Cherry Hill Mortgage: Internalizing Management for Growth

Cherry Hill Mortgage Investment Corporation (CHMI) has announced a significant strategic move: the internalization of management and the termination of its management agreement with Cherry Hill Mortgage Management, LLC. This decision, approved by an independent board committee, aims to reduce expenses and enhance earnings. The company has also concluded its review of strategic alternatives, determining that pursuing its residential mortgage investment strategy as an internally managed company is in its best interests.

The internalization process involves retaining CHMI's senior management team and other key personnel, which is crucial for maintaining operational continuity and expertise. This move aligns management's interests with those of the investment community, fostering a more cohesive approach to decision-making and long-term growth. By eliminating management fees and avoiding a termination fee, CHMI expects to achieve a more streamlined cost structure, potentially leading to improved operational efficiency.

The termination of the management agreement is expected to have a positive impact on CHMI's future growth prospects. The internalization allows the company to better align management incentives with shareholder interests, potentially leading to improved decision-making and cost savings. The conclusion of the strategic alternatives review process indicates that the Board of Directors and the special committee of independent directors have determined that pursuing the residential mortgage investment strategy as an internally managed company is in the best interests of the firm.

However, CHMI faces potential risks and challenges during the transition to an internally managed company. One key risk is the inability to successfully retain senior management and other key personnel. To mitigate this, CHMI has entered into employment arrangements with its senior management team and other personnel supporting the Company's business. Another risk is unforeseen or higher than anticipated general and administrative expenses following the internalization. CHMI must carefully manage its costs to avoid diluting the expected benefits of the internalization. Potential disruptions to ordinary course operations, financing relationships, and internal procedures may also arise. CHMI should implement robust contingency plans to minimize these disruptions and ensure a smooth transition.

The diversion of management's attention caused by the internalization and the process of transitioning from an externally managed to an internally managed company is another challenge. CHMI should prioritize effective communication and coordination among its team to minimize this distraction and maintain focus on core business operations.

In conclusion, CHMI's internalization of management presents both opportunities and risks. By proactively addressing potential challenges and implementing mitigation strategies, CHMI can successfully navigate this transition and realize the intended benefits of becoming an internally managed company. As the company moves forward, investors should closely monitor its progress and assess the potential impact of the internalization on CHMI's future growth prospects.