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Section 1: 8-K (8-K)

Document


 

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

FORM 8-K

CURRENT REPORT PURSUANT
TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934

Date of Report (Date of earliest event reported): March 5, 2019


GREAT AJAX CORP.
(Exact name of registrant as specified in charter)


Maryland
 
001 36844
 
47 1271842
(State or other jurisdiction of incorporation)
 
(Commission File Number)
 
(IRS Employer Identification No.)


9400 SW Beaverton—Hillsdale Hwy
Suite 131
Beaverton, OR 97005
(Address of principal executive offices)


Registrant’s telephone number, including area code:
503 505 5670
 

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General Instruction A.2. below):

¨
Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
 
 
¨
Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)
 
 
¨
Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))
 
 
¨
Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))






Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (17 CFR §230.405) or Rule 12b-2 of the Securities Exchange Act of 1934 (17 CFR §240.12b-2).

Emerging growth company ¨

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨
 

Item 2.02.
Results of Operations and Financial Condition

On March 5, 2019, Great Ajax Corp., a Maryland corporation (the “Company”), issued a press release regarding its financial results for the quarter ended December 31, 2018 (the “Press Release”). A copy of the Press Release is attached hereto as Exhibit 99.1 and is available on the Company’s website.

The information provided in Item 2.02 of this report, including Exhibit 99.1, shall be deemed to be “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended.

Item 7.01.
Regulation FD Disclosure

On March 5, 2019, the Company will hold an investor conference call and webcast to discuss financial results for the fourth quarter ended December 31, 2018, including the Press Release and other matters relating to the Company.

The Company has also made available on its website presentation materials containing certain additional information relating to the Company and its financial results for the fourth quarter ended December 31, 2018 (the “Presentation Materials”). The Presentation Materials are furnished herewith as Exhibit 99.2, and are incorporated by reference in this Item 7.01. All information in Exhibit 99.2 is presented as of the particular date or dates referenced therein, and the Company does not undertake any obligation to, and disclaims any duty to, update any of the information provided.

The information provided in Item 7.01 of this report, including Exhibit 99.2, shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, nor shall the information or Exhibit 99.2 be deemed incorporated by reference in any filings under the Securities Act of 1933, as amended.

Item 9.01.
Financial Statements and Exhibits

Exhibit
 
Description
99.1
 
Press Release dated March 5, 2019
99.2
 
March 2019 Presentation Materials








EXHIBIT INDEX

Exhibit
 
Description
 
 
 
99.1
 
99.2
 







SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

 
GREAT AJAX CORP.
 
 
 
 
By:
/s/ Mary Doyle
 
Name:
Mary Doyle
 
Title:
Chief Financial Officer

Dated: March 5, 2019



(Back To Top)

Section 2: EX-99.1 (EXHIBIT 99.1)

Exhibit


Exhibit 99.1 
396995848_logoa05.jpg
GREAT AJAX CORP. ANNOUNCES RESULTS FOR THE QUARTER
ENDED DECEMBER 31, 2018
 
Fourth Quarter Highlights
Purchased $63.3 million of re-performing mortgage loans ("RPLs") and $4.0 million of non-performing mortgage loans ("NPLs") with an unpaid principal balance (“UPB”) of $71.0 million and $4.3 million, respectively, and underlying collateral values of $102.8 million and $6.0 million, respectively; and originated $1.6 million of small-balance commercial mortgage loans ("SBCs")
Formed $586.2 million of joint ventures and retained $126.5 million of varying classes of related securities to end the quarter with $168.9 million of investments in debt securities and beneficial interests issued by these joint ventures
Acquired four commercial properties for $9.5 million
Gross interest income of $28.5 million; net interest income of $13.4 million before impairments
Net income attributable to common stockholders of $6.6 million
Basic earnings per share (“EPS”) of $0.35
Taxable income of $0.23 per share
Book value per share of $15.59 at December 31, 2018
Collected $57.1 million of cash from our portfolio and held $55.1 million of cash and cash equivalents at December 31, 2018

New York, NY—March 5, 2019 —Great Ajax Corp. (NYSE: AJX), a Maryland corporation that is a real estate investment trust, today announces its results of operations for the quarter ended December 31, 2018. 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, NPLs. In addition to our continued focus on residential RPLs, we also originate and acquire SBCs secured by multi-family retail/residential mixed use properties and acquire multi-family retail/residential mixed use and commercial properties.
 





Financial Results (Unaudited)
($ in thousands except per share amounts)
 
 
December 31, 2018
 
September 30, 2018
 
June 30, 2018
 
March 31, 2018
 
December 31, 2017
Loan interest income(1,2,3)
 
$
26,146

 
$
26,261

 
$
26,158

 
$
25,445

 
$
24,231

Debt securities and beneficial interests(4)
 
$
1,155

 
$
444

 
$
238

 
$
131

 
$
133

Total revenue, net(1,5)
 
$
13,894

 
$
14,750

 
$
14,777

 
$
14,743

 
$
13,797

Consolidated net income(1)
 
$
7,307

 
$
7,495

 
$
8,213

 
$
8,322

 
$
6,638

Net income per basic share
 
$
0.35

 
$
0.35

 
$
0.40

 
$
0.41

 
$
0.34

Average equity(1)
 
$
332,002

 
$
323,750

 
$
319,815

 
$
318,839

 
$
302,482

Average total assets(1)
 
$
1,525,759

 
$
1,381,742

 
$
1,362,843

 
$
1,377,537

 
$
1,230,026

Average daily cash balance(6)
 
$
68,926

 
$
40,674

 
$
41,617

 
$
51,540

 
$
47,717

Average carrying value of RPLs(1)
 
$
1,248,613

 
$
1,177,586

 
$
1,182,904

 
$
1,199,638

 
$
1,046,126

Average carrying value of NPLs(1)
 
