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 a 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 TRS under the Code. Our mortgage loans and real properties are serviced by the Servicer, also an affiliated company. In 2014, we formedGreat Ajax Funding LLC , a wholly owned subsidiary of theOperating Partnership , to act as the depositor of mortgage loans into securitization trusts and to hold the subordinated securities issued by such trusts and any additional trusts we may form for additional secured borrowings.AJX Mortgage Trust I and AJX Mortgage Trust II are wholly owned subsidiaries of theOperating Partnership formed to hold mortgage loans used as collateral for financings under our repurchase agreements. OnFebruary 1, 2015 , we formedGAJX Real Estate Corp. , as a wholly owned subsidiary of theOperating Partnership , to own, maintain, improve and sell certain REOs purchased by us. We have elected to treatGAJX Real Estate Corp. as a TRS under the Code. OurOperating Partnership , through interests in certain entities as ofDecember 31, 2020 andDecember 31, 2019 , holds 99.9% and 99.8%, respectively, 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. Each such trust is considered to be a VIE, and we have determined that we are the primary beneficiary of each such VIE. 46 -------------------------------------------------------------------------------- In 2018, we formed Gaea, as a wholly owned subsidiary of theOperating Partnership . We elected to treat Gaea as a TRS under the Code for 2018, and we elected to treat Gaea as a REIT under the Code in 2019 and thereafter. Also during 2018, we formedGaea Real Estate Operating Partnership LP , a wholly owned subsidiary of Gaea, to hold investments in commercial real estate assets. We also formedBFLD Holdings LLC ,Gaea Commercial Properties LLC ,Gaea Commercial Finance LLC andGaea RE LLC as subsidiaries ofGaea Real Estate Operating Partnership . In 2019, we formedDG Brooklyn Holdings, LLC , also a subsidiary ofGaea Real Estate Operating Partnership LP , to hold investments in multi-family properties. OnNovember 22, 2019 Gaea completed a private capital raise in which it raised$66.3 million from the issuance of 4,419,641 shares of its common stock to third parties to allow Gaea to continue to advance its investment strategy. We retained a 23.2% ownership interest in Gaea following the transaction. AtDecember 31, 2020 we own approximately 23.0% of Gaea and is no longer consolidated in our financial statements. 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, 2020 December 31, 2019
Residential RPLs $ 1,057.5 $ 1,085.5
Residential NPLs 38.7 30.9
SBC loans 23.2 35.1
Property held-for-sale, net 7.8 13.5
Rental property, net 0.7
1.5
Investments in securities at fair value 273.8
231.7
Investment in beneficial interests 91.4
58.0
Total mortgage related assets $ 1,493.1 $
1,456.2
We closely monitor the status of our mortgage loans and, through our Servicer, work with our borrowers to improve their payment records.
Market Trends and Outlook
COVID-19
The COVID-19 pandemic that began during the first quarter of 2020 created a global public-health crisis that resulted in widespread volatility and deteriorations in household, business, and economic market conditions, including inthe United States , where we conduct all of our business. During 2020 many governmental and nongovernmental authorities directed their actions toward curtailing household and business activity in order to contain or mitigate the impact of the COVID-19 pandemic and deployed fiscal- and monetary-policy measures in order to seek to partially mitigate the adverse effects. These programs have had varying degrees of success and the extent of the long term impact on the mortgage market remains unknown. The COVID-19 pandemic began to meaningfully impact our operations in lateMarch 2020 and this disruption was reflected in our results of operations for the quarter endedMarch 31, 2020 . Since then many of these negative impacts have improved throughout 2020, as follows: •We recorded net recovery of credit loss provisions of$10.8 million on our Mortgage loan portfolio and Investments in beneficial interests during the year endedDecember 31, 2020 . We recorded total expense of$5.1 million for provision for anticipated credit losses on our Mortgage loan portfolio and Investments in beneficial interests during the three months endedMarch 31, 2020 , as a result of expectations of extended portfolio durations and longer foreclosure and eviction timelines. However, during the remainder of 2020 we recovered$15.9 million in credit loss provisions on 47 -------------------------------------------------------------------------------- these portfolios which was as a result of better than expected loan performance and the related positive impact on future repayments. •We recorded a net$0.9 million of unrealized losses on our Investments in debt securities to other comprehensive income during the year endedDecember 31, 2020 . We recorded$28.4 million in unrealized losses on our Investments in debt securities to other comprehensive income for the three months endedMarch 31, 2020 . However, during the remainder of 2020 we recovered$27.5 million of those unrealized losses. •During the course of the year, we settled net margin calls in the amount of$0.5 million with our repurchase financing counterparties during the year endedDecember 31, 2020 . For the three months endedMarch 31, 2020 we settled$28.2 million of net margins calls with our repurchase financing counterparties due to the extreme disruption in the residential mortgage securities market from the COVID-19 pandemic, and since then have recovered$27.7 million of cash deposits on a net basis from our repurchase financing counterparties as collateral prices rebounded off theMarch 31, 2020 levels. The pandemic has continued and continues to significantly and adversely impact certain areas ofthe United States . As a result, our forecast of macroeconomic conditions and expected lifetime credit losses on our mortgage loan and beneficial interest portfolios is subject to meaningful uncertainty. While substantially all of our borrowers continue to make scheduled payments and we continue to receive payments in full, we have acted swiftly to support our borrowers with a mortgage forbearance program. While we generally do not hold loans guaranteed by GSEs or the US government, we, through our Servicer, are nonetheless offering a forbearance program under terms similar to those required for GSE loans. Borrowers that are able to provide documentation of a negative impact of COVID-19 are entitled to three months of forbearance. The three monthly payments may then be repaid over 12 months. If a borrower cannot repay the deferred amount, our Servicer will work with them on repayment options. Notwithstanding the foregoing, to the extent special rules apply to a mortgagor because of the jurisdiction or type of the Mortgage Loan, the Servicer will comply with those rules. Our Servicer has extensive experience dealing with delinquent borrowers and we believe it is well positioned to react on our behalf to any increase in mortgage delinquencies. The following list shows the COVID-19 forbearance activity in our mortgage loan portfolio as ofFebruary 28, 2021 (1) :
•Number of COVID-19 forbearance relief inquiries: 1,236 •Number of COVID-19 forbearance relief granted: 347
(1)Statistics are for loans carried on our balance sheet including loans held in Ajax 2017-D and Ajax 2018-C where third parties own 50% and 37%, respectively. Statistics do not include non-consolidated joint ventures where we own bonds and beneficial interests issued by the joint ventures. During the year endedDecember 31, 2020 , we raised$125.0 million , net of offering costs, in a series of private placements of preferred stock and warrants. We expect to use the net proceeds from the private placement to acquire mortgage loans and mortgage-related assets consistent with our investment strategy and that this additional capital will provide sufficient liquidity to both benefit from any investment opportunities and protect against future market disruption. Notwithstanding this additional capital and liquidity, we expect continued volatility in the residential mortgage securities market in the short term and increased acquisition opportunities later in the year or early 2021. Extended forbearance, foreclosure timelines and eviction timelines could result in lower yields and losses on our mortgage loan and beneficial interest portfolios and losses on our REO held-for-sale. Ongoing disruption in the credit markets could result in margin calls from our financing counterparties and additional mark downs on our Investments in debt securities, beneficial interests and mortgage loans.
We believe that certain cyclical trends continue to drive a significant realignment within the mortgage sector notwithstanding the impact of the pandemic. Through the end of the fourth quarter, the recent trends noted below have continued, including:
•historically low interest rates and elevated operating costs resulting from new
regulatory requirements continue to drive sales of residential mortgage assets
by banks and other mortgage lenders;
•declining home ownership in certain areas due to rising prices, low inventory,
tighter lending standards and increased down payment requirements that have
increased the demand for single-family and multi-family residential rental
properties;
•rising home prices are increasing homeowner equity and reducing the incidence
of strategic default;
•rising prices have resulted in millions of homeowners being in the money to
refinance;
•the Dodd-Frank risk retention rules for asset backed securities have reduced
the universe of participants in the securitization markets;
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•the lack of a robust market for non-conforming mortgage loans will reduce the
pool of buyers due to tighter credit standards as a result of the COVID-19
pandemic; and
•an increase in the prices of residential mortgage loans and residential real
estate as a result of the COVID-19 outbreak we believe will generate new
opportunities in residential mortgage-related whole loan strategies.
The origination of subprime and alternative residential mortgage loans remains
substantially below 2008 levels and the qualified mortgage and ability-to-repay
rule requirements have put pressure on new originations. Additionally, many
banks and other mortgage lenders have increased their credit standards and down
payment requirements for originating new loans. Recent market disruption from
the pandemic has sharply reduced financing alternatives for borrowers not
eligible for financing programs underwritten by the GSEs or the federal
government.
The combination of these factors has also resulted in a significant number of
families that cannot qualify to obtain new residential mortgage loans. We
believe the U.S. federal regulations addressing "qualified mortgages" based on,
among other factors such as employment status, debt-to-income level, impaired
credit history or lack of savings, limit mortgage loan availability from
traditional mortgage lenders. In addition, we believe that many homeowners
displaced by foreclosure or who either cannot afford to own or cannot be
approved for a mortgage will prefer to live in single-family rental properties
with similar characteristics and amenities to owned homes as well as smaller
multi-family residential properties. In certain demographic areas, new
households are being formed at a rate that exceeds the new homes being added to
the market, which we believe favors future demand for non-federally guaranteed
mortgage financing for single-family and smaller multi-family rental properties.
For all these reasons, we believe that demand for single-family and smaller
multi-family rental properties will increase in the near term and remain at
heightened levels for the foreseeable future.
We believe that investments in residential RPLs with positive equity provide an
optimal investment value. As a result, we are currently focusing on acquiring
pools of RPLs, though we may acquire NPLs, either directly or with joint venture
partners, if attractive opportunities exist. Through our Servicer, we work with
our borrowers to improve their payment records. Once there is a period of
continued performance, we expect that borrowers will typically refinance these
loans at or near the estimated value of the underlying property.
We also believe there are significant attractive investment opportunities in the
SBC loan and property markets and originate as well as purchase these loans,
particularly in urban areas where there is a sustainable trend of young adults
desiring to live near where they work. We focus on densely populated urban areas
where we expect positive economic change based on certain demographic, economic
and social statistical data. The primary lenders for smaller multi-family and
mixed retail/residential properties are community banks and not regional and
national banks and large institutional lenders. We believe the primary lenders
and loan purchasers are less interested in these assets because they typically
require significant commercial and residential mortgage credit and underwriting
expertise, special servicing capability and active property management. It is
also more difficult to create the large pools of these primary banks lenders and
portfolio acquirers typically desire. We continually monitor opportunities to
increase our holdings of these SBC loans and properties.
We also believe that banks and other mortgage lenders have strengthened their
capital bases and are more aggressively foreclosing on delinquent borrowers or
selling these loans to dispose of their inventory. Additionally, many NPL buyers
are now interested in reducing their investment duration and have begun selling
RPLs.
Factors That May Affect Our Operating Results
Acquisitions. Our operating results depend heavily on sourcing residential RPLs
and SBC loans and, when attractive opportunities are identified, NPLs. We
believe that there is generally a large supply of RPLs available to us for
acquisition and we believe the available supply provides for a steady
acquisition pipeline of assets since large institutions are active sellers in
the market. However, we expect that our residential mortgage loan portfolio may
grow at an uneven pace, as opportunities to acquire distressed residential
mortgage loans may be irregularly timed and may involve large portfolios of
loans, and the timing and extent of our success in acquiring such loans cannot
be predicted. We also believe there may be increased opportunities to acquire
NPLs due to the pandemic. In addition, for any given portfolio of loans that we
agree to acquire, we typically acquire fewer loans than originally expected, as
certain loans may be resolved prior to the closing date or may fail to meet our
diligence standards. The number of loans not acquired typically constitutes a
small portion of a particular portfolio. In any case where we do not acquire the
full portfolio, we make appropriate adjustments to the applicable purchase
price.
