GREAT AJAX CORP. 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 its mortgage portfolio or through a direct acquisition. We may also target investments in NPLs either directly or with joint venture partners. NPLs are loans on which the most recent three payments have not been made. We may acquire NPLs either directly or with joint venture partners. We own a 19.8% equity interest in our 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 LLC , as a wholly-owned subsidiary of theOperating Partnership , to own, maintain, improve and sell certain REO purchased by us. We have elected to treatGAJX Real Estate LLC as a TRS under the Code. OurOperating Partnership , through interests in certain entities, holds 100% ofGreat Ajax II REIT Inc. which holds an interest inGreat Ajax II Depositor LLC which was formed to act as the depositor of mortgage loans into securitization trusts and to hold the subordinated securities issued by such trusts and any additional trusts we may form for additional secured borrowings. We have securitized mortgage loans through a securitization trust and retained subordinated securities from the secured borrowings. This trust is considered to be a VIE, and we have determined that we are the primary beneficiary of this VIE. In 2018, we formedGaea Real Estate Corp. , a wholly owned subsidiary of theOperating Partnership . We have elected to treatGaea Real Estate Corp as a TRS under the Code. Also during 2018, we formedGaea Real Estate Operating Partnership , a wholly-owned subsidiary of Gaea, to hold investments in commercial real estate assets. We also formedBFLD Holdings LLC ("BFLD"),Gaea Commercial Properties LLC ,Gaea Commercial Finance LLC andGaea RE LLC as subsidiaries ofGaea Real Estate Operating Partnership . In 2019, we formedDG Brooklyn Holdings ("DG Brooklyn Holdings "), also as a subsidiary ofGaea Real Estate Operating Partnership , to hold investments in multi-family properties. OnNovember 22, 2019 we completed a private capital raise transaction for Gaea through which Gaea raised$66.3 million from the issuance of 4,419,641 45 --------------------------------------------------------------------------------
shares of its common stock to third parties to allow Gaea to continue to advance its investment strategy. We retained 23.2% of Gaea.
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
December 31, 2019 December 31, 2018
Residential RPL loan pools $ 1,085.5 $ 1,242.2
SBC loan pools 11.7 21.2
SBC loans non-pooled(1) 23.4 11.1
Residential NPL loan pools 30.9 36.3
Property held-for-sale, net 13.5 19.4
Rental property, net 1.5 17.6
Investment in debt securities 231.7 146.8
Investment in beneficial interests 58.0 22.1 Total Real Estate Assets$ 1,456.2 $ 1,516.7
(1)SBC loans not pooled are accounted for using ASC 310-20 versus ASC 310-30 for our loan pools.
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
We believe that certain cyclical trends continue to drive a significant realignment within the mortgage sector. These trends and their effects include:
•historically low interest rates and elevated operating costs resulting from new regulatory requirements that continue to drive sales of residential mortgage assets by banks and other mortgage lenders; •declining home ownership due to rising prices, low inventory 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; •the lack of a robust market for non-conforming mortgage loans in the aftermath of the financial crisis; and •continuing increases in interest rates will result in lower refinancing volume and home prices increases will slow. The current market landscape is also generating new opportunities in residential mortgage-related whole loan strategies. The origination of subprime and alternative residential mortgage loans remain 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. 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, among other factors on 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 46 -------------------------------------------------------------------------------- afford to own or cannot be approved for a mortgage will prefer to live in single-family rental properties with similar characteristics and amenities to owned homes as well as smaller multi-family residential properties. In certain demographic areas, new households are being formed at a rate that exceeds the new homes being added to the market, which we believe favors future demand for non-federally guaranteed mortgage financing for single-family and smaller multi-family rental properties. For all these reasons, we believe that demand for single-family and smaller multi-family rental properties will increase in the near term and remain at heightened levels for the foreseeable future. We 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 have begun selling RPLs. We believe that investments in residential RPLs with positive equity provide an optimal investment value. As a result, we are currently focusing on acquiring pools of RPLs, though we may acquire NPLs, either directly or with joint venture partners, if attractive opportunities exist. Through our Servicer, we work with our borrowers to improve their payment records. Once there is a period of continued performance, we expect that borrowers will typically refinance these loans at or near the estimated value of the underlying property. We also believe there are significant attractive investment opportunities in the SBC loan and property markets and originate as well as purchase these loans, 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 that these primary banks, lenders and portfolio acquirers typically desire. We continually monitor opportunities to increase our holdings of these SBC loans and properties.
Factors That May Affect Our Operating Results
Acquisitions. Our operating results depend heavily on sourcing residential RPLs
and SBC loans and, when attractive opportunities are identified, NPLs. We
believe that there is generally a large supply of RPLs available to us for
acquisition and we believe the available supply provides for a steady
acquisition pipeline of assets since large institutions are active sellers in
the market. 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.
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
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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. Generally, rising home prices are expected to
positively affect our results. Conversely, declining real estate prices are
expected to negatively affect our results.
Conversion to Rental Property. From time to time we will retain an REO property
as a rental property and may acquire rental properties through direct purchases
at attractive prices. The key variables that will affect our residential rental
revenues over the long-term will be the extent to which we acquire properties,
which, in turn, will depend on the amount of our capital invested, average
occupancy and rental rates in our owned rental properties. We expect the
timeline to convert multi-family and single-family loans, into rental properties
will vary significantly by loan, which could result in variations in our revenue
and our operating performance from period to period. There are a variety of
factors that may inhibit our ability, through the Servicer, to foreclose upon a
residential mortgage loan and get access to the real property within the time
frames we model as part of our valuation process. These factors include, without
limitation: state foreclosure timelines and the associated deferrals (including
from litigation); unauthorized occupants of the property; U.S. federal, state or
local legislative action or initiatives designed to provide homeowners with
assistance in avoiding residential mortgage loan foreclosures that may delay the
foreclosure process; U.S. federal government programs that require specific
procedures to be followed to explore the non-foreclosure outcome of a
residential mortgage loan prior to the commencement of a foreclosure proceeding;
and declines in real estate values and high levels of unemployment and
underemployment that increase the number of foreclosures and place additional
pressure on the already overburdened judicial and administrative systems. We do
not expect to retain a material number of single family residential properties
for use as rentals. We do, however, intend to focus, on retaining multi-unit
residences derived from foreclosures, or 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. 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. While home prices have risen to, or in some cases
beyond, pre-Great Recession levels in many parts of the United States , there are
still significant regions where values have not materially increased. We
typically concentrate our investments in specific urban geographic locations in
which we expect stable or better property markets. However, when we analyze loan
and property acquisitions we do not take home price appreciation HPA into
account except for rural properties for which we model negative HPA related to
our expectation of worse than expected property condition.
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We typically concentrate our investments in specific urban geographic locations
in which we expect stable or better property markets, although we do not use any
appreciation expectation in the acquisition price evaluation.
Changes in Market Interest Rates. With respect to our business operations,
increases in interest rates, in general, may over time cause: (1) the value of
our mortgage loan and MBS (retained from our secured borrowings) portfolio to
decline; (2) coupons on our adjustable rate mortgages ("ARM") and hybrid ARM
mortgage loans and MBS to reset, although on a delayed basis, to higher interest
rates; (3) prepayments on our mortgage loans and MBS portfolio to slow, thereby
slowing the amortization of our purchase premiums and the accretion of our
purchase discounts; (4) the interest expense associated with our borrowings to
increase; and (5) to the extent we enter into interest rate swap agreements as
part of our hedging strategy, the value of these agreements to increase.
Conversely, decreases in interest rates, in general, may over time cause: (a)
prepayments on our mortgage loan and MBS portfolio to increase, thereby
accelerating the accretion of our purchase discounts; (b) the value of our
mortgage loan and MBS portfolio to increase; (c) coupons on our ARM and hybrid
ARM mortgage loans and MBS to reset, although on a delayed basis, to lower
interest rates; (d) the interest expense associated with our borrowings to
decrease; and (e) to the extent we enter into interest rate swap agreements as
part of our hedging strategy, the value of these agreements to decrease.
Market Conditions. Due to the dramatic repricing of real estate assets during
the most recent financial crisis and the continuing uncertainty in the direction
and continuing strength of the real estate markets, we believe a void in the
debt and equity capital available for investing in real estate has been created
as many financial institutions, insurance companies, finance companies and fund
managers face insolvency or have determined to reduce or discontinue investment
in debt or equity related to real estate that have continued to the current
period. 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.
We believe that in spite of the continuing uncertain market environment for
mortgage-related assets, current market conditions offer potentially attractive
investment opportunities for us, even in the face of a riskier and more volatile
market environment, as the depressed trading prices of our target assets have
caused a corresponding increase in available yields. 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.
Critical Accounting Policies and Estimates
Certain of our critical accounting policies require management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. We consider significant estimates to include expected cash flows from mortgage loans and fair value measurements. We believe that all of the decisions and assessments upon which our consolidated financial statements are and will be based were or will be reasonable at the time made based upon information available to us at that time. We have identified our most critical accounting policies to be the accounting policies associated with our mortgage-related assets and our borrowings.
Mortgage Loans
Mortgage loans, Net - Purchased mortgage loans are initially recorded at the
purchase price, net of any acquisition costs at the time of acquisition and are
considered asset acquisitions. As part of the determination of the bid price for
mortgage loans, we use a proprietary discounted cash flow valuation model to
project expected cash flows, and consider alternate loan resolution
probabilities, including liquidation or conversion to REO. Observable inputs to
the model include interest rates, loan amounts, status of payments and property
types. Unobservable inputs to the model include discount rates, forecast of
future home prices, alternate loan resolution probabilities, resolution
timelines, the value of underlying properties and other economic and demographic
data.
Loans Acquired with Deterioration in Credit Quality - The loans we acquired have
primarily suffered some credit deterioration subsequent to origination. As a
result, we are required to account for the mortgage loans pursuant to ASC
310-30, (Accounting for Loans with Deterioration in Credit Quality). Our
recognition of interest income for loans within the scope of ASC 310-30 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 interest method of income recognition.
Under ASC 310-30, acquired loans may be aggregated and accounted for as a pool
of loans if the loans have common risk characteristics. A pool is accounted for
as a single asset with a single composite interest rate and an aggregate
expectation
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of cash flows. RPLs have been determined to have common risk characteristics and
are accounted for as a single loan pool for loans acquired within each
three-month calendar quarter. Similarly, non-performing mortgage loans have been
determined to have common risk characteristics and are accounted for as a single
non-performing pool for loans acquired within each three-month calendar quarter.
