AAIC - Earnings call transcript Q2 2022 | Arlington Asset Investment Corp.

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Operator

Good morning. I'd like to welcome everyone to the Arlington Asset Second Quarter 2022 Earnings Call. Please be aware that each of your lines is in a listen-only mode. [Operator Instructions] I would now like to turn the conference over to Richard Konzmann. Mr. begin. may you Konzmann,

Richard Konzmann

much, Officer morning. of very Konzmann, is Chief Financial Arlington and you This good Rich Thank Asset.

report business and change, concerning Before now from I by These we any should I risk evaluating material constitute financial other statements available would are future in present expectations, read forward-looking which would Tonkel call, conditions, or to SEC risks company turn result future, periods like of for to guidance to uncertainty strategies begin annual forward-looking remind everyone and a his understand and described or number this uncertainties management's Rock with the or and to and performance, market morning's statements that or business Form any on these documents other are that and actual results possible are you current on on events remarks. and the might from XX-K expectations filed stated These risks, subject differ of to beliefs, from factors, expectations, statements subject a time, other based the when which circumstances. materially like to as cause assumptions, call are or time the risks company are SEC, over factors. company's and and statements. to forward-looking the from that

Rock Tonkel

welcome second Portfolio joining of quarter our and the XXXX for to John morning the on us Also Good call Arlington call Rich. Asset. you, today Thank Manager. Murray, earnings is

of XX% of shifting portfolio our with the goal, of quite and MSR of the since the of the investments to building short-term consecutive which we challenging credit built repositioned second market credit consistent asset expansion quarter, net and The strategy during coupon progress from XX% a channels again investment further AAA in and multiple portfolio markets rentals, and various peers collectively return XX% results company's including ago, fourth levered suited nearly to strong leverage. over we generate both the XX% rates the XX%, last appreciation to quarter capital. a we interest single produce versus we XX% in while a plus, mortgage a diverse volatile and with constructed in over low credit rise for a through well second returns strong an total are of year and along resulting successfully for and and properties, Overall, company for with the return family in expansion protecting a investment perform in interest with basis set with for course financial first platform should we return modest resulted to have inception, into of the benchmark and Over multiple Since MSR first cash portfolio second over significant economic the quarter our a markets economic is company's two return. in and half position its goal rated attractive shareholders sources inflation continued the through acquired employing the results once non-commodity markets. points. return. in down have the portfolio in XX%, that servicing months portfolio investment return residential differentiated conditions of challenging one of shareholder XX% market million current second total to quarter objectives, quarters low economic Arlington investment saw allocation $XXX current a annualized positive produced quarter market, rental family mortgage SFR our exceptional rights, among we the MSRs, multiple MSR versus and XX% Through volatility. investment returns return economic Arlington's have leverage yields Arlington's to time. continued total XXX senior towards quarter in pleased credit during quarter, investments years low a Fed the XXXX, during credit through company's the XX% annualized single XX results portfolio current annualized quarter last made the X% our opportunistic low yields a total investment peers draw most return equity quality since well maintain securities. have broad negative primary conditions of focused produce an current positive the In The returns, positive out

the As mortgage of investments leverage had underlying MSR a X.XX $XXX a million company's valued rights at multiple quarter-end, of servicing of with X.Xx. of

mitigate allocation contributed harvest at gains of coupon only may and of it has weighted rights, some becoming are Importantly, The to average the largest mortgage quarter-end. XX% those company's X.XX% available in the fall. see today. and the of opportunities reallocate And we attractive declines company's the to of company should at rates of value to significant MSR other that investment capital capital return with to in look investments a interest well-positioned the the company's MSR appreciation value underlying servicing investments

capital homes. of acquiring, our have continue to of that single essentially progress We homes of objective. XXX we up has achieved million invest million strategy XX family residential operating, significant company's goal leasing to to The acquire and and to in make been

