8-K: Great Ajax Corp. Reports Fourth Quarter 2023 Results with Net Loss Amid Strategic Shift

Great Ajax Corp. announced a net loss of $(23.2) million for the fourth quarter of 2023, alongside strategic moves to sell loans and address upcoming debt maturities.

Summary

• Great Ajax Corp. reported a net loss attributable to common stockholders of $(23.2) million, or $(0.86) per share, for the quarter ended December 31, 2023.
• The company's operating loss was $(1.8) million, or $(0.07) per share, which excludes certain non-core items.
• Net interest income for the quarter was $3.2 million, a slight decrease from the previous quarter.
• The company recorded $13.7 million in write-downs on beneficial interests, partially offset by a $2.4 million decrease in expected credit losses on mortgage loans.
• A $8.6 million mark-to-market loss was recorded on a $64.3 million portfolio of mortgage loans designated as held-for-sale.
• The company collected $30.4 million in cash during the quarter, ending with $52.8 million in cash and cash equivalents.
• Book value per common share decreased to $9.99 from $11.07 in the previous quarter.
• The company plans to sell approximately $330 million in loans, anticipating a potential loss of $10 million for every $100 million sold.
• A strategic transaction with Rithm was announced, and the company will proceed with an annual/special stockholders' meeting.

Sentiment

Score: 3

Explanation: The document indicates a negative sentiment due to the significant net loss, operating loss, decrease in book value, and anticipated losses from loan sales. The strategic shift to sell loans and address debt maturities suggests financial pressure.

Positives

• The company collected $30.4 million in cash from loan payments, sales of REO, and collections from investments.
• Interest expense decreased by $0.4 million compared to the prior quarter due to a decrease in average interest-bearing debt.
• GAAP expenses decreased by $0.4 million quarter-over-quarter.
• Approximately 80.4% of the loan portfolio made at least 12 out of the last 12 payments, indicating a relatively healthy portion of the portfolio.

Negatives

• The company reported a significant net loss of $(23.2) million for the quarter.
• The company experienced an operating loss of $(1.8) million.
• Book value per common share decreased from $11.07 to $9.99.
• The company recorded $13.7 million in write-downs on beneficial interests.
• A $8.6 million mark-to-market loss was recorded on mortgage loans held-for-sale.
• Interest earning assets declined by $32.6 million during the quarter.

Risks

• The company anticipates recording a loss on the sale of approximately $330 million in loans due to market uncertainty and the upcoming maturity of convertible notes.
• The write-downs on beneficial interests and mark-to-market losses indicate potential issues with asset valuations.
• The decrease in book value per share could negatively impact investor confidence.
• The company's reliance on joint ventures and the potential for lower liquidation proceeds on the sale of underlying loans pose a risk.
• The upcoming maturity of convertible notes creates financial pressure.

Future Outlook

The company expects to redeem several joint ventures during 2024 and anticipates recording a loss on the sale of approximately $330 million in loans. They are also moving forward with an annual/special stockholders' meeting.

Management Comments

• Management considers Operating loss/income to provide a useful measure for comparing the results of our ongoing operations over multiple quarters.
• Management stated that the decision to market loans for sale was based on market uncertainty and the upcoming maturity of convertible notes.

Industry Context

The company's focus on re-performing and non-performing mortgage loans aligns with the broader real estate investment trust (REIT) sector, which is sensitive to interest rate changes and economic conditions. The strategic shift to sell loans and address debt maturities reflects a cautious approach in the current market environment.

Comparison to Industry Standards

• The reported net loss of $(23.2) million is significantly worse than the previous quarter's loss of $(6.1) million, indicating a substantial deterioration in financial performance.
• The decrease in book value per share from $11.07 to $9.99 is a negative trend, suggesting a decline in the company's net asset value.
• Compared to other REITs, the company's operating loss of $(1.8) million and the need to sell loans at a potential loss indicate a challenging financial position.
• Companies like Annaly Capital Management (NLY) and AGNC Investment Corp. (AGNC), which also invest in mortgage-backed securities, are often used as benchmarks. However, without specific comparative data for this quarter, it's difficult to make a direct comparison.
• The company's decision to sell loans due to market uncertainty and upcoming debt maturities is a common strategy in the REIT sector when facing financial pressures, but the magnitude of the potential loss is concerning.

Related Party Transactions

• The company's mortgage loans and other real estate assets are serviced by Gregory Funding LLC, an affiliated entity.
• The company is externally managed by Thetis Asset Management LLC, an affiliated entity.
• Related party expenses include loan servicing fees and management fees.

Stakeholder Impact

• Shareholders will be negatively impacted by the net loss, decrease in book value, and potential losses from loan sales.
• Employees may be affected by the company's strategic shift and potential restructuring.
• Customers may experience changes in loan servicing due to the sale of loans.
• Creditors may be concerned about the company's financial performance and ability to meet its obligations.
• Suppliers may be impacted by changes in the company's operations and financial stability.

Next Steps

• The company will proceed with an annual/special stockholders' meeting.
• The company will sell approximately $330 million in mortgage loans.
• The company will redeem several joint ventures during 2024.

Key Dates

Keywords

REIT, mortgage loans, NPLs, RPLs, real estate, financial results, net loss, operating loss, book value, loan sales, convertible notes