NOTES TO CONSOLIDATED INTERIM FINANCIAL STATEMENTS
June 30, 2021
(Unaudited)
Note 1 — Organization and Basis of Presentation
Great Ajax Corp., a Maryland corporation (the “Company”), is an externally managed real estate company formed on January 30, 2014, and capitalized on March 28, 2014, by its then sole stockholder, Aspen Yo (“Aspen”), a company affiliated with Aspen Capital, the trade name for the Aspen group of companies. The Company facilitates capital raising activities and operates as a mortgage real estate investment trust (“REIT”). The Company primarily targets acquisitions of re-performing loans (“RPLs”), which are residential mortgage loans on which at least five of the seven most recent payments have been made, or the most recent payment has been made and accepted pursuant to an agreement, or the full dollar amount, to cover at least five payments has been paid in the last seven months. The Company also acquires and originates small balance commercial loans (“SBC loans”). The SBC loans that the Company opportunistically targets, through acquisitions, or originations, generally have a principal balance of up to $5.0 million and are secured by multi-family residential and commercial mixed use retail/residential properties on which at least five of the seven most recent payments have been made, or the most recent payment has been made and accepted pursuant to an agreement, or the full dollar amount, to cover at least five payments has been paid in the last seven months. Additionally, the Company invests in single-family and smaller commercial properties directly either through a foreclosure event of a loan in its mortgage portfolio or, less frequently, through a direct acquisition. Historically, the Company has also targeted investments in non-performing loans (“NPLs”). NPLs are loans on which the most recent three payments have not been made. The Company may acquire NPLs from time to time, either directly or with joint venture partners. The Company’s manager is Thetis Asset Management LLC (the “Manager” or “Thetis”), an affiliated company. The Company owns 19.8% of the Manager and 8.0% of Great Ajax FS LLC ("GAFS" or "The Parent of the Servicer") which owns substantially all of the interest in Gregory Funding LLC ("Gregory" or the "Servicer"), the Company's loan and real property servicer that is also an affiliated company. The Company has elected to be taxed as a REIT under the Internal Revenue Code of 1986, as amended (the “Code”).
The Company conducts substantially all of its business through its operating partnership, Great Ajax Operating Partnership L.P., a Delaware limited partnership (the “Operating Partnership”), and its subsidiaries. The Company, through a wholly owned subsidiary, is the sole general partner of the Operating Partnership. GA-TRS LLC ("GA-TRS") is a wholly owned subsidiary of the Operating Partnership that owns the equity interest in the Manager and the Parent of the Servicer. The Company elected to treat GA-TRS as a taxable REIT subsidiary (“TRS”) under the Code. Great Ajax Funding LLC is a wholly owned subsidiary of the Operating Partnership formed to act as the depositor of mortgage loans into securitization trusts and to hold the subordinated securities issued by such trusts and any additional trusts the Company may form for additional secured borrowings. The Company generally securitizes its mortgage loans through securitization trusts and retains subordinated securities from the secured borrowings. These trusts are considered to be variable interest entities ("VIEs"), and the Company has determined that it is the primary beneficiary of many of these VIEs. AJX Mortgage Trust I and AJX Mortgage Trust II are wholly owned subsidiaries of the Operating Partnership formed to hold mortgage loans used as collateral for financings under the Company’s repurchase agreements. In addition, the Company, through its Operating Partnership, holds real estate owned properties (“REO”) acquired upon the foreclosure or other settlement of its owned NPLs, as well as through outright purchases. GAJX Real Estate Corp. is a wholly owned subsidiary of the Operating Partnership formed to own, maintain, improve and sell REO properties purchased by the Company. The Company has elected to treat GAJX Real Estate Corp. as a TRS under the Code.
The Operating Partnership, through interests in certain entities, as of June 30, 2021, held 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 rated securitization trusts and holds the subordinated securities issued by such trusts and any additional trusts the Company may form for additional secured borrowings. The Company has securitized mortgage loans through securitization trusts and retained subordinated securities from the secured borrowings. These trusts are considered to be VIEs and the Company has determined that it is the primary beneficiary of these VIEs.
In 2018, the Company formed Gaea Real Estate Corp. ("Gaea"), a wholly owned subsidiary of the Operating partnership to hold investments in multi-family, mixed use commercial real estate. The Company had elected to treat Gaea as a TRS under the Code. Also during 2018, the Company formed Gaea Real Estate Operating Partnership LP, a wholly owned subsidiary of Gaea, to hold investments in commercial real estate assets. The Company 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, the Company formed DG Brooklyn Holdings, LLC also as a subsidiary of Gaea Real Estate Operating Partnership LP, to hold investments in multi-family properties.
The accompanying notes are an integral part of the consolidated interim financial statements.
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On November 22, 2019, Gaea completed a private capital raise transaction 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. The purchase price per share was $15.00. Upon completion of the private placement, the Company 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, the Company consolidated Gaea's balance sheet and results of operations. At June 30, 2021 the Company owned approximately 22.9% of Gaea. From the date of the capital raise forward, the Company accounts for its investment in Gaea under the equity method.
Basis of Presentation and Use of Estimates
The consolidated interim financial statements should be read in conjunction with the Company's consolidated financial statements and the notes thereto for the period ended December 31, 2020, included in the Company's Annual Report on Form 10-K filed with the Securities and Exchange Commission (the "SEC") on March 5, 2021.
Interim financial statements are unaudited and prepared in accordance with U.S. GAAP for interim financial information and pursuant to the requirements for reporting on Form 10-Q and Regulation S-X. In the opinion of management, all adjustments, consisting solely of normal recurring accruals considered necessary for the fair presentation of consolidated financial statements for the interim period presented, have been included. The current period’s results of operations will not necessarily be indicative of results that ultimately may be achieved for the fiscal year ending December 31, 2021. The consolidated interim financial statements have been prepared in accordance with U.S. GAAP, as contained within the Accounting Standards Codification (“ASC”) of the Financial Accounting Standards Board (“FASB”) and the rules and regulations of the SEC, as applied to interim financial statements.
The Company consolidates the results and balances of three subsidiaries with non-controlling ownership interests held by third parties. AS Ajax E II LLC ("AS Ajax E II") holds a 5.0% interest in a Delaware trust that owns residential mortgage loans and residential real estate assets; AS Ajax E II is 53.1% owned by the Company. Ajax Mortgage Loan Trust 2017-D ("2017-D") is a securitization trust that holds mortgage loans, REO property and secured borrowings; 2017-D is 50.0% owned by the Company. Great Ajax II REIT Inc. 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 the Company may form for additional secured borrowings and is 99.9% owned by the Company as of June 30, 2021 and December 31, 2020. The Company recognizes non-controlling interests in its consolidated financial statements for the amounts of the investments and income due to the third-party investors for its consolidated subsidiaries.
During the second quarter of 2021, the majority of loans held by 2017-D were resecuritized into Ajax Mortgage Loan Trust 2021-C ("2021-C"), a related party joint venture with third party institutional investors. The Company held a 50.0% ownership of the remaining loans held by 2017-D at June 30, 2021.
During the first quarter of 2021, the Company acquired the remaining ownership of Ajax Mortgage Loan Trusts 2018-C ("2018-C"), a subsidiary that previously had non-controlling ownership interest held by third parties and was 63.0% owned by the Company as of December 31, 2020 and consolidated in the Company's consolidated financial statements. As a result of the acquisition transaction in the first quarter of 2021, at June 30, 2021 the non-controlling ownership interest in 2018-C held by third parties is zero.
At inception, the Operating Partnership was a majority owned partnership that had a non-controlling ownership interest held by an unaffiliated third party included in non-controlling interests on the Company’s consolidated balance sheet. At December 31, 2018, the Company owned 96.8% of the outstanding operating partnership units ("OP Units") and the remaining 3.2% of the OP Units were owned by the unaffiliated holder. The OP units were exchangeable on a 1-for-1 basis with shares of the Company’s common stock. During the second quarter of 2019, all 624,106 OP units held by the unaffiliated holder were exchanged for shares of the Company’s common stock. As a result, at June 30, 2021, the Operating Partnership was 100% owned by the Company. All controlled subsidiaries are included in the Company's consolidated financial statements and all intercompany accounts and transactions have been eliminated in consolidation.
The Company’s 19.8% investment in the Manager and 8.0% investment in GAFS are accounted for using the equity method because the Company can exercise influence on the operations of these entities through common officers and directors. There is no traded or quoted price for the interests in the Manager or GAFS since each is privately held.
The preparation of consolidated financial statements in conformity with U.S. GAAP requires the Company to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities as of the date of the consolidated financial statements and the reported amounts of revenues and expenses during the
The accompanying notes are an integral part of the consolidated interim financial statements.
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reporting periods. The Company considers significant estimates to include expected cash flows from its holdings of mortgage loans and beneficial interests in trusts, and their resolution methods and timelines, including foreclosure costs, eviction costs and property rehabilitation costs. Other significant estimates are fair value measurements, and the net realizable value of REO properties held-for-sale.
Note 2 — Summary of Significant Accounting Policies
Mortgage loans
Purchased Credit Deteriorated Loans ("PCD Loans")
As of their acquisition date, the loans acquired by the Company have generally suffered some credit deterioration subsequent to origination. As a result, the Company’s recognition of interest income for PCD loans is based upon its having a reasonable expectation of the amount and timing of the cash flows expected to be collected. When the timing and amount of cash flows expected to be collected are reasonably estimable, the Company uses expected cash flows to apply the effective interest method of income recognition. The Company adopted ASU 2016-13, Financial Instruments - Credit Losses, otherwise known as CECL using the prospective transition approach for PCD assets on January 1, 2020. At the time, $10.2 million of loan discount was reclassified to the allowance for credit losses with no net impact on the amortized cost basis of the portfolio.
Acquired loans may be aggregated and accounted for as a pool of loans if the loans have common risk characteristics. A pool is accounted for as a single asset with a single composite interest rate and an aggregate expectation of cash flows. The Company may adjust its loan pools as the underlying risk factors change over time. The Company has re-aggregated its mortgage loan portfolio into loan pools based on similar risk factors. Excluded from the aggregate pools are loans that pay in full subsequent to the acquisition closing date but prior to pooling. Any gain or loss on these loans is recognized as interest income in the period the loan pays in full.
The Company’s accounting for PCD loans gives rise to an accretable yield and an allowance for credit losses. Upon the acquisition of PCD loans the Company records the acquisition as three separate elements for 1) the amount of purchase discount which the Company expects 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 the Company expects 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. The Company recognizes the accretable yield as interest income on a prospective level yield basis over the life of the pool. The Company’s expectation of the amount of undiscounted cash flows to be collected is evaluated at the end of each calendar quarter. The net present value of changes in expected cash flows, whether caused by timing or loan performance, is reported in the period in which they arise and are reflected as an increase or decrease in the provision for losses even if no provision expense was previously recorded due to the establishment of loss reserves upon loan acquisition. 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 its investment, the Company considers 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.
The Company’s mortgage loans are secured by real estate. The Company monitors the credit quality of the mortgage loans in its portfolio on an ongoing basis, principally by considering loan payment activity or delinquency status. In addition, the Company assesses the expected cash flows from the mortgage loans, the fair value of the underlying collateral and other factors, and evaluates whether and when it becomes probable that all amounts contractually due will not be collected.
Borrower payments on the Company’s mortgage loans are classified as principal, interest, payments of fees, or escrow deposits. Amounts applied as interest on the borrower account are similarly classified as interest for accounting purposes and are classified as operating cash flows in the Company’s consolidated Statement of Cash Flows. Amounts applied as principal on the borrower account including amounts contractually due from borrowers that exceed the Company’s basis in loans purchased at a discount, are similarly classified as principal for accounting purposes and are classified as investing cash flows in the consolidated Statement of Cash Flows as required under U.S. GAAP. Amounts received as payments of fees are recorded in Other income and classified as operating cash flows in the consolidated Statement of Cash Flows. Escrow deposits are recorded on the Servicer’s balance sheet and do not impact the Company’s cash flow.
Non-PCD Loans
The accompanying notes are an integral part of the consolidated interim financial statements.
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While the Company generally acquires loans that have experienced deterioration in credit quality, it also acquires loans that have not experienced a deterioration in credit quality and originates SBC loans.
The Company accounts for its non-PCD loans by estimating any allowance for credit losses for its 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 present value of the expected future cash flows from the loan and the contractual balance due.
Investments in Securities at Fair Value
The Company’s Investments in Securities at Fair Value consist of investments in senior and subordinate notes issued by joint ventures which the Company forms with third party institutional accredited investors. The Company recognizes 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 the Company's consolidated statements of comprehensive income. The Company marks its investments to fair value using prices received from its financing counterparties and believes any unrealized losses on its 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 the Company’s consolidated statements of income. Risks inherent in the Company's debt securities portfolio, affecting both the valuation of its securities as well as the portfolio's interest income and recovery of principal include the risk of default, delays and inconsistency in the frequency and amount of payments, risks affecting borrowers such as man-made or natural disasters and damage to or delay in realizing the value of the underlying collateral. The Company monitors the credit quality of the mortgage loans underlying its debt securities on an ongoing basis, principally by considering loan payment activity or delinquency status. In addition, the Company assesses the expected cash flows from the mortgage loans, the fair value of the underlying collateral and other factors, and evaluates whether and when it becomes probable that all amounts contractually due will not be collected.
Investments in Beneficial Interests
The Company’s Investments in beneficial interests consist of investments in the trust certificates issued by joint ventures which the Company forms with third party institutional accredited investors. The trust certificates represent the residual interest of any special purpose entity formed to facilitate certain investments. The Company adopted CECL with respect to its Investment in beneficial interests on January 1, 2020. The methodology is similar to that described in "Mortgage Loans" except that the Company only recognizes its ratable share of gain, loss, income or expense.
Real Estate
The Company acquires real estate properties directly through purchases, when it forecloses on the borrower and takes 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 by the Company. Property that the Company expects to actively market for sale is classified as held-for-sale. Property held-for-sale is carried at the lower of its acquisition basis or net realizable value (fair market value less expected selling costs, and any additional costs necessary to prepare the property for sale). Fair market value is determined based on broker price opinions (“BPOs”), appraisals, or other market indicators of fair value including list price or contract price, if listed or under contract for sale at the balance sheet date. Net unrealized losses due to changes in market value are recognized through a valuation allowance by charges to income through real estate operating expenses. No depreciation or amortization expense is recognized on properties held-for-sale. Holding costs are generally incurred by the Servicer and are subtracted from the Servicer’s remittance of sale proceeds upon ultimate disposition of properties held-for-sale.
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 the Company's
The accompanying notes are an integral part of the consolidated interim financial statements.
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portfolio such as when a mortgage loan is foreclosed upon and the Company takes 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. The Company also acquires rental properties through direct purchases of properties for its rental portfolio. Depreciation is provided for using the straight-line method over the estimated useful lives of the assets of 27.5 years. The Company performs 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 the Company elects 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. The Company may perform property renovations to maximize the value of a property for either its rental strategy or for resale.
Preferred Stock
During the quarter ended June 30, 2020, the Company issued an aggregate of $125.0 million, net of offering costs, of preferred stock in two series and warrants to third party institutional accredited investors in a series of private placements. The Company issued 2,307,400 shares of 7.25% Series A Fixed-to-Floating Rate Preferred Stock and 2,892,600 shares of 5.00% Series B Fixed-to-Floating Rate Preferred Stock, each at a purchase price per share of $25.00. The shares have a liquidation preference of $25.00 per share.
Put Option Liability
As part of the Company’s capital raise transactions during the quarter ended June 30, 2020, the Company issued two series of five-year warrants to purchase an aggregate of 6,500,000 shares of the Company's common stock at an exercise price of $10.00 per share. Each series of warrants includes a put option that allows the holder to sell the warrants to the Company at a specified put price on or after July 6, 2023. U.S. GAAP requires the Company to account for the outstanding warrants as if the put option will be exercised by the holders. The warrants were recorded as a liability in the Company's consolidated balance sheet as a put option liability with an original basis of $9.5 million. The Company is accreting the amount of the liability under the effective interest method to its expected future put value of $50.7 million and marks the obligation to market through earnings at each balance sheet date. The Company determines the fair value using a discounted cash flow method.
Secured Borrowings
The Company, through securitization trusts which are VIEs, issues callable debt secured by its mortgage loans in the ordinary course of business. The secured borrowings facilitated by the trusts are structured as debt financings, and the mortgage loans used as collateral remain on the Company’s consolidated balance sheet as the Company is the primary beneficiary of the securitization trusts. These secured borrowing VIEs are structured as pass through entities that receive principal and interest on the underlying mortgages and distribute those payments to the holders of the notes. The Company’s exposure to the obligations of the VIEs is generally limited to its investments in the entities; the creditors do not have recourse to the primary beneficiary. Coupon interest expense on the debt is recognized using the accrual method of accounting. Deferred issuance costs, including original issue discount and debt issuance costs, are carried on the Company’s consolidated balance sheets as a deduction from Secured borrowings, and are amortized to interest expense on an effective yield basis based on the underlying cash flow of the mortgage loans serving as collateral. The Company assumes the debt will be called at the specified call date for purposes of amortizing discount and issuance costs because the Company believes it will have the intent and ability to call the debt on the call date. Changes in the actual or projected underlying cash flows are reflected in the timing and amount of deferred issuance cost amortization. See Note 8 — Commitments and Contingencies.
Repurchase Facilities
The Company enters into repurchase financing facilities under which it nominally sells assets to a counterparty and simultaneously enters into an agreement to repurchase the sold assets at a price equal to the sold amount plus an interest factor. Despite being legally structured as sales and subsequent repurchases, repurchase transactions are generally accounted for as debt secured by the underlying assets. At the maturity of a repurchase financing, unless the repurchase financing is renewed, the Company is required to repay the borrowing including any accrued interest and concurrently receives back its pledged collateral
The accompanying notes are an integral part of the consolidated interim financial statements.
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from the lender. The repurchase financings are treated as collateralized financing transactions; pledged assets are recorded as assets in the Company’s consolidated balance sheets, and the debt is recognized at the contractual amount. Interest is recorded at the contractual amount on an accrual basis. Costs associated with the set-up of a repurchasing contract are recorded as deferred issuance cost at inception and amortized over the contractual life of the agreement. Any draw fees associated with individual transactions and any facility fees assessed on the amounts outstanding are recorded as deferred costs when incurred and amortized over the contractual life of the related borrowing.
Convertible Senior Notes
On April 25, 2017, the Company completed the public offer and sale of $87.5 million in aggregate principal amount of its 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 on August 18, 2017 and November 19, 2018, respectively, which, combined with the notes from the 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 on January 15, April 15, July 15 and October 15 of each year. The notes will mature on April 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 the Company’s 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.
Coupon interest on the notes is recognized using the accrual method of accounting. Discount and deferred issuance costs are carried on the Company’s consolidated balance sheets as a deduction from the notes, and are amortized to interest expense on an effective yield basis through April 30, 2023, the date at which the notes can be converted. The Company assumes the debt will be converted at the specified conversion date for purposes of amortizing issuance costs because the Company believes such conversion will be in the economic interest of the holders. A cumulative discount at issuance of $3.2 million, representing the fair value of the embedded conversion feature, was recorded to stockholder equity. No sinking fund has been established for redemption of the principal.