Financing. Our ability to grow our business by acquiring residential RPLs and
SBC loans depends on the availability of adequate financing, including
additional equity financing, debt financing or both in order to meet our
objectives. We intend to leverage our investments with debt, the level of which
may vary based upon the particular characteristics of our portfolio and on
market conditions. We have funded and intend to continue to fund our asset
acquisitions with non-recourse secured
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borrowings in which the underlying collateral is not marked to market and employ
repurchase agreements without the obligation to mark to market the underlying
collateral to the extent available. We securitize our whole loan portfolios,
primarily as a financing tool, when economically efficient to create long-term,
fixed rate, non-recourse financing with moderate leverage, while retaining one
or more tranches of the subordinate MBS so created. The secured borrowings are
structured as debt financings and not real estate investment conduit ("REMIC")
sales. We completed the securitization transactions pursuant to Rule 144A under
the Securities Act of 1933, as amended (the "Securities Act"), in which we
issued notes primarily secured by seasoned, performing and non-performing
mortgage loans primarily secured by first liens on one-to-four family
residential properties. Currently there is substantial uncertainty in the
securitization markets which could limit our access to financing.
To qualify as a REIT under the Code, we generally will need to distribute at
least 90% of our taxable income each year (subject to certain adjustments) to
our stockholders. This distribution requirement limits our ability to retain
earnings and thereby replenish or increase capital to support our activities.
Resolution Methodologies. We, through the Servicer, or our affiliates, employ
various loan resolution methodologies with respect to our residential mortgage
loans, including loan modification, collateral resolution and collateral
disposition. The manner in which an NPL is resolved will affect the amount and
timing of revenue we will receive. Our preferred resolution methodology is to
modify NPLs. Once successfully modified and there is a period of continued
performance, we expect that borrowers will typically refinance these loans at or
near the estimated value of the underlying property. We believe modification
followed by refinancing generates near-term cash flows, provides the highest
possible economic outcome for us and is a socially responsible business strategy
because it keeps more families in their homes. In certain circumstances, we may
also consider selling these modified loans. Through historical experience, we
expect that many of our NPLs will enter into foreclosure or similar proceedings,
ultimately becoming REO that we can sell or convert into single-family rental
properties that we believe will generate long-term returns for our stockholders.
Our REO properties may be converted into single-family rental properties or they
may be sold through REO liquidation and short sale processes. We expect the
timelines for each of the different processes to vary significantly. The exact
nature of resolution will depend on a number of factors that are beyond our
control, including borrower willingness, property value, availability of
refinancing, interest rates, conditions in the financial markets, regulatory
environment and other factors. To avoid the 100% prohibited transaction tax on
the sale of dealer property by a REIT, we may dispose of assets that may be
treated as held "primarily for sale to customers in the ordinary course of a
trade or business" by contributing or selling the asset to a TRS prior to
marketing the asset for sale.
The state of the real estate market and home prices will determine proceeds from
any sale of real estate. We will opportunistically and on an asset-by-asset
basis determine whether to rent any REO we acquire, whether upon foreclosure or
otherwise. We may determine to sell such assets if they do not meet our
investment criteria. In addition, while we seek to track real estate price
trends and estimate the effects of those trends on the valuations of our
portfolios of residential mortgage loans, future real estate values are subject
to influences beyond our control.
Conversion to Rental Property. From time to time we will retain an REO property
as a rental property and may acquire rental properties through direct purchases
at attractive prices. The key variables that will affect our residential rental
revenues over the long-term will be the extent to which we acquire properties,
which, in turn, will depend on the amount of our capital invested, average
occupancy and rental rates in our owned rental properties. We expect the
timeline to convert multi-family and single-family loans into rental properties
will vary significantly by loan, which could result in variations in our revenue
and our operating performance from period to period. There are a variety of
factors that may inhibit our ability, through the Servicer, to foreclose upon a
residential mortgage loan and get access to the real property within the time
frames we model as part of our valuation process. These factors include, without
limitation: state foreclosure timelines and the associated deferrals (including
from litigation); unauthorized occupants of the property; U.S. federal, state or
local legislative action or initiatives designed to provide homeowners with
assistance in avoiding residential mortgage loan foreclosures that may delay the
foreclosure process; U.S. federal government programs that require specific
procedures to be followed to explore the non-foreclosure outcome of a
residential mortgage loan prior to the commencement of a foreclosure proceeding;
and declines in real estate values and high levels of unemployment and
underemployment that increase the number of foreclosures and place additional
pressure on the already overburdened judicial and administrative systems. We do
not expect to retain a material number of single family residential properties
for use as rentals. We do, however, intend to focus on retaining multi-unit
residences derived from foreclosures or acquired through outright purchases as
rentals.
Expenses. Our expenses primarily consist of the fees and expenses payable by us
under the Management Agreement and the Servicing Agreement. Additionally, our
Manager incurs direct, out-of-pocket costs related to managing our business,
which are contractually reimbursable by us. Loan transaction expense is the cost
of performing due diligence on pools of mortgage loans under consideration for
purchase. Professional fees are primarily for legal, accounting and tax
services. Real estate operating expense consists of the ownership and operating
costs of our REO properties, both held-for-sale and as rentals, and includes any
charges for impairments to the carrying value of these assets, which may be
significant. Those expenses may
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increase due to extended eviction timelines caused by the pandemic. Interest
expense, which is subtracted from our Interest income to arrive at Net interest
income, consists of the costs to borrow money.
Changes in Home Prices. As discussed above, generally, rising home prices are
expected to positively affect our results, particularly as this should result in
greater levels of re-performance of mortgage loans, faster refinancing of those
mortgage loans, more re-capture of principal on greater than 100% LTV
(loan-to-value) mortgage loans and increased recovery of the principal of the
mortgage loans upon sale of any REO. Conversely, declining real estate prices
are expected to negatively affect our results, particularly if the home prices
should decline below our purchase price for the loans and especially if
borrowers determine that it is better to strategically default as their equity
in their homes decline. 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 HPA into account except for rural
properties for which we model negative HPA related to our expectation of worse
than expected property condition. It is too early to determine the impact of the
COVID-19 outbreak on HPA and the resulting impact on our markets. A significant
decline in HPA will have an adverse impact on our operating results.
Changes in Market Interest Rates. With respect to our business operations,
increases in existing interest rates, in general, may over time cause: (1) the
value of our mortgage loan and MBS portfolio to decline; (2) coupons on our ARM
and hybrid ARM mortgage loans and MBS to reset, although on a delayed basis, to
higher interest rates; (3) prepayments on our mortgage loans and MBS portfolio
to slow, thereby slowing the amortization of our purchase premiums and the
accretion of our purchase discounts; (4) the interest expense associated with
our borrowings to increase; and (5) to the extent we enter into interest rate
swap agreements as part of our hedging strategy, the value of these agreements
to increase. Conversely, decreases in interest rates, in general, may over time
cause: (a) prepayments on our mortgage loan and MBS portfolio to increase,
thereby accelerating the accretion of our purchase discounts; (b) the value of
our mortgage loan and MBS portfolio to increase; (c) coupons on our ARM and
hybrid ARM mortgage loans and MBS to reset, although on a delayed basis, to
lower interest rates; (d) the interest expense associated with our borrowings to
decrease; and (e) to the extent we enter into interest rate swap agreements as
part of our hedging strategy, the value of these agreements to decrease. We
currently expect the pace of loan prepayments to slow due to the COVID-19
outbreak.
Market Conditions. Due to the dramatic repricing of real estate assets that
occurred during the 2008 financial crisis and the continuing uncertainty
regarding the direction and strength of the real estate markets including as a
result of the pandemic, we believe a void in the debt and equity capital
available for investing in real estate exists as many financial institutions,
insurance companies, finance companies and fund managers have determined to
reduce or discontinue investment in debt or equity related to real estate. We
believe the dislocations in the residential real estate market have resulted or
will result in an "over-correction" in the repricing of real estate assets,
creating a potential opportunity for us to capitalize on these market
dislocations and capital void to the extent we are able to obtain financing for
additional purchases.
We believe that in spite of the continuing uncertain market environment for
mortgage-related assets, including as a result of the pandemic outbreak, current
market conditions offer potentially attractive investment opportunities for us,
even in the face of a riskier and more volatile market environment. We expect
that market conditions will continue to impact our operating results and will
cause us to adjust our investment and financing strategies over time as new
opportunities emerge and risk profiles of our business change.
COVID-19 Pandemic. The pandemic has also impacted, and is likely to continue to
impact, directly or indirectly, many of the other factors discussed above, as
well as other aspects of our business. New developments continue to emerge and
it is not possible for us to predict with certainty which factors will impact
our business. In addition, we cannot assess the impact of each factor on our
business or the extent to which any factor, or combination of factors, may cause
actual results to differ materially from those contained in any forward-looking
statements. In particular, it is difficult to fully assess the impact of the
pandemic at this time due to, among other things, uncertainty regarding the
severity and duration of the outbreak domestically and internationally and the
effectiveness of federal, state and local government efforts to contain the
spread of COVID-19, the effects of those efforts on our business, the indirect
impact on the U.S. economy and economic activity and the impact on the mortgage
markets and capital markets.
Critical Accounting Policies and Estimates
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
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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
Purchased Credit Deteriorated Loans ("PCD Loans") - As of their acquisition
date, the loans we acquired have generally suffered some credit deterioration
subsequent to origination. As a result, prior to the adoption of ASU 2016-13,
Financial Instruments - Credit Losses, otherwise known as CECL, on January 1,
2020 , we were required to account for the mortgage loans pursuant to ASC 310-30,
Accounting for Loans with Deterioration in Credit Quality. Under both standards,
our recognition of interest income for PCD loans is based upon our having a
reasonable expectation of the amount and timing of the cash flows expected to be
collected. When the timing and amount of cash flows expected to be collected are
reasonably estimable, we use expected cash flows to apply the effective interest
method of income recognition.
Under both CECL and ASC 310-30, acquired loans may be aggregated and accounted
for as a pool of loans if the loans have common risk characteristics. A pool is
accounted for as a single asset with a single composite interest rate and an
aggregate expectation of cash flows. However, CECL allows more flexibility to us
to adjust its loan pools as the underlying risk factors change over time. Under
ASC 310-30, RPLs were determined by us to have common risk characteristics and
were accounted for as a single loan pool for loans acquired within each
three-month calendar quarter. Similarly, NPLs were determined to have common
risk characteristics and were accounted for as a single non-performing pool for
loans acquired within each three-month calendar quarter. The result was
generally two additional pools (RPLs and NPLs) each quarter. Under CECL, we have
re-aggregated our loan pools around similar risk factors, while eliminating the
previous distinction for the quarter in which loans were acquired. This resulted
in a reduction of the number of loan pools to four as of March 31, 2020 . The
number of pools was then re-evaluated and increased to six as of June 30, 2020
and remains at six loan pools as of December 31, 2020 . Each loan pool is
oriented around similar risk factors. Excluded from the aggregate pools are
loans that pay in full subsequent to the acquisition closing date but prior to
pooling. Any gain or loss on these loans is recognized as Interest income in the
period the loan pays in full.
Our accounting for PCD loans gives rise to an accretable yield and an allowance
for credit losses. Under CECL, upon the acquisition of PCD loans we record the
acquisition as three separate elements for 1) the amount of purchase discount
which we expect to recover through eventual repayment by the borrower, 2) an
allowance for future expected credit loss and 3) the UPB of the loan. The
purchase price discount which we expect at the time of acquisition to collect
over the life of the loans is the accretable yield. Cash flows expected at
acquisition include all cash flows directly related to the acquired loan,
including those expected from the underlying collateral. We recognize the
accretable yield as Interest income on a prospective level yield basis over the
life of the pool. Our expectation of the amount of undiscounted cash flows to be
collected is evaluated at the end of each calendar quarter. If we expect to
collect greater cash flows over the life of the pool, any prior allowance is
reversed to the extent of the increase and the expected yield to maturity is
adjusted on a prospective basis. The allowance for credit losses is increased
when we estimate we will not collect all amounts previously estimated to be
collectible. Reduction to the allowance, or recovery, may occur if there is an
increase in expected future cash flows that were previously subject to a
provision for loss. Management assesses the credit quality of the portfolio and
the adequacy of loan loss reserves on a quarterly basis, or more frequently as
necessary. Significant judgment is required in this analysis. Depending on the
expected recovery of our investment, we consider the estimated net recoverable
value of the loan pools as well as other factors, such as the fair value of the
underlying collateral. Because these determinations are based upon projections
of future economic events, which are inherently subjective, the amounts
ultimately realized may differ materially from the carrying value as of the
reporting date.
Our mortgage loans are secured by real estate. We monitor the credit quality of
the mortgage loans in our portfolio on an ongoing basis, principally by
considering loan payment activity or delinquency status. In addition, we assess
the expected cash flows from the mortgage loans, the fair value of the
underlying collateral and other factors, and evaluate whether and when it
becomes probable that all amounts contractually due will not be collected.
