Great Ajax Corp. - Quarter Report: 2023 March (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 March 31, 2023
OR
☐ 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 | 46-5211870 | ||||
| State or other jurisdiction of incorporation or organization | (I.R.S. Employer Identification No.) | ||||
13190 SW 68th Parkway, Suite 110
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 May 3, 2023, 23,505,487 shares of the registrant’s common stock, par value $0.01 per share, were outstanding.
TABLE OF CONTENTS
i
PART I. FINANCIAL INFORMATION
Item 1. Consolidated Interim Financial Statements
GREAT AJAX CORP. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
($ in thousands except per share data) | March 31, 2023 | December 31, 2022 | |||||||||
| ASSETS | (Unaudited) | ||||||||||
| Cash and cash equivalents | $ | 49,397 | $ | 47,845 | |||||||
Mortgage loans held-for-investment, net (1,2) | 970,665 | 989,084 | |||||||||
Real estate owned properties, net(3) | 5,092 | 6,333 | |||||||||
Investments in securities available-for-sale(4) | 146,480 | 257,062 | |||||||||
Investments in securities held-to-maturity(5) | 73,907 | — | |||||||||
Investments in beneficial interests(6) | 135,614 | 134,552 | |||||||||
| Receivable from servicer | 9,622 | 7,450 | |||||||||
| Investments in affiliates | 30,560 | 30,185 | |||||||||
| Prepaid expenses and other assets | 18,304 | 11,915 | |||||||||
| Total assets | $ | 1,439,641 | $ | 1,484,426 | |||||||
| LIABILITIES AND EQUITY | |||||||||||
| Liabilities: | |||||||||||
Secured borrowings, net(1,2,7) | $ | 454,664 | $ | 467,205 | |||||||
| Borrowings under repurchase transactions | 418,653 | 445,855 | |||||||||
Convertible senior notes, net(7) | 103,450 | 104,256 | |||||||||
Notes payable, net(7) | 106,258 | 106,046 | |||||||||
| Management fee payable | 1,826 | 1,720 | |||||||||
| Put option liability | 13,775 | 12,153 | |||||||||
| Accrued expenses and other liabilities | 8,460 | 9,726 | |||||||||
| Total liabilities | 1,107,086 | 1,146,961 | |||||||||
| 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, 424,949 shares issued and outstanding at both March 31, 2023 and December 31, 2022 | 9,411 | 9,411 | |||||||||
Series B 5.00% Fixed-to-Floating Rate Cumulative Redeemable, $25.00 liquidation preference per share, 1,135,590 shares issued and outstanding at both March 31, 2023 and December 31, 2022 | 25,143 | 25,143 | |||||||||
Common stock $0.01 par value; 125,000,000 shares authorized, 23,509,446 shares issued and outstanding at March 31, 2023 and 23,130,956 shares issued and outstanding at December 31, 2022 | 245 | 241 | |||||||||
| Additional paid-in capital | 325,462 | 322,439 | |||||||||
| Treasury stock | (9,532) | (9,532) | |||||||||
| Retained earnings | (544) | 13,275 | |||||||||
| Accumulated other comprehensive loss | (19,763) | (25,649) | |||||||||
| Equity attributable to stockholders | 330,422 | 335,328 | |||||||||
Non-controlling interests(8) | 2,133 | 2,137 | |||||||||
| Total equity | 332,555 | 337,465 | |||||||||
| Total liabilities and equity | $ | 1,439,641 | $ | 1,484,426 | |||||||
The accompanying notes are an integral part of the consolidated financial statements.
1
(1)Mortgage loans held-for-investment, net include $664.2 million and $675.8 million of loans at March 31, 2023 and December 31, 2022, 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 held-for-investment, net include $4.3 million and $6.1 million of allowance for expected credit losses at March 31, 2023 and December 31, 2022, respectively.
(2)As of both March 31, 2023 and December 31, 2022, balances for Mortgage loans held-for-investment, net include $0.9 million from a 50.0% owned joint venture, which the Company consolidates under U.S. Generally Accepted Accounting Principles ("U.S. GAAP" or "GAAP").
(3)Real estate owned properties, net, are presented net of valuation allowances of $0.8 million and $0.7 million at March 31, 2023 and December 31, 2022, respectively.
(4)Investments in securities available-for-sale (“AFS”) are presented at fair value. As of March 31, 2023, Investments in securities AFS include an amortized cost basis of $157.3 million and a net unrealized loss of $10.9 million. As of December 31, 2022, Investments in securities AFS include an amortized cost basis of $282.7 million and net unrealized loss of $25.6 million.
(5)On January 1, 2023, the Company transferred certain of its investments in securities to held-to-maturity ("HTM") due to European risk retention regulations. Investments in securities HTM includes an allowance for expected credit losses of zero and remaining discount of $8.9 million related to the unamortized unrealized loss in AOCI from transfer at March 31, 2023.
(6)Investments in beneficial interests includes allowance for expected credit losses of zero at both March 31, 2023 and December 31, 2022.
(7)Secured borrowings, net are presented net of deferred issuance costs of $4.3 million at March 31, 2023 and $4.7 million at December 31, 2022. Convertible senior notes, net are presented net of deferred issuance costs of $0.1 million and $0.3 million at March 31, 2023 and December 31, 2022, respectively. Notes payable, net are presented net of deferred issuance costs and discount of $3.7 million at March 31, 2023 and $4.0 million at December 31, 2022.
(8)As of March 31, 2023, non-controlling interests includes $1.0 million from a 50.0% owned joint venture, $1.0 million from a 53.1% owned subsidiary and $0.1 million from a 99.9% owned subsidiary. As of December 31, 2022, non-controlling interests includes $1.0 million from a 50.0% owned joint venture, $1.1 million from a 53.1% owned subsidiary and $0.1 million from a 99.9% owned subsidiary which the Company consolidates.
The accompanying notes are an integral part of the consolidated interim financial statements.
2
GREAT AJAX CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
| Three months ended | |||||||||||
($ in thousands except per share data) | March 31, 2023 | March 31, 2022 | |||||||||
| INCOME | |||||||||||
| Interest income | $ | 18,456 | $ | 23,212 | |||||||
| Interest expense | (14,925) | (8,606) | |||||||||
| Net interest income | 3,531 | 14,606 | |||||||||
| Net decrease in the net present value of expected credit losses | 621 | 3,978 | |||||||||
| Net interest income after the impact of changes in the net present value of expected credit losses | 4,152 | 18,584 | |||||||||
| Loss from investments in affiliates | (98) | (63) | |||||||||
| Loss on joint venture refinancing on beneficial interests | (995) | (3,973) | |||||||||
| Other (loss)/income | (2,519) | 423 | |||||||||
| Total revenue, net | 540 | 14,971 | |||||||||
| EXPENSE | |||||||||||
| Related party expense – loan servicing fees | 1,860 | 2,091 | |||||||||
| Related party expense – management fee | 1,828 | 2,293 | |||||||||
| Professional fees | 934 | 345 | |||||||||
| Fair value adjustment on put option liability | 1,622 | 3,200 | |||||||||
| Other expense | 1,614 | 1,437 | |||||||||
| Total expense | 7,858 | 9,366 | |||||||||
| Gain on debt extinguishment | (47) | — | |||||||||
| (Loss)/income before provision for income taxes | (7,271) | 5,605 | |||||||||
| Provision for income taxes (benefit) | 93 | (26) | |||||||||
| Consolidated net (loss)/income | (7,364) | 5,631 | |||||||||
| Less: consolidated net income attributable to the non-controlling interest | 30 | 96 | |||||||||
| Consolidated net (loss)/income attributable to the Company | (7,394) | 5,535 | |||||||||
| Less: dividends on preferred stock | 547 | 1,949 | |||||||||
| Consolidated net (loss)/income attributable to common stockholders | $ | (7,941) | $ | 3,586 | |||||||
| Basic (loss)/earnings per common share | $ | (0.34) | $ | 0.15 | |||||||
| Diluted (loss)/earnings per common share | $ | (0.34) | $ | 0.15 | |||||||
| Weighted average shares – basic | 22,920,943 | 22,922,316 | |||||||||
| Weighted average shares – diluted | 22,920,943 | 22,922,316 | |||||||||
The accompanying notes are an integral part of the consolidated interim financial statements.
3
GREAT AJAX CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS
(Unaudited)
| Three months ended | |||||||||||
| ($ in thousands) | March 31, 2023 | March 31, 2022 | |||||||||
| Consolidated net (loss)/income attributable to common stockholders | $ | (7,941) | $ | 3,586 | |||||||
| Other comprehensive loss: | |||||||||||
| Unrealized gain/(loss) on available-for-sale securities | 3,853 | (9,778) | |||||||||
| Amortization of unrealized loss on debt securities available-for-sale transferred to held-to-maturity | 2,033 | — | |||||||||
| Income tax expense related to items of other comprehensive income | — | — | |||||||||
| Comprehensive loss | $ | (2,055) | $ | (6,192) | |||||||
The accompanying notes are an integral part of the consolidated interim financial statements.
4
GREAT AJAX CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
| Three months ended | |||||||||||
| ($ in thousands) | March 31, 2023 | March 31, 2022 | |||||||||
| CASH FLOWS FROM OPERATING ACTIVITIES | |||||||||||
| Consolidated net (loss)/income | $ | (7,364) | $ | 5,631 | |||||||
| Adjustments to reconcile net income to net cash from operating activities | |||||||||||
| Stock-based management fee and compensation expense | 600 | 761 | |||||||||
| Discount accretion on mortgage loans | (1,713) | (4,251) | |||||||||
| Interest and discount accretion on investment in debt securities | (2,464) | (2,763) | |||||||||
| Discount accretion on investment in beneficial interests | (2,057) | (4,153) | |||||||||
| Gain on debt extinguishment | (47) | — | |||||||||
| (Gain)/loss on sale of real estate owned properties | (91) | 16 | |||||||||
| Loss on sale of securities | 2,974 | — | |||||||||
| Impairment of real estate owned | 111 | 169 | |||||||||
| Credit loss expense on mortgage loans and beneficial interests | 44 | 161 | |||||||||
| Net decrease in the net present value of expected credit losses | (621) | (3,978) | |||||||||
| Loss on loans and joint venture refinancing on beneficial interests | 995 | 3,973 | |||||||||
| Amortization of debt discount and prepaid financing costs | 845 | 1,041 | |||||||||
| Undistributed loss from investment in affiliates | 98 | 63 | |||||||||
| Fair value adjustment on put option liability | 1,622 | 3,200 | |||||||||
| Net change in operating assets and liabilities | |||||||||||
| Prepaid expenses and other assets | (6,405) | (9,822) | |||||||||
| Receivable from Servicer | (2,172) | 1,764 | |||||||||
| Accrued expenses, management fee payable, and other liabilities | (1,160) | (2,878) | |||||||||
| Net cash from operating activities | (16,805) | (11,066) | |||||||||
| CASH FLOWS FROM INVESTING ACTIVITIES | |||||||||||
| Purchase of mortgage loans and related balances | (604) | (903) | |||||||||
| Principal paydowns on mortgage loans | 21,482 | 54,350 | |||||||||
| Proceeds from refinancing and sale of securities available-for-sale | 29,413 | — | |||||||||
| Purchase of securities available-for-sale and beneficial interests | (16,335) | — | |||||||||
| Principal and interest collection on debt securities available-for-sale and beneficial interests | 17,721 | 21,194 | |||||||||
| Principal and interest collection on debt securities held-to-maturity | 11,251 | — | |||||||||
| Proceeds from sale of property held-for-sale | 1,052 | 121 | |||||||||
| Investment in equity method investments | (726) | (6,090) | |||||||||
| Distribution from affiliates | 252 | 352 | |||||||||
| Net cash from investing activities | 63,506 | 69,024 | |||||||||
| CASH FLOWS FROM FINANCING ACTIVITIES | |||||||||||
| Proceeds from repurchase transactions | 13,376 | 6,006 | |||||||||
| Repayments on repurchase transactions | (40,578) | (29,486) | |||||||||
| Repayments on secured borrowings | (12,963) | (39,422) | |||||||||
| Repurchase of the Company's senior convertible notes | (952) | — | |||||||||
| Sale of common stock, net of offering costs | 2,427 | — | |||||||||
| Sale of common stock pursuant to dividend reinvestment plan | — | 115 | |||||||||
The accompanying notes are an integral part of the consolidated interim financial statements.
5
| Distribution to non-controlling interests | (34) | (909) | |||||||||
| Dividends paid on common stock and preferred stock | (6,425) | (7,966) | |||||||||
| Net cash from financing activities | (45,149) | (71,662) | |||||||||
| NET CHANGE IN CASH AND CASH EQUIVALENTS | 1,552 | (13,704) | |||||||||
| CASH AND CASH EQUIVALENTS, beginning of period | 47,845 | 84,426 | |||||||||
| CASH AND CASH EQUIVALENTS, end of period | $ | 49,397 | $ | 70,722 | |||||||
| SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION | |||||||||||
| Cash paid for interest | $ | 14,894 | $ | 7,819 | |||||||
| Cash paid for income taxes | $ | 215 | $ | 62 | |||||||
| SUPPLEMENTAL DISCLOSURE OF NONCASH INVESTING AND FINANCING ACTIVITIES | |||||||||||
| Transfer of debt securities from investments in securities available-for-sale to investments in securities held-to-maturity | $ | 83,022 | $ | — | |||||||
| Unrealized gain/(loss) on available-for-sale securities | $ | 3,853 | $ | (9,778) | |||||||
| Amortization of unrealized loss on debt securities transferred to held-to-maturity | $ | 2,033 | $ | — | |||||||
| Issuance of common stock for management fee and compensation expense | $ | 600 | $ | 761 | |||||||
| Net transfer of loans (from)/to property held-for-sale | $ | (169) | $ | 828 | |||||||
| Non-cash adjustments to basis in mortgage loans | $ | — | $ | 18 | |||||||
| Treasury stock received through distributions from investment in Manager | $ | — | $ | (117) | |||||||
| Net transfer of loans to mortgage held-for-investment, net from mortgage loans held-for-sale, net | $ | — | $ | (29,572) | |||||||
The accompanying notes are an integral part of the consolidated interim financial statements.
6
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 income/(loss) | Total stockholders' equity | Non-controlling interest | Total equity | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Balance at three months ended March 31, 2022 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Balance at December 31, 2021 | 2,307,400 | $ | 51,100 | 2,892,600 | $ | 64,044 | 23,146,775 | $ | 233 | $ | (1,691) | $ | 316,162 | $ | 66,427 | $ | 1,020 | $ | 497,295 | $ | 3,178 | $ | 500,473 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Net income | — | — | — | — | — | — | — | — | 5,535 | — | 5,535 | 96 | 5,631 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Issuance of shares under dividend reinvestment plan | — | — | — | — | 9,739 | — | — | 115 | — | — | 115 | — | 115 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Distribution to non-controlling interest | — | — | — | — | — | — | — | — | — | — | — | (819) | (819) | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Stock-based management fee expense | — | — | — | — | 39,558 | 1 | — | 436 | — | — | 437 | — | 437 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Stock-based compensation expense | — | — | — | — | 8,900 | — | — | 324 | — | — | 324 | — | 324 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Dividends declared ($0.26 per share) and distributions | — | — | — | — | — | — | — | — | (7,966) | — | (7,966) | (90) | (8,056) | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Other comprehensive loss | — | — | — | — | — | — | — | — | — | (9,778) | (9,778) | — | (9,778) | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Reclass of conversion premium - convertible notes | — | — | — | — | — | — | — | (711) | — | — | (711) | — | (711) | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Treasury stock | — | — | — | — | (10,406) | — | (117) | — | — | — | (117) | — | (117) | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Balance at March 31, 2022 | 2,307,400 | $ | 51,100 | 2,892,600 | $ | 64,044 | 23,194,566 | $ | 234 | $ | (1,808) | $ | 316,326 | $ | 63,996 | $ | (8,758) | $ | 485,134 | $ | 2,365 | $ | 487,499 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||
The accompanying notes are an integral part of the consolidated interim financial statements.
7
($ 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 income/(loss) | Total stockholders' equity | Non-controlling interest | Total equity | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Balance at three months ended March 31, 2023 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Balance at December 31, 2022 | 424,949 | $ | 9,411 | 1,135,590 | $ | 25,143 | 23,130,956 | $ | 241 | $ | (9,532) | $ | 322,439 | $ | 13,275 | $ | (25,649) | $ | 335,328 | $ | 2,137 | $ | 337,465 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Net loss | — | — | — | — | — | — | — | — | (7,394) | — | (7,394) | 30 | (7,364) | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Sale of shares | — | — | — | — | 345,578 | 4 | — | 2,423 | — | — | 2,427 | — | 2,427 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Stock-based compensation expense | — | — | — | — | 32,912 | — | — | 600 | — | — | 600 | — | 600 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Dividends declared ($0.25 per share) and distributions | — | — | — | — | — | — | — | — | (6,425) | — | (6,425) | (34) | (6,459) | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Amortization of unrealized loss on debt securities available-for-sale transferred to held-to-maturity | — | — | — | — | — | — | — | — | — | 2,033 | 2,033 | — | 2,033 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Other comprehensive income | — | — | — | — | — | — | — | — | — | 3,853 | 3,853 | — | 3,853 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Balance at March 31, 2023 | 424,949 | $ | 9,411 | 1,135,590 | $ | 25,143 | 23,509,446 | $ | 245 | $ | (9,532) | $ | 325,462 | $ | (544) | $ | (19,763) | $ | 330,422 | $ | 2,133 | $ | 332,555 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||
The accompanying notes are an integral part of the consolidated interim financial statements.
8
GREAT AJAX CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED INTERIM FINANCIAL STATEMENTS
March 31, 2023
(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 facilitates capital raising activities and operates as a mortgage real estate investment trust (“REIT”). The Company primarily targets acquisitions of (i) 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 and (ii) non-performing loans ("NPLs"), which are residential mortgage loans on which the most recent three payments have not been made. The Company may acquire RPLs and NPLs either directly or in joint ventures with institutional accredited investors. The joint ventures are structured as securitization trusts, of which the Company acquires debt securities and beneficial interests. The Company may also acquire or originate small balance commercial loans (“SBC loans”). The SBC loans that the Company opportunistically targets 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. 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 9.6% 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, Great Ajax Operating LLC, 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 (“REO”) properties 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 March 31, 2023, held 99.9% of Great Ajax II REIT Inc., which owns 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. Similarly, as of March 31, 2023, the Operating Partnership wholly owned Great Ajax III Depositor LLC, which was formed to act as the depositor into Ajax Mortgage Loan Trust 2021-E ("2021-E"), which is a real estate mortgage investment conduit ("REMIC"). The Company has securitized mortgage loans through these securitization trusts and retained subordinated securities from the secured borrowings. These trusts are considered to be VIEs, and the Company has determined that it is the primary beneficiary of the VIEs.
In 2018, the Company formed Gaea Real Estate Corp. ("Gaea"), as a wholly-owned subsidiary of the Operating Partnership that invests in multifamily properties with a focus on property appreciation and triple net lease veterinary clinics. The Company elected to treat Gaea as a TRS under the Code in 2018 and elected to treat Gaea as a REIT under the Code in 2019 and thereafter. 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, and Gaea Real Estate Operating LLC, to act as its general partner. The Company also formed Gaea Veterinary Holdings LLC, BFLD Holdings LLC, Gaea Commercial Properties LLC, Gaea Commercial Finance LLC and Gaea RE Holdings LLC as subsidiaries of Gaea Real Estate Operating Partnership.
The accompanying notes are an integral part of the consolidated interim financial statements.
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In 2019, the Company 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 transaction through which it raised $66.3 million from the issuance of its common stock to third parties to allow Gaea to continue to advance its investment strategy. Additionally, in January 2022, Gaea completed a second private capital raise in which it raised approximately $30.0 million from the issuance of its common stock and warrants. At March 31, 2023, the Company owned approximately 22.0% of Gaea. 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 year ended December 31, 2022, included in the Company's Annual Report on Form 10-K filed with the Securities and Exchange Commission (the "SEC") on March 3, 2023.
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, 2023. 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 three 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 owns residential mortgage loans and residential real estate assets; AS Ajax E II is 53.1% owned by the Company at both March 31, 2023 and December 31, 2022. Ajax Mortgage Loan Trust 2017-D ("2017-D") is a securitization trust that holds mortgage loans, REO property and secured borrowings; 2017-D is 50.0% owned by the Company. Great Ajax II REIT Inc. wholly owns Great Ajax II Depositor LLC which acts as the depositor of mortgage loans into securitization trusts and holds the subordinated securities issued by such trusts and any additional trusts the Company may form for additional secured borrowings is 99.9% owned by the Company as of March 31, 2023 and December 31, 2022. 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.
As of March 31, 2023 and December 31, 2022, the Operating Partnership wholly owned Great Ajax III Depositor LLC, which was formed to act as the depositor into Ajax Mortgage Loan Trust 2021-E ("2021-E"), which is a REMIC.
During January 2023, the Company contributed an additional $0.7 million equity interest in GAFS. As of March 31, 2023 and December 31, 2022, the Company's ownership of GAFS was 9.6% and 8.0%, respectively.
The Company’s 19.8% ownership of the Manager and 9.6% ownership of 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 either the Manager or GAFS.
Note 2 — Summary of Significant Accounting Policies
Mortgage Loans
Purchased Credit Deteriorated Loans ("PCD loans")
As of their acquisition date, the loans acquired by the Company have generally suffered some credit deterioration subsequent to origination. As a result, the Company’s recognition of interest income for PCD loans is based upon it 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. The Company adopted ASU 2016-13, Financial Instruments - Credit Losses, otherwise known as 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 expected credit losses with no net impact on the amortized cost basis of the portfolio.
The accompanying notes are an integral part of the consolidated interim financial statements.
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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. The Company may adjust its loan pools as the underlying risk factors change over time. The Company has aggregated its mortgage loan portfolio into loan pools based on 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 expected credit losses. Upon the acquisition of PCD loans the Company records the acquisition as three separate elements for (i) the amount of purchase discount which the Company expects to recover through eventual repayment by the borrower, (ii) an allowance for future expected credit loss and (iii) the unpaid principal balance (“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. Expected cash flows from acquired loans include all cash flows directly related to the 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. The net present value of changes in expected cash flows as compared to contractual amounts due, whether caused by timing or loan performance, is reported in the period in which it arises and is reflected as an increase or decrease in the provision for expected credit losses to the extent a provision for expected credit losses is recorded against the pool of mortgage loans. If no provision for expected credit losses is recorded against the pool of assets, the increase in expected future cash flows is recognized prospectively as an increase in yield.
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 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.
Non-PCD Loans
While the Company generally acquires loans that have experienced deterioration in credit quality, it may acquire loans that have not experienced a deterioration in credit quality or originate SBC loans.
The Company accounts for its non-PCD loans by estimating any allowance for expected credit losses for its non-PCD loans based on the risk characteristics of the individual loans. If necessary, an allowance for expected credit losses is established through a provision for loan losses. The allowance is the difference between the net present value of the expected future cash flows from the loan and the contractual balance due. 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.
Investments in Securities
The Company’s Investments in Securities Available-for-Sale ("AFS") and Investments in Securities Held-to-Maturity ("HTM") consist of investments in senior and subordinate notes issued by joint ventures which the Company forms with third party institutional accredited investors. Investments in debt securities for which the Company does not have the positive intent and ability to hold to maturity are classified as AFS. Investments in debt securities for which the Company has the positive intent, ability, or are required to hold to maturity are classified as HTM.
The accompanying notes are an integral part of the consolidated interim financial statements.
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The Company recognizes income on the AFS debt securities using the effective interest method. Historically, the notes have been classified as AFS 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 are expected 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 operations.
On January 1, 2023, the Company transferred $83.0 million of investment securities from AFS to HTM due to sale restrictions pursuant to Article 6(1) of Regulation (EU) 2017/2402 of the European Parliament and of the Council (as amended, the “EU Securitization Regulation” and, together with applicable regulatory and implementing technical standards in relation thereto, the “EU Securitization Rules”). Pursuant to the terms of these debt securities, the Company must hold at least 5.01% of the nominal value of each class of securities offered or sold to investors (the EU Retained Interest) subject to the EU Securitization Rules. Under the EU Securitization Rules, the Company is prohibited from selling, transferring or otherwise surrendering all or part of the EU Retained Interest until all such classes are paid in full or redeemed.
Transfers of securities from AFS to HTM are non-cash transactions and are recorded at fair value. Unrealized gains or losses recorded to accumulated other comprehensive income for the transferred securities continue to be reported in accumulated other comprehensive income and are amortized into interest income on a level-yield basis over the remaining life of the securities. This amortization will offset the effect on interest income of the amortization of the discount resulting from the transfer recorded at fair value.
The Company accounts for its investments in securities HTM under CECL and carries them at amortized cost. Interest income is recognized using the effective interest method and is based upon the Company having a reasonable expectation of the amount and timing of the cash flows expected to be collected. The Company’s expectation of the amount of undiscounted cash flows to be collected, and the corresponding need for an allowance for credit loss, is evaluated at the end of each calendar quarter and takes into consideration past events, current conditions, and supportable forecasts about the future. The net present value of changes in expected cash flows as compared to contractual amounts due, whether caused by timing or investment performance, is reported in the period in which it arises and is reflected as an increase or decrease in the allowance for credit loss to the extent an allowance for credit loss is recorded against the investments. If no allowance for credit loss is recorded against the investment, the increase in expected future cash flows is recognized prospectively as an increase in yield.
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 consist of the residual investment in the securitization trusts which the Company forms with third party institutional accredited investors. The Company accounts for its Investments in Beneficial Interests under CECL, which it adopted using the prospective transition approach. At adoption, $1.7 million of discount was reclassified to the allowance for expected credit losses with no net impact on the amortized cost basis of the beneficial interests. Each beneficial interest is accounted for individually, and the Company recognizes its ratable share of gain, loss, income or expense based on its percentage ownership interest.
The Company's Investments in Beneficial Interests are carried at amortized cost. Upon acquisition, the investments are recorded as three separate elements: (i) the amount of purchase discount which the Company expects to recover through eventual repayment of the investment, (ii) an allowance for future expected credit loss and (iii) the par value of the investment. The purchase discount which the Company expects to recover through eventual repayment of the investment gives rise to an accretable yield. The Company recognizes this accretable yield as interest income on a prospective level yield basis over the life of the investment. The Company’s recognition of interest income is based upon it 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 these expected cash flows to apply the effective interest method of income recognition.
The accompanying notes are an integral part of the consolidated interim financial statements.
