GREAT AJAX CORP.
In this quarterly report on Form 10-Q ("report"), unless the context indicates
otherwise, references to "Great Ajax ," "we," "the company," "our" and "us" refer
to the activities of and the assets and liabilities of the business and
operations of Great Ajax Corp. ; "operating partnership" refers to Great Ajax
Operating Partnership L.P. , a Delaware limited partnership; "our Manager" refers
to Thetis Asset Management LLC , a Delaware limited liability company; "Aspen
Capital " refers to the Aspen Capital group of companies; "Aspen" and "Aspen Yo"
refers to Aspen Yo LLC , an Oregon limited liability company that is part of
Aspen Capital ; and "the Servicer" and "Gregory" refer to Gregory Funding LLC , an
Oregon limited liability company and our affiliate, and an indirect subsidiary
of Aspen Yo.
Our Management's Discussion and Analysis of Financial Condition and Results of
Operations should be read in conjunction with the unaudited interim consolidated
financial statements and related notes included in Item 1. Consolidated interim
financial statements of this report and in Item 8. Financial statements and
supplementary data in our most recent Annual Report on Form 10-K, as well as the
section entitled "Risk Factors" in Part II, Item 1A. of this report, as well as
other cautionary statements and risks described elsewhere in this report and our
most recent Annual Report on Form 10-K.
Overview
Great Ajax Corp. is aMaryland corporation that is organized and operated in a manner intended to allow us to qualify as a REIT. We primarily target acquisitions of RPLs, which are residential mortgage loans on which at least five of the seven most recent payments have been made, or the most recent payment has been made and accepted pursuant to an agreement, or the full dollar amount, to cover at least five payments has been paid in the last seven months. We also acquire and originate SBC loans. The SBC loans that we target through acquisitions generally have a principal balance of up to$5.0 million and are secured by multi-family residential and commercial mixed use retail/residential properties on which at least five of the seven most recent payments have been made, or the most recent payment has been made and accepted pursuant to an agreement, or the full dollar amount, to cover at least five payments has been paid in the last seven months. We also originate SBC loans that we believe will provide an appropriate risk-adjusted total return. Additionally, we invest in single-family and smaller commercial properties directly either through a foreclosure event of a loan in our mortgage portfolio or through a direct acquisition. We may also target investments in NPLs either directly or with joint venture partners. NPLs are loans on which the most recent three payments have not been made. We own a 19.8% equity interest in the Manager and an 8.0% equity interest in the parent company of our Servicer. GA-TRS is a wholly owned subsidiary of theOperating Partnership that owns the equity interest in the Manager and the Servicer. We have elected to treat GA-TRS as a taxable REIT subsidiary under the Code. Our mortgage loans and real properties are serviced by the Servicer, also an affiliated company. In 2014, we formedGreat Ajax Funding LLC , a wholly owned subsidiary of theOperating Partnership , to act as the depositor of mortgage loans into securitization trusts and to hold the subordinated securities issued by such trusts and any additional trusts we may form for additional secured borrowings.AJX Mortgage Trust I and AJX Mortgage Trust II are wholly owned subsidiaries of theOperating Partnership formed to hold mortgage loans used as collateral for financings under our repurchase agreements. OnFebruary 1, 2015 , we formedGAJX Real Estate Corp. , as a wholly owned subsidiary of theOperating Partnership , to own, maintain, improve and sell certain REOs purchased by us. We have elected to treatGAJX Real Estate Corp. as a TRS under the Code. OurOperating Partnership , through interests in certain entities as ofSeptember 30, 2021 andDecember 31, 2020 , owns 99.9% ofGreat Ajax II REIT Inc. which holds an interest inGreat Ajax II Depositor LLC which then acts as the depositor of mortgage loans into securitization trusts and holds the subordinated securities issued by such trusts and any additional trusts we may form for additional secured borrowings. We have securitized mortgage loans through these securitization trusts and retained subordinated securities from the secured borrowings. These trusts are considered to be variable interest entities ("VIEs"), and we have determined that we are the primary beneficiary of the VIEs. In 2018, we formed Gaea as a wholly owned subsidiary of theOperating Partnership . We elected to treat Gaea as a TRS under the Code for 2018, and we elected to treat Gaea as a REIT under the Code in 2019 and thereafter. Also during 2018, we formedGaea Real Estate Operating Partnership LP , a wholly owned subsidiary of Gaea, to hold investments in commercial real estate assets. We also formedBFLD Holdings LLC ,Gaea Commercial Properties LLC ,Gaea Commercial Finance LLC andGaea RE LLC as subsidiaries ofGaea Real Estate Operating Partnership . In 2019, we formedDG Brooklyn Holdings, LLC , also a subsidiary ofGaea Real Estate Operating Partnership LP , to hold investments in multi-family properties. OnNovember 22, 2019 , Gaea completed a private capital raise in which it raised$66.3 million from the issuance of 4,419,641 shares of its common stock to third parties to allow Gaea to continue to advance its investment strategy. We retained a 23.2% ownership interest in Gaea following the transaction. AtSeptember 30, 2021 , we owned approximately 22.8% of Gaea. 52 -------------------------------------------------------------------------------- We elected to be taxed as a REIT forU.S. federal income tax purposes beginning with our taxable year endedDecember 31, 2014 . Our qualification as a REIT depends upon our ability to meet, on a continuing basis, various complex requirements under the Code relating to, among other things, the sources of our gross income, the composition and values of our assets, our distribution levels and the diversity of ownership of our capital stock. We believe that we are organized in conformity with the requirements for qualification as a REIT under the Code, and that our current intended manner of operation enables us to meet the requirements for taxation as a REIT forU.S. federal income tax purposes.
Our Portfolio
The following table outlines the carrying value of our portfolio of mortgage
loan assets and single-family and smaller commercial properties as of
September 30, 2021 December 31, 2020
Residential RPLs $ 865.3 $ 1,057.5
Residential NPLs 117.7 38.7
SBC loans 24.4 23.2
Real estate owned properties, net 6.1 8.5
Investments in securities at fair value 340.1
273.8
Investment in beneficial interests 139.5
91.4
Total mortgage related assets $ 1,493.1 $
1,493.1
We closely monitor the status of our mortgage loans and, through our Servicer, work with our borrowers to improve their payment records.
Market Trends and Outlook
COVID-19
The COVID-19 pandemic that began during the first quarter of 2020 created a global public-health crisis that resulted in widespread volatility and deteriorations in household, business, and economic market conditions, including inthe United States , where we conduct all of our business. During 2020 many governmental and nongovernmental authorities directed their actions toward curtailing household and business activity in order to contain or mitigate the impact of the COVID-19 pandemic and deployed fiscal- and monetary-policy measures in order to seek to partially mitigate the adverse effects. These programs have had varying degrees of success and the extent of the long term impact on the mortgage market remains unknown. The COVID-19 pandemic began to meaningfully impact our operations in lateMarch 2020 and any continuing disruption was reflected in our results of operations for the quarter endedSeptember 30, 2021 . The pandemic has continued and continues to significantly and adversely impact certain areas ofthe United States . As a result, our forecast of macroeconomic conditions and expected lifetime credit losses on our mortgage loan and beneficial interest portfolios is subject to meaningful uncertainty and volatility. While the majority of our borrowers continue to make scheduled payments and we continue to receive payments in full, we have acted swiftly to support our borrowers with a mortgage forbearance program. While we generally do not hold loans guaranteed by government-sponsored enterprises ("GSEs") or theU.S. government, we, through our Servicer, are nonetheless offering a forbearance program under terms similar to those required for GSE loans. Borrowers who request COVID-19 related hardship assistance are asked to complete a standardized hardship questionnaire, including documentation to support the COVID-19 related hardship claim. The materials are reviewed, along with the borrower's monthly payment status, to determine if the borrower is eligible for the three-month forbearance plan. If the borrower is not eligible, they are encouraged to apply for loss mitigation. In the event the COVID-19 related hardship is continuing at the end of the forbearance period, it may be extended for an additional period. At the end of the forbearance plan, the borrower may repay the amounts in a lump sum, or our Servicer will work with the borrower on repayment options or traditional loan modification options. Notwithstanding the foregoing, to the extent special rules apply to a mortgagor because of the jurisdiction or type of mortgage loan, the Servicer will comply with those rules. Our Servicer has extensive experience dealing with delinquent borrowers and we believe it is well positioned to react on our behalf to any increase in mortgage delinquencies. The following list shows the COVID-19 related forbearance activity in our mortgage loan portfolio as ofNovember 1, 2021 :
•Number of COVID-19 forbearance relief inquiries: 1,208 •Number of COVID-19 forbearance relief granted: 337
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We expect continued volatility in the residential mortgage securities market in
the short term and increased acquisition opportunities. Extended forbearance,
foreclosure timelines and eviction timelines could result in lower yields and
losses on our mortgage loan and beneficial interest portfolios and losses on our
REO held-for-sale. Ongoing disruption in the credit markets could result in
margin calls from our financing counterparties and additional mark downs on our
Investments in debt securities, beneficial interests and mortgage loans.
We believe that certain cyclical trends continue to drive a significant realignment within the mortgage sector notwithstanding the impact of the pandemic. Through the end of the third quarter, the recent trends noted below have continued, including:
•historically low interest rates and elevated operating costs resulting from new regulatory requirements continue to drive sales of residential mortgage assets by banks and other mortgage lenders; •declining home ownership in certain areas due to rising prices, low inventory, tighter lending standards and increased down payment requirements that have increased the demand for single-family and multi-family residential rental properties; •rising home prices are increasing homeowner equity and reducing the incidence of strategic default; •rising prices have resulted in millions of homeowners being in the money to refinance; •the Dodd-Frank risk retention rules for asset backed securities have reduced the universe of participants in the securitization markets; and •the lack of a robust market for non-conforming mortgage loans we expect will reduce the pool of buyers due to tighter credit standards as a result of the COVID-19 pandemic. The origination of subprime and alternative residential mortgage loans remains substantially below 2008 levels and the qualified mortgage and ability-to-repay rule requirements have put pressure on new originations. Additionally, many banks and other mortgage lenders have increased their credit standards and down payment requirements for originating new loans. Recent market disruption from the COVID-19 pandemic has reduced financing alternatives for borrowers not eligible for financing programs underwritten by the GSEs or the federal government. The combination of these factors has also resulted in a significant number of families that cannot qualify to obtain new residential mortgage loans. We believe theU.S. federal regulations addressing "qualified mortgages" based on, among other factors such as employment status, debt-to-income level, impaired credit history or lack of savings, limit mortgage loan availability from traditional mortgage lenders. In addition, we believe that many homeowners displaced by foreclosure or who either cannot afford to own or cannot be approved for a mortgage will prefer to live in single-family rental properties with similar characteristics and amenities to owned homes as well as smaller multi-family residential properties. In certain demographic areas, new households are being formed at a rate that exceeds the new homes being added to the market, which we believe favors future demand for non-federally guaranteed mortgage financing for single-family and smaller multi-family rental properties. For all these reasons, we believe that demand for single-family and smaller multi-family rental properties will continue to increase in the near term and remain at heightened levels for the foreseeable future. We believe that investments in residential RPLs with positive equity provide an optimal investment value. As a result, we are currently focused on acquiring pools of RPLs, though we may acquire NPLs, either directly or with joint venture partners, if attractive opportunities exist. Through our Servicer, we work with our borrowers to improve their payment records. Once there is a period of continued performance, we expect that borrowers will typically refinance these loans at or near the estimated value of the underlying property. We also believe there are significant attractive investment opportunities in the SBC loan and property markets and originate as well as purchase these loans, particularly in urban areas where there is a sustainable trend of young adults desiring to live near where they work. We focus on densely populated urban areas where we expect positive economic change based on certain demographic, economic and social statistical data. The primary lenders for smaller multi-family and mixed retail/residential properties are community banks and not regional and national banks and large institutional lenders. We believe the primary lenders and loan purchasers are less interested in these assets because they typically require significant commercial and residential mortgage credit and underwriting expertise, special servicing capability and active property management. It is also more difficult to create the large pools of these loans that primary banks, lenders and portfolio acquirers typically desire. We continually monitor opportunities to increase our holdings of these SBC loans and properties. We also believe that banks and other mortgage lenders have strengthened their capital bases and are more aggressively foreclosing on delinquent borrowers or selling these loans to dispose of their inventory. Additionally, many NPL buyers are now interested in reducing their investment duration and are selling RPLs. 54 --------------------------------------------------------------------------------
Factors That May Affect Our Operating Results
Acquisitions. Our operating results depend heavily on sourcing residential RPLs
and SBC loans and, when attractive opportunities are identified, NPLs. We
believe that there is generally a large supply of RPLs available to us for
acquisition and we believe the available supply provides for a steady
acquisition pipeline of assets since large institutions are active sellers in
the market. However, we expect that our residential mortgage loan portfolio may
grow at an uneven pace, as opportunities to acquire distressed residential
mortgage loans may be irregularly timed and may involve large portfolios of
loans, and the timing and extent of our success in acquiring such loans cannot
be predicted. In addition, for any given portfolio of loans that we agree to
acquire, we typically acquire fewer loans than originally expected, as certain
loans may be resolved prior to the closing date or may fail to meet our
diligence standards. The number of loans not acquired typically constitutes a
small portion of a particular portfolio. In any case where we do not acquire the
full portfolio, we make appropriate adjustments to the applicable purchase
price.
