New York Mortgage Trust, Inc. (NASDAQ:NYMT) is an internally-managed real estate investment trust (REIT) that has been navigating a challenging market environment in recent quarters. The company reported a net loss of $80.1 million and revenue of $390.6 million for the full year 2023, with annual operating cash flow of $30.1 million and free cash flow of -$20.4 million.
In the first quarter of 2024, the company continued to face headwinds, reporting a net loss attributable to the company's common stockholders of $68.3 million, or $0.75 per share. This was driven by a number of factors, including impairment charges on the company's real estate holdings, unrealized losses on its investment portfolio, and losses related to the reclassification of certain multifamily properties from held for sale to held and used.
Despite these challenges, New York Mortgage Trust has been taking steps to reposition its business and strengthen its balance sheet. The company has been actively reducing its exposure to multifamily joint venture equity investments, which represented less than 5% of its capital allocation and less than 1% of its portfolio assets as of the end of the first quarter.
Business Overview
New York Mortgage Trust is an internally-managed REIT that invests in a variety of mortgage-related and residential housing-related assets, including residential loans, RMBS, CMBS, ABS, and structured multi-family investments such as preferred equity and mezzanine loans. The company's objective is to deliver long-term stable distributions to its stockholders through a combination of net interest spread and capital gains from a diversified investment portfolio.
The company's current investment portfolio includes credit-sensitive single-family and multi-family assets, as well as more traditional fixed-income investments that provide coupon income, such as Agency RMBS. New York Mortgage Trust has elected to be taxed as a REIT for U.S. federal income tax purposes and has complied, and intends to continue to comply, with the provisions of the Internal Revenue Code with respect thereto.
Navigating Market Volatility
The first quarter of 2024 was a challenging period for New York Mortgage Trust, as the company grappled with the impact of rising interest rates, increased market volatility, and a slowdown in economic growth. The company's net loss of $68.3 million, or $0.75 per share, was primarily driven by impairment charges on its real estate holdings, unrealized losses on its investment portfolio, and losses related to the reclassification of certain multifamily properties.
The company's multifamily joint venture equity investments were a particular area of concern, as the higher interest rate environment and increased supply of new multifamily units in certain markets put pressure on rents and property valuations. As a result, New York Mortgage Trust recognized $36.2 million in impairment charges and an additional $14.6 million in losses related to the reclassification of these properties.
Despite these challenges, the company has been taking steps to reposition its business and reduce its exposure to the multifamily sector. As of the end of the first quarter, the company's joint venture equity investments in multifamily properties represented less than 5% of its capital allocation and less than 1% of its overall portfolio. The company is actively pursuing the sale of these remaining investments and reallocating capital to its targeted asset classes, such as residential loans and Agency RMBS.
Positioning for Growth
While the first quarter was challenging, New York Mortgage Trust has been taking steps to position itself for future growth. The company has been actively investing in Agency RMBS and short-duration business purpose loans, which it believes offer attractive risk-adjusted returns in the current market environment.
In the first quarter, the company acquired $608 million in new assets, including $298 million in Agency RMBS and $302 million in business purpose loans. This helped drive a 35% year-over-year increase in the company's adjusted interest income, which reached $78.1 million in the first quarter.
The company's Agency RMBS strategy remains a key focus, as it sees the asset class as complementary to its overall residential credit portfolio. New York Mortgage Trust is targeting current coupon spec pools with coupons in the 5.5% to 6.0% range, and it has been opportunistic in adjusting the pace of its purchases based on market conditions.
In the business purpose loan (BPL) segment, the company has been successful in growing its acquisition pipeline, with $302 million in BPL purchases in the first quarter, a 30% increase from the prior quarter. This includes $273 million in BPL-Bridge loans and $29 million in 30-year BPL rental loans, as the company looks to add some duration to its portfolio.
The company's BPL-Bridge strategy remains a core focus, as the short-duration profile and high carry of these loans are well-suited for the current market environment. Total principal losses on the BPL-Bridge portfolio have remained low, currently below 15 basis points on total purchases to date of $3.8 billion.
Liquidity
As of March 31, 2024, New York Mortgage Trust had $212.6 million in available cash and cash equivalents, as well as $151.1 million in unencumbered investment securities and $186.8 million in unencumbered residential loans. The company's recourse leverage ratio and portfolio recourse leverage ratio stood at 1.7x and 1.6x, respectively, as of the end of the first quarter.
The company has been focused on procuring longer-termed and/or more committed financing arrangements for its credit investments, such as securitizations, term financings, and corporate debt securities. This has helped reduce the company's exposure to fluctuations in the collateral repricing determinations of its financing counterparties or rapid liquidity reductions in the repurchase agreement financing markets.
As of March 31, 2024, 56% of the company's debt, excluding mortgages payable on real estate and Consolidated SLST CDOs, was subject to mark-to-market margin calls, with 46% collateralized by Agency RMBS and 10% collateralized by residential credit assets. The remaining 44% of the company's debt had no exposure to collateral repricing by its counterparties.
Risks and Challenges
New York Mortgage Trust faces a number of risks, including interest rate risk, credit risk, prepayment risk, and market value risk. The company's performance is also heavily dependent on the health of the residential and commercial real estate markets, as well as broader economic conditions.
Looking ahead, the company expects the current market environment to remain challenging, with the potential for a slowdown in economic growth and continued volatility in the financial markets. However, the company believes that its focus on short-duration residential credit and Agency RMBS, as well as its efforts to reduce its exposure to the multifamily sector, will position it for success in the current environment.
The company has not provided specific financial guidance for the remainder of 2024, but it has indicated that it expects its undepreciated earnings per share to remain below its current dividend as it continues to rotate excess liquidity for reinvestment in a more attractively priced market. The company remains committed to maintaining an attractive current yield for its shareholders, but it is also focused on prudently managing its liabilities and preserving its balance sheet strength.
Conclusion
New York Mortgage Trust has faced a number of headwinds in recent quarters, including the impact of rising interest rates, increased market volatility, and a slowdown in economic growth. However, the company has been taking steps to reposition its business and strengthen its balance sheet, including reducing its exposure to the multifamily sector and focusing on short-duration residential credit and Agency RMBS.
While the company's financial performance in the first quarter of 2024 was challenging, with a net loss of $68.3 million, the company believes that its current strategy and liquidity position will position it for success in the current market environment. Investors should closely monitor the company's progress as it navigates these challenges and positions itself for future growth.