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The Company’s expectation of the amount of undiscounted cash flows to be collected is evaluated at the end of each calendar quarter. The net present value of changes in expected cash flows as compared to contractual amounts due, whether caused by timing or investment performance, is reported in the period in which it arises and is reflected as an increase or decrease in the allowance for expected credit losses to the extent a provision for expected credit losses is recorded against the investment. If no provision for expected credit losses is recorded against the investment, the increase in expected future cash flows is recognized prospectively as an increase in yield.
Risks inherent in the Company's beneficial interest portfolio 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 beneficial interests 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.
Real Estate
The Company generally acquires real estate properties through one of three instances, either directly through purchases, when it forecloses on a borrower and takes title to the underlying property, or when 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.
Preferred Stock
During the year ended December 31, 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. The shares have a liquidation preference of $25.00 per share.
During the year ended December 31, 2022, the Company completed a series of preferred share repurchases. The Company repurchased and retired 1,882,451 shares of its 7.25% Series A Fixed-to-Floating Rate Preferred Stock and 1,757,010 shares of its 5.00% Series B Fixed-to-Floating Rate Preferred Stock.
Put Option Liability
As part of the Company’s capital raise transactions during the three months 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.
The warrants include 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. U.S. 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 sheets with an original basis of $9.5 million. During the year ended December 31, 2022, the Company repurchased and retired a portion of its warrants. As of March 31, 2023, the basis of the warrants was $2.9 million. The Company is accreting the amount of the liability under the effective interest method to its expected future put value and marks the obligation to market through earnings at each balance sheet date. The Company determines the fair value using a discounted cash flow method. The future put obligation was $15.7 million as of March 31, 2023 from an original value of $15.7 million due to the Company's repurchases and retirement of warrants.
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
The accompanying notes are an integral part of the consolidated interim financial statements.
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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 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's unrated securitizations have a call provision and 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 expense when incurred.
Convertible Senior Notes
During 2017 and 2018, the Company completed the public offer and sale of its convertible senior notes due 2024 (the "2024 Notes"). At March 31, 2023 and December 31, 2022, the UPB of the debt was $103.5 million and $104.5 million, respectively. The 2024 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 2024 Notes will mature on April 30, 2024, unless earlier repurchased, converted or redeemed. During certain periods and subject to certain conditions, the 2024 Notes will be convertible by their holders into shares of the Company’s common stock at a current conversion rate of 1.7405 shares of common stock per $25.00 principal amount of the notes, which represents a conversion price of approximately $14.36 per share of common stock. The conversion rate, and thus the conversion price, are subject to adjustment under certain circumstances.
Coupon interest on the 2024 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 reduction of the carrying value of the 2024 Notes, and are amortized to interest expense on an effective yield basis through April 30, 2023, the date at which the 2024 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. No sinking fund has been established for redemption of the principal.
On January 1, 2022, the Company adopted 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) by recording a reduction in its additional paid-in capital account of $0.7 million and a corresponding increase in the carrying value of its Convertible senior notes of $0.7 million, representing the carrying value of the conversion feature associated with the notes.
Notes Payable
During August 2022, the Operating Partnership issued $110.0 million aggregate principal amount of 8.875% senior unsecured notes due September 2027 (the "2027 Notes"). The 2027 Notes have a five year term and were issued at 99.009% of par value and are fully and unconditionally guaranteed by the Company and two of its subsidiaries: Great Ajax Operating LLC (the "GP Guarantor") and Great Ajax II Operating Partnership L.P. (the "Subsidiary Guarantor," and together with the Company and the GP Guarantor, the "Guarantors"). The 2027 Notes are included in the Company's liabilities in its consolidated balance sheet at March 31, 2023 and December 31, 2022. Interest on the 2027 Notes is payable semi-annually on March 1 and September 1, with the first payment due and payable on March 1, 2023. The 2027 Notes will mature on September 1, 2027. Net proceeds from the sale of the 2027 Notes totaled approximately $106.1 million, after deducting the discount, commissions, and
The accompanying notes are an integral part of the consolidated interim financial statements.
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offering expenses which will be amortized over the term of the 2027 Notes using the effective interest method. The Company used $90.0 million of the proceeds to repurchase and retire a portion of its outstanding 7.25% Series A and 5.00% Series B Fixed-to-Floating Rate Preferred Stock at a discount, and a proportionate amount of outstanding warrants. The remainder of the proceeds is expected to be used for general corporate purposes. At both March 31, 2023 and December 31, 2022, the UPB of the 2027 Notes was $110.0 million.
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 April 28, 2020, as amended on March 1, 2023, 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.
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. Also, under the First Amendment to the Third Amended and Restated Management Agreement with the Manager, which has an effective date of March 1, 2023, the Company's quarterly base management fee will include, in its computation of equity managed, its unsecured debt securities to the extent the proceeds were used to repurchase the Company's preferred stock.
The Company may be required to pay a quarterly incentive management fee based on its cash distributions to its stockholders and the change in book value, and has the option to pay up to 100% of the base and incentive fees in cash or in shares of the Company's common stock. Management fees are expensed in the quarter incurred and the portion payable in common stock, if any, is accrued 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 UPB of loans that are re-performing at acquisition to 1.25% annually of UPB of loans that are non-performing at acquisition. Servicing fees are paid monthly. The total fees incurred by the Company for these services depends 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, for fees based on mortgage loans, and property values, previous UPB of the relevant loan, and the number of REO properties for fees based on 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) is determined based on the average of the closing prices of the Company's common stock on the New York Stock Exchange ("NYSE") on the five business days preceding the record date of the most recent regular quarterly dividend to holders of the common stock. Any management fees paid in common stock are recognized as an expense in the quarter incurred and accrued at quarter end. The shares vest immediately upon issuance. The Manager has agreed to hold any
The accompanying notes are an integral part of the consolidated interim financial statements.
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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 awards, including grants of long-term incentive plan units (“LTIP Units”) from the Operating Partnership, available for issuance under the Director Plan is 35,000 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. The Company may also periodically issue additional restricted stock awards to its independent directors under the Director Plan. In addition, each of the Company’s independent directors received an annual retainer of $140,000, payable quarterly, 50% of which is payable in shares of the Company's common stock and 50% in cash. The committee chairpersons also receive annual fees for their services. The chairpersons of the Compensation and Corporate Governance committees each received an annual retainer of $15,000, payable quarterly, 100% in cash. The chairperson of the Audit committee received an annual fee of $20,000, payable quarterly, 100% in cash. Stock-based expense for the directors’ annual fee and the committee chairperson’s annual fee is expensed as earned, in equal quarterly amounts during the year, and accrued at quarter end.
Under the Company's 2016 Equity Incentive Plan (the “2016 Plan”) the Company may make stock-based awards 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 conversion of any outstanding warrants and convertible senior notes into shares of common stock). Grants of 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. Share grants vest over the relevant service periods. The grant shares may not be sold by the recipient until the end of the service period, even if certain of the shares were subject to a ratable vesting and were fully vested before completion of the service period.
Directors’ Fees
The expense related to directors’ fees is accrued, and the portion payable in common stock is accrued 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.
Earnings per Share
The Company periodically grants restricted common 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.
The accompanying notes are an integral part of the consolidated interim financial statements.
16
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 its 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 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 loans.
The fair value of investments in debt securities AFS and HTM are determined using estimates provided by the Company's financing counterparties. The Company also relies on the 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 fair value of investments in beneficial interests represent the residual investment in securitization trusts the Company forms with joint venture partners. The Company relies on its Manager's proprietary pricing model to estimate the underlying cash flows expected to be collected on its investments in beneficial interests.
The accompanying notes are an integral part of the consolidated interim financial statements.
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The fair value of the Company's ownership interest in the Manager is valued by applying an earnings multiple to base fee revenue.
The fair value of the Company's ownership interests in AS Ajax E LLC and AS Ajax E II LLC are valued using estimates provided by financing counterparties and other publicly available information.
The fair value of the Company's ownership interest in GAFS, including warrants, is determined by applying an earnings multiple to expected earnings.
The fair value of the Company's ownership interest in Gaea is estimated using an implied capitalization rate applied to the value of the underlying properties and the Manager's propriety pricing model for loans.
The fair value of the Company's ownership interest in the loan pool LLCs is determined by using estimates of underlying assets and liabilities taken from its Manager's pricing model.
The fair value of secured borrowings is estimated using prices 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. The Company is able to call the bonds issued in its secured borrowings at par value plus accrued interest pursuant to the terms of the offering documents. The Company carries its secured borrowings net of deferred issuance cost. Accordingly, the difference between fair value and carrying value is partially driven by the deferred issuance costs.
The fair value of the Company's put option liability is adjusted to approximate market value through earnings. The put obligation is a fixed amount that may be settled in cash or shares of the Company’s common stock at the option of the Company. Fair value is determined using the discounted cash flow method using a rate to accrete the initial basis, adjusted for subsequent repurchases, to the future put obligation over the 39-month term of the put option liability. The fair value of the Company's put option liability is measured quarterly with adjustments posted to the Company's consolidated statements of operations.
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 2024 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. The 2024 Notes may be redeemable at par plus accrued interest beginning on April 30, 2022 subject to satisfying the conversion price trigger. The Company carries its 2024 Notes net of deferred issuance cost. Accordingly, the difference between fair value and carrying value is partially driven by the deferred issuance costs.
The 2027 Notes payable fair value is determined using estimates provided by third party valuation services using observed transactions for similar financing arrangements. The 2027 Notes will mature on September 1, 2027, unless earlier repurchased or redeemed. The Company carries the 2027 Notes payable net of deferred issuance costs.
The fair value of property held-for-sale is determined using the lower of its acquisition basis or net realizable value. Net realizable value is determined based on BPOs, appraisals, or other market indicators of fair value, which are then reduced by anticipated selling costs. Net unrealized losses due to changes in market value are recognized through a valuation allowance by charges to income.
The carrying values of the Company's Cash and cash equivalents, Receivable from Servicer, Prepaid expenses and other assets, Management fee payable and Accrued expenses and other liabilities are equal to or approximate fair value.
Income Taxes
The Company initially 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
The accompanying notes are an integral part of the consolidated interim financial statements.
18
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 GA-TRS and GAJX Real Estate Corp. and other TRS entities, which are subject to U.S. federal, state and local income taxes on their taxable income. Income from these 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.
Estimates
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.
Reclassifications
Certain reclassifications have been made to the prior year consolidated financial statements in order to conform with the current year presentation. These reclassifications have no effect on previously reported net income or equity.
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 Issued Accounting Standards
In March 2023, the FASB issued ASU 2023-02, Investments - Equity Method and Joint Ventures (Topic 323) – Accounting for Investments in Tax Credit Structures Using the Proportional Amortization Method. The amendments in this update permit reporting entities to elect to account for their tax equity investments, regardless of the tax credit program from which the income tax credits are received, using the proportional amortization method if certain conditions are met. This guidance is effective for interim and annual reporting periods beginning after December 15, 2023, with early adoption permitted. The Company does not believe this standard will have a material impact on its consolidated financial statements and related disclosures.
The accompanying notes are an integral part of the consolidated interim financial statements.
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Note 3 — Mortgage Loans
The following table presents information regarding the carrying value for the Company's RPLs, NPLs and SBC loans as of March 31, 2023 and December 31, 2022 ($ in thousands):
| Loan portfolio basis by asset type | March 31, 2023 | December 31, 2022 | ||||||||||||
| Residential RPLs | $ | 856,743 | $ | 872,913 | ||||||||||
| Residential NPLs | 102,773 | 105,081 | ||||||||||||
| SBC loans | 11,149 | 11,090 | ||||||||||||
| Total | $ | 970,665 | $ | 989,084 | ||||||||||
Included on the Company’s consolidated balance sheets as of both March 31, 2023 and December 31, 2022 are approximately $1.0 billion of RPLs, NPLs, and SBC loans that are held-for-investment.
The categorization of RPLs, NPLs and SBC loans is determined at acquisition. The carrying value of RPLs, NPLs and SBC loans reflects the original investment amount, plus accretion of interest income as well as credit and non-credit discount, less principal and interest cash flows received. The carrying values at March 31, 2023 and December 31, 2022, for the Company's loans in the table above, are presented net of a cumulative allowance for expected credit losses of $4.3 million and $6.1 million, respectively, reflected in the appropriate lines in the table by loan type. For the three months ended March 31, 2023 and 2022, the Company recognized $0.6 million and $3.6 million, respectively, of revenue due to a net decrease in expected credit losses resulting from increases in the present value of the expected cash flows. Also, for the three months ended March 31, 2023 and 2022, the Company recognized accretable yield of $13.3 million and $16.2 million, respectively, 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 using a constant prepayment rate assumption. 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 bearing upon cash flow expectations 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 a pandemic similar to that 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 months ended March 31, 2023, the Company purchased three RPLs with UPB of $0.8 million. Comparatively, the Company purchased no RPLs during the three months ended March 31, 2022. During the three months ended March 31, 2023, the Company purchased no NPLs. Comparatively, during the three months ended March 31, 2022, the Company purchased four NPLs with UPB of $1.0 million. The Company purchased no SBC loans during both the three months ended March 31, 2023 and 2022. During the three months ended March 31, 2023 and 2022, the Company sold no mortgage loans.
For pooling purposes, the Company aggregates its loans based on payment patterns and absolute dollars of equity. The portfolio is split between the Operating Partnership and Great Ajax REIT II as the entities are separate taxpayers and must maintain separate and complete books and records. At both the Operating Partnership and Great Ajax REIT II, the Company uses the following three pools for a total of six CECL pools:
1.Loans that have made at least seven of the last seven payments, either sequentially or in bulk and that have at least $50.0 thousand in absolute dollars of borrower equity;
2.Loans that have made at least seven of the last seven payments, either sequentially or in bulk and that have less than $50.0 thousand in absolute dollars of borrower equity; and
The accompanying notes are an integral part of the consolidated interim financial statements.
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3.Loans that have not made at least seven of the last seven payments.
Based on historical data, the Company has observed that borrowers that make at least seven of the last seven payments, either sequentially or in bulk, are significantly less likely to default. Additionally, the Company has similarly observed that $50.0 thousand absolute dollars of equity similarly drives a lower default rate and reduces loss severity in the event of foreclosure.
The following table presents information regarding the year of origination of the Company's mortgage loan portfolio by basis ($ in thousands):
| March 31, 2023 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 2022 | 2021 | 2020 | 2019 | 2018 | 2017 | 2009-2016 | 2006-2008 | 2005 and prior | Total | ||||||||||||||||||||||||||||||||||||||||||||||||||
| GAOP - 7f7 >50 | $ | 2,424 | $ | 1,320 | $ | 4,143 | $ | 6,869 | $ | 2,002 | $ | 3,256 | $ | 29,831 | $ | 205,788 | $ | 79,442 | $ | 335,075 | |||||||||||||||||||||||||||||||||||||||
| GAOP - 7f7 <50 | 120 | — | — | 298 | — | — | 2,896 | 36,054 | 10,078 | 49,446 | |||||||||||||||||||||||||||||||||||||||||||||||||
| GAOP - 6f6 and below | 842 | 742 | 740 | 1,027 | 1,051 | 530 | 17,331 | 85,643 | 29,068 | 136,974 | |||||||||||||||||||||||||||||||||||||||||||||||||
| Great Ajax II REIT - 7f7 >50 | — | — | 730 | 652 | 724 | 413 | 36,467 | 248,139 | 87,556 | 374,681 | |||||||||||||||||||||||||||||||||||||||||||||||||
| Great Ajax II REIT - 7f7 <50 | — | — | — | 138 | 14 | — | 2,719 | 27,285 | 8,162 | 38,318 | |||||||||||||||||||||||||||||||||||||||||||||||||
| Great Ajax II REIT - 6f6 and below | — | — | — | — | 69 | 189 | 5,312 | 20,621 | 9,980 | 36,171 | |||||||||||||||||||||||||||||||||||||||||||||||||
| Total | $ | 3,386 | $ | 2,062 | $ | 5,613 | $ | 8,984 | $ | 3,860 | $ | 4,388 | $ | 94,556 | $ | 623,530 | $ | 224,286 | $ | 970,665 | |||||||||||||||||||||||||||||||||||||||
| December 31, 2022 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 2022 | 2021 | 2020 | 2019 | 2018 | 2017 | 2009-2016 | 2006-2008 | 2005 and prior | Total | ||||||||||||||||||||||||||||||||||||||||||||||||||
| GAOP - 7f7 >50 | $ | 1,041 | $ | 1,770 | $ | 4,118 | $ | 7,004 | $ | 2,557 | $ | 2,983 | $ | 32,170 | $ | 198,950 | $ | 80,203 | $ | 330,796 | |||||||||||||||||||||||||||||||||||||||
| GAOP - 7f7 <50 | — | — | — | 337 | — | — | 3,212 | 34,599 | 10,501 | 48,649 | |||||||||||||||||||||||||||||||||||||||||||||||||
| GAOP - 6f6 and below | 1,756 | 280 | 2,158 | 1,040 | 597 | 942 | 15,930 | 98,408 | 30,697 | 151,808 | |||||||||||||||||||||||||||||||||||||||||||||||||
| Great Ajax II REIT - 7f7 >50 | — | — | 734 | 661 | 800 | 467 | 34,973 | 250,168 | 90,478 | 378,281 | |||||||||||||||||||||||||||||||||||||||||||||||||
| Great Ajax II REIT - 7f7 <50 | — | — | — | 140 | 13 | — | 3,487 | 27,300 | 8,885 | 39,825 | |||||||||||||||||||||||||||||||||||||||||||||||||
| Great Ajax II REIT - 6f6 and below | — | — | — | — | — | 139 | 6,166 | 23,690 | 9,730 | 39,725 | |||||||||||||||||||||||||||||||||||||||||||||||||
| Total | $ | 2,797 | $ | 2,050 | $ | 7,010 | $ | 9,182 | $ | 3,967 | $ | 4,531 | $ | 95,938 | $ | 633,115 | $ | 230,494 | $ | 989,084 | |||||||||||||||||||||||||||||||||||||||
The accompanying notes are an integral part of the consolidated interim financial statements.
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The following table presents a reconciliation between the purchase price and par value for the Company's loan acquisitions and originations for the three months ended March 31, 2023 and 2022 ($ in thousands):
| Three months ended March 31, | ||||||||||||||
| 2023 | 2022 | |||||||||||||
| Par | $ | 828 | $ | 964 | ||||||||||
| Discount | (191) | (58) | ||||||||||||
| Allowance | (33) | (3) | ||||||||||||
| Purchase Price | $ | 604 | $ | 903 | ||||||||||
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 expected credit losses when there are changes in its expectation of future cash flows as compared to the amounts expected to be contractually received. An increase to the allowance for expected credit losses will occur when there is a reduction in the Company's expected future cash flows as compared to its contractual amounts due. Reduction to the allowance, or recovery, may occur if there is an increase in expected future cash flows that were previously subject to an allowance for expected credit loss. A decrease in the allowance for expected credit losses is generally facilitated by reclassifying amounts to non-credit discount from the allowance and then recording the recovery. During the three months ended March 31, 2023, the Company recorded a $1.2 million reclassification to non-credit discount from the allowance for expected credit losses, which was followed by a $0.6 million reduction of the allowance for expected credit losses due to increases in the net present value of expected cash flows. During the three months ended March 31, 2023, the Company also recorded a $33 thousand increase in the allowance for expected credit losses due to new acquisitions. Comparatively, during the three months ended March 31, 2022, the Company recorded a $4.1 million reclassification from non-credit discount to the allowance for expected credit losses, which was followed by a $3.6 million reduction of the allowance for expected credit losses due to increases in the net present value of expected cash flows. During the three months ended March 31, 2022, the Company also recorded a $3 thousand increase in the allowance for expected credit losses due to new acquisitions. An analysis of the balance in the allowance for expected credit losses account follows ($ in thousands):
| Three months ended March 31, | ||||||||||||||
| 2023 | 2022 | |||||||||||||
| Allowance for expected credit losses, beginning of period | $ | (6,107) | $ | (7,112) | ||||||||||
| Reclassification to/(from) non-credit discount from/(to) the allowance for changes in payment expectations | 1,225 | (4,089) | ||||||||||||
| Increase in allowance for expected credit losses for loan acquisitions | (33) | (3) | ||||||||||||
| Credit loss expense on mortgage loans | (44) | (111) | ||||||||||||
| Reversal of allowance for expected credit losses due to increases in the net present value of expected cash flows | 621 | 3,624 | ||||||||||||
| Allowance for expected credit losses, end of period | $ | (4,338) | $ | (7,691) | ||||||||||
The accompanying notes are an integral part of the consolidated interim financial statements.
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The following table sets forth the carrying value of the Company’s mortgage loans by delinquency status as of March 31, 2023 and December 31, 2022 ($ in thousands):
| March 31, 2023 | ||||||||||||||||||||||||||||||||||||||
| Current | 30 | 60 | 90 | Foreclosure | Total | |||||||||||||||||||||||||||||||||
| GAOP - 7f7 >50 | $ | 212,093 | $ | 46,071 | $ | 25,060 | $ | 49,391 | $ | 2,460 | $ | 335,075 | ||||||||||||||||||||||||||
| GAOP - 7f7 <50 | 25,431 | 9,493 | 3,695 | 9,873 | 954 | 49,446 | ||||||||||||||||||||||||||||||||
| GAOP - 6f6 and below | 901 | 1,854 | 9,001 | 67,129 | 58,089 | 136,974 | ||||||||||||||||||||||||||||||||
| Great Ajax II REIT - 7f7 >50 | 322,382 | 35,720 | 8,723 | 7,856 | — | 374,681 | ||||||||||||||||||||||||||||||||
| Great Ajax II REIT - 7f7 <50 | 32,518 | 4,131 | 666 | 765 | 238 | 38,318 | ||||||||||||||||||||||||||||||||
| Great Ajax II REIT - 6f6 and below | 107 | 145 | 8,403 | 22,027 | 5,489 | 36,171 | ||||||||||||||||||||||||||||||||
| Total | $ | 593,432 | $ | 97,414 | $ | 55,548 | $ | 157,041 | $ | 67,230 | $ | 970,665 | ||||||||||||||||||||||||||
| December 31, 2022 | ||||||||||||||||||||||||||||||||||||||
| Current | 30 | 60 | 90 | Foreclosure | Total | |||||||||||||||||||||||||||||||||
| GAOP - 7f7 >50 | $ | 198,006 | $ | 44,773 | $ | 772 | $ | 86,603 | $ | 642 | $ | 330,796 | ||||||||||||||||||||||||||
| GAOP - 7f7 <50 | 26,303 | 5,815 | 140 | 16,232 | 159 | 48,649 | ||||||||||||||||||||||||||||||||
| GAOP - 6f6 and below | 3,333 | 1,538 | 94 | 94,010 | 52,833 | 151,808 | ||||||||||||||||||||||||||||||||
| Great Ajax II REIT - 7f7 >50 | 319,677 | 39,161 | 700 | 18,743 | — | 378,281 | ||||||||||||||||||||||||||||||||
| Great Ajax II REIT - 7f7 <50 | 33,113 | 4,188 | 90 | 2,434 | — | 39,825 | ||||||||||||||||||||||||||||||||
| Great Ajax II REIT - 6f6 and below | 178 | — | 39 | 36,086 | 3,422 | 39,725 | ||||||||||||||||||||||||||||||||
| Total | $ | 580,610 | $ | 95,475 | $ | 1,835 | $ | 254,108 | $ | 57,056 | $ | 989,084 | ||||||||||||||||||||||||||
Note 4 — Real Estate Assets, Net
The Company acquires real estate assets either through direct purchases of properties or through conversions of mortgage loans in its portfolio 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.
Property Held-for-Sale
As of March 31, 2023 and December 31, 2022, the Company’s net investments in real estate owned properties was $5.1 million and $6.3 million, respectively, all of which related to properties held-for-sale. REO property is considered held-for-sale if the REO is expected to be actively marketed for sale. Also, included in the properties held-for-sale balance for both periods as of March 31, 2023 and December 31, 2022, was $0.3 million for properties undergoing renovation or which are otherwise in the process of being brought to market. As of March 31, 2023 and December 31, 2022, the Company had a total of 32 and 39 real estate owned properties, respectively. For the three months ended March 31, 2023 and 2022, the majority of the additions to REO held-for-sale were acquired through foreclosure or deed in lieu of foreclosure, and reclassified out of the mortgage loan portfolio.
The accompanying notes are an integral part of the consolidated interim financial statements.
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The following table presents the activity in the Company’s carrying value of property held-for-sale for the three months ended March 31, 2023 and 2022 ($ in thousands):
| Three months ended March 31, | ||||||||||||||||||||||||||
| 2023 | 2022 | |||||||||||||||||||||||||
| Property Held-for-Sale | Count | Amount | Count | Amount | ||||||||||||||||||||||
| Balance at beginning of period | 39 | $ | 6,333 | 31 | $ | 6,063 | ||||||||||||||||||||
| Net transfers (to)/from mortgage loans | (2) | (169) | 3 | 828 | ||||||||||||||||||||||
| Adjustments to record at lower of cost or fair value | — | (111) | — | (169) | ||||||||||||||||||||||
| Disposals | (5) | (961) | (3) | (136) | ||||||||||||||||||||||
| Balance at end of period | 32 | $ | 5,092 | 31 | $ | 6,586 | ||||||||||||||||||||
Dispositions
During the three months ended March 31, 2023, the Company sold five REO properties realizing a net gain of approximately $0.1 million. Comparatively, for the three months ended March 31, 2022, the Company sold three REO properties realizing a net loss of approximately $16 thousand. These amounts are included in Other income on the Company's consolidated statements of operations. During the three months ended March 31, 2023 and 2022, the Company recorded expense of lower of cost or net realizable value adjustments in real estate operating expense of $0.1 million and $0.2 million, respectively. These amounts are included in Other expense on the Company's consolidated statements of operations.
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. Beneficial interests may be trust certificates and/or subordinate notes depending on the structure of the securitization. The Company's debt securities and beneficial interests are issued by securitization trusts, which are VIEs that the Company does not consolidate since it has determined it is not the primary beneficiary. See Note 10 — Related Party Transactions. The Company designated its debt securities as AFS or HTM based on the intent and ability to hold each security to maturity. The Company carries its AFS debt securities at fair value using prices provided by financing counterparties, and believes any unrealized losses to be temporary. The Company carries its investments in securities HTM at amortized cost, net of any required allowance for credit losses. The Company carries its investments in beneficial interests at amortized cost.