Financing. Our ability to grow our business by acquiring residential RPLs and
SBC loans depends on the availability of adequate financing, including
additional equity financing, debt financing or both in order to meet our
objectives. We intend to leverage our investments with debt, the level of which
may vary based upon the particular characteristics of our portfolio and on
market conditions. We have funded and intend to continue to fund our asset
acquisitions with non-recourse secured borrowings in which the underlying
collateral is not marked to market and employ repurchase agreements without the
obligation to mark to market the underlying collateral to the extent available.
We securitize our whole loan portfolios, primarily as a financing tool, when
economically efficient to create long-term, fixed rate, non-recourse financing
with moderate leverage, while retaining one or more tranches of the subordinate
MBS so created. The secured borrowings are structured as debt financings and not
real estate investment conduit ("REMIC") sales. We completed the securitization
transactions pursuant to Rule 144A under the Securities Act of 1933, as amended
(the "Securities Act"), in which we issued notes primarily secured by seasoned,
performing and non-performing mortgage loans primarily secured by first liens on
one-to-four family residential properties. Currently there is substantial
uncertainty in the securitization markets which could limit our access to
financing.
To qualify as a REIT under the Code, we generally will need to distribute at
least 90% of our taxable income each year (subject to certain adjustments) to
our stockholders. This distribution requirement limits our ability to retain
earnings and thereby replenish or increase capital to support our activities.
Resolution Methodologies. We, through the Servicer, or our affiliates, employ
various loan resolution methodologies with respect to our residential mortgage
loans, including loan modification, collateral resolution and collateral
disposition. The manner in which an NPL is resolved will affect the amount and
timing of revenue we will receive. Our preferred resolution methodology is to
modify NPLs. Once successfully modified and there is a period of continued
performance, we expect that borrowers will typically refinance these loans at or
near the estimated value of the underlying property. We believe modification
followed by refinancing generates near-term cash flows, provides the highest
possible economic outcome for us and is a socially responsible business strategy
because it keeps more families in their homes. In certain circumstances, we may
also consider selling these modified loans. Through historical experience, we
expect that many of our NPLs will enter into foreclosure or similar proceedings,
ultimately becoming REO that we can sell or convert into single-family rental
properties that we believe will generate long-term returns for our stockholders.
Our REO properties may be converted into single-family rental properties or they
may be sold through REO liquidation and short sale processes. We expect the
timelines for each of the different processes to vary significantly. The exact
nature of resolution will depend on a number of factors that are beyond our
control, including borrower willingness, property value, availability of
refinancing, interest rates, conditions in the financial markets, regulatory
environment and other factors. To avoid the 100% prohibited transaction tax on
the sale of dealer property by a REIT, we may dispose of assets that may be
treated as held "primarily for sale to customers in the ordinary course of a
trade or business" by contributing or selling the asset to a TRS prior to
marketing the asset for sale.
The state of the real estate market and home prices will determine proceeds from
any sale of real estate. We will opportunistically and on an asset-by-asset
basis determine whether to rent any REO we acquire, whether upon foreclosure or
otherwise. We may determine to sell such assets if they do not meet our
investment criteria. In addition, while we seek to track real estate price
trends and estimate the effects of those trends on the valuations of our
portfolios of residential mortgage loans, future real estate values are subject
to influences beyond our control.
Conversion to Rental Property. From time to time we will retain an REO property
as a rental property and may acquire rental properties through direct purchases
at attractive prices. The key variables that will affect our residential rental
revenues over the long-term will be the extent to which we acquire properties,
which, in turn, will depend on the amount of our capital invested, average
occupancy and rental rates in our owned rental properties. We expect the
timeline to convert multi-family and single-family loans into rental properties
will vary significantly by loan, which could result in variations in our revenue
and our
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operating performance from period to period. There are a variety of factors that
may inhibit our ability, through the Servicer, to foreclose upon a residential
mortgage loan and get access to the real property within the time frames we
model as part of our valuation process. These factors include, without
limitation: state foreclosure timelines and the associated deferrals (including
from litigation); unauthorized occupants of the property; U.S. federal, state or
local legislative action or initiatives designed to provide homeowners with
assistance in avoiding residential mortgage loan foreclosures that may delay the
foreclosure process; U.S. federal government programs that require specific
procedures to be followed to explore the non-foreclosure outcome of a
residential mortgage loan prior to the commencement of a foreclosure proceeding;
and declines in real estate values and high levels of unemployment and
underemployment that increase the number of foreclosures and place additional
pressure on the already overburdened judicial and administrative systems. We do
not expect to retain a material number of single family residential properties
for use as rentals. We do, however, intend to focus on retaining multi-unit
residences derived from foreclosures or acquired through outright purchases as
rentals.
Expenses. Our expenses primarily consist of the fees and expenses payable by us
under the Management Agreement and the Servicing Agreement. Additionally, our
Manager incurs direct, out-of-pocket costs related to managing our business,
which are contractually reimbursable by us. Loan transaction expense is the cost
of performing due diligence on pools of mortgage loans under consideration for
purchase. Professional fees are primarily for legal, accounting and tax
services. Real estate operating expense consists of the ownership and operating
costs of our REO properties, both held-for-sale and as rentals, and includes any
charges for impairments to the carrying value of these assets, which may be
significant. Those expenses may increase due to extended eviction timelines
caused by the pandemic. Interest expense, which is subtracted from our Interest
income to arrive at Net interest income, consists of the costs to borrow money.
Changes in Home Prices. As discussed above, generally, rising home prices are
expected to positively affect our results, particularly as this should result in
greater levels of re-performance of mortgage loans, faster refinancing of those
mortgage loans, more re-capture of principal on greater than 100% LTV
(loan-to-value) mortgage loans and increased recovery of the principal of the
mortgage loans upon sale of any REO. Conversely, declining real estate prices
are expected to negatively affect our results, particularly if the home prices
should decline below our purchase price for the loans and especially if
borrowers determine that it is better to strategically default as their equity
in their homes decline. We typically concentrate our investments in specific
urban geographic locations in which we expect stable or better property markets.
However, when we analyze loan and property acquisitions we do not take home
price appreciation ("HPA") into account except for rural properties for which we
model negative HPA related to our expectation of worse than expected property
condition. While we initially expected the COVID-19 outbreak to have a material
downward effect on home prices, we are generally seeing increases in HPA in our
target markets. A significant decline in HPA could have an adverse impact on our
operating results.
Changes in Market Interest Rates. With respect to our business operations,
increases in existing interest rates, in general, may over time cause: (1) the
value of our mortgage loan and MBS portfolio to decline; (2) coupons on our ARM
and hybrid ARM mortgage loans and MBS to reset, although on a delayed basis, to
higher interest rates; (3) prepayments on our mortgage loans and MBS portfolio
to slow, thereby slowing the amortization of our purchase premiums and the
accretion of our purchase discounts; (4) the interest expense associated with
our borrowings to increase; and (5) to the extent we enter into interest rate
swap agreements as part of our hedging strategy, the value of these agreements
to increase. Conversely, decreases in interest rates, in general, may over time
cause: (a) prepayments on our mortgage loan and MBS portfolio to increase,
thereby accelerating the accretion of our purchase discounts; (b) the value of
our mortgage loan and MBS portfolio to increase; (c) coupons on our ARM and
hybrid ARM mortgage loans and MBS to reset, although on a delayed basis, to
lower interest rates; (d) the interest expense associated with our borrowings to
decrease; and (e) to the extent we enter into interest rate swap agreements as
part of our hedging strategy, the value of these agreements to decrease.
Market Conditions. Due to the dramatic repricing of real estate assets that
occurred during the 2008 financial crisis and the continuing uncertainty
regarding the direction and strength of the real estate markets including as a
result of the COVID-19 pandemic, we believe a void in the debt and equity
capital available for investing in real estate exists as many financial
institutions, insurance companies, finance companies and fund managers have
determined to reduce or discontinue investment in debt or equity related to real
estate. We believe the dislocations in the residential real estate market have
resulted or will result in an "over-correction" in the repricing of real estate
assets, creating a potential opportunity for us to capitalize on these market
dislocations and capital void to the extent we are able to obtain financing for
additional purchases.
We believe that in spite of the continuing uncertain market environment for
mortgage-related assets, including as a result of the pandemic outbreak, current
market conditions offer potentially attractive investment opportunities for us,
even in the face of a riskier and more volatile market environment. We expect
that market conditions will continue to impact our operating results and will
cause us to adjust our investment and financing strategies over time as new
opportunities emerge and risk profiles of our business change.
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COVID-19 Pandemic. The pandemic has also impacted, and is likely to continue to
impact, directly or indirectly, many of the other factors discussed above, as
well as other aspects of our business. New developments continue to emerge and
it is not possible for us to predict with certainty which factors will impact
our business. In addition, we cannot assess the impact of each factor on our
business or the extent to which any factor, or combination of factors, may cause
actual results to differ materially from those contained in any forward-looking
statements. In particular, it is difficult to fully assess the impact of the
pandemic at this time due to, among other things, uncertainty regarding the
severity and duration of the outbreak domestically and internationally and the
effectiveness of federal, state and local government efforts to contain the
spread of COVID-19, the effects of those efforts on our business, the indirect
impact on the U.S. economy and economic activity and the impact on the mortgage
markets and capital markets.
Critical Accounting Policies and Estimates
Mortgage Loans
Purchased Credit Deteriorated Loans ("PCD Loans") - As of their acquisition
date, the loans we acquired have generally suffered some credit deterioration
subsequent to origination. As a result, our recognition of interest income for
PCD loans is based upon our having a reasonable expectation of the amount and
timing of the cash flows expected to be collected. When the timing and amount of
cash flows expected to be collected are reasonably estimable, we use expected
cash flows to apply the effective interest method of income recognition. We
adopted ASU 2016-13, Financial Instruments - Credit Losses, otherwise known as
CECL using the prospective transition approach for PCD assets on January 1,
2020 . At the time, $10.2 million of loan discount was reclassified to the
allowance for expected credit losses with no net impact on the amortized cost
basis of the portfolio.
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. We may adjust our loan pools as the underlying risk factors change over
time. We have aggregated our 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.
Our accounting for PCD loans gives rise to an accretable yield and an allowance
for expected credit losses. Upon the acquisition of PCD loans we record the
acquisition as three separate elements for (i) the amount of purchase discount
which we expect 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 we expect at the time of
acquisition to collect over the life of the loans is the accretable yield. Cash
flows expected at acquisition include all cash flows directly related to the
acquired loan, including those expected from the underlying collateral. We
recognize the accretable yield as interest income on a prospective level yield
basis over the life of the pool. Our 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, 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.
Our mortgage loans are secured by real estate. We monitor the credit quality of
the mortgage loans in our portfolio on an ongoing basis, principally by
considering loan payment activity or delinquency status. In addition, we assess
the expected cash flows from the mortgage loans, the fair value of the
underlying collateral and other factors, and evaluate whether and when it
becomes probable that all amounts contractually due will not be collected.
Borrower payments on our mortgage loans are classified as principal, interest,
payments of fees, or escrow deposits. Amounts applied as interest on the
borrower account are similarly classified as interest for accounting purposes
and are classified as operating cash flows in our consolidated Statement of Cash
Flows. Amounts applied as principal on the borrower account including amounts
contractually due from borrowers that exceed our basis in loans purchased at a
discount, are similarly classified as principal for accounting purposes and are
classified as investing cash flows in the consolidated Statement of Cash Flows
as required under U.S. Generally Accepted Accounting Principles ("U.S. GAAP").
Amounts received as payments of fees are recorded in Other income and classified
as operating cash flows in the consolidated Statement of Cash Flows. Escrow
deposits are recorded on the Servicer's balance sheet and do not impact our cash
flow.
Non-PCD Loans - While we generally acquire loans that have experienced deterioration in credit quality, we also acquire loans that have not experienced a deterioration in credit quality and originate SBC loans.
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We account for our non-PCD loans by estimating any allowance for expected credit
losses for our non-PCD loans based on historical experience and the risk
characteristics of the individual loans. Impaired loans are carried at the
present value of expected future cash flows discounted at the loan's effective
interest rate, the loan's market price, or the fair value of the collateral if
the loan is collateral dependent. For individual loans, a troubled debt
restructuring is a formal restructuring of a loan where, for economic or legal
reasons related to the borrower's financial difficulties, a concession that
would not otherwise be considered is granted to the borrower. The concession may
be granted in various forms, including providing a below-market interest rate, a
reduction in the loan balance or accrued interest, an extension of the maturity
date, or a combination of these. An individual loan that has had a troubled debt
restructuring is considered to be impaired and is subject to the relevant
accounting for impaired loans.
If necessary, an allowance for 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.