$
41,438

 
$
38,237

 
$
40,767

 
$
40,593

 
$
43,400

Average carrying value of originated SBC loans
 
$
13,250

 
$
11,439

 
$
11,784

 
$
11,629

 
$
11,273

Average carrying value of debt securities and beneficial interests
 
$
72,535

 
$
32,693

 
$
16,262

 
$
6,543

 
$
6,496

Average asset level debt balance(1,7)
 
$
1,089,285

 
$
948,893

 
$
941,533

 
$
961,853

 
$
840,882

____________________________________________________________

(1)
Reflects the impact of consolidating the assets, liabilities and non-controlling interest of Ajax Mortgage Loan Trust 2017-D ("2017-D") and Ajax Mortgage Loan Trust 2018-C ("2018-C"), which are 50% and 37%, respectively, owned by third-party institutional accredited investors.
(2)
Loan interest income excludes interest income from debt securities and bank account balances.
(3)
Loan interest income for the December quarter and September quarter is net of impairments of $0.8 million and $0.4 million, respectively, on our loan pools.
(4)
Interest income on investment in debt securities and beneficial interests issued by our joint ventures is net of servicing fees.
(5)
Total revenue includes net interest income, income from equity method investments and other income.
(6)
Average daily cash balance includes cash and cash equivalents, and excludes cash held in trust.
(7)
All quarters have been updated to reflect average asset level debt balance from total average debt balance.

Our consolidated net income decreased $0.2 million for the quarter ended December 31, 2018 compared to the quarter ended September 30, 2018, primarily due to an increase in interest expense as we increased our average cash balances early in the quarter in anticipation of year end acquisitions, and deployed cash in multi-family investments. Additionally, to establish our sixth securitization of the year, Ajax Mortgage Loan Trust 2018-F, we placed $18.8 million, and our joint venture partner placed $75.0 million in a prefunding account for 27 days during the month of December. In January 2019, $52.2 million of the prefunding account was used to acquire mortgage loans, and the remainder was returned as a distribution to the debt and beneficial interest holders.

Our interest income on loans declined slightly for the quarter ended December 31, 2018 due to impairments in the amount of $0.8 million on certain of our 2014 and 2015 NPL pools as compared to $0.4 million for the quarter ended September 30, 2018.  The impairments are driven by small remaining pool size in which cash flow fluctuations on individual loans is not offset by the small remaining pool.  Despite the impairments on these two pools, we continue to experience a sustained level of increased performance across the majority of our loan pools.
 
The majority of our new investments during the quarter were recorded as investments in debt securities and beneficial interests in our joint ventures.  Interest income from our investments in debt securities and beneficial interests issued by our non-consolidated joint ventures is recorded net of servicing fees.  This is different than our investments in mortgage loans that are recorded on a gross basis with the offsetting servicing fee recorded as expense in a separate income statement line.  The impact of netting the servicing fee against gross interest income reduced the weighted average yield on our investments in debt securities and beneficial interests for the quarter ended December 31, 2018 by approximately 77 basis points on an annualized basis as compared to a similar investment in a whole loan mortgage pool.






Other income was higher for the quarter ended December 31, 2018 compared to the quarter ended September 30, 2018 due to the realized gains on the sales of debt and equity securities and realized gains on sales of our real estate-owned ("REO") properties.

We recorded $0.7 million in impairments on our REO held-for-sale portfolio in real estate operating expense for the quarter ended December 31, 2018 as compared to $0.9 million for the quarter ended September 30, 2018. We continue to liquidate our REO properties held-for-sale at a faster rate than they are being acquired through foreclosures, with 34 properties sold in the fourth quarter while 20 were added.

We collected $57.1 million on our mortgage loan and REO portfolios through loan payments, loan payoffs and sales of REO during the quarter, and ended the fourth quarter with $55.1 million in cash and cash equivalents. Of the $57.1 million in cash collections we received $21.8 million from loans paying the full amount of principal, past due interest and charges.

During the quarter ended December 31, 2018, we acquired $63.3 million of RPLs with an aggregate UPB of $71.0 million, and underlying collateral values of $102.8 million and we acquired $4.0 million of NPLs with an aggregate UPB of $4.3 million and underlying collateral values of $6.0 million. We originated two SBC loans with UPB of $1.6 million that represented 59.6% of the underlying collateral value of $2.6 million, and ended the quarter with $1,310.9 million of mortgage loans with an aggregate UPB of $1,481.7 million. Mortgage loans purchased during the fourth quarter and held as of quarter-end were on our consolidated balance sheet for a weighted average of 66 days during the quarter. During the quarter, we also acquired four commercial properties for $9.5 million.

On November 19, 2018, we completed the sale of an additional $15.9 million aggregate principal amount of our 7.25% convertible senior notes due 2024, issued at a discount to par, which combined with the notes issued in April and August 2017 form a single series of securities. We intend to use the net proceeds of the offering to acquire additional mortgage loan pools and other real estate assets. We expect to securitize the majority of these loans in the first quarter of 2019, and intend to use the resulting net proceeds to acquire additional loan pools and securities and to generate additional interest income to offset the interest expense on the convertible notes.

On December 31, 2018, our Board of Directors declared a special cash dividend of $0.05 per share of our common stock, which was paid on January 31, 2019 to our common stockholders of record as of January 15, 2019.

During the quarter ended December 31, 2018, we co-invested with a third-party institutional accredited investor to form $586.2 million of joint ventures, and retained $126.5 million of varying classes of related securities, to end the year with $168.9 million of investments in securities. We acquired 20.0% of each class of Ajax Mortgage Loan Trust 2018-E ("2018-E") for a net investment of $19.9 million, 20.0% of each class of Ajax Mortgage Loan Trust 2018-F ("2018-F") for a net investment of $49.9 million, and 25.0% of each class of Ajax Mortgage Loan Trust 2018-G ("2018-G") for a net investment of $56.7 million.