Borrower payments on our mortgage loans are classified as principal, interest,
payments of fees, or escrow deposits. Amounts applied as interest on the
borrower account are similarly classified as interest for accounting purposes
and are classified as operating cash flows in our consolidated Statement of Cash
Flows. Amounts applied as principal on the borrower account including amounts
contractually due from borrowers that exceed our basis in loans purchased at a
discount, are similarly classified as principal for accounting purposes and are
classified as investing cash flows in the consolidated Statement of Cash Flows
as required under U.S. GAAP. Amounts received as payments of fees are recorded
in Other income and classified as operating cash flows in the consolidated
Statement of Cash Flows. Escrow deposits are recorded on the Servicer's balance
sheet and do not impact our cash flow.
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Non-PCD Loans - While we generally acquire loans that have experienced
deterioration in credit quality, we also acquire loans that have not experienced
a deterioration in credit quality and originate SBC loans which are also subject
to the provisions of CECL as discussed above.
We estimate any allowance for credit losses for our non-PCD loans based on
historical experience and the risk characteristics of the individual loans.
Impaired loans are carried at the present value of expected future cash flows
discounted at the loan's effective interest rate, the loan's market price, or
the fair value of the collateral if the loan is collateral dependent. For
individual loans, a troubled debt restructuring is a formal restructuring of a
loan where, for economic or legal reasons related to the borrower's financial
difficulties, a concession that would not otherwise be considered is granted to
the borrower. The concession may be granted in various forms, including
providing a below-market interest rate, a reduction in the loan balance or
accrued interest, an extension of the maturity date, or a combination of these.
An individual loan that has had a troubled debt restructuring is considered to
be impaired and is subject to the relevant accounting for impaired loans.
If necessary, an allowance for loan losses is established through a provision
for loan losses charged to expenses. The allowance is the difference between the
expected future cash flows from the loan and the contractual balance due.
Real Estate
Real estate owned Property - We acquire real estate properties directly through
purchases, when we foreclose on the borrower and take title to the underlying
property, or the borrower surrenders the deed in lieu of foreclosure. Property
is recorded at cost if purchased, or at the present value of future cash flows
if obtained through foreclosure. Property that we expect to actively market for
sale is classified as held-for-sale. Property held-for-sale is carried at the
lower of its acquisition basis or net realizable value (fair market value less
expected selling costs, and any additional costs necessary to prepare the
property for sale). Fair market value is determined based on broker price
opinions ("BPOs"), appraisals, or other market indicators of fair value
including list price or contract price, if listed or under contract for sale at
the balance sheet date. Net unrealized losses due to changes in market value are
recognized through a valuation allowance by charges to income through real
estate operating expenses. No depreciation or amortization expense is recognized
on properties held-for-sale. Holding costs are generally incurred by the
Servicer and are subtracted from the Servicer's remittance of sale proceeds upon
ultimate disposition of properties held-for-sale.
Rental property is property not held-for-sale. Rental properties are intended to
be held as long-term investments but may eventually be reclassified as
held-for-sale. Property that arose through conversions of mortgage loans in our
portfolio such as when a mortgage loan is foreclosed upon and we take title to
the property or the borrower surrenders the deed in lieu of foreclosure is
generally held for investment as rental property if the cash flows from use as a
rental exceed the present value of expected cash flows from a sale. We also
acquire rental properties through direct purchases of properties for our rental
portfolio. Depreciation is provided for using the straight-line method over the
estimated useful lives of the assets of 27.5 years. We perform an impairment
analysis for rental property using estimated cash flows if events or changes in
circumstances indicate that the carrying value may be impaired, such as
prolonged vacancy, identification of materially adverse legal or environmental
factors, changes in expected ownership period or a decline in market value to an
amount less than cost. This analysis is performed at the property level. The
cash flows are estimated based on a number of assumptions that are subject to
economic and market uncertainties including, among others, demand for rental
properties, competition for customers, changes in market rental rates, costs to
operate each property and expected ownership periods.
Renovations are performed by the Servicer, and those costs are then reimbursed
to the Servicer. Any renovations on properties which we elect to hold as rental
properties are capitalized as part of the property's basis and depreciated over
the remaining estimated useful life of the property. We may perform property
renovations to maximize the value of a property for either its rental strategy
or for resale.
Investments in securities at fair value
Our Investments at Fair Value as ofDecember 31, 2020 andDecember 31, 2019 consist of investments in senior and subordinated notes issued by joint ventures, which we form with third party institutional accredited investors. We recognize income on the debt securities using the effective interest method. Additionally, the notes are classified as available-for-sale and are carried at fair value with changes in fair value reflected in our consolidated statements of comprehensive income. We mark our investments to fair value using prices received from our financing counterparties and believe any unrealized losses on our debt securities to be temporary. Any other-than-temporary losses, which represent the excess of the amortized cost basis over the present value of expected future cash flows, are recognized in the period identified in our consolidated statements of income. Risks inherent in our debt securities portfolio, affecting both the valuation of the securities as well as the portfolio's interest income include the risk of default, delays and inconsistency in the frequency and amount of payments, risks affecting 53 -------------------------------------------------------------------------------- borrowers such as man-made or natural disasters, or the pandemic, and damage to or delay in realizing the value of the underlying collateral. We monitor the credit quality of the mortgage loans underlying our debt securities on an ongoing basis, principally by considering loan payment activity or delinquency status. In addition, we assess the expected cash flows from the mortgage loans, the fair value of the underlying collateral and other factors, and evaluate whether and when it becomes probable that all amounts contractually due will not be collected.
Investments in beneficial interests
Our Investments in beneficial interests as ofDecember 31, 2020 andDecember 31, 2019 consist of investments in the trust certificates issued by joint ventures which we form with third party institutional accredited investors. The trust certificates represent the residual interest of any special purpose entity formed to facilitate certain investments. We account for our Investments in beneficial interests under CECL, as discussed under Mortgage Loans. The methodology is similar to that described in "Mortgage Loans" except that we only recognize the ratable share of gain, loss income or expense.
Debt
Secured Borrowings - Through securitization trusts which are VIEs, we issue
callable debt secured by our mortgage loans in the ordinary course of
business. The secured borrowings facilitated by the trusts are structured as
debt financings, and the mortgage loans used as collateral remain on our
consolidated balance sheet as we are the primary beneficiary of the
securitization trusts. These secured borrowing VIEs are structured as pass
through entities that receive principal and interest on the underlying mortgages
and distribute those payments to the holders of the notes. Our exposure to the
obligations of the VIEs is generally limited to our investments in the entities;
the creditors do not have recourse to the primary beneficiary. Coupon interest
expense on the debt is recognized using the accrual method of accounting.
Deferred issuance costs, including original issue discount and debt issuance
costs, are carried on our consolidated balance sheets as a deduction from
Secured borrowings, and are amortized to interest expense on an effective yield
basis based on the underlying cash flow of the mortgage loans serving as
collateral. We assume the debt will be called at the specified call date for
purposes of amortizing discount and issuance costs because we believe it will
have the intent and ability to call the debt on the call date. Changes in the
actual or projected underlying cash flows are reflected in the timing and amount
of deferred issuance cost amortization.
Repurchase Facilities - We enter into repurchase financing facilities under
which we nominally sell assets to a counterparty and simultaneously enter into
an agreement to repurchase the sold assets at a price equal to the sold amount
plus an interest factor. Despite being legally structured as sales and
subsequent repurchases, repurchase transactions are generally accounted for as
debt secured by the underlying assets. At the maturity of a repurchase
financing, unless the repurchase financing is renewed, we are required to repay
the borrowing including any accrued interest and concurrently receive back our
pledged collateral from the lender. The repurchase financings are treated as
collateralized financing transactions; pledged assets are recorded as assets in
our consolidated balance sheets, and debt is recognized at the contractual
amount. Interest is recorded at the contractual amount on an accrual basis.
Costs associated with the set-up of a repurchasing contract are recorded as
deferred expense at inception and amortized over the contractual life of the
agreement. Any draw fees associated with individual transactions and any
facility fees assessed on the amounts outstanding are recorded as deferred
expense when incurred and amortized over the contractual life of the related
borrowing.
Fair Value
Fair Value of Financial Instruments - Fair value is defined as the price that
would be received to sell an asset or paid to transfer a liability in an orderly
transaction between market participants at the measurement date. A fair value
hierarchy has been established that requires an entity to maximize the use of
observable inputs and minimize the use of unobservable inputs when measuring
fair value. The standard describes three levels of inputs that may be used to
measure fair value:
•Level 1 - Quoted prices in active markets for identical assets or liabilities.
•Level 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
54
--------------------------------------------------------------------------------higher degree of judgment utilized in measuring fair value. Pricing observability is impacted by a number of factors, including the type of asset or liability, whether it is new to the market and not yet established, and the characteristics specific to the transaction.
The fair value of mortgage loans is estimated using the Manager's proprietary pricing model which estimates expected cash flows with the discount rate used in the present value calculation representing the estimated effective yield of the loans. The value of transfers of mortgage loans to REO is based upon the present value of future expected cash flows of the loans being transferred. We value our investments in debt securities using estimates provided by our financing counterparties. We also rely on our Manager's proprietary pricing model to estimate the underlying cash flows expected to be collected on these investments as a comparison to the estimates received from financing counterparties. We also rely on our Manager's proprietary pricing model to estimate the underlying cash flows expected to be collected on our investments in beneficial interests. During the quarter endedSeptember 30, 2020 , we transferred our beneficial interests from level 2 to level 3 due to our increased reliance on our Manager's pricing model for these valuations.
Our investment in the Manager is valued by applying an earnings multiple to base fee revenue.
Our investments in
The fair value of our investment in GAFS, including warrants, is determined by applying an earnings multiple to expected earnings.
The fair value of our investment in Gaea is estimated using a projected net operating income for its property portfolio.
The fair value of our investment in the loan pool LLCs is determined by using estimates of underlying assets and liabilities taken from our Manager's pricing model. Previously throughSeptember 30, 2020 the fair value of the investment in the loan pool LLCs was presented as the carrying value due to the recent nature of the acquisition transactions. The fair value of secured borrowings is estimated using estimates provided by our financing counterparties, which are compared for reasonableness to our Manager's proprietary pricing model which estimates expected cash flows of the underlying mortgage loans collateralizing the debt. During the quarter endedJune 30, 2020 , we transferred our secured borrowings from level 3 to level 2 due to our increased reliance on the use of estimates provided by our financing counterparties in the determination of secured borrowings fair values. Our put option liability is adjusted to approximate market value through earnings. Fair value is determined by using the greater of the expected call or put prices based on the call price, the carry cost discount and the interest discount.
Our borrowings under repurchase agreements are short-term in nature, and our Manager believes it can renew the current borrowing arrangements on similar terms in the future. Accordingly, the carrying value of these borrowings approximates fair value.
Our convertible senior notes are traded on the NYSE; the debt's fair value is determined from the NYSE closing price on the balance sheet date.
The carrying values of our Cash and cash equivalents, Cash held in trust, Receivable from Servicer, Prepaid expenses and other assets, Management fee payable and Accrued expenses and other liabilities are equal to or approximate fair value.
Recent Accounting Pronouncements
Refer to the notes to our consolidated financial statements for a description of relevant recent accounting pronouncements.
