Great Ajax Corp. Announces Results for the Quarter Ended September 30, 2023; Provides Strategic Update

Third Quarter Highlights

• Interest income of $17.9 million; net interest income of $3.0 million
• Net loss attributable to common stockholders of $(6.1) million
• Operating loss of $(2.3) million
• Earnings per share ("EPS") per basic common share was a loss of $(0.25)
• Operating loss per basic common share of $(0.09)
• Taxable loss of $(0.06) per share attributable to common stockholders after payment of dividends on our preferred stock
• Book value per common share of $11.07 at September 30, 2023
• Formed two joint ventures that acquired $325.3 million in unpaid principal balance ("UPB") of mortgage loans from pre-existing joint ventures with collateral values of $718.7 million and retained $57.9 million of the varying classes of the related debt securities and beneficial interests issued by the joint venture to end the quarter with $309.2 million of investments in debt securities and beneficial interests
• Collected total cash of $39.5 million from loan payments, sales of real estate owned ("REO") properties and collections from investments in debt securities and beneficial interests
• Held $63.9 million of cash and cash equivalents at September 30, 2023; average daily cash balance for the quarter was $53.2 million
• As of September 30, 2023, approximately 81.2% of our portfolio (based on UPB at the time of acquisition) made at least 12 out of the last 12 payments

Great Ajax Corp. (NYSE: AJX), a Maryland corporation that is a real estate investment trust ("REIT"), announces its results of operations for the quarter ended September 30, 2023. We focus primarily on acquiring, investing in and managing a portfolio of re-performing mortgage loans ("RPLs") and non-performing loans ("NPLs") secured by single-family residences and commercial properties. In addition to our continued focus on RPLs and NPLs, we also originate and acquire small-balance commercial loans ("SBC loans") secured by multi-family retail/residential and mixed use properties.

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For the quarter ended September 30, 2023, we had a GAAP consolidated net loss attributable to common stockholders of $(6.1) million or $(0.25) per common share after preferred dividends. Operating loss, a non-GAAP financial measure that adjusts GAAP earnings by removing gains and losses as well as certain other non-core income and expenses and preferred dividends, was $(2.3) million or $(0.09) per common share. We consider Operating loss/income to provide a useful measure for comparing the results of our ongoing operations over multiple quarters. For a reconciliation of Operating loss to consolidated net loss available to common stockholders, please refer to Appendix B.

Our net interest income for the quarter ended September 30, 2023, excluding any adjustment for expected credit losses was $3.0 million, a decrease of $0.3 million over the prior quarter. Gross interest income decreased $0.5 million as a result of slightly lower average balances on our mortgage, debt security and beneficial interest portfolios. Our interest expense for the quarter ended September 30, 2023 decreased $0.2 million compared to the prior quarter primarily as a result of a decrease in our average balance of interest bearing debt. Interest earning assets declined $54.3 million during the quarter ended September 30, 2023.

We generally acquire loans at a discount and record an allowance for expected credit losses at acquisition. We update the allowance quarterly based on actual cash flow results and changing cash flow expectations in accordance with the current expected credit losses accounting standard, otherwise known as CECL. During the quarter ended September 30, 2023, we recorded $0.3 million of expense due to a net increase in expected credit losses resulting from decreases in the present value of expected cash flows.

On July 11, 2023, we sold an unrated Class A senior bond in one of our joint ventures and recognized a loss of $0.4 million. The $0.4 million loss was already reflected in our book value calculation through AOCI at September 30, 2023. Accordingly, the loss was a reclassification from unrealized loss in accumulated other comprehensive income ("AOCI") to realized loss in the Statement of Operations.

On July 24, 2023, we formed Ajax Mortgage Loan Trust 2023-B ("2023-B") and Ajax Mortgage Loan Trust 2023-C ("2023-C"), with an institutional accredited investor, by refinancing eight joint ventures and recorded an $8.8 million non-cash impairment on our Investments in beneficial interests during the second quarter of 2023 based on estimated liquidated proceeds from the sale of the underlying collateral. We recorded an incremental loss of $1.3 million during the third quarter to reflect final pricing agreed to by the majority beneficial interest holders in July 2023. We retained $21.8 million or 20.0% of varying classes of debt securities and beneficial interests in 2023-B and $36.1 million or 20.0% of varying classes of the agency rated and unrated debt securities and beneficial interests in 2023-C. 2023-B acquired 571 RPLs and NPLs with UPB of $121.7 million and an aggregate property value of $255.0 million. The senior securities represent 75.0% of the UPB of the underlying mortgage loans and carry a 4.25% coupon. 2023-C acquired 1,171 RPLs and NPLs with UPB of $203.6 million and an aggregate property value of $463.7 million. The AAA through A rated securities issued by 2023-C represent 72.4% of the UPB of the underlying mortgage loans and carry a weighted average coupon of 3.45%. Based on the structure of the transactions, we do not consolidate 2023-B and 2023-C under U.S. GAAP.

Gaea Real Estate Corp ("Gaea") internalized its manager on September 1, 2023 and paid a contract termination fee. We recorded a loss from our investments in affiliates of $0.6 million for the quarter ended September 30, 2023 compared to a loss of $0.3 million for the quarter ended June 30, 2023 due to a pass through of higher losses on our equity method investment, as a result of a one-time management fee termination expense recorded by Gaea. Gaea generally records a GAAP loss due to the depreciation expense of the real estate assets in its portfolio and the contract termination fee increased the GAAP loss.

