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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): November 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

Securities registered pursuant to Section 12(b) of the Act:
Title of each classTrading SymbolsName of each exchange on which registered
Common stock, par value $0.01 per shareAJXNew York Stock Exchange
7.25% Convertible Senior Notes due 2024AJXANew York Stock Exchange
 

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 November 5, 2019, Great Ajax Corp., a Maryland corporation (the “Company”), issued a press release regarding its financial results for the quarter ended September 30, 2019 (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 November 5, 2019, the Company will hold an investor conference call and webcast to discuss financial results for the third quarter ended September 30, 2019, 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 third quarter ended September 30, 2019 (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
99.1Press Release dated November 5, 2019
99.2November 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: November 5, 2019


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Section 2: EX-99.2 (EXHIBIT 99.2)

exhibit992-93019
Third Quarter Investor Presentation November 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, 2018, 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 September 30, 2019. 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 288 transactions since inception. Four transactions closed in Q3 2019  Use our manager’s proprietary analytics to price each mortgage pool on an asset-by-asset basis – We own 19.8% of our manager  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 hold warrants to purchase up to an additional 12% of our affiliated 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 third-party institutional investors  Use moderate non-mark-to-market leverage 3


 
Highlights – Quarter Ended September 30, 2019  Formed joint ventures that acquired $241.5 million in unpaid principal balance (“UPB”) of mortgage loans with collateral values of $429.5 million and retained $43.4 million of varying classes of related securities issued by the joint ventures to end the quarter with $236.5 million of investments in debt securities and beneficial interests  Purchased $0.4 million of re-performing mortgage loans ("RPLs") with UPB of $0.5 million and underlying collateral values of $0.7 million to end the quarter with $1.2 billion in net mortgage loans  Acquired three multi-family rental properties for $16.0 million and two single-tenant, triple net lease commercial properties for $1.5 million  Interest income of $27.7 million net of $0.4 million in servicing fee expense on loans held in joint ventures; Net interest income after provision for loan losses of $13.4 million  Overall cost of funds decreased approximately 20 basis points due to issuance of AAA rated bonds from our second rated securitization, Ajax Mortgage Loan Trust 2019-D, as well as from lower interest rates on our repurchase lines of credit  Net income attributable to common stockholders of $7.7 million  Basic earnings per share (“EPS”) of $0.39  Taxable income of $0.20 per share  Book value per share of $15.86 at September 30, 2019  Collected total cash of $69.6 million, including $60.3 million from loan payments, loan payoffs and sales of REO and $9.3 million from our investments in debt securities and beneficial interests  Held $57.9 million of cash and cash equivalents at September 30, 2019 4


 
Portfolio Overview – as of September 30, 2019 1 Unpaid Principal Balance Property Value 3% 2% 3% RPL RPL NPL NPL REO 95% 97% $1,290.1 MM $1,871.4 MM RPL: $1,256.6 MM RPL: $1,770.2 MM NPL: $ 33.5 MM NPL: $ 44.5 MM REO & Rental: $ 56.7 MM 1 Includes $366.8 million UPB in RPLs included in joint ventures with third-party institutional 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 2,000 $1,927 $1,770 $1,567 1,500 $1,405 $1,257 $1,201 $1,193 $1,094 $1,029 $975 1,000 $864 $643 $669 $567 500 $435 $64 $73 $49 0 Initial Assets (07/08/14) 9/30/2015 9/30/2016 9/30/2017 9/30/2018 9/30/2019  RPL UPB includes $27.7 million of Small Balance Commercial(SBC) loans , which are performing loans. Includes $366.8 million UPB in RPLs included in joint ventures with third- party institutional 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 $117 Millions 120 $113 Price 100 $90 $85 80 $64 $64 $56 $56 60 $53 $44 $44 40 $35 $34 $30 $24 20 0 Initial Assets (07/08/14) 9/30/2015 9/30/2016 9/30/2017 9/30/2018 9/30/2019  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 / 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 3Q2019 Acquisitions ($ in thousands) Acquisition Current Based on Count UPB Count UPB Liquidated- Loans - - 2,138 459,464 Liquidated- Purch REO - - 31 6,114 Sold - - 965 216,367 24for24 820 148,584 3,939 847,661 12for12 572 120,653 899 192,253 7for7 3,248 728,223 176 41,259 4f4-6f6 1,764 389,411 145 33,725 Less than 4f4 2,425 513,948 558 106,557 REO - - 82 26,354 NPL 573 134,493 500 111,672 Purchased REO 34 8,074 3 1,960 9,436 2,043,386 9,436 2,043,386  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 09/30/2019  Acquisitions Under Contract1,2  RPL  RPL  UPB: $1.0MM  UPB: $257.7MM  Collateral Value: $1.3MM  Collateral Value: $370.0MM  Price/UPB: 80.3%  Price/UPB: 92.7%  Price/Collateral Value: 62.1%  Price/Collateral Value: 64.6%  6 loans in 2 transactions  1,248 loans in 4 transactions  SBC Properties  NPL  Price: $0.63MM  UPB: $9.9MM  1 property in 1 transaction  Collateral Value: $15.5MM  Price/UPB: 90.5%  Price/Collateral Value: 59.6%  53 loans in 2 transactions  SBC Loans  UPB: $0.84MM  Collateral Value: $1.3MM  Price/UPB: 101.6%  5 loans in 1 transaction  SBC Properties  Price: $7.4MM  6 properties in 6 transactions A dividend of $0.32 per share, to be paid on November 26, 2019 to common stockholders of record as of November 16, 2019 1 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 2 Some of these transactions are expected to close through joint ventures with third-party institutional investors 10


