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AJX Great Ajax

Filed: 5 May 20, 8:00pm


UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q

(Mark One)
☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2020
OR
☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
​ For the transition period from                 to                 

001-36844
(Commission file number)
GREAT AJAX CORP.
(Exact name of registrant as specified in its charter)
Maryland

47-1271842

State or other jurisdiction
of incorporation or organization
(I.R.S. Employer
Identification No.)

9400 SW Beaverton-Hillsdale Hwy, Suite 131
Beaverton, OR 97005
(Address of principal executive offices and Zip Code)
503-505-5670
Registrant’s telephone number, including area code

Securities registered pursuant to Section 12(b) of the Act:
Title of each classTrading SymbolsName of each exchange on which registered
Common stock, par value $0.01 per shareAJXNew York Stock Exchange
7.25% Convertible Senior Notes due 2024AJXANew York Stock Exchange

Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  Yes ☒ No☐

Indicate by check mark whether the Registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the Registrant was required to submit such files).  Yes ☒ No☐

Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company or an emerging growth company. See definition of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and "emerging growth company" in Rule 12b-2 of the Exchange Act. (check one):
Large accelerated filerAccelerated filer
Non-accelerated filer (Do not check if a smaller reporting company)Smaller reporting company
Emerging Growth Company

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.  

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  Yes ☐ No☒

As of May 4, 2020, 22,921,935 shares of the registrant’s common stock, par value $0.01 per share, were outstanding.



TABLE OF CONTENTS

i


PART I. FINANCIAL INFORMATION

Item 1. Consolidated Interim Financial Statements

GREAT AJAX CORP. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
($ in thousands except per share data)March 31, 2020December 31, 2019
ASSETS(Unaudited)
Cash and cash equivalents$31,179  $64,343  
Cash held in trust19  20  
Mortgage loans, net(1,2)
1,098,629  1,151,469  
Property held-for-sale, net(3)
10,905  13,537  
Rental property, net1,345  1,534  
Investments at fair value(4)
247,372  231,685  
Investments in beneficial interests(5)
64,703  57,954  
Receivable from servicer17,322  17,013  
Investments in affiliates28,028  29,649  
Prepaid expenses and other assets38,345  9,637  
Total assets$1,537,847  $1,576,841  
LIABILITIES AND EQUITY
Liabilities:
Secured borrowings, net(1,2,6)
$630,938  $652,747  
Borrowings under repurchase transactions431,091  414,114  
Convertible senior notes, net(6)
111,420  118,784  
Management fee payable1,795  1,634  
Accrued expenses and other liabilities5,329  5,478  
Total liabilities1,180,573  1,192,757  
Commitments and contingencies – see Note 8
Equity:
Preferred stock $0.01 par value; 25,000,000 shares authorized, 0ne issued or outstanding—  —  
Common stock $0.01 par value; 125,000,000 shares authorized, 22,921,935 shares at March 31, 2020 and 22,142,143 shares at December 31, 2019 issued and outstanding230  222  
Additional paid-in capital316,762  309,395  
Treasury stock(514) (458) 
Retained earnings42,749  49,446  
Accumulated other comprehensive gain/(loss)(27,167) 1,277  
Equity attributable to stockholders332,060  359,882  
Non-controlling interests(7)
25,214  24,202  
Total equity357,274  384,084  
Total liabilities and equity$1,537,847  $1,576,841  

(1)Mortgage loans net include $888.2 million and $908.6 million of loans at March 31, 2020 and December 31, 2019, respectively, transferred to securitization trusts that are variable interest entities (“VIEs”); these loans can only be used to settle obligations of the VIEs. Secured borrowings consist of notes issued by VIEs that can only be settled with the assets and cash flows of the VIEs. The creditors do not have recourse to the primary beneficiary (Great Ajax Corp.). See Note 9 — Debt. Mortgage loans, net include $16.1 million and $2.0 million of allowance for loan credit losses at March 31, 2020 and December 31, 2019, respectively.  
(2)As of March 31, 2020, balances for Mortgage loans, net includes $316.5 million and Secured borrowings, net of deferred costs includes $271.6 million from the 50% and 63% owned joint ventures, respectively. As of December 31, 2019, balances for Mortgage loans, net include $341.8 million and
The accompanying notes are an integral part of the consolidated financial statements.
1


Secured borrowings, net of deferred costs includes $284.8 million from a 50% and 63% owned joint ventures, all of which the Company consolidates under U.S. Generally Accepted Accounting Principles ("U.S. GAAP").
(3)Property held-for-sale, net, includes valuation allowances of $2.3 million and $1.8 million at March 31, 2020 and December 31, 2019, respectively.
(4)As of March 31, 2020 and December 31, 2019 Investments at fair value include amortized cost basis of $274.5 million and $230.4 million, respectively, and unrealized losses of $27.2 million and unrealized gains of $1.3 million, respectively.
(5)Investments in beneficial interests includes allowance for credit losses of $7.2 million at March 31, 2020. NaN allowance for credit losses were recorded as of December 31, 2019.
(6)Secured borrowings and Convertible senior notes are presented net of deferred issuance costs.
(7)As of March 31, 2020 and December 31, 2019 non-controlling interests includes $23.4 million and $22.4 million, respectively, from the 50% and 63% owned joint ventures, which the Company consolidates under U.S. GAAP.

The accompanying notes are an integral part of the consolidated interim financial statements.
2


GREAT AJAX CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
Three months ended
($ in thousands except per share data)March 31, 2020March 31, 2019
INCOME
Interest income$27,286  $29,452  
Interest expense(13,070) (15,685) 
Net interest income14,216  13,767  
Provision for credit losses(5,109) (154) 
Net interest income after provision for credit losses9,107  13,613  
Income/(Loss) from investments in affiliates(1,112) 461  
Loss on sale of mortgage loans(705) —  
Other income747  1,110  
Total income8,037  15,184  
EXPENSE
Related party expense – loan servicing fees2,014  2,506  
Related party expense – management fee1,799  1,688  
Loan transaction expense(103) 69  
Professional fees805  862  
Real estate operating expenses912  786  
Other expense1,025  1,081  
Total expense6,452  6,992  
Loss on debt extinguishment408  —  
Income before provision for income taxes1,177  8,192  
Provision for income taxes (benefit)(319) 71  
Consolidated net income1,496  8,121  
Less: consolidated net income attributable to the non-controlling interest1,096  791  
Consolidated net income attributable to common stockholders$400  $7,330  
Basic earnings per common share$0.02  $0.39  
Diluted earnings per common share$0.02  $0.36  
Weighted average shares – basic22,070,354  18,811,713  
Weighted average shares – diluted22,189,984  27,829,448  


The accompanying notes are an integral part of the consolidated interim financial statements.
3


GREAT AJAX CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Unaudited)
 
Three months ended March 31,
($ in thousands)20202019
Consolidated net income attributable to common stockholders$400  $7,330  
Other comprehensive (loss)/income:
Net unrealized (loss)/gain on investments in available-for-sale debt securities(28,444) 397  
Income tax expense related to items of other comprehensive income—  —  
Comprehensive (loss)/income$(28,044) $7,727  




The accompanying notes are an integral part of the consolidated interim financial statements.
4


GREAT AJAX CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Three months ended
($ in thousands)March 31, 2020March 31, 2019
CASH FLOWS FROM OPERATING ACTIVITIES
Consolidated net income$1,496  $8,121  
Adjustments to reconcile net income to net cash from operating activities
Stock-based management fee and compensation expense214  1,029  
Non-cash interest income accretion(9,450) (10,891) 
Discount accretion on investment in debt securities and beneficial interests(2,794) (1,155) 
Loss on sale of mortgage loans705  —  
Loss on debt extinguishment408  —  
Gain on sale of property held-for-sale(286) (103) 
Gain on sale of securities—  (8) 
Depreciation of property 106  
Impairment of real estate owned897  475  
Provision for credit losses on mortgage loans2,122  154  
Provision for credit losses on beneficial interests2,987  —  
Amortization of debt discount and prepaid financing costs1,316  1,281  
Undistributed loss/(income) from investment in affiliates1,112  (461) 
Net change in operating assets and liabilities
Prepaid expenses and other assets(28,878) (798) 
Receivable from servicer(278) (4,160) 
Accrued expenses, management fee payable, and other liabilities12  1,366  
Net cash from operating activities(30,409) (5,044) 
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of mortgage loan pools and related balances(185) (7,205) 
Acquisition of commercial loans(1,206) (17,793) 
Principal paydowns on mortgage loans34,597  28,765  
Principal paydowns on debt securities held as investments10,233  11,941  
Proceeds from sale of mortgage loans25,412  —  
Purchase of securities(61,306) (64,014) 
Proceeds from sale of securities—  39,635  
Purchase of rental property—  (2,300) 
Proceeds from sale of property held-for-sale3,017  5,131  
Renovations of rental property—  77  
Distribution from affiliates453  170  
Net cash from investing activities11,015  (5,593) 
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from repurchase transactions72,417  67,463  
Repayments on repurchase transactions(55,440) (45,483) 
Repayments on secured borrowings(22,599) (17,837) 
Deferred financing costs(34) —  
Repurchase of senior convertible notes(8,176) —  
Sale of common stock pursuant to dividend reinvestment plan—  72  
Distribution to non-controlling interests(84) (162) 

The accompanying notes are an integral part of the consolidated interim financial statements.
5


Issuance of stock from subsidiary145  —  
Dividends paid on common stock—  (7,021) 
Net cash from financing activities(13,771) (2,968) 
NET CHANGE IN CASH, CASH EQUIVALENTS, AND CASH HELD IN TRUST(33,165) (13,605) 
CASH, CASH EQUIVALENTS AND CASH HELD IN TRUST, beginning of period64,363  55,170  
CASH, CASH EQUIVALENTS AND CASH HELD IN TRUST, end of period$31,198  $41,565  
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid for interest$11,249  $15,469  
SUPPLEMENTAL DISCLOSURE OF NONCASH INVESTING AND FINANCING ACTIVITIES
Unrealized gain on available for sale securities, net of non-controlling interest and tax$28,444  $397  
Issuance of common stock for dividends paid$7,097  $—  
Net transfer of loans to rental property or property held-for-sale$814  $4,171  
Issuance of common stock for management fee and compensation expense$214  $1,029  
Treasury stock received through distributions from investment in Manager$56  $40  
Non-cash adjustments to basis in mortgage loans$31  $ 

The following table provides a reconciliation of cash, cash equivalents, and restricted cash reported within the consolidated balance sheet to the amount shown in the consolidated statements of cash flows as of March 31, 2020 and March 31, 2019 ($ in thousands):

March 31, 2020March 31, 2019
Cash and cash equivalents$31,179  $41,542  
Cash held in trust19  23  
Total cash and cash equivalents and restricted cash shown on the consolidated statements of cash flows$31,198  $41,565  


The accompanying notes are an integral part of the consolidated interim financial statements.
6


GREAT AJAX CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
(Unaudited)
($ in thousands)Common
stock shares
Common stock amountTreasury stockAdditional
Paid-in
Capital
Retained
Earnings
Accumulated other comprehensive lossTotal
Stockholders’
Equity
Non-controlling
Interest
Total
Equity
Balance at December 31, 201818,909,874  $189  $(270) $260,427  $41,063  $(575) $300,834  $33,445  $334,279  
Net income—  —  —  —  7,330  —  7,330  791  8,121  
Issuance of shares under dividend reinvestment plan5,321  —  —  72  —  —  72  —  72  
Stock-based management fee expense52,556   —  727  —  —  728  —  728  
Stock-based compensation expense2,424  —  —  301  —  —  301  —  301  
Dividends declared ($0.32 per share) and distributions—  —  —  —  (7,021) —  (7,021) (162) (7,183) 
Other comprehensive income—  —  —  —  —  397  397  —  397  
Treasury stock(2,952) —  (40) —  —  —  (40) —  (40) 
Balance at Balance at March 31, 201918,967,223  $190  $(310) $261,527  $41,372  $(178) $302,601  $34,074  $336,675  
Balance at December 31, 201922,142,143  $222  $(458) $309,395  $49,446  $1,277  $359,882  $24,202  $384,084  
Net income—  —  —  —  400  —  400  1,096  1,496  
Issuance of shares of subsidiary—  —  —  145  —  —  145  —  145  
Stock-based compensation expense2,600  —  —  214  —  —  214  —  214  
Dividends declared ($0.32 per share) and distributions781,222   —  7,089  (7,097) —  —  (84) (84) 
Convertible senior notes repurchase—  —  —  (81) —  —  (81) —  (81) 
Other comprehensive income—  —  —  —  —  (28,444) (28,444) —  (28,444) 
Treasury stock(4,030) —  (56) —  —  —  (56) —  (56) 
Balance at March 31, 202022,921,935  $230  $(514) $316,762  $42,749  $(27,167) $332,060  $25,214  $357,274  


The accompanying notes are an integral part of the consolidated interim financial statements.
7


GREAT AJAX CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED INTERIM FINANCIAL STATEMENTS
March 31, 2020
(Unaudited)
Note 1 — Organization and Basis of Presentation

Great Ajax Corp., a Maryland corporation (the “Company”), is an externally managed real estate company formed on January 30, 2014, and capitalized on March 28, 2014, by its then sole stockholder, Aspen Yo (“Aspen”), a company affiliated with Aspen Capital, the trade name for the Aspen group of companies. The Company was formed to facilitate capital raising activities and to operate as a mortgage real estate investment trust (“REIT”). The Company primarily targets acquisitions of re-performing loans (“RPLs”), which are residential mortgage loans on which at least 5 of the 7 most recent payments have been made, or the most recent payment has been made and accepted pursuant to an agreement, or the full dollar amount, to cover at least 5 payments has been paid in the last seven months. The Company also acquires and originates small balance commercial loans (“SBC loans”). The SBC loans that the Company intends to opportunistically target, through acquisitions, or originations, generally have a principal balance of up to $5.0 million and are secured by multi-family residential and commercial mixed use retail/residential properties on which at least 5 of the 7 most recent payments have been made, or the most recent payment has been made and accepted pursuant to an agreement, or the full dollar amount, to cover at least 5 payments has been paid in the last seven months. Additionally, the Company invests in single-family and smaller commercial properties directly either through a foreclosure event of a loan in its mortgage portfolio or, less frequently, through a direct acquisition. Historically, the Company has also targeted investments in non-performing loans (“NPL”). NPLs are loans on which the most recent 3 payments have not been made. The Company may acquire NPLs from time to time, either directly or with joint venture partners. The Company’s manager is Thetis Asset Management LLC (the “Manager” or “Thetis”), an affiliated company. The Company owns 19.8% of the Manager and 8.0% of Great Ajax FS LLC ("GAFS" or "The Parent of the Servicer") which owns substantially all of the interest in Gregory Funding LLC ("Gregory" or the "Servicer"), the Company's loan and real property servicer that is also an affiliated company. The Company has elected to be taxed as a REIT under the Internal Revenue Code of 1986, as amended (the “Code”).

The Company conducts substantially all of its business through its operating partnership, Great Ajax Operating Partnership L.P., a Delaware limited partnership (the “Operating Partnership”), and its subsidiaries. The Company, through a wholly-owned subsidiary, is the sole general partner of the Operating Partnership. GA-TRS LLC ("GA-TRS") is a wholly-owned subsidiary of the Operating Partnership that owns the equity interest in the Manager and the Parent of the Servicer. The Company elected to treat GA-TRS as a taxable REIT subsidiary (“TRS”) under the Code. Great Ajax Funding LLC is a wholly-owned subsidiary of the Operating Partnership formed to act as the depositor of mortgage loans into securitization trusts and to hold the subordinated securities issued by such trusts and any additional trusts the Company may form for additional secured borrowings. The Company generally securitizes its mortgage loans through securitization trusts and retains subordinated securities from the secured borrowings. These trusts are considered to be variable interest entities ("VIEs"), and the Company has determined that it is the primary beneficiary of many of these VIEs. AJX Mortgage Trust I and AJX Mortgage Trust II are wholly-owned subsidiaries of the Operating Partnership formed to hold mortgage loans used as collateral for financings under the Company’s repurchase agreements. In addition, the Company, through its Operating Partnership, holds real estate owned properties (“REO”) acquired upon the foreclosure or other settlement of its owned NPLs, as well as through outright purchases. GAJX Real Estate Corp. is a wholly-owned subsidiary of the Operating Partnership formed to own, maintain, improve and sell REO properties purchased by the Company. The Company has elected to treat GAJX Real Estate Corp. as a TRS under the Code.

The Operating Partnership, through interests in certain entities, holds 99.8% of Great Ajax II REIT Inc. which holds an interest in Great Ajax II Depositor LLC which was formed to act as the depositor of mortgage loans into securitization trusts and to hold the subordinated securities issued by such trusts and any additional trusts the Company may form for additional secured borrowings. The Company has securitized mortgage loans through a securitization trust and retained subordinated securities from the secured borrowings. This trust is considered to be a VIE and the Company has determined that it is the primary beneficiary of this VIE.

In 2018, the Company formed Gaea Real Estate Corp. ("Gaea"), a wholly-owned subsidiary of the Operating partnership to hold investments in multi-family, mixed use commercial real estate. The Company had elected to treat Gaea as a TRS under the Code. Also during 2018, the Company formed Gaea Real Estate Operating Partnership LP, a wholly-owned subsidiary of Gaea, to hold investments in commercial real estate assets. The Company also formed BLFD Holding LLC ("BFLD"), Gaea Commercial Properties LLC, Gaea Commercial Finance LLC and Gaea RE LLC as subsidiaries of Gaea Real Estate Operating Partnership. In 2019, the Company formed DG Brooklyn Holdings, LLC ("DG Brooklyn Holdings") also as a subsidiary of Gaea Real Estate Operating Partnership LP, to hold investments in multi-family properties.
The accompanying notes are an integral part of the consolidated interim financial statements.
8



On November 22, 2019, Gaea completed a private capital raise transaction in which it raised $66.3 million from the issuance of 4,419,641 shares of its common stock to third parties to allow Gaea to continue to advance its investment strategy. The purchase price per share was $15.00. Upon completion of the private placement, the Company retained ownership of approximately 23.2% of Gaea with third party investors owning the remaining approximately 76.8%. Prior to the date of the capital raise, the Company consolidated Gaea's results and balances. From the date of the capital raise forward, the Company accounts for its investment in Gaea under the equity method.

Basis of Presentation and Use of Estimates

The consolidated interim financial statements should be read in conjunction with the Company's consolidated financial statements and the notes thereto for the period ended December 31, 2019, included in the Company's Annual Report on Form 10-K filed with the Securities and Exchange Commission (the "SEC") on March 4, 2020.

Interim financial statements are unaudited and prepared in accordance with U.S. GAAP for interim financial information and pursuant to the requirements for reporting on Form 10-Q and Regulation S-X. In the opinion of management, all adjustments, consisting solely of normal recurring accruals considered necessary for the fair presentation of consolidated financial statements for the interim period presented, have been included. The current period’s results of operations will not necessarily be indicative of results that ultimately may be achieved for the fiscal year ending December 31, 2020. The consolidated interim financial statements have been prepared in accordance with U.S. GAAP, as contained within the Accounting Standards Codification (“ASC”) of the Financial Accounting Standards Board (“FASB”) and the rules and regulations of the SEC, as applied to interim financial statements.

The Company consolidates the results and balances of 4 subsidiaries with non-controlling ownership interests held by third parties. AS Ajax E II LLC ("AS Ajax E II") holds a 5.0% interest in a Delaware trust that was formed to own residential mortgage loans and residential real estate assets; AS Ajax E II is 53.1% owned by the Company. Ajax Mortgage Loan Trusts 2017-D ("2017-D") and Ajax Mortgage Loan Trusts 2018-C (“2018-C”) are securitization trusts that hold mortgage loans, REO property and secured debt; 2017-D is 50.0% owned by the Company, and 2018-C is 63.0% owned by the Company. Great Ajax II REIT Inc. which holds an interest in Great Ajax II Depositor LLC which was formed to act as the depositor of mortgage loans into securitization trusts and to hold the subordinated securities issued by such trusts and any additional trusts the Company may form for additional secured borrowings and is 99.8% owned by the Company. The Company recognizes non-controlling interests in its consolidated financial statements for the amounts of the investments and income due to the third-party investors for its consolidated subsidiaries.

At inception, the Operating Partnership was a majority owned partnership that had a non-controlling ownership interest held by an unaffiliated third party included in non-controlling interests on the Company’s consolidated balance sheet. At December 31, 2018, the Company owned 96.8% of the outstanding operating partnership units ("OP Units") and the remaining 3.2% of the OP Units were owned by the unaffiliated holder. The OP units were exchangeable on a 1-for-1 basis with shares of the Company’s common stock. During the second quarter of 2019, all 624,106 OP units held by the unaffiliated holder were exchanged for shares of the Company’s common stock. As a result, at March 31, 2020, the Operating Partnership was 100% owned by the Company. All controlled subsidiaries are included in the Company's consolidated financial statements and all intercompany accounts and transactions have been eliminated in consolidation.

The Company’s 19.8% investment in the Manager and 8.0% investment in GAFS are accounted for using the equity method because the Company can exercise influence on the operations of these entities through common officers and directors. There is no traded or quoted price for the interests in the Manager or GAFS since each is privately held.

The preparation of consolidated financial statements in conformity with U.S. GAAP requires the Company to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities as of the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting periods. The Company considers significant estimates to include expected cash flows from its holdings of mortgage loans and beneficial interests in trusts, and their resolution methods and timelines, including foreclosure costs, eviction costs and property rehabilitation costs. Other significant estimates are fair value measurements, and the net realizable value of REO properties held-for-sale.

The accompanying notes are an integral part of the consolidated interim financial statements.
9


Note 2 — Summary of Significant Accounting Policies

Mortgage loans

Loans acquired with deterioration in credit quality

As of their acquisition date the loans acquired by the Company have generally suffered some credit deterioration subsequent to origination. As a result, prior to the adoption of ASU 2016-13, Financial Instruments - Credit Losses, otherwise known as CECL, on January 1, 2020, the Company was required to account for the mortgage loans pursuant to ASC 310-30, Accounting for Loans with Deterioration in Credit Quality. Under both standards, the Company’s recognition of interest income for loans with deteriorated credit quality ("PCD loans") is based upon its having a reasonable expectation of the amount and timing of the cash flows expected to be collected. When the timing and amount of cash flows expected to be collected are reasonably estimable, the Company uses expected cash flows to apply the effective interest method of income recognition.

