Cherry Hill Mortgage Investment Corporation (NYSE: CHMI)
(“Cherry Hill” or the “Company”) today reported results for the
first quarter 2020.
First Quarter 2020 Highlights and Subsequent Events
- GAAP net loss applicable to common stockholders of $46.4
million, or $2.79 per share
- Core earnings attributable to common stockholders of $7.8
million, or $0.47 per share
- Book value of $13.73 per share at March 31, 2020, down from
$17.35 at December 31, 2019, net of the Company’s first quarter
dividend
- Declared regular common dividend of $0.40 per share, which was
paid in a combination of 50% cash and 50% common stock; annualized
common dividend yield at market close was 24.3% at May 8, 2020
- Aggregate portfolio leverage stood at 5.0x at March 31,
2020
- During the first quarter and prior to the COVID-19 pandemic,
the Company repurchased 142,531 shares of its common stock for
approximately $1.7 million under the Company’s $10.0 million share
repurchase program. In March 2020, the Company suspended additional
share repurchase activity to prioritize liquidity
- The Company expects book value as of April 30, 2020 to be down
approximately 0.9% from March 31, 2020; aggregate portfolio
leverage as of April 30, 2020 was approximately 3.9x
- As of April 30, the Company had unrestricted cash of
approximately $90.5 million
“First and foremost, I would like to express my gratitude to our
team at Cherry Hill for their tireless work over the past few
months to navigate Cherry Hill through the pandemic,” said Jay
Lown, President and Chief Executive Officer of Cherry Hill Mortgage
Investment Corporation. “Given the unprecedented economic
environment, we remain focused on liquidity and risk-adjusted
returns as we selectively evaluate investment opportunities.”
Operating Results
Cherry Hill reported GAAP net loss applicable to common
stockholders for the first quarter of 2020 of $46.4 million, or
$2.79 per basic and diluted weighted average common share
outstanding. The reported GAAP net loss was determined based
primarily on the following: $8.0 million of net interest income,
$13.4 million of net servicing income, a net realized loss of $17.5
million on RMBS, a net realized loss of $18.8 million on
derivatives, a net unrealized gain of $52.2 million on derivatives,
a net unrealized loss of $93.9 million on Servicing Related Assets,
and general and administrative expenses and management fees paid to
Cherry Hill’s external manager in the aggregate amount of $4.7
million.
Core earnings attributable to common stockholders for the first
quarter of 2020 were $7.8 million, or $0.47 per basic and diluted
weighted average common share outstanding. For a reconciliation of
GAAP net loss to non-GAAP core earnings, please refer to the
reconciliation table accompanying this release.
Three Months Ended March
31,
2020
2019
(unaudited)
(unaudited)
Income
Interest income
$
20,249
$
16,969
Interest expense
12,291
10,744
Net interest income
7,958
6,225
Servicing fee income
19,519
17,188
Servicing costs
6,122
3,821
Net servicing income
13,397
13,367
Other income (loss)
Realized loss on RMBS, net
(17,543
)
-
Realized loss on derivatives, net
(18,756
)
(7,476
)
Realized gain on acquired assets, net
46
-
Unrealized gain (loss) on derivatives,
net
52,200
(8,272
)
Unrealized loss on investments in MSRs
(93,853
)
(27,175
)
Total Loss
(56,551
)
(23,331
)
Expenses
General and administrative expense
2,756
963
Management fee to affiliate
1,965
1,809
Total Expenses
4,721
2,772
Loss Before Income Taxes
(61,272
)
(26,103
)
Benefit from corporate business taxes
(16,512
)
(4,965
)
Net Loss
(44,760
)
(21,138
)
Net income loss allocated to
noncontrolling interests in Operating Partnership
834
349
Dividends on preferred stock
2,459
1,841
Net Loss Applicable to Common
Stockholders
$
(46,385
)
$
(22,630
)
Net Loss Per Share of Common
Stock
Basic
$
(2.79
)
$
(1.36
)
Diluted
$
(2.79
)
$
(1.36
)
Weighted Average Number of Shares of
Common Stock Outstanding
Basic
16,611,440
16,646,114
Diluted
16,624,229
16,654,370
_______________
Dollar amounts in thousands, except per
share amounts. Certain prior period amounts have been reclassified
to conform to current period presentation.
