Cherry Hill Mortgage Investment Corporation Announces Fourth Quarter and Full Year 2023 Results
- Cherry Hill Mortgage Investment Corporation (CHMI) reported a GAAP net loss of $35.5 million for the fourth quarter of 2023.
- Earnings available for distribution attributable to common stockholders were $4.5 million, or $0.17 per diluted share.
- The company declared a regular common dividend of $0.15 per share, resulting in an annualized common dividend yield of 16.4%.
- Cherry Hill's Board of Directors authorized a $50 million Preferred Stock repurchase program, with $6.1 million already repurchased as of March 7, 2024.
- The Company had unrestricted cash of $52.9 million as of December 31, 2023, with $43.9 million available in the repurchase program.
- Cherry Hill's aggregate portfolio leverage stood at 4.2x at the end of December 31, 2023.
- The Company's RMBS portfolio had a book value of approximately $1.0 billion and a carrying value of approximately $1.0 billion at quarter-end December 31, 2023.
- Cherry Hill utilized interest rate swaps, TBAs, and Treasury futures to mitigate duration and interest rate risks associated with its RMBS and MSRs.
- The Company's net interest spread for the RMBS portfolio stood at 3.82%.
- Cherry Hill's GAAP book value was $4.53 per diluted share as of December 31, 2023, net of the fourth quarter dividend.
- The Board of Directors declared a quarterly dividend of $0.15 per share of common stock for the fourth quarter of 2023.
- Earnings available for distribution ('EAD') is a non-GAAP financial measure that excludes certain items to provide insight into the Company's operational performance.
- The GAAP net loss for Q4 2023 was significant at $35.5 million.
- Cherry Hill reported a net realized loss of $14.9 million on RMBS and a net unrealized loss of $56.0 million on derivatives for the fourth quarter of 2023.
- The Company's GAAP net loss applicable to common stockholders was $35.5 million for the fourth quarter of 2023.
- Cherry Hill's unrealized loss on derivatives, investments in Servicing Related Assets, and net interest expense were notable negative aspects for Q4 2023.
Insights
The reported GAAP net loss of $35.5 million by Cherry Hill Mortgage Investment Corporation is a critical metric that raises concerns about the company's profitability and operational efficiency. This loss is particularly notable when juxtaposed with the previous quarter's net income of $13.1 million. The volatility in earnings is indicative of the risks inherent in the mortgage investment industry, especially given the macroeconomic volatility and fluctuating interest rates.
In assessing the earnings available for distribution (EAD), which is a non-GAAP financial measure, we observe a more stable figure of $4.5 million. This suggests that the company has some resilience in terms of cash flow available for shareholders, despite the reported net loss. Investors should consider the sustainability of such distributions, especially in the context of the company's high dividend yield of 16.4%, which may be attractive but also raises questions about long-term viability in a potentially rising rate environment.
Cherry Hill's authorization of a $50 million Preferred Stock repurchase program, with $6.1 million already executed, reflects a strategic move to manage capital and potentially signal confidence in the intrinsic value of the company's shares. The repurchase program may also be a response to the current discount of the book value per share relative to the common stock price. However, the market's reaction to such a repurchase program will depend on broader market conditions and investor sentiment towards the sector.
Additionally, the company's aggregate portfolio leverage of 4.2x needs to be considered in light of industry norms. While leverage can amplify returns, it also increases risk, particularly in a volatile interest rate environment. The use of derivatives, such as interest rate swaps and Treasury futures, is a common strategy to hedge against interest rate risk, but the reported net unrealized loss of $56.0 million on derivatives highlights the complexities and potential drawbacks of such financial instruments.
For stakeholders in the mortgage REIT sector, Cherry Hill's performance and strategic adjustments, such as realigning the portfolio to mitigate risks, are crucial for maintaining book value amid macro volatility. The unpaid principal balance (UPB) of the Mortgage Servicing Rights (MSR) portfolio and the net interest spread are key indicators of the health and performance of the investment portfolio. A UPB of $20.0 billion and a net interest spread of 3.82% are significant, as they impact the company's income from servicing and the profitability of the RMBS portfolio.