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 incurred on
these loans is recognized in interest income in the period the loan pays in
full.
Our accounting for loans under ASC 310-30 gives rise to an accretable yield and
a non-accretable amount. The excess of all undiscounted cash flows expected to
be collected at acquisition over the initial investment in the loans is the
accretable yield. Cash flows expected at acquisition include all cash flows
directly related to the acquired loan, including those expected from the
underlying collateral. We recognize the accretable yield as interest income on a
prospective level yield basis over the life of the pool. The excess of a loan's
contractually required payments receivable over the amount of cash flows
expected at the acquisition is the non-accretable amount. Our expectation of the
amount of cash flows expected to be collected is evaluated at the end of each
calendar quarter. If we expect to collect greater cash flows over the life of
the pool, the accretable yield amount increases and the expected yield to
maturity is adjusted on a prospective basis. If we expect to collect lower cash
flows over the life of the pool, we record an impairment through the allowance
for loan losses.
Loans Acquired that have not Experienced a Deterioration in Credit Quality -
While we primarily acquire loans that have experienced deterioration in credit
quality, we may, from time to time, acquire or originate loans that have not
missed a scheduled payment and have not experienced a deterioration in credit
quality.
Accrual of interest on individual loans is discontinued when management believes
that, after considering economic and business conditions and collection efforts,
the borrower's financial condition is such that collection of interest is
doubtful. Our policy is to stop accruing interest when a loan's delinquency
exceeds 90 days. All interest accrued but not collected for loans that are
placed on non-accrual status or subsequently charged-off are reversed against
interest income. Income is subsequently recognized on the cash basis until, in
management's judgment, the borrower's ability to make periodic principal and
interest payments returns and future payments are reasonably assured, in which
case the loan is returned to accrual status.
An individual loan is considered to be impaired when, based on current events
and conditions, it is probable we will be unable to collect all amounts due
(both principal and interest) according to the contractual terms of the loan
agreement. Impaired loans are carried at the present value of expected future
cash flows discounted at the loan's effective interest rate, the loan's market
price, or the fair value of the collateral if the loan is collateral dependent.
For individual loans, a troubled debt restructuring is a formal restructuring of
a loan where, for economic or legal reasons related to the borrower's financial
difficulties, a concession that would not otherwise be considered is granted to
the borrower. The concession may be granted in various forms, including
providing a below-market interest rate, a reduction in the loan balance or
accrued interest, an extension of the maturity date, or a combination of these.
An individual loan that has had a troubled debt restructuring is considered to
be impaired and is subject to the relevant accounting for impaired loans. Loans
are tested quarterly for impairment and impairment reserves are recorded to the
extent the net realizable value of the underlying collateral falls below net
book value.
If necessary, an allowance for loan losses is established through a provision
for loan losses charged to expenses. The allowance is an amount that management
believes will be adequate to absorb probable losses on existing loans that may
become uncollectible, based on evaluations of the collectability of loans.
Real Estate
REO Property - we acquire real estate properties directly from sellers and when
we foreclose on a borrower and take title to the underlying property (REO). REO
is recorded at cost if purchased, or at the present value of future cash flows
if obtained through foreclosure. REO we expect to actively market for sale is
classified as held-for-sale. REO held-for-sale is carried at the lower of its
acquisition basis, or its net realizable value (estimated fair market value less
expected selling costs). We estimate fair market value using a combination of
BPOs, comparable sales, appraisals, and competitive market analyses provided by
local realtors subject to our judgment. Net unrealized losses due to changes in
market value are recognized through a valuation allowance by charges to income.
No depreciation or amortization expense is recognized on properties
held-for-sale, while holding costs are expensed as incurred. Foreclosed property
that is sold to a third party at the foreclosure sale ("Third Party Sales") is
not considered REO and proceeds on these third party sales are treated as
payment in satisfaction of the underlying loan. See Mortgage Loans, above.
Rental property is real estate property not held-for-sale. Rental property is
intended to be held as long-term investments but may eventually be
held-for-sale. Property is held for investment as rental property if the modeled
present value of the future expected cash flows from use as a rental exceed the
present value of expected cash flows from a sale. Depreciation is provided for
using the straight-line method over the estimated useful lives of the assets of
27.5 to 39 years. We perform an
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impairment analysis for all rental property not held-for-sale using estimated
cash flows if events or changes in circumstances indicate that the carrying
value may be impaired, such as prolonged vacancy, identification of materially
adverse legal or environmental factors, changes in expected ownership period or
a decline in market value to an amount less than cost. This analysis is
performed at the property level. The cash flows are estimated based on a number
of assumptions that are subject to economic and market uncertainties including,
among others, demand for rental properties, competition for customers, changes
in market rental rates, costs to operate each property and expected ownership
periods.
If the carrying amount of a held-for-investment asset exceeds the sum of its
undiscounted future operating and residual cash flows, an impairment loss is
recorded for the difference between estimated fair value of the asset and the
carrying amount. We generally estimate the fair value of assets held for use by
using BPOs, comparable sales or realtor competitive market analysis. In some
instances, appraisal information may be available and is used in addition to
other measures of fair value.
From time to time, we perform property renovations to maximize the value of REO
held for sale and held for investment. Such expenditures are generally advanced
by our Servicer and recovered by our Servicer when the property is liquidated
(for REO property held for sale) or upon completion of the renovations (for REO
property held for investment). For residential and commercial properties that
are not held for sale, the carrying value, including any renovations that
improve or extend the life of the asset, are accounted for at cost. The cost
basis is depreciated using the straight-line method over an estimated useful
life of 27.5 to 39.0 years years. Interest and other carrying costs incurred
during the renovation period are capitalized until the property is ready for its
intended use. Expenditures for ordinary maintenance and repairs are charged to
expense as incurred. We generally intend to limit rental activity to multifamily
or multi-unit single family properties.
Investments at fair value
Our Investments at Fair Value as ofDecember 31, 2019 consist of investments in Senior and Subordinate Notes issued by joint ventures which we form with third party institutional partners. We recognized income on the debt securities using the effective interest method. Additionally, the debt securities 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.
Investments in Beneficial Interests
Our Investments in Beneficial Interests as ofDecember 31, 2019 consist of investments in the trust certificates issued by joint ventures which we form with third party institutional investors. The trust certificates represent the residual interest of any special purpose entity formed to facilitate the investment. We recognize income using the effective interest method and periodically assess each Beneficial Interest for impairment.
Debt
Secured Borrowings - We issue, through securitization trusts, callable debt
secured by our mortgage loans in the ordinary course of business. The secured
borrowings are structured as debt financings, and the loans remain on our
balance sheet as we are the primary beneficiary of many of these securitization
trusts, which are variable interest entities ("VIEs"). These secured borrowing
VIEs are structured as pass-through entities that receive principal and interest
on the underlying mortgages and distribute those payments to the holders of the
notes. Our exposure to the obligations of the VIEs is generally limited to the
amount of our investments in the VIE entities; the creditors do not have
recourse to the primary beneficiary. Coupon interest on the debt is recognized
using the accrual method of accounting. Deferred issuance costs, including
original issue discount and debt issuance costs, are amortized on an effective
yield basis based on the underlying cash flow of the mortgage loans. We assume
the debt will be called at the specified call date for purposes of amortizing
discount and issuance costs because we believe we will have the intent and
ability to call the debt on the call date. Changes in the actual or projected
underlying cash flows are reflected in the timing and amount of deferred
issuance cost amortization.
Repurchase Facilities - We enter into repurchase financing facilities under
which we nominally sell assets to a counterparty and simultaneously enter into
an agreement to repurchase the sold assets at a price equal to the sold amount
plus an interest factor. Despite being legally structured as sales and
subsequent repurchases, repurchase transactions are generally accounted for as
debt secured by the underlying assets. At the maturity of a repurchase
financing, unless the repurchase financing is renewed, we are required to repay
the borrowing including any accrued interest and concurrently receive back our
pledged collateral from the lender. The repurchase financings are treated as
collateralized financing transactions; pledged assets are recorded as assets in
our consolidated balance sheets, and debt is recognized at the contractual
amount. Interest is recorded at the contractual amount on an accrual basis.
Costs associated with the set-up of a repurchasing contract are recorded as
deferred expense at inception and amortized over the contractual life of the
agreement. Any draw fees associated with
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--------------------------------------------------------------------------------individual transactions and any facility fees assessed on the amounts outstanding are recorded as deferred expense when incurred and amortized over the contractual life of the related borrowing.
Fair Value
Fair Value of Financial Instruments - Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. A fair value hierarchy has been established that requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. The standard describes three levels of inputs that may be used to measure fair value: •Level 1 - Quoted prices in active markets for identical assets or liabilities. •Level 2 - Observable inputs other than Level 1 prices, such as quoted prices for similar assets and liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities. •Level 3 - Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities. The degree of judgment utilized in measuring fair value generally correlates to the level of pricing observability. Assets and liabilities with readily available actively quoted prices or for which fair value can be measured from actively quoted prices generally will have a higher degree of pricing observability and a lesser degree of judgment utilized in measuring fair value. Conversely, assets and liabilities rarely traded or not quoted will generally have little or no pricing observability and a higher degree of judgment utilized in measuring fair value. Pricing observability is impacted by a number of factors, including the type of asset or liability, whether it is new to the market and not yet established, and the characteristics specific to the transaction. The fair value of mortgage loans is estimated using the Manager's proprietary pricing model which estimates expected cash flows with the discount rate used in the present value calculation representing the estimated effective yield of the loan. For valuation purposes, we disclose the fair value of REO at the lower of its acquisition basis, or its net realizable value (estimated fair market value less expected selling costs). We estimate fair market value using BPOs, comparable sales and competitive market analyses provided by local realtors. We use net realizable value as a proxy for fair value as it represent the liquidation proceeds to us and is most comparable to the fair value disclosure for loans. We calculate the fair value for the senior debt consolidated on our balance sheet from securitization trusts by using our Manager's proprietary pricing model to estimate the cash flows expected to be generated from the underlying collateral with the discount rate used in the present value calculation representing an estimate of the average rate for debt instruments with similar durations and risk factors.
Our convertible senior notes are traded on the NYSE; the debt's fair value is determined from the NYSE closing price on the Balance Sheet date.
Recent Accounting Pronouncements
Refer to the notes to our consolidated financial statements for a description of relevant recent accounting pronouncements.
Loss of Emerging Growth Company Status
We are subject to reporting and other obligations under the Exchange Act. The
Jumpstart Our Business Startup Act of 2012 ("JOBS Act") contains provisions
that, among other things, relax certain reporting requirements for "emerging
growth companies," including certain requirements relating to accounting
standards and compensation disclosure. Until the third quarter of 2018 we
qualified as an "emerging growth company" as defined in the JOBS Act. As a
result of issuance of senior debt associated with our Ajax Mortgage Loan Trusts
2018-C ("2018-C") securitization in 2018, we and our subsidiaries issued more
than $1 billion in nonconvertible debt over a past 36-month period which
resulted in the loss of our status as an emerging growth company under the JOBS
Act. (See Note 9 - Debt).
52
--------------------------------------------------------------------------------Results of Operations
For the year endedDecember 31, 2019 , we had net income attributable to common stockholders of$34.7 million , or$1.74 per share, for basic and$1.59 for diluted common shares. For the year endedDecember 31, 2018 , we had net income attributable to common stockholders of$28.3 million or$1.50 per share, for basic and$1.43 for diluted common shares. For the year endedDecember 31, 2017 , we had net income attributable to common stockholders of$28.9 million , or$1.58 per share, for basic and$1.51 for diluted common shares. Key items for the year endedDecember 31, 2019 include: •Formed joint ventures that acquired$1.1 billion in UPB of mortgage loans with collateral values of$2.0 billion and retained$187.8 million of varying classes of securities. •Purchased$104.5 million of RPLs and$5.7 million of NPLs with an aggregate UPB of$122.5 million and$6.7 million , respectively, underlying collateral value of$186.2 million and$9.2 million , respectively; and originated$19.0 million of SBCs. •Interest income of$112.4 million ; net interest income after provision for loan losses of$52.3 million . •Net income attributable to common stockholders of$34.7 million . •Basic earnings per share of$1.74 per share. •Taxable income of$1.20 per share. •Book value per share of$15.80 atDecember 31, 2019 . •Collected total cash of$253.6 million , from loan payments, sales of REO and investments in debt securities and beneficial interests. •Held$64.3 million of cash and cash equivalents atDecember 31, 2019 ; average daily cash balance for was$57.6 million . •Completed a private capital raise transaction for Gaea through which Gaea raised$66.3 million from shares of common stock. We retained approximately 23.2% of Gaea. •AtDecember 31, 2019 , 76.0% of our portfolio based on UPB had made at least the last 12 out of 12 payments.
Table 1: Results of Operations
For the year ended December 31,
($ in thousands) 2019 2018 2017
INCOME
Interest income $ 112,416 $ 108,181 $ 91,424
Interest expense (59,325) (53,335) (39,101)
Net interest income 53,091 54,846 52,323
Provision for loan losses (803) (1,164) -
Net interest income after provision for loan
losses 52,288 53,682 52,323
Income from investment in affiliates 1,332 762 707
Gain on sale of mortgage loans 7,123 - -
Other income 4,176 3,720 1,765
Total income 64,919 58,164 54,795
EXPENSE
Related party expense - loan servicing fees 9,133 10,148 8,245
Related party expense - management fee 7,356 6,025 5,340
Loan transaction expense 328 389 1,471
Professional fees 2,550 2,179 2,340
Real estate operating expenses 3,685 3,252 2,630
Other expense 4,225 3,934 3,353
Total expense 27,277 25,927 23,379
Loss on debt extinguishment 429 836 1,131
Income before provision for income taxes 37,213 31,401 30,285
Provision for income taxes 124 64 131
Consolidated net income 37,089 31,337 30,154
53-------------------------------------------------------------------------------- Less: consolidated net income attributable to the non-controlling interest 2,384 2,997 1,227 Consolidated net income attributable to common stockholders$ 34,705 $ 28,340 $ 28,927 Our consolidated net income attributable to common stockholders increased for the year endedDecember 31, 2019 compared to the years ended 2018 and 2017 due to the sale of 965 mortgage loans with a carrying value of$178.8 million , UPB of$202.1 million and aggregate property value of$323.7 million for a gain of$7.1 million . Our interest income increased, driven largely by interest income on securities from our increased investments in debt securities and beneficial interests issued by joint ventures between us and third party accredited institutional investors. Our interest expense increased over both 2017 and 2018, driven primarily by larger borrowing volumes due to portfolio growth. Our other income increased from rental income driven by an overall increase in our rental property portfolio prior to the Gaea capital raise inNovember 2019 and higher gains on the sales of REO properties held-for-sale.
Net Interest Income
Our primary source of income is accretion earned on our mortgage loan and mortgage securities portfolio offset by the interest expense incurred to fund and hold portfolio acquisitions. Net interest income after provision for loan losses decreased to$52.3 million for the year endedDecember 31, 2019 from$53.7 million for the year endedDecember 31, 2018 and$52.3 million for the year endedDecember 31, 2017 . Mortgage loan interest income decreased from 2018 to 2019, from a combination of the effect of the sale of 965 primarily non-clean-pay mortgage loans during 2019, as well as increasing durations for loans in our portfolio as more borrowers bring delinquent loans current. From 2017 to 2018 mortgage loan interest income increased due to an increase in the average balance of our loan portfolio. Our portfolio of mortgage-backed securities, consisting of B bonds and beneficial interests in trusts issued by joint ventures we form with third party accredited institutional investors, drove overall interest income higher in 2019 from 2018, increasing to$13.1 million from$2.0 million as we continued to co-invest with third party institutional accredited investors in joint ventures to acquire pools of RPLs and other mortgage related assets. Our income from securities for the year endedDecember 31, 2017 was$0.6 million , the first year we had any securities-related income. We anticipate income from securities we hold that have been issued by our joint ventures to be a meaningful component of our interest income going forward. Our interest expense increased for the year endedDecember 31, 2019 to$59.3 million from$53.3 million for the year endedDecember 31, 2018 primarily due to an increase in borrowing volume. While higher LIBOR rates drove borrowing costs on our repurchase arrangements early in the year, lower interest rates on our securitizations largely offset these increases. We expect this trend to continue as we experience decreases in par coupons on new securitized bond issuance, lower repurchase facility costs on loans and Joint Venture interests and decreases in LIBOR and swap spreads. Interest expense for the year endedDecember 31, 2017 was$39.1 million due to lower average borrowing balances as subsequent increases in borrowing helped to propel portfolio growth. For the years endedDecember 31, 2019 , 2018 and 2017, we recorded provisions for loan loss of$0.8 million ,$1.2 million and$0 , respectively, due to impairments of certain loan pools. Despite the impairments on these pools, we continue to experience a sustained level of increased performance across the majority of our loan pools. The impairments are primarily driven by small remaining pool size in which cash flow fluctuations on individual loans is not offset by the small remaining value of loans in the pool. For the year endedDecember 31, 2019 the provisions for loan losses were contributed by five NPL pools totaling approximately$17.7 million in remaining carrying value. Comparatively for the year endedDecember 31, 2018 the provisions for loan losses were contributed by three NPL pools totaling approximately$20.7 million . The weighted average balance of our mortgage loan portfolio decreased to$1.2 billion for the year endedDecember 31, 2019 from$1.3 billion for the year endedDecember 31, 2018 . Additionally, we collected$253.6 million in cash payments and proceeds on our mortgage loans and REO held-for-sale for the year endedDecember 31, 2019 compared to collections of$219.8 million for the year endedDecember 31, 2018 , and$173.0 million for the year endedDecember 31, 2017 . During 2019 we continued to see an elevated volume of payoffs as borrowers continued to refinance or sell the underlying property.
The interest income detail for the years ended
Table 2: Interest income detail
54
--------------------------------------------------------------------------------
For the year
ended
2019 2018 2017
Accretable yield recognized on RPL, NPL and SBC
loans, pooled $ 95,995 $ 103,682 $ 89,881
Interest income on securities 13,081 1,980 554
Interest income earned on SBC loans 1,947 1,466 591
Bank interest income 1,031 628 5
Other interest income 362 425 393
Total interest income before provision for loan
loss 112,416 108,181 91,424
Provision for loan losses (803) (1,164) -
Total interest income $ 111,613 $ 107,017 $ 91,424
The average balance of our mortgage loan portfolio and debt outstanding for the
years ended December 31, 2019 and 2018 are included in the table below ($ in
thousands):
Table 3: Average Balances
For
the year ended
2019 2018
Mortgage loan portfolio $ 1,210,370 $ 1,254,470 Average carrying value of debt securities and beneficial interests
$ 192,900 $ 32,008 Total average asset level debt$ 1,090,296 $ 985,391 Gain on sale of mortgage loans During the year endedDecember 31, 2019 we sold 965 mortgage loans with a carrying value of$178.8 million , UPB of$202.1 million and aggregate property value of$323.7 million for a gain of$7.1 million . We sold no mortgage loans during the years endedDecember 31, 2018 or 2017.
Other Income
Other income increased for the year endedDecember 31, 2019 compared to both the years ended 2018 and 2017 due to increased rental income as a result of our rental property acquisitions prior to the Gaea capital raise inNovember 2019 and increased net gain on sale of property held-for-sale. For the year endedDecember 31, 2019 as compared to the year ended 2018 this was offset by lower late fee income and lower income from the federal government's Home Affordable Modification Program ("HAMP") as more loans reach the five-year threshold and no additional fees will have been earned. A breakdown of Other income is provided in the table below ($ in thousands): Table 4: Other Income For the year ended December 31, 2019 2018(1) 2017 Rental Income$ 1,943 $ 538 $ - HAMP fees 836 1,489 565 Late fee income 779 916 650 Net gain on sale of Property held-for-sale 610 414 506 Other income 8 363 44 Total Other Income$ 4,176 $ 3,720 $ 1,765
(1)Includes reclass of other income to rental income.
55
--------------------------------------------------------------------------------Expenses
Total expenses for the year endedDecember 31, 2019 increased from the years ended 2018 and 2017 primarily due to an increase in management fee expense from continued growth in our equity base. However, during the year endedDecember 31, 2019 , in addition to our base management fees, we recorded$0.7 million of incentive fees payable to our Manager driven by the increase in our book value. For the years ended 2018 and 2017 our incentive fees were$0.1 million and$0 , respectively. Other expense, further described below, increased in 2019 by$0.3 million from 2018, and again by$0.6 million in 2018 from 2017. Real estate operating expense increased in 2019 by$0.4 million over 2018, and again by$0.6 million over 2017 due to acquisitions of rental property prior to the capital raise transaction for Gaea in the fourth quarter of 2019. Our professional fees were higher in 2019 than 2018 primarily from increases in fees for accounting and auditing services, which were lower in 2018 than 2017. For the year endedDecember 31, 2019 as compared to the year ended 2018 these increases were offset by lower loan servicing fees as a result of a lower average balance of our mortgage loan portfolio due to increased investments in our joint ventures where interest income is reported net of servicing fees. The increase in servicing fees from 2017 to 2018 was driven by growth in the mortgage loan portfolio before we began loan acquisitions through joint ventures. Loan transaction expense was reduced substantially in 2018 from 2017 as more of our loan acquisition activity was conducted through joint ventures. Similarly Loan transaction expense in 2019 reflects lower direct loan purchases for our own portfolio as compared to joint ventures. A breakdown of our expenses is provided in the table below ($ in thousands): Table 5: Expenses For the year ended December 31, 2019 2018 2017
Related party expense - loan servicing fees
7,356 6,025 5,340
Other expense 4,225 3,934 3,353
Real estate operating expense 3,685 3,252 2,630
Professional fees 2,550 2,179 2,340
Loan transaction expense 328 389 1,471
Total expenses $ 27,277 $ 25,927 $ 23,379
Other Expense
Other expense for the year ended December 31, 2019 increased from the years
ended 2018 and 2017 primarily due to insurance, taxes and regulatory expense,
software licenses and amortization and internal audit services. A breakdown of
other expense is provided in the table below ($ in thousands):
Table 6: Other Expense
For the year ended December 31,
2019 2018 2017
Employee and service provider share grants $ 839 $ 880 $ 747
Insurance 695 588 530
Borrowing related expenses 554 586 497
Other expense 519 339 522
Taxes and regulatory expense 478 293 146
Directors' fees and grants 423 482 344
Travel, meals, entertainment 293 389 387
Software licenses and amortization 227 210 33
Internal audit services 197 167 147
Total other expense $ 4,225 $ 3,934 $ 3,353 Equity and Net Book Value per Share
Our net book value per share was
56
--------------------------------------------------------------------------------
dividends paid, offset by higher distributions to non-controlling interests.
While U.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, and the subtraction of
non-controlling interests classified in equity, by total adjusted shares
outstanding, which included OP Units (which were redeemable on a 1-for-1 basis
into shares of our common stock) in 2018 and shares for Manager and director
fees which were approved but still unissued as of the date indicated, and the
common shares from assumed conversion of our Senior convertible notes. A
breakdown of our book value per share is set forth in the table below ($ in
thousands except per share amounts):
Table 7: Book Value per Share
As of December 31,
2019 2018
Outstanding shares 22,142,143 18,909,874
Adjustments for:
Operating partnership units - 624,106
Unvested grants of restricted stock, and Manager and director shares earned but not issued as of the date indicated
2,600 53,431
Conversion of convertible senior notes into shares of common stock
8,270,208 8,143,385
Total adjusted shares outstanding 30,414,951 27,730,796
Equity at period end $
384,084
120,669 120,669
Net adjustment for equity due to non-controlling interests (24,257) (22,593)
Adjusted equity $ 480,496 $ 432,355
Book value per share $ 15.80 $ 15.59 Mortgage Loan Portfolio
For the years endedDecember 31, 2019 andDecember 31, 2018 , we acquired 573 and 810 RPLs for an acquisition price of$104.5 million and$159.6 million , representing 85.3% and 90.9% of UPB, respectively. We acquired 35 NPLs during the year endedDecember 31, 2019 for an acquisition price of$5.7 million , representing 84.2% of UPB. Comparatively, during the year endedDecember 31, 2018 we acquired 36 NPLs for an acquisition price of$5.4 million , representing 90.6% of UPB. For the year endedDecember 31, 2019 , we originated 22 SBC loans with UPB of$19.0 million that represented 57.7% of the underlying collateral value of$33.0 million . For the year endedDecember 31, 2018 , we originated eight SBC loans with UPB of$6.4 million that represented 69.0% of the underlying collateral value of$9.3 million . We ended the period with$1.2 billion of mortgage loans with an aggregate UPB of$1.3 billion as ofDecember 31, 2019 and$1.3 billion of mortgage loans with an aggregate UPB of$1.5 billion as ofDecember 31, 2018 .
The following table shows loan portfolio acquisitions for the years ended
Table 8: Loan Portfolio Acquisitions (excludes loan originations)
For the year ended December 31,
2019 2018(1)
RPLs
Count 573 810
UPB $ 122,463 $ 175,508
Purchase price $ 104,478 $ 159,611
Purchase price % of UPB 85.3 % 90.9 %
NPLs
Count 35 36
57--------------------------------------------------------------------------------
UPB$ 6,732 $ 5,969 Purchase price$ 5,668 $ 5,410 Purchase price % of UPB 84.2 % 90.6 % (1)Includes the impact of 256 mortgage loans with a purchase price of$47.4 million and UPB of$52.8 million acquired through a 63% owned joint venture that we consolidate. Table 9: Loan originations As of December 31, 2019 2018 Originated SBC loans Count 22 8 UPB$ 19,025 $ 6,383 Undrawn UPB at origination$ 1,277 $ 694 Issue price % of collateral value 57.7 % 69.0 % During the year endedDecember 31, 2019 , 1,562 mortgage loans, representing 24.4% of our ending UPB, were liquidated. Comparatively, during the year ended 2018, 552 mortgage loans, representing 7.7% of our ending UPB, were liquidated. Our loan portfolio activity for the years endedDecember 31, 2019 and 2018 are presented below ($ in thousands):
Table 10: Loan Portfolio Activity
For the year ended
2019 2018
Beginning carrying value $ 1,310,873 $ 1,253,541
RPL, NPL and SBC pool portfolio acquisitions, net cost basis 110,146 165,021
SBC non-pooled portfolio acquisitions, net cost basis 19,040 6,290
Draws on SBC loans 912 267
Accretion recognized 96,064 103,740
Payments received, net (191,647) (201,567)
Reclassifications to REO (12,104) (15,072)
Sale of mortgage loans (180,992) -
Interim payoffs - (530)
Provision for loan losses (803) (1,164)
Other (20) 347
Ending carrying value $ 1,151,469 $ 1,310,873 Table 11: Portfolio Composition
As ofDecember 31, 2019 andDecember 31, 2018 , our portfolios consisted of the following ($ in thousands): December 31, December 31, 2019(1,2) 2018(1,2) No. of Loans 6,184 No. of Loans 7,111 Total UPB$ 1,268,126 Total UPB$ 1,481,719 Interest-Bearing Balance$ 1,190,917 Interest-Bearing Balance$ 1,383,978 Deferred Balance(3)$ 77,209 Deferred Balance(3)$ 97,741 Market Value of Collateral(4)$ 1,783,856 Market Value of Collateral(4)$ 2,024,831 Price/Total UPB(5) 82.9 % Price/Total UPB(5) 82.1 % Price/Market Value of Collateral 61.9 % Price/Market Value of Collateral 62.3 % Weighted Average Coupon 4.55 % Weighted Average Coupon 4.54 % 58
-------------------------------------------------------------------------------- Weighted Average LTV(6) 83.5 % Weighted Average LTV(6) 85.9 % Weighted Average Remaining Term Weighted Average Remaining Term (months) 311 (months) 312 No. of first liens 6,124 No. of first liens 7,085 No. of second liens 60 No. of second liens 26 No. of Rental Properties 10 No. of Rental Properties 21 Capital Invested in Rental Capital Invested in Rental Properties$ 1,591 Properties$ 17,854 RPLs loans(7) 95.3 % RPLs loans(7) 94.7 % NPLs loans 2.7 % NPLs loans 2.8 % SBC commercial loans(7) 2.0 % SBC commercial loans(7) 2.5 % No. of REO properties held-for-sale 58 No. of REO properties held-for-sale 102 Market Value of other REO(8)$ 13,987 Market Value of other REO(8)$ 21,143 Carrying value of debt securities Carrying value of debt securities and beneficial interests in trusts$ 288,362 and beneficial interests in trusts$ 169,472 Loans with 12 for 12 payments as an Loans with 12 for 12 payments as an approximate percentage of UPB(9) 76.0 % approximate percentage of UPB(9) 76.0 % Loans with 24 for 24 payments as an Loans with 24 for 24 payments as an approximate percentage of UPB(10) 64.0 % approximate percentage of UPB(10) 54.0 % (1)Includes the impact of 1,003 mortgage loans with a purchase price of$177.3 million , UPB of$194.3 million and collateral value of$295.3 million acquired in the fourth quarter of 2017 through a 50.0% owned joint venture which we consolidate. (2)Includes the impact of 256 mortgage loans with a purchase price of$47.4 million , UPB of$52.8 million and collateral value of$68.1 million acquired in the third quarter of 2018 through a 63.0% owned joint venture which we consolidate. (3)Amounts that have been deferred in connection with a loan modification on which interest does not accrue. These amounts generally become payable at the time of maturity. (4)As of date of acquisition. (5)AtDecember 31, 2019 and 2018, our loan portfolio consists of fixed rate (52.8% of UPB), ARM (9.5% of UPB) and Hybrid ARM (37.7% of UPB); and fixed rate (53.8% of UPB), ARM (10.1% of UPB) and Hybrid ARM (36.1% of UPB), respectively. (6)UPB as ofDecember 31, 2019 and 2018, divided by market value of collateral and weighted by the UPB of the loan. (7)The calculation of RPLs and the calculation of SBC loans reflects all SBC loans in the calculation of SBC loans. Previously, certain SBC loans acquired in accretable loan pools were included in RPLs. (8)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. (9)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 (10)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.
Real Estate property acquisitions
During the year endedDecember 31, 2019 , we directly acquired a total of 11 commercial properties within our Gaea subsidiary, not including properties acquired through foreclosure or transferred from loans to rental property or property held-for-sale. Eight multi-family apartment buildings were purchased for a cumulative$25.1 million and three single-tenant triple net lease commercial properties were acquired for a cumulative$2.1 million . OnNovember 22, 2019 we completed a private capital raise transaction for Gaea to allow Gaea to continue to advance its investment strategy, which resulted in the effective sale of 18 multi-family, mixed use commercial real estate properties with an aggregate carrying value of$42.0 million .
Table 12: Portfolio Characteristics
The following tables present certain characteristics about our mortgage loans by year of origination as ofDecember 31, 2019 andDecember 31, 2018 , respectively ($ in thousands):
Portfolio at
Years of Origination
After 2008 2006 - 2008 2001 - 2005 1990 - 2000 Prior to 1990
Number of loans 625 3,576 1,638 335 10
Unpaid principal balance $ 153,923 $ 826,684 $ 262,444 $ 24,103 $ 972
Mortgage loan portfolio by year of
origination 12.1 % 65.2 % 20.7 % 1.9 % 0.1 %
59-------------------------------------------------------------------------------- Loan Attributes: Weighted average loan age (months) 88.0 154.5 186.5 259.6 387.2 Weighted Average loan-to-value 72.7 % 81.2 % 67.3 % 58.9 % 32.6 % Delinquency Performance: Current 61.9 % 56.9 % 60.0 % 46.2 % 53.6 % 30 days delinquent 9.5 % 13.0 % 12.6 % 12.5 % - % 60 days delinquent 6.5 % 8.4 % 8.0 % 10.2 % 9.3 % 90+ days delinquent 20.5 % 17.3 % 16.4 % 26.2 % 31.3 % Foreclosure 1.6 % 4.4 % 3.0 % 4.9 % 5.8 %
Portfolio at
Years of Origination
After 2008 2006 - 2008 2001 - 2005 1990 - 2000 Prior to 1990
Number of loans 542 4,268 1,897 389 15
Unpaid principal balance $ 131,577 $
999,659
67.4 % 21.6 % 2.0 % 0.1 %
Loan Attributes:
Weighted average loan age (months) 80.5 143.1 174.0 249.6 378.6
Weighted Average loan-to-value 78.5 % 89.9 % 75.2 % 66.1 % 24.7 %
Delinquency Performance:
Current 61.8 % 56.9 % 57.4 % 47.8 % 46.1 %
30 days delinquent 9.4 % 12.5 % 13.5 % 15.9 % 0.5 %
60 days delinquent 6.6 % 9.3 % 9.8 % 10.6 % 43.0 %
90+ days delinquent 14.7 % 16.1 % 14.0 % 21.1 % 10.4 %
Foreclosure 7.5 % 5.2 % 5.3 % 4.6 % - %
Table 13: Loans by State
The following table identifies our mortgage loans by state, number of loans,
loan value, collateral value and percentages thereof at December 31, 2019 and
December 31, 2018 ($ in thousands):
December 31, 2019 December 31, 2018
% of % of
Collateral Collateral Collateral Collateral
State Count UPB % UPB Value(1) Value State Count UPB % UPB Value(1) Value
CA 1,010 $ 370,838 29.2 % $ 564,169 31.6 % CA 1,169 $ 423,694 28.6 % $ 624,339 30.9 %
FL 689 119,728 9.4 % 156,967 8.8 % FL 845 154,443 10.4 % 199,423 9.8 %
NY 331 105,853 8.3 % 161,646 9.1 % NY 346 115,878 7.8 % 172,521 8.5 %
NJ 290 66,762 5.3 % 80,472 4.5 % MD 302 76,698 5.2 % 88,628 4.4 %
MD 257 63,349 5.0 % 74,027 4.2 % NJ 292 69,194 4.7 % 80,625 4.0 %
GA 363 48,969 3.9 % 62,960 3.5 % GA 408 55,666 3.8 % 69,406 3.4 %
VA 206 44,193 3.5 % 57,678 3.2 % TX 476 49,702 3.4 % 83,854 4.1 %
IL 228 42,962 3.4 % 49,586 2.8 % VA 234 48,101 3.2 % 61,423 3.0 %
TX 399 39,689 3.1 % 69,874 3.9 % MA 207 47,593 3.2 % 65,177 3.2 %
MA 181 37,596 3.0 % 53,785 3.0 % IL 217 44,974 3.0 % 49,625 2.5 %
NC 240 31,402 2.5 % 42,977 2.4 % NC 290 41,635 2.8 % 54,258 2.7 %
WA 114 28,489 2.2 % 43,372 2.4 % AZ 194 33,579 2.3 % 42,166 2.1 %
AZ 154 26,321 2.1 % 34,277 1.9 % WA 129 31,574 2.1 % 44,961 2.2 %
NV 107 21,384 1.7 % 27,540 1.5 % NV 126 25,198 1.7 % 31,647 1.6 %
PA 180 20,978 1.7 % 26,936 1.5 % PA 199 22,887 1.5 % 29,553 1.5 %
SC 129 15,282 1.2 % 21,263 1.2 % SC 154 20,527 1.4 % 27,697 1.4 %
MI 98 14,339 1.1 % 21,876 1.2 % MI 120 18,654 1.3 % 27,920 1.4 %
OH 110 13,515 1.1 % 15,451 0.9 % OH 130 15,943 1.1 % 18,250 0.9 %
60--------------------------------------------------------------------------------
OR 66 12,991 1.0 % 19,519 1.1 % CO 80 15,672 1.1 % 26,364 1.3 %
CT 72 12,594 1.0 % 15,832 0.9 % TN 131 14,725 1.0 % 21,579 1.1 %
TN 115 12,566 1.0 % 19,203 1.1 % OR 73 14,508 1.0 % 21,641 1.1 %
CO 63 12,368 1.0 % 22,471 1.3 % CT 73 13,349 0.9 % 16,895 0.8 %
MN 54 10,200 0.8 % 12,753 0.7 % IN 115 11,675 0.8 % 14,049 0.7 %
MO 80 10,003 0.8 % 12,427 0.7 % MO 92 11,611 0.8 % 14,298 0.7 %
IN 100 9,521 0.8 % 12,545 0.7 % MN 64 11,591 0.8 % 14,730 0.7 %
UT 52 8,923 0.7 % 13,957 0.8 % UT 67 10,906 0.7 % 16,323 0.8 %
LA 74 7,585 0.6 % 11,389 0.6 % HI 23 8,698 0.6 % 11,795 0.6 %
HI 17 7,229 0.6 % 10,093 0.6 % LA 75 7,540 0.5 % 11,538 0.6 %
DE 33 6,566 0.5 % 7,626 0.4 % WI 48 6,930 0.5 % 8,033 0.4 %
WI 37 4,772 0.4 % 5,827 0.3 % DE 35 6,756 0.5 % 7,525 0.4 %
DC 16 4,542 0.4 % 6,368 0.4 % AL 55 6,626 0.4 % 7,559 0.4 %
NM 30 4,525 0.4 % 5,407 0.3 % DC 22 5,920 0.4 % 9,051 0.4 %
KY 34 3,969 0.3 % 5,213 0.3 % KY 42 5,015 0.3 % 6,373 0.3 %
AL 43 3,569 0.3 % 4,480 0.3 % NM 28 4,408 0.3 % 5,205 0.3 %
RI 15 3,232 0.3 % 4,188 0.2 % NH 21 3,982 0.3 % 5,450 0.3 %
NH 17 3,016 0.2 % 4,290 0.3 % RI 18 3,840 0.3 % 4,791 0.2 %
OK 30 2,631 0.2 % 3,948 0.2 % OK 36 2,916 0.2 % 4,470 0.2 %
MS 25 2,389 0.2 % 3,062 0.2 % MS 25 2,503 0.2 % 3,092 0.2 %
ID 14 1,723 0.1 % 2,755 0.2 % ID 17 2,320 0.2 % 3,728 0.2 %
IA 16 1,599 0.1 % 2,011 0.1 % WV 19 2,119 0.1 % 2,705 0.1 %
WV 17 1,595 0.1 % 2,208 0.1 % IA 20 1,827 0.1 % 2,172 0.1 %
ME 11 1,564 0.1 % 1,829 0.1 % KS 23 1,825 0.1 % 2,920 0.1 %
KS 18 1,391 0.1 % 2,435 0.1 % ME 12 1,698 0.1 % 1,958 0.1 %
AR 18 1,318 0.1 % 1,777 0.1 % AR 20 1,620 0.1 % 2,198 0.1 %
NE 6 702 0.1 % 836 0.1 % NE 9 962 0.1 % 1,309 0.1 %
MT 5 697 0.1 % 1,005 0.1 % PR 8 941 0.1 % 1,238 0.1 %
December 31, 2019 December 31, 2018
% of % of
Collateral Collateral Collateral Collateral
State Count UPB % UPB Value(1) Value State Count UPB % UPB Value(1) Value
PR 6 546 - % 838 0.1 % SD 4 720 - % 928 - %
WY 4 519 - % 593 - % VT 3 606 - % 654 - %
SD 3 509 - % 678 - % WY 5 599 - % 760 - %
VT 2 467 - % 470 - % MT 4 597 - % 905 - %
ND 3 403 - % 595 - % ND 4 516 - % 750 - %
AK 2 253 - % 372 - % AK 2 258 - % 372 - %
6,184 $ 1,268,126 100 % $ 1,783,856 100 % 7,111 $ 1,481,719 100 % $ 2,024,831 100 %
(1) As of date of acquisition.
Liquidity and Capital Resources
Source and Uses of Cash
Our primary sources of cash have consisted of proceeds from our securities
offerings, our secured borrowings, repurchase agreements, principal and interest
payments on our loan portfolio, principal paydowns on securities, and sales of
properties held-for-sale. Depending on market conditions, we expect that our
primary financing sources will continue to include secured borrowings,
repurchase agreements, and securities offerings in addition to transaction or
asset specific funding arrangements and credit facilities (including term loans
and revolving facilities). We expect that these sources of funds will be
sufficient to meet our short-term and long-term liquidity needs. From time to
time, we may invest with third parties and acquire interests in loans and other
real estate assets through investments in joint ventures using special purpose
entities that can result in Investments at Fair Value and Investments in
Beneficial Interests, which are reflected on our consolidated balance sheet.
