ADAMAS TRUST, INC. annual report, FY2017

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Business context and reporting period

This is New York Mortgage Trust, Inc.’s Form 10-K for the fiscal year ended December 31, 2017; the supplied request metadata names Adamas Trust, Inc., which does not match the registrant identified in the filing. NYMT is a mortgage REIT investing in residential and multifamily mortgage-related assets, including credit-sensitive loans and securities, multifamily investments, and Agency RMBS.

Financial performance and position

  • Earnings: Net income attributable to common stockholders was $76.3 million, or $0.68 per basic share ($0.66 diluted), compared with $54.7 million, or $0.50 per share, in 2016. Total other income rose to $75.0 million from $41.2 million, while net interest income declined to $58.0 million from $64.6 million.
  • Interest margin: Portfolio net interest margin was 2.73%, down from 2.93%. Interest income was $366.1 million and interest expense $308.1 million, versus $319.3 million and $254.7 million, respectively, in 2016.
  • Key drivers: Results included $26.0 million of realized gains on distressed residential loan sales and $18.9 million of net unrealized gains on multifamily loans and debt in securitization trusts. Management cited stronger multifamily net interest income, offset by lower Agency IO and distressed-loan net interest income and higher financing costs.
  • Cash flow: Operating activities provided $29.3 million; investing activities used $430.7 million; financing activities provided $377.3 million. Cash, cash equivalents, and restricted cash decreased $24.1 million to $115.5 million. Unrestricted cash and cash equivalents at year-end were $95.2 million.
  • Liquidity: NYMT reported $315.7 million of unencumbered investment securities available for potential margin or liquidity needs. Management stated existing cash, financing availability, and operating cash flows were expected to meet liquidity needs for at least 12 months.
  • Debt and leverage: Repurchase financing for portfolio investments was $1.277 billion, up from $773.1 million, with a 2.18% weighted-average rate. Convertible notes had $128.7 million carrying value; the $138.0 million principal issuance bears 6.25% and matures in 2022. Reported overall leverage was approximately 1.7:1 and short-term financing leverage 1.5:1, using company-defined measures that exclude certain non-recourse/VIE debt.
  • Equity and distributions: Company stockholders’ equity was $971.9 million and book value per common share was $6.00, down from $6.13. The filing reports a 10.9% annual economic return. Common dividends declared were $0.80 per share, down from $0.96 in 2016.
  • Scale: Total consolidated assets were $12.1 billion, including $10.0 billion of consolidated VIE assets; the corresponding VIE liabilities were $9.4 billion. These consolidated balances should not be read as assets and obligations wholly attributable to NYMT.

Material changes versus 2016

  • Common net income and basic EPS increased, principally as other income rose; net interest income and portfolio margin declined.
  • NYMT expanded Agency fixed-rate RMBS and multifamily exposure, while distress-residential loan carrying value fell to $331.5 million from $503.1 million. Capital allocated to Agency RMBS rose to 27.1% from 15.7%; multifamily remained the largest allocation at 48.7%.
  • In 2017 NYMT issued $138.0 million of convertible notes and 5.4 million Series D preferred shares, generating approximately $127.0 million and $130.5 million of net proceeds, respectively.
  • NYMT consolidated Riverchase Landing and The Clusters after determining it became their primary beneficiary. Their $64.2 million of real estate was classified as held for sale, with management anticipating third-party sales in 2018.
  • The Agency IO strategy was exited during 2017; the Midway management agreement ended December 31, 2017.

Outlook, risks, and unusual items

Management said it intended to remain focused on residential and multifamily credit assets, while using more liquid assets such as Agency RMBS for excess working capital. It acquired approximately $415.6 million of residential and multifamily credit assets in 2017. The filing gives no specific earnings or dividend guidance; management expected to continue quarterly common dividends in the near term, subject to quarterly Board review and financial, liquidity, REIT, and business considerations.

  • Material risks include short-term repo funding and margin calls, rising borrowing costs or a flattening yield curve, interest-rate and prepayment sensitivity, credit losses on subordinate and distressed assets, illiquid investments, and valuation-model uncertainty.
  • NYMT’s modeled sensitivity indicated annual net interest income declines of $4.5 million for a 100-basis-point rate increase and $12.3 million for a 200-basis-point increase; modeled market value declines were $27.6 million and $73.8 million, respectively. These are estimates, not forecasts.
  • Multifamily property performance, counterparties, third-party servicers and Headlands, REIT qualification, Investment Company Act status, and changes to Fannie Mae/Freddie Mac or housing policy are additional stated risks.
  • The company reported no legal proceedings expected to have a material adverse effect and no loan repurchases during the three years ended 2017. The auditor issued unqualified opinions on the financial statements and internal controls; management also concluded controls were effective.

Important facts for investors to verify

  1. Confirm the issuer identity: the filing is for New York Mortgage Trust, Inc. (NYMT), not Adamas Trust, Inc.
  2. Review the quality and repeatability of 2017 other income, particularly loan-sale gains and fair-value gains, alongside the decline in recurring net interest income and margin.
  3. Assess liquidity under repo renewals, collateral haircuts, and margin-call stress; distinguish unrestricted cash from restricted cash and understand the company’s leverage calculation and non-recourse VIE debt.
  4. Track common dividend coverage and the effect of preferred dividends, new preferred capital, and potential conversion dilution from the 2022 notes.
  5. Monitor distressed-loan delinquencies and recoveries, multifamily collateral performance, and the expected sale outcomes for Riverchase Landing and The Clusters.