Investments in Securities at Fair Value
Our Investments in Securities at Fair Value consist of investments in senior and subordinated notes issued by joint ventures, which we form with third party institutional accredited investors. We recognize income on the debt securities using the effective interest method. Additionally, the notes are classified as available-for-sale and are carried at fair value with changes in fair value reflected in our consolidated statements of comprehensive income. We mark our investments to fair value using prices received from our financing counterparties and believe any unrealized losses on our debt securities 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 our consolidated statements of income. Risks inherent in our debt securities portfolio, affecting both the valuation of the securities as well as the portfolio's interest income include the risk of default, delays and inconsistency in the frequency and amount of payments, risks affecting borrowers such as man-made or natural disasters, or the pandemic, and damage to or delay in realizing the value of the underlying collateral. We monitor the credit quality of the mortgage loans underlying our debt securities on an ongoing basis, principally by considering loan payment activity or delinquency status. In addition, we assess the expected cash flows from the mortgage loans, the fair value of the underlying collateral and other factors, and evaluate whether and when it becomes probable that all amounts contractually due will not be collected.
Investments in Beneficial Interests
Our Investments in beneficial interests consist of investments in the trust certificates issued by joint ventures which we form with third party institutional accredited investors. The trust certificates represent the residual interest of any special purpose entity formed to facilitate certain investments. We account for our Investments in beneficial interests under CECL, as discussed under Mortgage Loans. The methodology is similar to that described in "Mortgage Loans" except that we only recognize the ratable share of gain, loss income or expense. We account for each beneficial interest individually.
Debt
Secured Borrowings - Through securitization trusts which are VIEs, we issue
callable debt secured by our 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 our
consolidated balance sheet as we are 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. Our exposure to the
obligations of the VIEs is generally limited to our 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 our 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. We assume the debt will be called at the specified call date for
purposes of amortizing discount and issuance costs because we believe 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.
Repurchase Facilities - We enter into repurchase financing facilities under
which we nominally sell assets to a counterparty and simultaneously enter into
an agreement to repurchase the sold assets at a price equal to the sold amount
plus an interest factor. Despite being legally structured as sales and
subsequent repurchases, repurchase transactions are generally accounted for as
debt secured by the underlying assets. At the maturity of a repurchase
financing, unless the repurchase financing is renewed, we are required to repay
the borrowing including any accrued interest and concurrently receive back our
58
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pledged collateral from the lender. The repurchase financings are treated as
collateralized financing transactions; pledged assets are recorded as assets in
our consolidated balance sheets, and debt is recognized at the contractual
amount. Interest is recorded at the contractual amount on an accrual basis.
Costs associated with the set-up of a repurchasing contract are recorded as
deferred expense at inception and amortized over the contractual life of the
agreement. Any draw fees associated with individual transactions and any
facility fees assessed on the amounts outstanding are recorded as expense when
incurred.
Fair Value
Fair Value of Financial Instruments - Fair value is defined as the price that
would be received to sell an asset or paid to transfer a liability in an orderly
transaction between market participants at the measurement date. A fair value
hierarchy has been established that requires an entity to maximize the use of
observable inputs and minimize the use of unobservable inputs when measuring
fair value. The standard describes three levels of inputs that may be used to
measure fair value:
•Level 1 - Quoted prices in active markets for identical assets or liabilities.
•Level 2 - Observable inputs other than Level 1 prices, such as quoted prices
for similar assets and liabilities; quoted prices in markets that are not
active; or other inputs that are observable or can be corroborated by observable
market data for substantially the full term of the assets or liabilities.
•Level 3 - Unobservable inputs that are supported by little or no market
activity and that are significant to the fair value of the assets or
liabilities.
The degree of judgment utilized in measuring fair value generally correlates to
the level of pricing observability. Assets and liabilities with readily
available actively quoted prices or for which fair value can be measured from
actively quoted prices generally will have a higher degree of pricing
observability and a lesser degree of judgment utilized in measuring fair value.
Conversely, assets and liabilities rarely traded or not quoted will generally
have little or no pricing observability and a higher degree of judgment utilized
in measuring fair value. Pricing observability is impacted by a number of
factors, including the type of asset or liability, whether it is new to the
market and not yet established, and the characteristics specific to the
transaction.
The fair value of mortgage loans is estimated using the Manager's proprietary
pricing model which estimates expected cash flows with the discount rate used in
the present value calculation representing the estimated effective yield of the
loans. The value of transfers of mortgage loans to REO is based upon the present
value of future expected cash flows of the loans being transferred.
We value our investments in debt securities using estimates provided by our financing counterparties. We also rely on our 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.
Our investments in beneficial interests are trust certificates representing the residual investment in securitization trusts which we form with joint venture partners. The trust certificates represent the residual investment in the trust. We rely on our Manager's proprietary pricing model to estimate the underlying cash flows expected to be collected on our investments in beneficial interests.
Our ownership interest in the Manager is valued by applying an earnings multiple to base fee revenue.
Our ownership interests in
The fair value of our ownership interest in GAFS, including warrants, is determined by applying an earnings multiple to expected earnings.
The fair value of our ownership interest in Gaea is estimated using a projected net operating income for its property portfolio.
The fair value of our ownership interest in the loan pool LLCs is determined by
using estimates of underlying assets and liabilities taken from our Manager's
pricing model.
The fair value of secured borrowings is estimated using estimates provided by
our financing counterparties, which are compared for reasonableness to our
Manager's proprietary pricing model which estimates expected cash flows of the
underlying mortgage loans collateralizing the debt. We are able to call the
bonds issued in our secured borrowings at par value
59
--------------------------------------------------------------------------------plus accrued interest pursuant to the terms of the offering document. We carry our secured borrowings net of deferred issuance cost. Accordingly, the difference between fair value and carrying value is largely driven by the deferred issuance costs.
Our put option liability is adjusted to approximate market value through earnings. The put obligation is a fixed amount that may be settled in cash or shares of our common stock at our option. Fair value is determined using the discounted cash flow method using a rate to accrete the initial basis of$9.5 million to the future put obligation of$50.7 million over the 39-month term of the put option liability. The fair value of the put option liability is measured quarterly with adjustments posted to our consolidated statements of income.
Our borrowings under repurchase agreements are short-term in nature, and our 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.
Our convertible senior notes are traded on the NYSE; the debt's fair value is determined from the NYSE closing price on the balance sheet date. The Convertible debt may be redeemable at par plus accrued interest beginning onApril 30, 2022 subject to satisfying the conversion price trigger. We carry the Convertible debt net of deferred issuance cost. Accordingly, the difference between fair value and carrying value is partially driven by the deferred issuance costs. Property held-for-sale is carried at the lower of its acquisition basis or net realizable value. Net realizable value is determined based on broker price opinions ("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 our Cash and cash equivalents, Cash held in trust, Receivable from Servicer, Prepaid expenses and other assets, Management fee payable and Accrued expenses and other liabilities are equal to or approximate fair value.
Recent Accounting Pronouncements
Refer to the notes to our interim financial statements for a description of relevant recent accounting pronouncements.
Results of Operations
Quarter Overview
For the three months endedSeptember 30, 2021 , we had net income attributable to common stockholders of$9.3 million , or$0.40 per share for basic and$0.38 per share for diluted common shares. For the three months endedSeptember 30, 2020 , we had net income attributable to common stockholders of$5.3 million , or$0.23 per share for basic and diluted common shares. Key items for the three months endedSeptember 30, 2021 include: •Interest income of$23.1 million ; net interest income of$14.4 million •Net income attributable to common stockholders of$9.3 million •Basic earnings per common share of$0.40 •Book value per common share of$16.00 atSeptember 30, 2021 •Taxable income of$0.43 per common share •Formed one joint venture that acquired$517.7 million in UPB of mortgage loans with collateral values of$968.6 million and retained or acquired$54.7 million of varying classes of related securities issued by the joint venture to end the quarter with$479.6 million of investments in debt securities and beneficial interests •Purchased$87.5 million of NPLs, with UPB of$90.9 million at 64.0% of property value, and$0.5 million of RPLs, with UPB of$0.5 million at 61.7% of property value to end the quarter with$1.0 billion in net mortgage loans •InJuly 2021 we purchased$170.7 million of RPLs and NPLs into a joint venture securitization that was created inJune 2021 with a securitized prefunding structure. We own 20.0% of this joint venture. The purchase price was 97.8% of UPB and 53.2% of underlying property value. •Collected total cash of$82.8 million , from loan payments, sales of REO and collections from investments in debt securities and beneficial interests •Held$92.8 million of cash and cash equivalents atSeptember 30, 2021 ; average daily cash balance for the quarter was$89.2 million •As ofSeptember 30, 2021 , approximately 76.6% of portfolio based on UPB made at least 12 out of the last 12 payments 60 -------------------------------------------------------------------------------- Our consolidated net income attributable to common stockholders increased$4.0 million for the quarter endedSeptember 30, 2021 compared to the quarter endedSeptember 30, 2020 . The increase in our earnings compared to the quarter endedSeptember 30, 2020 was primarily driven by a$3.1 million decrease in our interest expense. The increase in net interest income was primarily driven by the same decrease of$3.1 million in our interest expense of$8.6 million versus interest expense of$11.7 million in the third quarter of 2020. Our book value increased to$16.00 per common share from$15.59 atDecember 31, 2020 driven by increases in our earnings and our acquisition of our joint venture partner's share of Ajax Mortgage Loan Trusts 2018-C ("2018-C") in the first quarter, the repurchase of$7.5 million of our convertible senior notes and an increase in common equity resulting from net fair value adjustments of$3.0 million on our portfolio of debt securities recorded to Other comprehensive income sinceDecember 31, 2020 . We recorded$0.1 million in recoveries from previous impairments on our REO held-for-sale portfolio in the real estate operating expense line of our consolidated statement of income for the three months endedSeptember 30, 2021 compared to$0.2 million of impairments for the three months endedSeptember 30, 2020 . The recovery of impairments for the quarter were driven primarily by increases in property values. Our quantity of REO properties increased during the quarter, with four properties sold in the third quarter of 2021 while 10 were added to REO held-for-sale through foreclosures or deed in lieu proceedings. Comparatively, during the three months endedSeptember 30, 2020 we sold seven REO properties while adding five properties through foreclosures or deed in lieu proceedings.
Table 1: Results of Operations
Three months ended September 30, Nine months ended September 30,
($ in thousands) 2021 2020 2021 2020
INCOME
Interest income $ 23,054 $ 23,517 $ 70,137 $ 73,576
Interest expense (8,609) (11,727) (27,743) (37,855)
Net interest income 14,445 11,790 42,394 35,721
Net decrease in the net present value of
expected credit losses(1) 3,678 4,440 13,927 4,591
Net interest income after the impact of
changes in the net present value of expected
credit losses 18,123 16,230 56,321 40,312
Income/(loss) from investments in affiliates 90 (25) 610 (465)
Other income 778 537 1,620 1,259
Total revenue, net 18,991 16,742 58,551 41,106
EXPENSE
Related party expense - loan servicing fees 1,743 1,848 5,275 5,798
Related party expense - management fee 2,292 2,264 6,835 6,206
Professional fees 526 576 1,929 2,113
Real estate operating expenses (76) 173 197 1,273
Fair value adjustment on put option
liability 2,493 1,766 6,638 3,016
Other expense 1,227 986 3,906 3,048
Total expense 8,205 7,613 24,780 21,454
Loss on debt extinguishment - 253 1,072 661
Income before provision for income taxes 10,786 8,876 32,699 18,991
Provision for income taxes (benefit) 102 (16) 203 (215)
Consolidated net income 10,684 8,892 32,496 19,206
Less: consolidated net (loss)/income
attributable to the non-controlling interest (578) 1,662 (47) 3,493
Consolidated net income attributable to
Company 11,262 7,230 32,543 15,713
Less: dividends on preferred stock 1,949 1,950 5,848 3,791
Consolidated net income attributable to
common stockholders $ 9,313 $ 5,280 $ 26,695 $ 11,922
61-------------------------------------------------------------------------------- (1)Net decrease in the net present value of expected credit losses represents the net decrease to the allowance resulting from changes in actual and expected cash flows during both the three and nine months endedSeptember 30, 2021 andSeptember 30, 2020 , respectively. It represents the net increase of the present value of the expected cash flows in excess of contractual cash flows offset by any incremental provision expense on the Mortgage loan pools and Beneficial interests. The decrease is calculated at the pool level for Mortgage loans and at the security level for Beneficial interests. To the extent a pool or Beneficial interest has an associated allowance, the decrease in expected credit losses is recorded in the period in which the change occurs, otherwise it is recognized prospectively as an increase in yield.
