Great Ajax Corp. - Quarter Report: 2020 September (Form 10-Q)

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2020

☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

001-36844

(Commission file number)

GREAT AJAX CORP.

(Exact name of registrant as specified in its charter)


Maryland			47-1271842
State or other jurisdiction of incorporation or organization			(I.R.S. Employer Identification No.)

13190 SW 68th Parkway, Suite 201

Tigard, OR 97223

(Address of principal executive offices and Zip Code)

503-505-5670

Registrant’s telephone number, including area code

Securities registered pursuant to Section 12(b) of the Act:

Title of each class

Trading Symbols

Name of each exchange on which registered

Common stock, par value $0.01 per share

AJX

New York Stock Exchange

7.25% Convertible Senior Notes due 2024

AJXA

New York Stock Exchange

Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No☐

Indicate by check mark whether the Registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the Registrant was required to submit such files). Yes ☒ No☐

Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company or an emerging growth company. See definition of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and "emerging growth company" in Rule 12b-2 of the Exchange Act. (check one):


Large accelerated filer	☐	Accelerated filer	☒
Non-accelerated filer (Do not check if a smaller reporting company)	☐	Smaller reporting company	☐
Emerging Growth Company	☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No☒

As of November 4, 2020, 23,034,443 shares of the registrant’s common stock, par value $0.01 per share, were outstanding.

TABLE OF CONTENTS


PART I Financial Information

Item 1. Consolidated Interim Financial Statements			1

Cautionary Statement Regarding Forward-Looking Statements			53

Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations			54

Item 3. Quantitative and Qualitative Disclosures About Market Risk			85

Item 4. Controls and Procedures			86

PART II Other Information

Item 1. Legal Proceedings			87

Item 1A. Risk Factors			87

Item 2. Unregistered Sales of Securities			87

Item 3. Defaults Upon Senior Securities			87

Item 4. Mine Safety Disclosure			87

Item 5. Other Information			87

Item 6. Exhibits			87

PART I. FINANCIAL INFORMATION

Item 1. Consolidated Interim Financial Statements

GREAT AJAX CORP. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS


($ in thousands except per share data)	September 30, 2020		December 31, 2019
ASSETS	(Unaudited)
Cash and cash equivalents	$	135,190	$	64,343
Cash held in trust	189		20
Mortgage loans, net(1,2)	1,102,360		1,151,469
Property held-for-sale, net(3)	6,484		13,537
Rental property, net	724		1,534
Investments at fair value(4)	284,655		231,685
Investments in beneficial interests(5)	86,241		57,954
Receivable from servicer	16,438		17,013
Investments in affiliates	28,730		30,441
Prepaid expenses and other assets	5,963		8,845
Total assets	$	1,666,974	$	1,576,841
LIABILITIES AND EQUITY
Liabilities:
Secured borrowings, net(1,2,6)	$	614,214	$	652,747
Borrowings under repurchase transactions	415,419		414,114
Convertible senior notes, net(6)	109,710		118,784
Management fee payable	2,261		1,634
Accrued expenses and other liabilities	19,024		5,478
Total liabilities	1,160,628		1,192,757
Commitments and contingencies – see Note 8
Equity:
Preferred stock, $0.01 par value, 25,000,000 shares authorized
Series A 7.25% Fixed-to-Floating Rate Cumulative Redeemable, $25.00 liquidation preference per share, 2,307,400 shares issued and outstanding at September 30, 2020 and no shares issued or outstanding at December 31, 2019	51,100		—
Series B 5.00% Fixed-to-Floating Rate Cumulative Redeemable, $25.00 liquidation preference per share, 2,892,600 shares issued and outstanding at September 30, 2020 and no shares issued and outstanding at December 31, 2019	64,044		—
Common stock $0.01 par value; 125,000,000 shares authorized, 23,034,443 shares issued and outstanding at September 30, 2020 and 22,142,143 shares issued and outstanding at December 31, 2019	231		222
Additional paid-in capital	317,295		309,395
Treasury stock	(634)		(458)
Retained earnings	46,441		49,446
Accumulated other comprehensive gain	401		1,277
Equity attributable to stockholders	478,878		359,882
Non-controlling interests(7)	27,468		24,202
Total equity	506,346		384,084
Total liabilities and equity	$	1,666,974	$	1,576,841

The accompanying notes are an integral part of the consolidated financial statements.

(1)Mortgage loans net include $862.8 million and $908.6 million of loans at September 30, 2020 and December 31, 2019, respectively, transferred to securitization trusts that are variable interest entities (“VIEs”); these loans can only be used to settle obligations of the VIEs. Secured borrowings consist of notes issued by VIEs that can only be settled with the assets and cash flows of the VIEs. The creditors do not have recourse to the primary beneficiary (Great Ajax Corp.). See Note 9 — Debt. Mortgage loans, net include $15.2 million and $2.0 million of allowance for loan credit losses at September 30, 2020 and December 31, 2019, respectively.

(2)As of September 30, 2020, balances for Mortgage loans, net includes $309.2 million and Secured borrowings, net of deferred costs includes $257.0 million from 50% and 63% owned joint ventures, respectively. As of December 31, 2019, balances for Mortgage loans, net include $341.8 million and Secured borrowings, net of deferred costs includes $284.8 million from 50% and 63% owned joint ventures, all of which the Company consolidates under U.S. Generally Accepted Accounting Principles ("U.S. GAAP").

(3)Property held-for-sale, net, includes valuation allowances of $1.4 million and $1.8 million at September 30, 2020 and December 31, 2019, respectively.

(4)As of September 30, 2020 and December 31, 2019 Investments at fair value include amortized cost basis of $284.3 million and $230.4 million, respectively, and net unrealized gains of $0.4 million and $1.3 million, respectively.

(5)Investments in beneficial interests includes allowance for credit losses of $5.9 million at September 30, 2020. No allowance for credit losses was recorded as of December 31, 2019.

(6)Secured borrowings and Convertible senior notes are presented net of deferred issuance costs.

(7)As of September 30, 2020 and December 31, 2019 non-controlling interests includes $25.8 million and $22.4 million, respectively, from the 50% and 63% owned joint ventures, which the Company consolidates under U.S. GAAP.

The accompanying notes are an integral part of the consolidated interim financial statements.

GREAT AJAX CORP. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME

(Unaudited)


	Three months ended				Nine months ended
($ in thousands except per share data)	September 30, 2020		September 30, 2019		September 30, 2020		September 30, 2019
INCOME
Interest income	$	23,950	$	27,723	$	74,941	$	85,303
Interest expense	(11,727)		(14,317)		(37,855)		(45,441)
Net interest income	12,223		13,406		37,086		39,862
Provision for credit benefit/(losses)	4,007		(3)		3,226		(242)
Net interest income after provision for credit benefit/(losses)	16,230		13,403		40,312		39,620
(Loss)/income from investments in affiliates	(25)		583		(465)		1,301
Income/(loss) on sale of mortgage loans(1)	—		109		(705)		7,123
Other income	537		1,221		1,964		3,159
Total revenue, net	16,742		15,316		41,106		51,203
EXPENSE
Related party expense – loan servicing fees	1,848		2,197		5,798		6,977
Related party expense – management fee	2,264		2,215		6,206		5,555
Loan transaction expense	(178)		52		(216)		312
Professional fees	576		446		2,113		1,942
Real estate operating expenses	173		1,216		1,273		2,889
Other expense	2,930		940		6,280		3,240
Total expense	7,613		7,066		21,454		20,915
Loss on debt extinguishment	253		—		661		182
Income before provision for income taxes	8,876		8,250		18,991		30,106
Provision for taxes (benefit)	(16)		27		(215)		136
Consolidated net income	8,892		8,223		19,206		29,970
Less: consolidated net income attributable to the non-controlling interest	1,662		532		3,493		1,922
Consolidated net income attributable to Company	7,230		7,691		15,713		28,048
Less: dividends on preferred stock	1,950		—		3,791		—
Consolidated net income attributable to common stockholders	$	5,280	$	7,691	$	11,922	$	28,048
Basic earnings per common share	$	0.23	$	0.39	$	0.53	$	1.44
Diluted earnings per common share	$	0.23	$	0.36	$	0.53	$	1.29
Weighted average shares – basic	22,844,192		19,751,142		22,575,480		19,247,706
Weighted average shares – diluted	22,989,616		28,200,653		22,575,480		27,987,798

(1)The Company sold no mortgage loans during the three months ended September 30, 2020. During the nine months ended September 30, 2020, the Company sold 26 SBC mortgage loans with a carrying value of $26.1 million and UPB of $26.2 million for a loss of $0.7 million. Comparatively, during the three months ended September 30, 2019, the Company sold three loans with a carrying value of $1.9 million and UPB of $2.0 million for a gain of $0.1 million. During the nine months ended September 30, 2019, the Company sold 965 loans with a carrying value of $178.8 million and UPB of $202.1 million for a gain of $7.1 million.

The accompanying notes are an integral part of the consolidated interim financial statements.

GREAT AJAX CORP. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(Unaudited)


	Three months ended September 30,				Nine months ended September 30,
($ in thousands)	2020		2019		2020		2019
Consolidated net income attributable to common stockholders	$	5,280	$	7,691	$	11,922	$	28,048
Other comprehensive income:
Net unrealized gain/(loss) on investments in available-for-sale debt securities	4,337		1,012		(876)		2,119
Income tax expense related to items of other comprehensive income	—		—		—		—
Comprehensive income	$	9,617	$	8,703	$	11,046	$	30,167

The accompanying notes are an integral part of the consolidated interim financial statements.

GREAT AJAX CORP. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)


	Nine months ended
($ in thousands)	September 30, 2020		September 30, 2019
CASH FLOWS FROM OPERATING ACTIVITIES
Consolidated net income	$	19,206	$	29,970
Adjustments to reconcile net income to net cash from operating activities
Stock-based management fee and compensation expense	650		3,344
Non-cash interest income accretion on mortgage loans	(22,765)		(30,274)
Discount accretion on investment in debt securities and beneficial interests	(13,056)		(8,878)
Loss/(gain) on sale of mortgage loans	705		(7,123)
Loss on debt extinguishment	661		182
Gain on sale of property held-for-sale	(957)		(401)
Gain on sale of securities	(145)		(8)
Depreciation of property	23		367
Impairment of real estate owned	1,155		1,691
Provision for credit (benefit)/losses on mortgage loans	(2,108)		242
Provision for credit benefit on beneficial interests	(1,118)		—
Amortization of debt discount and prepaid financing costs	3,924		4,010
Undistributed loss/(income) from investment in affiliates	465		(1,301)
Accretion of put option expense	2,956		—
Net change in operating assets and liabilities
Prepaid expenses and other assets	2,355		(1,066)
Receivable from Servicer	618		(2,596)
Accrued expenses, management fee payable, and other liabilities	1,376		862
Net cash from operating activities	(6,055)		(10,979)
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of mortgage loan pools and related balances	(41,823)		(98,315)
Acquisition of commercial loans	(3,023)		(18,449)
Principal paydowns on mortgage loans	91,161		104,012
Principal paydowns on debt securities held as investments	37,921		31,348
Proceeds from sale of mortgage loans	25,412		186,071
Draws on small balance commercial loans	—		(735)
Purchase of securities	(144,682)		(127,552)
Proceeds from sale of securities	38,944		39,635
Purchase of rental property	—		(22,275)
Proceeds from sale of property held-for-sale	9,101		13,323
Recovery costs of property held-for-sale	64		156
Renovations of rental property	(10)		—
Distribution from affiliates	1,082		731
Net cash from investing activities	14,147		107,950
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from repurchase transactions	270,019		198,172
Repayments on repurchase transactions	(268,714)		(298,935)
Proceeds from sale of secured borrowings	114,534		156,488
Repayments on secured borrowings	(153,932)		(135,653)

The accompanying notes are an integral part of the consolidated interim financial statements.


Deferred financing costs	(1,861)		(2,666)
Repurchase of the Company's senior convertible notes	(10,481)		—
Proceeds from issuance of preferred stock and warrants, net of offering costs	124,976		—
Sale of common stock, net of offering costs	—		8,291
Sale of common stock pursuant to dividend reinvestment plan	86		206
Distribution to non-controlling interests	(227)		(715)
Issuance of non-controlling interests in subsidiaries	145		59
Dividends on common stock and preferred stock	(11,621)		(19,462)
Net cash from financing activities	62,924		(94,215)
NET CHANGE IN CASH, CASH EQUIVALENTS, AND CASH HELD IN TRUST	71,016		2,756
CASH, CASH EQUIVALENTS AND CASH HELD IN TRUST, beginning of period	64,363		55,170
CASH, CASH EQUIVALENTS AND CASH HELD IN TRUST, end of period	$	135,379	$	57,926
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid for interest	$	32,511	$	41,346
SUPPLEMENTAL DISCLOSURE OF NONCASH INVESTING AND FINANCING ACTIVITIES
Issuance of common stock for dividends	$	7,097	$	—
Net transfer of loans to rental property or property held-for-sale	$	1,515	$	10,675
Issuance of common stock for management fee and compensation expense	$	650	$	3,344
Treasury stock received through distributions from investment in Manager	$	164	$	127
Non-cash adjustments to basis in mortgage loans	$	43	$	(26)
Unrealized (loss)/gain on available for sale securities, net of non-controlling interest and tax	$	(876)	$	2,119

The following table provides a reconciliation of cash, cash equivalents, and restricted cash reported within the consolidated balance sheet to the amount shown in the consolidated statements of cash flows as of September 30, 2020 and September 30, 2019 ($ in thousands):


	September 30, 2020		September 30, 2019
Cash and cash equivalents	$	135,190	$	57,905
Cash held in trust	189		21
Total cash and cash equivalents and restricted cash shown on the consolidated statements of cash flows	$	135,379	$	57,926

The accompanying notes are an integral part of the consolidated interim financial statements.

GREAT AJAX CORP. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY

(Unaudited)


($ in thousands)	Preferred stock - Series A shares	Preferred stock - Series A amount		Preferred stock - Series B shares	Preferred stock - Series B amount		Common stock shares	Common stock amount		Treasury stock		Additional Paid-in Capital		Retained Earnings		Accumulated other comprehensive (loss)/gain		Total Stockholders' Equity		Non-controlling Interest		Total Equity
Balance at December 31, 2018	—	$	—	—	$	—	18,909,874	$	189	$	(270)	$	260,427	$	41,063	$	(575)	$	300,834	$	33,445	$	334,279
Net income	—	—		—	—		—	—		—		—		7,330		—		7,330		791		8,121
Issuance of shares under dividend reinvestment plan	—	—		—	—		5,321	—		—		72		—		—		72		—		72
Stock-based management fee expense	—	—		—	—		52,556	1		—		727		—		—		728		—		728
Stock-based compensation expense	—	—		—	—		2,424	—		—		301		—		—		301		—		301
Dividends declared ($0.32 per share) and distributions	—	—		—	—		—	—		—		—		(7,021)		—		(7,021)		(162)		(7,183)
Other comprehensive income	—	—		—	—		—	—		—		—		—		397		397		—		397
Treasury stock	—	—		—	—		(2,952)	—		(40)		—		—		—		(40)		—		(40)
Balance at March 31, 2019	—	$	—	—	$	—	18,967,223	$	190	$	(310)	$	261,527	$	41,372	$	(178)	$	302,601	$	34,074	$	336,675
Net income	—	—		—	—		—	—		—		—		13,027		—		13,027		599		13,626
Conversion of Operating Partnership Units	—	—		—	—		624,106	6		—		10,765		—		—		10,771		(10,771)		—

The accompanying notes are an integral part of the consolidated interim financial statements.


Issuance of shares under dividend reinvestment plan	—	—		—	—		5,056	—		—		64		—		—		64		—		64
Stock-based management fee expense	—	—		—	—		62,301	1		—		823		—		—		824		—		824
Stock-based compensation expense	—	—		—	—		(1,403)	—		—		259		—		—		259		—		259
Dividends declared ($0.32 per share) and distributions	—	—		—	—		—	—		—		—		(6,098)		—		(6,098)		(432)		(6,530)
Other comprehensive income	—	—		—	—		—	—		—		—		—		710		710		—		710
Treasury stock	—	—		—	—		(2,953)	—		(42)		—		—		—		(42)		—		(42)
Balance at June 30, 2019	—	$	—	—	$	—	19,654,330	$	197	$	(352)	$	273,438	$	48,301	$	532	$	322,116	$	23,470	$	345,586
Net income	—	—		—	—		—	—		—		—		7,691		—		7,691		532		8,223
Issuance of non-controlling interest in subsidiaries	—	—		—	—		—	—		—		—		—		—		—		59		59
Sale of shares	—	—		—	—		551,223	6		—		8,285		—		—		8,291		—		8,291
Conversion of Operating Partnership Units	—	—		—	—		—	—		—		45		—		—		45		(45)		—
Issuance of shares under dividend reinvestment plan	—	—		—	—		4,827	—		—		70		—		—		70		—		70
Stock-based management fee expense	—	—		—	—		58,398	—		—		985		—		—		985		—		985
Stock-based compensation expense	—	—		—	—		81,836	1		—		246		—		—		247		—		247

The accompanying notes are an integral part of the consolidated interim financial statements.


Dividends declared ($0.32 per share) and distributions	—	—		—	—		—	—		—		—		(6,343)		—		(6,343)		(121)		(6,464)
Other comprehensive income	—	—		—	—		—	—		—		—		—		1,012		1,012		—		1,012
Treasury stock	—	—		—	—		(3,105)	—		(45)		—		—		—		(45)		—		(45)
Balance at September 30, 2019	—	$	—	—	$	—	20,347,509	$	204	$	(397)	$	283,069	$	49,649	$	1,544	$	334,069	$	23,895	$	357,964

Balance at December 31, 2019	—	$	—	—	$	—	22,142,143	$	222	$	(458)	$	309,395	$	49,446	$	1,277	$	359,882	$	24,202	$	384,084
Net income	—	—		—	—		—	—		—		—		400		—		400		1,096		1,496
Issuance of shares of subsidiary	—	—		—	—		—	—		—		145		—		—		145		—		145
Stock-based compensation expense	—	—		—	—		2,600	—		—		214		—		—		214		—		214
Dividends declared ($0.32 per share) and distributions	—	—		—	—		781,222	8		—		7,089		(7,097)		—		—		(84)		(84)
Convertible senior notes repurchase	—	—		—	—		—	—		—		(81)		—		—		(81)		—		(81)
Other comprehensive loss	—	—		—	—		—	—		—		—		—		(28,444)		(28,444)		—		(28,444)
Treasury stock	—	—		—	—		(4,030)	—		(56)		—		—		—		(56)		—		(56)
Balance at March 31, 2020	—	$	—	—	$	—	22,921,935	$	230	$	(514)	$	316,762	$	42,749	$	(27,167)	$	332,060	$	25,214	$	357,274
Net income	—	—		—	—		—	—		—		—		8,083		—		8,083		735		8,818
Preferred Stock	2,307,400	51,100		2,892,600	64,044		—	—		—		—		—		—		115,144		—		115,144

The accompanying notes are an integral part of the consolidated interim financial statements.


Issuance of shares under dividend reinvestment plan	—	—		—	—		5,057	—		—		41		—		—		41		—		41
Stock-based compensation expense	—	—		—	—		3,468	—		—		214		—		—		214		—		214
Dividends declared ($0.17 per share) and distributions	—	—		—	—		—	—		—		—		(5,748)		—		(5,748)		(66)		(5,814)
Other comprehensive income	—	—		—	—		—	—		—		—		—		23,231		23,231		—		23,231
Treasury stock	—	—		—	—		(5,478)	—		(50)		12		—		—		(38)		—		(38)
Balance at June 30, 2020	2,307,400	$	51,100	2,892,600	$	64,044	22,924,982	$	230	$	(564)	$	317,029	$	45,084	$	(3,936)	$	472,987	$	25,883	$	498,870
Net income	—	—		—	—		—	—		—		—		7,230		—		7,230		1,662		8,892
Issuance of shares under dividend reinvestment plan	—	—		—	—		4,928	—		—		45		—		—		45		—		45
Stock-based compensation expense	—	—		—	—		111,950	1		—		221		—		—		222		—		222
Dividends declared ($0.17 per share) and distributions	—	—		—	—		—	—		—		—		(5,873)		—		(5,873)		(77)		(5,950)
Other comprehensive income	—	—		—	—		—	—		—		—		—		4,337		4,337		—		4,337
Treasury stock	—	—		—	—		(7,417)	—		(70)		—		—		—		(70)		—		(70)
Balance at September 30, 2020	2,307,400	$	51,100	2,892,600	$	64,044	23,034,443	$	231	$	(634)	$	317,295	$	46,441	$	401	$	478,878	$	27,468	$	506,346

The accompanying notes are an integral part of the consolidated interim financial statements.

GREAT AJAX CORP. AND SUBSIDIARIES

NOTES TO CONSOLIDATED INTERIM FINANCIAL STATEMENTS

September 30, 2020

(Unaudited)

Note 1 — Organization and Basis of Presentation

Great Ajax Corp., a Maryland corporation (the “Company”), is an externally managed real estate company formed on January 30, 2014, and capitalized on March 28, 2014, by its then sole stockholder, Aspen Yo (“Aspen”), a company affiliated with Aspen Capital, the trade name for the Aspen group of companies. The Company was formed to facilitate capital raising activities and to operate as a mortgage real estate investment trust (“REIT”). The Company primarily targets acquisitions of re-performing loans (“RPLs”), which are residential mortgage loans on which at least five of the seven most recent payments have been made, or the most recent payment has been made and accepted pursuant to an agreement, or the full dollar amount, to cover at least five payments has been paid in the last seven months. The Company also acquires and originates small balance commercial loans (“SBC loans”). The SBC loans that the Company opportunistically targets, through acquisitions, or originations, generally have a principal balance of up to $5.0 million and are secured by multi-family residential and commercial mixed use retail/residential properties on which at least five of the seven most recent payments have been made, or the most recent payment has been made and accepted pursuant to an agreement, or the full dollar amount, to cover at least five payments has been paid in the last seven months. Additionally, the Company invests in single-family and smaller commercial properties directly either through a foreclosure event of a loan in its mortgage portfolio or, less frequently, through a direct acquisition. Historically, the Company has also targeted investments in non-performing loans (“NPL”). NPLs are loans on which the most recent three payments have not been made. The Company may acquire NPLs from time to time, either directly or with joint venture partners. The Company’s manager is Thetis Asset Management LLC (the “Manager” or “Thetis”), an affiliated company. The Company owns 19.8% of the Manager and 8.0% of Great Ajax FS LLC ("GAFS" or "The Parent of the Servicer") which owns substantially all of the interest in Gregory Funding LLC ("Gregory" or the "Servicer"), the Company's loan and real property servicer that is also an affiliated company. The Company has elected to be taxed as a REIT under the Internal Revenue Code of 1986, as amended (the “Code”).

The Company conducts substantially all of its business through its operating partnership, Great Ajax Operating Partnership L.P., a Delaware limited partnership (the “Operating Partnership”), and its subsidiaries. The Company, through a wholly owned subsidiary, is the sole general partner of the Operating Partnership. GA-TRS LLC ("GA-TRS") is a wholly owned subsidiary of the Operating Partnership that owns the equity interest in the Manager and the Parent of the Servicer. The Company elected to treat GA-TRS as a taxable REIT subsidiary (“TRS”) under the Code. Great Ajax Funding LLC is a wholly owned subsidiary of the Operating Partnership formed to act as the depositor of mortgage loans into securitization trusts and to hold the subordinated securities issued by such trusts and any additional trusts the Company may form for additional secured borrowings. The Company generally securitizes its mortgage loans through securitization trusts and retains subordinated securities from the secured borrowings. These trusts are considered to be variable interest entities ("VIEs"), and the Company has determined that it is the primary beneficiary of many of these VIEs. AJX Mortgage Trust I and AJX Mortgage Trust II are wholly owned subsidiaries of the Operating Partnership formed to hold mortgage loans used as collateral for financings under the Company’s repurchase agreements. In addition, the Company, through its Operating Partnership, holds real estate owned properties (“REO”) acquired upon the foreclosure or other settlement of its owned NPLs, as well as through outright purchases. GAJX Real Estate Corp. is a wholly owned subsidiary of the Operating Partnership formed to own, maintain, improve and sell REO properties purchased by the Company. The Company has elected to treat GAJX Real Estate Corp. as a TRS under the Code.

The Operating Partnership, through interests in certain entities as of September 30, 2020 and December 31, 2019, holds 99.9% and 99.8%, respectively, of Great Ajax II REIT Inc. which holds an interest in Great Ajax II Depositor LLC which was formed to act as the depositor of mortgage loans into securitization trusts and to hold the subordinated securities issued by such trusts and any additional trusts the Company may form for additional secured borrowings. The Company has securitized mortgage loans through a securitization trust and retained subordinated securities from the secured borrowings. This trust is considered to be a VIE and the Company has determined that it is the primary beneficiary of this VIE.

In 2018, the Company formed Gaea Real Estate Corp. ("Gaea"), a wholly owned subsidiary of the Operating partnership to hold investments in multi-family, mixed use commercial real estate. The Company had elected to treat Gaea as a TRS under the Code. Also during 2018, the Company formed Gaea Real Estate Operating Partnership LP, a wholly owned subsidiary of Gaea, to hold investments in commercial real estate assets. The Company also formed BLFD Holdings LLC, Gaea Commercial Properties LLC, Gaea Commercial Finance LLC and Gaea RE LLC as subsidiaries of Gaea Real Estate Operating Partnership. In 2019, the Company formed DG Brooklyn Holdings, LLC also as a subsidiary of Gaea Real Estate Operating Partnership LP, to hold investments in multi-family properties.

The accompanying notes are an integral part of the consolidated interim financial statements.

On November 22, 2019, Gaea completed a private capital raise transaction in which it raised $66.3 million from the issuance of 4,419,641 shares of its common stock to third parties to allow Gaea to continue to advance its investment strategy. The purchase price per share was $15.00. Upon completion of the private placement, the Company retained ownership of approximately 23.2% of Gaea with third party investors owning the remaining approximately 76.8%. Prior to the date of the capital raise, the Company consolidated Gaea's balance sheet and results of operations. At September 30, 2020 the Company owned approximately 23.0% of Gaea. From the date of the capital raise forward, the Company accounts for its investment in Gaea under the equity method.

Basis of Presentation and Use of Estimates

The consolidated interim financial statements should be read in conjunction with the Company's consolidated financial statements and the notes thereto for the period ended December 31, 2019, included in the Company's Annual Report on Form 10-K filed with the Securities and Exchange Commission (the "SEC") on March 4, 2020.

Interim financial statements are unaudited and prepared in accordance with U.S. GAAP for interim financial information and pursuant to the requirements for reporting on Form 10-Q and Regulation S-X. In the opinion of management, all adjustments, consisting solely of normal recurring accruals considered necessary for the fair presentation of consolidated financial statements for the interim period presented, have been included. The current period’s results of operations will not necessarily be indicative of results that ultimately may be achieved for the fiscal year ending December 31, 2020. The consolidated interim financial statements have been prepared in accordance with U.S. GAAP, as contained within the Accounting Standards Codification (“ASC”) of the Financial Accounting Standards Board (“FASB”) and the rules and regulations of the SEC, as applied to interim financial statements.

The Company consolidates the results and balances of four subsidiaries with non-controlling ownership interests held by third parties. AS Ajax E II LLC ("AS Ajax E II") holds a 5.0% interest in a Delaware trust that was formed to own residential mortgage loans and residential real estate assets; AS Ajax E II is 53.1% owned by the Company. Ajax Mortgage Loan Trust 2017-D ("2017-D") and Ajax Mortgage Loan Trust 2018-C (“2018-C”) are securitization trusts that hold mortgage loans, REO property and secured debt; 2017-D is 50.0% owned by the Company, and 2018-C is 63.0% owned by the Company. Great Ajax II REIT Inc. which holds an interest in Great Ajax II Depositor LLC which was formed to act as the depositor of mortgage loans into securitization trusts and to hold the subordinated securities issued by such trusts and any additional trusts the Company may form for additional secured borrowings and is 99.9% and 99.8%, respectively, owned by the Company as of September 30, 2020 and December 31, 2019. The Company recognizes non-controlling interests in its consolidated financial statements for the amounts of the investments and income due to the third-party investors for its consolidated subsidiaries.

At inception, the Operating Partnership was a majority owned partnership that had a non-controlling ownership interest held by an unaffiliated third party included in non-controlling interests on the Company’s consolidated balance sheet. At December 31, 2018, the Company owned 96.8% of the outstanding operating partnership units ("OP Units") and the remaining 3.2% of the OP Units were owned by the unaffiliated holder. The OP units were exchangeable on a 1-for-1 basis with shares of the Company’s common stock. During the second quarter of 2019, all 624,106 OP units held by the unaffiliated holder were exchanged for shares of the Company’s common stock. As a result, at September 30, 2020, the Operating Partnership was 100% owned by the Company. All controlled subsidiaries are included in the Company's consolidated financial statements and all intercompany accounts and transactions have been eliminated in consolidation.

The Company’s 19.8% investment in the Manager and 8.0% investment in GAFS are accounted for using the equity method because the Company can exercise influence on the operations of these entities through common officers and directors. There is no traded or quoted price for the interests in the Manager or GAFS since each is privately held.

The preparation of consolidated financial statements in conformity with U.S. GAAP requires the Company to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities as of the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting periods. The Company considers significant estimates to include expected cash flows from its holdings of mortgage loans and beneficial interests in trusts, and their resolution methods and timelines, including foreclosure costs, eviction costs and property rehabilitation costs. Other significant estimates are fair value measurements, and the net realizable value of REO properties held-for-sale.

The accompanying notes are an integral part of the consolidated interim financial statements.

Note 2 — Summary of Significant Accounting Policies

Mortgage loans

Loans acquired with deterioration in credit quality

As of their acquisition date, the loans acquired by the Company have generally suffered some credit deterioration subsequent to origination. As a result, prior to the adoption of ASU 2016-13, Financial Instruments - Credit Losses, otherwise known as CECL, on January 1, 2020, the Company was required to account for the mortgage loans pursuant to ASC 310-30, Accounting for Loans with Deterioration in Credit Quality. Under both standards, the Company’s recognition of interest income for loans with deteriorated credit quality ("PCD loans") is based upon its having a reasonable expectation of the amount and timing of the cash flows expected to be collected. When the timing and amount of cash flows expected to be collected are reasonably estimable, the Company uses expected cash flows to apply the effective interest method of income recognition.

Under both CECL and ASC 310-30, acquired loans may be aggregated and accounted for as a pool of loans if the loans have common risk characteristics. A pool is accounted for as a single asset with a single composite interest rate and an aggregate expectation of cash flows. However, CECL allows more flexibility to the Company to adjust its loan pools as the underlying risk factors change over time. Under ASC 310-30, RPLs were determined by the Company to have common risk characteristics and were accounted for as a single loan pool for loans acquired within each three-month calendar quarter. Similarly, NPLs were determined to have common risk characteristics and were accounted for as a single non-performing pool for loans acquired within each three-month calendar quarter. The result was generally two additional pools (RPLs and NPLs) each quarter. Under CECL, the Company has re-aggregated its loan pools around similar risk factors, while eliminating the previous distinction for the quarter in which loans were acquired. This resulted in a reduction of the number of loan pools to four as of March 31, 2020. The number of pools was then re-evaluated and increased to six as of June 30, 2020 and remains at six loan pools as of September 30, 2020. Each loan pool is oriented around similar risk factors. Excluded from the aggregate pools are loans that pay in full subsequent to the acquisition closing date but prior to pooling. Any gain or loss on these loans is recognized as Interest income in the period the loan pays in full.

The Company’s accounting for PCD loans gives rise to an accretable yield and an allowance for credit losses. Under CECL, upon the acquisition of PCD loans the Company records the acquisition as three separate elements for 1) the amount of purchase discount which the Company expects to recover through eventual repayment by the borrower, 2) an allowance for future expected credit loss and 3) the UPB of the loan. The purchase price discount which the Company expects at the time of acquisition to collect over the life of the loans is the accretable yield. Cash flows expected at acquisition include all cash flows directly related to the acquired loan, including those expected from the underlying collateral. The Company recognizes the accretable yield as Interest income on a prospective level yield basis over the life of the pool. The Company’s expectation of the amount of undiscounted cash flows to be collected is evaluated at the end of each calendar quarter. If the Company expects to collect greater cash flows over the life of the pool, any prior allowance is reversed to the extent of the increase and the expected yield to maturity is adjusted on a prospective basis. The allowance for credit losses is increased when the Company estimates it will not collect all amounts previously estimated to be collectible. Reduction to the allowance, or recovery, may occur if there is an increase in expected future cash flows that were previously subject to a provision for loss. Management assesses the credit quality of the portfolio and the adequacy of loan loss reserves on a quarterly basis, or more frequently as necessary. Significant judgment is required in this analysis. Depending on the expected recovery of its investment, the Company considers the estimated net recoverable value of the loan pools as well as other factors, such as the fair value of the underlying collateral. Because these determinations are based upon projections of future economic events, which are inherently subjective, the amounts ultimately realized may differ materially from the carrying value as of the reporting date.

The Company’s mortgage loans are secured by real estate. The Company monitors the credit quality of the mortgage loans in its portfolio on an ongoing basis, principally by considering loan payment activity or delinquency status. In addition, the Company assesses the expected cash flows from the mortgage loans, the fair value of the underlying collateral and other factors, and evaluates whether and when it becomes probable that all amounts contractually due will not be collected.

Borrower payments on the Company’s mortgage loans are classified as principal, interest, payments of fees, or escrow deposits. Amounts applied as interest on the borrower account are similarly classified as interest for accounting purposes and are classified as operating cash flows in the Company’s consolidated Statement of Cash Flows. Amounts applied as principal on the borrower account including amounts contractually due from borrowers that exceed the Company’s basis in loans purchased at a discount, are similarly classified as principal for accounting purposes and are classified as investing cash flows in the consolidated Statement of Cash Flows as required under U.S. GAAP. Amounts received as payments of fees are recorded in

The accompanying notes are an integral part of the consolidated interim financial statements.

Other income and classified as operating cash flows in the consolidated Statement of Cash Flows. Escrow deposits are recorded on the Servicer’s balance sheet and do not impact the Company’s cash flow.

Loans acquired or originated that have not experienced a deterioration in credit quality

While the Company generally acquires loans that have experienced deterioration in credit quality, it also acquires loans that have not experienced a deterioration in credit quality and originates SBC loans.

Accrual of interest on individual loans is discontinued when management believes that, after considering economic and business conditions and collection efforts, the borrower’s financial condition is such that collection of interest is doubtful. The Company’s policy is to stop accruing interest when a loan’s delinquency exceeds 90 days. All interest accrued but not collected for loans that are placed on non-accrual status or subsequently charged-off are reversed against Interest income. Income is subsequently recognized on the cash basis until, in management’s judgment, the borrower’s ability to make periodic principal and interest payments returns and future payments are reasonably assured, in which case the loan is returned to accrual status.

An individual loan is considered to be impaired when, based on current events and conditions, it is probable the Company will be unable to collect all amounts due (both principal and interest) according to the contractual terms of the loan agreement. Impaired loans are carried at the present value of expected future cash flows discounted at the loan’s effective interest rate, the loan’s market price, or the fair value of the collateral if the loan is collateral dependent. For individual loans, a troubled debt restructuring is a formal restructuring of a loan where, for economic or legal reasons related to the borrower’s financial difficulties, a concession that would not otherwise be considered is granted to the borrower. The concession may be granted in various forms, including providing a below-market interest rate, a reduction in the loan balance or accrued interest, an extension of the maturity date, or a combination of these. An individual loan that has had a troubled debt restructuring is considered to be impaired and is subject to the relevant accounting for impaired loans.