XX, million, acquire XXX for its for to of June of have committed of to strong experience we acquired demand had a lease As of X.X%. with unlevered or acquired total continues XXX to for net $XXX company The homes as a or committed million. homes today, properties yield company the acquire and XXX

fixed of term through attractive to rate $XXX an funds SFR a a facility secured March properties, five-year Arlington. our of of X.XX% XX Importantly, limited cost to the with the with company draw the recourse finance at of acquisition million debt has period end and

attractive the opportunistic a capture previously consummated, rental to And agreement leased book entered from its a strong As The yields standard closing $XXX.X we would for sale to sale bulk strong conditions. expect XX of the sell $X.XX positive purchases company premium close we the properties if to would of announced, this SFR scheduled a to is approximately an for sale homes into million. an a subject later to constructed impact individual we share. company's markets. portfolio month, price June of in additional value of XXX with This sale have

sale the with earnest Importantly, the buyer deposit has an agent its purchase to agreement. money and funded $X.X million secure a escrow obligations also under

to and sale intends the company below XXX the – its once take closes, advantage continue of SFR to fixed its funding of company homes to into reach reinvest capital market the five-year million full to of the again facility. goal back Assuming properties rate

in the we a in term purchasing However, evolves properties housing new the to as environment. near approach disciplined in market current economic residential take expect

five XXX new [ph] over unlevered Within Late levered rate securities] in with XXX the double-digit spreads of the quality company's credit and basis we basis in SOFR second investment in to several assets. created strategy, made maturities [FASB investments quarter, widening investment points returns of years rated AAA opportunities has floating credit commercial high compelling solid spreads in of estate final points real with less. or senior

market We and the in opportunities assets current allocation saw mortgage capital are may towards the agency MBS. increase in these The our continuing in wider quarter, carry increasing to evaluate rated agency spreads similar near-term. potential returns second investment also highly opportunities during levered

MBS. materially agency its However, expect not investment allocation current conditions, to to on based increase the company does

our in the the return. assessment, As to of potential remains capital in risk excess hedge carry current

results book bulk at the SFR would low to flexibility actual operate markup X% a increase for value. at overall include book per of prior which about $X.XX quarter, associated XX. approximately the over for the the $X.XX per the That of an X does quarter-end. leverage The and company reported share continued June potential with at-risk X.X% increase leverage gain any value with financial represent share to of X.X with to Turning its ratio standing quarter June the as not company sale, overall significant XX, of from second

for For last $X.XX per a quarter. quarter, from operating net income $X.XX core the and loss as share GAAP the formerly to earnings of unchanged share of distribution second company available reported per referred

believe greater recognized. to than Arlington's the public in is continue markets business value We there far

its During accreted $X.XX per current company that common quarter, repurchased repurchased Since share of economic and per its able book conditions. stock. over million remaining the common outstanding a to that in stock shares has share period. second common its to additional authorization returns over stock Board Subsequent company its XX% outstanding book $X.XX repurchased during company the of of produce X% XX.X the the to X% shares solid of its from repurchase accreted has Company value value. market shares stock of challenging repurchase has period company consistently a to an to its shares has substantial program of been reinstituting XXXX, outstanding and in common of the quarter-end,

return incremental The commercial while to NAREIT returns in company on our opportunity share investment substantially over market low the positioned XX the year. peers presentation successfully among other book in residential grow by Index, the our and preserve mid-teens are grade the conditions. experiencing the deploying high lowest Home Arlington investments of in among per in wider FTSE capitalize As significantly products, Having risk superior to improved capital months, in available. mortgage to the Mortgage our investor securitized return with has new adjusted and capital compared spreads last illustrates, value outperformed through also economic that various now economic Financing to to has quarters company returns opportunities the peers and both quarterly volatility total last recent

return to investments capital be shareholders. which the drive repurchases, to that expect increase overall of common share equity or these into reinstate a potential, can support We capital, dividend earnings redeployment increased used higher can

platform Arlington's about a the significant and over questions. as have stock, that And can owners differentiated shareholders open that will we We market call company's strategy to Thank to you. strong investment believe value attractive of time. I'd the recognize the and diversified returns to conviction generate like Arlington's

Operator

Harter We'll first Instructions] question from Doug [Operator Credit with Suisse. you. take Thank our

Doug Harter

Thanks. you assets seeing that the redeploy Rock, talk goes would SFR today compare how that in that can to and you're the redeploy return sale at? you capital through rates opportunity the you those acquired cap about that assuming as

Rock Tonkel

that see buyer evolving, extent today million is the $XXX market that in would to expect that and to watch after And bit. extent the in that of moving the new up what expect how financing, four see then be market X.XX% possibility an a a point. we the refill against Doug, may patient that I'd bit do, shifting. the laid to we little We is purchases allotment, here I cap be remaining they our we for benefit and years capture say, think the we to that unfolds of to rates that will up ongoing

also not the we surprised financing but little spreads them, bought we wider higher wouldn't also return be to to against surprised on be So, the be see a but see the with our and little consistent, we spreads a we where opportunity would be follow.