Under both CECL and ASC 310-30, acquired loans may be aggregated and accounted for as a pool of loans if the loans have common risk characteristics. A pool is accounted for as a single asset with a single composite interest rate and an aggregate expectation of cash flows. However, CECL allows more flexibility to the Company to adjust its loan pools as the underlying risk factors change over time. Under ASC 310-30, RPLs were determined by the Company to have common risk characteristics and were accounted for as a single loan pool for loans acquired within each three-month calendar quarter. Similarly, NPLs were determined to have common risk characteristics and were accounted for as a single non-performing pool for loans acquired within each three-month calendar quarter. The result was generally two additional pools (RPLs and NPLs) each quarter. Under CECL, the Company has re-aggregated its loan pools around similar risk factors, while eliminating the previous distinction for the quarter in which loans were acquired. This resulted in a reduction of the number of loan pools to 4, each of which is oriented around similar risk factors. Excluded from the aggregate pools are loans that pay in full subsequent to the acquisition closing date but prior to pooling. Any gain or loss on these loans is recognized as Interest income in the period the loan pays in full.

The Company’s accounting for PCD loans gives rise to an accretable yield and an allowance for credit losses. Under CECL, upon the acquisition of PCD loans the Company records the acquisition as three separate elements for 1) the amount of purchase discount which the Company expects to recover through eventual repayment by the borrower, 2) an allowance for future expected credit loss and 3) the UPB of the loan. The purchase price discount which the Company expects at the time of acquisition to collect over the life of the loans is the accretable yield. Cash flows expected at acquisition include all cash flows directly related to the acquired loan, including those expected from the underlying collateral. The Company recognizes the accretable yield as Interest income on a prospective level yield basis over the life of the pool. The Company’s expectation of the amount of undiscounted cash flows to be collected is evaluated at the end of each calendar quarter. If the Company expects to collect greater cash flows over the life of the pool, any prior allowance is reversed to the extent of the increase and the expected yield to maturity is adjusted on a prospective basis. The allowance for credit losses is increased when the Company estimates it will not collect all amounts previously estimated to be collectible, and reduced when the underlying asset has been liquidated and all expected underlying cash flows have been realized. Management assesses the credit quality of the portfolio and the adequacy of loan loss reserves on a quarterly basis, or more frequently as necessary. Significant judgment is required in this analysis. Depending on the expected recovery of its investment, the Company considers the estimated net recoverable value of the loan pools as well as other factors, such as the fair value of the underlying collateral. Because these determinations are based upon projections of future economic events, which are inherently subjective, the amounts ultimately realized may differ materially from the carrying value as of the reporting date.

The Company’s mortgage loans are secured by real estate. The Company monitors the credit quality of the mortgage loans in its portfolio on an ongoing basis, principally by considering loan payment activity or delinquency status. In addition, the Company assesses the expected cash flows from the mortgage loans, the fair value of the underlying collateral and other factors, and evaluates whether and when it becomes probable that all amounts contractually due will not be collected.

 Borrower payments on the Company’s mortgage loans are classified as principal, interest, payments of fees, or escrow deposits. Amounts applied as interest on the borrower account are similarly classified as interest for accounting purposes and are classified as operating cash flows in the Company’s consolidated Statement of Cash Flows. Amounts applied as principal on the borrower account including amounts contractually due from borrowers that exceed the Company’s basis in loans purchased at a discount, are similarly classified as principal for accounting purposes and are classified as investing cash flows in the consolidated Statement of Cash Flows as required under U.S. GAAP. Amounts received as payments of fees are recorded in Other income and classified as operating cash flows in the consolidated Statement of Cash Flows. Escrow deposits are recorded on the Servicer’s balance sheet and do not impact the Company’s cash flow.
The accompanying notes are an integral part of the consolidated interim financial statements.
10



Loans acquired or originated that have not experienced a deterioration in credit quality

While the Company generally acquires loans that have experienced deterioration in credit quality, it also acquires loans that have not experienced a deterioration in credit quality and originates SBC loans.

Accrual of interest on individual loans is discontinued when management believes that, after considering economic and business conditions and collection efforts, the borrower’s financial condition is such that collection of interest is doubtful. The Company’s policy is to stop accruing interest when a loan’s delinquency exceeds 90 days. All interest accrued but not collected for loans that are placed on non-accrual status or subsequently charged-off are reversed against Interest income. Income is subsequently recognized on the cash basis until, in management’s judgment, the borrower’s ability to make periodic principal and interest payments returns and future payments are reasonably assured, in which case the loan is returned to accrual status.

An individual loan is considered to be impaired when, based on current events and conditions, it is probable the Company will be unable to collect all amounts due (both principal and interest) according to the contractual terms of the loan agreement. Impaired loans are carried at the present value of expected future cash flows discounted at the loan’s effective interest rate, the loan’s market price, or the fair value of the collateral if the loan is collateral dependent. For individual loans, a troubled debt restructuring is a formal restructuring of a loan where, for economic or legal reasons related to the borrower’s financial difficulties, a concession that would not otherwise be considered is granted to the borrower. The concession may be granted in various forms, including providing a below-market interest rate, a reduction in the loan balance or accrued interest, an extension of the maturity date, or a combination of these. An individual loan that has had a troubled debt restructuring is considered to be impaired and is subject to the relevant accounting for impaired loans.

If necessary, an allowance for loan losses is established through a provision for loan losses charged to expenses. The allowance is the difference between the present value of the expected future cash flows from the loan and the contractual balance due.

Investments at Fair Value

The Company’s Investments at Fair Value as of March 31, 2020 and December 31, 2019 consist of investments in senior and subordinate notes issued by joint ventures which the Company forms with third party institutional accredited investors. The Company recognizes income on the debt securities using the effective interest method. Additionally, the notes are classified as available for sale and are carried at fair value with changes in fair value reflected in the Company's consolidated statements of comprehensive income. The Company marks its investments to fair value using prices received from its financing counterparties and believes any unrealized losses on its debt securities to be temporary. Any other-than-temporary losses, which represent the excess of the amortized cost basis over the present value of expected future cash flows, are recognized in the period identified in the Company’s consolidated statements of income. Risks inherent in the Company's debt securities portfolio, affecting both the valuation of its securities as well as the portfolio's interest income and recovery of principal include the risk of default, delays and inconsistency in the frequency and amount of payments, risks affecting borrowers such as man-made or natural disasters and damage to or delay in realizing the value of the underlying collateral. The Company monitors the credit quality of the mortgage loans underlying its debt securities on an ongoing basis, principally by considering loan payment activity or delinquency status. In addition, the Company assesses the expected cash flows from the mortgage loans, the fair value of the underlying collateral and other factors, and evaluates whether and when it becomes probable that all amounts contractually due will not be collected.

Investments in Beneficial Interests

The Company’s Investments in beneficial interests as of March 31, 2020 and December 31, 2019 consist of investments in the trust certificates issued by joint ventures which the Company forms with third party institutional accredited investors. The trust certificates represent the residual interest of any special purpose entity formed to facilitate the investment. The Company adopted CECL with respect to its Investment in beneficial interests on January 1, 2020. The methodology is similar to that described in "Mortgage Loans" except that the Company only recognizes its ratable share of gain, loss, income or expense.

Real Estate

The Company acquires real estate properties directly through purchases, when it forecloses on the borrower and takes title to the underlying property, or the borrower surrenders the deed in lieu of foreclosure. Property is recorded at cost if
The accompanying notes are an integral part of the consolidated interim financial statements.
11


purchased, or at the present value of future cash flows if obtained through foreclosure by the Company. Property that the Company expects to actively market for sale is classified as held-for-sale. Property held-for-sale is carried at the lower of its acquisition basis or net realizable value (fair market value less expected selling costs, and any additional costs necessary to prepare the property for sale). Fair market value is determined based on broker price opinions (“BPOs”), appraisals, or other market indicators of fair value including list price or contract price, if listed or under contract for sale at the balance sheet date. Net unrealized losses due to changes in market value are recognized through a valuation allowance by charges to income through real estate operating expenses. No depreciation or amortization expense is recognized on properties held-for-sale. Holding costs are generally incurred by the Servicer and are subtracted from the Servicer’s remittance of sale proceeds upon ultimate disposition of properties held-for-sale.

Rental property is property not held-for-sale. Rental properties are intended to be held as long-term investments but may eventually be reclassified as held-for-sale. Property that arose through conversions of mortgage loans in the Company's portfolio such as when a mortgage loan is foreclosed upon and the Company takes title to the property or the borrower surrenders the deed in lieu of foreclosure is generally held for investment as rental property if the cash flows from use as a rental exceed the present value of expected cash flows from a sale. The Company also acquires rental properties through direct purchases of properties for its rental portfolio. Depreciation is provided for using the straight-line method over the estimated useful lives of the assets of 27.5 years. The Company performs an impairment analysis for rental property using estimated cash flows if events or changes in circumstances indicate that the carrying value may be impaired, such as prolonged vacancy, identification of materially adverse legal or environmental factors, changes in expected ownership period or a decline in market value to an amount less than cost. This analysis is performed at the property level. The cash flows are estimated based on a number of assumptions that are subject to economic and market uncertainties including, among others, demand for rental properties, competition for customers, changes in market rental rates, costs to operate each property and expected ownership periods.

Renovations are performed by the Servicer, and those costs are then reimbursed to the Servicer. Any renovations on properties which the Company elects to hold as rental properties are capitalized as part of the property’s basis and depreciated over the remaining estimated useful life of the property. The Company may perform property renovations to maximize the value of a property for either its rental strategy or for resale.

Secured Borrowings

The Company, through securitization trusts which are VIEs, issues callable debt secured by its mortgage loans in the ordinary course of business. The secured borrowings facilitated by the trusts are structured as debt financings, and the mortgage loans used as collateral remain on the Company’s consolidated balance sheet as the Company is the primary beneficiary of the securitization trusts. These secured borrowing VIEs are structured as pass through entities that receive principal and interest on the underlying mortgages and distribute those payments to the holders of the notes. The Company’s exposure to the obligations of the VIEs is generally limited to its investments in the entities; the creditors do not have recourse to the primary beneficiary. Coupon interest expense on the debt is recognized using the accrual method of accounting. Deferred issuance costs, including original issue discount and debt issuance costs, are carried on the Company’s consolidated balance sheets as a deduction from Secured borrowings, and are amortized to interest expense on an effective yield basis based on the underlying cash flow of the mortgage loans serving as collateral. The Company assumes the debt will be called at the specified call date for purposes of amortizing discount and issuance costs because the Company believes it will have the intent and ability to call the debt on the call date. Changes in the actual or projected underlying cash flows are reflected in the timing and amount of deferred issuance cost amortization.

Repurchase Facilities

The Company enters into repurchase financing facilities under which it nominally sells assets to a counterparty and simultaneously enters into an agreement to repurchase the sold assets at a price equal to the sold amount plus an interest factor. Despite being legally structured as sales and subsequent repurchases, repurchase transactions are generally accounted for as debt secured by the underlying assets. At the maturity of a repurchase financing, unless the repurchase financing is renewed, the Company is required to repay the borrowing including any accrued interest and concurrently receives back its pledged collateral from the lender. The repurchase financings are treated as collateralized financing transactions; pledged assets are recorded as assets in the Company’s consolidated balance sheets, and the debt is recognized at the contractual amount. Interest is recorded at the contractual amount on an accrual basis. Costs associated with the set-up of a repurchasing contract are recorded as deferred issuance cost at inception and amortized over the contractual life of the agreement. Any draw fees associated with individual transactions and any facility fees assessed on the amounts outstanding are recorded as deferred costs when incurred and amortized over the contractual life of the related borrowing.

The accompanying notes are an integral part of the consolidated interim financial statements.
12


Convertible Senior Notes

On April 25, 2017, the Company completed the public offer and sale of $87.5 million in aggregate principal amount of its convertible senior notes (the “notes”) due 2024, with follow-on offerings of an additional $20.5 million and $15.9 million, respectively, in aggregate principal amount completed on August 18, 2017 and November 19, 2018, respectively, which, combined with the notes from the April offering form a single series of fungible securities. The notes bear interest at a rate of 7.25% per annum, payable quarterly in arrears on January 15, April 15, July 15 and October 15 of each year.  The notes will mature on April 30, 2024, unless earlier repurchased, converted or redeemed.  During certain periods and subject to certain conditions the notes will be convertible by their holders into shares of the Company’s common stock at a conversion rate of 1.7279 shares of common stock per $25.00 principal amount of the notes, which represents a conversion price of approximately $14.47 per share of common stock. The conversion rate, and thus the conversion price, may be subject to adjustment under certain circumstances.

Coupon interest on the notes is recognized using the accrual method of accounting. Discount and deferred issuance costs are carried on the Company’s consolidated balance sheets as a deduction from the notes, and are amortized to interest expense on an effective yield basis through April 30, 2023, the date at which the notes can be converted. The Company assumes the debt will be converted at the specified conversion date for purposes of amortizing issuance costs because the Company believes such conversion will be in the economic interest of the holders. A cumulative discount at issuance of $3.2 million, representing the fair value of the embedded conversion feature, was recorded to stockholder equity, which was reduced during the quarter ended March 31, 2020 by $0.1 million from the repurchase of notes by the Company. No sinking fund has been established for redemption of the principal.

During the first quarter of 2020, the Company completed a series of convertible note repurchases for an aggregate principal amount of $8.0 million and total purchase of $8.2 million. The carrying amount of the equity component reversed from Additional paid-in Capital due to the March 2020 transaction was $0.1 million.

Management Fee and Expense Reimbursement

The Company is a party to the Third Amended and Restated Management Agreement with the Manager (the "Management Agreement") by and between the Company and the Manager, dated as of May 1, 2020, which has a 15-year term expiring on March 5, 2034. Under the Management Agreement, the Manager implements the Company’s business strategy and manages the Company’s business and investment activities and day-to-day operations, subject to oversight by the Company’s Board of Directors. Among other services, the Manager provides the Company with a management team and necessary administrative and support personnel. Additionally, the Company pays directly for the internal audit function that reports directly to the Audit Committee and the Board of Directors. The Company does not currently have any employees that it pays directly and does not expect to have any employees that it pays directly in the foreseeable future. Each of the Company’s executive officers is an employee or officer, or both, of the Manager or the Servicer.

Under the Management Agreement, the Company pays a quarterly base management fee based on its stockholders’ equity, including equity equivalents such as the Company's issuance of convertible senior notes, and may be required to pay a quarterly incentive management fee based on its cash distributions to its stockholders, and has the option to pay up to 100% of the base and incentive fees in cash rather than in half cash and half shares of its common stock. Management fees are expensed in the quarter incurred and the portion payable in common stock (if any) is included in stockholders’ equity at quarter end. See Note 10 — Related party transactions.

Servicing Fees

The Company is also a party to a Servicing Agreement (the "Servicing Agreement"), expiring July 8, 2029, with the Servicer. Under the Servicing Agreement by and between the Company and the Servicer, the Servicer receives an annual servicing fee ranging from 0.65% annually of the unpaid principal balance (“UPB”) to 1.25% annually of UPB for loans that are on-performing at acquisition. For certain of the Company's joint ventures, the servicing fee rate for RPLs is reduced to an annual servicing fee rate of 0.42% annually on a loan-by-loan basis for any loan that makes 7 consecutive payments. Servicing fees are paid monthly. The total fees incurred by the Company for these services depend upon the UPB and type of mortgage loans that the Servicer services pursuant to the terms of the Servicing Agreement. The fees do not change if a RPL becomes non-performing or vice versa. Servicing fees for the Company’s real property assets are the greater of (i) the servicing fee applicable to the underlying mortgage loan prior to foreclosure, or (ii) 1.00% annually of the fair market value of the REO as reasonably determined by the Manager or 1.00% annually of the purchase price of any REO otherwise purchased by the Company. The Servicer is reimbursed for all customary, reasonable and necessary out-of-pocket costs and expenses incurred in the performance of its obligations, including the actual cost of any repairs and renovations undertaken on the Company’s
The accompanying notes are an integral part of the consolidated interim financial statements.
13


behalf. The total fees incurred by the Company for these services will be dependent upon the UPB and type of mortgage loans that the Servicer services, property values, previous UPB of the relevant loan, and the number of REO properties. The Servicing Agreement will automatically renew for successive one-year terms, subject to prior written notice of non-renewal. In certain cases, the Company may be obligated to pay a termination fee. The Management Agreement will automatically terminate at the same time as the Servicing Agreement if the Servicing Agreement is terminated for any reason. See Note 10 — Related party transactions.

Stock-based Payments

At least a portion of the management fee is payable in cash, and a portion of the management fee may be payable (at the Company's discretion) in shares of the Company’s common stock, which are issued to the Manager in a private placement and are restricted securities under the Securities Act of 1933, as amended (the “Securities Act”). The number of shares issued to the Manager (if any) are determined based on the higher of the most recently reported book value or the average of the closing prices of the Company's common stock on the New York Stock Exchange ("NYSE") on the five business days after the date on which the most recent regular quarterly dividend to holders of the common stock is paid. Any management fees paid in common stock are recognized as an expense in the quarter incurred and recorded in stockholders' equity at quarter end. The shares vest immediately upon issuance. The Manager has agreed to hold any shares of common stock received by it as payment of the base management fee for at least three years from the date such shares of common stock are received.

Under the Company’s 2014 Director Equity Plan (the “Director Plan”), the Company may make stock-based awards to its directors. The Director Plan is designed to promote the Company’s interests by attracting and retaining qualified and experienced individuals for service as non-employee directors. The Director Plan is administered by the Company’s Board of Directors. The total number of shares of common stock or other stock-based award, including grants of long-term incentive plan units (“LTIP Units”) from the Operating Partnership, available for issuance under the Director Plan is 78,000 shares. The Company issued to each of its independent directors restricted stock awards of 2,000 shares of its common stock upon joining the Board of Directors, which are subject to a one-year vesting period. The Company may also periodically issue additional restricted stock awards to its independent directors under the Director Plan. In addition, through March 31, 2019, each of the Company’s independent directors received an annual fee of $75,000, payable quarterly, 50% in shares of the Company’s common stock and 50% in cash. The annual fee was increased to $100,000, 40% of which is payable in shares of the Company's common stock and 60% in cash, which was effective as of April 1, 2019. Stock-based expense for the directors’ annual fee is expensed as earned, in equal quarterly amounts during the year, and recorded in stockholders' equity at quarter end.

On June 7, 2016, the Company’s stockholders approved the 2016 Equity Incentive Plan (the “2016 Plan”) to attract and retain non-employee directors, executive officers, key employees and service providers, including officers and employees of the Company’s affiliates. The 2016 Plan authorized the issuance of up to 5% of the Company’s outstanding shares from time to time on a fully diluted basis (assuming, if applicable, the exercise of all outstanding options and the conversion of all warrants and convertible senior notes, including OP Units and any LTIP Units, into shares of common stock). Grants of restricted stock under the 2016 Plan use grant date fair value of the stock as the basis for measuring the cost of the grant. The cost of grants of restricted stock to employees of the Company’s affiliates is based on the grant date fair value of the stock. Forfeitures of granted shares are accounted for in the period in which they occur. The share grants vest over three years, with one third of the shares vesting on each of the first, second and third anniversaries of the grant date. The shares may not be sold until the third anniversary of the grant date.

Directors’ Fees

The expense related to directors’ fees is accrued, and the portion payable in common stock is reflected in consolidated Stockholders’ Equity in the period in which it is incurred.

Variable Interest Entities

In the normal course of business, the Company enters into various types of transactions with special purpose entities, which have primarily consisted of trusts established for the Company’s secured borrowings (See “Secured Borrowings” above and Note 9 to the consolidated financial statements). Additionally, from time to time, the Company may enter into joint ventures with unrelated entities, which also generally involves the formation of a special purpose entity. The Company evaluates each transaction and its resulting beneficial interest to determine if the entity formed pursuant to the transaction should be classified as a VIE. If an entity created in a transaction meets the definition of a VIE and the Company determines that it or a consolidated subsidiary is the primary beneficiary, the Company will include the entity in its consolidated financial statements.
The accompanying notes are an integral part of the consolidated interim financial statements.
14



Cash and Cash Equivalents

Highly liquid investments with an original maturity of three months or less when purchased are considered cash equivalents. The Company generally maintains cash and cash equivalents at insured banking institutions with minimum assets of $1 billion. Certain account balances exceed Federal Deposit Insurance Corporation (“FDIC”) insurance coverage and, as a result, there is a concentration of credit risk related to amounts on deposit in excess of FDIC insurance coverage.

Cash Held in Trust

Cash held in trust consists of restricted cash balances either legally due to lenders or held in trust for the benefit of the Company's secured borrowers, and is segregated from the Company’s other cash deposits. Cash held in trust is not available to the Company for any purposes other than the settlement of existing obligations.

Earnings per Share

The Company grants restricted shares which entitle the recipients to receive dividend equivalents during the vesting period on a basis equivalent to the dividends paid to holders of common shares. Unvested share-based compensation awards containing non-forfeitable rights to receive dividends or dividend equivalents (collectively, “dividends”) are classified as “participating securities” and are included in the basic earnings per share calculation using the two-class method.

Under the two-class method, all earnings (distributed and undistributed) are allocated to common shares and participating securities, based on their respective rights to receive dividends. Basic earnings per share is determined by dividing net income available to common shareholders, reduced by income attributable to the participating securities, by the weighted-average common shares outstanding during the period.

Diluted earnings per share is determined by dividing net income attributable to diluted shareholders, which adds back to net income the interest expense and applicable portion of management fee expense, net of applicable income taxes, on the Company’s convertible senior notes, by the weighted-average common shares outstanding, assuming all dilutive securities, including stock grants, shares that would be issued in the event that OP Units are redeemed for shares of common stock of the Company, shares issued in respect of the stock-based portion of the base fee payable to the Manager and independent directors, and shares that would be issued in the event of conversion of the Company’s outstanding convertible senior notes, were issued. In the event the Company were to record a net loss, potentially dilutive securities would be excluded from the diluted loss per share calculation, as their effect on loss per share would be anti-dilutive.

