For those steadfast Chimera Investment (NYSE:CIM) investors who were always certain that the wayward mortgage REIT would come through with its long past-due passel of financial disclosures, Friday was a banner day. Or rather, evening -- since Chimera waited until after closing time to file its 10-K from 2011 with the Securities and Exchange Commission.
That in itself seems a little fishy, doesn't it? Was Chimera hoping no one would notice the filing? Surely, management can't be that daffy, since no one with even a fleeting interest in the sector could have missed all the hullaballoo over these overdue filings. Even the NYSE was ready to give this outfit the boot, though it did allow them more filing extensions than I would have expected.
Now that some information is finally available, I took a gander at Chimera's 2011 10-K, and it's a hoot. Truly, I have to agree with fellow Fool John Maxfield, who has expressed doubts regarding this trust's reliability and trustworthiness.
Risk factors ad infinitum
Every company lists risk factors on these 10-K forms, and while often they are somewhat predictable, they can also be quite telling. Because of their nature, mREITs may have more to say about risk than other types of companies. Chimera has a good 35 pages dedicated to risk factors, which seems like a lot; Annaly Capital (NYSE:NLY), the established mREIT whose subsidiary FIDAC manages Chimera, has 27 pages. By contrast, American Capital Agency (NASDAQ:AGNC), has about 19.
Most interesting are the risks related to management. As Mr. Maxfield has pointed out before, the Annaly-Chimera relationship is an especially intimate one: The CEO of Chimera is the son of one of Annaly's directors, and A. Alexandra Denahan is Chimera's CFO -- as well as Annaly CEO Wellington Denahan-Norris' sister. To be fair, close relationships like this may not be unusual in this industry. After all, American Capital Agency and its hybrid cousin, American Capital Mortgage share a common CIO in Gary Kain -- though both those companies seems to be well-run, in contrast to Chimera.
The risks laid out in the 10-K in regards to its management setup are myriad, and it is interesting to note the management fees paid. For 2011, Chimera paid fees of $52 million, in 2010, it paid nearly $41 million, and for 2009, the management fee was close to $26 million -- and that's not even counting all the expenses they were reimbursed. Fees were halved as of November 2012, something agreed to this very month. A little late, it seems: A share performance graph shows the mREIT consistently underperforming both the BBG REIT Index and the S&P 500 since 2008.
A little too scary
This article touches on just a tiny portion of the plethora of issues plaguing Chimera. It really is amazing that a well-managed company like Annaly can have a hand in such a muddled entity like Chimera, which seems just too creepy to seriously consider as an investment.
Still, there are some big players that have bought into this mREIT, as Maxfield points out. Do they know something we don't?