Doug Harter

of of deploy a placeholder do you talked And the holdings Great. of of kind view that million as long-term some as the you you securities, XXX opportunities kind or those the would proceeds? in about be,

Rock Tonkel

No, all, that how depend I think, on first of well, markets will evolve.

think are long all, of evolved hadn't security the conditions in conditions last the side, the time over spreads these the a the since for cases I six start new on security [QE] seeing the These market changes some seen on based we're of really that in seeing [ph]. opportunities markets First we months, in have side, in right? we're

like we'd opportunities we those plan that attractive we can to to incremental very we not do will said in types long unique that, to high extent teens see cases relatively risks, senior those how they so. would returns it's capital the that those clear And think that invest low-teens, holding like Having endure additional as they're those on opportunities. of in have. rate a in relative and to floating and securities, even So, the – very fresh given we mid-teens those some are and with their as we see returns

we're we spot securities our in portfolio extent So, that of to think the have type that we build over position. the the purchased longer a To able term.

that ahead that available will make extent SFR that refill a short-term $XXX basis the we'll do with notion on in to Does bucket the that back when over into go of million of And having We March-end we as sense? XXXX repurchase and the timeline. time invest liquidity that homes our be expect closes, limits we'll that under sale to SFR some the of that fresh more the capital.

Doug Harter

It does. Rock. Thank you,

Operator

Thank you.

Our next Stewart question comes from of JonesTrading. [Jason] [ph]

Jason Stewart

a name. Great. I new got

Rock Tonkel

Hi, Jason.

Jason Stewart

rent occupied, sense question portfolio for there? do for and How you are a you? A is SFR what on year-over-year leased have follow-up quick a as growth

Rock Tonkel

I relatively think what is the newer investing turned over seeing with that The are public has in small other that, circumstances a size. I homes a the remember, and sort It – lot. single in relatively level think Jason, firms are a others maybe But in is of reasonable we're seeing are some guys But it it's that because sample hasn't of portfolio early, other which seeing. portfolio, where higher industry in turned right? growth than We're of what over, but little is this digits, of consistent rent space number those firms but range? well, seeing, it's high-single-digits high with relatively consistent a sort

Jason Stewart

how you just us remind can the And much just this, of in you. got roughly? when portfolio purchased was you Okay, rehab,

Richard Konzmann

really it. very doing replacing is is carpet these in there, of a very rehab rehab The sale. and The all of terms minor. and dollar that's mean, commitment we're are minor, newly going I period built none on or time really, refrigerator, replacing in a a relatively

Jason Stewart

it. Got

are what on down go you opportunity Okay. to would want you credit in credit kind what now? And the then right and seeing side, there make of

Rock Tonkel

of great we're great a And We can as sort the opposite, it's this fairly That's in AAA developed time. last doing quarter space opportunity question. in see, Well, that over the a question. unique the right? see you

not available long how might it that wanted to we to continue while was be so, an available. to it knowing opportunity capture And take

which could we did extent essentially we very in we've returns reasonable so, the time, the provided And even out here comparable And acceptable what shifting through is in up to of down with second late that credit generated over returns quarter. down X to the markets in credit accomplished capital rotating in the over the returns. that and capital months. months last XX It credit challenging to

year a to and a be going these we've or or were So, or investing piece something in that, credit non-QM [ph] if two with do now like now but comparable AAA can a was that, [BPO] done we we that down returns. in in securities mid-teens ago, that high-teens,

shifting So, we eye that for have in been credit of in the an portfolio opportunistic really process be to up potentially with returns. outsized

outsized be to down draw credit about in be returns, would that. but cautious would what we back would significant So, us really

in We more here in focused of credit are stage. go the credit a credit. It this very this as part to focused in cycle on we the something take into up We're potentially opportunity and bring us through recession. more down exceptional up on would at the

Jason Stewart

Got it. me. for one Last

the market, on agency rates I forward? your today? rallying the going view given of mean, what's On and impact capacity the prepays