Interest Income
Our primary source of income is accretion earned on our mortgage loan portfolio offset by the interest expense incurred to fund and hold portfolio acquisitions. For the three months endedSeptember 30, 2021 and 2020 net interest income after recording the impact of the net present value of decreases in expected credit losses increased to$18.1 million from$16.2 million , respectively, primarily as a result of a$3.1 million decrease in interest expense as we have secured lower funding costs for our loan and debt security portfolios. Additionally, for the three months endedSeptember 30, 2021 and 2020, our net income included$3.7 million and$4.4 million from net decreases in the net present value of expected credit losses. Of the$3.7 million for the three months endedSeptember 30, 2021 ,$0.9 million relates to our mortgage loan portfolio and$2.8 million to our investments in beneficial interests. Comparatively, during the three months endedSeptember 30, 2020 , of the$4.4 million ,$3.0 million relates to our mortgage loan portfolio and$1.4 million to our investments in beneficial interests. For the nine months endedSeptember 30, 2021 and 2020 net interest income after recording the impact of the net decrease in the net present value of expected credit losses increased to$56.3 million from$40.3 million , respectively, primarily as a result of a net$13.9 million impact of the net decrease in the net present value of expected credit losses for the nine months endedSeptember 30, 2021 compared to a$4.6 million impact of the net decrease in the net present value of expected credit losses for the nine months endedSeptember 30, 2020 . Of the$13.9 million for the nine months endedSeptember 30, 2021 ,$9.1 million relates to our mortgage loan portfolio and$4.8 million to our investments in beneficial interests. Comparatively, of the$4.6 million for the nine months endedSeptember 30, 2020 ,$2.9 million relates to our mortgage loan portfolio and$1.7 million relates to our investments in beneficial interests. To date, the COVID-19 pandemic has not had a significant negative impact on our expected cash flows due to the continuing low rate environment and rising home prices. Our gross interest income decreased by$0.4 million to$23.1 million in the quarter endedSeptember 30, 2021 from$23.5 million in the quarter endedSeptember 30, 2020 primarily due to a decrease in average yield. This was offset by a decrease in interest expense of$3.1 million to$8.6 million in the quarter endedSeptember 30, 2021 from$11.7 million in the quarter endedSeptember 30, 2020 primarily due to decreases in the average interest rates applicable to our borrowings. We expect our cost of funds to continue to remain low in the current interest rate and credit environment. Similarly, our gross interest income decreased by$3.5 million to$70.1 million in the nine months endedSeptember 30, 2021 from$73.6 million in the nine months endedSeptember 30, 2020 primarily due to a decrease in the average yield. This was offset by a decrease in interest expense of$10.2 million to$27.7 million in the nine months endedSeptember 30, 2021 from$37.9 million in the nine months endedSeptember 30, 2020 similarly due to decreases in the average interest rates applicable to our borrowings. During the third quarter of 2021, we collected$82.8 million in cash payments and proceeds on our mortgage loans, securities and REO held-for-sale compared to$56.4 million for the third quarter of 2020. These amounts exclude cash proceeds from the sale of debt securities. The increase in cash collections in 2021 is due to a higher volume of payoffs as borrowers continued to refinance or sell the underlying property. 62 --------------------------------------------------------------------------------
The interest income detail for the three and nine months ended
Table 2: Interest income detail
Three months ended September 30, Nine months ended September 30,
2021 2020(1,2) 2021 2020(1,2)
Accretable yield recognized on RPL, NPL and
SBC loans $ 15,772 $
18,311 $ 49,741
4,041 2,737 11,897 7,413
Interest income on debt securities 3,084 2,356 8,158 7,285
Other interest income/(loss) 114 38 119 (54)
Bank interest income 43 75 222 271
Interest income $ 23,054 $
23,517 $ 70,137
3,678 4,440 13,927 4,591
Interest income after the impact of changes
in the net present value of expected credit
losses $ 26,732 $ 27,957 $ 84,064 $ 78,167
(1)Includes reclass of loan and beneficial interest credit losses from net
decrease in the present value of expected credit losses to accretable yield
recognized on RPL, NPL and SBC loans and accretable yield recognized on
beneficial interests, respectively.
(2)Previously presented combination of interest income on securities and
accretable yield recognized on beneficial interests has been bifurcated to show
each separately.
(3)Net decrease in the net present value of expected credit losses represents
the net decrease to the allowance resulting from changes in actual and expected
cash flows during both the three and nine months ended September 30, 2021 and
September 30, 2020 , respectively. It represents the net increase of the present
value of the expected cash flows in excess of contractual cash flows offset by
any incremental provision expense on the Mortgage loan pools and Beneficial
interests. The decrease is calculated at the pool level for Mortgage loans and
at the security level for Beneficial interests. To the extent a pool or
Beneficial interest has an associated allowance, the decrease in expected credit
losses is recorded in the period in which the change occurs, otherwise it is
recognized prospectively as an increase in yield.
The decrease in the accretable yield recognized on RPL, NPL and SBC loans is
primarily driven by a decrease in the average balance of our mortgage loan
portfolio from payoffs and paydowns exceeding new loan acquisitions, and the
refinancing of the loans from Ajax Mortgage Trust 2017-D ("2017-D") into an
off-balance sheet trust which issued debt securities and beneficial interests.
Accordingly, the loans subject to the refinancing, net of the senior bond that
was retired, are now reflected in the average carrying value of debt securities
and the average carrying value of beneficial interests. The average balance of
our mortgage loan portfolio, debt securities, beneficial interests and debt
outstanding for the three months ended September 30, 2021 and 2020 are included
in the table below ($ in thousands):
Table 3: Average Balances
Three months ended September 30,
2021 2020(1)
Average mortgage loan portfolio $ 976,829 $ 1,097,046
Average carrying value of debt securities $ 387,247 $ 259,433
Average carrying value of beneficial interests $ 133,567 $ 71,576
Total average asset level debt $ 1,044,125 $ 1,038,406
(1)Previously presented combination of average carrying value of debt securities
and beneficial interests has been bifurcated to show average carrying value of
debt securities and average carrying value of beneficial interests separately.
Other Income
Other income increased for the three and nine months endedSeptember 30, 2021 over the comparable period in 2020. The increase for the three months ended is due to higher gain on sale for property held-for-sale and gain on sale of securities partially offset by lower income from the federal government's Home Affordable Modification Program ("HAMP") as more loans reached the five-year threshold and no additional fees are earned. Other income increased for the nine months endedSeptember 30, 2021 primarily as a result of a Loss on sale of mortgage loans in 2020, increases in late fee income and a gain on 63 --------------------------------------------------------------------------------
the sale of securities compared with the comparable period in 2020. A breakdown of Other income is provided in the table below ($ in thousands):
Table 4: Other Income
Three months ended September 30, Nine months ended September 30,
2021 2020 2021 2020
Net gain on sale of property
held-for-sale $ 375 $ 150 $ 572 $ 957
Gain on sale of securities 201 145 201 145
Late fee income 182 177 608 525
HAMP fees 26 59 105 311
Rental income 5 6 31 26
Loss on sale of mortgage loans - - - (705)
Other (loss)/income (11) - 103 -
Total Other income $ 778 $ 537 $ 1,620 $ 1,259
Expenses
Total expenses increased for the three and nine months ended September 30, 2021
over the comparable periods in 2020 as a result of our put option amortization
expense, and an increase in the Other expense category by an increase from a
stock grant to members of our Board during the second quarter of 2021. These
were partially offset by lower Professional fees and a recovery of impairments
on three REO properties within the Real estate operating expenses line. A
breakdown of expenses is provided in the table below ($ in thousands):
Table 5: Expenses
Three months ended September 30, Nine months ended September 30,
2021 2020 2021 2020
Fair value adjustment on put option
liability $ 2,493 $
1,766 $ 6,638
2,292 2,264 6,835 6,206
Related party expense - loan
servicing fees 1,743 1,848 5,275 5,798
Other expense 1,227 986 3,906 3,048
Professional fees 526 576 1,929 2,113
Real estate operating expenses (76) 173 197 1,273
Total expenses $ 8,205 $ 7,613 $ 24,780 $ 21,454
64--------------------------------------------------------------------------------
Other Expense
Other expense increased for the three and nine months endedSeptember 30, 2021 over the comparable periods in 2020 primarily due to higher Insurance expense, Employee and service provider grants, and Directors' fees and grants, offset by cost recoveries from joint venture partners within Loan transaction expense, and lower Borrowing related expenses and Taxes and regulatory expense. A breakdown of Other expense is provided in the table below ($ in thousands):
Table 6: Other Expense
Three months ended September 30, Nine months ended September 30,
2021 2020 2021 2020
Insurance $ 253 $ 238 $ 711 $ 606
Employee and service provider share
grants 230 187 644 535
Directors' fees and grants 165 104 585 322
Other expense 159 72 376 230
Borrowing related expenses 138 227 471 615
Taxes and regulatory expense 105 198 349 395
Software licenses and amortization 86 90 261 224
Lien release non due diligence 64 13 167 104
Internal audit services 46 35 123 107
Travel, meals, entertainment 15 - 113 126
Loan transaction expense (34) (178) 106 (216)
Total Other expense $ 1,227 $ 986 $ 3,906 $ 3,048 Equity and Net Book Value per Share
Our net book value per common share was$16.00 and$15.59 atSeptember 30, 2021 andDecember 31, 2020 , respectively. The increase in book value was primarily driven by our buyout of our joint venture partner's interest in 2018-C in the first quarter, the repurchase of$7.5 million of our convertible senior notes and an increase in common equity resulting from net fair value adjustments of$3.0 million on our portfolio of debt securities recorded to Other comprehensive income sinceDecember 31, 2020 . WhileU.S. GAAP does not specifically define the parameters for calculating book value, we believe our calculation is representative of our book value on a per share basis, and our Manager believes book value per share is a valuable metric for evaluating our business. The net book value per share is calculated by dividing equity, after adjusting for the anticipated conversion of the senior convertible notes into shares of common stock, the subtraction of non-controlling interests and preferred shares classified in equity, and shares for Manager and director fees that were approved but still unissued as of the date indicated, unvested employee and service provider stock grants and the common shares from assumed conversion of our senior convertible notes. A breakdown of our book value per share is set forth in the table below ($ in thousands except per share amounts): 65 --------------------------------------------------------------------------------
Table 7: Book Value per Common Share
September 30, December 31,
2021 2020
Outstanding shares 23,140,131 22,978,339
Adjustments for: Unvested grants of restricted stock, and Manager and director shares earned but not issued as of the date indicated
3,580 4,280
Conversion of convertible senior notes into shares of common stock
7,315,929 7,834,299
Settlement of put option in shares(1) - -
Total adjusted shares outstanding 30,459,640 30,816,918
Equity at period end $
503,105
102,762 110,250
Adjustment for equity due to preferred shares (115,144) (115,144)
Net adjustment for equity due to non-controlling interests (3,281) (29,130)
Adjusted equity $ 487,442 $ 480,467
Book value per share $ 16.00 $ 15.59 (1)The settlement of the put option in shares are not included in the calculation as it has an anti-dilutive effect on our earnings per share calculation.