As described in Note 2 — Summary of Significant Accounting Policies, on January 1, 2023, the Company transferred $83.0 million of investment securities from AFS to HTM due to sale restrictions pursuant to Article 6(1) of Regulation (EU) 2017/2402 of the European Parliament and of the Council (as amended, the "EU Securitization Regulation" and, together with applicable regulatory and implementing technical standards in relation thereto, the "EU Securitization Rules"). Pursuant to the terms of these debt securities, the Company must hold at least 5.01% of the nominal value of each class of securities offered or sold to investors (the "EU Retained Interest") subject to the EU Securitization Rules. Under the EU Securitization Rules, the Company is prohibited from selling, transferring or otherwise surrendering all or part of the EU Retained Interest until all such classes are paid in full or redeemed.
Transfers of securities from AFS to HTM are non-cash transactions and are recorded at fair value. On the date of transfer, accumulated other comprehensive income included unrealized losses of $10.9 million, which continues to be reported in accumulated other comprehensive income and is amortized into interest income on a level-yield basis over the remaining life of the securities. This amortization will offset the effect on interest income of the amortization of the discount resulting from the transfer recorded at fair value. During the three months ended March 31, 2023, the Company recorded amortization of $2.0 million of unrealized losses in accumulated other comprehensive income and of unamortized discount related to transfers of securities from AFS to HTM.
Risks inherent in the Company's debt securities portfolio, affecting both the valuation of its securities as well as the portfolio's interest income include the risk of default, delays and inconsistency in the frequency and amount of payments, interest rate risk, risks affecting borrowers such as man-made or natural disasters and damage to or delay in realizing the value of the underlying collateral. The Company monitors the credit quality of the mortgage loans underlying its debt securities on an ongoing basis, principally by considering loan payment activity or delinquency status. In addition, the Company assesses the expected cash flows from the mortgage loans, the fair value of the underlying collateral and other factors, and evaluates whether
The accompanying notes are an integral part of the consolidated interim financial statements.
24
and when it becomes probable that all amounts contractually due will not be collected. The following table presents information regarding the Company's investments in debt securities and investments in beneficial interests ($ in thousands):
| As of March 31, 2023 | ||||||||||||||||||||||||||
Basis(1) | Gross unrealized gains | Gross unrealized losses | Fair value | |||||||||||||||||||||||
| Debt securities available-for-sale, at fair value | $ | 157,334 | $ | 75 | $ | (10,929) | $ | 146,480 | ||||||||||||||||||
| Debt securities held-to-maturity at amortized cost, net of allowance for credit losses | 73,907 | 572 | (414) | 74,066 | ||||||||||||||||||||||
| Investment in beneficial interests at amortized cost, net of allowance for credit losses | 135,614 | — | — | 135,614 | ||||||||||||||||||||||
| Total investments | $ | 366,855 | $ | 647 | $ | (11,343) | $ | 356,160 | ||||||||||||||||||
(1)Basis amount is net of amortized discount, principal paydowns and interest receivable on securities AFS and HTM of $0.1 million and $30 thousand, respectively.
| As of December 31, 2022 | ||||||||||||||||||||||||||
Basis(1) | Gross unrealized gains | Gross unrealized losses | Fair value | |||||||||||||||||||||||
| Debt securities available-for-sale, at fair value | $ | 282,711 | $ | — | $ | (25,649) | $ | 257,062 | ||||||||||||||||||
| Investment in beneficial interests at amortized cost, net of allowance for credit losses | 134,552 | — | — | 134,552 | ||||||||||||||||||||||
| Total investments | $ | 417,263 | $ | — | $ | (25,649) | $ | 391,614 | ||||||||||||||||||
(1)Basis amount is net of amortized discount, principal paydowns and interest receivable on securities AFS of $0.1 million.
The following table presents a breakdown of the Company's gross unrealized losses on its investments in debt securities AFS ($ in thousands):
| As of March 31, 2023 | ||||||||||||||||||||||||||
Step-up date(s)(1) | Basis(2) | Gross unrealized losses | Fair value | |||||||||||||||||||||||
Debt securities due February 2028(3) | February 2026 | $ | 37,907 | $ | (108) | $ | 37,799 | |||||||||||||||||||
Debt securities due November 2051(4) | March 2025 | 3,762 | (190) | 3,572 | ||||||||||||||||||||||
Debt securities due September 2059(5) | April 2023/ August 2023 | 2,506 | (94) | 2,412 | ||||||||||||||||||||||
Debt securities due December 2059(4) | July 2023 | 24,337 | (1,248) | 23,089 | ||||||||||||||||||||||
Debt securities due March 2060(4) | February 2025 | 6,356 | (814) | 5,542 | ||||||||||||||||||||||
Debt securities due June 2060(4) | March 2024 | 3,903 | (153) | 3,750 | ||||||||||||||||||||||
Debt securities due September 2060(3) | March 2024 | 1,536 | (20) | 1,516 | ||||||||||||||||||||||
Debt securities due December 2060(4) | July 2029 | 22,199 | (3,968) | 18,231 | ||||||||||||||||||||||
Debt securities due January 2061(4) | September 2024 | 4,886 | (559) | 4,327 | ||||||||||||||||||||||
Debt securities due June 2061(6) | January 2025/February 2025 | 13,618 | (1,713) | 11,905 | ||||||||||||||||||||||
Debt securities due October 2061(4) | April 2029 | 12,201 | (1,042) | 11,159 | ||||||||||||||||||||||
Debt securities due March 2062(4) | May 2029 | 10,940 | (1,020) | 9,920 | ||||||||||||||||||||||
| Total | $ | 144,151 | $ | (10,929) | $ | 133,222 | ||||||||||||||||||||
(1)Step-up date is the date at which the coupon interest rate on the security increases. The Company expects the security to be called before the step-up date.
(2)Basis amount is net of any realized amortized costs and principal paydowns.
(3)This security has been in an unrealized loss position for less than 12 months.
(4)This security has been in an unrealized loss position for 12 months or longer.
(5)This line is comprised of two securities that are both due September 2059. One security with a balance of $0.1 million has been in a loss position for 12 months or longer and has a step-up date in April 2023, and the other security of $3 thousand has been in a loss position for 12 months or longer and has a step-up date in August 2023.
The accompanying notes are an integral part of the consolidated interim financial statements.
25
(6)This line is comprised of two securities that are both due June 2061. One security with a balance of $0.5 million has been in an unrealized loss position for 12 months or longer and has a step-up date in January 2025, and the other security of $1.2 million has been in a loss position for 12 months or longer and has a step-up date in February 2025.
| As of December 31, 2022 | ||||||||||||||||||||||||||
Step-up date(s)(1) | Basis(2) | Gross unrealized losses | Fair value | |||||||||||||||||||||||
Debt securities due February 2028(3) | February 2026 | $ | 38,843 | $ | (82) | $ | 38,761 | |||||||||||||||||||
Debt securities due November 2051(4) | March 2025 | 36,829 | (2,429) | 34,400 | ||||||||||||||||||||||
Debt securities due September 2059(5) | February 2023/April 2023 | 14,945 | (1,045) | 13,900 | ||||||||||||||||||||||
Debt securities due November 2059(4) | April 2023 | 6,752 | (313) | 6,439 | ||||||||||||||||||||||
Debt securities due December 2059(4) | July 2023 | 33,569 | (2,083) | 31,486 | ||||||||||||||||||||||
Debt securities due March 2060(4) | February 2025 | 14,492 | (1,909) | 12,583 | ||||||||||||||||||||||
Debt securities due June 2060(4) | March 2024 | 8,002 | (394) | 7,608 | ||||||||||||||||||||||
Debt securities due September 2060(3) | March 2024 | 3,242 | (15) | 3,227 | ||||||||||||||||||||||
Debt securities due December 2060(4) | July 2029 | 43,216 | (7,868) | 35,348 | ||||||||||||||||||||||
Debt securities due January 2061(4) | September 2024 | 11,883 | (1,342) | 10,541 | ||||||||||||||||||||||
Debt securities due June 2061(6) | January 2025/February 2025 | 47,302 | (6,303) | 40,999 | ||||||||||||||||||||||
Debt securities due October 2061(3) | April 2029 | 12,401 | (1,013) | 11,388 | ||||||||||||||||||||||
Debt securities due March 2062(3) | May 2029 | 11,096 | (853) | 10,243 | ||||||||||||||||||||||
| Total | $ | 282,572 | $ | (25,649) | $ | 256,923 | ||||||||||||||||||||
(1)Step-up date is the date at which the coupon interest rate on the security increases. The Company expects the security to be called before the step-up date.
(2)Basis amount is net of any realized amortized costs and principal paydowns.
(3)This security has been in an unrealized loss position for less than 12 months.
(4)This security has been in an unrealized loss position for 12 months or longer.
(5)This line is comprised of two securities that are both due September 2059. One security with a balance of $0.6 million has been in a loss position for 12 months or longer and has a step-up date in February 2023, and the other security of $0.5 million has been in a loss position for 12 months or longer and has a step-up date in April 2023.
(6)This line is comprised of two securities that are both due June 2061. One security with a balance of $3.0 million has been in an unrealized loss position for 12 months or longer and has a step-up date in January 2025, and the other security of $3.3 million has been in a loss position for 12 months or longer and has a step-up date in February 2025.
As of March 31, 2023, the Company had a gross unrealized loss of $10.9 million and a gross unrealized gain of $0.1 million in fair valuation adjustments in accumulated other comprehensive income on the consolidated balance sheet on total investments AFS with a fair value of $146.5 million, which includes $0.1 million in interest receivable. As of December 31, 2022, the Company recorded a gross unrealized loss of $25.6 million and no gross unrealized gains in fair valuation adjustments in accumulated other comprehensive income on the consolidated balance sheet on total investments AFS with a fair value of $257.1 million, which includes $0.1 million in interest receivable.
During the three months ended March 31, 2023, the Company re-securitized, with an accredited institutional investor, Ajax Mortgage Loan Trust 2019-E, 2019-G and 2019-H ("2019-E, -G and -H") joint ventures into Ajax Mortgage Loan Trust 2023-A ("2023-A") and retained 8.6% or $16.1 million of varying classes of agency rated securities and equity. 2023-A acquired 1,085 RPLs and NPLs with UPB of $205.1 million and an aggregate property value of $497.4 million. The AAA through A rated securities represent 79.8% of the UPB of the underlying mortgage loans and carry a weighted average coupon of 3.46%. All of the securities retained from 2023-A are classified as AFS. Comparatively, during the three months ended March 31, 2022, the Company acquired no debt securities and beneficial interests.
At March 31, 2023, the investments in debt securities AFS, investments in debt securities HTM and beneficial interests were carried on the Company's consolidated balance sheet at $146.5 million, $73.9 million and $135.6 million, respectively. At December 31, 2022, the investments in debt securities AFS and beneficial interests were carried on the Company's consolidated balance sheet at $257.1 million and $134.6 million, respectively.
The accompanying notes are an integral part of the consolidated interim financial statements.
26
During the three months ended March 31, 2023, the Company sold senior notes issued by certain joint ventures and recognized a loss of $3.0 million. Comparatively, the Company sold no senior notes during the three months ended March 31, 2022. As of March 31, 2023 and December 31, 2022, the Company had no securities that were past due.
During the first quarter of 2023, the Company recorded a loss of $1.0 million on its beneficial interests in Ajax Mortgage Loan Trust 2019-H ("2019-H") on its consolidated statements of operations. Although the Company continues to own approximately the same interest in the underlying mortgage loans and related cash flows, the beneficial interests are accounted for as distinct legal securities and were received through a combination of the beneficial interest in 2023-A and cash received from the sale of the underlying loans in 2023-A. The decline in loan prices driven by disruption in the markets since year end resulted in lower than expected cash proceeds at redemption.
During the first quarter of 2022, the Company recorded an impairment of $4.0 million on its beneficial interests in Ajax Mortgage Loan Trusts 2018-D and 2018-G ("2018-D and -G") in other loss/income on its consolidated statements of operations, which became a realized loss when the transaction closed during the second quarter of 2022. Although the Company continues to own approximately the same interest in the underlying mortgage loans and related cash flows, the beneficial interests are accounted for as distinct legal securities and were received through a combination of the beneficial interest in Ajax Mortgage Loan Trust 2022-A ("2022-A") and cash received from the sale of the underlying loans in 2022-A. The decline in loan prices driven by disruption in the markets since year end resulted in lower than expected cash proceeds at redemption.
The following table presents a reconciliation between the purchase price and par value for the Company's beneficial interests acquisitions for the three months ended March 31, 2023 and 2022 ($ in thousands):
| Three months ended March 31, | ||||||||||||||
| 2023 | 2022 | |||||||||||||
| Par | $ | 2,051 | $ | — | ||||||||||
| Premium | 963 | — | ||||||||||||
| Allowance | — | — | ||||||||||||
| Purchase Price | $ | 3,014 | $ | — | ||||||||||
The Company generally recognizes accretable yield and increases and decreases in the net present value of expected cash flows in earnings in the period they occur. For the three months ended March 31, 2023 and 2022, the Company recognized accretable yield of $2.1 million and $4.1 million, respectively, on its beneficial interest. For the three months ended March 31, 2023, the Company recognized accretable yield of $0.6 million on its investments in securities HTM. An expense is recorded to increase the allowance for expected credit losses when there is a reduction in the Company’s expected future cash flows compared to contractual amounts due. Income is recognized if there is an increase in expected future cash flows to the extent an allowance has been recorded against the beneficial interest or investments in securities HTM. If there is no allowance for expected credit losses recorded against a beneficial interest or investments in securities HTM, any increase in expected cash flows is recognized prospectively as a change in yield. A decrease in the allowance for expected credit losses is generally facilitated by reclassifying amounts to non-credit discount from the allowance and then recording the reduction to the allowance through the income statement. 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 months ended March 31, 2023, the Company had no activity related to the balance in the allowance for expected credit losses for investments in securities HTM.
During the three months ended March 31, 2023, the Company had no activity related to the balance in the allowance for expected credit losses for beneficial interests. Comparatively, during three months ended March 31, 2022, the Company recorded a $0.3 million reclassification to non-credit discount from the allowance for changes in payment expectations and reduction of the allowance for expected credit losses for beneficial interests of $0.4 million.
An analysis of the balance in the allowance for expected credit losses for beneficial interests account follows ($ in thousands):
The accompanying notes are an integral part of the consolidated interim financial statements.
27
| Three months ended March 31, | ||||||||||||||
| 2023 | 2022 | |||||||||||||
| Allowance for expected credit losses, beginning balance | $ | — | $ | (615) | ||||||||||
| Reclassification to non-credit discount from the allowance for changes in payment expectations | — | 311 | ||||||||||||
| Credit loss expense on beneficial interests | — | (50) | ||||||||||||
| Reversal of allowance for expected credit losses due to increases in the net present value of expected cash flows | — | 354 | ||||||||||||
| Allowance for expected credit losses, ending balance | $ | — | $ | — | ||||||||||
Note 6 — Fair Value
For a discussion on the Company's fair value policy see Note 2 — Summary of Significant Accounting Policies.
Recurring financial assets and liabilities measured and carried at fair value by level within the fair value hierarchy as of March 31, 2023 and December 31, 2022 ($ in thousands):
| Level 1 | Level 2 | Level 3 | ||||||||||||||||||||||||
| March 31, 2023 | Carrying value | Quoted prices in active markets | Observable inputs other than Level 1 prices | Unobservable inputs | ||||||||||||||||||||||
| Recurring financial assets | ||||||||||||||||||||||||||
| Investment in debt securities available-for-sale | $ | 146,480 | $ | — | $ | 146,480 | $ | — | ||||||||||||||||||
| Recurring financial liabilities | ||||||||||||||||||||||||||
| Put option liability | $ | 13,775 | $ | — | $ | — | $ | 13,775 | ||||||||||||||||||
| Level 1 | Level 2 | Level 3 | ||||||||||||||||||||||||
| December 31, 2022 | Carrying value | Quoted prices in active markets | Observable inputs other than Level 1 prices | Unobservable inputs | ||||||||||||||||||||||
| Recurring financial assets | ||||||||||||||||||||||||||
| Investment in debt securities available-for-sale | $ | 257,062 | $ | — | $ | 257,062 | $ | — | ||||||||||||||||||
| Recurring financial liabilities | ||||||||||||||||||||||||||
| Put option liability | $ | 12,153 | $ | — | $ | — | $ | 12,153 | ||||||||||||||||||
The accompanying notes are an integral part of the consolidated interim financial statements.
28
The following tables set forth the fair value of financial instruments by level within the fair value hierarchy as of March 31, 2023 and December 31, 2022 ($ in thousands):
| Level 1 | Level 2 | Level 3 | ||||||||||||||||||||||||
| March 31, 2023 | Carrying value | Quoted prices in active markets | Observable inputs other than Level 1 prices | Unobservable inputs | ||||||||||||||||||||||
| Financial assets | ||||||||||||||||||||||||||
| Mortgage loans held-for-investment, net | $ | 970,665 | $ | — | $ | — | $ | 950,471 | ||||||||||||||||||
| Investment in debt securities held-to-maturity | $ | 73,907 | $ | — | $ | 74,066 | $ | — | ||||||||||||||||||
| Investment in beneficial interests | $ | 135,614 | $ | — | $ | — | $ | 135,614 | ||||||||||||||||||
| Investment in Manager | $ | 923 | $ | — | $ | — | $ | 10,421 | ||||||||||||||||||
| Investment in AS Ajax E LLC | $ | 442 | $ | — | $ | 591 | $ | — | ||||||||||||||||||
| Investment in AS Ajax E II LLC's investment in Ajax E Master Trust | $ | 2,179 | $ | — | $ | 2,219 | $ | — | ||||||||||||||||||
| Investment in GAFS, including warrants | $ | 2,701 | $ | — | $ | — | $ | 3,980 | ||||||||||||||||||
| Investment in Gaea | $ | 24,102 | $ | — | $ | — | $ | 22,453 | ||||||||||||||||||
| Investment in Loan pool LLCs | $ | 213 | $ | — | $ | — | $ | 699 | ||||||||||||||||||
| Financial liabilities | ||||||||||||||||||||||||||
| Secured borrowings, net | $ | 454,664 | $ | — | $ | 405,774 | $ | — | ||||||||||||||||||
| Borrowings under repurchase transactions | $ | 418,653 | $ | — | $ | 418,653 | $ | — | ||||||||||||||||||
| Convertible senior notes, net | $ | 103,450 | $ | 100,162 | $ | — | $ | — | ||||||||||||||||||
| Notes payable, net | $ | 106,258 | $ | — | $ | 106,780 | $ | — | ||||||||||||||||||
| Level 1 | Level 2 | Level 3 | ||||||||||||||||||||||||
| December 31, 2022 | Carrying value | Quoted prices in active markets | Observable inputs other than Level 1 prices | Unobservable inputs | ||||||||||||||||||||||
| Financial assets | ||||||||||||||||||||||||||
| Mortgage loans held-for-investment, net | $ | 989,084 | $ | — | $ | — | $ | 971,069 | ||||||||||||||||||
| Investment in beneficial interests | $ | 134,552 | $ | — | $ | — | $ | 134,552 | ||||||||||||||||||
| Investment in Manager | $ | 921 | $ | — | $ | — | $ | 10,093 | ||||||||||||||||||
| Investment in AS Ajax E LLC | $ | 453 | $ | — | $ | 606 | $ | — | ||||||||||||||||||
| Investment in AS Ajax E II LLC's investment in Ajax E Master Trust | $ | 2,208 | $ | — | $ | 2,272 | $ | — | ||||||||||||||||||
| Investment in GAFS, including warrants | $ | 2,041 | $ | — | $ | — | $ | 3,320 | ||||||||||||||||||
| Investment in Gaea | $ | 24,339 | $ | — | $ | — | $ | 22,119 | ||||||||||||||||||
| Investment in Loan pool LLCs | $ | 223 | $ | — | $ | — | $ | 707 | ||||||||||||||||||
| Financial liabilities | ||||||||||||||||||||||||||
| Secured borrowings, net | $ | 467,205 | $ | — | $ | 421,680 | $ | — | ||||||||||||||||||
| Borrowings under repurchase agreement | $ | 445,855 | $ | — | $ | 445,855 | $ | — | ||||||||||||||||||
| Convertible senior notes, net | $ | 104,256 | $ | 100,084 | $ | — | $ | — | ||||||||||||||||||
| Notes payable, net | $ | 106,046 | $ | — | $ | 107,327 | $ | — | ||||||||||||||||||
Non-financial assets
The fair value of property held-for-sale is determined using the lower of its acquisition cost ("cost") or net realizable value. Net realizable value is determined based on BPOs, appraisals, 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 March 31, 2023 and December 31, 2022 ($ in thousands):
The accompanying notes are an integral part of the consolidated interim financial statements.
29
| Level 1 | Level 2 | Level 3 | ||||||||||||||||||||||||||||||
| March 31, 2023 | Carrying value | Three months ended fair value adjustment recognized in the consolidated statements of operations | Quoted prices in active markets | Observable inputs other than Level 1 prices | Unobservable inputs | |||||||||||||||||||||||||||
| Non-financial assets | ||||||||||||||||||||||||||||||||
| Property held-for-sale | $ | 5,092 | $ | (111) | $ | — | $ | — | $ | 5,092 | ||||||||||||||||||||||
| Level 1 | Level 2 | Level 3 | ||||||||||||||||||||||||||||||
| December 31, 2022 | Carrying value | Fair value adjustment recognized in the consolidated statements of operations | Quoted prices in active markets | Observable inputs other than Level 1 prices | Unobservable inputs | |||||||||||||||||||||||||||
| Non-financial assets | ||||||||||||||||||||||||||||||||
| Property held-for-sale | $ | 6,333 | $ | (376) | $ | — | $ | — | $ | 6,333 | ||||||||||||||||||||||
Note 7 — Affiliates
Unconsolidated Affiliates
At both March 31, 2023 and December 31, 2022, and for the three months ended March 31, 2023 and 2022, the Company had ownership interests in five affiliated entities accounted for under the equity method of accounting.
At both March 31, 2023 and December 31, 2022, the Company’s ownership interest in the Manager, a privately held company for which there is no public market for its securities, was approximately 19.8%. The Company accounts for its ownership interest in the Manager using the equity method.
At March 31, 2023 and December 31, 2022, the Company's ownership interest was approximately 9.6% and 8.0% in GAFS, respectively. The Company accounts for its investment in GAFS using the equity method.
At both March 31, 2023 and December 31, 2022, the Company owned approximately 22.0% of Gaea. The Company accounts for its ownership interest in Gaea using the equity method.
At both March 31, 2023 and December 31, 2022, the Company’s ownership interest in AS Ajax E LLC, a Delaware trust formed to own residential mortgage loans and residential real estate assets, was approximately 16.5%. AS Ajax E LLC owns a 5.0% equity interest in Ajax E Master Trust which holds a portfolio of RPLs. The Company accounts for its ownership interest using the equity method.
At both March 31, 2023 and December 31, 2022, the Company’s ownership interest was approximately 40.0% in one loan pool LLC managed by the Servicer, which hold investments in RPLs and NPLs. The Company accounts for its ownership interest using the equity method.
The accompanying notes are an integral part of the consolidated interim financial statements.
30
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 March 31, | ||||||||||||||
Net income/(loss) at 100% | 2023 | 2022 | ||||||||||||
| AS Ajax E LLC | $ | 66 | $ | 19 | ||||||||||
| Thetis Asset Management LLC | $ | 11 | $ | (206) | ||||||||||
| Loan pool LLCs | $ | (24) | $ | (20) | ||||||||||
| Great Ajax FS LLC | $ | (763) | $ | (1,157) | ||||||||||
| Gaea Real Estate Corp. | $ | (1,105) | $ | 191 | ||||||||||
| March 31, 2023 | December 31, 2022 | |||||||||||||||||||||||||
Assets and Liabilities at 100% | Assets | Liabilities | Assets | Liabilities | ||||||||||||||||||||||
| AS Ajax E LLC | $ | 2,762 | $ | 1 | $ | 2,837 | $ | 2 | ||||||||||||||||||
| Thetis Asset Management LLC | $ | 6,063 | $ | 1,898 | $ | 6,948 | $ | 2,661 | ||||||||||||||||||
| Loan pool LLCs | $ | 1,200 | $ | 185 | $ | 1,201 | $ | 161 | ||||||||||||||||||
| Great Ajax FS LLC | $ | 79,689 | $ | 67,276 | $ | 78,375 | $ | 66,324 | ||||||||||||||||||
| Gaea Real Estate Corp. | $ | 164,837 | $ | 62,030 | $ | 162,933 | $ | 58,185 | ||||||||||||||||||
Net income/(loss), assets and liabilities of unconsolidated affiliates at the Company's share
| Three months ended March 31, | ||||||||||||||
| Net income/(loss) at the Company's share | 2023 | 2022 | ||||||||||||
| AS Ajax E LLC | $ | 11 | $ | 3 | ||||||||||
| Thetis Asset Management LLC | $ | 2 | $ | (41) | ||||||||||
| Loan pool LLCs | $ | (10) | $ | (8) | ||||||||||
| Great Ajax FS LLC | $ | (67) | $ | (93) | ||||||||||
| Gaea Real Estate Corp. | $ | (243) | $ | 42 | ||||||||||
| March 31, 2023 | December 31, 2022 | |||||||||||||||||||||||||
| Assets and Liabilities at the Company's share | Assets | Liabilities | Assets | Liabilities | ||||||||||||||||||||||
| AS Ajax E LLC | $ | 455 | $ | — | $ | 467 | $ | — | ||||||||||||||||||
| Thetis Asset Management LLC | $ | 1,200 | $ | 376 | $ | 1,376 | $ | 527 | ||||||||||||||||||
| Loan pool LLCs | $ | 480 | $ | 74 | $ | 480 | $ | 64 | ||||||||||||||||||
| Great Ajax FS LLC | $ | 7,641 | $ | 6,450 | $ | 6,270 | $ | 5,306 | ||||||||||||||||||
| Gaea Real Estate Corp. | $ | 36,281 | $ | 13,653 | $ | 35,894 | $ | 12,818 | ||||||||||||||||||
Consolidated Affiliates
The Company consolidates the results and balances of certain securitization trusts which 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 certain of these 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. At both March 31, 2023 and December 31, 2022, AS Ajax E II was 53.1% owned by the Company, with the remainder held by third parties. 2017-D is a securitization trust formed to hold mortgage loans, REO property and secured borrowings. At both March 31, 2023 and December 31, 2022, the Company held a 50.0% ownership in the remaining loans held by 2017-D. Great Ajax II REIT wholly owns Great Ajax II Depositor LLC which acts as the depositor of mortgage loans
The accompanying notes are an integral part of the consolidated interim financial statements.
