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OFFON

GREAT AJAX CORP.

(AJX)
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GREAT AJAX : Management's Discussion and Analysis of Financial Condition and Results of Operations (form 10-Q)

05/07/2021 | 06:13am EDT
In this quarterly report on Form 10-Q ("report"), unless the context indicates
otherwise, references to "Great Ajax," "we," "the company," "our" and "us" refer
to the activities of and the assets and liabilities of the business and
operations of Great Ajax Corp.; "operating partnership" refers to Great Ajax
Operating Partnership L.P., a Delaware limited partnership; "our Manager" refers
to Thetis Asset Management LLC, a Delaware limited liability company; "Aspen
Capital" refers to the Aspen Capital group of companies; "Aspen" and "Aspen Yo"
refers to Aspen Yo LLC, an Oregon limited liability company that is part of
Aspen Capital; and "the Servicer" and "Gregory" refer to Gregory Funding LLC, an
Oregon limited liability company and our affiliate, and an indirect subsidiary
of Aspen Yo.

Our Management's Discussion and Analysis of Financial Condition and Results of
Operations should be read in conjunction with the unaudited interim consolidated
financial statements and related notes included in Item 1. Consolidated interim
financial statements of this report and in Item 8. Financial statements and
supplementary data in our most recent Annual Report on Form 10-K, as well as the
section entitled "Risk Factors" in Part II, Item 1A. of this report, as well as
other cautionary statements and risks described elsewhere in this report and our
most recent Annual Report on Form 10-K.

Overview


Great Ajax Corp. is a Maryland corporation that is organized and operated in a
manner intended to allow us to qualify as a REIT. We primarily target
acquisitions of RPLs, which are residential mortgage loans on which at least
five of the seven most recent payments have been made, or the most recent
payment has been made and accepted pursuant to an agreement, or the full dollar
amount, to cover at least five payments has been paid in the last seven months.
We also acquire and originate SBC loans. The SBC loans that we target through
acquisitions generally have a principal balance of up to $5.0 million and are
secured by multi-family residential and commercial mixed use retail/residential
properties on which at least five of the seven most recent payments have been
made, or the most recent payment has been made and accepted pursuant to an
agreement, or the full dollar amount, to cover at least five payments has been
paid in the last seven months. We also originate SBC loans that we believe will
provide an appropriate risk-adjusted total return. Additionally, we invest in
single-family and smaller commercial properties directly either through a
foreclosure event of a loan in our mortgage portfolio or through a direct
acquisition. We may also target investments in NPLs either directly or with
joint venture partners. NPLs are loans on which the most recent three payments
have not been made. We own a 19.8% equity interest in the Manager and an 8.0%
equity interest in the parent company of our Servicer. GA-TRS is a wholly owned
subsidiary of the Operating Partnership that owns the equity interest in the
Manager and the Servicer. We have elected to treat GA-TRS as a taxable REIT
subsidiary under the Code. Our mortgage loans and real properties are serviced
by the Servicer, also an affiliated company.

In 2014, we formed Great Ajax Funding LLC, a wholly owned subsidiary of the
Operating Partnership, to act as the depositor of mortgage loans into
securitization trusts and to hold the subordinated securities issued by such
trusts and any additional trusts we may form for additional secured borrowings.
AJX Mortgage Trust I and AJX Mortgage Trust II are wholly owned subsidiaries of
the Operating Partnership formed to hold mortgage loans used as collateral for
financings under our repurchase agreements. On February 1, 2015, we formed GAJX
Real Estate Corp., as a wholly owned subsidiary of the Operating Partnership, to
own, maintain, improve and sell certain REOs purchased by us. We have elected to
treat GAJX Real Estate Corp. as a TRS under the Code.

Our Operating Partnership, through interests in certain entities as of March 31,
2021 and December 31, 2020, holds 99.9% of Great Ajax II REIT Inc. which holds
an interest in Great Ajax II Depositor LLC which acts as the depositor of
mortgage loans into securitization trusts and holds the subordinated securities
issued by such trusts and any additional trusts we may form for additional
secured borrowings. We have securitized mortgage loans through securitization
trusts and retained subordinated securities from the secured borrowings. These
trusts are considered to be VIEs, and we have determined that we are the primary
beneficiary of the VIEs.