Fair Value of Financial Instruments

Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. A fair value hierarchy has been established that requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. The standard describes three levels of inputs that may be used to measure fair value:

Level 1 — Quoted prices in active markets for identical assets or liabilities.​
Level 2 — Observable inputs other than Level 1 prices, such as quoted prices for similar assets and liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.​
Level 3 — Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.​

The degree of judgment utilized in measuring fair value generally correlates to the level of pricing observability. Assets and liabilities with readily available actively quoted prices or for which fair value can be measured from actively quoted prices generally will have a higher degree of pricing observability and a lesser degree of judgment utilized in measuring fair value. Conversely, assets and liabilities rarely traded or not quoted will generally have little or no pricing observability and a higher degree of judgment utilized in measuring fair value. Pricing observability is impacted by a number of factors, including the type of asset or liability, whether it is new to the market and not yet established, and the characteristics specific to the transaction.

The fair value of mortgage loans is estimated using the Manager’s proprietary pricing model which estimates expected cash flows with the discount rate used in the present value calculation representing the estimated effective yield of the loan. The
The accompanying notes are an integral part of the consolidated interim financial statements.
15


Company reviews its discount rates periodically to ensure the assumptions used to calculate fair value are in line with market conditions.

The Company’s Investments at fair value are carried at fair value with changes in fair value of equity securities reflected in the Company’s consolidated statements of income. Fair values of the Company's investments in debt securities are derived from estimates provided by financial counterparties which are compared against available reference data from recent transactions and the Company's proprietary valuation model.

The fair value of the Company's Beneficial interests are derived from estimates provided by banking institutions which are compared for reasonableness against analyses from the Company's proprietary valuation model.

The Company calculates the fair value for the secured borrowings on its consolidated balance sheets from securitization trusts by using the Company’s proprietary pricing model to estimate the cash flows expected to be generated from the underlying collateral with the discount rate used in the present value calculation representing an estimate of the average rate for debt instruments with similar durations and risk factors.

The Company’s borrowings under its repurchase agreements are short-term in nature, and the Manager believes it can renew the current borrowing arrangements on similar terms in the future. Accordingly, the carrying value of these borrowings approximates fair value.

The Company’s convertible senior notes are traded on the NYSE under the ticker symbol "AJXA"; the debt’s fair value is determined from the closing price on the balance sheet date.

Property held-for-sale is carried at the lower of its acquisition basis or net realizable value. Net realizable value is determined based on our proprietary asset valuation model unless a property is listed for sale or is under contract, in which case the list price or contract price is used, respectively, which price is then reduced by expected selling costs. Net unrealized losses due to changes in market value are recognized through a valuation allowance by charges to income.

Income Taxes

The Company elected REIT status upon the filing of its 2014 income tax return, and has conducted its operations in order to satisfy and maintain eligibility for REIT status. Accordingly, the Company does not believe it will be subject to U.S. federal income tax from the year ended December 31, 2014 forward on the portion of the Company’s REIT taxable income that is distributed to the Company’s stockholders as long as certain asset, income and stock ownership tests are met. If the Company fails to qualify as a REIT in any taxable year, it generally will not be permitted to qualify for treatment as a REIT for U.S. federal income tax purposes for the four taxable years following the year during which qualification is lost. In addition, notwithstanding the Company’s qualification as a REIT, it may also have to pay certain state and local income taxes, because not all states and localities treat REITs in the same manner that they are treated for U.S. federal income tax purposes.

The Company’s consolidated financial statements include the operations of two TRS entities, GA-TRS and GAJX Real Estate Corp., which are subject to U.S. federal, state and local income taxes on their taxable income. Income from these two entities and any other TRS that the Company forms in the future will be subject to U.S. federal and state income taxes. Deferred tax assets and liabilities are recognized for the future tax consequences or benefits attributable to differences between the carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted rates expected to apply to taxable income in the years in which management expects those temporary differences to be recovered or settled. The effect on deferred taxes of a change in tax rates is recognized in income in the period in which the change occurs. Subject to the Company’s judgment, it reduces a deferred tax asset by a valuation allowance if it is “more-likely-than-not” that some or all of the deferred tax asset will not be realized. Tax laws are complex and subject to different interpretations by the taxpayer and respective governmental taxing authorities. Significant judgment is required in evaluating tax positions, and the Company recognizes tax benefits only if it is more likely than not that a tax position will be sustained upon examination by the appropriate taxing authority.

The Company evaluates tax positions taken in its consolidated financial statements under the interpretation for accounting for uncertainty in income taxes. As a result of this evaluation, the Company may recognize a tax benefit from an uncertain tax position only if it is “more-likely-than-not” that the tax position will be sustained on examination by taxing authorities.

The Company’s tax returns remain subject to examination and consequently, the taxability of the distributions and other tax positions taken by the Company may be subject to change. Distributions to stockholders generally will be primarily
The accompanying notes are an integral part of the consolidated interim financial statements.
16


taxable as long-term capital gain, although a portion of such distributions may be designated as ordinary income or qualified dividend income, or may constitute a return of capital. The Company furnishes annually to each stockholder a statement setting forth distributions paid during the preceding year and their U.S. federal income tax treatment.

Segment Information

The Company’s primary business is acquiring, investing in and managing a portfolio of mortgage loans. The Company operates in a single segment focused on re-performing mortgages, and to a lesser extent non-performing mortgages and real property.

Recently Adopted Accounting Standards

In June 2016, the FASB issued ASU 2016-13, Financial Instruments - Credit Losses. The main objective of this guidance is to provide financial statement users with more decision-useful information about the expected credit losses on financial instruments and other commitments to extend credit held by a reporting entity. To achieve this, the amendments in this guidance replace the incurred loss impairment methodology in current U.S. GAAP with a methodology that reflects expected credit losses and requires consideration of a broader range of reasonable and supportable information to inform credit loss estimates. Specifically, the amendments in this guidance require a financial asset (or a group of financial assets) measured at amortized cost basis to be presented at the net amount expected to be collected. The measurement of expected credit losses is based on relevant information about past events, including historical experience, current conditions, and reasonable and supportable forecasts that affect the collectability of the reported amount. An entity must use judgment in determining the relevant information and estimation methods that are appropriate in its circumstances. In May 2019, the FASB issued ASU 2019-04, Codification Improvements to Topic 326, Financial Instruments-Credit Losses, Topic 815, Derivatives and Hedging, and Topic 825, Financial Instruments. The amendments to Topic 326 and other Topics in this Update include items related to the amendments in Update 2016-13 discussed at the June 2018 and November 2018 Credit Losses Transition Resource Group meetings. The amendments clarify or address stakeholders’ specific issues about certain aspects of the amendments in Update 2016-13. This guidance is effective for interim and annual reporting periods that are applicable to the original ASU’s affected by the codification improvements. Also in May 2019, the FASB issued ASU 2019-05, Financial Instruments - Credit Losses - Targeted Transition Relief to allow financial statement preparers who had elected the fair value option for newly acquired financial assets to irrevocably elect the fair value option, applied on an instrument-by-instrument basis for eligible instruments, upon adoption of ASU 2016-13 for assets previously measured at amortized cost basis. In November 2019, the FASB issued ASU 2019-11, Codification Improvements to Topic 326, Financial Instruments - Credit Losses to clarify or address stakeholders’ specific issues about certain aspects of the amendments in Update 2016-13. In February 2020, the FASB issued ASU 2020-02, Financial Instruments - Credit Losses (Topic 326) and Leases (Topic 842) to amend SEC paragraphs pursuant to SEC Staff Accounting Bulletin No. 119 and to update the SEC section on the effective date related to ASU 2016-02. The guidance in ASU 2016-13, ASU 2019-04, ASU 2019-05, ASU 2019-11and ASU 2020-02 became effective for the Company for all periods beginning after December 15, 2019. The Company adopted ASU 2016-13 and all related amendments on January 1, 2020.

For the Company’s mortgage loan portfolio, the initial adoption resulted in a reclassification between loan discount and allowance for purchased credit impaired loans of $10.2 million. This adjustment had no effect on the Company’s balance sheet presentation, or on consolidated equity. The Company does not consider this transition adjustment to be material to its financial position or previously reported statements. During subsequent periods this allowance for credit losses will be adjusted either upward or downward for expected changes in future credit losses based on expected cash flows. These changes to the reserve will be recognized in the Company's current period income. Historically, only reductions in expected cash flows were recognized in the current period earnings, while increases in expected cash flows were recognized prospectively over the remaining expected lives of the loan pools. The Company’s investments in beneficial interests are also deemed to be credit impaired under ASC 2016-13 and follow guidance comparable to that for impaired loans. Similarly, upon adoption, a reclassification from discount to allowance for credit impaired loss of $4.2 million was recorded, with no net impact on the Company’s balance sheet or on consolidated equity. As with the adjustment noted above for the Company's loan portfolio, this adjustment had no effect on the Company’s balance sheet presentation, or on consolidated equity. The Company does not consider this transition adjustment to be material to its financial position or previously reported statements. In subsequent periods, changes to the reserve for beneficial interests will be recognized in the Company’s current period income. Under ASU 2016-13, credit losses for available-for-sale debt securities are measured in a manner similar to current GAAP. However, the amendments in this ASU require that credit losses be recorded through an allowance for credit losses, which will cause subsequent reversals in credit loss estimates to be recognized in current income. In addition, the allowance for available-for-sale debt securities is limited to the extent that the fair value is less than the amortized cost.

The accompanying notes are an integral part of the consolidated interim financial statements.
17


In August 2018, the FASB issued ASU 2018-13, Fair Value Measurement (Topic 820): Disclosure Framework -Changes to the Disclosure Requirements for Fair Value Measurement. The amendments in this update modify the disclosure requirements on fair value measurements in Topic 820, Fair Value Measurement, based on the concepts in the concepts statement, including the consideration of costs and benefits. This guidance is effective for interim and annual reporting periods beginning after December 15, 2019, with early adoption permitted, including early adoption of any removed or modified disclosures addressed in this update and delay of additional disclosures until their effective date. The Company adopted ASU 2018-13 in the first quarter of 2020 with no effect on its consolidated assets or liabilities, consolidated net income or equity or cash flows on the date of adoption.

In August 2018, the FASB issued ASU 2018-15, Intangibles - Goodwill and Other - Internal-Use Software (Subtopic 350-40): Customer's Accounting for Fees Paid in a Cloud Computing Arrangement. The amendments in this update align the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software and hosting arrangements that include an internal-use software license. This guidance is effective for interim and annual reporting periods beginning after December 15, 2019, with early adoption permitted, including adoption in any interim period. The Company adopted ASU 2018-15 in the first quarter of 2020 with no effect on its consolidated assets or liabilities, consolidated net income or equity or cash flows on the date of adoption.

Recently Issued Accounting Standards

In December 2019, the FASB issued ASU 2019-12, Income Taxes (Topic 740) - Simplifying the Accounting for Income Taxes. The amendments in this update simplify the accounting for income taxes by removing certain exceptions and adding certain clarifications to rules and definitions used in the calculation of the income tax provision. This guidance is effective for interim and annual reporting periods beginning after December 15, 2020, with early adoption permitted, including adoption in any interim period. The Company is currently evaluating the impact on its consolidated financial statements and related disclosures.

In January 2020, the FASB issued ASU 2020-01, Investments – Equity Securities (Topic 321, Investments) – Equity Method and Joint Ventures (Topic 323), and Derivatives and Hedging (Topic 815). The amendments in this update clarify the interactions between Topic 321, Topic 323, and Topic 815, which clarifies aspects of accounting for investments in equity-method investees acquired through step acquisitions to require remeasurement of an investment immediately before adopting the equity method of accounting if the investor identifies observable price changes in orderly transactions for an identical or similar investment of the same issuer, and also requires such remeasurement upon discontinuance of the equity method. The amendments also clarify whether upon settlement of a forward contract or option the underlying security would be accounted for under the Equity Method (Topic 323) or the fair value option (Topic 825). This guidance is effective for interim and annual reporting periods beginning after December 15, 2020, with early adoption permitted, including adoption in any interim period. The Company is currently evaluating the impact on its consolidated financial statements and related disclosures.

Note 3 — Mortgage Loans
The following table presents information regarding the carrying value for the Company's RPL loan pools, NPL loan pools and SBC loans as of March 31, 2020 and December 31, 2019 ($ in thousands):

Loan portfolio basis by asset typeMarch 31, 2020December 31, 2019
Residential RPL loan pools$1,066,555  $1,085,514  
SBC loan pools 11,652  
Other mortgage loans non-pooled(1)
4,212  23,434  
Residential NPL loan pools27,857  30,869  
Total$1,098,629  $1,151,469  

(1)Other mortgage loans non-pooled are accounted for as non-PCD loans under CECL.

Included on the Company’s consolidated balance sheets as of March 31, 2020 and December 31, 2019 are approximately $1.1 billion and $1.2 billion, respectively, of RPLs, NPLs, and SBCs. RPLs, NPLs and SBCs are categorized at acquisition. The carrying value of all loans reflects the original investment amount, plus accretion of interest income and discount, less principal and interest cash flows received. The carrying values at March 31, 2020 and December 31, 2019 for the Company's loans in the table above are presented net of a cumulative allowance for loan losses of $16.1 million and
The accompanying notes are an integral part of the consolidated interim financial statements.
18


$2.0 million, respectively, reflected in the appropriate lines in the table by loan type. For the three months ended March 31, 2020 and 2019, the Company recognized $2.1 million and $0.2 million, respectively, of provision for loan loss. For the three month periods ended March 31, 2020 and 2019, the Company accreted $19.6 million and $26.4 million net of credit impairments, respectively, into interest income with respect to its RPL, NPL and SBC loan pools.

Loss estimates are determined based on the net present value of the difference between the contractual cash flows and the expected cash flows over the expected life of the assets. Contractual cash flows are calculated based on the stated terms of the loans, and incorporate any prepayment assumptions utilized in the expected cash flows. Expected cash flows are based on our proprietary model, which includes factors such as resolution method, resolution timeline, foreclosure costs, rehabilitation costs and eviction costs. Additional variables include the specific location of the underlying property, loan-to-value ratio, property age and condition, change and rate of change of borrower credit rating, servicing notes, interest rate, monthly payment amount and neighborhood rents.

The Company's mortgage loans are secured by real estate. Risks inherent in the Company's mortgage loan portfolio, affecting both the valuation of its mortgage loans as well as the portfolio's interest income include the risk of default, delays and inconsistency in the frequency and amount of payments, risks affecting borrowers such as man-made or natural disasters, or the pandemic caused by the novel coronavirus ("COVID-19") outbreak, and damage to or delay in realizing the value of the underlying collateral. The Company monitors the credit quality of the mortgage loans in its portfolio on an ongoing basis, principally by considering loan payment activity or delinquency status. In addition, the Company assesses the expected cash flows from the mortgage loans, the fair value of the underlying collateral and other factors, and evaluates whether and when it becomes probable that all amounts contractually due will not be collected.

The Company’s loan acquisitions during the three months ended March 31, 2020 consisted of 26 purchased RPLs with UPB of $2.0 million, 1 NPL with UPB of $0.2 million and 0 originated SBC loans. Comparatively, during the three months ended March 31, 2019, the Company acquired 38 purchased RPLs with UPB of $8.5 million, 0 NPLs and 19 originated SBC loans with UPB of $17.8 million. The Company also sold 26 commercial loans to Gaea, an affiliated entity, during the quarter with a carrying value of $26.1 million and UPB of $26.2 million and collateral values of $44.2 million for $25.4 million, recognizing a loss on the sale of $0.7 million. (See Note 10 — Related Party Transactions.) NaN loans were sold during the quarter ended March 31, 2019.

The Company adopted CECL using the prospective transition approach for PCD assets on January 1, 2020, at the time, $10.2 million of loan discount was reclassified to the allowance for credit losses with no net impact on the amortized cost basis of the portfolio. The Company views its mortgage loan portfolio based on loan performance and uses 4 pools to aggregate its portfolio of PCD loans, and 1 pool for its originated loans. Among the PCD loans, separate pools exist for loans that have made 7 of the most recent 7 payments ("7f7 and better"), loans that have been securitized in rated secured borrowings during 2019 ("Great Ajax II REIT"), loans with collateral in California which are not included in Great Ajax II REIT ("California") and loans which have made between 4 and six of the most recent payments or worse ("4f4-6f6 and below"). Originated loans are aggregated in the "Originated" pool. The following table presents information regarding the year of origination of the Company's mortgage loan portfolio by basis ($ in thousands):

March 31, 2020
202020192018201720162009-20152006-20082005 and priorTotal
7f7 and better$—  $—  $244  $124  $2,085  $33,490  $262,595  $114,237  $412,775  
Great Ajax II REIT—  —  —  226  1,107  34,114  212,468  67,583  315,498  
California—  —  —  351  216  8,291  155,506  36,116  200,480  
4f4-6f6 and below—  —  —  361  698  24,410  99,980  39,006  164,455  
Originated—  788  1,245  2,508  104  711  55  10  5,421  
Total$—  $788  $1,489  $3,570  $4,210  $101,016  $730,604  $256,952  $1,098,629  

The following table presents a reconciliation between the purchase price and par value for the Company's loan acquisitions and originations for the quarter ended March 31, 2020 ($ in thousands):

The accompanying notes are an integral part of the consolidated interim financial statements.
19


Three months ended March 31, 2020
PCD LoansNon PCD Loans
Par$227  $1,952  
Discount(37) (747) 
Allowance(4) —  
Purchase Price$186  $1,205  

The Company performs an analysis of its expectation of the amount of undiscounted cash flows expected to be collected from its mortgage loan pools at the end of each calendar quarter. Under CECL, the Company adjusts its allowance for loan losses when there are changes in its expectation of future cash flows. An increase to the allowance for losses will occur when there is a reduction in the Company's expected future cash flows. Reduction to the allowance, or recovery, may occur if there is an increase in expected future cash flows that were previously subject to a provision for losses. Management assesses the credit quality of the portfolio and the adequacy of loan loss reserves on a quarterly basis, or more frequently as necessary. During the quarter ended March 31, 2020, the Company recorded a provision for credit losses of $2.1 million on its mortgage loan portfolio primarily as a result of reduced cash flow expectations due to the COVID-19 outbreak. This reserve reflects the macroeconomic impact of the COVID-19 outbreak on mortgage loans and residential real estate markets generally and is not specific to any loan losses or impairments in the mortgage loan portfolio. During the quarter ended March 31, 2019, the Company recorded an impairment of $0.2 million on its mortgage loan portfolio. An analysis of the balance in the allowance for loan losses account follows ($ in thousands):

Three months ended March 31,
20202019
Allowance for loan credit losses, beginning of period$(1,960) $(1,164) 
Beginning period adjustment for CECL(10,156) —  
Provision for credit losses on mortgage loans(2,122) (154) 
Change to allowance for loan credit losses(1,898) —  
Allowance for loan credit losses, end of period$(16,136) $(1,318) 

The following table sets forth the carrying value of the Company’s mortgage loans by delinquency status as of March 31, 2020 and December 31, 2019 ($ in thousands):
March 31, 2020
Current306090ForeclosureTotal
7f7 and better$231,761  $66,809  $51,058  $61,750  $1,398  $412,776  
Great Ajax II REIT247,368  35,519  17,831  14,448  331  315,497  
California113,120  30,438  14,315  40,643  1,964  200,480  
4f4- 6f6 and below9,412  12,492  15,057  90,019  37,476  164,456  
Originated3,635  —  1,177  608  —  5,420  
Total$605,296  $145,258  $99,438  $207,468  $41,169  $1,098,629  

December 31, 2019
Current306090ForeclosureTotal
7f7 and better$252,815  $72,394  $41,673  $50,602  $1,894  $419,378  
Great Ajax II REIT129,812  31,426  16,467  36,785  1,986  216,476  
California265,679  37,553  14,034  4,597  —  321,863  
4f4- 6f6 and below6,412  4,835  20,782  103,872  34,417  170,318  
Originated21,425  —  850  1,159  —  23,434  
Total$676,143  $146,208  $93,806  $197,015  $38,297  $1,151,469  

The accompanying notes are an integral part of the consolidated interim financial statements.
20


Note 4 — Real Estate Assets, Net

The Company acquires real estate assets either through direct purchases of properties for its rental portfolio or through conversions of mortgage loans in its portfolio such as when a mortgage loan is foreclosed upon and the Company takes title to the property on the foreclosure date or the borrower surrenders the deed in lieu of foreclosure.

Rental Property

As of March 31, 2020, the Company owned 9 rental properties with an aggregate carrying value of $1.3 million held for investment as rentals, at which time 5 properties were rented. NaN property was acquired as an RPL but transitioned to foreclosure prior to boarding by the Servicer, 1 was acquired through foreclosure and 6 were transferred from Property held-for-sale, where all 6 were acquired through foreclosures. The remaining rental property was directly purchased. As of December 31, 2019, the Company owned 10 rental properties with a carrying value of $1.5 million held for use as rentals, at which time 6 were rented. NaN properties were acquired as an RPL but transitioned to foreclosure prior to boarding by the Servicer, 1 was acquired through foreclosures, and 6 were transferred from Property held-for-sale, where all 6 were acquired through foreclosures. The remaining rental property was directly purchased.

Property Held-for-Sale

The Company classifies REO as held-for-sale if the REO is expected to be actively marketed for sale. As of March 31, 2020 and December 31, 2019, the Company’s net investments in REO held-for-sale were $10.9 million and $13.5 million, respectively, which include balances of $0.7 million and $2.2 million, respectively, for properties undergoing renovation or which are otherwise in the process of being brought to market. For the three months ended March 31, 2020 and 2019, all of the additions to REO held-for-sale were acquired through foreclosure or deed in lieu of foreclosure, and reclassified out of the mortgage loan portfolio.

The following table presents the activity in the Company’s carrying value of property held-for-sale for the three months ended March 31, 2020 and 2019 ($ in thousands):

Three months ended March 31,
20202019
Property Held-for-saleCountAmountCountAmount
Balance at beginning of period58  $13,537  102  $19,402  
Transfers from mortgage loans 814  26  4,171  
Adjustments to record at lower of cost or fair value —  (897) —  (475) 
Disposals(19) (2,730) (33) (5,028) 
Transfer from Rental property 181   880  
Transfers to Rental property—  —  (1) (293) 
Other—  —  —  (77) 
Balance at end of period45  $10,905  97  $18,580  

Dispositions

During the three months ended March 31, 2020 and 2019, the Company sold 19 and 33 REO properties, respectively, realizing a net gain of approximately $0.4 million and $0.1 million, respectively. These amounts are included in Other income on the Company's consolidated statements of income. The Company recorded lower of cost or net realizable value adjustments in Real estate operating expense for the three months ended March 31, 2020 and 2019 of $0.9 million and $0.5 million, respectively.