2018-E acquired 512 RPLs with UPB of $114.8 million and an aggregate property value of $173.1 million. The senior securities represent 75% of the UPB of the underlying mortgage loans and carry a 4.38% interest rate. Based on the structure of the transaction we do not consolidate 2018-E under GAAP.

2018-F acquired 994 RPLs and NPLs with UPB of $240.0 million and an aggregate property value of $340.4 million that occurred in two transactions. The first transaction consisted of a pool of 723 RPLs with UPB of $179.9 million, which closed during the quarter ended December 31, 2018, and the second pool consisted of a pool of 271 NPLs with UPB of $60.1 million, which closed in January 2019. The second pool purchase was prefunded at the time of the closing of the joint venture with $93.8 million. After our loan due diligence process, the joint venture only purchased $52.2 million and the remainder was refunded back to the joint venture partners on January 25, 2019. The senior securities represent 75% of the UPB of the underlying mortgage loans and carry a 4.38% interest rate. Based on the structure of the transaction we do not consolidate 2018-F under GAAP.

2018-G acquired 667 NPLs with UPB of $231.4 million and an aggregate property value of $425.7 million. The senior securities represent 75% of the UPB of the underlying mortgage loans and carry a 4.38% interest rate. Based on the structure of the transaction we do not consolidate 2018-G under GAAP.

Our investments in the varying classes of securities from 2018-E, 2018-F and 2018-G were on our balance sheet for a weighted average of 20 days out of the quarter. Our Servicer, in which we hold an 8% interest and have warrants that may be exercised for up to an additional 12% interest, also services the loans acquired by the joint ventures in which we are parties.






Portfolio Acquisitions
($ in thousands)
 
 
December 31, 2018
 
September 30, 2018(1)
 
June 30, 2018
 
March 31, 2018
 
December 31, 2017(2)
RPLs
 
 
 
 
 
 
 
 
 
 
Count
 
388

 
271

 
64

 
87


1,211

UPB
 
$
71,049

 
$
69,211

 
$
15,549

 
$
19,699

 
$
241,309

Purchase price
 
$
63,304

 
$
64,428

 
$
14,313

 
$
17,566

 
$
219,236

Purchase price % of UPB
 
89.1
%
 
93.1
%
 
92.1
%
 
89.2
%
 
90.9
%
NPLs
 
 
 
 
 
 
 
 
 
 
Count
 
25

 
11

 

 

 

UPB
 
$
4,269

 
$
1,700

 
$

 
$

 
$

Purchase price
 
$
3,979

 
$
1,431

 
$

 
$

 
$

Purchase price % of UPB
 
93.2
%
 
84.2
%
 
%
 
%
 
%
 
____________________________________________________________

(1)
Includes the impact of 256 mortgage loans with a purchase price of $47.4 million and UPB of $52.8 million acquired through a 63% owned joint venture that we consolidate.
(2)
Includes the impact of 1,003 mortgage loans with a purchase price of $177.3 million and UPB of $194.3 million acquired in the fourth quarter of 2017 through a 50% owned joint venture that we consolidate.

The following table provides an overview of our portfolio at December 31, 2018 ($ in thousands):
No. of loans
 
7,111

 
Weighted average coupon
 
4.54
%
Total UPB
 
$
1,481,719

 
Weighted average LTV(4)
 
85.9
%
Interest-bearing balance
 
$
1,383,978

 
Weighted average remaining term (months)
 
312

Deferred balance(1)
 
$
97,741

 
No. of first liens
 
7,085

Market value of collateral(2)
 
$
2,024,831

 
No. of second liens
 
26

Price/total UPB(3)
 
82.1
%
 
No. of rental properties
 
21

Price/market value of collateral
 
62.3
%
 
Capital invested in rental properties
 
$
17,854

Re-performing loans
 
96.4
%
 
No. of REO held-for-sale
 
102

Non-performing loans
 
2.8
%
 
Market value of REO held-for-sale(5)
 
$
21,143

Originated SBC loans
 
0.8
%
 
 
 
 
 
____________________________________________________________

(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 (53.8% of UPB), ARM (10.1% of UPB) and Hybrid ARM (36.1% of UPB) mortgage loans.
(4)
UPB as of December 31, 2018 divided by market value of collateral and weighted by the UPB of the loan.
(5)
Market value of other REO is the estimated expected gross proceeds from the sale of the REO less estimated costs to sell, including repayment of servicer advances.

Subsequent Events
During January and February 2019, we acquired 38 residential RPLs and two SBC RPLs with aggregate UPB of $8.5 million and $1.6 million in four transactions from four different sellers for our own account. The loans were acquired at 84.8%, and 98.7% of UPB, respectively, and 59.1% and 66.5% of the estimated market value of the underlying collateral of $12.2 million, and $2.4 million, respectively. Additionally, as stated previously, in 2018-F, we used $52.2 million of the prefunding amount to acquire 271 NPLs. The purchase price of the NPLs equaled 86.9% of UPB and 60.2% of the estimated market value of the underlying collateral of $86.7 million. The remaining $41.6 million of the prefunding amount was distributed to the debt and beneficial interest holders on January 25, 2019. Our portion of the distribution of the excess prefunding amount was $8.3 million.

Additionally, we agreed to acquire, subject to due diligence, 1,560 RPLs, 14 SBC RPLs and 417 NPLs with UPB of $299.3 million, $6.9 million and $147.9 million, respectively, in seven transactions from seven different sellers. The purchase





price of the residential RPLs equals 93.6% of UPB and 55.4% of the estimated market value of the underlying collateral of $505.5 million. The purchase price of the SBC RPLs equals 102.2% of UPB and 54.5% of the estimated market value of the underlying collateral of $12.9 million. The purchase price of the NPLs equals 96.2% of UPB, 49.9% of the estimated market value of the underlying collateral of $285.1 million. The majority of these loans are expected to be acquired through joint ventures with institutional accredited investors.
We also agreed to acquire three commercial properties for an aggregate purchase price of $5.6 million in three separate transactions from three different sellers.