In 2018, we formed Gaea as a wholly owned subsidiary of the Operating
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 formed Gaea Real Estate Operating Partnership LP, a wholly owned
subsidiary of Gaea, to hold investments in commercial real estate assets. We
also formed BFLD Holdings LLC, Gaea Commercial Properties LLC, Gaea Commercial
Finance LLC and Gaea RE LLC as subsidiaries of Gaea Real Estate Operating
Partnership. In 2019, we formed DG Brooklyn Holdings, LLC, also a subsidiary of
Gaea Real Estate Operating Partnership LP, to hold investments in multi-family
properties. On November 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. At March 31, 2021 we owned approximately 22.9% of Gaea.

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We elected to be taxed as a REIT for U.S. federal income tax purposes beginning
with our taxable year ended December 31, 2014. Our qualification as a REIT
depends upon our ability to meet, on a continuing basis, various complex
requirements under the Code relating to, among other things, the sources of our
gross income, the composition and values of our assets, our distribution levels
and the diversity of ownership of our capital stock. We believe that we are
organized in conformity with the requirements for qualification as a REIT under
the Code, and that our current intended manner of operation enables us to meet
the requirements for taxation as a REIT for U.S. federal income tax purposes.

Our Portfolio


The following table outlines the carrying value of our portfolio of mortgage
loan assets and single-family and smaller commercial properties as of March 31,
2021 and December 31, 2020 ($ in millions):

                                              March 31, 2021       December 31, 2020
Residential RPLs                             $       1,060.6      $          1,057.5
Residential NPLs                                        37.9                    38.7
SBC loans                                               25.1                    23.2
Real estate owned properties, net                        7.1                

8.5

Investments in securities at fair value                264.7                

273.8

Investment in beneficial interests                      94.9                

91.4

Total mortgage related assets                $       1,490.3      $         

1,493.1

We closely monitor the status of our mortgage loans and, through our Servicer, work with our borrowers to improve their payment records.

Market Trends and Outlook

COVID-19


The COVID-19 pandemic that began during the first quarter of 2020 created a
global public-health crisis that resulted in widespread volatility and
deteriorations in household, business, and economic market conditions, including
in the 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 late March
2020 and this disruption was reflected in our results of operations for the
quarter ended March 31, 2020. The pandemic has continued and continues to
significantly and adversely impact certain areas of the 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 the majority of our borrowers continue to make
scheduled payments and we continue to receive payments in full, we have acted
swiftly to support our borrowers with a mortgage forbearance program. While we
generally do not hold loans guaranteed by 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 who request COVID-19 related hardship
assistance are asked to complete a standardized hardship questionnaire,
including documentation to support the COVID-19 related hardship claim. The
materials are reviewed, along with the borrower's monthly payment status, to
determine if the borrower is eligible for the three-month forbearance plan. If
the borrower is not eligible, they are encouraged to apply for loss mitigation.
In the event the COVID-19 related hardship is continuing at the end of the
forbearance period, it may be extended for an additional period. At the end of
the forbearance plan, the borrower may repay the amounts in a lump sum, or our
Servicer will work with the borrower on repayment options or traditional loan
modification options. Notwithstanding the foregoing, to the extent special rules
apply to a mortgagor because of the jurisdiction or type of 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 of
April 30, 2021(1) :

•Number of COVID-19 forbearance relief inquiries: 1,069 •Number of COVID-19 forbearance relief granted: 297

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(1)Statistics are for loans carried on our balance sheet including loans held in Ajax 2017-D where third parties own 50%. Statistics do not include non-consolidated joint ventures where we own bonds and beneficial interests issued by the joint ventures.


We expect continued volatility in the residential mortgage securities market in
the short term and increased acquisition opportunities. Extended forbearance,
foreclosure timelines and eviction timelines could result in lower yields and
losses on our mortgage loan and beneficial interest portfolios and losses on our
REO held-for-sale. Ongoing disruption in the credit markets could result in
margin calls from our financing counterparties and additional mark downs on our
Investments in debt securities, beneficial interests and mortgage loans.

We believe that certain cyclical trends continue to drive a significant realignment within the mortgage sector notwithstanding the impact of the pandemic. Through the end of the first 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;
•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 loans that primary banks,
lenders and portfolio acquirers typically desire. We continually monitor
opportunities to increase our holdings of these SBC loans and properties.
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We also believe that banks and other mortgage lenders have strengthened their
capital bases and are more aggressively foreclosing on delinquent borrowers or
selling these loans to dispose of their inventory. Additionally, many NPL buyers
are now interested in reducing their investment duration and are selling RPLs.