During the first and second quarters of 2021, the Company completed a series of convertible note repurchases for aggregate principal amounts of $2.5 million and $5.0 million, respectively, for total purchase prices of $2.4 million and $5.1 million, respectively. The carrying amounts of the equity component representing the embedded conversion feature reversed from Additional paid-in capital due to the first and second quarter of 2021 transactions were both zero. During the first and third quarters of 2020, the Company 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.
Management Fee and Expense Reimbursement
The Company is a party to the Third Amended and Restated Management Agreement with the Manager (the "Management Agreement") by and between the Company and the Manager, dated as of May 1, 2020, expiring on March 5, 2034. Under the Management Agreement, the Manager implements the Company’s business strategy and manages the Company’s business and investment activities and day-to-day operations, subject to oversight by the Company’s Board of Directors. Among other services, the Manager provides the Company with a management team and necessary administrative and support personnel. Additionally, the Company pays directly for the internal audit function that reports directly to the Audit Committee and the Board of Directors. The Company does not currently have any employees that it pays directly and does not expect to have any employees that it pays directly in the foreseeable future. Each of the Company’s executive officers is an employee or officer, or both, of the Manager or the Servicer.
Under the Management Agreement, the Company pays a quarterly base management fee based on its stockholders’ equity, including equity equivalents such as the Company's issuance of convertible senior notes, and may be required to pay a quarterly incentive management fee based on its cash distributions to its stockholders, and has the option to pay up to 100% of the base and incentive fees in cash rather than in half cash and half shares of its common stock. Management fees are expensed in the quarter incurred and the portion payable in common stock (if any) is included in stockholders’ equity at quarter end. See Note 10 — Related party transactions.
Servicing Fees
The accompanying notes are an integral part of the consolidated interim financial statements.
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The Company is also a party to a Servicing Agreement (the "Servicing Agreement"), expiring July 8, 2029, with the Servicer. Under the Servicing Agreement by and between the Company and the Servicer, the Servicer receives an annual servicing fee ranging from 0.65% annually of the unpaid principal balance (“UPB”) to 1.25% annually of UPB for loans that are non-performing at acquisition. Servicing fees are paid monthly. The total fees incurred by the Company for these services depend upon the UPB and type of mortgage loans that the Servicer services pursuant to the terms of the Servicing Agreement. The fees do not change if an RPL becomes non-performing or vice versa. Servicing fees for the Company’s real property assets are the greater of (i) the servicing fee applicable to the underlying mortgage loan prior to foreclosure, or (ii) 1.00% annually of the fair market value of the REO as reasonably determined by the Manager or 1.00% annually of the purchase price of any REO otherwise purchased by the Company. The Servicer is reimbursed for all customary, reasonable and necessary out-of-pocket costs and expenses incurred in the performance of its obligations, including the actual cost of any repairs and renovations undertaken on the Company’s behalf. The total fees incurred by the Company for these services will be dependent upon the UPB and the type of mortgage loans that the Servicer services, property values, previous UPB of the relevant loan, and the number of REO properties. The Servicing Agreement will automatically renew for successive one-year terms, subject to prior written notice of non-renewal. In certain cases, the Company may be obligated to pay a termination fee. The Management Agreement will automatically terminate at the same time as the Servicing Agreement if the Servicing Agreement is terminated for any reason. See Note 10 — Related party transactions.
Stock-based Payments
At least a portion of the management fee is payable in cash, and a portion of the management fee may be payable (at the Company's discretion) in shares of the Company’s common stock, which are issued to the Manager in a private placement and are restricted securities under the Securities Act of 1933, as amended (the “Securities Act”). The number of shares issued to the Manager (if any) are determined based on the higher of the most recently reported book value or the average of the closing prices of the Company's common stock on the New York Stock Exchange ("NYSE") on the five business days after the date on which the most recent regular quarterly dividend to holders of the common stock is paid. Any management fees paid in common stock are recognized as an expense in the quarter incurred and recorded in stockholders' equity at quarter end. The shares vest immediately upon issuance. The Manager has agreed to hold any shares of common stock received by it as payment of the base management fee for at least three years from the date such shares of common stock are received.
Under the Company’s 2014 Director Equity Plan (the “Director Plan”), the Company may make stock-based awards to its directors. The Director Plan is designed to promote the Company’s interests by attracting and retaining qualified and experienced individuals for service as non-employee directors. The Director Plan is administered by the Company’s Board of Directors. The total number of shares of common stock or other stock-based award, including grants of long-term incentive plan units (“LTIP Units”) from the Operating Partnership, available for issuance under the Director Plan is 60,000 shares. The Company issued to each of its independent directors restricted stock awards of 2,000 shares of its common stock upon joining the Board of Directors. The Company may also periodically issue additional restricted stock awards to its independent directors under the Director Plan. In addition, each of the Company’s independent directors receives an annual fee of $100,000, payable quarterly, 40% in shares of the Company’s common stock and 60% in cash. Stock-based expense for the directors’ annual fee is expensed as earned, in equal quarterly amounts during the year, and recorded in stockholders' equity at quarter end.
On June 7, 2016, the Company’s stockholders approved the 2016 Equity Incentive Plan (the “2016 Plan”) to attract and retain non-employee directors, executive officers, key employees and service providers, including officers and employees of the Company’s affiliates. The 2016 Plan authorized the issuance of up to 5% of the Company’s outstanding shares from time to time on a fully diluted basis (assuming, if applicable, the exercise of all outstanding options and the conversion of all warrants and convertible senior notes, including OP Units and any LTIP Units, into shares of common stock). Grants of restricted stock under the 2016 Plan use grant date fair value of the stock as the basis for measuring the cost of the grant. Forfeitures of granted shares are accounted for in the period in which they occur. The share grants vest over three years, with one third of the shares vesting on each of the first, second and third anniversaries of the grant date. The shares may not be sold until the third anniversary of the grant date.
Directors’ Fees
The expense related to directors’ fees is accrued, and the portion payable in common stock is reflected in consolidated Stockholders’ Equity in the period in which it is incurred.
Variable Interest Entities
In the normal course of business, the Company enters into various types of transactions with special purpose entities, which have primarily consisted of trusts established for the Company’s secured borrowings (see “Secured Borrowings” above
The accompanying notes are an integral part of the consolidated interim financial statements.
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and Note 9 to the consolidated financial statements). Additionally, from time to time, the Company may enter into joint ventures with unrelated entities, which also generally involves the formation of a special purpose entity. The Company evaluates each transaction and its resulting beneficial interest to determine if the entity formed pursuant to the transaction should be classified as a VIE. If an entity created in a transaction meets the definition of a VIE and the Company determines that it or a consolidated subsidiary is the primary beneficiary, the Company will include the entity in its consolidated financial statements.
Cash and Cash Equivalents
Highly liquid investments with an original maturity of three months or less when purchased are considered cash equivalents. The Company generally maintains cash and cash equivalents at insured banking institutions with minimum assets of $1 billion. Certain account balances exceed Federal Deposit Insurance Corporation (“FDIC”) insurance coverage and, as a result, there is a concentration of credit risk related to amounts on deposit in excess of FDIC insurance coverage.
Cash Held in Trust
Cash held in trust consists of restricted cash balances either legally due to lenders or held in trust for the benefit of the Company's secured borrowings, and is segregated from the Company’s other cash deposits. Cash held in trust is not available to the Company for any purpose other than the settlement of existing obligations.
Earnings per Share
The Company grants restricted shares which entitle the recipients to receive dividend equivalents during the vesting period on a basis equivalent to the dividends paid to holders of common shares. Unvested share-based compensation awards containing non-forfeitable rights to receive dividends or dividend equivalents (collectively, “dividends”) are classified as “participating securities” and are included in the basic earnings per share calculation using the two-class method.
Under the two-class method, all of the Company’s Consolidated net income attributable to common stockholders, consisting of Consolidated net income, less dividends on the Company’s Series A and Series B preferred stock, is allocated to common shares and participating securities, based on their respective rights to receive dividends. Basic earnings per share is determined by dividing Consolidated net income attributable to common stockholders, reduced by income attributable to the participating securities, by the weighted-average common shares outstanding during the period.
Diluted earnings per share is determined by dividing Consolidated net income attributable to diluted shareholders, which adds back to Consolidated net income attributable to common stockholders the interest expense and applicable portion of management fee expense, net of applicable income taxes, on the Company’s convertible senior notes, by the weighted-average common shares outstanding, assuming all dilutive securities, including stock grants, shares that would be issued in the event that warrants were redeemed for shares of common stock of the Company, shares issued in respect of the stock-based portion of the base fee payable to the Manager and independent directors, and shares that would be issued in the event of conversion of the Company’s outstanding convertible senior notes, were issued. In the event the Company were to record a net loss, potentially dilutive securities would be excluded from the diluted loss per share calculation, as their effect on loss per share would be anti-dilutive. The Company uses the Treasury Stock method of accounting for the outstanding warrants. Under the Treasury Stock method, the exercise of the warrants is assumed at the beginning of the period, and shares of common stock are assumed to have been issued. The proceeds from the exercise are assumed to be used by the Company to repurchase treasury stock, thereby reducing the assumed dilution from the warrant exercise. In applying the Treasury Stock method, all dilutive potential common shares, regardless of whether they are exercisable, are treated as if they had been exercised.
In the event that any of the adjustments normally included to arrive at diluted earnings per share were to produce an anti-dilutive result, one that either increased earnings or reduced the quantity of shares used in the calculation, the anti-dilutive adjustment would not be included in the diluted earnings per share calculation.
Fair Value of Financial Instruments
Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. A fair value hierarchy has been established that requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. The standard describes three levels of inputs that may be used to measure fair value:
•Level 1 — Quoted prices in active markets for identical assets or liabilities.
The accompanying notes are an integral part of the consolidated interim financial statements.
17
•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.
The Company values its investments in debt securities using estimates provided by its financing counterparties. The Company also relies on the Manager's proprietary pricing model to estimate the underlying cash flows expected to be collected on these investments as a comparison to the estimates received from financing counterparties. The Company also relies on its Manager's proprietary pricing model to estimate the underlying cash flows expected to be collected on its investments in beneficial interests.
The Company's investment in the Manager is valued by applying an earnings multiple to base fee revenue.
The Company's 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 the Company's investment in GAFS, including warrants, is determined by applying an earnings multiple to expected earnings.
The fair value of the Company's investment in Gaea is estimated using a projected net operating income for its property portfolio.
The fair value of the Company's investment in the loan pool LLCs is determined by using estimates of underlying assets and liabilities taken from its Manager's pricing model.
The fair value of secured borrowings is estimated using estimates provided by the Company's financing counterparties, which are compared for reasonableness to the Manager’s proprietary pricing model which estimates expected cash flows of the underlying mortgage loans collateralizing the debt. The Company is able to call the bonds issued in its secured borrowings at par value plus accrued interest pursuant to the terms of the offering document. The Company carries its secured borrowings net of deferred issuance cost. Accordingly, the difference between fair value and carrying value is largely driven by the deferred issuance costs.
The fair value of the Company's put option liability is adjusted to approximate market value through earnings. The put obligation is a fixed amount that may be settled in cash or shares of the Company’s common stock at the option of the Company. Fair value is determined using the discounted cash flow method using a rate to accrete the initial basis of $9.5 million to the future put obligation of $50.7 million over the 39-month term of the put option liability.
The Company’s borrowings under its repurchase agreements are short-term in nature, and the Manager believes it can renew the current borrowing arrangements on similar terms in the future. Accordingly, the carrying value of these borrowings approximates fair value.
The Company’s convertible senior notes are traded on the NYSE under the ticker symbol "AJXA"; the debt’s fair value is determined from the closing price on the balance sheet date. The Convertible debt may be redeemable at par plus accrued interest beginning on April 30, 2022 subject to satisfying the conversion price trigger. The Company carries it
The accompanying notes are an integral part of the consolidated interim financial statements.
18
Convertible debt net of deferred issuance cost. Accordingly, the difference between fair value and carrying value is partially driven by the deferred issuance costs.
Property held-for-sale is carried at the lower of its acquisition basis or net realizable value. Net realizable value is determined based on broker price opinions, appraisals, or other market indicators of fair value, which are then reduced by anticipated selling costs. Net unrealized losses due to changes in market value are recognized through a valuation allowance by charges to income.
The carrying values of the Company's Cash and cash equivalents, 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.
Income Taxes
The Company elected REIT status upon the filing of its 2014 income tax return, and has conducted its operations in order to satisfy and maintain eligibility for REIT status. Accordingly, the Company does not believe it will be subject to U.S. federal income tax from the year ended December 31, 2014 forward on the portion of the Company’s REIT taxable income that is distributed to the Company’s stockholders as long as certain asset, income and stock ownership tests are met. If the Company fails to qualify as a REIT in any taxable year, it generally will not be permitted to qualify for treatment as a REIT for U.S. federal income tax purposes for the four taxable years following the year during which qualification is lost. In addition, notwithstanding the Company’s qualification as a REIT, it may also have to pay certain state and local income taxes, because not all states and localities treat REITs in the same manner that they are treated for U.S. federal income tax purposes.
The Company’s consolidated financial statements include the operations of two TRS entities, GA-TRS and GAJX Real Estate Corp., which are subject to U.S. federal, state and local income taxes on their taxable income. Income from these two entities and any other TRS that the Company forms in the future will be subject to U.S. federal and state income taxes. Deferred tax assets and liabilities are recognized for the future tax consequences or benefits attributable to differences between the carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted rates expected to apply to taxable income in the years in which management expects those temporary differences to be recovered or settled. The effect on deferred taxes of a change in tax rates is recognized in income in the period in which the change occurs. Subject to the Company’s judgment, it reduces a deferred tax asset by a valuation allowance if it is “more-likely-than-not” that some or all of the deferred tax asset will not be realized. Tax laws are complex and subject to different interpretations by the taxpayer and respective governmental taxing authorities. Significant judgment is required in evaluating tax positions, and the Company recognizes tax benefits only if it is more likely than not that a tax position will be sustained upon examination by the appropriate taxing authority.
The Company evaluates tax positions taken in its consolidated financial statements under the interpretation for accounting for uncertainty in income taxes. As a result of this evaluation, the Company may recognize a tax benefit from an uncertain tax position only if it is “more-likely-than-not” that the tax position will be sustained on examination by taxing authorities.
The Company’s tax returns remain subject to examination and consequently, the taxability of the distributions and other tax positions taken by the Company may be subject to change. Distributions to stockholders generally will be primarily taxable as long-term capital gain, although a portion of such distributions may be designated as ordinary income or qualified dividend income, or may constitute a return of capital. The Company furnishes annually to each stockholder a statement setting forth distributions paid during the preceding year and their U.S. federal income tax treatment.
Reclassifications
The Company combined its Property held-for-sale, net and Rental property, net lines with balances of $7.8 million and $0.7 million, respectively, in its December 31, 2020 consolidated balance sheet into a single line, Real estate owned properties, net, to conform to the current period presentation. There was no effect on the Company's reported earnings or cash flows for the periods presented. The Company reclassified its put option liability of $14.2 million at December 31, 2020, from Accrued expenses and other liabilities on the consolidated balance sheets to a separate line, Put option liability, to conform to the current period presentation. There was no effect on the Company's reported earnings or cash flows for the periods presented. The Company also reclassified its loans and securities credit loss expenses of $0.5 million and $0.9 million for the three and six months ended June 30, 2020, respectively, from Net increase in the net present value of expected cash flows to Interest income on its consolidated statement of income to align the presentation with the method the Company uses to evaluate these results.
The accompanying notes are an integral part of the consolidated interim financial statements.
19
The Company reclassified its loss from loan settlement of $0.7 million for the six months ended June 30, 2020 from Loss on sale of mortgage loans to Other income on its consolidated statement of income to align the presentation with the method the Company uses to evaluate these results. The Company also reclassified its loan transaction expense of $65 thousand and $(38) thousand for the three and six months ended June 30, 2020, respectively, from Loan transaction expense to Other expense on its consolidated statement of income to align the presentation with the method the Company uses to evaluate these results.
Segment Information
The Company’s primary business is acquiring, investing in and managing a portfolio of mortgage loans. The Company operates in a single segment focused on re-performing mortgages, and to a lesser extent non-performing mortgages and real property.
Recently Adopted Accounting Standards
In December 2019, the FASB issued ASU 2019-12, Income Taxes (Topic 740) – Simplifying the Accounting for Income Taxes. The amendments in this update simplify the accounting for income taxes by removing certain exceptions and adding certain clarifications to rules and definitions used in the calculation of the income tax provision. This guidance is effective for interim and annual reporting periods beginning after December 15, 2020, with early adoption permitted, including adoption in any interim period. The Company adopted ASU 2019-12 in the first quarter of 2021 with no effect on its consolidated assets or liabilities, consolidated net income or equity or cash flows on the date of adoption.
In January 2020, the FASB issued ASU 2020-01, Investments – Equity Securities (Topic 321, Investments) – Equity Method and Joint Ventures (Topic 323), and Derivatives and Hedging (Topic 815). The amendments in this update clarify the interactions between Topic 321, Topic 323, and Topic 815, which clarifies aspects of accounting for investments in equity-method investees acquired through step acquisitions to require remeasurement of an investment immediately before adopting the equity method of accounting if the investor identifies observable price changes in orderly transactions for an identical or similar investment of the same issuer, and also requires such remeasurement upon discontinuance of the equity method. The amendments also clarify whether upon settlement of a forward contract or option the underlying security would be accounted for under the Equity Method (Topic 323) or the fair value option (Topic 825). This guidance is effective for interim and annual reporting periods beginning after December 15, 2020, with early adoption permitted, including adoption in any interim period. The Company adopted ASU 2020-01 in the first quarter of 2021 with no effect on its consolidated assets or liabilities, consolidated net income or equity or cash flows on the date of adoption.
Recently Issued Accounting Standards
In August 2020, the FASB issued ASU 2020-06, Debt – Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging – Contracts in an Entity’s Own Equity (Subtopic 815-40). The amendments in this update simplify the accounting for convertible instruments by removing certain accounting models that require separation of convertible instruments into debt and equity components with conversion features that are not required to be accounted for as derivatives or that do not result in substantial premiums. Consequently a convertible instrument will be accounted for as a single liability measured as its amortized cost and convertible preferred stock will be accounted for as a single instrument recorded at historical cost as long as no other features require bifurcation and recognition as derivatives. This guidance is effective for interim and annual reporting periods beginning after December 15, 2021, with early adoption permitted, including adoption in any interim period. The Company is currently evaluating the impact on its consolidated financial statements and related disclosures.
Note 3 — Mortgage Loans
The following table presents information regarding the carrying value for the Company's RPLs, NPLs and SBC loans as of June 30, 2021 and December 31, 2020 ($ in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loan portfolio basis by asset type
|
|
June 30, 2021
|
|
December 31, 2020
|
|
Residential RPLs
|
|
$
|
897,516
|
|
|
$
|
1,057,454
|
|
|
Residential NPLs
|
|
36,820
|
|
|
38,724
|
|
|
SBC loans
|
|
21,292
|
|
|
23,194
|
|
|
Total
|
|
$
|
955,628
|
|
|
$
|
1,119,372
|
|
The accompanying notes are an integral part of the consolidated interim financial statements.