If necessary, an allowance for loan losses is established through a provision for loan losses charged to expenses. The allowance is the difference between the present value of the expected future cash flows from the loan and the contractual balance due.

Investments at Fair Value

The Company’s Investments at Fair Value as of September 30, 2020 and December 31, 2019 consist of investments in senior and subordinate notes issued by joint ventures which the Company forms with third party institutional accredited investors. The Company recognizes income on the debt securities using the effective interest method. Additionally, the notes are classified as available for sale and are carried at fair value with changes in fair value reflected in the Company's consolidated statements of comprehensive income. The Company marks its investments to fair value using prices received from its financing counterparties and believes any unrealized losses on its debt securities to be temporary. Any other-than-temporary losses, which represent the excess of the amortized cost basis over the present value of expected future cash flows, are recognized in the period identified in the Company’s consolidated statements of income. Risks inherent in the Company's debt securities portfolio, affecting both the valuation of its securities as well as the portfolio's interest income and recovery of principal include the risk of default, delays and inconsistency in the frequency and amount of payments, risks affecting borrowers such as man-made or natural disasters and damage to or delay in realizing the value of the underlying collateral. The Company monitors the credit quality of the mortgage loans underlying its debt securities on an ongoing basis, principally by considering loan payment activity or delinquency status. In addition, the Company assesses the expected cash flows from the mortgage loans, the fair value of the underlying collateral and other factors, and evaluates whether and when it becomes probable that all amounts contractually due will not be collected.

Investments in Beneficial Interests

The Company’s Investments in beneficial interests as of September 30, 2020 and December 31, 2019 consist of investments in the trust certificates issued by joint ventures which the Company forms with third party institutional accredited investors. The trust certificates represent the residual interest of any special purpose entity formed to facilitate certain investments. The Company adopted CECL with respect to its Investment in beneficial interests on January 1, 2020. The methodology is similar to that described in "Mortgage Loans" except that the Company only recognizes its ratable share of gain, loss, income or expense.

Real Estate

The accompanying notes are an integral part of the consolidated interim financial statements.

The Company acquires real estate properties directly through purchases, when it forecloses on the borrower and takes title to the underlying property, or the borrower surrenders the deed in lieu of foreclosure. Property is recorded at cost if purchased, or at the present value of future cash flows if obtained through foreclosure by the Company. Property that the Company expects to actively market for sale is classified as held-for-sale. Property held-for-sale is carried at the lower of its acquisition basis or net realizable value (fair market value less expected selling costs, and any additional costs necessary to prepare the property for sale). Fair market value is determined based on broker price opinions (“BPOs”), appraisals, or other market indicators of fair value including list price or contract price, if listed or under contract for sale at the balance sheet date. Net unrealized losses due to changes in market value are recognized through a valuation allowance by charges to income through real estate operating expenses. No depreciation or amortization expense is recognized on properties held-for-sale. Holding costs are generally incurred by the Servicer and are subtracted from the Servicer’s remittance of sale proceeds upon ultimate disposition of properties held-for-sale.

Rental property is property not held-for-sale. Rental properties are intended to be held as long-term investments but may eventually be reclassified as held-for-sale. Property that arose through conversions of mortgage loans in the Company's portfolio such as when a mortgage loan is foreclosed upon and the Company takes title to the property or the borrower surrenders the deed in lieu of foreclosure is generally held for investment as rental property if the cash flows from use as a rental exceed the present value of expected cash flows from a sale. The Company also acquires rental properties through direct purchases of properties for its rental portfolio. Depreciation is provided for using the straight-line method over the estimated useful lives of the assets of 27.5 years. The Company performs an impairment analysis for rental property using estimated cash flows if events or changes in circumstances indicate that the carrying value may be impaired, such as prolonged vacancy, identification of materially adverse legal or environmental factors, changes in expected ownership period or a decline in market value to an amount less than cost. This analysis is performed at the property level. The cash flows are estimated based on a number of assumptions that are subject to economic and market uncertainties including, among others, demand for rental properties, competition for customers, changes in market rental rates, costs to operate each property and expected ownership periods.

Renovations are performed by the Servicer, and those costs are then reimbursed to the Servicer. Any renovations on properties which the Company elects to hold as rental properties are capitalized as part of the property’s basis and depreciated over the remaining estimated useful life of the property. The Company may perform property renovations to maximize the value of a property for either its rental strategy or for resale.

Preferred Stock

Warrant Liability

As part of the Company’s capital raise transactions during the quarter ended June 30, 2020, the Company issued two series of five-year warrants to purchase an aggregate of 6,500,000 shares of the Company's common stock at an exercise price of $10.00 per share. Each series of warrants includes a put option that allows the holder to sell the warrants to the Company at a specified put price on or after July 6, 2023. GAAP requires the Company to account for the outstanding warrants as if the put option will be exercised by the holders. The warrants were recorded as a liability in the Company's consolidated balance sheet within accrued expenses and other liabilities with an original basis of $9.5 million. The Company is accreting the amount of the liability under the effective interest method to its expected future put value of $50.7 million and marks the obligation to market through earnings.

Secured Borrowings

The Company, through securitization trusts which are VIEs, issues callable debt secured by its mortgage loans in the ordinary course of business. The secured borrowings facilitated by the trusts are structured as debt financings, and the mortgage loans used as collateral remain on the Company’s consolidated balance sheet as the Company is the primary beneficiary of the securitization trusts. These secured borrowing VIEs are structured as pass through entities that receive principal and interest on the underlying mortgages and distribute those payments to the holders of the notes. The Company’s exposure to the obligations of the VIEs is generally limited to its investments in the entities; the creditors do not have recourse to the primary beneficiary. Coupon interest expense on the debt is recognized using the accrual method of accounting. Deferred issuance costs, including

The accompanying notes are an integral part of the consolidated interim financial statements.

original issue discount and debt issuance costs, are carried on the Company’s consolidated balance sheets as a deduction from Secured borrowings, and are amortized to interest expense on an effective yield basis based on the underlying cash flow of the mortgage loans serving as collateral. The Company assumes the debt will be called at the specified call date for purposes of amortizing discount and issuance costs because the Company believes it will have the intent and ability to call the debt on the call date. Changes in the actual or projected underlying cash flows are reflected in the timing and amount of deferred issuance cost amortization. See Note 8 — Commitments and Contingencies.

Repurchase Facilities

The Company enters into repurchase financing facilities under which it nominally sells assets to a counterparty and simultaneously enters into an agreement to repurchase the sold assets at a price equal to the sold amount plus an interest factor. Despite being legally structured as sales and subsequent repurchases, repurchase transactions are generally accounted for as debt secured by the underlying assets. At the maturity of a repurchase financing, unless the repurchase financing is renewed, the Company is required to repay the borrowing including any accrued interest and concurrently receives back its pledged collateral from the lender. The repurchase financings are treated as collateralized financing transactions; pledged assets are recorded as assets in the Company’s consolidated balance sheets, and the debt is recognized at the contractual amount. Interest is recorded at the contractual amount on an accrual basis. Costs associated with the set-up of a repurchasing contract are recorded as deferred issuance cost at inception and amortized over the contractual life of the agreement. Any draw fees associated with individual transactions and any facility fees assessed on the amounts outstanding are recorded as deferred costs when incurred and amortized over the contractual life of the related borrowing.

Convertible Senior Notes

On April 25, 2017, the Company completed the public offer and sale of $87.5 million in aggregate principal amount of its convertible senior notes (the “notes”) due 2024, with follow-on offerings of an additional $20.5 million and $15.9 million, respectively, in aggregate principal amount completed on August 18, 2017 and November 19, 2018, respectively, which, combined with the notes from the April offering form a single series of fungible securities. The notes bear interest at a rate of 7.25% per annum, payable quarterly in arrears on January 15, April 15, July 15 and October 15 of each year. The notes will mature on April 30, 2024, unless earlier repurchased, converted or redeemed. During certain periods and subject to certain conditions the notes will be convertible by their holders into shares of the Company’s common stock at a conversion rate of 1.7279 shares of common stock per $25.00 principal amount of the notes, which represents a conversion price of approximately $14.47 per share of common stock. The conversion rate, and thus the conversion price, may be subject to adjustment under certain circumstances.

Coupon interest on the notes is recognized using the accrual method of accounting. Discount and deferred issuance costs are carried on the Company’s consolidated balance sheets as a deduction from the notes, and are amortized to interest expense on an effective yield basis through April 30, 2023, the date at which the notes can be converted. The Company assumes the debt will be converted at the specified conversion date for purposes of amortizing issuance costs because the Company believes such conversion will be in the economic interest of the holders. A cumulative discount at issuance of $3.2 million, representing the fair value of the embedded conversion feature, was recorded to stockholder equity. No sinking fund has been established for redemption of the principal.

During the first and third quarter of 2020, the Company completed a series of convertible note repurchases for aggregate principal amounts of $8.0 million and $2.5 million, respectively, for total purchase prices of $8.2 million and $2.3 million, respectively. The carrying amounts of the equity component representing the embedded conversion feature reversed from Additional paid-in capital due to the first and third quarter of 2020 transactions were $0.1 million and zero, respectively.

Management Fee and Expense Reimbursement

The Company is a party to the Third Amended and Restated Management Agreement with the Manager (the "Management Agreement") by and between the Company and the Manager, dated as of May 1, 2020, expiring on March 5, 2034. Under the Management Agreement, the Manager implements the Company’s business strategy and manages the Company’s business and investment activities and day-to-day operations, subject to oversight by the Company’s Board of Directors. Among other services, the Manager provides the Company with a management team and necessary administrative and support personnel. Additionally, the Company pays directly for the internal audit function that reports directly to the Audit Committee and the Board of Directors. The Company does not currently have any employees that it pays directly and does not expect to have any employees that it pays directly in the foreseeable future. Each of the Company’s executive officers is an employee or officer, or both, of the Manager or the Servicer.

The accompanying notes are an integral part of the consolidated interim financial statements.

Under the Management Agreement, the Company pays a quarterly base management fee based on its stockholders’ equity, including equity equivalents such as the Company's issuance of convertible senior notes, and may be required to pay a quarterly incentive management fee based on its cash distributions to its stockholders, and has the option to pay up to 100% of the base and incentive fees in cash rather than in half cash and half shares of its common stock. Management fees are expensed in the quarter incurred and the portion payable in common stock (if any) is included in stockholders’ equity at quarter end. See Note 10 — Related party transactions.

Servicing Fees

The Company is also a party to a Servicing Agreement (the "Servicing Agreement"), expiring July 8, 2029, with the Servicer. Under the Servicing Agreement by and between the Company and the Servicer, the Servicer receives an annual servicing fee ranging from 0.65% annually of the unpaid principal balance (“UPB”) to 1.25% annually of UPB for loans that are non-performing at acquisition. For certain of the Company's joint ventures, the servicing fee rate for RPLs is reduced to an annual servicing fee rate of 0.20% annually on a loan-by-loan basis for any loan that makes seven consecutive payments. Servicing fees are paid monthly. The total fees incurred by the Company for these services depend upon the UPB and type of mortgage loans that the Servicer services pursuant to the terms of the Servicing Agreement. The fees do not change if an RPL becomes non-performing or vice versa. Servicing fees for the Company’s real property assets are the greater of (i) the servicing fee applicable to the underlying mortgage loan prior to foreclosure, or (ii) 1.00% annually of the fair market value of the REO as reasonably determined by the Manager or 1.00% annually of the purchase price of any REO otherwise purchased by the Company. The Servicer is reimbursed for all customary, reasonable and necessary out-of-pocket costs and expenses incurred in the performance of its obligations, including the actual cost of any repairs and renovations undertaken on the Company’s behalf. The total fees incurred by the Company for these services will be dependent upon the UPB and the type of mortgage loans that the Servicer services, property values, previous UPB of the relevant loan, and the number of REO properties. The Servicing Agreement will automatically renew for successive one-year terms, subject to prior written notice of non-renewal. In certain cases, the Company may be obligated to pay a termination fee. The Management Agreement will automatically terminate at the same time as the Servicing Agreement if the Servicing Agreement is terminated for any reason. See Note 10 — Related party transactions.

Stock-based Payments

At least a portion of the management fee is payable in cash, and a portion of the management fee may be payable (at the Company's discretion) in shares of the Company’s common stock, which are issued to the Manager in a private placement and are restricted securities under the Securities Act of 1933, as amended (the “Securities Act”). The number of shares issued to the Manager (if any) are determined based on the higher of the most recently reported book value or the average of the closing prices of the Company's common stock on the New York Stock Exchange ("NYSE") on the five business days after the date on which the most recent regular quarterly dividend to holders of the common stock is paid. Any management fees paid in common stock are recognized as an expense in the quarter incurred and recorded in stockholders' equity at quarter end. The shares vest immediately upon issuance. The Manager has agreed to hold any shares of common stock received by it as payment of the base management fee for at least three years from the date such shares of common stock are received.

Under the Company’s 2014 Director Equity Plan (the “Director Plan”), the Company may make stock-based awards to its directors. The Director Plan is designed to promote the Company’s interests by attracting and retaining qualified and experienced individuals for service as non-employee directors. The Director Plan is administered by the Company’s Board of Directors. The total number of shares of common stock or other stock-based award, including grants of long-term incentive plan units (“LTIP Units”) from the Operating Partnership, available for issuance under the Director Plan is 78,000 shares. The Company issued to each of its independent directors restricted stock awards of 2,000 shares of its common stock upon joining the Board of Directors, which are subject to a one-year vesting period. The Company may also periodically issue additional restricted stock awards to its independent directors under the Director Plan. In addition, through March 31, 2019, each of the Company’s independent directors received an annual fee of $75,000, payable quarterly, 50% in shares of the Company’s common stock and 50% in cash. The annual fee was increased to $100,000, 40% of which is payable in shares of the Company's common stock and 60% in cash, which was effective as of April 1, 2019. Stock-based expense for the directors’ annual fee is expensed as earned, in equal quarterly amounts during the year, and recorded in stockholders' equity at quarter end.

On June 7, 2016, the Company’s stockholders approved the 2016 Equity Incentive Plan (the “2016 Plan”) to attract and retain non-employee directors, executive officers, key employees and service providers, including officers and employees of the Company’s affiliates. The 2016 Plan authorized the issuance of up to 5% of the Company’s outstanding shares from time to time on a fully diluted basis (assuming, if applicable, the exercise of all outstanding options and the conversion of all warrants and convertible senior notes, including OP Units and any LTIP Units, into shares of common stock). Grants of

The accompanying notes are an integral part of the consolidated interim financial statements.

restricted stock under the 2016 Plan use grant date fair value of the stock as the basis for measuring the cost of the grant. Forfeitures of granted shares are accounted for in the period in which they occur. The share grants vest over three years, with one third of the shares vesting on each of the first, second and third anniversaries of the grant date. The shares may not be sold until the third anniversary of the grant date.

Directors’ Fees

The expense related to directors’ fees is accrued, and the portion payable in common stock is reflected in consolidated Stockholders’ Equity in the period in which it is incurred.

Variable Interest Entities

In the normal course of business, the Company enters into various types of transactions with special purpose entities, which have primarily consisted of trusts established for the Company’s secured borrowings (see “Secured Borrowings” above and Note 9 to the consolidated financial statements). Additionally, from time to time, the Company may enter into joint ventures with unrelated entities, which also generally involves the formation of a special purpose entity. The Company evaluates each transaction and its resulting beneficial interest to determine if the entity formed pursuant to the transaction should be classified as a VIE. If an entity created in a transaction meets the definition of a VIE and the Company determines that it or a consolidated subsidiary is the primary beneficiary, the Company will include the entity in its consolidated financial statements.

Cash and Cash Equivalents

Highly liquid investments with an original maturity of three months or less when purchased are considered cash equivalents. The Company generally maintains cash and cash equivalents at insured banking institutions with minimum assets of $1 billion. Certain account balances exceed Federal Deposit Insurance Corporation (“FDIC”) insurance coverage and, as a result, there is a concentration of credit risk related to amounts on deposit in excess of FDIC insurance coverage.

Cash Held in Trust

Cash held in trust consists of restricted cash balances either legally due to lenders or held in trust for the benefit of the Company's secured borrowings, and is segregated from the Company’s other cash deposits. Cash held in trust is not available to the Company for any purpose other than the settlement of existing obligations.

Earnings per Share

The Company grants restricted shares which entitle the recipients to receive dividend equivalents during the vesting period on a basis equivalent to the dividends paid to holders of common shares. Unvested share-based compensation awards containing non-forfeitable rights to receive dividends or dividend equivalents (collectively, “dividends”) are classified as “participating securities” and are included in the basic earnings per share calculation using the two-class method.

Under the two-class method, all of the Company’s Consolidated net income attributable to common stockholders, consisting of Consolidated net income, less dividends on the Company’s Series A and Series B preferred stock, is allocated to common shares and participating securities, based on their respective rights to receive dividends. Basic earnings per share is determined by dividing Consolidated net income attributable to common stockholders, reduced by income attributable to the participating securities, by the weighted-average common shares outstanding during the period.

Diluted earnings per share is determined by dividing Consolidated net income attributable to diluted shareholders, which adds back to Consolidated net income attributable to common stockholders the interest expense and applicable portion of management fee expense, net of applicable income taxes, on the Company’s convertible senior notes, by the weighted-average common shares outstanding, assuming all dilutive securities, including stock grants, shares that would be issued in the event that warrants were redeemed for shares of common stock of the Company, shares issued in respect of the stock-based portion of the base fee payable to the Manager and independent directors, and shares that would be issued in the event of conversion of the Company’s outstanding convertible senior notes, were issued. In the event the Company were to record a net loss, potentially dilutive securities would be excluded from the diluted loss per share calculation, as their effect on loss per share would be anti-dilutive. The Company uses the Treasury Stock method of accounting for the outstanding warrants. Under the Treasury Stock method, the exercise of the warrants is assumed at the beginning of the period, and shares of common stock are assumed to have been issued. The proceeds from the exercise are assumed to be used by the Company to repurchase treasury stock, thereby

The accompanying notes are an integral part of the consolidated interim financial statements.

reducing the assumed dilution from the warrant exercise. In applying the Treasury Stock method, all dilutive potential common shares, regardless of whether they are exercisable, are treated as if they had been exercised.

In the event that any of the adjustments normally included to arrive at diluted earnings per share were to produce an anti-dilutive result, one that either increased earnings or reduced the quantity of shares used in the calculation, the anti-dilutive adjustment would not be included in the diluted earnings per share calculation.

Fair Value of Financial Instruments

Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. A fair value hierarchy has been established that requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. The standard describes three levels of inputs that may be used to measure fair value:

•Level 1 — Quoted prices in active markets for identical assets or liabilities.

•Level 2 — Observable inputs other than Level 1 prices, such as quoted prices for similar assets and liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.

•Level 3 — Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.

The degree of judgment utilized in measuring fair value generally correlates to the level of pricing observability. Assets and liabilities with readily available actively quoted prices or for which fair value can be measured from actively quoted prices generally will have a higher degree of pricing observability and a lesser degree of judgment utilized in measuring fair value. Conversely, assets and liabilities rarely traded or not quoted will generally have little or no pricing observability and a higher degree of judgment utilized in measuring fair value. Pricing observability is impacted by a number of factors, including the type of asset or liability, whether it is new to the market and not yet established, and the characteristics specific to the transaction.

The fair value of mortgage loans is estimated using the Manager’s proprietary pricing model which estimates expected cash flows with the discount rate used in the present value calculation representing the estimated effective yield of the loan. The Company reviews its discount rates periodically to ensure the assumptions used to calculate fair value are in line with market conditions.

The Company’s Investments at fair value are carried at fair value with changes in fair value of equity securities reflected in the Company’s consolidated statements of income. Fair values of the Company's investments in debt securities are derived from estimates provided by financial counterparties which are compared against available reference data from recent transactions and the Manager's proprietary valuation model.

The fair value of the Company's Beneficial interests are derived from estimates provided by banking institutions which are compared for reasonableness against analyses from the Manager's proprietary valuation model.

The fair value of secured borrowings is estimated using estimates provided by the Company's financing counterparties which are compared for reasonableness to the Manager’s proprietary pricing model which estimates expected cash flows of the underlying mortgage loans collateralizing the debt, and which drive the cash flows used to make interest payments.

The Company’s borrowings under its repurchase agreements are short-term in nature, and the Manager believes it can renew the current borrowing arrangements on similar terms in the future. Accordingly, the carrying value of these borrowings approximates fair value.

The Company’s convertible senior notes are traded on the NYSE under the ticker symbol "AJXA" the debt’s fair value is determined from the closing price on the balance sheet date.

Property held-for-sale is carried at the lower of its acquisition basis or net realizable value. Net realizable value is determined based on the Manager's proprietary asset valuation model unless a property is listed for sale or is under contract, in which case the list price or contract price is used, respectively, which price is then reduced by expected selling costs. Net unrealized losses due to changes in market value are recognized through a valuation allowance by charges to income.

Income Taxes

The accompanying notes are an integral part of the consolidated interim financial statements.

The Company elected REIT status upon the filing of its 2014 income tax return, and has conducted its operations in order to satisfy and maintain eligibility for REIT status. Accordingly, the Company does not believe it will be subject to U.S. federal income tax from the year ended December 31, 2014 forward on the portion of the Company’s REIT taxable income that is distributed to the Company’s stockholders as long as certain asset, income and stock ownership tests are met. If the Company fails to qualify as a REIT in any taxable year, it generally will not be permitted to qualify for treatment as a REIT for U.S. federal income tax purposes for the four taxable years following the year during which qualification is lost. In addition, notwithstanding the Company’s qualification as a REIT, it may also have to pay certain state and local income taxes, because not all states and localities treat REITs in the same manner that they are treated for U.S. federal income tax purposes.

The Company’s consolidated financial statements include the operations of two TRS entities, GA-TRS and GAJX Real Estate Corp., which are subject to U.S. federal, state and local income taxes on their taxable income. Income from these two entities and any other TRS that the Company forms in the future will be subject to U.S. federal and state income taxes. Deferred tax assets and liabilities are recognized for the future tax consequences or benefits attributable to differences between the carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted rates expected to apply to taxable income in the years in which management expects those temporary differences to be recovered or settled. The effect on deferred taxes of a change in tax rates is recognized in income in the period in which the change occurs. Subject to the Company’s judgment, it reduces a deferred tax asset by a valuation allowance if it is “more-likely-than-not” that some or all of the deferred tax asset will not be realized. Tax laws are complex and subject to different interpretations by the taxpayer and respective governmental taxing authorities. Significant judgment is required in evaluating tax positions, and the Company recognizes tax benefits only if it is more likely than not that a tax position will be sustained upon examination by the appropriate taxing authority.

The Company evaluates tax positions taken in its consolidated financial statements under the interpretation for accounting for uncertainty in income taxes. As a result of this evaluation, the Company may recognize a tax benefit from an uncertain tax position only if it is “more-likely-than-not” that the tax position will be sustained on examination by taxing authorities.

The Company’s tax returns remain subject to examination and consequently, the taxability of the distributions and other tax positions taken by the Company may be subject to change. Distributions to stockholders generally will be primarily taxable as long-term capital gain, although a portion of such distributions may be designated as ordinary income or qualified dividend income, or may constitute a return of capital. The Company furnishes annually to each stockholder a statement setting forth distributions paid during the preceding year and their U.S. federal income tax treatment.

Reclassifications

The Company reclassified its investment in warrants for the purchase of an additional interest in GAFS with a balance of $0.8 million at both September 30, 2020 and December 31, 2019 from the Prepaid expenses and other assets classification in the Consolidated balance sheets to the Investments in affiliates classification to more accurately present the Company’s combined interest in GAFS. There was no effect on the Company’s reported earnings or cash flows for the periods presented.

Segment Information

The Company’s primary business is acquiring, investing in and managing a portfolio of mortgage loans. The Company operates in a single segment focused on re-performing mortgages, and to a lesser extent non-performing mortgages and real property.

Recently Adopted Accounting Standards

In June 2016, the FASB issued ASU 2016-13, Financial Instruments - Credit Losses. The main objective of this guidance is to provide financial statement users with more decision-useful information about the expected credit losses on financial instruments and other commitments to extend credit held by a reporting entity. To achieve this, the amendments in this guidance replace the incurred loss impairment methodology in current U.S. GAAP with a methodology that reflects expected credit losses and requires consideration of a broader range of reasonable and supportable information to inform credit loss estimates. Specifically, the amendments in this guidance require a financial asset (or a group of financial assets) measured at amortized cost basis to be presented at the net amount expected to be collected. The measurement of expected credit losses is based on relevant information about past events, including historical experience, current conditions, and reasonable and supportable forecasts that affect the collectability of the reported amount. An entity must use judgment in determining the relevant information and estimation methods that are appropriate in its circumstances. In May 2019, the FASB issued ASU

The accompanying notes are an integral part of the consolidated interim financial statements.

2019-04, Codification Improvements to Topic 326, Financial Instruments-Credit Losses, Topic 815, Derivatives and Hedging, and Topic 825, Financial Instruments. The amendments to Topic 326 and other Topics in this Update include items related to the amendments in Update 2016-13 discussed at the June 2018 and November 2018 Credit Losses Transition Resource Group meetings. The amendments clarify or address stakeholders’ specific issues about certain aspects of the amendments in Update 2016-13. This guidance is effective for interim and annual reporting periods that are applicable to the original ASU’s affected by the codification improvements. Also in May 2019, the FASB issued ASU 2019-05, Financial Instruments - Credit Losses - Targeted Transition Relief to allow financial statement preparers who had elected the fair value option for newly acquired financial assets to irrevocably elect the fair value option, applied on an instrument-by-instrument basis for eligible instruments, upon adoption of ASU 2016-13 for assets previously measured at amortized cost basis. In November 2019, the FASB issued ASU 2019-11, Codification Improvements to Topic 326, Financial Instruments - Credit Losses to clarify or address stakeholders’ specific issues about certain aspects of the amendments in Update 2016-13. In February 2020, the FASB issued ASU 2020-02, Financial Instruments - Credit Losses (Topic 326) and Leases (Topic 842) to amend SEC paragraphs pursuant to SEC Staff Accounting Bulletin No. 119 and to update the SEC section on the effective date related to ASU 2016-02. The guidance in ASU 2016-13, ASU 2019-04, ASU 2019-05, ASU 2019-11 and ASU 2020-02 became effective for the Company for all periods beginning after December 15, 2019. The Company adopted ASU 2016-13 and all related amendments on January 1, 2020.

For the Company’s mortgage loan portfolio, the initial adoption resulted in a reclassification between loan discount and allowance for purchased credit impaired loans of $10.2 million. This adjustment had no effect on the Company’s balance sheet presentation, or on consolidated equity. The Company does not consider this transition adjustment to be material to its financial position or previously reported statements. During subsequent periods this allowance for credit losses will be adjusted either upward or downward for expected changes in future credit losses based on expected cash flows. These changes to the reserve will be recognized in the Company's current period income. Historically, only reductions in expected cash flows were recognized in the current period earnings, while increases in expected cash flows were recognized prospectively over the remaining expected lives of the loan pools. The Company’s investments in beneficial interests are also deemed to be credit impaired under ASC 2016-13 and follow guidance comparable to that for impaired loans. Similarly, upon adoption, a reclassification from discount to allowance for credit impaired loss of $4.2 million was recorded, with no net impact on the Company’s balance sheet or on consolidated equity. As with the adjustment noted above for the Company's loan portfolio, this adjustment had no effect on the Company’s balance sheet presentation, or on consolidated equity. The Company does not consider this transition adjustment to be material to its financial position or previously reported statements. In subsequent periods, changes to the reserve for beneficial interests will be recognized in the Company’s current period income. Under ASU 2016-13, credit losses for available-for-sale debt securities are measured in a manner similar to current GAAP. However, the amendments in this ASU require that credit losses be recorded through an allowance for credit losses, which will cause subsequent reversals in credit loss estimates to be recognized in current income. In addition, the allowance for available-for-sale debt securities is limited to the extent that the fair value is less than the amortized cost.

In August 2018, the FASB issued ASU 2018-13, Fair Value Measurement (Topic 820): Disclosure Framework -Changes to the Disclosure Requirements for Fair Value Measurement. The amendments in this update modify the disclosure requirements on fair value measurements in Topic 820, Fair Value Measurement, based on the concepts in the concepts statement, including the consideration of costs and benefits. This guidance is effective for interim and annual reporting periods beginning after December 15, 2019, with early adoption permitted, including early adoption of any removed or modified disclosures addressed in this update and delay of additional disclosures until their effective date. The Company adopted ASU 2018-13 in the first quarter of 2020 with no effect on its consolidated assets or liabilities, consolidated net income or equity or cash flows on the date of adoption.

In August 2018, the FASB issued ASU 2018-15, Intangibles - Goodwill and Other - Internal-Use Software (Subtopic 350-40): Customer's Accounting for Fees Paid in a Cloud Computing Arrangement. The amendments in this update align the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software and hosting arrangements that include an internal-use software license. This guidance is effective for interim and annual reporting periods beginning after December 15, 2019, with early adoption permitted, including adoption in any interim period. The Company adopted ASU 2018-15 in the first quarter of 2020 with no effect on its consolidated assets or liabilities, consolidated net income or equity or cash flows on the date of adoption.

Recently Issued Accounting Standards

In December 2019, the FASB issued ASU 2019-12, Income Taxes (Topic 740) - Simplifying the Accounting for Income Taxes. The amendments in this update simplify the accounting for income taxes by removing certain exceptions and adding certain clarifications to rules and definitions used in the calculation of the income tax provision. This guidance is

The accompanying notes are an integral part of the consolidated interim financial statements.

effective for interim and annual reporting periods beginning after December 15, 2020, with early adoption permitted, including adoption in any interim period. The Company is currently evaluating the impact on its consolidated financial statements and related disclosures.

In January 2020, the FASB issued ASU 2020-01, Investments – Equity Securities (Topic 321, Investments) – Equity Method and Joint Ventures (Topic 323), and Derivatives and Hedging (Topic 815). The amendments in this update clarify the interactions between Topic 321, Topic 323, and Topic 815, which clarifies aspects of accounting for investments in equity-method investees acquired through step acquisitions to require remeasurement of an investment immediately before adopting the equity method of accounting if the investor identifies observable price changes in orderly transactions for an identical or similar investment of the same issuer, and also requires such remeasurement upon discontinuance of the equity method. The amendments also clarify whether upon settlement of a forward contract or option the underlying security would be accounted for under the Equity Method (Topic 323) or the fair value option (Topic 825). This guidance is effective for interim and annual reporting periods beginning after December 15, 2020, with early adoption permitted, including adoption in any interim period. The Company is currently evaluating the impact on its consolidated financial statements and related disclosures.

In August 2020, the FASB issued ASU 2020-06, Debt – Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging – Contracts in an Entity’s Own Equity (Subtopic 815-40). The amendments in this update simplify the accounting for convertible instruments by removing certain accounting models that require separation of convertible instruments into debt and equity components with conversion features that are not required to be accounted for as derivatives or that do not result in substantial premiums. Consequently a convertible instrument will be accounted for as a single liability measured as its amortized cost and convertible preferred stock will be accounted for as a single instrument recorded at historical cost as long as no other features require bifurcation and recognition as derivatives. This guidance is effective for interim and annual reporting periods beginning after December 15, 2021, with early adoption permitted, including adoption in any interim period. The Company is currently evaluating the impact on its consolidated financial statements and related disclosures.

In August 2020, the Securities and Exchange Commission (“SEC”) voted to adopt amendments to modernize the description of business, legal proceedings, and risk factor disclosures that registrants are required to make pursuant to Regulation S-K. The business description was amended to be primarily principles-based, requiring disclosure of information material to an understanding of the general development of the business, and eliminating the previously prescribed five-year timeframe. The amendment clarifies that registrants may provide an update of the general development of the business rather than a full discussion. The amendment includes a nonexclusive list of disclosure topic examples, including a description of the registrant’s human capital resources to the extent such disclosures would be material to an understanding of the registrant’s business. Amendments to the legal proceedings disclosure allow the required information to be provided by hyperlink or cross-reference to legal proceedings disclosure located elsewhere in the document to avoid duplicative disclosure. The amendments also require a summary risk factor disclosure of no more than two pages if the registrant’s risk factor section exceeds 15 pages. The amendments will become effective 30 days after publication in the Federal Register. The Company is currently evaluating the impact on its disclosures.

Note 3 — Mortgage Loans

The following table presents information regarding the carrying value for the Company's RPLs, NPLs and SBC loans as of September 30, 2020 and December 31, 2019 ($ in thousands):


Loan portfolio basis by asset type	September 30, 2020		December 31, 2019
Residential RPLs	$	1,068,503	$	1,085,514
Residential NPLs	28,448		30,869
SBC/commercial loans	5,409		35,086
Total	$	1,102,360	$	1,151,469

Included on the Company’s consolidated balance sheets as of September 30, 2020 and December 31, 2019 are approximately $1.1 billion and $1.2 billion, respectively, of RPLs, NPLs, and SBCs. RPLs, NPLs and SBCs are categorized at acquisition. The carrying value of RPLs and NPLs reflects the original investment amount, plus accretion of interest income and credit and non-credit discount, less principal and interest cash flows received; while the carrying value of SBCs reflects the original investment amount, credit and non-credit discount, less principal cash flows received. The carrying values at September 30, 2020 and December 31, 2019 for the Company's loans in the table above are presented net of a cumulative allowance for loan credit losses of $15.2 million and $2.0 million, respectively, reflected in the appropriate lines in the table by

The accompanying notes are an integral part of the consolidated interim financial statements.

loan type. For the three and nine months ended September 30, 2020, the Company recognized a recovery of $2.7 million and $2.1 million, respectively, of provision for loan credit losses. For the three and nine months ended September 30, 2019, the Company recognized a $3 thousand and $0.2 million, respectively, of provision for loan credit losses. For the three and nine month periods ended September 30, 2020, the Company accreted $21.2 million and $61.1 million net of credit impairments and recoveries, respectively, into interest income with respect to its RPL, NPL and SBC loans. For the three and nine month periods ended September 30, 2019, the Company accreted $23.2 million and $73.6 million net of credit impairments, respectively, into interest income with respect to its RPL, NPL and SBC loans.

Loss estimates are determined based on the net present value of the difference between the contractual cash flows and the expected cash flows over the expected life of the loans. Contractual cash flows are calculated based on the stated terms of the loans, and incorporate any prepayment assumptions utilized in the expected cash flows. Expected cash flows are based on the Manager's proprietary model, which includes factors such as resolution method, resolution timeline, foreclosure costs, rehabilitation costs and eviction costs. Additional variables include the specific location of the underlying property, loan-to-value ratio, property age and condition, change and rate of change of borrower credit rating, servicing notes, interest rate, monthly payment amount and neighborhood rents.

The Company's mortgage loans are secured by real estate. Risks inherent in the Company's mortgage loan portfolio, affecting both the valuation of its mortgage loans as well as the portfolio's interest income include the risk of default, delays and inconsistency in the frequency and amount of payments, risks affecting borrowers such as man-made or natural disasters, or the pandemic caused by the novel coronavirus ("COVID-19") outbreak, and damage to or delay in realizing the value of the underlying collateral. The Company monitors the credit quality of the mortgage loans in its portfolio on an ongoing basis, principally by considering loan payment activity or delinquency status. In addition, the Company assesses the expected cash flows from the mortgage loans, the fair value of the underlying collateral and other factors, and evaluates whether and when it becomes probable that all amounts contractually due will not be collected.