Note 5 — Investments

The Company holds investments in various debt securities and beneficial interests which are the net residual interest of the Company’s investments in securitization trusts. The Company's debt securities and beneficial interests are issued by securitization trusts, which are VIEs, that the Company has sponsored but which the Company does not consolidate since it has determined it is not the primary beneficiary (See Note 10 Related party transactions). The Company marks its debt securities to fair value using prices provided by financing counterparties, and believes any unrealized losses to be temporary.
The accompanying notes are an integral part of the consolidated interim financial statements.
21


Risks inherent in the Company's debt securities portfolio, affecting both the valuation of its securities as well as the portfolio's interest income include the risk of default, delays and inconsistency in the frequency and amount of payments, risks affecting borrowers such as man-made or natural disasters, or the COVID-19 outbreak, and damage to or delay in realizing the value of the underlying collateral. The Company monitors the credit quality of the mortgage loans underlying its debt securities on an ongoing basis, principally by considering loan payment activity or delinquency status. In addition, the Company assesses the expected cash flows from the mortgage loans, the fair value of the underlying collateral and other factors, and evaluates whether and when it becomes probable that all amounts contractually due will not be collected. The following table presents information regarding the Company's investments in debt securities and investments in beneficial interests ($ in thousands):

As of March 31, 2020
Basis(1)
Gross unrealized gainsGross unrealized lossesCarrying value (fair value)
Debt securities$274,539  $—  $(27,167) $247,372  
Beneficial interests in securitization trusts64,703  —  —  64,703  
Total investments$339,242  $—  $(27,167) $312,075  

(1)Basis amount is net of any amortized discount, allowance for credit losses, principal paydowns and interest receivable on securities of $0.3 million.


As of December 31, 2019
Basis(1)
Gross unrealized gainsGross unrealized lossesCarrying value (fair value)
Debt securities$230,408  $1,643  $(366) $231,685  
Beneficial interests in securitization trusts57,954  —  —  57,954  
Total investments$288,362  $1,643  $(366) $289,639  

(1)Basis amount is net of any amortized discount, principal paydown and interest receivable on securities of $0.3 million.

As of March 31, 2020, the Company recorded 0 gross unrealized gains and a gross unrealized loss of $27.2 million in fair valuation adjustments in accumulated other comprehensive income and carried the Notes on the consolidated balance sheet at a fair value of $247.4 million, which includes $0.3 million in interest receivable. As of March 31, 2020, the Company had a gross unrealized loss of $5.2 million for securities due in April 2058, February 2057 and September 2059 which have been in an unrealized loss position for 12 months or longer. As of December 31, 2019, the Company recorded a gross unrealized gain of $1.6 million and a gross unrealized loss of $0.4 million in fair valuation adjustments in accumulated other comprehensive income and carried the Notes on the Company's consolidated balance sheet at fair value of $231.7 million, which includes $0.3 million in interest receivable. As of December 31, 2019, the Company had a gross unrealized loss of $0.4 million for securities due in April 2058, February 2057 and September 2059 which had been in an unrealized loss position for 12 months or longer.

During the first quarter of 2020, the Company acquired $61.3 million in notes and beneficial interests issued by joint ventures between the Company and third party institutional accredited investors.  Each joint venture issued senior notes and beneficial interests, which are trust certificates representing the residual investment of the trust.  In certain transactions, the joint ventures also issued subordinate notes.  Of the $61.3 million acquired in the first quarter of 2020, the Company acquired $49.6 million in senior notes and $4.6 million in subordinate notes, collectively “the Notes.” The Notes are accounted for as debt securities and carried at fair value.  During the first quarter of 2019, the Company sold senior notes issued by certain joint ventures for total proceeds of $39.6 million and recognized a gain of $8 thousand, net of transaction fees.

The remaining $7.1 million consisted of beneficial interests issued by its sponsored joint ventures during the first quarter of 2020. As of March 31, 2020, the investments in beneficial interests were carried on the Company's consolidated balance sheet at $64.7 million. For the year ended December 31, 2019, the investments in beneficial interests were carried on the Company's consolidated balance sheet at $58.0 million. As of March 31, 2020 and December 31, 2019, the Company had 0 securities that were past due.

The following table presents a reconciliation between the purchase price and par value for the Company's beneficial interests acquisitions for the quarter ended March 31, 2020 ($ in thousands):
The accompanying notes are an integral part of the consolidated interim financial statements.
22


Three months ended March 31, 2020
Beneficial Interest
Par$11,970  
Discount(4,888) 
Purchase Price$7,082  

The Company adopted CECL using the prospective transition approach for PCD assets for its beneficial interests on January 1, 2020, at the time $4.2 million was reclassified from discount to allowance for credit losses for its Investments in beneficial interests. Under CECL, the company adjusts its allowance for loan losses when there are changes in its expectation of future cash flows. An increase to the allowance for losses will occur when there is a reduction in the Company’s expected future cash flows. A reduction to the allowance, or recovery, may occur if there is an increase in expected future cash flows that were previously subject to a provision for losses. Management assesses the credit quality of the portfolio and the adequacy of loan loss reserves on a quarterly basis, or more frequently as necessary. During the quarter ended March 31, 2020, the Company recorded a provision for credit losses of $3.0 million on its mortgage loan portfolio, primarily as a result of reduced cash flow expectations due to the pandemic caused by COVID-19. This reserve reflects the macroeconomic impact of the COVID-19 outbreak on mortgage loan and residential real estate markets generally and is not specific to any specific asset in the beneficial interest portfolio. During the quarter ended March 31, 2019, the Company recorded 0 impairment on its beneficial interests. An analysis of the balance in the allowance for beneficial interest losses account follows ($ in thousands):

Three months ended March 31,
20202019
Allowance for beneficial interests credit losses, beginning balance$—  $—  
Beginning period adjustment for CECL(4,221) —  
Provision for credit losses on beneficial interests(2,987) —  
Allowance for beneficial interests credit losses, end balance$(7,208) $—  

The accompanying notes are an integral part of the consolidated interim financial statements.
23


Note 6 — Fair Value

The following tables set forth the fair value of financial assets and liabilities by level within the fair value hierarchy as of March 31, 2020 and December 31, 2019 ($ in thousands):

Level 1Level 2Level 3
March 31, 2020Carrying valueQuoted prices in active marketsObservable inputs other than Level 1 pricesUnobservable inputs
Financial assets
Recurring financial assets
Investments in debt securities at fair value$247,372  $—  $247,372  $—  
Investments in beneficial interests$64,703  $—  $64,703  $—  
Non-recurring financial assets
Mortgage loans, net$1,098,629  $—  $—  $1,098,638  
Investment in Manager$734  $—  $—  $4,419  
Investment in AS Ajax E LLC$894  $—  $968  $—  
Investment in GAFS, including warrants$2,747  $—  $—  $3,320  
Investment in Gaea$19,998  $—  $—  $19,998  
Investment in legacy entities$651  $—  $—  $651  
Financial liabilities
Recurring financial liabilities
Borrowings under repurchase transactions$431,091  $—  $431,091  $—  
Non-recurring financial liabilities
Secured borrowings, net$630,938  $—  $—  $568,525  
Convertible senior notes, net$111,420  $87,073  $—  $—  

Level 1Level 2Level 3
December 31, 2019Carrying valueQuoted prices in active marketsObservable inputs other than Level 1 pricesUnobservable inputs
Financial assets
Recurring financial assets
Investments in debt securities at fair value$231,685  $—  $231,685  $—  
Investments in beneficial interests$57,954  $—  $57,954  $—  
Non-recurring financial assets
Mortgage loans, net$1,151,469  $—  $—  $1,260,385  
Investment in Manager$1,755  $—  $—  $7,721  
Investment in AS Ajax E LLC$931  $—  $1,012  $—  
Investment in GAFS, including warrants$3,023  $—  $—  $3,320  
Investment in Gaea$19,995  $—  $—  $19,995  
Investment in legacy entities$760  $—  $—  $760  
Financial liabilities
Recurring financial liabilities
Borrowings under repurchase transactions$414,114  $—  $414,114  $—  
Non-recurring financial liabilities
Secured borrowings, net$652,747  $—  $—  $657,918  
Convertible senior notes, net$118,784  $132,173  $—  $—  

The accompanying notes are an integral part of the consolidated interim financial statements.
24


The fair value of mortgage loans and beneficial interests is estimated using the Manager’s proprietary pricing model which estimates expected cash flows with the discount rate used in the present value calculation representing the estimated effective yield of the loan. The value of transfers of mortgage loans to REO is based upon the present value of future expected cash flows of the loans being transferred.

The Company values its Investments in debt securities using estimates provided by its financing counterparties. The Company also relies on its Manager's proprietary pricing model to estimate the underlying cash flows expected to be collected on these investments as a comparison to the estimates received from financing counterparties (See Note 5 Investments).

The Company's investment in the Manager is valued by applying an earnings multiple to net income.

The Company’s investment in AS Ajax E LLC is valued using estimates provided by financing counterparties.

The fair value of the Company's investment in GAFS is presented by applying an earnings multiple to expected earnings.

The Company's investment in Gaea and the legacy entities are presented as the carrying value due to the recent nature of the acquisition transactions.

The fair value of secured borrowings is estimated using estimates provided by the Company's financing counterparties which are compared for reasonableness to the Manager’s proprietary pricing model which estimates expected cash flows of the underlying mortgage loans collateralizing the debt, and which drive the cash flows used to make interest payments.

The Company’s borrowings under repurchase agreements are short-term in nature, and the Company’s management believes it can renew the current borrowing arrangements on similar terms in the future. Accordingly, the carrying value of these borrowings approximates fair value.

The Company’s convertible senior notes are traded on the NYSE; the debt’s fair value is determined from the NYSE closing price on the balance sheet date.

The carrying values of its Cash and cash equivalents, Cash held in trust, Receivable from Servicer, Prepaid expenses and other assets, Management fee payable and Accrued expenses and other liabilities are equal to or approximate fair value.

Non-financial assets

Property held-for-sale is carried at the lower of its acquisition basis plus improvements (cost) or net realizable value. Net realizable value is determined based on appraisals, broker price opinions, or other market indicators of fair value less expected liquidation costs. The lower of cost or net realizable value for the Company’s REO Property is stated as its carrying value. The following tables set forth the fair value of non-financial assets by level within the fair value hierarchy as of March 31, 2020 and December 31, 2019 ($ in thousands): 

Level 1Level 2Level 3
March 31, 2020Carrying valueThree months ended fair value adjustment recognized in the consolidated statements of incomeQuoted prices in active marketsObservable inputs other than Level 1 pricesUnobservable inputs
Non-financial assets   
Property held-for-sale$10,905  $897  $—  $—  $10,905  
 Level 1Level 2Level 3
December 31, 2019Carrying valueFair value adjustment recognized in the consolidated statements of income
Quoted prices in active marketsObservable inputs other than Level 1 pricesUnobservable inputs
Non-financial assets    
Property held-for-sale$13,537  $2,104  $—  $—  $13,537  
The accompanying notes are an integral part of the consolidated interim financial statements.
25



Note 7 — Affiliates

Unconsolidated Affiliates

On November 22, 2019, Gaea completed a private capital raise transaction in which it raised $66.3 million from the issuance of 4,419,641 shares of its common stock to third parties to allow it to continue to advance its investment strategy. Upon completion of the capital raise, the Company retained ownership of approximately 23.2% of Gaea with third party investors owning the remaining approximately 76.8%. The Company recognized no gain or loss on the transaction as Gaea's fair value at the date of the deconsolidation did not represent a material change from the fair values of its recently acquired assets and liabilities due to the limited lapse of time since their acquisitions. The Company accounts for its investment in Gaea using the equity method.

During the year ended December 31, 2019, the Company acquired a cumulative 40.4% average ownership interest in 3 legacy entity LLCs managed by the Servicer for $1.0 million which hold investments in RPLs and NPLs. The Company accounts for its investment using the equity method.

During 2018, the Company acquired an 8.0% ownership interest in GAFS. The acquisition was completed in 2 transactions. January 26, 2018 was the initial closing date wherein the Company acquired a 4.9% interest in GAFS and 3 warrants, each exercisable for a 2.45% interest in GAFS upon payment of additional consideration, in exchange for consideration of $1.1 million of cash and 45,938 shares of the Company’s common stock with a value of approximately $0.6 million. On May 29, 2018 the additional closing was completed wherein the Company acquired an additional 3.1% interest in GAFS and 3 warrants, each exercisable for a 1.55% interest in GAFS, in exchange for consideration of $0.7 million of cash and 29,063 shares of the Company's common stock with a value of approximately $0.4 million. The Company accounts for its investment in GAFS using the equity method.

On March 14, 2016, the Company formed AS Ajax E LLC to hold an equity interest in a Delaware trust formed to own residential mortgage loans and residential real estate assets. AS Ajax E LLC owns a 5% equity interest in Ajax E Master Trust which holds a portfolio of RPLs. At the time of the original investment, the Company held a 24.2% interest in AS Ajax E LLC. In October 2016, additional capital contributions were made by third parties, and the Company’s ownership interest in AS Ajax E was reduced to a lower percentage of the total. As of March 31, 2020 and December 31, 2019, the Company’s interest in AS Ajax E LLC was approximately 16.5%. The Company accounts for its investment using the equity method.

Upon the closing of the Company’s original private placement in July 2014, the Company received a 19.8% equity interest in the Manager, a privately held company for which there is no public market for its securities. The Company accounts for its investment in the Manager using the equity method.

The table below shows the net income, assets and liabilities for the Company’s unconsolidated affiliates at 100%, and at the Company’s share ($ in thousands):

Net income/(loss), assets and liabilities of unconsolidated affiliates at 100%

Three months ended March 31,
Net income/(loss) at 100%20202019
Legacy Entities$198  $—  
AS Ajax E LLC$62  $76  
Gaea Real Estate Corp.$15  $—  
Great Ajax FS LLC(1)
$(3,450) $1,600  
Thetis Asset Management LLC$(4,877) $1,408  

The accompanying notes are an integral part of the consolidated interim financial statements.
26


March 31, 2020December 31, 2019
Assets and Liabilities at 100%AssetsLiabilitiesAssetsLiabilities
Gaea Real Estate Corp.$83,173  $772  $83,068  $768  
Great Ajax FS LLC$56,538  $35,656  $61,432  $37,142  
Thetis Asset Management LLC$7,229  $2,379  $12,277  $2,265  
AS Ajax E LLC$5,522  $ $5,747  $ 
Legacy entities$1,350  $3,125  $1,592  $3,095  

Net income/(loss), assets and liabilities of unconsolidated affiliates at the Company's share

Three months ended March 31,
Net income/(loss) at the Company's share20202019
Legacy Entities$79  $—  
AS Ajax E LLC$10  $13  
Gaea Real Estate Corp.$ $—  
Great Ajax FS LLC(1)
$(276) $128  
Thetis Asset Management LLC$(966) $279  

March 31, 2020December 31, 2019
Assets and Liabilities at the Company's shareAssetsLiabilitiesAssetsLiabilities
Gaea Real Estate Corp.$19,277  $179  $19,252  $178  
Great Ajax FS LLC$4,523  $2,852  $4,915  $2,971  
Thetis Asset Management LLC$1,431  $471  $2,431  $448  
AS Ajax E LLC$911  $—  $948  $—  
Legacy Entities$540  $1,259  $637  $1,247  

(1)Net income at the Company's share is not directly proportionate to Net income at 100% due to the timing of the Company's acquisition during the three months ended March 31, 2019

Consolidated affiliates

The Company consolidates the results and balances of securitization trusts which are established to provide debt financing to the Company by securitizing pools of mortgage loans. These trusts are considered to be VIEs, and the Company has determined that it is the primary beneficiary of the VIEs. See Note 9 Debt.

The Company also consolidates the activities and balances of its controlled affiliates, which include AS Ajax E II, which was established to hold an equity interest in a Delaware trust formed to own residential mortgage loans and residential real estate assets. As of March 31, 2020, AS Ajax E II LLC was 53.1% owned by the Company, with the remainder held by third parties. 2017-D and 2018-C are securitization trusts formed to hold mortgage loans, REO property and secured debt. As of March 31, 2020, 2017-D was 50.0% owned by a third-party institutional accredited investor. As of March 31, 2020, 2018-C was 63.0% owned by the Company, with the remainder held by third-party institutional accredited investors. Great Ajax II REIT which holds an interest in Great Ajax II Depositor LLC which was formed to act as the depositor of mortgage loans into securitization trusts and to hold the subordinated securities issued by such trusts and any additional trusts the Company may form for additional secured borrowings is 99.8% owned by the Company as of March 31, 2020.

Note 8 — Commitments and Contingencies

The Company regularly enters into agreements to acquire additional mortgage loans and mortgage-related assets, subject to continuing diligence on such assets and other customary closing conditions. There can be no assurance that the Company will acquire any or all of the mortgage loans identified in any acquisition agreement as of the date of these consolidated financial statements, and it is possible that the terms of such acquisitions may change.

The accompanying notes are an integral part of the consolidated interim financial statements.
27


At March 31, 2020, the Company had commitments to purchase, subject to due diligence, 906 RPLs and NPLs with aggregated UPB of $162.0 million secured by single-family residences. The Company will only acquire loans that meet the acquisition criteria for its own portfolios, or those of its third party institutional accredited co-investors. See Note 15 — Subsequent Events, for remaining open acquisitions as of the filing date.

The full extent of the impact of COVID-19 on the global economy generally, and the Company's business in particular, is uncertain. As of March 31, 2020, 0 contingencies have been recorded on the Company's consolidated balance sheet as a result of COVID-19, however as the global pandemic continues and the economic implications worsen, it may have long-term adverse impacts on the Company's financial condition, results of operations, and cash flows.

Litigation, Claims and Assessments

From time to time, the Company may be involved in various claims and legal actions arising in the ordinary course of business. As of March 31, 2020, the Company was not a party to, and its properties were not subject to, any pending or threatened legal proceedings that individually or in the aggregate, are expected to have a material impact on its financial condition, results of operations or cash flows.

Note 9 — Debt

Repurchase Agreements

The Company has entered into 2 repurchase facilities whereby the Company, through 2 wholly-owned Delaware trusts (the “Trusts”) acquires pools of mortgage loans which are then sold by the Trusts, as “Seller” to 2 separate counterparties, the “buyer” or “buyers.” One facility has a ceiling of $250.0 million and the other $400.0 million at any one time. Upon the time of the initial sale to the buyer, the Trust, with a simultaneous agreement, also agrees to repurchase the pools of mortgage loans from the buyer. Mortgage loans sold under these facilities carry interest calculated based on a spread to one-month LIBOR, which are fixed for the term of the borrowing. The purchase price that the Trust realizes upon the initial sale of the mortgage loans to the buyer can vary between 70% and 85% of the asset’s acquisition price, depending upon the facility being utilized and/or the quality of the underlying collateral. The obligations of a Trust to repurchase these mortgage loans at a future date are guaranteed by the Operating Partnership. The difference between the market value of the asset and the amount of the repurchase agreement is generally the amount of equity in the position and is intended to provide the buyer with some protection against fluctuations in the value of the collateral, and/or a failure by the Company to repurchase the asset and repay the borrowing at maturity. The Company has also entered into 3 repurchase facilities substantially similar to the mortgage loan repurchase facilities, but where the pledged assets are the class B bonds and certificates from the Company's secured borrowing transactions. These facilities have no effective ceilings. Each repurchase transaction represents its own borrowing. As such, the ceilings associated with these transactions are the amounts currently borrowed at any one time. The Company has effective control over the assets subject to all of these transactions; therefore, the Company’s repurchase transactions are accounted for as financing arrangements.

The Servicer services these mortgage loans pursuant to the terms of a Servicing Agreement by and among the Servicer and each Buyer. Each Servicing Agreement has the same fees and expenses terms as the Company’s Servicing Agreement described under Note 10 — Related party transactions. The Operating Partnership, as guarantor, will provide to the buyers a limited guaranty of certain losses incurred by the buyers in connection with certain events and/or the Seller’s obligations under the mortgage loan purchase agreement, following the breach of certain covenants by the Seller, the occurrence of certain bad acts by the Seller, the occurrence of certain insolvency events of the Seller or other events specified in the Guaranty. As security for its obligations under the Guaranty, the guarantor will pledge the Trust Certificate representing the Guarantor’s 100% beneficial interest in the Seller.