20
Included on the Company’s consolidated balance sheets as of June 30, 2021 and December 31, 2020 are approximately $955.6 million and $1.1 billion, respectively, of RPLs, NPLs, and SBCs. The categorization of RPLs, NPLs and SBCs is determined at acquisition. The carrying value of RPLs, NPLs and SBCs reflects the original investment amount, plus accretion of interest income and credit and non-credit discount, less principal and interest cash flows received. The carrying values at June 30, 2021 and December 31, 2020 for the Company's loans in the table above are presented net of a cumulative allowance for loan credit losses of $9.8 million and $13.7 million, respectively, reflected in the appropriate lines in the table by loan type. For the three and six months ended June 30, 2021, the Company recognized a $2.7 million and $8.2 million, respectively, of accelerated revenue during the three and six month periods due to an increase in the present value of the expected cash flows. For the three and six months ended June 30, 2020, the Company recognized $1.8 million and $(0.1) million, respectively, of income and expense, respectively. For the three and six months ended June 30, 2021, the Company accreted $18.4 million and $41.6 million, respectively, net of credit impairments and recoveries into interest income with respect to its RPL, NPL and SBC loans. For the three and six months ended June 30, 2020, the Company accreted $20.2 million and $39.8 million, respectively, net of credit impairments and recoveries into interest income with respect to its RPL, NPL and SBC loans.
Loss estimates are determined based on the net present value of the difference between the contractual cash flows and the expected cash flows over the expected life of the loans. Contractual cash flows are calculated based on the stated terms of the loans, and incorporate any prepayment assumptions utilized in the expected cash flows. Expected cash flows are based on the Manager's proprietary model, which includes factors such as resolution method, resolution timeline, foreclosure costs, rehabilitation costs and eviction costs. Additional variables bearing upon cash flow expectations include the specific location of the underlying property, loan-to-value ratio, property age and condition, change and rate of change of borrower credit rating, servicing notes, interest rate, monthly payment amount and neighborhood rents.
The Company's mortgage loans are secured by real estate. Risks inherent in the Company's mortgage loan portfolio, affecting both the valuation of its mortgage loans as well as the portfolio's interest income include the risk of default, delays and inconsistency in the frequency and amount of payments, risks affecting borrowers such as man-made or natural disasters, or the pandemic caused by the novel coronavirus ("COVID-19") outbreak, and damage to or delay in realizing the value of the underlying collateral. The Company monitors the credit quality of the mortgage loans in its portfolio on an ongoing basis, principally by considering loan payment activity or delinquency status. In addition, the Company assesses the expected cash flows from the mortgage loans, the fair value of the underlying collateral and other factors, and evaluates whether and when it becomes probable that all amounts contractually due will not be collected.
During the three and six months ended June 30, 2021, the Company purchased 38 and 237 RPLs with UPB of $5.2 million and $41.2 million, respectively. The Company had no loan acquisitions during the three months ended June 30, 2020, however, during the six months ended June 30, 2020 the Company purchased 26 RPLs with UPB of $2.0 million. The Company had no NPL acquisitions during the three months ended June 30, 2021; however, during the six months ended June 30, 2021, the Company purchased three NPLs with UPB of $0.7 million. During the three months ended June 30, 2020 no NPLs were purchased, however, during the six months ended June 30, 2020 one NPL was purchased with UPB of $0.2 million. The Company had no SBC acquisitions during the three months ended June 30, 2021; however, during the six months ended June 30, 2021, the Company acquired one SBC loan with UPB of $3.6 million. No SBC loans were acquired during the three and six months ended June 30, 2020.
During the three and six months ended June 30, 2021, the Company resecuritized 760 loans from 2017-D with a carrying value of $129.2 million and UPB of $133.8 million through a sale to a sponsored joint venture between the Company and a third party accredited institutional investor. The Company retained various classes of securities from the joint venture. Comparatively, during the three months ended June 30, 2020 the Company sold no mortgage loans; however, during the six months ended June 30, 2020, the Company sold 26 loans with a carrying value of $26.1 million and UPB of $26.2 million and collateral value of $44.2 million to Gaea, a related party. See Note 10 — Related Party Transactions.
The Company adopted CECL using the prospective transition approach for PCD assets on January 1, 2020. At the time, $10.2 million of loan discount was reclassified to the allowance for credit losses with no net impact on the amortized cost basis of the portfolio. The Company views its mortgage loan portfolio based on loan performance, or legal ownership for loans held by certain consolidated trusts, and used four and six pools at June 30, 2021 and December 31, 2020, respectively, to aggregate its portfolio of PCD loans, and one pool for its non-PCD loans as of both June 30, 2021 and December 31, 2020. Among the PCD loans, separate pools exist for loans that have been securitized in rated secured borrowings during 2019, 2020 and 2021 ("Great Ajax II REIT") and for loans that are consolidated under U.S. GAAP but where the Company did not own 100% of the loan pool (2017-D and 2018-C). During the quarter ending March 31, 2021 the Company acquired the non-controlling interest in securitization trust 2018-C previously held by its joint venture partner. As a result of the acquisition, the non-controlling interest was eliminated and the loans in securitization trust 2018-C were reclassified into new pools based on their payment status as of the acquisition date of the non-controlling interest. Subsequent to the acquisition date, a significant
The accompanying notes are an integral part of the consolidated interim financial statements.
21
portion of the loans from 2018-C were added to the Great Ajax II REIT pool as these loans became the collateral for a secured borrowing at that entity. As of March 31, 2021 the loans pooled under 2017-D were designated as held-for-sale. During the second quarter of 2021, 760 loans from 2017-D were resecuritized into a new joint venture, leaving 22 loans in the trust. The remaining loans were reclassified into new pools based on their payment status as of the sale date. A significant portion of the remaining loans from 2017-D were added to the 7f7 and better pool, and the remaining loans were added to the 4f4-6f6 and below pool. Since the criteria for pooling loans includes a combination of both performance and legal ownership by subsidiary trust, these factors are not always mutually exclusive. The following table presents information regarding the year of origination of the Company's mortgage loan portfolio by basis as of June 30, 2021 and December 31, 2020 ($ in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2021
|
|
|
2021
|
|
2020
|
|
2019
|
|
2018
|
|
2017
|
|
2016
|
|
2009-2015
|
|
2006-2008
|
|
2005 and prior
|
|
Total
|
|
Great Ajax II REIT
|
$
|
—
|
|
|
$
|
755
|
|
|
$
|
180
|
|
|
$
|
707
|
|
|
$
|
488
|
|
|
$
|
2,010
|
|
|
$
|
50,595
|
|
|
$
|
374,493
|
|
|
$
|
137,438
|
|
|
$
|
566,666
|
|
|
California
|
—
|
|
|
1,714
|
|
|
—
|
|
|
635
|
|
|
368
|
|
|
—
|
|
|
4,408
|
|
|
45,819
|
|
|
11,527
|
|
|
64,471
|
|
|
7f7 and better
|
—
|
|
|
—
|
|
|
1,080
|
|
|
107
|
|
|
427
|
|
|
451
|
|
|
16,202
|
|
|
90,714
|
|
|
35,537
|
|
|
144,518
|
|
|
4f4-6f6 and below
|
—
|
|
|
110
|
|
|
1,733
|
|
|
2,060
|
|
|
195
|
|
|
146
|
|
|
23,445
|
|
|
89,161
|
|
|
34,687
|
|
|
151,537
|
|
|
Non-PCD
|
10,678
|
|
|
9,633
|
|
|
4,566
|
|
|
76
|
|
|
2,591
|
|
|
122
|
|
|
735
|
|
|
23
|
|
|
12
|
|
|
28,436
|
|
|
Total
|
$
|
10,678
|
|
|
$
|
12,212
|
|
|
$
|
7,559
|
|
|
$
|
3,585
|
|
|
$
|
4,069
|
|
|
$
|
2,729
|
|
|
$
|
95,385
|
|
|
$
|
600,210
|
|
|
$
|
219,201
|
|
|
$
|
955,628
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2020
|
|
|
2020
|
|
2019
|
|
2018
|
|
2017
|
|
2016
|
|
2009-2015
|
|
2006-2008
|
|
2005 and prior
|
|
Total
|
|
Great Ajax II REIT
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
257
|
|
|
$
|
488
|
|
|
$
|
1,991
|
|
|
$
|
41,746
|
|
|
$
|
280,606
|
|
|
$
|
99,909
|
|
|
$
|
424,997
|
|
|
2018-C
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
14,100
|
|
|
119,343
|
|
|
39,778
|
|
|
173,221
|
|
|
2017-D
|
—
|
|
|
—
|
|
|
—
|
|
|
121
|
|
|
—
|
|
|
6,826
|
|
|
94,711
|
|
|
32,238
|
|
|
133,896
|
|
|
California
|
2,221
|
|
|
952
|
|
|
1,484
|
|
|
362
|
|
|
—
|
|
|
5,292
|
|
|
60,393
|
|
|
18,084
|
|
|
88,788
|
|
|
7f7 and better
|
—
|
|
|
911
|
|
|
434
|
|
|
—
|
|
|
2,125
|
|
|
17,520
|
|
|
88,414
|
|
|
32,831
|
|
|
142,235
|
|
|
4f4-6f6 and below
|
872
|
|
|
1,397
|
|
|
2,054
|
|
|
336
|
|
|
305
|
|
|
13,409
|
|
|
78,202
|
|
|
30,239
|
|
|
126,814
|
|
|
Non-PCD
|
21,387
|
|
|
4,738
|
|
|
64
|
|
|
2,493
|
|
|
99
|
|
|
611
|
|
|
20
|
|
|
9
|
|
|
29,421
|
|
|
Total
|
$
|
24,480
|
|
|
$
|
7,998
|
|
|
$
|
4,293
|
|
|
$
|
3,800
|
|
|
$
|
4,520
|
|
|
$
|
99,504
|
|
|
$
|
721,689
|
|
|
$
|
253,088
|
|
|
$
|
1,119,372
|
|
The following table presents a reconciliation between the purchase price and par value for the Company's loan acquisitions and originations for the three and six months ended June 30, 2021 and 2020 ($ in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended June 30,
|
|
Six months ended June 30,
|
|
|
|
2021
|
|
2020
|
|
2021
|
|
2020
|
|
|
|
PCD Loans
|
|
Non-PCD Loans
|
|
PCD Loans
|
|
Non-PCD Loans
|
|
PCD Loans
|
|
Non-PCD Loans
|
|
PCD Loans
|
|
Non-PCD Loans
|
|
Par
|
|
$
|
5,157
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
41,853
|
|
|
$
|
3,611
|
|
|
$
|
227
|
|
|
$
|
1,952
|
|
|
Discount
|
|
(390)
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(3,319)
|
|
|
(8)
|
|
|
(37)
|
|
|
(747)
|
|
|
Allowance
|
|
6
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(1,727)
|
|
|
—
|
|
|
(4)
|
|
|
—
|
|
|
Purchase Price
|
|
$
|
4,773
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
36,807
|
|
|
$
|
3,603
|
|
|
$
|
186
|
|
|
$
|
1,205
|
|
The Company performs an analysis of its expectation of the amount of undiscounted cash flows expected to be collected from its mortgage loan pools at the end of each calendar quarter. Under CECL, the Company adjusts its allowance for loan credit losses when there are changes in its expectation of future cash flows. An increase to the allowance for losses will occur when there is a reduction in the Company's expected future cash flows. 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. A decrease in the
The accompanying notes are an integral part of the consolidated interim financial statements.
22
allowance is generally facilitated by reclassifying amounts from non-credit discount to the allowance and then recording the recovery. During the three and six months ended June 30, 2021 the Company recorded a $5.5 million and $3.8 million reclassification, respectively, from non-credit discount to the allowance for losses followed by a $2.7 million and $8.2 million reduction of the allowance for losses, respectively, due to increases in the net present value of expected cash flows and a $0.0 million and $0.0 million reclassification, respectively, from non-credit discount to the allowance to reflect the impact of dissolving pool 2018-C during the first quarter of 2021 and resecuritizing the majority of pool 2017-D through the set-up of a new joint venture during the second quarter of 2021 and moving any remaining loans to other pools. During the three and six months ended June 30, 2021 the Company also recorded a $6 thousand decrease and $1.7 million increase, respectively, in the allowance due to new acquisitions. Comparatively, during the three months ended June 30, 2020 the Company recorded no change in the allowance due to new acquisitions, however, during the six months ended June 30, 2020 the Company recorded a $4 thousand increase in the allowance due to new acquisitions. During the three and six months ended June 30, 2021, the Company recorded no reclassifications from non-credit discount to the allowance for losses. Comparatively, during the three and six months ended June 30, 2020, the Company recorded a reclassification from non-credit discount to the allowance for losses in the amount of $0.2 million and $1.7 million, respectively, and an incremental provision expense of $1.8 million and $0.1 million, respectively. An analysis of the balance in the allowance for loan losses account follows ($ in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended June 30,
|
|
Six months ended June 30,
|
|
|
|
2021
|
|
2020
|
|
2021
|
|
2020
|
|
Allowance for loan credit losses, beginning of period
|
|
$
|
(17,890)
|
|
|
$
|
(16,136)
|
|
|
$
|
(13,712)
|
|
|
$
|
(1,960)
|
|
|
Beginning period adjustment for CECL adoption
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(10,156)
|
|
|
Reclassification from non-credit discount to the allowance for changes in payment expectations
|
|
5,450
|
|
|
—
|
|
|
(3,782)
|
|
|
—
|
|
|
Decrease/(increase) in allowance for loan credit losses for loan acquisitions
|
|
6
|
|
|
—
|
|
|
(1,727)
|
|
|
(4)
|
|
|
Credit loss expense on mortgage loans
|
|
(139)
|
|
|
(274)
|
|
|
(593)
|
|
|
(503)
|
|
|
Reclassification from non-credit discount to the allowance for losses for increases in the net present value of expected cash flows
|
|
—
|
|
|
161
|
|
|
—
|
|
|
(1,733)
|
|
|
Reversal of/(increase in) provision for credit losses due to increases/(decreases) in the net present value of expected cash flows
|
|
2,740
|
|
|
1,799
|
|
|
8,240
|
|
|
(94)
|
|
|
Reversal of allowance for reclass of pool 2017-D to mortgage loans held-for-sale, net
|
|
—
|
|
|
—
|
|
|
1,741
|
|
|
—
|
|
|
Allowance for loan credit losses, end of period
|
|
$
|
(9,833)
|
|
|
$
|
(14,450)
|
|
|
$
|
(9,833)
|
|
|
$
|
(14,450)
|
|
The following table sets forth the carrying value of the Company’s mortgage loans by delinquency status as of June 30, 2021 and December 31, 2020 ($ in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2021
|
|
|
|
Current
|
|
30
|
|
60
|
|
90
|
|
Foreclosure
|
|
Total
|
|
Great Ajax II REIT
|
|
$
|
505,442
|
|
|
$
|
19,500
|
|
|
$
|
8,650
|
|
|
$
|
31,676
|
|
|
$
|
1,398
|
|
|
$
|
566,666
|
|
|
California
|
|
22,095
|
|
|
5,956
|
|
|
5,280
|
|
|
25,756
|
|
|
5,384
|
|
|
64,471
|
|
|
7f7 and better
|
|
66,973
|
|
|
22,767
|
|
|
12,810
|
|
|
39,698
|
|
|
2,270
|
|
|
144,518
|
|
|
4f4-6f6 and below
|
|
22,274
|
|
|
4,634
|
|
|
6,844
|
|
|
81,621
|
|
|
36,164
|
|
|
151,537
|
|
|
Non-PCD
|
|
27,687
|
|
|
65
|
|
|
—
|
|
|
47
|
|
|
637
|
|
|
28,436
|
|
|
Total
|
|
$
|
644,471
|
|
|
$
|
52,922
|
|
|
$
|
33,584
|
|
|
$
|
178,798
|
|
|
$
|
45,853
|
|
|
$
|
955,628
|
|
The accompanying notes are an integral part of the consolidated interim financial statements.
23
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2020
|
|
|
|
Current
|
|
30
|
|
60
|
|
90
|
|
Foreclosure
|
|
Total
|
|
Great Ajax II REIT
|
|
$
|
311,941
|
|
|
$
|
48,266
|
|
|
$
|
19,559
|
|
|
$
|
43,364
|
|
|
$
|
1,867
|
|
|
$
|
424,997
|
|
|
2018-C
|
|
70,034
|
|
|
20,541
|
|
|
15,300
|
|
|
57,538
|
|
|
9,808
|
|
|
173,221
|
|
|
2017-D
|
|
58,198
|
|
|
24,906
|
|
|
12,437
|
|
|
36,106
|
|
|
2,249
|
|
|
133,896
|
|
|
California
|
|
42,214
|
|
|
7,660
|
|
|
5,519
|
|
|
29,343
|
|
|
4,052
|
|
|
88,788
|
|
|
7f7 and better
|
|
72,613
|
|
|
14,003
|
|
|
12,447
|
|
|
41,383
|
|
|
1,789
|
|
|
142,235
|
|
|
4f4-6f6 and below
|
|
13,976
|
|
|
10,773
|
|
|
7,157
|
|
|
68,677
|
|
|
26,231
|
|
|
126,814
|
|
|
Non-PCD
|
|
22,562
|
|
|
6,099
|
|
|
56
|
|
|
704
|
|
|
—
|
|
|
29,421
|
|
|
Total
|
|
$
|
591,538
|
|
|
$
|
132,248
|
|
|
$
|
72,475
|
|
|
$
|
277,115
|
|
|
$
|
45,996
|
|
|
$
|
1,119,372
|
|
Note 4 — Real Estate Assets, Net
The Company acquires real estate assets either through direct purchases of properties for its rental portfolio or through conversions of mortgage loans in its portfolio such as when a mortgage loan is foreclosed upon and the Company takes title to the property on the foreclosure date or the borrower surrenders the deed in lieu of foreclosure.
Property Held-for-Sale and Rental Property
The Company's REO property consists of property held-for-sale and rental property. REO property is considered held-for-sale if the REO is expected to be actively marketed for sale. As of June 30, 2021 and December 31, 2020, the Company’s net investments in real estate owned properties were $4.8 million and $8.5 million, respectively, which included balances relating to properties held-for-sale of $4.4 million and $7.8 million, respectively, and rental properties of $0.4 million and $0.7 million, respectively. Also, included in the properties held-for-sale balance for both periods as of June 30, 2021 and December 31, 2020, was $0.3 million for properties undergoing renovation or which are otherwise in the process of being brought to market. As of June 30, 2021 and December 31, 2020, the Company had a total of 25 and 38 real estate owned properties, respectively, which included 20 and 32 held-for-sale properties, respectively, and five and six rental properties, respectively. For the six months ended June 30, 2021 and 2020, all of the additions to REO held-for-sale were acquired through foreclosure or deed in lieu of foreclosure, and reclassified out of the mortgage loan portfolio and transfers from rental properties.
