Summary

• Adamas Trust, Inc., formerly New York Mortgage Trust, offers high-yielding income options including common, and preferred shares and baby bonds.
• Net interest income has more than tripled year-over-year, driven by portfolio growth to nearly $11 billion and improved asset yields.
• Leverage has increased significantly, with recourse leverage rising from 3.4x to 5.2x, elevating interest rate and liquidity risks.
• I favor the floating rate Series E preferred, ADAMM, for its 10% yield and downside protection over the common shares, given current risk factors.

Introduction

Adamas Trust, Inc. (ADAM), is a real estate investment trust that invests primarily in mortgages, commonly known as an mREIT. Investors who do not recognize the name may be familiar with it when it was known as New York Mortgage Trust. Like most mREITs, the company has a high-yielding dividend, currently yielding 10.55%.

What some investors may not know is that Adamas also offers four different preferred shares and four different baby bonds as income alternatives. One preferred share is the floating rate Series E preferred share (ADAMM). I wrote about this issuance back in January. While the yield has been down since then, it is still hovering around 10% and offers income investors better price stability for slightly lower yield.

Adamas Trust Earnings Results

When interest rates rose to fight higher inflation back in 2022, many mREITs felt the pinch because they were holding long-term fixed-rate assets leveraged against short-term interest liabilities. The short-term interest rates and borrowing costs rose faster than the asset yields. Adamas was no stranger to this phenomenon.

Since late 2023, the company has seen its asset yields improve at a better rate than its financing yield. That trend slightly reversed in the first quarter as asset yields declined by 14 basis points and financing yields fell by only 7 basis points. This led to a 7-basis point decline in net interest spread to 1.45%. While the decline was disappointing, the net interest spread remains 100 basis points higher than where it was in early 2023.

Despite the changes in asset and financing yields, the income side of the company looked better than the net interest spread. Interest income on loans grew by $1.5 million in the first quarter to $172 million, while interest expense declined by nearly $4 million. These changes allowed net interest income (interest income less interest expense) to grow

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