During the three and nine months ended September 30, 2020, the Company purchased 244 and 270 RPLs with UPB of $46.3 million and $48.2 million, respectively. Comparatively, during the three and nine months ended September 30, 2019, the Company acquired five and 539 RPLs with UPB of $0.5 million and $115.6 million, respectively. During the three and nine months ended September 30, 2020, one and two NPLs were purchased with UPB of $0.5 million and $0.7 million, respectively. No NPLs were purchased during the three and nine months ended September 30, 2019. During the three and nine months ended September 30, 2020, the Company originated two SBC loans with UPB of $1.9 million. Comparatively, during the nine months ended September 30, 2019, the Company acquired 21 SBC loans with UPB of $18.4 million, and no SBC loans were acquired during the three months ended September 30, 2019.

During the three months ended September 30, 2020 the Company sold no mortgage loans; however, during the nine months ended September 30, 2020 the Company sold 26 commercial loans to Gaea, an affiliated entity with a carrying value of $26.1 million and UPB of $26.2 million and a collateral value of $44.2 million. Comparatively, during the three and nine months ended September 30, 2019 the Company sold three and 965 loans with a carrying value of $1.9 million and $178.8 million, respectively, and UPB of $2.0 million and $202.1 million, respectively, and collateral values of $3.6 million and $323.7 million, respectively. See Note 10 — Related Party Transactions.

The Company adopted CECL using the prospective transition approach for PCD assets on January 1, 2020. At the time, $10.2 million of loan discount was reclassified to the allowance for credit losses with no net impact on the amortized cost basis of the portfolio. The Company views its mortgage loan portfolio based on loan performance and uses six pools to aggregate its portfolio of PCD loans, and one pool for its non-PCD loans. Among the PCD loans, separate pools exist for loans that have been securitized in rated secured borrowings during 2019 and 2020 ("Great Ajax II REIT"), loans held by securitization trusts 2018-C, and 2017-D, loans with collateral in California which are not included in the Great Ajax II REIT, 2018-C or 2017-D pools, and the remaining loans which are pooled between those which have made seven of the most recent seven payments ("7f7 and better") and those which have made between four and six of the most recent payments or worse ("4f4-6f6 and below"). The following table presents information regarding the year of origination of the Company's mortgage loan portfolio by basis ($ in thousands):

The accompanying notes are an integral part of the consolidated interim financial statements.


	September 30, 2020
	2020		2019		2018		2017		2016		2009-2015		2006-2008		2005 and prior		Total
Great Ajax II REIT	$	—	$	—	$	258	$	490	$	2,001	$	43,337	$	291,294	$	103,024	$	440,404
2018-C	—		—		—		—		—		13,975		119,230		40,324		173,529
2017-D	—		—		—		123		—		6,795		95,147		33,596		135,661
California	2,244		1,221		590		620		—		4,031		57,726		17,752		84,184
7f7 and better	—		116		435		—		1,636		16,391		82,482		32,092		133,152
4f4-6f6 and below	854		103		25		132		447		14,795		81,105		30,772		128,233
Non-PCD	1,822		777		1,242		2,499		101		693		54		9		7,197
Total	$	4,920	$	2,217	$	2,550	$	3,864	$	4,185	$	100,017	$	727,038	$	257,569	$	1,102,360

The following table presents a reconciliation between the purchase price and par value for the Company's loan acquisitions and originations for the three and nine months ended September 30, 2020 ($ in thousands):


	Three months ended September 30, 2020				Nine months ended September 30, 2020
	PCD Loans		Non PCD Loans		PCD Loans		Non PCD Loans
Par	$	46,811	$	1,859	$	47,038	$	3,811
Discount	(3,901)		(41)		(3,938)		(788)
Allowance	(1,272)		—		(1,276)		—
Purchase Price	$	41,638	$	1,818	$	41,824	$	3,023

The Company performs an analysis of its expectation of the amount of undiscounted cash flows expected to be collected from its mortgage loan pools at the end of each calendar quarter. Under CECL, the Company adjusts its allowance for loan credit losses when there are changes in its expectation of future cash flows. An increase to the allowance for losses will occur when there is a reduction in the Company's expected future cash flows. Reduction to the allowance, or recovery, may occur if there is an increase in expected future cash flows that were previously subject to a provision for loss. Management assesses the credit quality of the portfolio and the adequacy of loan loss reserves on a quarterly basis, or more frequently as necessary. During the three and nine months ended September 30, 2020, the Company recorded a recovery of the provision for credit losses of $2.7 million and $2.1 million, respectively, on its mortgage loan portfolio primarily as a result of improved cash flow expectations despite the pandemic caused by COVID-19 that began during the first quarter of 2020. During the three and nine months ended September 30, 2019, the Company recorded a provision for credit losses of $3 thousand and $0.2 million, respectively, on its mortgage loan portfolio. An analysis of the balance in the allowance for loan losses account follows ($ in thousands):


	Three months ended September 30,				Nine months ended September 30,
	2020		2019		2020		2019
Allowance for loan credit losses, beginning of period	$	(14,450)	$	(1,403)	$	(1,960)	$	(1,164)
Beginning period adjustment for CECL	—		—		(10,156)		—
Reversal of / (increase in) provision for credit losses on mortgage loans	2,705		(3)		2,108		(242)
Incremental increase in allowance for loan credit losses	(2,137)		—		(3,870)		—
Increase in allowance for loan credit losses for loan acquisitions	(1,272)		—		(1,276)		—
Allowance for loan credit losses, end of period	$	(15,154)	$	(1,406)	$	(15,154)	$	(1,406)

The accompanying notes are an integral part of the consolidated interim financial statements.

The following table sets forth the carrying value of the Company’s mortgage loans by delinquency status as of September 30, 2020 and December 31, 2019 ($ in thousands):


	September 30, 2020
	Current		30		60		90		Foreclosure		Total
Great Ajax II REIT	$	379,092	$	23,054	$	14,625	$	23,257	$	376	$	440,404
2018-C	97,469		14,162		10,938		42,357		8,603		173,529
2017-D	82,982		11,816		8,203		30,446		2,214		135,661
California	45,910		7,451		6,901		20,861		3,061		84,184
7f7 and better	81,015		14,515		9,029		28,593		—		133,152
4f4- 6f6 and below	23,926		12,184		10,659		49,563		31,901		128,233
Non-PCD	5,102		129		51		1,915		—		7,197
Total	$	715,496	$	83,311	$	60,406	$	196,992	$	46,155	$	1,102,360


	December 31, 2019
	Current		30		60		90		Foreclosure		Total
Great Ajax II REIT	$	265,677	$	37,553	$	14,034	$	4,597	$	—	$	321,861
2018-C	75,253		33,904		19,756		42,315		8,074		179,302
2017-D	68,996		28,318		14,452		33,166		3,188		148,120
California	90,658		12,733		9,123		20,737		1,173		134,424
7f7 and better	147,722		29,371		22,645		28,864		1,829		230,431
4f4- 6f6 and below	6,412		4,329		12,946		66,177		24,033		113,897
Non-PCD	21,425		—		850		1,159		—		23,434
Total	$	676,143	$	146,208	$	93,806	$	197,015	$	38,297	$	1,151,469

Note 4 — Real Estate Assets, Net

The Company acquires real estate assets either through direct purchases of properties for its rental portfolio or through conversions of mortgage loans in its portfolio such as when a mortgage loan is foreclosed upon and the Company takes title to the property on the foreclosure date or the borrower surrenders the deed in lieu of foreclosure.

Rental Property

As of September 30, 2020, the Company owned six rental properties with an aggregate carrying value of $0.7 million held for investment as rentals, at which time five properties were rented. One property was acquired as an RPL but transitioned to foreclosure prior to boarding by the Servicer, one was acquired through foreclosure and three were transferred from Property held-for-sale, where all three were acquired through foreclosures. The remaining rental property was directly purchased. As of December 31, 2019, the Company owned 10 rental properties with a carrying value of $1.5 million held for use as rentals, at which time six were rented. Two properties were acquired as RPLs but transitioned to foreclosure prior to boarding by the Servicer, one was acquired through foreclosures, and six were transferred from Property held-for-sale, where all six were acquired through foreclosures. The remaining rental property was directly purchased.

Property Held-for-Sale

The Company classifies REO as held-for-sale if the REO is expected to be actively marketed for sale. As of September 30, 2020 and December 31, 2019, the Company’s net investments in REO held-for-sale were $6.5 million and $13.5 million, respectively, which include balances of $0.3 million and $2.2 million, respectively, for properties undergoing renovation or which are otherwise in the process of being brought to market. For the nine months ended September 30, 2020 and 2019, all of the additions to REO held-for-sale were acquired through foreclosure or deed in lieu of foreclosure, and reclassified out of the mortgage loan portfolio and transfers from rental properties.

The accompanying notes are an integral part of the consolidated interim financial statements.

The following table presents the activity in the Company’s carrying value of property held-for-sale for the three and nine months ended September 30, 2020 and 2019 ($ in thousands):


	Three months ended September 30,						Nine months ended September 30,
	2020			2019			2020			2019
Property Held-for-sale	Count	Amount		Count	Amount		Count	Amount		Count	Amount
Balance at beginning of period	33	$	6,879	97	$	21,335	58	$	13,537	102	$	19,402
Transfers from mortgage loans	5	603		7	849		12	1,515		52	10,675
Adjustments to record at lower of cost or fair value	—	(156)		—	(690)		—	(1,156)		—	(1,691)
Disposals	(7)	(1,416)		(30)	(5,055)		(40)	(8,143)		(84)	(12,941)
Transfers from Rental property	3	574		1	196		4	755		6	1,613
Transfers to Rental property	—	—		—	—		—	—		(1)	(293)
Other	—	—		—	(94)		—	(24)		—	(224)
Balance at end of period	34	$	6,484	75	$	16,541	34	$	6,484	75	$	16,541

Dispositions

During the three and nine months ended September 30, 2020, the Company sold seven and 40 REO properties, respectively, realizing net gains of approximately $0.2 million and $1.0 million, respectively. Comparatively, for the three and nine months ended September 30, 2019, the Company sold 30 and 84 REO properties, realizing net gains of approximately $0.3 million and $0.4 million, respectively. These amounts are included in Other income on the Company's consolidated statements of income. The Company recorded lower of cost or net realizable value adjustments in Real estate operating expense for the three and nine months ended September 30, 2020 of $0.2 million and $1.2 million, respectively. Comparatively, for the three and nine months ended September 30, 2019, the Company recorded lower of cost or net realizable value adjustments of $0.7 million and $1.7 million, respectively.

Note 5 — Investments

The Company holds investments in various debt securities and beneficial interests which are the net residual interest of the Company’s investments in securitization trusts holding pools of mortgage loans. The Company's debt securities and beneficial interests are issued by securitization trusts, which are VIEs, that the Company has sponsored but which the Company does not consolidate since it has determined it is not the primary beneficiary. See Note 10 — Related party transactions. The Company marks its debt securities to fair value using prices provided by financing counterparties, and believes any unrealized losses to be temporary. Risks inherent in the Company's debt securities portfolio, affecting both the valuation of its securities as well as the portfolio's interest income include the risk of default, delays and inconsistency in the frequency and amount of payments, risks affecting borrowers such as man-made or natural disasters, or the COVID-19 outbreak, and damage to or delay in realizing the value of the underlying collateral. The Company monitors the credit quality of the mortgage loans underlying its debt securities on an ongoing basis, principally by considering loan payment activity or delinquency status. In addition, the Company assesses the expected cash flows from the mortgage loans, the fair value of the underlying collateral and other factors, and evaluates whether and when it becomes probable that all amounts contractually due will not be collected. The following table presents information regarding the Company's investments in debt securities and investments in beneficial interests ($ in thousands):


	As of September 30, 2020
	Basis(1)		Gross unrealized gains		Gross unrealized losses		Carrying value (fair value)
Debt securities	$	284,254	$	1,999	$	(1,598)	$	284,655
Beneficial interests in securitization trusts	86,241		—		—		86,241
Total investments	$	370,495	$	1,999	$	(1,598)	$	370,896

(1)Basis amount is net of any amortized discount, allowance for credit losses, principal paydowns and interest receivable on securities of $0.2 million.

The accompanying notes are an integral part of the consolidated interim financial statements.


	As of December 31, 2019
	Basis(1)		Gross unrealized gains		Gross unrealized losses		Carrying value (fair value)
Debt securities	$	230,408	$	1,643	$	(366)	$	231,685
Beneficial interests in securitization trusts	57,954		—		—		57,954
Total investments	$	288,362	$	1,643	$	(366)	$	289,639

(1)Basis amount is net of any amortized discount, principal paydown and interest receivable on securities of $0.3 million.

The following table presents a breakdown of the Company's gross unrealized losses ($ in thousands):


	As of September 30, 2020
	Basis(1)		Gross unrealized losses		Carrying value (fair value)
Debt securities due February 2057(2)	$	5,405	$	(6)	$	5,399
Debt securities due October 2058(3)	11,039		(109)		10,930
Debt securities due September 2059(3)	23,263		(534)		22,729
Debt securities due November 2059(3)	16,169		(331)		15,838
Debt securities due December 2059(3)	48,336		(618)		47,718
Total	$	104,212	$	(1,598)	$	102,614

(1)Basis amount is net of any realized amortized costs and principal paydowns.

(2)These securities have been in an unrealized loss position for 12 months or longer.

(3)This security has been in an unrealized loss position for less than 12 months.


	As of December 31, 2019
	Basis(1)		Gross unrealized losses		Carrying value (fair value)
Debt securities due April 2058(2)	$	6,855	$	(9)	$	6,846
Debt securities due February 2057(2)	7,324		(1)		7,323
Debt securities due September 2059(3)	37,843		(356)		37,487
Total	$	52,022	$	(366)	$	51,656

(1)Basis amount is net of any realized amortized costs and principal paydowns.

(2)These securities have been in an unrealized loss position for 12 months or longer.

(3)This security has been in an unrealized loss position for less than 12 months.

As of September 30, 2020, the Company recorded $2.0 million gross unrealized gains and a gross unrealized loss of $1.6 million in fair valuation adjustments in accumulated other comprehensive income on the consolidated balance sheet at a fair value of $284.7 million, which includes $0.2 million in interest receivable. As of December 31, 2019, the Company recorded a gross unrealized gain of $1.6 million and a gross unrealized loss of $0.4 million in fair valuation adjustments in accumulated other comprehensive income on the Company's consolidated balance sheet at fair value of $231.7 million, which includes $0.3 million in interest receivable.

During the three and nine months ended September 30, 2020, the Company acquired $83.4 million and $144.7 million, respectively, in debt securities and beneficial interests issued by joint ventures between the Company and third party institutional accredited investors. Each joint venture issued senior notes and beneficial interests, which are trust certificates representing the residual investment in the trust. In certain transactions, the joint ventures also issued subordinated notes. Of the $83.4 million and $144.7 million, respectively, of debt securities acquired in the three and nine months ended September 30, 2020, the Company acquired $66.0 million and $115.6 million, respectively, in senior notes and $5.2 million and $9.8 million,

The accompanying notes are an integral part of the consolidated interim financial statements.

respectively, in subordinate notes. The debt securities are carried at fair value. Comparatively for the three and nine months ended September 30, 2019, the Company acquired $43.4 million and $127.6 million, respectively, in debt securities and beneficial interests issued by joint ventures between the Company and third party institutional accredited investors. Of the $43.4 million and $127.6 million, respectively, for three and nine months ended September 30, 2019, the Company retained $36.1 million and $93.6 million, respectively, in senior notes and $3.3 million and $12.6 million in subordinate notes. During the three and nine months ended September 30, 2020, the Company sold senior notes issued by certain joint ventures for total proceeds of $38.9 million and recognized a gain of $0.1 million. During three months ended September 30, 2019, the Company did not sell any senior notes. During the nine months ended September 30, 2019, the Company sold senior notes issued by certain joint ventures for total proceeds of $39.6 million and recognized a gain of $8 thousand, net of transaction fees.

During the three and nine months ended September 30, 2020, the Company also acquired $12.2 million and $19.3 million, respectively, in beneficial interests issued by joint ventures. Comparatively, for the three and nine months ended September 30, 2019, the Company acquired $4.0 million and $21.4 million, respectively, in beneficial interests issued by joint ventures. As of September 30, 2020, the investments in beneficial interests were carried on the Company's consolidated balance sheet at $86.2 million. At December 31, 2019, the investments in beneficial interests were carried on the Company's consolidated balance sheet at $58.0 million. As of September 30, 2020 and December 31, 2019, the Company had no securities that were past due.

The following table presents a reconciliation between the purchase price and par value for the Company's beneficial interests acquisitions for the three and nine months ended September 30, 2020 ($ in thousands):


	Three months ended September 30, 2020		Nine months ended September 30, 2020
	Beneficial Interest		Beneficial Interest
Par	$	15,349	$	27,319
Discount	(2,899)		(7,787)
Allowance	(225)		(2,779)
Purchase Price	$	12,225	$	16,753

The Company adopted CECL using the prospective transition approach for PCD assets for its beneficial interests on January 1, 2020, at the time $4.2 million was reclassified from discount to allowance for credit losses for its Investments in beneficial interests. Under CECL, the Company adjusts its allowance for loan losses when there are changes in its expectation of future cash flows. An increase to the allowance for losses will occur when there is a reduction in the Company’s expected future cash flows. A reduction to the allowance, or recovery, may occur if there is an increase in expected future cash flows that were previously subject to a provision for losses. Management assesses the credit quality of the portfolio and the adequacy of loss reserves on a quarterly basis, or more frequently as necessary. During the three and nine months ended September 30, 2020, the Company recorded a reversal of the provision for credit losses of $1.3 million and $1.1 million, respectively on its beneficial interest portfolio, primarily as a result of increased cash flow expectations despite the pandemic caused by COVID-19 that began during the first quarter of 2020. During the three and nine months ended September 30, 2019, the Company recorded no impairment on its beneficial interests. An analysis of the balance in the allowance for beneficial interest losses account follows ($ in thousands):


	Three months ended September 30,				Nine months ended September 30,
	2020		2019		2020		2019
Allowance for beneficial interests credit losses, beginning balance	$	(6,959)	$	—	$	—	$	—
Beginning period adjustment for CECL	—		—		(4,221)		—
Reversal of provision for credit losses on beneficial interests	1,302		—		1,118		—
Increase in allowance for beneficial interest credit losses for acquisitions	(225)		—		(2,779)		—
Allowance for beneficial interests credit losses, end balance	$	(5,882)	$	—	$	(5,882)	$	—

The accompanying notes are an integral part of the consolidated interim financial statements.

Note 6 — Fair Value

The following tables set forth the fair value of financial assets and liabilities by level within the fair value hierarchy as of September 30, 2020 and December 31, 2019 ($ in thousands):


			Level 1		Level 2		Level 3
September 30, 2020	Carrying value		Quoted prices in active markets		Observable inputs other than Level 1 prices		Unobservable inputs
Financial assets
Recurring financial assets
Investments in debt securities at fair value	$	284,655	$	—	$	284,655	$	—
Investments in beneficial interests(1)	$	86,241	$	—	$	—	$	86,241
Non-recurring financial assets
Mortgage loans, net	$	1,102,360	$	—	$	—	$	1,203,720
Investment in Manager	$	1,228	$	—	$	—	$	11,196
Investment in AS Ajax E LLC	$	823	$	—	$	970	$	—
Investment in AS Ajax E II LLC	$	3,543	$	—	$	3,643	$	—
Investment in GAFS, including warrants	$	2,703	$	—	$	—	$	3,320
Investment in Gaea	$	19,987	$	—	$	—	$	19,987
Investment in legacy entities	$	446	$	—	$	—	$	446
Financial liabilities
Recurring financial liabilities
Warrant liability	$	12,488	$	—	$	—	$	12,488
Borrowings under repurchase transactions	$	415,419	$	—	$	415,419	$	—
Non-recurring financial liabilities
Secured borrowings, net	$	614,214	$	—	$	613,099	$	—
Convertible senior notes, net	$	109,710	$	108,045	$	—	$	—

(1)Includes acquisition cost of $104.7 million.

The accompanying notes are an integral part of the consolidated interim financial statements.


			Level 1		Level 2		Level 3
December 31, 2019	Carrying value		Quoted prices in active markets		Observable inputs other than Level 1 prices		Unobservable inputs
Financial assets
Recurring financial assets
Investments in debt securities at fair value	$	231,685	$	—	$	231,685	$	—
Investments in beneficial interests(1)	$	57,954	$	—	$	57,954	$	—
Non-recurring financial assets
Mortgage loans, net	$	1,151,469	$	—	$	—	$	1,260,385
Investment in Manager	$	1,755	$	—	$	—	$	7,721
Investment in AS Ajax E LLC	$	931	$	—	$	1,012	$	—
Investment in AS Ajax E II LLC	$	3,977	$	—	$	3,895	$	—
Investment in GAFS, including warrants	$	3,023	$	—	$	—	$	3,320
Investment in Gaea	$	19,995	$	—	$	—	$	19,995
Investment in legacy entities	$	760	$	—	$	—	$	760
Financial liabilities
Recurring financial liabilities
Borrowings under repurchase transactions	$	414,114	$	—	$	414,114	$	—
Non-recurring financial liabilities
Secured borrowings, net	$	652,747	$	—	$	—	$	657,918
Convertible senior notes, net	$	118,784	$	132,173	$	—	$	—

(1)Includes acquisition cost of $58.0 million.

The fair value of mortgage loans and beneficial interests is estimated using the Manager’s proprietary pricing model which estimates expected cash flows with the discount rate used in the present value calculation representing the estimated effective yield of the loan. The value of transfers of mortgage loans to REO is based upon the present value of future expected cash flows of the loans being transferred.

The Company values its Investments in debt securities using estimates provided by its financing counterparties. The Company also relies on its Manager's proprietary pricing model to estimate the underlying cash flows expected to be collected on these investments as a comparison to the estimates received from financing counterparties. The Company also relies on its Manager's proprietary pricing model to estimate the underlying cash flows expected to be collected on its investments in beneficial interests. During the quarter ended September 30, 2020, the Company transferred its beneficial interests from level 2 to level 3 due to the Company's increased reliance on its Manager’s pricing model for these valuations. See Note 5 — Investments.

The Company's investment in the Manager is valued by applying an earnings multiple to net income.

The Company’s investment in AS Ajax E LLC is valued using estimates provided by financing counterparties.

The fair value of the Company's investment in GAFS is presented by applying an earnings multiple to expected earnings.

The Company's investments in Gaea and the legacy entities are presented as the carrying value due to the recent nature of the acquisition transactions.

The fair value of secured borrowings is estimated using estimates provided by the Company's financing counterparties, which are compared for reasonableness to the Manager’s proprietary pricing model, which estimates expected cash flows of the underlying mortgage loans collateralizing the debt, and which drive the cash flows used to make interest payments. During the quarter ended June 30, 2020, the Company transferred its secured borrowings from level 3 to level 2 due to the Company's

The accompanying notes are an integral part of the consolidated interim financial statements.

increased reliance on the use of estimates provided by its financing counterparties in the determination of secured borrowings fair values.

The Company's warrant liability is adjusted to approximate market value through earnings. Fair value is determined by using the greater of the expected call or put prices based on the call price, the carry cost discount and the interest discount.

The Company’s borrowings under repurchase agreements are short-term in nature, and the Company’s management believes it can renew the current borrowing arrangements on similar terms in the future. Accordingly, the carrying value of these borrowings approximates fair value.

The Company’s convertible senior notes are traded on the NYSE; the debt’s fair value is determined from the NYSE closing price on the balance sheet date.

The carrying values of its Cash and cash equivalents, Cash held in trust, Receivable from Servicer, Prepaid expenses and other assets, Management fee payable and Accrued expenses and other liabilities are equal to or approximate fair value.

Non-financial assets

Property held-for-sale is carried at the lower of its acquisition cost (cost) or net realizable value. Net realizable value is determined based on appraisals, broker price opinions, or other market indicators of fair value less expected liquidation costs. The lower of cost or net realizable value for the Company’s REO Property is stated as its carrying value. The following tables set forth the fair value of non-financial assets by level within the fair value hierarchy as of September 30, 2020 and December 31, 2019 ($ in thousands):


					Level 1		Level 2		Level 3
September 30, 2020	Carrying value		Nine months ended fair value adjustment recognized in the consolidated statements of income		Quoted prices in active markets		Observable inputs other than Level 1 prices		Unobservable inputs
Non-financial assets
Property held-for-sale	$	6,484	$	(1,156)	$	—	$	—	$	6,484


					Level 1		Level 2		Level 3
December 31, 2019	Carrying value		Fair value adjustment recognized in the consolidated statements of income		Quoted prices in active markets		Observable inputs other than Level 1 prices		Unobservable inputs
Non-financial assets
Property held-for-sale	$	13,537	$	(2,104)	$	—	$	—	$	13,537

Note 7 — Affiliates

Unconsolidated Affiliates

On November 22, 2019, Gaea completed a private capital raise transaction in which it raised $66.3 million from the issuance of 4,419,641 shares of its common stock to third parties to allow it to continue to advance its investment strategy. Upon completion of the capital raise, the Company retained ownership of approximately 23.2% of Gaea with third party investors owning the remaining approximately 76.8%. The Company recognized no gain or loss on the transaction as Gaea's fair value at the date of the deconsolidation did not represent a material change from the fair values of its recently acquired assets and liabilities due to the limited lapse of time since their acquisitions. At September 30, 2020 the Company owned approximately 23.0% of Gaea with third party investors owning the remaining approximately 77.0%. The Company accounts for its investment in Gaea using the equity method.

During the year ended December 31, 2019, the Company acquired a cumulative 40.4% average ownership interest in three legacy entity LLCs managed by the Servicer for $1.0 million, which hold investments in RPLs and NPLs. The Company accounts for its investment using the equity method.

The accompanying notes are an integral part of the consolidated interim financial statements.

During 2018, the Company acquired an 8.0% ownership interest in GAFS. The acquisition was completed in two transactions. On January 26, 2018, the Company in an initial closing acquired a 4.9% interest in GAFS and three warrants, each exercisable for a 2.45% interest in GAFS upon payment of additional consideration, in exchange for consideration of $1.1 million of cash and 45,938 shares of the Company’s common stock with a value of approximately $0.6 million. On May 29, 2018 the additional closing was completed wherein the Company acquired an additional 3.1% interest in GAFS and three warrants, each exercisable for a 1.55% interest in GAFS, in exchange for consideration of $0.7 million of cash and 29,063 shares of the Company's common stock with a value of approximately $0.4 million. The Company accounts for its investment in GAFS using the equity method.

On March 14, 2016, the Company formed AS Ajax E LLC to hold an equity interest in a Delaware trust formed to own residential mortgage loans and residential real estate assets. AS Ajax E LLC owns a 5% equity interest in Ajax E Master Trust which holds a portfolio of RPLs. At the time of the original investment, the Company held a 24.2% interest in AS Ajax E LLC. In October 2016, additional capital contributions were made by third parties, and the Company’s ownership interest in AS Ajax E was reduced to a lower percentage of the total. As of September 30, 2020 and December 31, 2019, the Company’s interest in AS Ajax E LLC was approximately 16.5%. The Company accounts for its investment using the equity method.

Upon the closing of the Company’s original private placement in July 2014, the Company received a 19.8% equity interest in the Manager, a privately held company for which there is no public market for its securities. The Company accounts for its investment in the Manager using the equity method.

The table below shows the net income, assets and liabilities for the Company’s unconsolidated affiliates at 100%, and at the Company’s share ($ in thousands):

Net income/(loss), assets and liabilities of unconsolidated affiliates at 100%


	Three months ended September 30,				Nine months ended September 30,
Net income/(loss) at 100%	2020		2019		2020		2019
Thetis Asset Management LLC	$	378	$	2,261	$	(1,837)	$	4,660
Gaea Real Estate Corp.	$	60	$	—	$	320	$	—
AS Ajax E LLC	$	52	$	61	$	151	$	214
Legacy Entities	$	(114)	$	—	$	27	$	—
Great Ajax FS LLC	$	(1,454)	$	886	$	(4,004)	$	2,489


	September 30, 2020				December 31, 2019
Assets and Liabilities at 100%	Assets		Liabilities		Assets		Liabilities
Thetis Asset Management LLC	$	9,921	$	2,864	$	12,277	$	2,265
Gaea Real Estate Corp.	$	83,485	$	845	$	83,068	$	768
AS Ajax E LLC	$	5,095	$	2	$	5,747	$	2
Legacy Entities	$	2,564	$	3,941	$	1,592	$	3,095
Great Ajax FS LLC	$	55,784	$	35,463	$	61,432	$	37,142

Net income/(loss), assets and liabilities of unconsolidated affiliates at the Company's share


	Three months ended September 30,				Nine months ended September 30,
Net income/(loss) at the Company's share	2020		2019		2020		2019
Thetis Asset Management LLC	$	75	$	448	$	(364)	$	923
Gaea Real Estate Corp.	$	14	$	—	$	74	$	—
AS Ajax E LLC	$	9	$	10	$	25	$	36
Legacy Entities	$	(46)	$	—	$	10	$	—
Great Ajax FS LLC	$	(116)	$	71	$	(320)	$	200

The accompanying notes are an integral part of the consolidated interim financial statements.


	September 30, 2020				December 31, 2019
Assets and Liabilities at the Company's share	Assets		Liabilities		Assets		Liabilities
Thetis Asset Management LLC	$	1,964	$	567	$	2,431	$	448
Gaea Real Estate Corp.	$	19,186	$	194	$	19,252	$	178
AS Ajax E LLC	$	841	$	—	$	948	$	—
Legacy Entities	$	1,029	$	1,587	$	637	$	1,247
Great Ajax FS LLC	$	4,463	$	2,837	$	4,915	$	2,971

Consolidated Affiliates

The Company consolidates the results and balances of securitization trusts that are established to provide debt financing to the Company by securitizing pools of mortgage loans. These trusts are considered to be VIEs, and the Company has determined that it is the primary beneficiary of the VIEs. See Note 9 — Debt.

The Company also consolidates the activities and balances of its controlled affiliates, which include AS Ajax E II, which was established to hold an equity interest in a Delaware trust formed to own residential mortgage loans and residential real estate assets. As of September 30, 2020, AS Ajax E II LLC was 53.1% owned by the Company, with the remainder held by third parties. 2017-D and 2018-C are securitization trusts formed to hold mortgage loans, REO property and secured debt. As of September 30, 2020, 2017-D was 50.0% owned by a third-party institutional accredited investor. As of September 30, 2020, 2018-C was 63.0% owned by the Company, with the remainder held by third-party institutional accredited investors. Great Ajax II REIT holds an interest in Great Ajax II Depositor LLC which was formed to act as the depositor of mortgage loans into securitization trusts and to hold the subordinated securities issued by such trusts and any additional trusts the Company may form for additional secured borrowings. Great Ajax II REIT was 99.9% and 99.8%, respectively, owned by the Company as of September 30, 2020 and December 31, 2019.

Note 8 — Commitments and Contingencies

The Company regularly enters into agreements to acquire additional mortgage loans and mortgage-related assets, subject to continuing diligence on such assets and other customary closing conditions. There can be no assurance that the Company will acquire any or all of the mortgage loans identified in any acquisition agreement as of the date of these consolidated financial statements, and it is possible that the terms of such acquisitions may change.

At September 30, 2020, the Company had commitments to purchase, subject to due diligence, 130 RPLs and NPLs secured by single-family residences, and one SBC loan secured by real property, with aggregated UPBs of $35.4 million and $0.9 million, respectively. The Company will only acquire loans that meet the acquisition criteria for its own portfolios, or those of its third party institutional accredited co-investors. See Note 15 — Subsequent Events, for remaining open acquisitions as of the filing date.

During the quarter ended June 30, 2020, the Company issued an aggregate of $125.0 million, net of offering costs, of preferred stock in two series and warrants to institutional accredited investors in a series of private placements. The Company issued 2,307,400 shares of 7.25% Series A Fixed-to-Floating Rate Preferred Stock and 2,892,600 shares of 5.00% Series B Fixed-to-Floating Rate Preferred Stock, each at a purchase price per share of $25.00 and two series of five-year warrants to purchase an aggregate of 6,500,000 shares of the Company's common stock at an exercise price of $10.00 per share. Each series of warrants includes a put option that allows the holder to sell the warrants to the Company at a specified put price on or after July 6, 2023. GAAP requires the Company to account for the outstanding warrants as if the put option will be exercised by the holders. Accordingly, the Company has recognized a liability on its consolidated balance sheet within accrued expenses and other liabilities at September 30, 2020 for the present value of the put liability of $12.5 million. The Company is accreting the amount of the liability under the effective interest method to its expected future put value of $50.7 million and marks the obligation to market through earnings. The expense is recognized in the other expense line of the Company's consolidated statements of income.

The full extent of the impact of COVID-19 on the global economy generally, and the Company's business in particular, is uncertain. As of September 30, 2020, no contingencies have been recorded on the Company's consolidated balance sheet as a result of COVID-19, however as the global pandemic continues, it may have long-term adverse impacts on the Company's financial condition, results of operations, and cash flows.

The accompanying notes are an integral part of the consolidated interim financial statements.

Litigation, Claims and Assessments

From time to time, the Company may be involved in various claims and legal actions arising in the ordinary course of business. As of September 30, 2020, the Company was not a party to, and its properties were not subject to, any pending or threatened legal proceedings that individually or in the aggregate, are expected to have a material impact on its financial condition, results of operations or cash flows.

Note 9 — Debt

Repurchase Agreements

The Company has entered into two repurchase facilities whereby the Company, through two wholly owned Delaware trusts (the “Trusts”) acquires pools of mortgage loans which are then sold by the Trusts, as “Seller” to two separate counterparties, the “buyer” or “buyers.” One facility has a ceiling of $250.0 million and the other $400.0 million at any one time. Upon the time of the initial sale to the buyer, the Trust, with a simultaneous agreement, also agrees to repurchase the pools of mortgage loans from the buyer. Mortgage loans sold under these facilities carry interest calculated based on a spread to one-month LIBOR, which is fixed for the term of the borrowing. The purchase price that the Trust realizes upon the initial sale of the mortgage loans to the buyer can vary between 70% and 85% of the asset’s acquisition price, depending upon the facility being utilized and/or the quality of the underlying collateral. The obligations of a Trust to repurchase these mortgage loans at a future date are guaranteed by the Company's Operating Partnership. The difference between the market value of the asset and the amount of the repurchase agreement is generally the amount of equity in the position and is intended to provide the buyer with some protection against fluctuations in the value of the collateral, and/or a failure by the Company to repurchase the asset and repay the borrowing at maturity. The Company has also entered into four repurchase facilities substantially similar to the mortgage loan repurchase facilities, but where the pledged assets are the class B bonds and certificates from the Company's secured borrowing transactions. These facilities have no effective ceilings. Each repurchase transaction represents its own borrowing. As such, the ceilings associated with these transactions are the amounts currently borrowed at any one time. The Company has effective control over the assets subject to all of these transactions; therefore, the Company’s repurchase transactions are accounted for as financing arrangements.

The Servicer services these mortgage loans pursuant to the terms of a Servicing Agreement by and between the Servicer and each Buyer. Each Servicing Agreement has the same fees and expenses terms as the Company’s Servicing Agreement described under Note 10 — Related party transactions. The Operating Partnership, as guarantor, will provide to the buyers a limited guaranty of certain losses incurred by the buyers in connection with certain events and/or the Seller’s obligations under the mortgage loan purchase agreement, following the breach of certain covenants by the Seller, the occurrence of certain bad acts by the Seller, the occurrence of certain insolvency events of the Seller or other events specified in the Guaranty. As security for its obligations under the Guaranty, the guarantor will pledge the Trust Certificate representing the Guarantor’s 100% beneficial interest in the Seller.