Mortgage Loan Portfolio
For the three and nine months endedSeptember 30, 2021 , we purchased$0.5 million and$36.8 million of RPLs with UPB of$0.5 million and$41.7 million , respectively, at 61.7% and 57.7% of the underlying property value, respectively. Comparatively, for the three and nine months endedSeptember 30, 2020 we purchased$41.2 million and$42.4 million of RPLs with UPB of$46.3 million and$48.2 million , respectively, at 63.0% and 61.9% of the underlying property value, respectively. For the three and nine months endedSeptember 30, 2021 , we purchased$87.5 million and$88.0 million of NPLs with UPB of$90.9 million and$91.5 million , respectively, at 64.0% and 63.9% of the underlying property value. Comparatively, for the three and nine months endedSeptember 30, 2020 we purchased$0.5 million and$0.7 million of NPLs with UPB of$0.5 million and$0.7 million , respectively, at 72.0% and 69.2% of the underlying property value, respectively. For the three months endedSeptember 30, 2021 we purchased no SBC loans; however, for the nine months endedSeptember 30, 2021 we purchased$3.6 million of SBC loans with UPB of$3.6 million at 36.5% of the underlying property value. Comparatively, for both the three and nine months endedSeptember 30, 2020 , we purchased$1.8 million of SBC loans with UPB of$1.9 million at 47.1% of the underlying property value. We ended the period with$1.0 billion of net mortgage loans with an aggregate UPB of$1.1 billion as ofSeptember 30, 2021 and$1.1 billion of net mortgage loans with an aggregate UPB of$1.2 billion as ofSeptember 30, 2020 . 66 --------------------------------------------------------------------------------
The following table shows loan portfolio acquisitions for the three and nine
months ended
Table 8: Loan Portfolio Acquisitions
Three months ended September 30, Nine months ended September 30,
2021 2020 2021 2020
RPLs
Count 4 244 241 270
UPB $ 530 $ 46,291 $ 41,718 $ 48,243
Purchase price $ 475 $ 41,170 $ 36,835 $ 42,375
Purchase price % of UPB 89.6 % 88.9 % 88.3 % 87.8 %
NPLs
Count 364 1 367 2
UPB $ 90,862 $ 520 $ 91,527 $ 747
Purchase price $ 87,537 $ 468 $ 87,984 $ 653 Purchase price % of UPB 96.3 % 90.0 % 96.1 % 87.4 % SBC loans Count - 2 1 2 UPB $ -$ 1,859 $ 3,611$ 1,859 Purchase price $ -$ 1,818 $ 3,603$ 1,818 Purchase price % of UPB - % 97.8 % 99.8 % 97.8 % During the three and nine months endedSeptember 30, 2021 , 183 and 1,292 mortgage loans, respectively, representing 3.7% and 23.1% of our ending UPB, respectively, were liquidated. Comparatively, during the three and nine months endedSeptember 30, 2020 , 119 and 382 mortgage loans, respectively, representing 2.0% and 8.3%, respectively, of our ending UPB, were liquidated. Our loan portfolio activity for the three and nine months endedSeptember 30, 2021 and 2020 is presented below ($ in thousands):
Table 9: Loan Portfolio Activity
Three months ended September 30,
2021 2020
Mortgage loans Mortgage loans Mortgage loans Mortgage loans
held-for-investment, net held-for-sale, net held-for-investment, net held-for-sale, net
Beginning carrying value $ 955,628 $ - $ 1,080,617 $ -
RPL, NPL and SBC portfolio acquisitions,
net cost basis 88,012 - 43,455 -
Draws on SBC loans 3,022 - - -
Accretion recognized 15,772 - 18,311 -
Payments received on loans, net (54,292) - (42,424) -
Net reclassifications to mortgage loans
held-for-sale, net (30,963) 30,963 - -
Reclassifications to REO (1,739) - (603) -
Decrease in net present value of expected
credit losses on mortgage loans 908 - 2,996 -
Other 3 - 8 -
Ending carrying value $ 976,351 $ 30,963 $ 1,102,360 $ -
67
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Nine months ended September 30,
2021 2020
Mortgage loans Mortgage loans Mortgage loans Mortgage loans
held-for-investment, net held-for-sale, net held-for-investment, net held-for-sale, net
Beginning carrying value $ 1,119,372 $ - $ 1,151,469 $ -
RPL, NPL and SBC portfolio acquisitions,
net cost basis 128,422 - 44,846 -
Draws on SBC loans 10,366 - - -
Accretion recognized 49,741 - 58,661 -
Payments received on loans, net (180,443) - (127,935) -
Net reclassifications to mortgage loans held-for-sale, net (159,733) 159,733 - - Reclassifications to REO (3,013) - (1,515) - Sale of mortgage loans - - (26,111) - Refinancing of 2017-D - (128,770) - - Decrease in net present value of expected credit losses on mortgage loans 9,148 - 2,902 - Other 2,491 - 43 - Ending carrying value $ 976,351 $ 30,963 $ 1,102,360 $ -
Table 10: Portfolio Composition
As of
September 30, 2021 December 31, 2020(1,2)
No. of Loans 5,353 No. of Loans 6,031
Total UPB(3) $ 1,071,034 Total UPB(3) $ 1,204,804
Interest-Bearing Balance $ 985,282 Interest-Bearing Balance $ 1,127,499
Deferred Balance(4) $ 85,752 Deferred Balance(4) $ 77,305 Market Value of Collateral(5)
82.7 % Original Purchase Price/Total UPB 82.2 %
Original Purchase Price/Market Value Original Purchase Price/Market Value
of Collateral 49.2 % of Collateral 53.7 %
Weighted Average Coupon 4.31 % Weighted Average Coupon 4.44 %
Weighted Average LTV(6) 66.6 % Weighted Average LTV(6) 72.8 %
Weighted Average Remaining Term Weighted Average Remaining Term
(months) 296 (months) 297
No. of first liens 5,293 No. of first liens 5,973
No. of second liens 60 No. of second liens 58
No. of Rental Properties - No. of Rental Properties 6
Capital Invested in Rental Properties $ - Capital Invested in Rental Properties $ 710
RPLs 85.9 % RPLs 94.4 %
NPLs 11.7 % NPLs 3.5 %
SBC loans 2.4 % SBC loans 2.1 %
No. of REO properties held-for-sale 31 No. of REO properties held-for-sale 32
Market Value of Other REO(7) $ 6,971 Market Value of Other REO(7) $ 8,105
Carrying value of debt securities and Carrying value
of debt securities and
beneficial interests in trusts
68
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September 30, 2021 December 31, 2020(1,2)
Loans with 12 for 12 payments as an Loans with 12 for 12 payments as an
approximate percentage of UPB (8) 76.6 % approximate percentage of UPB (8) 71.9 %
Loans with 24 for 24 payments as an Loans with 24 for 24 payments as an
approximate percentage of UPB (9) 68.8 % approximate percentage of UPB (9) 65.1 %
(1)Includes the impact of 1,003 mortgage loans with a purchase price of $177.3
million , UPB of $194.3 million and collateral value of $295.3 million acquired
in the fourth quarter of 2017 through a 50% owned joint venture which we
consolidate.
(2)Includes the impact of 256 mortgage loans with a purchase price of $47.4
million , UPB of $52.8 million and collateral value of $68.1 million acquired in
the third quarter of 2018 through a 63% owned joint venture which we
consolidated as of December 31, 2020 .
(3)At September 30, 2021 and December 31, 2020 , our loan portfolio consists of
fixed rate (60.1% of UPB), ARM (7.5% of UPB) and Hybrid ARM (32.4% of UPB); and
fixed rate (53.5% of UPB), ARM (8.9% of UPB) and Hybrid ARM (37.6% of UPB),
respectively.
(4)Amounts that have been deferred in connection with a loan modification on
which interest does not accrue. These amounts generally become payable at the
time of maturity.
(5)As of the reporting date.
(6)UPB as of September 30, 2021 and December 31, 2020 , divided by market value
of collateral and weighted by the UPB of the loan.
(7)Market value of REO is based on net realizable value. Fair market value is
determined based on appraisals, BPOs, or other market indicators of fair value
including list price or contract price.
(8)Loans that have made at least 12 of the last 12 payments, or for which the
full dollar amount to cover at least 12 payments has been made in the last 12
months.
(9)Loans that have made at least 24 of the last 24 payments, or for which the
full dollar amount to cover at least 24 payments has been made in the last 24
months.
Table 11: Portfolio Characteristics
The following tables present certain characteristics about our mortgage loans by year of origination as ofSeptember 30, 2021 andDecember 31, 2020 , respectively ($ in thousands):
Portfolio at
Years of Origination
Mortgage loans held-for-investment, net After 2008 2006 - 2008 2005 and prior
Number of loans 578 2,937 1,657
UPB $ 142,834 $ 660,411 $ 234,442
Mortgage loan portfolio by year of origination 13.8 % 63.6 % 22.6 %
Loan Attributes:
Weighted average loan age (months) 96.0 175.7 215.1
Weighted average loan-to-value 63.1 % 70.3 % 56.6 %
Delinquency Performance:
Current 66.1 % 64.0 % 62.6 %
30 days delinquent 5.6 % 5.2 % 5.8 %
60 days delinquent 2.1 % 3.9 % 4.5 %
90+ days delinquent 19.9 % 20.2 % 20.5 %
Foreclosure 6.3 % 6.7 % 6.6 %
69
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Years of Origination
Mortgage loans held-for-sale, net After 2008 2006 - 2008 2005 and prior
Number of loans 27 83 71
UPB $ 5,121 $ 17,918 $ 10,308
Mortgage loan portfolio by year of origination 15.4 % 53.7 % 30.9 %
Loan Attributes:
Weighted average loan age (months) 118.5 175.8 213.9
Weighted average loan-to-value 64.3 % 85.5 % 76.6 %
Delinquency Performance:
Current 47.3 % 52.0 % 62.6 %
30 days delinquent - % 7.8 % 6.1 %
60 days delinquent 7.9 % 3.8 % 3.3 %
90+ days delinquent 44.8 % 29.2 % 24.1 %
Foreclosure - % 7.2 % 3.9 %
Portfolio at
Years of Origination
Mortgage loans held-for-investment, net After 2008 2006 - 2008 2005 and prior
Number of loans 639 3,471 1,921
UPB $ 156,250 $ 780,956 $ 267,598
Mortgage loan portfolio by year of origination 13.0 % 64.8 % 22.2 %
Loan Attributes:
Weighted average loan age (months) 91.0 166.7 205.8
Weighted average loan-to-value 69.4 % 77.0 % 62.6 %
Delinquency Performance:
Current 53.0 % 51.9 % 53.3 %
30 days delinquent 13.6 % 11.4 % 10.9 %
60 days delinquent 3.8 % 6.7 % 6.8 %
90+ days delinquent 25.3 % 25.1 % 25.4 %
Foreclosure 4.3 % 4.9 % 3.6 %
Table 12: Loans by State
The following table identifies our mortgage loans by state, number of loans,
loan value, collateral value and percentages thereof at September 30, 2021 and
December 31, 2020 ($ in thousands):
September 30, 2021 December 31, 2020
% of % of
Collateral Collateral Collateral Collateral
State Count UPB % UPB Value(1) Value State Count UPB % UPB Value(1) Value
CA 737 $ 246,860 23.0 % $ 505,390 26.2 % CA 947 $ 329,725 27.4 % $ 589,225 30.0 %
FL 919 179,712 16.8 % 301,986 15.7 % FL 655 108,293 9.0 % 174,849 8.9 %
NY 319 99,916 9.3 % 174,212 9.0 % NY 329 103,475 8.6 % 177,524 9.0 %
NJ 284 65,676 6.1 % 96,021 5.0 % NJ 287 65,764 5.5 % 89,389 4.5 %
MD 205 49,973 4.7 % 72,220 3.7 % MD 248 60,082 5.0 % 77,693 4.0 %
VA 165 36,020 3.4 % 58,407 3.0 % GA 352 45,817 3.8 % 71,586 3.7 %
IL 199 34,839 3.3 % 48,862 2.5 % VA 205 43,563 3.6 % 63,132 3.2 %
TX 328 34,065 3.2 % 75,367 3.9 % TX 410 42,432 3.5 % 81,810 4.2 %
GA 260 31,906 3.0 % 59,974 3.3 % IL 227 41,410 3.5 % 54,379 2.8 %
MA 143 28,777 2.7 % 54,578 2.8 % MA 177 35,454 2.9 % 61,220 3.1 %
NC 195 28,010 2.6 % 56,514 2.9 % NC 240 33,146 2.8 % 52,217 2.7 %
70--------------------------------------------------------------------------------
September 30, 2021 December 31, 2020
% of % of
Collateral Collateral Collateral Collateral
State Count UPB % UPB Value(1) Value State Count UPB % UPB Value(1) Value
OR 62 22,910 2.1 % 41,406 2.1 % AZ 150 29,765 2.5 % 47,835 2.4 %
AZ 109 21,168 2.0 % 40,717 2.1 % OR 70 24,303 2.0 % 46,279 2.4 %
PA 171 19,813 1.8 % 31,144 1.6 % WA 104 23,874 2.0 % 43,784 2.2 %
WA 81 18,766 1.8 % 40,697 2.1 % PA 185 21,294 1.8 % 31,248 1.6 %
NV 71 13,304 1.2 % 26,469 1.4 % NV 97 18,614 1.5 % 30,344 1.5 %
CT 70 12,162 1.1 % 18,409 1.0 % SC 129 14,206 1.2 % 22,213 1.1 %
SC 110 11,838 1.1 % 19,674 1.0 % CT 77 13,529 1.1 % 18,115 0.9 %
OH 91 10,810 1.0 % 15,903 0.8 % MI 97 13,103 1.1 % 19,832 1.0 %
TN 96 9,767 0.9 % 19,256 1.0 % OH 110 12,929 1.1 % 17,843 0.9 %
IN 91 8,112 0.8 % 14,888 0.8 % TN 115 12,721 1.1 % 22,690 1.2 %
MI 69 8,069 0.8 % 14,341 0.7 % CO 54 10,450 0.9 % 22,665 1.2 %
CO 37 7,591 0.7 % 18,926 1.0 % MO 75 9,383 0.8 % 12,545 0.6 %
MO 55 6,400 0.6 % 10,310 0.5 % IN 98 9,180 0.8 % 14,476 0.7 %
LA 64 6,269 0.6 % 10,229 0.5 % MN 49 9,121 0.8 % 13,242 0.7 %
MN 33 5,813 0.5 % 9,778 0.5 % LA 76 7,631 0.6 % 11,910 0.6 %
UT 33 5,016 0.5 % 13,778 0.7 % UT 44 6,895 0.6 % 14,932 0.8 %
WI 38 4,837 0.5 % 7,399 0.4 % DE 34 6,509 0.5 % 7,999 0.4 %
DE 26 4,825 0.5 % 6,524 0.3 % HI 16 6,456 0.5 % 9,305 0.5 %
DC 13 4,369 0.4 % 7,007 0.4 % DC 17 5,131 0.4 % 8,138 0.4 %
NM 25 3,926 0.4 % 6,524 0.3 % WI 37 4,696 0.4 % 6,385 0.3 %
HI 9 3,512 0.3 % 6,294 0.3 % NM 30 4,450 0.4 % 6,207 0.3 %
KY 29 3,452 0.3 % 5,527 0.3 % KY 36 4,158 0.3 % 6,032 0.3 %
AL 39 3,211 0.3 % 4,660 0.2 % AL 44 3,670 0.3 % 4,891 0.2 %
NH 14 2,683 0.3 % 4,364 0.2 % NH 18 3,223 0.3 % 5,087 0.3 %
RI 10 2,243 0.2 % 3,488 0.2 % RI 14 3,084 0.3 % 4,481 0.2 %
OK 22 2,119 0.2 % 3,586 0.2 % OK 27 2,511 0.2 % 3,827 0.2 %
MS 24 1,850 0.2 % 2,949 0.2 % MS 26 2,149 0.2 % 3,168 0.2 %
KS 21 1,537 0.1 % 3,425 0.2 % IA 18 1,736 0.1 % 2,267 0.1 %
ME 9 1,305 0.1 % 2,030 0.1 % ID 12 1,496 0.1 % 2,971 0.2 %
ID 10 1,176 0.1 % 2,904 0.2 % AR 20 1,447 0.1 % 2,016 0.1 %
IA 13 1,090 0.1 % 1,695 0.1 % KS 19 1,379 0.1 % 2,897 0.1 %
WV 14 1,065 0.1 % 1,683 0.1 % ME 10 1,372 0.1 % 1,801 0.1 %
MT 6 1,009 0.1 % 1,830 0.1 % WV 17 1,258 0.1 % 1,830 0.1 %
AR 15 869 0.1 % 1,493 0.1 % MT 6 803 0.1 % 1,336 0.1 %
PR 5 588 0.1 % 554 0.1 % SD 4 537 - % 872 - %
SD 4 529 - % 983 0.1 % NE 4 528 - % 603 - %
VT 2 397 - % 338 - % PR 5 518 - % 592 - %
ND 3 390 - % 492 0.1 % VT 2 452 - % 518 - %
WY 2 246 - % 231 - % WY 3 438 - % 356 - %
NE 2 188 - % 280 - % ND 3 395 - % 472 - %
AK 1 56 - % 163 - % AK 2 249 - % 391 - %
5,353 $ 1,071,034 100.0 % $ 1,925,879 100.0 % 6,031 $ 1,204,804 100.0 % $ 1,967,419 100.0 %
(1)As of the reporting date.