The following table sets forth the details of the Company’s repurchase transactions and facilities ($ in thousands):

The accompanying notes are an integral part of the consolidated interim financial statements.
28


March 31, 2020
Maturity DateOrigination dateMaximum
Borrowing
Capacity
Amount
Outstanding
Amount of
Collateral
Percentage of Collateral CoverageInterest Rate
April 2, 2020January 3, 2020$1,758  $1,758  $2,388  136 %2.96 %
April 2, 2020January 3, 20201,684  1,684  2,287  136 %2.96 %
April 13, 2020March 12, 202037,201  37,201  49,877  134 %2.46 %
April 13, 2020March 12, 20203,236  3,236  4,655  144 %2.56 %
April 22, 2020March 24, 202035,381  35,381  51,679  146 %5.00 %
April 27, 2020January 28, 20205,749  5,749  7,464  130 %3.00 %
April 27, 2020March 27, 20204,811  4,811  10,024  208 %3.71 %
April 27, 2020March 27, 20204,108  4,108  7,101  173 %3.71 %
April 27, 2020January 28, 20202,522  2,522  3,381  134 %2.80 %
April 27, 2020March 27, 20202,153  2,153  10,938  508 %3.86 %
June 3, 2020March 3, 202020,987  20,987  27,814  133 %3.11 %
June 3, 2020March 3, 202011,181  11,181  14,682  131 %3.11 %
June 3, 2020March 3, 202010,019  10,019  13,192  132 %3.11 %
June 3, 2020December 6, 20196,097  6,097  7,565  124 %3.64 %
June 3, 2020March 3, 20205,161  5,161  6,616  128 %3.11 %
June 3, 2020December 6, 20194,704  4,704  5,755  122 %3.64 %
June 3, 2020March 3, 20203,827  3,827  4,907  128 %3.11 %
June 3, 2020December 6, 20193,053  3,053  3,959  130 %3.64 %
June 3, 2020December 6, 20192,332  2,332  3,360  144 %3.79 %
June 3, 2020March 3, 20201,848  1,848  2,640  143 %3.21 %
June 3, 2020December 6, 20191,132  1,132  1,607  142 %3.79 %
June 19, 2020March 20, 202014,599  14,599  19,893  136 %6.22 %
June 19, 2020December 19, 201913,447  13,447  17,077  127 %3.55 %
June 19, 2020March 20, 20209,571  9,571  13,043  136 %6.22 %
June 19, 2020March 20, 20204,691  4,691  6,089  130 %6.22 %
June 19, 2020March 20, 20202,665  2,665  4,050  152 %6.72 %
June 19, 2020December 19, 20191,155  1,155  1,687  146 %3.70 %
June 26, 2020March 26, 202020,906  20,906  31,930  153 %9.23 %
June 30, 2020January 3, 20208,328  8,328  3,656  44 %3.56 %
June 30, 2020January 3, 20206,099  6,099  9,038  148 %3.56 %
June 30, 2020December 30, 20195,286  5,286  6,850  130 %3.57 %
June 30, 2020January 3, 20205,116  5,116  6,721  131 %3.56 %
June 30, 2020December 30, 20193,324  3,324  4,667  140 %3.72 %
July 10, 2020January 13, 20209,020  9,020  13,016  144 %3.67 %
July 31, 2020February 3, 20207,763  7,763  9,702  125 %3.56 %
July 31, 2020February 3, 20207,151  7,151  9,537  133 %3.56 %
July 10, 2020July 15, 2016250,000  30,141  44,217  147 %3.38 %
September 24, 2020September 25, 2019400,000  112,885  164,103  145 %3.11 %
Totals$938,065  $431,091  $607,167  141 %3.86 %


The accompanying notes are an integral part of the consolidated interim financial statements.
29


December 31, 2019
Maturity DateOrigination dateMaximum
Borrowing
Capacity
Amount
Outstanding
Amount of
Collateral
Percentage of Collateral CoverageInterest Rate
January 3, 2020November 26, 2019$8,411  $8,411  $11,098  132 %3.45 %
January 3, 2020November 26, 20196,093  6,093  9,038  148 %3.45 %
January 3, 2020November 26, 20195,175  5,175  6,855  132 %3.45 %
January 3, 2020December 2, 201911,966  11,966  15,742  132 %3.45 %
January 3, 2020December 2, 201910,648  10,648  14,058  132 %3.45 %
January 3, 2020December 2, 20195,485  5,485  7,050  129 %3.45 %
January 3, 2020December 2, 20194,096  4,096  5,261  128 %3.45 %
January 3, 2020December 2, 20191,644  1,644  2,388  145 %3.55 %
January 3, 2020December 2, 20191,576  1,576  2,287  145 %3.55 %
January 10, 2020December 11, 201921,088  21,088  28,284  134 %3.47 %
January 10, 2020December 11, 20191,808  1,808  2,640  146 %3.57 %
January 13, 2020July 11, 20198,956  8,956  13,016  145 %4.16 %
January 21, 2020December 20, 201915,718  15,718  20,623  131 %3.41 %
January 21, 2020December 20, 201910,305  10,305  13,521  131 %3.41 %
January 21, 2020December 20, 20195,840  5,840  7,324  125 %3.41 %
January 21, 2020December 20, 20192,784  2,784  4,050  145 %3.51 %
January 28, 2020October 30, 20195,318  5,318  7,464  140 %3.19 %
January 28, 2020October 30, 20192,520  2,520  3,381  134 %2.99 %
February 3, 2020August 1, 20197,568  7,568  9,702  128 %4.19 %
February 3, 2020August 1, 20196,664  6,664  9,537  143 %4.19 %
February 24, 2020November 26, 201941,412  41,412  54,828  132 %2.92 %
March 25, 2020September 25, 20197,075  7,075  10,024  142 %3.96 %
March 25, 2020September 25, 20195,851  5,851  7,423  127 %3.81 %
March 26, 2020September 26, 201927,075  27,075  34,591  128 %3.81 %
March 27, 2020September 27, 20192,915  2,915  3,709  127 %3.79 %
June 3, 2020December 6, 20196,097  6,097  7,891  129 %3.64 %
June 3, 2020December 6, 20194,704  4,704  6,106  130 %3.64 %
June 3, 2020December 6, 20193,053  3,053  4,035  132 %3.64 %
June 3, 2020December 6, 20192,332  2,332  3,360  144 %3.79 %
June 3, 2020December 6, 20191,132  1,132  1,607  142 %3.79 %
June 19, 2020December 19, 201913,447  13,447  18,076  134 %3.55 %
June 19, 2020December 19, 20191,155  1,155  1,687  146 %3.70 %
June 30, 2020December 30, 20195,286  5,286  7,044  133 %3.57 %
June 30, 2020December 30, 20193,324  3,324  4,667  140 %3.72 %
July 10, 2020July 15, 2016250,000  28,931  57,397  198 %4.28 %
September 24, 2020September 25, 2019400,000  116,662  164,403  141 %4.24 %
Totals$918,521  $414,114  $580,167  140 %3.77 %

The guaranty establishes a master netting arrangement; however, the arrangement does not meet the criteria for offsetting within the Company’s consolidated balance sheets. A master netting arrangement derives from contractual agreements entered into by two parties to multiple contracts that provides for the net settlement of all contracts covered by the agreements in the event of default under any one contract. During the last two weeks in March 2020, the Company received margin calls from its financing counterparties in the amount of $28.2 million due to the turmoil in the financial markets resulting from the COVID-19 outbreak. As of March 31, 2020, the Company had $32.4 million of cash collateral on deposit with financing counterparties. This cash is included in Prepaid expenses and other assets on its consolidated balance sheet at
The accompanying notes are an integral part of the consolidated interim financial statements.
30


March 31, 2020 and is not netted against its Borrowings under repurchase agreements. The amount outstanding on the Company’s repurchase facilities and the carrying value of the Company’s loans pledged as collateral are presented as gross amounts in the Company’s consolidated balance sheets at March 31, 2020 and December 31, 2019 in the table below ($ in thousands):

Gross amounts not offset in balance sheet
March 31, 2020December 31, 2019
Gross amount of recognized liabilities$431,091  $414,114  
Gross amount of loans and securities pledged as collateral607,167  580,167  
Other prepaid collateral32,360  4,117  
Net collateral amount$143,716  $161,936  

Secured Borrowings

From inception (January 30, 2014) to March 31, 2020, the Company has completed 15 secured borrowings for its own balance sheet, not including its off-balance sheet joint ventures in which it holds investments in various classes of securities, pursuant to Rule 144A under the Securities Act, 6 of which were outstanding at March 31, 2020. The secured borrowings are structured as debt financings and not sales through a real estate investment conduit (“REMIC”), and the loans included in the secured borrowings remain on the Company’s consolidated balance sheet as the Company is the primary beneficiary of the securitization trusts, which are VIEs. The securitization VIEs are structured as pass through entities that receive principal and interest on the underlying mortgages and distribute those payments to the holders of the notes. The Company’s exposure to the obligations of the VIEs is generally limited to its investments in the entities. The notes that are issued by the securitization trusts are secured solely by the mortgages held by the applicable trusts and not by any of the Company’s other assets. The mortgage loans of the applicable trusts are the only source of repayment and interest on the notes issued by such trusts. The Company does not guarantee any of the obligations of the trusts under the terms of the agreement governing the notes or otherwise.

The Company’s secured borrowings are generally structured with Class A notes, subordinate notes, and trust certificates, which have rights to the residual interests in the mortgages once the notes are repaid. With the exception of the Company’s 2017-D securitization, from which the Company sold a 50% interest in the Class B certificates to third parties and 2018-C securitization, from which the Company sold a 95% interest in the Class A notes and 37% in the Class B notes and trust certificates, the Company has retained the subordinate notes and the applicable trust certificates from the other 6 secured borrowings outstanding at March 31, 2020.

2017-D secured borrowing contains Class A notes and Class B certificates representing the residual interests in the mortgages held within the securitization trusts subsequent to repayment of the Class A debt. The Company has retained 50% of both the Class A notes and Class B certificates from 2017-D.

2018-C secured borrowing contains Class A notes, Class B notes and trust certificates representing the residual interest in the mortgages held within the securitization trusts subsequent to repayment of the Class A debt. The Company has retained 5% of the Class A notes and 63% of the Class B notes and trust certificates.

The Company's 2017-B, 2019-D and 2019-F secured borrowings carry no provision for a step-up in interest rate on any of the Class A, Class B or Class M notes.

For all of the Company's secured borrowings the Class A notes are senior, sequential pay, fixed rate notes with the exception of 2019-D and 2019-F, which are subordinate, sequential pay, fixed rate notes for Class B-1 and variable rate notes for Class B-2 and Class B-3. The interest rate is effectively the rate equal to the spread between the gross average rate of interest the trust collects on its mortgage loan portfolio minus the rate derived from the sum of the servicing fee and other expenses of the trust. The Class M notes issued under 2017-B, 2019-D and 2019-F are also mezzanine, sequential pay, fixed rate notes.

For all of the Company's secured borrowings, except 2017-B, 2019-D and 2019-F, which contains no interest rate step-up, if the Class A notes have not been redeemed by the payment date or otherwise paid in full 36 months after issue, or in the case of 2017-C, 48 months after issue, an interest rate step-up of 300 basis points is triggered. Twelve months after the 300 basis points step up is triggered, an additional 100 basis point step up will be triggered, and an amount equal to the aggregate interest payment amount that accrued and would otherwise be paid to the subordinate notes will be paid as principal to the Class A notes on that date and each subsequent payment date until the Class A notes are paid in full. After the Class A notes are paid
The accompanying notes are an integral part of the consolidated interim financial statements.
31


in full, the subordinate notes will resume receiving their respective interest payment amounts and any interest that accrued but was not paid while the Class A notes were outstanding. As the holder of the trust certificates, the Company is entitled to receive any remaining amounts in the trusts after the Class A notes and subordinate notes have been paid in full.

The following table sets forth the original terms of all notes from our secured borrowings outstanding at March 31, 2020 at their respective cutoff dates:

Issuing Trust/Issue DateInterest Rate Step-up DateSecurityOriginal PrincipalInterest Rate
Ajax Mortgage Loan Trust 2017-B/ December 2017NoneClass A notes due 2056$115.8 million  3.16 %
None
Class M-1 notes due 2056(3)
$9.7 million  3.50 %
None
Class M-2 notes due 2056(3)
$9.5 million  3.50 %
None
Class B-1 notes due 2056(1)
$9.0 million  3.75 %
None
Class B-2 notes due 2056(1)
$7.5 million  3.75 %
Trust certificates(2)
$14.3 million  — %
Deferred issuance costs$(1.8) million — %
Ajax Mortgage Loan Trust 2017-C/ November 2017November 25, 2021Class A notes due 2060$130.2 million  3.75 %
May 25, 2022
Class B-1 notes due 2060(1)
$13.0 million  5.25 %
Trust certificates(2)
$42.8 million  — %
Deferred issuance costs$(1.7) million — %
Ajax Mortgage Loan Trust 2017-D/ December 2017April 25, 2021
Class A notes due 2057(4)
$177.8 million  3.75 %
None
Class B certificates(4)
$44.5 million  — %
Deferred issuance costs$(1.1) million — %
Ajax Mortgage Loan Trust 2018-C/ September 2018October 25, 2021
Class A notes due 2065(5)
$170.5 million  4.36 %
April 25, 2022
Class B notes due 2065(5)
$15.9 million  5.25 %
Trust certificates(5)
$40.9 million  — %
Deferred issuance costs$(2.0) million — %
Ajax Mortgage Loan Trust 2019-D/ July 2019NoneClass A-1 notes due 2065$140.4 million  2.96 %
NoneClass A-2 notes due 2065$6.1 million  3.50 %
NoneClass A-3 notes due 2065$10.1 million  3.50 %
None
Class M-1 notes due 2065(3)
$9.3 million  3.50 %
None
Class B-1 notes due 2065(6)
$7.5 million  3.50 %
None
Class B-2 notes due 2065(6)
$7.1 million  
variable(7)
None
Class B-3 notes due 2065(6)
$12.8 million  
variable(7)
Deferred issuance costs$(2.7) million — %
Ajax Mortgage Loan Trust 2019-F/ November 2019NoneClass A-1 notes due 2059$110.1 million  2.86 %
NoneClass A-2 notes due 2059$12.5 million  3.50 %
NoneClass A-3 notes due 2059$5.1 million  3.50 %
None
Class M-1 notes due 2059(1)
$6.1 million  3.50 %
None
Class B-1 notes due 2059(6)
$11.5 million  3.50 %
The accompanying notes are an integral part of the consolidated interim financial statements.
32


None
Class B-2 notes due 2059(6)
$10.4 million  
variable(7)
None
Class B-3 notes due 2059(6)
$15.1 million  
variable(7)
Deferred issuance costs$(1.8) million — %

(1)The Class B notes are subordinate, sequential pay, fixed rate notes with Class B-2 notes subordinate to the Class B-1 notes. The Company has retained the Class B notes.​
(2)The trust certificates issued by the trusts and the beneficial ownership of the trusts are retained by Great Ajax Funding LLC as the depositor. As the holder of the trust certificates, the Company is entitled to receive any remaining amounts in the trusts after the Class A notes, Class M notes, where present, and Class B notes have been paid in full.
(3)The Class M notes are subordinate, sequential pay, fixed rate notes with Class M-2 notes subordinate to the Class M-1 notes. The Company has retained the Class M notes.
(4)Ajax Mortgage Loan Trust ("AJAXM") 2017-D is a joint venture in which a third party owns 50% of the Class A notes and 50% of the Class B certificates. The Company is required to consolidate 2017-D under GAAP and is reflecting 100% of the mortgage loans, in Mortgage loans, net. 50% of the Class A notes, which are held by the third party, are included in Secured borrowings, net. The 50% portion of the Class A notes retained by the Company have been encumbered under a repurchase agreement. 50% of the Class B certificates are recognized as Non-controlling interest.
(5)AJAXM 2018-C is a joint venture in which a third party owns 95% of the Class A notes and 37% of the Class B notes and certificates. The Company is required to consolidate 2018-C under GAAP and is reflecting 100% of the mortgage loans, in Mortgage loans, net. 95% of the Class A notes and 37% of the Class B notes, which are held by the third party, are included in Secured borrowings, net. The 5% portion of the Class A notes retained by the Company have been encumbered under the repurchase agreement. 37% of the Class C certificates are recognized as Non-controlling interest.
(6)The Class B notes are subordinate, sequential pay, with B-2 and B-3 notes having variable interest rates and subordinate to the Class B-1 notes. The Class B-1 notes are fixed rate notes. The Company has retained the Class B notes.
(7)The interest rate is effectively the rate equal to the spread between the gross average rate of interest the trust collects on its mortgage loan portfolio minus the rate derived from the sum of the servicing fee and other expenses of the trust.

Servicing for the mortgage loans in the Company’s secured borrowings is provided by the Servicer at servicing fee rates of between 0.65% of outstanding UPB and 1.25% of outstanding UPB at acquisition, and is paid monthly. For certain of the Company's joint ventures, the servicing fee rate for RPLs is reduced to an annual servicing fee rate of 0.42% annually on a loan-by-loan basis for any loan that makes seven consecutive payments. The determination of RPL or NPL status, which determines the servicing fee rates, is based on the status of the loan at acquisition and does not change regardless of the loan’s subsequent performance. The following table sets forth the status of the notes held by others at March 31, 2020 and December 31, 2019, and the securitization cutoff date ($ in thousands):

Balances at March 31, 2020Balances at December 31, 2019Original balances at
securitization cutoff date
Class of NotesCarrying value of mortgagesBond principal balancePercentage of collateral coverageCarrying value of mortgagesBond principal balancePercentage of collateral coverageMortgage UPBBond principal balance
2017-B$120,075  $80,325  149 %$121,909  $84,624  144 %$165,850  $115,846  
2017-C136,177  91,159  149 %137,369  94,126  146 %185,942  130,159  
2017-D140,364  57,434  (1) 244 %148,119  60,934  (1) 243 %203,870  (2) 88,903  
2018-C176,116  140,815  (3) 125 %179,303  146,925  (3) 122 %222,181  (4) 167,910  
2019-D161,705  142,980  113 %165,963  146,383  113 %193,301  156,670  
2019-F153,793  124,403  124 %155,899  126,723  123 %170,876  127,673  
$888,230  $637,116  (5) 139 %$908,562  $659,715  (5) 138 %$1,142,020  $787,161  
(1)The gross amount of senior bonds at March 31, 2020 and December 31, 2019 were $114.9 million and $121.9 million however, only $57.4 million and $60.9 million are reflected in Secured borrowings as the remainder is owned by the Company, respectively.
(2)Includes $26.7 million of cash collateral intended for use in the acquisition of additional mortgage loans.
(3)2018-C contains notes held by the third party institutional investors for senior bonds and class B bonds. The gross amount of the senior and class B bonds at March 31, 2020 were $142.0 million and $15.9 million, however, only $134.9 million and $5.9 million are reflected in Secured borrowings as the remainder is owned by the Company, respectively. The gross amount of the senior and class B bonds at December 31, 2019 were $148.5 million and $15.9 million, however, only $141.0 million and $5.9 million are reflected in Secured borrowings as the remainder is owned by the Company, respectively.
(4)Includes $45.5 million of cash collateral intended for use in the acquisition of additional mortgage loans.
(5)This represents the gross amount of Secured borrowings and excludes the impact of deferred issuance costs of $6.2 million and $7.0 million as of March 31, 2020 and December 31, 2019.
The Company’s obligations under its secured borrowings are not fixed, and the payments on these borrowings are predicated upon cash flows received on the underlying mortgage loans.

Convertible Senior Notes
The accompanying notes are an integral part of the consolidated interim financial statements.
33



On April 25, 2017, the Company completed the issuance and sale of $87.5 million aggregate principal amount of its 7.25% convertible senior notes due 2024 in an underwritten public offering. The net proceeds to the Company from the sale of the notes, after deducting the underwriter's discounts, commissions and offering expenses, were approximately $84.9 million. The carrying amount of the equity component of the transaction was $2.5 million representing the fair value to the notes' owners of the right to convert the notes into shares of the Company's common stock. The notes were issued at a 17.5% conversion premium and bear interest at a rate of 7.25% per year, payable quarterly in arrears on January 15, April 15, July 15 and October 15 of each year, beginning on July 15, 2017.

On August 18, 2017, the Company completed the public offer and sale of an additional $20.5 million in aggregate principal amount of its 7.25% Convertible senior notes due 2024, which combined with the $87.5 million aggregate principal amount from its April offering, form a single series of fungible notes. The net proceeds to the Company from the August 18, 2017 sale of the notes, after deducting the underwriter's discounts, commissions and offering expenses, were approximately $20.5 million. The carrying amount of the equity component of the August transaction was $0.2 million representing the fair value to the notes' owners of the right to convert the notes into shares of the Company's common stock.

The notes in the August transaction were issued at a 6.0% conversion premium and bear interest at a rate of 7.25% per year, payable quarterly in arrears on January 15, April 15, July 15 and October 15 of each year, beginning on July 15, 2017. The notes will mature on April 30, 2024, unless earlier repurchased, redeemed or converted.

On November 19, 2018, the Company completed the public offer and sale of an additional $15.9 million in aggregate principal amount of its 7.25% convertible senior notes due 2024, which combined with the $108.0 million aggregate principal amount from its August and April offerings in 2017, form a single series of fungible notes. The net proceeds to the Company from the November 19, 2018 sale of the notes, after deducting the underwriter's discounts, commissions and offering expenses, were approximately $15.2 million. The carrying amount of the equity component of the November transaction was $0.5 million representing the fair value to the notes' owners of the right to convert the notes into shares of the Company's common stock.

The notes in the November transaction were issued at an 11.43% conversion premium and bear interest at a rate of 7.25% per year, payable quarterly in arrears on January 15, April 15, July 15 and October 15 of each year, beginning on January 15, 2019. The notes will mature on April 30, 2024, unless earlier repurchased, redeemed or converted.

During the first quarter of 2020, the Company completed a series of convertible note repurchases for an aggregate principal amount of $8.0 million for a total purchase price $8.2 million. The carrying amount of the equity component of $0.1 million reversed from Additional paid-in Capital due to the March 2020 transaction.

Holders may convert their notes at their option prior to April 30, 2023 only under certain circumstances. In addition, the notes will be convertible irrespective of those circumstances from, and including, April 30, 2023 to, and including, the business day immediately preceding the maturity date. Upon conversion, the Company will pay or deliver, as the case may be, cash, shares of its common stock or a combination of cash and shares of its common stock, at the Company's election.

The conversion rate as of March 31, 2020 equals 1.7279 shares of the Company's common stock per $25.00 principal amount of notes which is equivalent to a conversion price of approximately $14.47 per share of common stock. The conversion rate, and thus the conversion price, may be subject to adjustment under certain circumstances. As of March 31, 2020, the amount by which the if-converted value falls short of the principal value for the entire series is $64.9 million.

The Company may not redeem the notes prior to April 30, 2022, and may redeem for cash all or any portion of the notes, at its option, on or after April 30, 2022 if the last reported sale price of its common stock has been at least 130% of the conversion price then in effect for at least 20 trading days (whether or not consecutive) during any 30 consecutive trading day period ending on, and including, the trading day immediately preceding the date on which the Company provides notice of redemption at a redemption price equal to 100% of the principal amount of the notes to be redeemed, plus accrued and unpaid interest to, but excluding, the redemption date. No "sinking fund" will be provided for the notes.

At March 31, 2020, outstanding aggregate principal amount of the notes was $115.9 million, and discount and deferred expenses were $4.4 million. Interest expense of $2.4 million was recognized during the quarter ended March 31, 2020 which includes $0.3 million of amortization of discount and deferred expenses, respectively. The discount will be amortized through April 30, 2023, the date at which the notes can be converted by their holders. The effective interest rate of the notes for the quarter ended March 31, 2020 was 8.72%.

