Business context and reporting period
The supplied filing is New York Mortgage Trust, Inc. (NYSE/Nasdaq symbols include NYMT), not Adamas Trust, Inc. It is a Form 10-Q for the quarter ended March 31, 2022; the filing text does not provide Adamas Trust results. NYMT is a REIT investing in residential mortgage assets and multifamily properties. Figures below are in U.S. dollars; financial-statement amounts are in millions unless otherwise noted.
Financial results and key metrics
- Quarterly results: Net interest income was $29.9 million, down from $30.3 million a year earlier. Net loss attributable to common stockholders was $84.3 million, or $0.22 per share, versus net income of $41.9 million, or $0.11 per share, in Q1 2021.
- Main earnings driver: Net unrealized losses were $83.7 million, compared with $26.2 million of unrealized gains a year earlier, principally reflecting credit-spread widening and lower asset prices. Total non-interest results shifted to a $46.8 million loss from $39.7 million of income.
- Expenses and margins: General, administrative and operating expenses totaled $71.8 million, versus $19.2 million. The increase included real-estate expenses associated with a larger consolidated property portfolio. Portfolio net interest margin, a company-defined measure, rose to 3.87% from 2.42%; yield on average interest-earning assets was 6.80%.
- Cash flow: Operating activities generated $38.2 million; investing activities used $576.9 million; financing activities provided $604.8 million. Cash, cash equivalents and restricted cash ended at $404.0 million, including $303.8 million of cash and cash equivalents and $100.3 million of restricted cash.
- Balance sheet and liquidity: Total assets were $6.54 billion and total liabilities $4.24 billion at quarter-end. Stockholders’ equity was $2.22 billion; GAAP book value was $4.36 per common share, down from $4.70 at year-end 2021. Undepreciated book value, a non-GAAP measure, was $4.45 per share. The company reported $303.8 million of cash and $84.1 million of unencumbered investment securities available for margin needs, among other unencumbered assets.
- Debt and leverage: Reported debt included $927.0 million of repurchase agreements, $1.90 billion of collateralized debt obligations, $1.08 billion of mortgages payable on real estate, $96.9 million of senior unsecured notes and $45.0 million of subordinated debentures. The $138.0 million convertible notes were repaid at maturity in January 2022. Management reported company recourse leverage of about 0.5x and portfolio recourse leverage of 0.4x; these measures exclude specified non-recourse securitization and property debt.
- Dividends: The declared common dividend was $0.10 per share. Preferred-stock dividends were $10.5 million for the quarter.
Material changes versus the prior comparable period
- The company reported a substantial year-over-year earnings reversal, primarily from fair-value losses, and common book value fell from $4.70 per share at December 31, 2021 to $4.36 at March 31, 2022.
- Investment activity was unusually high: management said the company funded $984.6 million of investments, including $782.5 million of residential loans and $156.9 million of new structured multifamily investments. The portfolio increased approximately $533.8 million on a net basis, according to management.
- Real estate, net, grew to $1.53 billion from $1.02 billion, while mortgages payable on real estate rose to $1.08 billion from $709.4 million. The company consolidated new multifamily property investments and acquisitions during the quarter.
- Repurchase-agreement balances increased to $927.0 million from $554.3 million. CDOs rose to $1.90 billion from $1.52 billion, including new residential loan securitizations. The company also repaid its convertible notes.
Outlook, risks, contingencies and unusual items
- Management outlook: NYMT said it intended to pursue selective residential-sector investments, emphasize higher-coupon, short-duration investor loans, consider opportunistic asset sales and manage liabilities prudently. It expected market and asset-price volatility to continue in 2022, citing rising rates, widening spreads, inflation, geopolitical uncertainty and recession concerns. No quantitative earnings or return guidance was provided.
- Financing and market risks: A portion of repurchase financing is short-term and subject to collateral repricing, margin calls, non-renewal and counterparty risk. The company had no interest-rate hedges in place at quarter-end. Its model estimated that an instantaneous 200-basis-point rate increase would reduce next-12-month net interest income by about $10.0 million and portfolio fair value by about $219.5 million; actual outcomes may differ.
- Asset and credit risks: Fair values depend partly on Level 3 models and unobservable assumptions. Borrower defaults, delinquencies, slower prepayments, property vacancies, declining home prices and weaker multifamily fundamentals could hurt income, asset values and liquidity. Less than 1% of residential loans had an active COVID-19 assistance plan; one multifamily investment was delinquent in distributions and represented 1.4% of the Mezzanine Lending portfolio.
- Liquidity position: Management believed available cash, financing and operating cash flows would meet liquidity needs for at least 12 months, while noting that additional financing access and terms were not assured. The company had a $40.0 million commitment to fund multifamily joint-venture equity investments.
- Subsequent event: In April 2022, NYMT entered a non-mark-to-market, non-recourse repurchase agreement with a new counterparty, with a maximum purchase price of $750.0 million, to finance business-purpose loans.
- Other matters: The company sold a multifamily property in March, receiving approximately $52.0 million, repaying approximately $37.0 million of related mortgage debt and recording a gain on sale and a loss on debt extinguishment. It authorized a $200.0 million share-repurchase program, but had repurchased no shares by quarter-end. Management reported no material litigation, no material changes to previously disclosed risk factors, and effective disclosure controls.
Most important facts an investor should verify
- Confirm the issuer identity: the supplied filing is for New York Mortgage Trust, Inc., not Adamas Trust, Inc.
- Review the sources and sensitivity of the $83.7 million quarterly unrealized loss, Level 3 valuation assumptions and impact on book value.
- Assess the growth, terms and collateral of repurchase agreements and securitization debt, including margin-call exposure and the April $750 million facility.
- Reconcile reported operating performance with the multifamily portfolio’s real-estate expenses and noncash depreciation and lease-intangible amortization.
- Monitor the sustainability of common and preferred dividends against earnings, liquidity, REIT distribution requirements and capital needs.