Market Overview

Great Ajax Corp. Announces Results for the Quarter Ended September 30, 2017

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Third Quarter Highlights

  • Purchased $26.6 million of re-performing mortgage loans ("RPL") with
    an aggregate unpaid principal balance ("UPB") of $32.7 million and
    underlying collateral value of $40.7 million; and originated $3.0
    million of small-balance commercial mortgage loans ("SBC") to end the
    quarter with $1,053.3 million of mortgage loans with an aggregate UPB
    of $1,257.2 million.
  • Issued $20.5 million of convertible senior notes when we reopened the
    series of convertible senior notes from our April 2017 offering.
  • Portfolio interest income of $24.5 million; net interest income of
    $13.8 million.
  • Net income attributable to common stockholders of $7.5 million.
  • Basic earnings per share ("EPS") of $0.41.
  • Taxable income of $0.12 per share.
  • Book value per share of $15.60 at September 30, 2017.
  • $43.1 million of cash and cash equivalents at September 30, 2017.

Great Ajax Corp. (NYSE:AJX), a Maryland corporation that is a real
estate investment trust, today announces results of operations for the
quarter ended September 30, 2017. We focus primarily on acquiring,
investing in and managing a portfolio of RPLs secured by single-family
residences and commercial properties, and, to a lesser extent,
non-performing mortgage loans ("NPL"). In addition to our continued
focus on RPLs, we have increased our originations of SBCs secured by
multi-family residential and commercial mixed use retail/residential
properties.

Financial Results (Unaudited)    
($ in thousands except per share amounts)
   

September 30,
2017

June 30,
2017

March 31,
2017

 

December 31,
2016

September 30,
2016

Loan interest income(1) $ 24,396 $ 21,682 $ 20,556 $ 19,653 $ 18,704
Total revenue (2) $ 14,226 $ 13,105 $ 13,667 $ 10,969 $ 12,106
Consolidated net income $ 7,716 $ 7,102 $ 8,698 $ 6,163 $ 7,887
Net income per diluted share $ 0.38 $ 0.36 $ 0.46 $ 0.33 $ 0.42
Average equity $ 292,640 $ 288,884 $ 284,872 $ 280,213 $ 279,222
Average total assets $ 1,157,223 $ 1,050,108 $ 952,112 $ 883,621 $ 814,426
Average daily cash balance (3) $ 43,666 $ 47,705 $ 35,513 $ 32,759 $ 50,572
Average carrying value of RPLs $ 1,001,426 $ 917,646 $ 806,982 $ 751,801 $ 653,699
Average carrying value of NPLs $ 45,831 $ 49,530 $ 53,975 $ 59,365 $ 63,778
Average carrying value of originated SBC loans $ 8,219 $ 5,605 $ 3,059 $ 1,246 $ -
Average debt balance $ 883,770 $ 775,717 $ 669,938 $ 615,103 $ 537,279
 
(1)   Loan interest income excludes interest income from debt securities
and bank account balances.
(2) Total revenue includes net interest income, income from investments
in our manager and other income.
(3) Average daily cash balance includes cash and cash equivalents, and
excludes cash held in trust.

Consolidated net income increased $0.6 million for the quarter ended
September 30, 2017 compared to the quarter ended June 30, 2017,
primarily due to recognizing a full quarter of net interest income on
acquisitions closed in the second quarter of 2017. This increased
interest income was partially offset by higher interest expense
resulting from the issuance of our convertible senior notes and
impairments on our real estate held for sale ("REO"). We continue to see
a steady transition of NPLs to REO from the NPLs we purchased in the
second half of 2014 and the first half of 2015. The largest
concentrations of REO held-for-sale remain in New Jersey, New York,
Florida and Maryland.

We collected $44.3 million on our mortgage loan and REO portfolios
through payments, payoffs and sales of REO during the quarter, and ended
the third quarter with $43.1 million in cash and cash equivalents. Our
purchased RPL portfolio continues to experience significantly lower than
expected re-default rates and higher than expected pre-payments.

On August 18, 2017, we completed the sale of an additional $20.5 million
aggregate principal amount of our 7.25% convertible senior notes due
2024, issued at a premium to par, which combined with the notes in April
form a single series of securities. We are using the net proceeds of the
offering to acquire mortgage loan pools. We expect to securitize a
majority of these loans in the fourth quarter of 2017 and first quarter
of 2018, and intend to use the resulting net proceeds to acquire
additional loan pools and generate additional interest income to offset
the interest expense on the convertible notes.

We acquired $32.7 million UPB of RPLs and originated $3.0 million UPB of
SBC loans during the quarter to end the period with $1,053.3 million of
mortgage loans with an aggregate UPB of $1,257.2 million. Mortgage loans
purchased during the third quarter and held as of quarter-end were on
our consolidated balance sheet for a weighted average of 59 days during
the quarter.

Additionally during the quarter, the Company, through a joint venture
with an institutional investor, acquired a pool of 436 mortgage loans
for $101.2 million. The purchase price equaled 92.7% of UPB and 59.4% of
the underlying property value of $170.4 million. The loans were acquired
into a Delaware trust, in which the Company has retained a 5.01%
interest.