71
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Table 13:
The following table shows our debt securities and beneficial interest acquisitions for the three and nine months endedSeptember 30, 2021 , and 2020 ($ in thousands): Three months ended September 30, Nine months ended September 30, 2021 2020 2021 2020 Class A securities UPB$ 43,120 $ 67,076 $ 213,969 $ 116,952 Purchase price$ 43,115 $ 65,956 $ 213,077 $ 115,558 Purchase price % of UPB 100.0 % 98.3 % 99.6 % 98.8 % Class M securities UPB $ 1,943 $ - $ 1,943 $ - Purchase price $ 1,943 $ - $ 1,943 $ - Purchase price % of UPB 100.0 % - % 100.0 % - % Class B securities UPB $ 9,561$ 5,267 $ 33,222 $ 9,923 Purchase price $ 6,399$ 5,194 $ 29,907 $ 9,817 Purchase price % of UPB 66.9 % 98.6 % 90.0 % 98.9 % Beneficial interests Purchase price $ 3,213$ 12,225 $ 42,680 $ 19,307
Liquidity and Capital Resources
Source and Uses of Cash
Our primary sources of cash have consisted of proceeds from our securities offerings, our secured borrowings, repurchase agreements, principal and interest payments on our loan portfolio, principal paydowns on securities, and sales of properties held-for-sale. Depending on market conditions, we expect that our primary financing sources will continue to include secured borrowings, repurchase agreements, and securities offerings in addition to transaction or asset specific funding arrangements and credit facilities (including term loans and revolving facilities). We expect that these sources of funds will be sufficient to meet our short-term and long-term liquidity needs. We believe we have access to adequate resources to meet the needs of our existing operations, mandatory capital expenditures, dividend payments, and working capital, to the extent not funded by cash provided by operating activities. However, we expect the COVID-19 pandemic may adversely impact our future operating cash flows due to the inability of some of our borrowers to make scheduled payments on time or at all, and the potential for HPA decline. From time to time, we may invest with third parties and acquire interests in loans and other real estate assets through investments in joint ventures using special purpose entities that can result in investments at fair value and investments in beneficial interests, which are included on our consolidated balance sheet. As ofSeptember 30, 2021 andDecember 31, 2020 , substantially all of our invested capital was in RPLs, NPLs, SBC loans, property held-for-sale, debt securities, and beneficial interests. We also held approximately$92.8 million of cash and cash equivalents, a decrease of$14.3 million from our balance of$107.1 million atDecember 31, 2020 . Our average daily cash balance during the quarter was$89.2 million , a decrease of$39.5 million from our average daily cash balance of$128.7 million during the three months endedDecember 31, 2020 . Our collections of principal and interest payments on mortgages and securities, payoffs and proceeds and on the sale of our property held-for-sale were$82.8 million and$231.9 million , respectively, for the three and nine months endedSeptember 30, 2021 and$56.4 million and$176.6 million , respectively, for the three and nine months endedSeptember 30, 2020 . Our operating cash outflows, including the effect of restricted cash, for the nine months endedSeptember 30, 2021 and 2020 were$15.2 million and$6.1 million , respectively. Our primary operating cash inflow is cash interest payments on our mortgage loan pools of$34.8 million and$36.2 million for the nine months endedSeptember 30, 2021 and 2020, respectively. Non-cash interest income accretion was$15.5 million and$22.8 million for the nine months endedSeptember 30, 2021 and 2020, respectively. Interest income on beneficial interests was$12.3 million and$8.0 million during the nine months ended 72 --------------------------------------------------------------------------------September 30, 2021 and 2020, respectively. Interest income on debt securities was$8.2 million and$7.3 million during the nine months endedSeptember 30, 2021 and 2020, respectively. Though the ownership of mortgage loans and other real estate assets is our business,U.S. GAAP requires that operating cash flows do not include the portion of principal payments that are allocable to the discount we recognize on our mortgage loans including proceeds from loans that pay in full or are liquidated in a short sale or third party sale at foreclosure or the proceeds on the sales of our property held-for-sale. These activities are all considered to be investing activities underU.S. GAAP, and the cash flows from these activities are included in the investing section of our consolidated statements of cash flows. We expect that the impact of the COVID-19 outbreak will put pressure on our cash flow from operations as we enter into loan modifications on certain of our loans permitting interest payments to be deferred. For the nine months endedSeptember 30, 2021 , our investing cash inflows of$54.9 million were driven by principal payments on and payoffs of our mortgage loan portfolio of$145.4 million , proceeds from the refinancing of our 2017-D mortgage loan trust of$126.0 million , principal payments on and payoffs of our debt securities and beneficial interests of$111.2 million and payoff and sale of our securities of$90.2 million , partially offset by the acquisitions of our debt securities and beneficial interests of$286.5 million and acquisitions of our mortgage loans of$128.4 million . For the nine months endedSeptember 30, 2020 our investing cash inflow of$14.1 million was primarily driven by principal payments on and payoffs of our mortgage loan portfolio of$91.2 million , principal payments on and payoffs on debt securities and beneficial interests held as investments of$37.9 million and the sale of 26 mortgage loans to Gaea, an affiliated entity, in the amount of$25.4 million , partially offset by the acquisitions of our debt securities and beneficial interests of$144.7 million and acquisitions of mortgage loans of$44.8 million . Our financing cash flows are driven primarily by funding used to acquire mortgage loan pools. We fund our mortgage loan pool acquisitions primarily through secured borrowings, repurchase agreements and the proceeds from our convertible debt and equity offerings. For the nine months endedSeptember 30, 2021 , we had net financing cash outflows of$51.6 million primarily driven by repayments of$398.1 million on repurchase transaction and pay downs of existing debt obligations of$355.0 million on secured borrowings. We purchased the remaining 37% ownership of the Class B notes and trust certificates of 2018-C for a total of$17.2 million , and repurchased our senior convertible notes of$7.5 million , partially offset by additional borrowing through secured borrowings of$391.0 million and repurchase transactions of$376.3 million . For the nine months endedSeptember 30, 2020 , we had net cash inflows from financing activities of$62.9 million primarily driven from our issuance of preferred stock and warrants, net of any offering costs, for$125.0 million in a series of private placements to institutional accredited investors as well as from additional borrowing through repurchase transactions of$270.0 million and secured debt of$114.5 million , partially offset by repayments of$268.7 million on repurchase transactions, pay downs of existing debt obligations of$153.9 million on secured borrowings and repurchased our senior convertible notes of$10.5 million . For the nine months endedSeptember 30, 2021 and 2020 we paid$19.3 million and$11.8 million , respectively, in combined dividends and distributions.
Financing Activities - Equity offerings
OnFebruary 28, 2020 , our Board of Directors approved a stock repurchase of up to$25.0 million of our common shares. The amount and timing of any repurchases will depend 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 ofSeptember 30, 2021 we held 136,403 shares of treasury stock consisting of 87,939 shares received through distributions of our shares previously held by our Manager and 48,464 shares acquired through open market purchases in the fourth quarter of 2020 under our approved stock repurchase plan. As ofSeptember 30, 2020 we held 50,173 shares of treasury stock received through distributions of our shares previously held by our Manager. During 2020, we issued an aggregate of$130.0 million of preferred stock and warrants to institutional accredited investors in a series of private placements. We issued 2,307,400 shares of 7.25% Series A Fixed-to-Floating Rate Preferred Stock and 2,892,600 shares of 5.00% Series B Fixed-to-Floating Rate Preferred Stock, each at a purchase price per share of$25.00 , and two series of five-year warrants to purchase an aggregate of 6,500,000 shares of our common stock at an exercise price of$10.00 per share. Each series of warrants includes a put option that allows the holder to sell the warrants to us at a specified put price on or afterJuly 6, 2023 . UnderU.S. GAAP, we are required to allocate the proceeds between the Preferred stock and warrants. The allocation of the proceeds, net of all offering costs, resulted in the Preferred series A shares receiving an allocation of$51.1 million , the Preferred series B shares receiving an allocation of$64.0 million and the warrants an allocation of$9.5 million . We mark the obligation for the warrants and future put liability to market though earnings. We are using the net proceeds from the private placement to acquire mortgage loans and mortgage-related assets consistent with our investment strategy. 73 -------------------------------------------------------------------------------- During the nine months endedSeptember 30, 2021 , we sold 9,073 shares of common stock for proceeds, net of issuance costs of$0.1 million under our At the Market program, which we sell, through our agents, shares of common stock with an aggregate offering price of up to$100.0 million . During the nine months endedSeptember 30, 2020 , we did not sell any shares of common stock under our At the Market program. In accordance with the terms of the agreements, we may offer and sell shares of our common stock at any time and from time to time through the sales agents. Sales of the shares, if any, will be made by means of ordinary brokers' transactions on the NYSE or otherwise at market prices prevailing at the time of the sale.
Financing Activities - Secured Borrowings and Convertible Senior Notes
From our inception (January 30, 2014 ) toSeptember 30, 2021 , we have completed 18 secured borrowings, not including borrowings we completed for our non-consolidated joint ventures (See Table 17: Investments in joint ventures), through securitization trusts pursuant to Rule 144A under the Securities Act, five of which were outstanding atSeptember 30, 2021 . The secured borrowings are structured as debt financings and not REMIC sales, and the loans included in the secured borrowings remain on our consolidated balance sheet as we are the primary beneficiary of the secured borrowing trusts, which are VIEs. The secured borrowing VIEs are structured as pass through entities that receive principal and interest on the underlying mortgages and distribute those payments to the holders of the notes. Our exposure to the obligations of the VIEs is generally limited to our investments in the entities. The notes that are issued by the secured borrowing trusts are secured solely by the mortgages held by the applicable trusts and not by any of our other assets. The mortgage loans of the applicable trusts are the only source of repayment and interest on the notes issued by such trusts. We do not guarantee any of the obligations of the trusts under the terms of the agreement governing the notes or otherwise. Our non-rated secured borrowings are generally structured with Class A notes, subordinated notes, and trust certificates, which have rights to the residual interests in the mortgages once the notes are repaid. We have retained the subordinate notes and the applicable trust certificates from one non-rated secured borrowing outstanding atSeptember 30, 2021 . Our 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. Our rated secured borrowings generally issue classes of debt fromAAA through mezzanine. We generally retain the mezzanine and residual certificates in the transactions. We have retained the applicable mezzanine and residual certificates from the other four rated secured borrowings outstanding atSeptember 30, 2021 . Our rated secured borrowings are designated in the table below. AtMarch 31, 2021 , our 2017-D secured borrowing contained Class A notes and Class B certificates representing the residual interests in the mortgages held within the securitization trusts subsequent to repayment of the Class A debt. We had retained 50% of both the Class A notes and Class B certificates from 2017-D; and the assets and liabilities were included on our consolidated balance sheets. During the second quarter of 2021, the majority of the loans in 2017-D were refinanced inAjax Mortgage Loan Trust 2021-C ("2021-C"). Based on the structure of the transaction we do not consolidate 2021-C underU.S. GAAP. Our 2018-C secured borrowing was structured with Class A notes, Class B notes and trust certificates representing the residual interest in the mortgages held within the securitization trusts subsequent to repayment of the Class A debt. We had retained 5% of the Class A notes and 63% of the Class B notes and trust certificates. During the first quarter of 2021 we acquired the remaining 37% ownership of the Class B notes and trust certificates and settled the remaining 95% of the outstanding Class A notes. The following table sets forth the original terms of all outstanding notes from our secured borrowings outstanding atSeptember 30, 2021 at their respective cutoff dates: Table 14: Secured Borrowings Interest Rate Issuing Trust/Issue Date Step-up Date Security Original Principal Interest Rate RatedAjax 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 % Class M-1 notes due July 25, 2027 2065(1)$9.3 million 3.50 % 74
--------------------------------------------------------------------------------
Interest Rate
Issuing Trust/Issue Date Step-up Date Security Original Principal Interest Rate
Class B-1 notes due
None 2065(2) $7.5 million 3.50 %
Class B-2 notes due
None 2065(2) $7.1 million variable(3)
Class B-3 notes due
None 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 %
Class M-1 notes due
November 25, 2026 2059(1) $6.1 million 3.50 %
Class B-1 notes due
None 2059(2) $11.5 million 3.50 %
Class B-2 notes due
None 2059(2) $10.4 million variable(3)
Class B-3 notes due
None 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 %
Class M-1 notes due
July 25, 2027 2059(1) $7.3 million 3.70 %
Class B-1 notes due
None 2059(2) $5.9 million 3.70 %
Class B-2 notes due
None 2059(2) $5.1 million variable(3)
Class B-3 notes due
None 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 %
Class M-1 notes due
January 25, 2029 2065(1) $7.8 million 3.15 %
Class B-1 notes due
None 2065(2) $5.0 million 3.80 %
Class B-2 notes due
None 2065(2) $5.0 million variable(3)
Class B-3 notes due
None 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. We have
retained the Class M notes, with the exception of Ajax Mortgage Loan Trust
2021-A.