 
Financial Metrics – Excluding consolidation of the portion of securitizations owned by third-party institutional investors* Excluding the consolidation of 2017 D and 2018 C ($ in thousands) Q3-19 Q2-19 Q1-19 Q4-18 Q3-18 Interest Income on Loans 1 21,593 22,268 24,112 23,681 24,626 Interest Income on Debt Securities and Beneficial Interests2 3,322 3,140 2,416 1,155 444 Average Loans 1,028,267 1,043,463 1,147,220 1,145,739 1,138,599 Average Loan Yield (net of impairments) 8.7% 8.8% 8.7% 8.5% 8.9% Average Debt Securities and Beneficial Interests 198,320 192,129 135,449 72,535 32,693 Average Debt Securities and Beneficial Interests Yield 6.9% 6.7% 7.3% 6.5% 5.5% Average Total Asset Yield 8.4% 8.5% 8.5% 8.4% 8.8% Total Interest Expense 12,873 13,955 14,166 13,472 12,196 Asset Level Interest Expense 10,312 11,401 11,608 11,116 10,037 Average Asset Level Debt 937,317 983,585 1,000,461 958,606 871,443 Average Asset Level Debt Cost 4.5% 4.7% 4.7% 4.7% 4.7% Asset Level Net Interest Margin 3.9% 3.8% 3.8% 3.7% 4.2% Total Average Debt 1,055,673 1,101,627 1,118,095 1,068,658 974,472 Total Average Debt Cost 5.0% 5.2% 5.2% 5.1% 5.1% Total Net Interest Margin 3.4% 3.3% 3.4% 3.3% 3.7% Non-Interest Operating Expenses/Avg Assets 1.6% 1.6% 1.7% 1.6% 1.7% ROAA - ex net REO and loan impairments and losses 2.7% 4.3% 2.5% 2.6% 3.3% ROAA - Net REO and loan impairments, gains and losses -0.3% -0.3% -0.2% -0.5% -0.7% ROAA - Total 2.4% 4.0% 2.3% 2.2% 2.5% ROAE - ex net REO and loan impairments and losses3 10.9% 18.5% 11.1% 11.1% 12.6% ROAE - Net REO and loan impairments, gains and losses -1.1% -1.3% -1.0% -1.8% -2.8% ROAE - Total 9.9% 17.2% 10.1% 9.3% 9.8% Average Leverage Ratio - Asset Backed 2.7 2.9 3.0 2.9 2.7 Average Leverage Ratio - Convertible Debt 0.3 0.3 0.4 0.3 0.3 Average Leverage Ratio - Total 3.0 3.2 3.3 3.2 3.0 Ending Leverage Ratio - Asset Backed4 2.9 2.9 3.3 3.2 3.0 Ending Leverage Ratio - Convertible Debt 0.4 0.4 0.4 0.4 0.3 Ending Leverage Ratio - Total5 3.2 3.3 3.6 3.6 3.3 ¹Interest income on loans is net of impairments 2Interest income on debt securities is net of servicing fee 3Return on average equity for the quarter ended June 30, 2019 includes approximately $5.2 million net gain from an RPL sale, after adjusting for foregone interest income, reduced interest expense and other loan related expenses 4Excludes the impact of consolidating trusts and convertible debt 5Excludes the impact of consolidating trusts *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 investors Reconciliation of GAAP Consolidated to GAAP Consolidated Excluding the Consolidation of 2017 D and 2018 C Q3-19 Excluding the Q2-19 Excluding the Q1-19 Excluding the Q4-18 Excluding the Q3-19 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 and 2018 C 2017 D and 2018 C Interest Income on Loans 1 23,866 1,286 987 21,593 22,268 24,112 23,681 Interest Income on Debt Securities and Beneficial Interests2 3,322 - - 3,322 3,140 2,416 1,155 Average Loans 1,180,105 77,871 73,967 1,028,267 1,043,463 1,147,220 1,145,739 Average Loan Yield (net of impairments) 8.3% 0.1% 0.2% 8.7% 8.8% 8.7% 8.5% Average Debt Securities and Beneficial Interests 198,320 - - 198,320 192,129 135,449 72,535 Average Debt Securities and Beneficial Interests Yield 6.9% 0.0% 0.0% 6.9% 6.7% 7.3% 6.5% Average Total Asset Yield 8.1% 0.1% 0.2% 8.4% 8.5% 8.5% 8.4% Total Interest Expense 14,317 660 784 12,873 13,955 14,166 13,472 Asset Level Interest Expense 11,756 660 784 10,312 11,401 11,608 11,116 Average Asset Level Debt 1,057,536 65,201 55,018 937,317 983,585 1,000,461 958,606 Average Asset Level Debt Cost 4.5% 0.0% -0.1% 4.5% 4.7% 4.7% 4.7% Asset Level Net Interest Margin 3.6% 0.1% 0.2% 3.9% 3.8% 3.8% 3.7% Total Average Debt 1,175,892 65,201 55,018 1,055,673 1,101,627 1,118,095 1,068,658 Total Average Debt Cost 5.0% 0.0% 0.0% 5.0% 5.2% 5.2% 5.1% Total Net Interest Margin 3.2% 0.1% 0.2% 3.4% 3.3% 3.4% 3.3% Non-Interest Operating Expenses/Avg Assets 1.5% 0.1% 0.0% 1.6% 1.6% 1.7% 1.6% ROAA - ex net REO and loan impairments and losses 2.4% 0.1% 0.1% 2.7% 4.3% 2.5% 2.6% ROAA - Net REO and loan impairments, gains and losses -0.2% 0.0% 0.0% -0.3% -0.3% -0.2% -0.5% ROAA - Total 2.2% 0.1% 0.1% 2.4% 4.0% 2.3% 2.2% ROAE - ex net REO and loan impairments and losses3 10.9% 0.0% 0.0% 10.9% 18.5% 11.1% 11.1% ROAE - Net REO and loan impairments, gains and losses -1.1% 0.0% 0.0% -1.1% -1.3% -1.0% -1.8% ROAE - Total 9.9% 0.0% 0.0% 9.9% 17.2% 10.1% 9.3% Average Leverage Ratio - Asset Backed 3.0 (0.2) (0.2) 2.7 2.9 3.0 2.9 Average Leverage Ratio - Convertbile Debt 0.3 - - 0.3 0.3 0.4 0.3 Average Leverage Ratio - Total 3.4 (0.2) (0.2) 3.0 3.2 3.3 3.2 Ending Leverage Ratio - Asset Backed4 3.0 (0.1) (0.1) 2.9 2.9 3.3 3.2 Ending Leverage Ratio - Convertible Debt 0.3 0.0 0.0 0.4 0.4 0.4 0.4 Ending Leverage Ratio - Total5 3.3 (0.0) (0.1) 3.2 3.3 3.6 3.6 ¹Interest income on loans is net of impairments 2Interest income on debt securities is net of servicing fee 3Return on average equity for the quarter ended June 30, 2019 includes approximately $5.2 million net gain from an RPL sale, after adjusting for foregone interest income, reduced interest expense and other loan related expenses 4Excludes the impact of consolidating trusts and convertible debt 5Excludes the impact of consolidating trusts 12