31
into securitization trusts and holds subordinated securities issued by such trusts. At both March 31, 2023 and December 31, 2022, Great Ajax II REIT was 99.9% owned by the Company. Similarly, as of March 31, 2023 and December 31, 2022, the Operating Partnership wholly owned Great Ajax III Depositor LLC, which was formed to act as the depositor into 2021-E.
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 or other assets 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 March 31, 2023, the Company had commitments to purchase with third party institutional accredited investors, subject to due diligence, 76 RPLs and NPLs secured by single-family residences with aggregated UPB of $18.4 million. See Note 15 — Subsequent Events, for remaining open acquisitions as of the filing date.
During the three months 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, 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. The preferred shares have a liquidation preference of $25.00 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. U.S. GAAP requires the Company to account for the outstanding warrants as if the put option will be exercised by the holders.
During the year ended December 31, 2022, the Company repurchased and retired 1,882,451 shares of its series A preferred stock and 1,757,010 shares of its series B preferred stock in a series of repurchase transactions. The series A and series B preferred stock were repurchased for an aggregate of $88.7 million at an average price of $24.37 per share, representing a discount of approximately 2.5% to the face value of $25.00 per share. The repurchase of the preferred stock caused the recognition of $8.2 million of preferred stock discount during the year ended December 31, 2022. There was no repurchase of preferred stock during the three months ended March 31, 2023 and 2022. Also during the year ended December 31, 2022, the Company repurchased and retired 4,549,328 of the outstanding warrants for $35.0 million. No warrants were repurchased during the three months ended March 31, 2023 and 2022. The remaining liability on the consolidated balance sheet at March 31, 2023 for the present value of the put liability on the remaining outstanding warrants is $13.8 million, representing the fair value of the put liability at the balance sheet date. The Company is accreting the amount of the liability under the effective interest method to its expected future put value of $15.7 million and marks the obligation to market through earnings. The expense is recognized in the Fair value adjustment on put option liability line of the Company's consolidated statements of operations. The following table sets forth the details of the Company's put option liability ($ in thousands):
| Three months ended March 31, | ||||||||||||||
| 2023 | 2022 | |||||||||||||
| Beginning balance | $ | 12,153 | $ | 23,667 | ||||||||||
| Fair value adjustments during the period | 1,622 | 3,200 | ||||||||||||
| Ending balance | $ | 13,775 | $ | 26,867 | ||||||||||
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 March 31, 2023, 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
The accompanying notes are an integral part of the consolidated interim financial statements.
32
counterparties, the “buyer” or “buyers.” One facility has a ceiling of $150.0 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 SOFR, 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 75% and 90% 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 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 securities retained from the Company's 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. 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):
| March 31, 2023 | ||||||||||||||||||||||||||
| Maturity Date | Amount Outstanding | Amount of Collateral | Interest Rate | |||||||||||||||||||||||
Barclays - bonds(1) | $ | 103,276 | $ | 146,400 | 6.42 | % | ||||||||||||||||||||
| A Bonds | April 3, 2023 | 12,112 | 17,645 | 6.09 | % | |||||||||||||||||||||
| April 21, 2023 | 23,854 | 30,485 | 6.17 | % | ||||||||||||||||||||||
| April 26, 2023 | 27,656 | 37,078 | 6.60 | % | ||||||||||||||||||||||
| May 3, 2023 | 11,879 | 15,446 | 5.97 | % | ||||||||||||||||||||||
| May 22, 2023 | 2,107 | 3,406 | 6.17 | % | ||||||||||||||||||||||
| B Bonds | April 26, 2023 | 2,943 | 5,176 | 7.00 | % | |||||||||||||||||||||
| May 3, 2023 | 3,627 | 6,408 | 6.77 | % | ||||||||||||||||||||||
| May 22, 2023 | 4,306 | 7,505 | 6.77 | % | ||||||||||||||||||||||
| June 13, 2023 | 12,713 | 19,999 | 6.91 | % | ||||||||||||||||||||||
| June 22, 2023 | 713 | 798 | 6.37 | % | ||||||||||||||||||||||
| M Bonds | May 3, 2023 | 292 | 519 | 6.12 | % | |||||||||||||||||||||
| May 22, 2023 | 1,074 | 1,935 | 6.37 | % | ||||||||||||||||||||||
Nomura - bonds(1) | $ | 36,142 | $ | 54,675 | 6.37 | % | ||||||||||||||||||||
| A Bonds | May 15, 2023 | 6,400 | 9,366 | 6.31 | % | |||||||||||||||||||||
| June 23, 2023 | 11,853 | 17,506 | 6.37 | % | ||||||||||||||||||||||
| June 30, 2023 | 7,272 | 9,664 | 5.96 | % | ||||||||||||||||||||||
| B Bonds | May 15, 2023 | 5,784 | 9,586 | 6.71 | % | |||||||||||||||||||||
| June 23, 2023 | 3,790 | 6,436 | 6.77 | % | ||||||||||||||||||||||
| M Bonds | June 30, 2023 | 1,043 | 2,117 | 6.29 | % | |||||||||||||||||||||
JP Morgan - bonds(1) | $ | 58,474 | $ | 86,109 | 6.13 | % | ||||||||||||||||||||
| A Bonds | June 2, 2023 | 10,610 | 14,205 | 6.16 | % | |||||||||||||||||||||
| September 19, 2023 | 20,778 | 28,219 | 6.30 | % | ||||||||||||||||||||||
The accompanying notes are an integral part of the consolidated interim financial statements.
33
| March 31, 2023 | ||||||||||||||||||||||||||
| Maturity Date | Amount Outstanding | Amount of Collateral | Interest Rate | |||||||||||||||||||||||
| B Bonds | April 21, 2023 | 1,616 | 2,652 | 6.31 | % | |||||||||||||||||||||
| May 1, 2023 | 6,574 | 11,052 | 6.34 | % | ||||||||||||||||||||||
| M Bonds | April 11, 2023 | 15,086 | 22,664 | 5.70 | % | |||||||||||||||||||||
| June 2, 2023 | 501 | 894 | 6.39 | % | ||||||||||||||||||||||
| July 24, 2023 | 3,309 | 6,423 | 6.42 | % | ||||||||||||||||||||||
JP Morgan - loans(2) | July 10, 2023 | $ | 11,750 | $ | 17,564 | 7.40 | % | |||||||||||||||||||
Nomura - loans(3) | October 5, 2023 | $ | 209,011 | $ | 284,755 | 7.21 | % | |||||||||||||||||||
| Totals/weighted averages | $ | 418,653 | $ | 589,503 | (4) | 6.79 | % | |||||||||||||||||||
(1)Maximum borrowing capacity subject to pledging sufficient collateral is the equivalent of the amount outstanding as of March 31, 2023.
(2)Maximum borrowing capacity subject to pledging sufficient collateral as of March 31, 2023 was $150.0 million.
(3)Maximum borrowing capacity subject to pledging sufficient collateral as of March 31, 2023 was $400.0 million.
(4)Includes $42.8 million of bonds that are consolidated on the Company's balance sheet for GAAP as of March 31, 2023.
| December 31, 2022 | ||||||||||||||||||||||||||
| Maturity Date | Amount Outstanding | Amount of Collateral | Interest Rate | |||||||||||||||||||||||
Barclays - bonds(1) | $ | 126,458 | $ | 181,667 | 6.10 | % | ||||||||||||||||||||
| A Bonds | January 3, 2023 | 12,345 | 18,399 | 5.33 | % | |||||||||||||||||||||
| January 20, 2023 | 47,591 | 64,692 | 5.76 | % | ||||||||||||||||||||||
| April 26, 2023 | 27,655 | 37,216 | 6.60 | % | ||||||||||||||||||||||
| May 3, 2023 | 11,879 | 15,535 | 5.97 | % | ||||||||||||||||||||||
| May 22, 2023 | 2,107 | 3,421 | 6.17 | % | ||||||||||||||||||||||
| B Bonds | March 13, 2023 | 12,639 | 20,755 | 6.45 | % | |||||||||||||||||||||
| April 26, 2023 | 2,943 | 5,174 | 7.00 | % | ||||||||||||||||||||||
| May 3, 2023 | 3,627 | 6,405 | 6.77 | % | ||||||||||||||||||||||
| May 22, 2023 | 4,306 | 7,606 | 6.77 | % | ||||||||||||||||||||||
| M Bonds | May 3, 2023 | 292 | 521 | 6.12 | % | |||||||||||||||||||||
| May 22, 2023 | 1,074 | 1,943 | 6.37 | % | ||||||||||||||||||||||
Nomura - bonds(1) | $ | 35,742 | $ | 55,303 | 6.02 | % | ||||||||||||||||||||
| A bonds | January 12, 2023 | 3,910 | 5,458 | 5.32 | % | |||||||||||||||||||||
| February 14, 2023 | 6,481 | 9,818 | 5.81 | % | ||||||||||||||||||||||
| February 24, 2023 | 3,795 | 5,178 | 6.05 | % | ||||||||||||||||||||||
| March 23, 2023 | 11,186 | 17,202 | 6.08 | % | ||||||||||||||||||||||
| B Bonds | February 14, 2023 | 5,619 | 9,542 | 6.24 | % | |||||||||||||||||||||
| February 24, 2023 | 1,054 | 1,689 | 6.45 | % | ||||||||||||||||||||||
| March 23, 2023 | 3,697 | 6,416 | 6.48 | % | ||||||||||||||||||||||
Goldman Sachs - bonds(1) | $ | 3,102 | $ | 4,044 | 5.58 | % | ||||||||||||||||||||
| A Bonds | January 13, 2023 | 3,102 | 4,044 | 5.58 | % | |||||||||||||||||||||
JP Morgan - bonds(1) | $ | 56,656 | $ | 82,071 | 5.59 | % | ||||||||||||||||||||
| A Bonds | March 7, 2023 | 11,103 | 14,836 | 5.62 | % | |||||||||||||||||||||
| March 24, 2023 | 22,131 | 30,215 | 5.41 | % | ||||||||||||||||||||||
| B Bonds | February 3, 2023 | 7,846 | 13,583 | 5.86 | % | |||||||||||||||||||||
| M Bonds | March 7, 2023 | 490 | 893 | 5.85 | % | |||||||||||||||||||||
| April 11, 2023 | 15,086 | 22,544 | 5.70 | % | ||||||||||||||||||||||
JP Morgan - loans(2) | July 10, 2023 | $ | 11,750 | $ | 17,839 | 6.90 | % | |||||||||||||||||||
The accompanying notes are an integral part of the consolidated interim financial statements.
34
| December 31, 2022 | ||||||||||||||||||||||||||
| Maturity Date | Amount Outstanding | Amount of Collateral | Interest Rate | |||||||||||||||||||||||
Nomura - loans(3) | October 5, 2023 | $ | 212,147 | $ | 292,415 | 6.65 | % | |||||||||||||||||||
| Totals/weighted averages | $ | 445,855 | $ | 633,339 | (4) | 6.31 | % | |||||||||||||||||||
(1)Maximum borrowing capacity subject to pledging sufficient collateral is the equivalent of the amount outstanding as of December 31, 2022.
(2)Maximum borrowing capacity subject to pledging sufficient collateral as of December 31, 2022 was $150.0 million.
(3)Maximum borrowing capacity subject to pledging sufficient collateral as of December 31, 2022 was $400.0 million.
(4)Includes $42.8 million of bonds that are consolidated on the Company's balance sheet for GAAP as of December 31, 2022.
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. As of March 31, 2023 and December 31, 2022, the Company had $4.1 million and $5.2 million, respectively, of cash collateral on deposit with financing counterparties. This cash is included in Prepaid expenses and other assets on its consolidated balance sheets and is not netted against its Borrowings under repurchase agreements. The amount outstanding on the Company’s repurchase facilities and the carrying value of the Company’s loans pledged as collateral are presented as gross amounts in the Company’s consolidated balance sheets at March 31, 2023 and December 31, 2022 in the table below ($ in thousands):
| Gross amounts not offset in balance sheet | ||||||||||||||
| March 31, 2023 | December 31, 2022 | |||||||||||||
| Gross amount of recognized liabilities | $ | 418,653 | $ | 445,855 | ||||||||||
| Gross amount of loans and securities pledged as collateral | 585,439 | 628,187 | ||||||||||||
| Other prepaid collateral | 4,064 | 5,152 | ||||||||||||
| Net collateral amount | $ | 170,850 | $ | 187,484 | ||||||||||
Secured Borrowings
From its inception (January 30, 2014) to March 31, 2023, the Company has completed 18 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, five of which were outstanding at March 31, 2023. The secured borrowings are generally structured as debt financings. 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 non-rated 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. The Company has retained the subordinate notes and the applicable trust certificates from one non-rated secured borrowing outstanding at March 31, 2023.
The Company’s rated secured borrowings are generally structured as “REIT TMP” transactions which allow the Company to issue multiple classes of securities without using a REMIC structure or being subject to an entity level tax. The Company’s rated secured borrowings generally issue classes of debt from AAA through mezzanine. The Company generally retains the mezzanine and residual certificates in the transactions. The Company has retained the applicable mezzanine and residual certificates from the other four rated secured borrowings outstanding at March 31, 2023. The Company’s rated secured borrowings are designated in the table below.
At March 31, 2021, the Company's 2017-D secured borrowing contained 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 notes. The Company had retained 50.0% of both the Class A notes and Class B certificates from 2017-D; and the assets and
The accompanying notes are an integral part of the consolidated interim financial statements.
35
liabilities were consolidated on the Company's consolidated balance sheets. During the second quarter of 2021, the majority of the loans in 2017-D were sold into 2021-C and the Class A notes were redeemed. Based on the structure of the transaction the Company does not consolidate 2021-C under U.S. GAAP.
The Company's secured borrowings carry no provision for a step-up in interest rate on any of the Class B notes, except for 2021-B.
The following table sets forth the original terms of notes from the Company's secured borrowings outstanding at March 31, 2023 at their respective cutoff dates:
| Issuing Trust/Issue Date | Interest Rate Step-up Date | Security | Original Principal | Interest Rate | ||||||||||||||||||||||
| Rated | ||||||||||||||||||||||||||
| Ajax Mortgage Loan Trust 2019-D/ July 2019 | July 25, 2027 | Class A-1 notes due 2065 | $140.4 million | 2.96 | % | |||||||||||||||||||||
| July 25, 2027 | Class A-2 notes due 2065 | $6.1 million | 3.50 | % | ||||||||||||||||||||||
| July 25, 2027 | Class A-3 notes due 2065 | $10.1 million | 3.50 | % | ||||||||||||||||||||||
| July 25, 2027 | Class M-1 notes due 2065(1) | $9.3 million | 3.50 | % | ||||||||||||||||||||||
| None | Class B-1 notes due 2065(2) | $7.5 million | 3.50 | % | ||||||||||||||||||||||
| None | Class B-2 notes due 2065(2) | $7.1 million | variable(3) | |||||||||||||||||||||||
| None | Class B-3 notes due 2065(2) | $12.8 million | variable(3) | |||||||||||||||||||||||
| Deferred issuance costs | $(2.7) million | — | % | |||||||||||||||||||||||
| Rated | ||||||||||||||||||||||||||
| Ajax Mortgage Loan Trust 2019-F/ November 2019 | November 25, 2026 | Class A-1 notes due 2059 | $110.1 million | 2.86 | % | |||||||||||||||||||||
| November 25, 2026 | Class A-2 notes due 2059 | $12.5 million | 3.50 | % | ||||||||||||||||||||||
| November 25, 2026 | Class A-3 notes due 2059 | $5.1 million | 3.50 | % | ||||||||||||||||||||||
| November 25, 2026 | Class M-1 notes due 2059(1) | $6.1 million | 3.50 | % | ||||||||||||||||||||||
| None | Class B-1 notes due 2059(2) | $11.5 million | 3.50 | % | ||||||||||||||||||||||
| None | Class B-2 notes due 2059(2) | $10.4 million | variable(3) | |||||||||||||||||||||||
| None | Class B-3 notes due 2059(2) | $15.1 million | variable(3) | |||||||||||||||||||||||
| Deferred issuance costs | $(1.8) million | — | % | |||||||||||||||||||||||
| Rated | ||||||||||||||||||||||||||
| Ajax Mortgage Loan Trust 2020-B/ August 2020 | July 25, 2027 | Class A-1 notes due 2059 | $97.2 million | 1.70 | % | |||||||||||||||||||||
| July 25, 2027 | Class A-2 notes due 2059 | $17.3 million | 2.86 | % | ||||||||||||||||||||||
| July 25, 2027 | Class M-1 notes due 2059(1) | $7.3 million | 3.70 | % | ||||||||||||||||||||||
| None | Class B-1 notes due 2059(2) | $5.9 million | 3.70 | % | ||||||||||||||||||||||
| None | Class B-2 notes due 2059(2) | $5.1 million | variable(3) | |||||||||||||||||||||||
| None | Class B-3 notes due 2059(2) | $23.6 million | variable(3) | |||||||||||||||||||||||
| Deferred issuance costs | $(1.8) million | — | % | |||||||||||||||||||||||
| Rated | ||||||||||||||||||||||||||
| Ajax Mortgage Loan Trust 2021-A/ January 2021 | January 25, 2029 | Class A-1 notes due 2065 | $146.2 million | 1.07 | % | |||||||||||||||||||||
| January 25, 2029 | Class A-2 notes due 2065 | $21.1 million | 2.35 | % | ||||||||||||||||||||||
| January 25, 2029 | Class M-1 notes due 2065(1) | $7.8 million | 3.15 | % | ||||||||||||||||||||||
| None | Class B-1 notes due 2065(2) | $5.0 million | 3.80 | % | ||||||||||||||||||||||
| None | Class B-2 notes due 2065(2) | $5.0 million | variable(3) | |||||||||||||||||||||||
The accompanying notes are an integral part of the consolidated interim financial statements.
36
| Issuing Trust/Issue Date | Interest Rate Step-up Date | Security | Original Principal | Interest Rate | ||||||||||||||||||||||
| None | Class B-3 notes due 2065(2) | $21.5 million | variable(3) | |||||||||||||||||||||||
| Deferred issuance costs | $(2.5) million | — | % | |||||||||||||||||||||||
| Non-rated | ||||||||||||||||||||||||||
| Ajax Mortgage Loan Trust 2021-B/ February 2021 | August 25, 2024 | Class A notes due 2066 | $215.9 million | 2.24 | % | |||||||||||||||||||||
| February 25, 2025 | Class B notes due 2066(2) | $20.2 million | 4.00 | % | ||||||||||||||||||||||
| Deferred issuance costs | $(4.3) million | — | % | |||||||||||||||||||||||
(1)The Class M notes are subordinated, sequential pay, fixed rate notes. The Company has retained the Class M notes, with the exception of Ajax Mortgage Loan Trust 2021-A.
(2)The Class B notes are subordinated, sequential pay, with B-2 and B-3 notes having variable interest rates and are subordinate to the Class B-1 notes. The Class B-1 notes are fixed rate notes. The Company has retained the Class B notes.
(3)The interest rate is effectively the rate equal to the spread between the gross average rate of interest the trust collects on its mortgage loan portfolio minus the rate derived from the sum of the servicing fee and other expenses of the trust.
Servicing for the mortgage loans in the Company’s secured borrowings is provided by the Servicer at servicing fee rates between 0.65% of outstanding UPB and 1.25% of outstanding UPB at acquisition, and is paid monthly. The determination of RPL or NPL status, which determines the servicing fee rates, is based on the status of the loan at acquisition and does not change regardless of the loan's subsequent performance. The following table sets forth the status of the notes held by others at March 31, 2023 and December 31, 2022, and the securitization cutoff date ($ in thousands):
| Balances at March 31, 2023 | Balances at December 31, 2022 | 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 | ||||||||||||||||||||||||||||||||||||||||||
| 2019-D | $ | 103,601 | $ | 74,096 | 140 | % | $ | 105,387 | $ | 76,016 | 139 | % | $ | 193,301 | $ | 156,670 | ||||||||||||||||||||||||||||||||||
| 2019-F | 103,656 | 65,264 | 159 | % | 105,102 | 66,522 | 158 | % | 170,876 | 127,673 | ||||||||||||||||||||||||||||||||||||||||
| 2020-B | 105,293 | 68,442 | 154 | % | 107,011 | 70,339 | 152 | % | 156,468 | 114,534 | ||||||||||||||||||||||||||||||||||||||||
| 2021-A | 134,309 | 110,245 | 122 | % | 138,006 | 113,929 | 121 | % | 206,506 | 175,116 | ||||||||||||||||||||||||||||||||||||||||
| 2021-B | 217,382 | 140,868 | 154 | % | 220,320 | 145,073 | 152 | % | 287,882 | 215,912 | ||||||||||||||||||||||||||||||||||||||||
| $ | 664,241 | $ | 458,915 | (1) | 145 | % | $ | 675,826 | $ | 471,879 | (1) | 143 | % | $ | 1,015,033 | $ | 789,905 | |||||||||||||||||||||||||||||||||
(1)This represents the gross amount of Secured borrowings and excludes the impact of deferred issuance costs of $4.3 million and $4.7 million as of March 31, 2023 and December 31, 2022.
Notes
2024 Notes (Convertible Senior Notes)
At March 31, 2023 and December 31, 2022, the Company's 2024 Notes had carrying values of $103.5 million and $104.3 million, respectively. The 2024 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 2024 Notes will mature on April 30, 2024, unless earlier repurchased, converted or redeemed. During certain periods and subject to certain conditions the 2024 Notes will be convertible by their holders into shares of the Company’s common stock at a conversion rate of 1.7405 shares of common stock per $25.00 principal amount of the 2024 Notes, which represents a conversion price of approximately $14.36 per share of common stock. The conversion rate, and thus the conversion price, may be subject to adjustment under certain circumstances. As of March 31, 2023, the amount by which the if-converted value falls short of the principal value for the entire series is $56.1 million.
At March 31, 2023, the outstanding aggregate principal amount of the 2024 Notes was $103.5 million, and discount and deferred expenses were $0.1 million. At December 31, 2022, the outstanding aggregate principal amount of the 2024 Notes was $104.5 million, and discount and deferred expenses were $0.3 million. During the three months ended March 31, 2023, the Company recognized interest expense on its outstanding 2024 Notes of $2.1 million, which includes $0.2 million of amortization of discount and deferred expenses. During the three months ended March 31, 2022, the Company recognized
The accompanying notes are an integral part of the consolidated interim financial statements.
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interest expense on its outstanding convertible 2024 Notes of $2.1 million, which includes $0.2 million of amortization of discount and deferred expenses. The effective interest rates of the 2024 Notes for the three months ended March 31, 2023 and March 31, 2022 were 8.01% and 8.07%, respectively.
During the first quarter of 2023, the Company completed a repurchase of $1.0 million aggregate principal of its 2024 Notes for a total purchase price of $1.0 million. There were no 2024 Notes repurchases during the first quarter of 2022.
On January 1, 2022, the Company adopted 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) by recording a reduction in its additional paid-in capital account of $0.7 million and a corresponding increase in the carrying value of its 2024 Notes of $0.7 million, representing the carrying value of the conversion feature associated with the 2024 Notes.
Coupon interest on the 2024 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 reduction of the carrying value of the 2024 Notes, and are amortized to interest expense on an effective yield basis through April 30, 2023, the date at which the 2024 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. No sinking fund has been established for redemption of the principal.
Holders may convert their 2024 Notes at their option prior to April 30, 2023 only under certain circumstances. In addition, the 2024 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 Company may not redeem the 2024 Notes prior to April 30, 2022, and may redeem for cash all or any portion of the 2024 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 2024 Notes to be redeemed, plus accrued and unpaid interest to, but excluding, the redemption date.
2027 Notes (Unsecured Notes)
In August 2022, the Operating Partnership issued $110.0 million aggregate principal amount of 8.875% 2027 Notes. The 2027 Notes have a r term and were issued at 99.009% of par value and are fully and unconditionally guaranteed by the Company and are included in the Company's liabilities in its consolidated balance sheet at March 31, 2023. Interest on the 2027 Notes is payable semi-annually on March 1 and September 1, with the first payment due and payable on March 1, 2023. The 2027 Notes will mature on September 1, 2027. Net proceeds from the sale of the 2027 Notes totaled approximately $106.1 million, after deducting the discount, commissions, and offering expenses which will be amortized over the term of the 2027 Notes using the effective interest method. The Company used $90.0 million of the proceeds to repurchase and retire a portion of its outstanding 7.25% Series A and 5.00% Series B Fixed-to-Floating Rate Preferred Stock at a discount, and a proportionate amount of outstanding warrants. The remainder of the proceeds is expected to be used for general corporate purposes.
At March 31, 2023, the outstanding aggregate principal amount of the 2027 Notes was $110.0 million, and discount and deferred expenses in aggregate were $3.7 million. At December 31, 2022, the outstanding aggregate principal amount of the 2027 Notes was $110.0 million, and discount and deferred expenses in aggregate were $4.0 million. During the three months ended March 31, 2023, the Company recognized interest expense on the 2027 Notes of $2.6 million, which includes $0.2 million of amortization of discount and deferred expenses. The effective interest rate for the 2027 Notes for the three months ended March 31, 2023 was 9.89%.
The accompanying notes are an integral part of the consolidated interim financial statements.
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The following table summarizes the Company's long term maturities ($ in thousands):
| As of March 31, 2023 | ||||||||||||||
| Year | Debt instrument | Long-term maturities | ||||||||||||
| 2024 | 2024 Notes (Convertible Senior Notes) | $ | 103,516 | |||||||||||
| 2025 | $ | — | ||||||||||||
| 2026 | $ | — | ||||||||||||
| 2027 | 2027 Notes (Unsecured Notes) | $ | 110,000 | |||||||||||
| 2028 | $ | — | ||||||||||||
Note 10 — Related Party Transactions
The Company’s consolidated statements of operations included the following significant related party transactions ($ in thousands):
| Three months ended March 31, | ||||||||||||||||||||||||||
| Transaction | Consolidated Statement of Operations location | Counterparty | 2023 | 2022 | ||||||||||||||||||||||
| Interest income on securities and beneficial interest and net decrease in the net present value of expected credit losses on beneficial interests | Net interest income after the impact of changes in the net present value of expected credit losses | Various non-consolidated joint ventures | $ | 4,570 | $ | 7,220 | ||||||||||||||||||||
| Loan servicing fees | Related party expense – loan servicing fees | Servicer | $ | 1,860 | $ | 2,091 | ||||||||||||||||||||
| Management fee | Related party expense – management fee | Manager | $ | 1,828 | $ | 2,293 | ||||||||||||||||||||
| Affiliate loan interest income | Interest income | Servicer | $ | 65 | $ | 67 | ||||||||||||||||||||
| Income from equity investment | Loss from investments in affiliates | AS Ajax E LLC | $ | 11 | $ | 3 | ||||||||||||||||||||
| Income/(loss) from equity investment | Loss from investments in affiliates | Manager | $ | 2 | $ | (41) | ||||||||||||||||||||
| Loss from joint venture re-securitization on beneficial interests | Loss on joint venture refinancing on beneficial interests | 2018-D and -G | $ | — | $ | (3,973) | ||||||||||||||||||||
| Loss from equity investment | Loss from investments in affiliates | Loan pool LLCs | $ | (10) | $ | (8) | ||||||||||||||||||||
| Loss from equity investment | Loss from investments in affiliates | Servicer | $ | (67) | $ | (93) | ||||||||||||||||||||
| (Loss)/income from equity investment | Loss from investments in affiliates | Gaea | $ | (243) | $ | 42 | ||||||||||||||||||||
| Loss from joint venture re-securitization on beneficial interests | Loss on joint venture refinancing on beneficial interests | 2019-H | $ | (995) | $ | — | ||||||||||||||||||||
The accompanying notes are an integral part of the consolidated interim financial statements.