Portfolio Acquisitions  
($ in thousands)

September 30,
2017

 

June 30,
2017

 

March 31,

2017

 

December 31,
2016

 

September 30,
2016(1)

RPLs
Count 109 1,218 24 729 1,416
UPB $ 32,718 $ 249,000 $ 3,445 $ 145,720 $ 259,446
Purchase price $ 26,645 $ 210,204 $ 3,143 $ 127,200 $ 216,225
Purchase price % of UPB 81.4 % 84.4 % 91.2 % 87.3 % 83.3 %
 
NPLs
Count - - - 23 -
UPB $ - $ - $ - $ 3,590 $ -
Purchase price $ - $ - $ - $ 2,022 $ -
Purchase price % of UPB - - - 56.3 % -
 
(1)   Includes 572 RPLs acquired for $78.2 million and aggregate UPB of
$100.3 million sold to Ajax E Master Trust, an affiliate of the
joint venture we established in March 2016.
 

The following table provides an overview of our portfolio, exclusive of
assets held in joint ventures, at September 30, 2017 ($ in thousands):

No. of loans 5,836   Weighted average LTV(4) 90.3 %
Total UPB $ 1,257,165 Weighted average remaining term (months) 300

Interest-bearing balance

$ 1,165,852 No. of first liens 5,813
Deferred balance(1) $ 91,313

No. of second liens

23

Market value of collateral (2)

$ 1,630,470

No. of rental properties

9

Price/total UPB(3)

79.1 % Market value of rental properties $ 2,353
Price/market value of collateral 62.0 % Capital invested in rental properties $ 1,982
RPLs loans 94.9 % Price/market value of rental properties 84.2 %
NPLs loans 4.3 % No. of other REO 160
Originated SBC loans 0.8 % Market value of other REO $ 30,487

Weighted average coupon

4.28 %
 
(1)   Amounts that have been deferred in connection with a loan
modification on which interest does not accrue. These amounts
generally become payable at maturity.
(2) As of date of acquisition.
(3) Our loan portfolio consists of fixed rate (58.7% of UPB), ARM (10.6%
of UPB) and Hybrid ARM (30.7% of UPB) mortgage loans with original
terms to maturity of not more than 40 years.
(4) UPB as of September 30, 2017 divided by market value of collateral
and weighted by the UPB of the loan.

Subsequent Events

Since September 30, 2017, we purchased 194 RPLs with aggregate UPB of
$41.4 million in three transactions from three different sellers. The
loans were acquired at 89.8% of UPB and the estimated market value of
the underlying collateral is $58.4 million. The purchase price equaled
63.6% of the estimated market value of the underlying collateral. We
also acquired two SBC loans with UPB of $2.0 million. Our investment
equaled 60.2% of the underlying collateral value of $2.9 million. The
majority of the costs associated with these acquisitions were accrued as
of September 30, 2017.

Additionally, we have agreed to acquire, subject to due diligence, 35
RPLs with aggregate UPB of $8.9 million in five transactions from four
different sellers. The preliminary purchase price equals 82.1% of UPB
and 52.3% of the estimated market value of the underlying collateral of
$14.0 million. We also agreed to acquire three SBC loans with UPB of
$1.1 million. Our investment will equal 49.3% of the underlying
collateral value of $2.2 million. Any loans we purchase must meet our
acquisition criteria, therefore there is no assurance that we will enter
into a definitive agreement relating to these loans or, if such an
agreement is executed, that we will actually close the acquisitions or
that the terms will not change.

With an institutional partner, we have jointly agreed to purchase,
subject to completion of diligence, two RPL pools from two different
sellers. The combined acquisitions include 855 RPLs with aggregate UPB
of $160.2 million and a preliminary purchase price of $145.9 million.
The preliminary purchase price will equal 91.1% of UBP and 59.0% of the
estimated market value of the underlying collateral of $247.4 million.
Upon completion of this transaction we expect to retain a 50% ownership
interest in these loans. We have not entered into a definitive agreement
with respect to these loans, and there is no assurance that we will
enter into a definitive agreement relating to these loans or, if such an
agreement is executed, that we will actually close the acquisition.

On November 6, 2017, our Board of Directors declared a dividend of $0.30
per share, which will be payable on December 1, 2017, to stockholders of
record as of November 17, 2017.

Conference Call

Great Ajax will host a conference call at 5:00 p.m. EST, Tuesday,
November 7, 2017 to review our financial results for the quarter. A live
Webcast of the conference call will be accessible from the Investor
Relations section of our website www.great-ajax.com.
An archive of the Webcast will be available for 90 days.

About Great Ajax Corp.

Great Ajax Corp. is a Maryland corporation that focuses primarily on
acquiring, investing in and managing mortgage loans secured by
single-family residences and, to a lesser extent, single-family
properties themselves. We also invest in loans secured by multi-family
residential and smaller commercial mixed use retail/residential
properties, as well as in the properties directly. We are externally
managed by Thetis Asset Management LLC. Our mortgage loans and other
real estate assets are serviced by Gregory Funding LLC, an affiliated
entity. We have elected to be taxed as a real estate investment trust
under the Internal Revenue Code.