 
Consolidated Statements of Income (Dollars in thousands except per share amounts) (Unaudited) Three months ended September 30, 2019 June 30, 2019 March 31, 2019 December 31, 2018 (unaudited) (unaudited) (unaudited) (unaudited) INCOME: Interest income $ 27,723 $ 28,128 $ 29,452 $ 28,484 Interest expense (14,317) (15,439) (15,685) (15,045) Net interest income 13,406 12,689 13,767 13,439 Provision for loan losses (3) (85) (154) (799) Net interest income after provision for loan losses 13,403 12,604 13,613 12,640 Income from equity method investments 583 257 461 134 Gain on sale of mortgage loans 109 7,014 - - Other income 1,221 828 1,110 1,120 Total income 15,316 20,703 15,184 13,894 EXP ENS E: Related party expense - loan servicing fees 2,197 2,274 2,506 2,550 Related party expense - management fee 2,215 1,652 1,688 1,597 Loan transaction expense 52 191 69 24 Professional fees 446 634 862 582 Real estate operating expense 1,216 887 786 858 Other expense 940 1,219 1,081 1,014 Total expense 7,066 6,857 6,992 6,625 Loss on debt extinguishment - 182 - - Income before provision for income tax 8,250 13,664 8,192 7,269 Provision for income tax 27 38 71 (38) Consolidated net income 8,223 13,626 8,121 7,307 Less: consolidated net income attributable to non- 532 599 791 711 controlling interests Consolidated net income attributable to common $ 7,691 $ 13,027 $ 7,330 $ 6,596 stockholders Basic earnings per common share $ 0.39 $ 0.67 $ 0.39 $ 0.35 Diluted earnings per common share $ 0.36 $ 0.56 $ 0.36 $ 0.34 Weighted average shares – basic 19,751,142 19,169,941 18,811,713 18,771,423 Weighted average shares – diluted 28,200,653 27,732,587 27,829,448 27,163,859 13