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The Company’s consolidated balance sheets included the following significant related party balances ($ in thousands):
| As of March 31, 2023 | ||||||||||||||||||||
| Transaction | Consolidated Balance Sheet location | Counterparty | Amount | |||||||||||||||||
| Investment in beneficial interests | Investments in beneficial interests | Various non-consolidated joint ventures | $ | 135,614 | ||||||||||||||||
| Receivables from Servicer | Receivable from servicer | Servicer | $ | 9,622 | ||||||||||||||||
| Affiliate loan receivable and interest | Prepaid expenses and other assets | Servicer | $ | 6,043 | ||||||||||||||||
| Management fee payable | Management fee payable | Manager | $ | 1,826 | ||||||||||||||||
| Affiliate loan purchase | Mortgage loans held-for-investment, net | Servicer | $ | 158 | ||||||||||||||||
| Servicing fee payable | Accrued expenses and other liabilities | Servicer | $ | 92 | ||||||||||||||||
| Payable to Servicer | Accrued expenses and other liabilities | Servicer | $ | 6 | ||||||||||||||||
| As of December 31, 2022 | ||||||||||||||||||||
| Transaction | Consolidated Balance Sheet location | Counterparty | Amount | |||||||||||||||||
| Investment in beneficial interests | Investment in beneficial interests | Various non-consolidated joint ventures | $ | 134,552 | ||||||||||||||||
| Receivables from Servicer | Receivable from servicer | Servicer | $ | 7,450 | ||||||||||||||||
| Affiliate loan receivable and interest | Prepaid expenses and other assets | Servicer | $ | 1,869 | ||||||||||||||||
| Management fee payable | Management fee payable | Manager | $ | 1,720 | ||||||||||||||||
| Purchase of mortgage loans | Mortgage loans held-for-investment, net | Loan pool LLC | $ | 270 | ||||||||||||||||
| Servicing fee payable | Accrued expenses and other liabilities | Servicer | $ | 101 | ||||||||||||||||
| Payable to Servicer | Accrued expenses and other liabilities | Servicer | $ | 6 | ||||||||||||||||
The Company acquires debt securities and beneficial interests issued by joint ventures between the Company and third party institutional accredited investors. The joint ventures issue senior notes and beneficial interests and in certain transactions, the joint ventures also issue subordinated notes. As of March 31, 2023, the investments in debt securities AFS, investments in debt securities HTM and beneficial interests were carried on the Company's consolidated balance sheet at $146.5 million, $73.9 million and $135.6 million, respectively. As of December 31, 2022, the investments in debt securities AFS and beneficial interests were carried on the Company's consolidated balance sheet at $257.1 million and $134.6 million, respectively.
During February 2023, the Company purchased one residential RPL from the Servicer for $0.2 million with UPB of $0.2 million and collateral value of $0.4 million. The loans are included in Mortgage loans held-for-investment, net on the Company's consolidated balance sheets.
During January 2023, the Company contributed an additional $0.7 million equity interest in GAFS. As of March 31, 2023 and December 31, 2022, the Company's ownership of GAFS was 9.6% and 8.0%, respectively. The Company accounts for its investment using the equity method.
During the first quarter of 2023, the Company re-securitized 2019-E, -G and -H to form 2023-A. The re-securitization resulted in the Company recognizing a loss of $1.0 million on joint venture refinancing related to its beneficial interest investment in 2019-H. Although the Company continues to own approximately the same interest in the underlying mortgage loans and related cash flows, the beneficial interests are accounted for as distinct legal securities and were received through a combination of the beneficial interest in 2023-A and cash received from the sale of the underlying loans in 2023-A. The decline in loan prices driven by disruption in the markets since year end resulted in lower than expected current cash proceeds at redemption.
The accompanying notes are an integral part of the consolidated interim financial statements.
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During the first quarter of 2022, the Company recognized a loss of $4.0 million in loss on joint venture refinancing on beneficial interests. The Company re-securitized 2018-D and -G which formed 2022-A. Although the Company continues to own approximately the same interest in the underlying mortgage loans and related cash flows, the beneficial interests are accounted for as distinct legal securities and were received through a combination of the beneficial interest in 2022-A and cash received from the sale of the underlying loans in 2022-A. The decline in loan prices driven by disruption in the markets since year end resulted in lower than expected current cash proceeds at redemption.
On December 9, 2021, the Company became a party to a promissory note with the Servicer under which the Servicer can borrow up to $3.5 million on a revolving line of credit from the Company. Interest on the arrangement accrues at 7.2% annually. On December 14, 2022, the Servicer exchanged 361,912 of the Company's shares of common stock to paydown $2.8 million of the outstanding debt. At March 31, 2023, the amount outstanding on the note and interest was zero.
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 sale of REO properties 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 March 31, 2023, and December 31, 2022, the Company had $6.0 million and zero advances outstanding to the Servicer. Interest on the arrangement accrues at 7.2% annually.
During November 2019 and January 2022, Gaea completed two private capital raises and has raised a total of $96.3 million and issued 6,247,794 shares of its common stock and warrants to third parties to advance its investment strategy. The Company has a total investment of $25.5 million in Gaea and has received 1,704,436 shares of common stock and 371,103 warrants. At both March 31, 2023 and December 31, 2022, the Company owned approximately 22.0% of Gaea with third party investors owning the remaining 78.0%. The Company accounts for its ownership interest 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 loan pool LLCs managed by the Servicer for $1.0 million, which hold investments in RPLs and NPLs. During the year ended December 31, 2020, one of the loan pool LLCs sold its remaining loans. Also, during the year ended December 31, 2022, another one of the loan pool LLCs sold its remaining loans to the Company for a purchase price of $0.3 million and UPB of $0.4 million. At both March 31, 2023 and December 31, 2022, the Company’s ownership interest was approximately 40.0% in one loan pool LLC managed by the Servicer. The Company accounts for its investment 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 other 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 both March 31, 2023 and December 31, 2022, the Company’s ownership 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 Third Amended and Restated Management Agreement with the Manager, as amended, 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. Also, under the First Amendment to the Third Amended and Restated Management Agreement with the Manager, which has an effective date of March 1, 2023, the Company's quarterly base management fee will include, in its computation of equity managed, its unsecured debt securities to the extent the proceeds were used to repurchase the Company's preferred stock.
The management fee is payable with 50% paid in shares of the Company's common stock and 50% in cash. However, the Company has the option to pay its management fee with up to 100% in 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 Manager has agreed to
The accompanying notes are an integral part of the consolidated interim financial statements.
41
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 Manager is also entitled to an incentive fee, payable quarterly and calculated in arrears, which contains 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 paid out of taxable income 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 paid out of taxable income, special cash dividends on its common stock paid out of taxable income and increase in book value 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, all of the incentive fee is payable in shares of the Company’s common stock at its discretion and any 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, 20% of the remaining incentive fee is payable in shares of the Company's common stock and 80% of the remaining incentive fee is payable in cash. Notwithstanding the foregoing, the Company may elect to pay the incentive fee entirely in cash at its discretion. During the three months ended March 31, 2023, the Company did not record an incentive fee payable to the Manager. Comparatively, during the three months ended March 31, 2022, the Company recorded an incentive fee of $0.1 million.
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 for mortgage loans range from 0.65% to 1.25% annually of UPB at acquisition (or the fair market value or purchase price of REO), and are paid monthly. 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 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 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 to foreclosed property 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, for fees based on mortgage loans, and property values, previous UPB of the relevant loan, and the number of REO properties for fees based on REO properties.
The accompanying notes are an integral part of the consolidated interim financial statements.
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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 management 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 record date of the most recent regular quarterly dividend to holders of the common stock. The Company recognized a base management fee to the Manager for the three months ended March 31, 2023 of $1.8 million, of which zero was settled in shares of its common stock. Comparatively, for the three months ended March 31, 2022, the Company recognized base management fee of $2.3 million, of which 39,558 were settled in shares of its common stock in satisfaction of a component of the base management fee for the fourth quarter of 2021 that was approved by the Board during the first quarter of 2022.
During the three months ended March 31, 2023, the Company recorded no incentive fee. Comparatively, during the three months ended March 31, 2022, the Company recorded an incentive fee of $0.1 million of which none was settled in shares of its common stock.
Additionally, each of the Company’s independent directors received an annual retainer of $140,000, payable quarterly, 50% of which is payable in shares of the Company's common stock and 50% in cash. The chairpersons of the Compensation and Corporate Governance committees each received an annual retainer of $15,000, payable quarterly, 100% in cash. The chairperson of the Audit committee received an annual fee of $20,000, payable quarterly, 100% in cash.
The following table sets forth the Company’s stock-based management fees and independent director fees ($ in thousands):
Stock-based Management Fees and Director Fees
| For the three months ended March 31, | |||||||||||||||||||||||||||||
| 2023 | 2022 | ||||||||||||||||||||||||||||
| Number of shares | Amount of expense recognized | Number of shares | Amount of expense recognized | ||||||||||||||||||||||||||
| Independent director fees | 13,020 | $ | 88 | 7,765 | $ | 88 | |||||||||||||||||||||||
| Management fees | — | — | 39,558 | — | (1) | ||||||||||||||||||||||||
| Totals | 13,020 | $ | 88 | 47,323 | $ | 88 | |||||||||||||||||||||||
(1)Management fees for the three months ended March 31, 2022, were fully expensed during the fourth quarter of 2021, the period in which the services were provided. However, the shares associated with these services were approved and issued by the Board during the first quarter of 2022.
The accompanying notes are an integral part of the consolidated interim financial statements.
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Restricted Stock
The Company periodically grants shares of its common stock to employees of its Manager and Servicer. The Company granted 3,000 shares of its common stock in the three months ended March 31, 2023, which have vesting periods of four years. Comparatively, the Company granted 22,765 shares of its common stock to employees of its Manager and Servicer in the three months ended March 31, 2022, which have vesting periods of up to four years. Grants of restricted stock use grant date fair value of the stock as the basis for measuring the cost of the grant.
Each independent member of the Company's Board of Directors is issued a restricted stock award of 2,000 shares of the Company’s common stock upon joining the Board. Additionally, the Company may issue grants of its shares of common stock from time to time to its directors.
Under the Company’s 2014 Director Equity Plan and 2016 Equity Incentive Plan the Company made grants of restricted stock to its Directors and to employees of its Manager and Servicer as set forth in the table below:
| Employee and Service Provider Grants | Director Grants | |||||||||||||||||||||||||
| Shares | Weighted Average Grant Date Fair Value | Shares | Weighted Average Grant Date Fair Value | |||||||||||||||||||||||
| Three months ended March 31, 2022 | ||||||||||||||||||||||||||
| December 31, 2021 outstanding unvested share grants | 228,365 | $ | 12.00 | 8,000 | $ | 12.60 | ||||||||||||||||||||
| Shares vested | — | — | — | — | ||||||||||||||||||||||
| Shares forfeited | (17,335) | 11.93 | — | — | ||||||||||||||||||||||
| Shares granted | 22,765 | 11.42 | — | — | ||||||||||||||||||||||
| March 31, 2022 outstanding unvested share grants | 233,795 | (1) | $ | 11.95 | 8,000 | (2) | $ | 12.60 | ||||||||||||||||||
(1)Weighted average remaining life of unvested shares for employee and service provider grants at March 31, 2022 is 2.5 years.
(2)Weighted average remaining life of unvested shares for director grants at March 31, 2022 is 0.1 years.
| Employee and Service Provider Grants | Director Grants | |||||||||||||||||||||||||
| Shares | Weighted Average Grant Date Fair Value | Shares | Weighted Average Grant Date Fair Value | |||||||||||||||||||||||
| Three months ended March 31, 2023 | ||||||||||||||||||||||||||
| December 31, 2022 outstanding unvested share grants | 310,262 | $ | 10.98 | — | $ | — | ||||||||||||||||||||
| Shares vested | (28,515) | 11.44 | — | — | ||||||||||||||||||||||
| Shares forfeited | (5,668) | 10.30 | — | — | ||||||||||||||||||||||
| Shares granted | 3,000 | 7.34 | 25,000 | 7.15 | ||||||||||||||||||||||
| March 31, 2023 outstanding unvested share grants | 279,079 | (1) | $ | 10.90 | 25,000 | (2) | $ | 7.15 | ||||||||||||||||||
(1)Weighted average remaining life of unvested shares for employee and service provider grants at March 31, 2023 is 2.2 years.
(2)Weighted average remaining life of unvested shares for director grants at March 31, 2023 is 1.9 years.
The following table presents the expenses for the Company's restricted stock plan ($ in thousands):
| Three months ended March 31, | ||||||||||||||
| 2023 | 2022 | |||||||||||||
| Restricted stock grants | $ | 517 | $ | 225 | ||||||||||
| Director grants | 7 | 25 | ||||||||||||
| Total expenses for plan grants | $ | 524 | $ | 250 | ||||||||||
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
The accompanying notes are an integral part of the consolidated interim financial statements.
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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.
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.
For the three months ended March 31, 2023, the Company had consolidated taxable income of $1.8 million and income tax expense of $0.1 million. For the three months ended March 31, 2022, the Company had consolidated taxable income of $11.2 million and income tax benefit of $26 thousand. As of March 31, 2023 and 2022, the Company recognized a deferred tax asset of $0.5 million and $0.7 million, respectively.
Note 13 — Earnings per Share
The following table sets forth the components of basic and diluted EPS ($ in thousands, except per share):
| Three months ended March 31, 2023 | Three months ended March 31, 2022 | ||||||||||||||||||||||||||||||||||
| Income (Numerator) | Shares (Denominator) | Per Share Amount | Income (Numerator) | Shares (Denominator) | Per Share Amount | ||||||||||||||||||||||||||||||
| Basic EPS | |||||||||||||||||||||||||||||||||||
| Consolidated net (loss)/income attributable to common stockholders | $ | (7,941) | 22,920,943 | $ | 3,586 | 22,922,316 | |||||||||||||||||||||||||||||
| Allocation of loss/(earnings) to participating restricted shares | 111 | — | (43) | — | |||||||||||||||||||||||||||||||
| Consolidated net (loss)/income attributable to unrestricted common stockholders | $ | (7,830) | 22,920,943 | $ | (0.34) | $ | 3,543 | 22,922,316 | $ | 0.15 | |||||||||||||||||||||||||
Effect of dilutive securities(1,2,3) | |||||||||||||||||||||||||||||||||||
| Diluted EPS | |||||||||||||||||||||||||||||||||||
| Consolidated net (loss)/income attributable to common stockholders and dilutive securities | $ | (7,830) | 22,920,943 | $ | (0.34) | $ | 3,543 | 22,922,316 | $ | 0.15 | |||||||||||||||||||||||||
(1)The Company's outstanding warrants for an additional 1,950,672 and 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 March 31, 2023 and 2022, respectively, 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 three months ended March 31, 2023 and 2022 would have been anti-dilutive and have been removed from the calculation.
(3)The effect of interest expense and assumed conversion of shares from convertible notes on the Company's diluted EPS calculation for the three months ended March 31, 2023 and 2022 would have been anti-dilutive and have been removed from the calculation.
Note 14 — Equity
Common Stock
As of March 31, 2023 and December 31, 2022, the Company had 23,509,446 and 23,130,956 shares, respectively, of $0.01 par value common stock outstanding with 125,000,000 shares authorized at each period end.
Preferred Stock
The Company has outstanding shares of preferred stock which were issued to institutional accredited investors in a series of private placements during the first half of 2020. The Company issued 2,307,400 shares of 7.25% Series A Fixed-to-
The accompanying notes are an integral part of the consolidated interim financial statements.
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Floating Rate Preferred Stock and 2,892,600 shares of 5.00% Series B Fixed-to-Floating Rate Preferred Stock. The shares have a liquidation preference of $25.00 per share.
During the year ended December 31, 2022, the Company repurchased and retired 1,882,451 shares of its series A preferred stock and 1,757,010 shares of its series B preferred stock in a series of repurchase transactions. The series A and series B preferred stock were repurchased for an aggregate of $88.7 million at an average price of $24.37 per share, representing a discount of approximately 2.5% to the face value of $25.00 per share. The repurchase of the preferred stock caused the recognition of $8.2 million of preferred stock discount during the year ended December 31, 2022. There was no repurchase of preferred stock during the three months ended March 31, 2023 and 2022.
At both March 31, 2023 and December 31, 2022, the Company had 424,949 shares of Series A preferred stock and 1,135,590 shares of Series B preferred stock outstanding. There were 25,000,000 shares, cumulative for all series, authorized as of both March 31, 2023 and December 31, 2022.
Treasury Stock and Stock Repurchase Plan
On February 28, 2020, the Company's Board of Directors approved a stock buyback of up to $25.0 million of its common shares. The amount and timing of any repurchases depends on a number of factors, including but not limited to the price and availability of the common shares, trading volume and general circumstances and market conditions.
As of both March 31, 2023 and December 31, 2022, the Company held 1,031,609 shares of treasury stock consisting of 144,658 shares received through distributions of the Company's shares previously held by its Manager, 361,912 shares received through its Servicer and 525,039 shares acquired through open market purchases.
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. The Company issued zero shares during the three months ended March 31, 2023. Comparatively, during the three months ended March 31, 2022, 9,739 shares were issued under the plan for total proceeds of approximately $0.1 million.
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 $100.0 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 months ended March 31, 2023, 345,578 shares were sold under the At the Market program for total net proceeds of approximately $2.4 million. Comparatively, during the three months ended March 31, 2022, no shares were sold under the At the Market program. The Company is deploying the net proceeds to acquire mortgage loans and mortgage-related assets consistent with its investment strategy.
Accumulated Other Comprehensive Loss
The Company recognizes unrealized gains or losses on its investment in debt securities AFS as components of other comprehensive loss. Additionally, other comprehensive loss includes unrealized gains or losses associated with the transfer of the Company's investment in debt securities from AFS to HTM. These amounts are subsequently amortized from other comprehensive loss into earnings over the same period as the related unamortized discount. Total accumulated other comprehensive loss on the Company’s balance sheet at March 31, 2023 and December 31, 2022 was as follows ($ in thousands):
| Investments in securities: | March 31, 2023 | December 31, 2022 | ||||||||||||
| Unrealized gains on debt securities available-for-sale | $ | 75 | $ | — | ||||||||||
| Unrealized losses on debt securities available-for-sale | (10,929) | (25,649) | ||||||||||||
| Unrealized losses on debt securities available-for-sale transferred to held-to-maturity | (8,909) | — | ||||||||||||
| Accumulated other comprehensive loss | $ | (19,763) | $ | (25,649) | ||||||||||
The accompanying notes are an integral part of the consolidated interim financial statements.
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Non-controlling Interest
At both March 31, 2023 and December 31, 2022, the Company had non-controlling interests attributable to ownership interests for three legal entities.
At both March 31, 2023 and December 31, 2022, the Company's ownership interest is approximately 53.1% of AS Ajax E II and it consolidates the assets, liabilities, revenues and expenses of the entity.
At both March 31, 2023 and December 31, 2022, the Company's ownership interest is approximately 50.0% of 2017-D and it consolidates the assets, liabilities, revenues and expenses of the trust.
At both March 31, 2023 and December 31, 2022, the Company's ownership interest is approximately 99.9% of Great Ajax II REIT and it consolidates the assets, liabilities, revenues and expenses of the entity.
The following table sets forth the effects of changes in the Company's ownership interest due to transfers to or from non-controlling interest ($ in thousands):
| Three months ended March 31, | ||||||||||||||
| 2023 | 2022 | |||||||||||||
| Decrease from the distribution of 2017-D | $ | — | $ | (819) | ||||||||||
| Change in non-controlling interest | $ | — | $ | (819) | ||||||||||
Note 15 — Subsequent Events
Since March 31, 2023, the Company has acquired two residential RPLs in one transaction from a single seller with aggregate UPB of $0.3 million. The purchase price of the RPLs was 58.1% of UPB and 37.1% of the estimated market value of the underlying collateral of $0.4 million.
The Company has agreed to acquire, subject to due diligence, 74 residential RPLs in two transactions with aggregate UPB of $18.1 million. The purchase price of the residential RPLs is 82.9% of UPB and 54.3% of the estimated market value of the underlying collateral of $27.6 million.
On May 4, 2023, the Company’s Board of Directors declared a cash dividend of $0.20 per share to be paid on May 31, 2023 to stockholders of record as of May 15, 2023.
The accompanying notes are an integral part of the consolidated interim financial statements.
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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 within the meaning of the federal securities laws. 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. The outcome of the events described in these forward-looking statements is subject to risks, uncertainties and other factors including but not limited to:
•the impact of adverse real estate, mortgage or housing markets and changes in the general economy;
•changes in our business strategy;
•the impact of a global pandemic similar to that 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, generally through sale;
•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”).
Accordingly, you should not rely upon forward-looking statements as an indication of future performance. We cannot assure you that the results, events and circumstances reflected in the forward-looking statements will be achieved or will occur, and actual results, events or circumstances could differ materially from those projected in the forward-looking statements. The forward-looking statements made in this quarterly report relate only to events as of the date on which the statements are made. We may not actually achieve the plans, intentions or expectations disclosed in our forward-looking statements and you should not place undue reliance on our forward-looking statements. We undertake no obligation and do not assume any obligation to update any forward-looking statements, whether as a result of new information, future events or circumstances after the date on which the statements are made or to reflect the occurrence of unanticipated events or otherwise, except as required by law.
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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 (i) 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 and (ii) NPLs, which are residential mortgage loans on which the most recent three payments have not been made. We may acquire RPLs and NPLs either directly or in joint ventures with institutional accredited investors. The joint ventures are structured as securitization trusts, of which we acquire debt securities and beneficial interests. We may also acquire or 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. Additionally, we invest in single-family and smaller commercial properties directly either through a foreclosure event of a loan in our mortgage portfolio, or, less frequently, through a direct acquisition. We own a 19.8% equity interest in our Manager and an 9.6% equity interest in the parent company of our Servicer through GA-TRS, a wholly owned subsidiary of the Operating Partnership. 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 REOs 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 March 31, 2023, owns 99.9% of Great Ajax II REIT Inc. which owns Great Ajax II Depositor LLC which then acts as the depositor of mortgage loans into securitization trusts and holds subordinated securities issued by such trusts. Similarly, as of March 31, 2023, the Operating Partnership wholly owned Great Ajax III Depositor LLC, which was formed to act as the depositor into Ajax Mortgage Loan Trust 2021-E ("2021-E"), which is a real estate mortgage investment conduit ("REMIC"). We have securitized mortgage loans through these securitization trusts and retained subordinated securities from the secured borrowings. These trusts are considered to be variable interest entities ("VIEs"), and we have determined that we are the primary beneficiary of the VIEs.
In 2018, we formed Gaea Real Estate Corp. ("Gaea"), as a wholly-owned subsidiary of the Operating Partnership that invests in multifamily properties with a focus on property appreciation and triple net lease veterinary clinics. We elected to treat Gaea as a TRS under the Code for 2018 and elected to treat Gaea as a REIT under the Code in 2019 and thereafter. 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, and Gaea Real Estate Operating LLC, to act as its general partner. We also formed Gaea Veterinary Holdings LLC, BFLD Holdings LLC, Gaea Commercial Properties LLC, Gaea Commercial Finance LLC and Gaea RE Holdings 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.
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On November 22, 2019, Gaea completed a private capital raise transaction through which it raised $66.3 million from the issuance of its common stock to third parties to allow Gaea to continue to advance its investment strategy. Additionally, in January 2022, Gaea completed a second private capital raise in which it raised approximately $30.0 million from the issuance of its common stock and warrants. At March 31, 2023, we owned approximately 22.0% of Gaea. We account for our investment in Gaea under the equity method.
We elected to be taxed as a REIT for U.S. federal income tax purposes beginning with our taxable year ended December 31, 2014. Our qualification as a REIT depends upon our ability to meet, on a continuing basis, various complex requirements under the Code relating to, among other things, the sources of our gross income, the composition and values of our assets, our distribution levels and the diversity of ownership of our capital stock. We believe that we are organized in conformity with the requirements for qualification as a REIT under the Code, and that our current intended manner of operation enables us to meet the requirements for taxation as a REIT for U.S. federal income tax purposes.
Our Portfolio
The following table outlines the carrying value of our portfolio of mortgage loan assets and single-family and smaller commercial properties as of March 31, 2023 and December 31, 2022 ($ in millions):
| March 31, 2023 | December 31, 2022 | |||||||||||||
| Residential RPLs | $ | 856.7 | $ | 872.9 | ||||||||||
| Residential NPLs | 102.8 | 105.1 | ||||||||||||
| SBC loans | 11.1 | 11.1 | ||||||||||||
| Real estate owned properties, net | 5.1 | 6.3 | ||||||||||||
| Investments in securities available-for-sale | 146.5 | 257.1 | ||||||||||||
| Investments in securities held-to-maturity | 73.9 | — | ||||||||||||
| Investments in beneficial interests | 135.6 | 134.6 | ||||||||||||
| Total mortgage related assets | $ | 1,331.7 | $ | 1,387.1 | ||||||||||
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
In February, March and May 2023, the U.S. Federal Reserve (the "Fed") raised its benchmark federal-funds rate by a quarter of a percentage point for a year to date increase of 0.75 points. The Fed signaled that further rate increases are possible over the course of the year in response to the elevated level of inflation in the United States. Although inflation has eased somewhat over the past few months, it is still unclear how much the Fed will further increase interest rates to bring inflation down to its 2.00% target. According to Freddie Mac, the 30-year fixed rate mortgage rate increased to an average of 6.28% for the week of April 6, 2023, from 4.67% for the year earlier period.(1)
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.
Through the end of the first quarter, the recent trends noted below have continued, including:
•rising interest rates have increased our borrowing costs;
•increasing mortgage interest rates and higher home prices, are slowing home purchases and refinancing activity resulting in lower prepayments of our loan and securities portfolios;
•rising home prices are triggering significant prepayments by borrowers selling their homes to downsize or relocate to lower cost markets;
•borrowers that purchased or refinanced in 2020 and 2021 have record low interest rates and will be unlikely to trade up in the current interest rate environment leading to lower inventory for first time buyers and a smaller population of move up buyers; and
•the Dodd-Frank risk retention rules for asset backed securities have reduced the universe of participants in the securitization markets.
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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 continue to increase in the near term and remain at heightened levels for the foreseeable future.
We believe that investments in residential RPLs and NPLs with positive equity provide an optimal investment value. As a result, we are currently focused on acquiring pools of RPLs and NPLs, at attractive prices. 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, particularly in urban areas where there is a sustainable trend of young adults desiring to live near where they work. We focus on densely populated urban areas where we expect positive economic change based on certain demographic, economic and social statistical data. 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 primary banks, lenders and portfolio acquirers typically desire. We continually monitor opportunities to increase our holdings of these SBC loans and properties.
We also believe that banks and other mortgage lenders have strengthened their capital bases and are more aggressively foreclosing on delinquent borrowers or selling these loans to dispose of their inventory. Additionally, many NPL buyers are now interested in reducing their investment duration and are selling RPLs.
(1)Freddie Mac Primary Mortgage Market Survey, U.S. weekly averages as of April 6, 2023 and as of March 31, 2022.
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. 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 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.
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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 typically to cause the RPLs to continue to perform and NPLs to perform through loan modification. Following 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. We expect the timelines for these 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.
Conversion to Rental Property. From time to time we may retain an REO property as a rental property. We do not expect to retain a material number of single family residential properties for use 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, 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.
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. 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. While we initially expected the COVID-19 outbreak to have a material downward effect on home prices, we are generally seeing increases in HPA in our target markets. A significant decline in HPA could 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 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.
Market Conditions. As the Fed continues its current trend toward monetary tightening, mortgage markets are undergoing a great deal of uncertainty with regard to both interest rates and origination volume. We believe that in spite of the
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continuing uncertain market environment for mortgage-related assets 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. While lock downs and restrictions from the pandemic have ended, the effects of the pandemic on inflation and resulting increase in interest rates have contributed to a substantial dislocation in the credit markets. A return to any COVID-19 pandemic like restriction could also negatively impact our business if the reactions of federal, state and local governments caused additional disruption in the capital markets and in housing.
Critical Accounting Policies and Estimates
Various elements of our accounting policies, by their nature, are inherently subject to estimation techniques, and other subjective assessments. In particular, we have identified six policies that, due to the judgment and estimates inherent in those policies, are critical to understanding our consolidated financial statements. These policies relate to (i) the allowance for credit losses, (ii) accounting for Interest income on our mortgage loan portfolio; (iii) accounting for Investments in securities available-for-sale ("AFS") and Investments in securities held-to-maturity ("HTM"); (iv) accounting for Investments in beneficial interests; (v) accounting for Interest expense on our secured borrowings, repurchase facilities, 2024 Notes and 2027 Notes; and (vi) fair values. We believe that the judgment and estimates used in the preparation of our consolidated financial statements are appropriate given the factual circumstances at the time. However, given the sensitivity of our consolidated financial statements to these critical accounting policies, the use of other judgments or estimates could result in material differences in our results of operations or financial condition. For further information, please refer to the Critical Accounting Policies and Estimates in our Form 10-K for our calendar year ended December 31, 2022, as there have been no changes to these policies.
Recent Accounting Pronouncements
Refer to the notes to our interim financial statements for a description of relevant recent accounting pronouncements.
Results of Operations
Quarter Overview
Key items for the three months ended March 31, 2023 include:
•Interest income of $18.5 million; net interest income of $3.5 million
•Net loss attributable to common stockholders of $(7.9) million
•Operating loss of $(2.1) million
•Earnings per share ("EPS") per basic common share was a loss of $(0.34)
•Operating loss per basic common share of $(0.09)
•Taxable income of $0.05 per share attributable to common stockholders after payment of dividends on our preferred stock
•Book value per common share of $12.58 at March 31, 2023
•Refinanced three joint ventures with $205.1 million in unpaid principal balance ("UPB") of mortgage loans with collateral values of $497.4 million and retained $16.1 million of varying classes of related securities issued by the joint venture and sold a single debt security with a carrying value of $30.2 million to end the quarter with $356.0 million of investments in debt securities and beneficial interests
•Collected total cash of $43.6 million, from loan payments, sales of REO and collections from investments in debt securities and beneficial interests
•Held $49.4 million of cash and cash equivalents at March 31, 2023; average daily cash balance for the quarter was $50.9 million
•As of March 31, 2023, approximately 81.3% of portfolio based on acquisition UPB made at least 12 out of the last 12 payments
We generated a consolidated net loss attributable to common stockholders under U.S. Generally Accepted Accounting Principles ("U.S. GAAP" or "GAAP") for the three months ended March 31, 2023 of $(7.9) million or $(0.34) per common share after preferred dividends, and Operating loss of $(2.1) million or $(0.09) per common share. Operating income is a non-GAAP financial measure which adjusts GAAP earnings by removing gains and losses as well as certain other non-core income and expenses and preferred dividends. We consider Operating income a useful measure for comparing the results of our
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ongoing operations over multiple quarters. Comparatively, our GAAP consolidated net income attributable to common stockholders for the three months ended March 31, 2022 was $3.6 million, or $0.15 per common share, and Operating income was $9.0 million, or $0.39 per common share.
At March 31, 2023, our book value decreased to $12.58 per common share from $13.00 at December 31, 2022, driven by dividends on our common stock of $5.9 million and the year to date net loss attributable to common stockholders of $7.9 million, partially offset by the effect of mark to market gain adjustments of $3.9 million on our investments in debt securities.
Table 1: Results of Operations
| Three months ended March 31, | |||||||||||
| ($ in thousands) | 2023 | 2022 | |||||||||
| INCOME | |||||||||||
| Interest income | $ | 18,456 | $ | 23,212 | |||||||
| Interest expense | (14,925) | (8,606) | |||||||||
| Net interest income | 3,531 | 14,606 | |||||||||
| Net decrease in the net present value of expected credit losses | 621 | 3,978 | |||||||||
| Net interest income after the impact of changes in the net present value of expected credit losses | 4,152 | 18,584 | |||||||||
| Loss from investments in affiliates | (98) | (63) | |||||||||
| Loss on joint venture refinancing on beneficial interests | (995) | (3,973) | |||||||||
| Other (loss)/income | (2,519) | 423 | |||||||||
| Total revenue, net | 540 | 14,971 | |||||||||
| EXPENSE | |||||||||||
| Related party expense – loan servicing fees | 1,860 | 2,091 | |||||||||
| Related party expense – management fee | 1,828 | 2,293 | |||||||||
| Professional fees | 934 | 345 | |||||||||
| Fair value adjustment on put option liability | 1,622 | 3,200 | |||||||||
| Other expense | 1,614 | 1,437 | |||||||||
| Total expense | 7,858 | 9,366 | |||||||||
| Gain on debt extinguishment | (47) | — | |||||||||
| (Loss)/income before provision for income taxes | (7,271) | 5,605 | |||||||||
| Provision for income taxes (benefit) | 93 | (26) | |||||||||
| Consolidated net (loss)/income | (7,364) | 5,631 | |||||||||
| Less: consolidated net income attributable to the non-controlling interest | 30 | 96 | |||||||||
| Consolidated net (loss)/income attributable to the Company | (7,394) | 5,535 | |||||||||
| Less: dividends on preferred stock | 547 | 1,949 | |||||||||
| Consolidated net (loss)/income attributable to common stockholders | $ | (7,941) | $ | 3,586 | |||||||
| Basic (loss)/earnings per common share | $ | (0.34) | $ | 0.15 | |||||||
| Diluted (loss)/earnings per common share | $ | (0.34) | $ | 0.15 | |||||||
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| Three months ended March 31, | ||||||||||||||
| ($ in thousands) | 2023 | 2022 | ||||||||||||
| Reconciliation of consolidated net (loss)/income attributable to common stockholders to consolidated operating (loss)/income | ||||||||||||||
| Consolidated net (loss)/income attributable to common stockholders | $ | (7,941) | $ | 3,586 | ||||||||||
| Dividends on preferred stock | (547) | (1,949) | ||||||||||||
| Consolidated net (loss)/income attributable to the Company | (7,394) | 5,535 | ||||||||||||
| Provision for income taxes (benefit) | (93) | 26 | ||||||||||||
| Consolidated net income attributable to the non-controlling interest | (30) | (96) | ||||||||||||
| (Loss)/income before provision for income taxes | (7,271) | 5,605 | ||||||||||||
| Loss on joint venture refinancing on beneficial interests | (995) | (3,973) | ||||||||||||
| Realized loss on sale of securities | (2,974) | — | ||||||||||||
| Net decrease in the net present value of expected credit losses | 621 | 3,978 | ||||||||||||
| Fair value adjustment on put option liability | (1,622) | (3,200) | ||||||||||||
| Other adjustments | (162) | (232) | ||||||||||||
| Consolidated operating (loss)/income | $ | (2,139) | $ | 9,032 | ||||||||||
| Basic operating (loss)/income per common share | $ | (0.09) | $ | 0.39 | ||||||||||
| Diluted operating (loss)/income per common share | $ | (0.09) | $ | 0.36 | ||||||||||
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. Our gross interest income excluding the impact of credit losses decreased to $18.5 million for the three months ended March 31, 2023 from $23.2 million for the three months ended March 31, 2022 primarily due to lower average balances of our mortgage loan and debt security portfolios.
Interest expense for the three months ended March 31, 2023 increased to $14.9 million from $8.6 million for the three months ended March 31, 2022 due to increases in the interest rate on our borrowings on repurchase lines of credit.
Net interest income after recording the impact of the net present value of decreases in expected credit losses decreased to $4.2 million for the three months ended March 31, 2023 from $18.6 million for the three months ended March 31, 2022 primarily as a result of higher interest expense and a net $0.6 million impact of the net decrease in the net present value of expected credit losses for the three months ended March 31, 2023 compared to a $4.0 million decrease for the three months ended March 31, 2022. Of the $0.6 million for the three months ended March 31, 2023, the total $0.6 million relates to the net decrease in the net present value of expected credit losses on our mortgage loan portfolio. Comparatively, of the $4.0 million for the three months ended March 31, 2022, $3.6 million related to our mortgage loan portfolio and $0.4 million to our investments in beneficial interests.
During the three months ended March 31, 2023, we collected $43.6 million in cash payments and proceeds on our mortgage loans, securities and REO held-for-sale compared to $85.3 million for the three months ended March 31, 2022.
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The interest income detail for the three months ended March 31, 2023 and 2022 are included in the table below ($ in thousands):
Table 2: Interest Income Detail
| Three months ended March 31, | |||||||||||
| 2023 | 2022 | ||||||||||
| Accretable yield recognized on RPL, NPL and SBC loans | $ | 13,281 | $ | 16,186 | |||||||
| Interest income on debt securities | 2,486 | 2,763 | |||||||||
| Accretable yield recognized on beneficial interests | 2,083 | 4,103 | |||||||||
| Other interest income | 91 | 123 | |||||||||
| Bank interest income | 515 | 37 | |||||||||
| Interest income | $ | 18,456 | $ | 23,212 | |||||||
| Net decrease in the net present value of expected credit losses | 621 | 3,978 | |||||||||
| Interest income after the impact of changes in the net present value of expected credit losses | $ | 19,077 | $ | 27,190 | |||||||
The average carrying balance of our mortgage loan portfolio decreased for the three months ended March 31, 2023 versus the comparative period in 2022 primarily due to continued prepayments of our mortgage loan portfolio and fewer acquisitions. The average carrying balances of our debt securities, beneficial interests and debt outstanding decreased for the three months ended March 31, 2023 versus the comparative period in 2022 as paydowns and sales outpaced acquisitions. The average carrying balances for our portfolio are included in the table below ($ in thousands):
Table 3: Average Balances
| Three months ended March 31, | |||||||||||
| 2023 | 2022 | ||||||||||
| Average mortgage loan portfolio | $ | 980,671 | $ | 1,083,757 | |||||||
| Average carrying value of debt securities | $ | 266,899 | $ | 351,566 | |||||||
| Average carrying value of beneficial interests | $ | 134,341 | $ | 139,665 | |||||||
| Total average asset backed debt | $ | 897,279 | $ | 1,099,142 | |||||||
Loss from Equity Method Investments
We recorded losses from our investments in our Manager and Servicer of $0.1 million for both the three months ended March 31, 2023 and 2022. We account for our investments in our Manager and our Servicer using the equity method of accounting. We recorded a loss of $34 thousand and income of $0.1 million in our other equity method investments for the three months ended March 31, 2023 and 2022, respectively.
During the three months ended March 31, 2023, we contributed an additional $0.7 million equity interest in Great Ajax FS LLC ("GAFS") to increase our total ownership of GAFS to $2.7 million, or 9.6%.
During the three months ended March 31, 2022, we invested an additional $6.1 million in Gaea to increase our total investment to $25.5 million, or 22.2% of total shares outstanding. In addition to common stock, we received 371,103 warrants to purchase additional shares at $16.41 per share for a two year period following the date that the common stock commences trading on a trading market.
Loss on Joint Venture Refinancing on Beneficial Interests
During the three months ended March 31, 2023, we recorded a $1.0 million loss on joint venture refinancing on beneficial interests due to other than temporary impairment on the partial redemption of our beneficial interests in Ajax Mortgage Loan Trust 2019-H ("2019-H"), which became a realized loss when the transaction closed in February 2023. The 2019-H trust, along with Ajax Mortgage Loan Trusts 2019-E and 2019-G, were re-securitized and the underlying mortgage loans were used to form Ajax Mortgage Loan Trust 2023-A ("2023-A"). Although we continue to own approximately the same interest in the underlying mortgage loans and related cash flows, we account for our beneficial interests as legal securities and
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recorded a loss on the transaction as a result. The beneficial interests were exchanged for a combination of the beneficial interest in 2023-A and cash received from the sale of the underlying loans to 2023-A.
Comparatively, during the three months ended March 31, 2022, we recorded a $4.0 million loss on joint venture refinancing on beneficial interests due to other than temporary impairment on the partial redemption of our beneficial interests in Ajax Mortgage Loan Trusts 2018-D and 2018-G ("2018-D and -G"), which became a realized loss when the transaction closed in April 2022. The 2018-D and -G trusts were re-securitized and the underlying mortgage loans were used to form Ajax Mortgage Loan Trust 2022-A ("2022-A"). Although we continue to own approximately the same interest in the underlying mortgage loans and related cash flows, we account for our beneficial interests as legal securities and recorded a loss on the transaction as a result. The beneficial interests were exchanged for a combination of the beneficial interest in 2022-A and cash received from the sale of the underlying loans to 2022-A.
Other Loss/Income
Other loss/income decreased for the three months ended March 31, 2023 by $2.9 million from the three months ended March 31, 2022. The decrease in Other income was driven by a $3.0 million loss on the disposition of debt securities, specifically the sale of securities in 2021-NPL 1. Of the $3.0 million loss on sale, $2.2 million was already reflected in our book value calculation through Accumulated other comprehensive loss at December 31, 2022, and the additional $0.8 million loss was recognized on the sale date. A breakdown of Other loss/income is provided in the table below ($ in thousands):
Table 4: Other (Loss)/Income
| Three months ended March 31, | ||||||||||||||
| 2023 | 2022(1,2) | |||||||||||||
| Other gain | $ | 364 | $ | 439 | ||||||||||
| Net gain/(loss) on sale of property held-for-sale | 91 | (16) | ||||||||||||
| Loss on sale of securities | (2,974) | — | ||||||||||||
| Total Other (loss)/income | $ | (2,519) | $ | 423 | ||||||||||
(1)Includes a reclass of Late fee income, HAMP fees and Rental income to Other gain.
(2)Includes a reclass of Loss on refinancing of beneficial interests out of Other (loss)/income.
Expenses
Total expenses decreased for the three months ended March 31, 2023 over the comparable period in 2022 as a result of a decrease in our put option expense on our outstanding common stock warrants and a decrease in management fees during the three months ended March 31, 2023 due to a reduction in stockholders' equity. These were partially offset by an increase in professional fees. A breakdown of expenses is provided in the table below ($ in thousands):
Table 5: Expenses
| Three months ended March 31, | ||||||||||||||
| 2023 | 2022(1) | |||||||||||||
| Related party expense – loan servicing fees | $ | 1,860 | $ | 2,091 | ||||||||||
| Related party expense – management fee | 1,828 | 2,293 | ||||||||||||
| Fair value adjustment on put option liability | 1,622 | 3,200 | ||||||||||||
| Other expense | 1,614 | 1,437 | ||||||||||||
| Professional fees | 934 | 345 | ||||||||||||
| Total expense | $ | 7,858 | $ | 9,366 | ||||||||||
(1)Previously presented to include Real estate operating expense as its own line item, which has now been reclassed to Other expense.
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Other Expense
Other expense increased for the three months ended March 31, 2023 over the comparable periods in 2022 primarily due to an increase in employee and service provider grants, partially offset by lower travel, meals and entertainment. A breakdown of Other expense is provided in the table below ($ in thousands):
Table 6: Other Expense
| Three months ended March 31, | ||||||||||||||
| 2023 | 2022(1,2) | |||||||||||||
| Employee and service provider share grants | $ | 517 | $ | 225 | ||||||||||
| Insurance | 262 | 252 | ||||||||||||
| Directors' fees and grants | 183 | 201 | ||||||||||||
| Borrowing related expenses | 130 | 125 | ||||||||||||
| Travel, meals, entertainment | 127 | 146 | ||||||||||||
| Real estate operating expense | 111 | 185 | ||||||||||||
| Software licenses and amortization | 106 | 120 | ||||||||||||
| Taxes and regulatory expense | 72 | 59 | ||||||||||||
| Other expense | 55 | 63 | ||||||||||||
| Internal audit services | 51 | 61 | ||||||||||||
| Total Other expense | $ | 1,614 | $ | 1,437 | ||||||||||
(1)Includes a reclass of Real estate operating expense.
(2)Includes a reclass of Loan transaction expense and Lien release non due diligence to Other expense.
Acceleration of Put Option Settlement
During the year ended December 31, 2022, we repurchased and retired 4,549,328 warrants for our common stock in a series of repurchase transactions. The warrants were repurchased for an aggregate of $35.0 million at a price equal to the expected future put value obligation of $20.00 per warrant. The repurchase of the warrants accelerated future accretion expense on the warrant's put option of $12.3 million. The repurchase is expected to reduce future put option expense by $10.8 million annually. There was no repurchase of warrants during the three months ended March 31, 2023 and 2022.
Gain on Debt Extinguishment
During the three months ended March 31, 2023, we recorded a $47 thousand gain related to the repurchase of $1.0 million aggregate principal of our 2024 Notes. Comparatively, for the three months ended March 31, 2022, we had no repurchases of our 2024 Notes.
Discount on Retirement of Preferred Stock
During the year ended December 31, 2022, we repurchased and retired 1,882,451 shares of our series A preferred stock and 1,757,010 shares of our series B preferred stock in a series of repurchase transactions. The series A and series B preferred stock were repurchased for an aggregate of $88.7 million at an average price of $24.37 per share, representing discounts of approximately 2.5% to the face value of $25.00 per share. The repurchase of the preferred stock caused the recognition of $8.2 million of preferred stock discount during the year ended December 31, 2022. The repurchase is expected to save us approximately $5.6 million annually in preferred dividends. There was no repurchase of preferred stock during the three months ended March 31, 2023 and 2022.
Equity and Net Book Value per Share
Our net book value per common share was $12.58 and $13.00 at March 31, 2023 and December 31, 2022, respectively. The decrease in book value was primarily due to the dividends on our common stock of $5.9 million and the year to date net loss attributable to common stockholders of $7.9 million, partially offset by the recovery of mark to market losses of $3.9 million on our investments in debt securities AFS and the amortization of $2.0 million of unrealized losses on our investments in debt securities transferred to HTM. We believe our calculation is representative of our book value on a per share
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basis, and our Manager believes book value per share is a valuable metric for evaluating our business. The net book value per share is calculated by taking equity at the balance sheet date (i) less preferred stock and non-controlling interest, (ii) adjusted for any addition for potential conversion of our 2024 Notes, divided by outstanding shares at the balance sheet date adjusted to include (i) unvested restricted stock earned but unissued and (ii) any share equivalents for our 2024 Notes or our put option liability as determined by the dilution requirements for our EPS calculation. A breakdown of our book value per share is set forth in the table below ($ in thousands except per share amounts):
Table 7: Book Value per Common Share
| March 31, 2023 | December 31, 2022 | ||||||||||
| Outstanding shares | 23,509,446 | 23,130,956 | |||||||||
Adjustments for(1): | |||||||||||
| Unvested grants of restricted stock and shares earned but not issued as of the date indicated | 13,020 | 10,580 | |||||||||
Settlement of put option in shares(2) | — | — | |||||||||
| Total adjusted shares outstanding | 23,522,466 | 23,141,536 | |||||||||
Equity at period end(1) | $ | 332,555 | $ | 337,465 | |||||||
| Adjustment for equity due to preferred shares | (34,554) | (34,554) | |||||||||
| Net adjustment for equity due to non-controlling interests | (2,133) | (2,137) | |||||||||
| Adjusted equity | $ | 295,868 | $ | 300,774 | |||||||
| Book value per share | $ | 12.58 | $ | 13.00 | |||||||
(1)The conversion of convertible senior notes is not included in the book value calculation as of March 31, 2023 or December 31, 2022 as it has an anti-dilutive effect on our earnings per share calculation.
(2)The settlement of the put option in shares is not included in the book value calculation as of March 31, 2023 or December 31, 2022 as it has an anti-dilutive effect on our earnings per share calculation.
Mortgage Loan Portfolio
For the three months ended March 31, 2023, we purchased $0.6 million of RPLs with UPB of $0.8 million at 58.8% of property value and 72.9% of UPB. Comparatively, for the three months ended March 31, 2022, we purchased no RPLs. For the three months ended March 31, 2023, we purchased no NPLs. Comparatively, for the three months ended March 31, 2022, we purchased $0.9 million of NPLs with UPB of $1.0 million at 56.7% of property value and 93.7% of UPB. For both the three months ended March 31, 2023 and 2022, we purchased no SBC loans. We ended the period with $1.0 billion for both our net mortgage loans and aggregate UPB as of March 31, 2023 and $1.1 billion for both our net mortgage loans and aggregate UPB as of March 31, 2022.
The following table shows loan portfolio acquisitions for the three months ended March 31, 2023, and 2022 ($ in thousands):
Table 8: Loan Portfolio Acquisitions
| Three months ended March 31, | ||||||||||||||
| 2023 | 2022 | |||||||||||||
| RPLs | ||||||||||||||
| Count | 3 | — | ||||||||||||
| UPB | $ | 828 | $ | — | ||||||||||
| Purchase price | $ | 604 | $ | — | ||||||||||
| Purchase price % of UPB | 72.9 | % | — | % | ||||||||||
| NPLs | ||||||||||||||
| Count | — | 4 | ||||||||||||
| UPB | $ | — | $ | 964 | ||||||||||
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| Three months ended March 31, | ||||||||||||||
| 2023 | 2022 | |||||||||||||
| Purchase price | $ | — | $ | 903 | ||||||||||
| Purchase price % of UPB | — | % | 93.7 | % | ||||||||||
During the three months ended March 31, 2023, 96 mortgage loans, representing 1.5% of our ending UPB, were liquidated. Comparatively, during the three months ended March 31, 2022, 225 mortgage loans, representing 4.5% of our ending UPB, were liquidated. Our loan portfolio activity for the three months ended March 31, 2023 and 2022 is presented below ($ in thousands):
Table 9: Loan Portfolio Activity
| Three months ended March 31, | ||||||||||||||||||||||||||
| 2023 | 2022 | |||||||||||||||||||||||||
| Mortgage loans held-for-investment, net | Mortgage loans held-for-sale, net | Mortgage loans held-for-investment, net | Mortgage loans held-for-sale, net | |||||||||||||||||||||||
| Beginning carrying value | $ | 989,084 | $ | — | $ | 1,080,434 | $ | 29,572 | ||||||||||||||||||
| Mortgage loans acquired | 604 | — | 903 | — | ||||||||||||||||||||||
| Accretion recognized | 13,281 | — | 16,185 | — | ||||||||||||||||||||||
| Payments received on loans, net | (33,094) | — | (66,396) | — | ||||||||||||||||||||||
| Net reclassifications from/(to) mortgage loans held-for-sale, net | — | — | 29,572 | (29,572) | ||||||||||||||||||||||
| Reclassifications from/(to) REO | 169 | — | (828) | — | ||||||||||||||||||||||
| Decrease in net present value of expected credit losses on mortgage loans and lower of cost or market adjustment | 621 | — | 3,624 | — | ||||||||||||||||||||||
| Other | — | — | (18) | — | ||||||||||||||||||||||
| Ending carrying value | $ | 970,665 | $ | — | $ | 1,063,476 | $ | — | ||||||||||||||||||
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Table 10: Portfolio Composition
As of March 31, 2023 and December 31, 2022, our portfolios consisted of the following ($ in thousands):
| March 31, 2023 | December 31, 2022 | |||||||||||||
| No. of Loans | 5,241 | No. of Loans | 5,331 | |||||||||||
Total UPB(1) | $ | 1,007,497 | Total UPB(1) | $ | 1,027,511 | |||||||||
| Interest-Bearing Balance | $ | 920,637 | Interest-Bearing Balance | $ | 939,115 | |||||||||
Deferred Balance(2) | $ | 86,860 | Deferred Balance(2) | $ | 88,396 | |||||||||
Market Value of Collateral(3) | $ | 2,131,485 | Market Value of Collateral(3) | $ | 2,186,776 | |||||||||
Current Purchase Price/Total UPB | 81.6 | % | Current Purchase Price/Total UPB | 81.7 | % | |||||||||
| Current Purchase Price/Market Value of Collateral | 42.7 | % | Current Purchase Price/Market Value of Collateral | 42.2 | % | |||||||||
| Weighted Average Coupon | 4.40 | % | Weighted Average Coupon | 4.38 | % | |||||||||
Weighted Average LTV(4) | 56.8 | % | Weighted Average LTV(4) | 56.4 | % | |||||||||
| Weighted Average Remaining Term (months) | 292 | Weighted Average Remaining Term (months) | 293 | |||||||||||
| No. of first liens | 5,193 | No. of first liens | 5,282 | |||||||||||
| No. of second liens | 48 | No. of second liens | 49 | |||||||||||
RPLs | 88.4 | % | RPLs | 88.3 | % | |||||||||
| NPLs | 10.5 | % | NPLs | 10.6 | % | |||||||||
| SBC loans | 1.1 | % | SBC loans | 1.1 | % | |||||||||
| No. of REO properties held-for-sale | 32 | No. of REO properties held-for-sale | 39 | |||||||||||
Market Value of REO(5) | $ | 5,612 | Market Value of REO(5) | $ | 7,437 | |||||||||
| Carrying value of debt securities and beneficial interests in trusts | $ | 366,855 | Carrying value of debt securities and beneficial interests in trusts | $ | 417,262 | |||||||||
Loans with 12 for 12 payments as an approximate percentage of acquisition UPB(6) | 81.3 | % | Loans with 12 for 12 payments as an approximate percentage of acquisition UPB(6) | 79.6 | % | |||||||||
Loans with 24 for 24 payments as an approximate percentage of acquisition UPB(7) | 72.1 | % | Loans with 24 for 24 payments as an approximate percentage of acquisition UPB(7) | 69.8 | % | |||||||||
(1)At March 31, 2023 and December 31, 2022, our loan portfolio consists of fixed rate (60.8% of UPB), ARM (6.7% of UPB) and Hybrid ARM (32.5% of UPB); and fixed rate (61.2% of UPB), ARM (6.8% of UPB) and Hybrid ARM (32.0% of UPB), respectively.
