Chimera Investment Corporation (NYSE: CIM) (“Chimera”) Announces Definitive Agreement to Acquire Palisades Group

Rhea-AI Summary

Chimera Investment (NYSE: CIM) has announced a definitive agreement to acquire Palisades Group, a U.S.-based alternative asset manager specializing in residential real estate credit. The acquisition, expected to close in Q4 2024, involves a $30 million cash payment at closing, with a potential additional earnout of up to $20 million over five years. This strategic move aims to broaden Chimera's residential credit reach and is anticipated to be accretive to earnings in 2025.

Key benefits include diversifying income streams through an attractive fee-based business model, increasing market presence with over $30 billion of notional loans and real estate assets managed on a combined basis, and adding 36 professionals with expertise in operational and loan risk management. Jack Macdowell, Jr., co-founder and CIO of Palisades, will become Chimera's new Chief Investment Officer upon closing.

Positive

• Acquisition expected to be accretive to Chimera's earnings in 2025
• Diversification of income streams through fee-based business model
• Increase in market presence with over $30 billion of combined notional loans and real estate assets
• Addition of 36 professionals with expertise in operational and loan risk management
• Potential for 'capital-light' growth through managing assets for third parties and raising private capital

Negative

• Initial cash outlay of $30 million for the acquisition
• Potential additional earnout of up to $20 million over five years
• Integration challenges may arise from combining two different organizations

Insights

Financial Analyst

This acquisition marks a significant strategic move for Chimera Investment , potentially transforming its business model and revenue streams. The $30 million upfront cost, with an additional $20 million potential earnout, represents a relatively modest investment for the potential benefits:

• Diversification into fee-based asset management
• Expansion of assets under management to over $30 billion
• Addition of 36 experienced professionals
• Access to private credit funds and institutional clients

The deal is expected to be accretive to earnings by 2025, indicating a positive long-term outlook. However, investors should note that the full benefits may take time to materialize and integration risks exist. The option to pay 50% of the earnout in shares aligns interests but could lead to dilution. Overall, this acquisition positions Chimera for growth in the residential credit market, potentially enhancing shareholder value if executed successfully.

Market Research Analyst

This acquisition signals a strategic shift in Chimera's business model, moving from a pure-play mortgage REIT to a more diversified asset management platform. Key market implications include:

• Increased competitiveness in the residential credit space
• Potential for higher valuation multiples as the business mix shifts towards fee-based income
• Enhanced ability to navigate market cycles through diversified revenue streams
• Improved access to deal flow and investment opportunities

The transaction aligns with industry trends towards consolidation and diversification in the mortgage REIT sector. Investors should monitor how this impacts Chimera's risk profile and dividend policy. The addition of private credit funds could provide a competitive edge in sourcing and structuring deals. However, success will depend on seamless integration and the ability to leverage synergies between the existing REIT structure and the new asset management capabilities.

Transaction Expected to Broaden Chimera’s Residential Credit Reach and Be Accretive to Earnings in 2025

NEW YORK--(BUSINESS WIRE)-- Chimera Investment Corporation (NYSE: CIM) (“Chimera”) today announced that it has entered into a definitive agreement to acquire Palisades Group (“Palisades”), a U.S.-based alternative asset manager specializing in residential real estate credit. Founded in 2012, Palisades manages and invests in residential real estate assets across a broad spectrum of credit products. Upon closing, Jack Macdowell, Jr., co-founder and Chief Investment Officer of Palisades, will become Chimera’s Chief Investment Officer.

Under the terms of the agreement, Chimera will acquire Palisades for cash consideration of $30 million at closing, plus an additional potential earnout of up to $20 million over five years contingent upon achieving certain financial targets, with the option for Chimera to pay 50% of the earnout payments in common shares, aligning interests with those of Chimera’s shareholders. Chimera expects to close the transaction during the fourth quarter of 2024, subject to the satisfaction of customary closing conditions.

“We are thrilled to welcome Palisades to the Chimera team,” said Phillip J. Kardis II, President and Chief Executive Officer of Chimera. “Palisades has a strong history in residential credit, providing customized asset and credit risk management solutions to large institutional investors and insurance companies, as well as investment advisory services to private credit funds. They have an excellent management team and seasoned investment professionals. Complementing Chimera’s permanent equity capital, this transaction is expected to broaden our residential credit reach to include managing assets for third parties and raising and investing private capital. We expect this acquisition to be accretive to Chimera’s earnings in 2025.”

Strategic Rationale and Benefits to Chimera Shareholders

• Attractive Fee-Based Business Model
  • Diversifies Chimera’s income streams.
  • Ability to grow in a “capital-light” manner.
• Increases Size, Scale, and Market Presence
  • Over $30 billion of notional loans and real estate assets will be owned, advised, or managed on a combined basis.
  • Adds investment and product expertise and sourcing channels.
  • Brings strong partnerships with leading investment management and insurance company clients.
  • Private credit funds add synergistic pool of investment capital alongside Chimera’s permanent balance sheet capital.
• Highly Complimentary Teams
  • Adds thirty-six professionals with a strong history in operational and loan risk management.
  • Expands depth in all facets of investment and asset management activities.
  • Further strengthens Chimera’s ability to analyze and optimize residential loan portfolios.