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 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.

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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 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. The COVID-19 outbreak has not had as material
of an impact on HPA on our markets as we initially expected. 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.
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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

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 our 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 or legal ownership,
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 through December 31, 2020, and is at five loan pools as of
March 31, 2021. Each loan pool is oriented around similar risk factors or legal
ownership. 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. Increases in loan yield expectations, whether caused by timing or
loan performance, are reported in the period in which they arise and are
reflected as a reduction in the provision for losses even if no provision
expense was previously recorded. 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
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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. Generally Accepted Accounting Principles ("U.S. GAAP").
Amounts received as payments of fees are recorded in Other income and classified
as operating cash flows in the consolidated Statement of Cash Flows. Escrow
deposits are recorded on the Servicer's balance sheet and do not impact our cash
flow.

Non-PCD Loans - While we generally acquire loans that have experienced
deterioration in credit quality, we also acquire loans that have not experienced
a deterioration in credit quality and originate SBC loans which are also subject
to the provisions of CECL as discussed above.

As of December 31, 2020, 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.
                                       53
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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 in Securities at Fair Value as of March 31, 2021 and
December 31, 2020 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
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 of March 31, 2021 and December 31,
2020 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
                                       54
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Fair Value of Financial Instruments - Fair value is defined as the price that
would be received to sell an asset or paid to transfer a liability in an orderly
transaction between market participants at the measurement date. A fair value
hierarchy has been established that requires an entity to maximize the use of
observable inputs and minimize the use of unobservable inputs when measuring
fair value. The standard describes three levels of inputs that may be used to
measure fair value:

•Level 1 - Quoted prices in active markets for identical assets or liabilities.
•Level 2 - Observable inputs other than Level 1 prices, such as quoted prices
for similar assets and liabilities; quoted prices in markets that are not
active; or other inputs that are observable or can be corroborated by observable
market data for substantially the full term of the assets or liabilities.
•Level 3 - Unobservable inputs that are supported by little or no market
activity and that are significant to the fair value of the assets or
liabilities.

The degree of judgment utilized in measuring fair value generally correlates to
the level of pricing observability. Assets and liabilities with readily
available actively quoted prices or for which fair value can be measured from
actively quoted prices generally will have a higher degree of pricing
observability and a lesser degree of judgment utilized in measuring fair value.
Conversely, assets and liabilities rarely traded or not quoted will generally
have little or no pricing observability and a higher degree of judgment utilized
in measuring fair value. Pricing observability is impacted by a number of
factors, including the type of asset or liability, whether it is new to the
market and not yet established, and the characteristics specific to the
transaction.

The fair value of mortgage loans is estimated using the Manager's proprietary
pricing model which estimates expected cash flows with the discount rate used in
the present value calculation representing the estimated effective yield of the
loans. The value of transfers of mortgage loans to REO is based upon the present
value of future expected cash flows of the loans being transferred.

We value our investments in debt securities using estimates provided by our
financing counterparties. We also rely on our Manager's proprietary pricing
model to estimate the underlying cash flows expected to be collected on these
investments as a comparison to the estimates received from financing
counterparties. 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 ended September 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 AS Ajax E LLC and AS Ajax E II LLC are valued using estimates provided by financing counterparties and other publicly available information.

The fair value of 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.

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.

Our put option liability is adjusted to approximate market value through earnings. Fair value is determined by using the discounted cash flows based on the future value of the liability.

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.

                                       55
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The carrying values of our Cash and cash equivalents, Cash held in trust, Receivable from Servicer, Prepaid expenses and other assets, Management fee payable and Accrued expenses and other liabilities are equal to or approximate fair value.

Recent Accounting Pronouncements

Refer to the notes to our interim financial statements for a description of relevant recent accounting pronouncements.