The following table sets forth the details of the Company’s repurchase transactions and facilities ($ in thousands):

The accompanying notes are an integral part of the consolidated interim financial statements.


				September 30, 2020
Maturity Date	Origination date	Maximum Borrowing Capacity		Amount Outstanding		Amount of Collateral		Percentage of Collateral Coverage		Interest Rate
October 9, 2020	September 11, 2020	$	35,718	$	35,718	$	47,661	133	%	2.65	%
October 13, 2020	July 13, 2020	30,754		30,754		44,160		144	%	2.97	%
October 20, 2020	July 24, 2020	13,857		13,857		17,813		129	%	2.97	%
October 30, 2020	July 31, 2020	7,762		7,762		9,702		125	%	2.26	%
October 30, 2020	July 31, 2020	6,795		6,795		9,537		140	%	2.26	%
November 13, 2020	August 13, 2020	2,735		2,735		4,428		162	%	2.50	%
December 1, 2020	September 1, 2020	13,533		13,533		17,720		131	%	2.34	%
December 1, 2020	September 1, 2020	13,056		13,056		17,017		130	%	2.34	%
December 1, 2020	September 1, 2020	5,474		5,474		7,215		132	%	2.34	%
December 1, 2020	September 1, 2020	4,068		4,068		5,307		130	%	2.34	%
December 1, 2020	September 1, 2020	2,934		2,934		3,866		132	%	2.34	%
December 1, 2020	September 1, 2020	2,332		2,332		3,360		144	%	2.49	%
December 1, 2020	September 1, 2020	1,132		1,132		1,607		142	%	2.49	%
December 17, 2020	September 17, 2020	11,351		11,351		14,619		129	%	2.35	%
December 17, 2020	September 17, 2020	8,878		8,878		11,678		132	%	2.35	%
December 17, 2020	September 17, 2020	4,110		4,110		5,405		132	%	2.35	%
December 17, 2020	September 17, 2020	1,110		1,110		1,687		152	%	2.50	%
December 24, 2020	September 24, 2020	6,876		6,876		10,024		146	%	2.47	%
December 24, 2020	September 24, 2020	5,145		5,145		6,796		132	%	2.32	%
December 24, 2020	September 24, 2020	2,646		2,646		3,442		130	%	2.32	%
December 28, 2020	September 16, 2020	7,306		7,306		9,532		130	%	2.59	%
January 5, 2021	September 28, 2020	25,044		25,044		33,970		136	%	2.37	%
January 5, 2021	September 28, 2020	24,423		24,423		33,105		136	%	2.37	%
January 6, 2021	September 28, 2020	7,697		7,697		10,299		134	%	2.33	%
January 6, 2021	September 28, 2020	6,311		6,311		9,038		143	%	2.48	%
January 6, 2021	September 28, 2020	4,755		4,755		6,352		134	%	2.33	%
January 6, 2021	September 28, 2020	4,666		4,666		6,222		133	%	2.33	%
January 6, 2021	September 28, 2020	3,213		3,213		4,667		145	%	2.48	%
January 11, 2021	September 29, 2020	5,879		5,879		7,843		133	%	2.32	%
July 9, 2021	July 10, 2020	250,000		43,998		71,384		162	%	2.65	%
September 23, 2021	September 24, 2020	400,000		101,861		161,856		159	%	2.65	%
Totals		$	919,560	$	415,419	$	597,312	144	%	2.56	%

The accompanying notes are an integral part of the consolidated interim financial statements.


				December 31, 2019
Maturity Date	Origination date	Maximum Borrowing Capacity		Amount Outstanding		Amount of Collateral		Percentage of Collateral Coverage		Interest Rate
January 3, 2020	November 26, 2019	$	8,411	$	8,411	$	11,098	132	%	3.45	%
January 3, 2020	November 26, 2019	6,093		6,093		9,038		148	%	3.45	%
January 3, 2020	November 26, 2019	5,175		5,175		6,855		132	%	3.45	%
January 3, 2020	December 2, 2019	11,966		11,966		15,742		132	%	3.45	%
January 3, 2020	December 2, 2019	10,648		10,648		14,058		132	%	3.45	%
January 3, 2020	December 2, 2019	5,485		5,485		7,050		129	%	3.45	%
January 3, 2020	December 2, 2019	4,096		4,096		5,261		128	%	3.45	%
January 3, 2020	December 2, 2019	1,644		1,644		2,388		145	%	3.55	%
January 3, 2020	December 2, 2019	1,576		1,576		2,287		145	%	3.55	%
January 10, 2020	December 11, 2019	21,088		21,088		28,284		134	%	3.47	%
January 10, 2020	December 11, 2019	1,808		1,808		2,640		146	%	3.57	%
January 13, 2020	July 11, 2019	8,956		8,956		13,016		145	%	4.16	%
January 21, 2020	December 20, 2019	15,718		15,718		20,623		131	%	3.41	%
January 21, 2020	December 20, 2019	10,305		10,305		13,521		131	%	3.41	%
January 21, 2020	December 20, 2019	5,840		5,840		7,324		125	%	3.41	%
January 21, 2020	December 20, 2019	2,784		2,784		4,050		145	%	3.51	%
January 28, 2020	October 30, 2019	5,318		5,318		7,464		140	%	3.19	%
January 28, 2020	October 30, 2019	2,520		2,520		3,381		134	%	2.99	%
February 3, 2020	August 1, 2019	7,568		7,568		9,702		128	%	4.19	%
February 3, 2020	August 1, 2019	6,664		6,664		9,537		143	%	4.19	%
February 24, 2020	November 26, 2019	41,412		41,412		54,828		132	%	2.92	%
March 25, 2020	September 25, 2019	7,075		7,075		10,024		142	%	3.96	%
March 25, 2020	September 25, 2019	5,851		5,851		7,423		127	%	3.81	%
March 26, 2020	September 26, 2019	27,075		27,075		34,591		128	%	3.81	%
March 27, 2020	September 27, 2019	2,915		2,915		3,709		127	%	3.79	%
June 3, 2020	December 6, 2019	6,097		6,097		7,891		129	%	3.64	%
June 3, 2020	December 6, 2019	4,704		4,704		6,106		130	%	3.64	%
June 3, 2020	December 6, 2019	3,053		3,053		4,035		132	%	3.64	%
June 3, 2020	December 6, 2019	2,332		2,332		3,360		144	%	3.79	%
June 3, 2020	December 6, 2019	1,132		1,132		1,607		142	%	3.79	%
June 19, 2020	December 19, 2019	13,447		13,447		18,076		134	%	3.55	%
June 19, 2020	December 19, 2019	1,155		1,155		1,687		146	%	3.70	%
June 30, 2020	December 30, 2019	5,286		5,286		7,044		133	%	3.57	%
June 30, 2020	December 30, 2019	3,324		3,324		4,667		140	%	3.72	%
July 10, 2020	July 15, 2016	250,000		28,931		57,397		198	%	4.28	%
September 24, 2020	September 25, 2019	400,000		116,662		164,403		141	%	4.24	%
Totals		$	918,521	$	414,114	$	580,167	140	%	3.77	%

The guaranty establishes a master netting arrangement; however, the arrangement does not meet the criteria for offsetting within the Company’s consolidated balance sheets. A master netting arrangement derives from contractual agreements entered into by two parties to multiple contracts that provides for the net settlement of all contracts covered by the agreements in the event of default under any one contract. During the last two weeks in March 2020, the Company received margin calls from its financing counterparties in the amount of $28.2 million due to the turmoil in the financial markets resulting from the COVID-19 outbreak. The Company ended the first quarter of 2020 with $32.4 million of cash collateral on deposit with its financing counterparties. However, subsequent to March 31, 2020, the Company's required cash collateral

The accompanying notes are an integral part of the consolidated interim financial statements.

position has declined as security prices increased and its financing counterparties returned a portion of the cash collateral. As of September 30, 2020, the Company had $1.0 million of cash collateral on deposit with financing counterparties. This cash is included in Prepaid expenses and other assets on its consolidated balance sheet at September 30, 2020 and is not netted against its Borrowings under repurchase agreements. The amount outstanding on the Company’s repurchase facilities and the carrying value of the Company’s loans pledged as collateral are presented as gross amounts in the Company’s consolidated balance sheets at September 30, 2020 and December 31, 2019 in the table below ($ in thousands):


	Gross amounts not offset in balance sheet
	September 30, 2020		December 31, 2019
Gross amount of recognized liabilities	$	415,419	$	414,114
Gross amount of loans and securities pledged as collateral	597,312		580,167
Other prepaid collateral	986		4,117
Net collateral amount	$	182,879	$	170,170

Secured Borrowings

From inception (January 30, 2014) to September 30, 2020, the Company has completed 16 secured borrowings for its own balance sheet, not including its off-balance sheet joint ventures in which it holds investments in various classes of securities, pursuant to Rule 144A under the Securities Act, six of which were outstanding at September 30, 2020. The secured borrowings are structured as debt financings and not sales through a real estate investment conduit (“REMIC”), and the loans included in the secured borrowings remain on the Company’s consolidated balance sheet as the Company is the primary beneficiary of the securitization trusts, which are VIEs. The securitization VIEs are structured as pass through entities that receive principal and interest on the underlying mortgages and distribute those payments to the holders of the notes. The Company’s exposure to the obligations of the VIEs is generally limited to its investments in the entities. The notes that are issued by the securitization trusts are secured solely by the mortgages held by the applicable trusts and not by any of the Company’s other assets. The mortgage loans of the applicable trusts are the only source of repayment and interest on the notes issued by such trusts. The Company does not guarantee any of the obligations of the trusts under the terms of the agreement governing the notes or otherwise.

The Company’s secured borrowings are generally structured with Class A notes, subordinated notes, and trust certificates, which have rights to the residual interests in the mortgages once the notes are repaid. With the exception of the Company’s 2017-D securitization, from which the Company sold a 50% interest in the Class B certificates to third parties and 2018-C securitization, from which the Company sold a 95% interest in the Class A notes and 37% in the Class B notes and trust certificates, the Company has retained the subordinate notes and the applicable trust certificates from the other six secured borrowings outstanding at September 30, 2020.

The Company's 2017-D secured borrowing contains Class A notes and Class B certificates representing the residual interests in the mortgages held within the securitization trusts subsequent to repayment of the Class A debt. The Company has retained 50% of both the Class A notes and Class B certificates from 2017-D.

The Company's 2018-C secured borrowing contains Class A notes, Class B notes and trust certificates representing the residual interest in the mortgages held within the securitization trusts subsequent to repayment of the Class A debt. The Company has retained 5% of the Class A notes and 63% of the Class B notes and trust certificates.

The Company's 2017-B, 2019-D, 2019-F and 2020-B secured borrowings carry no provision for a step-up in interest rate on any of the Class A, Class B or Class M notes.

For all of the Company's secured borrowings, the Class A notes are senior, sequential pay, fixed rate notes with the exception of 2019-D, 2019-F and 2020-B, which are subordinate, sequential pay, fixed rate notes for Class B-1 and variable rate notes for Class B-2 and Class B-3. The interest rate is effectively the rate equal to the spread between the gross average rate of interest the trust collects on its mortgage loan portfolio minus the rate derived from the sum of the servicing fee and other expenses of the trust. The Class M notes issued under 2017-B, 2019-D, 2019-F and 2020-B are also mezzanine, sequential pay, fixed rate notes.

For all of the Company's secured borrowings, except 2017-B, 2019-D, 2019-F and 2020-B, which contain no interest rate step-up, if the Class A notes have not been redeemed by the payment date or otherwise paid in full 36 months after issue an interest rate step-up of 300 basis points is triggered. Twelve months after the 300 basis points step up is triggered, an additional

The accompanying notes are an integral part of the consolidated interim financial statements.

100 basis point step up will be triggered, and an amount equal to the aggregate interest payment amount that accrued and would otherwise be paid to the subordinate notes will be paid as principal to the Class A notes on that date and each subsequent payment date until the Class A notes are paid in full. After the Class A notes are paid in full, the subordinate notes will resume receiving their respective interest payment amounts and any interest that accrued but was not paid while the Class A notes were outstanding. As the holder of the trust certificates, the Company is entitled to receive any remaining amounts in the trusts after the Class A notes and subordinate notes have been paid in full.

The following table sets forth the original terms of all notes from our secured borrowings outstanding at September 30, 2020 at their respective cutoff dates:

Issuing Trust/Issue Date

Interest Rate Step-up Date

Security

Original Principal

Interest Rate

Ajax Mortgage Loan Trust 2017-B/ December 2017

None

Class A notes due 2056

$115.8 million

3.16

None

Class M-1 notes due 2056(3)

$9.7 million

3.50

None

Class M-2 notes due 2056(3)

$9.5 million

3.50

None

Class B-1 notes due 2056(1)

$9.0 million

3.75

None

Class B-2 notes due 2056(1)

$7.5 million

3.75

Trust certificates(2)

$14.3 million

—

Deferred issuance costs

$(1.8) million

—

Ajax Mortgage Loan Trust 2017-D/ December 2017

April 25, 2021

Class A notes due 2057(4)

$177.8 million

3.75

None

Class B certificates(4)

$44.5 million

—

Deferred issuance costs

$(1.1) million

—

Ajax Mortgage Loan Trust 2018-C/ September 2018

October 25, 2021

Class A notes due 2065(5)

$170.5 million

4.36

April 25, 2022

Class B notes due 2065(5)

$15.9 million

5.25

Trust certificates(5)

$40.9 million

—

Deferred issuance costs

$(2.0) million

—

Ajax Mortgage Loan Trust 2019-D/ July 2019

None

Class A-1 notes due 2065

$140.4 million

2.96

None

Class A-2 notes due 2065

$6.1 million

3.50

None

Class A-3 notes due 2065

$10.1 million

3.50

None

Class M-1 notes due 2065(3)

$9.3 million

3.50

None

Class B-1 notes due 2065(6)

$7.5 million

3.50

None

Class B-2 notes due 2065(6)

$7.1 million

variable(7)

None

Class B-3 notes due 2065(6)

$12.8 million

variable(7)

Deferred issuance costs

$(2.7) million

—

Ajax Mortgage Loan Trust 2019-F/ November 2019

None

Class A-1 notes due 2059

$110.1 million

2.86

None

Class A-2 notes due 2059

$12.5 million

3.50

None

Class A-3 notes due 2059

$5.1 million

3.50

None

Class M-1 notes due 2059(3)

$6.1 million

3.50

None

Class B-1 notes due 2059(6)

$11.5 million

3.50

None

Class B-2 notes due 2059(6)

$10.4 million

variable(7)

None

Class B-3 notes due 2059(6)

$15.1 million

variable(7)

Deferred issuance costs

$(1.8) million

—

The accompanying notes are an integral part of the consolidated interim financial statements.

Ajax Mortgage Loan Trust 2020-B/ August 2020

None

Class A-1 notes due 2059

$97.2 million

1.70

None

Class A-2 notes due 2059

$17.3 million

2.86

None

Class M-1 notes due 2059(3)

$7.3 million

3.70

None

Class B-1 notes due 2059(6)

$5.9 million

3.70

None

Class B-2 notes due 2059(6)

$5.1 million

variable(7)

None

Class B-3 notes due 2059(6)

$23.6 million

variable(7)

Deferred issuance costs

$(1.8) million

—

(1)The Class B notes are subordinated, sequential pay, fixed rate notes with Class B-2 notes subordinate to the Class B-1 notes. The Company has retained the Class B notes.

(2)The trust certificates issued by the trusts and the beneficial ownership of the trusts are retained by Great Ajax Funding LLC as the depositor. As the holder of the trust certificates, the Company is entitled to receive any remaining amounts in the trusts after the Class A notes, Class M notes, where present, and Class B notes have been paid in full.

(3)The Class M notes are subordinated, sequential pay, fixed rate notes with Class M-2 notes subordinate to the Class M-1 notes. The Company has retained the Class M notes.

(4)Ajax Mortgage Loan Trust ("AJAXM") 2017-D is a joint venture in which a third party owns 50% of the Class A notes and 50% of the Class B certificates. The Company is required to consolidate 2017-D under GAAP and is reflecting 100% of the mortgage loans, in Mortgage loans, net. 50% of the Class A notes, which are held by the third party, are included in Secured borrowings, net. The 50% portion of the Class A notes retained by the Company have been encumbered under a repurchase agreement. 50% of the Class B certificates are recognized as Non-controlling interest.

(5)AJAXM 2018-C is a joint venture in which a third party owns 95% of the Class A notes and 37% of the Class B notes and certificates. The Company is required to consolidate 2018-C under GAAP and is reflecting 100% of the mortgage loans, in Mortgage loans, net. 95% of the Class A notes and 37% of the Class B notes, which are held by the third party, are included in Secured borrowings, net. The 5% portion of the Class A notes retained by the Company have been encumbered under the repurchase agreement. 37% of the Class C certificates are recognized as Non-controlling interest.

(6)The Class B notes are subordinated, sequential pay, with B-2 and B-3 notes having variable interest rates and subordinate to the Class B-1 notes. The Class B-1 notes are fixed rate notes. The Company has retained the Class B notes.

(7)The interest rate is effectively the rate equal to the spread between the gross average rate of interest the trust collects on its mortgage loan portfolio minus the rate derived from the sum of the servicing fee and other expenses of the trust.

Servicing for the mortgage loans in the Company’s secured borrowings is provided by the Servicer at servicing fee rates of between 0.65% of outstanding UPB and 1.25% of outstanding UPB at acquisition, and is paid monthly. For certain of the Company's joint ventures, the servicing fee rate for RPLs is reduced to an annual servicing fee rate of 0.20% annually on a loan-by-loan basis for any loan that makes seven consecutive payments. The determination of RPL or NPL status, which determines the servicing fee rates, is based on the status of the loan at acquisition and does not change regardless of the loan’s subsequent performance. The following table sets forth the status of the notes held by others at September 30, 2020 and December 31, 2019, and the securitization cutoff date ($ in thousands):


	Balances at September 30, 2020							Balances at December 31, 2019							Original balances at securitization cutoff date
Class of Notes	Carrying value of mortgages		Bond principal balance			Percentage of collateral coverage		Carrying value of mortgages		Bond principal balance			Percentage of collateral coverage		Mortgage UPB			Bond principal balance
2017-B	$	113,240	$	72,897		155	%	$	121,909	$	84,624		144	%	$	165,850		$	115,846
2017-C	—		—			—	%	137,369		94,126			146	%	185,942			130,159
2017-D	135,660		52,968		(1)	256	%	148,119		60,934		(1)	243	%	203,870		(2)	88,903
2018-C	173,529		135,008		(3)	129	%	179,303		146,925		(3)	122	%	222,181		(4)	167,910
2019-D	153,729		131,075			117	%	165,963		146,383			113	%	193,301			156,670
2019-F	145,312		115,389			126	%	155,899		126,723			123	%	170,876			127,673
2020-B	141,363		112,978			125	%	—		—			—	%	156,468			114,534
	$	862,833	$	620,315	(5)	139	%	$	908,562	$	659,715	(5)	138	%	$	1,298,488		$	901,695

(1)The gross amount of senior bonds at September 30, 2020 and December 31, 2019 were $105.9 million and $121.9 million however, only $53.0 million and $60.9 million are reflected in Secured borrowings as the remainder is owned by the Company, respectively.

(2)Includes $26.7 million of cash collateral intended for use in the acquisition of additional mortgage loans.

(3)2018-C contains notes held by the third party institutional investors for senior bonds and class B bonds. The gross amount of the senior and class B bonds at September 30, 2020 were $135.9 million and $15.9 million, however, only $129.1 million and $5.9 million are reflected in Secured borrowings as the remainder is owned by the Company, respectively. The gross amount of the senior and class B bonds at December 31, 2019 were $148.5 million and

The accompanying notes are an integral part of the consolidated interim financial statements.

$15.9 million, however, only $141.0 million and $5.9 million are reflected in Secured borrowings as the remainder is owned by the Company, respectively.

(4)Includes $45.5 million of cash collateral intended for use in the acquisition of additional mortgage loans.

(5)This represents the gross amount of Secured borrowings and excludes the impact of deferred issuance costs of $6.1 million and $7.0 million as of September 30, 2020 and December 31, 2019.

The Company’s obligations under its secured borrowings are not fixed, and the payments on these borrowings are predicated upon cash flows received on the underlying mortgage loans.

Convertible Senior Notes

Holders may convert their notes at their option prior to April 30, 2023 only under certain circumstances. In addition, the notes will be convertible irrespective of those circumstances from, and including, April 30, 2023 to, and including, the business day immediately preceding the maturity date. Upon conversion, the Company will pay or deliver, as the case may be, cash, shares of its common stock or a combination of cash and shares of its common stock, at the Company's election.

The conversion rate as of September 30, 2020 equals 1.7279 shares of the Company's common stock per $25.00 principal amount of notes, which is equivalent to a conversion price of approximately $14.47 per share of common stock. The conversion rate, and thus the conversion price, may be subject to adjustment under certain circumstances. As of September 30, 2020, the amount by which the if-converted value falls short of the principal value for the entire series is $50.9 million.

The Company may not redeem the notes prior to April 30, 2022, and may redeem for cash all or any portion of the notes, at its option, on or after April 30, 2022 if the last reported sale price of its common stock has been at least 130% of the conversion price then in effect for at least 20 trading days (whether or not consecutive) during any 30 consecutive trading day period ending on, and including, the trading day immediately preceding the date on which the Company provides notice of redemption at a redemption price equal to 100% of the principal amount of the notes to be redeemed, plus accrued and unpaid interest to, but excluding, the redemption date. No "sinking fund" will be provided for the notes.

At September 30, 2020, the outstanding aggregate principal amount of the notes was $113.4 million, and discount and deferred expenses were $3.7 million. During the three and nine months ended September 30, 2020 the Company recognized interest expense of $2.4 million and $7.3 million, respectively, which includes $0.3 million and $1.0 million, respectively of amortization of discount and deferred expenses. Comparatively at September 30, 2019, the outstanding aggregate principal amount of the notes was $123.9 million, and discount and deferred expenses were $5.4 million. During the three and nine months ended September 30, 2019 the Company recognized interest expense of $2.6 million and $7.7 million, respectively, which includes $0.3 million and $0.9 million, respectively of amortization of discount and deferred expenses. The effective interest rate of the notes for the quarter ended September 30, 2020 and September 30, 2019 was 8.92% and 8.94%, respectively.

The accompanying notes are an integral part of the consolidated interim financial statements.

Note 10 — Related Party Transactions

The Company’s consolidated statements of income included the following significant related party transactions ($ in thousands):


			Three months ended September 30,
Transaction	Consolidated Statement of Income location	Counterparty	2020		2019
Interest income and recovery of provision for credit losses on beneficial interests	Net interest income after provision for credit benefit/(losses)	Various non-consolidated joint ventures	$	6,536	$	3,322
Management fee	Related party expense – management fee	Thetis	$	2,264	$	2,215
Loan servicing fees	Related party expense – loan servicing fees	Gregory	$	1,848	$	2,197
Gain on sale of securities	Other income	Various non-consolidated joint ventures	$	145	$	—
Income from equity investment	Income from investments in affiliates	Thetis	$	75	$	448
Income from equity investment	Income from investments in affiliates	Gaea	$	14	$	—
Income from equity investment	Income from investments in affiliates	AS Ajax E LLC	$	9	$	10
Loss from equity investment	Income from investments in affiliates	Legacy Entities	$	(46)	$	—
(Loss)/income from equity investment	Income from investments in affiliates	Great Ajax FS	$	(116)	$	71


			Nine months ended September 30,
Transaction	Consolidated Statement of Income location	Counterparty	2020		2019
Interest income and recovery of provision for credit losses on beneficial interests	Net interest income after provision for credit benefit/(losses)	Various non-consolidated joint ventures	$	16,386	$	8,878
Management fee	Related party expense – management fee	Thetis	$	6,206	$	5,555
Loan servicing fees	Related party expense – loan servicing fees	Gregory	$	5,798	$	6,977
Gain on sale of securities	Other income	Various non-consolidated joint ventures	$	145	$	8
Income from equity investment	Income from investments in affiliates	Gaea	$	74	$	—
Income from equity investment	Income from investments in affiliates	AS Ajax E LLC	$	25	$	36
Income from equity investment	Income from investments in affiliates	Legacy Entities	$	10	$	—
Gain on sale of mortgage loans	Gain on sale of mortgage loans	2019-C	$	—	$	7,014
(Loss)/income from equity investment	Income from investments in affiliates	Great Ajax FS	$	(320)	$	200
(Loss)/income from equity investment	Income from investments in affiliates	Thetis	$	(364)	$	923
Loss on sale of mortgage loans	Loss on sale of mortgage loans	Gaea	$	(705)	$	—

The Company’s consolidated balance sheets included the following significant related party balances ($ in thousands):

The accompanying notes are an integral part of the consolidated interim financial statements.

As of September 30, 2020

Transaction

Consolidated Balance Sheet location

Counterparty

Amount

Receivables from Servicer

Receivable from Servicer

Gregory

16,438

Management fee payable

Thetis

2,261

Expense reimbursement receivable

Prepaid expenses and other assets

Various non-consolidated joint ventures

655

Expense reimbursement receivable

Prepaid expenses and other assets

Gregory

219

Expense reimbursement receivable

Prepaid expenses and other assets

Thetis

As of December 31, 2019

Transaction

Consolidated Balance Sheet location

Counterparty

Amount

Receivables from Servicer

Receivable from Servicer

Gregory

17,013

Management fee payable

Thetis

1,634

Expense reimbursements receivable

Prepaid expenses and other assets

Gregory

687

Advances to Servicer

Prepaid expenses and other assets

Gregory

585

Expense reimbursements receivable

Prepaid expenses and other assets

Various non-consolidated joint ventures

241

Expense reimbursements receivable

Prepaid expenses and other assets

Thetis

Expense reimbursements

Accrued expenses and other liabilities

Gaea

Expense reimbursements

Accrued expenses and other liabilities

Various non-consolidated joint ventures

During the three months ended September 30, 2020, the Company sold no mortgage loans, however, during the nine months ended September 30, 2020, the Company sold 26 SBC mortgage loans with a carrying value of $26.1 million and UPB of $26.2 million, for a loss of $0.7 million to Gaea, a related party. Comparatively, during the three months ended September 30, 2019, the Company sold three mortgage loans to third parties with a carrying value of $1.9 million and UPB of $2.0 million for a gain of $0.1 million. During the nine months ended September 30, 2019, the Company sold a total of 965 loans with a carrying value of $178.8 million and UPB of $202.1 million. Of these, 962 of the loans sold during 2019 were sold to a related party joint venture, 2019-C, with a carrying value of $176.9 million and UPB of $200.1 million for a gain of $7.0 million and retained 34% or $8.0 million of the trust certificates and $12.1 million in debt securities. The retained securities are included in the notes and beneficial interests discussed in the paragraph below.

During the three and nine months ended September 30, 2020, the Company acquired $83.4 million and $144.7 million in debt securities and beneficial interests issued by joint ventures between the Company and third party institutional accredited investors. Comparatively for the three and nine months ended September 30, 2019, the Company acquired debt securities and beneficial interests of $43.4 million and $127.6 million, respectively. Each joint venture issued senior notes and beneficial interests, which are trust certificates representing the residual balance of the trust after the outstanding debt obligations have been settled. In certain transactions, the joint venture also issued subordinate notes. Of the $83.4 million and $144.7 million, respectively, acquired in the three and nine months ended September 30, 2020, the Company retained $66.0 million and $115.6 million, respectively, in senior notes and $5.2 million and $9.8 million, respectively, in subordinate notes. Comparatively, during the three and nine months ended September 30, 2019, the Company retained $36.1 million and $93.6 million, respectively, in senior notes and $3.3 million and $12.6 million, respectively, in subordinate notes. The debt securities are carried at fair value. During the three and nine months ended September 30, 2020, the Company sold senior notes issued by certain joint ventures for total proceeds of $38.9 million and recognized a gain of $0.1 million. During three months ended September 30, 2019, the Company did not sell any senior notes. During the nine months ended September 30, 2019, the Company sold senior notes issued by certain joint ventures for total proceeds of $39.6 million and recognized a gain of $8 thousand, net of transaction fees. As of September 30, 2020 and December 31, 2019, the debt securities were carried on the Company’s consolidated balance sheet at a fair value of $284.7 million and $231.7 million, respectively.

The accompanying notes are an integral part of the consolidated interim financial statements.

During the three and nine months ended September 30, 2020 the Company also acquired $12.2 million and $19.3 million, respectively, in beneficial interests issued by joint ventures. Comparatively, for the three and nine months ended September 30, 2019, the Company acquired $4.0 million and $21.4 million, respectively, in beneficial interests issued by joint ventures. As of September 30, 2020 and December 31, 2019, the Investments in beneficial interests were carried on the Company's consolidated balance sheet at $86.2 million and $58.0 million, respectively.

In June 2019, the Company entered into an arrangement with the Servicer as the borrower and the Company as the lender to advance funds secured by real property to facilitate the purchase of real estate from certain of the Company's joint ventures. Such funds are repaid no later than the liquidation of the real estate. The maximum amount available to the Servicer is $12.0 million. At September 30, 2020, and December 31, 2019, the Company had advances of zero and $0.6 million, respectively, outstanding to the Servicer. Interest on the arrangement accrues at 7.2% annually.

On November 22, 2019, Gaea completed a private capital raise transaction in which it raised $66.3 million from the issuance of 4,419,641 shares of its common stock to third parties to allow it to continue to advance its investment strategy. Upon completion of the capital raise, the Company retained ownership of approximately 23.2% of Gaea with third party investors owning the remaining approximately 76.8%. The Company recognized no gain or loss on the transaction as Gaea's fair value at the date of the deconsolidation did not represent a material change from the fair values of its recently acquired assets and liabilities due to the limited lapse of time since their acquisitions. At September 30, 2020 the Company owned approximately 23.0% of Gaea with third party investors owning the remaining approximately 77.0%. The Company accounts for its investment in Gaea using the equity method.

On March 14, 2016, the Company formed AS Ajax E LLC to hold an equity interest in a Delaware trust formed to own residential mortgage loans and residential real estate assets. AS Ajax E LLC owns a 5.0% equity interest in Ajax E Master Trust which holds a portfolio of RPLs. At the time of the original investment, the Company held a 24.2% interest in AS Ajax E LLC. In October 2016, additional capital contributions were made by third parties, and the Company’s ownership interest in AS Ajax E was reduced to a lower percentage of the total. As of September 30, 2020 and December 31, 2019, the Company’s interest in AS Ajax E LLC was approximately 16.5%. The Company accounts for its investment using the equity method.

Management Agreement

The Company is a party to the Amended and Restated Management Agreement with the Manager, which expires on March 5, 2034. Under the Management Agreement, the Manager implements the Company’s business strategy and manages the Company’s business and investment activities and day-to-day operations, subject to oversight by the Company’s Board of Directors. Among other services, the Manager, directly or through affiliates, provides the Company with a management team and necessary administrative and support personnel. The Company does not currently have any employees that it pays directly and does not expect to have any employees that it pays directly in the foreseeable future. Each of the Company’s executive officers is an employee or officer, or both, of the Manager or the Servicer.

Under the Management Agreement, the Company pays both a base management fee and an incentive fee to the Manager. The base management fee equals 1.5% of the Company's stockholders’ equity, including equity equivalents such as the Company's issuance of convertible senior notes, per annum and calculated and payable quarterly in arrears. The Company has the option to pay its management fee with between 50% to 100% cash at its discretion, and pay the remainder in shares of its common stock.

In the event the Company elects to pay its Manager in shares of its common stock, the calculation to determine the number of shares of the Company's common stock to be issued to the Manager is outlined below. The initial $1.0 million of the quarterly base management fee will be payable at least 75% in cash and up to 25% in shares of the Company’s common stock (allocated at the Company's discretion). Any amount of the base management fee in excess of $1.0 million may be payable in shares of the Company’s common stock (at the Company's discretion) until payment is at least 50% in cash and up to 50% in shares (the “50/50 split”). Any remaining amount of the quarterly base management fee after the 50/50 split threshold is reached may be payable in equal amounts of cash and shares (at the Company's discretion). The base management fee currently exceeds the 50/50 split threshold. The Manager has agreed to hold any shares of common stock received by it as payment of the base management fee for at least three years from the date such shares of common stock are received.

The accompanying notes are an integral part of the consolidated interim financial statements.

The Manager is also entitled to an incentive fee, payable quarterly and calculated in arrears, which, through the end of 2018, was calculated as 20% of the amount by which total dividends on common stock and distributions on OP units exceeded 8% of book value on a per share basis. Effective as of March 5, 2019, the incentive fee was restructured into both a quarterly and annual component. A quarterly incentive fee is payable to the Manager if the sum of the Company’s dividends on its common stock, its distributions on its externally-held operating partnership units and its increase in book value, all relative to the applicable quarter and calculated per-share on an annualized basis, exceed 8%. The Manager will also be entitled to an annual incentive fee if the sum of the Company’s quarterly cash dividends on its common stock, special cash dividends on its common stock and distributions on its externally-held operating partnership units within the applicable calendar year exceed 8% of the Company’s book value per share as of the end of the calendar year. However, no incentive fee will be payable to the Manager with respect to any calendar quarter unless the Company’s cumulative core earnings, defined as U.S. GAAP net income or loss less non-cash equity compensation, unrealized gains or losses from mark to market adjustments, one-time adjustments to earnings resulting from changes to U.S. GAAP, and certain other non-cash items, is greater than zero for the most recently completed eight calendar quarters. In the event that the payment of the quarterly base management fee has not reached the 50/50 split, up to 100% of the incentive fee will be payable in shares of the Company’s common stock, at the Company's discretion, until the 50/50 split occurs. In the event that the total payment of the quarterly base management fee and the incentive fee has reached the 50/50 split, up to 20% of the remaining incentive fee is payable in shares of the Company’s common stock at the Company's discretion and the remaining incentive fee is payable in cash. During the three and nine months ended September 30, 2020, the Company did not record an incentive fee payable to the Manager. Comparatively during the three and nine months ended September 30, 2019, the Company recorded $0.5 million and $0.7 million, respectively, for an incentive fee payable to the Manager.

The Company also reimburses the Manager for all third-party, out-of-pocket costs incurred by the Manager for managing its business, including third-party due diligence and valuation consultants, legal expenses, auditors and other financial services. The reimbursement obligation is not subject to any dollar limitation. Expenses are reimbursed in cash on a monthly basis.

The Company will be required to pay the Manager a termination fee in the event that the Management Agreement is terminated as a result of (i) a termination by the Company without cause, (ii) its decision not to renew the Management Agreement upon the determination of at least two thirds of the Company’s independent directors for reasons including the failure to agree on revised compensation, (iii) a termination by the Manager as a result of the Company becoming regulated as an “investment company” under the Investment Company Act of 1940, as amended (the “Investment Company Act”) (other than as a result of the acts or omissions of the Manager in violation of investment guidelines approved by the Company’s Board of Directors), or (iv) a termination by the Manager if the Company defaults in the performance of any material term of the Management Agreement (subject to a notice and cure period). The termination fee will be equal to twice the combined base fee and incentive fees payable to the Manager during the 12-month period ended as of the end of the most recently completed fiscal quarter prior to the date of termination.

Servicing Agreement

The Company is also a party to the Servicing Agreement, expiring July 8, 2029, with the Servicer. The Company’s overall servicing costs under the Servicing Agreement will vary based on the types of assets serviced.