Rock Tonkel

us? Capacity for

Jason Stewart

speeds? industry just how loans prepay to No, capacity then originate that and impacts

Rock Tonkel

risks uncertainties going But still continue to exposure we Well, our and we of spreads Look, that's to attractive still on to it I agency now number mean, it. massive it's stage, side think the from capital there's be adjustment mean, out fact investor in tend and inclined agency we was. on that because that one, modest, than I a space, other the are opportunities And a the see, relative there. more see right? allocation that at is a we – standpoint. be despite this about we modest relatively widened we're to

probably And our it are watch as which portfolio pretty speeds obviously allocation us. prepayment we SFR very is closely them capital like for significant feel we to particular, overall, think I benign a in here. relates

here. level with So, prepayment than a today we've feel but a sure, speeds we a security from agency benign got that XXX issue like portfolio view we're more on pretty insulated new coupon for in

Jason Stewart

the for questions. Thanks it. taking Appreciate Great.

Rock Tonkel

question [ph] I I one about Jason, piece want [securities the the on question here that the Doug's to your follow-up think about and there's composition] of portfolio composition. securities

process what we sort think fresh a types challenging buy script, would point. potential spent in of time earnings the with it a improve something of future the I good reinstate the opportunity gives our a spent these and time company is board that as thinking imminent that in the of we the the generally say gives in last the the incrementally opportunity a and beyond that earnings think see just of I about returns more a capital way power value the the these our in us how amount our meeting. book earnings see to, a be up grow to the have for down SFR over particularly grow opportunities buyback. deal wouldn't having would growth company, road with reinstatement dividend time, unfolds will tools through fresh at of opportunity reiterate available preserved, impact to at repurchase shares period stock, at seriously time we'll with because end that Board our fact that's and that consider relates unfolds, can added come process that today earnings to say, significant of – the power of that company to capital, power think it lot potentially opportunities about said but the And this opportunities or the last increased very potentially from have ability a have I over of and as the that a capital flexibility, we discussion to deployment fresh I point, we dividend mindful that the I

Jason Stewart

color. Thanks, Rock. great That's

Operator

next Thank with Securities. question Cranston Instructions] you. Our [Operator Trevor JMP comes from

Trevor Cranston

morning. good thanks, Hey,

Rock Tonkel

morning. Good

Trevor Cranston

contemplated value starting there portfolio, have On strong increased. like to returns June retracement kind stood multiples some could have hedge if rates? rates have less guys the Where and been of rally big MSR fair very the as of obviously, seems, you that the in would XX, there seem there's be given from further potential MSR a likely it then the at there upside

Rock Tonkel

to position Well, MSR the portfolio. in is the there and agency part to hedge hedge good complement

couple of think a couple there. of a I other things

time the we as appreciation valuation for some other asset acknowledging some that return those I in that that has trim think And matter people to script raising; to if the we think time. I with grown as think the one shouldn't that harvest I a allocation has mentioned also high over gains of combined opportunities. levels capital the these occurred, of appreciation it repatriation you're question over surprise concentration and

I keep there, modest. seeking Number to two the is there three, on And think hedge price to the that. the answer is, leverage offset So, we're one agency is moves.

toward One more of alongside done, on the we've rate rate in scenarios, MSR potentially in the to of, respond valuations we've, the the order recently side, down effectively things is Trevor, could bit sort side we the agency's we've hedge further head portfolio to positions which potential for it on reduced recession. a affect as down markets more a shift

on that's by a Fed our as in portions developments to down well positioning phase So, shifting down posture down all it, of is increasing next price the down MSR moves of Selling into the assessment of markets the move. means. and our different increasing and market that the developments the part MSR in rate rate as policy with of economic portfolio few offset hedge agency and exposure

Trevor Cranston

Got it.

And have an sense. do value makes you currently? where update on you think That book is Okay.

Rock Tonkel

now about assessment flat. is best Our

Trevor Cranston

you. Thank Perfect. Okay.

Operator

further for today's participation. you will call. no Thank conclude This at are Thank this your questions time. you. There

You may now disconnect.

Rock Tonkel

Thank you.

Arlington Asset Investment (AAIC) 10 Aug 222022 Q2 Earnings call transcript