(2)The Class B notes are subordinated, sequential pay, with B-2 and B-3 notes
having variable interest rates and subordinate to the Class B-1 notes. The Class
B-1 notes are fixed rate notes. We have retained the Class B notes.
(3)The interest rate is effectively the rate equal to the spread between the
gross average rate of interest the trust collects on its mortgage loan portfolio
minus the rate derived from the sum of the servicing fee and other expenses of
the trust.
75
--------------------------------------------------------------------------------Convertible Senior Notes
OnApril 25, 2017 , we completed the public offer and sale of$87.5 million in aggregate principal amount of our convertible senior notes (the "notes") due 2024, with follow-on offerings of an additional$20.5 million and$15.9 million , respectively, in aggregate principal amount completed onAugust 18, 2017 andNovember 19, 2018 , respectively, which, combined with the notes from our April offering form a single series of fungible securities. The notes bear interest at a rate of 7.25% per annum, payable quarterly in arrears onJanuary 15 ,April 15 ,July 15 andOctober 15 of each year. The notes will mature onApril 30, 2024 , unless earlier repurchased, converted or redeemed. During certain periods and subject to certain conditions the notes will be convertible by their holders into shares of our common stock at a conversion rate of 1.7279 shares of common stock per$25.00 principal amount of the notes, which represents a conversion price of approximately$14.47 per share of common stock. The conversion rate, and thus the conversion price, may be subject to adjustment under certain circumstances. During the first and second quarter of 2021, we completed a series of convertible note repurchases for aggregate principal amounts of$2.5 million and$5.0 million , respectively, for total purchase prices of$2.4 million and$5.1 million , respectively. The carrying amounts of the equity component representing the embedded conversion feature reversed from Additional paid-in capital due to the first and second quarter of 2021 transactions were both zero. There were no convertible note repurchases during the third quarter of 2021. During the first and third quarter of 2020, we completed a series of convertible note repurchases for aggregate principal amounts of$8.0 million and$2.5 million , respectively, for total purchase prices of$8.2 million and$2.3 million , respectively. The carrying amounts of the equity component representing the embedded conversion feature reversed from Additional paid-in capital due to the first and third quarter of 2020 transactions were$0.1 million and zero, respectively. There were no convertible note repurchases during the second quarter of 2020.
Repurchase Transactions
We have two repurchase facilities whereby we, through two wholly ownedDelaware trusts (the "Trusts"), acquire pools of mortgage loans, which are then sold by the Trusts, as "Seller" to two separate counterparties, the "buyer" or "buyers." One facility has a ceiling of$150.0 million and the other$400.0 million at any one time. Upon the time of the initial sale to the buyer, each Trust, with a simultaneous agreement, also agrees to repurchase the pools of mortgage loans from the buyer. Mortgage loans sold under these facilities carry interest calculated based on a spread to one-month LIBOR, which are fixed for the term of the borrowing. The purchase price that the Trust realizes upon the initial sale of the mortgage loans to the buyer can vary between 70% and 85% of the asset's acquisition price, depending upon the facility being utilized and/or the quality of the underlying collateral. The obligations of the Trust to repurchase these mortgage loans at a future date are guaranteed by theOperating Partnership . The difference between the market value of the asset and the amount of the repurchase agreement is generally the amount of equity we have in the position and is intended to provide the buyer with some protection against fluctuations in the value of the collateral, and/or a failure by us to repurchase the asset and repay the borrowing at maturity. We also have five repurchase facilities substantially similar to the mortgage loan repurchase facilities where the pledged assets are securities retained from our securitization transactions. These facilities have no effective ceilings. Each repurchase transaction represents its own borrowing. As such, the ceilings associated with these transactions are the amounts currently borrowed at any one time. We have effective control over the assets subject to all of these transactions; therefore, our repurchase transactions are accounted for as financing arrangements.
A summary of our outstanding repurchase transactions at
Table 15: Repurchase Transactions by Maturity Date
September 30, 2021
Maximum
Borrowing Amount Amount of Percentage of
Maturity Date Origination Date Capacity Outstanding Collateral Collateral Coverage Interest Rate
October 5, 2021 April 9, 2021 $ 31,326 $ 31,326 $ 37,953 121 % 1.41 %
October 6, 2021 July 6, 2021 7,073 7,073 8,745 124 % 1.34 %
October 6, 2021 July 6, 2021 4,150 4,150 5,057 122 % 1.34 %
October 6, 2021 July 6, 2021 3,343 3,343 4,761 142 % 1.74 %
October 12, 2021 July 12, 2021 5,242 5,242 6,572 125 % 1.32 %
October 15, 2021 July 15, 2021 5,553 5,553 6,627 119 % 1.18 %
October 20, 2021 July 20, 2021 10,879 10,879 12,889 118 % 1.18 %
76--------------------------------------------------------------------------------
September 30, 2021
Maximum
Borrowing Amount Amount of Percentage of
Maturity Date Origination Date Capacity Outstanding Collateral Collateral Coverage Interest Rate
October 22, 2021 April 26, 2021 7,899 7,899 9,279 117 % 1.11 %
October 22, 2021 April 26, 2021 6,231 6,231 7,276 117 % 1.11 %
October 22, 2021 April 26, 2021 5,123 5,123 6,063 118 % 1.11 %
October 29, 2021 July 30, 2021 9,984 9,984 12,436 125 % 1.33 %
October 29, 2021 July 30, 2021 9,840 9,840 11,851 120 % 1.33 %
November 12, 2021 August 12, 2021 3,110 3,110 4,428 142 % 1.72 %
November 19, 2021 August 19, 2021 9,747 9,747 12,635 130 % 1.33 %
November 24, 2021 August 24, 2021 3,543 3,543 5,106 144 % 1.73 %
December 7, 2021 September 7, 2021 5,825 5,825 7,444 128 % 1.12 %
December 7, 2021 September 7, 2021 2,311 2,311 2,848 123 % 1.12 %
December 13, 2021 June 15, 2021 14,148 14,148 20,151 142 % 1.35 %
December 13, 2021 June 15, 2021 7,160 7,160 8,682 121 % 1.15 %
December 16, 2021 September 16, 2021 44,200 44,200 57,815 131 % 1.12 %
December 16, 2021 September 16, 2021 4,333 4,333 6,232 144 % 1.37 %
December 17, 2021 September 17, 2021 7,333 7,333 9,556 130 % 1.32 %
December 17, 2021 September 17, 2021 6,687 6,687 8,451 126 % 1.32 %
December 17, 2021 September 17, 2021 1,179 1,179 1,687 143 % 1.72 %
December 20, 2021 September 20, 2021 35,153 35,153 37,867 108 % 0.57 %
December 20, 2021 September 20, 2021 2,918 2,918 3,421 117 % 0.87 %
December 20, 2021 September 20, 2021 1,570 1,570 1,943 124 % 1.07 %
December 20, 2021 September 20, 2021 1,400 1,400 2,047 146 % 1.47 %
December 20, 2021 September 20, 2021 1,341 1,341 1,788 133 % 1.32 %
December 27, 2021 September 24, 2021 16,643 16,643 21,720 131 % 1.33 %
December 27, 2021 September 24, 2021 4,482 4,482 6,413 143 % 1.73 %
December 27, 2021 September 24, 2021 2,277 2,277 2,923 128 % 1.33 %
July 8, 2022 July 9, 2021 150,000 14,085 21,232 151 % 2.58 %
September 22, 2022 September 23, 2021 400,000 103,252 144,774 140 % 2.58 %
Totals/weighted averages $ 832,003 $ 399,340 $ 518,672 130 % 1.60 %
December 31, 2020
Maximum
Borrowing Amount Amount of Percentage of
Maturity Date Origination Date Capacity Outstanding Collateral Collateral Coverage Interest Rate
January 6, 2021 October 9, 2020 $ 35,635 $ 35,635 $ 46,120 129 % 2.33 %
January 6, 2021 September 28, 2020 7,697 7,697 10,075 131 % 2.33 %
January 6, 2021 September 28, 2020 6,311 6,311 9,038 143 % 2.48 %
January 6, 2021 September 28, 2020 4,755 4,755 6,114 129 % 2.33 %
January 6, 2021 September 28, 2020 4,666 4,666 6,044 130 % 2.33 %
January 6, 2021 September 28, 2020 3,213 3,213 4,667 145 % 2.48 %
January 11, 2021 September 29, 2020 5,879 5,879 7,575 129 % 2.32 %
January 14, 2021 October 29, 2020 6,991 6,991 8,738 125 % 2.35 %
January 20, 2021 October 20, 2020 13,263 13,263 16,582 125 % 2.22 %
January 29, 2021 October 30, 2020 7,762 7,762 9,702 125 % 2.21 %
January 29, 2021 October 30, 2020 7,153 7,153 9,537 133 % 2.21 %
February 1, 2021 December 1, 2020 12,258 12,258 16,052 131 % 1.88 %
February 1, 2021 December 1, 2020 12,015 12,015 15,794 131 % 1.88 %
February 1, 2021 December 1, 2020 5,298 5,298 6,895 130 % 1.88 %
77--------------------------------------------------------------------------------
December 31, 2020
Maximum
Borrowing Amount Amount of Percentage of
Maturity Date Origination Date Capacity Outstanding Collateral Collateral Coverage Interest Rate
February 1, 2021 December 1, 2020 3,985 3,985 5,136 129 % 1.88 %
February 1, 2021 December 1, 2020 2,887 2,887 3,790 131 % 1.88 %
February 1, 2021 December 1, 2020 2,332 2,332 3,360 144 % 2.03 %
February 1, 2021 December 1, 2020 1,132 1,132 1,607 142 % 2.03 %
February 12, 2021 November 13, 2020 2,945 2,945 4,428 150 % 2.02 %
March 5, 2021 December 7, 2020 24,946 24,946 33,348 134 % 1.78 %
March 5, 2021 December 7, 2020 24,312 24,312 32,571 134 % 1.78 %
March 17, 2021 December 17, 2020 10,219 10,219 13,172 129 % 1.78 %
March 17, 2021 December 17, 2020 8,381 8,381 10,872 130 % 1.78 %
March 17, 2021 December 17, 2020 3,894 3,894 5,193 133 % 1.78 %
March 17, 2021 December 17, 2020 1,145 1,145 1,687 147 % 1.93 %
March 24, 2021 December 24, 2020 7,016 7,016 10,024 143 % 1.94 %
March 24, 2021 December 24, 2020 5,008 5,008 6,637 133 % 1.79 %
March 24, 2021 December 24, 2020 2,577 2,577 3,367 131 % 1.79 %
April 9, 2021 October 13, 2020 33,084 33,084 43,069 130 % 2.35 %
July 9, 2021 July 10, 2020 250,000 53,256 84,337 158 % 2.64 %
September 23, 2021 September 24, 2020 400,000 101,117 160,068 158 % 2.65 %
Totals/weighted averages $ 916,759 $ 421,132 $ 595,599 141 % 2.29 %
As of September 30, 2021 , we had $399.3 million outstanding under our repurchase
transactions compared to $421.1 million as of December 31, 2020 . The maximum
month-end balance outstanding during the three months ended September 30, 2021
was $434.3 million , compared to a maximum month-end balance for the three months
ended December 31, 2020 , of $422.3 million . The following table presents certain
details of our repurchase transactions for the three months ended September 30,
2021 and December 31, 2020 ($ in thousands):
Table 16: Repurchase Balances
Three months ended
2021 2020
Balance at the end of period $ 399,340 $ 421,132
Maximum outstanding balance during the quarter $ 434,322 $ 422,322
Average balance $ 399,380 $ 417,973
The decrease in our average balance from $418.0 million for the three months
ended December 31, 2020 to our average balance of $399.4 million for the three
months ended September 30, 2021 was due to the securitization of certain assets
previously on the repurchase lines.
As of
We are not required by our investment guidelines to maintain any specific debt-to-equity ratio, and we believe that the appropriate leverage for the particular assets we hold depends on the credit quality and risk of those assets, as well as the general availability and terms of stable and reliable financing for those assets.
Dividends
We may declare dividends based on, among other things, our earnings, our
financial condition, our working capital needs, new opportunities, and
distribution requirements imposed on REITs. The declaration of dividends to our
stockholders and the amount of such dividends are at the discretion of our Board
of Directors.