Servicing fees range from 0.65% to 1.25% annually UPB at acquisition (or the fair market value or purchase price of REO), and are paid monthly. For certain of the Company's securitization trusts, the servicing fee rate for RPLs is reduced to an annual servicing fee rate of 0.20% annually on a loan-by-loan basis for any loan that makes seven consecutive payments. The servicing fee is based upon the status of the loan at acquisition. A change in status from RPL to NPL does not cause a change in the servicing fee rate.

Servicing fees for the Company’s real property assets that were previously RPLs that are not held in joint ventures are the greater of (i) the servicing fee applicable to the underlying mortgage loan prior to foreclosure, or (ii) 1.00% annually of the fair market value of the REO as reasonably determined by the Manager or 1.00% annually of the purchase price of any REO otherwise purchased by the Company. The servicing fee for NPLs that convert to real property assets does not change. For the joint ventures, a conversion from a loan to a real property asset does not cause a change in servicing fee rate.

The Servicer is reimbursed for all customary, reasonable and necessary out-of-pocket costs and expenses incurred in the performance of its obligations, including the actual cost of any repairs and renovations undertaken on the Company’s behalf. The total fees incurred by the Company for these services will be dependent upon the UPB and the type of mortgage loans that the Servicer services, property values, previous UPB of the relevant loan, and the number of REO properties.

The accompanying notes are an integral part of the consolidated interim financial statements.

If the Servicing Agreement has been terminated other than for cause and/or the Servicer terminates the servicing agreement, the Company will be required to pay a termination fee equal to the aggregate servicing fees payable under the servicing agreement for the immediate preceding 12-month period.

Trademark Licenses

Aspen has granted the Company a non-exclusive, non-transferable, non-sublicensable, royalty-free license to use the name “Great Ajax” and the related logo. The Company also has a similar license to use the name “Thetis.” The agreement has no specified term. If the Management Agreement expires or is terminated, the trademark license agreement will terminate within 30 days. In the event that this agreement is terminated, all rights and licenses granted thereunder, including, but not limited to, the right to use “Great Ajax” in its name will terminate. Aspen also granted to the Manager a substantially identical non-exclusive, non-transferable, non-sublicensable, royalty-free license use of the name “Thetis.”

Note 11 — Stock-based Payments and Director Fees

Pursuant to the terms of the Management Agreement, the Company may pay a portion of the base fee to the Manager in shares of its common stock with the number of shares determined based on the average of the closing prices of its common stock on the NYSE on the five business days preceding the date on which the most recent regular quarterly dividend to holders of its common stock is paid. The Company recognized a base management fee to the Manager for the three and nine months ended September 30, 2020 of $2.3 million and $6.2 million, of which none was payable in shares of its common stock as the Board of Directors approved the management fee to be paid in all cash. Comparatively, for the three and nine months ended September 30, 2019, the Company recognized a base management fee of $1.7 million and $4.9 million, respectively, of which $0.9 million and $2.5 million, respectively, was payable in shares of its common stock.

In addition, through the first quarter of 2019, each of the Company’s independent directors received an annual retainer of $75,000, payable quarterly, half of which was paid in shares of the Company’s common stock on the same basis as the stock portion of the management fee payable to the Manager and half in cash. The annual fee was increased to $100,000, 40% of which is payable in shares of the Company's common stock and 60% in cash, which became effective as of April 1, 2019.

The following table sets forth the Company’s stock-based management fees and independent director fees ($ in thousands):

Stock-based Management Fees and Director Fees


	For the three months ended September 30,
	2020			2019
	Number of shares	Amount of expense recognized(1)		Number of shares	Amount of expense recognized(1)
Independent director fees	4,116	$	35	2,748	$	40
Management fees	—	—		63,982	986
Totals	4,116	$	35	66,730	$	1,026


	For the nine months ended September 30,
	2020			2019
	Number of shares	Amount of expense recognized(1)		Number of shares	Amount of expense recognized(1)
Independent director fees	12,784	$	115	8,348	$	118
Management fees	—	—		184,681	2,538
Totals	12,784	$	115	193,029	$	2,656

(1)All management fees and independent director fees are fully expensed in the period in which the relevant service is received by the Company.

The accompanying notes are an integral part of the consolidated interim financial statements.

Restricted Stock

Each independent director is issued a restricted stock award of 2,000 shares of the Company’s common stock subject to a one-year vesting period upon initial appointment to the Company’s Board of Directors. On August 17, 2016, the Company granted 153,000 shares of restricted stock to employees of its Manager and Servicer, which was reduced in 2017 by forfeitures of 4,000 shares and in 2018 by forfeitures of 2,666 shares and in 2019 by forfeitures of 1,667 shares. On July 24, 2017, the Company granted 39,000 shares of restricted stock to employees of its Manager and Servicer, which was reduced in 2019 by forfeitures of 333 shares. On July 31, 2018, the Company granted 36,500 shares of restricted stock to employees of its Manager and Servicer, which was reduced in 2019 by forfeitures of 2,500 shares. On August 1, 2019, the Company granted 79,000 shares of restricted stock to employees of its Manager and Servicer, which was reduced in 2020 by forfeitures of 2,000 shares. On August 13, 2020, the Company granted 108,750 shares of restricted stock to employees of its Manager and Servicer. The shares vest over three years, with one third of the shares vesting on each of the first, second and third anniversaries of the grant date. The shares may not be sold until the third anniversary of the grant date. Grants of restricted stock use grant date fair value of the stock as the basis for measuring the cost of the grant.

The following table sets forth the activity in the Company’s restricted stock plans ($ in thousands, except per share amounts):


	Total Grants			Current period activity			Non-vested shares at September 30, 2020			Fully-vested shares at September 30, 2020
Three months ended September 30, 2020	Total shares granted	Total expected cost of grant		Shares granted during the year	Grant expense recognized for the three months ended September 30, 2020		Shares	Per share grant date fair value		Shares	Per share grant date fair value
Employee and Service Provider Grant 2017(1,5)	38,667	$	539	—	$	15	—	$	13.95	38,667	$	13.95
Employee and Service Provider Grant 2018(2,6)	34,000	462		—	38		11,333	13.58		22,667	13.58
Employee and Service Provider Grant 2019(3,7)	77,000	1,073		—	76		50,667	13.94		26,333	13.94
Employee and Service Provider Grant 2020(4)	108,750	1,039		108,750	58		108,750	9.55		—	—
Totals	258,417	$	3,113	108,750	$	187	170,750	$	11.12	87,667	$	13.85

(1)Vesting is ratable over three-year period from grant date. Grant is fully vested at September 30, 2020.

(2)Vesting is ratable over three-year period from grant date. Weighted average remaining life of grant at September 30, 2020 is 0.9 years.

(3)Vesting is ratable over three-year period from grant date. Weighted average remaining life of grant at September 30, 2020 is 1.8 years.

(4)Vesting is ratable over three-year period from grant date. Weighted average remaining life of grant at September 30, 2020 is 2.9 years.

(5)Total is shown net of 2019 forfeitures of 333 shares.

(6)Total is shown net of 2019 forfeitures of 2,500 shares.

(7)Total is shown net of 2020 forfeitures of 2,000 shares.

The accompanying notes are an integral part of the consolidated interim financial statements.


	Total Grants			Current period activity			Non-vested shares at September 30, 2019			Fully-vested shares at September 30, 2019
Three months ended September 30, 2019	Total shares granted	Total expected cost of grant		Shares granted during the year	Grant expense recognized for the three months ended September 30, 2019		Shares	Per share grant date fair value		Shares	Per share grant date fair value
Directors’ Grants 2018(1)	12,000	$	162	—	$	—	—	$	13.48	12,000	$	13.48
Employee and Service Provider Grant 2016(2,6)	144,667	1,953		—	62		—	13.50		144,667	13.50
Employee and Service Provider Grant 2017(3)	39,000	544		—	45		13,000	13.95		26,000	13.95
Employee and Service Provider Grant 2018(4,7)	34,000	462		—	39		22,667	13.58		11,333	13.58
Employee and Service Provider Grant 2019(5)	79,000	1,101		79,000	61		79,000	13.94		—	—
Totals	308,667	$	4,222	79,000	$	207	114,667	$	13.87	194,000	$	13.56

(1)Half of the 12,000 shares granted vested immediately on the grant date while the remaining shares vest ratably over a one-year period. Grant is fully vested at September 30, 2019.

(2)Vesting is ratable over three-year period from grant date. Grant is fully vested at September 30, 2019

(3)Vesting is ratable over three-year period from grant date. Weighted average remaining life of grant at September 30, 2019 is 0.8 years.

(4)Vesting is ratable over three-year period from grant date. Weighted average remaining life of grant at September 30, 2019 is 1.9 years.

(5)Vesting is ratable over three-year period from grant date. Weighted average remaining life of grant at September 30, 2019 is 2.8 years.

(6)Total is shown net of 2017 forfeitures of 4,000 shares, 2018 forfeitures of 2,666 shares and 2019 forfeitures of 1,667 shares.

(7)Total is shown net of 2019 forfeitures of 2,500 shares.


	Total Grants			Current period activity			Non-vested shares at September 30, 2020			Fully-vested shares at September 30, 2020
Nine months ended September 30, 2020	Total shares granted	Total expected cost of grant		Shares granted during the year	Grant expense recognized for the nine months ended September 30, 2020		Shares	Per share grant date fair value		Shares	Per share grant date fair value
Employee and Service Provider Grant 2017(1,5)	38,667	$	539	—	$	103	—	$	13.95	38,667	$	13.95
Employee and Service Provider Grant 2018(2,6)	34,000	462		—	114		11,333	13.58		22,667	13.58
Employee and Service Provider Grant 2019(3,7)	77,000	1,073		—	260		50,667	13.94		26,333	13.94
Employee and Service Provider Grant 2020(4)	108,750	1,039		108,750	58		108,750	9.55		—	—
Totals	258,417	$	3,113	108,750	$	535	170,750	$	11.12	87,667	$	13.85

(1)Vesting is ratable over three-year period from grant date. Grant is fully vested at September 30, 2020.

(2)Vesting is ratable over three-year period from grant date. Weighted average remaining life of grant at September 30, 2020 is 0.9 years.

(3)Vesting is ratable over three-year period from grant date. Weighted average remaining life of grant at September 30, 2020 is 1.8 years.

(4)Vesting is ratable over three-year period from grant date. Weighted average remaining life of grant at September 30, 2020 is 2.9 years.

The accompanying notes are an integral part of the consolidated interim financial statements.

(5)Total is shown net of 2019 forfeitures of 333 shares.

(6)Total is shown net of 2019 forfeitures of 2,500 shares.

(7)Total is shown net of 2020 forfeitures of 2,000 shares.


	Total Grants			Current period activity			Non-vested shares at September 30, 2019			Fully-vested shares at September 30, 2019
Nine months ended September 30, 2019	Total shares granted	Total expected cost of grant		Shares granted during the year	Grant expense recognized for the nine months ended September 30, 2019		Shares	Per share grant date fair value		Shares	Per share grant date fair value
Directors’ Grants 2018(1)	12,000	$	162	—	$	14	—	$	13.48	12,000	$	13.48
Employee and Service Provider Grant 2016(2,5)	144,667	1,953		—	368		—	13.50		144,667	13.50
Employee and Service Provider Grant 2017(3)	39,000	544		—	135		13,000	13.95		26,000	13.95
Employee and Service Provider Grant 2018(4,6)	34,000	462		—	111		22,667	13.58		11,333	13.58
Employee and Service Provider Grant 2019(5)	79,000	1,101		79,000	61		79,000	13.94		—	—
Totals	308,667	$	4,222	79,000	$	689	114,667	$	13.87	194,000	$	13.56

(1)Half of the 12,000 shares granted vested immediately on the grant date while the remaining shares vest ratably over a one-year period. Grant is fully vested at September 30, 2019.

(2)Vesting is ratable over three-year period from grant date. Grant is fully vested at September 30, 2019.

(3)Vesting is ratable over three-year period from grant date. Weighted average remaining life of grant at September 30, 2019 is 0.8 years.

(4)Vesting is ratable over three-year period from grant date. Weighted average remaining life of grant at September 30, 2019 is 1.9 years.

(5)Vesting is ratable over three-year period from grant date. Weighted average remaining life of grant at September 30, 2019 is 2.8 years.

(6)Total is shown net of 2017 forfeitures of 4,000 shares, 2018 forfeitures of 2,666 shares and 2019 forfeitures of 1,667 shares.

(7)Total is shown net of 2019 forfeitures of 2,500 shares.

Note 12 — Income Taxes

As a REIT, the Company must meet certain organizational and operational requirements including the requirement to distribute at least 90% of its annual REIT taxable income to its stockholders. And as a REIT, the Company generally will not be subject to U.S. federal income tax to the extent the Company distributes its REIT taxable income to its stockholders and provided the Company satisfies the REIT requirements including certain asset, income, distribution and stock ownership tests. If the Company fails to qualify as a REIT, and does not qualify for certain statutory relief provisions, it will be subject to U.S. federal, state and local income taxes and may be precluded from qualifying as a REIT for the subsequent four taxable years following the year in which it lost its REIT qualification.

For the three and nine months ended September 30, 2020 the Company had consolidated taxable income of $2.5 million and $1.7 million, respectively; and an income tax benefit of $16 thousand and $0.2 million, respectively. For the three and nine months ended September 30, 2019, the Company’s consolidated taxable income was $4.0 million and $20.4 million, respectively; and provisions for income taxes of $27 thousand and $0.1 million, respectively. The Company recognized no deferred income tax assets or liabilities on its consolidated balance sheets at September 30, 2020 or 2019. The Company also recorded no interest or penalties for the three and nine months ended September 30, 2020 or 2019.

Note 13 — Earnings per Share

The following table sets forth the components of basic and diluted EPS ($ in thousands, except per share):

The accompanying notes are an integral part of the consolidated interim financial statements.


	Three months ended September 30, 2020					Three months ended September 30, 2019
	Income (Numerator)		Shares (Denominator)	Per Share Amount		Income (Numerator)		Shares (Denominator)	Per Share Amount
Basic EPS
Consolidated net income attributable to common stockholders	$	5,280	22,844,192			$	7,691	19,751,142
Allocation of earnings to participating restricted shares	(33)		—			(82)		—
Consolidated net income attributable to unrestricted common stockholders	$	5,247	22,844,192	$	0.23	$	7,609	19,751,142	$	0.39
Effect of dilutive securities(1)
Restricted stock grants and Manager and director fee shares	33		145,424			82		212,991
Interest expense (add back) and assumed conversion of shares from convertible senior notes(2)	—		—			2,552		8,236,520
Diluted EPS
Consolidated net income attributable to common stockholders and dilutive securities	$	5,280	22,989,616	$	0.23	$	10,243	28,200,653	$	0.36

(1)The Company's outstanding warrants for an additional 6,500,000 shares of common stock and effect of the put option share settlement would have an anti-dilutive effect on diluted earnings per share for the three months ended September 30, 2020, and have not been included in the calculation.

(2)The effect of the interest expense and assumed conversion of shares from convertible senior notes on the Company's diluted EPS calculation for the three months ended September 30, 2020 would have been anti-dilutive and have been removed from the calculation.

The accompanying notes are an integral part of the consolidated interim financial statements.


	Nine months ended September 30, 2020					Nine months ended September 30, 2019
	Income (Numerator)		Shares (Denominator)	Per Share Amount		Income (Numerator)		Shares (Denominator)	Per Share Amount
Basic EPS
Consolidated net income attributable to common stockholders	$	11,922	22,575,480			$	28,048	19,247,706
Allocation of earnings to participating restricted shares	(68)		—			(301)		—
Consolidated net income attributable to unrestricted common stockholders	$	11,854	22,575,480	$	0.53	$	27,747	19,247,706	$	1.44
Effect of dilutive securities(1)
Operating Partnership units	—		—			346		322,340
Restricted stock grants and Manager and director fee shares(2)	—		—			301		208,963
Interest expense (add back) and assumed conversion of shares from convertible senior notes(3)	—		—			7,645		8,208,789
Diluted EPS
Consolidated net income attributable to common stockholders and dilutive securities	$	11,854	22,575,480	$	0.53	$	36,039	27,987,798	$	1.29

(1)The Company's outstanding warrants for an additional 6,500,000 shares of common stock and effect of the put option share settlement would have an anti-dilutive effect on diluted earnings per share for the nine months ended September 30, 2020, and have not been included in the calculation.

(2)The effect of restricted stock grants and manager and director fee shares on the Company's diluted EPS calculation for the nine months ended September 30, 2020 would have been anti-dilutive and have been removed from the calculation.

(3)The effect of the interest expense and assumed conversion of shares from convertible senior notes on the Company's diluted EPS calculation for the nine months ended September 30, 2020 would have been anti-dilutive and have been removed from the calculation.

Note 14 — Equity

Common stock

As of September 30, 2020 and December 31, 2019, the Company had 23,034,443 and 22,142,143 shares, respectively, of $0.01 par value common stock outstanding with 125,000,000 shares authorized at each period end.

Preferred stock

During the quarter ended June 30, 2020, the Company issued an aggregate of $130.0 million of preferred stock in two series and warrants to institutional accredited investors in a series of private placements. The Company issued 2,307,400 shares of 7.25% Series A Fixed-to-Floating Rate Preferred Stock and 2,892,600 shares of 5.00% Series B Fixed-to-Floating Rate Preferred Stock, each at a purchase price per share of $25.00 and two series of five-year warrants to purchase an aggregate of 6,500,000 shares of the Company's common stock at an exercise price of $10.00 per share. Each series of warrants includes a put option that allows the holder to sell the warrants to the Company at a specified put price on or after July 6, 2023. The Company expects to use the net proceeds from the private placement to acquire mortgage loans and mortgage-related assets consistent with the Company's investment strategy.

The Company had 2,307,400 shares of Series A preferred stock and 2,892,600 shares of Series B preferred stock outstanding at September 30, 2020 and no shares of either series outstanding at December 31, 2019. There were 25,000,000 shares, cumulative for all series, authorized as of both September 30, 2020 and December 31, 2019.

Treasury stock

The accompanying notes are an integral part of the consolidated interim financial statements.

As of September 30, 2020 the Company held 50,173 shares of treasury stock received through distributions of the Company's shares previously held by its Manager. The Company held 33,248 shares of treasury stock at December 31, 2019.

Dividend Reinvestment Plan

The Company sponsors a dividend reinvestment plan through which stockholders may purchase additional shares of the Company’s common stock by reinvesting some or all of the cash dividends received on shares of the Company’s common stock. During the three and nine months ended September 30, 2020 4,928 and 9,985 shares were issued, respectively, under the plan for total proceeds of approximately $45 thousand and $0.1 million, respectively. Comparatively, during the three and nine months ended September 30, 2019 4,827 and 15,204 shares were issued, respectively, under the plan for total proceeds of approximately $0.1 million and $0.2 million, respectively.

Stock Dividend

On March 24, 2020, the Company announced that it would pay its previously declared dividend of $0.32 per share in shares of the Company's common stock (value based upon the $9.14 per share closing price on the record date of March 17, 2020). The dividend was paid on March 27, 2020 through the issuance of 781,222 shares of common stock. With the exception of shares issued under existing dividend reinvestment plans the Company’s dividends paid on August 31, 2020 and May 29, 2020 were paid in cash. Comparatively, during the three and nine months ended September 30, 2019 the Company’s dividends paid on its outstanding shares of common stock were paid in cash with the exception of shares issued under existing dividend reinvestment plans as noted above.

At the Market Offering

The Company has entered into an equity distribution agreement under which the Company may sell shares of its common stock having an aggregate offering price of up to $50.0 million from time to time in any method permitted by law deemed to be an “at the market” offering as defined in Rule 415 under the Securities Act of 1933, as amended, or the Securities Act. During the three and nine months ended September 30, 2020 no shares were sold under the at the market program for either period. Comparatively, during the three and nine months ended September 30, 2019 551,223 shares of common stock were sold under the at the market program for net proceeds of $8.3 million for both periods.

Accumulated Other Comprehensive Loss

The Company recognizes unrealized gains or losses on its investment in debt securities as components of Other comprehensive income. Total accumulated other comprehensive gain on the Company’s balance sheet at September 30, 2020 and December 31, 2019 was as follows ($ in thousands):


Investments in securities:	September 30, 2020		December 31, 2019
Unrealized gains	$	1,999	$	1,643
Unrealized losses	(1,598)		(366)
Accumulated other comprehensive gain	$	401	$	1,277

Non-controlling Interest

During the second quarter of 2019, all 624,106 of the outstanding OP units held by an unaffiliated holder were exchanged for shares of the Company’s common stock, resulting in a reclassification within the Company's consolidated Statement of Changes in Equity of $10.8 million from non-controlling interest to the Additional paid-in capital and Common Stock accounts. At September 30, 2020 and December 31, 2019, the Company’s Operating Partnership was 100% owned by the Company. The Company consolidates the assets, liabilities, revenues and expenses of the Operating Partnership.

At September 30, 2020 and December 31, 2019, the Company had non-controlling interests attributable to ownership interests by the following four legal entities.

AS Ajax E II LLC was formed by the Company during 2017 to purchase and hold an investment in a Delaware trust which holds single family residential real estate loans, SBC loans and other real estate assets. AS Ajax E II LLC is 46.9% held by third parties. As of September 30, 2020 and December 31, 2019, the Company had retained 53.1% of AS Ajax E II LLC and consolidates the assets, liabilities, revenues and expenses of the entity.

The accompanying notes are an integral part of the consolidated interim financial statements.

2017-D, a securitization trust, was formed by the Company during 2017. It is 50.0% held by an accredited institutional investor. As of September 30, 2020 and December 31, 2019, the Company had retained 50.0% of 2017-D and consolidates the assets, liabilities, revenues and expenses of the trust.

2018-C, a securitization trust, was formed by the Company during 2018. It is 37.0% held by an accredited institutional investor. As of September 30, 2020 and December 31, 2019 the Company had retained 63.0% of 2018-C and consolidates the assets, liabilities, revenues and expenses of the trust.

Great Ajax II REIT was formed by the Company during 2019 to hold an interest in Great Ajax II Depositor LLC, which was formed to act as the depositor of mortgage loans into securitization trusts and to hold the subordinated securities issued by such trusts and any additional trusts the Company may form for additional secured borrowings. As of September 30, 2020 and December 31, 2019, Great Ajax II REIT was 0.1% and 0.2%, respectively, held by third parties. As of September 30, 2020 and December 31, 2019, the Company had retained 99.9% and 99.8%, respectively, of Great Ajax II REIT and consolidates the assets, liabilities, revenues and expenses of the entity.

The following table sets forth the effects of changes in ownership of the Company's non-controlling interests due to transfers to or from non-controlling interest for the calendar preceding the Consolidated balance sheet dates ($ in thousands):


	September 30, 2020		December 31, 2019
Decrease from redemption of OP units by third party investor	$	—	$	(10,816)
Decrease due to deconsolidation of Gaea	—		(22)
Change in non-controlling interest	$	—	$	(10,838)

Note 15 — Subsequent Events

Loan Acquisitions

Since quarter end the Company has acquired seven residential RPLs and nine residential NPLs with aggregate UPB of $3.3 million and $1.4 million, respectively, in two transactions one transaction, respectively, from two sellers and one seller, respectively. The purchase price equals 81.9% and 83.1%, respectively, of UPB and 66.1% and 70.0%, respectively, of the estimated market value of the underlying collateral of $4.1 million and $1.7 million, respectively.

The Company has also agreed to acquire, subject to due diligence, 28 residential RPLs and 71 NPLs with aggregate UPB of $3.1 million and $16.5 million, respectively, in eight transactions and two transactions, respectively, from eight sellers and two sellers, respectively. The purchase price of the residential RPLs equals 94.3% of UPB and 45.6% of the estimated market value of the underlying collateral of $6.4 million. The purchase price of the NPLs equals 87.1% of UPB and 45.8% of the estimated market value of the underlying collateral of $31.4 million. The Company also agreed to acquire seven SBC loan with UPB of $9.9 million. The purchase price of the SBC loans equals 102.0% of UPB and 49.6% of the estimated market value of the underlying collateral of $20.3 million.

Dividend Declaration

On November 5, 2020, the Company’s Board of Directors declared a cash dividend of $0.17 per share, to be paid on November 30, 2020 to stockholders of record as of November 16, 2020.

The accompanying notes are an integral part of the consolidated interim financial statements.

CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS

Some of the statements under “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” and elsewhere in this quarterly report constitute forward-looking statements. Forward-looking statements relate to expectations, beliefs, projections, future plans and strategies, anticipated events or trends, and similar expressions concerning matters that are not historical facts. In some cases, you can identify forward-looking statements by terms such as “anticipate,” “believe,” “could,” “estimate,” “expect,” “intend,” “may,” “plan,” “potential,” “should,” “will” and “would” or the negatives of these terms or other comparable terminology.

The forward-looking statements are based on our beliefs, assumptions and expectations of our future performance, taking into account all information currently available to us. These beliefs, assumptions and expectations can change as a result of many possible events or factors, not all of which are known to us or are within our control. If a change occurs, our business, financial condition, liquidity and results of operations may vary materially from those expressed in our forward-looking statements. You should carefully consider these risks, along with the following factors that could cause actual results to vary from our forward-looking statements:

•the impact of adverse real estate, mortgage or housing markets and changes in the general economy;

•changes in our business strategy;

•the impact of the global pandemic caused by the novel coronavirus ("COVID-19") outbreak;

•general volatility of the capital markets;

•the impact of adverse legislative or regulatory tax changes;

•our ability to obtain financing on favorable terms or at all;

•our ability to implement our business strategy;

•difficulties in identifying re-performing loans (“RPLs”), small balance commercial mortgage loans (“SBC loans”) and properties to acquire; and the impact of changes to the supply of, value of and the returns on RPLs and SBC loans;

•our ability to compete with our competitors;

•our ability to control our costs;

•the impact of changes in interest rates and the market value of the collateral underlying our RPL and non-performing loan (“NPL”) portfolios or of our other real estate assets;

•our ability to convert NPLs into performing loans or to modify or otherwise resolve such loans;

•our ability to convert NPLs to properties that can generate attractive returns either through sale or rental;

•our ability to retain our engagement of our Manager;

•the failure of the Servicer to perform its obligations under the Servicing Agreement;

•our failure to qualify or maintain qualification as a real estate investment trust (“REIT”); and

•our failure to maintain our exemption from registration under the Investment Company Act of 1940, as amended (the “Investment Company Act”).

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

In this quarterly report on Form 10-Q (“report”), unless the context indicates otherwise, references to “Great Ajax,” “we,” “the company,” “our” and “us” refer to the activities of and the assets and liabilities of the business and operations of Great Ajax Corp.; “operating partnership” refers to Great Ajax Operating Partnership L.P., a Delaware limited partnership; “our Manager” refers to Thetis Asset Management LLC, a Delaware limited liability company; “Aspen Capital” refers to the Aspen Capital group of companies; “Aspen” and “Aspen Yo” refers to Aspen Yo LLC, an Oregon limited liability company that is part of Aspen Capital; and “the Servicer” and “Gregory” refer to Gregory Funding LLC, an Oregon limited liability company and our affiliate, and an indirect subsidiary of Aspen Yo.

Our Management’s Discussion and Analysis of Financial Condition and Results of Operations should be read in conjunction with the unaudited interim consolidated financial statements and related notes included in Item 1. Consolidated interim financial statements of this report and in Item 8. Financial statements and supplementary data in our most recent Annual Report on Form 10-K, as well as the section entitled “Risk Factors” in Part II, Item 1A. of this report, as well as other cautionary statements and risks described elsewhere in this report and our most recent Annual Report on Form 10-K.

Overview

Great Ajax Corp. is a Maryland corporation that is organized and operated in a manner intended to allow us to qualify as a REIT. We primarily target acquisitions of RPLs, which are residential mortgage loans on which at least five of the seven most recent payments have been made, or the most recent payment has been made and accepted pursuant to an agreement, or the full dollar amount, to cover at least five payments has been paid in the last seven months. We also acquire and originate SBC loans. The SBC loans that we target through acquisitions generally have a principal balance of up to $5.0 million and are secured by multi-family residential and commercial mixed use retail/residential properties on which at least five of the seven most recent payments have been made, or the most recent payment has been made and accepted pursuant to an agreement, or the full dollar amount, to cover at least five payments has been paid in the last seven months. We also originate SBC loans that we believe will provide an appropriate risk-adjusted total return. Additionally, we invest in single-family and smaller commercial properties directly either through a foreclosure event of a loan in its mortgage portfolio or through a direct acquisition. We may also target investments in NPLs either directly or with joint venture partners. NPLs are loans on which the most recent three payments have not been made. We may acquire NPLs either directly or with joint venture partners. We own a 19.8% equity interest in the Manager and an 8.0% equity interest in the parent company of our Servicer. GA-TRS is a wholly owned subsidiary of the Operating Partnership that owns the equity interest in the Manager and the Servicer. We have elected to treat GA-TRS as a taxable REIT subsidiary under the Code. Our mortgage loans and real properties are serviced by the Servicer, also an affiliated company.

In 2014, we formed Great Ajax Funding LLC, a wholly owned subsidiary of the Operating Partnership, to act as the depositor of mortgage loans into securitization trusts and to hold the subordinated securities issued by such trusts and any additional trusts we may form for additional secured borrowings. AJX Mortgage Trust I and AJX Mortgage Trust II are wholly owned subsidiaries of the Operating Partnership formed to hold mortgage loans used as collateral for financings under our repurchase agreements. On February 1, 2015, we formed GAJX Real Estate Corp., as a wholly owned subsidiary of the Operating Partnership, to own, maintain, improve and sell certain real estate owned properties (“REO”) purchased by us. We have elected to treat GAJX Real Estate Corp. as a TRS under the Code.

Our Operating Partnership, through interests in certain entities as of September 30, 2020 and December 31, 2019, holds 99.9% and 99.8%, respectively, of Great Ajax II REIT Inc. which holds an interest in Great Ajax II Depositor LLC which was formed to act as the depositor of mortgage loans into securitization trusts and to hold the subordinated securities issued by such trusts and any additional trusts we may form for additional secured borrowings. We have securitized mortgage loans through a securitization trust and retained subordinated securities from the secured borrowings. This trust is considered to be a VIE, and we have determined that we are the primary beneficiary of this VIE.

In 2018, we formed Gaea Real Estate Corp. ("Gaea"), as a wholly owned subsidiary of the Operating Partnership. We have elected to treat Gaea as a TRS under the Code. Also during 2018, we formed Gaea Real Estate Operating Partnership LP, a wholly owned subsidiary of Gaea, to hold investments in commercial real estate assets. We also formed BFLD Holdings LLC, Gaea Commercial Properties LLC, Gaea Commercial Finance LLC and Gaea RE LLC as subsidiaries of Gaea Real Estate Operating Partnership. In 2019, we formed DG Brooklyn Holdings, LLC, also a subsidiary of Gaea Real Estate Operating Partnership LP, to hold investments in multi-family properties. On November 22, 2019, Gaea completed a private capital raise in which it raised $66.3 million from the issuance of 4,419,641 shares of its common stock to third parties to allow Gaea to continue to advance its investment strategy. We retained a 23.2% ownership interest in Gaea following the transaction. At September 30, 2020 we owned approximately 23.0% of Gaea.

We elected to be taxed as a REIT for U.S. federal income tax purposes beginning with our taxable year ended December 31, 2014. Our qualification as a REIT depends upon our ability to meet, on a continuing basis, various complex requirements under the Code relating to, among other things, the sources of our gross income, the composition and values of our assets, our distribution levels and the diversity of ownership of our capital stock. We believe that we are organized in conformity with the requirements for qualification as a REIT under the Code, and that our current intended manner of operation enables us to meet the requirements for taxation as a REIT for U.S. federal income tax purposes.

Our Portfolio

The following table outlines the carrying value of our portfolio of mortgage loan assets and single-family and smaller commercial properties as of September 30, 2020 and December 31, 2019 ($ in millions):


	September 30, 2020		December 31, 2019
Residential RPLs	$	1,068.5	$	1,085.5
Residential NPLs	28.4		30.9
SBC/commercial loans	5.4		35.1
Property held-for-sale, net	6.5		13.5
Rental property, net	0.7		1.5
Investments at fair value	284.7		231.7
Investment in beneficial interests	86.2		58.0
Total mortgage related assets	$	1,480.4	$	1,456.2

We closely monitor the status of our mortgage loans and, through our Servicer, work with our borrowers to improve their payment records.

Market Trends and Outlook

COVID-19

The COVID-19 pandemic that began during the first quarter of 2020 created a global public-health crisis that resulted in widespread volatility and deteriorations in household, business, and economic market conditions, including in the United States, where we conduct all of our business. While the duration and severity of the COVID-19 pandemic remains unknown, many governmental and nongovernmental authorities directed their actions toward curtailing household and business activity in order to contain or mitigate the impact of the COVID-19 pandemic and deployed fiscal- and monetary-policy measures in order to seek to partially mitigate the adverse effects. These programs have had varying degrees of success and the extent of the long term impact on the mortgage market remains unknown.

The COVID-19 pandemic began to meaningfully impact our operations in late March 2020 and this disruption was reflected in our results of operations for the quarter ended March 31, 2020. During the quarter ended September 30, 2020 many of these negative impacts continued to reverse as follows:

•We recorded total recovery of credit losses provisions of $4.0 million on our Mortgage loan portfolio and Investments in beneficial interests as a result of better than expected loan performance during the quarter and the related impact on future repayment rates.

•We recovered $4.3 million of unrealized losses on our Investments in debt securities to Other comprehensive income as counterparty marks at September 30, 2020 rebounded off the March 31, 2020 levels.

•We recovered $6.6 million of cash deposits on a net basis from our repurchase financing counterparties as collateral prices rebounded off the March 31, 2020 levels.

The pandemic has continued and continues to significantly and adversely impact certain areas of the United States. As a result, our forecast of macroeconomic conditions and expected lifetime credit losses on our mortgage loan and beneficial interest portfolios is subject to meaningful uncertainty. While substantially all of our borrowers continue to make scheduled payments and we continue to receive payments in full, we have acted swiftly to support our borrowers with a mortgage forbearance program. While we generally do not hold loans guaranteed by GSEs or the US government, we, through our Servicer, are nonetheless offering a forbearance program under terms similar to those required for GSE loans. Borrowers that are able to provide documentation of a negative impact of COVID-19 are entitled to three months of forbearance. The three

monthly payments may then be repaid over 12 months. If a borrower cannot repay the deferred amount, our Servicer will work them on repayment options. Notwithstanding the foregoing, to the extent special rules apply to a mortgagor because of the jurisdiction or type of the Mortgage Loan, the Servicer will comply with those rules. Our Servicer has extensive experience dealing with delinquent borrowers and we believe it is well positioned to react on our behalf to any increase in mortgage delinquencies. The following list shows the COVID-19 forbearance activity in our mortgage loan portfolio as of October 30, 2020(1) :

•Number of COVID-19 forbearance relief inquiries: 1,224

•Number of COVID-19 forbearance relief granted: 364

(1)Statistics are for loans carried on our balance sheet including loans held in Ajax 2017-D and Ajax 2018-C where third parties own 50% and 37%, respectively. Statistics do not include non-consolidated joint ventures where we own bonds and beneficial interests issued by the joint ventures.

During the nine months ended September 30, 2020, we raised $125.0 million, net of offering costs, in a series of private placements of preferred stock and warrants. We expect to use the net proceeds from the private placement to acquire mortgage loans and mortgage-related assets consistent with our investment strategy and that this additional capital will provide sufficient liquidity to both benefit from any investment opportunities and protect against future market disruption.

