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Non-QM REIT Angel Oak Mortgage files to go public

Angel Oak Mortgage, a real estate investment trust that purchases non-qualified mortgages originated by an affiliate, is the latest industry company looking to go public.

The size and pricing of the initial public offering were not listed in the filing, although a placeholder figure of $150 million was used for regulatory purposes. The company was unable to comment because it is in a quiet period.

In addition to the public offering, Angel Oak Mortgage has entered into a private placement agreement with CPPIB Credit Investments, which has agreed to purchase an aggregate of $40 million of common stock at a price per share equal to the lesser of the IPO price per share or the book value per share.

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Angel Oak Mortgage Lending, which has units that originate non-QM in the wholesale and retail channels, produced $516 million in the first quarter, following full year production of $1.5 billion in 2020.

The REIT reported first quarter net income of $9.5 million, compared with a pandemic-driven net loss of $36.7 million one year prior.

It had assets of approximately $534.9 million at the end of the first quarter. That included approximately $481.0 million in non-QM loans, which were financed with several term securitizations as well as with warehouse lines and repurchase facilities.

"We are able to primarily utilize an 'originator model' of sourcing loans, which we believe provides tangible value and differentiation compared to an 'aggregator model' that is dependent on third-party origination and underwriting," the filing said. "Angel Oak Mortgage Lending has controlover the credit underwriting process, the ability to source loans with our desired credit and return profile, as well as access to loans from a diverse geographic footprint and from a broad set of loan programs — enabling us to acquire and invest in loans with attractive relative value."

In the first quarter of 2020 but prior to the pandemic, Angel Oak Mortgages acquired 958 loans for an aggregate purchase price of $389.1 million. It paused loan purchases between April and August 2020. Between Sept. 1, 2020 and May 14, it purchased 668 loans for an aggregate purchase price of $349.6 million.

Angel Oak Mortgage also invests in small balance commercial real estate loans, a niche that typically consists of properties under 50,000 square feet in size and below $5 million to $10 million in value. Because of that, many lenders in the space source their loans from residential real estate originators. In that sense, it is similar to non-QM, as both businesses appeal to those looking to keep busy as single-family residential originations decline.

In 2018, Angel Oak Commercial Lending, another sister company, acquired an ownership interest in Cherrywood Mortgage to source these loans.

And 2019 "was the most active year for non-QM of around $50 billion originated, with Angel Oak consuming $3.3 billion," according to a research note from Eric Hagen of BTIG. "It's likewise built good liquidity as an issuer with more than $7.5 billion of securitized debt, of which the REIT is currently holding the residual risk from 4 deals originated in 2019 and 2020."

Currently BTIG estimates that Angel Oak Mortgage is capitalizing around $1.5 billion in non-QM loans, which gives it a portfolio size between two other publicly traded REITs: Ellington at $1 billion and MFA Financial with a $2.2 billion portfolio.

Angel Oak Mortgage is managed by an affiliate of another related company, Angel Oak Capital Advisors, which recently completed the first non-agency securitization that qualified as a social bond offering.

"Angel Oak Capital is a private credit investor with over $10 billion in assets under management managed through mutual funds, private funds, and separately managed accounts, with an emphasis on investing in residential and commercial mortgage credit," Hagen pointed out. "The public REIT should complement the manager's $6.5 billion open-ended mortgage mutual fund."

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Secondary markets IPOs Qualified Mortgages Commercial mortgages Wholesale lenders
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