ADAMAS TRUST, INC. annual report, FY2019

Business context and reporting period

Filing identity: The supplied filing is New York Mortgage Trust, Inc. (NASDAQ: NYMT), not ADAMAS TRUST, INC. It is the company’s Form 10-K for the fiscal year ended December 31, 2019; quarterly figures below identify the fourth quarter where relevant.

NYMT is a mortgage and residential-housing-focused REIT. It invests in single-family and multifamily credit assets, Agency mortgage securities, and related investments, aiming to generate returns through net interest income and capital gains.

Financial performance and position

Portfolio net interest margin was 2.48% versus 2.53% in 2018. The multifamily credit portfolio’s margin was 6.55% (6.45% in 2018); single-family credit was 1.14% (0.74% in 2018). These portfolio measures exclude certain corporate debt costs.

At year-end, total assets were $23.5 billion, total liabilities $21.3 billion, and total equity $2.2 billion. These consolidated totals include substantial securitization entities: $19.3 billion of consolidated VIE assets and $17.9 billion of their liabilities. Cash and cash equivalents were $118.8 million; the company also identified $535.8 million of unencumbered securities available for liquidity needs.

Operating cash flow was $35.1 million; investing activities used $769.1 million and financing activities provided $746.4 million. The reported increase in cash, cash equivalents, and restricted cash was $12.5 million. Year-end book value was $5.78 per common share; management reported a 16.46% economic return on book value, including dividends.

Total debt leverage was approximately 1.5x equity and repo borrowings were 1.4x equity, compared with 2.0x and 1.8x, respectively, at year-end 2018. The total-debt ratio excludes non-recourse CDOs; reported consolidated debt therefore should not be read as entirely parent-company recourse debt. The company’s stated target total debt leverage was approximately 2.0x–2.5x, subject to portfolio composition.

In Q4 2019, net interest income was $44.0 million, common-stockholder net income $55.3 million, and basic EPS $0.20; the quarterly common dividend remained $0.20 per share.

Material changes versus 2018

• Common-stockholder net income rose by $65.6 million, while basic EPS increased from $0.62 to $0.65. Results benefited from growth in single-family and multifamily credit assets and stronger realized gains.
• The investment portfolio grew, with acquisitions reported at $2.4 billion. At year-end, approximately 79.7% of the investment portfolio was classified by the company as credit assets.
• Common shares outstanding increased from 155.6 million to 291.4 million. Six common-stock offerings and other equity issuance raised approximately $1.0 billion in aggregate net proceeds, including preferred-stock proceeds.
• Repo borrowings increased to $3.1 billion from $2.1 billion. Cash and cash equivalents increased to $118.8 million from $103.7 million.
• Realized gains, net, were $32.6 million versus a $7.8 million realized loss in 2018. Unrealized gains, net, were $35.8 million versus $52.8 million in 2018.
• The company completed internalization of management of its distressed residential loan strategy in 2019. General and administrative costs increased, while management and incentive fees declined following termination of its last management agreement.

Outlook, risks, contingencies, and unusual items

• Outlook: No specific earnings or investment guidance is provided. Management said it expected to continue quarterly common cash dividends in the near term, but the board reviews distributions quarterly and may change them. Dividend payments are not guaranteed.
• Interest-rate and market exposure: The filing’s year-end model estimated that a 100-basis-point rate increase would reduce next-12-month net interest income by $18.9 million and portfolio fair value by $130.0 million; a 200-basis-point increase corresponded to declines of $34.5 million and $276.3 million. These are model sensitivities, not forecasts.
• Funding and liquidity: The company relies materially on short-term, generally uncommitted repurchase agreements that may be repriced, not renewed, or subject to margin calls. Management believed available cash, financing, and operating cash flows would meet liquidity needs for at least 12 months, but this depends on market and funding conditions.
• Credit, valuation, and concentration: The portfolio includes subordinated and first-loss securities, distressed residential loans, and preferred-equity and mezzanine investments. Fair values for significant assets rely on Level 3 estimates and assumptions. Multifamily and residential assets have geographic and property-sector concentrations.
• Accounting and unusual items: Newly acquired investment securities were measured under the fair value option beginning in Q4 2019, shifting subsequent fair-value changes into earnings rather than other comprehensive income. The company adopted the expected-credit-loss standard on January 1, 2020 and elected fair value treatment for certain loans and investments, increasing opening book value by $12.3 million. A $2.9 million loss on extinguishment of debt was recorded in 2019.
• Subsequent events: Common-stock offerings in January and February 2020 raised net proceeds of approximately $206.7 million and $305.3 million, respectively. The filing also identifies COVID-19 among potential risks; it does not quantify any resulting financial impact.
• Contingencies and controls: Management said ordinary-course legal proceedings were not expected to have a material adverse effect. The auditor issued unqualified opinions on the financial statements and internal control over financial reporting; management also concluded controls were effective at year-end.

Most important facts for investors to verify

• Confirm the issuer: the filing is for New York Mortgage Trust, Inc. (NYMT), not ADAMAS TRUST, INC.
• Review the audited statements and notes for VIE consolidation, non-recourse debt, and the distinction between consolidated liabilities and obligations of the parent.
• Assess the quality and sensitivity of reported earnings, including fair-value gains, realized gains, and Level 3 valuation assumptions.
• Check repo maturities, counterparty concentration, margin requirements, and available liquidity against the company’s reliance on short-term financing.
• Evaluate the effect of substantial common-share issuance on per-share book value, earnings, and future dividends, and review the stated post-year-end offerings.
• Verify subsequent-period credit performance, dividend decisions, and any effects of changing interest rates, spreads, prepayments, and COVID-19 conditions.