Notwithstanding this additional capital and liquidity, we expect continued volatility in the residential mortgage securities market in the short term and increased acquisition opportunities later in the year or early 2021. Extended forbearance, foreclosure timelines and eviction timelines could result in lower yields and losses on our mortgage loan and beneficial interest portfolios and losses on our REO held-for-sale. Ongoing disruption in the credit markets could result in margin calls from our financing counterparties and additional mark downs on our Investments in debt securities, beneficial interests and mortgage loans.

We believe that certain cyclical trends continue to drive a significant realignment within the mortgage sector notwithstanding the impact of the pandemic. Through the end of the third quarter, the recent trends noted below have continued, including:

•historically low interest rates and elevated operating costs resulting from new regulatory requirements continue to drive sales of residential mortgage assets by banks and other mortgage lenders;

•declining home ownership in certain areas due to rising prices, low inventory, tighter lending standards and increased down payment requirements that have increased the demand for single-family and multi-family residential rental properties;

•the Dodd-Frank risk retention rules for asset backed securities have reduced the universe of participants in the securitization markets;

•the lack of a robust market for non-conforming mortgage loans will reduce the pool of buyers due to tighter credit standards as a result of the COVID-19 pandemic; and

•the current market landscape and decrease in the price of residential mortgage loans as a result of the COVID-19 outbreak we believe will generate new opportunities in residential mortgage-related whole loan strategies.

The origination of subprime and alternative residential mortgage loans remains substantially below 2008 levels and the qualified mortgage and ability-to-repay rule requirements have put pressure on new originations. Additionally, many banks and other mortgage lenders have increased their credit standards and down payment requirements for originating new loans. Recent market disruption from the pandemic has sharply reduced financing alternatives for borrowers not eligible for financing programs underwritten by the GSEs or the federal government.

The combination of these factors has also resulted in a significant number of families that cannot qualify to obtain new residential mortgage loans. We believe the U.S. federal regulations addressing “qualified mortgages” based on, among other factors such as employment status, debt-to-income level, impaired credit history or lack of savings, limit mortgage loan availability from traditional mortgage lenders. In addition, we believe that many homeowners displaced by foreclosure or who either cannot afford to own or cannot be approved for a mortgage will prefer to live in single-family rental properties with similar characteristics and amenities to owned homes as well as smaller multi-family residential properties. In certain demographic areas, new households are being formed at a rate that exceeds the new homes being added to the market, which we believe favors future demand for non-federally guaranteed mortgage financing for single-family and smaller multi-family rental properties. For all these reasons, we believe that demand for single-family and smaller multi-family rental properties will increase in the near term and remain at heightened levels for the foreseeable future.

We believe that investments in residential RPLs with positive equity provide an optimal investment value. As a result, we are currently focusing on acquiring pools of RPLs, though we may acquire NPLs, either directly or with joint venture partners, if attractive opportunities exist. Through our Servicer, we work with our borrowers to improve their payment records. Once there is a period of continued performance, we expect that borrowers will typically refinance these loans at or near the estimated value of the underlying property.

We also believe there are significant attractive investment opportunities in the SBC loan and property markets and originate as well as purchase these loans. The primary lenders for smaller multi-family and mixed retail/residential properties are community banks and not regional and national banks and large institutional lenders. We believe the primary lenders and loan purchasers are less interested in these assets because they typically require significant commercial and residential mortgage credit and underwriting expertise, special servicing capability and active property management. It is also more difficult to create the large pools of these loans that banks, other lenders and portfolio acquirers typically desire. We continually monitor opportunities to increase our holdings of these SBC loans and properties.

Factors That May Affect Our Operating Results

Acquisitions. Our operating results depend heavily on sourcing residential RPLs and SBC loans and, when attractive opportunities are identified, NPLs. We believe that there is generally a large supply of RPLs available to us for acquisition and we believe the available supply provides for a steady acquisition pipeline of assets since large institutions are active sellers in the market. However, we expect that our residential mortgage loan portfolio may grow at an uneven pace, as opportunities to acquire distressed residential mortgage loans may be irregularly timed and may involve large portfolios of loans, and the timing and extent of our success in acquiring such loans cannot be predicted. We also believe there may be increased opportunities to acquire NPLs due to the pandemic. In addition, for any given portfolio of loans that we agree to acquire, we typically acquire fewer loans than originally expected, as certain loans may be resolved prior to the closing date or may fail to meet our diligence standards. The number of loans not acquired typically constitutes a small portion of a particular portfolio. In any case where we do not acquire the full portfolio, we make appropriate adjustments to the applicable purchase price.

Financing. Our ability to grow our business by acquiring residential RPLs and SBC loans depends on the availability of adequate financing, including additional equity financing, debt financing or both in order to meet our objectives. We intend to leverage our investments with debt, the level of which may vary based upon the particular characteristics of our portfolio and on market conditions. We have funded and intend to continue to fund our asset acquisitions with non-recourse secured borrowings in which the underlying collateral is not marked-to-market and employ repurchase agreements without the obligation to mark to market the underlying collateral to the extent available. We securitize our whole loan portfolios, primarily as a financing tool, when economically efficient to create long-term, fixed rate, non-recourse financing with moderate leverage, while retaining one or more tranches of the subordinate MBS so created. The secured borrowings are structured as debt financings and not real estate investment conduit (“REMIC”) sales. We completed the securitization transactions pursuant to Rule 144A under the Securities Act of 1933, as amended (the “Securities Act”), in which we issued notes primarily secured by seasoned, performing and non-performing mortgage loans primarily secured by first liens on one-to-four family residential properties. Currently there is substantial uncertainty in the securitization markets which could limit our access to financing.

To qualify as a REIT under the Code, we generally will need to distribute at least 90% of our taxable income each year (subject to certain adjustments) to our stockholders. This distribution requirement limits our ability to retain earnings and thereby replenish or increase capital to support our activities.

Resolution Methodologies. We, through the Servicer, or our affiliates, employ various loan resolution methodologies with respect to our residential mortgage loans, including loan modification, collateral resolution and collateral disposition. The manner in which an NPL is resolved will affect the amount and timing of revenue we will receive. Our preferred resolution methodology is to modify NPLs. Once successfully modified and there is a period of continued performance, we expect that borrowers will typically refinance these loans at or near the estimated value of the underlying property. We believe modification followed by refinancing generates near-term cash flows, provides the highest possible economic outcome for us and is a socially responsible business strategy because it keeps more families in their homes. In certain circumstances, we may also consider selling these modified loans. Through historical experience, we expect that many of our NPLs will enter into foreclosure or similar proceedings, ultimately becoming REO that we can sell or convert into single-family rental properties that we believe will generate long-term returns for our stockholders. Our REO properties may be converted into single-family rental properties or they may be sold through REO liquidation and short sale processes. We expect the timelines for each of the different processes to vary significantly. The exact nature of resolution will depend on a number of factors that are beyond our control, including borrower willingness, property value, availability of refinancing, interest rates, conditions in the financial markets, regulatory environment and other factors. To avoid the 100% prohibited transaction tax on the sale of dealer property

by a REIT, we may dispose of assets that may be treated as held “primarily for sale to customers in the ordinary course of a trade or business” by contributing or selling the asset to a TRS prior to marketing the asset for sale.

The state of the real estate market and home prices will determine proceeds from any sale of real estate. We will opportunistically and on an asset-by-asset basis determine whether to rent any REO we acquire, whether upon foreclosure or otherwise. We may determine to sell such assets if they do not meet our investment criteria. In addition, while we seek to track real estate price trends and estimate the effects of those trends on the valuations of our portfolios of residential mortgage loans, future real estate values are subject to influences beyond our control. Declining real estate prices, including as a result of COVID-19 pandemic, are expected to negatively affect our results. We also expect that extended eviction timelines resulting from the COVID-19 pandemic will negatively impact sales of our REO held-for-sale.

Conversion to Rental Property. From time to time we will retain an REO property as a rental property and may acquire rental properties through direct purchases at attractive prices. The key variables that will affect our residential rental revenues over the long-term will be the extent to which we acquire properties, which, in turn, will depend on the amount of our capital invested, average occupancy and rental rates in our owned rental properties. We expect the timeline to convert multi-family and single-family loans into rental properties will vary significantly by loan, which could result in variations in our revenue and our operating performance from period to period. There are a variety of factors that may inhibit our ability, through the Servicer, to foreclose upon a residential mortgage loan and get access to the real property within the time frames we model as part of our valuation process. These factors include, without limitation: state foreclosure timelines and the associated deferrals (including from litigation); unauthorized occupants of the property; U.S. federal, state or local legislative action or initiatives designed to provide homeowners with assistance in avoiding residential mortgage loan foreclosures that may delay the foreclosure process; U.S. federal government programs that require specific procedures to be followed to explore the non-foreclosure outcome of a residential mortgage loan prior to the commencement of a foreclosure proceeding; and declines in real estate values and high levels of unemployment and underemployment that increase the number of foreclosures and place additional pressure on the already overburdened judicial and administrative systems. We do not expect to retain a material number of single family residential properties for use as rentals. We do, however, intend to focus on retaining multi-unit residences derived from foreclosures or acquired through outright purchases as rentals.

Expenses. Our expenses primarily consist of the fees and expenses payable by us under the Management Agreement and the Servicing Agreement. Additionally, our Manager incurs direct, out-of-pocket costs related to managing our business, which are contractually reimbursable by us. Loan transaction expense is the cost of performing due diligence on pools of mortgage loans under consideration for purchase. Professional fees are primarily for legal, accounting and tax services. Real estate operating expense consists of the ownership and operating costs of our REO properties, both held-for-sale and as rentals, and includes any charges for impairments to the carrying value of these assets, which may be significant. Those expenses may increase due to extended eviction timelines caused by the pandemic. Interest expense, which is subtracted from our Interest income to arrive at Net interest income, consists of the costs to borrow money.

On July 30, 2020, we priced Ajax Mortgage Loan Trust 2020-B ("2020-B") with $97.2 million of AAA rated senior securities, and $17.3 million of A rated securities issued with respect to $156.5 million of mortgage loans, all of which were RPLs. The AAA and A rated securities have a weighted average coupon of 1.874% and represent 73.2% of the unpaid principal balance ("UPB") of the underlying mortgage loans. As a result of our securities combined with the closing of 2020-B and favorable repurchase lines of credit our overall cost of funds have decreased materially since the quarter ended June 30, 2020.

Changes in Home Prices. As discussed above, generally, rising home prices are expected to positively affect our results, particularly as this should result in greater levels of re-performance of mortgage loans, faster refinancing of those mortgage loans, more re-capture of principal on greater than 100% LTV (loan-to-value) mortgage loans and increased recovery of the principal of the mortgage loans upon sale of any REO. Conversely, declining real estate prices are expected to negatively affect our results, particularly if the home prices should decline below our purchase price for the loans and especially if borrowers determine that it is better to strategically default as their equity in their homes decline. While home prices have risen to, or in some cases beyond, pre-Great Recession levels in many parts of the United States, there are still significant regions where values have not materially increased. We typically concentrate our investments in specific urban geographic locations in which we expect stable or better property markets. However, when we analyze loan and property acquisitions we do not take home price appreciation HPA into account except for rural properties for which we model negative HPA related to our expectation of worse than expected property condition. It is too early to determine the impact of the COVID-19 outbreak on HPA and the resulting impact on our markets. A significant decline in HPA will have an adverse impact on our operating results.

Changes in Market Interest Rates. With respect to our business operations, increases in existing interest rates, in general, may over time cause: (1) the value of our mortgage loan and MBS portfolio to decline; (2) coupons on our adjustable rate mortgages (“ARM”) and hybrid ARM mortgage loans and MBS to reset, although on a delayed basis, to higher interest rates; (3) prepayments on our mortgage loans and MBS portfolio to slow, thereby slowing the amortization of our purchase premiums and the accretion of our purchase discounts; (4) the interest expense associated with our borrowings to increase; and (5) to the extent we enter into interest rate swap agreements as part of our hedging strategy, the value of these agreements to increase. Conversely, decreases in interest rates, in general, may over time cause: (a) prepayments on our mortgage loan and MBS portfolio to increase, thereby accelerating the accretion of our purchase discounts; (b) the value of our mortgage loan and MBS portfolio to increase; (c) coupons on our ARM and hybrid ARM mortgage loans and MBS to reset, although on a delayed basis, to lower interest rates; (d) the interest expense associated with our borrowings to decrease; and (e) to the extent we enter into interest rate swap agreements as part of our hedging strategy, the value of these agreements to decrease. We currently expect the pace of loan prepayments to slow due to the COVID-19 outbreak.

Market Conditions. Due to the dramatic repricing of real estate assets that occurred during the 2008 financial crisis and the continuing uncertainty regarding the direction and strength of the real estate markets including as a result of the pandemic, we believe a void in the debt and equity capital available for investing in real estate exists as many financial institutions, insurance companies, finance companies and fund managers have determined to reduce or discontinue investment in debt or equity related to real estate. We believe the dislocations in the residential real estate market have resulted or will result in an “over-correction” in the repricing of real estate assets, creating a potential opportunity for us to capitalize on these market dislocations and capital void to the extent we are able to obtain financing for additional purchases.

We believe that in spite of the continuing uncertain market environment for mortgage-related assets, including as a result of the pandemic outbreak, current market conditions offer potentially attractive investment opportunities for us, even in the face of a riskier and more volatile market environment. We expect that market conditions will continue to impact our operating results and will cause us to adjust our investment and financing strategies over time as new opportunities emerge and risk profiles of our business change.

COVID-19 Pandemic. The pandemic has also impacted, and is likely to continue to impact, directly or indirectly, many of the other factors discussed above, as well as other aspects of our business. New developments continue to emerge and it is not possible for us to predict with certainty which factors will impact our business. In addition, we cannot assess the impact of each factor on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements. In particular, it is difficult to fully assess the impact of the pandemic at this time due to, among other things, uncertainty regarding the severity and duration of the outbreak domestically and internationally and the effectiveness of federal, state and local government efforts to contain the spread of COVID-19, the effects of those efforts on our business, the indirect impact on the U.S. economy and economic activity and the impact on the mortgage markets and capital markets.

Critical Accounting Policies and Estimates

Mortgage Loans

Loans acquired with deterioration in credit quality — As of their acquisition date the loans we acquire have generally suffered some credit deterioration subsequent to origination. As a result, prior to the adoption of ASU 2016-13, Financial Instruments - Credit Losses, otherwise known as CECL, on January 1, 2020, we were required to account for the mortgage loans pursuant to ASC 310-30, Accounting for Loans with Deterioration in Credit Quality. Under both standards, our recognition of interest income for loans with deteriorated credit quality ("PCD loans") is based upon having a reasonable expectation of the amount and timing of the cash flows expected to be collected. When the timing and amount of cash flows expected to be collected are reasonably estimable, we use expected cash flows to apply the effective interest method of income recognition.

Under both CECL and ASC 310-30, acquired loans may be aggregated and accounted for as a pool of loans if the loans have common risk characteristics. A pool is accounted for as a single asset with a single composite interest rate and an aggregate expectation of cash flows. However, CECL allows more flexibility to adjust the loan pools as the underlying risk factors change over time. Under ASC 310-30, we determined RPLs to have common risk characteristics and accounted for them as a single loan pool for loans acquired within each three-month calendar quarter. Similarly, we determined NPLs to have common risk characteristics and accounted for them as a single non-performing pool for loans acquired within each three-month calendar quarter. The result was generally two additional pools (RPLs and NPLs) each quarter. Under CECL, we re-aggregated our loan pools around similar risk factors, while eliminating the previous distinction for the quarter in which loans were acquired. This resulted in reducing the number of loan pools to four as of March 31, 2020, which increased to six as of

June 30, 2020. The number of pools remains at six as of September 30, 2020. Each loan pool is oriented around similar risk factors. Excluded from the aggregate pools are loans that pay in full subsequent to the acquisition closing date but prior to pooling. Any gain or loss on these loans is recognized as Interest income in the period the loan pays in full.

Our accounting for PCD loans gives rise to an accretable yield and an allowance for credit losses. Under CECL, upon the acquisition of PCD loans we record the acquisition as three separate elements for 1) the amount of purchase discount which we expect to recover through eventual repayment by the borrower, 2) an allowance for future expected credit loss and 3) the UPB of the loan. The purchase price discount which we expect at the time of acquisition to collect over the life of the loans is the accretable yield. Cash flows expected at acquisition include all cash flows directly related to the acquired loan, including those expected from the underlying collateral. We recognize the accretable yield as Interest income on a prospective level yield basis over the life of the pool. The expectation of the amount of undiscounted cash flows to be collected is evaluated at the end of each calendar quarter. If we expect to collect greater cash flows over the life of the pool, any prior allowance is reversed to the extent of the increase and the expected yield to maturity is adjusted on a prospective basis. The allowance for credit losses is increased when we estimate we will not collect all amounts previously estimated to be collectible, and reduced or eliminated when the underlying asset has been liquidated and all expected underlying cash flows have been realized. Management assesses the credit quality of the portfolio and the adequacy of loan loss reserves on a quarterly basis, or more frequently as necessary. Significant judgment is required in this analysis. Depending on the expected recovery of its investment, we consider the estimated net recoverable value of the loan pools as well as other factors, such as the fair value of the underlying collateral. Because these determinations are based upon projections of future economic events, which are inherently subjective, the amounts ultimately realized may differ materially from the carrying value as of the reporting date.

Our mortgage loans are secured by real estate. We monitor the credit quality of the mortgage loans in our portfolio on an ongoing basis, principally by considering loan payment activity or delinquency status. In addition, we assess the expected cash flows from the mortgage loans, the fair value of the underlying collateral and other factors, and evaluate whether and when it becomes probable that all amounts contractually due will not be collected.

Borrower payments on the mortgage loans are classified as principal, interest, payments of fees, or escrow deposits. Amounts applied as interest on the borrower account are similarly classified as interest for accounting purposes and are classified as operating cash flows in our consolidated Statement of Cash Flows. Amounts applied as principal on the borrower account including amounts contractually due from borrowers that exceed our basis in loans purchased at a discount, are similarly classified as principal for accounting purposes and are classified as investing cash flows in the consolidated Statement of Cash Flows as required under U.S. GAAP. Amounts received as payments of fees are recorded in Other income and classified as operating cash flows in the consolidated Statement of Cash Flows. Escrow deposits are recorded on the Servicer’s balance sheet and do not impact our cash flow.

Loans acquired or originated that have not experienced a deterioration in credit quality — while we generally acquire loans that have experienced deterioration in credit quality, we also acquire loans that have not experienced a deterioration in credit quality and originate SBC loans.

Accrual of interest on individual loans is discontinued when management believes that, after considering economic and business conditions and collection efforts, the borrower’s financial condition is such that collection of interest is doubtful. Our policy is to stop accruing interest when a loan’s delinquency exceeds 90 days. All interest accrued but not collected for loans that are placed on non-accrual status or subsequently charged-off are reversed against Interest income. Income is subsequently recognized on the cash basis until, in management’s judgment, the borrower’s ability to make periodic principal and interest payments returns and future payments are reasonably assured, in which case the loan is returned to accrual status.

An individual loan is considered to be impaired when, based on current events and conditions, it is probable we will be unable to collect all amounts due (both principal and interest) according to the contractual terms of the loan agreement. Impaired loans are carried at the present value of expected future cash flows discounted at the loan’s effective interest rate, the loan’s market price, or the fair value of the collateral if the loan is collateral dependent. For individual loans, a troubled debt restructuring is a formal restructuring of a loan where, for economic or legal reasons related to the borrower’s financial difficulties, a concession that would not otherwise be considered is granted to the borrower. The concession may be granted in various forms, including providing a below-market interest rate, a reduction in the loan balance or accrued interest, an extension of the maturity date, or a combination of these. An individual loan that has had a troubled debt restructuring is considered to be impaired and is subject to the relevant accounting for impaired loans.

If necessary, an allowance for loan losses is established through a provision for loan losses charged to expenses. The allowance is the difference between the expected future cash flows from the loan and the contractual balance due.

Real Estate

Real estate owned Property — we acquire real estate properties directly from sellers and when we foreclose on a borrower and take title to the underlying property. REO is recorded at cost if purchased, or at the present value of future cash flows if obtained through foreclosure. REO we expect to actively market for sale is classified as held-for-sale. REO held-for-sale is carried at the lower of its acquisition basis, or its net realizable value (estimated fair market value less expected selling costs). We estimate fair market value using a combination of BPOs, comparable sales, appraisals, and competitive market analyses provided by local realtors subject to our judgment. Net unrealized losses due to changes in market value are recognized through a valuation allowance by charges to income. No depreciation or amortization expense is recognized on properties held-for-sale, while holding costs are expensed as incurred. Foreclosed property that is sold to a third party at the foreclosure sale (“Third Party Sales”) is not considered REO and proceeds on these third party sales are treated as payment in satisfaction of the underlying loan. See Mortgage Loans, above.

Rental property is real estate property not held-for-sale. Rental property is intended to be held as long-term investments but may eventually be held-for-sale. Property is held for investment as rental property if the modeled present value of the future expected cash flows from use as a rental exceed the present value of expected cash flows from a sale. Depreciation is provided for using the straight-line method over the estimated useful lives of the assets of 27.5 years. We perform an impairment analysis for all rental property not held-for-sale using estimated cash flows if events or changes in circumstances indicate that the carrying value may be impaired, such as prolonged vacancy, identification of materially adverse legal or environmental factors, changes in expected ownership period or a decline in market value to an amount less than cost. This analysis is performed at the property level. The cash flows are estimated based on a number of assumptions that are subject to economic and market uncertainties including, among others, demand for rental properties, competition for customers, changes in market rental rates, costs to operate each property and expected ownership periods.

If the carrying amount of a held for investment asset exceeds the sum of its undiscounted future operating and residual cash flows, an impairment loss is recorded for the difference between estimated fair value of the asset and the carrying amount. We generally estimate the fair value of assets held for use by using BPOs, comparable sales or realtor competitive market analysis. In some instances, appraisal information may be available and is used in addition to other measures of fair value.

From time to time, we perform property renovations to maximize the value of REO held-for-sale and held for investment. Such expenditures are generally advanced by our Servicer and recovered by our Servicer when the property is liquidated (for REO property held-for-sale) or upon completion of the renovations (for REO property held for investment). For residential and commercial properties that are not held-for-sale, the carrying value, including any renovations that improve or extend the life of the asset, are accounted for at cost. The cost basis is depreciated using the straight-line method over an estimated useful life of 27.5 years. Interest and other carrying costs incurred during the renovation period are capitalized until the property is ready for its intended use. Expenditures for ordinary maintenance and repairs are charged to expense as incurred. We generally intend to limit rental activity to multifamily or multi-unit single family properties.

Investments at fair value

Our Investments at Fair Value as of September 30, 2020 and December 31, 2019 consist of investments in senior and subordinated notes issued by joint ventures, which we form with third party institutional accredited investors. We recognize income on the debt securities using the effective interest method. Additionally, the notes are classified as available-for-sale and are carried at fair value with changes in fair value reflected in our consolidated statements of comprehensive income. We mark our investments to fair value using prices received from our financing counterparties and believe any unrealized losses on our debt securities to be temporary. Any other-than-temporary losses, which represent the excess of the amortized cost basis over the present value of expected future cash flows, are recognized in the period identified in our consolidated statements of income. Risks inherent in our debt securities portfolio, affecting both the valuation of the securities as well as the portfolio's interest income include the risk of default, delays and inconsistency in the frequency and amount of payments, risks affecting borrowers such as man-made or natural disasters, or the pandemic, and damage to or delay in realizing the value of the underlying collateral. We monitor the credit quality of the mortgage loans underlying our debt securities on an ongoing basis, principally by considering loan payment activity or delinquency status. In addition, we assess the expected cash flows from the mortgage loans, the fair value of the underlying collateral and other factors, and evaluate whether and when it becomes probable that all amounts contractually due will not be collected.

Investments in Beneficial Interests

Our Investments in beneficial interests as of September 30, 2020 and December 31, 2019 consist of investments in the trust certificates issued by joint ventures which we form with third party institutional accredited investors. The trust certificates represent the residual interest of any special purpose entity formed to facilitate certain investments. We account for our Investments in beneficial interests under CECL, as discussed under Mortgage Loans.

Debt

Secured Borrowings — We issue, through securitization trusts, callable debt secured by our mortgage loans in the ordinary course of business. The secured borrowings are structured as debt financings, and the loans remain on our balance sheet as we are the primary beneficiary of many of these securitization trusts, which are variable interest entities (“VIEs”). These secured borrowing VIEs are structured as pass-through entities that receive principal and interest on the underlying mortgages and distribute those payments to the holders of the notes. Our exposure to the obligations of the VIEs is generally limited to the amount of our investments in the VIE entities; the creditors do not have recourse to the primary beneficiary. Coupon interest on the debt is recognized using the accrual method of accounting. Deferred issuance costs, including original issue discount and debt issuance costs, are amortized on an effective yield basis based on the underlying cash flow of the mortgage loans. We assume the debt will be called at the specified call date for purposes of amortizing discount and issuance costs because we believe we will have the intent and ability to call the debt on the call date. Changes in the actual or projected underlying cash flows are reflected in the timing and amount of deferred issuance cost amortization.

Repurchase Facilities — We enter into repurchase financing facilities under which we nominally sell assets to a counterparty and simultaneously enter into an agreement to repurchase the sold assets at a price equal to the sold amount plus an interest factor. Despite being legally structured as sales and subsequent repurchases, repurchase transactions are generally accounted for as debt secured by the underlying assets. At the maturity of a repurchase financing, unless the repurchase financing is renewed, we are required to repay the borrowing including any accrued interest and concurrently receive back our pledged collateral from the lender. The repurchase financings are treated as collateralized financing transactions; pledged assets are recorded as assets in our consolidated balance sheets, and debt is recognized at the contractual amount. Interest is recorded at the contractual amount on an accrual basis. Costs associated with the set-up of a repurchasing contract are recorded as deferred expense at inception and amortized over the contractual life of the agreement. Any draw fees associated with individual transactions and any facility fees assessed on the amounts outstanding are recorded as deferred expense when incurred and amortized over the contractual life of the related borrowing.

Fair Value

Fair Value of Financial Instruments — Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. A fair value hierarchy has been established that requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. The standard describes three levels of inputs that may be used to measure fair value:

•Level 1 — Quoted prices in active markets for identical assets or liabilities.

•Level 3 — Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.

The fair value of mortgage loans is estimated using the Manager’s proprietary pricing model, which estimates expected cash flows with the discount rate used in the present value calculation representing the estimated effective yield of the loan. For valuation purposes, we disclose the fair value of REO at the lower of its acquisition basis, or its net realizable value (estimated fair market value less expected selling costs). We estimate fair market value using BPOs, comparable sales and competitive

market analyses provided by local realtors. We use net realizable value as a proxy for fair value as it represents the liquidation proceeds to us and is most comparable to the fair value disclosure for loans.

The fair value of secured borrowings is estimated using estimates provided by our financing counterparties which are compared for reasonableness to the Manager’s proprietary pricing model which estimates expected cash flows of the underlying mortgage loans collateralizing the debt, and which drive the cash flows used to make interest payments.

Our convertible senior notes are traded on the NYSE; the debt’s fair value is determined from the NYSE closing price on the balance sheet date.

Recent Accounting Pronouncements

Refer to the notes to our interim financial statements for a description of relevant recent accounting pronouncements.

Results of Operations

For the three months ended September 30, 2020, we had net income attributable to common stockholders of $5.3 million, or $0.23 per share for basic and for diluted common shares. For the three months ended September 30, 2019, we had net income attributable to common stockholders of $7.7 million, or $0.39 per share, for basic and $0.36 for diluted common shares. Key items for the three months ended September 30, 2020 include:

•Formed joint ventures that acquired $876.1 million in UPB of mortgage loans with collateral values of $1.4 billion and retained $83.4 million of varying classes of related securities issued by the joint ventures to end the quarter with $370.9 million of investments in debt securities and beneficial interests

•Purchased 244 RPLs for $41.2 million, with UPB of $46.3 million and collateral values of $65.3 million, one NPL for $0.5 million, with UPB of $0.5 million and underlying collateral value of $0.7 million, and originated two SBCs with UPB of $1.9 million and underlying collateral values of $3.9 million, to end the quarter with $1.1 billion in net mortgage loans

•Interest income of $24.0 million; net interest income of $16.2 million, including recovery of provision for credit losses of $4.0 million as a result of better than expected loan performance and the related impact on future repayment rates

•Net income attributable to common stockholders of $5.3 million

•Basic earnings per common share ("EPS") of $0.23

•Book value per common share of $15.35 at September 30, 2020

•Taxable income of $0.11 per common share

•Collected total cash of $56.4 million, from loan payments, sales of REO and investments in debt securities and beneficial interests

•Held $135.2 million of cash and cash equivalents at September 30, 2020; average daily cash balance for the quarter was $128.6 million excluding $51.0 million of funds on deposit in a non-interest bearing account for a transaction closed September 25, 2020. Including the $51.0 million on deposit, average daily cash was $148.0 million

•At September 30, 2020, approximately 74.5% of portfolio based on UPB made at least 12 out of the last 12 payments

Our consolidated net income attributable to common stockholders decreased $2.4 million for the quarter ended September 30, 2020 compared to the quarter ended September 30, 2019. Our net interest income after recovery of provision for credit losses increased to $16.2 million from $13.4 million, primarily as a result of $4.0 million in recovery from provision for credit losses on our loan and securities portfolios. The comparative reduction in net income was driven primarily by a $0.6 million mark to market decrease in earnings from our equity method investments in our Manager and Servicer, a $0.6 million decrease in rental income as a result of our deconsolidation of Gaea in November 2019 and a $1.7 million increase in other expense due to the amortization of our put option expense. Our book value decreased to $15.35 per share from $15.80 at December 31, 2019 primarily from the year-to-date effects of a net $0.9 million non-cash mark to market adjustment to the fair value of our debt securities as generally determined by marks provided by our financing counterparties.

We recorded a loss from our investments in affiliates of $25 thousand for the quarter ended September 30, 2020 compared to income of $0.6 million for the quarter ended September 30, 2019. The primary driver of the difference is the flow-through impact of a mark to market loss on shares of our stock held by our Manager and our Servicer. We account for our investments in our Manager and our Servicer using the equity method of accounting.

We recorded $0.2 million in impairments on our REO held-for-sale portfolio in real estate operating expense for the quarter ended September 30, 2020 compared to $0.7 million for the quarter ended September 30, 2019. We continue to liquidate our REO properties held-for-sale at a faster rate than we acquire properties, with seven properties sold in the third

quarter while five were added to REO held-for-sale through foreclosures. Impairments for the quarter were driven primarily by additional costs of holding the properties. We expect the rate of new foreclosures to slow due to the continuing impact of COVID-19. During the quarter ended September 30, 2019 we sold 30 REO properties while adding seven through foreclosures.

Table 1: Results of Operations


	Three months ended September 30,				Nine months ended September 30,
($ in thousands)	2020		2019		2020		2019
INCOME
Interest income	$	23,950	$	27,723	$	74,941	$	85,303
Interest expense	(11,727)		(14,317)		(37,855)		(45,441)
Net interest income	12,223		13,406		37,086		39,862
Provision for credit benefit/(losses)	4,007		(3)		3,226		(242)
Net interest income after provision for credit benefit/(losses)	16,230		13,403		40,312		39,620
(Loss)/income from investments in affiliates	(25)		583		(465)		1,301
Income/(loss) on sale of mortgage loans	—		109		(705)		7,123
Other income	537		1,221		1,964		3,159
Total revenue, net	16,742		15,316		41,106		51,203
EXPENSE
Related party expense – loan servicing fees	1,848		2,197		5,798		6,977
Related party expense – management fee	2,264		2,215		6,206		5,555
Loan transaction expense	(178)		52		(216)		312
Professional fees	576		446		2,113		1,942
Real estate operating expenses	173		1,216		1,273		2,889
Other expense	2,930		940		6,280		3,240
Total expense	7,613		7,066		21,454		20,915
Loss on debt extinguishment	253		—		661		182
Income before provision for income taxes	8,876		8,250		18,991		30,106
Provision for taxes (benefit)	(16)		27		(215)		136
Consolidated net income	8,892		8,223		19,206		29,970
Less: consolidated net income attributable to the non-controlling interest	1,662		532		3,493		1,922
Consolidated net income attributable to Company	7,230		7,691		15,713		28,048
Less: dividends on preferred stock	1,950		—		3,791		—
Consolidated net income attributable to common stockholders	$	5,280	$	7,691	$	11,922	$	28,048

On January 1, 2020 we adopted Accounting Standards Update (ASU) No. 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments (“CECL”). Under CECL, we are required to record the net present value of the expected life of loan losses on our Mortgage loans and our Investments in beneficial interests. Our transition adjustment on January 1, 2020 resulted in a reclassification from discount to the allowance for losses in the amount of $14.4 million with no impact on Shareholder equity.

Interest Income

Our primary source of income is accretion earned on our mortgage loan portfolio offset by the interest expense incurred to fund and hold portfolio acquisitions. For the three months ended September 30, 2020 and 2019 net interest income after recovery of provision for credit losses increased to $16.2 million from $13.4 million, primarily as a result of a $4.0 million recovery of provision for credit losses on our loan and securities portfolios as a result of better than expected loan performance during the quarter and the impact this has on expectations of future repayment rates. Similarly for the nine months ended September 30, 2020 and 2019 net interest income after recovery of provision for credit losses increased to $40.3 million from

$39.6 million primarily as a result of $3.5 million in recovery of provision of credit losses on our loan and securities portfolios. As a result, for the three and nine months ended September 30, 2020 we recorded recoveries of provisions for credit losses of $2.7 million and $2.1 million, respectively, on our mortgage loan portfolio and $1.3 million and $1.1 million, respectively, on our investments in securities. To date, the COVID-19 impact on cash flow extensions has not been as material as we initially expected. Comparatively during the three and nine months ended September 30, 2019 we recorded provisions for credit losses of $3 thousand and $0.2 million, respectively, on our mortgage loan portfolio and no provisions for credit losses on our investments in beneficial interests. Our accounting for credit losses during the calendar year 2020 is based on CECL, under which both increases and decreases in payment expectations are recorded in the period determined. For the comparative periods in 2019, our impairment charges were determined under ASC 310-30, under which decreases in payment expectations were recorded in the period determined while increases in payment expectations were recorded prospectively over the remaining life of the loan pool.

Our gross interest income decreased by $3.7 million to $24.0 million in the quarter ended September 30, 2020 from $27.7 million in the quarter ended September 30, 2019 primarily due to a decrease in the average balance of our mortgage loan portfolio as paydowns and payoffs exceeded loan purchases, and by decreases in the average yields on our loan portfolio based on our cash flows as of the beginning of the quarter. Similarly gross interest income decreased by $10.4 million to $74.9 million during the nine months ended September 30, 2020 from $85.3 million during the nine months ended September 30, 2019 primarily due to a decrease in the average yields on our loan portfolio.

During the third quarter of 2020, we collected $42.4 million on our loan portfolio as compared to $55.0 million for the third quarter of 2019. For the nine months ended September 30, 2020, we collected $127.6 million on our loan portfolio as compared to $149.3 million for the nine months ended September 30, 2019. The increase in cash collections from our loan portfolio in 2019 is due to higher borrower refinancing and sale of the underlying property that resulted increased loan payoffs.

Our interest expense decreased $2.6 million to $11.7 million in the quarter ended September 30, 2020 from $14.3 million in the quarter ended September 30, 2019 primarily due to a decrease in the average interest rate primarily driven by lower rates on our mortgage and bond repurchase agreements and secured borrowings. Interest expense decreased by $7.5 million to $37.9 million in the nine months ended September 30, 2020 from $45.4 million in the nine months ended September 30, 2019 also primarily due to a decrease in the average interest rate primarily driven lower rates on our mortgage and bond repurchase agreements and secured borrowings. We expect our cost of funds to continue to decrease materially in the current interest rate and credit environment.

