Core Insights - The article focuses on the recent IPO of Angel Oak Mortgage REIT, Inc. (NYSE: AOMR) and aims to provide detailed analysis on exchange-traded fixed-income security IPOs [1] Group 1 - The article invites active investors to join a free trial and engage in discussions with sophisticated traders and investors [1] - The analysis is part of a series that aims to inform readers about the dynamics of fixed-income security IPOs [1]

Core Insights - The value of mortgage real estate investment trusts (REITs) like Rithm Capital Corp. (NYSE: RITM) is highlighted as a strong investment option amid market volatility, offering passive income through ultra-safe dividends and yields [1] Group 1 - Rithm Capital Corp. is positioned as a resilient investment choice for passive income investors [1] - The mortgage trust sector is noted for its ability to provide stability during uncertain market conditions [1]

Core Insights - Apollo Commercial Real Estate Finance Inc. (NYSE: ARI) did not generate sufficient distributable profits to cover its dividend in the first quarter of 2025, which is a significant concern for investors [1] Company Summary - The primary takeaway from ARI's 1Q25 earnings presentation is the inability to earn its dividend through distributable profits, indicating potential financial instability [1]

Financial Performance - Net income per share for Q1 2025 was $018, compared to $007 in Q4 2024[10] - Book value per share decreased slightly from $809 in Q4 2024 to $794 in Q1 2025[10] - Dividends declared per common share remained constant at $036[16] - Net portfolio income decreased from $23514 thousand in 2024 to $21348 thousand in 2025[16] Portfolio Characteristics - Average MBS balances increased from $5348 million in Q4 2024 to $5996 million in Q1 2025[14] - The weighted average coupon of the fixed rate MBS portfolio increased from 503% at December 31, 2024, to 532% at March 31, 2025[43, 47] - Economic leverage ratio increased from 73 in Q4 2024 to 78 in Q1 2025[14] - Liquidity decreased from 105% in Q4 2024 to 78% in Q1 2025[14] Hedging and Funding - The weighted average repo rate was 446% as of March 31, 2025[51] - Total notional balance of hedge positions was $(47328) million[56] - Interest rate swaps had a notional balance of $(39093) million with a weighted average pay fix rate of 329%[56]

Financial Data and Key Metrics Changes - The company raised $270 million of new capital year-to-date, achieving this at a premium to book value, which is accretive to shareholders [33] - Net interest income continues to trend up as new investments with attractive yields are added to the portfolio while financing costs trend down [32] - The leverage ratio increased from 7.4% to 7.8% due to a decline in book value [72] Business Line Data and Key Metrics Changes - The portfolio generated a total return of 2.6% during a quarter with significant swings in rates, validating the investment strategy [36] - Agency RMBS spreads widened sharply, ranging from 145 to 160 basis points over treasuries by the end of the quarter [42] - The company maintained a disciplined liquidity-focused risk management process, allowing it to navigate market volatility without crystallizing losses [43] Market Data and Key Metrics Changes - Long-end treasury yields unexpectedly rose, reflecting selling pressure, while the dollar experienced weakness against major currencies [15] - The market saw a classic risk-off reaction following the April 2nd tariff announcement, leading to declines in equity prices and sharp drops in interest rates [40] - The availability of repo funding remained strong, with costs stable between 15 and 17 basis points over SOFR [63] Company Strategy and Development Direction - The company continues to see compelling opportunities in agency residential mortgage-backed securities while managing through a rapidly changing landscape [55] - A focus on disciplined risk management and real-time adjustments is emphasized as the regulatory and political landscape evolves [27] - The company is preparing for potential changes in the GSEs and is evaluating outlier scenarios for market reactions [24] Management's Comments on Operating Environment and Future Outlook - Management views the current environment as favorable, with a steeper yield curve and lower financing costs supporting the business model [8] - The company is prepared for continued volatility in the financial and economic environments, expecting surprises in the future [28] - The dividend is set based on long-term returns, capital availability, and overall risk, with a recent increase reflecting confidence in generating attractive returns [30] Other Important Information - The company has operated with generally lower leverage and a robust liquidity position, allowing it to remain agile amid external shifts [21] - Management emphasizes the importance of transparency in investments, with all assets marked and reflected in earnings and book value [57] - The executive team collectively owns nearly 2% of the company, aligning their interests with those of shareholders [58] Q&A Session Summary Question: Repo funding costs and availability - Repo funding costs have been stable between 15 and 17 basis points over SOFR, with strong availability in financing markets [63] Question: Hedging strategy amidst volatility - The company is comfortable with its current hedge composition, primarily using swaps as a natural hedge for the mortgage portfolio [65] Question: Investing opportunities in the current environment - The steeper curve and wider spreads present significant ROE potential, with diversification across the coupon stack providing duration certainty [70] Question: Book value and dividend implications - The book value includes the dividend accrued, and leverage is at 7.8 times, reflecting a cautious approach to adding risk [76][78] Question: Preparing for GSE changes and potential spread widening - The company is focused on maintaining liquidity to withstand price shocks and is conducting scenario analysis for potential GSE changes [122][91]