Net unrealized loss on the Company’s RMBS portfolio for the
first quarter 2020 was approximately $25.2 million.
Three Months Ended March
31,
2020
2019
(unaudited)
(unaudited)
Net Loss
$
(44,760
)
$
(21,138
)
Other comprehensive income:
Net unrealized gain (loss) on RMBS
(25,174
)
31,981
Reclassification of net realized gain on
RMBS included in earnings
17,543
-
Other comprehensive income (loss)
(7,631
)
31,981
Comprehensive income (loss)
$
(52,391
)
$
10,843
Comprehensive income (loss) attributable
to noncontrolling interests in Operating Partnership
(977
)
179
Dividends on preferred stock
2,459
1,841
Comprehensive income (loss) attributable
to common stockholders
$
(53,873
)
$
8,823
_______________
Dollar amounts in thousands. Certain prior
period amounts have been reclassified to conform to current period
presentation.
Portfolio Highlights for the Quarter Ended March 31,
2020
The Company realized servicing fee income of $19.5 million,
interest income of $20.2 million and other loss of $77.9 million,
primarily related to unrealized losses on investments in Servicing
Related Assets, as well as realized losses on RMBS and derivatives,
and partially offset by unrealized gains on derivatives. The unpaid
principal balance for the MSR portfolio stood at $30.0 billion as
of March 31, 2020 and the carrying value of the MSR portfolio ended
the quarter at $222.6 million. Net interest spread for the RMBS
portfolio stood at 1.25% and the debt-to-equity ratio on the
aggregate portfolio ended the quarter at 5.0x.
The RMBS portfolio had both a book and carrying value of
approximately $1.6 billion at quarter-end March 31, 2020. The
portfolio had a weighted average coupon of 3.66% and weighted
average maturity of 27 years.
In order to mitigate duration risk and interest rate risk
associated with the Company’s RMBS and MSRs, Cherry Hill used
interest rate swaps, swaptions, TBAs and Treasury futures. At
quarter end March 31, 2020, the Company held interest rate swaps
with a notional amount of $2.0 billion, swaptions with a notional
amount of $60.0 million, TBAs with a notional amount of $122.0
million and Treasury futures with a notional amount of $524.8
million.
As of March 31, 2020, Cherry Hill’s GAAP book value was $13.73
per diluted share, net of the first quarter dividend, down from
book value per share of $17.35 as of December 31, 2019.
Dividends
On March 12, 2020, the Board of Directors declared a quarterly
dividend of $0.40 per share of common stock for the first quarter
of 2020. Due to the economic impacts of the COVID-19 pandemic, on
March 27, 2020, the Company announced it would pay its previously
declared cash dividend for the first quarter 2020, in a combination
of cash, not to exceed 50% in the aggregate, and common stock. The
dividend was paid in 50% cash and 50% common stock on April 28,
2020 to common stockholders of record as of the close of business
on March 31, 2020. Additionally, the Board of Directors declared a
dividend of $0.5125 per share on the Company’s 8.20% Series A
Cumulative Redeemable Preferred Stock and $0.515625 per share on
the Company’s 8.250% Series B Fixed-to-Floating Rate Cumulative
Redeemable Preferred Stock for the first quarter of 2020. The
dividends were paid in cash on April 15, 2020 to Series A and B
Preferred stockholders of record as of the close of business on
March 31, 2020.