The accompanying notes are an integral part of the consolidated interim financial statements.
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Note 10 — Related Party Transactions

The Company’s consolidated statements of income included the following significant related party transactions ($ in thousands):
Three months ended March 31,
TransactionConsolidated Statement of Income locationCounterparty20202019
Interest incomeInterest income  Various non-consolidated joint ventures  $2,019  $2,416  
Loan servicing feesRelated party expense – loan servicing fees  Gregory  $2,014  $2,506  
Management feeRelated party expense – management fee  Thetis  $1,799  $1,688  
Income/(loss) from equity investmentIncome from investments in affiliates  Great Ajax FS  $(276) $128  
Loss on sale of mortgage loansLoss on sale of mortgage loans  Gaea  $(705) $—  
Income/(loss) from equity investmentIncome from investments in affiliates  Thetis  $(966) $279  

The Company’s consolidated balance sheets included the following significant related party balances ($ in thousands):
As of March 31, 2020
TransactionConsolidated Balance Sheet locationCounterpartyAmount
Receivables from ServicerReceivable from Servicer  Gregory  $17,322  
Management fee payableManagement fee payable  Thetis  $1,795  
Expense reimbursement receivablePrepaid expenses and other assets  Gregory  $865  
Advances to ServicerPrepaid expenses and other assets  Gregory  $757  
Expense reimbursement receivablePrepaid expenses and other assets  Various non-consolidated joint ventures  $377  
Expense reimbursement receivablePrepaid expenses and other assets  Gaea$98  
Expense reimbursement receivablePrepaid expenses and other assets  Thetis  $87  
Expense reimbursementsAccrued expenses and other liabilities  Various non-consolidated joint ventures  $ 

As of December 31, 2019
TransactionConsolidated Balance Sheet locationCounterpartyAmount
Receivables from ServicerReceivable from Servicer  Gregory  $17,013  
Management fee payableManagement fee payable  Thetis  $1,634  
Expense reimbursements receivablePrepaid expenses and other assets  Gregory  $687  
Advances to ServicerPrepaid expenses and other assets  Gregory  $585  
Expense reimbursements receivablePrepaid expenses and other assets  Various non-consolidated joint ventures  $241  
Expense reimbursements receivablePrepaid expenses and other assets  Thetis  $87  
Expense reimbursementsAccrued expenses and other liabilities  Gaea  $68  
Expense reimbursementsAccrued expenses and other liabilities  Various non-consolidated joint ventures  $10  
The accompanying notes are an integral part of the consolidated interim financial statements.
35




During the quarter ended March 31, 2020 we sold 26 SBC mortgage loans with a carrying value of $26.1 million and UPB of $26.2 million for a loss of $0.7 million.

During 2020 and 2019, the Company retained $61.3 million and $187.8 million, respectively, in notes and beneficial interests issued by joint ventures between the Company and third party institutional accredited investors.  Each joint venture issued senior notes and beneficial interests, which are trust certificates representing the residual balance of the trust after the outstanding debt obligations have been settled.  In certain transactions, the joint venture also issued subordinate notes.  In the first quarter of 2020, the Company retained $49.6 million in senior notes and $4.6 million in subordinate notes. In the first quarter of 2019, the Company retained $50.0 million in senior notes and $4.6 million in subordinate notes. The notes are accounted for as debt securities carried at fair value.  As of March 31, 2020 and December 31, 2019, the Notes were carried on the Company’s consolidated balance sheet at a fair value of $247.4 million and $231.7 million, respectively.

During the second quarter of 2019, the Company sold $176.9 million to a related party joint venture, Ajax Mortgage Loan Trust 2019-C ("2019-C") a joint venture with third party institutional investors and retained 34% or $8.0 million of the trust certificates and $12.1 million in debt securities. The Company recorded a $7.0 million gain on the sale. The retained securities are included in the notes and beneficial interests of $187.8 million discussed in the previous paragraph.

In June 2019, the Company entered into an arrangement with the Servicer as the borrower and the Company as the lender to advance funds secured by real property to facilitate the purchase of real estate from certain of the company's joint ventures. Such funds are repaid no later than the liquidation of the real estate. The maximum amount available to the Servicer is $12.0 million. At March 31, 2020, and December 31, 2019, the Company had advanced $0.8 million and $0.6 million, respectively, to the Servicer. Interest on the arrangement accrues at 7.2% annually.

The Company also acquired $7.1 million and $9.5 million in beneficial interests issued by joint ventures in the first quarters of 2020 and 2019, respectively. As of March 31, 2020, and December 31, 2019 the Investments in beneficial interests were carried on the Company's consolidated balance sheet at $64.7 million and $58.0 million, respectively.

Management Agreement

The Company is a party to the Amended and Restated Management Agreement with the Manager, which expires on March 5, 2034. Under the Management Agreement, the Manager implements the Company’s business strategy and manages the Company’s business and investment activities and day-to-day operations, subject to oversight by the Company’s Board of Directors. Among other services, the Manager, directly or through affiliates, provides the Company with a management team and necessary administrative and support personnel. The Company does not currently have any employees that it pays directly and does not expect to have any employees that it pays directly in the foreseeable future. Each of the Company’s executive officers is an employee or officer, or both, of the Manager or the Servicer.

Under the Management Agreement, the Company pays both a base management fee and an incentive fee to the Manager. The base management fee equals 1.5% of the Company's stockholders’ equity, including equity equivalents such as the Company's issuance of convertible senior notes, per annum and calculated and payable quarterly in arrears. The Company has the option to pay its management fee with between 50% to 100% cash at its discretion, and pay the remainder in shares of its common stock.

In the event the Company elects to pay its manager in shares of its common stock, the calculation for to determine the number of shares of the Company's common stock to be issued to the Manager is outlined below. The initial $1.0 million of the quarterly base management fee will be payable at least 75% in cash and up to 25% in shares of the Company’s common stock (allocated at the Company's discretion). Any amount of the base management fee in excess of $1.0 million may be payable in shares of the Company’s common stock (at the Company's discretion) until payment is at least 50% in cash and up to 50% in shares (the “50/50 split”). Any remaining amount of the quarterly base management fee after the 50/50 split threshold is reached may be payable in equal amounts of cash and shares (at the Company's discretion). The base management fee currently exceeds the 50/50 split threshold, and the Company is currently paying the management fee 50% in cash and 50% in shares. The Manager has agreed to hold any shares of common stock received by it as payment of the base management fee for at least three years from the date such shares of common stock are received.

The Manager is also entitled to an incentive fee, payable quarterly and calculated in arrears, which, through the end of 2018, was calculated as 20% of the amount by which total dividends on common stock and distributions on OP units exceeded 8% of book value on a per share basis. Effective as of March 5, 2019, the incentive fee was restructured into both a quarterly
The accompanying notes are an integral part of the consolidated interim financial statements.
36


and annual component. A quarterly incentive fee is payable to the Manager if the sum of the Company’s dividends on its common stock, its distributions on its externally-held operating partnership units and its increase in book value, all relative to the applicable quarter and calculated per-share on an annualized basis, exceed 8%. The Manager will also be entitled to an annual incentive fee if the sum of the Company’s quarterly cash dividends on its common stock, special cash dividends on its common stock and distributions on its externally-held operating partnership units within the applicable calendar year exceed 8% of the Company’s book value per share as of the end of the calendar year. However, no incentive fee will be payable to the Manager with respect to any calendar quarter unless the Company’s cumulative core earnings, defined as U.S. GAAP net income or loss less non-cash equity compensation, unrealized gains or losses from mark-to-market adjustments, one-time adjustments to earnings resulting from changes to U.S. GAAP, and certain other non-cash items, is greater than zero for the most recently completed 8 calendar quarters. In the event that the payment of the quarterly base management fee has not reached the 50/50 split, up to 100% of the incentive fee will be payable in shares of the Company’s common stock, at the Company's discretion, until the 50/50 split occurs. In the event that the total payment of the quarterly base management fee and the incentive fee has reached the 50/50 split, up to 20% of the remaining incentive fee is payable in shares of the Company’s common stock at the Company's discretion and the remaining incentive fee is payable in cash. In the first quarter of 2020 and 2019 the Company recorded an expense of $0 and $0.2 million, respectively, for an incentive fee payable to the Manager.

The Company also reimburses the Manager for all third-party, out-of-pocket costs incurred by the Manager for managing its business, including third-party due diligence and valuation consultants, legal expenses, auditors and other financial services. The reimbursement obligation is not subject to any dollar limitation. Expenses are reimbursed in cash on a monthly basis.

The Company will be required to pay the Manager a termination fee in the event that the Management Agreement is terminated as a result of (i) a termination by the Company without cause, (ii) its decision not to renew the Management Agreement upon the determination of at least two thirds of the Company’s independent directors for reasons including the failure to agree on revised compensation, (iii) a termination by the Manager as a result of the Company becoming regulated as an “investment company” under the Investment Company Act of 1940, as amended (the “Investment Company Act”) (other than as a result of the acts or omissions of the Manager in violation of investment guidelines approved by the Company’s Board of Directors), or (iv) a termination by the Manager if the Company defaults in the performance of any material term of the Management Agreement (subject to a notice and cure period). The termination fee will be equal to twice the combined base fee and incentive fees payable to the Manager during the 12-month period ended as of the end of the most recently completed fiscal quarter prior to the date of termination.

Servicing Agreement

The Company is also a party to the Servicing Agreement, expiring July 8, 2029, with the Servicer. The Company’s overall servicing costs under the Servicing Agreement will vary based on the types of assets serviced.

Servicing fees range from 0.65% to 1.25% annually UPB at acquisition (or the fair market value or purchase price of REO), and are paid monthly. For certain of the Company's securitization trusts, the servicing fee rate for RPLs is reduced to an annual servicing fee rate of 0.42% annually on a loan-by-loan basis for any loan that makes seven consecutive payments. The servicing fee is based upon the status of the loan at acquisition. A change in status from RPL to NPL does not cause a change in the servicing fee rate.

Servicing fees for the Company’s real property assets that were previously RPLs that are not held in joint ventures are the greater of (i) the servicing fee applicable to the underlying mortgage loan prior to foreclosure, or (ii) 1.00% annually of the fair market value of the REO as reasonably determined by the Manager or 1.00% annually of the purchase price of any REO otherwise purchased by the Company. The servicing fee for NPLs that convert to real property assets does not change. For the joint ventures, a conversion from a loan to a real property asset does not cause a change in servicing fee rate.

The Servicer is reimbursed for all customary, reasonable and necessary out-of-pocket costs and expenses incurred in the performance of its obligations, including the actual cost of any repairs and renovations undertaken on the Company’s behalf. The total fees incurred by the Company for these services will be dependent upon the UPB and type of mortgage loans that the Servicer services, property values, previous UPB of the relevant loan, and the number of REO properties.

If the Servicing Agreement has been terminated other than for cause and/or the Servicer terminates the servicing agreement, the Company will be required to pay a termination fee equal to the aggregate servicing fees payable under the servicing agreement for the immediate preceding 12-month period.

The accompanying notes are an integral part of the consolidated interim financial statements.
37


Trademark Licenses

Aspen has granted the Company a non-exclusive, non-transferable, non-sublicensable, royalty-free license to use the name “Great Ajax” and the related logo. The Company also has a similar license to use the name “Thetis.” The agreement has no specified term. If the Management Agreement expires or is terminated, the trademark license agreement will terminate within 30 days. In the event that this agreement is terminated, all rights and licenses granted thereunder, including, but not limited to, the right to use “Great Ajax” in its name will terminate. Aspen also granted to the Manager a substantially identical non-exclusive, non-transferable, non-sublicensable, royalty-free license use of the name “Thetis.”

Note 11 — Stock-based Payments and Director Fees

Pursuant to the terms of the Management Agreement, the Company may pay a portion of the base fee to the Manager in shares of its common stock with the number of shares determined based on the average of the closing prices of its common stock on the NYSE on the five business days preceding the date on which the most recent regular quarterly dividend to holders of its common stock is paid. The Company recognized a base management fee to the Manager for the quarter ended March 31, 2020 of $1.8 million, of which NaN was payable in shares of its common stock as the Board of Directors approved the management fee to be paid in all cash.

In addition, through the first quarter of 2019, each of the Company’s independent directors received an annual retainer of $75,000, payable quarterly, half of which was paid in shares of the Company’s common stock on the same basis as the stock portion of the management fee payable to the Manager and half in cash. The annual fee was increased to $100,000, 40% of which is payable in shares of the Company's common stock and 60% in cash, which became effective as of April 1, 2019.

The following table sets forth the Company’s stock-based management fees and independent director fees ($ in thousands except share amounts):

Stock-based Management Fees and Director Fees
For the three months ended March 31,
20202019
Number of shares
Amount of expense recognized(1)
Number of shares
Amount of expense recognized(1)
Management fees—  $—  62,301  $728  
Independent director fees3,468  40  2,764  38  
Totals3,468  $40  65,065  $766  

(1)All management fees and independent director fees are fully expensed in the period in which the relevant service is received by the Company.
Restricted Stock

Each independent director is issued a restricted stock award of 2,000 shares of the Company’s common stock subject to a one-year vesting period upon initial appointment to the Company’s Board of Directors. On August 17, 2016, the Company granted 153,000 shares of restricted stock to employees of its Manager and Servicer, which was reduced in 2017 by forfeitures of 4,000 shares and in 2018 by forfeitures of 2,666 shares. On July 24, 2017, the Company granted 39,000 shares of restricted stock to employees of its Manager and Servicer, which was reduced in 2019 by forfeitures of 333 shares. On July 31, 2018, the Company granted 36,500 shares of restricted stock to employees of its Manager and Servicer, which was reduced in 2019 by forfeitures of 2,500 shares. On August 1, 2019, the Company granted 79,000 shares of restricted stock to employees of its Manager and Servicer. The shares vest over three years, with one third of the shares vesting on each of the first, second and third anniversaries of the grant date. The shares may not be sold until the third anniversary of the grant date. Grants of restricted stock use grant date fair value of the stock as the basis for measuring the cost of the grant.


The accompanying notes are an integral part of the consolidated interim financial statements.
38


The following table sets forth the activity in the Company’s restricted stock plans ($ in thousands, except per share amounts):

Total GrantsCurrent period activityNon-vested shares at March 31, 2020Fully-vested shares at March 31, 2020
Three months ended March 31, 2020Total shares grantedTotal expected cost of grantShares granted during the yearGrant expense recognized for the three months ended March 31, 2020SharesPer share grant date fair valueSharesPer share grant date fair value
Employee and Service Provider Grant 2017(1,4)
38,667  $539  —  $44  12,667  $13.95  26,000  $13.95  
Employee and Service Provider Grant 2018(2,5)
34,000  462  —  38  22,667  13.58  11,333  13.58  
Employee and Service Provider Grant 2019(3)
79,000  1,101  —  92  79,000  13.94  —  —  
Totals151,667  $2,102  —  $174  114,334  $13.87  37,333  $13.84  

(1)Vesting is ratable over three-year period from grant date. Weighted average remaining life of grant at March 31, 2020 is 0.3 years.
(2)Vesting is ratable over three-year period from grant date. Weighted average remaining life of grant at March 31, 2020 is 1.4 years.
(3)Vesting is ratable over three-year period from grant date. Weighted average remaining life of grant at March 31, 2020 is 2.3 years.
(4)Total is shown net of 2019 forfeitures of 333 shares.
(5)Total is shown net of 2019 forfeitures of 2,500 shares.

Total GrantsCurrent period activityNon-vested shares at March 31, 2019Fully-vested shares at March 31, 2019
Three months ended March 31, 2019Total shares grantedTotal expected cost of grantShares granted during the yearGrant expense recognized for the three months ended March 31, 2019SharesPer share grant date fair valueSharesPer share grant date fair value
Directors’ Grants 2018(1)
12,000  $162  —  $14  —  $13.48  12,000  $13.48  
Employee and Service Provider Grant 2016(2,5)
146,334  1,976  —  163  47,889  13.50  98,445  13.50  
Employee and Service Provider Grant 2017(3)
39,000  544  —  45  26,000  13.95  13,000  13.95  
Employee and Service Provider Grant 2018(4)
36,500  496  —  41  36,500  13.58  —  —  
Totals233,834  $3,178  —  $263  110,389  $13.63  123,445  $13.55  

(1)Half of the 12,000 shares granted vested immediately on the grant date while the remaining shares vest ratably over a one-year period. Grant is fully vested at March 31, 2019.
(2)Vesting is ratable over three-year period from grant date. Weighted average remaining life of grant at March 31, 2019 is 0.4 years.
(3)Vesting is ratable over three-year period from grant date. Weighted average remaining life of grant at March 31, 2019 is 1.3 years.
(4)Vesting is ratable over three-year period from grant date. Weighted average remaining life of grant at March 31, 2019 is 2.4 years.
(5)Total is shown net of 2017 forfeitures of 4000 shares and 2018 forfeitures of 2666 shares.
​​
Note 12 — Income Taxes

As a REIT, the Company must meet certain organizational and operational requirements including the requirement to distribute at least 90% of its annual REIT taxable income to its stockholders. And as a REIT, the Company generally will not be subject to U.S. federal income tax to the extent the Company distributes its REIT taxable income to its stockholders and provided the Company satisfies the REIT requirements including certain asset, income, distribution and stock ownership tests.
The accompanying notes are an integral part of the consolidated interim financial statements.
39


If the Company fails to qualify as a REIT, and does not qualify for certain statutory relief provisions, it will be subject to U.S. federal, state and local income taxes and may be precluded from qualifying as a REIT for the subsequent 4 taxable years following the year in which it lost its REIT qualification.

The Company’s consolidated financial statements include the operations of two TRS entities, GA-TRS and GAJX Real Estate Corp., which are subject to U.S. federal, state and local income taxes on their taxable income.

For the three months ended March 31, 2020, the Company’s consolidated taxable income was $1.2 million; and provisions for income taxes were $0.3 million. For the three months ended March 31, 2019, the Company’s consolidated taxable income was $2.0 million; and provisions for income taxes of $0.1 million. The Company recognized 0 deferred income tax assets or liabilities on its consolidated balance sheets at March 31, 2020 or 2019. The Company also recorded 0 interest or penalties for either the three months ended March 31, 2020 or 2019.

Note 13 — Earnings per Share

The following table sets forth the components of basic and diluted EPS ($ in thousands, except per share):

Three months ended March 31, 2020Three months ended March 31, 2019
Income
(Numerator)
Shares
(Denominator)
Per Share
Amount
Income
(Numerator)
Shares
(Denominator)
Per Share
Amount
Basic EPS
Consolidated net income attributable to common stockholders$400  22,070,354  $7,330  18,811,713  
Allocation of earnings to participating restricted shares(2) —  (84) —  
Consolidated net income attributable to unrestricted common stockholders$398  22,070,354  $0.02  $7,246  18,811,713  $0.39  
Effect of dilutive securities
Operating Partnership units—  —  239  624,106  
Restricted stock grants and Manager and director fee shares 119,630  84  217,316  
Interest expense (add back) and assumed conversion of shares from convertible senior notes(1)
—  —  2,549  8,176,313  
Diluted EPS
Consolidated net income attributable to common stockholders and dilutive securities$400  22,189,984  $0.02  $10,118  27,829,448  $0.36  

(1)The effect of the interest expense and assumed conversion of shares from convertible senior notes on the Company's Diluted EPS calculation for the first quarter of 2020 would have been anti-dilutive, accordingly the effect of these securities have been removed from the Diluted EPS calculation for the quarter ended March 31, 2020.

Note 14 — Equity

Common stock

As of March 31, 2020 and December 31, 2019 the Company had 22,921,935 and 22,142,143 shares, respectively, of $0.01 par value common stock outstanding with 125,000,000 shares authorized at each period end.

Preferred stock

The accompanying notes are an integral part of the consolidated interim financial statements.
40


The Company had 0 shares of preferred stock outstanding at March 31, 2020 and December 31, 2019. There were 25,000,000 shares authorized as of March 31, 2020 and December 31, 2019. See Note 15 — Subsequent events for description of the Company's issuance of preferred stock in April 2020.

Treasury stock

As of March 31, 2020 the Company held 37,278 shares of treasury stock received through distributions of the Company's shares previously held by its Manager. The Company held 33,248 shares of treasury stock at December 31, 2019.

Dividend Reinvestment Plan

The Company sponsors a dividend reinvestment plan through which stockholders may purchase additional shares of the Company’s common stock by reinvesting some or all of the cash dividends received on shares of the Company’s common stock. During the three months ended March 31, 2020 0 shares were issued under the plan. Comparatively, during the three months ended March 31, 2019 5,321 shares were issued under the plan for total proceeds of approximately $0.1 million.

Stock Dividend

On March 24, 2020 the Company announced that it would pay its declared dividend of $0.32 per share in shares of the Company's common stock (value based upon the $9.14 per share closing price on the record date of March 17, 2020). The dividend was paid on March 27, 2020 through the issuance of 781,222 shares of common stock.

At-the-Market Offering

The Company has entered into an equity distribution agreement under which the Company may sell shares of its common stock having an aggregate offering price of up to $50.0 million from time to time in any method permitted by law deemed to be an “at the market” offering as defined in Rule 415 under the Securities Act of 1933, as amended, or the Securities Act. During the three months ended March 31, 2020 and 2019, 0 shares were sold under the at-the-market program.

Accumulated Other Comprehensive Loss

The Company recognizes unrealized gains or losses on its investment in debt securities as components of Other comprehensive income/(loss). Accumulated other comprehensive gain/(loss) at March 31, 2020 and December 31, 2019 was as follows ($ in thousands):

Investments in securities:March 31, 2020December 31, 2019
Unrealized gains$—  $1,643  
Unrealized losses(27,167) (366) 
Accumulated other comprehensive gain/(loss)$(27,167) $1,277  

Non-controlling Interest

During the Company’s second quarter of 2019, all the outstanding 624,106 OP units held by the unaffiliated holder were exchanged for shares of the Company’s common stock, resulting in a reclassification within the Company's consolidated Statement of Changes in Equity of $10.8 million from non-controlling interest to the Additional Paid-in Capital and Common Stock accounts. At March 31, 2020, the Company’s Operating Partnership was 100% owned by the Company. The Company consolidates the assets, liabilities, revenues and expenses of the Operating Partnership.