The interest income detail for the three and nine months ended September 30, 2020 and 2019 are included in the table below ($ in thousands):

Table 2: Interest income detail


	Three months ended September 30,				Nine months ended September 30,
	2020		2019		2020		2019
Accretable yield recognized on RPLs, NPLs and SBC loans	$	18,603	$	23,869	$	59,456	$	75,286
Interest income on securities	5,234		3,322		15,268		8,878
Bank interest income	75		243		271		848
Other interest income/(loss)	38		289		(54)		291
Interest income	$	23,950	$	27,723	$	74,941	$	85,303
Provision for credit benefit/(losses)	4,007		(3)		3,226		(242)
Interest income after provision for credit benefit/(losses)	$	27,957	$	27,720	$	78,167	$	85,061

The average balance of our mortgage loan portfolio, investment in securities and debt outstanding for the three months ended September 30, 2020 and 2019 are included in the table below ($ in thousands):

Table 3: Average Balances


	Three months ended September 30,
	2020		2019
Average mortgage loan portfolio	$	1,097,046	$	1,180,105
Average carrying value of debt securities and beneficial interests	$	331,009	$	198,320
Total average asset level debt	$	1,038,406	$	1,057,536

The weighted average balance of our mortgage loan portfolio was $1.1 billion for the three months ended September 30, 2020 compared to $1.2 billion for the three months ended September 30, 2019. Additionally, we collected $56.4 million in cash payments and proceeds on our mortgage loans, our REO held-for-sale and our investments in securities for the three months ended September 30, 2020 compared to collections of $69.7 million for the three months ended September 30, 2019.

Gain (loss) on sale of mortgage loans

We sold no mortgage loans during the three months ended September 30, 2020. During the nine months ended September 30, 2020 we sold 26 SBC mortgage loans with a carrying value of $26.1 million and UPB of $26.2 million for a loss of $0.7 million. Comparatively during the three and nine months ended September 30, 2019, we sold three and 965 loans respectively with a carrying value of $1.9 million and $178.8 million, respectively, and UPB of $2.0 million and $202.1 million, respectively, for a gain of $0.1 million and $7.1 million, respectively.

Other Income

Other income decreased for the three and nine months ended September 30, 2020 as compared to the three and nine months ended September 30, 2019 due to decreased rental income from the impact on our rental portfolio of our Gaea capital raise in November 2019 and lower income from the federal government's Home Affordable Modification Program ("HAMP") as more loans reached the five-year threshold and no additional fees are earned. This was partially offset by the increased gain on sale of securities issued by certain joint ventures. For the nine months ended September 30, 2020 compared to the nine months ended September 30, 2019 decreases were also offset by increased net gain on sale of property held-for-sale. A breakdown of Other income is provided in the table below ($ in thousands):

Table 4: Other Income


	Three months ended September 30,				Nine months ended September 30,
	2020		2019		2020		2019
Late fee income	$	177	$	158	$	525	$	603
Net gain on sale of Property held-for-sale	150		279		957		400
Gain on sale of securities	145		—		145		8
HAMP fees	59		206		311		717
Rental Income	6		578		26		1,431
Total Other Income	$	537	$	1,221	$	1,964	$	3,159

Expenses

Total expenses increased for the three and nine months ended September 30, 2020 over the comparable period in 2019 due to an increase in other expense as a result of our put option amortization expense and an increase in management fees driven by an increase in our capital base as a result of our private placements of preferred stock and warrants completed during the second quarter of 2020. This was partially offset by lower real estate operating expense due to our deconsolidation of Gaea in November 2019 as well as lower REO impairments. A breakdown of expenses is provided in the table below ($ in thousands):

Table 5: Expenses


	Three months ended September 30,				Nine months ended September 30,
	2020		2019		2020		2019
Other expense	$	2,930	$	940	$	6,280	$	3,240
Related party expense - management fee	2,264		2,215		6,206		5,555
Related party expense – loan servicing fees	1,848		2,197		5,798		6,977
Professional fees	576		446		2,113		1,942
Real estate operating expenses	173		1,216		1,273		2,889
Loan transaction expense	(178)		52		(216)		312
Total expenses	$	7,613	$	7,066	$	21,454	$	20,915

Other expense increased for the three and nine months ended September 30, 2020 over the comparable period in 2019 primarily due to the amortization of our put option expense offset by lower travel expense. A breakdown of other expense is provided in the table below ($ in thousands):

Table 6: Other Expense


	Three months ended September 30,				Nine months ended September 30,
	2020		2019(1)		2020		2019(1)
Amortization of put option liability	$	1,734	$	—	$	2,956	$	—
Insurance	238		181		606		499
Borrowing related expenses	227		132		615		466
Taxes and regulatory expense	198		110		395		374
Employee and service provider share grants	187		207		535		676
Directors' fees and grants	104		109		322		315
Other expense	104		87		290		186
Software licenses and amortization	90		60		224		167
Internal audit services	35		50		107		149
Lien release non due diligence	13		(34)		104		181
Travel, meals, entertainment	—		38		126		227
Total Other expense	$	2,930	$	940	$	6,280	$	3,240

(1)Includes reclass of other expense to lien release non due diligence.

Equity and Net Book Value per Share

Our net book value per common share was $15.35 and $15.80 at September 30, 2020 and December 31, 2019, respectively. The decrease in book value was driven primarily by the reduction in common equity that resulted from net fair value adjustments of $0.9 million taken on our portfolio of debt securities recorded to Other comprehensive income since December 31, 2019. While GAAP does not specifically define the parameters for calculating book value, we believe our calculation is representative of our book value on a per share basis, and our Manager believes book value per share is a valuable metric for evaluating our business. The net book value per share is calculated by dividing equity, after adjusting for the anticipated conversion of the senior convertible notes into shares of common stock, the subtraction of non-controlling interests and preferred shares classified in equity, and shares for Manager and director fees that were approved but still unissued as of the date indicated, unvested employee and service provider stock grants and the common shares from assumed conversion of our Senior convertible notes. A breakdown of our book value per share is set forth in the table below ($ in thousands except per share amounts):

Table 7: Book Value per Common Share


	September 30, 2020		December 31, 2019
Outstanding shares	23,034,443		22,142,143
Adjustments for:
Unvested grants of restricted stock, and Manager and director shares earned but not issued as of the date indicated	4,116		2,600
Conversion of convertible senior notes into shares of common stock	7,834,299		8,270,208
Total adjusted shares outstanding	30,872,858		30,414,951

Equity at period end	$	506,346	$	384,084
Net increase in equity from expected conversion of convertible senior notes	110,250		120,669
Adjustment for equity due to preferred shares	(115,144)		—
Adjustment for equity due to non-controlling interests	(27,468)		(24,257)
Adjusted equity	$	473,984	$	480,496
Book value per share	$	15.35	$	15.80

Table 8: Fair Value Balance Sheet

The table below presents a summarized version of our GAAP balance sheets as compared to a summarized balance sheets presented at our estimates of fair values. While GAAP does not specifically define the parameters for the presentation of a fair value balance sheet, we believe the presentation is representative of our fair value, and our Manager believes this presentation is a valuable metric for evaluating our business below ($ in thousands):


	September 30, 2020						December 31, 2019
	GAAP		Adjustments for fair value		Fair Value		GAAP		Adjustments for fair value		Fair Value
ASSETS
Cash and Cash held in trust	$	135,379	$	—	$	135,379	$	64,363	$	—	$	64,363
Mortgage loans, net	1,102,360		101,360		1,203,720		1,151,469		108,916		1,260,385
Investments in debt securities and beneficial interests	370,896		—		370,896		289,639		—		289,639
Investments in affiliates, real property and other assets	58,339		10,832		69,171		71,370		6,262		77,632
Total Assets	$	1,666,974	$	112,192	$	1,779,166	$	1,576,841	$	115,178	$	1,692,019
LIABILITIES AND EQUITY
Liabilities:
Secured borrowings, net	$	614,214	$	(1,115)	$	613,099	$	652,747	$	5,171	$	657,918
Borrowings under repurchase agreements	415,419		—		415,419		414,114		—		414,114
Convertible senior notes, net	109,710		(1,665)		108,045		118,784		13,389		132,173
Other liabilities	21,285		—		21,285		7,112		—		7,112
Total Liabilities	1,160,628		(2,780)		1,157,848		1,192,757		18,560		1,211,317
Equity:
Total Equity	506,346		114,972		621,318		384,084		96,618		480,702
Total Liabilities and Equity	$	1,666,974	$	112,192	$	1,779,166	$	1,576,841	$	115,178	$	1,692,019

The adjustments for fair value for our mortgage loans are determined using our Manager’s proprietary pricing model which estimates expected cash flows with the discount rate used in the present value calculation representing the estimated effective yield of the loans or securities.

The fair values of our investments in affiliates are determined using methodologies appropriate to each affiliate. Our investment in the Manager is valued by applying an earnings multiple to net income. Our investment in AS Ajax E LLC is valued using estimates provided by financing counterparties. The fair value of our investment in GAFS is presented by applying an earnings multiple to expected earnings. Our investments in Gaea and the legacy entities are presented as the carrying value due to the recent nature of the acquisition transactions.

The fair value of secured borrowings is estimated using estimates provided by our financing counterparties, which are compared for reasonableness to the Manager’s proprietary pricing model, which estimates expected cash flows of the underlying mortgage loans collateralizing the debt, and which drive the cash flows used to make interest payments.

The fair value of our convertible senior notes is determined from the NYSE closing price of such notes on the balance sheet date.

Mortgage Loan Portfolio

For the three and nine months ended September 30, 2020, we acquired 244 and 270 RPLs with an aggregate acquisition price of $41.2 million and $42.4 million, respectively, representing 88.9% and 87.8% of UPB, respectively. Comparatively, for the three and nine months ended September 30, 2019, we acquired five and 539 RPLs with an aggregate acquisition price of $0.4 million and $98.3 million, respectively, representing 81.9% and 85.1%of UPB, respectively. We acquired one and two NPL loans for the three and nine months ended September 30, 2020 with an aggregate acquisition price of $0.5 million and $0.7 million, respectively, representing 90.0% and 87.4% of UPB, respectively. Comparatively, during the three and nine months ended September 30, 2019 we acquired no NPLs.

For the three and nine months ended September 30, 2020, we originated two SBC loans with UPB of $1.9 million that represents 48.2% of the underlying collateral value of $3.9 million. Comparatively, for the three months ended September 30, 2019 we originated no SBC loans, however, during the nine months ended September 30, 2019, we originated 21 SBC loans with UPB of $18.4 million that represented 57.1% of the underlying collateral value of $32.3 million. We ended the period with $1.1 billion of mortgage loans with an aggregate UPB of $1.2 billion as of September 30, 2020 and $1.2 billion of mortgage loans with an aggregate UPB of $1.3 billion as of September 30, 2019.

The following table shows loan portfolio acquisitions that includes paid in full loans after acquisition but before boarding by the Servicer, for the three and nine months ended September 30, 2020, and 2019 ($ in thousands):

Table 9: Loan Portfolio Acquisitions


	Three months ended September 30,						Nine months ended September 30,
	2020			2019			2020			2019
RPLs
Count	244			5			270			539
UPB	$	46,291		$	508		$	48,243		$	115,562
Purchase price	$	41,170		$	416		$	42,375		$	98,315
Purchase price % of UPB	88.9		%	81.9		%	87.8		%	85.1		%
NPLs
Count	1			—			2			—
UPB	$	520		$	—		$	747		$	—
Purchase price	$	468		$	—		$	653		$	—
Purchase price % of UPB	90.0		%	—		%	87.4		%	—		%

Table 10: Commercial loans non-pooled


	Three months ended September 30,						Nine months ended September 30,
	2020			2019			2020			2019
Commercial loans non-pooled
Count	2			—			2			21
UPB	$	1,859		$	—		$	1,859		$	18,440
Undrawn UPB at acquisition	$	214		$	—		$	214		$	1,277
Issue price % of collateral value	47.1		%	—		%	47.1		%	57.1		%

During the three and nine months ended September 30, 2020, 119 and 382 mortgage loans, respectively, representing 2.0% and 8.3% of our ending UPB, respectively, were liquidated. Comparatively, during the three and nine months ended September 30, 2019, 154 and 1,427 mortgage loans, respectively, representing 2.8% and 21.8% of our ending UPB, respectively, were liquidated, including conversions to REO property. Our loan portfolio activity for the three and nine months ended September 30, 2020 and 2019 is presented below ($ in thousands):

Table 11: Loan Portfolio Activity


	Three months ended September 30,				Nine months ended September 30,
	2020		2019		2020		2019
Beginning carrying value	$	1,080,617	$	1,198,140	$	1,151,469	$	1,310,873
RPL, NPL and SBC pool portfolio acquisitions, net cost basis	41,638		416		41,823		98,315
Other non-pooled portfolio acquisitions, net cost basis	1,817		—		3,023		18,449
Draws on SBC loans	—		344		—		735
Accretion recognized	18,544		23,271		58,984		73,903
Payments received on PCD loans, net	(42,333)		(53,424)		(122,094)		(144,799)
Principal payments received on non-PCD loans, net	(33)		(1,087)		(5,370)		(2,842)
Reclassifications to REO	(603)		(849)		(1,515)		(10,675)
Sale of mortgage loans	—		(1,889)		(26,111)		(178,777)
Provision for credit benefit/(losses) on mortgage loans	2,705		(3)		2,108		(242)
Other	8		(5)		43		(26)
Ending carrying value	$	1,102,360	$	1,164,914	$	1,102,360	$	1,164,914

Table 12: Portfolio Composition

As of September 30, 2020 and December 31, 2019, our portfolios consisted of the following ($ in thousands):


September 30, 2020(1,2)				December 31, 2019(1,2)
No. of Loans	6,076			No. of Loans	6,184
Total UPB	$	1,198,286		Total UPB	$	1,268,126
Interest-Bearing Balance	$	1,120,349		Interest-Bearing Balance	$	1,190,917
Deferred Balance(3)	$	77,937		Deferred Balance(3)	$	77,209
Market Value of Collateral(4)	$	1,898,221		Market Value of Collateral(4)	$	1,783,856
Price/Total UPB(5)	82.5		%	Price/Total UPB(5)	82.9		%
Price/Market Value of Collateral	55.4		%	Price/Market Value of Collateral	61.9		%
Weighted Average Coupon	4.50		%	Weighted Average Coupon	4.55		%
Weighted Average LTV(6)	74.6		%	Weighted Average LTV(6)	83.5		%
Weighted Average Remaining Term (months)	299			Weighted Average Remaining Term (months)	311
No. of first liens	6,019			No. of first liens	6,124
No. of second liens	57			No. of second liens	60
No. of Rental Properties	6			No. of Rental Properties	10
Capital Invested in Rental Properties	$	710		Capital Invested in Rental Properties	$	1,591
RPLs	96.9		%	RPLs	95.3		%
NPLs	2.6		%	NPLs	2.7		%
SBC loans	0.5		%	SBC loans	2.0		%
No. of Other REO	34			No. of Other REO	58
Market Value of Other REO(7)	$	6,674		Market Value of Other REO(7)	$	13,987
Carrying value of debt securities and beneficial interests in trusts	$	376,377		Carrying value of debt securities and beneficial interests in trusts	$	288,362
Loans with 12 for 12 payments as an approximate percentage of UPB (8)	74.5		%	Loans with 12 for 12 payments as an approximate percentage of UPB (8)	76.0		%
Loans with 24 for 24 payments as an approximate percentage of UPB (9)	67.8		%	Loans with 24 for 24 payments as an approximate percentage of UPB (9)	64.0		%

(1)Includes the impact of 1,003 mortgage loans with a purchase price of $177.3 million, UPB of $194.3 million and collateral value of $295.3 million acquired in the fourth quarter of 2017 through a 50% owned joint venture which we consolidate.

(2)Includes the impact of 256 mortgage loans with a purchase price of $47.4 million, UPB of $52.8 million and collateral value of $68.1 million acquired in the third quarter of 2018 through a 63.0% owned joint venture which we consolidate.

(3)Amounts that have been deferred in connection with a loan modification on which interest does not accrue. These amounts generally become payable at the time of maturity.

(4)As of date of acquisition.

(5)At September 30, 2020 and December 31, 2019, our loan portfolio consists of fixed rate (52.8% of UPB), ARM (8.7% of UPB) and Hybrid ARM (38.5% of UPB); and fixed rate (52.8% of UPB), ARM (9.5% of UPB) and Hybrid ARM (37.7% of UPB), respectively.

(6)UPB as of September 30, 2020 and December 31, 2019, divided by market value of collateral and weighted by the UPB of the loan.

(7)Market value of REO is based on net realizable value. Fair market value is determined based on appraisals, BPOs, or other market indicators of fair value including list price or contract price.

(8)Loans that have made at least 12 of the last 12 payments, or for which the full dollar amount to cover at least 12 payments has been made in the last 12 months.

(9)Loans that have made at least 24 of the last 24 payments, or for which the full dollar amount to cover at least 24 payments has been made in the last 24 months.

Table 13: Portfolio Characteristics

The following tables present certain characteristics of our mortgage loans by year of origination as of September 30, 2020 and December 31, 2019, respectively ($ in thousands):

Portfolio at September 30, 2020


	Years of Origination
	After 2008			2006 – 2008			2005 and prior
Number of loans	626			3,503			1,947
Unpaid principal balance	$	129,832		$	793,792		$	274,662
Mortgage loan portfolio by year of origination	10.8		%	66.3		%	22.9		%
Loan Attributes:
Weighted average loan age (months)	106.7			163.7			202.7
Weighted Average loan-to-value	72.4		%	79.1		%	64.5		%
Delinquency Performance:
Current	64.0		%	64.3		%	63.3		%
30 days delinquent	5.5		%	7.5		%	8.3		%
60 days delinquent	4.4		%	5.1		%	6.6		%
90+ days delinquent	21.5		%	18.1		%	17.8		%
Foreclosure	4.6		%	5.0		%	4.0		%

Portfolio at December 31, 2019


	Years of Origination
	After 2008			2006 – 2008			2005 and prior
Number of loans	625			3,576			1,983
Unpaid principal balance	$	153,923		$	826,684		$	287,519
Mortgage loan portfolio by year of origination	12.1		%	65.2		%	22.7		%
Loan Attributes:
Weighted average loan age (months)	88.0			154.5			193.3
Weighted Average loan-to-value	72.7		%	81.2		%	66.5		%
Delinquency Performance:
Current	61.9		%	56.9		%	58.8		%
30 days delinquent	9.5		%	13.0		%	12.6		%
60 days delinquent	6.5		%	8.4		%	8.2		%
90+ days delinquent	20.5		%	17.3		%	17.3		%
Foreclosure	1.6		%	4.4		%	3.1		%

Table 14: Loans by State

The following table identifies our mortgage loans by state, number of loans, loan value, collateral value and percentages thereof at September 30, 2020 and December 31, 2019 ($ in thousands):


September 30, 2020										December 31, 2019
State	Count	UPB		% UPB		Collateral Value(1)		% of Collateral Value		State	Count	UPB		% UPB		Collateral Value(1)		% of Collateral Value
CA	950	$	326,742	27.3	%	$	564,068	29.7	%	CA	1,010	$	370,838	29.2	%	$	564,169	31.6	%
FL	658	112,475		9.4	%	175,325		9.3	%	FL	689	119,728		9.4	%	156,967		8.8	%
NY	336	104,891		8.8	%	176,370		9.3	%	NY	331	105,853		8.3	%	161,646		9.1	%
NJ	292	66,575		5.6	%	88,212		4.7	%	NJ	290	66,762		5.3	%	80,472		4.5	%
MD	252	61,579		5.2	%	77,798		4.1	%	MD	257	63,349		5.0	%	74,027		4.2	%
GA	352	46,128		3.8	%	69,528		3.7	%	GA	363	48,969		3.9	%	62,960		3.5	%
VA	204	43,377		3.6	%	61,020		3.2	%	VA	206	44,193		3.5	%	57,678		3.2	%
IL	226	41,880		3.5	%	53,305		2.8	%	IL	228	42,962		3.4	%	49,586		2.8	%
TX	409	39,918		3.3	%	77,805		4.1	%	TX	399	39,689		3.1	%	69,874		3.9	%
MA	174	35,108		2.9	%	57,901		3.1	%	MA	181	37,596		3.0	%	53,785		3.0	%
NC	248	34,149		2.8	%	52,408		2.8	%	NC	240	31,402		2.5	%	42,977		2.4	%
AZ	151	25,587		2.2	%	41,646		2.2	%	WA	114	28,489		2.2	%	43,372		2.4	%
WA	103	25,061		2.1	%	43,931		2.3	%	AZ	154	26,321		2.1	%	34,277		1.9	%
PA	187	21,831		1.8	%	30,877		1.6	%	NV	107	21,384		1.7	%	27,540		1.5	%
NV	101	19,177		1.6	%	30,732		1.6	%	PA	180	20,978		1.7	%	26,936		1.5	%
SC	130	14,357		1.2	%	21,645		1.1	%	SC	129	15,282		1.2	%	21,263		1.2	%
MI	99	13,736		1.1	%	23,422		1.2	%	MI	98	14,339		1.1	%	21,876		1.2	%
OH	112	13,267		1.1	%	17,598		0.9	%	OH	110	13,515		1.1	%	15,451		0.9	%
CT	74	12,625		1.1	%	16,349		0.9	%	OR	66	12,991		1.0	%	19,519		1.1	%
OR	63	12,457		1.1	%	21,682		1.1	%	CT	72	12,594		1.0	%	15,832		0.9	%
TN	114	11,857		1.0	%	21,146		1.1	%	TN	115	12,566		1.0	%	19,203		1.1	%
CO	55	10,873		0.9	%	22,731		1.2	%	CO	63	12,368		1.0	%	22,471		1.3	%
MO	78	9,772		0.8	%	12,805		0.7	%	MN	54	10,200		0.8	%	12,753		0.7	%
MN	51	9,392		0.8	%	13,210		0.7	%	MO	80	10,003		0.8	%	12,427		0.7	%
IN	99	9,344		0.8	%	14,128		0.7	%	IN	100	9,521		0.8	%	12,545		0.7	%
LA	76	7,721		0.7	%	11,764		0.6	%	UT	52	8,923		0.7	%	13,957		0.8	%
HI	18	7,477		0.6	%	10,597		0.6	%	LA	74	7,585		0.6	%	11,389		0.6	%
UT	47	7,473		0.6	%	15,358		0.8	%	HI	17	7,229		0.6	%	10,093		0.6	%
DE	34	6,538		0.5	%	7,780		0.4	%	DE	33	6,566		0.5	%	7,626		0.4	%
DC	17	5,153		0.4	%	7,932		0.4	%	WI	37	4,772		0.4	%	5,827		0.3	%
WI	39	5,008		0.4	%	6,598		0.4	%	DC	16	4,542		0.4	%	6,368		0.4	%
NM	30	4,465		0.4	%	6,064		0.3	%	NM	30	4,525		0.4	%	5,407		0.3	%
KY	35	3,939		0.3	%	5,650		0.3	%	KY	34	3,969		0.3	%	5,213		0.3	%
AL	44	3,694		0.3	%	4,804		0.3	%	AL	43	3,569		0.3	%	4,480		0.3	%
NH	18	3,237		0.3	%	4,901		0.3	%	RI	15	3,232		0.3	%	4,188		0.2	%
RI	14	3,098		0.3	%	4,343		0.2	%	NH	17	3,016		0.2	%	4,290		0.3	%
OK	30	2,712		0.2	%	4,147		0.2	%	OK	30	2,631		0.2	%	3,948		0.2	%
MS	28	2,378		0.2	%	3,344		0.2	%	MS	25	2,389		0.2	%	3,062		0.2	%
IA	19	2,033		0.2	%	2,662		0.1	%	ID	14	1,723		0.1	%	2,755		0.2	%
ME	11	1,537		0.1	%	1,923		0.1	%	IA	16	1,599		0.1	%	2,011		0.1	%
ID	12	1,525		0.1	%	2,846		0.2	%	WV	17	1,595		0.1	%	2,208		0.1	%
AR	20	1,457		0.1	%	1,987		0.1	%	ME	11	1,564		0.1	%	1,829		0.1	%
KS	19	1,394		0.1	%	2,809		0.2	%	KS	18	1,391		0.1	%	2,435		0.1	%
WV	17	1,269		0.1	%	1,784		0.1	%	AR	18	1,318		0.1	%	1,777		0.1	%
MT	6	809		0.1	%	1,289		0.1	%	NE	6	702		0.1	%	836		0.1	%
SD	4	543		0.1	%	852		—	%	MT	5	697		0.1	%	1,005		0.1	%
NE	4	531		0.1	%	599		—	%	PR	6	546		—	%	838		0.1	%
PR	5	524		—	%	605		—	%	WY	4	519		—	%	593		—	%
WY	4	512		—	%	573		—	%	SD	3	509		—	%	678		—	%
VT	2	454		—	%	505		—	%	VT	2	467		—	%	470		—	%
ND	3	397		—	%	474		—	%	ND	3	403		—	%	595		—	%
AK	2	250		—	%	389		—	%	AK	2	253		—	%	372		—	%
	6,076	$	1,198,286	100.0	%	$	1,898,221	100.0	%		6,184	$	1,268,126	100.0	%	$	1,783,856	100.0	%

(1)As of date of acquisition.

Table 15: Debt Securities and Beneficial Interest Acquisitions


	Three months ended September 30,						Nine months ended September 30,
	2020			2019			2020			2019
Class A securities
UPB	$	67,076		$	36,220		$	116,952		$	93,808
Purchase price	$	65,956		$	36,100		$	115,558		$	93,554
Purchase price % of UPB	98.3		%	99.7		%	98.8		%	99.7		%
Class B securities
UPB	$	5,267		$	3,381		$	9,923		$	12,816
Purchase price	$	5,194		$	3,360		$	9,817		$	12,612
Purchase price % of UPB	98.6		%	99.4		%	98.9		%	98.4		%
Beneficial interests
Purchase price	$	12,225		$	3,943		$	19,307		$	21,386

Liquidity and Capital Resources

Source and Uses of Cash

Our primary sources of cash have consisted of proceeds from our securities offerings, our secured borrowings, repurchase agreements, principal and interest payments on our loan portfolio, principal paydowns on securities, and sales of properties held-for-sale. Depending on market conditions, we expect that our primary financing sources will continue to include secured borrowings, repurchase agreements, and securities offerings in addition to transaction or asset specific funding arrangements and credit facilities (including term loans and revolving facilities). We expect that these sources of funds will be sufficient to meet our short-term and long-term liquidity needs. From time to time, we may invest with third parties and acquire interests in loans and other real estate assets through investments in joint ventures using special purpose entities that can result in investments at fair value and investments in beneficial interests, which are reflected on our consolidated balance sheet.

As of September 30, 2020 and December 31, 2019, substantially all of our invested capital was in RPLs, NPLs, SBC loans, property held-for-sale, debt securities, beneficial interests and rental properties. We also held approximately $135.2 million of cash and cash equivalents, an increase of $70.9 million from our balance of $64.3 million at December 31, 2019. Our average daily cash balance during the quarter was $128.6 million, an increase of $62.5 million from our average daily cash balance of $66.1 million during the three months ended December 31, 2019.

Our collections of principal and interest payments on mortgage loans and securities, payoffs of mortgage loans and proceeds on the sale of our property held-for-sale and sale of debt securities held as investments were $176.6 million and $192.8 million for the nine months ended September 30, 2020 and 2019, respectively. We currently expect the pace of loan prepayments to slow due to the pandemic.

Our operating cash outflows, including the effect of restricted cash, for the nine months ended September 30, 2020 and 2019 were $6.1 million and $11.0 million, respectively. Our primary operating cash inflow is cash interest payments on our mortgage loan pools of $36.2 million and $43.6 million for the nine months ended September 30, 2020 and 2019, respectively. Non-cash interest income accretion was $22.8 million and $30.3 million for the nine months ended September 30, 2020 and 2019, respectively. During the nine months ended September 30, 2020 we recognized a loss of $0.7 million from the sale of 26 mortgage loans to Gaea, an affiliated entity. During the nine months ended September 30, 2019 we recognized a gain of $7.1 million from the sale of 965 loans to a related party joint venture, Ajax Mortgage Loan Trust 2019-C ("2019-C").

Though the ownership of mortgage loans and other real estate assets is our business, GAAP requires that operating cash flows do not include the portion of principal payments that are allocable to the discount we recognize on our mortgage loans including proceeds from loans that pay in full or are liquidated in a short sale or third party sale at foreclosure or the proceeds on the sales of our property held-for-sale. These activities are all considered to be Investing activities under GAAP, and the cash flows from these activities are included in the investing section of our consolidated statements of cash flows. We expect that the impact of the COVID-19 outbreak will put pressure on our cash flow from operations as we enter into loan modifications on certain of our loans permitting interest payments to be deferred.

For the nine months ended September 30, 2020 our investing cash inflow of $14.1 million was primarily driven by principal payments on and payoffs of our mortgage loan portfolio of $91.2 million, principal payments on and payoffs of our debt securities and beneficial interests of $37.9 million, the sale of $38.9 million of debt securities held as investments and the sale of mortgage loans to Gaea in the amount of $25.4 million, offset by purchases of debt securities and beneficial interests of $144.7 million and acquisitions of mortgage loans of $44.8 million. For the nine months ended September 30, 2019 our investing cash inflow of $108.0 million was primarily driven by the sale of mortgage loans to our 2019-C securitization of $186.1 million and principal payments on and payoffs of our mortgage loan portfolio of $104.0 million, principal payments on and payoffs on debt securities and beneficial interests held as investments of $31.3 million, and the sale of $39.6 million of debt securities held as investments, offset by purchases of debt securities and beneficial interests of $127.6 million and acquisitions of mortgage loans of $116.8 million.

Our financing cash flows are driven primarily by funding used to acquire mortgage loan pools. We fund our mortgage loan pool acquisitions primarily through secured borrowings, repurchase agreements and the proceeds from our convertible debt and equity offerings. For the nine months ended September 30, 2020, we had net financing cash inflows of $62.9 million primarily driven by our issuance of preferred stock and warrants, net of any offering costs, for $125.0 million in a series of private placements to institutional accredited investors. Financing cash flows were also impacted by additional borrowing through repurchase transactions of $270.0 million and secured debt of $114.5 million, offset by repayments of $268.7 million on repurchase transaction and pay downs of existing debt obligations of $153.9 million on secured debt. For the nine months ended September 30, 2019, we had net cash outflows from financing activities of $94.2 million from our pay down of existing debt obligations, primarily driven by repayments of $298.9 million on repurchase transactions and $135.7 million on secured debt, and partially offset by additional borrowing through our repurchase agreements of $198.2 million. For the nine months ended September 30, 2020 and 2019 we paid $11.8 million and $20.2 million, respectively, in combined dividends and distributions.

Financing Activities — Equity offerings

During the nine months ended September 30, 2020, we issued an aggregate of $130.0 million of preferred stock and warrants to institutional accredited investors in a series of private placements. We issued 2,307,400 shares of 7.25% Series A Fixed-to-Floating Rate Preferred Stock and 2,892,600 shares of 5.00% Series B Fixed-to-Floating Rate Preferred Stock, each at a purchase price per share of $25.00 and two series of five-year warrants to purchase an aggregate of 6,500,000 shares of our common stock at an exercise price of $10.00 per share. Each series of warrants includes a put option that allows the holder to sell the warrants to us at a specified put price on or after July 6, 2023. Under GAAP, we are required to allocate the proceeds between the relative fair values of the Preferred stock and warrants. The initial allocation of the proceeds, net of all offering costs, resulted in the Preferred series A shares receiving an allocation of $51.1 million, the Preferred series B shares receiving an allocation of $64.0 million and the warrants an allocation of $9.5 million. We mark the obligation for the warrants and future put liability to market though earnings. We expect to use the net proceeds from the private placement to acquire mortgage loans and mortgage-related assets consistent with our investment strategy.

During the nine months ended September 30, 2020, we did not sell any shares of common stock under our at the market program which we established in October 2016, to sell, through our agents, shares of common stock with an aggregate offering price of up to $50.0 million. In accordance with the terms of the agreements, we may offer and sell shares of our common stock at any time and from time to time through the sales agents. Sales of the shares, if any, will be made by means of ordinary brokers’ transactions on the New York Stock Exchange or otherwise at market prices prevailing at the time of the sale.

Financing Activities — Secured Borrowings and Convertible Senior Notes

From inception (January 30, 2014) to September 30, 2020, we have completed 16 secured borrowings, not including borrowings we completed for our non-consolidated joint ventures (See Table 19: Investments in joint ventures), through securitization trusts pursuant to Rule 144A under the Securities Act, six of which were outstanding at September 30, 2020. The secured borrowings are structured as debt financings and not REMIC sales, and the loans included in the secured borrowings remain on our consolidated balance sheet as we are the primary beneficiary of the secured borrowing trusts, which are VIEs. The secured borrowing VIEs are structured as pass through entities that receive principal and interest on the underlying mortgages and distribute those payments to the holders of the notes. Our exposure to the obligations of the VIEs is generally limited to our investments in the entities. The notes that are issued by the secured borrowing trusts are secured solely by the mortgages held by the applicable trusts and not by any of our other assets. The mortgage loans of the applicable trusts are the only source of repayment and interest on the notes issued by such trusts. We do not guarantee any of the obligations of the trusts under the terms of the agreement governing the notes or otherwise.

Our secured borrowings are generally structured with Class A notes, subordinated notes, and trust certificates, which have rights to the residual interests in the mortgages once the notes are repaid. With the exception of our Ajax Mortgage Loan Trusts 2017-D ("2017-D") secured borrowings, from which we sold a 50% interest in the Class A notes and a 50% interest in the residual equity to third parties and 2018-C secured borrowings, from which we sold a 95% interest in the Class A notes and 37% in the Class B and trust certificates, we have retained the subordinate notes and the applicable trust certificates from the other six secured borrowings outstanding at September 30, 2020.

For all of our secured borrowings the Class A notes are senior, sequential pay, fixed rate notes, and with the exception of 2017-D and 2018-C as noted above, the Class B notes are subordinate, sequential pay, fixed rate notes with the exception of 2019-D, 2019-F and 2020-B which are subordinate, sequential pay, fixed rate notes for Class B-1 and variable rate notes for Class B-2 and Class B-3. The interest rate is effectively the rate equal to the spread between the gross average rate of interest the trust collects on its mortgage loan portfolio minus the rate derived from the sum of the servicing fee and other expenses of the trust. The Class M notes issued under 2017-B, 2019-D, 2019-F and 2020-B are also mezzanine, sequential pay, fixed rate notes.

For all of our secured borrowings, except 2017-B, 2019-D, 2019-F and 2020-B, which contains no interest rate step-up, if the Class A notes have not been redeemed by the payment date or otherwise paid in full 36 months after issue an interest rate step-up of 300 basis points is triggered. Twelve months after the 300 basis point step up is triggered, an additional 100 basis point step up will be triggered, and an amount equal to the aggregate interest payment amount that accrued and would otherwise be paid to the subordinate notes will be paid as principal to the Class A notes on that date and each subsequent payment date until the Class A notes are paid in full. After the Class A notes are paid in full, the subordinate notes will resume receiving their respective interest payment amounts and any interest that accrued but was not paid while the Class A notes were outstanding. As the holder of the trust certificates, we are entitled to receive any remaining amounts in the trusts after the Class A notes and subordinate notes have been paid in full.