The following table presents the activity in the Company’s carrying value of property held-for-sale and rental property for the three and six months ended June 30, 2021 and 2020 ($ in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended June 30,
|
|
Six months ended June 30,
|
|
|
|
2021
|
|
2020
|
|
2021
|
|
2020
|
|
Property Held-for-sale and Rental Property
|
|
Count
|
|
Amount
|
|
Count
|
|
Amount
|
|
Count
|
|
Amount
|
|
Count
|
|
Amount
|
|
Balance at beginning of period
|
|
31
|
|
|
$
|
7,098
|
|
|
54
|
|
|
$
|
12,250
|
|
|
38
|
|
|
$
|
8,526
|
|
|
68
|
|
|
$
|
15,071
|
|
|
Net transfers from mortgage loans
|
|
5
|
|
|
1,046
|
|
|
2
|
|
|
98
|
|
|
7
|
|
|
1,274
|
|
|
7
|
|
|
912
|
|
|
Adjustments to record at lower of cost or fair value
|
|
—
|
|
|
(77)
|
|
|
—
|
|
|
(103)
|
|
|
—
|
|
|
(248)
|
|
|
—
|
|
|
(1,000)
|
|
|
Depreciation on rental properties
|
|
—
|
|
|
(3)
|
|
|
—
|
|
|
(8)
|
|
|
—
|
|
|
(6)
|
|
|
—
|
|
|
(16)
|
|
|
Disposals
|
|
(11)
|
|
|
(3,296)
|
|
|
(14)
|
|
|
(3,997)
|
|
|
(20)
|
|
|
(4,778)
|
|
|
(33)
|
|
|
(6,727)
|
|
|
Other
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(7)
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(7)
|
|
|
Balance at end of period
|
|
25
|
|
|
$
|
4,768
|
|
|
42
|
|
|
$
|
8,233
|
|
|
25
|
|
|
$
|
4,768
|
|
|
42
|
|
|
$
|
8,233
|
|
Dispositions
During the three and six months ended June 30, 2021, the Company sold 11 and 20 REO properties, respectively, realizing net gains of approximately $0.1 million and $0.2 million, respectively. Comparatively, for the three and six months ended June 30, 2020, the Company sold 14 and 33 REO properties, respectively, realizing net gains of approximately $0.4 million and $0.8 million, respectively. These amounts are included in Other income on the Company's consolidated statements of income. The Company recorded lower of cost or net realizable value adjustments in Real estate operating expense for the three and six months ended June 30, 2021 of $0.1 million and $0.2 million, respectively. Comparatively, for the three and six
The accompanying notes are an integral part of the consolidated interim financial statements.
24
months ended June 30, 2020, the Company recorded lower of cost or net realizable value adjustments of $0.1 million and $1.0 million, respectively.
Note 5 — Investments
The Company holds investments in various debt securities and beneficial interests which are the net residual interest of the Company’s investments in securitization trusts holding pools of mortgage loans. The Company's debt securities and beneficial interests are issued by securitization trusts, which are VIEs, that the Company has sponsored but which the Company does not consolidate since it has determined it is not the primary beneficiary. See Note 10 — Related party transactions. The Company marks its debt securities to fair value using prices provided by financing counterparties, and believes any unrealized losses to be temporary. Risks inherent in the Company's debt securities portfolio, affecting both the valuation of its securities as well as the portfolio's interest income include the risk of default, delays and inconsistency in the frequency and amount of payments, risks affecting borrowers such as man-made or natural disasters, or the COVID-19 pandemic, and damage to or delay in realizing the value of the underlying collateral. The Company monitors the credit quality of the mortgage loans underlying its debt securities on an ongoing basis, principally by considering loan payment activity or delinquency status. In addition, the Company assesses the expected cash flows from the mortgage loans, the fair value of the underlying collateral and other factors, and evaluates whether and when it becomes probable that all amounts contractually due will not be collected. The following table presents information regarding the Company's investments in debt securities and investments in beneficial interests ($ in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of June 30, 2021
|
|
|
|
Basis(1)
|
|
Gross unrealized gains
|
|
Gross unrealized losses
|
|
Carrying value (fair value)
|
|
Debt securities
|
|
$
|
422,981
|
|
|
$
|
1,877
|
|
|
$
|
(226)
|
|
|
$
|
424,632
|
|
|
Beneficial interests in securitization trusts
|
|
133,484
|
|
|
—
|
|
|
—
|
|
|
133,484
|
|
|
Total investments
|
|
$
|
556,465
|
|
|
$
|
1,877
|
|
|
$
|
(226)
|
|
|
$
|
558,116
|
|
(1)Basis amount is net of amortized discount, allowance for credit losses, principal paydowns and interest receivable on securities of $0.3 million.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2020
|
|
|
|
Basis(1)
|
|
Gross unrealized gains
|
|
Gross unrealized losses
|
|
Carrying value (fair value)
|
|
Debt securities
|
|
$
|
273,459
|
|
|
$
|
1,152
|
|
|
$
|
(777)
|
|
|
$
|
273,834
|
|
|
Beneficial interests in securitization trusts
|
|
91,418
|
|
|
—
|
|
|
—
|
|
|
91,418
|
|
|
Total investments
|
|
$
|
364,877
|
|
|
$
|
1,152
|
|
|
$
|
(777)
|
|
|
$
|
365,252
|
|
(1)Basis amount is net of amortized costs, principal paydowns and interest receivable on securities of $0.2 million.
The following table presents a breakdown of the Company's gross unrealized losses ($ in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of June 30, 2021
|
|
|
|
Step-up date(1)
|
|
Basis(2)
|
|
Gross unrealized losses
|
|
Carrying value (fair value)
|
|
Debt securities due September 2059(3)
|
|
February 2023/April 2023
|
|
$
|
20,243
|
|
|
$
|
(213)
|
|
|
$
|
20,030
|
|
|
Debt securities due March 2060(4)
|
|
February 2025
|
|
43,231
|
|
|
(4)
|
|
|
43,227
|
|
|
Debt securities due January 2061(4)
|
|
September 2024
|
|
15,206
|
|
|
(1)
|
|
|
15,205
|
|
|
Debt securities due June 2061(5)
|
|
January 2025/February 2025
|
|
134,702
|
|
|
(8)
|
|
|
134,694
|
|
|
Total
|
|
|
|
$
|
213,382
|
|
|
$
|
(226)
|
|
|
$
|
213,156
|
|
(1)Step-up date is the date at which the coupon interest rate on the security increases. The Company expects the security to be called before the step-up date.
(2)Basis amount is net of any realized amortized costs and principal paydowns.
(3)This line is comprised of two securities that are both due in September 2059 and both have been in an unrealized loss position for 12 months or longer.
The accompanying notes are an integral part of the consolidated interim financial statements.
25
(4)This security has been in an unrealized loss position for less than 12 months.
(5)This line is comprised of two securities that are both due in June 2061 and both have been in an unrealized loss position for less than 12 months.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2020
|
|
|
|
Step-up date(1)
|
|
Basis(2)
|
|
Gross unrealized losses
|
|
Carrying value (fair value)
|
|
Debt securities due September 2059(3)
|
|
February 2023/April 2023
|
|
$
|
22,216
|
|
|
$
|
(238)
|
|
|
$
|
21,978
|
|
|
Debt securities due November 2059(4)
|
|
April 2023
|
|
14,738
|
|
|
(61)
|
|
|
14,677
|
|
|
Debt securities due December 2059(4)
|
|
July 2023
|
|
47,270
|
|
|
(315)
|
|
|
46,955
|
|
|
Debt securities due September 2060(4)
|
|
March 2024
|
|
34,970
|
|
|
(44)
|
|
|
34,926
|
|
|
Debt securities due June 2060(4)
|
|
March 2024
|
|
35,127
|
|
|
(119)
|
|
|
35,008
|
|
|
Total
|
|
|
|
$
|
154,321
|
|
|
$
|
(777)
|
|
|
$
|
153,544
|
|
(1)Step-up date is the date at which the coupon interest rate on the security increases. The Company expects the security to be called before the step-up date.
(2)Basis amount is net of any realized amortized costs and principal paydowns.
(3)This line is comprised of two securities that are both due September 2059. One security with a balance of $0.2 million has been in an unrealized loss position for less than 12 months and has a step-up date in April 2023, and the other security of $0.1 million has been in a loss position for 12 months or longer and has a step-up date in February 2023.
(4)This security has been in an unrealized loss position for less than 12 months.
As of June 30, 2021, the Company recorded $1.9 million gross unrealized gains and a gross unrealized loss of $0.2 million in fair valuation adjustments in accumulated other comprehensive income on the consolidated balance sheet at a fair value of $424.6 million, which includes $0.3 million in interest receivable. As of December 31, 2020, the Company recorded $1.2 million gross unrealized gains and a gross unrealized loss of $0.8 million in fair valuation adjustments in accumulated other comprehensive income on the consolidated balance sheet at fair value of $273.8 million, which includes $0.2 million in interest receivable.
During both the three and six months ended June 30, 2021, the Company acquired $232.9 million of debt securities and beneficial interests issued by joint ventures between the Company and third party institutional accredited investors. Each joint venture issued senior notes and beneficial interests, which are trust certificates representing the residual investment in the trust. In certain transactions, the joint ventures also issued subordinated notes. Of the $232.9 million acquired in both the three and six months ended June 30, 2021, the Company acquired $170.0 million in senior notes, $23.5 million in subordinate notes and $39.5 million in beneficial interest issued by joint ventures. Comparatively during the three and six months ended June 30, 2020, the Company acquired zero and $61.3 million, respectively, in debt securities and beneficial interests issued by joint ventures between the Company and third party institutional accredited investors. Each joint venture issued senior notes and beneficial interests, which are trust certificates representing the residual investment in the trust. In certain transactions, the joint ventures also issued subordinated notes. Of the $61.3 million of debt securities acquired in the six months ended June 30, 2020, the Company acquired $49.6 million in senior notes, $4.6 million in subordinate notes and $7.1 million in beneficial interests issued by joint ventures. As of June 30, 2021, the investments in debt securities and beneficial interests were carried on the Company's consolidated balance sheet at $424.6 million and $133.5 million, respectively. At December 31, 2020, the investments in debt securities and beneficial interests were carried on the Company's consolidated balance sheet at $273.8 million and $91.4 million, respectively. As of June 30, 2021 and December 31, 2020, the Company had no securities that were past due.
The following table presents a reconciliation between the purchase price and par value for the Company's beneficial interests acquisitions for the three and six months ended June 30, 2021 and 2020 ($ in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended June 30,
|
|
Six months ended June 30,
|
|
|
|
2021
|
|
2020
|
|
2021
|
|
2020
|
|
Par
|
|
$
|
46,485
|
|
|
$
|
—
|
|
|
$
|
46,485
|
|
|
$
|
11,970
|
|
|
Discount
|
|
(5,425)
|
|
|
—
|
|
|
(5,425)
|
|
|
(2,335)
|
|
|
Allowance
|
|
(1,593)
|
|
|
—
|
|
|
(1,593)
|
|
|
(2,553)
|
|
|
Purchase Price
|
|
$
|
39,467
|
|
|
$
|
—
|
|
|
$
|
39,467
|
|
|
$
|
7,082
|
|
The Company adopted CECL using the prospective transition approach for PCD assets for its beneficial interests on January 1, 2020, at the time $1.7 million was reclassified from discount to allowance for credit losses for its Investments in
The accompanying notes are an integral part of the consolidated interim financial statements.
26
beneficial interests. Under CECL, the Company recognizes increases and decreases in the net present value of expected cash flows in earnings in the period they occur. An expense will be recorded to increase the allowance for losses when there is a reduction in the Company’s expected future cash flows. Income will be recognized if there is an increase in expected future cash flows. A decrease in the allowance is generally facilitated by reclassifying amounts from non-credit discount to the allowance and then recording the reduction to the allowance. Management assesses the credit quality of the portfolio and the adequacy of loss reserves on a quarterly basis, or more frequently as necessary. During both the three and six months ended June 30, 2021, the Company recorded $2.0 million reversal of the allowance for losses for beneficial interests. During the three and six months ended June 30, 2020, the Company recorded reversals of the allowance for losses for beneficial interests of $3.1 million and $0.2 million, respectively. An analysis of the balance in the allowance for beneficial interest losses account follows ($ in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended June 30,
|
|
Six months ended June 30,
|
|
|
|
2021
|
|
2020
|
|
2021
|
|
2020
|
|
Allowance for beneficial interests credit losses, beginning balance
|
|
$
|
(5,530)
|
|
|
$
|
(7,208)
|
|
|
$
|
(4,453)
|
|
|
$
|
—
|
|
|
Beginning period adjustment for CECL adoption
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(1,668)
|
|
|
Incremental change in allowance for beneficial interests
|
|
2,388
|
|
|
—
|
|
|
1,435
|
|
|
—
|
|
|
Increase in allowance for beneficial interest credit losses for acquisitions
|
|
(1,593)
|
|
|
—
|
|
|
(1,593)
|
|
|
(2,553)
|
|
|
Credit loss expense on beneficial interests
|
|
(216)
|
|
|
(260)
|
|
|
(355)
|
|
|
(429)
|
|
|
Reclassification from non-credit discount to the allowance for losses for increases in the net present value of expected cash flows
|
|
—
|
|
|
(2,553)
|
|
|
—
|
|
|
(2,553)
|
|
|
Net reversal of provision for credit losses due to increases in actual and/or forecasted cash flows
|
|
1,992
|
|
|
3,062
|
|
|
2,007
|
|
|
244
|
|
|
Allowance for beneficial interests credit losses, end balance
|
|
$
|
(2,959)
|
|
|
$
|
(6,959)
|
|
|
$
|
(2,959)
|
|
|
$
|
(6,959)
|
|
Note 6 — Fair Value
Recurring financial assets and liabilities measured and carried at fair value by level within the fair value hierarchy as of June 30, 2021 and December 31, 2020 ($ in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
June 30, 2021
|
|
Carrying Value
|
|
Quoted prices in active markets
|
|
Observable inputs other than Level 1 prices
|
|
Unobservable inputs
|
|
Recurring financial assets
|
|
|
|
|
|
|
|
|
|
Investment in debt securities at fair value
|
|
$
|
424,632
|
|
|
$
|
—
|
|
|
$
|
424,632
|
|
|
$
|
—
|
|
|
Recurring financial liabilities
|
|
|
|
|
|
|
|
|
|
Put option liability
|
|
$
|
18,350
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
18,350
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
December 31, 2020
|
|
Carrying Value
|
|
Quoted prices in active markets
|
|
Observable inputs other than Level 1 prices
|
|
Unobservable inputs
|
|
Recurring financial assets
|
|
|
|
|
|
|
|
|
|
Investment in debt securities at fair value
|
|
$
|
273,834
|
|
|
$
|
—
|
|
|
$
|
273,834
|
|
|
$
|
—
|
|
|
Recurring financial liabilities
|
|
|
|
|
|
|
|
|
|
Put option liability
|
|
$
|
14,205
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
14,205
|
|
The accompanying notes are an integral part of the consolidated interim financial statements.
27
The following tables set forth the fair value of financial instruments by level within the fair value hierarchy as of June 30, 2021 and December 31, 2020 ($ in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
June 30, 2021
|
|
Carrying value
|
|
Quoted prices in active markets
|
|
Observable inputs other than Level 1 prices
|
|
Unobservable inputs
|
|
Financial assets
|
|
|
|
|
|
|
|
|
|
Mortgage loans, net
|
|
$
|
955,628
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
1,043,197
|
|
|
Investments in beneficial interests
|
|
$
|
133,484
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
133,484
|
|
|
Investment in Manager
|
|
$
|
1,571
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
11,794
|
|
|
Investment in AS Ajax E LLC
|
|
$
|
683
|
|
|
$
|
—
|
|
|
$
|
825
|
|
|
$
|
—
|
|
|
Investment in AS Ajax E II LLC
|
|
$
|
2,840
|
|
|
$
|
—
|
|
|
$
|
3,012
|
|
|
$
|
—
|
|
|
Investment in GAFS, including warrants
|
|
$
|
2,656
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
3,320
|
|
|
Investment in Gaea
|
|
$
|
19,818
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
19,991
|
|
|
Investment in Loan pool LLCs
|
|
$
|
361
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
724
|
|
|
Financial liabilities
|
|
|
|
|
|
|
|
|
|
Secured borrowings, net
|
|
$
|
653,948
|
|
|
$
|
—
|
|
|
$
|
667,565
|
|
|
$
|
—
|
|
|
Borrowings under repurchase transactions
|
|
$
|
394,386
|
|
|
$
|
—
|
|
|
$
|
394,386
|
|
|
$
|
—
|
|
|
Convertible senior notes, net
|
|
$
|
103,427
|
|
|
$
|
111,693
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
December 31, 2020
|
|
Carrying value
|
|
Quoted prices in active markets
|
|
Observable inputs other than Level 1 prices
|
|
Unobservable inputs
|
|
Financial assets
|
|
|
|
|
|
|
|
|
|
Mortgage loans, net
|
|
$
|
1,119,372
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
1,232,081
|
|
|
Investment in beneficial interests
|
|
$
|
91,418
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
91,418
|
|
|
Investment in Manager
|
|
$
|
1,366
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
11,709
|
|
|
Investment in AS Ajax E LLC
|
|
$
|
776
|
|
|
$
|
—
|
|
|
$
|
934
|
|
|
$
|
—
|
|
|
Investment in AS Ajax E II LLC
|
|
$
|
3,381
|
|
|
$
|
—
|
|
|
$
|
3,484
|
|
|
$
|
—
|
|
|
Investment in GAFS, including warrants
|
|
$
|
2,711
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
3,320
|
|
|
Investment in Gaea
|
|
$
|
20,001
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
19,150
|
|
|
Investment in Loan pool LLCs
|
|
$
|
381
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
701
|
|
|
Financial liabilities
|
|
|
|
|
|
|
|
|
|
Secured borrowings, net
|
|
$
|
585,403
|
|
|
$
|
—
|
|
|
$
|
586,419
|
|
|
$
|
—
|
|
|
Borrowings under repurchase agreement
|
|
$
|
421,132
|
|
|
$
|
—
|
|
|
$
|
421,132
|
|
|
$
|
—
|
|
|
Convertible senior notes, net
|
|
$
|
110,057
|
|
|
$
|
110,675
|
|
|
$
|
—
|
|
|
$
|
—
|
|
During the quarter ended June 30, 2021, the company refinanced its Ajax Mortgage Trust 2017-D secured borrowing and took back debt securities and beneficial interests in Ajax Mortgage Trust 2021-C (“2021-C”). 2021-C is not consolidated in the Company’s financial statements. Accordingly, the carrying value and fair value of Mortgage loans declined and the Investment in and fair value of debt securities and beneficial interests increased. The Investment in debt securities and beneficial interests are carried at fair value on the Company’s consolidated balance sheet.
The fair value of mortgage loans and beneficial interests is estimated using the Manager’s proprietary pricing model which estimates expected cash flows with the discount rate used in the present value calculation representing the estimated effective yield of the loan. 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.
The accompanying notes are an integral part of the consolidated interim financial statements.
28
The Company values its investments in debt securities using estimates provided by its financing counterparties. The Company also relies on its Manager's proprietary pricing model to estimate the underlying cash flows expected to be collected on these investments as a comparison to the estimates received from financing counterparties. The Company also relies on its Manager's proprietary pricing model to estimate the underlying cash flows expected to be collected on its investments in beneficial interests.
The Company's investment in the Manager is valued by applying an earnings multiple to base fee revenue.
The Company’s investments in AS Ajax E LLC and AS Ajax E II LLC are valued using estimates provided by financing counterparties or other publicly available information.
The fair value of the Company's investment in GAFS, including warrants, is determined by applying an earnings multiple to expected earnings.
The fair value of the Company's investment in Gaea is estimated using a projected net operating income for its property portfolio.
The fair value of the Company's investment in the loan pool LLCs is determined by using estimates of underlying assets and liabilities taken from its Manager's pricing model.
The fair value of secured borrowings is estimated using estimates provided by the Company's financing counterparties, which are compared for reasonableness to the Manager’s proprietary pricing model which estimates expected cash flows of the underlying mortgage loans collateralizing the debt. The Company is able to call the bonds issued in its secured borrowings at par value plus accrued interest pursuant to the terms of the offering document. The Company carries its secured borrowings net of deferred issuance cost. Accordingly, the difference between fair value and carrying value is largely driven by the deferred issuance costs.
