if LIBOR (or the exchange rate) rises above 1.77%, ‘C’ will likely be called first. Anything between 1.52% and 1.77% is probably ahead of ‘B’. At the current price, I would rather hold ‘B’ than ‘A’. We pass ‘C’ because the current yield is low and the risk of being called first is high.

Portfolio strategy

Ahead of the FOMC meeting in December, Goldman Sachs released its economic forecasts for 2023. I wasn’t sure if they pushed the quote up afterward.

They see peak rates next summer, as most forecasters say. Next year will be his third 25bps rate hike, and the fund rate is expected to peak at 5-5.25%. Contrary to consensus, Goldman Sachs does not expect a recession in 2023. Inflation forecasts are approaching the FOMC target of 2%.

To know if MITT preferred stocks are a “good investment,” you need to compare them to other residential mREIT preferred stocks. The following list includes all of the Hoya Capital Income Builder’s Preferred Income Portfolio selections. We separated the three MITTs as they are not part of the portfolio.

The above is not offered as a purchase recommendation as each investor’s goals are different, but may be helpful for issues not included. Here are the questions each investor must answer: