NOTES TO CONSOLIDATED INTERIM FINANCIAL STATEMENTS
March 31, 2024
(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 currently owns 19.8% of the Manager and 9.7% 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”).
On February 26, 2024, the Company entered into a $70.0 million term loan (the "Credit Agreement") with NIC RMBS LLC (“NIC RMBS”), an affiliate of Rithm Capital Corp. (together with its subsidiaries, "Rithm"). For a full description of the Credit Agreement’s terms, conditions and covenants, see the section titled “The Transaction — Credit Agreement” in the Company’s Definitive Proxy Statement filed with the Securities and Exchange Commission on April 10, 2024. The term loan is accompanied by the Company’s agreement to issue a certain number of warrants to Rithm or one of its affiliates to purchase Company common stock, which warrants are detachable. See Note 8 — Commitments and Contingencies. Additionally, subject to receipt of approval of a majority of the Company’s stockholders and the satisfaction of certain other closing conditions, Rithm or one of its affiliates has agreed to purchase $14.0 million of the Company's common stock at a price of $4.87 per share (which represents the trailing five-day average closing price of the Company's common stock on the NYSE as of the date of the Securities Purchase Agreement, entered into on February 26, 2024 by the Company, the Operating Partnership (as defined herein), the Manager and Rithm (the “Securities Purchase Agreement”)). In connection with the foregoing transaction and subject to receipt of approval of a majority of the Company's stockholders, the Company has agreed to enter into a new management agreement with RCM GA Manager LLC, a Rithm affiliate (“RCM GA”), which would become the Company's new external manager and terminate its existing management contract with the Manager in exchange for approximately $15.5 million of the Company’s common stock to be issued to the Manager.
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 accompanying notes are an integral part of the consolidated interim financial statements.
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The Operating Partnership, through interests in certain entities, as of March 31, 2024, 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, 2024, 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") to invest 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. 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. Also, during the year ended December 31, 2023, GA-TRS received an additional 20,991 shares of Gaea common stock for $0.3 million due to the termination of Gaea's management agreement, which increased the Company's ownership. At March 31, 2024, the Company owned approximately 22.2% of Gaea's total shares outstanding. 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, 2023, included in the Company's Annual Report on Form 10-K filed with the Securities and Exchange Commission (the "SEC") on February 28, 2024.
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, 2024. 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, 2024 and December 31, 2023. 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, 2024 and December 31, 2023. 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, 2024 and December 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 REMIC.
During January 2023, the Company contributed an additional $0.7 million equity interest in GAFS. As of both March 31, 2024 and December 31, 2023, the Company's ownership of GAFS was 9.7%.
The accompanying notes are an integral part of the consolidated interim financial statements.
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The Company’s 19.8% ownership of the Manager and 9.7% 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 typically 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.
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 risks 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. Additionally, slower than expected prepayments can result in lower yields as the Company's mortgage loans were acquired at discounts.
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, from time to time, it may acquire loans that have not experienced a deterioration in credit quality or originate SBC loans.
The accompanying notes are an integral part of the consolidated interim financial statements.
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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. Non-performing collateral dependent loans are carried at net realizable value of collateral.
Mortgage Loans Held-for-sale
From time to time the Company will identify specific loans that it will sell. When the loans are identified and a plan to sell the loans are in place, the Company will reclassify the loans from Mortgage Loans held-for-investment, net to Mortgage loans held-for-sale, net. When a loan is designated as held-for-sale, it is held at the lower of amortized cost or fair value with any mark to market adjustment recorded on the Company's consolidated statements of operations.
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 subordinated 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 is required to hold to maturity are classified as HTM.
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 loss. 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 a carrying value of $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 loss for the transferred securities continue to be reported in accumulated other comprehensive loss 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
The accompanying notes are an integral part of the consolidated interim financial statements.
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whether and when it becomes probable that all amounts contractually due will not be collected. Additionally, slower prepayments can result in lower yields on the Company's debt securities acquired at a discount.
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. 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 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. Additionally, lower than expected prepayments could reduce the Company's yields on its beneficial interest portfolio. 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 had a liquidation preference of $25.00 per share.
The accompanying notes are an integral part of the consolidated interim financial statements.
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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.
During the three months ended March 31, 2024, the Company exchanged the remaining 424,949 shares of its outstanding 7.25% Series A Fixed-to-Floating Rate Preferred Stock and 1,135,590 shares of its outstanding 5.00% Series B Fixed-to-Floating Rate Preferred Stock and the associated warrants for newly issued shares of its common stock. Of the 12,046,218 shares, 9,464,524 shares of its common stock were issued during the three months ended March 31, 2024 and the remaining 2,581,694 shares of its common stock will only be issued following the approval of a majority of the Company's stockholders during its 2024 annual and special meeting of stockholders. The Company recorded a $12.6 million liability to account for the shares payable to the preferred holders.
Warrants
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 included 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 warrants as if the put option will be exercised by the holders. The warrants were recorded as a liability on the Company's consolidated balance sheets with an original basis of $9.5 million. Because the warrants have been substantially out of the money since issuance, the Company assumed the put option would be exercised and accreted the liability to the initial redemption value. During the year ended December 31, 2022, the Company repurchased and retired a portion of its warrants. The remaining warrants continued to accrete to their redemption value in July 2023. During the three months ended March 31, 2024, the Company entered into exchange agreements with the current holders of the remaining outstanding warrants, pursuant to which the Company acquired all of the remaining outstanding warrants.
As part of the Rithm transaction, the Company agreed to issue to Rithm or one of its affiliates five-year warrants to purchase a maximum of $35.0 million shares of the Company’s common stock at $5.36 per share. The maximum amount of shares for which the warrants may be exercised will equal the greater of 50% of (i) the amount the Company draws on the Credit Agreement and (ii) $35.0 million. Based on maximum available draw, the Company expects it will issue $17.5 million shares. The Company recorded the warrants at fair value on the transaction date with an offset to deferred issuance costs. The warrants will be accounted for as a liability at fair value with any changes in fair value recorded in earnings. The deferred issuance costs will be amortized over the draw period as an expense. The draw period is 125 days.
Secured Borrowings
The Company, through securitization trusts which are VIEs, issues callable debt secured by its mortgage loans in the ordinary course of business. The secured borrowings facilitated by the trusts are structured as debt financings, and the mortgage loans used as collateral remain on the Company’s consolidated balance sheet as the Company is the primary beneficiary of the securitization trusts. These secured borrowing VIEs are structured as pass through entities that receive principal and interest on the underlying mortgages and distribute those payments to the holders of the notes. The Company’s exposure to the obligations of the VIEs is generally limited to its investments in the entities; the creditors do not have recourse to the primary beneficiary. Coupon interest expense on the debt is recognized using the accrual method of accounting. Deferred issuance costs, including 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
The accompanying notes are an integral part of the consolidated interim financial statements.
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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 both March 31, 2024 and December 31, 2023, the UPB of the debt was $103.5 million. The 2024 Notes had an interest at a rate of 7.25% per annum and were payable quarterly in arrears on January 15, April 15, July 15 and October 15 of each year. The 2024 Notes matured on April 30, 2024 and the Company redeemed the notes in full for an aggregate amount of $103.5 million and 15 days of accrued interest.
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, 2024.
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, 2024 and December 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 was used for general corporate purposes. At both March 31, 2024 and December 31, 2023, 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 accompanying notes are an integral part of the consolidated interim financial statements.
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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.
On February 26, 2024, the Company issued a termination notice to the Manager, in connection with the Rithm transaction, and agreed to pay the Manager the termination fee pursuant to the Management Agreement primarily in shares of common stock.
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 and Directors’ Fees
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 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. 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.
Each of the Company’s independent directors receives 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. However, the Company has the option to pay the annual retainer with up to 100% in cash at its discretion. 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. During the second quarter of 2023, the Board approved the appointment of the lead director and an additional payment to the lead director of $20,000 per year, payable quarterly, 100% in cash was approved by the Compensation
The accompanying notes are an integral part of the consolidated interim financial statements.
16
committee. Also, during the second quarter of 2023, due to conflicts of interests by certain Board members, the Board established a special committee, comprised solely of independent directors (the "Special Committee") to evaluate and review the merger agreement with Ellington Financial (the "Merger Agreement"), the Merger and the other transactions contemplated by the Merger Agreement, as well as other strategic opportunities. The directors on the Special Committee received a one-time cash payment of $20,000, except for the lead director who received a one-time cash payment of $30,000 and a one-time stock payment of $15,000, paid in the shares of the Company's common stock. 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.
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.
In connection with the Rithm transaction, on March 25, 2024, the Company’s Board of Directors approved an amendment to the 2016 Plan that would permit the issuance of equity or equity-based incentive awards to RCM GA, which may in turn issue incentives to the directors, managers, officers, employees of, or advisors or consultants to, RCM GA or its affiliates. The Amendment is subject to the approval of a majority of the Company’s stockholders during its 2024 annual and special meeting of stockholders.
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.
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
The accompanying notes are an integral part of the consolidated interim financial statements.
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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 values from 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 the loans as a comparison to the estimates received from financing counterparties.
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. Also, the Company uses estimates provided by its financing counterparties, which are compared for reasonableness.
The fair value of the Company's ownership interest in the Manager has historically been valued by applying an earnings multiple to base fee revenue, however, beginning the quarter ending September 30, 2023, the Company valued the Manager in an amount equal to the termination payment required to terminate the Manager plus the fair value of the Manager's assets.
The fair value of the Company's ownership interests in AS Ajax E LLC and Ajax E Master Trust are valued using estimates provided by financing counterparties and other publicly available information.
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 GAFS, including warrants, was historically determined by applying an earnings multiple to expected earnings. At March 31, 2024, the Company is carrying its investment in GAFS as zero as it is required to divest of its investment prior to the Rithm transaction effective date.
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 2020 warrant liability is adjusted to approximate market value through earnings. The warrant liability 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 warrant liability over the 39-month term. The fair value of the Company's warrant liability is measured quarterly and the accreted liability has approximated fair value.
The fair value of the Company's Rithm warrants was determined using a Black Scholes model to establish the initial fair value. The Rithm warrants are recorded as a liability marked to fair value through earnings using the Black Scholes approach.
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 publicly traded on the NYSE under the ticker symbol "AJXA"; the debt’s fair value was determined from the closing price on the balance sheet date. The Company carried its 2024 Notes net of deferred issuance cost. Accordingly, the difference between fair value and carrying value was 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 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 accompanying notes are an integral part of the consolidated interim financial statements.
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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
The Company made no reclassifications that have impacted its consolidated financial statements.
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.
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, 2024 and December 31, 2023 ($ in thousands):
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | March 31, 2024 | | December 31, 2023 |
| Loan portfolio basis by asset type | | Mortgage loans held-for-investment, net | | Mortgage loans held-for-sale, net | | Mortgage loans held-for-investment, net | | Mortgage loans held-for-sale, net |
| Residential RPLs | | $ | 427,486 | | | $ | 313,937 | | | $ | 787,700 | | | $ | 34,359 | |
| Residential NPLs | | 5,813 | | | 54,048 | | | 71,075 | | | 20,894 | |
| SBC loans | | 5,399 | | | 303 | | | 5,776 | | | 465 | |
| Total | | $ | 438,698 | | | $ | 368,288 | | | $ | 864,551 | | | $ | 55,718 | |
Included on the Company’s consolidated balance sheets as of March 31, 2024 and December 31, 2023 are approximately $438.7 million and $864.6 million, respectively, of RPLs, NPLs, and SBC loans that are held-for-investment and approximately $368.3 million and $55.7 million, respectively, of RPLs, NPLs and SBC loans held-for-sale. During the year ended December 31, 2023, the Company began marketing a pool of loans for sale. As a result of this activity, the Company reclassified these loans from Mortgage loans held-for-investment, net to Mortgage loans held-for-sale, net. The Company marked the loans to lower of cost or market by $8.6 million during the year ended December 31, 2023, using the prices in the sale agreement. During the three months ended March 31, 2024, the Company transferred an additional 2,109 loans from Mortgage loans held-for-investment, net to Mortgage loans held-for-sale, net and marked the loans to lower of cost or market by $47.3 million.
The accompanying notes are an integral part of the consolidated interim financial statements.
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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, 2024 and December 31, 2023, for the Company's loans that are held-for-investment in the table above, are presented net of a cumulative allowance for expected credit losses of $0.4 million and $3.4 million, respectively, reflected in the appropriate lines in the table by loan type. For the three months ended March 31, 2024, the Company recognized $1.1 million of expense due to a net increase in expected credit losses resulting from decreases in the present value of the expected cash flows and $0.6 million of revenue due to a net decrease in expected credit losses resulting from increases in the present value of the expected cash flows for the three months ended March 31, 2023. Also, for the three months ended March 31, 2024 and 2023, the Company recognized accretable yield of $11.8 million and $13.3 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 and damage to or delay in realizing the value of the underlying collateral. Additionally, slower than expected prepayments can result in lower yields as the Company's mortgage loans were acquired at discounts. 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, 2024, the Company purchased no RPLs. Comparatively, during the three months ended March 31, 2023, the Company purchased three RPLs with UPB of $0.8 million. During both the three months ended March 31, 2024 and 2023, the Company purchased no NPLs. The Company purchased no SBC loans during both the three months ended March 31, 2024 and 2023. During the three months ended March 31, 2024, the Company sold 235 mortgage loans held-for-sale with a carrying value and UPB of $58.9 million to a third party resulting in the removal of the related loans from the consolidated balance sheet. The Company recognized a $0.4 million loss related to the sale. Comparatively, during the three months ended March 31, 2023, 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
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 $50.0 thousand absolute dollars of equity similarly drives a lower default rate and reduces loss severity in the event of foreclosure.
The accompanying notes are an integral part of the consolidated interim financial statements.
21
The following table presents information regarding the year of origination of the Company's mortgage loan portfolio by basis ($ in thousands):
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| March 31, 2024 |
| Mortgage loans held-for-investment, net | 2024 | | 2023 | | 2022 | | 2021 | | 2020 | | 2019 | | 2009-2018 | | 2006-2008 | | 2005 and prior | | Total |
| GAOP - 7f7 >50 | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | 3,456 | | | $ | 4,430 | | | $ | 1,739 | | | $ | 9,625 | |
| GAOP - 7f7 <50 | — | | | — | | | 109 | | | — | | | — | | | — | | | — | | | 870 | | | 217 | | | 1,196 | |
| GAOP - 6f6 and below | — | | | — | | | 410 | | | — | | | — | | | — | | | 1,519 | | | 5,561 | | | 267 | | | 7,757 | |
| Great Ajax II REIT - 7f7 >50 | — | | | — | | | — | | | — | | | 728 | | | 758 | | | 35,156 | | | 240,791 | | | 83,366 | | | 360,799 | |
| Great Ajax II REIT - 7f7 <50 | — | | | — | | | — | | | — | | | — | | | 71 | | | 2,665 | | | 22,312 | | | 6,472 | | | 31,520 | |
| Great Ajax II REIT - 6f6 and below | — | | | — | | | — | | | — | | | — | | | — | | | 5,070 | | | 16,791 | | | 5,940 | | | 27,801 | |
| Total | $ | — | | | $ | — | | | $ | 519 | | | $ | — | | | $ | 728 | | | $ | 829 | | | $ | 47,866 | | | $ | 290,755 | | | $ | 98,001 | | | $ | 438,698 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| December 31, 2023 |
| Mortgage loans held-for-investment, net | 2023 | | 2022 | | 2021 | | 2020 | | 2019 | | 2018 | | 2009-2017 | | 2006-2008 | | 2005 and prior | | Total |
| GAOP - 7f7 >50 | $ | — | | | $ | 2,473 | | | $ | 2,597 | | | $ | 1,370 | | | $ | 6,598 | | | $ | 658 | | | $ | 30,891 | | | $ | 190,106 | | | $ | 79,110 | | | $ | 313,803 | |
| GAOP - 7f7 <50 | — | | | 546 | | | 137 | | | — | | | 215 | | | — | | | 2,356 | | | 27,368 | | | 6,530 | | | 37,152 | |
| GAOP - 6f6 and below | — | | | 591 | | | 1,415 | | | — | | | 737 | | | 1,134 | | | 13,343 | | | 55,452 | | | 14,642 | | | 87,314 | |
| Great Ajax II REIT - 7f7 >50 | — | | | — | | | — | | | 730 | | | 764 | | | 795 | | | 34,864 | | | 243,034 | | | 84,634 | | | 364,821 | |
| Great Ajax II REIT - 7f7 <50 | — | | | — | | | — | | | — | | | 71 | | | 14 | | | 2,658 | | | 22,360 | | | 6,508 | | | 31,611 | |
| Great Ajax II REIT - 6f6 and below | — | | | — | | | — | | | — | | | — | | | — | | | 5,326 | | | 17,772 | | | 6,752 | | | 29,850 | |
| Total | $ | — | | | $ | 3,610 | | | $ | 4,149 | | | $ | 2,100 | | | $ | 8,385 | | | $ | 2,601 | | | $ | 89,438 | | | $ | 556,092 | | | $ | 198,176 | | | $ | 864,551 | |
The accompanying notes are an integral part of the consolidated interim financial statements.
22
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, 2024 and 2023 ($ in thousands):
| | | | | | | | | | | | | | |
| | Three months ended March 31, |
| | 2024 | | 2023 |
| Par | | $ | — | | | $ | 828 | |
| Discount | | — | | | (191) | |
| Increase in allowance | | — | | | (33) | |
| Purchase Price | | $ | — | | | $ | 604 | |
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, 2024, the Company recorded a $0.3 million reclassification to non-credit discount from the allowance for expected credit losses, which was followed by a $1.1 million increase of the allowance for expected credit losses due to decreases in the net present value of expected cash flows. During the three months ended March 31, 2024, the Company reclassified $3.9 million of allowance to non-credit discount to reflect the impact of moving mortgage loans to a held-for-sale, net classification on the balance sheet. Comparatively, 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 $33 thousand increase in the allowance for expected credit losses due to new acquisitions. An analysis of the balance in the allowance for expected credit losses on loans account follows ($ in thousands):
| | | | | | | | | | | | | | |
| | Three months ended March 31, |
| | 2024 | | 2023 |
| Allowance for expected credit losses, beginning of period | | $ | (3,426) | | | $ | (6,107) | |
| Reclassification to non-credit discount from the allowance for changes in payment timing expectations | | 310 | | | 1,225 | |
| Increase in allowance for expected credit losses for loan acquisitions during the period | | — | | | (33) | |
| Credit loss expense on mortgage loans | | (43) | | | (44) | |
| (Increase in)/reversal of allowance for expected credit losses due to (decreases)/increases in the net present value of expected cash flows | | (1,112) | | | 621 | |
| Reversal of allowance upon reclass of mortgage loans held-for-sale, net | | 3,868 | | | — | |
| Allowance for expected credit losses, end of period | | $ | (403) | | | $ | (4,338) | |
The accompanying notes are an integral part of the consolidated interim financial statements.
23
The following table sets forth the carrying value of the Company’s mortgage loans by delinquency status as of March 31, 2024 and December 31, 2023 ($ in thousands):
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | March 31, 2024 |
| Mortgage loans held-for-investment, net | | Current | | 30 | | 60 | | 90 | | Foreclosure | | Total |
| GAOP - 7f7 >50 | | $ | 6,232 | | | $ | 2,535 | | | $ | 16 | | | $ | 842 | | | $ | — | | | $ | 9,625 | |
| GAOP - 7f7 <50 | | 756 | | | 45 | | | 114 | | | 281 | | | — | | | 1,196 | |
| GAOP - 6f6 and below | | 1,186 | | | 410 | | | — | | | 2,293 | | | 3,868 | | | 7,757 | |
| Great Ajax II REIT - 7f7 >50 | | 303,408 | | | 29,605 | | | 11,775 | | | 15,606 | | | 405 | | | 360,799 | |
| Great Ajax II REIT - 7f7 <50 | | 25,629 | | | 2,726 | | | 1,252 | | | 1,913 | | | — | | | 31,520 | |
| Great Ajax II REIT - 6f6 and below | | 5,446 | | | 1,869 | | | 4,375 | | | 9,941 | | | 6,170 | | | 27,801 | |
| Total | | $ | 342,657 | | | $ | 37,190 | | | $ | 17,532 | | | $ | 30,876 | | | $ | 10,443 | | | $ | 438,698 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | March 31, 2024 |
| Mortgage loans held-for-sale, net | | Current | | 30 | | 60 | | 90 | | Foreclosure | | Total |
| Held-for-sale | | $ | 194,244 | | | $ | 46,815 | | | $ | 37,453 | | | $ | 70,193 | | | $ | 19,583 | | | $ | 368,288 | |
| Total | | $ | 194,244 | | | $ | 46,815 | | | $ | 37,453 | | | $ | 70,193 | | | $ | 19,583 | | | $ | 368,288 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | December 31, 2023 |
| Mortgage loans held-for-investment, net | | Current | | 30 | | 60 | | 90 | | Foreclosure | | Total |
| GAOP - 7f7 >50 | | $ | 199,229 | | | $ | 49,868 | | | $ | 283 | | | $ | 63,498 | | | $ | 925 | | | $ | 313,803 | |
| GAOP - 7f7 <50 | | 20,514 | | | 7,516 | | | 78 | | | 9,044 | | | — | | | 37,152 | |
| GAOP - 6f6 and below | | 8,565 | | | 6,906 | | | 421 | | | 45,058 | | | 26,364 | | | 87,314 | |
| Great Ajax II REIT - 7f7 >50 | | 300,506 | | | 36,277 | | | 801 | | | 26,600 | | | 637 | | | 364,821 | |
| Great Ajax II REIT - 7f7 <50 | | 25,592 | | | 3,846 | | | 42 | | | 2,131 | | | — | | | 31,611 | |
| Great Ajax II REIT - 6f6 and below | | 4,374 | | | 2,144 | | | — | | | 14,788 | | | 8,544 | | | 29,850 | |
| Total | | $ | 558,780 | | | $ | 106,557 | | | $ | 1,625 | | | $ | 161,119 | | | $ | 36,470 | | | $ | 864,551 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | December 31, 2023 |
| Mortgage loans held-for-sale, net | | Current | | 30 | | 60 | | 90 | | Foreclosure | | Total |
| Held-for-sale | | $ | 1,284 | | | $ | 592 | | | $ | — | | | $ | 26,243 | | | $ | 27,599 | | | $ | 55,718 | |
| Total | | $ | 1,284 | | | $ | 592 | | | $ | — | | | $ | 26,243 | | | $ | 27,599 | | | $ | 55,718 | |
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.
The accompanying notes are an integral part of the consolidated interim financial statements.
24
Property Held-for-Sale
As of March 31, 2024 and December 31, 2023, the Company’s net investments in real estate owned properties was $5.2 million and $3.8 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 the periods as of March 31, 2024 and December 31, 2023, was zero and $0.2 million, respectively, for properties undergoing renovation or which are otherwise in the process of being brought to market. As of March 31, 2024 and December 31, 2023, the Company had a total of 24 and 20 real estate owned properties, respectively. For the three months ended March 31, 2024 and 2023, the majority of the additions to REO held-for-sale were acquired through foreclosure or deed in lieu of foreclosure, and reclassified out of the mortgage loan portfolio.
The following table presents the activity in the Company’s carrying value of property held-for-sale for the three months ended March 31, 2024 and 2023 ($ in thousands):
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three months ended March 31, |
| | 2024 | | 2023 |
| Property Held-for-Sale | | Count | | Amount | | Count | | Amount |
| Balance at beginning of period | | 20 | | | $ | 3,785 | | | 39 | | | $ | 6,333 | |
| Net transfers from/(to) mortgage loans | | 6 | | | 2,015 | | | (2) | | | (169) | |
| Adjustments to record at lower of cost or fair value | | — | | | (396) | | | — | | | (111) | |
| Disposals | | (2) | | | (213) | | | (5) | | | (961) | |
| Balance at end of period | | 24 | | | $ | 5,191 | | | 32 | | | $ | 5,092 | |
Dispositions
During the three months ended March 31, 2024 and 2023, the Company sold two and five REO properties, respectively, realizing net gains of approximately $8 thousand and $0.1 million, respectively. These amounts are included in Other income on the Company's consolidated statements of operations. During the three months ended March 31, 2024 and 2023, the Company recorded an expense of lower of cost or net realizable value adjustments in real estate operating expense of $0.4 million and $0.1 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 subordinated 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 loss 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
The accompanying notes are an integral part of the consolidated interim financial statements.
25
transfer recorded at fair value. During the three months ended March 31, 2024 and 2023, the Company recorded amortization of $0.8 million and $2.0 million, respectively, of unrealized losses in accumulated other comprehensive loss and of unamortized discount related to transfers of securities from AFS to HTM.
Risks inherent in the Company's debt securities portfolio, affecting both the valuation of its securities as well as the portfolio's interest income include the risk of default, delays and inconsistency in the frequency and amount of payments, interest rate risk, risks affecting borrowers such as man-made or natural disasters and damage to or delay in realizing the value of the underlying collateral. Additionally, slower prepayments can result in lower yields on the Company's debt securities acquired at a discount and on its beneficial interest. The Company monitors the credit quality of the mortgage loans underlying its debt securities on an ongoing basis, principally by considering loan payment activity or delinquency status. In addition, the Company assesses the expected cash flows from the mortgage loans, the fair value of the underlying collateral and other factors, and evaluates whether and when it becomes probable that all amounts contractually due will not be collected. The following table presents information regarding the Company's investments in debt securities and investments in beneficial interests ($ in thousands):
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | As of March 31, 2024 |
| | Basis(1) | | Gross unrealized gains | | Gross unrealized losses | | Fair value |
| Debt securities available-for-sale, at fair value | | $ | 132,791 | | | $ | 1,144 | | | $ | (8,809) | | | $ | 125,126 | |
Debt securities held-to-maturity at amortized cost, net of allowance for credit losses of zero | | 54,085 | | | 374 | | | (998) | | | 53,461 | |
Investment in beneficial interests at amortized cost, net of allowance for credit losses of $9,082 | | 88,577 | | | 5,148 | | | (26,286) | | | 67,439 | |
| Total investments | | $ | 275,453 | | | $ | 6,666 | | | $ | (36,093) | | | $ | 246,026 | |
(1)Basis amount is net of amortized discount, principal paydowns and interest receivable on securities AFS and HTM of $80 thousand and $19 thousand, respectively.
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | As of December 31, 2023 |
| | Basis(1) | | Gross unrealized gains | | Gross unrealized losses | | Fair value |
| Debt securities available-for-sale, at fair value | | $ | 139,596 | | | $ | 637 | | | $ | (8,675) | | | $ | 131,558 | |
Debt securities held-to-maturity at amortized cost, net of allowance for credit losses of zero | | 59,691 | | | 111 | | | (629) | | | 59,173 | |
Investment in beneficial interests at amortized cost, net of allowance for credit losses of $6,880 | | 104,162 | | | 3,631 | | | (26,477) | | | 81,316 | |
| Total investments | | $ | 303,449 | | | $ | 4,379 | | | $ | (35,781) | | | $ | 272,047 | |
(1)Basis amount is net of amortized discount, principal paydowns and interest receivable on securities AFS and HTM of $87 thousand and $24 thousand, respectively.
The accompanying notes are an integral part of the consolidated interim financial statements.
26
The following table presents a breakdown of the Company's gross unrealized losses on its investments in debt securities AFS ($ in thousands):
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | As of March 31, 2024 |
| | Step-up date(s)(1) | | Basis(2) | | Gross unrealized losses | | Fair value |
Debt securities due November 2051(4) | | March 2025 | | $ | 3,765 | | | $ | (110) | | | $ | 3,655 | |
Debt securities due March 2060(4) | | February 2025 | | 5,676 | | | (718) | | | 4,958 | |
Debt securities due December 2060(4) | | July 2029 | | 21,146 | | | (4,762) | | | 16,384 | |
Debt securities due January 2061(4) | | September 2024 | | 4,886 | | | (521) | | | 4,365 | |
Debt securities due June 2061(5) | | January 2025/February 2025 | | 12,842 | | | (1,058) | | | 11,784 | |
Debt securities due October 2061(4) | | April 2029 | | 11,701 | | | (686) | | | 11,015 | |
Debt securities due March 2062(4) | | May 2029 | | 10,127 | | | (835) | | | 9,292 | |
Debt securities due July 2062(3) | | February 2030 | | 12,576 | | | (119) | | | 12,457 | |
| Total | | | | $ | 82,719 | | | $ | (8,809) | | | $ | 73,910 | |
(1)Step-up date is the date at which the coupon interest rate on the security increases. The Company intends for 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 June 2061. One security with a balance of $0.1 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 $0.9 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, 2023 |
| | Step-up date(s)(1) | | Basis(2) | | Gross unrealized losses | | Fair value |
Debt securities due February 2028(4) | | February 2026 | | $ | 4,717 | | | $ | (6) | | | $ | 4,711 | |
Debt securities due November 2051(4) | | March 2025 | | 3,764 | | | (215) | | | 3,549 | |
Debt securities due March 2060(4) | | February 2025 | | 5,805 | | | (678) | | | 5,127 | |
Debt securities due December 2060(4) | | July 2029 | | 21,411 | | | (4,242) | | | 17,169 | |
Debt securities due January 2061(4) | | September 2024 | | 4,886 | | | (478) | | | 4,408 | |
Debt securities due June 2061(5) | | January 2025/February 2025 | | 12,992 | | | (1,243) | | | 11,749 | |
Debt securities due October 2061(4) | | April 2029 | | 11,815 | | | (842) | | | 10,973 | |
Debt securities due March 2062(4) | | May 2029 | | 10,315 | | | (793) | | | 9,522 | |
Debt securities due July 2062(3) | | February 2030 | | 12,668 | | | (41) | | | 12,627 | |
Debt securities due October 2062(3) | | October 2026 | | 17,174 | | | (137) | | | 17,037 | |
| Total | | | | $ | 105,547 | | | $ | (8,675) | | | $ | 96,872 | |
(1)Step-up date is the date at which the coupon interest rate on the security increases. The Company intends for 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 June 2061. One security with a balance of $0.3 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 $0.9 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, 2024, the Company had a gross unrealized loss of $8.8 million and $1.1 million gross unrealized gains in fair valuation adjustments in accumulated other comprehensive loss on the consolidated balance sheet on total investments AFS with a fair value of $125.1 million, which includes $80 thousand in interest receivable. As of December 31, 2023, the Company had a gross unrealized loss of $8.7 million and $0.6 million gross unrealized gains in fair valuation
The accompanying notes are an integral part of the consolidated interim financial statements.
27
adjustments in accumulated other comprehensive loss on the consolidated balance sheet on total investments AFS with a fair value of $131.6 million, which includes $87 thousand in interest receivable.
During the three months ended March 31, 2023, the Company re-securitized, with an institutional accredited 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 debt securities retained from 2023-A are classified as AFS. Although the Company continues to own a proportionate interest in the underlying loans, the transaction is treated as a redemption of the bonds and beneficial interests in the original trusts and the Company recorded a $1.0 million loss on the transaction.
At March 31, 2024, the investments in debt securities AFS, investments in debt securities HTM and beneficial interests were carried on the Company's consolidated balance sheet at $125.1 million, $54.1 million and $88.6 million, respectively. At December 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 $131.6 million, $59.7 million and $104.2 million, respectively.
During the three months ended March 31, 2024, the Company sold no senior notes. Comparatively, during the three months ended March 31, 2023, the Company sold senior notes issued by certain joint ventures and recognized a loss of $3.0 million, which was recorded net to accumulated other comprehensive loss. As of March 31, 2024 and December 31, 2023, the Company had no securities that were past due.
The following table presents a reconciliation between the purchase price and par value for the Company's beneficial interests acquisitions for the three months ended March 31, 2024 and 2023 ($ in thousands):
| | | | | | | | | | | | | | |
| | Three months ended March 31, |
| | 2024 | | 2023 |
| Par | | $ | — | | | $ | 2,051 | |
| Premium | | — | | | 963 | |
| 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, 2024 and 2023, the Company recognized accretable yield of $0.7 million and $2.1 million, respectively, on its beneficial interest. For the three months ended March 31, 2024 and 2023, the Company recognized accretable yield of $0.4 million and $0.6 million, respectively, 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, 2024 and 2023, the Company had no activity and balance related to the allowance for expected credit losses for investments in securities HTM.
During the three months ended March 31, 2024, the Company recorded a $0.9 million reclassification to non-credit discount from the allowance for changes in payment expectations and a $3.1 million increase in the allowance for expected credit losses due to decreases in the net present value of expected cash flows. The decrease was primarily attributable to lower expected loan prices at redemption due to the expectation that the Federal Reserve will not reduce interest rates during 2024. Comparatively, during three months ended March 31, 2023, the Company had no activity related to the balance in the allowance for expected credit losses for beneficial interests.
The accompanying notes are an integral part of the consolidated interim financial statements.
28
An analysis of the balance in the allowance for expected credit losses for beneficial interests account follows ($ in thousands):
| | | | | | | | | | | | | | |
| | Three months ended March 31, |
| | 2024 | | 2023 |
| Allowance for expected credit losses, beginning balance | | $ | (6,880) | | | $ | — | |
| Reclassification to non-credit discount from the allowance for changes in payment expectations | | 916 | | | — | |
| Increase in allowance for expected credit losses due to decreases in the net present value of expected cash flows | | (3,118) | | | — | |
| Allowance for expected credit losses, ending balance | | $ | (9,082) | | | $ | — | |
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, 2024 and December 31, 2023 ($ in thousands):
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | Level 1 | | Level 2 | | Level 3 |
| March 31, 2024 | | 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 | | $ | 125,126 | | | $ | — | | | $ | 125,126 | | | $ | — | |
| Recurring financial liabilities | | | | | | | | |
| Warrant liability | | $ | 2,054 | | | $ | — | | | $ | — | | | $ | 2,054 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | Level 1 | | Level 2 | | Level 3 |
| December 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 | | $ | 131,558 | | | $ | — | | | $ | 131,558 | | | $ | — | |
| Recurring financial liabilities | | | | | | | | |
| Warrant liability | | $ | 16,644 | | | $ | — | | | $ | — | | | $ | 16,644 | |
The accompanying notes are an integral part of the consolidated interim financial statements.
29
The following tables set forth the fair value of financial instruments by level within the fair value hierarchy as of March 31, 2024 and December 31, 2023 ($ in thousands):
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | Level 1 | | Level 2 | | Level 3 |
| March 31, 2024 | | Carrying value | | Quoted prices in active markets | | Observable inputs other than Level 1 prices | | Unobservable inputs |
| Financial assets | | | | | | | | |
| Mortgage loans held-for-investment, net | | $ | 438,698 | | | $ | — | | | $ | — | | | $ | 394,813 | |
| Mortgage loans held-for-sale, net | | $ | 368,288 | | | $ | — | | | $ | — | | | $ | 368,290 | |
| Investment in debt securities held-to-maturity | | $ | 54,085 | | | $ | — | | | $ | 53,461 | | | $ | — | |
| Investment in beneficial interests | | $ | 88,577 | | | $ | — | | | $ | — | | | $ | 67,439 | |
| Investment in Manager | | $ | 3,553 | | | $ | — | | | $ | — | | | $ | 2,686 | |
| Investment in AS Ajax E LLC | | $ | 390 | | | $ | — | | | $ | 448 | | | $ | — | |
| Investment in Ajax E Master Trust | | $ | 2,105 | | | $ | — | | | $ | 1,829 | | | $ | — | |
| Investment in Gaea | | $ | 22,065 | | | $ | — | | | $ | — | | | $ | 21,355 | |
| Investment in Loan pool LLCs | | $ | 187 | | | $ | — | | | $ | — | | | $ | 674 | |
| Financial liabilities | | | | | | | | |
| Secured borrowings, net | | $ | 399,699 | | | $ | — | | | $ | 361,589 | | | $ | — | |
| Borrowings under repurchase transactions | | $ | 354,039 | | | $ | — | | | $ | 354,039 | | | $ | — | |
| Convertible senior notes | | $ | 103,516 | | | $ | 103,143 | | | $ | — | | | $ | — | |
| Notes payable, net | | $ | 107,059 | | | $ | — | | | $ | 109,406 | | | $ | — | |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | Level 1 | | Level 2 | | Level 3 |
| December 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 | | $ | 864,551 | | | $ | — | | | $ | — | | | $ | 770,419 | |
| Mortgage loans held-for-sale, net | | $ | 55,718 | | | $ | — | | | $ | — | | | $ | 60,444 | |
| Investment in debt securities held-to-maturity | | $ | 59,691 | | | $ | — | | | $ | 59,173 | | | $ | — | |
| Investment in beneficial interests | | $ | 104,162 | | | $ | — | | | $ | — | | | $ | 81,316 | |
| Investment in Manager | | $ | 440 | | | $ | — | | | $ | — | | | $ | 4,527 | |
| Investment in AS Ajax E LLC | | $ | 407 | | | $ | — | | | $ | 471 | | | $ | — | |
| Investment in Ajax E Master Trust | | $ | 2,100 | | | $ | — | | | $ | 1,864 | | | $ | — | |
| Investment in GAFS, including warrants | | $ | 2,618 | | | $ | — | | | $ | — | | | $ | — | |
| Investment in Gaea | | $ | 22,241 | | | $ | — | | | $ | — | | | $ | 21,678 | |
| Investment in Loan pool LLCs | | $ | 194 | | | $ | — | | | $ | — | | | $ | 674 | |
| Financial liabilities | | | | | | | | |
| Secured borrowings, net | | $ | 411,212 | | | $ | — | | | $ | 370,882 | | | $ | — | |
| Borrowings under repurchase transactions | | $ | 375,745 | | | $ | — | | | $ | 375,745 | | | $ | — | |
| Convertible senior notes | | $ | 103,516 | | | $ | 101,777 | | | $ | — | | | $ | — | |
| Notes payable, net | | $ | 106,844 | | | $ | — | | | $ | 103,697 | | | $ | — | |
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
The accompanying notes are an integral part of the consolidated interim financial statements.
30
following tables set forth the fair value of non-financial assets by level within the fair value hierarchy as of March 31, 2024 and December 31, 2023 ($ in thousands):
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | Level 1 | | Level 2 | | Level 3 |
| March 31, 2024 | | 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 | | $ | 5,191 | | | $ | (396) | | | $ | — | | | $ | — | | | $ | 5,191 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | Level 1 | | Level 2 | | Level 3 |
| December 31, 2023 | | 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 | | $ | 3,785 | | | $ | (1,096) | | | $ | — | | | $ | — | | | $ | 3,785 | |
Note 7 — Affiliates
Unconsolidated Affiliates
At both March 31, 2024 and December 31, 2023, and for the three months ended March 31, 2024 and 2023, the Company had ownership interests in five affiliated entities accounted for under the equity method of accounting.
At both March 31, 2024 and December 31, 2023, 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 both March 31, 2024 and December 31, 2023, the Company's ownership interest was approximately 9.7% in GAFS. The Company accounts for its investment in GAFS using the equity method.
At both March 31, 2024 and December 31, 2023, the Company owned approximately 22.2% of Gaea. The Company accounts for its ownership interest in Gaea using the equity method.
At both March 31, 2024 and December 31, 2023, 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, 2024 and December 31, 2023, 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.
31
The table below shows the net income/(loss), 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% | | 2024 | | 2023 |
| Thetis Asset Management LLC | | $ | 15,722 | | | $ | 11 | |
| AS Ajax E LLC | | $ | 63 | | | $ | 66 | |
| Loan pool LLCs | | $ | (16) | | | $ | (24) | |
| Gaea Real Estate Corp. | | $ | (113) | | | $ | (1,105) | |
| Great Ajax FS LLC | | $ | (269) | | | $ | (763) | |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | March 31, 2024 | | December 31, 2023 |
Assets and liabilities at 100% | | Assets | | Liabilities | | Assets | | Liabilities |
| Thetis Asset Management LLC | | $ | 19,268 | | | $ | 520 | | | $ | 4,643 | | | $ | 1,305 | |
| AS Ajax E LLC | | $ | 2,445 | | | $ | 1 | | | $ | 2,553 | | | $ | 39 | |
| Loan pool LLCs | | $ | 1,200 | | | $ | 248 | | | $ | 1,200 | | | $ | 232 | |
| Gaea Real Estate Corp. | | $ | 163,000 | | | $ | 69,839 | | | $ | 167,591 | | | $ | 73,499 | |
| Great Ajax FS LLC | | $ | 65,171 | | | $ | 54,185 | | | $ | 71,477 | | | $ | 59,949 | |
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 | | 2024 | | 2023 |
| Thetis Asset Management LLC | | $ | 3,113 | | | $ | 2 | |
| AS Ajax E LLC | | $ | 10 | | | $ | 11 | |
| Loan pool LLCs | | $ | (7) | | | $ | (10) | |
| Gaea Real Estate Corp. | | $ | (1) | | | $ | (243) | |
| Great Ajax FS LLC | | $ | (26) | | | $ | (67) | |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | March 31, 2024 | | December 31, 2023 |
| Assets and liabilities at the Company's share | | Assets | | Liabilities | | Assets | | Liabilities |
| Thetis Asset Management LLC | | $ | 3,815 | | | $ | 103 | | | $ | 919 | | | $ | 258 | |
| AS Ajax E LLC | | $ | 403 | | | $ | — | | | $ | 420 | | | $ | 6 | |
| Loan pool LLCs | | $ | 480 | | | $ | 99 | | | $ | 480 | | | $ | 93 | |
| Gaea Real Estate Corp. | | $ | 36,251 | | | $ | 15,532 | | | $ | 37,272 | | | $ | 16,346 | |
| Great Ajax FS LLC | | $ | 6,249 | | | $ | 5,196 | | | $ | 6,854 | | | $ | 5,748 | |
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, 2024 and December 31, 2023, 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, 2024 and December 31, 2023, 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.
32
into securitization trusts and holds subordinated securities issued by such trusts. At both March 31, 2024 and December 31, 2023, Great Ajax II REIT was 99.9% owned by the Company. Similarly, as of March 31, 2024 and December 31, 2023, 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, 2024, the Company had no commitments to acquire additional mortgage loans.
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 had a liquidation preference of $25.00 per share. Each series of warrants included a put option that allowed 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 were no repurchases of preferred stock during the three months ended March 31, 2024 and 2023. 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, 2024 and 2023.
On February 26, 2024, the Company entered into a $70.0 million term loan with NIC RMBS, an affiliate of Rithm. The term loan is accompanied by the Company’s agreement to issue a certain number of warrants to Rithm or one of its affiliates to purchase Company common stock, which warrants will be detachable. The Company recorded the fair value of the warrants issued to Rithm under the Credit Agreement. The fair value of $2.7 million was recorded in Accrued expenses and other liabilities with an offset to deferred issuance costs in Prepaid expenses and other assets. As of March 31, 2024, the Company recorded a mark to market gain of $0.7 million on the warrants and $0.7 million of amortization on the deferred issuance costs. As of March 31, 2024, the warrants had a carrying value of $2.1 million. Additionally, subject to receipt of approval of a majority of the Company’s stockholders and the satisfaction of certain other closing conditions, Rithm or one of its affiliates has agreed to purchase $14.0 million of the Company's common stock at a price of $4.87 per share (which represents the trailing five-day average closing price of the Common Stock on the NYSE as of the date of the Securities Purchase Agreement), the proceeds of which would be used to pay down the amount outstanding under the term loan. In connection with the foregoing transaction and subject to receipt of approval of a majority of the Company's stockholders, the Company has agreed to terminate its existing management contract with the Manager in exchange for approximately $15.5 million of the Company's common stock and enter into a new management agreement with RCM GA Manager, LLC, a Rithm affiliate, which would become the Company's new external manager. In connection therewith, the Company delivered a termination notice to the Manager on February 26, 2024.
During the three months ended March 31, 2024, the Company exchanged the remaining 424,949 shares of its outstanding 7.25% Series A Fixed-to-Floating Rate Preferred Stock and 1,135,590 shares of its outstanding 5.00% Series B Fixed-to-Floating Rate Preferred Stock and the associated warrants for newly issued shares of its common stock. Of the 12,046,218 shares, 9,464,524 shares of its common stock were issued during the three months ended March 31, 2024 and the remaining 2,581,694 shares of its common stock will only be issued following the approval of a majority of the Company's stockholders during its 2024 annual and special meeting of stockholders. The Company recorded a $12.6 million liability to account for the shares payable to the preferred holders. No preferred stock or warrants were exchanged during the three months ended March 31, 2023. The remaining warrant liability on the consolidated balance sheet at March 31, 2024 was $2.1 million. The following table sets forth the details of the Company's warrant liability ($ in thousands):
The accompanying notes are an integral part of the consolidated interim financial statements.
33
| | | | | | | | | | | | | | |
| | Three months ended March 31, |
| | 2024 | | 2023 |
| Beginning balance | | $ | 16,644 | | | $ | 12,153 | |
| Issuance of 2024 warrants | | 2,734 | | | — | |
| Fair value adjustment of 2020 warrants | | 2,033 | | | — | |
| Fair value adjustment of 2024 warrants | | (680) | | | 1,622 | |
| Redemption of 2020 warrants | | (18,677) | | | — | |
| Ending balance | | $ | 2,054 | | | $ | 13,775 | |
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, 2024, the Company was not a party to, and its properties were not subject to, any pending or threatened legal proceedings that individually or in the aggregate, are expected to have a material impact on its financial condition, results of operations or cash flows.
Note 9 — Debt
Repurchase Agreements
The Company has entered into two repurchase facilities whereby the Company, through two wholly-owned Delaware trusts (the “Trusts”) acquires pools of mortgage loans which are then sold by the Trusts, as “Seller” to two separate counterparties, the “buyer” or “buyers.” One facility has a ceiling of $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, as of March 31, 2024, substantially similar to the mortgage loan repurchase facilities, but where the pledged assets are bonds 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, 2024 |
| | | Maturity Date | | Amount Outstanding | | Amount of Collateral | | Interest Rate |
Barclays - bonds(1) | | | | | $ | 69,929 | | | $ | 87,789 | | | 6.98 | % |
| A Bonds | | | April 3, 2024 | | 10,596 | | | 14,857 | | | 6.83 | % |
| | | April 15, 2024 | | 21,456 | | | 28,138 | | | 6.72 | % |
The accompanying notes are an integral part of the consolidated interim financial statements.
34
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | March 31, 2024 |
| | | Maturity Date | | Amount Outstanding | | Amount of Collateral | | Interest Rate |
| | | May 3, 2024 | | 6,357 | | | 8,162 | | | 6.68 | % |
| | | May 22, 2024 | | 2,134 | | | 3,511 | | | 6.97 | % |
| B Bonds | | | April 26, 2024 | | 3,102 | | | 5,151 | | | 7.62 | % |
| | | May 3, 2024 | | 3,608 | | | 5,991 | | | 7.70 | % |
| | | May 22, 2024 | | 4,312 | | | 13,651 | | | 7.57 | % |
| | | June 13, 2024 | | 16,988 | | | 5,796 | | | 7.06 | % |
| M Bonds | | | May 3, 2024 | | 281 | | | 505 | | | 7.05 | % |
| | | May 22, 2024 | | 1,095 | | | 2,027 | | | 7.17 | % |
Nomura - bonds(1) | | | | | $ | 95,890 | | | $ | 95,465 | | | 6.84 | % |
| A Bonds | | | April 26, 2024 | | 34,745 | | | 45,079 | | | 6.94 | % |
| | | May 15, 2024 | | 4,898 | | | 7,008 | | | 6.86 | % |
| | | June 28, 2024 | | 16,657 | | | 22,547 | | | 6.71 | % |
| B Bonds | | | April 26, 2024 | | 1,031 | | | 1,797 | | | 7.23 | % |
| | | May 15, 2024 | | 3,013 | | | 5,197 | | | 7.26 | % |
| | | June 5, 2024 | | 28,176 | | | 110 | | | 6.63 | % |
| | | June 28, 2024 | | 3,818 | | | 6,414 | | | 7.26 | % |
| M Bonds | | | April 26, 2024 | | 2,434 | | | 5,200 | | | 7.23 | % |
| | | June 28, 2024 | | 1,118 | | | 2,113 | | | 6.86 | % |
JP Morgan - bonds(1) | | | | | $ | 28,042 | | | $ | 43,438 | | | 6.74 | % |
| A Bonds | | | May 28, 2024 | | 9,480 | | | 15,674 | | | 6.67 | % |
| M Bonds | | | April 3, 2024 | | 14,625 | | | 20,346 | | | 6.73 | % |
| | | July 22, 2024 | | 3,401 | | | 6,534 | | | 6.96 | % |
| | | May 28, 2024 | | 536 | | | 884 | | | 6.89 | % |
Nomura - loans(2) | | | October 5, 2024 | | $ | 154,017 | | | $ | 216,540 | | | 7.79 | % |
JP Morgan - loans(3) | | | July 10, 2024 | | $ | 6,161 | | | $ | 8,561 | | | 8.38 | % |
| Totals/weighted averages | | | | | $ | 354,039 | | | $ | 451,793 | | (4) | 7.30 | % |
(1)Maximum borrowing capacity subject to pledging sufficient collateral is the equivalent of the amount outstanding as of March 31, 2024.
(2)Maximum borrowing capacity subject to pledging sufficient collateral as of March 31, 2024 was $400.0 million.
(3)Maximum borrowing capacity subject to pledging sufficient collateral as of March 31, 2024 was $150.0 million.
(4)Includes $42.8 million of bonds that are consolidated on the Company's balance sheet for GAAP as of March 31, 2024.
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | December 31, 2023 |
| | | Maturity Date | | Amount Outstanding | | Amount of Collateral | | Interest Rate |
Barclays - bonds(1) | | | | | $ | 70,095 | | | $ | 101,041 | | | 7.03 | % |
| A Bonds | | | January 3, 2024 | | 10,850 | | | 15,572 | | | 6.90 | % |
| | | January 19, 2024 | | 21,762 | | | 28,503 | | | 6.79 | % |
| | | May 3, 2024 | | 9,628 | | | 12,329 | | | 6.87 | % |
| | | May 22, 2024 | | 2,134 | | | 3,358 | | | 6.97 | % |
| B Bonds | | | January 26, 2024 | | 3,027 | | | 4,998 | | | 7.68 | % |
| | | March 13, 2024 | | 13,398 | | | 20,121 | | | 7.13 | % |
| | | May 3, 2024 | | 3,608 | | | 6,185 | | | 7.70 | % |
| | | May 22, 2024 | | 4,312 | | | 7,565 | | | 7.57 | % |
| M Bonds | | | May 3, 2024 | | 281 | | | 499 | | | 7.05 | % |
| | | May 22, 2024 | | 1,095 | | | 1,911 | | | 7.17 | % |
Nomura - bonds(1) | | | | | $ | 68,623 | | | $ | 98,448 | | | 6.98 | % |
The accompanying notes are an integral part of the consolidated interim financial statements.
35
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | December 31, 2023 |
| | | Maturity Date | | Amount Outstanding | | Amount of Collateral | | Interest Rate |
| A Bonds | | | January 26, 2024 | | 35,184 | | | 47,149 | | | 7.02 | % |
| | | February 15, 2024 | | 5,079 | | | 7,449 | | | 6.93 | % |
| | | March 28, 2024 | | 17,019 | | | 23,238 | | | 6.74 | % |
| B Bonds | | | January 26, 2024 | | 1,024 | | | 1,761 | | | 7.31 | % |
| | | February 15, 2024 | | 3,002 | | | 5,149 | | | 7.33 | % |
| | | March 28, 2024 | | 3,900 | | | 6,413 | | | 7.30 | % |
| M Bonds | | | January 26, 2024 | | 2,307 | | | 5,177 | | | 7.30 | % |
| | | March 28, 2024 | | 1,108 | | | 2,112 | | | 6.90 | % |
JP Morgan - bonds(1) | | | | | $ | 33,564 | | | $ | 53,978 | | | 6.90 | % |
| A Bonds | | | February 28, 2024 | | 9,632 | | | 12,633 | | | 6.73 | % |
| B Bonds | | | February 28, 2024 | | 6,598 | | | 11,140 | | | 7.13 | % |
| M Bonds | | | January 4, 2024 | | 13,541 | | | 22,813 | | | 6.82 | % |
| | | January 22, 2024 | | 3,290 | | | 6,497 | | | 7.23 | % |
| | | February 28, 2024 | | 503 | | | 895 | | | 7.03 | % |
Nomura - loans(2) | | | October 5, 2024 | | $ | 193,060 | | | $ | 277,632 | | | 7.79 | % |
JP Morgan - loans(3) | | | July 10, 2024 | | $ | 10,403 | | | $ | 14,656 | | | 8.38 | % |
| Totals/weighted averages | | | | | $ | 375,745 | | | $ | 545,755 | | (4) | 7.44 | % |
(1)Maximum borrowing capacity subject to pledging sufficient collateral is the equivalent of the amount outstanding as of December 31, 2023.
(2)Maximum borrowing capacity subject to pledging sufficient collateral as of December 31, 2023 was $400.0 million.
(3)Maximum borrowing capacity subject to pledging sufficient collateral as of December 31, 2023 was $150.0 million.
(4)Includes $42.8 million of bonds that are consolidated on the Company's balance sheet for GAAP as of December 31, 2023.
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, 2024 and December 31, 2023, the Company had $4.5 million and $3.8 million, respectively, of cash collateral on deposit with financing counterparties. This cash is included in Prepaid expenses and other assets on its consolidated balance sheets and is not netted against its Borrowings under repurchase agreements. The amount outstanding on the Company’s repurchase facilities and the carrying value of the Company’s loans pledged as collateral are presented as gross amounts in the Company’s consolidated balance sheets at March 31, 2024 and December 31, 2023 in the table below ($ in thousands):
| | | | | | | | | | | | | | |
| | Gross amounts not offset in balance sheet |
| | March 31, 2024 | | December 31, 2023 |
| Gross amount of recognized liabilities | | $ | 354,039 | | | $ | 375,745 | |
| Gross amount of loans and securities pledged as collateral | | 447,282 | | | 541,999 | |
| Other prepaid collateral | | 4,511 | | | 3,756 | |
| Net collateral amount | | $ | 97,754 | | | $ | 170,010 | |
Secured Borrowings
From its inception (January 30, 2014) to March 31, 2024, 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, 2024. 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
The accompanying notes are an integral part of the consolidated interim financial statements.
36
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 subordinated notes and the applicable trust certificates from one non-rated secured borrowing outstanding at March 31, 2024.
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, 2024. The Company’s rated secured borrowings are designated in the table below.
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, 2024 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) |
The accompanying notes are an integral part of the consolidated interim financial statements.
37
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| Issuing Trust/Issue Date | | Interest Rate Step-up Date | | Security | | Original Principal | | Interest Rate |
| | 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 | % |
| | February 25, 2025 | | Class B notes due 2066(2) | | $20.2 million | | 4.00 | % |
| | | | Deferred issuance costs | | $(4.3) million | | — | % |
(1)The Class M notes are subordinated, sequential pay, fixed rate notes. The Company has retained the Class M notes, with the exception of Ajax Mortgage Loan Trust 2021-A.
(2)The Class B notes are subordinated, sequential pay, with B-2 and B-3 notes having variable interest rates and are subordinate to the Class B-1 notes. The Class B-1 notes are fixed rate notes. The Company has retained the Class B notes.
(3)The interest rate is effectively the rate equal to the spread between the gross average rate of interest the trust collects on its mortgage loan portfolio minus the rate derived from the sum of the servicing fee and other expenses of the trust.
Servicing for the mortgage loans in the Company’s secured borrowings is provided by the Servicer at servicing fee rates between 0.65% of outstanding UPB and 1.25% of outstanding UPB at acquisition, and is paid monthly. The determination of RPL or NPL status, which determines the servicing fee rates, is based on the status of the loan at acquisition and does not change regardless of the loan's subsequent performance. The following table sets forth the status of the notes held by others at March 31, 2024 and December 31, 2023, and the securitization cutoff date ($ in thousands):
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Balances at March 31, 2024 | | Balances at December 31, 2023 | | 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 | | $ | 98,324 | | | $ | 66,402 | | | 148 | % | | $ | 99,367 | | | $ | 67,739 | | | 147 | % | | $ | 193,301 | | | $ | 156,670 | |
| 2019-F | | 94,553 | | | 56,172 | | | 168 | % | | 96,870 | | | 57,936 | | | 167 | % | | 170,876 | | | 127,673 | |
| 2020-B | | 99,221 | | | 62,058 | | | 160 | % | | 100,245 | | | 63,574 | | | 158 | % | | 156,468 | | | 114,534 | |
| 2021-A | | 125,500 | | | 100,435 | | | 125 | % | | 127,250 | | | 102,057 | | | 125 | % | | 206,506 | | | 175,116 | |
| 2021-B | | 205,591 | | | 117,438 | | | 175 | % | | 204,883 | | | 123,032 | | | 167 | % | | 287,882 | | | 215,912 | |
| | $ | 623,189 | | | $ | 402,505 | | (1) | 155 | % | | $ | 628,615 | | | $ | 414,338 | | (1) | 152 | % | | $ | 1,015,033 | | | $ | 789,905 | |
(1)This represents the gross amount of Secured borrowings and excludes the impact of deferred issuance costs of $2.8 million and $3.1 million as of March 31, 2024 and December 31, 2023.
Notes
2024 Notes (Convertible Senior Notes)
At both March 31, 2024 and December 31, 2023, the Company's 2024 Notes had carrying values of $103.5 million. The 2024 Notes had an interest rate of 7.25% per annum and were payable quarterly in arrears on January 15, April 15, July 15
The accompanying notes are an integral part of the consolidated interim financial statements.
38
and October 15 of each year. The 2024 Notes matured on April 30, 2024 and the Company redeemed the notes in full for an aggregate amount of $103.5 million and 15 days of accrued interest. As of March 31, 2024, the amount by which the if-converted value falls short of the principal value for the entire series is $76.1 million.
At March 31, 2024, the outstanding aggregate principal amount of the 2024 Notes was $103.5 million, and discount and deferred expenses were zero. At December 31, 2023, the outstanding aggregate principal amount of the 2024 Notes was $103.5 million, and discount and deferred expenses were zero. During the three months ended March 31, 2024 and 2023, the Company recognized interest expense on its outstanding 2024 Notes of $1.9 million and $2.1 million, respectively, which includes zero and $0.2 million of amortization of discount and deferred expenses, respectively. The effective interest rates of the 2024 Notes for the three months ended March 31, 2024 and 2023 were 7.25% and 8.01%, respectively.
There were no 2024 Notes repurchases during the first quarter of 2024. 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.
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, 2024.
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 five year 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, 2024. 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 were used for general corporate purposes.
At March 31, 2024, the outstanding aggregate principal amount of the 2027 Notes was $110.0 million, and discount and deferred expenses in aggregate were $2.9 million. At December 31, 2023, the outstanding aggregate principal amount of the 2027 Notes was $110.0 million, and discount and deferred expenses in aggregate were $3.2 million. During the three months ended March 31, 2024 and 2023, the Company recognized interest expense on the 2027 Notes of $2.7 million and $2.6 million, respectively, which includes $0.2 million of amortization of discount and deferred expenses during both the three months ended March 31, 2024 and 2023. The effective interest rate for the 2027 Notes for the three months ended March 31, 2024 and 2023 were 9.94% and 9.89%, respectively.
The following table summarizes the Company's long term maturities ($ in thousands):
| | | | | | | | | | | | | | |
| Year | | Debt instrument | | As of March 31, 2024 |
| 2024 | | | | $ | — | |
| 2025 | | | | $ | — | |
| 2026 | | | | $ | — | |
| 2027 | | 2027 Notes (Unsecured Notes) | | $ | 110,000 | |
| 2028 | | | | $ | — | |
The accompanying notes are an integral part of the consolidated interim financial statements.
39
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 | | 2024 | | 2023 |
| Management fee (including management termination fee) | | Related party expense – management fee | | Manager | | $ | 17,459 | | | $ | 1,828 | |
| Income from equity investment | | Income/(loss) from investments in affiliates | | Manager | | $ | 3,113 | | | $ | 2 | |
| Interest income on securities and beneficial interest and net decrease in the net present value of expected credit losses on beneficial interests | | Net interest (loss)/income after the impact of changes in the net present value of expected credit losses | | Various non-consolidated joint ventures | | $ | 2,357 | | | $ | 4,570 | |
| Loan servicing fees | | Related party expense – loan servicing fees | | Servicer | | $ | 1,734 | | | $ | 1,860 | |
| Affiliate loan interest income | | Interest income | | Servicer | | $ | 253 | | | $ | 65 | |
| Affiliate loan interest income | | Interest income | | Gaea | | $ | 92 | | | $ | — | |
| Income from equity investment | | Income/(loss) from investments in affiliates | | AS Ajax E LLC | | $ | 10 | | | $ | 11 | |
| Loss from joint venture re-securitization on beneficial interests | | Loss on joint venture refinancing on beneficial interests | | 2019-H | | $ | — | | | $ | (995) | |
| Loss from equity investment | | Income/(loss) from investments in affiliates | | Gaea | | $ | (1) | | | $ | (243) | |
| Loss from equity investment | | Income/(loss) from investments in affiliates | | Loan pool LLCs | | $ | (7) | | | $ | (10) | |
| Loss from equity investment | | Income/(loss) from investments in affiliates | | Servicer | | $ | (26) | | | $ | (67) | |
The Company’s consolidated balance sheets included the following significant related party balances ($ in thousands):
| | | | | | | | | | | | | | | | | | | | |
| Transaction | | Consolidated Balance Sheet location | | Counterparty | | As of March 31, 2024 |
| Investment in beneficial interests | | Investments in beneficial interests | | Various non-consolidated joint ventures | | $ | 88,577 | |
| Affiliate loan receivable and interest | | Prepaid expenses and other assets | | Servicer | | $ | 12,663 | |
| Receivables from Servicer | | Receivable from servicer | | Servicer | | $ | 4,240 | |
| Affiliate loan receivable and interest | | Prepaid expenses and other assets | | Gaea | | $ | 4,030 | |
| Management fee payable | | Management fee payable | | Manager | | $ | 1,951 | |
| Servicing fee payable | | Accrued expenses and other liabilities | | Servicer | | $ | 87 | |
The accompanying notes are an integral part of the consolidated interim financial statements.
40
| | | | | | | | | | | | | | | | | | | | |
| Transaction | | Consolidated Balance Sheet location | | Counterparty | | As of December 31, 2023 |
| Investment in beneficial interests | | Investments in beneficial interests | | Various non-consolidated joint ventures | | $ | 104,162 | |
| Affiliate loan receivable and interest | | Prepaid expenses and other assets | | Servicer | | $ | 12,591 | |
| Affiliate loan receivable and interest | | Prepaid expenses and other assets | | Gaea | | $ | 7,545 | |
| Receivables from Servicer | | Receivable from servicer | | Servicer | | $ | 7,307 | |
| Management fee payable | | Management fee payable | | Manager | | $ | 1,998 | |
| Servicing fee payable | | Accrued expenses and other liabilities | | Servicer | | $ | 89 | |
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, 2024, the investments in debt securities AFS, investments in debt securities HTM and beneficial interests were carried on the Company's consolidated balance sheet at $125.1 million, $54.1 million and $88.6 million, respectively. As of December 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 $131.6 million, $59.7 million and $104.2 million, respectively.
During the three months ended March 31, 2024, the Company sold no senior notes. Comparatively, 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, which was recorded net to accumulated other comprehensive loss.
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 both March 31, 2024 and December 31, 2023, the Company's ownership of GAFS was 9.7%. 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 into 2023-A. The re-securitization resulted in a loss of $1.0 million on its beneficial interests in 2019-H. Although the Company retained a proportionate 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 interests in 2023-A and the loss recorded represents the mark to market adjustment on the sale of the underlying loans to 2023-A.
During November 2023, the Company renewed a promissory note with the Servicer under which the Servicer can borrow up to $12.0 million, secured by real property owned by a subsidiary of securitization trusts. Interest on the arrangement accrues at SOFR plus 300 basis points annually. At March 31, 2024 and December 31, 2023, the amount outstanding on the note and interest was $10.9 million and $9.3 million, respectively.
Also during November 2023, the Company renewed a promissory note with the Servicer under which the Servicer can borrow up to $3.5 million secured by equity in servicing advances owned by the Servicer, which are first in priority for reimbursement from loan payments. Interest on the arrangement accrues at SOFR plus 300 basis points. The note was originally executed on December 9, 2021 and was secured by securities held by the Servicer. At March 31, 2024 and December 31, 2023, the amount outstanding on the note and interest was $1.8 million and $3.3 million, respectively.
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, 2024 and December 31, 2023, the Company owned approximately 22.2% of Gaea with third party investors owning the remaining 77.8%. 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
The accompanying notes are an integral part of the consolidated interim financial statements.
41
ended December 31, 2020, one of the loan pool LLCs sold its remaining loans. Also, during the year ended December 31, 2022, another 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, 2024 and December 31, 2023, 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, 2024 and December 31, 2023, 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
Currently, 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 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, 2024 and 2023, the Company did not record an incentive fee payable to the Manager.
The Company also reimburses the Manager for all third party, out-of-pocket costs incurred by the Manager for managing its business, including third party due diligence and valuation consultants, legal expenses, auditors and other financial services. The reimbursement obligation is not subject to any dollar limitation. Expenses are reimbursed in cash on a monthly basis.
The accompanying notes are an integral part of the consolidated interim financial statements.
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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.
On February 26, 2024, the Company issued a termination notice to the Manager, in connection with the Rithm transaction, and agreed to pay the Manager the termination fee pursuant to the Management Agreement primarily in shares of common stock.
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.
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, 2024 and 2023 of $2.0 million and $1.8 million, respectively, of which zero was settled in shares of its common stock. During the three months ended March 31, 2024 and 2023, the Company recorded no incentive fee.
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. However, the Company has the option to
The accompanying notes are an integral part of the consolidated interim financial statements.
43
pay the annual retainer with up to 100% in cash at its discretion, and pay the remainder in shares of its common stock. During the three months ended March 31, 2024, the Company's lead director of the special committee received an additional one-time payment of $15,000, paid as a lump sum, 100% of which was paid in shares of the Company's common stock.
The following table sets forth the Company’s stock-based management fees and independent director fees ($ in thousands):
Stock-based Management Fees and Director Fees
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | For the three months ended March 31, |
| | 2024 | | 2023 |
| | Number of shares | | Amount of expense recognized | | Number of shares | | Amount of expense recognized |
| Independent director fees | | 3,080 | | | $ | 15 | | | 13,020 | | | $ | 88 | |
| Totals | | 3,080 | | | $ | 15 | | | 13,020 | | | $ | 88 | |
Restricted Stock
The Company periodically grants shares of its common stock to employees of its Manager and Servicer. The Company granted 66,421 shares of its common stock in the three months ended March 31, 2024, which have vesting periods of up to one year. Comparatively, the Company granted 3,000 shares of its common stock to employees of its Manager and Servicer in the three months ended March 31, 2023, which have vesting periods of 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, 2023 | | | | | | | | |
| December 31, 2022 outstanding unvested share grants | | 310,262 | | | $ | 10.98 | | | — | | | $ | — | |
| Shares vested | | (30,515) | | | 11.56 | | | — | | | — | |
| Shares forfeited | | (5,668) | | | 10.30 | | | — | | | — | |
| Shares granted | | 3,000 | | | 7.34 | | | 25,000 | | | 7.15 | |
| March 31, 2023 outstanding unvested share grants | | 277,079 | | (1) | $ | 10.88 | | | 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 accompanying notes are an integral part of the consolidated interim financial statements.
44
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | 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, 2024 | | | | | | | | |
| December 31, 2023 outstanding unvested share grants | | 159,142 | | | $ | 10.33 | | | 25,000 | | | $ | 7.15 | |
| Shares vested | | (5,625) | | | 10.91 | | | — | | | — | |
| Shares forfeited | | (2,167) | | | 7.89 | | | — | | | — | |
| Shares granted | | 66,421 | | | 3.59 | | | — | | | — | |
| March 31, 2024 outstanding unvested share grants | | 217,771 | | (1) | $ | 8.29 | | | 25,000 | | (2) | $ | 7.15 | |
(1)Weighted average remaining life of unvested shares for employee and service provider grants at March 31, 2024 is 1.3 years.
(2)Weighted average remaining life of unvested shares for director grants at March 31, 2024 is 0.9 years.
The following table presents the expenses for the Company's restricted stock plan ($ in thousands):
| | | | | | | | | | | | | | |
| | Three months ended March 31, |
| | 2024 | | 2023 |
| Restricted stock grants | | $ | 253 | | | $ | 517 | |
| Director grants | | 22 | | | 7 | |
| Total expenses for plan grants | | $ | 275 | | | $ | 524 | |
Note 12 — Income Taxes
As a REIT, the Company must meet certain organizational and operational requirements including the requirement to distribute at least 90% of its annual REIT taxable income to its stockholders. And as a REIT, the Company generally will not be subject to U.S. federal income tax to the extent the Company distributes its REIT taxable income to its stockholders and provided the Company satisfies the REIT requirements including certain asset, income, distribution and stock ownership tests. If the Company fails to qualify as a REIT, and does not qualify for certain statutory relief provisions, it will be subject to U.S. federal, state and local income taxes and may be precluded from qualifying as a REIT for the subsequent four taxable years following the year in which it lost its REIT qualification.
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, 2024, the Company had consolidated taxable loss of $20.4 million and income tax expense of $0.9 million. 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. As of both March 31, 2024 and 2023, the Company recognized a deferred tax asset of $0.5 million. The income tax expense for the three months ended March 31, 2024 is primarily related to the flow through income from the Manager.
The accompanying notes are an integral part of the consolidated interim financial statements.
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Note 13 — Earnings per Share
The following table sets forth the components of basic and diluted EPS ($ in thousands, except per share):
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three months ended March 31, 2024 | | Three months ended March 31, 2023 |
| Income
(Numerator) | | Shares
(Denominator) | | Per Share
Amount | | Income
(Numerator) | | Shares
(Denominator) | | Per Share
Amount |
| Basic EPS | | | | | | | | | | | |
| Consolidated net loss attributable to common stockholders | $ | (74,319) | | | 30,700,278 | | | | | $ | (7,941) | | | 22,920,943 | | | |
| Allocation of loss to participating restricted shares | 465 | | | — | | | | | 111 | | | — | | | |
| Consolidated net loss attributable to unrestricted common stockholders | $ | (73,854) | | | 30,700,278 | | | $ | (2.41) | | | $ | (7,830) | | | 22,920,943 | | | $ | (0.34) | |
Effect of dilutive securities(1,2) | | | | | | | | | | | |
Restricted stock grants and Manager and director fee shares(3) | (465) | | | 193,113 | | | | | — | | | — | | | |
| Diluted EPS | | | | | | | | | | | |
| Consolidated net loss attributable to common stockholders and dilutive securities | $ | (74,319) | | | 30,893,391 | | | $ | (2.41) | | | $ | (7,830) | | | 22,920,943 | | | $ | (0.34) | |
(1)The Company's warrants, which were partially outstanding for the three months ended March 31, 2024 and outstanding for the entire three months ended March 31, 2023, for an additional 1,950,672 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, 2024 and 2023 and have not been included in the calculation.
(2)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, 2024 and 2023 would have been anti-dilutive and have been removed from the calculation.
(3)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 would have been anti-dilutive and have been removed from the calculation.
Note 14 — Equity
Common Stock
As of March 31, 2024 and December 31, 2023, the Company had 36,992,019 and 27,460,161 shares, respectively, of $0.01 par value common stock outstanding with 125,000,000 shares authorized at each period end.
Preferred Stock
The Company issued 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-Floating Rate Preferred Stock and 2,892,600 shares of 5.00% Series B Fixed-to-Floating Rate Preferred Stock. The shares had 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 were no repurchases of preferred stock in the three months ended March 31, 2024 and 2023.
The accompanying notes are an integral part of the consolidated interim financial statements.
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During the three months ended March 31, 2024, the Company exchanged the remaining 424,949 shares of its outstanding 7.25% Series A Fixed-to-Floating Rate Preferred Stock and 1,135,590 shares of its outstanding 5.00% Series B Fixed-to-Floating Rate Preferred Stock and the associated warrants for newly issued shares of its common stock. Of the 12,046,218 shares, 9,464,524 shares of its common stock were issued during the three months ended March 31, 2024 and the remaining 2,581,694 shares of its common stock will only be issued following the approval of a majority of the Company's stockholders during its 2024 annual and special meeting of stockholders. The Company recorded a $12.6 million liability to account for the shares payable to the preferred holders. No preferred stock or warrants were exchanged during the three months ended March 31, 2023.
At March 31, 2024 and December 31, 2023, the Company had zero and 424,949 shares of Series A preferred stock and zero and 1,135,590 shares of Series B preferred stock outstanding, respectively. There were 25,000,000 shares, cumulative for all series, authorized as of both March 31, 2024 and December 31, 2023.
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, 2024 and December 31, 2023, the Company held 1,035,785 shares of treasury stock consisting of 148,834 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 no shares under the plan during the three months ended March 31, 2024 and 2023.
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, 2024, no shares were sold under the At the Market program. Comparatively, 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 $2.4 million. The Company deployed its net proceeds to acquire mortgage loans and mortgage-related assets consistent with its investment strategy.
Accumulated Other Comprehensive Loss
The Company recognizes unrealized gains or losses on its investment in debt securities AFS as components of other comprehensive loss. Additionally, other comprehensive loss includes unrealized gains or losses associated with the transfer of the Company's investment in debt securities from AFS to HTM. These amounts are subsequently amortized from other comprehensive loss into earnings over the same period as the related unamortized discount. Total accumulated other comprehensive loss on the Company’s balance sheet at March 31, 2024 and December 31, 2023 was as follows ($ in thousands):
| | | | | | | | | | | | | | |
| Investments in securities: | | March 31, 2024 | | December 31, 2023 |
| Unrealized gains on debt securities available-for-sale | | $ | 1,144 | | | $ | 637 | |
| Unrealized losses on debt securities available-for-sale | | (8,809) | | | (8,675) | |
| Unrealized losses on debt securities available-for-sale transferred to held-to-maturity | | (5,193) | | | (5,989) | |
| Accumulated other comprehensive loss | | $ | (12,858) | | | $ | (14,027) | |
The accompanying notes are an integral part of the consolidated interim financial statements.
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Non-controlling Interest
At both March 31, 2024 and December 31, 2023, the Company had non-controlling interests attributable to ownership interests for three legal entities.
At both March 31, 2024 and December 31, 2023, 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, 2024 and December 31, 2023, 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, 2024 and December 31, 2023, 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.
Note 15 — Subsequent Events
On May 3, 2024, the Company’s Board of Directors declared a cash dividend of $0.06 per share to be paid on May 30, 2024 to stockholders of record as of May 15, 2024.
On April 30, 2024, the Company repaid its 2024 Convertible Notes at maturity, for an aggregate amount of $103.5 million, and 15 days of accrued interest.
During April 2024, the Company called the Senior notes and the Class B bond on its 2021-B. The Company sold its underlying loans with a total UPB of $92.2 million and moved the majority of the remaining loans to its repurchase line of credit. The estimated $10.1 million loss realized on the loans was accrued at March 31, 2024. The Company received net cash proceeds on the redemption in the amount of $6.5 million and are under contract, subject to due diligence, to sell the majority of the remaining loans in 2021-B and from its repurchase lines of credit in May 2024. The loans have a total UPB of $180.6 million and the Company expects to generate $47.1 million in cash after repayment of any associated debt. The estimated $21.8 million expected loss on these loans sales was accrued at March 31, 2024.
Also, during April 2024, the Company sold loans from its repurchase lines of credit with a total UPB of $124.8 million. The Company received net cash proceeds from these loan sales in the amount of $20.1 million after repaying the associated debt. The estimated $13.6 million loss realized on the loan sales was accrued at March 31, 2024.
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. We intend these forward-looking statements to be covered by the safe harbor provisions for forward-looking statements in the federal securities laws, established by the Private Securities Litigation Reform Act of 1995. 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:
•our ability to satisfy the closing conditions and consummate the transactions we entered into with Rithm and its affiliates on the agreed upon terms or at all;
•our ability to obtain financing on favorable terms or at all in the event the transactions with Rithm and its affiliates are not consummated in a timely manner or at all;
•the impact of our termination of the Manager in the event we are unable to enter into a management agreement with RCM GA Manager LLC, an affiliate of Rithm (“RCM GA”), in a timely manner or at all;
•the significant losses we have incurred to date from our holdings of non-performing loans (“NPLs”), re-performing loans (“RPLs”) and small balance commercial mortgage loans (“SBC loans”);
•the expectation that we will continue to incur increasing and significant consolidated net losses from our mortgage holdings;
•the declining financial condition of the Servicer and its ability to continue to perform its obligations under the Servicing Agreement;
•difficulties in consummating sales of our NPLs, RPLs and SBC loans at attractive prices and on a prompt timeline or at all and adverse market developments negatively impacting the value of, and the returns expected from, such assets;
•the impact of changes in interest rates and the market value of the collateral underlying our RPL and NPL portfolios or of our other real estate assets;
•changes to our business strategy, including as a result of or following the consummation of the transactions we have entered into with Rithm and its affiliates or in the event that the transactions we have entered into with Rithm and its affiliates are not consummated;
•the impact of adverse real estate, mortgage or housing markets and changes in the general economy;
•our share price has been and may continue to be volatile;
•the broader impacts of increasing interest rates, inflation, and potential for a global economic recession;
•general volatility of the capital markets;
•the impact of adverse legislative or regulatory tax changes;
•our ability to control our costs;
•our failure to comply with the covenants under our borrowing arrangements;
•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.