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As of December 31, 2019 and December 31, 2018 , substantially all of our invested
capital was in RPLs, NPLs, SBC loans, property held-for-sale, debt securities,
beneficial interests and rental properties. We also held approximately $64.3
million of cash and cash equivalents, an increase of $9.2 million from our
balance of $55.1 million at the end of 2018, which was an increase of
$1.4 million from our balance of $53.7 million at December 31, 2017 . Our average
daily cash balance during 2019 was $57.6 million , an increase from our average
daily cash balance of $50.7 million during the year ended December 31, 2018 and
also an increase from our average daily balance of $43.7 million at December 31,
2017 . Our principal and interest payments on mortgages and securities, payoffs
and proceeds on the sale of our property held-for-sale were $253.6 million ,
$219.8 million and $173.0 million for the years ended December 31, 2019 , 2018
and 2017, respectively.
Our operating cash outflows, including the effect of restricted cash, for the
year ended December 31, 2019 was $15.4 million . Our operating cash inflows,
including the effect of restricted cash, for the years ended December 31, 2018
was $0.2 million . Our operating cash outflows, including the effect of
restricted cash, for the year ended December 31, 2017 was $8.7 million . Our
primary operating cash inflow is cash interest payments on our mortgage loan
pools of $57.0 million , $60.0 million and $46.5 million for the years ended
December 31, 2019 , 2018 and 2017, respectively. Non-cash interest income
accretion was $39.1 million , $43.7 million and $43.4 million for the years ended
December 31, 2019 , 2018 and 2017, respectively. We recognized a year-to-date
gain of $7.1 million from the sale of our mortgage loans, consisting primarily
of the sale of loans to our 2019-C joint venture in the second quarter of 2019.
No mortgage loans were sold during the years ended December 31, 2018 or 2017.
Though the ownership of mortgage loans and other real estate assets is our
business, GAAP requires that operating cash flows do not include the portion of
principal payments that are allocable to the discount we recognize on our
mortgage loans including proceeds from loans that pay in full or are liquidated
in a short sale or third party sale at foreclosure or the proceeds on the sales
of our property held-for-sale. These activities are all considered to be
investing activities under GAAP, and the cash flows from these activities are
included in the investing section of our consolidated statements of cash flows.
For the year ended December 31, 2019 , our investing cash inflows of $100.2
million were driven primarily by the proceeds from the sale of our mortgage
loans of $212.6 million , principal payments on and payoffs of our mortgage loan
portfolio of $134.7 million , principal payments on and payoffs of our debt
securities and beneficial interests of $42.4 million , and sale of $39.6 million
of debt securities held as investments. This was offset by purchases of debt
securities and beneficial interests of $187.8 million and acquisitions of
mortgage loans of $129.2 million . For the year ended December 31, 2018 our
investing cash outflows of $190.4 million was primarily driven by the
acquisition of mortgage loans of $165.0 million and purchases of debt securities
and beneficial interests of $176.4 million offset by principal payments on and
payoffs of our mortgage loan portfolio of $142.1 million . For the year ended
December 31, 2017 our investing cash outflows of $345.9 million was primarily
driven by the acquisition of mortgage loans of $459.2 million offset by
principal payments on and payoffs of our mortgage loan portfolio of $107.3
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 year ended December 31, 2019 , we
had net financing cash outflows of $75.5 million due to repayments on repurchase
transactions of $444.4 million and secured debt of $241.1 million , offset by
additional borrowings through repurchase transactions of $322.6 million , on
secured debt of $284.3 million and proceeds of $34.3 million from the sale of
our common stock under our At-the-Market program (see Financing Activities -
Equity offerings below). We had net cash inflows for the years ended 2018 and
2017 of $164.6 million and $398.4 million , respectively, as we issued secured
notes for proceeds of $167.9 million and $431.1 million , respectively, issued
debt convertible into shares of common stock for net proceeds of $15.2 million
and $105.3 million , respectively, and had proceeds from our repurchase
agreements of $311.1 million and $590.7 million , respectively, which was offset
by the repayments on repurchase transactions of $53.4 million and $542.2
million , respectively, and on secured debt of $254.2 million and $178.1 million ,
respectively.
Financing Activities - Equity offerings
During the year endedDecember 31, 2019 , we sold 2,278,518 shares of common stock for proceeds, net of issuance costs of$34.3 million under our At-the-Market Issuance Sales Agreements which we established inOctober 2016 , to sell, through our agents, shares of common stock with an aggregate offering price of up to$50.0 million . During the year endedDecember 31, 2018 , we did not sell any shares of common stock under our At-the-Market Issuance Sales Agreements. 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 theNew York Stock Exchange or otherwise at market prices prevailing at the time of the sale. OnNovember 22, 2019 we completed a private capital raise transaction for Gaea through which Gaea 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 62 -------------------------------------------------------------------------------- investment strategy. The purchase price per share was$15.00 . Upon completion of the private placement, we retained ownership of approximately 23.2% of Gaea with third party investors owning the remaining approximately 76.8%. Prior to the date of the capital raise, we consolidated Gaea's results and balances. From the date of the capital raise forward, we account for our investment in Gaea under the equity method.
Financing Activities - Borrowings and Repurchase Arrangements
From inception (January 30, 2014 ) toDecember 31, 2019 , we have completed 15 secured borrowings, not including secured borrowings we completed for non-consolidated joint ventures (See Table 17: Investments in joint ventures), through securitization trusts pursuant to Rule 144A under the Securities Act, six of which were outstanding atDecember 31, 2019 . The secured borrowings are structured as debt financings and not REMIC sales, and the loans included in the secured borrowings remain on our consolidated Balance Sheet as we are the primary beneficiary of the secured borrowing trusts, which are VIEs. The secured borrowing VIEs are structured as pass through entities that receive principal and interest on the underlying mortgages and distribute those payments to the holders of the notes. Our exposure to the obligations of the VIEs is generally limited to our investments in the entities. The notes that are issued by the secured borrowing trusts are secured solely by the mortgages held by the applicable trusts and not by any of our other assets. The mortgage loans of the applicable trusts are the only source of repayment and interest on the notes issued by such trusts. We do not guarantee any of the obligations of the trusts under the terms of the agreement governing the notes or otherwise. Our secured borrowings are structured with Class A notes, subordinate notes, and trust certificates, which have rights to the residual interests in the mortgages once the notes are repaid. With the exception of our Ajax Mortgage Loan Trusts 2017-D ("2017-D") secured borrowings, from which we sold a 50% interest in the residual equity to third parties and 2018-C secured borrowings, from which we sold a 95%interest in the Class A notes and 37% in the Class B and trust certificates, we have retained the subordinate notes and the trust certificates from the six secured borrowings outstanding atDecember 31, 2019 . For all of our secured borrowings the Class A notes are senior, sequential pay, fixed rate notes, and with the exception of 2017-D and 2018-C as noted above, the Class B notes are subordinate, sequential pay, fixed rate notes. The Class M notes issued under 2017-B, 2019-D and 2019-F are also mezzanine, sequential pay, fixed rate notes. For all of our secured borrowings, except 2017-B, 2019-D and 2019-F, which contains no interest rate step-up, if the Class A notes have not been redeemed by the payment date or otherwise paid in full 36 months after issue, or in the case of 2017-C, 48 months after issue, an interest rate step-up of 300 basis points is triggered. Twelve months after the 300 basis point step up is triggered, an additional 100 basis point step up will be triggered, and an amount equal to the aggregate interest payment amount that accrued and would otherwise be paid to the subordinate notes will be paid as principal to the Class A notes on that date and each subsequent payment date until the Class A notes are paid in full. After the Class A notes are paid in full, the subordinate notes will resume receiving their respective interest payment amounts and any interest that accrued but was not paid while the Class A notes were outstanding. As the holder of the trust certificates, the Company is entitled to receive any remaining amounts in the trusts after the Class A notes and subordinate notes have been paid in full. During 2017, we completed the issuance and sale of$108.0 million aggregate principal amount of our 7.25% convertible senior notes due 2024, in two underwritten public offerings, with the notes from both offerings forming a single series of securities. Our net proceeds from the sale of the notes, after deducting the underwriter's discounts, commissions and offering expenses, were approximately$105.3 million . The carrying amount of the equity component of both transactions was$2.7 million representing the fair value to the notes' owners of the right to convert the notes into shares of our common stock. The notes bear interest at a rate of 7.25% per year, payable quarterly in arrears onJanuary 15 ,April 15 ,July 15 andOctober 15 of each year. During 2018, we completed the issuance and sale of an additional$15.9 million aggregate principal amount of our 7.25% convertible senior notes due 2024, in an underwritten public offering, which combined with the notes from the previous offerings in 2017 form a single series of securities. Our net proceeds from the sale of the notes, after deducting the underwriter's discounts, commissions and offering expenses, were approximately$15.2 million . The carrying amount of the equity component was$0.5 million representing the fair value of the notes' owners of the right to convert the notes into shares on our common stock. As these notes are interchangeable with the notes in the 2017 offering, they bear interest at the same rate of 7.25% per year payable quarterly in arrears, payable on the same dates as the notes in the 2017 offering.
The following table sets forth the original terms of all outstanding
securitization notes at their respective cutoff dates as of
Table 14: Secured Borrowings
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Interest Rate
Issuing Trust/Issue Date Step-up Date Security Original Principal Interest Rate
Ajax Mortgage Loan Trust
2017-B/ December 2017 None Class A notes due 2056 $115.8 million 3.16 %
None Class M-1 notes due 2056(1) $9.7 million 3.50 %
None Class M-2 notes due 2056(1) $9.5 million 3.50 %
None Class B-1 notes due 2056(2) $9.0 million 3.75 %
None Class B-2 notes due 2056(2) $7.5 million 3.75 %
Trust certificates(3) $14.3 million - %
Deferred issuance costs $(1.8) million - %
Ajax Mortgage Loan Trust
2017-C/ November 2017 November 25, 2021 Class A notes due 2060 $130.2 million 3.75 %
May 25, 2022 Class B-1 notes due 2060(2) $13.0 million 5.25 %
Trust certificates(3) $42.8 million - %
Deferred issuance costs $(1.7) million - %
Ajax Mortgage Loan Trust
2017-D/ December 2017 April 25, 2021 Class A notes due 2057(4) $177.8 million 3.75 %
None Class B certificates(4) $44.5 million - %
Deferred issuance costs $(1.1) million - %
Ajax Mortgage Loan Trust
2018-C/ September 2018 October 25, 2021 Class A notes due 2065(5) $170.5 million 4.36 %
April 25, 2022 Class B notes due 2065(5) $15.9 million 5.25 %
Trust certificates(5) $40.9 million - %
Deferred issuance costs $(2.0) million - %
Ajax Mortgage Loan Trust
2019-D/ July 2019 None Class A-1 notes due 2065 $140.4 million 2.96 %
None Class A-2 notes due 2065 $6.1 million 3.50 %
None Class A-3 notes due 2065 $10.1 million 3.50 %
None Class M-1 notes due 2065(1) $9.3 million 3.50 %
None Class B-1 notes due 2065(6) $7.5 million 3.50 %
None Class B-2 notes due 2065(6) $7.1 million variable(7)
None Class B-3 notes due 2065(6) $12.8 million variable(7)
Deferred issuance costs $(2.7) million - %
Ajax Mortgage Loan Trust
2019-F/ November 2019 None Class A-1 notes due 2059 $110.1 million 2.86 %
None Class A-2 notes due 2059 $12.5 million 3.50 %
None Class A-3 notes due 2059 $5.1 million 3.50 %
None Class M-1 notes due 2059(1) $6.1 million 3.50 %
None Class B-1 notes due 2059(6) $11.5 million 3.50 %
None Class B-2 notes due 2059(6) $10.4 million variable(7)
None Class B-3 notes due 2059(6) $15.1 million variable(7)
Deferred issuance costs $(1.8) million - %
(1)The Class M notes are subordinate, sequential pay, fixed rate notes with
Class M-2 notes subordinate to the Class M-1 notes. We have retained the Class M
notes.
