Business context and reporting period
Filing identity: The supplied filing is New York Mortgage Trust, Inc. (NASDAQ: NYMT), not ADAMAS TRUST, INC. It is a REIT investing in residential mortgage assets, mortgage-backed securities, multifamily investments and rental properties. This unaudited Form 10-Q covers the quarter ended September 30, 2023, with year-to-date comparisons through September 30.
Key financial results and position
| Metric | Q3 2023 | Q3 2022 | Nine months 2023 | Nine months 2022 |
|---|---|---|---|---|
| Interest income | $65.2 million | $68.9 million | $179.9 million | $195.4 million |
| Net interest income | $16.8 million | $30.4 million | $49.7 million | $106.7 million |
| Net loss attributable to common stockholders | $94.8 million | $125.8 million | $121.5 million | $292.5 million |
| Basic loss per common share | $1.04 | $1.33 | $1.33 | $3.08 |
| Net interest spread (non-GAAP) | 0.90% | 2.18% | 0.63% | 2.93% |
Q3 net loss from real estate was $7.8 million, versus $29.0 million a year earlier; other loss was $85.9 million, including $44.2 million of real-estate impairment and $61.3 million of net unrealized losses. For the first nine months, real-estate impairment was $71.3 million. These are significant contributors to reported losses.
At September 30, total assets were $6.94 billion, total liabilities $5.32 billion, and total equity $1.60 billion. Common book value was $11.26 per share and management’s non-GAAP adjusted book value was $12.93, down from $13.27 and $15.89, respectively, at December 31, 2022. Cash and cash equivalents were $228.3 million; cash, cash equivalents and restricted cash totaled $355.4 million. Nine-month operating cash flow was $16.9 million, investing cash outflow $822.5 million, and financing cash inflow $780.2 million.
Reported debt included $1.99 billion of repurchase agreements, $1.90 billion of collateralized debt obligations, $97.9 million of senior unsecured notes, $45.0 million of subordinated debentures and $396.8 million of mortgages payable on real estate, plus $767.3 million of liabilities classified in disposal groups held for sale. Recourse leverage ratios were 1.3x for company recourse leverage and 1.2x for portfolio recourse leverage, versus 0.7x and 0.6x at June 30, 2023. Management reported $221.2 million of available cash, $172.8 million of unencumbered securities, $201.2 million of unencumbered residential loans and $229.0 million of unencumbered preferred-equity investments.
Material changes versus prior periods
- Net interest income fell 45% in Q3 year over year and 53% for the nine-month period. Management attributed the decline to runoff of higher-yielding business-purpose loans, investment in lower-yielding Agency RMBS, and higher financing costs as rates rose and borrowings increased.
- Agency RMBS holdings expanded substantially: available-for-sale securities rose to $1.60 billion from $99.6 million at year-end, primarily reflecting purchases. The company bought approximately $946.2 million of Agency RMBS in Q3.
- Repurchase-agreement balances increased to $1.99 billion from $737.0 million at year-end, as the company financed portfolio growth. Management said the leverage increase was primarily associated with liquid Agency RMBS.
- Common book value declined to $11.26 per share from $13.27. The company recorded $71.3 million of multifamily impairment in the first nine months and continued its previously announced plan to dispose of multifamily joint-venture interests.
- Common dividends were reduced from $0.40 per share in Q1 2023 to $0.30 in Q2 and Q3. The filing reports $1.00 per share declared for the first nine months of 2023.
Outlook, management commentary and risks
Management said it intends to grow investment activity selectively, emphasizing Agency RMBS and targeted residential credit assets, while continuing to sell multifamily joint-venture properties and manage liabilities prudently. It stated that available cash, financing and operating cash flows are expected to meet liquidity needs for at least the next 12 months, while cautioning that future financing access, terms and timing are not assured. No numerical earnings or dividend guidance was provided.
The company identified persistent inflation, high and volatile interest rates, possible recession, widening spreads, weaker borrower or tenant performance, multifamily supply and rent pressures, property-value declines, refinancing and prepayment behavior, counterparty concentration, and the availability and renewal of short-term repurchase financing as material risks. Some repurchase agreements are subject to margin calls, and counterparties may decline to renew financing. As of September 30, 52% of debt was subject to mark-to-market margin calls. A static model estimated that a 100-basis-point rate increase would reduce annualized adjusted net interest income by about $20.3 million; the filing cautions that actual outcomes may differ.
Other notable items: $560.8 million of CDOs had potential initial rate step-ups if not redeemed by specified dates; the company had a $40 million multifamily investment commitment expiring December 7, 2023, with no funding reported as of November 3; and management stated it was in compliance with reported debt covenants. Disclosure controls were deemed effective, and the filing reported no material change in risk factors from the 2022 Form 10-K.
Investor verification priorities
- Confirm the intended issuer: the provided filing is for New York Mortgage Trust, Inc., rather than ADAMAS TRUST, INC.
- Review the composition and valuation of the rapidly expanded Agency RMBS portfolio, related repo financing, haircuts and margin-call exposure.
- Assess the drivers of the decline in net interest spread and whether hedges can offset future increases in funding costs.
- Track fair-value assumptions, delinquency trends and credit performance in residential loans, and the valuation and sale prospects for multifamily assets held for disposal.
- Evaluate cash available outside consolidated property entities, debt maturities and step-up provisions, and the sustainability of common and preferred dividends.