Results of Operations


For the three months ended March 31, 2021, we had net income attributable to
common stockholders of $7.0 million, or $0.30 per share for basic and for
diluted common shares. For the three months ended March 31, 2020, we had net
income attributable to common stockholders of $0.4 million, or $0.02 per share,
for basic and diluted common shares. Key items for the three months ended
March 31, 2021 include:

•Purchased $31.6 million RPLs, with UPB of $36.0 million at 57.2% of property
value, $0.4 million of NPLs, with UPB of $0.7 million at 50.1% of property
value, and $3.6 million SBCs, with UPB of $3.6 million at 36.5% of property
value, to end the quarter with $1.1 billion in net mortgage loans
•Interest income of $24.0 million; net interest income of $13.7 million
excluding a net $5.5 million acceleration of purchase discount on loans that
paid off during the quarter as actual payoffs exceeded modeled expectations
•Net income attributable to common stockholders of $7.0 million
•Basic earnings per common share ("EPS") of $0.30
•Book value per common share of $16.18 at March 31, 2021
•Taxable income of $0.38 per common share
•Collected total cash of $70.2 million, from loan payments, sales of REO and
investments in debt securities and beneficial interests
•Completed two securitizations materially reducing our cost of funds, with
$175.1 million of AAA, A and BBB rated securities placed at a weighted average
coupon of 1.31% in the first transaction and $215.9 million of senior securities
placed at a coupon of 2.24% in the second transaction
•Held $137.6 million of cash and cash equivalents at March 31, 2021; average
daily cash balance for the quarter was $115.2 million
•At March 31, 2021, approximately 73.1% of portfolio based on UPB made at least
12 out of the last 12 payments

Our consolidated net income attributable to common stockholders increased
$6.6 million for the quarter ended March 31, 2021 compared to the quarter ended
March 31, 2020. The increase in our earnings compared to the quarter ended
March 31, 2020 was primarily driven by an increase in our net interest income
offset by preferred stock dividends of $1.9 million and a $1.9 million fair
value adjustment of the put option liability which derived from a capital raise
that occurred after March 31, 2020. The increase in net interest income was
primarily driven by a $5.5 million acceleration of purchase discount on loans
that paid off during the quarter as actual payoffs exceeded modeled expectations
versus a $4.7 million provision expense in the first quarter of 2020. Under
CECL, increases in loan yield expectations, whether caused by timing or loan
performance, are reported in earnings in the period in which they arise and are
reflected as a reduction in the provision losses even if no provision expense
was previously recorded. Our book value increased to $16.18 per common share
from $15.59 at December 31, 2020.

We recorded $0.2 million in impairments on our REO held-for-sale portfolio in
real estate operating expense for the quarter ended March 31, 2021 compared to
$0.9 million for the quarter ended March 31, 2020. Impairments for the quarter
were driven primarily by additional costs of holding the properties. We continue
to liquidate our REO properties held-for-sale at a faster rate than we acquire
properties, with nine properties sold in the first quarter of 2021 while two
were added to REO held-for-sale through foreclosures. Limited housing inventory
has accelerated our REO liquidation timelines while we are continuing to
experience some COVID-19 related delays in foreclosure proceedings. During the
quarter ended March 31, 2020 we sold 19 REO properties while adding five through
foreclosures.

                                       56
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Table 1: Results of Operations

                                                                         Three months ended March 31,
($ in thousands)                                                           2021                  2020
INCOME
Interest income                                                     $        24,035          $   26,888
Interest expense                                                            (10,304)            (13,070)
Net interest income                                                          13,731              13,818
Recovery of/(provision for) losses                                            5,516              (4,711)
Net interest income after recovery of/(provision for) losses                 19,247               9,107
Income/(loss) from investments in affiliates                                    163              (1,112)
Loss on sale of mortgage loans                                                    -                (705)
Other income                                                                    356                 747
Total revenue, net                                                           19,766               8,037
EXPENSE
Related party expense - loan servicing fees                                   1,833               2,014
Related party expense - management fee                                        2,273               1,799
Loan transaction expense                                                        187                (103)
Professional fees                                                               640                 805
Real estate operating expenses                                                  185                 912
Fair value adjustment on put option liability                                 1,944                   -
Other expense                                                                 1,117               1,025
Total expense                                                                 8,179               6,452
Loss on debt extinguishment                                                     911                 408
Income before provision for income taxes                                     10,676               1,177
Provision for income taxes (benefit)                                             34                (319)
Consolidated net income                                                      10,642               1,496