 
Consolidated Balance Sheets (Dollars in thousands except per share amounts) ASSETS September 30, 2019 December 31, 2018 (Unaudited) Cash and cash equivalents $ 57,905 $ 55,146 Cash held in trust 21 24 Mortgage loans, net(1,4) 1,164,914 1,310,873 Property held-for-sale, net(2) 16,541 19,402 Rental property, net 38,292 17,635 Investments at fair value 190,768 146,811 Investments in beneficial interests 45,699 22,086 Receivable from servicer 17,406 14,587 Investment in affiliates 9,097 8,653 Prepaid expenses and other assets 13,043 7,654 Total assets $ 1,553,686 $ 1,602,871 LIABILITIES AND EQUITY Liabilities: Secured borrowings, net(1,3,4) $ 631,228 $ 610,199 Borrowings under repurchase transactions 438,388 534,089 Convertible senior notes, net(3) 118,464 117,525 Management fee payable 1,215 881 Accrued expenses and other liabilities 6,427 5,898 Total liabilities 1,195,722 1,268,592 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, 20,347,509 shares at September 30, 2019 and 18,909,874 shares at 204 189 December 31, 2018 issued and outstanding Additional paid-in capital 283,069 260,427 Treasury stock (397) (270) Retained earnings 49,649 41,063 Accumulated other comprehensive gain/(loss) 1,544 (575) Equity attributable to stockholders 334,069 300,834 Non-controlling interests(5) 23,895 33,445 Total equity 357,964 334,279 Total liabilities and equity $ 1,553,686 $ 1,602,871 (1) Mortgage loans, net include $912.7 million and $897.8 million of loans at September 30, 2019 and December 31, 2018, 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 $1.4 million and $1.2 million of allowance for loan losses at September 30, 2019 and December 31, 2018, respectively. (2) Property held-for-sale, net, includes valuation allowances of $2.0 million and $1.8 million at September 30, 2019 and December 31, 2018, respectively. (3) Secured borrowings and Convertible senior notes are presented net of deferred issuance costs. 14 (4) As of September 30, 2019, balances for Mortgage loans, net include​s $350.7 million and Secured borrowings, net of deferred costs includes $295.0 million from the 50.0% and 63.0% owned joint ventures. 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 venture, all of which we consolidate under U.S. GAAP. (5) Non-controlling interests includes $21.9 million at September 30, 2019, from the 50.0% and 63.0% owned joint ventures. Non-controlling interests includes $20.4 million at December 31, 2018, from a 50.0% and 63.0% owned joint venture, all of which we consolidate under U.S. GAAP.