Understanding the company's debt-to-equity ratio, which stands at 4.2x, is essential for evaluating financial stability and risk. This ratio should be compared against industry benchmarks to assess Cherry Hill's leverage relative to peers. While a high debt-to-equity ratio can indicate higher risk, it may also suggest a more aggressive growth strategy, which could lead to higher returns for investors if managed effectively.
Fourth Quarter 2023 Highlights
-
GAAP net loss applicable to common stockholders of
$35.5 million $1.29 -
Earnings available for distribution (“EAD”) attributable to common stockholders of
$4.5 million $0.17 -
Common book value per share of
$4.53 -
Declared regular common dividend of
$0.15 16.4% based on the closing sale price of the Company’s common stock as reported by the NYSE on March 6, 2024. -
Board of Directors authorized a
$50 million 8.250% Series B Fixed-to-Floating Rate Cumulative Redeemable Preferred Stock had been repurchased, totaling$6.1 million $43.9 million - Aggregate portfolio leverage stood at 4.2x at December 31, 2023.
-
As of December 31, 2023, the Company had unrestricted cash of
$52.9 million
“As macro volatility persists, we continue to align our portfolio prudently to guard against risks that can have outsized impact on our book value,” said Jay Lown, President and CEO of Cherry Hill Mortgage Investment Corporation. “As we progress through 2024, we are closely monitoring the rate environment as we assess the optimal positioning for our portfolio, and will continue to focus on creating a more stable equity profile for the benefit of shareholders.”
Operating Results
Cherry Hill reported GAAP net loss applicable to common stockholders for the fourth quarter of 2023 of
Earnings available for distribution attributable to common stockholders for the fourth quarter of 2023 were
Three Months Ended |
|||||||
December 31, 2023 |
|
September 30, 2023 |
|||||
(unaudited) |
(unaudited) |
||||||
Income |
|
|
|
|
|
|
|
Interest income |
$ |
12,792 |
$ |
12,864 |
|||
Interest expense |
|
|
13,182 |
|
|
13,337 |
|
Net interest expense |
|
(390) |
|
(473) |
|||
Servicing fee income |
|
|
12,892 |
|
|
13,225 |
|
Servicing costs |
3,150 |
2,869 |
|||||
Net servicing income |
|
|
9,742 |
|
|
10,356 |
|
Other income (loss) |
|||||||
Realized loss on RMBS, net |
|
|
(14,851) |
|
|
(10,209) |
|
Realized gain on derivatives, net |
7,106 |
20,675 |
|||||
Realized gain on acquired assets, net |
|
|
11 |
|
|
12 |
|
Unrealized gain (loss) on RMBS, measured at fair value through earnings, net |
36,321 |
(19,755) |
|||||
Unrealized gain (loss) on derivatives, net |
|
|
(55,995) |
|
|
18,343 |
|
Unrealized gain (loss) on investments in Servicing Related Assets |
(12,837) |
1,578 |
|||||
Total Income (Loss) |
|
|
(30,893) |
|
|
20,527 |
|
Expenses |
|||||||
General and administrative expense |
|
|
1,756 |
|
|
1,626 |
|
Management fee to affiliate |
1,716 |
1,740 |
|||||
Total Expenses |
|
|
3,472 |
|
|
3,366 |
|
Income (Loss) Before Income Taxes |
|
(34,365) |
|
17,161 |
|||
Provision for (Benefit from) corporate business taxes |
|
|
(721) |
|
|
1,276 |
|
Net Income (Loss) |
|
(33,644) |
|
15,885 |
|||
Net (income) loss allocated to noncontrolling interests in Operating Partnership |
|
|
627 |
|
|
(306) |
|
Dividends on preferred stock |
2,463 |
2,462 |
|||||
Net Income (Loss) Applicable to Common Stockholders |
|
$ |
(35,480) |
|
$ |
13,117 |
|
Net Income (Loss) Per Share of Common Stock |
|||||||
Basic |
|
$ |
(1.29) |
|
$ |
0.49 |
|
Diluted |
$ |
(1.29) |
$ |
0.49 |
|||
Weighted Average Number of Shares of Common Stock Outstanding |
|
|
|
|
|
|
|
Basic |
27,398,266 |
26,936,242 |
|||||
Diluted |
|
|
27,440,101 |
|
|
26,978,077 |
|
_______________
Dollar amounts in thousands, except per share amounts.
