Business context and reporting period
Entity identification: The supplied filing is New York Mortgage Trust, Inc. (NASDAQ: NYMT), not Adamas Trust, Inc. It is a REIT that invests in mortgage-related and financial assets, including Agency RMBS, multifamily CMBS, and residential mortgage loans. This Form 10-K covers the fiscal year ended December 31, 2014; fourth-quarter results are also disclosed.
Financial performance and condition
| Metric | 2014 | 2013 |
|---|---|---|
| Interest income | $378.8 million | $291.7 million |
| Interest expense | $301.0 million | $231.2 million |
| Net interest income | $77.8 million | $60.5 million |
| Net income attributable to common stockholders | $130.4 million | $65.4 million |
| Basic and diluted EPS | $1.48 | $1.11 |
| Common dividends declared per share | $1.08 | $1.08 |
| Net cash provided by operating activities | $37.6 million | $53.3 million |
- Fourth-quarter 2014 common net income was $40.5 million, or $0.42 per share; net interest income was $18.8 million. The quarterly net interest spread was 4.32%, compared with 4.10% in fourth-quarter 2013.
- Year-end total assets were $10.54 billion, liabilities $9.72 billion, and stockholders’ equity $817.9 million. These totals include consolidated securitization entities; approximately $8.85 billion of assets and $8.46 billion of liabilities belonged to consolidated VIEs, principally multifamily K-Series structures.
- Cash and cash equivalents were $75.6 million. Management reported $234.8 million of unencumbered securities and believed available liquidity and operating cash flows would meet requirements for at least 12 months.
- Repurchase borrowings against portfolio investments were $652.0 million at a 0.43% weighted-average rate; distressed-loan repurchase financing was $238.9 million. Reported overall leverage was 1.4:1 and short-term/callable leverage 1.1:1, excluding specified CDO balances. The consolidated multifamily CDOs were $8.05 billion and generally non-recourse.
- Operating cash flow was positive, while investing activities used $125.0 million and financing activities provided $131.3 million. Cash increased $43.8 million during the year.
Material changes versus the prior comparable period
- Common net income nearly doubled, rising by $65.0 million, and EPS increased from $1.11 to $1.48. Net interest income increased $17.3 million, supported by a greater allocation to higher-yielding credit-sensitive assets.
- Other income rose $76.1 million, including $39.1 million of realized gains on multifamily CMBS sales, $14.4 million of realized gains on distressed residential loan activity, and $56.9 million of net unrealized gains on multifamily loans and debt held in securitization trusts. These gains are not all recurring cash earnings.
- General, administrative and other expenses increased $20.5 million to $40.5 million, largely reflecting management and incentive fees, which rose to $24.5 million, and higher distressed-loan expenses.
- The company issued 40.9 million common shares in three public offerings, raising approximately $296.5 million net. Year-end common shares outstanding increased from 64.1 million to 105.1 million; reported common book value per share rose from $6.33 to $7.07.
- Carrying value of acquired distressed residential loans, including loans in securitization trusts, increased to $582.7 million from $264.4 million. The company bought approximately $400.9 million of such loans during 2014, including a December pool acquired for $328.4 million.
Outlook, commentary, risks and unusual items
- Management expected modest near-term improvement in single-family housing and described multifamily housing as relatively strong. It planned to remain selective and opportunistic in 2015 as tighter credit spreads made new credit-sensitive investments less attractive. It expected interest rates to rise over the longer term, while noting market uncertainty about the timing.
- The board declared a $0.27-per-share common dividend for fourth-quarter 2014, paid in January 2015. Management expected to continue quarterly dividends in the near term, but payments remain discretionary and dependent on earnings, liquidity, and REIT requirements. The 7.75% Series B preferred stock carries a $25 liquidation preference.
- Key risks include short-term repo refinancing and margin calls; interest-rate, yield-curve, spread and prepayment changes; credit losses on distressed loans and first-loss CMBS; valuation uncertainty in Level 3 assets; and dependence on external managers and financing counterparties. Agency IOs are particularly exposed to faster prepayments.
- The company recorded a $3.4 million loss on extinguishment of debt in connection with early termination of a multifamily financing. Fair-value changes on consolidated K-Series assets and liabilities are recognized in earnings and can make reported results volatile. The filing also reports $283.5 million of TBA-related payables at year-end.
- Management reported effective disclosure controls and internal control over financial reporting; the independent auditor issued unqualified opinions on the financial statements and internal controls. The company stated that pending ordinary-course legal proceedings were not expected to have a material adverse effect.
Important facts for investors to verify
- Confirm the issuer: the filing provided is for New York Mortgage Trust, Inc., not Adamas Trust, Inc.
- Separate recurring net interest earnings and operating cash flow from realized sales gains and noncash fair-value gains when assessing earnings quality and dividend coverage.
- Review the terms, collateral, covenants, maturity and recourse provisions of repo and structured financing, including the Deutsche Bank distressed-loan facility maturing in December 2015.
- Assess how loan performance, defaults, prepayments and valuation assumptions affect distressed loans, first-loss multifamily CMBS and other Level 3 positions.
- Evaluate dilution from the 2014 equity offerings, subsequent share count changes, and the sustainability of common and preferred distributions.