Advisors

Houlihan Lokey acted as the exclusive financial advisor to Chimera and Hunton Andrews Kurth LLP served as legal counsel to Chimera. Mayer Brown LLP served as legal counsel to Palisades Group.

Investor Presentation

A supplemental investor presentation on the transaction will be available on Chimera’s website www.chimerareit.com.

About Chimera Investment Corporation

Chimera is a publicly traded real estate investment trust, or REIT, that is primarily engaged in the business of investing directly or indirectly, on a leveraged basis, in a diversified portfolio of real estate assets, including mortgage loans, Agency RMBS, Non-Agency RMBS, Agency CMBS, business purpose and investor loans, and other real estate assets.

Forward-Looking Statements

This press release includes “forward-looking statements” within the meaning of the safe harbor provisions of the United States Private Securities Litigation Reform Act of 1995, including as related to the expected timing of the closing of Chimera’s acquisition of the Palisades Group and the expected impact (including as related to Chimera’s future earnings) of the transaction. Actual results may differ from expectations, estimates and projections and, consequently, readers should not rely on these forward-looking statements as predictions of future events. Words such as “goals,” “expect,” “target,” “assume,” “estimate,” “project,” “budget,” “forecast,” “anticipate,” “intend,” “plan,” “may,” “will,” “could,” “should,” “believe,” “predicts,” “potential,” “continue,” and similar expressions are intended to identify such forward-looking statements. These forward-looking statements involve significant risks and uncertainties that could cause actual results to differ materially from expected results, including, among other things, those described in our most recent Annual Report on Form 10-K, and any subsequent Quarterly Reports on Form 10-Q and Current Reports on Form 8-K, under the caption “Risk Factors.” Factors that could cause actual results to differ include, but are not limited to: delays and/or unforeseen events that could cause the proposed acquisition of the Palisades Group to be delayed or not consummated; the potential that Chimera may not fully realize the expected benefits of the acquisition of the Palisades Group, including the potential financial impact; our business and investment strategy; our ability to accurately forecast the payment of future dividends on our common and preferred stock, and the amount of such dividends; our ability to determine accurately the fair market value of our assets; availability of investment opportunities in real estate-related and other securities, including our valuation of potential opportunities that may arise as a result of current and future market dislocations; our expected investments; changes in the value of our investments, including negative changes resulting in margin calls related to the financing of our assets; changes in inflation, interest rates and mortgage prepayment rates; prepayments of the mortgage and other loans underlying our mortgage-backed securities, or MBS, or other asset-backed securities, or ABS; rates of default, forbearance, deferred payments, delinquencies or decreased recovery rates on our investments; general volatility of the securities markets in which we invest; our ability to maintain existing financing arrangements and our ability to obtain future financing arrangements; our ability to effect our strategy to securitize residential mortgage loans; interest rate mismatches between our investments and our borrowings used to finance such purchases; effects of interest rate caps on our adjustable-rate investments; the degree to which our hedging strategies may or may not protect us from interest rate volatility; the impact of and changes to various government programs; the impact of and changes in governmental regulations, tax law and rates, accounting guidance, and similar matters; market trends in our industry, interest rates, the debt securities markets or the general economy; estimates relating to our ability to make distributions to our stockholders in the future; our understanding of our competition; our ability to find and retain qualified personnel; our ability to maintain our classification as a REIT for U.S. federal income tax purposes; our ability to maintain our exemption from registration under the Investment Company Act of 1940, as amended; our expectations regarding materiality or significance; and the effectiveness of our disclosure controls and procedures.

Readers are cautioned not to place undue reliance upon any forward-looking statements, which speak only as of the date made. Chimera does not undertake or accept any obligation to release publicly any updates or revisions to any forward-looking statement to reflect any change in its expectations or any change in events, conditions or circumstances on which any such statement is based. Additional information concerning these, and other risk factors, is contained in Chimera’s most recent filings with the Securities and Exchange Commission (SEC). All subsequent written and oral forward-looking statements concerning Chimera or matters attributable to Chimera or any person acting on its behalf are expressly qualified in their entirety by the cautionary statements above.

Readers are advised that any financial information in this press release is based on company data available at the time of this presentation and, in certain circumstances, may not have been audited by Chimera’s independent auditors.

View source version on businesswire.com: https://www.businesswire.com/news/home/20241017401156/en/

Chimera Investor Contact

Chimera Investment Corporation

Investor Relations

888-895-6557

www.chimerareit.com

Source: Chimera Investment Corporation

FAQ

What is the acquisition cost for Chimera Investment (CIM) to purchase Palisades Group?

Chimera Investment (CIM) will acquire Palisades Group for $30 million in cash at closing, with a potential additional earnout of up to $20 million over five years, contingent on achieving certain financial targets.

When is the Chimera Investment (CIM) acquisition of Palisades Group expected to close?

The acquisition is expected to close during the fourth quarter of 2024, subject to the satisfaction of customary closing conditions.

How will the acquisition of Palisades Group affect Chimera Investment 's (CIM) earnings?

Chimera Investment (CIM) expects the acquisition of Palisades Group to be accretive to its earnings in 2025.

What is the strategic rationale behind Chimera Investment 's (CIM) acquisition of Palisades Group?

The acquisition aims to broaden Chimera's residential credit reach, diversify income streams, increase market presence, and add expertise in operational and loan risk management. It will also allow Chimera to manage assets for third parties and raise private capital.