Net unrealized gain on the Company’s RMBS portfolio classified as available-for-sale that are reported in accumulated other comprehensive income was approximately
Three Months Ended |
|||||||
December 31, 2023 |
|
September 30, 2023 |
|||||
(unaudited) |
(unaudited) |
||||||
Net Income (Loss) |
|
$ |
(33,644) |
|
$ |
15,885 |
|
Other comprehensive income (loss): |
|||||||
Unrealized gain (loss) on RMBS, available-for-sale, net |
|
|
29,527 |
|
|
(14,485) |
|
Net other comprehensive income (loss) |
|
|
29,527 |
|
(14,485) |
||
Comprehensive income (loss) |
|
$ |
(4,117) |
|
$ |
1,400 |
|
Comprehensive income (loss) attributable to noncontrolling interests in Operating Partnership |
(76) |
29 |
|||||
Dividends on preferred stock |
|
|
2,463 |
|
|
2,462 |
|
Comprehensive loss attributable to common stockholders |
$ |
(6,504) |
$ |
(1,091) |
|||
_____________
Dollar amounts in thousands.
Portfolio Highlights for the Quarter Ended December 31, 2023
The Company realized net servicing fee income of
The RMBS portfolio had a book value of approximately
In order to mitigate duration risk and interest rate risk associated with the Company’s RMBS and MSRs, Cherry Hill used interest rate swaps, TBAs and Treasury futures. At quarter end December 31, 2023, the Company held interest rate swaps with a notional amount of
As of December 31, 2023, Cherry Hill’s GAAP book value was
Dividends
On December 8, 2023, the Board of Directors declared a quarterly dividend of
Earnings Available for Distribution
Earnings available for distribution (“EAD”) is a non-GAAP financial measure that we define as GAAP net income (loss), excluding realized gain (loss) on RMBS, unrealized gain (loss) on RMBS measured at fair value through earnings, realized and unrealized gain (loss) on derivatives, realized gain (loss) on acquired assets, realized and unrealized gain (loss) on investments in MSRs (net of any estimated MSR amortization) and any tax expense (benefit) on realized and unrealized gain (loss) on MSRs. MSR amortization refers to the portion of the change in fair value of the MSR that is primarily due to the realization of cashflows, runoff resulting from prepayments and an adjustment for any gain or loss on the capital used to purchase the MSR. EAD also includes interest rate swap periodic interest income (expense) and drop income on TBA dollar roll transactions, which are included in “Realized gain (loss) on derivatives, net” on the consolidated statements of income (loss). EAD is adjusted to exclude outstanding LTIP-OP Units in our Operating Partnership and dividends paid on our preferred stock.
EAD is provided for purposes of potential comparability to other issuers that invest in residential mortgage-related assets. The Company believes providing investors with EAD, in addition to related GAAP financial measures, may provide investors some insight into the Company’s ongoing operational performance. However, the concept of EAD does have significant limitations, including the exclusion of realized and unrealized gains (losses), and given the apparent lack of a consistent methodology among issuers for defining EAD, it may not be comparable to similarly titled measures of other issuers, which define EAD differently from us and each other. As a result, EAD should not be considered a substitute for the Company’s GAAP net income (loss) or as a measure of the Company’s liquidity. While EAD is one indicia of the Company’s earnings capacity, it is not the only factor considered in setting a dividend and is not the same as REIT taxable income which is calculated in accordance with the rules of the IRS.