The Company's put option liability is adjusted to approximate market value through earnings.The put obligation is a fixed amount that may be settled in cash or shares of the Company’s common stock at the option of the Company.
Fair value is determined using the discounted cash flow method using a rate to accrete the initial basis of $9.5 million to the future put obligation of $50.7 million over the 39-month term of the put option liability.
The Company’s borrowings under repurchase agreements are short-term in nature, and the Manager believes it can renew the current borrowing arrangements on similar terms in the future. Accordingly, the carrying value of these borrowings approximates fair value.
The Company’s convertible senior notes are traded on the NYSE; the debt’s fair value is determined from the NYSE closing price on the balance sheet date. The Convertible debt may be redeemable at par plus accrued interest beginning on April 30, 2022 subject to satisfying the conversion price trigger. The Company carries it Convertible debt net of deferred issuance cost. Accordingly, the difference between fair value and carrying value is partially driven by the deferred issuance costs.
The carrying values of its Cash and cash equivalents, Cash held in trust, Receivable from Servicer, Prepaid expenses and other assets, Management fee payable and Accrued expenses and other liabilities are equal to or approximate fair value.
Non-financial assets
Property held-for-sale is carried at the lower of its acquisition cost ("cost") or net realizable value. Net realizable value is determined based on appraisals, broker price opinions, or other market indicators of fair value less expected liquidation costs. The lower of cost or net realizable value for the Company’s REO Property is stated as it's carrying value. The following tables set forth the fair value of non-financial assets by level within the fair value hierarchy as of June 30, 2021 and December 31, 2020 ($ in thousands):
The accompanying notes are an integral part of the consolidated interim financial statements.
29
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
June 30, 2021
|
|
Carrying value
|
|
Six months ended fair value adjustment recognized in the consolidated statements of income
|
|
Quoted prices in active markets
|
|
Observable inputs other than Level 1 prices
|
|
Unobservable inputs
|
|
Non-financial assets
|
|
|
|
|
|
|
|
|
|
|
|
Property held-for-sale
|
|
$
|
4,409
|
|
|
$
|
(248)
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
4,409
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
December 31, 2020
|
|
Carrying value
|
|
Fair value adjustment recognized in the consolidated statements of income
|
|
Quoted prices in active markets
|
|
Observable inputs other than Level 1 prices
|
|
Unobservable inputs
|
|
Non-financial assets
|
|
|
|
|
|
|
|
|
|
|
|
Property held-for-sale
|
|
$
|
7,807
|
|
|
$
|
(1,359)
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
7,807
|
|
Note 7 — Affiliates
Unconsolidated Affiliates
On November 22, 2019, Gaea completed a private capital raise transaction in which it raised $66.3 million from the issuance of 4,419,641 shares of its common stock to third parties to allow it to continue to advance its investment strategy. Upon completion of the capital raise, the Company retained ownership of approximately 23.2% of Gaea with third party investors owning the remaining approximately 76.8%. The Company recognized no gain or loss on the transaction as Gaea's fair value at the date of the deconsolidation did not represent a material change from the fair values of its recently acquired assets and liabilities due to the limited lapse of time since their acquisitions. At June 30, 2021 the Company owned approximately 22.9% of Gaea with third party investors owning the remaining approximately 77.1%. The Company accounts for its investment in Gaea using the equity method.
During the year ended December 31, 2019, the Company acquired a cumulative 40.4% average ownership interest in three loan pool LLCs managed by the Servicer for $1.0 million, which hold investments in RPLs and NPLs. The Company accounts for its investment using the equity method.
During 2018, the Company acquired an 8.0% ownership interest in GAFS. The acquisition was completed in two transactions. On January 26, 2018, the Company in an initial closing acquired a 4.9% interest in GAFS and three warrants, each exercisable for a 2.45% interest in GAFS upon payment of additional consideration, in exchange for consideration of $1.1 million of cash and 45,938 shares of the Company’s common stock with a value of approximately $0.6 million. On May 29, 2018 the additional closing was completed wherein the Company acquired an additional 3.1% interest in GAFS and three warrants, each exercisable for a 1.55% interest in GAFS, in exchange for consideration of $0.7 million of cash and 29,063 shares of the Company's common stock with a value of approximately $0.4 million. The Company accounts for its investment in GAFS using the equity method.
On March 14, 2016, the Company formed AS Ajax E LLC to hold an equity interest in a Delaware trust formed to own residential mortgage loans and residential real estate assets. AS Ajax E LLC owns a 5% equity interest in Ajax E Master Trust which holds a portfolio of RPLs. At the time of the original investment, the Company held a 24.2% interest in AS Ajax E LLC. In October 2016, additional capital contributions were made by third parties, and the Company’s ownership interest in AS Ajax E was reduced to a lower percentage of the total. As of June 30, 2021 and December 31, 2020, the Company’s interest in AS Ajax E LLC was approximately 16.5%. The Company accounts for its investment using the equity method.
Upon the closing of the Company’s original private placement in July 2014, the Company received a 19.8% equity interest in the Manager, a privately held company for which there is no public market for its securities. The Company accounts for its investment in the Manager using the equity method.
The table below shows the net income, assets and liabilities for the Company’s unconsolidated affiliates at 100%, and at the Company’s share ($ in thousands):
Net income/(loss), assets and liabilities of unconsolidated affiliates at 100%
The accompanying notes are an integral part of the consolidated interim financial statements.
30
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended June 30,
|
|
Six months ended June 30,
|
|
Net income/(loss) at 100%
|
|
2021
|
|
2020
|
|
2021
|
|
2020
|
|
Thetis Asset Management LLC
|
|
$
|
1,429
|
|
|
$
|
2,662
|
|
|
$
|
2,280
|
|
|
$
|
(2,215)
|
|
|
Gaea Real Estate Corp.
|
|
$
|
181
|
|
|
$
|
245
|
|
|
$
|
259
|
|
|
$
|
260
|
|
|
Great Ajax FS LLC
|
|
$
|
89
|
|
|
$
|
900
|
|
|
$
|
(688)
|
|
|
$
|
(2,550)
|
|
|
AS Ajax E LLC
|
|
$
|
42
|
|
|
$
|
37
|
|
|
$
|
96
|
|
|
$
|
99
|
|
|
Loan pool LLCs
|
|
$
|
(35)
|
|
|
$
|
(57)
|
|
|
$
|
(51)
|
|
|
$
|
141
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2021
|
|
December 31, 2020
|
|
Assets and Liabilities at 100%
|
|
Assets
|
|
Liabilities
|
|
Assets
|
|
Liabilities
|
|
Thetis Asset Management LLC
|
|
$
|
10,063
|
|
|
$
|
1,809
|
|
|
$
|
9,531
|
|
|
$
|
2,122
|
|
|
Gaea Real Estate Corp.
|
|
$
|
90,082
|
|
|
$
|
7,915
|
|
|
$
|
94,639
|
|
|
$
|
11,886
|
|
|
Great Ajax FS LLC
|
|
$
|
48,755
|
|
|
$
|
29,016
|
|
|
$
|
56,532
|
|
|
$
|
36,101
|
|
|
AS Ajax E LLC
|
|
$
|
4,235
|
|
|
$
|
2
|
|
|
$
|
4,808
|
|
|
$
|
2
|
|
|
Loan pool LLCs
|
|
$
|
2,221
|
|
|
$
|
3,809
|
|
|
$
|
2,423
|
|
|
$
|
3,961
|
|
Net income/(loss), assets and liabilities of unconsolidated affiliates at the Company's share
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended June 30,
|
|
Six months ended June 30,
|
|
Net income/(loss) at the Company's share
|
|
2021
|
|
2020
|
|
2021
|
|
2020
|
|
Thetis Asset Management LLC
|
|
$
|
283
|
|
|
$
|
527
|
|
|
$
|
451
|
|
|
$
|
(439)
|
|
|
Gaea Real Estate Corp.
|
|
$
|
42
|
|
|
$
|
56
|
|
|
$
|
60
|
|
|
$
|
60
|
|
|
Great Ajax FS LLC
|
|
$
|
7
|
|
|
$
|
72
|
|
|
$
|
(55)
|
|
|
$
|
(204)
|
|
|
AS Ajax E LLC
|
|
$
|
7
|
|
|
$
|
6
|
|
|
$
|
16
|
|
|
$
|
16
|
|
|
Loan pool LLCs
|
|
$
|
(14)
|
|
|
$
|
(23)
|
|
|
$
|
(21)
|
|
|
$
|
56
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2021
|
|
December 31, 2020
|
|
Assets and Liabilities at the Company's share
|
|
Assets
|
|
Liabilities
|
|
Assets
|
|
Liabilities
|
|
Thetis Asset Management LLC
|
|
$
|
1,992
|
|
|
$
|
358
|
|
|
$
|
1,887
|
|
|
$
|
420
|
|
|
Gaea Real Estate Corp.
|
|
$
|
20,665
|
|
|
$
|
1,816
|
|
|
$
|
21,729
|
|
|
$
|
2,729
|
|
|
Great Ajax FS LLC
|
|
$
|
3,900
|
|
|
$
|
2,321
|
|
|
$
|
4,523
|
|
|
$
|
2,888
|
|
|
AS Ajax E LLC
|
|
$
|
697
|
|
|
$
|
—
|
|
|
$
|
791
|
|
|
$
|
—
|
|
|
Loan pool LLCs
|
|
$
|
891
|
|
|
$
|
1,534
|
|
|
$
|
973
|
|
|
$
|
1,595
|
|
Consolidated Affiliates
The Company consolidates the results and balances of certain securitization trusts which are established to provide debt financing to the Company by securitizing pools of mortgage loans. These trusts are considered to be VIEs, and the Company has determined that it is the primary beneficiary of certain of these VIEs. See Note 9 — Debt.
The Company also consolidates the activities and balances of its controlled affiliates, which include AS Ajax E II LLC, which was established to hold an equity interest in a Delaware trust formed to own residential mortgage loans and residential real estate assets. As of June 30, 2021, AS Ajax E II was 53.1% owned by the Company, with the remainder held by third-parties. 2017-D is a securitization trust formed to hold mortgage loans, REO property and secured borrowings. During the second quarter of 2021, the majority of loans held by 2017-D were resecuritized into 2021-C, a related party joint venture with third party institutional investors. The Company held 50.0% ownership of the remaining loans held by 2017-D at June 30, 2021. Great Ajax II REIT 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 the Company may form for additional secured borrowings. Great Ajax II REIT was 99.9% owned by the Company as of June 30, 2021 and December 31, 2020.
The accompanying notes are an integral part of the consolidated interim financial statements.
31
During the first quarter of 2021, the Company acquired the remaining ownership of 2018-C, a subsidiary that previously had non-controlling ownership interest held by third parties and was 63.0% owned by the Company as of December 31, 2020. As of June 30, 2021, 2018-C was 100.0% owned by the Company and the previous non-controlling interest had been reduced to zero.
Note 8 — Commitments and Contingencies
The Company regularly enters into agreements to acquire additional mortgage loans and mortgage-related assets, subject to continuing diligence on such assets and other customary closing conditions. There can be no assurance that the Company will acquire any or all of the mortgage loans identified in any acquisition agreement as of the date of these consolidated financial statements, and it is possible that the terms of such acquisitions may change.
At June 30, 2021, the Company had commitments to purchase, subject to due diligence, 1,489 RPLs and NPLs secured by single-family residences with aggregated UPB of $287.6 million. The Company will only acquire loans that meet the acquisition criteria for its own portfolios or those of its third party institutional accredited co-investors. See Note 15 — Subsequent Events, for remaining open acquisitions as of the filing date.
During the quarter ended June 30, 2020, the Company issued an aggregate of $125.0 million, net of offering costs, of preferred stock in two series and warrants to institutional accredited investors in a series of private placements. The Company issued 2,307,400 shares of 7.25% Series A Fixed-to-Floating Rate Preferred Stock and 2,892,600 shares of 5.00% Series B Fixed-to-Floating Rate Preferred Stock, 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 the Company's 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 the Company at a specified put price on or after July 6, 2023. U.S. GAAP requires the Company to account for the outstanding warrants as if the put option will be exercised by the holders. Accordingly, the Company has recognized a liability on its consolidated balance sheet within accrued expenses and other liabilities at June 30, 2021 for the present value of the put liability of $18.4 million. The Company is accreting the amount of the liability under the effective interest method to its expected future put value of $50.7 million and marks the obligation to market through earnings. The expense is recognized in the Fair value adjustment on put option liability line of the Company's consolidated statements of income. The following table sets forth the details of the Company's put option liability ($ in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended June 30,
|
|
Six months ended June 30,
|
|
|
|
2021
|
|
2020
|
|
2021
|
|
2020
|
|
Beginning balance
|
|
$
|
16,149
|
|
|
$
|
—
|
|
|
$
|
14,205
|
|
|
$
|
—
|
|
|
Initial recognition of put option liability
|
|
—
|
|
|
9,472
|
|
|
—
|
|
|
9,472
|
|
|
Fair value adjustments during the period
|
|
2,201
|
|
|
1,250
|
|
|
4,145
|
|
|
1,250
|
|
|
Ending balance
|
|
$
|
18,350
|
|
|
$
|
10,722
|
|
|
$
|
18,350
|
|
|
$
|
10,722
|
|
The full extent of the impact of COVID-19 on the global economy generally, and the Company's business in particular, is uncertain. As of June 30, 2021, no contingencies have been recorded on the Company's consolidated balance sheet as a result of COVID-19, however as the global pandemic continues, it may have long-term adverse impacts on the Company's financial condition, results of operations, and cash flows.
Litigation, Claims and Assessments
From time to time, the Company may be involved in various claims and legal actions arising in the ordinary course of business. As of June 30, 2021, the Company was not a party to, and its properties were not subject to, any pending or threatened legal proceedings that individually or in the aggregate, are expected to have a material impact on its financial condition, results of operations or cash flows.
Note 9 — Debt
Repurchase Agreements
The Company has entered into two repurchase facilities whereby the Company, through two wholly owned Delaware trusts (the “Trusts”) acquires pools of mortgage loans which are then sold by the Trusts, as “Seller” to two separate
The accompanying notes are an integral part of the consolidated interim financial statements.
32
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, the Trust, with a simultaneous agreement, also agrees to repurchase the pools of mortgage loans from the buyer. Mortgage loans sold under these facilities carry interest calculated based on a spread to one-month LIBOR, which is fixed for the term of the borrowing. The purchase price that the Trust realizes upon the initial sale of the mortgage loans to the buyer can vary between 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 a Trust to repurchase these mortgage loans at a future date are guaranteed by the Company's Operating Partnership. The difference between the market value of the asset and the amount of the repurchase agreement is generally the amount of equity in the position and is intended to provide the buyer with some protection against fluctuations in the value of the collateral, and/or a failure by the Company to repurchase the asset and repay the borrowing at maturity. The Company has also entered into five repurchase facilities substantially similar to the mortgage loan repurchase facilities, but where the pledged assets are the class B bonds and certificates from the Company's secured borrowing transactions. These facilities have no effective ceilings. Each repurchase transaction represents its own borrowing. As such, the ceilings associated with these transactions are the amounts currently borrowed at any one time. The Company has effective control over the assets subject to all of these transactions; therefore, the Company’s repurchase transactions are accounted for as financing arrangements.
The Servicer services these mortgage loans pursuant to the terms of a Servicing Agreement by and between the Servicer and each Buyer. Each Servicing Agreement has the same fees and expenses terms as the Company’s Servicing Agreement described under Note 10 — Related party transactions. The Operating Partnership, as guarantor, will provide to the buyers a limited guaranty of certain losses incurred by the buyers in connection with certain events and/or the Seller’s obligations under the mortgage loan purchase agreement, following the breach of certain covenants by the Seller, the occurrence of certain bad acts by the Seller, the occurrence of certain insolvency events of the Seller or other events specified in the Guaranty. As security for its obligations under the Guaranty, the guarantor will pledge the Trust Certificate representing the Guarantor’s 100% beneficial interest in the Seller.
The following table sets forth the details of the Company’s repurchase transactions and facilities ($ in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2021
|
|
Maturity Date
|
|
Origination date
|
|
Maximum Borrowing Capacity
|
|
Amount Outstanding
|
|
Amount of Collateral
|
|
Percentage of Collateral Coverage
|
|
Interest Rate
|
|
July 6, 2021
|
|
April 6, 2021
|
|
$
|
7,267
|
|
|
$
|
7,267
|
|
|
$
|
9,419
|
|
|
130
|
%
|
|
1.40
|
%
|
|
July 6, 2021
|
|
April 6, 2021
|
|
4,420
|
|
|
4,420
|
|
|
5,531
|
|
|
125
|
%
|
|
1.40
|
%
|
|
July 6, 2021
|
|
April 6, 2021
|
|
3,336
|
|
|
3,336
|
|
|
4,667
|
|
|
140
|
%
|
|
1.80
|
%
|
|
July 9, 2021
|
|
July 10, 2020
|
|
250,000
|
|
|
14,688
|
|
|
22,228
|
|
|
151
|
%
|
|
2.59
|
%
|
|
July 12, 2021
|
|
April 12, 2021
|
|
5,535
|
|
|
5,535
|
|
|
6,938
|
|
|
125
|
%
|
|
1.39
|
%
|
|
July 15, 2021
|
|
April 15, 2021
|
|
6,135
|
|
|
6,135
|
|
|
7,372
|
|
|
120
|
%
|
|
1.23
|
%
|
|
July 20, 2021
|
|
April 20, 2021
|
|
11,629
|
|
|
11,629
|
|
|
14,505
|
|
|
125
|
%
|
|
1.24
|
%
|
|
July 30, 2021
|
|
April 30, 2021
|
|
11,123
|
|
|
11,123
|
|
|
13,635
|
|
|
123
|
%
|
|
1.39
|
%
|
|
July 30, 2021
|
|
April 30, 2021
|
|
10,997
|
|
|
10,997
|
|
|
13,532
|
|
|
123
|
%
|
|
1.39
|
%
|
|
July 30, 2021
|
|
April 30, 2021
|
|
2,754
|
|
|
2,754
|
|
|
3,541
|
|
|
129
|
%
|
|
1.39
|
%
|
|
July 30, 2021
|
|
April 30, 2021
|
|
1,133
|
|
|
1,133
|
|
|
1,607
|
|
|
142
|
%
|
|
1.79
|
%
|
|
August 12, 2021
|
|
May 12, 2021
|
|
3,108
|
|
|
3,108
|
|
|
4,428
|
|
|
142
|
%
|
|
1.77
|
%
|
|
August 24, 2021
|
|
May 24, 2021
|
|
28,635
|
|
|
28,635
|
|
|
38,294
|
|
|
134
|
%
|
|
1.35
|
%
|
|
August 24, 2021
|
|
May 24, 2021
|
|
3,532
|
|
|
3,532
|
|
|
5,106
|
|
|
145
|
%
|
|
1.75
|
%
|
|
September 3, 2021
|
|
June 4, 2021
|
|
23,554
|
|
|
23,554
|
|
|
30,884
|
|
|
131
|
%
|
|
1.13
|
%
|
|
September 3, 2021
|
|
June 4, 2021
|
|
23,042
|
|
|
23,042
|
|
|
30,303
|
|
|
132
|
%
|
|
1.13
|
%
|
|
September 17, 2021
|
|
June 17, 2021
|
|
44,701
|
|
|
44,701
|
|
|
59,986
|
|
|
134
|
%
|
|
1.13
|
%
|
|
September 17, 2021
|
|
June 17, 2021
|
|
8,236
|
|
|
8,236
|
|
|
10,322
|
|
|
125
|
%
|
|
1.32
|
%
|
|
September 17, 2021
|
|
June 17, 2021
|
|
7,229
|
|
|
7,229
|
|
|
9,510
|
|
|
132
|
%
|
|
1.32
|
%
|
|
September 17, 2021
|
|
June 17, 2021
|
|
4,331
|
|
|
4,331
|
|
|
6,232
|
|
|
144
|
%
|
|
1.38
|
%
|
|
September 17, 2021
|
|
June 17, 2021
|
|
1,176
|
|
|
1,176
|
|
|
1,687
|
|
|
143
|
%
|
|
1.72
|
%
|
|
September 23, 2021
|
|
September 24, 2020
|
|
400,000
|
|
|
42,153
|
|
|
63,220
|
|
|
150
|
%
|
|
2.60
|
%
|
The accompanying notes are an integral part of the consolidated interim financial statements.