At March 31, 2020, the Company had non-controlling interests attributable to ownership interests by 4 legal entities.

During the year ended December 31, 2017, the Company established AS Ajax E II LLC, to purchase and hold an investment in a Delaware trust which holds single family residential real estate loans, SBC loans and other real estate assets. AS Ajax E II LLC is 46.9% held by third parties. As of March 31, 2020 the Company had retained 53.1% of AS Ajax E II LLC and consolidates the assets, liabilities, revenues and expenses of the entity.

The accompanying notes are an integral part of the consolidated interim financial statements.
41


During the year ended December 31, 2017, the Company established 2017-D, a securitization trust, which is 50% held by an accredited institutional investor. As of March 31, 2020 the Company had retained 50% of 2017-D and consolidates the assets, liabilities, revenues and expenses of the trust.

During the year ended December 31, 2018, the Company established 2018-C, a securitization trust, which is 37.0% held by an accredited institutional investor. As of March 31, 2020 the Company had retained 63.0% of 2018-C and consolidates the assets, liabilities, revenues and expenses of the trust.

During the year ended December 31, 2019 formed Great Ajax II REIT which holds an interest in Great Ajax II Depositor LLC which was formed to act as the depositor of mortgage loans into securitization trusts and to hold the subordinated securities issued by such trusts and any additional trusts the Company may form for additional secured borrowings and is 0.2% held by third parties. As of March 31, 2020, the Company had retained 99.8% of Great Ajax II REIT and consolidates the assets, liabilities, revenues and expenses of the entity.

During the year ended December 31, 2018, the Company established BFLD, to purchase and hold REO property. BFLD was 10.0% held by a third party and 90.0% retained by the Company through its Gaea subsidiary. During the year ended December 31, 2019, the Company established DG Brooklyn Holdings, to purchase and hold REO property. DG Brooklyn Holdings was 5.0% held by a third party and 95.0% owned by the Company through Gaea. On November 22, 2019, the Company undertook a private capital raise transaction for Gaea which resulted in the Company's deconsolidation of Gaea. As a result, the Company did not consolidate either BFLD or DG Brooklyn Holdings at March 31, 2020 or December 31, 2019. The Company has retained a 23.2% interest in Gaea which is accounted for under the equity method.

The following table sets forth the effects of changes in the Company's ownership interest due to transfers to or from non-controlling interest ($ in thousands):

March 31, 2020December 31, 2019
Decrease from redemption of OP units by third party investor$—  $(10,816) 
Decrease due to deconsolidation of Gaea—  (22) 
Change in non-controlling interest$—  $(10,838) 

Note 15 — Subsequent Events

Loan Acquisitions

The Company has acquired 677 residential RPLs with aggregate UPB of $123.2 million in 1 transaction from a single seller. The purchase price equals 92.5% of UPB and 60.0% of the estimated market value of the underlying collateral of $189.9 million. These loans were acquired into the joint venture formed in March 2020 with proceeds from the established prefunding account.

Preferred Stock

On April 6, 2020, the Company closed a private placement of $80.0 million of preferred stock and warrants to institutional accredited investors pursuant to a securities purchase agreement dated April 3, 2020. The Company issued 820,000 shares of 7.25% Series A Fixed-to-Floating Rate Preferred Stock and 2,380,000 shares of 5.00% Series B Fixed-to-Floating Rate Preferred Stock, each at a purchase price per share of $25.00 and two series of five-year warrants to purchase an aggregate of 4,000,000 shares of the Company's common stock at an exercise price of $10.00 per share. Each series of warrants includes a put option that allows the holder to sell the warrants to the Company at a specified put price on or after July 6, 2023. In addition, the Company granted the purchasers an option to purchase up to an additional 800,000 shares of Series A Preferred Stock and Series B Preferred Stock and warrants to purchase an aggregate of 1,000,000 shares of the Company's common stock on the same terms. The Company expects to use the net proceeds from the private placement to acquire mortgage loans and mortgage-related assets consistent with its investment strategy.

Management Agreement Amendment



The accompanying notes are an integral part of the consolidated interim financial statements.
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On April 28, 2020 , the Company's Board of Directors approved the Third Amended and Restated Management Agreement with the Manager, which provides the Company with the option to pay its management fee between 50% to 100% cash at the Company's discretion, and pay the remainder in shares of its common stock.

Dividend Declaration

On May 3, 2020, the Company’s Board of Directors declared a cash dividend of $0.17 per share, to be paid on May 29, 2020 to stockholders of record as of May 15, 2020. On March 27, 2020, the Company paid the dividend of $0.32 per share we previously announced in February 2020 in shares of our common stock (valued based upon the closing price on the record date) in lieu of cash.


The accompanying notes are an integral part of the consolidated interim financial statements.
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CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS

Some of the statements under “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” and elsewhere in this quarterly report constitute forward-looking statements. Forward-looking statements relate to expectations, beliefs, projections, future plans and strategies, anticipated events or trends, and similar expressions concerning matters that are not historical facts. In some cases, you can identify forward-looking statements by terms such as “anticipate,” “believe,” “could,” “estimate,” “expect,” “intend,” “may,” “plan,” “potential,” “should,” “will” and “would” or the negatives of these terms or other comparable terminology.

The forward-looking statements are based on our beliefs, assumptions and expectations of our future performance, taking into account all information currently available to us. These beliefs, assumptions and expectations can change as a result of many possible events or factors, not all of which are known to us or are within our control. If a change occurs, our business, financial condition, liquidity and results of operations may vary materially from those expressed in our forward-looking statements. You should carefully consider these risks, along with the following factors that could cause actual results to vary from our forward-looking statements:

the impact of adverse real estate, mortgage or housing markets and changes in the general economy;
changes in our business strategy;
the impact of the global pandemic caused by the novel coronavirus ("COVID-19") outbreak;
general volatility of the capital markets;
the impact of adverse legislative or regulatory tax changes;
our ability to obtain financing arrangements on favorable terms or at all;
our ability to implement our business strategy;​
difficulties in identifying re-performing loans (“RPLs”), small balance commercial mortgage loans (“SBC loans”) and properties to acquire; and the impact of changes to the supply of, value of and the returns on RPLs and SBC loans;​
our ability to compete with our competitors;​
our ability to control our costs;​
the impact of changes in interest rates and the market value of the collateral underlying our RPL and non-performing loan (“NPL”) portfolios or of our other real estate assets;​
our ability to convert NPLs into performing loans or to modify or otherwise resolve such loans;​
our ability to convert NPLs to properties that can generate attractive returns either through sale or rental;​
our ability to retain our engagement of our Manager;​
the failure of the Servicer to perform its obligations under the Servicing Agreement;​
our failure to qualify or maintain qualification as a real estate investment trust (“REIT”); and​​
our failure to maintain our exemption from registration under the Investment Company Act of 1940, as amended (the “Investment Company Act”).
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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

In this quarterly report on Form 10-Q (“report”), unless the context indicates otherwise, references to “Great Ajax,” “we,” “the company,” “our” and “us” refer to the activities of and the assets and liabilities of the business and operations of Great Ajax Corp.; “operating partnership” refers to Great Ajax Operating Partnership L.P., a Delaware limited partnership; “our Manager” refers to Thetis Asset Management LLC, a Delaware limited liability company; “Aspen Capital” refers to the Aspen Capital group of companies; “Aspen” and “Aspen Yo” refers to Aspen Yo LLC, an Oregon limited liability company that is part of Aspen Capital; and “the Servicer” and “Gregory” refer to Gregory Funding LLC, an Oregon limited liability company and our affiliate, and an indirect subsidiary of Aspen Yo.
 
Our Management’s Discussion and Analysis of Financial Condition and Results of Operations should be read in conjunction with the unaudited interim consolidated financial statements and related notes included in Item 1. Consolidated interim financial statements of this report and in Item 8. Financial statements and supplementary data in our most recent Annual Report on Form 10-K, as well as the section entitled “Risk Factors” in Part II, Item 1A. of this report, as well as other cautionary statements and risks described elsewhere in this report and our most recent Annual Report on Form 10-K.

Overview

Great Ajax Corp. is a Maryland corporation that is organized and operated in a manner intended to allow us to qualify as a REIT. We primarily target acquisitions of RPLs, which are residential mortgage loans on which 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, or the full dollar amount, to cover at least five payments has been paid in the last seven months. We also acquire and originate SBC loans. The SBC loans that we target through acquisitions generally have a principal balance of up to $5.0 million and are secured by multi-family residential and commercial mixed use retail/residential properties on which 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, or the full dollar amount, to cover at least five payments has been paid in the last seven months. We also originate SBC loans that we believe will provide an appropriate risk-adjusted total return. Additionally, we invest in single-family and smaller commercial properties directly either through a foreclosure event of a loan in its mortgage portfolio or through a direct acquisition. We may also target investments in NPLs either directly or with joint venture partners. NPLs are loans on which the most recent three payments have not been made. We may acquire NPLs either directly or with joint venture partners. We own a 19.8% equity interest in the Manager and an 8.0% equity interest in the parent company of our Servicer. GA-TRS is a wholly-owned subsidiary of the Operating Partnership that owns the equity interest in the Manager and the Servicer. We have elected to treat GA-TRS as a taxable REIT subsidiary under the Code. Our mortgage loans and real properties are serviced by the Servicer, also an affiliated company.

In 2014, we formed Great Ajax Funding LLC, a wholly-owned subsidiary of the Operating Partnership, to act as the depositor of mortgage loans into securitization trusts and to hold the subordinated securities issued by such trusts and any additional trusts we may form for additional secured borrowings. AJX Mortgage Trust I and AJX Mortgage Trust II are wholly-owned subsidiaries of the Operating Partnership formed to hold mortgage loans used as collateral for financings under our repurchase agreements. On February 1, 2015, we formed GAJX Real Estate Corp., as a wholly-owned subsidiary of the Operating Partnership, to own, maintain, improve and sell certain REO purchased by us. We have elected to treat GAJX Real Estate Corp. as a TRS under the Code.

Our Operating Partnership, through interests in certain entities, holds 100% of Great Ajax II REIT Inc. which holds an interest in Great Ajax II Depositor LLC which was formed to act as the depositor of mortgage loans into securitization trusts and to hold the subordinated securities issued by such trusts and any additional trusts we may form for additional secured borrowings. We have securitized mortgage loans through a securitization trust and retained subordinated securities from the secured borrowings. This trust is considered to be a VIE, and the we have determined that we are the primary beneficiary of this VIE.

In 2018, we formed Gaea Real Estate Corp. ("Gaea"), a wholly-owned subsidiary of the Operating Partnership. We have elected to treat Gaea as a TRS under the Code. Also during 2018, we formed Gaea Real Estate Operating Partnership LP, a wholly-owned subsidiary of Gaea, to hold investments in commercial real estate assets. We also formed BFLD Holdings LLC ("BFLD"), Gaea Commercial Properties LLC, Gaea Commercial Finance LLC and Gaea RE LLC as subsidiaries of Gaea Real Estate Operating Partnership. In 2019, we formed DG Brooklyn Holdings ("DG Brooklyn Holdings"), also a subsidiary of Gaea Real Estate Operating Partnership LP, to hold investments in multi-family properties. On November 22, 2019, Gaea completed a private capital raise in which it raised $66.3 million from the issuance of 4,419,641 shares of its common stock to third parties to allow Gaea to continue to advance its investment strategy. We retained a 23.2% ownership interest in Gaea following the transaction.
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We elected to be taxed as a REIT for U.S. federal income tax purposes beginning with our taxable year ended December 31, 2014. Our qualification as a REIT depends upon our ability to meet, on a continuing basis, various complex requirements under the Code relating to, among other things, the sources of our gross income, the composition and values of our assets, our distribution levels and the diversity of ownership of our capital stock. We believe that we are organized in conformity with the requirements for qualification as a REIT under the Code, and that our current intended manner of operation enables us to meet the requirements for taxation as a REIT for U.S. federal income tax purposes.

Our Portfolio

The following table outlines the carrying value of our portfolio of mortgage loan assets and single-family and smaller commercial properties as of March 31, 2020 and December 31, 2019 ($ in millions):

March 31, 2020December 31, 2019
Residential RPL loan pools$1,066.6  $1,085.5  
SBC loan pools—  11.7  
Other mortgage loans non-pooled(1)
4.2  23.4  
Residential NPL loan pools27.9  30.9  
Property held-for-sale, net10.9  13.5  
Rental property, net1.3  1.5  
Investment in debt securities247.4  231.7  
Investment in beneficial interests64.7  58.0  
Total Real Estate Assets$1,423.0  $1,456.2  

(1)Other mortgage loans non-pooled are accounted for as non-PCD loans under CECL.

We closely monitor the status of our mortgage loans and, through our Servicer, work with our borrowers to improve their payment records.

Market Trends and Outlook

COVID-19

The spread of COVID-19 has created a global public-health crisis that has resulted in widespread volatility and deteriorations in household, business, and economic market conditions, including in the United States, where we conduct all of our business. COVID-19 has not yet been contained and could affect significantly more households and businesses in the coming months. While the duration and severity of the pandemic has yet to be identified, many governmental and nongovernmental authorities have directed their actions toward curtailing household and business activity in order to contain COVID-19 while simultaneously deploying fiscal- and monetary-policy measures in order to partially mitigate the adverse effects. Whether these programs and policies will be successful in mitigating the adverse of COVID-19 is unclear. Many of the
government measures have impacted the mortgage market.

COVID-19 began to meaningfully impact our operations in late March 2020 and this disruption is reflected in our results of operations for the quarter ended March 31, 2020 as follows:

We recorded total provisions expense of $5.1 million on our Mortgage loan portfolio and Investments in beneficial interests as a result of expectations of extended portfolio durations and longer foreclosure and eviction timelines,
We recorded a $28.4 million unrealized loss on our Investments in debt securities to Other comprehensive income as counterparty marks at March 31, 2020 reflecting the extreme disruption in the residential mortgage securities market.
We recorded impairments on our REO portfolio as extended eviction timelines will reduce our estimated net liquidation proceeds due to higher holding period costs and higher rehabilitation costs.
We settled margin calls in the amount of $28.2 million with our repurchase financing counterparties due to the extreme disruption in the residential mortgage securities market.

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The spread of COVID-19 has continued into April and May 2020. As a result, our forecast of macroeconomic conditions and expected lifetime credit losses on our mortgage loan and beneficial interest portfolios is subject to meaningful uncertainty. While our borrowers continue to make scheduled payments and we continue to receive payments in full, we have acted swiftly to support our borrowers with a mortgage forbearance program. While we generally do not hold loans guaranteed by GSEs or the US Government, we, through our Servicer, are nonetheless offering a forbearance program under similar terms. Borrowers that are able to provide documentation of a negative impact of COVID-19 are entitled to three months of forbearance. The three monthly payments may then be repaid over 12 months. HAMP loans, FHA loans and borrowers in certain states do not have to provide evidence that they are impacted by COVID-19. Our Servicer has extensive experience dealing with delinquent borrowers and we believe it is well positioned to react on our behalf to any increase in mortgage delinquencies. The following list shows the COVID-19 forbearance activity in our portfolio as of April 30, 2020(1):

Number of COVID-19 forbearance relief inquires: 920
Number of COVID-19 forbearance relief granted: 115
Number of COVID-19 related forbearance under review: 146
(1)Statistics are for loans carried on our balance sheet including loans held in Ajax 2017-D and Ajax 2018-C where third parties own 50% and 37%, respectively. Statistics do not include non-consolidated joint ventures where we own bonds and beneficial interests issued by the joint ventures.

In response to the disruption in the financial markets caused by COVID-19, we raised preferred equity in the first week of April 2020. We expect this additional capital to allow us to maintain liquidity in the short term and take advantage of favorable investment opportunities. Not withstanding this additional capital and liquidity, we expect continued volatility in the residential mortgage securities market in the short term and increased acquisition opportunities later in the year. Extended forbearance, foreclosure timelines and eviction timelines could result in lower yields and losses on our mortgage loan and beneficial interest portfolios and losses on our REO held-for-sale. Ongoing disruption in the credit markets could result in additional margin calls from our financing counterparties and additional mark downs on our Investments in debt securities.

We believe that certain cyclical trends continue to drive a significant realignment within the mortgage sector notwithstanding the impact of COVID-19. Through the end of the first quarter, the recent trends noted below have continued, including:

historically low interest rates and elevated operating costs resulting from new regulatory requirements continue to drive sales of residential mortgage assets by banks and other mortgage lenders;​
declining home ownership due to rising prices, low inventory, tighter lending standards and increased down payment requirements that have increased the demand for single-family and multi-family residential rental properties;​
the Dodd-Frank risk retention rules for asset backed securities have reduced the universe of participants in the securitization markets;​
the lack of a robust market for non-conforming mortgage loans will reduce the pool of buyers due to tighter credit standards as a result of COVID-19; and
the current market landscape and decrease in the price of residential mortgage loans as a result of the COVID-19 outbreak we believe will generate new opportunities in residential mortgage-related whole loan strategies.

The origination of subprime and alternative residential mortgage loans remain substantially below 2008 levels and the qualified mortgage and ability-to-repay rule requirements have put pressure on new originations. Additionally, many banks and other mortgage lenders have increased their credit standards and down payment requirements for originating new loans. Recent market disruption from COVID-19 has sharply reduced financing alternatives for borrowers not eligible for financing programs underwritten by the GSEs or the Federal government.

The combination of these factors has also resulted in a significant number of families that cannot qualify to obtain new residential mortgage loans. We believe the U.S. federal regulations addressing “qualified mortgages” based, among other factors on employment status, debt-to-income level, impaired credit history or lack of savings, limit mortgage loan availability from traditional mortgage lenders. In addition, we believe that many homeowners displaced by foreclosure or who either cannot afford to own or cannot be approved for a mortgage will prefer to live in single-family rental properties with similar characteristics and amenities to owned homes as well as smaller multi-family residential properties. In certain demographic areas, new households are being formed at a rate that exceeds the new homes being added to the market, which we believe favors future demand for non-federally guaranteed mortgage financing for single-family and smaller multi-family rental properties. For all these reasons, we believe that demand for single-family and smaller multi-family rental properties will increase in the near term and remain at heightened levels for the foreseeable future.

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We believe that investments in residential RPLs with positive equity provide an optimal investment value. As a result, we are currently focusing on acquiring pools of RPLs, though we may acquire NPLs, either directly or with joint venture partners, if attractive opportunities exist. Through our Servicer, we work with our borrowers to improve their payment records. Once there is a period of continued performance, we expect that borrowers will typically refinance these loans at or near the estimated value of the underlying property.

We also believe there are significant attractive investment opportunities in the SBC loan and property markets and originate as well as purchase these loans. The primary lenders for smaller multi-family and mixed retail/residential properties are community banks and not regional and national banks and large institutional lenders. We believe the primary lenders and loan purchasers are less interested in these assets because they typically require significant commercial and residential mortgage credit and underwriting expertise, special servicing capability and active property management. It is also more difficult to create the large pools of these loans that banks, other lenders and portfolio acquirers typically desire. We continually monitor opportunities to increase our holdings of these SBC loans and properties.

Factors That May Affect Our Operating Results

Acquisitions. Our operating results depend heavily on sourcing residential RPLs and SBC loans and, when attractive opportunities are identified, NPLs. We believe that there is generally a large supply of RPLs available to us for acquisition and we believe the available supply provides for a steady acquisition pipeline of assets since large institutions are active sellers in the market. We expect that our residential mortgage loan portfolio may grow at an uneven pace, as opportunities to acquire distressed residential mortgage loans may be irregularly timed and may involve large portfolios of loans, and the timing and extent of our success in acquiring such loans cannot be predicted. We also believe there may be increased opportunities to acquire NPLs due to COVID-19. In addition, for any given portfolio of loans that we agree to acquire, we typically acquire fewer loans than originally expected, as certain loans may be resolved prior to the closing date or may fail to meet our diligence standards. The number of loans not acquired typically constitutes a small portion of a particular portfolio. In any case where we do not acquire the full portfolio, we make appropriate adjustments to the applicable purchase price.

Financing. Our ability to grow our business by acquiring residential RPLs and SBC loans depends on the availability of adequate financing, including additional equity financing, debt financing or both in order to meet our objectives. We intend to leverage our investments with debt, the level of which may vary based upon the particular characteristics of our portfolio and on market conditions. We have funded and intend to continue to fund our asset acquisitions with non-recourse secured borrowings in which the underlying collateral is not marked-to-market and employ repurchase agreements without the obligation to mark-to-market the underlying collateral to the extent available. We securitize our whole loan portfolios, primarily as a financing tool, when economically efficient to create long-term, fixed rate, non-recourse financing with moderate leverage, while retaining one or more tranches of the subordinate MBS so created. The secured borrowings are structured as debt financings and not real estate investment conduit (“REMIC”) sales. We completed the securitization transactions pursuant to Rule 144A under the Securities Act of 1933, as amended (the “Securities Act”), in which we issued notes primarily secured by seasoned, performing and non-performing mortgage loans primarily secured by first liens on one-to-four family residential properties. Currently there is substantial uncertainty in the securitization markets which could limit our access to financing.
 
To qualify as a REIT under the Code, we generally will need to distribute at least 90% of our taxable income each year (subject to certain adjustments) to our stockholders. This distribution requirement limits our ability to retain earnings and thereby replenish or increase capital to support our activities.

Resolution Methodologies. We, through the Servicer, or our affiliates, employ various loan resolution methodologies with respect to our residential mortgage loans, including loan modification, collateral resolution and collateral disposition. The manner in which an NPL is resolved will affect the amount and timing of revenue we will receive. Our preferred resolution methodology is to modify NPLs. Once successfully modified and there is a period of continued performance, we expect that borrowers will typically refinance these loans at or near the estimated value of the underlying property. We believe modification followed by refinancing generates near-term cash flows, provides the highest possible economic outcome for us and is a socially responsible business strategy because it keeps more families in their homes. In certain circumstances, we may also consider selling these modified loans. Through historical experience, we expect that many of our NPLs will enter into foreclosure or similar proceedings, ultimately becoming REO that we can sell or convert into single-family rental properties that we believe will generate long-term returns for our stockholders. Our REO properties may be converted into single-family rental properties or they may be sold through REO liquidation and short sale processes. We expect the timelines for each of the different processes to vary significantly. The exact nature of resolution will depend on a number of factors that are beyond our control, including borrower willingness, property value, availability of refinancing, interest rates, conditions in the financial markets, regulatory environment and other factors. To avoid the 100% prohibited transaction tax on the sale of dealer property
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by a REIT, we may dispose of assets that may be treated as held “primarily for sale to customers in the ordinary course of a trade or business” by contributing or selling the asset to a TRS prior to marketing the asset for sale.

