New York Mortgage Trust (NYMT): Diversifying to Drive Sustainable Growth

Published on March 07, 2025 | Ticker: NYMT

Business Overview

New York Mortgage Trust, Inc. (NYMT) is a real estate investment trust (REIT) that specializes in acquiring, investing in, and managing primarily mortgage-related single-family and multi-family residential assets. The company has undergone a significant transformation in recent years, strategically diversifying its portfolio and positioning itself for long-term growth.

New York Mortgage Trust, Inc. (NYMT) was founded in 2003 as an internally-managed real estate investment trust (REIT). In its early years, the company focused on building a diversified portfolio of residential mortgage-backed securities (RMBS), mortgage loans, and other mortgage-related assets. To finance its growing investment portfolio, NYMT utilized repurchase agreements and collateralized debt obligations (CDOs).

A significant milestone in NYMT's history occurred in 2013 when the company expanded its investment strategy to include multi-family real estate assets. This strategic move allowed NYMT to diversify its portfolio beyond residential mortgage assets by incorporating preferred equity investments and mezzanine loans secured by multi-family properties.

However, the company faced challenges related to its multi-family real estate investments, particularly during the COVID-19 pandemic in 2020. The pandemic put significant stress on the multi-family sector, leading to declines in occupancy and rental income at many of the properties underlying NYMT's investments. As a result, the company experienced impairment charges and losses. In response, NYMT worked to restructure and ultimately reduce its multi-family exposure in the following years.

Despite these challenges, NYMT has remained committed to its core strategy of investing in mortgage-related assets. The company has continued to grow its portfolio of residential loans, RMBS, and other residential credit assets, funded through a combination of securitizations, repurchase agreements, and corporate debt. As of the most recent reporting period, NYMT had total assets of $8.9 billion, demonstrating the company's ability to navigate market cycles and build a sizable investment platform over its nearly 20 years of operations.

Financials and Liquidity

Financials and Performance

For the full year 2024, New York Mortgage Trust reported annual revenue of $83.9 million, a 12% increase from the previous year. However, the company's net income for the year was a loss of $62 million, or $1.14 per share, primarily due to significant unrealized losses on its investment portfolio.

The company's balance sheet remains strong, with a recourse leverage ratio of 2.6x as of the end of 2024, up from 2.1x at the end of 2023. This increased leverage has been used to fund the growth of the company's investment portfolio, which stood at $5.15 billion as of December 31, 2024, a 17% increase from the prior year.

One of the key financial metrics that has improved for New York Mortgage Trust is its adjusted net interest income, which increased by 39% year-to-date in 2024 to over $100 million. This growth has been driven by the company's focus on higher-yielding residential credit assets, as well as its use of securitization financing to optimize its capital structure.

For the most recent quarter (Q4 2024), NYMT reported revenue of $26,711,000 and a net loss of $31,389,000. Operating cash flow (OCF) for the quarter was $29,116,000, while free cash flow (FCF) was $19,646,000. The decreases in net income and increases in OCF and FCF were primarily due to changes in the company's investment portfolio and financing activities.

As of Q4 2024, NYMT had $195,070,000 in cash and cash equivalents, providing a solid liquidity position for the company.

Portfolio Composition and Strategy

As of September 30, 2024, New York Mortgage Trust's investment portfolio was composed of the following:

Residential Loans:

The residential loan portfolio totaled $3.78 billion, up from $3.08 billion at the end of 2023. This includes $2.77 billion in acquired residential loans and $1.01 billion in residential loans held in the Consolidated SLST securitization. The acquired residential loans have a weighted average FICO score of 732, weighted average LTV of 62%, and weighted average coupon of 6.3%. Notably, 91% of the loans are currently in a current payment status.

Investment Securities:

The investment securities portfolio totaled $3.39 billion, up from $2.01 billion at the end of 2023. This portfolio consists of:

Agency RMBS: $2.97 billion, with a weighted average coupon of 4.17% and yield of 5.93%
Non-Agency RMBS: $68.22 million, with a weighted average yield of 14.74%
U.S. Treasury securities: $349.09 million

NYMT uses repurchase agreements to finance $3.05 billion, or 90%, of this investment securities portfolio.