 
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Section 3: EX-99.1 (EXHIBIT 99.1)

Document

Exhibit 99.1 
400839810_logoa151.jpg
GREAT AJAX CORP. ANNOUNCES RESULTS FOR THE QUARTER
ENDED SEPTEMBER 30, 2019
 
Third Quarter Highlights
Formed joint ventures that acquired $241.5 million in unpaid principal balance (“UPB”) of mortgage loans with collateral values of $429.5 million and retained $43.4 million of varying classes of related securities issued by the joint ventures to end the quarter with $236.5 million of investments in debt securities and beneficial interests
Purchased $0.4 million of re-performing mortgage loans ("RPLs") with UPB of $0.5 million and underlying collateral values of $0.7 million to end the quarter with $1.2 billion in net mortgage loans
Acquired three multi-family rental properties for $16.0 million and two single-tenant, triple net lease commercial properties for $1.5 million
Interest income of $27.7 million net of $0.4 million in servicing fee expense on loans held in joint ventures
Net interest income after provision for loan losses of $13.4 million
Overall cost of funds decreased approximately 20 basis points due to the issuance of AAA rated bonds from our second rated securitization, Ajax Mortgage Loan Trust 2019-D ("2019-D"), as well as from lower interest rates on our repurchase lines of credit
Net income attributable to common stockholders of $7.7 million
Basic earnings per share (“EPS”) of $0.39
Taxable income of $0.20 per share
Book value per share of $15.86 at September 30, 2019
Collected total cash of $69.6 million, including $60.3 million from loan payments, loan payoffs and sales of REO and $9.3 million from our investments in debt securities and beneficial interests
Held $57.9 million of cash and cash equivalents at September 30, 2019

New York, NY—November 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 September 30, 2019. 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 loans (“NPLs”). In addition to our continued focus on residential RPLs, we also originate and acquire small-balance commercial loans ("SBCs") secured by multi-family retail/residential and mixed use properties and acquire multi-family retail/residential and mixed use and commercial properties.
 



Selected Financial Results (Unaudited)
($ in thousands except per share amounts)
For the three months ended
September 30, 2019        June 30, 2019 March 31, 2019December 31, 2018September 30, 2018
Loan interest income(1,2,3)
$23,866  $24,621  $26,557  $26,146  $26,261  
Net interest income $13,406  $12,689  $13,767  $13,439  $14,419  
Earnings from debt securities and beneficial interests(4)
$3,322  $3,140  $2,416  $1,155  $444  
Total revenue, net(1,5,6)
$15,316  $20,703  $15,184  $13,894  $14,750  
Consolidated net income(1)
$8,223  $13,626  $8,121  $7,307  $7,495  
Net income per basic share$0.39  $0.67  $0.39  $0.35  $0.35  
Average equity(1)
$348,521  $340,470  $336,050  $332,002  $323,750  
Average total assets(1)
$1,523,956  $1,559,729  $1,587,871  $1,525,759  $1,381,742  
Average daily cash balance(7)
$55,881  $48,907  $59,484  $68,926  $40,674  
Average carrying value of RPLs(1,8)
$1,121,100  $1,136,133  $1,230,512  $1,226,491  $1,161,709  
Average carrying value of NPLs(1)
$31,447  $35,213  $39,807  $41,438  $38,237  
Average carrying value of SBC loans(8)
$27,558  $28,075  $36,181  $35,372  $27,316  
Average carrying value of debt securities and beneficial interests$198,320  $192,129  $135,449  $72,535  $32,693  
Average asset level debt balance(1,9)
$1,057,536  $1,107,812  $1,127,673  $1,089,285  $948,893  
____________________________________________________________

(1)Reflects the impact of consolidating the assets, liabilities and non-controlling interests 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 investors.
(2)Loan interest income excludes interest income from debt securities and beneficial interests and bank account balances.
(3)Loan interest income for the quarters ended September 30, 2019, June 30, 2019, March 31, 2019, December 31, 2018 and September 30, 2018 is net of impairments of $3 thousand, $0.1 million, $0.2 million, $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)Total revenue for the quarter ended June 30, 2019 includes approximately $5.2 million net gain from an RPL sale, after adjusting for foregone interest income, reduced interest expense and other loan related expenses.
(7)Average daily cash balance includes cash and cash equivalents, and excludes cash held in trust.
(8)The average carrying value of RPLs and the average carrying value of SBCs has been recast for all prior periods to reflect all SBCs in the average carrying value of SBCs. Previously, certain SBCs acquired in accretable loan pools were included in RPLs.
(9)All quarters have been updated to reflect average asset level debt balance from total average debt balance.

Our consolidated net income attributable to common stockholders decreased $5.3 million for the quarter ended September 30, 2019 compared to the quarter ended June 30, 2019 due largely to a net gain in the second quarter of approximately $5.2 million from an RPL sale, after adjusting for foregone interest income, reduced interest expense and other loan related expenses that did not recur in the third quarter.

