OLD GREENWICH, Conn. - Ellington Residential Mortgage REIT (NYSE: NYSE:EARN), a real estate investment trust, is set to undergo a strategic shift in its investment approach, pivoting towards a focus on corporate collateralized loan obligations (CLOs). The company plans to expand its current $44 million CLO portfolio, particularly targeting secondary CLO mezzanine debt and equity tranches.
In line with this shift, Ellington Residential has decided to revoke its REIT status for the tax year 2024 and is planning to transition into a registered closed-end fund, to be treated as a regulated investment company (RIC) later this year. This move is contingent on shareholder approval of certain matters.
The company also intends to operate as a taxable C-Corporation in the interim and utilize its substantial net operating loss carryforwards to mitigate most of its U.S. federal taxable income.
Ellington Residential's CEO and President, Laurence Penn, expressed optimism about the strategic change, citing the company's successful history in CLO investments and the potential to capitalize on market inefficiencies to drive earnings growth while employing lower leverage. He anticipates that this shift will significantly contribute to the growth of the company's book value per share and provide additional value for shareholders.
Barry Allardice, Chairman of the Board, echoed this sentiment, affirming the board's unanimous belief in the benefits of the transformation for shareholders. The company also expects to change its name to Ellington Credit Corporation, while retaining its current ticker symbol, EARN.
This strategic move comes at a time when the company believes that certain segments of the CLO market, especially the secondary market for mezzanine debt and equity, remain highly inefficient, offering opportunities for growth. The company's announcement indicates that it expects the transition to a closed-end fund/RIC to incur only modest costs, due to the high liquidity of its Agency MBS pool portfolio.
The information contained in this article is based on a press release statement from Ellington Residential Mortgage REIT.
InvestingPro Insights
As Ellington Residential Mortgage REIT (NYSE: EARN) prepares for a significant strategic shift, investors are closely monitoring the company's financial health and market performance. According to InvestingPro data, the company's market capitalization stands at a modest 136.95 million USD, reflecting its size within the industry. Despite the anticipated strategic changes, the company's P/E ratio remains at a relatively high level of 22.48, which could suggest that the stock is trading at a premium relative to its earnings.
InvestingPro Tips highlight that Ellington Residential is expected to grow its net income this year, which aligns with the company's optimism about its strategic pivot. Additionally, the company has been maintaining dividend payments for 12 consecutive years, underlining its commitment to returning value to shareholders. This is particularly noteworthy for income-focused investors, considering the current dividend yield is a significant 13.89%.
For those interested in further analysis, InvestingPro offers more insights, including additional InvestingPro Tips that could guide investment decisions. To explore these tips and more, visit the dedicated page for Ellington Residential at https://www.investing.com/pro/EARN. Remember to use the coupon code PRONEWS24 for an additional 10% off a yearly or biyearly Pro and Pro+ subscription. There are 7 additional InvestingPro Tips available for Ellington Residential that could provide further value to your investment research.
As the company transitions its focus and corporate structure, these financial metrics and expert insights from InvestingPro will be invaluable for shareholders and potential investors to track Ellington Residential's progress and assess the impact of its strategic decisions on its financial performance.
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