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EPS Miss by This 15% Yielding mREIT: New York Mortgage Trust, Inc. (NYMT), Newcastle Investment Corp. (NCT), PennyMac Mortgage Investment Trust (PMT)

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New York Mortgage Trust, Inc. (NASDAQ:NYMT), which has a market cap of just over $350 million, disclosed its performance for the fourth quarter today. The performance remained behind expectation as the EPS of $0.19 remained $0.06 shy of the consensus mean expectation. This investment thesis aims to review the fourth quarter results and see how its diversified portfolio has affected the results.

The Business Model

New York Mortgage Trust started operations in the year 2003 when it was formed as a vertically integrated mortgage origination and portfolio investment manager. However, later it exited the mortgage origination business after facing an increasingly challenging environment in 2007. Currently, the company operates as a mortgage REIT with Agency residential mortgage backed securities consisting of hybrid adjustable-rate RMBS, adjustable-rate and multi-family commercial mortgage backed securities as its target assets.

Newcastle Investment Corp. (NYSE:NCT)Recent Quarter’s Performance

For the quarter ended Dec. 31, 2012, New York Mortgage Trust, Inc. (NASDAQ:NYMT) reported interest income of $49.6 million, up six-fold from the interest income of the same quarter of the prior year. The surge in interest income was a result of a surge in interest received from investment securities and multi-family loans held in securitization trusts. During the same quarter, the interest expense of $38.2 million climbed from $1.3 million a year ago. Much of the increase was blamed on the interest expense the company paid on its multi-family collateralized debt obligations.

As a result, the company earned $11.4 million in net interest income. This is double the net interest income of the fourth quarter of 2011. During the quarter, the company reported a significant decline of 137 bps in its net interest rate spread. The decline was largely due to the deployment of the proceeds from the equity offerings in August and October 2012 into Agency RMBS.

During the quarter, other expenses resulting from unrealized loss on investment securities and related hedges increased 53% over the prior year to $1.37 million. The company also realized gain on investment securities and related hedges of $0.6 million, against $2.3 million in realized losses a year ago. New York Mortgage Trust, Inc. (NASDAQ:NYMT) managed its general and administrative expense well during the recent quarter as they fell 28% year over year to $2.9 million. As a result, the company reported net income of $9.4 million, against a $1.9 million loss at the end of the fourth quarter of 2011.

Compared to this, Newcastle Investment Corp. (NYSE:NCT) and PennyMac Mortgage Investment Trust (NYSE:PMT) reported 80% decline and 22% growth in their respective bottom lines during the fourth quarter of 2012. Both the companies are mortgage REITs with similar business models and investments.

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