Overview

Great Ajax Corp. is a Maryland corporation that is organized and operated as a real estate investment trust (REIT). The company primarily targets Reperforming Loans (RPLs), including residential mortgage loans and Smaller Balance Commercial (SBC) loans. RPLs are mortgage loans where at least five of the seven most recent payments have been made, or the most recent payment has been made and accepted pursuant to an agreement. SBC loans have a principal balance of up to $5 million and are secured by multi-family residential and commercial mixed use retail/residential properties. The company may also invest in Non-Performing Loans (NPLs) and single-family and smaller commercial properties.

Our Portfolio

As of September 30, 2017, Great Ajax’s portfolio consisted of:

Market Trends and Outlook

Great Ajax believes several market trends are creating opportunities in the residential mortgage-related whole loan strategies:

• Low interest rates and elevated operating costs are driving sales of residential mortgage assets by banks and other lenders.
• Declining home ownership due to rising prices, low inventory, and increased down payment requirements is increasing demand for single-family and multi-family residential rental properties.
• Rising home prices are increasing homeowner equity and reducing strategic defaults.
• Low interest rates and rising prices have resulted in many homeowners being able to refinance.
• Dodd-Frank risk retention rules have reduced the universe of participants in the securitization markets.
• Lack of a robust market for non-conforming mortgage loans in the aftermath of the financial crisis.

The company believes these trends will lead to increased demand for single-family and smaller multi-family rental properties in the near term and foreseeable future.

Factors that May Affect Operating Results

Key factors that may affect Great Ajax’s operating results include:

• Ability to source RPLs and SBC loans for acquisition
• Availability of adequate financing to fund asset acquisitions
• Resolution methodologies employed on non-performing loans
• Changes in home prices and interest rates
• Overall market conditions and real estate trends

Critical Accounting Policies and Estimates

Great Ajax has identified three critical accounting policies related to accounting for interest income on the mortgage loan portfolio, interest expense on secured borrowings, and interest expense on repurchase agreements.

Results of Operations

For the three months ended September 30, 2017, Great Ajax had consolidated net income attributable to common stockholders of $7.5 million, or $0.41 per share. Key highlights include:

• Purchased $26.6 million of RPLs and originated $3.0 million of SBC loans
• Issued $20.5 million of convertible senior notes
• Portfolio interest income of $24.5 million; net interest income of $13.8 million
• Collected $44.3 million on mortgage loan and REO portfolios

The increase in net interest income was driven by growth in the average balance of the mortgage loan portfolio, partially offset by lower yields.

Liquidity and Capital Resources

Great Ajax’s primary sources of cash include proceeds from securities offerings, secured borrowings, repurchase agreements, and principal and interest payments on the loan portfolio. The company uses cash to purchase mortgage-related assets, repay debt, make distributions, and fund operations.

As of September 30, 2017, the company had $43.1 million in cash and cash equivalents. Great Ajax has completed nine secured borrowings since inception, six of which were outstanding at September 30, 2017. The company also utilizes repurchase agreements to fund asset acquisitions.

Great Ajax may declare dividends based on earnings, financial condition, and other factors. The most recently declared quarterly dividend represents a 7.69% annualized yield on the company’s book value per share of $15.60 as of September 30, 2017.