The following table provides a reconciliation of net income to EAD for the three months ended December 31, 2023 and September 30, 2023:
Three Months Ended |
||||||
December 31, 2023 |
|
September 30, 2023 |
||||
(unaudited) |
(unaudited) |
|||||
Net Income (Loss) |
|
$ |
(33,644) |
|
$ |
15,885 |
Realized loss on RMBS, net |
|
14,851 |
10,209 |
|||
Realized loss (gain) on derivatives, net ¹ |
|
|
2,804 |
|
|
(10,565) |
Realized gain on acquired assets, net |
|
(11) |
(12) |
|||
Unrealized loss (gain) on RMBS, measured at fair value through earnings, net |
|
|
(36,321) |
|
|
19,755 |
Unrealized loss (gain) on derivatives, net |
55,995 |
(18,343) |
||||
Unrealized loss (gain) on investments in MSRs, net of estimated MSR amortization |
|
|
3,777 |
|
|
(11,588) |
Tax (benefit) expense on realized and unrealized (loss) gain on MSRs |
(332) |
1,684 |
||||
Total EAD: |
|
$ |
7,119 |
|
$ |
7,025 |
EAD attributable to noncontrolling interests in Operating Partnership |
(127) |
(128) |
||||
Dividends on preferred stock |
|
|
2,463 |
|
|
2,462 |
EAD Attributable to Common Stockholders |
$ |
4,529 |
$ |
4,435 |
||
EAD Attributable to Common Stockholders, per Diluted Share |
|
$ |
0.17 |
|
$ |
0.16 |
GAAP Net Income (Loss) Per Share of Common Stock, per Diluted Share |
$ |
(1.29) |
$ |
0.49 |
||
_________
Dollar amounts in thousands, except per share amounts.
-
Excludes drop income on TBA dollar rolls of
$924,000 $893,000 $9.0 million $9.2 million
Additional Information
Additional information regarding Cherry Hill’s financial condition and results of operations can be found in its Annual Report on Form 10-K for the year ended December 31, 2023 filed with the Securities and Exchange Commission on March 7, 2024. In addition, an investor presentation with supplemental information regarding Cherry Hill, its business and its financial condition as of December 31, 2023 and its results of operations for the full year 2023 has been posted to the Investor Relations section of Cherry Hill’s website, www.chmireit.com. Cherry Hill will discuss the investor presentation on the conference call referenced below.
Webcast and Conference Call
The Company’s management will host a conference call today at 5:00 pm Eastern Time. A copy of this earnings release and the investor presentation referenced above will be posted to the Investor Relations section of Cherry Hill’s website, www.chmireit.com. All interested parties are welcome to participate on the live call.
A live webcast of the conference call will be available in the investor relations section of the Company’s website at www.chmireit.com. To listen to the live broadcast, go to the site at least 15 minutes prior to the scheduled start time in order to register, download and install any necessary audio software. An online archive of the webcast will be available on the Company’s website for one year following the call.
Participants may register for the conference call here. Once registered, dial-in information for the call will be made available.
About Cherry Hill Mortgage Investment Corporation
Cherry Hill Mortgage Investment Corporation is a real estate finance company that acquires, invests in and manages residential mortgage assets in
Forward-Looking Statements
This press release contains forward looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 and other federal securities laws, including, among others, statements relating to the Company’s long-term growth opportunities and strategies, expand its market opportunities and create its own Excess MSRs and its ability to generate sustainable and attractive risk-adjusted returns for stockholders. These forward-looking statements are based upon the Company’s present expectations, but these statements are not guaranteed to occur. For a description of factors that may cause the Company's actual results or performance to differ from its forward-looking statements, please review the information under the heading “Risk Factors” included in the Company's Annual Report on Form 10-K for the year ended December 31, 2023, and other documents filed by the Company with the Securities and Exchange Commission.
View source version on businesswire.com: https://www.businesswire.com/news/home/20240307417590/en/
Cherry Hill Mortgage Investment Corporation
Investor Relations
(877) 870-7005
InvestorRelations@chmireit.com
Source: Cherry Hill Mortgage Investment Corporation
FAQ
What was Cherry Hill Mortgage Investment Corporation's (CHMI) GAAP net loss for the fourth quarter of 2023?
What was Cherry Hill's common book value per share at the end of December 31, 2023?
What was the annualized common dividend yield based on the closing sale price of Cherry Hill's common stock on March 6, 2024?
What was the amount of the regular common dividend declared by Cherry Hill for the fourth quarter of 2023?
What was the purpose of the $50 million Preferred Stock repurchase program authorized by Cherry Hill?
What was Cherry Hill's aggregate portfolio leverage at the end of December 31, 2023?
What was the net interest spread for Cherry Hill's RMBS portfolio at the end of December 31, 2023?
What was Cherry Hill's GAAP book value per diluted share as of December 31, 2023?
What is the purpose of the Earnings Available for Distribution ('EAD') measure used by Cherry Hill?