Multi-Family Loans and Equity Investments: The multi-family loans and equity investments totaled $203.02 million, including:

Preferred equity investments: $87.61 million
Other multi-family equity investments: $99.14 million
Mezzanine loans

These investments have a weighted average preferred return of 12.83% and weighted average remaining life of 3.9 years.

Equity Investments:

NYMT holds $46.45 million in an equity investment in an entity that originates residential loans, accounted for under the equity method and reported at fair value. Additionally, the company has $1.24 million in unconsolidated joint venture equity investments in two multi-family properties.

The company's strategic focus has been on increasing its exposure to residential credit assets, particularly business purpose loans, while maintaining a significant allocation to the more liquid agency RMBS sector. This diversified approach has allowed New York Mortgage Trust to generate strong risk-adjusted returns and build a more resilient portfolio.

Looking ahead, the company expects to continue its focus on residential credit assets, including further expansion into the business purpose loan market. The company has also been actively managing its multi-family investments, reducing its exposure to this sector through the strategic disposition of underperforming assets.

Risks and Challenges

New York Mortgage Trust, like other mortgage REITs, is exposed to various risks, including interest rate risk, prepayment risk, and credit risk. The company's use of leverage also exposes it to potential margin calls and liquidity challenges in times of market volatility.

Additionally, the company's multi-family investments have been a source of concern in recent years, with the sector facing headwinds from rising interest rates, increased supply, and regulatory changes. The company's ongoing efforts to reduce its exposure to this sector are critical to improving its overall portfolio performance.

Recent Performance and Guidance

NYMT reported an adjusted net interest income EPS contribution of $0.36 in Q4 2024, compared to $0.32 in Q3 2024 and $0.26 in Q4 2023, representing a 12.5% increase from Q3 2024 and a 38% increase year-over-year. The company's net interest spread increased by 5 basis points in Q4 2024 and 35 basis points year-to-date. NYMT's interest rate swaps reduced its average financing costs by 38 basis points in Q4 2024 and 61 basis points year-to-date.

Management expects recurring earnings to align with the current $0.20 per share dividend, indicating that they believe they can sustain the current dividend level going forward. NYMT's adjusted book value per share was $10.35 as of the end of Q4 2024, down 4.8% from Q3 2024. The company's recourse leverage ratio increased to 3.0x and portfolio recourse leverage ratio increased to 2.9x as of the end of Q4 2024, up from 2.6x and 2.5x respectively at the end of Q3 2024.

As of the current week, management noted that adjusted book value is up 1-2% so far in Q1 2025. NYMT expects to see an acceleration in prepayments from its mezzanine loan portfolio in 2025 due to loan call features. The company is more constructive on the agency RMBS market compared to the residential credit market going forward and expects to allocate more capital towards agency RMBS.

Outlook and Conclusion

Despite the challenges faced in 2024, New York Mortgage Trust remains well-positioned for future growth. The company's strategic shift towards residential credit assets, particularly business purpose loans, has proven to be a successful strategy, generating strong risk-adjusted returns and contributing to the growth of its adjusted net interest income.

As the company continues to optimize its portfolio and capital structure, investors can expect to see a focus on sustainable growth and a commitment to delivering value to shareholders. With a diversified investment strategy, a strong balance sheet, and a talented management team, New York Mortgage Trust is poised to navigate the evolving market environment and capitalize on new opportunities in the residential real estate sector.

The company's recent performance, including the growth in adjusted net interest income and the strategic positioning of its investment portfolio, demonstrates its ability to adapt to changing market conditions. As NYMT continues to focus on its core competencies in residential and multi-family real estate investments, while also exploring opportunities in the agency RMBS market, it is well-positioned to generate attractive risk-adjusted returns for its shareholders in the coming years.

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