78
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On November 4, 2021 , our Board of Directors declared a dividend of $0.24 per
share, to be paid on November 29, 2021 to stockholders of record as of
November 15, 2021 . Our Management Agreement with our Manager requires the
payment of an incentive fee above the amount of the base management fee if
either, (1) for any quarterly incentive fee, the sum of cash dividends on our
common stock plus any quarterly increase in book value, all calculated on an
annualized basis, exceed 8% of our book value, or (2) for any annual incentive
fee, the value of quarterly cash dividends on our common stock plus cash special
dividends on our common stock, all paid out within the applicable calendar year,
paid out of our taxable income, exceeds of 8% (on an annualized basis) of our
stock's book value. During the three and nine months ended September 30, 2021
and September 30, 2020 , we recorded no incentive fee payable to the Manager. Our
dividend payments are driven by the amount of our taxable income, subject to IRS
rules for maintaining our status as a REIT.
Our most recently declared quarterly dividend represents a payment of
approximately 6.00% on an annualized basis of our book value of $16.00 per share
at September 30, 2021 . If our taxable income increases to the levels we
experienced during 2019, we could exceed the threshold for paying an incentive
fee to our Manager, and thereby trigger such payments. See Note 10 - Related
party transactions.
Off-Balance Sheet Arrangements
Other than our investments in debt securities and beneficial interests issued by joint ventures, which are summarized below by securitization trust and our equity method investments discussed elsewhere in this report, we do not have any relationships with unconsolidated entities or financial partnerships, such as entities often referred to as structured finance or special purpose entities, which would have been established for the purpose of facilitating off-balance sheet arrangements or other contractually narrow or limited purposes. Further, we have not guaranteed any obligations of unconsolidated entities nor do we have any commitment or intent to provide funding to any such entities. As such, we are not materially exposed to any market, credit, liquidity or financing risk that could arise if we had engaged in such relationships.
Table 17: Investments in joint ventures
We form joint ventures with third party institutional accredited investors to
purchase mortgage loans and other mortgage related assets. The debt securities
and beneficial interests we carry on our consolidated balance sheets are issued
by securitization trusts formed by these joint ventures, which are VIEs, that we
have sponsored but which we do not consolidate since we have determined we are
not the primary beneficiary.
A summary of our investments in joint ventures is presented below ($ in
thousands):
Great Ajax Corp. Ownership
Current
Owned Stated
Original Stated or Notional
Total Original or Notional Principal
Outstanding Principal Balance Balance
Issuing Trust/Issue Date Security Principal Coupon Ownership Percent Retained Retained
Ajax Mortgage Loan Trust
2018-A/ April 2018 Class A notes due 2058 $ 91,036 3.85 % - % $ - $ -
Trust certificates $ 22,759 - % 9.36 % $ 2,130 $ 128
Ajax Mortgage Loan Trust
2018-B/ June 2018 Class A notes due 2057 $ 66,374 3.75 % - % $ - $ -
Trust certificates $ 28,447 - % 20.00 % $ 5,689 $ 2,860
Ajax Mortgage Loan Trust
2018-D/ September 2018 Class A notes due 2058 $ 80,664 3.75 % 20.00 % $ 16,133 $ 11,667
Trust certificates $ 20,166 - % 20.00 % $ 4,033 $ 3,915
Ajax Mortgage Loan Trust
2018-E/ December 2018 Class A notes due 2058 $ 86,089 4.38 % - % $ - $ -
Class B notes due 2058 $ 8,035 5.25 % - % $ - $ -
Trust certificates $ 20,662 - % 20.00 % $ 4,132 $ 902
79--------------------------------------------------------------------------------
Great Ajax Corp. Ownership
Current
Owned Stated
Original Stated or Notional
Total Original or Notional Principal
Outstanding Principal Balance Balance
Issuing Trust/Issue Date Security Principal Coupon Ownership Percent Retained Retained
Ajax Mortgage Loan Trust
2018-F/ December 2018 Class A notes due 2058 $ 180,002 4.38 % - % $ - $ -
Class B notes due 2058 $ 16,800 5.25 % - % $ - $ -
Trust certificates $ 43,201 - % 20.00 % $ 8,640 $ 3,996
Ajax Mortgage Loan Trust
2018-G/ December 2018 Class A notes due 2057 $ 173,562 4.38 % 25.00 % $ 43,390 $ 21,340
Class B notes due 2057 $ 16,199 5.25 % 25.00 % $ 4,050 $ 4,050
Trust certificates $ 41,655 - % 25.00 % $ 10,414 $ 10,585
Ajax Mortgage Loan Trust
2019-A/ March 2019 Class A notes due 2057 $ 127,801 3.75 % 20.00 % $ 25,560 $ 11,851
Class B notes due 2057 $ 11,928 5.25 % 20.00 % $ 2,386 $ 2,388
Trust certificates $ 30,672 - % 20.00 % $ 6,134 $ 6,137
Ajax Mortgage Loan Trust
2019-B/ March 2019 Class A notes due 2059 $ 163,325 3.75 % 15.00 % $ 24,499 $ 12,436
Class B notes due 2059 $ 15,244 5.25 % 15.00 % $ 2,287 $ 2,287
Trust certificates $ 39,198 - % 15.00 % $ 5,880 $ 5,976
Ajax Mortgage Loan Trust
2019-C/ May 2019 Class A notes due 2058 $ 150,037 3.95 % 5.00 % $ 7,502 $ 5,057
Class B notes due 2058 $ 14,003 5.25 % 34.00 % $ 4,761 $ 4,761
Trust certificates $ 36,009 - % 34.00 % $ 12,243 $ 12,417
Ajax Mortgage Loan Trust
2019-E/ September 2019 Class A notes due 2059 $ 181,101 3.00 % 6.55 % $ 11,862 $ 6,627
Class B notes due 2059 $ 16,903 4.88 % 20.00 % $ 3,381 $ 3,381
Trust certificates $ 43,464 - % 20.00 % $ 8,693 $ 8,558
Ajax Mortgage Loan Trust
2019-G/ December 2019 Class A notes due 2059 $ 141,420 3.00 % 5.86 % $ 8,287 $ 6,572
Class B notes due 2059 $ 13,199 4.25 % 20.00 % $ 2,640 $ 2,640
Trust certificates $ 33,941 - % 20.00 % $ 6,788 $ 6,820
Ajax Mortgage Loan Trust
2019-H/ December 2019 Class A notes due 2059 $ 90,381 3.00 % 20.00 % $ 18,076 $ 9,555
Class B notes due 2059 $ 8,435 4.25 % 20.00 % $ 1,687 $ 1,687
Trust certificates $ 21,692 - % 20.00 % $ 4,338 $ 4,375
Ajax Mortgage Loan Trust
2020-A/ March 2020 Class A notes due 2059 $ 249,384 2.38 % 20.00 % $ 49,877 $ 37,953
80
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Great Ajax Corp. Ownership
Current
Owned Stated
Original Stated or Notional
Total Original or Notional Principal
Outstanding Principal Balance Balance
Issuing Trust/Issue Date Security Principal Coupon Ownership Percent Retained Retained
Class B notes due
2059 $ 23,276 3.50 % 20.00 % $ 4,655 $ 4,428
Trust certificates $ 59,852 - % 20.00 % $ 11,970 $ 11,934
Ajax Mortgage Loan Trust Class A notes due
2020-C/ September 2020 2060 $ 339,365 2.25 % 10.01 % $ 33,970 $ 2,848
Class B notes due
2060 $ 21,754 5.00 % 10.01 % $ 2,178 $ 2,178
Trust certificates $ 73,964 - % 10.01 % $ 7,404 $ 7,393
Ajax Mortgage Loan Trust Class A notes due
2020-D/ September 2020 2060 $ 330,721 2.25 % 10.01 % $ 33,105 $ 7,444
Class B notes due
2060 $ 30,867 5.00 % 10.01 % $ 3,090 $ 3,090
Trust certificates $ 79,373 - % 10.01 % $ 7,945 $ 7,934
Ajax Mortgage Loan Trust Class A notes due
2021-C/ April 2021 2061 $ 194,673 2.12 % 5.01 % $ 9,753 $ 8,683
Class B notes due
2061 $ 18,170 3.72 % 31.90 % $ 5,796 $ 5,796
Trust certificates $ 46,722 - % 31.90 % $ 14,904 $ 14,860
Ajax Mortgage Loan Trust Class A notes due
2021-D/ May 2021 2060 $ 191,468 2.00 % 6.94 % $ 13,288 $ 12,635
Class B notes due
2060 $ 25,529 4.00 % 20.00 % $ 5,106 $ 5,106
Trust certificates $ 38,293 - % 20.00 % $ 7,659 $ 7,630
Ajax Mortgage Loan Trust Class A notes due
2021-E/ July 2021(1) 2060 $ 430,760 1.82 % (3) 10.01 % $ 43,119 $ 41,288
Class M notes due
2060(2) $ 19,415 2.94 % 10.01 % $ 1,943 $ 1,943
Class B-1 and B-2
notes due 2060 $ 38,313 3.73 % 10.01 % $ 3,835 $ 3,835
Class B-3 notes due
2060 $ 29,253 3.73 % 19.57 % $ 5,725 $ 5,726
Trust certificates $ 518,357 - % 19.57 % $ 101,471 (4) $ 101,086
Ajax Mortgage Loan Trust Class A notes due
2021-F/ June 2021 2061 $ 476,082 1.88 % 12.60 % $ 59,986 $ 57,815
Class B notes due
2061 $ 49,463 3.75 % 12.60 % $ 6,232 $ 6,232
Trust certificates $ 92,743 - % 12.60 % $ 11,686 $ 11,686
Ajax Mortgage Loan Trust Class A notes due
2021-G/ June 2021 2061 $ 317,573 1.88 % 7.26 % $ 23,056 $ 21,720
Class B notes due
2061 $ 32,995 3.75 % 20.00 % $ 6,599 $ 6,413
81--------------------------------------------------------------------------------
Great Ajax Corp. Ownership
Current
Owned Stated
Original Stated or Notional
Total Original or Notional Principal
Outstanding Principal Balance Balance
Issuing Trust/Issue Date Security
Principal Coupon Ownership Percent Retained Retained
Trust certificates $ 61,864 - % 20.00 % $ 12,373 $ 11,894
(1)Ajax Mortgage Loan Trust 2021-E ("2021-E") was formed on July 19, 2021 which
was subsequent to completing Ajax Mortgage Loan Trust 2021-F and 2021-G. The
trust intends to make an election to be taxed as a REMIC however the residual
class was placed with an unrelated third party.
(2)2021-E includes Class M notes.
(3)Weighted average of Class A notes.
(4)The trust certificate has no stated principal balance and is tied to the
unpaid balance of the underlying mortgage loans.
Table 18: Contractual Obligations
A summary of our contractual obligations as of
September 30, 2021 Payments Due by Period
Less than 1 More than 5
Total Year 1 - 3 Years 3 - 5 Years Years
Convertible senior notes $ 105,850 $ -
399,340 399,340 - - -
Interest on convertible senior notes 21,423 7,674 13,749 - -
Interest on repurchase agreements 3,353 3,353 - - -
Put obligation on outstanding common
stock warrants 50,707 - 50,707 - -
Total $ 580,673 $ 410,367 $ 170,306 $ - $ -
December 31, 2020 Payments Due by Period
Less than 1 More than 5
Total Year 1 - 3 Years 3 - 5 Years Years
Convertible senior notes $ 113,350 $ -
$ -
421,132 421,132 - - -
Interest on convertible senior notes 29,105 8,218 16,436 4,451 -
Interest on repurchase agreements 3,345 3,345 - - -
Put obligation on outstanding common
stock warrants 50,707 - - 50,707 -
Total $ 617,639 $ 432,695 $ 16,436 $ 168,508 $ -
Our secured borrowings are not included in the table above as such borrowings
are non-recourse to us and principal and interest are only paid to the extent
that cash flows from mortgage loans (in the securitization trust)
collateralizing the debt are received. Accordingly, a projection of contractual
maturities over the next five years is inapplicable.
Subsequent Events
Since quarter end, we have acquired 20 residential RPLs in two transactions from two different sellers, and one NPL in one transaction from a single seller, with aggregate UPB of$2.4 million and$0.4 million , respectively. The purchase price of the RPLs equaled was 68.8% of UPB and 47.3% of the estimated market value of the underlying collateral of$3.5 million . The purchase price of the NPL was 97.4% of UPB and 84.4% of the estimated market value of the underlying collateral of$0.4 million . We have agreed to acquire, subject to due diligence, four residential RPLs in four transactions, and three NPLs in two transactions, with aggregate UPB of$1.7 million and$0.8 million , respectively. The purchase price of the residential RPLs is 96.5% of UPB and 70.3% of the estimated market value of the underlying collateral of$2.4 million . The purchase price of the NPLs is 93.9% of UPB and 61.8% of the estimated market value of the underlying collateral of$1.2 million . 82 -------------------------------------------------------------------------------- We have agreed to acquire, subject to due diligence, 2,498 NPLs with aggregate UPB of$350.9 million in one transaction from a single seller. The purchase price is 103.5% of UPB and 49.4% of the estimated market value of the underlying collateral of$734.9 million . These loans are expected to be acquired through a joint venture with third party institutional accredited investors. We expect our ownership percentage to be approximately 16.3%.
On
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