- Focus on CLO Investments Expected to
Enhance Earnings, Reduce Volatility and Drive Book Value Growth,
Utilizing Less Leverage -
- Company Revokes REIT Election and Intends
to Convert to a Closed End Fund/RIC Later this Year -
- Expects to Change Name to Ellington Credit
Corporation but will Retain Ticker EARN -
Ellington Residential Mortgage REIT (NYSE: EARN) (the “Company”)
today announced that its Board of Trustees has unanimously approved
a strategic transformation of its investment strategy to focus on
corporate collateralized loan obligations (“CLOs”). The Company
intends to build upon its current $44 million CLO portfolio, with
an emphasis on secondary CLO mezzanine debt and equity
tranches.
In connection with its strategic transformation, the Company has
decided to revoke its REIT election for tax year 2024. Later this
year, the Company intends to convert to a registered closed end
fund to be treated as a regulated investment company (a “RIC”) and,
in the meantime, will operate as a taxable C-Corp and plans to take
advantage of its significant existing net operating loss
carryforwards to offset the majority of its U.S. federal taxable
income. The Company intends to complete all necessary steps for the
closed end fund/RIC conversion later this year, subject to
receiving shareholder approval of certain matters. In light of the
strategic transformation, the Company will reschedule its 2024
annual meeting of shareholders.
“We are excited to pivot EARN’s investment strategy to what we
believe is a highly attractive space,” said Laurence Penn, Chief
Executive Officer and President. “Ellington has a longstanding and
successful track record of investing in secondary CLOs, spanning
more than a decade across a wide variety of market conditions, and
EARN’s CLO investments to date have generated excellent returns.
While the CLO market has grown significantly over the years, many
parts of the market – particularly the secondary markets for CLO
mezzanine debt and equity – remain highly inefficient. We expect
that EARN’s differentiated approach to CLO investing will
capitalize on these inefficiencies and drive earnings growth, all
while utilizing lower leverage. We believe that this strategic
transformation will greatly enhance our ability to grow book value
per share over time and unlock additional value for our
shareholders. Furthermore, thanks to the high liquidity of our
Agency MBS pool portfolio, the conversion to a closed end fund/RIC,
including the transitioning of the investment portfolio, should
entail only modest costs. Finally, we are excited about the
benefits of the closed end fund/RIC structure, which we believe
will enhance our access to the capital markets, open more channels
for growth, and – perhaps most importantly – expand our valuation
multiple.”
“The Board of Trustees appreciates the work management has done
to develop this important change in strategy for EARN,” said Barry
Allardice, Chairman of the Board. “We are unanimous in our belief
that this transformation is in the best interests of our
shareholders.”
Cautionary Statement Regarding Forward-Looking Statements
This press release contains forward-looking statements within
the meaning of the safe harbor provisions of the Private Securities
Litigation Reform Act of 1995. Forward-looking statements involve
numerous risks and uncertainties. Actual results may differ from
our beliefs, expectations, estimates, and projections and,
consequently, you should not rely on these forward-looking
statements as predictions of future events. Forward-looking
statements are based on our beliefs, assumptions and expectations
of our future operations, business strategies, performance,
financial condition, liquidity and prospects, taking into account
information currently available to us. These beliefs, assumptions,
and expectations are subject to numerous risks and uncertainties
and can change as a result of many possible events or factors, not
all of which are known to us. If a change occurs, our business,
financial condition, liquidity, results of operations and
strategies may vary materially from those expressed or implied in
our forward-looking statements or from our beliefs, expectations,
estimates and projections and, consequently, you should not rely on
these forward-looking statements as predictions of future events.
Forward-looking statements are not historical in nature and can be
identified by words such as "believe," "expect," "anticipate,"
"estimate," "project," "plan," "continue," "intend," "should,"
"would," "could," "goal," "objective," "will," "may," "seek," or
similar expressions or their negative forms, or by references to
strategy, plans, or intentions. Examples of forward-looking
statements in this press release include, without limitation, our
intention to pivot our investment strategy to focus on CLOs, our
intention to build upon our current CLO portfolio, our intention to
convert to a registered closed end fund to be treated as a RIC, our
beliefs regarding the current economic and investment environment,
our ability to implement our investment and hedging strategies,
volatility and its impact on us, the performance of our investment
and hedging strategies, our ability to implement our new strategy
following our decision to revoke our REIT election, our ability to
use NOLs in the future to offset taxable income, our expectations
regarding the CLO market generally and our CLO investments,
including relating to the CLO market being inefficient and our
ability to take advantage of these inefficiencies to drive earnings
growth with lower leverage, our ability to grow book value per
share over time and unlock additional value for our shareholders,
our expectations regarding the costs associated with the conversion
to a closed end fund/RIC, including the transitioning of the
investment portfolio, our ability to expand our valuation multiple,
open more channels for growth, and enhance our access to the
capital markets, the expected returns from our CLO investments, and
our intention to change our name to Ellington Credit Corporation.
The following factors are examples of those that could cause actual
results to vary from those stated or implied by our forward-looking
statements: changes in interest rates and the market value of our
investments, market volatility, changes in the default rates or
corporate loans, our ability to borrow to finance our assets,
changes in government regulations affecting our business, our
ability to maintain our exclusion from registration under the
Investment Company Act of 1940, our ability to pivot our investment
strategy to focus on CLOs, a deterioration in the CLO market, our
ability to utilize our NOLs, our ability to convert to a closed end
fund/RIC, including our ability to obtain shareholder approval of
our conversion to a closed end fund/RIC, and other changes in
market conditions and economic trends, such as changes to fiscal or
monetary policy, heightened inflation, slower growth or recession,
and currency fluctuations. Furthermore, as stated above,
forward-looking statements are subject to risks and uncertainties,
including, among other things, those described under Item 1A of our
Annual Report on Form 10-K, which can be accessed through the link
to our SEC filings under "For Investors" on our website (at
www.earnreit.com) or at the SEC's website (www.sec.gov). Other
risks, uncertainties, and factors that could cause actual results
to differ materially from those projected or implied may be
described from time to time in reports we file with the SEC,
including reports on Forms 10-Q, 10-K and 8-K. We undertake no
obligation to update or revise any forward-looking statements,
whether as a result of new information, future events, or
otherwise.
This release and the information contained herein do not
constitute an offer of any securities or solicitation of an offer
to purchase securities. In addition, the release is not a
solicitation of votes or proxies. Any such solicitation will only
be made pursuant to a proxy statement or other appropriate proxy
materials filed with the SEC and labeled as such.
View source
version on businesswire.com: https://www.businesswire.com/news/home/20240331813312/en/
Investors: Ellington Residential
Mortgage REIT Investor Relations (203) 409-3773
info@earnreit.com
or
Media: Amanda Shpiner/Sara Widmann
Gasthalter & Co. for Ellington Residential Mortgage REIT (212)
257-4170 Ellington@gasthalter.com
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