Business context and reporting period
Filing identity: The supplied metadata names ADAMAS TRUST, INC., but the filing itself is New York Mortgage Trust, Inc. (NYSE: NYMT), Form 10-Q for the quarter ended June 30, 2018. Investors should verify the issuer before relying on this summary. The unaudited filing covers the three and six months ended June 30, 2018.
NYMT is a mortgage REIT that invests in mortgage-related and residential-housing assets, including multi-family securities and loans, preferred equity and mezzanine loans, distressed residential loans, second mortgages, and Agency and non-Agency RMBS. It says its objective is to provide long-term stable distributions through net interest margin and realized gains.
Financial performance and position
| Metric | Q2 2018 | Q2 2017 | Six months 2018 | Six months 2017 |
|---|---|---|---|---|
| Total interest income | $107.7 million | $94.0 million | $216.6 million | $172.4 million |
| Net interest income | $17.5 million | $15.7 million | $37.3 million | $29.6 million |
| Net income attributable to common stockholders | $23.8 million | $11.1 million | $47.5 million | $27.1 million |
| Basic / diluted EPS | $0.21 / $0.20 | $0.10 / $0.10 | $0.42 / $0.40 | $0.24 / $0.24 |
| Portfolio net interest margin | 2.39% | 3.12% | 2.62% | 2.91% |
- Q2 other income was $20.0 million, including $12.6 million of unrealized gains on investment securities and related hedges and $12.0 million of unrealized gains on multi-family loans and debt, partly offset by an $8.7 million realized loss on securities and related hedges. The filing attributes much of the year-over-year earnings increase to fair-value gains and higher net interest income; reported profit therefore includes significant valuation effects.
- At June 30, total assets were $11.64 billion, total liabilities $10.62 billion, and total equity $1.02 billion. Consolidated multi-family securitization assets and liabilities represent a substantial portion of these totals.
- Cash and cash equivalents were $84.7 million, down from $95.2 million at year-end 2017. Six-month operating cash flow was $10.9 million, investing cash flow was $132.3 million, and financing cash outflow was $159.0 million; cash, cash equivalents and restricted cash fell $15.8 million to $90.4 million.
- Repurchase financing for portfolio investments totaled $1.18 billion at a 2.76% weighted-average rate; residential-loan financing arrangements totaled a further $192.2 million. The company reported $318.0 million of unencumbered securities in addition to $84.7 million cash for liquidity. Management said available resources and expected cash flows should meet requirements for at least 12 months.
- Management reported overall leverage of approximately 1.6-to-1 and short-term financing leverage of 1.4-to-1, using its stated definitions and exclusions. Total liabilities also include $8.84 billion of multi-family CDOs consolidated with the related securitization trusts.
- Common book value per share was $5.76 at June 30, versus $6.00 at December 31, 2017. The filing cites accumulated other comprehensive losses, principally unrealized Agency RMBS losses, as a contributing factor. Common shares outstanding increased to 124.3 million from 111.9 million at year-end, largely following ATM issuance.
Material changes versus the prior comparable period
- Common-stockholder income rose 114% in Q2 and 75% for the first half year over year. Net interest income increased, while total expenses declined. Higher multi-family and Agency RMBS interest income was partly offset by lower distressed-residential portfolio income.
- Portfolio net interest margin declined year over year in both periods shown, to 2.39% in Q2 and 2.62% for the first half. Higher funding costs and changes in portfolio mix are relevant context; the filing’s reported margin measure excludes subordinated debentures and convertible notes from average cost of funds.
- Available-for-sale securities declined to $1.29 billion from $1.41 billion at year-end, reflecting Agency IO sales, principal payments and unrealized losses. The company said it fully exited its Agency IO strategy during Q2 and recorded related realized losses.
- Accumulated other comprehensive income of $5.6 million at year-end became accumulated other comprehensive loss of $25.5 million at June 30, primarily due to unrealized losses on Agency RMBS.
- The company issued 12.1 million common shares through its ATM program in Q2 at an average $6.17 per share, receiving $73.8 million net. Approximately $24.7 million remained available under the program at quarter-end.
- In March, Riverchase Landing sold its apartment community, redeemed NYMT’s preferred equity investment, and was deconsolidated. The Clusters remained classified as held for sale; NYMT anticipated a third-party sale in 2018.
Outlook, management commentary, risks and unusual items
- No formal earnings or net-interest-margin guidance is provided. NYMT said it expected to continue quarterly common dividends in the near term, but the board would reassess each quarter based on financial condition, liquidity, earnings outlook and other factors. The Q2 common dividend was $0.20 per share.
- After quarter-end, NYMT announced plans to internalize management of its distressed residential loan strategy, hiring ten investment professionals and expecting the team ultimately to reach 15–20. It expects higher corporate G&A to be substantially offset over time by lower management and incentive fees, but gave no assurance of success or that expenses would not adversely affect results. Its Headlands agreement expires June 30, 2019; Headlands will continue managing its sourced loans until liquidation under the agreement’s terms.
- Management described a rising-rate environment and uncertain Federal Reserve policy as potential sources of market volatility, wider spreads, lower asset prices and higher hedging costs. Its modeled next-12-month net interest income sensitivity was negative $9.7 million for a 100-basis-point rate rise and negative $19.6 million for a 200-basis-point rise; a 100-basis-point decline was modeled to increase it by $7.6 million. These are scenario estimates, not forecasts.
- Key risks include short-term repo refinancing and margin calls, interest-rate and prepayment exposure, credit losses, valuation uncertainty for Level 3 assets, and counterparty concentration. The company said $181.8 million was at risk under repo arrangements, with no more than approximately $68.6 million at any single counterparty. It expected to refinance or roll two Deutsche Bank residential-loan repo balances maturing in November 2018 and June 2019.
- The company recorded a $2.1 million impairment on real estate under development in a consolidated VIE during Q2; $1.0 million was attributable to non-controlling interests. It reported no other-than-temporary impairment on investment securities and did not believe current litigation would have a material adverse effect. Management reported disclosure controls effective and no material change in internal control over financial reporting.
- Fair-value sensitivity modeling estimated portfolio value declines of $46.5 million for a 100-basis-point rate rise and $104.1 million for a 200-basis-point rise, versus a $12.7 million increase for a 100-basis-point decline. Actual effects may differ, including due to changes in spreads, prepayments, defaults, liquidity or portfolio composition.
Most important facts for investors to verify
- Confirm the filing belongs to New York Mortgage Trust, Inc., not the company named in the request metadata.
- Assess how much of the earnings increase came from recurring net interest income versus unrealized fair-value gains and realized securities losses.
- Review repo maturity, refinancing and margin-call exposure alongside the reported cash and unencumbered collateral.
- Track execution and costs of the distressed-loan management internalization, including the Headlands transition and remaining fees.
- Evaluate the effect of ATM share issuance and preferred dividends on per-share earnings, book value and distributions.
- Monitor the held-for-sale property disposition, distressed-loan credit performance, and key fair-value assumptions for Level 3 assets.