8-K: Great Ajax Corp. Reports Significant Net Loss in First Quarter 2024 Amidst Strategic Portfolio Adjustments

Great Ajax Corp. reported a net loss of $74.3 million for the first quarter of 2024, primarily due to a manager termination fee and mark-to-market losses on loan sales.

Summary

• Great Ajax Corp. announced a net loss of $74.3 million, or $2.41 per share, for the quarter ended March 31, 2024.
• This loss includes a $15.5 million manager termination fee and a $47.3 million mark-to-market loss on loans moved to held-for-sale.
• The company's operating loss was $4.8 million, or $0.16 per share.
• Net interest income was $1.6 million, a decrease of $1.5 million from the previous quarter.
• The company collected $80.9 million in cash from loan payments, sales, and collections, ending the quarter with $100.1 million in cash and cash equivalents.
• The book value per common share decreased to $6.87 from $9.99 in the previous quarter.
• Approximately 84.4% of the loan portfolio has made at least 12 out of the last 12 payments.

Sentiment

Score: 3

Explanation: The document indicates a significant net loss, a decrease in book value, and a large mark-to-market loss, which are all negative indicators. While there are some positives, such as cash collection and debt repayment, the overall sentiment is negative due to the magnitude of the losses and the challenges the company faces.

Positives

• The company collected $80.9 million in cash during the quarter.
• The company ended the quarter with $100.1 million in cash and cash equivalents.
• Approximately 84.4% of the loan portfolio has made at least 12 out of the last 12 payments, indicating a relatively healthy portion of the portfolio.
• The company successfully redeemed debt securities and beneficial interests in certain joint ventures.
• The company repaid its 2024 Convertible Notes at maturity for $103.5 million.

Negatives

• The company reported a significant net loss of $74.3 million.
• The company incurred a $15.5 million manager termination fee.
• The company recorded a $47.3 million mark-to-market loss on loans moved to held-for-sale.
• Net interest income decreased by $1.5 million compared to the previous quarter.
• The book value per common share decreased from $9.99 to $6.87.
• The company recorded a $3.1 million write-down on beneficial interests due to lower expected redemption proceeds.
• The company recorded a $1.1 million increase in expected credit losses on the mortgage loan portfolio held-for-investment.

Risks

• The company faces risks related to the performance of its loan portfolio, particularly with potential extended durations and lower expected redemption proceeds.
• The company is exposed to interest rate risk, which could impact the value of its assets and the expected liquidation proceeds.
• The company's financial results are sensitive to changes in market conditions and the valuation of its assets.
• The company's reliance on external management and servicing introduces operational and financial risks.
• The company's loan sales and portfolio adjustments could result in further losses.

Future Outlook

The company expects to redeem several of its joint ventures during 2024 and has adjusted cash flow projections to reflect lower projected sale prices of the underlying collateral. The company also expects to close on the sale of loans moved to held-for-sale in May 2024.

Management Comments

• Management considers Operating loss/income to provide a useful measure for comparing the results of our ongoing operations over multiple quarters.
• Management noted that the performance of the underlying loans has remained unchanged despite the write-downs on beneficial interests.

Industry Context

The company operates in the real estate investment trust (REIT) sector, focusing on re-performing and non-performing mortgage loans. The results reflect challenges in the current interest rate environment and the impact of strategic portfolio adjustments. The company's focus on loan sales and portfolio adjustments is likely a response to market conditions and the need to manage debt obligations.

Comparison to Industry Standards

• The significant net loss of $74.3 million is notably worse than the previous quarter's loss of $22.6 million and the $7.4 million loss in the same quarter of the previous year, indicating a substantial deterioration in financial performance.
• The decrease in book value per share from $9.99 to $6.87 is a significant drop, which is likely to be viewed negatively by investors compared to other REITs.
• The company's operating loss of $4.8 million is also a significant decline compared to the previous quarter's operating loss of $1.8 million, suggesting operational challenges.
• The mark-to-market loss of $47.3 million on loans moved to held-for-sale is a substantial hit, indicating potential issues with the valuation of the company's loan portfolio compared to industry benchmarks.
• The company's cash position of $100.1 million is a positive aspect, but it needs to be considered in the context of the significant losses and the need to manage debt obligations.

Related Party Transactions

• The company is externally managed by Thetis Asset Management LLC, an affiliated entity.
• The company's mortgage loans and other real estate assets are serviced by Gregory Funding LLC, an affiliated entity.
• The company accrued a $15.5 million termination fee to its manager, which will be paid in shares of common stock.

Stakeholder Impact

• Shareholders will be negatively impacted by the significant net loss and the decrease in book value per share.
• Employees may be affected by the company's financial performance and strategic adjustments.
• Customers and suppliers may be indirectly affected by the company's financial health and operational changes.
• Creditors may be concerned about the company's ability to meet its debt obligations.

Next Steps

• The company expects to close on the sale of loans moved to held-for-sale in May 2024.
• The company will hold its 2024 annual and special meeting of stockholders to approve the issuance of common stock for the preferred stock redemption.
• The company will continue to manage its portfolio and redeem joint ventures.

Key Dates

Keywords

REIT, mortgage loans, NPLs, RPLs, real estate, loan sales, net loss, mark-to-market, interest income, operating loss, book value, manager termination fee, credit losses, cash flow, debt securities, beneficial interests