33
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 24, 2021
|
|
June 24, 2021
|
|
46,819
|
|
|
46,819
|
|
|
62,815
|
|
|
134
|
%
|
|
1.33
|
%
|
|
September 24, 2021
|
|
June 24, 2021
|
|
4,535
|
|
|
4,535
|
|
|
6,526
|
|
|
144
|
%
|
|
1.73
|
%
|
|
September 24, 2021
|
|
June 24, 2021
|
|
2,431
|
|
|
2,431
|
|
|
3,148
|
|
|
129
|
%
|
|
1.33
|
%
|
|
October 5, 2021
|
|
April 9, 2021
|
|
31,326
|
|
|
31,326
|
|
|
39,811
|
|
|
127
|
%
|
|
1.41
|
%
|
|
October 22, 2021
|
|
April 26, 2021
|
|
7,899
|
|
|
7,899
|
|
|
9,279
|
|
|
117
|
%
|
|
1.11
|
%
|
|
October 22, 2021
|
|
April 26, 2021
|
|
6,231
|
|
|
6,231
|
|
|
7,276
|
|
|
117
|
%
|
|
1.11
|
%
|
|
October 22, 2021
|
|
April 26, 2021
|
|
5,123
|
|
|
5,123
|
|
|
6,063
|
|
|
118
|
%
|
|
1.11
|
%
|
|
December 13, 2021
|
|
June 15, 2021
|
|
14,148
|
|
|
14,148
|
|
|
20,151
|
|
|
142
|
%
|
|
1.35
|
%
|
|
December 13, 2021
|
|
June 15, 2021
|
|
7,160
|
|
|
7,160
|
|
|
9,409
|
|
|
131
|
%
|
|
1.15
|
%
|
|
Totals/weighted averages
|
|
$
|
987,545
|
|
|
$
|
394,386
|
|
|
$
|
527,425
|
|
|
134
|
%
|
|
1.48
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2020
|
|
Maturity Date
|
|
Origination date
|
|
Maximum Borrowing Capacity
|
|
Amount Outstanding
|
|
Amount of Collateral
|
|
Percentage of 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
|
%
|
|
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
|
%
|
The accompanying notes are an integral part of the consolidated interim financial statements.
34
The Guaranty establishes a master netting arrangement; however, the arrangement does not meet the criteria for offsetting within the Company’s consolidated balance sheets. A master netting arrangement derives from contractual agreements entered into by two parties to multiple contracts that provides for the net settlement of all contracts covered by the agreements in the event of default under any one contract. As of June 30, 2021 and December 31, 2020, the Company had $5.9 million and $4.7 million, respectively, of cash collateral on deposit with financing counterparties. This cash is included in Prepaid expenses and other assets on its consolidated balance sheets and is not netted against its Borrowings under repurchase agreements. The amount outstanding on the Company’s repurchase facilities and the carrying value of the Company’s loans pledged as collateral are presented as gross amounts in the Company’s consolidated balance sheets at June 30, 2021 and December 31, 2020 in the table below ($ in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross amounts not offset in balance sheet
|
|
|
|
June 30, 2021
|
|
December 31, 2020
|
|
Gross amount of recognized liabilities
|
|
$
|
394,386
|
|
|
$
|
421,132
|
|
|
Gross amount of loans and securities pledged as collateral
|
|
527,425
|
|
|
595,599
|
|
|
Other prepaid collateral
|
|
5,860
|
|
|
4,653
|
|
|
Net collateral amount
|
|
$
|
138,899
|
|
|
$
|
179,120
|
|
Secured Borrowings
From inception (January 30, 2014) to June 30, 2021, the Company has completed 18 secured borrowings for its own balance sheet, not including its off-balance sheet joint ventures in which it holds investments in various classes of securities, pursuant to Rule 144A under the Securities Act, five of which were outstanding at June 30, 2021. The secured borrowings are structured as debt financings and not sales through a real estate investment conduit (“REMIC”), and the loans included in the secured borrowings remain on the Company’s consolidated balance sheet as the Company is the primary beneficiary of the securitization trusts, which are VIEs. The securitization VIEs are structured as pass through entities that receive principal and interest on the underlying mortgages and distribute those payments to the holders of the notes. The Company’s exposure to the obligations of the VIEs is generally limited to its investments in the entities. The notes that are issued by the securitization trusts are secured solely by the mortgages held by the applicable trusts and not by any of the Company’s other assets. The mortgage loans of the applicable trusts are the only source of repayment and interest on the notes issued by such trusts. The Company does not guarantee any of the obligations of the trusts under the terms of the agreement governing the notes or otherwise.
The Company’s non-rated secured borrowings are generally structured with Class A notes, subordinated notes, and trust certificates, which have rights to the residual interests in the mortgages once the notes are repaid. The Company has retained the subordinate notes and the applicable trust certificates from one non-rated secured borrowing outstanding at June 30, 2021.
The Company’s rated secured borrowings are generally structured as “REIT TMP” transactions which allow the Company to issue multiple classes of securities without using a REMIC structure or being subject to an entity level tax. The Company’s rated secured borrowings generally issue classes of debt from AAA through mezzanine. The Company generally retains the mezzanine and residual certificates in the transactions. The Company has retained the applicable mezzanine and residual certificates from the other four rated secured borrowings at June 30, 2021. The Company’s rated secured borrowings are designated in the table below.
At March 31, 2021, the Company's 2017-D secured borrowing contained Class A notes and Class B certificates representing the residual interests in the mortgages held within the securitization trusts subsequent to repayment of the Class A notes. The Company had retained 50% of both the Class A notes and Class B certificates from 2017-D; and the assets and liabilities were consolidated on the Company's consolidated balance sheets. During the second quarter of 2021, the majority of the loans in 2017-D were refinanced in 2021-C. Based on the structure of the transaction the Company does not consolidate 2021-C under U.S. GAAP.
The Company's 2018-C secured borrowing was structured with Class A notes, Class B notes and trust certificates representing the residual interest in the mortgages held within the securitization trusts subsequent to repayment of the Class A debt. The Company had retained 5% of the Class A notes and 63% of the Class B notes and trust certificates. During the first quarter of 2021 the Company acquired the remaining 37% ownership of the Class B notes and trust certificates and settled the remaining 95% of the outstanding Class A notes.
The accompanying notes are an integral part of the consolidated interim financial statements.
35
The Company's secured borrowings carry no provision for a step-up in interest rate on any of the Class B notes, except for 2021-B.
The following table sets forth the original terms of all notes from the Company's secured borrowings outstanding at June 30, 2021 at their respective cutoff dates:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuing Trust/Issue Date
|
|
Interest Rate Step-up Date
|
|
Security
|
|
Original Principal
|
|
Interest Rate
|
|
Rated
|
|
Ajax Mortgage Loan Trust 2019-D/ July 2019
|
|
July 25, 2027
|
|
Class A-1 notes due 2065
|
|
$140.4 million
|
|
2.96
|
%
|
|
|
|
July 25, 2027
|
|
Class A-2 notes due 2065
|
|
$6.1 million
|
|
3.50
|
%
|
|
|
|
July 25, 2027
|
|
Class A-3 notes due 2065
|
|
$10.1 million
|
|
3.50
|
%
|
|
|
|
July 25, 2027
|
|
Class M-1 notes due 2065(1)
|
|
$9.3 million
|
|
3.50
|
%
|
|
|
|
None
|
|
Class B-1 notes due 2065(2)
|
|
$7.5 million
|
|
3.50
|
%
|
|
|
|
None
|
|
Class B-2 notes due 2065(2)
|
|
$7.1 million
|
|
variable(3)
|
|
|
|
None
|
|
Class B-3 notes due 2065(2)
|
|
$12.8 million
|
|
variable(3)
|
|
|
|
|
|
Deferred issuance costs
|
|
$(2.7) million
|
|
—
|
%
|
|
|
|
|
|
|
|
|
|
|
|
Rated
|
|
Ajax Mortgage Loan Trust 2019-F/ November 2019
|
|
November 25, 2026
|
|
Class A-1 notes due 2059
|
|
$110.1 million
|
|
2.86
|
%
|
|
|
|
November 25, 2026
|
|
Class A-2 notes due 2059
|
|
$12.5 million
|
|
3.50
|
%
|
|
|
|
November 25, 2026
|
|
Class A-3 notes due 2059
|
|
$5.1 million
|
|
3.50
|
%
|
|
|
|
November 25, 2026
|
|
Class M-1 notes due 2059(1)
|
|
$6.1 million
|
|
3.50
|
%
|
|
|
|
None
|
|
Class B-1 notes due 2059(2)
|
|
$11.5 million
|
|
3.50
|
%
|
|
|
|
None
|
|
Class B-2 notes due 2059(2)
|
|
$10.4 million
|
|
variable(3)
|
|
|
|
None
|
|
Class B-3 notes due 2059(2)
|
|
$15.1 million
|
|
variable(3)
|
|
|
|
|
|
Deferred issuance costs
|
|
$(1.8) million
|
|
—
|
%
|
|
|
|
|
|
|
|
|
|
|
|
Rated
|
|
Ajax Mortgage Loan Trust 2020-B/ August 2020
|
|
July 25, 2027
|
|
Class A-1 notes due 2059
|
|
$97.2 million
|
|
1.70
|
%
|
|
|
|
July 25, 2027
|
|
Class A-2 notes due 2059
|
|
$17.3 million
|
|
2.86
|
%
|
|
|
|
July 25, 2027
|
|
Class M-1 notes due 2059(1)
|
|
$7.3 million
|
|
3.70
|
%
|
|
|
|
None
|
|
Class B-1 notes due 2059(2)
|
|
$5.9 million
|
|
3.70
|
%
|
|
|
|
None
|
|
Class B-2 notes due 2059(2)
|
|
$5.1 million
|
|
variable(3)
|
|
|
|
None
|
|
Class B-3 notes due 2059(2)
|
|
$23.6 million
|
|
variable(3)
|
|
|
|
|
|
Deferred issuance costs
|
|
$(1.8) million
|
|
—
|
%
|
|
|
|
|
|
|
|
|
|
|
|
Rated
|
|
Ajax Mortgage Loan Trust 2021-A/ January 2021
|
|
January 25, 2029
|
|
Class A-1 notes due 2065
|
|
$146.2 million
|
|
1.07
|
%
|
|
|
|
January 25, 2029
|
|
Class A-2 notes due 2065
|
|
$21.1 million
|
|
2.35
|
%
|
|
|
|
January 25, 2029
|
|
Class M-1 notes due 2065(1)
|
|
$7.8 million
|
|
3.15
|
%
|
|
|
|
None
|
|
Class B-1 notes due 2065(2)
|
|
$5.0 million
|
|
3.80
|
%
|
|
|
|
None
|
|
Class B-2 notes due 2065(2)
|
|
$5.0 million
|
|
variable(3)
|
|
|
|
None
|
|
Class B-3 notes due 2065(2)
|
|
$21.5 million
|
|
variable(3)
|
|
|
|
|
|
Deferred issuance costs
|
|
$(2.5) million
|
|
—
|
%
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of the consolidated interim financial statements.
36
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-rated
|
|
Ajax Mortgage Loan Trust 2021-B/ February 2021
|
|
August 25, 2024
|
|
Class A notes due 2066
|
|
$215.9 million
|
|
2.24
|
%
|
|
|
|
February 25, 2025
|
|
Class B notes due 2066(2)
|
|
$20.2 million
|
|
4.00
|
%
|
|
|
|
|
|
Deferred issuance costs
|
|
$(4.3) million
|
|
—
|
%
|
(1)The Class M notes are subordinated, sequential pay, fixed rate notes. The Company has retained the Class M notes, with the exception of Ajax Mortgage Loan Trust ("AJAXM") 2021-A.
(2)The Class B notes are subordinated, sequential pay, with B-2 and B-3 notes having variable interest rates and subordinate to the Class B-1 notes. The Class B-1 notes are fixed rate notes. The Company has retained the Class B notes.
(3)The interest rate is effectively the rate equal to the spread between the gross average rate of interest the trust collects on its mortgage loan portfolio minus the rate derived from the sum of the servicing fee and other expenses of the trust.
Servicing for the mortgage loans in the Company’s secured borrowings is provided by the Servicer at servicing fee rates of between 0.65% of outstanding UPB and 1.25% of outstanding UPB at acquisition, and is paid monthly. The determination of RPL or NPL status, which determines the servicing fee rates, is based on the status of the loan at acquisition and does not change regardless of the loan's subsequent performance. The following table sets forth the status of the notes held by others at June 30, 2021 and December 31, 2020, and the securitization cutoff date ($ in thousands):
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances at June 30, 2021
|
|
Balances at December 31, 2020
|
|
Original balances at
securitization cutoff date
|
|
Class of Notes
|
|
Carrying value of mortgages
|
|
Bond principal balance
|
|
Percentage of collateral coverage
|
|
Carrying value of mortgages
|
|
Bond principal balance
|
|
Percentage of collateral coverage
|
|
Mortgage UPB
|
|
Bond principal balance
|
|
2017-B
|
|
$
|
—
|
|
|
$
|
—
|
|
|
—
|
%
|
|
$
|
110,062
|
|
|
$
|
68,729
|
|
|
160
|
%
|
|
$
|
165,850
|
|
|
$
|
115,846
|
|
|
2017-D
|
|
—
|
|
|
—
|
|
|
—
|
%
|
|
133,897
|
|
|
51,256
|
|
(1)
|
261
|
%
|
|
203,870
|
|
(2)
|
88,903
|
|
|
2018-C
|
|
—
|
|
|
—
|
|
|
—
|
%
|
|
173,221
|
|
|
131,983
|
|
(3)
|
131
|
%
|
|
222,181
|
|
(4)
|
167,910
|
|
|
2019-D
|
|
133,598
|
|
|
109,891
|
|
|
122
|
%
|
|
148,641
|
|
|
125,008
|
|
|
119
|
%
|
|
193,301
|
|
|
156,670
|
|
|
2019-F
|
|
127,059
|
|
|
94,250
|
|
|
135
|
%
|
|
139,996
|
|
|
108,184
|
|
|
129
|
%
|
|
170,876
|
|
|
127,673
|
|
|
2020-B
|
|
127,515
|
|
|
97,540
|
|
|
131
|
%
|
|
136,360
|
|
|
105,601
|
|
|
129
|
%
|
|
156,468
|
|
|
114,534
|
|
|
2021-A
|
|
178,494
|
|
|
160,924
|
|
|
111
|
%
|
|
—
|
|
|
—
|
|
|
—
|
%
|
|
206,528
|
|
|
175,116
|
|
|
2021-B
|
|
254,917
|
|
|
200,801
|
|
|
127
|
%
|
|
—
|
|
|
—
|
|
|
—
|
%
|
|
287,895
|
|
|
215,912
|
|
|
|
|
$
|
821,583
|
|
|
$
|
663,406
|
|
(5)
|
124
|
%
|
|
$
|
842,177
|
|
|
$
|
590,761
|
|
(5)
|
143
|
%
|
|
$
|
1,606,969
|
|
|
$
|
1,162,564
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|
(1)The gross amount of senior bonds at December 31, 2020 was $102.6 million however, only $51.3 million is reflected in Secured borrowings as the remainder is owned by the Company.
(2)Includes $26.7 million of cash collateral intended for use in the acquisition of additional mortgage loans.
(3)2018-C contained notes held by the third party institutional investors for senior bonds and class B bonds. The gross amount of the senior and class B bonds at December 31, 2020 were $132.7 million and $15.9 million, however, only $126.1 million and $5.9 million are reflected in Secured borrowings as the remainder is owned by the Company, respectively.
(4)Includes $45.5 million of cash collateral intended for use in the acquisition of additional mortgage loans.
(5)This represents the gross amount of Secured borrowings and excludes the impact of deferred issuance costs of $9.5 million and $5.4 million as of June 30, 2021 and December 31, 2020.
Convertible Senior Notes
At June 30, 2021 and December 31, 2020, the Company had carrying values of $103.4 million and $110.1 million, respectively, for its convertible senior notes. The notes bear interest at a rate of 7.25% per annum, payable quarterly in arrears on January 15, April 15, July 15 and October 15 of each year. The notes will mature on April 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 the Company’s 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. As of June 30, 2021, the amount by which the if-converted value falls short of the principal value for the entire series is $10.9 million.
At June 30, 2021, the outstanding aggregate principal amount of the notes was $105.9 million, and discount and deferred expenses were $2.4 million. At December 31, 2020, the outstanding aggregate principal amount of the notes was $113.4 million, and discount and deferred expenses were $3.3 million. During the three and six months ended June 30, 2021 the
The accompanying notes are an integral part of the consolidated interim financial statements.
37
Company recognized interest expense on its outstanding convertible notes of $2.2 million and $4.6 million, respectively, which includes $0.4 million and $0.7 million of amortization of discount and deferred expenses, respectively. During the three and six months ended June 30, 2020 the Company recognized interest expense on its outstanding convertible notes of $2.5 million and $4.9 million, respectively, which includes $0.4 million and $0.7 million of amortization of discount and deferred expenses, respectively. The effective interest rates of the notes for the quarters ended June 30, 2021 and June 30, 2020 were 8.99% and 9.09%, respectively.
During the first and second quarters of 2021, the Company completed a series of convertible note repurchases for aggregate principal amounts of $2.5 million and $5.0 million, respectively, for total purchase prices of $2.4 million and $5.1 million, respectively. The carrying amounts of the equity component representing the embedded conversion feature reversed from Additional paid-in capital due to the first and second quarter of 2021 transactions were both zero. During the first and third quarters of 2020, the Company 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.
Coupon interest on the notes is recognized using the accrual method of accounting. Discount and deferred issuance costs are carried on the Company’s consolidated balance sheets as a deduction from the notes, and are amortized to interest expense on an effective yield basis through April 30, 2023, the date at which the notes can be converted. The Company assumes the debt will be converted at the specified conversion date for purposes of amortizing issuance costs because the Company believes such conversion will be in the economic interest of the holders. No sinking fund has been established for redemption of the principal.
Holders may convert their notes at their option prior to April 30, 2023 only under certain circumstances. In addition, the notes will be convertible irrespective of those circumstances from, and including, April 30, 2023 to, and including, the business day immediately preceding the maturity date. Upon conversion, the Company will pay or deliver, as the case may be, cash, shares of its common stock or a combination of cash and shares of its common stock, at the Company's election.