On January 25, 2019, our Board of Directors approved the Second Amended and Restated Management Agreement (“the Amendment”) with Thetis Asset Management LLC, our manager, which changed the calculation method for the quantity of our shares of common stock provided to our manager as compensation for the base management fee to be determined as the average of the closing prices of the common stock on the five business days preceding the record date of the most recent regular quarterly dividend. The Amendment also changed the calculation pursuant to which we may be required to pay an incentive fee to our Manager. Under the Amendment, our manager will be entitled to a quarterly incentive fee, if the sum of our dividends on our common stock paid out of taxable net income, and our distributions on our externally-held operating partnership units paid out of our taxable net income, and our increase in book value, all relative to the applicable quarter and calculated per-share on an annualized basis, exceed 8%. Our manager will also be entitled to an annual incentive fee applicable to the calendar year if the same measurements noted above produce an annualized return for the year in excess of 8%.
On January 25, 2019, we agreed to an interest rate step-up of 300 basis points on the class A senior secured notes issued as part of the 2017-D securitization, of which, $177.2 million UPB was outstanding at December 31, 2018, to take effect on the payment date in April 2021. We currently own 50% of each class of securities in 2017-D, but consolidate the entire amount under GAAP.
On February 6, and February 8, 2019, we sold debt securities from our 2018-E and 2018-F securitizations which we had retained as investments. The securities' aggregate carrying value was $39.6 million and total proceeds were $39.6 million.
On February 25, 2019, our Board of Directors declared a dividend of $0.32 per share, to be paid on March 29, 2019 to our common stockholders of record as of March 15, 2019.

On February 25, 2019, the Board authorized an increase in the annual compensation of our independent directors from $75,000 to $100,000, 40% of which is payable in shares of our common stock and 60% in cash, to be effective as of April 1, 2019.  The value of the shares is determined in the same manner as the value of the shares to be paid to our Manager as part of its base management fee.
 
Conference Call
Great Ajax Corp. will host a conference call at 5:00 p.m. EST, Tuesday, March 5, 2019 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 is a real estate investment trust, that focuses primarily on acquiring, investing in and managing RPLs secured by single-family residences and, to a lesser extent, NPLs. We also originate 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, 2018 when filed with the SEC. 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.

 





CONTACT:
Lawrence Mendelsohn
 
Chief Executive Officer
 
or
 
Mary Doyle
 
Chief Financial Officer
 
Mary.Doyle@aspencapital.com
 
503-444-4224





GREAT AJAX CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(Dollars in thousands except per share amounts)  
 
 
 
Three months ended
 
 
December 31, 2018
 
September 30, 2018
 
June 30, 2018
 
March 31, 2018
 
 
(unaudited)
 
(unaudited)
 
(unaudited)
 
(unaudited)
INCOME:
 
 
 
 
 
 
 
 
Interest income
 
$
28,484

 
$
27,416

 
$
26,690

 
$
25,591

Interest expense
 
(15,045
)
 
(12,997
)
 
(12,799
)
 
(12,494
)
Net interest income
 
13,439

 
14,419

 
13,891

 
13,097

Provision for loan losses
 
(799
)
 
(365
)
 

 

Net interest income after provision for loan losses
 
12,640

 
14,054

 
13,891

 
13,097

 
 
 
 
 
 
 
 
 
Income from equity method investments
 
134

 
239

 
197

 
192

Other income
 
1,120

 
457

 
689

 
1,454

Total income
 
13,894

 
14,750

 
14,777

 
14,743

 
 
 
 
 
 
 
 
 
EXPENSE:
 
 
 
 
 
 
 
 

Related party expense - loan servicing fees
 
2,550

 
2,457

 
2,672

 
2,469

Related party expense - management fee
 
1,597

 
1,456

 
1,440

 
1,532

Loan transaction expense
 
24

 
(25
)
 
35

 
355

Professional fees
 
582

 
482

 
506

 
609

Real estate operating expense
 
858

 
1,001

 
944

 
449

Other expense
 
1,014

 
964

 
965

 
991

Total expense
 
6,625

 
6,335

 
6,562

 
6,405

Loss on debt extinguishment
 

 
836

 

 

Income before provision for income tax
 
7,269

 
7,579

 
8,215

 
8,338

Provision for income tax
 
(38
)
 
84

 
2

 
16

Consolidated net income
 
7,307

 
7,495

 
8,213

 
8,322

Less: consolidated net income attributable to non-controlling interests
 
711

 
937

 
692

 
657

Consolidated net income attributable to common stockholders
 
$
6,596

 
$
6,558

 
$
7,521

 
$
7,665

Basic earnings per common share
 
$
0.35

 
$
0.35

 
$
0.40

 
$
0.41

Diluted earnings per common share
 
$
0.34

 
$
0.34

 
$
0.37

 
$
0.38

 
 
 
 
 
 
 
 
 
Weighted average shares – basic
 
18,771,423

 
18,691,393

 
18,595,769

 
18,508,089

Weighted average shares – diluted
 
27,163,859

 
26,592,806

 
26,476,817

 
26,395,158







GREAT AJAX CORP. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands except per share amounts)
 
 
 
December 31, 2018
 
December 31, 2017
ASSETS
 
 
 
 
Cash and cash equivalents
 
$
55,146

 
$
53,721

Cash held in trust
 
24

 
27,041

Mortgage loans, net(1,4)
 
1,310,873

 
1,253,541

Property held-for-sale, net(2)
 
19,402

 
24,947

Rental property, net
 
17,635

 
1,284

Investments at fair value
 
146,811

 
6,285

Investments in beneficial interests
 
22,086

 

Receivable from servicer
 
14,587

 
17,005

Investment in affiliates
 
8,653

 
7,020

Prepaid expenses and other assets
 
7,654

 
4,894

Total assets
 
$
1,602,871

 
$
1,395,738

 
 