55
--------------------------------------------------------------------------------Results of Operations
For the year endedDecember 31, 2020 , we had net income attributable to common stockholders of$22.8 million , or$1.00 per share, for basic and diluted common shares. 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. Key items for the year endedDecember 31, 2020 include: •Formed joint ventures that acquired$1.2 billion in UPB of mortgage loans with collateral values of$1.9 billion and retained$144.7 million of varying classes of securities. •Purchased$55.1 million of RPLs, with UPB of$61.7 million and 59.4% of property value,$14.1 million of NPLs, with UPB of$16.0 million and 50.7% of property value and$19.8 million of SBC loans, with UPB of$20.3 million and 52.8% of property value, to end the year with$1.1 billion in net mortgage loans. •Interest income of$100.1 million ; net interest income of$51.4 million excluding the impact of a net$10.8 million recovery of provision for credit losses. •Net income attributable to common stockholders of$22.8 million . •Basic earnings per share of$1.00 per share. •Book value per share of$15.59 atDecember 31, 2020 . •Taxable income of$0.55 per share. •Collected total cash of$240.3 million , from loan payments, sales of REO and investments in debt securities and beneficial interests. •Held$107.1 million of cash and cash equivalents atDecember 31, 2020 ; average daily cash balance was$110.5 million . •AtDecember 31, 2020 , 71.9% of our portfolio based on UPB had made at least the last 12 out of 12 payments. Our consolidated net income attributable to common stockholders decreased for the year endedDecember 31, 2020 to$22.8 million from$34.7 million for the year ended 2019 and$28.3 million for the year ended 2018. Our net interest income after the recovery of provision for credit losses increased to$62.2 million for the year endedDecember 31, 2020 from$52.3 million for the year ended 2019 and$53.7 million for the year ended 2018, primarily as a result of$10.8 million in net recovery of provision for credit losses on our loan and beneficial interest portfolios. Comparatively, for the years ended 2019 and 2018 our provisions for credit losses were expenses in the amounts of$0.8 million and$1.2 million , respectively. Other income decreased for the year endedDecember 31, 2020 to$2.3 million from$4.2 million for the year ended 2019 and$3.7 million for the year ended 2018 primarily driven by the decrease in rental revenue from the capital raise transaction for Gaea in the fourth quarter of 2019. Also during the year endedDecember 31, 2020 we sold 26 mortgage loans with a carrying value of$26.1 million , and UPB of$26.2 million for a loss of$0.7 million . Comparatively, during the year ended 2019 we sold 965 mortgage loans with a carrying value of$178.8 million and UPB of$202.1 million for a gain of$7.1 million . We sold no mortgage loans during the year ended 2018. Our book value decreased to$15.59 per share from$15.80 atDecember 31, 2019 primarily from the effects of our stock dividend of 781,222 shares paid out onMarch 27, 2020 . We recorded a loss from our investment in affiliates of$0.2 million for the year endedDecember 31, 2020 compared to income of$1.3 million for the year ended 2019 and$0.8 million for the year ended 2018. The primary driver of the loss in 2020 is the flow-through impact of the mark to market loss on shares of our stock held by our Manager and our Servicer. We account for our investments in our Manager and our Servicer using the equity method of accounting. We recorded$1.4 million in impairments on our REO held-for-sale portfolio in real estate operating expense for the year endedDecember 31, 2020 compared to$2.1 million for the year ended 2019 and$2.7 million for the year ended 2018. Impairments during the year were driven primarily by the costs of holding the properties. We continue to liquidate our REO properties held-for-sale at a faster rate than we acquire properties, with 50 properties sold during the year endedDecember 31, 2020 while 20 were added to REO held-for-sale through foreclosures. We expect the rate of new foreclosures to slow due to the continuing impact of the COVID-19 pandemic. During the year endedDecember 31, 2019 we sold 109 REO properties while adding 61 through foreclosures. Table 1: Results of Operations For the year ended December 31, ($ in thousands) 2020 2019 2018 INCOME Interest income$ 100,071 $ 112,416 $ 108,181 56
-------------------------------------------------------------------------------- Interest expense (48,692) (59,325) (53,335) Net interest income 51,379 53,091 54,846 Provision for credit benefit/(losses) 10,820 (803) (1,164) Net interest income after provision for credit benefit/(losses) 62,199 52,288 53,682 (Loss)/income from investment in affiliates (155) 1,332 762 (Loss)/income on sale of mortgage loans (705) 7,123 - Other income 2,272 4,176 3,720 Total revenue, net 63,611 64,919 58,164 EXPENSE Related party expense - loan servicing fees 7,678 9,133 10,148 Related party expense - management fee 8,456 7,356 6,025 Loan transaction expense (211) 328 389 Professional fees 2,834 2,550 2,179 Real estate operating expenses 1,482 3,685 3,252 Other expense 9,228 4,225 3,934 Total expense 29,467 27,277 25,927 Loss on debt extinguishment 661 429 836 Income before provision for income taxes 33,483 37,213 31,401 Provision for income taxes (benefit) (125) 124 64 Consolidated net income 33,608 37,089 31,337 Less: consolidated net income attributable to the non-controlling interest 5,112 2,384 2,997 Consolidated net income attributable to Company 28,496 34,705 28,340 Less: dividends on preferred stock 5,740 - - Consolidated net income attributable to common stockholders$ 22,756 $ 34,705 $ 28,340 Interest Income Our primary source of income is accretion earned on our mortgage loan and mortgage securities portfolios offset by the interest expense incurred to fund and hold portfolio acquisitions. Net interest income after recovery of provision for credit losses increased to$62.2 million for the year endedDecember 31, 2020 from$52.3 million for the year endedDecember 31, 2019 and$53.7 million for the year endedDecember 31, 2018 primarily as a result of a net$10.8 million recovery of provision for credit losses on our loan and beneficial interest portfolios as a result of better than expected loan performance and the impact this has on expectations of future repayment rates. As a result we recorded recoveries of provisions for credit losses of$8.3 million on our mortgage loan portfolio and$2.5 million on our investments in beneficial interests. Comparatively during the years endedDecember 31, 2019 and 2018 we recorded net provisions for credit losses of$0.8 million and$1.2 million , respectively, on our mortgage loan portfolio and no provisions for credit losses on our investments in beneficial interests. Our accounting for credit losses during the calendar year 2020 is based on CECL, under which both increases and decreases in payment expectations are recorded in the period determined. For the comparative periods in 2019 and 2018, our impairment charges were determined under ASC 310-30, under which decreases in payment expectations were recorded in the period determined while increases in payment expectations were recorded prospectively over the remaining life of the loan pool. Our gross interest income for the year endedDecember 31, 2020 was$100.1 million , a decrease from$112.4 million for the year ended 2019 driven primarily by a decrease in our average balance of our mortgage loan portfolio offset by an increase in the average balance of our debt securities and beneficial interests. Additionally, interest income on our debt securities and beneficial interests are recorded net of servicing fees while interest income on our loan portfolio is recorded gross of servicing fees. Gross interest income for the year endedDecember 31, 2018 was$108.2 million . The overall increase in gross interest income from 2018 to 2019 was primarily due to an increase in our portfolio of debt securities and beneficial interests.
The weighted average balance of our mortgage loan portfolio decreased to
57
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2018. Interest income on our debt securities and beneficial interests portfolios
increased to $9.9 million and $11.8 million , respectively, for the year ended
December 31, 2020 , as our investments in debt securities and beneficial
interests continues to outpace our investments in mortgage loans. Interest
income on our debt securities and beneficial interests portfolios for the year
ended December 31, 2019 was $6.7 million and $6.4 million , respectively,
compared to $2.0 million and zero, respectively, for the year ended December 31,
2018 . Additionally, we collected $240.3 million in cash payments and proceeds on
our mortgage loans, securities and REO held-for-sale for the year ended
December 31, 2020 compared to collections of $253.6 million for the year ended
December 31, 2019 , and $219.8 million for the year ended December 31, 2018 .
During 2020 we continued to see an elevated volume of payoffs as borrowers
continued to refinance or sell the underlying property.
Our interest expense decreased for the year ended December 31, 2020 to
$48.7 million from $59.3 million for the year ended 2019 and from $53.3 million
for the year ended 2018 primarily due to decreases in the average interest rates
applicable to our mortgage and bond repurchase agreements and secured borrowings
as LIBOR remains extremely low. Additionally, improvements in the credit quality
of our loan portfolio has allowed us to issue senior bonds at increasingly lower
rates. We expect our cost of funds to continue to decrease in the current
interest rate and credit environment.
The interest income detail for the years ended
Table 2: Interest income detail
For the
year ended
2020 2019(1) 2018(1)
Accretable yield recognized on RPL, NPL and SBC
loans $ 77,841 $ 97,942 $ 105,148
Interest income on beneficial interests 11,754 6,426 -
Interest income on debt securities 9,852 6,655 1,980
Bank interest income 346 1,031 628
Other interest income 278 362 425
Interest income $ 100,071 $ 112,416 $ 108,181
Provision for credit benefit/(losses) 10,820 (803) (1,164)
Total interest income after provision for credit
benefit/(losses) $ 110,891 $ 111,613 $ 107,017 (1)Previously presented combination of interest income on securities and interest income on beneficial interests has been bifurcated to show each separately.
The average balance of our mortgage loan portfolio, debt securities, beneficial interests and debt outstanding for the years endedDecember 31, 2020 and 2019 are included in the table below ($ in thousands): Table 3: Average Balances For the year ended December 31, 2020 2019(1) Mortgage loan portfolio$ 1,103,472 $ 1,210,370 Average carrying value of debt securities $ 261,320$ 155,041 Average carrying value of beneficial interests $ 71,195$ 37,859 Total average asset level debt$ 1,043,445 $ 1,090,296 (1)Previously presented combination of average carrying value of debt securities and beneficial interests has been bifurcated to show to average carrying value of debt securities and average carrying value of beneficial interests separately.
Gain (loss) on sale of mortgage loans
During the year endedDecember 31, 2020 we sold 26 mortgage loans with an aggregate carrying value of$26.1 million and UPB of$26.2 million for a loss of$0.7 million . During the year endedDecember 31, 2019 we sold 965 mortgage loans with an aggregate carrying value of$178.8 million and UPB of$202.1 million for a gain of$7.1 million . We sold no mortgage loans during the year endedDecember 31, 2018 .