Financial Data and Key Metrics Changes - The company reported a GAAP net loss of $15 million or $0.65 per common share for Q4 2024, while for the full year, GAAP net income was $28.8 million or $1.17 per diluted common share [17][19] - Distributable earnings for Q4 were $9.9 million or $0.42 per diluted common share, with full-year distributable earnings at $7 million [18][20] - Interest income for Q4 was $31.9 million, marking a 30% improvement compared to Q4 2023, and net interest income was $9.9 million, a 20% improvement [19][20] - GAAP book value per share decreased by 9.8% to $10.17 as of December 31, 2024, down from $11.28 as of September 30, 2024 [25] Business Line Data and Key Metrics Changes - The company completed five securitizations in 2024, exceeding the target of one per quarter, with a total of $855 million in scheduled unpaid principal balance [22][23] - The weighted average coupon of the residential whole loan portfolio increased by 61 basis points to 7.39% by year-end 2024 [21] Market Data and Key Metrics Changes - The total portfolio weighted average percentage of loans 90 days plus delinquent increased to 2.4% from 1.85% at the end of Q3 2024 [27] - The company noted that the securitization market remains active and receptive with tight spreads, indicating a favorable environment for capital recycling [12][23] Company Strategy and Development Direction - The company focuses on long-term earnings accretion, disciplined decision-making, and risk management to create shareholder value [7][8] - The capital deployment strategy is adaptive and flexible, aligning with evolving market dynamics to maximize returns [13] Management's Comments on Operating Environment and Future Outlook - Management expressed optimism about the long-term backdrop of the business, despite experiencing a decline in book value due to interest rate volatility [8][11] - The company expects interest income to continue growing through effective portfolio management and securitization execution [21] Other Important Information - The company declared a $0.32 per share common dividend, paid on February 28, 2025 [32] - The company has a small exposure to the California mortgage market, with minimal impact from recent wildfires [30][31] Q&A Session Summary Question: How insulated are the '21 to '23 vintages regarding prepayments? - Management indicated that significant declines in rates would be needed to trigger prepayments, estimating a drop of 150 to 200 basis points [37] Question: Can you discuss the outlook for net interest income (NII) in the next quarter? - Management confirmed a strong pipeline and expected continued growth in NII throughout 2025 [50][51] Question: What are the expectations for delinquencies moving forward? - Management anticipates a return to normalized levels of 2% to 3% for 90-day delinquencies, indicating a healthy credit environment [64] Question: What is the company's stance on repurchasing stock? - Management expressed a preference for building equity over stock buybacks, citing higher returns on incremental capital compared to the current dividend yield [59][60]

Core Viewpoint - Ares Commercial Real Estate Corporation (NYSE: ACRE) has reduced its dividend by 24% in early 2024 due to loan problems and weak pay-out metrics, indicating that the mortgage real estate investment trust did not generate sufficient distributable profits to cover its dividend obligations [1]. Group 1 - Ares Commercial Real Estate Corporation cut its dividend by 24% [1] - The company faced loan problems and weak pay-out metrics [1] - The mortgage real estate investment trust did not earn its dividend with distributable profits [1]