Net interest income increased $0.7 million over the prior quarter primarily driven by a decrease of $1.1 million in interest expense partially offset by a decrease in loan interest income. Our overall cost of funds decreased approximately 20 basis points during the third quarter due to our successful issuance of AAA-rated bonds from our second rated securitization, 2019-D, as well as from lower interest rates on our repurchase lines of credit. Loan interest income decreased $0.8 million during the quarter ended September 30, 2019 due largely to a reduction in our average loan balance which resulted from the sale of loans in our second quarter and subsequent investments in securities issued by our joint ventures rather than direct loan purchases. Our investments in debt securities and beneficial interests which were made in the third quarter were on our consolidated balance sheet for only four days during the quarter and therefore provided minimal benefit to the third quarter's earnings.




Earnings from debt securities and beneficial interests increased $0.2 million during the quarter ended September 30, 2019 as compared to the prior quarter driven primarily by continued investments in debt securities and beneficial interests from the formation of joint ventures.
 
Our operating expenses for the third quarter increased primarily as a result of our incentive fees paid to our manager and an increase in real estate operating expense as we continue to grow our rental property portfolio. Our third quarter incentive fees were primarily driven by the increase in our book value as a result of the loan sale during the quarter ended June 30, 2019 and was triggered by the dividend payment in August 2019 according to the terms of our management agreement. Our rental property portfolio increased from $20.9 million at June 30, 2019 to $38.3 million at September 30, 2019 and our increase in real estate operating expenses is directly related to this growth.

We recorded $0.7 million in impairments on our REO held-for-sale portfolio in real estate operating expense for the quarter ended September 30, 2019 compared to $0.5 million for the quarter ended June 30, 2019. We continue to liquidate our REO properties held-for-sale at a faster rate than we acquire properties, with 30 properties sold in the third quarter while seven were added to REO held-for-sale. This had the effect of reducing our taxable income during the third quarter, as REO sales generally reduce taxable income while foreclosures generally create taxable income.

We acquired $0.4 million of RPLs with an aggregate UPB of $0.5 million, and underlying collateral values of $0.7 million during the quarter ended September 30, 2019. These loans were acquired and included on our balance sheet on the last day of the quarter. We ended the quarter with $1.2 billion of mortgage loans with an aggregate UPB of $1.3 billion.

New investments during the quarter consisted of $43.4 million of investments in debt securities and beneficial interests in joint ventures that were on our balance sheet for a weighted average of only four days of the quarter and therefore provided minimal benefit to our earnings for the third quarter.  Interest income from our investments in debt securities and beneficial interests issued by our non-consolidated joint ventures is recognized by us net of servicing fees, which are incurred, instead, by each joint venture.  This is different than our investments in mortgage loans that have interest income recognized on a gross basis with the offsetting servicing fee recorded as expense in a separate income statement line. 

We collected $69.6 million of cash during the quarter as a result of loan payments, loan payoffs, sales of REO and cash collections on our securities portfolio to end the third quarter with $57.9 million in cash and cash equivalents. $60.3 million of our cash collections were derived from our mortgage loan and REO portfolios as a result of loan payments, loan payoffs and sales of REO during the quarter and $9.3 million were derived from interest and principal payments on investments in debt securities and beneficial interests. Of the $60.3 million of cash collections from mortgage loans and REO, we received $27.6 million from loans paying the full amount of principal, past due interest and charges.

During the quarter we completed our second rated securitization, 2019-D, which closed on July 26, 2019 with an aggregate of $140.4 million of AAA-rated senior securities and $52.9 million of subordinated securities issued with respect to $193.3 million of mortgage loans, all of which were RPLs. The AAA-rated senior securities represent 72.7% of the UPB of the underlying mortgage loans. These AAA-rated senior securities have no step up provision; and as a result, the stated coupon of 2.956% is fixed to maturity. We also sold the AA and A-rated securities resulting from 2019-D, representing 8.4% of UPB, to third-party institutional investors.

During the quarter ended September 30, 2019 we co-invested with a third-party institutional investor to form a $241.5 million joint venture, and retained $43.4 million of varying classes of related securities, to end the quarter with $236.5 million of investments in securities and beneficial interests. We acquired 20.0% of each class of the securities of Ajax Mortgage Loan Trust 2019-E ("2019-E"), which acquired 1,071 RPLs and NPLs with UPB of $241.5 million and an aggregate property value of $429.5 million. The senior securities represent 75% of the UPB of the underlying mortgage loans and carry a 3.19% interest rate. Based on the structure of the transaction we do not consolidate 2019-E under Generally Accepted Accounting Principles.