Other Income
58
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Other income decreased for the year ended December 31, 2020 as compared to both
the years ended 2019 and 2018 due to decreased rental income from the impact on
our rental portfolio of our Gaea capital raise in November 2019 and lower income
from the federal government's HAMP as more loans reached the five-year threshold
beyond which no additional fees are earned. This was partially offset by the
increased net gain on sale of property held-for-sale and the gain on sale of
securities. A breakdown of Other income is provided in the table below ($ in
thousands):
Table 4: Other Income
For the year ended December 31,
2020 2019 2018
Net gain on sale of Property held-for-sale $ 1,011 $ 610 $ 414
Late fee income 700 779 916
HAMP fees 370 836 1,489
Gain on sale of securities 149 8 363
Rental Income 42 1,943 538
Total Other Income $ 2,272 $ 4,176 $ 3,720
Expenses
Total expenses for the year ended December 31, 2020 increased from the years
ended 2019 and 2018. Other expense increased by $5.0 million from the year ended
2019 and again by $0.3 million in 2019 from 2018. The increase in 2020 is
primarily a result of amortization expense on the put option on our outstanding
warrants and an increase in management fees driven by an increase in our capital
base as a result of our private placements of preferred stock and warrants
completed during the second quarter of 2020. The increase from 2018 to 2019 was
driven primarily by an increase in management fee expense from continued growth
in our equity base. Our professional fees were higher in 2020 than 2019 and in
2019 from 2018 primarily from increases in fees for tax consulting and legal
services. For the year ended December 31, 2020 as compared to the year ended
2019 and 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. Real estate operating expense
decreased in 2020 by $2.2 million over 2019, due to the impact on our rental
portfolio of the Gaea capital raise in November 2019 . Comparatively, real estate
operating expense increased by $0.4 million from 2018 to 2019 due to the
inclusions in our financial results of our portfolio of rental property prior to
the capital raise transaction for Gaea in the fourth quarter of 2019. Loan
transaction expense was reduced in 2020 from 2019 and again in 2019 from 2018
due to lower direct loan purchases for our own portfolio as compared to joint
ventures. A breakdown of our expenses is provided in the table below ($ in
thousands):
Table 5: Expenses
For the year ended December 31,
2020 2019 2018
Other expense $ 9,228 $ 4,225 $ 3,934
Related party expense - management fee 8,456 7,356 6,025
Related party expense - loan servicing fees 7,678 9,133 10,148
Professional fees 2,834 2,550 2,179
Real estate operating expense 1,482 3,685 3,252
Loan transaction expense (211) 328 389
Total expenses $ 29,467 $ 27,277 $ 25,927
Other Expense
Other expense for the year ended December 31, 2020 increased from the years
ended 2019 and 2018 primarily due to the amortization of our put option expense,
borrowing related expenses and insurance expense offset by lower employee and
service provider share grants. A breakdown of other expense is provided in the
table below ($ in thousands):
59
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Table 6: Other Expense
For the year ended December 31,
2020 2019 2018
Amortization of put option expense $ 4,733 $ - $ -
Insurance 835 695 588
Borrowing related expenses 802 554 586
Employee and service provider share grants 728 839 880
Taxes and regulatory expense 481 478 293
Directors' fees and grants 427 423 482
Other expense 355 266 273
Software licenses and amortization 302 227 210
Travel, meals, entertainment 265 293 389
Lien release non due diligence 156 253 66
Internal audit services 144 197 167
Total other expense $ 9,228 $ 4,225 $ 3,934 Equity and Net Book Value per Share
Our net book value per share was$15.59 and$15.80 atDecember 31, 2020 and 2019, respectively, a decrease of$0.21 . WhileU.S. GAAP does not specifically define the parameters for calculating book value, we believe our calculation is representative of our book value on a per share basis, and our Manager believes book value per share is a valuable metric for evaluating our business. The net book value per share is calculated by dividing equity, after adjusting for the anticipated conversion of the senior convertible notes into shares of common stock, the subtraction of non-controlling interests and preferred shares classified in equity, and shares for Manager and director fees that were approved but still unissued as of the date indicated, unvested employee and service provider stock grants and the common shares from assumed conversion of our Senior convertible notes. A breakdown of our book value per share is set forth in the table below ($ in thousands except per share amounts):
Table 7: Book Value per Common Share
As of December 31,
2020 2019
Outstanding shares 22,978,339 22,142,143Adjustments for: Unvested grants of restricted stock, and Manager and director shares earned but not issued as of the date indicated
4,280 2,600
Conversion of convertible senior notes into shares of common stock
7,834,299 8,270,208
Total adjusted shares outstanding 30,816,918 30,414,951
Equity at period end $ 514,491
110,250 120,669
Adjustment for equity due to preferred shares (115,144) -
Net adjustment for equity due to non-controlling interests (29,130)
(24,257)
Adjusted equity $ 480,467 $ 480,496
Book value per share $ 15.59 $ 15.80 Table 8: Fair Value Balance Sheet
The table below presents a summarized version of ourU.S. GAAP balance sheets as compared to a summarized balance sheets presented at our estimates of fair values. WhileU.S. GAAP does not specifically define the parameters for the presentation of a fair value balance sheet, we believe the presentation is representative of our fair value, and our Manager believes this presentation is a valuable metric for evaluating our business below ($ in thousands): 60 --------------------------------------------------------------------------------
December 31, 2020 December 31, 2019
Adjustments for Adjustments for
GAAP fair value Fair Value GAAP fair value Fair Value
ASSETS
Cash and Cash held in trust $ 107,335 $ - $ 107,335 $ 64,363 $ - $ 64,363
Mortgage loans, net 1,119,372 112,709 1,232,081 1,151,469 108,916 1,260,385
Investments in debt
securities and beneficial
interests 365,252 - 365,252 289,639 - 289,639
Investments in affiliates,
real property and other
assets 61,773 10,682 72,455 71,370 6,262 77,632
Total Assets $ 1,653,732 $ 123,391 $ 1,777,123 $ 1,576,841 $ 115,178 $ 1,692,019
LIABILITIES AND EQUITY
Liabilities:
Secured borrowings, net $ 585,403 $ 1,016 $ 586,419 $ 652,747 $ 5,171 $ 657,918
Borrowings under repurchase
agreements 421,132 - 421,132 414,114 - 414,114
Convertible senior notes, net 110,057 618 110,675 118,784 13,389 132,173 Other liabilities 22,649 - 22,649 7,112 - 7,112 Total Liabilities 1,139,241 1,634 1,140,875 1,192,757 18,560 1,211,317 Equity: Total Equity 514,491 121,757 636,248 384,084 96,618 480,702
Total Liabilities and Equity
$ 1,777,123 $ 1,576,841 $ 115,178 $ 1,692,019 The adjustments for fair value for our mortgage loans are determined using our Manager's proprietary pricing model which estimates expected cash flows with the discount rate used in the present value calculation representing the estimated effective yield of the loans. The fair values of our investments in affiliates are determined using methodologies appropriate to each affiliate. As ofDecember 31, 2020 , our investment in the Manager is valued by applying an earnings multiple to base fee revenue. Our investment inAS Ajax E LLC andAS Ajax E II LLC are valued using estimates provided by financing counterparties or other publicly available information. The fair value of our investment in GAFS, including warrants, is determined by applying an earnings multiple to expected earnings. Our investment in Gaea is estimated using a projected net operating income for its property portfolio. As ofDecember 31, 2020 our investment in the loan pool LLCs are presented by using estimates of underlying assets and liabilities from our Manager's pricing model. Previously throughSeptember 30, 2020 the fair value of our investment in the loan pool LLCs was presented as the carrying value due to the recent nature of the acquisition transactions. The fair value of secured borrowings is estimated using estimates provided by our financing counterparties, which are compared for reasonableness to the Manager's proprietary pricing model, which estimates expected cash flows of the underlying mortgage loans collateralizing the debt.
The fair value of our convertible senior notes is determined from the NYSE closing price of such notes on the balance sheet date.
Mortgage Loan Portfolio
For the years endedDecember 31, 2020 andDecember 31, 2019 , we acquired 304 and 573 RPLs with an aggregate acquisition price of$55.1 million and$104.5 million , respectively, representing 89.3% and 85.3% of UPB, respectively. We acquired 65 and 35 NPLs for the years endedDecember 31, 2020 andDecember 31, 2019 with an aggregate acquisition price of$14.1 million and$5.7 million , respectively, representing 87.8% and 84.2% of UPB, respectively. For the years endedDecember 31, 2020 andDecember 31, 2019 , we acquired 14 and 22 SBC loans with an aggregate acquisition price of$19.8 million and$19.0 million , respectively, representing 97.7% and 100.0% of UPB, respectively. We ended the period with$1.1 billion of mortgage loans with an aggregate UPB of$1.2 billion as ofDecember 31, 2020 and$1.2 billion of mortgage loans with an aggregate UPB of$1.3 billion as ofDecember 31, 2019 . 61 --------------------------------------------------------------------------------
The following table shows loan portfolio acquisitions for the years ended
Table 9: Loan Portfolio Acquisitions
For the year ended December 31,
2020 2019
RPLs
Count 304 573
UPB $ 61,704 $ 122,463
Purchase price $ 55,090 $ 104,478
Purchase price % of UPB 89.3 % 85.3 %
NPLs
Count 65 35
UPB $ 16,022 $ 6,732
Purchase price $ 14,075 $ 5,668
Purchase price % of UPB 87.8 % 84.2 %
SBC loans
Count 14 22
UPB $ 20,276 $ 19,025
Purchase price $ 19,800 $ 19,034
Purchase price % of UPB 97.7 % 100.0 %
During the year ended December 31, 2020 , 538 mortgage loans, representing 11.1%
of our ending UPB, were liquidated. Comparatively, during the year ended 2019,
1,562 mortgage loans, representing 24.4% of our ending UPB, were liquidated. Our
loan portfolio activity for the years ended December 31, 2020 and 2019 are
presented below ($ in thousands):
Table 10: Loan Portfolio Activity
For
the year ended
2020 2019(1)
Beginning carrying value $ 1,151,469 $ 1,310,873
RPL, NPL and SBC portfolio acquisitions, net cost basis 88,965 129,186
Draws on SBC loans 56 912
Accretion recognized 77,129 96,064
Payments received on loans, net (175,678) (191,647)
Reclassifications to REO (4,764) (12,104)
Sale of mortgage loans (26,111) (180,992)
Provision for credit benefit/(losses) on mortgage loans 8,274 (803)
Other 32 (20)
Ending carrying value $ 1,119,372 $ 1,151,469 (1)Includes reclass of SBC non-pooled portfolio acquisitions, net cost basis to RPL, NPL and SBC portfolio acquisitions, net cost basis.
Table 11: Portfolio Composition
As of
December 31, 2020(1,2) December 31, 2019(1,2)
No. of Loans 6,031 No. of Loans 6,184
Total UPB(3) $ 1,204,804 Total UPB(3) $ 1,268,126
Interest-Bearing Balance $ 1,127,499 Interest-Bearing Balance $ 1,190,917
62-------------------------------------------------------------------------------- Deferred Balance(4)$ 77,305 Deferred Balance(4)$ 77,209 Market Value of Collateral(5)$ 1,967,419 Market Value of Collateral(5)$ 1,783,856 Original Purchase Price/Total UPB 82.2 % Original Purchase Price/Total UPB 82.9 % Original Purchase Price/Market Original Purchase Price/Market Value of Collateral 53.7 % Value of Collateral 61.9 % Weighted Average Coupon 4.44 % Weighted Average Coupon 4.55 % Weighted Average LTV(6) 72.8 % Weighted Average LTV(6) 83.5 % Weighted Average Remaining Term Weighted Average Remaining Term (months) 297 (months) 311 No. of first liens 5,973 No. of first liens 6,124 No. of second liens 58 No. of second liens 60 No. of Rental Properties 6 No. of Rental Properties 10 Capital Invested in Rental Capital Invested in Rental Properties$ 710 Properties$ 1,591 RPLs 94.4 % RPLs 95.3 % NPLs 3.5 % NPLs 2.7 % SBC loans 2.1 % SBC loans 2.0 % No. of REO properties held-for-sale 32 No. of REO properties held-for-sale 58 Market Value of other REO(7)$ 8,105 Market Value of other REO(7)$ 13,987 Carrying value of debt securities Carrying value of debt securities and beneficial interests in trusts$ 369,330 and beneficial interests in trusts$ 288,362 Loans with 12 for 12 payments as an Loans with 12 for 12 payments as an approximate percentage of UPB(8) 71.9 % approximate percentage of UPB(8) 76.0 % Loans with 24 for 24 payments as an Loans with 24 for 24 payments as an approximate percentage of UPB(9) 65.1 % approximate percentage of UPB(9) 64.0 % (1)Includes the impact of 1,003 mortgage loans with a purchase price of$177.3 million , UPB of$194.3 million and collateral value of$295.3 million acquired in the fourth quarter of 2017 through a 50.0% 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$68.1 million acquired in the third quarter of 2018 through a 63.0% owned joint venture which we consolidate. (3)AtDecember 31, 2020 and 2019, our loan portfolio consists of fixed rate (53.5% of UPB), ARM (8.9% of UPB) and Hybrid ARM (37.6% of UPB); and fixed rate (52.8% of UPB), ARM (9.5% of UPB) and Hybrid ARM (37.7% of UPB), respectively. (4)Amounts that have been deferred in connection with a loan modification on which interest does not accrue. These amounts generally become payable at the time of maturity. (5)As of date of acquisition. (6)UPB as ofDecember 31, 2020 and 2019, divided by market value of collateral and weighted by the UPB of the loan. (7)Market value of REO is based on net realizable value. Fair market value is determined based on appraisals, BPOs, or other market indicators of fair value including list price or contract price. (8)Loans that have made at least 12 of the last 12 payments, or for which the full dollar amount to cover at least 12 payments has been made in the last 12 months. (9)Loans that have made at least 24 of the last 24 payments, or for which the full dollar amount to cover at least 24 payments has been made in the last 24 months.