Less: consolidated net income attributable to the non-controlling interest

                                                                      1,689               1,096
Consolidated net income attributable to Company                               8,953                 400
Less: dividends on preferred stock                                            1,949                   -

Consolidated net income attributable to common stockholders $

  7,004          $      400



Interest Income

Our primary source of income is accretion earned on our mortgage loan portfolio
offset by the interest expense incurred to fund and hold portfolio acquisitions.
For the three months ended March 31, 2021 and 2020 net interest income after the
reversal of the provision for losses increased to $19.2 million from $9.1
million, respectively, primarily as a result of a net $5.5 million acceleration
of purchase discount on loans that paid off during the quarter as actual cash
flows exceeded modeled expectations for the three months ended March 31, 2021
compared to a provision expense of $4.7 million for the three months ended
March 31, 2020. Of the $5.5 million for the three months ended March 31, 2021,
$5.5 million relates to our mortgage loan portfolio and $16 thousand to our
investments in beneficial interests. Comparatively during the three months ended
March 31, 2020, of the $4.7 million, $1.9 million relates to our mortgage loan
portfolio and $2.8 million to our investments in beneficial interests. To date,
the COVID-19 impact on cash flow extensions has not been as material as we
initially expected.

Our gross interest income decreased by $2.9 million to $24.0 million in the
quarter ended March 31, 2021 from $26.9 million in the quarter ended March 31,
2020 primarily due to a decrease in the average balance of our mortgage loan
portfolio as paydowns and payoffs exceeded loan purchases, and by decreases in
the average yield on our loan portfolio based on our cash flows as of the
beginning of the quarter. This was offset by a decrease in interest expense of
$2.8 million to $10.3 million in the quarter ended March 31, 2021 from $13.1
million in the quarter ended March 31, 2020 primarily due to decreases in the
average interest rates applicable to our mortgage and bond repurchase
agreements. Additionally, we have been able to refinance our secured borrowings
at significantly lower rates in recent quarters. We expect our cost of funds to
continue to decrease in the current interest rate and credit environment.
                                       57
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During the first quarter of 2021, we collected $70.2 million in cash payments
and proceeds on our mortgage loans, securities and REO held-for-sale compared to
$62.4 million for the first quarter of 2020. The increase in cash collections in
2021 is due to a higher volume of payoffs as borrowers continued to refinance or
sell the underlying property.

The interest income detail for the three months ended March 31, 2021 and 2020 are included in the table below ($ in thousands):

Table 2: Interest income detail

                                                                      Three 

months ended March 31,

                                                                        2021                2020(1,2)
Accretable yield recognized on RPL, NPL and SBC loans            $        18,181          $    21,892
Interest income on beneficial interests                                    3,461                2,672
Interest income on debt securities                                         2,476                2,165
Bank interest income                                                          66                  121
Other interest (loss)/income                                                (149)                  38
Interest income                                                  $        24,035          $    26,888
Recovery of/(provision for) losses                                         5,516               (4,711)

Interest income after recovery of/(provision for) losses $ 29,551 $ 22,177






(1)Includes reclass of loan and beneficial interest credit losses from recovery
of/(provision for) losses to accretable yield recognized on RPL, NPL and SBC
loans and interest income on beneficial interests, respectively.
(2)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 three months ended March 31, 2021 and
2020 are included in the table below ($ in thousands):

Table 3: Average Balances
                                                       Three months ended March 31,
                                                          2021                 2020(1)
Average mortgage loan portfolio                  $     1,103,180            $ 1,135,336
Average carrying value of debt securities        $       269,267            $   238,030
Average carrying value of beneficial interests   $        92,585            $    60,274
Total average asset level debt                   $     1,088,936            $ 1,067,983





(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.

Loss on sale of mortgage loans


We sold no mortgage loans during the three months ended March 31, 2021.
Comparatively, during the three months ended March 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.