(2)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.
(3)As of the reporting date.
(4)UPB as of March 31, 2023 and December 31, 2022, divided by market value of collateral and weighted by the UPB of the loan.
(5)Market value of REO is based on net realizable value. Fair market value is determined based on appraisals, broker price opinions ("BPOs"), or other market indicators of fair value including list price or contract price.
(6)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.
(7)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.
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Table 11: Portfolio Characteristics
The following tables present certain characteristics about our mortgage loans by year of origination as of March 31, 2023 and December 31, 2022, respectively ($ in thousands):
Portfolio at March 31, 2023
| Years of Origination | |||||||||||||||||
| Mortgage loans held-for-investment, net | After 2008 | 2006 – 2008 | 2005 and prior | ||||||||||||||
| Number of loans | 591 | 2,953 | 1,697 | ||||||||||||||
| UPB | $ | 127,409 | $ | 650,763 | $ | 229,325 | |||||||||||
| Percent of mortgage loan portfolio by year of origination | 12.6 | % | 64.6 | % | 22.8 | % | |||||||||||
| Loan Attributes: | |||||||||||||||||
| Weighted average loan age (months) | 122.6 | 193.9 | 233.2 | ||||||||||||||
| Weighted average loan-to-value | 56.0 | % | 59.8 | % | 48.9 | % | |||||||||||
| Delinquency Performance: | |||||||||||||||||
| Current | 59.2 | % | 62.7 | % | 61.2 | % | |||||||||||
| 30 days delinquent | 10.1 | % | 9.9 | % | 10.6 | % | |||||||||||
| 60 days delinquent | 4.8 | % | 6.1 | % | 4.7 | % | |||||||||||
| 90+ days delinquent | 17.8 | % | 14.5 | % | 18.2 | % | |||||||||||
| Foreclosure | 8.1 | % | 6.8 | % | 5.3 | % | |||||||||||
Portfolio at December 31, 2022
| Years of Origination | |||||||||||||||||
| Mortgage loans held-for-investment, net | After 2008 | 2006 – 2008 | 2005 and prior | ||||||||||||||
| Number of loans | 596 | 2,998 | 1,737 | ||||||||||||||
| UPB | $ | 129,867 | $ | 661,477 | $ | 236,167 | |||||||||||
| Percent of mortgage loan portfolio by year of origination | 12.6 | % | 64.4 | % | 23.0 | % | |||||||||||
| Loan Attributes: | |||||||||||||||||
| Weighted average loan age (months) | 119.3 | 190.9 | 230.3 | ||||||||||||||
| Weighted average loan-to-value | 55.2 | % | 59.5 | % | 48.6 | % | |||||||||||
| Delinquency Performance: | |||||||||||||||||
| Current | 58.4 | % | 59.9 | % | 58.7 | % | |||||||||||
| 30 days delinquent | 7.6 | % | 10.2 | % | 9.1 | % | |||||||||||
| 60 days delinquent | 0.1 | % | 0.1 | % | 0.5 | % | |||||||||||
| 90+ days delinquent | 27.3 | % | 24.2 | % | 26.6 | % | |||||||||||
| Foreclosure | 6.6 | % | 5.6 | % | 5.1 | % | |||||||||||
Table 12: Loans by State
The following table identifies our mortgage loans for our top 10 states by number of loans, loan value, collateral value and percentages thereof at March 31, 2023 and December 31, 2022 ($ in thousands):
| March 31, 2023 | December 31, 2022 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| State | Count | UPB | % UPB | Collateral Value(1) | % of Collateral Value | State | Count | UPB | % UPB | Collateral Value(1) | % of Collateral Value | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| CA | 700 | $ | 224,418 | 22.3 | % | $ | 513,006 | 24.1 | % | CA | 704 | $ | 226,963 | 22.1 | % | $ | 525,595 | 24.0 | % | |||||||||||||||||||||||||||||||||||||||||||||||||
| FL | 842 | 170,133 | 16.9 | % | 369,962 | 17.4 | % | FL | 862 | 174,303 | 17.0 | % | 376,233 | 17.2 | % | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| NY | 350 | 105,271 | 10.4 | % | 215,974 | 10.1 | % | NY | 354 | 107,425 | 10.5 | % | 216,384 | 9.9 | % | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| NJ | 280 | 62,957 | 6.2 | % | 109,924 | 5.2 | % | NJ | 285 | 64,085 | 6.2 | % | 111,284 | 5.1 | % | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| MD | 206 | 48,873 | 4.9 | % | 79,700 | 3.7 | % | MD | 212 | 50,034 | 4.9 | % | 84,185 | 3.8 | % | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| VA | 174 | 36,494 | 3.6 | % | 65,648 | 3.1 | % | VA | 176 | 37,361 | 3.6 | % | 67,647 | 3.1 | % | |||||||||||||||||||||||||||||||||||||||||||||||||||||
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| March 31, 2023 | December 31, 2022 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| State | Count | UPB | % UPB | Collateral Value(1) | % of Collateral Value | State | Count | UPB | % UPB | Collateral Value(1) | % of Collateral Value | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| TX | 331 | 33,268 | 3.3 | % | 87,468 | 4.1 | % | TX | 337 | 33,903 | 3.3 | % | 90,805 | 4.2 | % | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| GA | 277 | 32,391 | 3.2 | % | 78,064 | 3.7 | % | GA | 283 | 33,157 | 3.2 | % | 80,103 | 3.7 | % | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| IL | 192 | 31,901 | 3.2 | % | 50,235 | 2.4 | % | IL | 194 | 32,297 | 3.1 | % | 50,732 | 2.3 | % | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| MA | 145 | 29,499 | 2.9 | % | 65,131 | 3.1 | % | MA | 148 | 30,086 | 2.9 | % | 67,160 | 3.1 | % | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Other | 1,744 | 232,292 | 23.1 | % | 496,373 | 23.1 | % | Other | 1,776 | 237,897 | 23.2 | % | 516,648 | 23.6 | % | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| 5,241 | $ | 1,007,497 | 100.0 | % | $ | 2,131,485 | 100.0 | % | 5,331 | $ | 1,027,511 | 100.0 | % | $ | 2,186,776 | 100.0 | % | |||||||||||||||||||||||||||||||||||||||||||||||||||
(1)As of the reporting date.
Table 13: Debt Securities and Trust Certificate Acquisitions
The following table shows our debt securities and trust certificate acquisitions for the three months ended March 31, 2023 and 2022 ($ in thousands):
| Three months ended March 31, | ||||||||||||||
| 2023 | 2022 | |||||||||||||
| Class A securities | ||||||||||||||
| UPB | $ | 9,648 | $ | — | ||||||||||
Purchase price(1) | $ | 8,753 | $ | — | ||||||||||
| Purchase price % of UPB | 90.7 | % | — | % | ||||||||||
| Class M securities | ||||||||||||||
| UPB | $ | 2,112 | $ | — | ||||||||||
Purchase price(1) | $ | 1,565 | $ | — | ||||||||||
| Purchase price % of UPB | 74.1 | % | — | % | ||||||||||
| Class B securities | ||||||||||||||
| UPB | $ | 4,101 | $ | — | ||||||||||
Purchase price(1) | $ | 2,818 | $ | — | ||||||||||
| Purchase price % of UPB | 68.7 | % | — | % | ||||||||||
| Trust certificates | ||||||||||||||
Purchase price(1) | $ | 3,014 | $ | — | ||||||||||
(1)The securities were received in exchange for our investments in Ajax Mortgage Loan Trust 2019-E, 2019-G and 2019-H for the three months ended March 31, 2023.
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. 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 market events, including inflation and the related Federal Reserve bank actions, may 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 through increased interest rates on secured borrowings and repurchase lines of credit. 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 available-for-sale, investments held-to-maturity and investments in beneficial interests, which are included on our consolidated balance sheet.
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As of March 31, 2023 and December 31, 2022, substantially all of our invested capital was in RPLs, NPLs, SBC loans, debt securities, and beneficial interests. We also held approximately $49.4 million of cash and cash equivalents, an increase of $1.6 million from our balance of $47.8 million at December 31, 2022. Our average daily cash balance during the quarter was $50.9 million, an increase of $3.7 million from our average daily cash balance of $47.2 million during the three months ended December 31, 2022.
Our collections of principal and interest payments on mortgages and securities, and payoffs and proceeds on the sale of our property held-for-sale were $43.6 million and $85.3 million, respectively, for the three months ended March 31, 2023 and 2022.
Three Month Operating, Investing and Financing Cash Flows
Our operating cash outflows for the three months ended March 31, 2023 were $16.8 million. Our operating cash outflows for the three months ended March 31, 2022 were $11.1 million. Our primary operating cash inflow is cash interest payments on our mortgage loan pools of $11.6 million and $12.0 million for the three months ended March 31, 2023 and 2022, respectively. Non-cash interest income accretion on our mortgage loans was $1.7 million and $4.3 million for the three months ended March 31, 2023 and 2022, respectively. Interest income on beneficial interests was $2.1 million and $4.2 million during the three months ended March 31, 2023 and 2022, respectively. Interest income on debt securities was $2.5 million and $2.8 million during the three months ended March 31, 2023 and 2022, respectively.
Though the ownership of mortgage loans and other real estate assets is our business, U.S. 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 U.S. GAAP, and the cash flows from these activities are included in the investing section of our consolidated statements of cash flows.
For the three months ended March 31, 2023, our investing cash inflows of $63.5 million were driven by proceeds from refinancing and sale of our debt securities of $29.4 million, principal and interest collections on our securities of $29.0 million and principal payments on and payoffs of our mortgage loan portfolio of $21.5 million, partially offset by the purchase of securities of $16.3 million, the contribution of an additional $0.7 million equity interest in our GAFS affiliate and acquisitions of our mortgage loans of $0.6 million. For the three months ended March 31, 2022, our investing cash inflows of $69.0 million were primarily driven by principal payments on and payoffs of our mortgage loan portfolio of $54.4 million, principal payments on and payoffs of our debt securities and beneficial interests of $21.2 million, partially offset by the purchase of additional shares of common stock in our Gaea affiliate of $6.1 million and acquisitions of our mortgage loans of $0.9 million.
Our financing cash flows are driven primarily by funding used to acquire mortgage loan pools and debt securities. We fund our mortgage loan pools primarily through secured borrowings and repurchase agreements and we fund our debt securities primarily through repurchase agreements. For the three months ended March 31, 2023, we had net financing cash outflows of $45.1 million primarily driven by repayments of $40.6 million on repurchase transactions and pay downs of existing debt obligations of $13.0 million on secured borrowings, partially offset by additional borrowing through repurchase transactions of $13.4 million. For the three months ended March 31, 2022, we had net cash outflows from financing activities of $71.7 million primarily driven by pay downs of existing debt obligations of $39.4 million on secured borrowings and repayments of $29.5 million on repurchase transactions, partially offset by additional borrowing through repurchase transactions of $6.0 million. For the three months ended March 31, 2023 and 2022, we paid $6.5 million and $8.9 million, respectively, in combined dividends and distributions.
Financing Activities — Equity Offerings
On February 28, 2020, our Board of Directors approved a stock repurchase of up to $25.0 million of our common shares. The amount and timing of any repurchases depends on a number of factors, including but not limited to the price and availability of the common shares, trading volume and general circumstances and market conditions. As of March 31, 2023, we held 1,031,609 shares of treasury stock consisting of 144,658 shares received through distributions of our shares previously held by our Manager, 361,912 shares received through our Servicer and 525,039 shares acquired through open market purchases. As of March 31, 2022, we held 157,776 shares of treasury stock consisting of 108,092 shares received through distributions of our shares previously held by our Manager and 48,464 shares acquired through open market purchases.
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During the year ended December 31, 2022, we repurchased and retired 1,882,451 shares of our series A preferred stock and 1,757,010 shares of our series B preferred stock in a series of repurchase transactions. The series A and series B preferred stock were repurchased for an aggregate of $88.7 million at an average price of $24.37 per share, representing discounts of approximately 2.5% to the face value of $25.00 per share. The repurchase of the preferred stock caused the recognition of $8.2 million of preferred stock discount during the year ended December 31, 2022. The repurchase is expected to save us approximately $5.6 million annually in preferred dividends. Also, during the year ended December 31, 2022, we repurchased and retired 4,549,328 of our outstanding warrants for $35.0 million, resulting in the acceleration of $12.3 million of accretion expense, which will result in less accretion expense in future periods. There was no repurchase of preferred stock and warrants during the three months ended March 31, 2023 and 2022.
During the three months ended March 31, 2023, we sold 345,578 shares of common stock for proceeds, net of issuance costs of $2.4 million under our At the Market program, which we sell, through our agents, shares of common stock with an aggregate offering price of up to $100.0 million. Comparatively, during the three months ended March 31, 2022, we did not sell any shares of common stock under our At the Market program. 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, 2024 Notes and 2027 Notes
Secured Borrowings
From our inception (January 30, 2014) to March 31, 2023, we have completed 18 secured borrowings, not including borrowings we completed for our non-consolidated joint ventures (See "Table 18: Investments in Joint Ventures"), through securitization trusts pursuant to Rule 144A under the Securities Act, five of which were outstanding at March 31, 2023. The secured borrowings are generally structured as debt financings. The loans included in the secured borrowings remain on our consolidated balance sheet as we are 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. Our exposure to the obligations of the VIEs is generally limited to our 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 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 non-rated 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. We have retained the subordinate notes and the applicable trust certificates from one non-rated secured borrowing outstanding at March 31, 2023.
Our rated secured borrowings are generally structured as “REIT TMP” transactions which allows us to issue multiple classes of securities without using a REMIC structure or being subject to an entity level tax. Our rated secured borrowings generally issue classes of debt from AAA through mezzanine. We generally retain the mezzanine and residual certificates in the transactions. We have retained the applicable mezzanine and residual certificates from the other four rated secured borrowings outstanding at March 31, 2023. Our rated secured borrowings are designated in the table below.
At March 31, 2021, our 2017-D secured borrowing contained 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. We had retained 50.0% of both the Class A notes and Class B certificates from 2017-D; and the assets and liabilities were included on our consolidated balance sheets. During the second quarter of 2021, the majority of the loans in 2017-D were sold into 2021-C and the Class A notes were redeemed. Based on the structure of the transaction we do not consolidate 2021-C under U.S. GAAP.
Our secured borrowings carry no provision for a step-up in interest rate on any of the Class B notes, except for 2021-B.
The following table sets forth the original terms of all outstanding notes from our secured borrowings outstanding at March 31, 2023 at their respective cutoff dates:
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Table 14: Secured Borrowings
| Issuing Trust/Issue Date | Interest Rate Step-up Date | Security | Original Principal | Interest Rate | ||||||||||||||||||||||
| Rated | ||||||||||||||||||||||||||
| Ajax Mortgage Loan Trust 2019-D/ July 2019 | July 25, 2027 | Class A-1 notes due 2065 | $140.4 million | 2.96 | % | |||||||||||||||||||||
| July 25, 2027 | Class A-2 notes due 2065 | $6.1 million | 3.50 | % | ||||||||||||||||||||||
| July 25, 2027 | Class A-3 notes due 2065 | $10.1 million | 3.50 | % | ||||||||||||||||||||||
| July 25, 2027 | Class M-1 notes due 2065(1) | $9.3 million | 3.50 | % | ||||||||||||||||||||||
| None | Class B-1 notes due 2065(2) | $7.5 million | 3.50 | % | ||||||||||||||||||||||
| None | Class B-2 notes due 2065(2) | $7.1 million | variable(3) | |||||||||||||||||||||||
| None | Class B-3 notes due 2065(2) | $12.8 million | variable(3) | |||||||||||||||||||||||
| Deferred issuance costs | $(2.7) million | — | % | |||||||||||||||||||||||
| Rated | ||||||||||||||||||||||||||
| Ajax Mortgage Loan Trust 2019-F/ November 2019 | November 25, 2026 | Class A-1 notes due 2059 | $110.1 million | 2.86 | % | |||||||||||||||||||||
| November 25, 2026 | Class A-2 notes due 2059 | $12.5 million | 3.50 | % | ||||||||||||||||||||||
| November 25, 2026 | Class A-3 notes due 2059 | $5.1 million | 3.50 | % | ||||||||||||||||||||||
| November 25, 2026 | Class M-1 notes due 2059(1) | $6.1 million | 3.50 | % | ||||||||||||||||||||||
| None | Class B-1 notes due 2059(2) | $11.5 million | 3.50 | % | ||||||||||||||||||||||
| None | Class B-2 notes due 2059(2) | $10.4 million | variable(3) | |||||||||||||||||||||||
| None | Class B-3 notes due 2059(2) | $15.1 million | variable(3) | |||||||||||||||||||||||
| Deferred issuance costs | $(1.8) million | — | % | |||||||||||||||||||||||
| Rated | ||||||||||||||||||||||||||
| Ajax Mortgage Loan Trust 2020-B/ August 2020 | July 25, 2027 | Class A-1 notes due 2059 | $97.2 million | 1.70 | % | |||||||||||||||||||||
| July 25, 2027 | Class A-2 notes due 2059 | $17.3 million | 2.86 | % | ||||||||||||||||||||||
| July 25, 2027 | Class M-1 notes due 2059(1) | $7.3 million | 3.70 | % | ||||||||||||||||||||||
| None | Class B-1 notes due 2059(2) | $5.9 million | 3.70 | % | ||||||||||||||||||||||
| None | Class B-2 notes due 2059(2) | $5.1 million | variable(3) | |||||||||||||||||||||||
| None | Class B-3 notes due 2059(2) | $23.6 million | variable(3) | |||||||||||||||||||||||
| Deferred issuance costs | $(1.8) million | — | % | |||||||||||||||||||||||
| Rated | ||||||||||||||||||||||||||
| Ajax Mortgage Loan Trust 2021-A/ January 2021 | January 25, 2029 | Class A-1 notes due 2065 | $146.2 million | 1.07 | % | |||||||||||||||||||||
| January 25, 2029 | Class A-2 notes due 2065 | $21.1 million | 2.35 | % | ||||||||||||||||||||||
| January 25, 2029 | Class M-1 notes due 2065(1) | $7.8 million | 3.15 | % | ||||||||||||||||||||||
| None | Class B-1 notes due 2065(2) | $5.0 million | 3.80 | % | ||||||||||||||||||||||
| None | Class B-2 notes due 2065(2) | $5.0 million | variable(3) | |||||||||||||||||||||||
| None | Class B-3 notes due 2065(2) | $21.5 million | variable(3) | |||||||||||||||||||||||
| Deferred issuance costs | $(2.5) million | — | % | |||||||||||||||||||||||
| Non-rated | ||||||||||||||||||||||||||
| Ajax Mortgage Loan Trust 2021-B/ February 2021 | August 25, 2024 | Class A notes due 2066 | $215.9 million | 2.24 | % | |||||||||||||||||||||
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| Issuing Trust/Issue Date | Interest Rate Step-up Date | Security | Original Principal | Interest Rate | ||||||||||||||||||||||
| February 25, 2025 | Class B notes due 2066(2) | $20.2 million | 4.00 | % | ||||||||||||||||||||||
| Deferred issuance costs | $(4.3) million | — | % | |||||||||||||||||||||||
(1)The Class M notes are subordinated, sequential pay, fixed rate notes. We have retained the Class M notes, with the exception of Ajax Mortgage Loan Trust 2021-A.
(2)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. We have retained the Class B notes.
(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.
2024 Notes (Convertible Senior Notes)
During 2017 and 2018, we completed the public offer and sale of our 2024 Notes, in three separate offerings which form a single series of fungible securities. At March 31, 2023 and December 31, 2022, the UPB of the debt was $103.5 million and $104.5 million, respectively. The 2024 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 2024 Notes will mature on April 30, 2024, unless earlier repurchased, converted or redeemed. During certain periods and subject to certain conditions the 2024 Notes will be convertible by their holders into shares of our common stock at a current conversion rate of 1.7405 shares of common stock per $25.00 principal amount of the 2024 Notes, which represents a conversion price of approximately $14.36 per share of common stock. The conversion rate, and thus the conversion price, may be subject to adjustment under certain circumstances.
2027 Notes (Unsecured Notes)
During August 2022, our Operating Partnership issued $110.0 million aggregate principal amount of 8.875% 2027 Notes. The 2027 Notes were issued at 99.009% of par value and are fully and unconditionally guaranteed by the Guarantors.
Under the indenture governing the 2027 Notes, a subsidiary guarantor's guarantee will terminate upon: (i) the sale, exchange, disposition or other transfer (including by way of consolidation or merger) of the subsidiary guarantor or the sale or disposition of all or substantially all the assets of the subsidiary guarantor otherwise permitted by the indenture, (ii) satisfaction of the requirements for legal or covenant defeasance or discharge of the 2027 Notes, or (iii) no default or event of default has occurred and is continuing under the indenture.
The following table presents summarized financial information for the Guarantors and our Operating Partnership, on a combined basis after eliminating (i) intercompany transactions and balances among the guarantor entities and (ii) equity in earnings from, and any investments in, any subsidiary that is a non-guarantor ($ in thousands):
Table 15: Summary of Issuer and Guarantor Financial Statements
| March 31, 2023 | December 31, 2022 | |||||||||||||
| Total assets | $ | 422,802 | $ | 455,096 | ||||||||||
| Borrowings under repurchase transactions | 182,805 | 206,872 | ||||||||||||
| Convertible senior notes and notes payable, net | 209,708 | 210,302 | ||||||||||||
| Other liabilities | 44,592 | 46,401 | ||||||||||||
| Total liabilities | 437,105 | 463,575 | ||||||||||||
| Total equity (deficit) | (14,303) | (8,479) | ||||||||||||
| Total liabilities and equity | $ | 422,802 | $ | 455,096 | ||||||||||
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| Three months ended | ||||||||
| March 31, 2023 | ||||||||
| Total loss on revenue, net | $ | (4,615) | ||||||
| Management fees and loan servicing fees | 1,512 | |||||||
| Other expenses | 3,932 | |||||||
| Consolidated loss attributable to the Company | (10,059) | |||||||
| Less: dividends on preferred stock | 547 | |||||||
| Consolidated net loss attributable to common stockholders | $ | (10,606) | ||||||
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 $150.0 million and the other $400.0 million at any one time. Upon the time of the initial sale to the buyer, each Trust, with a simultaneous agreement, also agrees to repurchase the pools of mortgage loans from the buyer. Mortgage loans sold under these facilities carry interest calculated based on a spread to one-month SOFR, which are fixed for the term of the borrowing. The purchase price that the Trust realizes upon the initial sale of the mortgage loans to the buyer can vary between 75% and 90% of the asset’s acquisition price, depending upon the facility being utilized and/or the quality of the underlying collateral. The obligations of the Trust to repurchase these mortgage loans at a future date are guaranteed by the Operating Partnership. The difference between the market value of the asset and the amount of the repurchase agreement is generally the amount of equity we have in the position and is intended to provide the buyer with some protection against fluctuations in the value of the collateral, and/or a failure by us to repurchase the asset and repay the borrowing at maturity. We also have four repurchase facilities substantially similar to the mortgage loan repurchase facilities where the pledged assets are securities retained from our securitization transactions. These facilities have no effective ceilings. Each repurchase transaction represents its own borrowing. As such, the ceilings associated with these transactions are the amounts currently borrowed at any one time. We have effective control over the assets subject to all of these transactions; therefore, our repurchase transactions are accounted for as financing arrangements.