Table 12: Portfolio Characteristics
The following tables present certain characteristics about our mortgage loans by year of origination as ofDecember 31, 2020 andDecember 31, 2019 , respectively ($ in thousands):
Portfolio at
Years of Origination
After 2008 2006 - 2008 2005 and prior
Number of loans 639 3,471 1,921
Unpaid principal balance $ 156,250 $ 780,956 $ 267,598
Mortgage loan portfolio by year of origination 13.0 % 64.8 % 22.2 %
Loan Attributes:
Weighted average loan age (months) 91.0 166.7 205.8
63
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Weighted Average loan-to-value 69.4 % 77.0 % 62.6 %
Delinquency Performance:
Current 53.0 % 51.9 % 53.3 %
30 days delinquent 13.6 % 11.4 % 10.9 %
60 days delinquent 3.8 % 6.7 % 6.8 %
90+ days delinquent 25.3 % 25.1 % 25.4 %
Foreclosure 4.3 % 4.9 % 3.6 %
Portfolio at
Years of Origination
After 2008 2006 - 2008 2005 and prior
Number of loans 625 3,576 1,983
Unpaid principal balance $ 153,923 $ 826,684 $ 287,519
Mortgage loan portfolio by year of origination 12.1 % 65.2 % 22.7 %
Loan Attributes:
Weighted average loan age (months) 88.0 154.5 193.3
Weighted Average loan-to-value 72.7 % 81.2 % 66.5 %
Delinquency Performance:
Current 61.9 % 56.9 % 58.8 %
30 days delinquent 9.5 % 13.0 % 12.6 %
60 days delinquent 6.5 % 8.4 % 8.2 %
90+ days delinquent 20.5 % 17.3 % 17.3 %
Foreclosure 1.6 % 4.4 % 3.1 %
Table 13: Loans by State
The following table identifies our mortgage loans by state, number of loans, loan value, collateral value and percentages thereof atDecember 31, 2020 andDecember 31, 2019 ($ in thousands): December 31, 2020 December 31, 2019 % of % of Collateral Collateral Collateral Collateral State Count UPB % UPB Value(1) Value State Count UPB % UPB Value(1) Value CA 947$ 329,725 27.4 %$ 589,225 30.0 % CA 1,010$ 370,838 29.2 %$ 564,169 31.6 % FL 655 108,293 9.0 % 174,849 8.9 % FL 689 119,728 9.4 % 156,967 8.8 % TX 410 42,432 3.5 % 81,810 4.2 % NY 331 105,853 8.3 % 161,646 9.1 % GA 352 45,817 3.8 % 71,586 3.7 % NJ 290 66,762 5.3 % 80,472 4.5 % NY 329 103,475 8.6 % 177,524 9.0 % MD 257 63,349 5.0 % 74,027 4.2 % NJ 287 65,764 5.5 % 89,389 4.5 % GA 363 48,969 3.9 % 62,960 3.5 % MD 248 60,082 5.0 % 77,693 4.0 % VA 206 44,193 3.5 % 57,678 3.2 % NC 240 33,146 2.8 % 52,217 2.7 % IL 228 42,962 3.4 % 49,586 2.8 % IL 227 41,410 3.5 % 54,379 2.8 % TX 399 39,689 3.1 % 69,874 3.9 % VA 205 43,563 3.6 % 63,132 3.2 % MA 181 37,596 3.0 % 53,785 3.0 % PA 185 21,294 1.8 % 31,248 1.6 % NC 240 31,402 2.5 % 42,977 2.4 % MA 177 35,454 2.9 % 61,220 3.1 % WA 114 28,489 2.2 % 43,372 2.4 % AZ 150 29,765 2.5 % 47,835 2.4 % AZ 154 26,321 2.1 % 34,277 1.9 % SC 129 14,206 1.2 % 22,213 1.1 % NV 107 21,384 1.7 % 27,540 1.5 % TN 115 12,721 1.1 % 22,690 1.2 % PA 180 20,978 1.7 % 26,936 1.5 % OH 110 12,929 1.1 % 17,843 0.9 % SC 129 15,282 1.2 % 21,263 1.2 % WA 104 23,874 2.0 % 43,784 2.2 % MI 98 14,339 1.1 % 21,876 1.2 % IN 98 9,180 0.8 % 14,476 0.7 % OH 110 13,515 1.1 % 15,451 0.9 % NV 97 18,614 1.5 % 30,344 1.5 % OR 66 12,991 1.0 % 19,519 1.1 % MI 97 13,103 1.1 % 19,832 1.0 % CT 72 12,594 1.0 % 15,832 0.9 % CT 77 13,529 1.1 % 18,115 0.9 % TN 115 12,566 1.0 % 19,203 1.1 % 64
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LA 76 7,631 0.6 % 11,910 0.6 % CO 63 12,368 1.0 % 22,471 1.3 %
MO 75 9,383 0.8 % 12,545 0.6 % MN 54 10,200 0.8 % 12,753 0.7 %
OR 70 24,303 2.0 % 46,279 2.4 % MO 80 10,003 0.8 % 12,427 0.7 %
CO 54 10,450 0.9 % 22,665 1.2 % IN 100 9,521 0.8 % 12,545 0.7 %
MN 49 9,121 0.8 % 13,242 0.7 % UT 52 8,923 0.7 % 13,957 0.8 %
UT 44 6,895 0.6 % 14,932 0.8 % LA 74 7,585 0.6 % 11,389 0.6 %
AL 44 3,670 0.3 % 4,891 0.2 % HI 17 7,229 0.6 % 10,093 0.6 %
WI 37 4,696 0.4 % 6,385 0.3 % DE 33 6,566 0.5 % 7,626 0.4 %
KY 36 4,158 0.3 % 6,032 0.3 % WI 37 4,772 0.4 % 5,827 0.3 %
DE 34 6,509 0.5 % 7,999 0.4 % DC 16 4,542 0.4 % 6,368 0.4 %
NM 30 4,450 0.4 % 6,207 0.3 % NM 30 4,525 0.4 % 5,407 0.3 %
OK 27 2,511 0.2 % 3,827 0.2 % KY 34 3,969 0.3 % 5,213 0.3 %
MS 26 2,149 0.2 % 3,168 0.2 % AL 43 3,569 0.3 % 4,480 0.3 %
AR 20 1,447 0.1 % 2,016 0.1 % RI 15 3,232 0.3 % 4,188 0.2 %
KS 19 1,379 0.1 % 2,897 0.1 % NH 17 3,016 0.2 % 4,290 0.3 %
NH 18 3,223 0.3 % 5,087 0.3 % OK 30 2,631 0.2 % 3,948 0.2 %
IA 18 1,736 0.1 % 2,267 0.1 % MS 25 2,389 0.2 % 3,062 0.2 %
DC 17 5,131 0.4 % 8,138 0.4 % ID 14 1,723 0.1 % 2,755 0.2 %
WV 17 1,258 0.1 % 1,830 0.1 % IA 16 1,599 0.1 % 2,011 0.1 %
HI 16 6,456 0.5 % 9,305 0.5 % WV 17 1,595 0.1 % 2,208 0.1 %
RI 14 3,084 0.3 % 4,481 0.2 % ME 11 1,564 0.1 % 1,829 0.1 %
ID 12 1,496 0.1 % 2,971 0.2 % KS 18 1,391 0.1 % 2,435 0.1 %
ME 10 1,372 0.1 % 1,801 0.1 % AR 18 1,318 0.1 % 1,777 0.1 %
MT 6 803 0.1 % 1,336 0.1 % NE 6 702 0.1 % 836 0.1 %
PR 5 518 - % 592 - % MT 5 697 0.1 % 1,005 0.1 %
SD 4 537 - % 872 - % PR 6 546 - % 838 0.1 %
NE 4 528 - % 603 - % WY 4 519 - % 593 - %
WY 3 438 - % 356 - % SD 3 509 - % 678 - %
ND 3 395 - % 472 - % VT 2 467 - % 470 - %
VT 2 452 - % 518 - % ND 3 403 - % 595 - %
AK 2 249 - % 391 - % AK 2 253 - % 372 - %
6,031 $ 1,204,804 100.0 % $ 1,967,419 100.0 % 6,184 $ 1,268,126 100.0 % $ 1,783,856 100.0 %
(1)As of date of acquisition.
Table 14:
For the year ended December 31,
2020 2019
Class A securities
UPB $ 116,952 $ 140,168
Purchase price $ 115,558 $ 139,530
Purchase price % of UPB 98.8 % 99.5 %
Class B securities
UPB $ 9,923 $ 17,143
Purchase price $ 9,817 $ 16,845
Purchase price % of UPB 98.9 % 98.3 %
Beneficial interests
Purchase price $ 19,307 $ 31,450 Liquidity and Capital Resources
Source and Uses of Cash
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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. As the local
and global economies have weakened as a result of the COVID-19 pandemic,
ensuring adequate liquidity is critical. We believe we have access to adequate
resources to meet the needs of our existing operations, mandatory capital
expenditures, dividend payments, and working capital, to the extent not funded
by cash provided by operating activities. However, we expect the COVID-19
pandemic to adversely impact our future operating cash flows due to the
inability of some of our borrowers to make scheduled payments on time or at all,
and the potential for HPA decline. From time to time, we may invest with third
parties and acquire interests in loans and other real estate assets through
investments in joint ventures using special purpose entities that can result in
investments at fair value and investments in beneficial interests, which are
reflected on our consolidated balance sheet.
As of December 31, 2020 and December 31, 2019 , substantially all of our invested
capital was in RPLs, NPLs, SBC loans, property held-for-sale, debt securities,
beneficial interests and rental properties. We also held approximately $107.1
million of cash and cash equivalents, an increase of $42.8 million from our
balance of $64.3 million at the end of 2019, which was an increase of
$9.2 million from our balance of $55.1 million at December 31, 2018 . Our average
daily cash balance during 2020 was $110.5 million , an increase from our average
daily cash balance of $57.6 million during the year ended December 31, 2019 and
also an increase from our average daily balance of $50.7 million at December 31,
2018 .
Our collections of principal and interest payments on mortgages and securities,
payoffs and proceeds and on the sale of our property held-for-sale were $240.3
million , $253.6 million and $219.8 million for the years ended December 31,
2020 , 2019 and 2018, respectively.
Our operating cash outflows, including the effect of restricted cash, for the
year ended December 31, 2020 and 2019 were $13.9 million and $15.0 million ,
respectively. Our operating cash inflows, including the effect of restricted
cash, for the year ended December 31, 2018 was $1.0 million . Our primary
operating cash inflow is cash interest payments on our mortgage loan pools,
which was $48.1 million , $57.0 million and $60.0 million , respectively, for the
years ended December 31, 2020 , 2019 and 2018, respectively. Non-cash interest
income accretion was $29.0 million , $39.1 million and $43.7 million for the
years ended December 31, 2020 , 2019 and 2018, respectively. Interest income on
beneficial interests was $11.8 million , $6.4 million and zero during the years
ended December 31, 2020 , 2019 and 2018, respectively. Interest income on debt
securities was $9.9 million , $6.7 million and $0.8 million during the years
ended December 31, 2020 , 2019 and 2018, respectively. During the year ended
December 31, 2020 we recognized a loss of $0.7 million from the sale of 26
mortgage loans to Gaea, an affiliated entity. During the year ended December 31,
2019 , we recognized a gain of $7.1 million from the sale of 965 mortgage loans
to a related party joint venture, Ajax Mortgage Loan Trust 2019-C ("2019-C"). No
mortgage loans were sold during the year ended December 31, 2018 .
Though the ownership of mortgage loans and other real estate assets is our
business, U.S. GAAP requires that operating cash flows do not include the
portion of principal payments that are allocable to the discount we recognize on
our mortgage loans including proceeds from loans that pay in full or are
liquidated in a short sale or third party sale at foreclosure or the proceeds on
the sales of our property held-for-sale. These activities are all considered to
be investing activities under U.S. GAAP, and the cash flows from these
activities are included in the investing section of our consolidated statements
of cash flows. We expect that the impact of the COVID-19 outbreak will put
pressure on our cash flow from operations as we enter into loan modifications on
certain of our loans permitting interest payments to be deferred.
For the year ended December 31, 2020 , our investing cash inflows of $24.2
million were driven primarily by the proceeds from principal payments on and
payoffs of our mortgage loan portfolio of $127.5 million , principal payments on
and payoffs of our debt securities and beneficial interests of $53.5 million ,
the sale of $38.9 million of debt securities held as investments and the sale of
our mortgage loans to Gaea in the amount of $25.4 million . This was offset by
purchases of debt securities and beneficial interests of $144.7 million and
acquisitions of mortgage loans of $89.0 million . 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 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 the 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 were
primarily driven by the acquisition of mortgage loans of $171.3 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 .
66
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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, 2020 , we
had net financing cash inflows of $32.7 million due to the issuance of our
preferred stock and warrants, net of any offering costs for $125.0 million in a
series of private placements to institutional accredited investors. Financing
cash flows were also impacted by additional borrowings through repurchase
transactions of $315.4 million and secured debt of $114.5 million , offset by
repayments of $308.3 million on repurchase transactions and pay downs of
existing debt obligations of $183.5 million on secured debt. We had net
financing cash outflows for the year ended 2019 of $76.0 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 $283.9 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 financing cash
inflows for the year ended 2018 of $163.8 million primarily from the issuance of
secured notes for proceeds of $167.1 million , the issuance of convertible debt
for net proceeds of $15.2 million , and proceeds from our repurchase agreements
of $311.1 million , which was offset by the repayments on repurchase transactions
of $53.4 million and on secured debt of $254.2 million . For the years ended
December 31, 2020 , 2019 and 2018 we paid $17.8 million , $27.1 million and $26.3
million , respectively, in cash dividends and distributions.