Forward-Looking Statements

This press release contains certain forward-looking statements. Words
such as "believes," "intends," "expects," "projects," "anticipates," and
"future" or similar expressions are intended to identify forward-looking
statements. These forward-looking statements are subject to the inherent
uncertainties in predicting future results and conditions, many of which
are beyond the control of Great Ajax, including, without limitation, the
risk factors and other matters set forth in our Annual Report on Form
10-K for the period ended December 31, 2016 filed with the SEC on March
2, 2017. Great Ajax undertakes no obligation to publicly update or
revise any forward-looking statements, whether as a result of new
information, future events or otherwise, except as may be required by
law.

GREAT AJAX CORP. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME

(Dollars in thousands except per share amounts)

 
Three months ended

September 30,
2017

 

June 30,
2017

 

March 31,
2017

 

December 31,
2016

(unaudited)   (unaudited)   (unaudited)   (unaudited)

INCOME:

     
Interest income $ 24,529 $ 21,721 $ 20,807 $ 19,723
Interest expense (10,775 )   (9,293 )   (7,651 )   (7,582 )
Net interest income 13,754     12,428    

13,156

    12,141  
 
Income from investment in Manager 143 142 49 60
Other income 329     535     462     92  
Total income 14,226     13,105     13,667     12,293  
 

EXPENSE:

Related party expense - loan servicing fees 2,187 1,935 1,881 1,751
Related party expense - management fee 1,428 1,330 1,072 1,057
Loan transaction expense 290 442 525 248
Professional fees 497 507 480 348
Real estate operating expense 1,151 637 324 1,434
Other expense 910     886     686     733  
Total expense 6,463     5,737     4,968     5,571  
Loss on debt extinguishment -     218     -     565  
Income before provision for income tax 7,763 7,150 8,699 6,157
Provision for income tax (benefit) 47     48     1     (6 )
Consolidated net income 7,716 7,102 8,698 6,163
Less: consolidated net income attributable to non-controlling
interests
246     238     289     205  
Consolidated net income attributable to common stockholders $ 7,470   $ 6,864   $ 8,409   $ 5,958  
Basic earnings per common share $ 0.41   $ 0.38   $ 0.46   $ 0.33  
Diluted earnings per common share $ 0.38   $ 0.36   $ 0.46   $ 0.33  
Weighted average shares – basic 18,072,045     18,008,499     17,976,710     17,958,517  
Weighted average shares - diluted 25,246,764     23,026,679     18,791,231     18,766,938  
 
GREAT AJAX CORP. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS

(Dollars in thousands except per share amounts)

 
   
(Unaudited)

ASSETS

September 30, 2017 December 31, 2016

Cash and cash equivalents

$ 43,086 $ 35,723
Cash held in trust 1,075 1,185
Mortgage loans(1) 1,053,285 869,091
Property held-for-sale, net(2) 27,342 23,882
Rental property, net 1,921 1,289
Investment in debt securities 6,306 6,323
Receivable from servicer 12,930 12,481
Investment in affiliate 7,079 4,253
Prepaid expenses and other assets   4,389     3,175
Total Assets $ 1,157,413   $ 957,402
 

LIABILITIES AND EQUITY

Liabilities:
Secured borrowings, net(1,3) $ 496,342 $ 442,670
Borrowings under repurchase agreement 258,402 227,440
Convertible senior notes, net(3) 102,383 -
Management fee payable 750 750
Accrued expenses and other liabilities   4,027     3,819
Total liabilities   861,904     674,679
 
Equity:
Preferred stock $0.01 par value; 25,000,000 shares authorized, none
issued or outstanding
- -
Common stock $0.01 par value; 125,000,000 shares authorized,
18,251,975 shares issued and outstanding, and 18,122,387 shares
issued and outstanding at September 30, 2017 and December 31, 2016,
respectively
183 181
Additional paid-in capital 249,936 244,880
Retained earnings 34,875 27,231
Accumulated other comprehensive loss   (170 )   -
Equity attributable to common stockholders   284,824     272,292
Non-controlling interests   10,685     10,431
Total equity   295,509     282,723
Total Liabilities and Equity $ 1,157,413   $ 957,402
 
(1)   Mortgage loans includes $685,900 and $598,643 of loans transferred
to securitization trusts at September 30, 2017 and December 31,
2016, respectively, that are variable interest entities ("VIEs")
that can only be used to settle obligations of the VIEs. Secured
borrowings consist of notes issued by VIEs that can only be settled
with the assets and cash flows of the VIEs. The creditors do not
have recourse to the primary beneficiary (Great Ajax Corp).
(2) Property held for sale, net, includes valuation allowances of $2,026
and $1,620 at September 30, 2017, and December 31, 2016,
respectively.
(3) Secured borrowings and Convertible senior notes are presented net of
deferred issuance costs.

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