 
 
 
LIABILITIES AND EQUITY
 
 
 
 

Liabilities:
 
 
 
 

Secured borrowings, net(1,3,4)
 
$
610,199

 
$
694,040

Borrowings under repurchase transactions
 
534,089

 
276,385

Convertible senior notes, net(3)
 
117,525

 
102,571

Management fee payable
 
881

 
750

Accrued expenses and other liabilities
 
5,898

 
4,554

Total liabilities
 
1,268,592

 
1,078,300

 
 
 
 
 
Equity:
 
 
 
 

Preferred stock $0.01 par value; 25,000,000 shares authorized, none issued or outstanding
 

 

Common stock $.01 par value; 125,000,000 shares authorized, 18,909,874 shares at December 31, 2018 and 18,588,228 shares at December 31, 2017 issued and outstanding
 
189

 
186

Additional paid-in capital
 
260,427

 
254,847

Treasury stock
 
(270
)
 

Retained earnings
 
41,063

 
35,556

Accumulated other comprehensive income/(loss)
 
(575
)
 
(233
)
Equity attributable to stockholders
 
300,834

 
290,356

Non-controlling interests(5)
 
33,445

 
27,082

Total equity
 
334,279

 
317,438

Total liabilities and equity
 
$
1,602,871

 
$
1,395,738

___________________________________________________________
​(1)
Mortgage loans, net include $900.2 million and $996.2 million of loans at December 31, 2018 and December 31, 2017, respectively, transferred to securitization trusts that are variable interest entities (“VIEs”); these loans 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.). Mortgage loans, net include $1.2 million and $0 of allowance for loan losses at December 31, 2018 and December 31, 2017, respectively.
(2)
Property held-for-sale, net, includes valuation allowances of $1.8 million and $1.8 million at December 31, 2018 and December 31, 2017, respectively.
(3)
Secured borrowings and convertible senior notes are presented net of deferred issuance costs.
​(4)
As of December 31, 2018, balances for Mortgage loans, net include​s $377.0 million and Secured borrowings, net of deferred costs includes $231.9 million from the 50.0% and 63.0% owned joint ventures. As of December 31, 2017, balances for Mortgage loans, net include​s $177.1 million and





Secured borrowings, net of deferred costs includes $88.4 million from the 50.0% owned joint venture, all of which we consolidate under U.S. GAAP.
​(5)
Non-controlling interests includes $20.4 million at December 31, 2018, from the 50.0% and 63.0% owned joint ventures. Non-controlling interests includes $14.0 million at December 31, 2017, from a 50% owned joint venture, all of which we consolidate under U.S. GAAP.


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Section 3: EX-99.2 (EXHIBIT 99.2)

investorpresentation2018
Fourth Quarter and Year-End 2018 Investor Presentation March 5, 2019


 
Safe Harbor Disclosure  We make forward-looking statements in this presentation that are subject to risks and uncertainties. These forward-looking statements include information about possible or assumed future results of our business, financial condition, liquidity, results of operations, cash flow and plans and objectives. When we use the words “believe,” “expect,” “anticipate,” “estimate,” “plan,” “continue,” “intend,” “should,” “may” or similar expressions, we intend to identify forward-looking statements.  Statements regarding the following subjects, among others, may be forward-looking: market trends in our industry, interest rates, real estate values, the debt financing markets or the general economy or the demand for and availability of residential and small-balance commercial real estate loans; our business and investment strategy; our projected operating results; actions and initiatives of the U.S. government and changes to U.S. government policies and the execution and impact of these actions, initiatives and policies; the state of the U.S. economy generally or in specific geographic regions; economic trends and economic recoveries; our ability to obtain and maintain financing arrangements; changes in the value of our mortgage portfolio; changes to our portfolio of properties; impact of and changes in governmental regulations, tax law and rates, accounting guidance and similar matters; our ability to satisfy the real estate investment trust qualification requirements for U.S. federal income tax purposes; availability of qualified personnel; estimates relating to our ability to make distributions to our stockholders in the future; general volatility of the capital markets and the market price of our shares of common stock; and the degree and nature of our competition.  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. Forward-looking statements are not predictions of future events. These beliefs, assumptions and expectations can change as a result of many possible events or factors, not all of which are known to us. If a change occurs, our business, financial condition, liquidity and results of operations may vary materially from those expressed in our forward-looking statements. Furthermore, forward-looking statements are subject to risks and uncertainties, including, among other things, those described under Item 1A of our Annual Report on Form 10-K for the year ended December 31, 2017, which can be accessed through the link to our Securities and Exchange Commission ("SEC") filings on our website (www.great-ajax.com) or at the SEC's website (www.sec.gov). Other risks, uncertainties, and factors that could cause actual results to differ materially from those projected may be described from time to time in reports we file with the SEC, including reports on Forms 10-Q and 8-K. Any forward-looking statement speaks only as of the date on which it is made. New risks and uncertainties arise over time, and it is not possible for us to predict those events or how they may affect us. Except as required by law, we are not obligated to, and do not intend to, update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. Unless stated otherwise, financial information included in this presentation is as of December 31, 2018. 2


 
Business Overview  Leverage long-standing relationships to acquire mortgage loans through privately negotiated transactions from a diverse group of customers – Over 90% of our acquisitions since inception have been privately negotiated – Acquisitions made in 260 transactions since inception. Eight transactions closed in Q4 20181  Use our manager’s proprietary analytics to price each pool on an asset-by-asset basis  Adjust individual loan bid price to accumulate clusters of loans in attractive demographic metropolitan areas – Typical acquisition contains 25 – 100 loans with a total market value between $5 – $20 million  Our affiliated servicer services the loans asset-by-asset and borrower-by-borrower – We own 8% and have warrants to purchase up to an additional 12% of the servicer  Our objective is to maximize returns for each asset by utilizing a full menu of loss mitigation and asset optimization techniques  Analytics and processes of our manager and servicer enable us to broaden our reach through joint ventures with institutional accredited investors  Use moderate non-mark-to-market leverage 1Includes transactions Great Ajax Operating Partnership L.P. made through joint venture arrangements with third-party institutional accredited investors 3