The Company may not redeem the notes prior to April 30, 2022, and may redeem for cash all or any portion of the notes, at its option, on or after April 30, 2022 if the last reported sale price of its common stock has been at least 130% of the conversion price then in effect for at least 20 trading days (whether or not consecutive) during any 30 consecutive trading day period ending on, and including, the trading day immediately preceding the date on which the Company provides notice of redemption at a redemption price equal to 100% of the principal amount of the notes to be redeemed, plus accrued and unpaid interest to, but excluding, the redemption date. No "sinking fund" will be provided for the notes.
Note 10 — Related Party Transactions
The Company’s consolidated statements of income included the following significant related party transactions ($ in thousands):
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Three months ended June 30,
|
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Transaction
|
|
Consolidated Statement of Income location
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|
Counterparty
|
|
2021
|
|
2020
|
|
Interest income on securities and beneficial interest and net increase in the net present value of expected cash flows on beneficial interests
|
|
Net interest income after the impact of changes in the net present value of expected cash flows
|
|
Various non-consolidated joint ventures
|
|
$
|
8,844
|
|
|
$
|
7,831
|
|
|
Management fee
|
|
Related party expense – management fee
|
|
Manager
|
|
$
|
2,267
|
|
|
$
|
2,143
|
|
|
Loan servicing fees
|
|
Related party expense – loan servicing fees
|
|
Servicer
|
|
$
|
1,699
|
|
|
$
|
1,936
|
|
|
Income from equity investment
|
|
Income/(loss) from investments in affiliates
|
|
Manager
|
|
$
|
283
|
|
|
$
|
527
|
|
|
Gain on refinancing of securitization trust
|
|
Other income
|
|
2021-C
|
|
$
|
122
|
|
|
$
|
—
|
|
|
Income from equity investment
|
|
Income/(loss) from investments in affiliates
|
|
Gaea
|
|
$
|
42
|
|
|
$
|
56
|
|
The accompanying notes are an integral part of the consolidated interim financial statements.
38
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended June 30,
|
|
Income from equity investment
|
|
Income/(loss) from investments in affiliates
|
|
Servicer
|
|
$
|
7
|
|
|
$
|
72
|
|
|
Income from equity investment
|
|
Income/(loss) from investments in affiliates
|
|
AS Ajax E LLC
|
|
$
|
7
|
|
|
$
|
6
|
|
|
Loss from equity investment
|
|
Income/(loss) from investments in affiliates
|
|
Loan pool LLCs
|
|
$
|
(14)
|
|
|
$
|
(23)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six months ended June 30,
|
|
Transaction
|
|
Consolidated Statement of Income location
|
|
Counterparty
|
|
2021
|
|
2020
|
|
Interest income on securities and beneficial interest and net increase in the net present value of expected cash flows on beneficial interests
|
|
Net interest income after the impact of changes in the net present value of expected cash flows
|
|
Various non-consolidated joint ventures
|
|
$
|
14,796
|
|
|
$
|
9,850
|
|
|
Management fee
|
|
Related party expense – management fee
|
|
Manager
|
|
$
|
4,537
|
|
|
$
|
3,942
|
|
|
Loan servicing fees
|
|
Related party expense – loan servicing fees
|
|
Servicer
|
|
$
|
3,532
|
|
|
$
|
3,950
|
|
|
Income/(loss) from equity investment
|
|
Income/(loss) from investments in affiliates
|
|
Manager
|
|
$
|
451
|
|
|
$
|
(439)
|
|
|
Gain on refinancing of securitization trust
|
|
Other income
|
|
2021-C
|
|
$
|
122
|
|
|
$
|
—
|
|
|
Income from equity investment
|
|
Income/(loss) from investments in affiliates
|
|
Gaea
|
|
$
|
60
|
|
|
$
|
60
|
|
|
Income from equity investment
|
|
Income/(loss) from investments in affiliates
|
|
AS Ajax E LLC
|
|
$
|
16
|
|
|
$
|
16
|
|
|
Loss on sale of mortgage loans
|
|
Loss on sale of mortgage loans
|
|
Gaea
|
|
$
|
—
|
|
|
$
|
(705)
|
|
|
(Loss)/income from equity investment
|
|
Income/(loss) from investments in affiliates
|
|
Loan pool LLCs
|
|
$
|
(21)
|
|
|
$
|
56
|
|
|
(Loss)/income from equity investment
|
|
Income/(loss) from investments in affiliates
|
|
Servicer
|
|
$
|
(55)
|
|
|
$
|
(204)
|
|
The Company’s consolidated balance sheets included the following significant related party balances ($ in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of June 30, 2021
|
|
Transaction
|
|
Consolidated Balance Sheet location
|
|
Counterparty
|
|
Amount
|
|
Investment in beneficial interests
|
|
Investment in beneficial interests
|
|
Various non-consolidated joint ventures
|
|
$
|
133,484
|
|
|
Receivables from Servicer
|
|
Receivable from servicer
|
|
Servicer
|
|
$
|
23,907
|
|
|
Affiliate loan receivable
|
|
Mortgage loans, net
|
|
Gaea
|
|
$
|
7,007
|
|
|
Management fee payable
|
|
Management fee payable
|
|
Manager
|
|
$
|
2,267
|
|
|
Expense reimbursement receivable
|
|
Prepaid expenses and other assets
|
|
Various non-consolidated joint ventures
|
|
$
|
1,346
|
|
|
Expense reimbursement
|
|
Accrued expenses and other liabilities
|
|
Servicer
|
|
$
|
(80)
|
|
The accompanying notes are an integral part of the consolidated interim financial statements.
39
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2020
|
|
Transaction
|
|
Consolidated Balance Sheet location
|
|
Counterparty
|
|
Amount
|
|
Investment in beneficial interests
|
|
Investment in beneficial interests
|
|
Various non-consolidated joint ventures
|
|
$
|
91,418
|
|
|
Receivables from Servicer
|
|
Receivable from servicer
|
|
Servicer
|
|
$
|
15,755
|
|
|
Affiliate loan receivable
|
|
Mortgage loans, net
|
|
Gaea
|
|
$
|
11,000
|
|
|
Management fee payable
|
|
Management fee payable
|
|
Manager
|
|
$
|
2,247
|
|
|
Affiliate loan purchase
|
|
Mortgage loans, net
|
|
Servicer
|
|
$
|
1,838
|
|
|
Expense reimbursement receivable
|
|
Prepaid expenses and other assets
|
|
Various non-consolidated joint ventures
|
|
$
|
876
|
|
|
Expense reimbursement receivable
|
|
Prepaid expenses and other assets
|
|
Manager
|
|
$
|
18
|
|
|
Expense reimbursements
|
|
Accrued expenses and other liabilities
|
|
Servicer
|
|
$
|
(44)
|
|
On June 21, 2021, the Company became a party to a promissory note with Gaea under which Gaea can borrow up to $11.0 million on a revolving line of credit from the Company. Funds advanced to Gaea under the note carry an interest rate of 4.25% and are secured by a selection of Gaea's mortgage loans. The agreement expires on December 31, 2021 and can be extended to January 31, 2022 at Gaea’s option. At June 30, 2021, the amount outstanding under the note was $7.0 million, which was secured by 18 of Gaea's SBC loans. At December 31, 2020, the Company had a separate loan of $11.0 million outstanding loan to Gaea, which was secured by 20 of Gaea's SBC loans. The loan was repaid to the Company on April 5, 2021. At June 30, 2021 and December 31, 2020, these loans were included in Mortgage loans, net on the Company's consolidated balance sheets.
During the quarter ended December 31, 2020, the Company purchased 15 RPLs from GAFS, a related party, for $1.8 million with UPB of $2.1 million and collateral value of $3.7 million. The loans are all included in Mortgage loans, net on the Company's consolidated balance sheets.
During the three and six months ended June 30, 2021, as part of a refinancing transaction the Company sold 760 loans from 2017-D with a carrying value of $129.2 million and UPB of $133.8 million to a joint venture formed between the Company and a third party accredited institutional investor, and retained various classes of securities from the joint venture. During the three months ended June 30, 2020, the Company sold no mortgage loans, however, during the six months ended June 30, 2020, the Company sold 26 SBC mortgage loans with a carrying value of $26.1 million and UPB of $26.2 million to Gaea, a related party.
During both the three and six months ended June 30, 2021, the Company acquired $232.9 million debt securities and beneficial interests issued by joint ventures between the Company and third party institutional accredited investors. Each joint venture issued senior notes and beneficial interests, which are trust certificates representing the residual investment in the trust. In certain transactions, the joint ventures also issued subordinated notes. Of the $232.9 million of debt securities acquired in both the three and six months ended June 30, 2021, the Company acquired $170.0 million in senior notes, $23.5 million in subordinate notes and $39.5 million in beneficial interest issued by joint ventures. Comparatively during the three and six months ended June 30, 2020, the Company acquired zero and $61.3 million, respectively, in debt securities and beneficial interests issued by joint ventures between the Company and third party institutional accredited investors. Each joint venture issued senior notes and beneficial interests, which are trust certificates representing the residual investment in the trust. In certain transactions, the joint ventures also issued subordinated notes. Of the $61.3 million of debt securities acquired in the six months ended June 30, 2020, the Company acquired $49.6 million in senior notes, $4.6 million in subordinate notes and $7.1 million in beneficial interests issued by joint ventures. As of June 30, 2021, the investments in debt securities and beneficial interests were carried on the Company's consolidated balance sheet at $424.6 million and $133.5 million, respectively. At December 31, 2020, the investments in debt securities and beneficial interests were carried on the Company's consolidated balance sheet at $273.8 million and $91.4 million, respectively. As of June 30, 2021 and December 31, 2020, the Company had no securities that were past due.
In June 2019, the Company entered into an arrangement with the Servicer as the borrower and the Company as the lender to advance funds secured by real property to facilitate the purchase of real estate from certain of the Company's joint ventures. Such funds are repaid no later than the liquidation of the real estate. The maximum amount available to the Servicer is
The accompanying notes are an integral part of the consolidated interim financial statements.
40
$12.0 million. At June 30, 2021, and December 31, 2020, the Company had no advances outstanding to the Servicer. Interest on the arrangement accrues at 7.2% annually.
On November 22, 2019, Gaea completed a private capital raise transaction in which it raised $66.3 million from the issuance of 4,419,641 shares of its common stock to third parties to allow it to continue to advance its investment strategy. Upon completion of the capital raise, the Company retained ownership of approximately 23.2% of Gaea with third party investors owning the remaining approximately 76.8%. The Company recognized no gain or loss on the transaction as Gaea's fair value at the date of the deconsolidation did not represent a material change from the fair values of its recently acquired assets and liabilities due to the limited lapse of time since their acquisitions. At June 30, 2021 the Company owned approximately 22.9% of Gaea with third party investors owning the remaining approximately 77.1%. The Company accounts for its investment in Gaea using the equity method.
During the year ended December 31, 2019, the Company acquired a cumulative 40.4% average ownership interest in three loan pool LLCs managed by the Servicer for $1.0 million, which hold investments in RPLs and NPLs. The Company accounts for its investment using the equity method.
On March 14, 2016, the Company formed AS Ajax E LLC to hold an equity interest in a Delaware trust formed to own residential mortgage loans and residential real estate assets. AS Ajax E LLC owns a 5.0% equity interest in Ajax E Master Trust which holds a portfolio of RPLs. At the time of the original investment, the Company held a 24.2% interest in AS Ajax E LLC. In October 2016, additional capital contributions were made by third parties, and the Company’s ownership interest in AS Ajax E was reduced to a lower percentage of the total. As of June 30, 2021 and December 31, 2020, the Company’s interest in AS Ajax E LLC was approximately 16.5%. The Company accounts for its investment using the equity method.
Management Agreement
The Company is a party to the Amended and Restated Management Agreement with the Manager, which expires on March 5, 2034. Under the Management Agreement, the Manager implements the Company’s business strategy and manages the Company’s business and investment activities and day-to-day operations, subject to oversight by the Company’s Board of Directors. Among other services, the Manager, directly or through affiliates, provides the Company with a management team and necessary administrative and support personnel. The Company does not currently have any employees that it pays directly and does not expect to have any employees that it pays directly in the foreseeable future. Each of the Company’s executive officers is an employee or officer, or both, of the Manager or the Servicer.
Under the Management Agreement, the Company pays both a base management fee and an incentive fee to the Manager. The base management fee equals 1.5% of the Company's stockholders’ equity, including equity equivalents such as the Company's issuance of convertible senior notes, per annum and is calculated and payable quarterly in arrears. The Company has the option to pay its management fee with between 50% to 100% cash at its discretion, and pay the remainder in shares of its common stock.
In the event the Company elects to pay its Manager in shares of its common stock, the calculation to determine the number of shares of the Company's common stock to be issued to the Manager is outlined below. The initial $1.0 million of the quarterly base management fee will be payable at least 75% in cash and up to 25% in shares of the Company’s common stock (allocated at the Company's discretion). Any amount of the base management fee in excess of $1.0 million may be payable in shares of the Company’s common stock (at the Company's discretion) until payment is at least 50% in cash and up to 50% in shares (the “50/50 split”). Any remaining amount of the quarterly base management fee after the 50/50 split threshold is reached may be payable in equal amounts of cash and shares (at the Company's discretion). The base management fee currently exceeds the 50/50 split threshold. The Manager has agreed to hold any shares of common stock received by it as payment of the base management fee for at least three years from the date such shares of common stock are received.
The Manager is also entitled to an incentive fee, payable quarterly and calculated in arrears, which contains both a quarterly and annual component. A quarterly incentive fee is payable to the Manager if the sum of the Company’s dividends on its common stock and its increase in book value, all relative to the applicable quarter and calculated per-share on an annualized basis, exceed 8%. The Manager will also be entitled to an annual incentive fee if the sum of the Company’s quarterly cash dividends on its common stock, special cash dividends on its common stock within the applicable calendar year exceed 8% of the Company’s book value per share as of the end of the calendar year. However, no incentive fee will be payable to the Manager with respect to any calendar quarter unless the Company’s cumulative core earnings, defined as U.S. GAAP net income or loss less non-cash equity compensation, unrealized gains or losses from mark to market adjustments, one-time adjustments to earnings resulting from changes to U.S. GAAP, and certain other non-cash items, is greater than zero for the most recently completed eight calendar quarters. In the event that the payment of the quarterly base management fee has not
The accompanying notes are an integral part of the consolidated interim financial statements.
41
reached the 50/50 split, up to 100% of the incentive fee will be payable in shares of the Company’s common stock, at the Company's discretion, until the 50/50 split occurs. In the event that the total payment of the quarterly base management fee and the incentive fee has reached the 50/50 split, up to 20% of the remaining incentive fee is payable in shares of the Company’s common stock at the Company's discretion and the remaining incentive fee is payable in cash. During the three and six months ended June 30, 2021 and June 30, 2020, the Company did not record an incentive fee payable to the Manager.
The Company also reimburses the Manager for all third-party, out-of-pocket costs incurred by the Manager for managing its business, including third-party due diligence and valuation consultants, legal expenses, auditors and other financial services. The reimbursement obligation is not subject to any dollar limitation. Expenses are reimbursed in cash on a monthly basis.
The Company will be required to pay the Manager a termination fee in the event that the Management Agreement is terminated as a result of (i) a termination by the Company without cause, (ii) its decision not to renew the Management Agreement upon the determination of at least two-thirds of the Company’s independent directors for reasons including the failure to agree on revised compensation, (iii) a termination by the Manager as a result of the Company becoming regulated as an “investment company” under the Investment Company Act of 1940, as amended (the “Investment Company Act”) (other than as a result of the acts or omissions of the Manager in violation of investment guidelines approved by the Company’s Board of Directors), or (iv) a termination by the Manager if the Company defaults in the performance of any material term of the Management Agreement (subject to a notice and cure period). The termination fee will be equal to twice the combined base fee and incentive fees payable to the Manager during the 12-month period ended as of the end of the most recently completed fiscal quarter prior to the date of termination.
Servicing Agreement
The Company is also a party to the Servicing Agreement, expiring July 8, 2029, with the Servicer. The Company’s overall servicing costs under the Servicing Agreement will vary based on the types of assets serviced.
Servicing fees range from 0.65% to 1.25% annually UPB at acquisition (or the fair market value or purchase price of REO), and are paid monthly. The servicing fee is based upon the status of the loan at acquisition. A change in status from RPL to NPL does not cause a change in the servicing fee rate.
Servicing fees for the Company’s real property assets that were previously RPLs that are not held in joint ventures are the greater of (i) the servicing fee applicable to the underlying mortgage loan prior to foreclosure, or (ii) 1.00% annually of the fair market value of the REO as reasonably determined by the Manager or 1.00% annually of the purchase price of any REO otherwise purchased by the Company. The servicing fee for NPLs that convert to real property assets does not change.
The Servicer is reimbursed for all customary, reasonable and necessary out-of-pocket costs and expenses incurred in the performance of its obligations, including the actual cost of any repairs and renovations undertaken on the Company’s behalf. The total fees incurred by the Company for these services will be dependent upon the UPB and the type of mortgage loans that the Servicer services, property values, previous UPB of the relevant loan, and the number of REO properties.
If the Servicing Agreement has been terminated other than for cause and/or the Servicer terminates the servicing agreement, the Company will be required to pay a termination fee equal to the aggregate servicing fees payable under the servicing agreement for the immediate preceding 12-month period.
Trademark Licenses
Aspen has granted the Company a non-exclusive, non-transferable, non-sublicensable, royalty-free license to use the name “Great Ajax” and the related logo. The Company also has a similar license to use the name “Thetis.” The agreement has no specified term. If the Management Agreement expires or is terminated, the trademark license agreement will terminate within 30 days. In the event that this agreement is terminated, all rights and licenses granted thereunder, including, but not limited to, the right to use “Great Ajax” in its name will terminate. Aspen also granted to the Manager a substantially identical non-exclusive, non-transferable, non-sublicensable, royalty-free license use of the name “Thetis.”
Note 11 — Stock-based Payments and Director Fees
Pursuant to the terms of the Management Agreement, the Company may pay a portion of the base fee to the Manager in shares of its common stock with the number of shares determined based on the average of the closing prices of its common stock on the NYSE on the five business days preceding the date on which the most recent regular quarterly dividend to holders
The accompanying notes are an integral part of the consolidated interim financial statements.
42
of its common stock is paid. The Company recognized base management fees to the Manager for the three and six months ended June 30, 2021 of $2.3 million and $4.6 million, respectively, all of which was payable in cash. Comparatively, for the three and six months ended June 30, 2020, the Company recognized base management fees of $2.1 million and $3.9 million, all of which was payable in cash.
In addition, each of the Company’s independent directors received an annual retainer of $100,000, payable quarterly, 40% of which is payable in shares of the Company's common stock using the same valuation method as defined for the stock portion of the management fee payable to the Manager.
The following table sets forth the Company’s stock-based independent director fees ($ in thousands):
Stock-based Director Fees
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the three months ended June 30,
|
|
|
|
2021
|
|
2020
|
|
|
|
Number of shares
|
|
Amount of expense recognized(1)
|
|
Number of shares
|
|
Amount of expense recognized(1)
|
|
Independent director fees
|
|
4,025
|
|
|
$
|
50
|
|
|
5,200
|
|
|
$
|
40
|
|
|
Totals
|
|
4,025
|
|
|
$
|
50
|
|
|
5,200
|
|
|
$
|
40
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the six months ended June 30,
|
|
|
|
2021
|
|
2020
|
|
|
|
Number of shares
|
|
Amount of expense recognized(1)
|
|
Number of shares
|
|
Amount of expense recognized(1)
|
|
Independent director fees
|
|
7,970
|
|
|
$
|
100
|
|
|
8,668
|
|
|
$
|
80
|
|
|
Totals
|
|
7,970
|
|
|
$
|
100
|
|
|
8,668
|
|
|
$
|
80
|
|
(1)All independent director fees are fully expensed in the period in which the relevant service is received by the Company.