Core Earnings
Core earnings is a non-GAAP financial measure and is currently
defined by the Company as GAAP net income (loss), excluding
realized gain (loss) on RMBS, realized and unrealized gain (loss)
on investments in MSRs (net of any estimated MSR amortization),
realized and unrealized gain (loss) on derivatives and realized
(gain) loss on acquired assets. Core earnings is adjusted to
exclude outstanding LTIP-OP Units in our Operating Partnership and
dividends paid on preferred stock. MSR amortization refers to the
portion of the change in fair value of the MSRs that is primarily
due to the realization of cashflows or runoff and includes an
adjustment for any gain or loss on the capital used to purchase the
MSR. Additionally, core earnings excludes any tax (benefit) expense
on unrealized gain (loss) on MSRs. Core earnings are provided for
purposes of potential comparability to other issuers that invest in
residential mortgage-related assets. The Company believes providing
investors with core earnings, in addition to related GAAP financial
measures, may provide investors some insight into the Company’s
ongoing operational performance. However, the concept of core
earnings 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 core
earnings, it may not be comparable to similarly-titled measures of
other issuers, which define core earnings differently from the
Company and each other. As a result, core earnings should not be
considered a substitute for the Company’s GAAP net income (loss) or
as a measure of the Company’s liquidity.
The following table provides a reconciliation of net income
(loss) to core earnings for the three months ended March 31, 2020
and 2019:
Three Months Ended March
31,
2020
2019
(unaudited)
(unaudited)
Net Loss
$
(44,760
)
$
(21,138
)
Realized loss on RMBS, net
17,543
-
Realized loss on derivatives, net
18,756
7,476
Realized gain on acquired assets, net
(46
)
-
Unrealized loss (gain) on derivatives,
net
(52,200
)
8,272
Unrealized loss (gain) on investments in
MSRs, net of estimated MSR amortization
87,044
22,148
(1
)
Tax expense on unrealized gain on MSRs
(15,854
)
(4,739
)
Total core earnings:
$
10,483
$
12,019
Core earnings attributable to
noncontrolling interests in Operating Partnership
(195
)
(198
)
Dividends on preferred stock
2,459
1,841
Core Earnings Attributable to Common
Stockholders
$
7,829
$
9,980
Core Earnings Attributable to Common
Stockholders, per Diluted Share
$
0.47
$
0.60
GAAP Net Loss Per Share of Common
Stock, per Diluted Share
$
(2.79
)
$
(1.36
)
_________
Dollar amounts in thousands, except per
share amounts. Certain prior period amounts have been reclassified
to conform to current period presentation.
1
MSR amortization for periods that ended
prior to September 30, 2019 have not been adjusted to reflect the
Company’s refined MSR amortization method.
Additional Information
Additional information regarding Cherry Hill’s financial
condition and results of operations can be found in its Quarterly
Report on Form 10-Q for the quarter ended March 31, 2020 filed with
the Securities and Exchange Commission on May 11, 2020. In
addition, an investor presentation with supplemental information
regarding Cherry Hill, its business and its financial condition as
of March 31, 2020 and its results of operations for the first
quarter 2020 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 P.M. 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 simultaneous webcast of the conference call
will be available to the public on a listen-only basis at
www.chmireit.com. Please allow extra time prior to the call to
visit the site and download any necessary software required to
listen to the webcast.
The conference call may be accessed by dialing 1-877-300-8521
(from within the U.S.) or 1-412-317-6026 (from outside of the U.S.)
ten minutes prior to the scheduled start of the call; please
reference “Cherry Hill First Quarter 2020 Earnings Call.”
A telephonic replay of the conference call will also be
available two hours following the completion of the call through
11:59 P.M. Eastern Time on June 11, 2020 by dialing 1-844-512-2921
(from within the U.S.) or 1-412-317-6671 (from outside of the
U.S.); please enter replay pin number “10143780.”
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 the United States. For additional information,
visit www.chmireit.com.
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, 2019, and other documents filed by the Company with the
Securities and Exchange Commission.
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version on businesswire.com: https://www.businesswire.com/news/home/20200511005802/en/
Cherry Hill Mortgage Investment Corporation Investor Relations
(877) 870-7005 InvestorRelations@chmireit.com
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