RPT.NYSERithm Property Trust INC
10-Q: Great Ajax Corp. Reports Q3 2024 Results Amid Strategic Shift
Sentiment:
Quarterly Report
Great Ajax Corp. reported a net loss for Q3 2024 as it continues its strategic transition towards commercial real estate investments.
Capital raiseThe company filed a registration statement with the SEC on Form S-3 to increase the maximum aggregate offering price to up to $400 million of common stock, preferred stock, debt securities, warrants and units available to be sold in public offerings or pursuant to the ATM Program.The company issued 2.9 million shares of common stock to Rithm at a purchase price of $4.87 per share, for aggregate proceeds of approximately $14.0 million.
Worse than expectedThe company's net loss of $8.0 million for Q3 2024 is worse than the net loss of $6.1 million in Q3 2023.The company's mortgage loans held-for-investment and held-for-sale decreased significantly, indicating a contraction in its core business.The company's total assets and liabilities decreased, reflecting a smaller balance sheet.
Summary
- Great Ajax Corp. reported a net loss attributable to common stockholders of $8.0 million, or $0.18 per diluted share, for the third quarter of 2024.
- This compares to a net loss of $6.1 million, or $0.25 per share, in the same quarter of the previous year.
- The company's strategic shift towards commercial real estate investments is underway, with a focus on commercial mortgage loans and CMBS.
- The company's mortgage loans held-for-investment decreased from $864.6 million at the end of 2023 to $403.1 million at the end of Q3 2024.
- Mortgage loans held-for-sale decreased from $55.7 million to $31.3 million over the same period.
- The company's total assets decreased from $1.34 billion at the end of 2023 to $858.2 million at the end of Q3 2024.
- The company's total liabilities decreased from $1.03 billion at the end of 2023 to $611.1 million at the end of Q3 2024.
- The company's cash and cash equivalents increased from $52.8 million at the end of 2023 to $84.0 million at the end of Q3 2024.
Sentiment
Score: 4
Explanation: The document indicates a strategic shift and a net loss, suggesting a period of transition and potential challenges. While the company is taking steps to reposition itself, the current financial results are not positive, leading to a lower sentiment score.
Positives
- Cash and cash equivalents increased to $84.0 million.
- The company is actively repositioning its balance sheet towards commercial real estate investments.
- The company issued a cash dividend of $0.06 per share.
Negatives
- The company reported a net loss of $8.0 million for Q3 2024.
- Mortgage loans held-for-investment and held-for-sale decreased significantly.
- Total assets and liabilities decreased, reflecting a smaller balance sheet.
- The company incurred a mark to market loss on mortgage loans held-for-sale of $1.7 million for the quarter and $55.5 million for the nine months.
Risks
- The company faces risks associated with its strategic shift towards commercial real estate.
- The company's ability to acquire new commercial mortgage assets is limited in the near future.
- The company is exposed to credit risk and market risk, including interest rate risk and prepayment risk.
- The company's financial results are dependent on the performance of its Servicer.
- The company's share price has been and may continue to be volatile.
- The company is exposed to the broader impacts of interest rates, inflation, and potential for a global economic recession.
Future Outlook
The company is shifting its strategic direction towards commercial real estate investments and expects to reposition its existing portfolio over time. The company anticipates liquidating its remaining investment in its Former Manager during the fourth quarter of 2024 or the first quarter of 2025.
Management Comments
- Under RCM GAs management, we seek to capitalize on commercial real estate investment opportunities.
- Under RCM GAs management, we have started to shift our strategic direction towards investments in the commercial real estate sector, and we have begun to invest in CMBS.
- We do not anticipate investing further in residential mortgage loans, RPLs or NPLs.
Industry Context
The company's strategic shift reflects a broader trend of investors seeking opportunities in commercial real estate due to market dynamics creating refinancing challenges and funding gaps. The company is moving away from residential mortgage loans, RPLs and NPLs.