The following table sets forth the original terms of all outstanding notes from our secured borrowings outstanding at September 30, 2020 at their respective cutoff dates:

Table 16: Secured Borrowings

Issuing Trust/Issue Date

Interest Rate Step-up Date

Security

Original Principal

Interest Rate

Ajax Mortgage Loan Trust 2017-B/ December 2017

None

Class A notes due 2056

$115.8 million

3.16

None

Class M-1 notes due 2056(3)

$9.7 million

3.50

None

Class M-2 notes due 2056(3)

$9.5 million

3.50

None

Class B-1 notes due 2056(1)

$9.0 million

3.75

None

Class B-2 notes due 2056(1)

$7.5 million

3.75

Trust certificates(2)

$14.3 million

—

Deferred issuance costs

$(1.8) million

—

Ajax Mortgage Loan Trust 2017-D/ December 2017

April 25, 2021

Class A notes due 2057(4)

$177.8 million

3.75

None

Class B certificates(4)

$44.5 million

—

Deferred issuance costs

$(1.1) million

—

Ajax Mortgage Loan Trust 2018-C/ September 2018

October 25, 2021

Class A notes due 2065(5)

$170.5 million

4.36

April 25, 2022

Class B notes due 2065(5)

$15.9 million

5.25

Trust certificates(5)

$40.9 million

—

Deferred issuance costs

$(2.0) million

—

Ajax Mortgage Loan Trust 2019-D/ July 2019

None

Class A-1 notes due 2065

$140.4 million

2.96

None

Class A-2 notes due 2065

$6.1 million

3.50

None

Class A-3 notes due 2065

$10.1 million

3.50

None

Class M-1 notes due 2065(3)

$9.3 million

3.50

None

Class B-1 notes due 2065(6)

$7.5 million

3.50

None

Class B-2 notes due 2065(6)

$7.1 million

variable(7)

None

Class B-3 notes due 2065(6)

$12.8 million

variable(7)

Deferred issuance costs

$(2.7) million

—

Ajax Mortgage Loan Trust 2019-F/ November 2019

None

Class A-1 notes due 2059

$110.1 million

2.86

None

Class A-2 notes due 2059

$12.5 million

3.50

None

Class A-3 notes due 2059

$5.1 million

3.50

None

Class M-1 notes due 2059(1)

$6.1 million

3.50

None

Class B-1 notes due 2059(6)

$11.5 million

3.50

None

Class B-2 notes due 2059(6)

$10.4 million

variable(7)

None

Class B-3 notes due 2059(6)

$15.1 million

variable(7)

Deferred issuance costs

$(1.8) million

—

Ajax Mortgage Loan Trust 2020-B/ August 2020

None

Class A-1 notes due 2059

$97.2 million

1.70

None

Class A-2 notes due 2059

$17.3 million

2.86

None

Class M-1 notes due 2059(3)

$7.3 million

3.70

None

Class B-1 notes due 2059(6)

$5.9 million

3.70

None

Class B-2 notes due 2059(6)

$5.1 million

variable(7)

None

Class B-3 notes due 2059(6)

$23.6 million

variable(7)

Deferred issuance costs

$(1.8) million

—

(1)The Class B notes are subordinated, sequential pay, fixed rate notes with Class B-2 notes subordinate to the Class B-1 notes. We have retained the Class B notes.

(2)The trust certificates issued by the trusts and the beneficial ownership of the trusts are retained by Great Ajax Funding LLC as the depositor. As the holder of the trust certificates, we are entitled to receive any remaining amounts in the trusts after the Class A notes, Class M notes, where present, and Class B notes have been paid in full.

(3)The Class M notes are subordinated, sequential pay, fixed rate notes with Class M-2 notes subordinate to the Class M-1 notes. We retained the Class M notes.

(4)AJAXM 2017-D is a joint venture in which a third party owns 50% of the Class A notes and 50% of the Class B certificates. We are required to consolidate 2017-D and are reflecting 100% of the mortgage loans, in Mortgage loans, net. 50% of the Class A notes, which are held by the third party, are included in Secured borrowings, net. The 50% portion of the Class A notes retained by us have been encumbered under a repurchase agreement. 50% of the Class B certificates are recognized as Non-controlling interest.

(5)AJAXM 2018-C is a joint venture in which a third party owns 95% of the Class A notes and 37% of the Class B notes and certificates. We are required to consolidate 2018-C and are reflecting 100% of the mortgage loans, in Mortgage loans, net. 95% of the Class A notes and 37% of the Class B notes, which are held by the third party, are included in Secured borrowings, net. The 5% portion of the Class A notes retained by us have been encumbered under the repurchase agreement. 37% percent of the Class C certificates are recognized as Non-controlling interest.

(6)The Class B notes are subordinated, sequential pay, with B-2 and B-2 notes having variable interest rates and subordinate to the Class B-1 notes. The Class B-1 notes are fixed rate notes. We have retained the Class B notes.

Convertible Senior Notes

On April 25, 2017, we completed the public offer and sale of $87.5 million in aggregate principal amount of our convertible senior notes (the “notes”) due 2024, with follow-on offerings of an additional $20.5 million and $15.9 million, respectively, in aggregate principal amount completed on August 18, 2017 and November 19, 2018, respectively, which, combined with the notes from our April offering form a single series of fungible securities. The notes bear interest at a rate of 7.25% per annum, payable quarterly in arrears on January 15, April 15, July 15 and October 15 of each year. The notes will mature on April 30, 2024, unless earlier repurchased, converted or redeemed. During certain periods and subject to certain conditions the notes will be convertible by their holders into shares of our common stock at a conversion rate of 1.7279 shares of common stock per $25.00 principal amount of the notes, which represents a conversion price of approximately $14.47 per share of common stock. The conversion rate, and thus the conversion price, may be subject to adjustment under certain circumstances.

During the first and third quarter of 2020, we completed a series of convertible note repurchases for aggregate principal amounts of $8.0 million and $2.5 million, respectively, for total purchase prices of $8.2 million and $2.3 million, respectively. The carrying amounts of the equity component representing the embedded conversion feature reversed from Additional paid-in capital due to the first and third quarter of 2020 transactions were $0.1 million and zero, respectively.

Repurchase Transactions

We have two repurchase facilities whereby we, through two wholly owned Delaware trusts (the “Trusts”), acquire pools of mortgage loans, which are then sold by the Trusts, as “Seller” to two separate counterparties, the “buyer” or “buyers.” One facility has a ceiling of $250.0 million and the other $400.0 million at any one time. Upon the time of the initial sale to the buyer, each Trust, with a simultaneous agreement, also agrees to repurchase the pools of mortgage loans from the buyer. Mortgage loans sold under these facilities carry interest calculated based on a spread to one-month LIBOR, which are fixed for the term of the borrowing. The purchase price that the Trust realizes upon the initial sale of the mortgage loans to the buyer can vary between 70% and 85% of the asset’s acquisition price, depending upon the facility being utilized and/or the quality of the underlying collateral. The obligations of the Trust to repurchase these mortgage loans at a future date are guaranteed by the Operating Partnership. The difference between the market value of the asset and the amount of the repurchase agreement is generally the amount of equity we have in the position and is intended to provide the buyer with some protection against fluctuations in the value of the collateral, and/or a failure by us to repurchase the asset and repay the borrowing at maturity. We also have four repurchase facilities substantially similar to the mortgage loan repurchase facilities where the pledged assets are the class B bonds and certificates from our securitization transactions. These facilities have no effective ceilings. Each repurchase transaction represents its own borrowing. As such, the ceilings associated with these transactions are the amounts currently borrowed at any one time. We have effective control over the assets subject to all of these transactions; therefore, our repurchase transactions are accounted for as financing arrangements.

During the last two weeks of March 2020, we received margin calls from financing counterparties in the amount of $28.2 million due to the turmoil in the financial markets resulting from the COVID-19 outbreak. We ended the first quarter of 2020 with $32.4 million of cash collateral on deposit with our financing counterparties. Subsequent to March 31, 2020, our required cash collateral position has declined as security prices increased and our financing counterparties returned a portion of the cash collateral. As of September 30, 2020, we had $1.0 million of cash collateral on deposit with financing counterparties.

This cash is included in Prepaid expenses and other assets on our consolidated balance sheet at September 30, 2020 and is not netted against our Borrowings under repurchase agreements.

A summary of our outstanding repurchase transactions at September 30, 2020 and December 31, 2019 is as follows ($ in thousands):

Table 17: Repurchase Transactions by Maturity Date


				September 30, 2020
Maturity Date	Origination date	Maximum Borrowing Capacity		Amount Outstanding		Amount of Collateral		Percentage of Collateral Coverage		Interest Rate
October 9, 2020	September 11, 2020	$	35,718	$	35,718	$	47,661	133	%	2.65	%
October 13, 2020	July 13, 2020	30,754		30,754		44,160		144	%	2.97	%
October 20, 2020	July 24, 2020	13,857		13,857		17,813		129	%	2.97	%
October 30, 2020	July 31, 2020	7,762		7,762		9,702		125	%	2.26	%
October 30, 2020	July 31, 2020	6,795		6,795		9,537		140	%	2.26	%
November 13, 2020	August 13, 2020	2,735		2,735		4,428		162	%	2.50	%
December 1, 2020	September 1, 2020	13,533		13,533		17,720		131	%	2.34	%
December 1, 2020	September 1, 2020	13,056		13,056		17,017		130	%	2.34	%
December 1, 2020	September 1, 2020	5,474		5,474		7,215		132	%	2.34	%
December 1, 2020	September 1, 2020	4,068		4,068		5,307		130	%	2.34	%
December 1, 2020	September 1, 2020	2,934		2,934		3,866		132	%	2.34	%
December 1, 2020	September 1, 2020	2,332		2,332		3,360		144	%	2.49	%
December 1, 2020	September 1, 2020	1,132		1,132		1,607		142	%	2.49	%
December 17, 2020	September 17, 2020	11,351		11,351		14,619		129	%	2.35	%
December 17, 2020	September 17, 2020	8,878		8,878		11,678		132	%	2.35	%
December 17, 2020	September 17, 2020	4,110		4,110		5,405		132	%	2.35	%
December 17, 2020	September 17, 2020	1,110		1,110		1,687		152	%	2.50	%
December 24, 2020	September 24, 2020	6,876		6,876		10,024		146	%	2.47	%
December 24, 2020	September 24, 2020	5,145		5,145		6,796		132	%	2.32	%
December 24, 2020	September 24, 2020	2,646		2,646		3,442		130	%	2.32	%
December 28, 2020	September 16, 2020	7,306		7,306		9,532		130	%	2.59	%
January 5, 2021	September 28, 2020	25,044		25,044		33,970		136	%	2.37	%
January 5, 2021	September 28, 2020	24,423		24,423		33,105		136	%	2.37	%
January 6, 2021	September 28, 2020	7,697		7,697		10,299		134	%	2.33	%
January 6, 2021	September 28, 2020	6,311		6,311		9,038		143	%	2.48	%
January 6, 2021	September 28, 2020	4,755		4,755		6,352		134	%	2.33	%
January 6, 2021	September 28, 2020	4,666		4,666		6,222		133	%	2.33	%
January 6, 2021	September 28, 2020	3,213		3,213		4,667		145	%	2.48	%
January 11, 2021	September 29, 2020	5,879		5,879		7,843		133	%	2.32	%
July 9, 2021	July 10, 2020	250,000		43,998		71,384		162	%	2.65	%
September 23, 2021	September 24, 2020	400,000		101,861		161,856		159	%	2.65	%
Totals		$	919,560	$	415,419	$	597,312	144	%	2.56	%


				December 31, 2019
Maturity Date	Origination date	Maximum Borrowing Capacity		Amount Outstanding		Amount of Collateral		Percentage of Collateral Coverage		Interest Rate
January 3, 2020	November 26, 2019	$	8,411	$	8,411	$	11,098	132	%	3.45	%
January 3, 2020	November 26, 2019	6,093		6,093		9,038		148	%	3.45	%
January 3, 2020	November 26, 2019	5,175		5,175		6,855		132	%	3.45	%
January 3, 2020	December 2, 2019	11,966		11,966		15,742		132	%	3.45	%
January 3, 2020	December 2, 2019	10,648		10,648		14,058		132	%	3.45	%
January 3, 2020	December 2, 2019	5,485		5,485		7,050		129	%	3.45	%
January 3, 2020	December 2, 2019	4,096		4,096		5,261		128	%	3.45	%
January 3, 2020	December 2, 2019	1,644		1,644		2,388		145	%	3.55	%
January 3, 2020	December 2, 2019	1,576		1,576		2,287		145	%	3.55	%
January 10, 2020	December 11, 2019	21,088		21,088		28,284		134	%	3.47	%
January 10, 2020	December 11, 2019	1,808		1,808		2,640		146	%	3.57	%
January 13, 2020	July 11, 2019	8,956		8,956		13,016		145	%	4.16	%
January 21, 2020	December 20, 2019	15,718		15,718		20,623		131	%	3.41	%
January 21, 2020	December 20, 2019	10,305		10,305		13,521		131	%	3.41	%
January 21, 2020	December 20, 2019	5,840		5,840		7,324		125	%	3.41	%
January 21, 2020	December 20, 2019	2,784		2,784		4,050		145	%	3.51	%
January 28, 2020	October 30, 2019	5,318		5,318		7,464		140	%	3.19	%
January 28, 2020	October 30, 2019	2,520		2,520		3,381		134	%	2.99	%
February 3, 2020	August 1, 2019	7,568		7,568		9,702		128	%	4.19	%
February 3, 2020	August 1, 2019	6,664		6,664		9,537		143	%	4.19	%
February 24, 2020	November 26, 2019	41,412		41,412		54,828		132	%	2.92	%
March 25, 2020	September 25, 2019	7,075		7,075		10,024		142	%	3.96	%
March 25, 2020	September 25, 2019	5,851		5,851		7,423		127	%	3.81	%
March 26, 2020	September 26, 2019	27,075		27,075		34,591		128	%	3.81	%
March 27, 2020	September 27, 2019	2,915		2,915		3,709		127	%	3.79	%
June 3, 2020	December 6, 2019	6,097		6,097		7,891		129	%	3.64	%
June 3, 2020	December 6, 2019	4,704		4,704		6,106		130	%	3.64	%
June 3, 2020	December 6, 2019	3,053		3,053		4,035		132	%	3.64	%
June 3, 2020	December 6, 2019	2,332		2,332		3,360		144	%	3.79	%
June 3, 2020	December 6, 2019	1,132		1,132		1,607		142	%	3.79	%
June 19, 2020	December 19, 2019	13,447		13,447		18,076		134	%	3.55	%
June 19, 2020	December 19, 2019	1,155		1,155		1,687		146	%	3.70	%
June 30, 2020	December 30, 2019	5,286		5,286		7,044		133	%	3.57	%
June 30, 2020	December 30, 2019	3,324		3,324		4,667		140	%	3.72	%
July 10, 2020	July 15, 2016	250,000		28,931		57,397		198	%	4.28	%
September 24, 2020	September 25, 2019	400,000		116,662		164,403		141	%	4.24	%
Totals		$	918,521	$	414,114	$	580,167	140	%	3.77	%

As of September 30, 2020, we had $415.4 million outstanding under our repurchase transactions compared to $414.1 million as of December 31, 2019. The maximum month-end balance outstanding during the three months ended September 30, 2020 was $421.5 million, compared to a maximum month-end balance for the three months ended December 31, 2019, of $438.4 million. The following table presents certain details of our repurchase transactions for the three months ended September 30, 2020 and December 31, 2019 ($ in thousands):

Table 18: Repurchase Balances


	Three months ended
	September 30, 2020		December 31, 2019
Balance at the end of period	$	415,419	$	414,114
Maximum month-end balance outstanding during the quarter	$	421,542	$	438,388
Average balance	$	396,787	$	422,837

The decrease in our average balance from $422.8 million for the three months ended December 31, 2019 to our average balance of $396.8 million for the three months ended September 30, 2020 was due to a net decrease in repurchase financing during the three months ended September 30, 2020, as a result of decreased investments in mortgage loans and debt securities.

As of September 30, 2020 and December 31, 2019, we did not have any credit facilities or other outstanding debt obligations other than the repurchase facilities, secured borrowings, senior convertible notes and our put obligation on outstanding common stock warrants.

We are not required by our investment guidelines to maintain any specific debt-to-equity ratio, and we believe that the appropriate leverage for the particular assets we hold depends on the credit quality and risk of those assets, as well as the general availability and terms of stable and reliable financing for those assets.

Dividends

We may declare dividends based on, among other things, our earnings, our financial condition, our working capital needs, new opportunities, and distribution requirements imposed on REITs. The declaration of dividends to our stockholders and the amount of such dividends are at the discretion of our Board of Directors.

On November 5, 2020, our Board of Directors declared a cash dividend of $0.17 per share, to be paid on November 30, 2020 to stockholders of record as of November 16, 2020. Our Management Agreement with our Manager requires the payment of an incentive management fee above the amount of the base management fee if either, (1) for any quarterly incentive fee, the sum of cash dividends on our common stock, plus distributions on any externally-held operating partnership units, plus any quarterly increase in book value, all calculated on an annualized basis, exceed 8% of our book, or (2) for any annual incentive fee, the value of quarterly cash dividends on our common stock, plus cash special dividends on our commons stock, plus distributions on our externally-held operating partnership units all paid out within the applicable calendar year, paid out of our taxable income, exceeds of 8% (on an annualized basis) of our stock’s book value. During the three and nine months ended September 30, 2020, we recorded no incentive fee payable to the Manager. Comparatively, during the three and nine months ended September 30, 2019, we recorded $0.5 million and $0.7 million, respectively, for an incentive fee payable to the Manager. Our dividend payments are driven by the amount of our taxable income, subject to IRS rules for maintaining our status as a REIT.

Our most recently declared quarterly dividend represents a payment of approximately 4.43% on an annualized basis of our book value of $15.35 per share at September 30, 2020. If our taxable income increases to the levels we experienced during 2019, we could exceed the threshold for paying an incentive fee to our Manager, and thereby trigger such payments. See Note 10 — Related party transactions.

On March 24, 2020 we announced that we would pay our previously declared cash dividend of $0.32 per share in shares of our common stock. The value was based on the $9.14 per share closing price on the record date. As a result, on March 27, 2020, we issued 781,222 shares of our common stock in fulfillment of the dividend.

Capital Resources

We believe that our capital resources will be sufficient to enable us to meet anticipated short-term and long-term liquidity requirements. As the local and global economies have weakened as a result of the pandemic, ensuring adequate liquidity is critical. We believe we have access to adequate resources to meet the needs of our existing operations, mandatory capital expenditures, dividend payments, and working capital, to the extent not funded by cash provided by operating activities. However, we expect the COVID-19 pandemic to adversely impact our future operating cash flows due to the inability of some of our borrowers to make scheduled payments on time or at all, and the potential for HPA decline.

Off-Balance Sheet Arrangements

Other than our investments in debt securities and beneficial interests issued by joint ventures, which are summarized below by securitization trust and our equity method investments discussed elsewhere in this report, we do not have any relationships with unconsolidated entities or financial partnerships, such as entities often referred to as structured finance or special purpose entities, which would have been established for the purpose of facilitating off-balance sheet arrangements or other contractually narrow or limited purposes. Further, we have not guaranteed any obligations of unconsolidated entities nor do we have any commitment or intent to provide funding to any such entities. As such, we are not materially exposed to any market, credit, liquidity or financing risk that could arise if we had engaged in such relationships.

Table 19: Investments in joint ventures

We form joint ventures with third party institutional accredited investors to purchase mortgage loans and other mortgage related assets. The debt securities and beneficial interests we carry on our consolidated balance sheets are issued by securitization trusts formed by these joint ventures, which are VIEs, that we have sponsored but which we do not consolidate since we have determined we are not the primary beneficiary.

A summary of our investments in joint ventures is presented below(1) ($ in thousands):


						Great Ajax Corp. Ownership
Issuing Trust/Issue Date	Security	Total Original Outstanding Principal		Coupon		Ownership Percent		Original Stated or Notional Principal Balance Retained		Current Owned Stated or Notional Principal Balance Retained
Ajax Mortgage Loan Trust 2018-A/ April 2018	Class A notes due 2058	$	91,036	3.85	%	9.36	%	$	8,521	$	6,222
	Trust certificates	$	22,759	—	%	9.36	%	$	2,130	$	2,144

Ajax Mortgage Loan Trust 2018-B/ June 2018	Class A notes due 2057	$	66,374	3.75	%	20.00	%	$	13,275	$	5,405
	Trust certificates	$	28,447	—	%	20.00	%	$	5,689	$	4,100

Ajax Mortgage Loan Trust 2018-D/ September 2018	Class A notes due 2058	$	80,664	3.75	%	20.00	%	$	16,133	$	13,741
	Trust certificates	$	20,166	—	%	20.00	%	$	4,033	$	3,915

Ajax Mortgage Loan Trust 2018-E/ December 2018	Class A notes due 2058	$	86,089	4.38	%	5.01	%	$	4,313	$	3,869
	Class B notes due 2058	$	8,035	5.25	%	20.00	%	$	1,607	$	1,605
	Trust certificates	$	20,662	—	%	20.00	%	$	4,132	$	4,130

Ajax Mortgage Loan Trust 2018-F/ December 2018	Class A notes due 2058	$	180,002	4.38	%	5.01	%	$	9,018	$	7,214
	Class B notes due 2058	$	16,800	5.25	%	20.00	%	$	2,520	$	3,360
	Trust certificates	$	43,201	—	%	20.00	%	$	6,480	$	8,252

Ajax Mortgage Loan Trust 2018-G/ December 2018	Class A notes due 2057	$	173,562	4.38	%	25.00	%	$	43,390	$	29,491
	Class B notes due 2057	$	16,199	5.25	%	25.00	%	$	4,050	$	4,050
	Trust certificates	$	41,655	—	%	25.00	%	$	10,414	$	10,585


Ajax Mortgage Loan Trust 2019-A/ March 2019	Class A notes due 2057	$	127,801	3.75	%	20.00	%	$	25,560	$	17,720
	Class B notes due 2057	$	11,928	5.25	%	20.00	%	$	2,386	$	2,388
	Trust certificates	$	30,672	—	%	20.00	%	$	6,134	$	6,137

Ajax Mortgage Loan Trust 2019-B/ March 2019	Class A notes due 2059	$	163,325	3.75	%	15.00	%	$	24,499	$	17,017
	Class B notes due 2059	$	15,244	5.25	%	15.00	%	$	2,287	$	2,287
	Trust certificates	$	39,198	—	%	15.00	%	$	5,880	$	5,976

Ajax Mortgage Loan Trust 2019-C/ May 2019	Class A notes due 2058	$	150,037	3.95	%	5.00	%	$	7,502	$	6,340
	Class B notes due 2058	$	14,003	5.25	%	34.00	%	$	4,761	$	4,761
	Trust certificates	$	36,009	—	%	34.00	%	$	12,243	$	12,417

Ajax Mortgage Loan Trust 2019-E/ September 2019	Class A notes due 2059	$	181,101	3.00	%	6.55	%	$	11,862	$	9,532
	Class B notes due 2059	$	16,903	4.88	%	20.00	%	$	3,381	$	3,381
	Trust certificates	$	43,464	—	%	20.00	%	$	8,693	$	8,558

Ajax Mortgage Loan Trust 2019-G/ December 2019	Class A notes due 2059	$	141,420	3.00	%	5.86	%	$	8,287	$	7,844
	Class B notes due 2059	$	13,199	4.25	%	20.00	%	$	2,640	$	2,640
	Trust certificates	$	33,941	—	%	20.00	%	$	6,788	$	6,820

Ajax Mortgage Loan Trust 2019-H/ December 2019	Class A notes due 2059	$	90,381	3.00	%	20.00	%	$	18,076	$	14,619
	Class B notes due 2059	$	8,435	4.25	%	20.00	%	$	1,687	$	1,687
	Trust certificates	$	21,692	—	%	20.00	%	$	4,338	$	4,375

Ajax Mortgage Loan Trust 2020-A/ March 2020	Class A notes due 2059	$	249,384	2.38	%	20.00	%	$	49,877	$	44,160
	Class B notes due 2059	$	23,276	3.50	%	20.00	%	$	4,655	$	4,428
	Trust certificates	$	59,852	—	%	20.00	%	$	11,970	$	11,934

Ajax Mortgage Loan Trust 2020-C/ September 2020	Class A notes due 2060	$	339,365	2.25	%	10.01	%	$	33,970	$	33,970
	Class B notes due 2060	$	21,754	5.00	%	10.01	%	$	2,178	$	2,178
	Trust certificates	$	73,964	—	%	10.01	%	$	7,404	$	7,404

Ajax Mortgage Loan Trust 2020-D/ September 2020	Class A notes due 2060	$	330,721	2.25	%	10.01	%	$	33,105	$	33,105
	Class B notes due 2060	$	30,867	5.00	%	10.01	%	$	3,090	$	3,090
	Trust certificates	$	79,373	—	%	10.01	%	$	7,945	$	7,945

(1)Table does not include our 2017-D and 2018-C securitizations with total original outstanding principal of $222.3 million and $227.3 million, respectively, as these trusts are included in our consolidated financial statements.

Table 20: Contractual Obligations

A summary of our contractual obligations as of September 30, 2020 and December 31, 2019 is as follows ($ in thousands):


September 30, 2020	Payments Due by Period
	Total		Less than 1 Year		1 – 3 Years		3 – 5 Years		More than 5 Years
Convertible senior notes	$	113,350	$	—	$	—	$	113,350	$	—
Borrowings under repurchase agreements	415,419		415,419		—		—		—
Interest on convertible senior notes	31,160		8,218		16,436		6,506		—
Interest on repurchase agreements	4,609		4,609		—		—		—
Put obligation on outstanding common stock warrants	50,707		—		—		50,707		—
Total	$	615,245	$	428,246	$	16,436	$	170,563	$	—


December 31, 2019	Payments Due by Period
	Total		Less than 1 Year		1 – 3 Years		3 – 5 Years		More than 5 Years
Convertible senior notes	$	123,850	$	—	$	—	$	123,850	$	—
Borrowings under repurchase agreements	414,114		414,114		—		—		—
Interest on convertible senior notes	40,780		8,979		17,958		13,843		—
Interest on repurchase agreements	5,699		5,699		—		—		—
Total	$	584,443	$	428,792	$	17,958	$	137,693	$	—

Our secured borrowings are not included in the table above as such borrowings are non-recourse to us and principal and interest are only paid to the extent that cash flows from mortgage loans (in the securitization trust) collateralizing the debt are received. Accordingly, a projection of contractual maturities over the next five years is inapplicable.

Inflation

Virtually all of our assets and liabilities are interest-rate sensitive in nature. As a result, interest rates and other factors influence our performance far more so than does inflation. Changes in interest rates do not necessarily correlate with inflation rates or changes in inflation rates. Our activities and consolidated balance sheet are measured with reference to historical cost and/or fair market value without considering inflation.

Subsequent Events

Since quarter end we have acquired seven residential RPLs and nine residential NPLs with aggregate UPB of $3.3 million and $1.4 million, respectively, in two transactions and one transaction, respectively, from two sellers and one seller, respectively. The purchase price of the residential RPLs and NPLs equals 81.9% and 83.1%, respectively, of UPB and 66.1% and 70.0%, respectively, of the estimated market value of the underlying collateral of $4.1 million and $1.7 million, respectively.

We have also agreed to acquire, subject to due diligence, 28 residential RPLs and 71 NPLs with aggregate UPB of $3.1 million and $16.5 million, respectively, in eight transactions and two transactions, respectively, from eight sellers and two sellers, respectively. The purchase price of the residential RPLs equals 94.3% of UPB and 45.6% of the estimated market value of the underlying collateral of $6.4 million. The purchase price of the NPLs equals 87.1% of UPB and 45.8% of the estimated market value of the underlying collateral of $31.4 million. We also agreed to acquire seven SBC loans with UPB of $9.9 million. The purchase price of the SBC loans equals 102.0% of UPB and 49.6% of the estimated market value of the underlying collateral of $20.3 million.

On November 5, 2020, our Board of Directors declared a cash dividend of $0.17 per share, to be paid on November 30, 2020 to stockholders of record as of November 16, 2020.

Item 3. Quantitative and Qualitative Disclosures about Market Risk

The primary components of our market risk are related to real estate risk, interest rate risk, prepayment risk and credit risk. We seek to actively manage these and other risks and to acquire and hold assets at prices that we believe justify bearing those risks, and to maintain capital levels consistent with those risks. The pandemic presents risks and uncertainties that we describe under “Risk Factors” and many of these are outside of our control.

Real Estate Risk

Residential property values are subject to volatility and may be affected adversely by a number of factors, including, but not limited to, national, regional and local economic conditions (which may be adversely affected by industry slowdowns, public health crises and other factors); local real estate conditions (such as an oversupply of housing); construction quality, age and design; demographic factors; and retroactive changes to building or similar codes. Increases in interest rates will result in lower refinancing volume, and home price increases will slow. Decreases in property values could cause us to suffer losses.

Interest Rate Risk

We expect to continue to securitize our whole loan portfolios, primarily as a financing tool, when economically efficient to create long-term, fixed rate, non-recourse financing with moderate leverage, while retaining one or more tranches of the subordinate MBS so created. Interest rates are highly sensitive to many factors, including governmental monetary and tax policies, domestic and international economic and political considerations and other factors beyond our control. Changes in interest rates may affect the fair value of the mortgage loans and real estate underlying our portfolios as well as our financing interest rate expense. Additionally, rises in interest rates may result in a lower refinance volume of our portfolio.

We believe that a rising interest rate environment could have a positive effect on our operations to the extent we own rental real property or seek to sell real property. Rising interest rates could be accompanied by inflation and higher household incomes which generally correlate closely to higher rent levels and property values. It is possible that the value of our real estate assets and our net income could decline in a rising interest rate environment to the extent that our real estate assets are financed with floating rate debt and there is no accompanying increase in loan yield and rental yield or property values.

Prepayment Risk

Prepayment risk is the risk of change, whether an increase or a decrease, in the rate at which principal is returned in respect of the mortgage loans we own as well as the mortgage loans underlying our retained MBS, including both through voluntary prepayments and through liquidations due to defaults and foreclosures. This rate of prepayment is affected by a variety of factors, including the prevailing level of interest rates as well as economic, demographic, tax, social, legal and other factors. Prepayment rates, besides being subject to interest rates and borrower behavior, are also substantially affected by government policy and regulation. Changes in prepayment rates will have varying effects on the different types of assets in our portfolio. We attempt to take these effects into account. We will generally purchase RPLs and NPLs at discounts from UPB and underlying property values. An increase in prepayments would accelerate the repayment of the discount and lead to increased yield on our assets while also causing re-investment risk that we can find additional assets with the same interest and return levels. A decrease in prepayments would likely have the opposite effects. We currently expect the pace of loan prepayments to

slow due to the pandemic.

Credit Risk

We are subject to credit risk in connection with our assets. While we will engage in diligence on assets we will acquire, such due diligence may not reveal all of the risks associated with such assets and may not reveal other weaknesses in such assets, which could lead us to misprice acquisitions. Property values are subject to volatility and may be affected adversely by a number of factors, including, but not limited to, national, regional and local economic conditions (which may be adversely affected by industry slowdowns, public health crises and other factors), local real estate conditions (such as an oversupply of housing), changes or continued weakness in specific industry segments, construction quality, age and design, demographic factors and retroactive changes to building or similar codes.

There are many reasons borrowers will fail to pay including but not limited to, in the case of residential mortgage loans, reductions in personal income, job loss and personal events such as divorce or health problems, and in the case of commercial mortgage loans, reduction in market rents and occupancies and poor property management services by borrowers. We will rely on the Servicer to mitigate our risk. Such mitigation efforts may include loan modifications and prompt foreclosure and property liquidation following a default. If a sufficient number of re-performing borrowers default, our results of operations will suffer and we may not be able to pay our own financing costs.

Item 4. Controls and Procedures

Evaluation of Disclosure Controls and Procedures

We conducted an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures as of the end of the period covered by this report on Form 10-Q. The controls evaluation was conducted under the supervision and with the participation of management, including our Chief Executive Officer and Chief Financial Officer. Disclosure controls and procedures are controls and procedures designed to reasonably assure that information required to be disclosed in our reports filed under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), such as this Report on Form 10-Q, is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures are also designed to reasonably assure that such information is accumulated and communicated to our management, including the Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.

Based on the controls evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that, as of the end of the period covered by this Form 10-Q, our disclosure controls and procedures were effective to provide reasonable assurance that information required to be disclosed in our Exchange Act reports is recorded, processed, summarized and reported within the time periods specified by the SEC, and that material information related to our company and our consolidated subsidiaries is made known to management, including the Chief Executive Officer and Chief Financial Officer, particularly during the period when our periodic reports are being prepared.

Internal Control Over Financial Reporting

There have been no changes in our internal control over financial reporting that occurred during the last fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

PART II. OTHER INFORMATION

Item 1. Legal Proceedings

Neither we nor any of our affiliates are the subject of any material legal or regulatory proceedings. We and our affiliates may be involved, from time to time, in legal proceedings that arise in the ordinary course of business.

Item 1A. Risk Factors

For information regarding factors that could affect our results of operations, financial condition, and liquidity, see the risk factors discussed under “Risk Factors” in Part I, Item 1A of our Quarterly Reports on Form 10-Q for the quarters ended March 31, 2020 and June 30, 2020. There have been no material changes from these previously disclosed risk factors.

Item 2. Unregistered Sales of Securities

Unregistered Sales of Equity Securities

On August 6, 2020 we issued each of our four independent directors 1,300 shares of common stock in partial payment of their quarterly director fees for the third quarter of 2020. These shares were issued in reliance on the exemption from registration set forth in Section 4(a)(2) of the Securities Act.

Item 3. Defaults Upon Senior Securities

None.

Item 4. Mine Safety Disclosures

Not applicable.

Item 5. Other Information

None.

Item 6. Exhibits

The exhibits listed in the accompanying Exhibit Index are filed or furnished as part of this Quarterly Report on Form 10-Q.

EXHIBIT INDEX


Exhibit Number						Exhibit Description
31.1*						Rule 13a-14(a) Certification of Chief Executive Officer of the Company in accordance with Section 302 of the Sarbanes-Oxley Act of 2002.
31.2*						Rule 13a-14(a) Certification of Chief Financial Officer of the Company in accordance with Section 302 of the Sarbanes-Oxley Act of 2002.
32.1*						Section 1350 Certification of Chief Executive Officer of the Company in accordance with Section 906 of the Sarbanes-Oxley Act of 2002.
32.2*						Section 1350 Certification of Chief Financial Officer of the Company in accordance with Section 906 of the Sarbanes-Oxley Act of 2002.
101.INS**						Inline XBRL Instance Document
101.SCH**						Inline XBRL Taxonomy Extension Schema Document
101.CAL**						Inline XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF**						Inline XBRL Taxonomy Definition Linkbase Document
101.LAB**						Inline XBRL Taxonomy Definition Linkbase Document
101.PRE**						Inline XBRL Taxonomy Extension Presentation Linkbase Document
104**						Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101)

* Filed herewith.

** Furnished herewith.

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.


		GREAT AJAX CORP.

Date: November 6, 2020	By:	/s/ Lawrence Mendelsohn
		Lawrence Mendelsohn
		Chairman and Chief Executive Officer (Principal Executive Officer)

Date: November 6, 2020	By:	/s/ Mary Doyle
		Mary Doyle
		Chief Financial Officer (Principal Financial and Accounting Officer)