8-K: Cherry Hill Q2 2025: Strategic Partnership & Equity Boost

Cherry Hill Mortgage Investment Corporation reported a GAAP net loss of $0.9 million for Q2 2025, alongside a strategic partnership with Real Genius LLC and an $8.9 million equity raise.

Summary

• GAAP net loss applicable to common stockholders was $0.9 million, or $0.03 per basic and diluted share, for the second quarter of 2025.
• Earnings available for distribution (EAD) attributable to common stockholders were $3.2 million, or $0.10 per diluted share, for the second quarter of 2025.
• Common book value per share stood at $3.34 as of June 30, 2025.
• A regular common dividend of $0.15 per share was declared for the second quarter of 2025, representing an annualized common dividend yield of 20.8% based on the August 6, 2025 closing price.
• Aggregate portfolio leverage was 5.3x at June 30, 2025.
• Unrestricted cash totaled $58.0 million as of June 30, 2025.
• CHMI Solutions, Inc., a subsidiary, entered into a strategic partnership and financing with Real Genius LLC, a Florida-based digital mortgage technology company, in May 2025.
• Accessed an at-the-market equity program, generating approximately $8.9 million in additional proceeds.
• Net interest income for the quarter was $2.6 million, and net servicing income was $9.0 million.
• Realized a net realized loss on RMBS of $2.1 million, a net realized gain on derivatives of $14.8 million, a net unrealized gain on RMBS measured at fair value through earnings of $3.5 million, a net unrealized loss on derivatives of $19.1 million, and a net unrealized loss on investments in Servicing Related Assets of $2.7 million.
• Total general and administrative expenses, compensation and benefits amounted to $3.4 million.
• The unpaid principal balance for the MSR portfolio was $16.6 billion as of June 30, 2025, with a carrying value of $224.6 million.
• The net interest spread for the RMBS portfolio was 2.61%.
• The RMBS portfolio had a book value of approximately $1.1 billion and a carrying value of approximately $1.2 billion at quarter-end June 30, 2025, with a weighted average coupon of 4.97% and weighted average maturity of 28 years.
• Used interest rate swaps with a notional amount of $799.7 million, TBAs with a notional amount of ($413.5) million, and Treasury futures with a notional amount of $60.2 million to mitigate duration and interest rate risk.

Sentiment

Score: 6

Explanation: While a GAAP net loss was reported, it significantly improved from the previous quarter. The strategic partnership and successful equity raise are positive developments, though the decline in Earnings Available for Distribution (EAD) per share is a notable concern, leading to a mixed but slightly positive sentiment.

Positives

• GAAP net loss significantly improved to $0.9 million ($0.03 per share) in Q2 2025, compared to a $9.3 million loss ($0.29 per share) in Q1 2025.
• Entered into a strategic partnership and financing with Real Genius LLC, an innovative digital mortgage technology company.
• Successfully accessed an at-the-market equity program, generating $8.9 million in additional proceeds.
• Net interest income increased to $2.6 million in Q2 2025 from $2.166 million in Q1 2025.
• Net servicing income increased to $9.0 million in Q2 2025 from $8.428 million in Q1 2025.
• Reported a significant net realized gain on derivatives of $14.8 million.
• Maintained a strong unrestricted cash position of $58.0 million at quarter-end.
• Declared a regular common dividend of $0.15 per share, reflecting an attractive annualized yield of 20.8%.

Negatives

• Reported a GAAP net loss of $0.9 million for the quarter.
• Earnings available for distribution (EAD) attributable to common stockholders decreased to $0.10 per diluted share in Q2 2025, down from $0.17 per diluted share in Q1 2025.
• Incurred a net unrealized loss on derivatives of $19.1 million.
• Incurred a net unrealized loss on investments in Servicing Related Assets of $2.7 million.
• Realized a net loss on RMBS of $2.1 million.

Risks

• Exposure to duration risk and interest rate risk associated with the RMBS and MSR portfolios, although mitigated by interest rate swaps, TBAs, and Treasury futures.
• Forward-looking statements are not guaranteed to occur, and actual results may differ due to various factors, including those detailed in the Annual Report on Form 10-K.

Future Outlook

Management remains focused on prudently growing the company in the second half of the year, seeking to deliver attractive risk-adjusted returns to shareholders. The company aims to expand its market opportunities and create its own Excess MSRs.

Management Comments

• "We are pleased with the progress made in the second quarter, successfully raising additional equity and entering into a strategic partnership with Real Genius, an innovative digital mortgage company."
• "Moving into the second half of the year, we remain focused on prudently growing Cherry Hill as we seek to deliver attractive risk-adjusted returns to our shareholders."

Industry Context

The company operates in the residential mortgage assets sector, which is sensitive to interest rate fluctuations and housing market dynamics. The strategic partnership with Real Genius LLC indicates a move towards integrating digital mortgage technology, aligning with broader industry trends of digitalization and efficiency improvements in mortgage origination and servicing. The use of derivatives for risk mitigation is a common practice for mortgage REITs to manage interest rate and duration risks inherent in their portfolios.

Comparison to Industry Standards

• The filing does not provide specific comparable companies, projects, or results to assess performance against global benchmarks.

Stakeholder Impact

• Shareholders: Impacted by the GAAP net loss, Earnings Available for Distribution (EAD), common dividend declaration of $0.15 per share, common book value of $3.34 per share, and the potential for attractive risk-adjusted returns.
• Real Genius LLC: New strategic partner, indicating potential for collaborative growth and technological integration.

Next Steps

• Management will host a conference call on August 7, 2025, at 5:00 pm Eastern Time to discuss the results.
• The Quarterly Report on Form 10-Q for the quarter ended June 30, 2025, was filed with the SEC on August 7, 2025.
• Management is focused on prudently growing the company in the second half of the year.
• The company seeks to deliver attractive risk-adjusted returns to shareholders.

Key Dates

Recommendation

While the significant reduction in GAAP net loss and the strategic partnership with Real Genius are positive indicators, the decline in Earnings Available for Distribution (EAD) per share from $0.17 to $0.10 raises questions about core operational profitability. The 20.8% annualized dividend yield is attractive but needs to be assessed against the sustainability of EAD. The equity raise provides capital but also dilutes existing shareholders. Given the mixed financial performance (improved GAAP loss but lower EAD) and strategic moves, a "hold" recommendation is appropriate as investors await further clarity on the impact of the new partnership and the company's ability to consistently generate EAD.

Keywords

Mortgage REIT, Real Estate Investment Trust, Financial Results, Q2 2025, Cherry Hill Mortgage, CHMI, Mortgage Servicing Rights, MSR, Residential Mortgage-Backed Securities, RMBS, Derivatives, Dividends, Digital Mortgage Technology, Equity Raise