Other Income

Other income decreased for the three months ended March 31, 2021 over the
comparable period in 2020 due to lower gain on sale for property held-for-sale
and lower income from the federal government's Home Affordable Modification
Program ("HAMP") as more loans reached the five-year threshold and no additional
fees are earned. A breakdown of Other income is provided in the table below ($
in thousands):

                                       58
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Table 4: Other Income
                                                                           Three months ended March 31,
                                                                              2021                  2020
Late fee income                                                        $           190          $     185
Net gain on sale of Property held-for-sale                                         105                413
HAMP fees                                                                           48                138
Rental Income                                                                       13                 11
Total other income                                                     $           356          $     747



Expenses

Total expenses increased for the three months ended March 31, 2021 over the
comparable period in 2020 as a result of our put option amortization expense 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. This was partially offset by lower real
estate operating expense due to lower REO impairments. A breakdown of expenses
is provided in the table below ($ in thousands):

Table 5: Expenses
                                                                        Three months ended March 31,
                                                                          2021                  2020
Related party expense - management fee                              $        2,273          $    1,799
Fair value adjustment on put option liability                                1,944                   -
Related party expense - loan servicing fees                                  1,833               2,014
Other expense                                                                1,117               1,025
Professional fees                                                              640                 805
Loan transaction expense                                                       187                (103)
Real estate operating expenses                                                 185                 912
Total expenses                                                      $        8,179          $    6,452



Other expense increased for the three months ended March 31, 2021 over the
comparable period in 2020 primarily due to directors' fees and grants associated
with an additional board position, as well as higher insurance expense, offset
by lower travel expense. A breakdown of other expense is provided in the table
below ($ in thousands):

Table 6: Other Expense
                                                       Three months ended March 31,
                                                             2021                  2020(1)
Insurance                                       $          229                    $   184
Employee and service provider share grants                 207                        174
Borrowing related expenses                                 187                        170
Directors' fees and grants                                 169                        109
Other expense                                              101                         64
Software licenses and amortization                          85                         70
Taxes and regulatory expense                                61                         46
Internal audit services                                     38                         37
Travel, meals, entertainment                                31                        138
Lien release non due diligence                               9                         33
Total other expense                             $        1,117                    $ 1,025




(1)Includes reclass of other expense to lien release non due diligence.

                                       59
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Equity and Net Book Value per Share


Our net book value per common share was $16.18 and $15.59 at March 31, 2021 and
December 31, 2020, respectively. The increase in book value was primarily driven
by our buyout of our joint venture partner's interest in 2018-C, the removal of
our convertible senior notes from the calculation due to their antidilutive
effect on our earnings per share calculation and a recovery in common equity
that resulted from net fair value adjustments of $1.3 million taken on our
portfolio of debt securities recorded to Other comprehensive income since
December 31, 2020. While U.S. GAAP does not specifically define the parameters
for calculating book value, we believe our calculation is representative of our
book value on a per share basis, and our Manager believes book value per share
is a valuable metric for evaluating our business. The net book value per share
is calculated by dividing equity, after adjusting for the anticipated conversion
of the senior convertible notes into shares of common stock, the subtraction of
non-controlling interests and preferred shares classified in equity, and shares
for Manager and director fees that were approved but still unissued as of the
date indicated, unvested employee and service provider stock grants and the
common shares from assumed conversion of our senior convertible notes. A
breakdown of our book value per share is set forth in the table below ($ in
thousands except per share amounts):

Table 7: Book Value per Common Share

                                                                March 31, 2021           December 31, 2020
Outstanding shares                                                 22,988,847                  22,978,339

Adjustments for: Unvested grants of restricted stock, and Manager and director shares earned but not issued as of the date indicated

                   3,945                       4,280

Conversion of convertible senior notes into shares of common stock(1)

                                                                    -                   7,834,299
Settlement of put option in shares(2)                                       -                           -
Total adjusted shares outstanding                                  22,992,792                  30,816,918

Equity at period end                                          $       

509,535 $ 514,491 Net increase in equity from expected conversion of convertible senior notes(1)

                                                 -                     110,250
Adjustment for equity due to preferred shares                        (115,144)                   (115,144)
Net adjustment for equity due to non-controlling interests            (22,429)                    (29,130)
Adjusted equity                                               $       371,962          $          480,467
Book value per share                                          $         16.18          $            15.59





(1)The conversion of convertible senior notes was removed as of March 31, 2021
due to it having an anti-dilutive effect on our earnings per share calculation.
(2)The effect of the put option share settlement was removed as of March 31,
2021and December 31, 2020 due to it having an anti-dilutive effect on our
earnings per share calculation.

Table 8: Fair Value Balance Sheet


The table below presents a summarized version of our U.S. GAAP balance sheets as
compared to a summarized balance sheet presented at our estimates of fair
values. While U.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):

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