 
Highlights – Quarter Ended December 31, 2018  Purchased $63.3 million of re-performing mortgage loans ("RPLs") and $4.0 million non- performing mortgage loans ("NPLs") with unpaid principal balance (“UPB”) of $71.0 million and $4.3 million, respectively, and underlying collateral values of $102.8 million and $6.0 million, respectively; and originated $1.6 million of small-balance commercial mortgage loans ("SBCs")  Formed $586.2 million of joint ventures and retained $126.5 million of varying classes of related securities  Acquired four commercial properties for $9.5 million  Interest income of $28.5 million and net interest income of $13.4 million prior to the impact of impairments  Net income attributable to common stockholders of $6.6 million  Basic earnings per share (“EPS”) of $0.35  Taxable income of $0.23 per share  Book value per share of $15.59 at December 31, 2018  Collected $57.1 million of cash from our portfolio and held $55.1 million of cash and cash equivalents at December 31, 2018 4


 
Portfolio Overview – as of December 31, 2018 Unpaid Principal Balance1 Property Value2 1% 3% 3% RPL RPL NPL NPL REO 96% 97% $1,481.7 MM $2,064.2 MM RPL: $1,436.1 MM RPL: $1,965.6 MM NPL: $ 45.6 MM NPL: $ 59.2 MM REO & Rental: $ 39.3 MM 1 Includes $399.8 million UPB in RPLs included in joint ventures with third-party institutional accredited investors that are required to be consolidated for GAAP purposes 2 Real estate owned (“REO”) and rental property value is presented at estimated property fair value less expected liquidation costs 5


 
Portfolio Growth Re-performing Loans UPB 2,500 Property Value Price Millions $1,966 2,000 $1,891 1,500 $1,412 $1,436 $1,210 $1,151 $1,183 $994 1,000 $775 $710 $617 $466 500 $64 $73 $49 0 Initial Assets (07/08/14) 12/31/2015 12/31/2016 12/31/2017 12/31/2018  RPL UPB as of 12/31/2018 includes $11.2 million of small-balance commercial originations, which are performing loans. Includes $399.8 million UPB in RPLs included in joint ventures with third-party institutional accredited investors that are required to be consolidated for GAAP purposes  RPL status stays constant based on initial purchase status 6


 
Portfolio Growth Non-performing Loans 140 UPB Property Value Millions Price 120 $117 $111 100 $84 80 $76 $68 $63 $59 60 $53 $48 $46 $46 40 $35 $33 20 0 Initial Assets (07/08/14) 12/31/2015 12/31/2016 12/31/2017 12/31/2018  NPL status stays constant based on initial purchase status 7


 
Portfolio Concentrated in Attractive Markets  Clusters of loans in attractive, densely populated markets  Stable liquidity and home prices  Over 80% of the portfolio in our target markets Portland New York / Chicago New Jersey Metro Area Las Vegas Washington DC Metro Area Los Angeles San Diego Phoenix Atlanta Dallas Target Markets Houston Orlando Target States Property Management Tampa Miami, Business Management Ft. Lauderdale, REIT, Servicer & Manager Headquarters W. Palm Beach 8


 
Portfolio Migration Total Pre 4Q2018 Acquisitions ($$ in thousands) Acquisition Current Based on Count UPB Count UPB Liquidated - $0 1678 $352,665 24for24 592 $111,580 3723 $810,628 12for12 351 $76,086 1578 $340,800 7for7 3136 $703,394 234 $52,976 4f4-6f6 1637 $360,963 140 $36,379 Less than 4f4 2194 $465,131 493 $96,288 REO - $0 117 $31,617 NPL 524 $126,696 502 $128,613 Purchased REO 34 $8,074 3 $1,958 8,468 $1,851,924 8,468 $1,851,924  24 for 24: Loan that has made 24 full payments in the last 24 months  12 for 12: Loan that has made 12 full payments in the last 12 months  7 for 7: Loan that has made 7 full payments in the last 7 months 9  NPL: <1 full payment in the last three months


 
Subsequent Events  Acquisitions Closed since 12/31/2018  Acquisitions Under Contract2  RPL  RPL  UPB: $8.5MM  UPB: $299.3MM  Collateral Value: $12.2MM  Collateral Value: $505.5MM  Price/UPB: 84.8%  Price/UPB: 93.6%  Price/Collateral Value: 59.1%  Price/Collateral Value: 55.4%  38 loans in 3 transactions  1,560 loans in 4 transactions  NPL1  NPL  UPB: $60.1MM  UPB: $147.9MM  Collateral Value: $86.7MM  Collateral Value: $285.1MM  Price/UPB: 86.9%  Price/UPB: 96.2%  Price/Collateral Value: 60.2%  Price/Collateral Value: 49.9%  271 loans in 1 transaction  417 loans in 1 transaction  SBC Loans  SBC  UPB: $1.6MM  UPB: $6.9MM  Collateral Value: $2.4MM  Collateral Value: $12.9MM  Price/UPB: 98.7%  Price/UPB: 102.2%  Price/Collateral Value: 66.5%  Price/Collateral Value: 54.5%  2 loans in 1 transaction  14 loans in 2 transactions  SBC – Properties  Price: $5.6MM  3 properties in 3 transactions A dividend of $0.32 per share will be paid on March 29, 2019 to common stockholders of record as of March 15, 2019 1 Pool of loans closed into Ajax Mortgage Loan Trust 2018-F, a joint venture with a third-party institutional accredited investor 2 While these acquisitions are expected to close, there can be no assurance that these acquisitions will close or that the terms thereof may not change. Loans under contract include 10 $281.4MM UPB of RPLs and $147.9MM UPB of NPLs that will be incorporated into joint ventures with third-party institutional accredited investors


