8-K: Cherry Hill Mortgage Investment Corporation Reports Third Quarter 2024 Results

Cherry Hill Mortgage Investment Corporation announced a net loss of $14.8 million for the third quarter of 2024, while also reporting earnings available for distribution of $2.5 million.

Summary

• Cherry Hill Mortgage Investment Corporation reported a GAAP net loss of $14.8 million, or $0.49 per share, for the third quarter of 2024.
• Earnings available for distribution (EAD) were $2.5 million, or $0.08 per diluted share.
• The company's common book value per share was $4.02 as of September 30, 2024.
• Special committee-related expenses impacted GAAP net loss, EAD, and common book value per share by 4.5 cents per share.
• A regular common dividend of $0.15 per share was declared, resulting in an annualized yield of 18.6%.
• The aggregate portfolio leverage was 5.3x at the end of the quarter.
• The company had $50.2 million in unrestricted cash as of September 30, 2024.
• The company's portfolio remained relatively consistent during the quarter.
• Cherry Hill favors deploying additional capital into agency RMBS for attractive risk-adjusted returns.

Sentiment

Score: 4

Explanation: The sentiment is moderately negative due to the reported net loss and the impact of various losses on investments and derivatives. However, the high dividend yield and the company's strategic focus on agency RMBS provide some positive aspects.

Positives

• The company declared a common dividend of $0.15 per share, resulting in a high annualized yield of 18.6%.
• Cherry Hill had a substantial amount of unrestricted cash, totaling $50.2 million.
• The company is actively looking to deploy capital into agency RMBS, which they believe offers attractive risk-adjusted returns.
• The net interest spread for the RMBS portfolio was 3.22%.

Negatives

• The company reported a significant GAAP net loss of $14.8 million for the quarter.
• The company experienced a net realized loss on RMBS of $3.7 million.
• The company experienced a net realized loss on investments in MSRs of $0.2 million.
• The company experienced a net realized loss of $8.0 million on derivatives.
• The company experienced a net unrealized loss of $21.3 million on derivatives.
• The company experienced a net unrealized loss of $7.5 million on investments in Servicing Related Assets.

Risks

• The company is exposed to spread and volatility risks in the market.
• The company is exposed to interest rate risk associated with its RMBS and MSR holdings.
• The company's performance is impacted by realized and unrealized losses on various investments and derivatives.
• Special committee-related expenses negatively impacted the company's financial results.

Future Outlook

The company currently favors deploying additional capital into agency RMBS, which offers attractive risk-adjusted returns.

Management Comments

• Our portfolio remained relatively consistent in the quarter, as we continued to navigate spread and volatility risks, said Jay Lown, President and CEO of Cherry Hill Mortgage Investment Corporation.
• As we close out the year, we currently favor deploying additional capital into agency RMBS, which offers attractive risk-adjusted returns.

Industry Context

The company operates in the real estate finance sector, specifically focusing on residential mortgage assets. The results reflect the challenges of navigating interest rate volatility and spread risks in the current market environment. The company's focus on agency RMBS aligns with a broader trend of seeking safer, more liquid assets in a volatile market.

Comparison to Industry Standards

• Cherry Hill's reported net loss of $14.8 million contrasts with some peers who may have reported profits in the same period, reflecting the challenges of managing a portfolio with significant exposure to derivatives and MSRs.
• The company's leverage ratio of 5.3x is within the range of other mortgage REITs, but the specific risk profile of their assets may differ.
• The dividend yield of 18.6% is high compared to many other REITs, which may indicate a higher risk profile or a need to attract investors.
• Companies like Annaly Capital Management (NLY) and AGNC Investment Corp. (AGNC) are comparable peers in the mortgage REIT space, and their performance during the same period would provide a useful benchmark for comparison.

Stakeholder Impact

• Shareholders experienced a net loss for the quarter, but received a high dividend yield.
• Employees are likely to be impacted by the company's financial performance.
• Customers are not directly impacted by this report, as the company is a mortgage REIT.
• Suppliers and creditors are indirectly impacted by the company's financial health.

Next Steps

• The company will host a conference call to discuss the results.
• The company will continue to monitor market conditions and adjust its portfolio accordingly.
• The company plans to deploy additional capital into agency RMBS.

Key Dates

Keywords

Mortgage REIT, RMBS, MSR, Real Estate Finance, Dividends, Leverage, Derivatives, Interest Rate Swaps, Book Value, Earnings Available for Distribution