A summary of our outstanding repurchase transactions at March 31, 2023 and December 31, 2022 is as follows ($ in thousands):
Table 16: Repurchase Transactions by Maturity Date
| March 31, 2023 | ||||||||||||||||||||||||||
| Maturity Date | Amount Outstanding | Amount of Collateral | Interest Rate | |||||||||||||||||||||||
Barclays - bonds(1) | $ | 103,276 | $ | 146,400 | 6.42 | % | ||||||||||||||||||||
| A Bonds | April 3, 2023 | 12,112 | 17,645 | 6.09 | % | |||||||||||||||||||||
| April 21, 2023 | 23,854 | 30,485 | 6.17 | % | ||||||||||||||||||||||
| April 26, 2023 | 27,656 | 37,078 | 6.60 | % | ||||||||||||||||||||||
| May 3, 2023 | 11,879 | 15,446 | 5.97 | % | ||||||||||||||||||||||
| May 22, 2023 | 2,107 | 3,406 | 6.17 | % | ||||||||||||||||||||||
| B Bonds | April 26, 2023 | 2,943 | 5,176 | 7.00 | % | |||||||||||||||||||||
| May 3, 2023 | 3,627 | 6,408 | 6.77 | % | ||||||||||||||||||||||
| May 22, 2023 | 4,306 | 7,505 | 6.77 | % | ||||||||||||||||||||||
| June 13, 2023 | 12,713 | 19,999 | 6.91 | % | ||||||||||||||||||||||
| June 22, 2023 | 713 | 798 | 6.37 | % | ||||||||||||||||||||||
| M Bonds | May 3, 2023 | 292 | 519 | 6.12 | % | |||||||||||||||||||||
| May 22, 2023 | 1,074 | 1,935 | 6.37 | % | ||||||||||||||||||||||
Nomura - bonds(1) | $ | 36,142 | $ | 54,675 | 6.37 | % | ||||||||||||||||||||
| A Bonds | May 15, 2023 | 6,400 | 9,366 | 6.31 | % | |||||||||||||||||||||
| June 23, 2023 | 11,853 | 17,506 | 6.37 | % | ||||||||||||||||||||||
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| March 31, 2023 | ||||||||||||||||||||||||||
| Maturity Date | Amount Outstanding | Amount of Collateral | Interest Rate | |||||||||||||||||||||||
| June 30, 2023 | 7,272 | 9,664 | 5.96 | % | ||||||||||||||||||||||
| B Bonds | May 15, 2023 | 5,784 | 9,586 | 6.71 | % | |||||||||||||||||||||
| June 23, 2023 | 3,790 | 6,436 | 6.77 | % | ||||||||||||||||||||||
| M Bonds | June 30, 2023 | 1,043 | 2,117 | 6.29 | % | |||||||||||||||||||||
JP Morgan - bonds(1) | $ | 58,474 | $ | 86,109 | 6.13 | % | ||||||||||||||||||||
| A Bonds | June 2, 2023 | 10,610 | 14,205 | 6.16 | % | |||||||||||||||||||||
| September 19, 2023 | 20,778 | 28,219 | 6.30 | % | ||||||||||||||||||||||
| B Bonds | April 21, 2023 | 1,616 | 2,652 | 6.31 | % | |||||||||||||||||||||
| May 1, 2023 | 6,574 | 11,052 | 6.34 | % | ||||||||||||||||||||||
| M Bonds | April 11, 2023 | 15,086 | 22,664 | 5.70 | % | |||||||||||||||||||||
| June 2, 2023 | 501 | 894 | 6.39 | % | ||||||||||||||||||||||
| July 24, 2023 | 3,309 | 6,423 | 6.42 | % | ||||||||||||||||||||||
JP Morgan - loans(2) | July 10, 2023 | $ | 11,750 | $ | 17,564 | 7.40 | % | |||||||||||||||||||
Nomura - loans(3) | October 5, 2023 | $ | 209,011 | $ | 284,755 | 7.21 | % | |||||||||||||||||||
| Totals/weighted averages | $ | 418,653 | $ | 589,503 | (4) | 6.79 | % | |||||||||||||||||||
(1)Maximum borrowing capacity subject to pledging sufficient collateral is the equivalent of the amount outstanding as of March 31, 2023.
(2)Maximum borrowing capacity subject to pledging sufficient collateral as of March 31, 2023 was $150.0 million.
(3)Maximum borrowing capacity subject to pledging sufficient collateral as of March 31, 2023 was $400.0 million.
(4)Includes $42.8 million of bonds that are consolidated on our balance sheet for GAAP as of March 31, 2023.
| December 31, 2022 | ||||||||||||||||||||||||||
| Maturity Date | Amount Outstanding | Amount of Collateral | Interest Rate | |||||||||||||||||||||||
Barclays - bonds(1) | $ | 126,458 | $ | 181,667 | 6.10 | % | ||||||||||||||||||||
| A Bonds | January 3, 2023 | 12,345 | 18,399 | 5.33 | % | |||||||||||||||||||||
| January 20, 2023 | 47,591 | 64,692 | 5.76 | % | ||||||||||||||||||||||
| April 26, 2023 | 27,655 | 37,216 | 6.60 | % | ||||||||||||||||||||||
| May 3, 2023 | 11,879 | 15,535 | 5.97 | % | ||||||||||||||||||||||
| May 22, 2023 | 2,107 | 3,421 | 6.17 | % | ||||||||||||||||||||||
| B Bonds | March 13, 2023 | 12,639 | 20,755 | 6.45 | % | |||||||||||||||||||||
| April 26, 2023 | 2,943 | 5,174 | 7.00 | % | ||||||||||||||||||||||
| May 3, 2023 | 3,627 | 6,405 | 6.77 | % | ||||||||||||||||||||||
| May 22, 2023 | 4,306 | 7,606 | 6.77 | % | ||||||||||||||||||||||
| M Bonds | May 3, 2023 | 292 | 521 | 6.12 | % | |||||||||||||||||||||
| May 22, 2023 | 1,074 | 1,943 | 6.37 | % | ||||||||||||||||||||||
Nomura - bonds(1) | $ | 35,742 | $ | 55,303 | 6.02 | % | ||||||||||||||||||||
| A Bonds | January 12, 2023 | 3,910 | 5,458 | 5.32 | % | |||||||||||||||||||||
| February 14, 2023 | 6,481 | 9,818 | 5.81 | % | ||||||||||||||||||||||
| February 24, 2023 | 3,795 | 5,178 | 6.05 | % | ||||||||||||||||||||||
| March 23, 2023 | 11,186 | 17,202 | 6.08 | % | ||||||||||||||||||||||
| B Bonds | February 14, 2023 | 5,619 | 9,542 | 6.24 | % | |||||||||||||||||||||
| February 24, 2023 | 1,054 | 1,689 | 6.45 | % | ||||||||||||||||||||||
| March 23, 2023 | 3,697 | 6,416 | 6.48 | % | ||||||||||||||||||||||
Goldman Sachs - bonds(1) | $ | 3,102 | $ | 4,044 | 5.58 | % | ||||||||||||||||||||
| A Bonds | January 13, 2023 | 3,102 | 4,044 | 5.58 | % | |||||||||||||||||||||
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| December 31, 2022 | ||||||||||||||||||||||||||
| Maturity Date | Amount Outstanding | Amount of Collateral | Interest Rate | |||||||||||||||||||||||
JP Morgan - bonds(1) | $ | 56,656 | $ | 82,071 | 5.59 | % | ||||||||||||||||||||
| A Bonds | March 7, 2023 | 11,103 | 14,836 | 5.62 | % | |||||||||||||||||||||
| March 24, 2023 | 22,131 | 30,215 | 5.41 | % | ||||||||||||||||||||||
| B Bonds | February 3, 2023 | 7,846 | 13,583 | 5.86 | % | |||||||||||||||||||||
| M Bonds | March 7, 2023 | 490 | 893 | 5.85 | % | |||||||||||||||||||||
| April 11, 2023 | 15,086 | 22,544 | 5.70 | % | ||||||||||||||||||||||
JP Morgan - loans(2) | July 10, 2023 | $ | 11,750 | $ | 17,839 | 6.90 | % | |||||||||||||||||||
Nomura - loans(3) | October 5, 2023 | $ | 212,147 | $ | 292,415 | 6.65 | % | |||||||||||||||||||
| Totals/weighted averages | $ | 445,855 | $ | 633,339 | (4) | 6.31 | % | |||||||||||||||||||
(1)Maximum borrowing capacity subject to pledging sufficient collateral is the equivalent of the amount outstanding as of December 31, 2022.
(2)Maximum borrowing capacity subject to pledging sufficient collateral as of December 31, 2022 was $150.0 million.
(3)Maximum borrowing capacity subject to pledging sufficient collateral as of December 31, 2022 was $400.0 million.
(4)Includes $42.8 million of bonds that are consolidated on our balance sheet for GAAP as of December 31, 2022.
As of March 31, 2023, we had $418.7 million outstanding under our repurchase transactions compared to $445.9 million as of December 31, 2022. The maximum month-end balance outstanding during the three months ended March 31, 2023 was $447.3 million, compared to a maximum month-end balance for the three months ended December 31, 2022, of $474.6 million. The following table presents certain details of our repurchase transactions for the three months ended March 31, 2023 and December 31, 2022 ($ in thousands):
Table 17: Repurchase Balances
| Three months ended | ||||||||||||||
| March 31, 2023 | December 31, 2022 | |||||||||||||
| Balance at the end of period | $ | 418,653 | $ | 445,855 | ||||||||||
| Maximum outstanding balance during the quarter | $ | 447,344 | $ | 474,567 | ||||||||||
| Average balance | $ | 430,708 | $ | 452,911 | ||||||||||
The decrease in our average balance from $452.9 million for the three months ended December 31, 2022 to our average balance of $430.7 million for the three months ended March 31, 2023 is a result of paydowns and asset sales.
As of March 31, 2023 and December 31, 2022, we did not have any credit facilities or other outstanding debt obligations other than the repurchase facilities, secured borrowings, put option liability, 2024 Notes and 2027 Notes.
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 May 4, 2023, our Board of Directors declared a dividend of $0.20 per share, to be paid on May 31, 2023 to stockholders of record as of May 15, 2023. 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 paid out of our taxable income plus any quarterly increase in book value, all calculated on an annualized basis, exceed 8% of our book value, or (2) for any annual incentive fee, the value of quarterly cash dividends on our common stock plus cash special dividends on our common stock paid out of our taxable income, plus the increase in our book value, taken together exceeds 8% (on an annualized basis) of our stock’s book value at the end of the year. During the
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three months ended March 31, 2023 and 2022, we recorded incentive fees payable to the Manager of zero and $0.1 million, respectively. 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 6.36% on an annualized basis of our book value of $12.58 per share at March 31, 2023. If our taxable income increases, we could exceed the threshold for paying an incentive fee to our Manager, and thereby trigger such payments. See Note 10 — Related Party Transactions.
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 18: 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.
On January 1, 2023, we transferred $83.0 million of investment securities from AFS to HTM due to sale restrictions pursuant to Article 6(1) of Regulation (EU) 2017/2402 of the European Parliament and of the Council (as amended, the “EU Securitization Regulation” and, together with applicable regulatory and implementing technical standards in relation thereto, the “EU Securitization Rules”). Pursuant to the terms of these debt securities, we must hold at least 5.01% of the nominal value of each class of securities offered or sold to investors (the "EU Retained Interest") subject to the EU Securitization Rules. Under the EU Securitization Rules, we are prohibited from selling, transferring or otherwise surrendering all or part of the EU Retained Interest until all such classes are paid in full or redeemed. The EU risk retention component of our investments in securities is classified as HTM on our consolidated balance sheets.
A summary of our investments in debt securities AFS and HTM issued by joint ventures is presented below ($ 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 2019-E/ September 2019 | Class B notes due 2059 | $ | 16,903 | 4.88 | % | 20.00 | % | $ | 3,381 | $ | 543 | (4) | |||||||||||||||||||||||||||||
| Ajax Mortgage Loan Trust 2019-G/ December 2019 | Class A notes due 2059 | $ | 141,420 | 3.00 | % | 5.86 | % | $ | 8,287 | $ | 829 | (4) | |||||||||||||||||||||||||||||
| Class B notes due 2059 | $ | 13,199 | 4.25 | % | 20.00 | % | $ | 2,640 | $ | 2,640 | (4) | ||||||||||||||||||||||||||||||
| Ajax Mortgage Loan Trust 2020-A/ March 2020 | Class A notes due 2059 | $ | 249,384 | 2.38 | % | 20.00 | % | $ | 49,877 | $ | 28,043 | (4) | |||||||||||||||||||||||||||||
| Class B notes due 2059 | $ | 23,276 | 3.50 | % | 20.00 | % | $ | 4,655 | $ | 4,428 | (4) | ||||||||||||||||||||||||||||||
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| 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 2020-C/ September 2020 | Class A notes due 2060 | $ | 339,365 | 2.25 | % | 10.01 | % | $ | 33,970 | $ | 998 | (4) | |||||||||||||||||||||||||||||
| Class B notes due 2060 | $ | 21,754 | 5.00 | % | 10.01 | % | $ | 2,178 | $ | 2,178 | (4) | ||||||||||||||||||||||||||||||
| Ajax Mortgage Loan Trust 2020-D/ September 2020 | Class A notes due 2060 | $ | 330,721 | 2.25 | % | 10.01 | % | $ | 33,105 | $ | 4,820 | (4) | |||||||||||||||||||||||||||||
| Class B notes due 2060 | $ | 30,867 | 5.00 | % | 10.01 | % | $ | 3,090 | $ | 3,090 | (4) | ||||||||||||||||||||||||||||||
| Ajax Mortgage Loan Trust 2021-C/ April 2021 | Class A notes due 2061 | $ | 194,673 | 2.12 | % | 5.01 | % | $ | 9,753 | $ | 5,836 | (4) | |||||||||||||||||||||||||||||
| Class B notes due 2061 | $ | 18,170 | 3.72 | % | 31.90 | % | $ | 5,796 | $ | 5,796 | (4) | ||||||||||||||||||||||||||||||
| Ajax Mortgage Loan Trust 2021-D/ May 2021 | Class A notes due 2060 | $ | 191,468 | 2.00 | % | 6.94 | % | $ | 13,288 | $ | 9,187 | (4) | |||||||||||||||||||||||||||||
| Class B notes due 2060 | $ | 25,529 | 4.00 | % | 20.00 | % | $ | 5,106 | $ | 5,106 | (4) | ||||||||||||||||||||||||||||||
Ajax Mortgage Loan Trust 2021-E/ July 2021(1) | Class A notes due 2060 | $ | 430,760 | 1.82 | % | (2) | 10.01 | % | $ | 43,119 | $ | 33,825 | (4) | ||||||||||||||||||||||||||||
| Class M notes due 2060 | $ | 19,415 | 2.94 | % | 10.01 | % | $ | 1,943 | $ | 1,943 | (4) | ||||||||||||||||||||||||||||||
| Class B-1 and B-2 notes due 2060 | $ | 38,313 | 3.73 | % | 10.01 | % | $ | 3,835 | $ | 3,835 | (4) | ||||||||||||||||||||||||||||||
| Class B-3 notes due 2060 | $ | 29,253 | 3.73 | % | 19.57 | % | $ | 5,725 | $ | 5,726 | (4) | ||||||||||||||||||||||||||||||
| Ajax Mortgage Loan Trust 2021-F/ June 2021 | Class A notes due 2061 | $ | 476,082 | 1.88 | % | 5.01 | % | $ | 23,852 | $ | 17,160 | (4) | |||||||||||||||||||||||||||||
| Class B notes due 2061 | $ | 49,463 | 3.75 | % | 12.60 | % | $ | 6,232 | $ | 6,232 | (4) | ||||||||||||||||||||||||||||||
| Ajax Mortgage Loan Trust 2021-G/ June 2021 | Class A notes due 2061 | $ | 317,573 | 1.88 | % | 7.26 | % | $ | 23,056 | $ | 16,472 | (4) | |||||||||||||||||||||||||||||
| Class B notes due 2061 | $ | 32,995 | 3.75 | % | 20.00 | % | $ | 6,599 | $ | 6,413 | (4) | ||||||||||||||||||||||||||||||
| 2021-NPL 1/ November 2021 | Class B notes due 2051 | $ | 23,088 | 4.63 | % | 16.33 | % | $ | 3,771 | $ | 3,771 | ||||||||||||||||||||||||||||||
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| 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 2022-A/ April 2022 | Class A notes due 2061 | $ | 154,921 | 3.47 | % | (2) | 6.24 | % | (3) | $ | 9,664 | $ | 8,304 | ||||||||||||||||||||||||||||
| Class M notes due 2061 | $ | 21,762 | 3.00 | % | 23.28 | % | $ | 5,066 | $ | 5,066 | |||||||||||||||||||||||||||||||
| Ajax Mortgage Loan Trust 2022-B/ June 2022 | Class A notes due 2062 | $ | 169,924 | 3.47 | % | (2) | 5.70 | % | (3) | $ | 9,692 | $ | 8,686 | ||||||||||||||||||||||||||||
| Class M notes due 2062 | $ | 17,776 | 3.00 | % | 17.18 | % | $ | 3,054 | $ | 3,054 | |||||||||||||||||||||||||||||||
| 2022-RPL 1/ October 2022 | Class A notes due 2028 | $ | 211,419 | 4.25 | % | 17.50 | % | $ | 36,998 | $ | 35,563 | ||||||||||||||||||||||||||||||
| Class B notes due 2028 | $ | 29,364 | 4.25 | % | 17.50 | % | $ | 5,139 | $ | 5,139 | |||||||||||||||||||||||||||||||
| Ajax Mortgage Loan Trust 2023-A/ February 2023 | Class A notes due 2062 | $ | 163,741 | 3.46 | % | (2) | 5.89 | % | (3) | $ | 9,644 | $ | 9,534 | ||||||||||||||||||||||||||||
| Class M notes due 2062 | $ | 10,561 | 2.50 | % | 20.00 | % | $ | 2,112 | $ | 2,112 | |||||||||||||||||||||||||||||||
| Class B notes due 2062 | $ | 20,506 | 2.50 | % | 20.00 | % | $ | 4,101 | $ | 4,101 | |||||||||||||||||||||||||||||||
(1)Ajax Mortgage Loan Trust 2021-E was formed on July 19, 2021 which was subsequent to completing Ajax Mortgage Loan Trust 2021-F and 2021-G. The trust made an election to be taxed as a REMIC however the residual class was placed with an unrelated third party.
(2)Weighted average of Class A notes.
(3)Weighted average ownership of Class A notes.
(4)Total principal includes 5.01% EU risk retention component classified as investments in securities HTM on our consolidated balance sheets.
A summary of our investments in beneficial interests issued by joint ventures is presented below ($ in thousands):
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| Great Ajax Corp. Ownership | ||||||||||||||||||||||||||
| Issuing Trust/Issue Date | Total Original Outstanding Principal | 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 | $ | 22,759 | 9.36 | % | $ | 2,130 | $ | 98 | ||||||||||||||||||
| Ajax Mortgage Loan Trust 2018-B/ June 2018 | $ | 28,447 | 20.00 | % | $ | 5,689 | $ | 2,513 | ||||||||||||||||||
| Ajax Mortgage Loan Trust 2018-D/ September 2018 | $ | 20,166 | 20.00 | % | $ | 4,033 | $ | 790 | ||||||||||||||||||
| Ajax Mortgage Loan Trust 2018-E/ December 2018 | $ | 20,662 | 20.00 | % | $ | 4,132 | $ | 743 | ||||||||||||||||||
| Ajax Mortgage Loan Trust 2018-F/ December 2018 | $ | 43,201 | 20.00 | % | $ | 8,640 | $ | 3,928 | ||||||||||||||||||
| Ajax Mortgage Loan Trust 2019-E/ September 2019 | $ | 43,464 | 20.00 | % | $ | 8,693 | $ | 8,558 | ||||||||||||||||||
| Ajax Mortgage Loan Trust 2019-G/ December 2019 | $ | 33,941 | 20.00 | % | $ | 6,788 | $ | 6,820 | ||||||||||||||||||
| Ajax Mortgage Loan Trust 2019-H/ December 2019 | $ | 21,692 | 20.00 | % | $ | 4,338 | $ | 1,915 | ||||||||||||||||||
| Ajax Mortgage Loan Trust 2020-A/ March 2020 | $ | 59,852 | 20.00 | % | $ | 11,970 | $ | 11,934 | ||||||||||||||||||
| Ajax Mortgage Loan Trust 2020-C/ September 2020 | $ | 73,964 | 10.01 | % | $ | 7,404 | $ | 7,393 | ||||||||||||||||||
| Ajax Mortgage Loan Trust 2020-D/ September 2020 | $ | 79,373 | 10.01 | % | $ | 7,945 | $ | 7,934 | ||||||||||||||||||
| Ajax Mortgage Loan Trust 2021-C/ April 2021 | $ | 46,722 | 31.90 | % | $ | 14,904 | $ | 14,860 | ||||||||||||||||||
| Ajax Mortgage Loan Trust 2021-D/ May 2021 | $ | 38,293 | 20.00 | % | $ | 7,659 | $ | 7,630 | ||||||||||||||||||
Ajax Mortgage Loan Trust 2021-E/ July 2021(1) | $ | 518,357 | 19.57 | % | $ | 101,471 | (2) | $ | 2,361 | |||||||||||||||||
| Ajax Mortgage Loan Trust 2021-F/ June 2021 | $ | 92,743 | 12.60 | % | $ | 11,686 | $ | 11,670 | ||||||||||||||||||
| Ajax Mortgage Loan Trust 2021-G/ June 2021 | $ | 61,864 | 20.00 | % | $ | 12,373 | $ | 11,630 | ||||||||||||||||||
| 2021-NPL 1/ November 2021 | $ | 52,773 | 16.33 | % | $ | 8,620 | $ | 8,575 | ||||||||||||||||||
Ajax Mortgage Loan Trust 2022-A/ April 2022(3) | $ | 38,784 | 23.28 | % | $ | 9,029 | $ | 8,760 | ||||||||||||||||||
Ajax Mortgage Loan Trust 2022-B/ June 2022(4) | $ | 33,125 | 17.18 | % | $ | 5,691 | $ | 5,504 | ||||||||||||||||||
| 2022-RPL 1/ October 2022 | $ | 55,326 | 17.50 | % | $ | 9,682 | $ | 9,334 | ||||||||||||||||||
| Ajax Mortgage Loan Trust 2023-A/ February 2023 | $ | 10,254 | 20.00 | % | $ | 2,051 | $ | 2,046 | ||||||||||||||||||
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(1)Ajax Mortgage Loan Trust 2021-E was formed on July 19, 2021 which was subsequent to completing Ajax Mortgage Loan Trust 2021-F and 2021-G. The trust made an election to be taxed as a REMIC however the residual class was placed with an unrelated third party.
(2)The trust certificate has no stated principal balance and is tied to the unpaid balance of the underlying mortgage loans.
(3)Includes the addition of Class B notes classified as beneficial interests on our consolidated balance sheets. Total original outstanding principal and principal balance retained of the Class B notes is $25.9 million and $6.0 million, respectively.
(4)Includes the addition of Class B notes classified as Beneficial Interests on our consolidated balance sheets. Total original outstanding principal and principal balance retained of the Class B notes is $22.1 million and $3.8 million, respectively.
Contractual Obligations
Our contractual obligations include obligations under repurchase agreements, our 2024 Notes, our 2027 Notes, accrued interest on the repurchase agreements and notes, and the put obligation on our outstanding warrants.
We use repurchase agreements to finance certain acquisitions of mortgage loans and certain debt securities we retain from our securitizations. At March 31, 2023 and December 31, 2022, our repurchase obligations totaled $418.7 million and $445.9 million, respectively. Our repurchase financing is considered short term in nature as the underlying agreements generally renew within one year. (See “Repurchase Transactions” above.)
Our 2024 Notes had outstanding principal balances of $103.5 million and $104.5 million at March 31, 2023 and December 31, 2022, respectively. The 2024 Notes will mature on April 30, 2024 unless earlier repurchased, converted or redeemed. During certain periods and subject to certain conditions the 2024 Notes will be convertible by their holders into shares of our common stock at a current conversion rate of 1.7405 shares of common stock per $25.00 principal amount of the notes, which represents a conversion price of approximately $14.36 per share of common stock. The conversion rate, and thus the conversion price, may be subject to adjustment under certain circumstances.
Our 2027 Notes had an outstanding principal balance of $110.0 million at both March 31, 2023 and December 31, 2022. The 2027 Notes will mature on September 1, 2027.
Our accrued interest expense associated with our repurchase obligations at March 31, 2023 and December 31, 2022, was $3.2 million and $2.3 million, respectively. Our interest expense expected to be paid on our 2024 Notes at March 31, 2023 and December 31, 2022, was $9.7 million and $11.7 million, respectively. Our interest expense expected to be paid on our 2027 Notes at March 31, 2023 and December 31, 2022, was $43.9 million and $49.0 million, respectively. Interest expense accrued on our repurchase financings is paid upon the maturity of a financing. Unless the repurchase financing is renewed, we are required to repay the borrowing and any accrued interest and we concurrently receive back our pledged collateral from the lender. Interest expense on our 2024 Notes is paid quarterly in arrears on January 15, April 15, July 15 and October 15 of each year. Interest expense on our 2027 Notes is payable semi-annually on March 1 and September 1, with the first payment due and payable on March 1, 2023.
We have two series of five-year warrants outstanding which allow the holders to purchase an aggregate of 1,950,672 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 back to us at a specified put price on or after July 6, 2023. We believe the most economically beneficial result for the holders will be to exercise the put, which we expect to settle for $15.7 million.
Our secured borrowings are not included under our contractual obligations 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.
Subsequent Events
Since quarter end, we have acquired two residential RPLs in one transaction from a single seller with aggregate UPB of $0.3 million. The purchase price of the RPLs was 58.1% of UPB and 37.1% of the estimated market value of the underlying collateral of $0.4 million.
We have agreed to acquire, subject to due diligence, 74 residential RPLs in two transactions with aggregate UPB of $18.1 million. The purchase price of the residential RPLs is 82.9% of UPB and 54.3% of the estimated market value of the underlying collateral of $27.6 million.
On May 4, 2023, our Board of Directors declared a cash dividend of $0.20 per share to be paid on May 31, 2023 to stockholders of record as of May 15, 2023.
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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 may 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. We expect to continue to utilize repurchase lines of credit as an interim financing tool until we have sufficient volume to execute a secured borrowing. Increases in interest rates will increase our cost of funds for new secured borrowings and our cost of funds on repurchase lines of credit on the repurchase reset date. 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.
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.
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 rising interest rates.
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
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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.
Inflation
Virtually all of our assets and liabilities are interest-rate sensitive in nature. Recent and expected rate increases by the Federal Reserve Bank to mitigate inflation have increased and are expected to continue to increase our cost of funds. Increasing mortgage interest rates may also have a negative impact on housing prices. Additionally, inflation that outpaces wage increases could drive a decrease in disposable household income and increase the credit risk of certain borrowers.
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.
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PART II. OTHER INFORMATION
Item 1. Legal Proceedings
Neither we nor any of our subsidiaries are party to nor is any of our property the subject of any material pending 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 Annual Report on Form 10-K for the year ended December 31, 2022. There have been no material changes from these previously disclosed risk factors.
Item 2. Unregistered Sales of Securities
On March 9, 2023, we issued each of our five independent directors 2,116 shares of common stock in partial payment of their quarterly director fees for the fourth quarter of 2022. 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.
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EXHIBIT INDEX
| Exhibit Number | Exhibit Description | |||||||
| 10.1 | ||||||||
| 31.1* | ||||||||
| 31.2* | ||||||||
| 32.1* | ||||||||
| 32.2* | ||||||||
| 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.
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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: May 5, 2023 | By: | /s/ Lawrence Mendelsohn | |||||||||
| Lawrence Mendelsohn | |||||||||||
| Chairman and Chief Executive Officer (Principal Executive Officer) | |||||||||||
| Date: May 5, 2023 | By: | /s/ Mary Doyle | |||||||||
| Mary Doyle | |||||||||||
| Chief Financial Officer (Principal Financial and Accounting Officer) | |||||||||||
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