 
Financial Metrics – Excluding consolidation of the portion of securitizations owned by third-party institutional accredited investors Excluding the impact of consolidated trusts ($ in thousands) Q4-18 Q3-18 Q2-18 Q1-18 Interest Income on Loans1 23,681 24,626 24,757 24,124 Interest Income on Debt Securities and Beneficial Interests2 1,155 444 238 131 Average Loans 1,145,739 1,138,599 1,149,225 1,163,970 Average Loan Yield (net of impairments) 8.5% 8.9% 8.9% 8.6% Average Debt Securities and Beneficial Interests 72,535 32,693 16,262 6,543 Average Debt Securities and Beneficial Interests Yield 6.5% 5.5% 6.0% 8.3% Average Total Asset Yield 8.4% 8.8% 8.9% 8.5% Total Interest Expense 13,472 12,196 12,031 11,683 Asset Level Interest Expense 11,116 10,037 9,877 9,533 Average Asset Level Debt 958,606 871,443 865,787 881,587 Average Asset Level Debt Cost 4.7% 4.7% 4.6% 4.4% Asset Level Net Interest Margin 3.7% 4.2% 4.2% 4.2% Total Average Debt 1,068,658 974,472 968,618 984,224 Total Average Debt Cost 5.1% 5.1% 5.1% 4.8% Total Net Interest Margin 3.3% 3.7% 3.8% 3.7% Non-Interest Operating Expenses/Avg Assets 1.6% 1.7% 1.7% 2.1% ROAA - ex net REO and loan impairments and losses 2.6% 3.3% 2.7% 2.7% ROAA - Net REO and loan impairments, gains and losses -0.5% -0.7% -0.3% 0.1% ROAA - Total 2.2% 2.5% 2.4% 2.8% ROAE - ex net REO and loan impairments and losses 11.1% 12.6% 11.5% 10.1% ROAE - Net REO and loan Impairments, gains and losses -1.8% -2.8% -1.2% 0.3% ROAE - Total 9.3% 9.8% 10.3% 10.4% Average Leverage Ratio - Asset Backed 2.9 2.7 2.8 2.9 Average Leverage Ratio - Convertible Debt 0.3 0.3 0.3 0.3 Average Leverage Ratio - Total 3.2 3.0 3.2 3.2 Ending Leverage Ratio - Asset Backed 3.2 3.0 2.8 2.8 Ending Leverage Ratio - Convertible Debt 0.4 0.3 0.3 0.3 Ending Leverage Ratio - Total 3.6 3.3 3.1 3.1 1Interest income on loans is net of impairments 2Interest income on debt securities is net of servicing fee The Company believes these financial metrics provide investors with useful supplemental information relating to the Company’s results of operation and financial performance. These adjusted financial metrics are non-GAAP financial measures and should be considered in addition to, but not as a substitute for, the financial measures prepared in accordance with GAAP as reflected on other slides in this presentation. The following slide provides a reconciliation of these financial metrics to the most comparable GAAP measure. 11


 
Financial Metrics - Reconciliation of GAAP consolidated financial metrics to non-GAAP financial metrics excluding the portion of securitizations owned by third-party institutional accredited investors Reconciliation of GAAP Consolidated to GAAP Consolidated Excluding the Consolidation of 2017 D and 2018- C Q4-18 Excluding the Q3-18 Excluding the Q2-18 Excluding the Q1-18 Excluding the Q4-18 GAAP Consolidation Consolidation Consolidation of Consolidation of Consolidation of Consolidation of ($ in thousands) Consolidated Impact of 2017 D Impact of 2018 C 2017 D and 2018 C 2017 D and 2018 C 2017 D 2017 D Interest Income on Loans1 26,146 1,361 1,104 23,681 24,626 24,757 24,124 Interest Income on Debt Securities and Beneficial Interests2 1,155 - - 1,155 444 238 131 Average Loans 1,303,301 82,663 74,899 1,145,739 1,138,599 1,149,225 1,163,970 Average Loan Yield (net of impairments) 8.3% 0.1% 0.1% 8.5% 8.9% 8.9% 8.6% Average Debt Securities and Beneficial Interests 72,535 - - 72,535 32,693 16,262 6,543 Average Debt Securities and Beneficial Interests Yield 6.5% 0.0% 0.0% 6.5% 5.5% 6.0% 8.3% Average Total Asset Yield 8.2% 0.1% 0.1% 8.4% 8.8% 8.9% 8.5% Total Interest Expense 15,045 727 846 13,472 12,196 12,031 11,683 Asset Level Interest Expense 12,689 727 846 11,116 10,037 9,877 9,533 Average Asset Level Debt 1,089,285 71,047 59,632 958,606 871,443 865,787 881,587 Average Asset Level Debt Cost 4.7% 0.0% -0.1% 4.7% 4.7% 4.6% 4.4% Asset Level Net Interest Margin 3.4% 0.1% 0.2% 3.7% 4.2% 4.2% 4.2% Total Average Debt 1,199,337 71,047 59,632 1,068,658 974,472 968,618 984,224 Total Average Debt Cost 5.1% 0.1% 0.0% 5.1% 5.1% 5.1% 4.8% Total Net Interest Margin 3.1% 0.0% 0.2% 3.3% 3.7% 3.8% 3.7% Non-Interest Operating Expenses/Avg Assets 1.5% 0.1% 0.0% 1.6% 1.7% 1.7% 2.1% ROAA - ex net REO and loan impairments and losses 2.3% 0.1% 0.1% 2.6% 3.3% 2.7% 2.7% ROAA - Net REO and loan impairments, gains and losses -0.4% 0.0% 0.0% -0.5% -0.7% -0.3% 0.1% ROAA - Total 1.9% 0.1% 0.1% 2.2% 2.5% 2.4% 2.8% ROAE - ex net REO and loan impairments and losses 11.1% 0.0% 0.0% 11.1% 12.6% 11.5% 10.1% ROAE - Net REO and loan impairments, gains and losses -1.8% 0.0% 0.0% -1.8% -2.8% -1.2% 0.3% ROAE - Total 9.3% 0.0% 0.0% 9.3% 9.8% 10.3% 10.4% Average Leverage Ratio - Asset Backed 3.3 (0.2) (0.2) 2.9 2.7 2.8 2.9 Average Leverage Ratio - Convertbile Debt 0.3 - - 0.3 0.3 0.3 0.3 Average Leverage Ratio - Total 3.6 (0.2) (0.2) 3.2 3.0 3.2 3.2 Ending Leverage Ratio - Asset Backed 3.4 (0.1) (0.1) 3.2 3.0 2.8 2.8 Ending Leverage Ratio - Convertible Debt 0.4 0.0 0.0 0.4 0.3 0.3 0.3 Ending Leverage Ratio - Total 3.8 (0.1) (0.1) 3.6 3.3 3.1 3.1 1Interest income on loans is net of impairments 2Interest income on debt securities is net of servicing fee 12