Our GAAP expenses decreased on a quarter over quarter basis by $2.2 million primarily due to a $0.5 million decrease in other expense due to less impairment on our REO, discussed further below. Additionally our amortization of put option liability decreased by $1.3 million as we reached the initial put option liability and are now accruing a non-compounding fixed rate on the outstanding balance.

We recorded $0.2 million in impairment on our REO held-for-sale portfolio in other expense for the quarter ended September 30, 2023. We sold seven properties in the third quarter and recorded a net gain of $0.1 million in other income. Four properties were added to REO held-for-sale through foreclosures.

For the quarter ended March 31, 2023, we transferred certain securities from AFS to HTM in compliance with the European Union risk retention requirement, which was a non-cash transaction and recorded at fair value. On the date of transfer, AOCI included unrealized losses of $10.9 million for these securities. This amount will be amortized out of AOCI over the remaining life of the respective securities, and has no net impact to interest income. For the quarter ended September 30, 2023, this amortization resulted in a recapture of book value of $0.9 million through the recovery of AOCI compared to $1.1 million for the quarter ended June 30, 2023.

We ended the quarter with a GAAP book value of $11.07 per common share, compared to a book value per common share of $11.86 for the quarter ended June 30, 2023. The decrease in book value is driven primarily by the increase in the number of our outstanding common share count due to shares issued during the quarter, our GAAP loss for the quarter and dividends paid, partially offset by the recovery of a portion of the mark to market loss in debt securities recorded on the balance sheet through AOCI, and the $0.9 million amortization of the unrealized loss on debt securities transferred to HTM.

Our taxable loss for the quarter ended September 30, 2023 was $(0.06) per share of net income available to common stockholders, compared to $(0.02) per share of taxable net income available to common stockholders for the quarter ended June 30, 2023. Additionally, we recorded income tax benefit of $0.1 million comprised primarily of state and local income taxes.

We collected $39.5 million of cash during the third quarter as a result of loan payments, loan payoffs, sales of REO, and cash collections on our securities portfolio to end the quarter with $63.9 million in cash and cash equivalents.

We purchased one RPL with UPB of $0.2 million at 25.8% of property value and 80.5% of UPB and one NPL with UPB of $0.2 million at 60.7% of property value and 93.7% of UPB. These loans were acquired and included on our consolidated balance sheet for a weighted average of 56 days of the quarter.

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Recent Events

As we previously announced on October 20, 2023, we and Ellington Financial Inc. (“Ellington Financial”) mutually terminated our merger agreement with Ellington Financial. The termination was approved by both companies’ boards of directors after careful consideration of the proposed merger and the progress made towards completing the transaction. In connection with the termination, Ellington Financial paid us $16.0 million, $5.0 million of which was paid in cash, and $11.0 million of which was paid in cash as consideration for approximately 1,666,666 shares of our common stock. The common stock was purchased at $6.60 per share. The purchase price was determined based on the merger exchange ratio. Ellington Financial holds approximately 6.1% of our stock. An affiliate of Ellington Financial’s external manager owned 273,983 shares of our common stock as of June 30, 2023. Ellington Financial remains one of our securitization joint venture partners.

As we discussed when we announced the now terminated transaction, our board regularly evaluates and considers our strategic direction, our objectives and our succession plans, as well as our ongoing business, all with a view to maximizing long-term value for our stockholders. This evaluation and consideration led to our entry into the merger agreement with Ellington Financial. Following termination of the agreement, the board engaged Piper Sandler & Co. as our financial adviser to assist us with a thorough evaluation of strategic alternatives, including, but not limited to, other strategic transactions, potential capital injections involving us and/or our affiliates, other monetization opportunities involving us and/or our affiliates, specific asset sales, or other opportunities. No assurance can be given that this process will culminate in a successful transaction, nor can we provide any guidance regarding the timing of this process or any possible transaction(s) that might result given that the board must undertake a thorough review of available alternatives. We do not intend to comment further on the review of strategic alternatives until we determine disclosure is necessary or advisable.

This year, to date, we have distributed $0.65 per share in dividends. Today our board declared a cash dividend of $0.11 per share to be paid on November 30, 2023 to stockholders of record as of November 15, 2023. We reduced the dividend per share amount in order to focus on book value and maximizing stockholder value overall.

Conference Call

Great Ajax Corp. will host a conference call at 5:00 p.m. ET on Thursday, November 2, 2023 to review our financial results for the quarter and discuss other updates. A live Webcast of the conference call will be accessible from the Quarterly Reports section of our website www.greatajax.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 REIT, that focuses primarily on acquiring, investing in and managing RPLs and NPLs secured by single-family residences and commercial properties. In addition to our continued focus on RPLs and NPLs, we also originate and acquire SBC loans secured by multi-family retail/residential and mixed use properties. We are externally managed by Thetis Asset Management LLC, an affiliated entity. 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 REIT 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 our control, including, without limitation and the risk factors and other matters set forth in our Annual Report on Form 10-K for the period ended December 31, 2022 filed with the Securities and Exchange Commission (the “SEC”) on March 3, 2023, when filed with the SEC and our Quarterly Report on Form 10-Q for the period ended September 30, 2023. We undertake 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.

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