Financing Activities - Equity offerings
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 the common shares, trading volume and general circumstances and market conditions. As ofDecember 31, 2020 we held 107,243 shares of treasury stock consisting of 58,779 shares received through distributions of our shares previously held by our Manager and 48,464 shares acquired through open market purchases in the fourth quarter of 2020 under our approved stock buyback plan. As ofDecember 31, 2019 we held 33,248 shares of treasury stock received through distributions of our shares previously held by our Manager. During the year endedDecember 31, 2020 , we issued an aggregate of$130.0 million of preferred stock and warrants to institutional accredited investors in a series of private placements. We issued 2,307,400 shares of 7.25% Series A Fixed-to-Floating Rate Preferred Stock and 2,892,600 shares of 5.00% Series B Fixed-to-Floating Rate Preferred Stock, each at a purchase price per share of$25.00 and two series of five-year warrants to purchase an aggregate of 6,500,000 shares of our common stock at an exercise price of$10.00 per share. Each series of warrants includes a put option that allows the holder to sell the warrants to us at a specified put price on or afterJuly 6, 2023 . UnderU.S. GAAP, we are required to allocate the proceeds between the Preferred stock and warrants. The allocation of the proceeds, net of all offering costs, resulted in the Preferred series A shares receiving an allocation of$51.1 million , the Preferred series B shares receiving an allocation of$64.0 million and the warrants an allocation of$9.5 million . We mark the obligation for the warrants and future put liability to market though earnings. We expect to use the net proceeds from the private placement to acquire mortgage loans and mortgage-related assets consistent with our investment strategy. During the year endedDecember 31, 2020 , we did not sell any shares of common stock under our At the Market program 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, 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 program. During the year endedDecember 31, 2018 , we did not sell any shares of common stock under our At the Market program. In accordance with the terms of the agreements, we may offer and sell shares of our common stock at any time and from time to time through the sales agents. Sales of the shares, if any, will be made by means of ordinary brokers' transactions on the NYSE or otherwise at market prices prevailing at the time of the sale. OnNovember 22, 2019 , Gaea completed a private capital raise transaction through which it raised$66.3 million from the issuance of 4,419,641 shares of its common stock to third parties to allow Gaea to continue to advance its investment strategy. The purchase price per share was$15.00 . Upon completion of the private placement, 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. AtDecember 31, 2020 we owned approximately 23.0% of Gaea with third party investors owning the remaining approximately 77.0%. 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
67
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From inception (January 30, 2014 ) to December 31, 2020 , we have completed 16
secured borrowings, not including secured borrowings we completed for
non-consolidated joint ventures (See Table 18: Investments in joint ventures),
through securitization trusts pursuant to Rule 144A under the Securities Act,
six of which were outstanding at December 31, 2020 . The secured borrowings are
structured as debt financings and not REMIC sales, and the loans included in the
secured borrowings remain on our consolidated balance sheet as we are the
primary beneficiary of the secured borrowing trusts, which are VIEs. The secured
borrowing VIEs are structured as pass through entities that receive principal
and interest on the underlying mortgages and distribute those payments to the
holders of the notes. Our exposure to the obligations of the VIEs is generally
limited to our investments in the entities. The notes that are issued by the
secured borrowing trusts are secured solely by the mortgages held by the
applicable trusts and not by any of our other assets. The mortgage loans of the
applicable trusts are the only source of repayment and interest on the notes
issued by such trusts. We do not guarantee any of the obligations of the trusts
under the terms of the agreement governing the notes or otherwise.
Our secured borrowings are 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 Trust
2017-D ("2017-D") secured borrowings, from which we sold a 50% interest in the
Class A notes and a 50% interest in the residual equity to third parties and
2018-C secured borrowings, from which we sold a 95% interest in the Class A
notes and 37% in the Class B and trust certificates, we have retained the
subordinate notes and the trust certificates from the six secured borrowings
outstanding at December 31, 2020 .
For all of our secured borrowings the Class A notes are senior, sequential pay,
fixed rate notes, and with the exception of 2017-D and 2018-C as noted above,
the Class B notes are subordinate, sequential pay, fixed rate notes with the
exception of 2019-D, 2019-F and 2020-B which are subordinate, sequential pay,
fixed rate notes for Class B-1 and variable rate notes for Class B-2 and Class
B-3. The interest rate is effectively the rate equal to the spread between the
gross average rate of interest the trust collects on its mortgage loan portfolio
minus the rate derived from the sum of the servicing fee and other expenses of
the trust. The Class M notes issued under 2017-B, 2019-D, 2019-F and 2020-B are
also mezzanine, sequential pay, fixed rate notes.
For all of our secured borrowings, except 2017-B, 2019-D, 2019-F and 2020-B,
which contains no interest rate step-up, if the Class A notes have not been
redeemed by the payment date or otherwise paid in full 36 months after issue, an
interest rate step-up of 300 basis points is triggered. Twelve months after the
300 basis points step up is triggered, an additional 100 basis point step up
will be triggered, and an amount equal to the aggregate interest payment amount
that accrued and would otherwise be paid to the subordinate notes will be paid
as principal to the Class A notes on that date and each subsequent payment date
until the Class A notes are paid in full. After the Class A notes are paid in
full, the subordinate notes will resume receiving their respective interest
payment amounts and any interest that accrued but was not paid while the Class A
notes were outstanding. As the holder of the trust certificates, we are entitled
to receive any remaining amounts in the trusts after the Class A notes and
subordinate notes have been paid in full.
The following table sets forth the original terms of all outstanding
securitization notes at their respective cutoff dates as of
Table 15: Secured Borrowings
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(3) $9.7 million 3.50 %
None Class M-2 notes due 2056(3) $9.5 million 3.50 %
None Class B-1 notes due 2056(1) $9.0 million 3.75 %
None Class B-2 notes due 2056(1) $7.5 million 3.75 %
Trust certificates(2) $14.3 million - %
Deferred issuance costs $(1.8) million - %
Ajax Mortgage Loan Trust
2017-D/ December 2017 April 25, 2021 Class A notes due 2057(4) $177.8 million 3.75 %
None Class B certificates(4) $44.5 million - %
Deferred issuance costs $(1.1) million - %
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Ajax Mortgage Loan Trust 2018-C/ September 2018 October 25, 2021 Class A notes due 2065(5)$170.5 million 4.36 % April 25, 2022 Class B notes due 2065(5)$15.9 million 5.25 % Trust certificates(5)$40.9 million - % Deferred issuance costs$(2.0) million - %Ajax Mortgage Loan Trust 2019-D/ July 2019 None Class A-1 notes due 2065$140.4 million 2.96 % None Class A-2 notes due 2065$6.1 million 3.50 % None Class A-3 notes due 2065$10.1 million 3.50 % None Class M-1 notes due 2065(3)$9.3 million 3.50 % None Class B-1 notes due 2065(6)$7.5 million 3.50 % None Class B-2 notes due 2065(6)$7.1 million variable(7) None Class B-3 notes due 2065(6)$12.8 million variable(7) Deferred issuance costs$(2.7) million - %Ajax Mortgage Loan Trust 2019-F/ November 2019 None Class A-1 notes due 2059$110.1 million 2.86 % None Class A-2 notes due 2059$12.5 million 3.50 % None Class A-3 notes due 2059$5.1 million 3.50 % None Class M-1 notes due 2059(3)$6.1 million 3.50 % None Class B-1 notes due 2059(6)$11.5 million 3.50 % None Class B-2 notes due 2059(6)$10.4 million variable(7) None Class B-3 notes due 2059(6)$15.1 million variable(7) Deferred issuance costs$(1.8) million - %Ajax Mortgage Loan Trust 2020-B/ August 2020 None Class A-1 notes due 2059$97.2 million 1.70 % None Class A-2 notes due 2059$17.3 million 2.86 % None Class M-1 notes due 2059(3)$7.3 million 3.70 % None Class B-1 notes due 2059(6)$5.9 million 3.70 % None Class B-2 notes due 2059(6)$5.1 million variable(7) None Class B-3 notes due 2059(6)$23.6 million variable(7) Deferred issuance costs$(1.8) million - % (1)The Class B notes are 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. (2)The trust certificates issued by the trusts and the beneficial ownership of the trusts are retained byGreat Ajax Funding LLC as the depositor. As the holder of the trust certificates, we are entitled to receive any remaining amounts in the trusts after the Class A notes, Class M notes, where present, and Class B notes have been paid in full. (3)The Class M notes are 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. (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 are reflecting 100% of the mortgage loans, in Mortgage loans, net. 95% of the Class A notes and 37% of the Class B notes, which are held by the third party, are included in Secured borrowings, net. The 5% portion of the Class A notes retained by us have been encumbered under a 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 are 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. Convertible Senior Notes 69
-------------------------------------------------------------------------------- OnApril 25, 2017 , we completed the public offer and sale of$87.5 million in aggregate principal amount of our convertible senior notes (the "notes") due 2024, with follow-on offerings of an additional$20.5 million and$15.9 million , respectively, in aggregate principal amount completed onAugust 18, 2017 andNovember 19, 2018 , respectively, which, combined with the notes from our April offering form a single series of fungible securities. The notes bear interest at a rate of 7.25% per annum, payable quarterly in arrears onJanuary 15 ,April 15 ,July 15 andOctober 15 of each year. The notes will mature onApril 30, 2024 , unless earlier repurchased, converted or redeemed. During certain periods and subject to certain conditions the notes will be convertible by their holders into shares of our common stock at a conversion rate of 1.7279 shares of common stock per$25.00 principal amount of the notes, which represents a conversion price of approximately$14.47 per share of common stock. The conversion rate, and thus the conversion price, may be subject to adjustment under certain circumstances. During the first and third quarter of 2020, we completed a series of convertible note repurchases for aggregate principal amounts of$8.0 million and$2.5 million , respectively, for total purchase prices of$8.2 million and$2.3 million , respectively. The carrying amounts of the equity component representing the embedded conversion feature reversed from Additional paid-in capital due to the first and third quarter of 2020 transactions were$0.1 million and zero, respectively.
Repurchase Transactions
We have two repurchase facilities whereby we, through two wholly ownedDelaware trusts (the "Trusts"), acquire pools of mortgage loans which are then sold by the Trusts, as "Seller" to two separate counterparties, the "buyer" or "buyers." One facility has a ceiling of$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 theOperating Partnership . The difference between the market value of the asset and the amount of the repurchase agreement is generally the amount of equity we have in the position and is intended to provide the buyer with some protection against fluctuations in the value of the collateral, and/or a failure by us to repurchase the asset and repay the borrowing at maturity. We also have four repurchase facilities substantially similar to the mortgage loan repurchase facilities where the pledged assets are the class B bonds and certificates from our securitization transactions. These facilities have no effective ceilings. Each repurchase transaction represents its own borrowing. As such, the ceilings associated with these transactions are the amounts currently borrowed at any one time. We have effective control over the assets subject to all of these transactions; therefore, our repurchase transactions are accounted for as financing arrangements.