 
Consolidated Statements of Income (Dollars in thousands except per share amounts) (Unaudited) Three months ended December 31, 2018 September 30, 2018 June 30, 2018 March 31, 2018 (unaudited) (unaudited) (unaudited) (unaudited) INCOME: Interest income $ 28,484 $ 27,416 $ 26,690 $ 25,591 Interest expense (15,045) (12,997) (12,799) (12,494) Net interest income 13,439 14,419 13,891 13,097 Provision for loan losses (799) (365) - - Net interest income after provision for loan losses 12,640 14,054 13,891 13,097 Income from equity method investments 134 239 197 192 Other income 1,120 457 689 1,454 Total income 13,894 14,750 14,777 14,743 EXPENSE: Related party expense - loan servicing fees 2,550 2,457 2,672 2,469 Related party expense - management fee 1,597 1,456 1,440 1,532 Loan transaction expense 24 (25) 35 355 Professional fees 582 482 506 609 Real estate operating expense 858 1,001 944 449 Other expense 1,014 964 965 991 Total expense 6,625 6,335 6,562 6,405 Loss on debt extinguishment - 836 — — Income before provision for income tax 7,269 7,579 8,215 8,338 Provision for income tax (38) 84 2 16 Consolidated net income 7,307 7,495 8,213 8,322 Less: consolidated net income attributable to non- 711 937 692 657 controlling interests Consolidated net income attributable to common $ 6,596 $ 6,558 $ 7,521 $ 7,665 stockholders Basic earnings per common share $ 0.35 $ 0.35 $ 0.40 $ 0.41 Diluted earnings per common share $ 0.34 $ 0.34 $ 0.37 $ 0.38 Weighted average shares – basic 18,771,423 18,691,393 18,595,769 18,508,089 Weighted average shares – diluted 27,163,859 26,592,806 26,476,817 26,395,158 13


 
Consolidated Balance Sheets (Dollars in thousands except per share amounts) ASSETS December 31, 2018 December 31, 2017 (Unaudited) Cash and cash equivalents $ 55,146 $ 53,721 Cash held in trust 24 27,041 Mortgage loans, net(1,4) 1,310,873 1,253,541 Property held-for-sale, net(2) 19,402 24,947 Rental property, net 17,635 1,284 Investments at fair value 146,811 6,285 Investments in beneficial interests 22,086 - Receivable from servicer 14,587 17,005 Investment in affiliates 8,653 7,020 Prepaid expenses and other assets 7,654 4,894 Total assets $ 1,602,871 $ 1,395,738 LIABILITIES AND EQUITY Liabilities: Secured borrowings, net(1,3,4) $ 610,199 $ 694,040 Borrowings under repurchase transactions 534,089 276,385 Convertible senior notes, net(3) 117,525 102,571 Management fee payable 881 750 Accrued expenses and other liabilities 5,898 4,554 Total liabilities 1,268,592 1,078,300 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, 18,909,874 shares at December 31, 2018 and 18,588,228 shares at 189 186 December 31, 2017 issued and outstanding Additional paid-in capital 260,427 254,847 Treasury stock (270) — Retained earnings 41,063 35,556 Accumulated other comprehensive loss (575) (233) Equity attributable to stockholders 300,834 290,356 Non-controlling interests (5) 33,445 27,082 Total equity 334,279 317,438 Total liabilities and equity $ 1,602,871 $ 1,395,738 (1) Mortgage loans, net include $900.2 million and $996.2 million of loans at December 31, 2018 and December 31, 2017, respectively, transferred to securitization trusts that are variable interest entities (“VIEs”); these loans 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.). Mortgage loans, net include $1.2 million and $0 of allowance for loan losses at December 31, 2018 and December 31, 2017, respectively. (2) Property held-for-sale, net, includes valuation allowances of $1.8 million and $1.8 million at December 31, 2018 and December 31, 2017, respectively. (3) Secured borrowings and Convertible senior notes are presented net of deferred issuance costs (4) As of December 31, 2018, balances for Mortgage loans, net include​s $377.0 million and Secured borrowings, net of deferred costs includes $231.9 million from the 50.0% and 63.0% owned joint ventures. As of December 31, 2017, balances for Mortgage loans, net include​s $177.1 million and Secured 14 borrowings, net of deferred costs includes $88.4 million from the 50.0% owned joint venture, all of which we consolidate under U.S. GAAP. (5) Non-controlling interests includes $20.4 million at December 31, 2018, from the 50.0% and 63.0% owned joint ventures. Non-controlling interests includes $14.0 million at December 31, 2017, from a 50% owned joint venture, all of which we consolidate under U.S. GAAP.


 
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