Restricted Stock
The Company periodically grants shares of its common stock to employees of its Manager and Servicer. The shares vest over three years, with one-third of the shares vesting on each of the first, second and third anniversaries of the grant date. The shares may not be sold until the third anniversary of the grant date. Grants of restricted stock use grant date fair value of the stock as the basis for measuring the cost of the grant.
Each independent member of the Company's Board of Directors is issued a restricted stock award of 2,000 shares of the Company’s common stock upon joining the Board. Additionally, the Company may issue grants of its shares of common stock from time to time to its directors.
The accompanying notes are an integral part of the consolidated interim financial statements.
43
Under the Company’s 2014 Director Equity Plan and 2016 Equity Incentive Plan the Company made grants of restricted stock to its Directors and to employees of its Manager and Servicer as set forth the table below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Employee and Service Provider Grants
|
|
Director Grants
|
|
|
|
Shares
|
|
Weighted Average Grant Date Fair Value
|
|
Shares
|
|
Weighted Average Grant Date Fair Value
|
|
June 30, 2021 outstanding unvested share grants
|
|
163,083
|
|
|
$
|
11.07
|
|
|
8,000
|
|
|
$
|
12.60
|
|
|
Shares vested
|
|
—
|
|
|
—
|
|
|
(8,000)
|
|
|
12.60
|
|
|
Shares forfeited
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
Shares granted
|
|
—
|
|
|
—
|
|
|
16,000
|
|
|
12.60
|
|
|
March 31, 2021 outstanding unvested share grants
|
|
163,083
|
|
|
$
|
11.07
|
|
|
—
|
|
|
$
|
—
|
|
|
Shares vested
|
|
—
|
|
|
—
|
|
|
(2,000)
|
|
|
12.00
|
|
|
Shares forfeited
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
Shares granted
|
|
—
|
|
|
—
|
|
|
2,000
|
|
|
12.00
|
|
|
December 31, 2020 outstanding unvested share grants
|
|
163,083
|
|
|
$
|
11.07
|
|
|
—
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2020 outstanding unvested share grants
|
|
114,334
|
|
|
$
|
13.83
|
|
|
—
|
|
|
$
|
—
|
|
|
Shares vested
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
Shares forfeited
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
Shares granted
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
March 31, 2020 outstanding unvested share grants
|
|
114,334
|
|
|
$
|
13.83
|
|
|
—
|
|
|
$
|
—
|
|
|
Shares vested
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
Shares forfeited
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
Shares granted
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
December 31, 2019 outstanding unvested share grants
|
|
114,334
|
|
|
$
|
13.83
|
|
|
—
|
|
|
$
|
—
|
|
The following table presents the expenses for the Company's restricted stock plan for the years ended ($ in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended June 30,
|
|
Six months ended June 30,
|
|
|
|
2021
|
|
2020
|
|
2021
|
|
2020
|
|
Restricted stock grants
|
|
$
|
207
|
|
|
$
|
174
|
|
|
$
|
414
|
|
|
$
|
348
|
|
|
Director grants
|
|
118
|
|
|
—
|
|
|
142
|
|
|
—
|
|
|
Total expenses for plan grants
|
|
$
|
325
|
|
|
$
|
174
|
|
|
$
|
556
|
|
|
$
|
348
|
|
Note 12 — Income Taxes
As a REIT, the Company must meet certain organizational and operational requirements including the requirement to distribute at least 90% of its annual REIT taxable income to its stockholders. And as a REIT, the Company generally will not be subject to U.S. federal income tax to the extent the Company distributes its REIT taxable income to its stockholders and provided the Company satisfies the REIT requirements including certain asset, income, distribution and stock ownership tests. If the Company fails to qualify as a REIT, and does not qualify for certain statutory relief provisions, it will be subject to U.S. federal, state and local income taxes and may be precluded from qualifying as a REIT for the subsequent four taxable years following the year in which it lost its REIT qualification.
The Company’s consolidated financial statements include the operations of two TRS entities, GA-TRS and GAJX Real Estate Corp., which are subject to U.S. federal, state and local income taxes on their taxable income.
For the three and six months ended June 30, 2021 the Company had consolidated taxable income of $7.7 million and $16.4 million, respectively; and provisions for income taxes of $67 thousand and $0.1 million, respectively. For the three and six months ended June 30, 2020, the Company had consolidated tax losses $2.0 million and $0.8 million, respectively; and
The accompanying notes are an integral part of the consolidated interim financial statements.
44
provisions for income taxes were $0.1 million and an income tax benefit of $0.2 million, respectively. The Company recognized no deferred income tax assets or liabilities on its consolidated balance sheets at June 30, 2021 or 2020. The Company also recorded no interest or penalties for the three and six months ended June 30, 2021 or 2020.
Note 13 — Earnings per Share
The following table sets forth the components of basic and diluted EPS ($ in thousands, except per share):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended June 30, 2021
|
|
Three months ended June 30, 2020
|
|
|
Income
(Numerator)
|
|
Shares
(Denominator)
|
|
Per Share
Amount
|
|
Income
(Numerator)
|
|
Shares
(Denominator)
|
|
Per Share
Amount
|
|
Basic EPS
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated net income attributable to common stockholders
|
$
|
10,378
|
|
|
22,825,804
|
|
|
|
|
$
|
6,242
|
|
|
22,808,943
|
|
|
|
|
Allocation of earnings to participating restricted shares
|
(78)
|
|
|
—
|
|
|
|
|
(33)
|
|
|
—
|
|
|
|
|
Consolidated net income attributable to unrestricted common stockholders
|
$
|
10,300
|
|
|
22,825,804
|
|
|
$
|
0.45
|
|
|
$
|
6,209
|
|
|
22,808,943
|
|
|
$
|
0.27
|
|
|
Effect of dilutive securities(1)
|
|
|
|
|
|
|
|
|
|
|
|
|
Restricted stock grants and Manager and director fee shares(2)
|
—
|
|
|
—
|
|
|
|
|
33
|
|
|
120,906
|
|
|
|
|
Interest expense (add back) and assumed conversion of shares from convertible senior notes(3)
|
2,255
|
|
|
7,372,892
|
|
|
|
|
—
|
|
|
—
|
|
|
|
|
Diluted EPS
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated net income attributable to common stockholders and dilutive securities
|
$
|
12,555
|
|
|
30,198,696
|
|
|
$
|
0.42
|
|
|
$
|
6,242
|
|
|
22,929,849
|
|
|
$
|
0.27
|
|
(1)The Company's outstanding warrants for an addition 6,500,000 shares of common stock and effect of the put option share settlement would have an anti-dilutive effect on diluted earnings per share for the three months ended June 30, 2021 and June 30, 2020, and have not been included in the calculation.
(2)The effect of restricted stock grants and manager and director fee shares on the Company's diluted EPS calculation for the three months ended June 30, 2021 would have been anti-dilutive and has been removed from the calculation.
(3)The effect of interest expense and assumed conversion of shares from convertible notes on the Company's diluted EPS calculation for the three months ended June 30, 2020 would have been anti-dilutive and has been removed from the calculation.
The accompanying notes are an integral part of the consolidated interim financial statements.
45
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six months ended June 30, 2021
|
|
Six months ended June 30, 2020
|
|
|
Income
(Numerator)
|
|
Shares
(Denominator)
|
|
Per Share
Amount
|
|
Income
(Numerator)
|
|
Shares
(Denominator)
|
|
Per Share
Amount
|
|
Basic EPS
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated net income attributable to common stockholders
|
$
|
17,382
|
|
|
22,821,416
|
|
|
|
$
|
6,642
|
|
|
22,439,648
|
|
|
|
Allocation of earnings to participating restricted shares
|
(130)
|
|
|
—
|
|
|
|
(35)
|
|
|
—
|
|
|
|
Consolidated net income attributable to unrestricted common stockholders
|
$
|
17,252
|
|
|
22,821,416
|
|
$
|
0.76
|
|
|
$
|
6,607
|
|
|
22,439,648
|
|
$
|
0.29
|
|
|
Effect of dilutive securities(1)
|
|
|
|
|
|
|
|
|
|
|
|
|
Restricted stock grants and Manager and director fee shares(2)
|
—
|
|
|
—
|
|
|
|
35
|
|
|
120,268
|
|
|
|
Interest expense (add back) and assumed conversion of shares from convertible senior notes(3)
|
4,599
|
|
|
7,520,222
|
|
|
|
—
|
|
|
—
|
|
|
|
|
Diluted EPS
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated net income attributable to common stockholders and dilutive securities
|
$
|
21,851
|
|
|
30,341,638
|
|
$
|
0.72
|
|
|
$
|
6,642
|
|
|
22,559,916
|
|
$
|
0.29
|
|
(1)The Company's outstanding warrants for an addition 6,500,000 shares of common stock and effect of the put option share settlement would have an anti-dilutive effect on diluted earnings per share for the six months ended June 30, 2021 and June 30, 2020, and have not been included in the calculation.
(2)The effect of restricted stock grants and manager and director fee shares on the Company's diluted EPS calculation for the six months ended June 30, 2021 would have been anti-dilutive and has been removed from the calculation.
(3)The effect of interest expense and assumed conversion of shares from convertible notes on the Company's diluted EPS calculation for the six months ended June 30, 2020 would have been anti-dilutive and has been removed from the calculation.
Note 14 — Equity
Common stock
As of June 30, 2021 and December 31, 2020, the Company had 22,993,246 and 22,978,339 shares, respectively, of $0.01 par value common stock outstanding with 125,000,000 shares authorized at each period end.
Preferred stock
During the quarter ended June 30, 2020, the Company issued to institutional accredited investors an aggregate of $130.0 million of preferred stock in two series and warrants in a series of private placements. The Company issued 2,307,400 shares of 7.25% Series A Fixed-to-Floating Rate Preferred Stock and 2,892,600 shares of 5.00% Series B Fixed-to-Floating Rate Preferred Stock, 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 the Company's 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 the Company at a specified put price on or after July 6, 2023. The Company is using the net proceeds from the private placement to acquire mortgage loans and mortgage-related assets consistent with the Company's investment strategy.
The Company had 2,307,400 shares of Series A preferred stock and 2,892,600 shares of Series B preferred stock outstanding at June 30, 2021 and December 31, 2020. There were 25,000,000 shares, cumulative for all series, authorized as of both June 30, 2021 and December 31, 2020.
The accompanying notes are an integral part of the consolidated interim financial statements.
46
Treasury stock and Stock Repurchase Plan
On February 28, 2020, the Company's Board of Directors approved a stock repurchase of up to $25.0 million of its 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 of June 30, 2021, the Company held 126,609 shares of treasury stock consisting of 78,145 shares received through distributions of the Company's shares previously held by its Manager and 48,464 shares acquired through open market purchases in the fourth quarter of 2020 under the Company's approved stock repurchase plan. As of December 31, 2020, the Company held 107,243 shares of treasury stock consisting of 58,779 shares received through distributions of the Company's shares previously held by its Manager and 48,464 shares acquired through open market purchases in the fourth quarter of 2020 under the Company's approved stock repurchase plan.
Dividend Reinvestment Plan
The Company sponsors a dividend reinvestment plan through which stockholders may purchase additional shares of the Company’s common stock by reinvesting some or all of the cash dividends received on shares of the Company’s common stock. During the three and six months ended June 30, 2021 3,820 and 8,048 shares were issued, respectively, under the plan for total proceeds of approximately $48 thousand and $0.1 million, respectively. Comparatively, during both the three and six months ended June 30, 2020 5,057 shares were issued under the plan for total proceeds of approximately $41 thousand.
At the Market Offering
The Company has entered into an equity distribution agreement under which the Company may sell shares of its common stock having an aggregate offering price of up to $50.0 million from time to time in any method permitted by law deemed to be an “at the market” offering as defined in Rule 415 under the Securities Act of 1933, as amended, or the Securities Act. During the three and six months ended June 30, 2021 and 2020, no shares were sold under the at the market program.
Accumulated Other Comprehensive Income
The Company recognizes unrealized gains or losses on its investment in debt securities as components of other comprehensive income. Total accumulated other comprehensive income on the Company’s balance sheet at June 30, 2021 and December 31, 2020 was as follows ($ in thousands):
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|
|
|
|
Investments in securities:
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June 30, 2021
|
|
December 31, 2020
|
|
Unrealized gains
|
|
$
|
1,877
|
|
|
$
|
1,152
|
|
|
Unrealized losses
|
|
(226)
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|
|
(777)
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|
|
Accumulated other comprehensive income
|
|
$
|
1,651
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|
|
$
|
375
|
|
Non-controlling Interest
At December 31, 2020, the Company had non-controlling interests attributable to ownership interests for four legal entities. During the first quarter of 2021, the Company acquired the remaining ownership of 2018-C. This decreased the number of third party non-controlling interests as of June 30, 2021 to three legal entities. Legal entities consolidated by the Company which have non-controlling interests held by third parties are described below.
AS Ajax E II LLC was formed by the Company during 2017 to purchase and hold an investment in a Delaware trust which holds single family residential real estate loans, SBC loans and other real estate assets. AS Ajax E II LLC is 46.9% held by third parties. As of June 30, 2021 and December 31, 2020, the Company owned 53.1% of AS Ajax E II LLC and consolidated the assets, liabilities, revenues and expenses of the entity.
2017-D, a securitization trust, was formed by the Company during 2017, and is 50.0% held by an accredited institutional investor. During the second quarter of 2021, the majority of the loans in 2017-D were resecuritized into 2021-C, with 22 loans remaining in 2017-D. As of June 30, 2021 and December 31, 2020, the Company owned 50.0% of 2017-D and consolidated the assets, liabilities, revenues and expenses of the trust.
The accompanying notes are an integral part of the consolidated interim financial statements.
47
Great Ajax II REIT was formed by the Company during 2019 to hold 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 the Company may form for additional secured borrowings. As of June 30, 2021 and December 31, 2020, Great Ajax II REIT was 0.1% held by third parties. As of June 30, 2021 and December 31, 2020, the Company owned 99.9% of Great Ajax II REIT and consolidated the assets, liabilities, revenues and expenses of the entity.
2018-C, a securitization trust was formed by the Company during 2018 and was 37.0% held by an accredited institutional investor. The remaining 37.0% ownership was purchased by the Company during the first quarter of 2021. As of June 30, 2021 the Company owned 100.0% of 2018-C. Comparatively, as of December 31, 2020 the Company owned 63.0% of 2018-C and consolidated the assets, liabilities, revenues and expenses of the trust.
The following table sets forth the effects of changes in ownership of the Company's non-controlling interests due to transfers to or from non-controlling interest for the calendar preceding the Consolidated balance sheet dates ($ in thousands):
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June 30, 2021
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December 31, 2020
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Decrease from redemption of 2018-C
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$
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(8,306)
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$
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—
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Decrease from the distribution resulting from the refinancing of substantially all of 2017-D
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(16,864)
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—
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Change in non-controlling interest
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$
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(25,170)
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$
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—
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Note 15 — Subsequent Events
The Company has acquired 1,016 residential NPLs with aggregate UPB of $173.0 million in two transactions from two different sellers. The purchase price equaled 97.9% of UPB and 54.2% of the estimated market value of the underlying collateral of $312.1 million. These loans were acquired by the joint venture that was formed in June 2021 with proceeds from the established prefunding account.
The Company has agreed to acquire, subject to due diligence, 31 residential RPLs in six transactions, and 412 NPLs in six transactions, with aggregate UPB of $4.7 million and $103.3 million, respectively. The purchase price of the residential RPLs equals 80.9% of UPB and 55.1% of the estimated market value of the underlying collateral of $6.9 million. The purchase price of the NPLs equals 97.1% of UPB and 64.4% of the estimated market value of the underlying collateral of $155.8 million.
On July 19, 2021, the Company co-invested with third-party institutional investors to form Ajax Mortgage Loan Trust 2021-E ("2021-E") and retained $53.1 million of varying classes of related securities. The Company acquired 10.01% of the class A securities, class B securities and class M securities from the trust, which acquired 3,142 RPLs and NPLs with UPB of $517.7 million and an aggregate property value of $968.6 million. The senior securities represent 83% of the UPB of the underlying mortgage loans and carry a weighted average coupon of 1.82%. Based on the structure of the transaction the Company will not consolidate 2021-E under U.S. GAAP. The assets included in the 2021-E securitization came from loan sales associated with the Company's 2020-C and 2020-D securitizations, all of which were joint ventures with third party institutional accredited investors.
On July 26, 2021, the Company's Board of Directors approved a grant of 152,700 shares of restricted stock to employees of its Manager and Servicer with a grant date of August 2, 2021. The shares will vest over four years, with one fourth of the shares vesting on each of the first, second, third and fourth anniversaries of the grant date.
On August 5, 2021, the Company’s Board of Directors declared a cash dividend of $0.21 per share to be paid on August 31, 2021 to stockholders of record as of August 16, 2021.
The accompanying notes are an integral part of the consolidated interim financial statements.
48
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
Some of the statements under “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” and elsewhere in this quarterly report constitute forward-looking statements. Forward-looking statements relate to expectations, beliefs, projections, future plans and strategies, anticipated events or trends, and similar expressions concerning matters that are not historical facts. In some cases, you can identify forward-looking statements by terms such as “anticipate,” “believe,” “could,” “estimate,” “expect,” “intend,” “may,” “plan,” “potential,” “should,” “will” and “would” or the negatives of these terms or other comparable terminology.
The forward-looking statements are based on our beliefs, assumptions and expectations of our future performance, taking into account all information currently available to us. These beliefs, assumptions and expectations can change as a result of many possible events or factors, not all of which are known to us or are within our control. If a change occurs, our business, financial condition, liquidity and results of operations may vary materially from those expressed in our forward-looking statements. You should carefully consider these risks, along with the following factors that could cause actual results to vary from our forward-looking statements:
•the impact of adverse real estate, mortgage or housing markets and changes in the general economy;
•changes in our business strategy;
•the impact of the global pandemic caused by the novel coronavirus ("COVID-19") outbreak;
•general volatility of the capital markets;
•the impact of adverse legislative or regulatory tax changes;
•our ability to obtain financing on favorable terms or at all;
•our ability to implement our business strategy;
•difficulties in identifying re-performing loans (“RPLs”), small balance commercial mortgage loans (“SBC loans”) and properties to acquire; and the impact of changes to the supply of, value of and the returns on RPLs and SBC loans;
•our ability to compete with our competitors;
•our ability to control our costs;
•the impact of changes in interest rates and the market value of the collateral underlying our RPL and non-performing loan (“NPL”) portfolios or of our other real estate assets;
•our ability to convert NPLs into performing loans or to modify or otherwise resolve such loans;
•our ability to convert NPLs to properties that can generate attractive returns either through sale or rental;
•our ability to retain our engagement of our Manager;
•the failure of the Servicer to perform its obligations under the Servicing Agreement;
•our failure to qualify or maintain qualification as a real estate investment trust (“REIT”); and
•our failure to maintain our exemption from registration under the Investment Company Act of 1940, as amended (the “Investment Company Act”).