8-K: Cherry Hill Mortgage Investment Corporation Reports Mixed Q4 2023 Results Amidst Market Volatility

Cherry Hill Mortgage Investment Corporation reported a net loss for Q4 2023, but also announced a preferred stock repurchase program and a common stock dividend.

Summary

• Cherry Hill Mortgage Investment Corporation reported a GAAP net loss of $35.5 million, or $1.29 per share, for the fourth quarter of 2023.
• Earnings available for distribution (EAD) were $4.5 million, or $0.17 per diluted share.
• The company's common book value per share was $4.53 at the end of December 2023.
• A regular common dividend of $0.15 per share was declared, resulting in an annualized yield of 16.4% based on the March 6, 2024 closing price.
• The Board of Directors authorized a $50 million preferred stock repurchase program, with $6.1 million already repurchased as of March 7, 2024.
• The company's aggregate portfolio leverage was 4.2x at the end of December 2023.
• Cherry Hill had $52.9 million in unrestricted cash as of December 31, 2023.
• The company's MSR portfolio had an unpaid principal balance of $20.0 billion and a carrying value of $253.6 million at the end of the quarter.
• The RMBS portfolio had a book value of approximately $1.0 billion with a weighted average coupon of 4.64% and a weighted average maturity of 28 years.

Sentiment

Score: 4

Explanation: The sentiment is negative due to the significant net loss, although the high dividend yield and share repurchase program provide some positive aspects. The company is facing challenges in a volatile market.

Positives

• The company declared a common stock dividend of $0.15 per share, resulting in a high annualized yield of 16.4%.
• A $50 million preferred stock repurchase program was authorized, indicating a commitment to shareholder value.
• The company has $52.9 million in unrestricted cash, providing financial flexibility.
• The company is actively managing its portfolio to mitigate risks associated with market volatility.

Negatives

• Cherry Hill reported a significant GAAP net loss of $35.5 million for the fourth quarter of 2023.
• The company experienced a net unrealized loss of $56.0 million on derivatives.
• The company experienced a net unrealized loss of $12.8 million on investments in Servicing Related Assets.
• The company experienced a net realized loss of $14.9 million on RMBS.

Risks

• The company is exposed to risks associated with macro volatility, which can impact book value.
• Interest rate fluctuations pose a risk to the company's portfolio.
• The company's performance is sensitive to changes in the value of RMBS and derivatives.
• The company's earnings are affected by unrealized losses on derivatives and investments in servicing related assets.

Future Outlook

The company is closely monitoring the rate environment and assessing the optimal positioning for its portfolio in 2024, with a focus on creating a more stable equity profile for shareholders.

Management Comments

• Jay Lown, President and CEO, stated that the company continues to align its portfolio prudently to guard against risks that can have an outsized impact on book value.
• Jay Lown also mentioned that they are closely monitoring the rate environment as they assess the optimal positioning for their portfolio.

Industry Context

The results reflect the challenges faced by mortgage REITs in a volatile interest rate environment, where managing duration risk and hedging strategies are critical. The company's focus on MSRs and RMBS is typical for this sector, but the results highlight the impact of market fluctuations on these assets.

Comparison to Industry Standards

• The reported net loss is worse than some peers who have managed to navigate the interest rate environment more effectively, such as AGNC Investment Corp. which reported a smaller loss in the same period.
• The dividend yield of 16.4% is high compared to the average REIT dividend yield, which is typically in the 5-10% range, suggesting a higher risk profile.
• The leverage ratio of 4.2x is within the typical range for mortgage REITs, but higher leverage can amplify both gains and losses.
• The company's MSR portfolio is a significant asset, but its performance is highly dependent on interest rate movements and prepayment speeds, similar to other companies with large MSR holdings such as New Residential Investment Corp.

Stakeholder Impact

• Shareholders are impacted by the net loss, but also benefit from the high dividend yield and share repurchase program.
• Employees are likely to be affected by the company's overall financial performance.
• Customers are not directly impacted by this report, as the company is a mortgage REIT.

Next Steps

• The company will continue to monitor the rate environment and assess the optimal positioning for its portfolio.
• The company will continue to execute its preferred stock repurchase program.
• The company will host a conference call to discuss the results and investor presentation.

Key Dates

Keywords

Mortgage REIT, RMBS, MSR, Dividends, Preferred Stock, Repurchase Program, Leverage, Interest Rate Swaps, Derivatives, Financial Results