Comparison to Industry Standards
- The company's shift towards commercial real estate aligns with a trend of investors seeking higher yields in alternative asset classes.
- The company's reduction in residential mortgage loan holdings is a significant departure from its historical focus, indicating a major strategic change.
- The company's performance is being compared to other mortgage REITs and commercial real estate investment firms, with a focus on how the strategic shift impacts its financial metrics.
- The company's move into CMBS is being compared to other firms that have been active in this space, with a focus on the company's ability to generate returns in this market.
- The company's decision to terminate its management agreement with Thetis Asset Management LLC and enter into a new agreement with RCM GA Manager LLC is being compared to other REITs that have changed their management structure.
Management Changes
| Role | Previous Person | New Person | Effective Date | Reason |
|---|---|---|---|---|
| External Manager | Thetis Asset Management LLC | RCM GA Manager LLC | 2024-06-11 | Strategic transaction with Rithm Capital Corp. |
Corporate Governance
| Change Type | Description | Effective Date | Impact Assessment |
|---|---|---|---|
| Management Agreement | The company entered into a new management agreement with RCM GA Manager LLC, an affiliate of Rithm Capital Corp. | 2024-06-11 | The new agreement changes the management structure and compensation of the company. |
| Director Compensation | The company revised the independent directors compensation so that on a quarterly basis, each director may elect to take their fees in either cash or stock. | 2024-07-01 | The change provides flexibility to the directors in how they receive their compensation. |
Related Party Transactions
- The company terminated its agreement with Gregory Funding LLC, the former loan servicer, and disposed of its interest in Great Ajax FS LLC.
- The company entered into a new management agreement with RCM GA Manager LLC, an affiliate of Rithm Capital Corp.
- The company's mortgage loans and real properties are now serviced by Newrez LLC, a Rithm affiliate.
- The company issued approximately 3.2 million shares of common stock to the Former Manager in connection with the termination of the Former Management Agreement.
- The company issued 2.9 million shares of common stock to Rithm at a purchase price of $4.87 per share, for aggregate proceeds of approximately $14.0 million.
Stakeholder Impact
- Shareholders may experience volatility in the share price due to the strategic shift and financial results.
- Employees of the former manager and servicer were impacted by the termination of the agreements.
- Customers (borrowers) will now be serviced by Newrez LLC.
- Creditors may be impacted by the company's change in strategy and financial performance.
Next Steps
- The company will continue to reposition its portfolio towards commercial real estate investments.
- The company expects to liquidate its remaining investment in its Former Manager during the fourth quarter of 2024 or the first quarter of 2025.
- The company will continue to monitor market conditions and adjust its investment strategy accordingly.
Key Dates
| Date | Description |
|---|---|
| 2024-02-26 | The company entered into a Securities Purchase Agreement and a term loan with Rithm Capital Corp. |
| 2024-05-14 | The company issued warrants to Rithm to purchase 6.5 million shares. |
| 2024-05-20 | The company's stockholders approved the strategic transaction with Rithm. |
| 2024-06-11 | The company completed its strategic transaction with Rithm, terminated the Former Management Agreement, and entered into a new Management Agreement with RCM GA Manager LLC. |
| 2024-09-06 | The company filed a registration statement with the SEC to increase the maximum aggregate offering price to up to $400 million. |
| 2024-09-30 | End of the reporting period for the Q3 2024 results. |
| 2024-10-18 | The company's Board of Directors declared a cash dividend of $0.06 per share and approved an amendment to the Management Agreement. |
| 2024-11-01 | Date of the filing of the Q3 2024 report. |
| 2024-11-15 | Record date for the cash dividend of $0.06 per share. |
| 2024-11-29 | Payment date for the cash dividend of $0.06 per share. |
Keywords
commercial real estate, mortgage loans, CMBS, REIT, net loss, strategic shift, securitization, Rithm, financial results, investments
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