(2)The Class B notes are subordinate, sequential pay, fixed rate notes with
Class B-2 notes subordinate to the Class B-1 notes. We have retained the Class B
notes.
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(3)The trust certificates issued by the trusts and the beneficial ownership of
the trusts are retained by Great Ajax Funding LLC as the depositor. As the
holder of the trust certificates, we are entitled to receive any remaining
amounts in the trusts after the Class A notes, Class M notes, where present, and
Class B notes have been paid in full.
(4)Ajax Mortgage Loan Trust ("AJAXM") 2017-D is a joint venture in which a third
party owns 50% of the Class A notes and 50% of the Class B certificates. We are
required to consolidate 2017-D under GAAP and are reflecting 100% of the
mortgage loans, in Mortgage loans, net. 50% of the Class A notes, which are held
by the third party, are included in Secured borrowings, net and 50% of the Class
B-1 certificates are recognized as Non-controlling interest.
(5)AJAXM 2018-C is a joint venture in which a third party owns 95% of the Class
A notes and 37% of the Class B notes and certificates. We are required to
consolidate 2018-C under GAAP and is reflecting 100% of the mortgage loans, in
Mortgage loans, net. 95% of the Class A notes and 37% of the Class B notes,
which are held by the third party, are included in Secured borrowings, net. The
5% portion of the Class A notes retained by us have been encumbered under the
repurchase agreement. 37% of the Class C certificates are recognized as
Non-controlling interest.
(6)The Class B notes are subordinate, sequential pay, with B-2 and B-2 notes
having variable interest rates and subordinate to the Class B-1 notes. The Class
B-1 notes are fixed rate notes. We have retained the Class B notes.
(7)The interest rate is effectively the rate equal to the spread between the
gross average rate of interest the trust collects on its mortgage loan portfolio
minus the rate derived from the sum of the servicing fee and other expenses of
the trust.
Repurchase Transactions
We have two repurchase facilities whereby we, through two wholly-owned Delaware
trusts (the "Trusts"), acquire pools of mortgage loans which are then sold by
the Trusts, as "Seller" to two separate counterparties, the "buyer" or "buyers."
One facility has a ceiling of $250.0 million and the other $400.0 million at any
one time. Upon the time of the initial sale to the buyer, each Trust, with a
simultaneous agreement, also agrees to repurchase the pools of mortgage loans
from the buyer. Mortgage loans sold under these facilities carry interest
calculated based on a spread to one-month LIBOR, which are fixed for the term of
the borrowing. The purchase price that the Trust realizes upon the initial sale
of the mortgage loans to the buyer can vary between 70% and 85% of the asset's
acquisition price, depending upon the facility being utilized and/or the quality
of the underlying collateral. The obligations of the Trust to repurchase these
mortgage loans at a future date are guaranteed by the Operating Partnership . The
difference between the market value of the asset and the amount of the
repurchase agreement is generally the amount of equity we have in the position
and is intended to provide the buyer with some protection against fluctuations
in the value of the collateral, and/or a failure by us to repurchase the asset
and repay the borrowing at maturity. We also have three repurchase facilities
substantially similar to the mortgage loan repurchase facilities where the
pledged assets are the class B bonds and certificates from our securitization
transactions. These facilities have no effective ceilings. Each repurchase
transaction represents its own borrowing. As such, the ceilings associated with
these transactions are the amounts currently borrowed at any one time. We have
effective control over the assets subject to all of these transactions;
therefore, our repurchase transactions are accounted for as financing
arrangements.
A summary of our outstanding repurchase transactions at
Table 15: Repurchase Transactions by Maturity Date
December 31, 2019
Maximum
Borrowing Amount Amount of Percentage of
Maturity Date Origination date Capacity Outstanding Collateral Collateral Coverage Interest Rate
January 3, 2020 November 26, 2019 $ 8,411 $ 8,411 $ 11,098 132 % 3.45 %
January 3, 2020 November 26, 2019 6,093 6,093 9,038 148 % 3.45 %
January 3, 2020 November 26, 2019 5,175 5,175 6,855 132 % 3.45 %
January 3, 2020 December 2, 2019 11,966 11,966 15,742 132 % 3.45 %
January 3, 2020 December 2, 2019 10,648 10,648 14,058 132 % 3.45 %
January 3, 2020 December 2, 2019 5,485 5,485 7,050 129 % 3.45 %
January 3, 2020 December 2, 2019 4,096 4,096 5,261 128 % 3.45 %
January 3, 2020 December 2, 2019 1,644 1,644 2,388 145 % 3.55 %
January 3, 2020 December 2, 2019 1,576 1,576 2,287 145 % 3.55 %
January 10, 2020 December 11, 2019 21,088 21,088 28,284 134 % 3.47 %
January 10, 2020 December 11, 2019 1,808 1,808 2,640 146 % 3.57 %
January 13, 2020 July 11, 2019 8,956 8,956 13,016 145 % 4.16 %
January 21, 2020 December 20, 2019 15,718 15,718 20,623 131 % 3.41 %
January 21, 2020 December 20, 2019 10,305 10,305 13,521 131 % 3.41 %
January 21, 2020 December 20, 2019 5,840 5,840 7,324 125 % 3.41 %
January 21, 2020 December 20, 2019 2,784 2,784 4,050 145 % 3.51 %
January 28, 2020 October 30, 2019 5,318 5,318 7,464 140 % 3.19 %
65--------------------------------------------------------------------------------
January 28, 2020 October 30, 2019 2,520 2,520 3,381 134 % 2.99 % February 3, 2020 August 1, 2019 7,568 7,568 9,702 128 % 4.19 % February 3, 2020 August 1, 2019 6,664 6,664 9,537 143 % 4.19 % February 24, 2020 November 26, 2019 41,412 41,412 54,828 132 % 2.92 % March 25, 2020 September 25, 2019 7,075 7,075 10,024 142 % 3.96 % March 25, 2020 September 25, 2019 5,851 5,851 7,423 127 % 3.81 % March 26, 2020 September 26, 2019 27,075 27,075 34,591 128 % 3.81 % March 27, 2020 September 27, 2019 2,915 2,915 3,709 127 % 3.79 % June 3, 2020 December 6, 2019 6,097 6,097 7,891 129 % 3.64 % June 3, 2020 December 6, 2019 4,704 4,704 6,106 130 % 3.64 % June 3, 2020 December 6, 2019 3,053 3,053 4,035 132 % 3.64 % June 3, 2020 December 6, 2019 2,332 2,332 3,360 144 % 3.79 % June 3, 2020 December 6, 2019 1,132 1,132 1,607 142 % 3.79 % June 19, 2020 December 19, 2019 13,447 13,447 18,076 134 % 3.55 % June 19, 2020 December 19, 2019 1,155 1,155 1,687 146 % 3.70 % June 30, 2020 December 30, 2019 5,286 5,286 7,044 133 % 3.57 % June 30, 2020 December 30, 2019 3,324 3,324 4,667 140 % 3.72 % July 10, 2020 July 15, 2016 250,000 28,931 57,397 198 % 4.28 % September 24, 2020 September 25, 2019 400,000 116,662 164,403 141 % 4.24 % Totals$ 918,521 $ 414,114 $ 580,167 140 % 3.77 % December 31, 2018 Maximum Borrowing Amount Amount of Percentage of Maturity Date Origination date Capacity Outstanding Collateral Collateral Coverage Interest Rate January 11, 2019 July 11, 2018$ 8,956 $ 8,956 $ 12,834 143 % 4.41 % February 1, 2019 August 1, 2018 13,322 13,322 17,174 129 % 4.53 % March 25, 2019 September 25, 2018 6,396 6,396 8,376 131 % 4.34 % March 25, 2019 September 25, 2018 7,020 7,020 10,024 143 % 4.49 % March 28, 2019 September 28, 2018 12,539 12,539 15,846 126 % 4.40 % April 25, 2019 October 26, 2018 10,549 10,549 15,145 144 % 4.85 % April 25, 2019 October 26, 2018 5,865 5,865 7,580 129 % 4.65 % May 8, 2019 November 8, 2018 18,226 18,226 26,036 143 % 4.74 % May 8, 2019 November 8, 2018 10,933 10,933 15,618 143 % 4.84 % June 6, 2019 December 6, 2018 44,224 44,224 58,965 133 % 4.65 % June 6, 2019 December 6, 2018 3,786 3,786 5,408 143 % 4.80 % June 7, 2019 December 7, 2018 50,294 50,294 66,747 133 % 4.47 % June 21, 2019 December 21, 2018 32,393 32,393 43,390 134 % 4.62 % June 21, 2019 December 21, 2018 2,771 2,771 4,050 146 % 4.77 % June 28, 2019 December 28, 2018 8,860 8,860 13,275 150 % 4.64 % July 12, 2019 July 15, 2016 250,000 195,644 289,908 148 % 5.00 % September 24, 2019 September 25, 2018 400,000 102,311 134,835 132 % 4.89 % Totals$ 886,134 $ 534,089 $ 745,211 140 % 4.80 % As ofDecember 31, 2019 , we had$414.1 million outstanding under our repurchase transactions compared to$534.1 million as ofDecember 31, 2018 . The maximum month-end balance outstanding during the year endedDecember 31, 2019 was$562.0 million , compared to a maximum month-end balance for the year ended 2018 of$534.1 million . The following table presents certain details of our repurchase transactions for the years endedDecember 31, 2019 and 2018 ($ in thousands): Table 16: Repurchase Balances 66
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For the year ended December 31,
2019 2018
Balance at the end of year $ 414,114 $ 534,089
Maximum month-end balance outstanding during the year $ 561,982 $ 534,089
Average balance $ 481,889 $ 333,681
The increase in our average balance from $333.7 million for the year ended
December 31, 2018 to our average balance of $481.9 million for the year ended
December 31, 2019 was due to a net increase in repurchase financing during the
year ended December 31, 2019 , as a result of additional investments in mortgage
loans and debt securities.