We also acquired two multi-family rental properties in Dallas, TX and one in Baltimore, MD for an aggregate purchase price of $16.0 million and two single-tenant triple net lease commercial properties in Boston, MA for an aggregate purchase price of $1.5 million.



Portfolio Acquisitions
($ in thousands)
For the three months ended
 September 30, 2019       June 30, 2019March 31, 2019December 31, 2018
September 30, 2018(1)
RPLs
Count 496  38  388  271  
UPB$508  $106,559  $8,495  $71,049  $69,211  
Purchase price$416  $90,694  $7,205  $63,304  $64,428  
Purchase price % of UPB81.9 %85.1 %84.8 %89.1 %93.1 %
NPLs
Count—  —  —  25  11  
UPB$—  $—  $—  $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 63.0% owned joint venture that we consolidate.


The following table provides an overview of our portfolio at September 30, 2019 ($ in thousands):
No. of loans6,249  Weighted average coupon4.56 %
Total UPB$1,290,144  
Weighted average LTV(5)
83.8 %
Interest-bearing balance$1,212,284  Weighted average remaining term (months)310  
Deferred balance(1)
$77,860  No. of first liens6,182  
Market value of collateral(2)
$1,814,682  No. of second liens67  
Price/total UPB(3)
82.9 %No. of rental properties23  
Price/market value of collateral61.6 %Capital invested in rental properties$38,730  
Re-performing loans94.4 %No. of REO held-for-sale75  
Non-performing loans2.3 %
Market value of REO held-for-sale(6)
$17,955  
Small-balance commercial loans(4)
3.3 %
Carrying value of debt securities and beneficial interests in trusts
$234,923  
____________________________________________________________

(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 (52.7% of UPB), ARM (9.8% of UPB) and Hybrid ARM (37.5% of UPB) mortgage loans.
(4)SBC loans includes both purchased and originated loans.
(5)UPB as of September 30, 2019 divided by market value of collateral and weighted by the UPB of the loan.
(6)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
Since quarter end, we have acquired six residential RPLs with aggregate UPB of $1.0 million in two transactions from one seller for our own account. The RPLs were acquired at 80.3% of UPB and 62.1% of the estimated market value of the underlying collateral of $1.3 million.

Since quarter end, we have agreed to acquire, subject to due diligence, 53 NPLs with aggregate UPB of $9.9 million in two transactions from two sellers for our own account. The purchase price equals 88.6% of UPB and 56.7% of the estimated market value of the underlying collateral of $15.5 million.

We also agreed to acquire one triple net lease commercial property for an aggregate purchase price of $0.6 million in a single transaction from a single seller.




We have also agreed to acquire, subject to due diligence, 919 residential RPLs with aggregate UPB of $200.0 million in one transaction from a single seller. The purchase price equals 93.9% of UPB and 64.5% of the estimated market value of the underlying collateral of $291.2 million. The majority of these loans are expected to be acquired through joint ventures with institutional investors.

Also expected to close in the fourth quarter of 2019 is the acquisition of 285 RPLs that went under contract in July, 2019 for a purchase price of $44.7 million, and the acquisition of five SBCs that went under contract in May 2019 for a purchase price of $0.9 million. The purchase price of the RPLs equals 89.6% of UPB and 65.4% of the estimated market value of the underlying collateral of $68.2 million, and the purchase price of the SBCs equals 101.6% of UPB and 65.3% of the underlying collateral of $1.3 million. The majority of these loans are expected to be acquired through joint ventures with institutional investors.

Also during the quarter ended September 30, 2019 we agreed to acquire, subject to due diligence, 44 residential RPLs with aggregate UPB of $7.9 million in two transactions from multiple sellers which are expected to close in the fourth quarter. The purchase price equals 83.5% of UPB and 62.4% of the estimated market value of the underlying collateral of $10.6 million.

On October 29, 2019, our Board of Directors declared a dividend of $0.32 per share to be paid on November 26, 2019 to our common stockholders of record as of November 16, 2019.

