8-K: Cherry Hill Mortgage Investment Corp. Reports Q2 2024 Results, Announces Internalization

Cherry Hill Mortgage Investment Corporation reported a net loss for Q2 2024, but also announced the approval to internalize management and repurchased a significant amount of preferred stock.

Summary

• Cherry Hill Mortgage Investment Corporation reported a GAAP net loss of $1.9 million, or $0.06 per share, for the second quarter of 2024.
• Earnings available for distribution (EAD) were $2.3 million, or $0.08 per diluted share.
• The company's common book value per share was $4.15 as of June 30, 2024.
• These results were impacted by $0.06 per share of special committee-related expenses.
• A regular common dividend of $0.15 per share was declared, representing an annualized yield of 16.4%.
• The company repurchased 395,897 shares of Series B preferred stock for $9.4 million, with $40.6 million remaining in the program.
• Aggregate portfolio leverage was 4.9x at the end of the quarter.
• The company had $52.4 million in unrestricted cash as of June 30, 2024.
• Cherry Hill sold approximately $1.2 billion of UPB of low-balance MSRs to enhance portfolio efficiency and reduce servicing costs.
• The company's board approved internalizing management, which is expected to reduce expenses and align interests with stockholders.

Sentiment

Score: 5

Explanation: The sentiment is neutral to slightly negative due to the reported net loss, but the positive steps of internalizing management and the high dividend yield provide some optimism. The mixed results and the need to manage risks temper the overall sentiment.

Positives

• The company's board approved internalizing management, which is expected to reduce expenses and align interests with stockholders.
• The company declared a common dividend of $0.15 per share, representing a high annualized yield of 16.4%.
• Cherry Hill repurchased $9.4 million of its Series B preferred stock, indicating a commitment to managing its capital structure.
• The company sold $1.2 billion of low-balance MSRs, which should enhance portfolio efficiency and reduce servicing costs.
• The company has a significant amount of unrestricted cash, totaling $52.4 million.

Negatives

• The company reported a GAAP net loss of $1.9 million, or $0.06 per share, for the second quarter of 2024.
• The company experienced a net unrealized loss of $4.4 million on RMBS measured at fair value through earnings.
• The company experienced a net unrealized loss of $3.0 million on derivatives.
• The company experienced a net unrealized loss of $3.3 million on investments in Servicing Related Assets.
• The company incurred $5.1 million in general and administrative expenses and management fees, including $1.7 million in special committee-related expenses.

Risks

• The company is exposed to risks associated with interest rate fluctuations and market volatility.
• The company's performance is subject to changes in the value of its RMBS and MSR portfolios.
• The company's results are impacted by unrealized losses on RMBS, derivatives, and servicing related assets.
• The company's expenses include management fees and special committee-related expenses, which can impact profitability.

Future Outlook

The company anticipates that the internalization of management will reduce expenses and further align the company with stockholders. The company also aims to generate sustainable and attractive risk-adjusted returns for stockholders.

Management Comments

• We continue to proactively manage our portfolio, navigating spread and volatility risks, said Jay Lown, President and CEO of Cherry Hill Mortgage Investment Corporation.
• Notably, we sold approximately $1.2 billion of UPB of low-balance MSRs this quarter, which should enhance our portfolios efficiency and reduce servicing costs.
• Looking ahead, we look forward to completing our internalization, which we anticipate will reduce our expenses and further align us with stockholders.

Industry Context

The company operates in the mortgage REIT sector, which is sensitive to interest rate changes and market volatility. The move to internalize management is a trend seen in some REITs to reduce costs and align interests with shareholders. The sale of MSRs is a common strategy to manage portfolio risk and improve efficiency.

Comparison to Industry Standards

• Cherry Hill's leverage ratio of 4.9x is within the typical range for mortgage REITs, but it is important to compare this to peers with similar investment strategies.
• The company's book value per share of $4.15 is a key metric for mortgage REITs, and its performance should be compared to peers such as AGNC Investment Corp. and Annaly Capital Management.
• The dividend yield of 16.4% is high compared to the broader market, but it is not uncommon for mortgage REITs to offer higher yields due to their business model.
• The company's net loss for the quarter is a concern, and it should be compared to the performance of other mortgage REITs in the same period to assess its relative performance.
• The company's move to internalize management is a strategic shift that should be compared to other REITs that have made similar moves, such as MFA Financial, to assess the potential benefits and risks.

Stakeholder Impact

• Shareholders will be impacted by the net loss, but may be encouraged by the high dividend yield and the move to internalize management.
• Employees may be affected by the internalization of management.
• Customers and suppliers are not directly impacted by this announcement.

Next Steps

• The company will complete the internalization of management.
• The company will continue to manage its portfolio and navigate spread and volatility risks.
• The company will discuss the investor presentation on a conference call.

Key Dates

Keywords

Mortgage REIT, MSR, RMBS, Internalization, Dividends, Preferred Stock, Real Estate Finance, Net Loss, Earnings Available for Distribution, Book Value