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.
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. OnFebruary 25, 2020 , our Board of Directors declared a dividend of$0.32 per share, to be paid onMarch 27, 2020 to stockholders of record as ofMarch 17, 2020 . Our Management Agreement with our Manager requires the payment of an incentive management fee above the amount of the base management fee if either, (1) for any quarterly incentive fee, the sum of cash dividends on our common stock, plus distributions on our externally-held operating partnership units, 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 commons stock, plus distributions on our externally-held operating partnership units all paid out within the applicable calendar year, paid out of our taxable income, exceeds of 8% (on an annualized basis) of our stock's book value. For the year endedDecember 31, 2019 , 2018 and 2017 we recorded an expense of$0.7 million ,$0.1 million and$0 , respectively, for an incentive fee payable to the Manager. Our dividend payments are driven by the amount of our taxable income, subject toIRS rules for maintaining our status as a REIT. Our most recently declared quarterly dividend represents a payment of approximately 8.10% on an annualized basis of an adjusted book value of$15.80 per share atDecember 31, 2019 . If our taxable income continues at the levels we have recently experienced, we could continue to exceed the threshold for paying an incentive fee to our Manager, and thereby trigger such payment. See Note 10 - Related party transactions.
We believe that our capital resources will be sufficient to enable us to meet anticipated short-term and long-term liquidity requirements.
Off-Balance Sheet Arrangements
Other than our investments in debt securities and beneficial interests issued by joint ventures which are summarized below by securitization trust and our equity method investments discussed elsewhere in this report, we do not have any relationships with unconsolidated entities or financial partnerships, such as entities often referred to as structured finance or special purpose entities, which would have been established for the purpose of facilitating off-balance sheet arrangements or other contractually narrow or limited purposes. Further, we have not guaranteed any obligations of unconsolidated entities nor do we have any commitment or intent to provide funding to any such entities. As such, we are not materially exposed to any market, credit, liquidity or financing risk that could arise if we had engaged in such relationships.
Table 17: Investments in joint ventures
We form joint ventures with third party institutional accredited investors to purchase mortgage loans and other mortgage related assets. The debt securities and beneficial interests we carry on our consolidated balance sheets are issued by securitization trusts formed by these joint ventures, which are VIE's, that we have sponsored but which we do not consolidate since we have determined we are not the primary beneficiary.
A summary of our investments in joint ventures is presented below(1) ($ in thousands):
67
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Great Ajax Corp. Ownership
Current
Owned
Stated or
Notional
Total Original Original Stated or Principal
Outstanding Notional Principal Balance
Issuing Trust/Issue Date Security Principal Coupon Ownership Percent Balance Retained Retained
Ajax Mortgage Loan Trust
2018-A/April 2018 Class A notes due 2058 $ 91,036 3.85 % 9.36 % $ 8,521 $ 6,855
Trust certificates $ 22,759 - 9.36 % $ 2,130 $ 2,021
Ajax Mortgage Loan Trust
2018-B/June 2018 Class A notes due 2057 $ 66,374 3.75 % 20.00 % $ 13,275 $ 7,324
Trust certificates $ 28,447 - 20.00 % $ 5,689 $ 3,134
Ajax Mortgage Loan Trust
2018-D/September 2018 Class A notes due 2058 $ 80,664 3.75 % 20.00 % $ 16,133 $ 14,807
Trust certificates $ 20,166 - 20.00 % $ 4,033 $ 2,972
Ajax Mortgage Loan Trust
2018-E/December 2018 Class A notes due 2058 $ 86,089 4.38 % 5.01 % $ 4,313 $ 4,039
Class B notes due 2058 $ 8,035 5.25 % 20.00 % $ 1,607 $ 1,605
Trust certificates $ 20,662 - 20.00 % $ 4,132 $ 1,681
Ajax Mortgage Loan Trust
2018-F/December 2018 Class A notes due 2058 $ 180,002 4.38 % 5.01 % $ 9,018 $ 7,891
Class B notes due 2058 $ 16,800 5.25 % 20.00 % $ 2,520 $ 3,360
Trust certificates $ 43,201 - 20.00 % $ 6,480 $ 3,700
Ajax Mortgage Loan Trust
2018-G/December 2018 Class A notes due 2057 $ 173,562 4.38 % 25.00 % $ 43,390 $ 34,143
Class B notes due 2057 $ 16,199 5.25 % 25.00 % $ 4,050 $ 4,050
Trust certificates $ 41,655 - 25.00 % $ 10,414 $ 10,796
Ajax Mortgage Loan Trust
2019-A/March 2019 Class A notes due 2057 $ 127,801 3.75 % 20.00 % $ 25,560 $ 21,003
Class B notes due 2057 $ 11,928 5.25 % 20.00 % $ 2,386 $ 2,388
Trust certificates $ 30,672 - 20.00 % $ 6,134 $ 5,369
Ajax Mortgage Loan Trust
2019-B/March 2019 Class A notes due 2059 $ 163,325 3.75 % 15.00 % $ 24,499 $ 21,109
Class B notes due 2059 $ 15,244 5.25 % 15.00 % $ 2,287 $ 2,287
Trust certificates $ 39,198 - 15.00 % $ 5,880 $ 5,145
Ajax Mortgage Loan Trust
2019-C/May 2019 Class A notes due 2058 $ 150,037 3.95 % 5.00 % $ 7,502 $ 7,030
Class B notes due 2058 $ 14,003 5.25 % 34.00 % $ 4,761 $ 4,761
Trust certificates $ 36,009 - % 34.00 % $ 12,243 $ 8,901
Ajax Mortgage Loan Trust
2019-E/September 2019 Class A notes due 2059 $ 181,101 3.00 % 20.00 % $ 36,220 $ 34,591
Class B notes due 2059 $ 16,903 4.88 % 20.00 % $ 3,381 $ 3,381
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Trust certificates $ 43,464 - % 20.00 % $ 8,693 $ 4,117
Ajax Mortgage Loan Trust
2019-G/December 2019 Class A notes due 2059 $ 141,420 3.00 % 20.00 % $ 28,284 $ 28,284
Class B notes due 2059 $ 13,199 4.25 % 20.00 % $ 2,640 $ 2,640
Trust certificates $ 33,941 - % 20.00 % $ 6,788 $ 5,383
Ajax Mortgage Loan Trust
2019-H/December 2019 Class A notes due 2059 $ 90,381 3.00 % 20.00 % $ 18,076 $ 18,076
Class B notes due 2059 $ 8,435 4.25 % 20.00 % $ 1,687 $ 1,687
Trust certificates $ 21,692 - % 20.00 % $ 4,338 $ 4,735 (1)Table does not include our 2017-D and 2018-C securitizations with total
original outstanding principal of
Table 18: Contractual Obligations
A summary of our contractual obligations as of
December 31, 2019
Payments Due by Period
Less than More than
Total 1 Year 1 - 3 Years 3 - 5 Years 5 Years Convertible senior notes
$ 123,850 $ -
$ -
414,114 414,114 - - -
Interest on convertible senior notes 40,780 8,979 17,958 13,843 -
Interest on repurchase agreements 5,699 5,699 - - -
Total $ 584,443 $ 428,792 $ 17,958 $ 137,693 $ -
December 31, 2018 Payments Due by Period
Less than More than
Total 1 Year 1 - 3 Years 3 - 5 Years 5 Years
Convertible senior notes $ 123,850 $ -
$ - $ -
534,089 534,089 - - -
Interest on convertible senior notes 45,237 10,241 20,817 14,179 -
Interest on repurchase agreements 12,789 12,789 - - -
Total $ 715,965 $ 557,119 $ 20,817 $ 14,179 $ 123,850
Our secured borrowings are not included in the table above as such borrowings
are non-recourse to us and principal and interest are only paid to the extent
that cash flows from mortgage loans (in the securitization trust)
collateralizing the debt are received. Accordingly, a projection of contractual
maturities over the next five years is inapplicable.
Inflation
Virtually all of our assets and liabilities are interest-rate sensitive in nature. As a result, interest rates and other factors influence our performance far more so than does inflation. Changes in interest rates do not necessarily correlate with inflation rates or changes in inflation rates. Our activities and consolidated Balance Sheet are measured with reference to historical cost and/or fair market value without considering inflation.
Subsequent Events
Since year end, we have acquired 27 residential RPLs with aggregate UPB of$2.2 million in two transactions from two sellers for our own account. The RPLs were acquired at 63.8% of UPB and 37.7% of the estimated market value of the underlying collateral of$3.7 million . 69
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Also expected to close in the first quarter of 2020 are acquisitions that went under contract in February and March, 2020 of 1,943 RPLs for an aggregate purchase price of$309.3 million , 334 NPLS, for an aggregate purchase price of$81.5 million , and the acquisition of two SBCs for a purchase price of$3.2 million . The purchase price of the RPLs equals 91.5% of UPB and 66.0% of the estimated market value of the underlying collateral of$469.0 million . The purchase price of the NPLs equals 77% of UPB and 60.5% of the underlying collateral of$134.6 million . The purchase price of the SBCs equals 100% of UPB and 52.4% of the underlying collateral of$6.2 million . The majority of these loans is expected to be acquired through joint ventures with institutional investors. OnFebruary 25, 2020 , our Board of Directors declared a dividend of$0.32 per share, to be paid onMarch 27, 2020 to stockholders of record as ofMarch 17, 2020 . OnFebruary 28, 2020 , our Board of Directors approved a stock buyback 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 our common shares, trading volume and general circumstances and market conditions.
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