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Omega Advisors lowers position in Chimera Investment

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Omega Advisors and Chimera Investment

Omega Advisors lowered its position in Chimera Investment (CIM) during the current quarter. It said it holds 66,176,243 shares via an amended 13G filing at the end of November. The fund said it owns a 6.4% stake in Chimera. A 13D filing in February had revealed an activist stake in the company.

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Overview of Chimera Investment Corporation

Chimera Investment Corporation invests in residential mortgage loans, residential mortgage-backed securities, real estate-related securities and various other asset classes. Its principal business objective is to generate income from the spread between yields on its investments and its cost of borrowing and hedging activities.

The company is a Maryland corporation that has elected to be taxed as a real estate investment trust, or REIT. It’s externally managed by Fixed Income Discount Advisory Company, a wholly owned subsidiary of Annaly Capital Management (NLY).

Chimera posts growth in profits and interest income

Chimera’s 3Q14 net income grew to $378 million, or $0.37 per average share, as compared to net income of $67 million, or $0.07 per average share, in the same period a year ago. A change in unrealized gain on financial instruments at fair value of $191 million drove earnings growth.

Interest income increased by $60 million to $190 million for the quarter ended September 30, 2014 from $130 million for the same period in 2013. The increase was due to a growth in agency holdings of approximately $6.0 billion acquired at the end of the second quarter. It was also due to the increase in securitized loans of approximately $4.8 billion acquired during the third quarter. Net interest income on its Agency RMBS portfolio increased by $35 million, and net interest income on the securitized loan portfolio increased by $25 million.

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Chimera’s GAAP (generally accepted accounting principles) book value was $3.50 per share, an increase of 4% from June 30, 2014, and an increase of 8% from December 31, 2013. It said, “book value increases reflect the favorable market fundamentals for both Agency and Non-Agency RMBS during the third quarter of 2014.” It said that it “has added positions to both its Agency and loans held for investment portfolios during 2014 which could have a positive impact on net interest income over the next few quarters.”

Chimera is a dividend-paying company

Chimera declared a fourth-quarter 2014 cash dividend of $0.09 per common share. The annualized dividend yield on the company’s common stock for the quarter ended September 30, 2014, based on the September 30, 2014, closing price of $3.04, was 11.8%.

Omega’s 3Q14 positions

According to the November 13F filing, Omega added new positions in AerCap Holdings N.V. (AER), Nordic American Offshore (NAO), and Melco Crown Entertainment (MPEL). It exited its positions in Qualcomm (QCOM), Ocwen Financial Corp. (OCN), Freeport-McMoRan (FCX), and Boston Scientific Corp. (BSX). Notable position increases during the third quarter were QEP Resources (QEP) and United Continental Holdings (UAL).

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