Conference Call
Great Ajax Corp. will host a conference call at 5:00 p.m. EST, Tuesday, November 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 commercial properties and, to a lesser extent, NPLs. We also originate and acquire loans secured by multi-family residential and smaller commercial mixed use retail/residential properties and acquire multi-family retail/residential and mixed use and commercial properties. 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 filed with the SEC on March 6, 2019. 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
September 30, 2019      June 30, 2019March 31, 2019December 31, 2018
 (unaudited)(unaudited)(unaudited)(unaudited)
INCOME:
Interest income$27,723  $28,128  $29,452  $28,484  
Interest expense(14,317) (15,439) (15,685) (15,045) 
Net interest income13,406  12,689  13,767  13,439  
Provision for loan losses  (3) (85) (154) (799) 
Net interest income after provision for loan losses  13,403  12,604  13,613  12,640  
Income from equity method investments583  257  461  134  
Gain on sale of mortgage loans109  7,014  —  —  
Other income1,221  828  1,110  1,120  
Total income15,316  20,703  15,184  13,894  
EXPENSE:
Related party expense - loan servicing fees2,197  2,274  2,506  2,550  
Related party expense - management fee2,215  1,652  1,688  1,597  
Loan transaction expense52  191  69  24  
Professional fees446  634  862  582  
Real estate operating expense1,216  887  786  858  
Other expense940  1,219  1,081  1,014  
Total expense7,066  6,857  6,992  6,625  
Loss on debt extinguishment—  182  —  —  
Income before provision for income tax8,250  13,664  8,192  7,269  
Provision for income tax (benefit)27  38  71  (38) 
Consolidated net income8,223  13,626  8,121  7,307  
Less: consolidated net income attributable to non-controlling interests532  599  791  711  
Consolidated net income attributable to common stockholders$7,691  $13,027  $7,330  $6,596  
Basic earnings per common share$0.39  $0.67  $0.39  $0.35  
Diluted earnings per common share$0.36  $0.56  $0.36  $0.34  
Weighted average shares – basic19,751,142  19,169,941  18,811,713  18,771,423  
Weighted average shares – diluted28,200,653  27,732,587  27,829,448  27,163,859  




GREAT AJAX CORP. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands except per share amounts)
 
September 30, 2019December 31, 2018
(unaudited)
ASSETS
Cash and cash equivalents$57,905  $55,146  
Cash held in trust21  24  
Mortgage loans, net(1,4)
1,164,914  1,310,873  
Property held-for-sale, net(2)
16,541  19,402  
Rental property, net38,292  17,635  
Investments at fair value190,768  146,811  
Investments in beneficial interests45,699  22,086  
Receivable from servicer17,406  14,587  
Investments in affiliates9,097  8,653  
Prepaid expenses and other assets13,043  7,654  
Total assets$1,553,686  $1,602,871  
LIABILITIES AND EQUITY 
Liabilities: 
Secured borrowings, net(1,3,4)
$631,228  $610,199  
Borrowings under repurchase transactions438,388  534,089  
Convertible senior notes, net(3)
118,464  117,525  
Management fee payable1,215  881  
Accrued expenses and other liabilities6,427  5,898  
Total liabilities1,195,722  1,268,592  
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, 20,347,509 shares at September 30, 2019 and 18,909,874 shares at December 31, 2018 issued and outstanding204  189  
Additional paid-in capital283,069  260,427  
Treasury stock(397) (270) 
Retained earnings49,649  41,063  
Accumulated other comprehensive gain/(loss)1,544  (575) 
Equity attributable to stockholders334,069  300,834  
Non-controlling interests(5)
23,895  33,445  
Total equity357,964  334,279  
Total liabilities and equity$1,553,686  $1,602,871  
___________________________________________________________
(1)Mortgage loans, net include $912.7 million and $897.8 million of loans at September 30, 2019 and December 31, 2018, 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 $1.4 million and $1.2 million of allowance for loan losses at September 30, 2019 and December 31, 2018, respectively.
(2)Property held-for-sale, net, includes valuation allowances of $2.0 million and $1.8 million at September 30, 2019 and December 31, 2018, respectively.
(3)Secured borrowings and convertible senior notes are presented net of deferred issuance costs.



(4)As of September 30, 2019, balances for Mortgage loans, net includes $350.7 million and Secured borrowings, net of deferred costs includes $295.0 million from the 50% and 63% owned joint ventures. As of December 31, 2018, balances for Mortgage loans, net includes $377.0 million and Secured borrowings, net of deferred costs includes $231.9 million from a 50% and 63% owned joint ventures, all of which we consolidate under U.S. Generally Accepted Accounting Principles ("U.S. GAAP.")
(5)Non-controlling interests includes $21.9 million at September 30, 2019, from 50% and 63% owned joint ventures. Non-controlling interests includes $20.4 million at December 31, 2018, from a 50% and 63% owned joint ventures, all of which we consolidate under U.S. GAAP.

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