A summary of our outstanding repurchase transactions at
Table 16: Repurchase Transactions by Maturity Date
December 31, 2020
Maximum
Borrowing Amount Amount of Percentage of
Maturity Date Origination date Capacity Outstanding Collateral Collateral Coverage Interest Rate
January 6, 2021 October 9, 2020 $ 35,635 $ 35,635 $ 46,120 129 % 2.33 %
January 6, 2021 September 28, 2020 7,697 7,697 10,075 131 % 2.33 %
January 6, 2021 September 28, 2020 6,311 6,311 9,038 143 % 2.48 %
January 6, 2021 September 28, 2020 4,755 4,755 6,114 129 % 2.33 %
January 6, 2021 September 28, 2020 4,666 4,666 6,044 130 % 2.33 %
January 6, 2021 September 28, 2020 3,213 3,213 4,667 145 % 2.48 %
January 11, 2021 September 29, 2020 5,879 5,879 7,575 129 % 2.32 %
January 14, 2021 October 29, 2020 6,991 6,991 8,738 125 % 2.35 %
January 20, 2021 October 20, 2020 13,263 13,263 16,582 125 % 2.22 %
January 29, 2021 October 30, 2020 7,762 7,762 9,702 125 % 2.21 %
January 29, 2021 October 30, 2020 7,153 7,153 9,537 133 % 2.21 %
February 1, 2021 December 1, 2020 12,258 12,258 16,052 131 % 1.88 %
February 1, 2021 December 1, 2020 12,015 12,015 15,794 131 % 1.88 %
February 1, 2021 December 1, 2020 5,298 5,298 6,895 130 % 1.88 %
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February 1, 2021 December 1, 2020 3,985 3,985 5,136 129 % 1.88 % February 1, 2021 December 1, 2020 2,887 2,887 3,790 131 % 1.88 % February 1, 2021 December 1, 2020 2,332 2,332 3,360 144 % 2.03 % February 1, 2021 December 1, 2020 1,132 1,132 1,607 142 % 2.03 % February 12, 2021 November 13, 2020 2,945 2,945 4,428 150 % 2.02 % March 5, 2021 December 7, 2020 24,946 24,946 33,348 134 % 1.78 % March 5, 2021 December 7, 2020 24,312 24,312 32,571 134 % 1.78 % March 17, 2021 December 17, 2020 10,219 10,219 13,172 129 % 1.78 % March 17, 2021 December 17, 2020 8,381 8,381 10,872 130 % 1.78 % March 17, 2021 December 17, 2020 3,894 3,894 5,193 133 % 1.78 % March 17, 2021 December 17, 2020 1,145 1,145 1,687 147 % 1.93 % March 24, 2021 December 24, 2020 7,016 7,016 10,024 143 % 1.94 % March 24, 2021 December 24, 2020 5,008 5,008 6,637 133 % 1.79 % March 24, 2021 December 24, 2020 2,577 2,577 3,367 131 % 1.79 % April 9, 2021 October 13, 2020 33,084 33,084 43,069 130 % 2.35 % July 9, 2021 July 10, 2020 250,000 53,256 84,337 158 % 2.64 % September 23, 2021 September 24, 2020 400,000 101,117 160,068 158 % 2.65 % Totals/weighted averages$ 916,759 $ 421,132 $ 595,599 141 % 2.29 % 71
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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 %
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 12, 2019 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/weighted averages $ 918,521 $ 414,114 $ 580,167 140 % 3.77 %
As of December 31, 2020 , we had $421.1 million outstanding under our repurchase
transactions compared to $414.1 million as of December 31, 2019 . The maximum
month-end balance outstanding during the year ended December 31, 2020 was $467.3
million , compared to a maximum month-end balance for the year ended 2019 of
$562.0 million . The following table presents certain details of our repurchase
transactions for the years ended December 31, 2020 and 2019 ($ in thousands):
Table 17: Repurchase Balances
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For the year ended December 31,
2020 2019
Balance at the end of year $ 421,132 $ 414,114
Maximum month-end balance outstanding during the year $ 467,344 $ 561,982
Average balance $ 411,420 $ 481,889
The decrease in our average balance from $481.9 million for the year ended
December 31, 2019 to our average balance of $411.4 million for the year ended
December 31, 2020 was due to a net decrease in repurchase financing during the
year ended December 31, 2020 , as a result of decreased 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.
Dividends We may declare dividends based on, among other things, our earnings, our financial condition, our working capital needs, new opportunities, and distribution requirements imposed on REITs. The declaration of dividends to our stockholders and the amount of such dividends are at the discretion of our Board of Directors. OnMarch 4, 2021 , our Board of Directors declared a dividend of$0.17 per share, to be paid onMarch 31, 2021 to stockholders of record as ofMarch 18, 2021 . 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 common 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 years endedDecember 31, 2020 , 2019 and 2018 we recorded an expense of zero,$0.7 million and$0.1 million , 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 4.36% on an annualized basis of an adjusted book value of$15.59 per share atDecember 31, 2020 . If our taxable income increases from the level we experienced in 2020, we could exceed the threshold for paying an incentive fee to our Manager, and thereby trigger such payment. See Note 10 - Related party transactions.
Off-Balance Sheet Arrangements
Other than our investments in debt securities and beneficial interests issued by joint ventures, which are summarized below by securitization trust and our equity method investments discussed elsewhere in this report, we do not have any relationships with unconsolidated entities or financial partnerships, such as entities often referred to as structured finance or special purpose entities, which would have been established for the purpose of facilitating off-balance sheet arrangements or other contractually narrow or limited purposes. Further, we have not guaranteed any obligations of unconsolidated entities nor do we have any commitment or intent to provide funding to any such entities. As such, we are not materially exposed to any market, credit, liquidity or financing risk that could arise if we had engaged in such relationships.
Table 18: Investments in joint ventures
We form joint ventures with third party institutional accredited investors to purchase mortgage loans and other mortgage related assets. The debt securities and beneficial interests we carry on our consolidated balance sheets are issued by securitization trusts formed by these joint ventures, which are VIEs, that we have sponsored but which we do not consolidate since we have determined we are not the primary beneficiary.
A summary of our investments in joint ventures is presented below(1) ($ in thousands):
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Great Ajax Corp. Ownership
Current
Owned Stated
Original Stated or Notional
Total Original or Notional Principal
Outstanding Ownership Principal Balance Balance
Issuing Trust/Issue Date Security Principal Coupon Percent Retained Retained
Ajax Mortgage Loan Trust
2018-A/April 2018 Class A notes due 2058 $ 91,036 3.85 % 9.36 % $ 8,521 $ 6,044
Trust certificates $ 22,759 - % 9.36 % $ 2,130 $ 2,144
Ajax Mortgage Loan Trust
2018-B/June 2018 Class A notes due 2057 $ 66,374 3.75 % 20.00 % $ 13,275 $ 5,193
Trust certificates $ 28,447 - % 20.00 % $ 5,689 $ 4,097
Ajax Mortgage Loan Trust
2018-D/September 2018 Class A notes due 2058 $ 80,664 3.75 % 20.00 % $ 16,133 $ 13,442
Trust certificates $ 20,166 - % 20.00 % $ 4,033 $ 3,915
Ajax Mortgage Loan Trust
2018-E/December 2018 Class A notes due 2058 $ 86,089 4.38 % 5.01 % $ 4,313 $ 3,793
Class B notes due 2058 $ 8,035 5.25 % 20.00 % $ 1,607 $ 1,605
Trust certificates $ 20,662 - % 20.00 % $ 4,132 $ 4,130
Ajax Mortgage Loan Trust
2018-F/December 2018 Class A notes due 2058 $ 180,002 4.38 % 5.01 % $ 9,018 $ 6,894
Class B notes due 2058 $ 16,800 5.25 % 20.00 % $ 2,520 $ 3,360
Trust certificates $ 43,201 - % 20.00 % $ 6,480 $ 8,252
Ajax Mortgage Loan Trust
2018-G/December 2018 Class A notes due 2057 $ 173,562 4.38 % 25.00 % $ 43,390 $ 27,454
Class B notes due 2057 $ 16,199 5.25 % 25.00 % $ 4,050 $ 4,050
Trust certificates $ 41,655 - % 25.00 % $ 10,414 $ 10,585
Ajax Mortgage Loan Trust
2019-A/March 2019 Class A notes due 2057 $ 127,801 3.75 % 20.00 % $ 25,560 $ 16,052
Class B notes due 2057 $ 11,928 5.25 % 20.00 % $ 2,386 $ 2,388
Trust certificates $ 30,672 - % 20.00 % $ 6,134 $ 6,137
Ajax Mortgage Loan Trust
2019-B/March 2019 Class A notes due 2059 $ 163,325 3.75 % 15.00 % $ 24,499 $ 15,794
Class B notes due 2059 $ 15,244 5.25 % 15.00 % $ 2,287 $ 2,287
Trust certificates $ 39,198 - % 15.00 % $ 5,880 $ 5,976
Ajax Mortgage Loan Trust
2019-C/May 2019 Class A notes due 2058 $ 150,037 3.95 % 5.00 % $ 7,502 $ 6,102
Class B notes due 2058 $ 14,003 5.25 % 34.00 % $ 4,761 $ 4,761
Trust certificates $ 36,009 - % 34.00 % $ 12,243 $ 12,417
Ajax Mortgage Loan Trust
2019-E/September 2019 Class A notes due 2059 $ 181,101 3.00 % 6.55 % $ 11,862 $ 8,738
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 $ 8,558
Ajax Mortgage Loan Trust
2019-G/December 2019 Class A notes due 2059 $ 141,420 3.00 % 5.86 % $ 8,287 $ 7,575
Class B notes due 2059 $ 13,199 4.25 % 20.00 % $ 2,640 $ 2,640
Trust certificates $ 33,941 - % 20.00 % $ 6,788 $ 6,820
Ajax Mortgage Loan Trust
2019-H/December 2019 Class A notes due 2059 $ 90,381 3.00 % 20.00 % $ 18,076 $ 13,172
Class B notes due 2059 $ 8,435 4.25 % 20.00 % $ 1,687 $ 1,687
Trust certificates $ 21,692 - % 20.00 % $ 4,338 $ 4,375
Ajax Mortgage Loan Trust
2020-A/March 2020 Class A notes due 2059 $ 249,384 2.38 % 20.00 % $ 49,877 $ 43,069
Class B notes due 2059 $ 23,276 3.50 % 20.00 % $ 4,655 $ 4,428
Trust certificates $ 59,852 - % 20.00 % $ 11,970 $ 11,934
Ajax Mortgage Loan Trust
2020-C/September 2020 Class A notes due 2060 $ 339,365 2.25 % 10.01 % $ 33,970 $ 33,348
Class B notes due 2060 $ 21,754 5.00 % 10.01 % $ 2,178 $ 2,178
Trust certificates $ 73,964 - % 10.01 % $ 7,404 $ 7,393
Ajax Mortgage Loan Trust
2020-D/September 2020 Class A notes due 2060 $ 330,721 2.25 % 10.01 % $ 33,105 $ 32,571
Class B notes due 2060 $ 30,867 5.00 % 10.01 % $ 3,090 $ 3,090
Trust certificates $ 79,373 - % 10.01 % $ 7,945 $ 7,934 (1)Table does not include our 2017-D and 2018-C securitizations with total
original outstanding principal of
Table 19: Contractual Obligations
A summary of our contractual obligations as of
December 31, 2020 Payments Due by Period
Less than 1 More than 5
Total Year 1 - 3 Years 3 - 5 Years Years
Convertible senior notes $ 113,350 $ -
$ -
421,132 421,132 - - -
Interest on convertible senior notes 29,105 8,218 16,436 4,451 -
Interest on repurchase agreements 3,345 3,345 - - -
Put obligation on outstanding common
stock warrants 50,707 - - 50,707 -
Total $ 617,639 $ 432,695 $ 16,436 $ 168,508 $ -
75
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December 31, 2019 Payments Due by Period
Less than 1 More than 5
Total Year 1 - 3 Years 3 - 5 Years 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 $ -
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 acquired two residential RPLs with aggregate UPB of
We have also agreed to acquire, subject to due diligence, 322 residential RPLs and four NPLs with aggregate UPB of$53.8 million and$0.8 million , respectively, in six transactions and two transactions, respectively, from six sellers and two sellers, respectively. The purchase price of the residential RPLs equals 86.1% of UPB and 56.9% of the estimated market value of the underlying collateral value of$81.4 million . The purchase price of the NPLs equals 84.8% of UPB and 60.8% of the estimated market value of the underlying collateral of$1.1 million .
On
On
OnJanuary 29, 2021 , we pricedAjax Mortgage Trust 2021-A with$146.2 million of AAA rated senior securities,$21.1 million of A rated securities and$7.8 million of BBB rated securities issued with respect to$206.5 million of mortgage loans. TheAAA , A and BBB rated securities were issued at a weighted yield of 1.35% excluding transaction expenses, and represent 84.6% of the UPB of the underlying mortgage loans. A total of 1,082 of RPLs and NPLs with a collateral value of$368.1 million were securitized. OnFebruary 12, 2021 , we closed onAjax Mortgage Loan Trust 2021-B with an aggregate of$215.9 million of senior securities and$20.2 million of subordinated securities issued with respect to$287.9 million of mortgage loans. The senior securities were issued at a yield of 2.25% excluding transaction expenses, and represent 75.0% of UPB of the underlying mortgage loans. A total of 1,384 of RPLs and NPLs with a collateral value of$473.2 million were securitized.
On
On
OnMarch 8, 2021 , our Board of Directors appointedMary Haggerty to a newly created position on our Board.Ms. Haggerty will also serve as a member of the Audit Committee. The appointment will become effective onMonday March 8, 2021 .Ms. Haggerty served as a Managing Director ofJ.P. Morgan Chase fromJuly 2008 until her retirement inMarch 2020 . 76
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Prior to joiningJ.P. Morgan Chase ,Ms. Haggerty held various roles atBear Stearns & Co., Inc. She has served as a director atJ.P. Morgan Residential Mortgage Acceptance Corp. ,Reoco, Inc. andBear Stearns Residential Mortgage Corporation . Additionally, she has also served as a director forVirtual Enterprises International, Inc. , an educational non-profit, a director of The University atAlbany Foundation , and a director of the Dean'sAdvisory Board of the School of Business at theUniversity of Albany . In her role for us,Ms. Haggerty is an independent director, as defined by the NYSE. In connection with her appointment,Ms. Haggerty will receive a stock award of 2,000 shares of our common stock subject to a one-year vesting period pursuant to our 2014 Director Equity Plan.
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