The state of the real estate market and home prices will determine proceeds from any sale of real estate. We will opportunistically and on an asset-by-asset basis determine whether to rent any REO we acquire, whether upon foreclosure or otherwise, we may determine to sell such assets if they do not meet our investment criteria. In addition, while we seek to track real estate price trends and estimate the effects of those trends on the valuations of our portfolios of residential mortgage loans, future real estate values are subject to influences beyond our control. Declining real estate prices, including as a result of COVID-19, are expected to negatively affect our results. We also expect that extended eviction timelines resulting from COVID-19 will negatively impact sales of our REO held-for-sale.

Conversion to Rental Property. From time to time we will retain an REO property as a rental property and may acquire rental properties through direct purchases at attractive prices. The key variables that will affect our residential rental revenues over the long-term will be the extent to which we acquire properties, which, in turn, will depend on the amount of our capital invested, average occupancy and rental rates in our owned rental properties. We expect the timeline to convert multi-family and single-family loans, into rental properties will vary significantly by loan, which could result in variations in our revenue and our operating performance from period to period. There are a variety of factors that may inhibit our ability, through the Servicer, to foreclose upon a residential mortgage loan and get access to the real property within the time frames we model as part of our valuation process. These factors include, without limitation: state foreclosure timelines and the associated deferrals (including from litigation); unauthorized occupants of the property; U.S. federal, state or local legislative action or initiatives designed to provide homeowners with assistance in avoiding residential mortgage loan foreclosures that may delay the foreclosure process; U.S. federal government programs that require specific procedures to be followed to explore the non-foreclosure outcome of a residential mortgage loan prior to the commencement of a foreclosure proceeding; and declines in real estate values and high levels of unemployment and underemployment that increase the number of foreclosures and place additional pressure on the already overburdened judicial and administrative systems. We do not expect to retain a material number of single family residential properties for use as rentals. We do, however, intend to focus on retaining multi-unit residences derived from foreclosures or acquired through outright purchases as rentals.

Expenses. Our expenses primarily consist of the fees and expenses payable by us under the Management Agreement and the Servicing Agreement. Additionally, our Manager incurs direct, out-of-pocket costs related to managing our business, which are contractually reimbursable by us. Loan transaction expense is the cost of performing due diligence on pools of mortgage loans under consideration for purchase. Professional fees are primarily for legal, accounting and tax services. Real estate operating expense consists of the ownership and operating costs of our REO properties, both held-for-sale and as rentals, and includes any charges for impairments to the carrying value of these assets, which may be significant. Those expenses may increase due to extended eviction timelines caused by COVID-19. Interest expense, which is subtracted from our Interest income to arrive at Net interest income, consists of the costs to borrow money.

Changes in Home Prices. As discussed above, generally, rising home prices are expected to positively affect our results, particularly as this should result in greater levels of re-performance of mortgage loans, faster refinancing of those mortgage loans, more re-capture of principal on greater than 100% LTV (loan-to-value) mortgage loans and increased recovery of the principal of the mortgage loans upon sale of any REO. Conversely, declining real estate prices are expected to negatively affect our results, particularly if the home prices should decline below our purchase price for the loans and especially if borrowers determine that it is better to strategically default as their equity in their homes decline. While home prices have risen to, or in some cases beyond, pre-Great Recession levels in many parts of the United States, there are still significant regions where values have not materially increased. We typically concentrate our investments in specific urban geographic locations in which we expect stable or better property markets. However, when we analyze loan and property acquisitions we do not take home price appreciation HPA into account except for rural properties for which we model negative HPA related to our expectation of worse than expected property condition. It is too early to determine the impact of the COVID-19 outbreak on HPA and the resulting impact on our markets.

We typically concentrate our investments in specific urban geographic locations in which we expect stable or better property markets, although we do not use any appreciation expectation in the acquisition price evaluation. To date, there has been no measurable data on the impact of COVID-19 on HPA and it is unclear what the short and long term impact will be. A significant decline in HPA will have an adverse impact on our operating results.

Changes in Market Interest Rates. With respect to our business operations, increases in existing interest rates, in general, may over time cause: (1) the value of our mortgage loan and MBS (retained from our secured borrowings) portfolio to decline; (2) coupons on our adjustable rate mortgages (“ARM”) and hybrid ARM mortgage loans and MBS to reset, although on a delayed basis, to higher interest rates; (3) prepayments on our mortgage loans and MBS portfolio to slow, thereby slowing
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the amortization of our purchase premiums and the accretion of our purchase discounts; (4) the interest expense associated with our borrowings to increase; and (5) to the extent we enter into interest rate swap agreements as part of our hedging strategy, the value of these agreements to increase. Conversely, decreases in interest rates, in general, may over time cause: (a) prepayments on our mortgage loan and MBS portfolio to increase, thereby accelerating the accretion of our purchase discounts; (b) the value of our mortgage loan and MBS portfolio to increase; (c) coupons on our ARM and hybrid ARM mortgage loans and MBS to reset, although on a delayed basis, to lower interest rates; (d) the interest expense associated with our borrowings to decrease; and (e) to the extent we enter into interest rate swap agreements as part of our hedging strategy, the value of these agreements to decrease. We currently expect the pace of loan prepayments to slow due to the COVID-19 outbreak.

Market Conditions. Due to the dramatic repricing of real estate assets that occurred during the 2008 financial crisis and the continuing uncertainty regarding the direction and continuing strength of the real estate markets including as a result of the COVID-19 outbreak, we believe a void in the debt and equity capital available for investing in real estate exists as many financial institutions, insurance companies, finance companies and fund managers have determined to reduce or discontinue investment in debt or equity related to real estate. We believe the dislocations in the residential real estate market have resulted or will result in an “over-correction” in the repricing of real estate assets, creating a potential opportunity for us to capitalize on these market dislocations and capital void to the extent we are able to obtain financing for additional purchases.

We believe that in spite of the continuing uncertain market environment for mortgage-related assets, including as a result of the COVID-19 outbreak, current market conditions offer potentially attractive investment opportunities for us, even in the face of a riskier and more volatile market environment. We expect that market conditions will continue to impact our operating results and will cause us to adjust our investment and financing strategies over time as new opportunities emerge and risk profiles of our business change.

COVID-19. The current outbreak of COVID-19 has also impacted, and is likely to continue to impact, directly or indirectly, many of the other factors discussed above, as well as other aspects of our business. New developments continue to emerge and it is not possible for us to predict with certainty which factors will impact our business. In addition, we cannot assess the impact of each factor on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements. In particular, it is difficult to fully assess the impact of COVID-19 at this time due to, among other things, uncertainty regarding the severity and duration of the outbreak domestically and internationally and the effectiveness of federal, state and local government efforts to contain the spread of COVID-19, the effects of those efforts on our business, the indirect impact on the U.S. economy and economic activity and the impact on the mortgage markets and capital markets.

Critical Accounting Policies and Estimates

Mortgage Loans

Loans acquired with deterioration in credit quality — As of their acquisition date the loans we acquire have generally suffered some credit deterioration subsequent to origination. As a result, prior to the adoption of ASU 2016-13, Financial Instruments - Credit Losses, otherwise known as CECL, on January 1, 2020, we were required to account for the mortgage loans pursuant to ASC 310-30, Accounting for Loans with Deterioration in Credit Quality. Under both standards, our recognition of interest income for loans with deteriorated credit quality ("PCD loans") is based upon its having a reasonable expectation of the amount and timing of the cash flows expected to be collected. When the timing and amount of cash flows expected to be collected are reasonably estimable, we use expected cash flows to apply the effective interest method of income recognition.

Under both CECL and ASC 310-30, acquired loans may be aggregated and accounted for as a pool of loans if the loans have common risk characteristics. A pool is accounted for as a single asset with a single composite interest rate and an aggregate expectation of cash flows. However, CECL allows more flexibility to adjust the loan pools as the underlying risk factors change over time. Under ASC 310-30, we determined RPLs to have common risk characteristics and accounted for them as a single loan pool for loans acquired within each three-month calendar quarter. Similarly, we determined NPLs to have common risk characteristics and accounted for them as a single non-performing pool for loans acquired within each three-month calendar quarter. The result was generally two additional pools (RPLs and NPLs) each quarter. Under CECL, we re-aggregated our loan pools around similar risk factors, while eliminating the previous distinction for the quarter in which loans were acquired. This resulted in reducing the number of loan pools to four, each of which is oriented around similar risk factors. Excluded from the aggregate pools are loans that pay in full subsequent to the acquisition closing date but prior to pooling. Any gain or loss on these loans is recognized as Interest income in the period the loan pays in full.

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Our accounting for PCD loans gives rise to an accretable yield and an allowance for credit losses. Under CECL, upon the acquisition of PCD loans we record the acquisition as three separate elements for 1) the amount of purchase discount which we expect to recover through eventual repayment by the borrower, 2) an allowance for future expected credit loss and 3) the UPB of the loan. The purchase price discount which we expect at the time of acquisition to collect over the life of the loans is the accretable yield. Cash flows expected at acquisition include all cash flows directly related to the acquired loan, including those expected from the underlying collateral. We recognize the accretable yield as Interest income on a prospective level yield basis over the life of the pool. The expectation of the amount of undiscounted cash flows to be collected is evaluated at the end of each calendar quarter. If we expect to collect greater cash flows over the life of the pool, any prior allowance is reversed to the extent of the increase and the expected yield to maturity is adjusted on a prospective basis. The allowance for credit losses is increased when we estimate we will not collect all amounts previously estimated to be collectible, and reduced when the underlying asset has been liquidated and all expected underlying cash flows have been realized. Management assesses the credit quality of the portfolio and the adequacy of loan loss reserves on a quarterly basis, or more frequently as necessary. Significant judgment is required in this analysis. Depending on the expected recovery of its investment, we consider the estimated net recoverable value of the loan pools as well as other factors, such as the fair value of the underlying collateral. Because these determinations are based upon projections of future economic events, which are inherently subjective, the amounts ultimately realized may differ materially from the carrying value as of the reporting date.

Our mortgage loans are secured by real estate. We monitor the credit quality of the mortgage loans in our portfolio on an ongoing basis, principally by considering loan payment activity or delinquency status. In addition, we assess the expected cash flows from the mortgage loans, the fair value of the underlying collateral and other factors, and evaluates whether and when it becomes probable that all amounts contractually due will not be collected.

Borrower payments on the mortgage loans are classified as principal, interest, payments of fees, or escrow deposits. Amounts applied as interest on the borrower account are similarly classified as interest for accounting purposes and are classified as operating cash flows in our consolidated Statement of Cash Flows. Amounts applied as principal on the borrower account including amounts contractually due from borrowers that exceed our basis in loans purchased at a discount, are similarly classified as principal for accounting purposes and are classified as investing cash flows in the consolidated Statement of Cash Flows as required under U.S. GAAP. Amounts received as payments of fees are recorded in Other income and classified as operating cash flows in the consolidated Statement of Cash Flows. Escrow deposits are recorded on the Servicer’s balance sheet and do not impact our cash flow.

Loans acquired or originated that have not experienced a deterioration in credit quality — while we generally acquire loans that have experienced deterioration in credit quality, we also acquire loans that have not experienced a deterioration in credit quality and originate SBC loans.

Accrual of interest on individual loans is discontinued when management believes that, after considering economic and business conditions and collection efforts, the borrower’s financial condition is such that collection of interest is doubtful. Our policy is to stop accruing interest when a loan’s delinquency exceeds 90 days. All interest accrued but not collected for loans that are placed on non-accrual status or subsequently charged-off are reversed against Interest income. Income is subsequently recognized on the cash basis until, in management’s judgment, the borrower’s ability to make periodic principal and interest payments returns and future payments are reasonably assured, in which case the loan is returned to accrual status.

An individual loan is considered to be impaired when, based on current events and conditions, it is probable we will be unable to collect all amounts due (both principal and interest) according to the contractual terms of the loan agreement. Impaired loans are carried at the present value of expected future cash flows discounted at the loan’s effective interest rate, the loan’s market price, or the fair value of the collateral if the loan is collateral dependent. For individual loans, a troubled debt restructuring is a formal restructuring of a loan where, for economic or legal reasons related to the borrower’s financial difficulties, a concession that would not otherwise be considered is granted to the borrower. The concession may be granted in various forms, including providing a below-market interest rate, a reduction in the loan balance or accrued interest, an extension of the maturity date, or a combination of these. An individual loan that has had a troubled debt restructuring is considered to be impaired and is subject to the relevant accounting for impaired loans.

If necessary, an allowance for loan losses is established through a provision for loan losses charged to expenses. The allowance is the difference between the expected future cash flows from the loan and the contractual balance due.

Real Estate

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REO Property — we acquire real estate properties directly from sellers and when we foreclose on a borrower and take title to the underlying property (REO). REO is recorded at cost if purchased, or at the present value of future cash flows if obtained through foreclosure. REO we expect to actively market for sale is classified as held-for-sale. REO held-for-sale is carried at the lower of its acquisition basis, or its net realizable value (estimated fair market value less expected selling costs). We estimate fair market value using a combination of BPOs, comparable sales, appraisals, and competitive market analyses provided by local realtors subject to our judgment. Net unrealized losses due to changes in market value are recognized through a valuation allowance by charges to income. No depreciation or amortization expense is recognized on properties held-for-sale, while holding costs are expensed as incurred. Foreclosed property that is sold to a third party at the foreclosure sale (“Third Party Sales”) is not considered REO and proceeds on these third party sales are treated as payment in satisfaction of the underlying loan. See Mortgage Loans, above.

Rental property is real estate property not held-for-sale. Rental property is intended to be held as long-term investments but may eventually be held-for-sale. Property is held for investment as rental property if the modeled present value of the future expected cash flows from use as a rental exceed the present value of expected cash flows from a sale. Depreciation is provided for using the straight-line method over the estimated useful lives of the assets of 27.5 years. We perform an impairment analysis for all rental property not held-for-sale using estimated cash flows if events or changes in circumstances indicate that the carrying value may be impaired, such as prolonged vacancy, identification of materially adverse legal or environmental factors, changes in expected ownership period or a decline in market value to an amount less than cost. This analysis is performed at the property level. The cash flows are estimated based on a number of assumptions that are subject to economic and market uncertainties including, among others, demand for rental properties, competition for customers, changes in market rental rates, costs to operate each property and expected ownership periods.

If the carrying amount of a held for investment asset exceeds the sum of its undiscounted future operating and residual cash flows, an impairment loss is recorded for the difference between estimated fair value of the asset and the carrying amount. We generally estimate the fair value of assets held for use by using BPOs, comparable sales or realtor competitive market analysis. In some instances, appraisal information may be available and is used in addition to other measures of fair value.

From time to time, we perform property renovations to maximize the value of REO held-for-sale and held for investment. Such expenditures are generally advanced by our Servicer and recovered by our Servicer when the property is liquidated (for REO property held-for-sale) or upon completion of the renovations (for REO property held for investment). For residential and commercial properties that are not held-for-sale, the carrying value, including any renovations that improve or extend the life of the asset, are accounted for at cost. The cost basis is depreciated using the straight-line method over an estimated useful life of 27.5 years. Interest and other carrying costs incurred during the renovation period are capitalized until the property is ready for its intended use. Expenditures for ordinary maintenance and repairs are charged to expense as incurred. We generally intend to limit rental activity to multifamily or multi-unit single family properties.

Investments at fair value

Our Investments at Fair Value as of March 31, 2020 and December 31, 2019 consist of investments in senior and subordinate notes issued by joint ventures which we form with third party institutional accredited investors. We recognize income on the debt securities using the effective interest method. Additionally, the notes are classified as available for sale and are carried at fair value with changes in fair value reflected in our consolidated statements of comprehensive income. We mark our investments to fair value using prices received from our financing counterparties and believe any unrealized losses on our debt securities to be temporary. Any other-than-temporary losses, which represent the excess of the amortized cost basis over the present value of expected future cash flows, are recognized in the period identified in our consolidated statements of income. Risks inherent in our debt securities portfolio, affecting both the valuation of the securities as well as the portfolio's interest income include the risk of default, delays and inconsistency in the frequency and amount of payments, risks affecting borrowers such as man-made or natural disasters, or the COVID-19 outbreak, and damage to or delay in realizing the value of the underlying collateral. We monitor the credit quality of the mortgage loans in underlying its debt securities on an ongoing basis, principally by considering loan payment activity or delinquency status. In addition, we assess the expected cash flows from the mortgage loans, the fair value of the underlying collateral and other factors, and evaluate whether and when it becomes probable that all amounts contractually due will not be collected.

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Investments in Beneficial Interests

Our Investments in beneficial interests as of March 31, 2020 and December 31, 2019 consist of investments in the trust certificates issued by joint ventures which we form with third party institutional accredited investors. The trust certificates represent the residual interest of any special purpose entity formed to facilitate the investment. We account for our Investments in beneficial interests under CECL, as discussed under Mortgage Loans.

Debt

Secured Borrowings — We issue, through securitization trusts, callable debt secured by our mortgage loans in the ordinary course of business. The secured borrowings are structured as debt financings, and the loans remain on our balance sheet as we are the primary beneficiary of many of these securitization trusts, which are variable interest entities (“VIEs”). These secured borrowing VIEs are structured as pass-through entities that receive principal and interest on the underlying mortgages and distribute those payments to the holders of the notes. Our exposure to the obligations of the VIEs is generally limited to the amount of our investments in the VIE entities; the creditors do not have recourse to the primary beneficiary. Coupon interest on the debt is recognized using the accrual method of accounting. Deferred issuance costs, including original issue discount and debt issuance costs, are amortized on an effective yield basis based on the underlying cash flow of the mortgage loans. We assume the debt will be called at the specified call date for purposes of amortizing discount and issuance costs because we believe we will have the intent and ability to call the debt on the call date. Changes in the actual or projected underlying cash flows are reflected in the timing and amount of deferred issuance cost amortization.

Repurchase Facilities — We enter into repurchase financing facilities under which we nominally sell assets to a counterparty and simultaneously enter into an agreement to repurchase the sold assets at a price equal to the sold amount plus an interest factor. Despite being legally structured as sales and subsequent repurchases, repurchase transactions are generally accounted for as debt secured by the underlying assets. At the maturity of a repurchase financing, unless the repurchase financing is renewed, we are required to repay the borrowing including any accrued interest and concurrently receive back our pledged collateral from the lender. The repurchase financings are treated as collateralized financing transactions; pledged assets are recorded as assets in our consolidated balance sheets, and debt is recognized at the contractual amount. Interest is recorded at the contractual amount on an accrual basis. Costs associated with the set-up of a repurchasing contract are recorded as deferred expense at inception and amortized over the contractual life of the agreement. Any draw fees associated with individual transactions and any facility fees assessed on the amounts outstanding are recorded as deferred expense when incurred and amortized over the contractual life of the related borrowing.

Fair Value

Fair Value of Financial Instruments — Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. A fair value hierarchy has been established that requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. The standard describes three levels of inputs that may be used to measure fair value:

Level 1 — Quoted prices in active markets for identical assets or liabilities.​
Level 2 — Observable inputs other than Level 1 prices, such as quoted prices for similar assets and liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.
Level 3 — Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.​

The degree of judgment utilized in measuring fair value generally correlates to the level of pricing observability. Assets and liabilities with readily available actively quoted prices or for which fair value can be measured from actively quoted prices generally will have a higher degree of pricing observability and a lesser degree of judgment utilized in measuring fair value. Conversely, assets and liabilities rarely traded or not quoted will generally have little or no pricing observability and a higher degree of judgment utilized in measuring fair value. Pricing observability is impacted by a number of factors, including the type of asset or liability, whether it is new to the market and not yet established, and the characteristics specific to the transaction.

The fair value of mortgage loans is estimated using the Manager’s proprietary pricing model which estimates expected cash flows with the discount rate used in the present value calculation representing the estimated effective yield of the loan. For valuation purposes, we disclose the fair value of REO at the lower of its acquisition basis, or its net realizable value (estimated fair market value less expected selling costs). We estimate fair market value using BPOs, comparable sales and competitive
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market analyses provided by local realtors. We use net realizable value as a proxy for fair value as it represent the liquidation proceeds to us and is most comparable to the fair value disclosure for loans.

We calculate the fair value for the senior debt consolidated on our balance sheet from securitization trusts by using our Manager’s proprietary pricing model to estimate the cash flows expected to be generated from the underlying collateral with the discount rate used in the present value calculation representing an estimate of the average rate for debt instruments with similar durations and risk factors.

Our convertible senior notes are traded on the NYSE; the debt’s fair value is determined from the NYSE closing price on the balance sheet date.

Recent Accounting Pronouncements

Refer to the notes to our interim financial statements for a description of relevant recent accounting pronouncements.

Results of Operations

For the three months ended March 31, 2020, we had net income attributable to common stockholders of $0.4 million, or $0.02 per share, for basic and diluted common shares. For the three months ended March 31, 2019, we had net income attributable to common stockholders of $7.3 million, or $0.39 per share, for basic and $0.36 for diluted common shares. Key items for the three months ended March 31, 2020 include:

Formed a joint venture that acquired $184.8 million in unpaid principal balance ("UPB") of mortgage loans with collateral values of $292.9 million and an aggregate purchase price of $170.4 million. As of March 31, 2020, the joint venture was prefunded with $132.6 million of cash for additional loan purchases of which 677 RPLs with UPB of $123.2 million closed in April for a purchase price of $114.0 million. We retained $61.3 million of varying classes of related securities issued by the joint venture to end the quarter with $312.1 million of investments in debt securities and beneficial interests
Purchased $0.2 million of NPLs with UPB of $0.2 million and underlying collateral values of $0.3 million, and 26 RPLs for $1.2 million, with UPB of $2.0 million and collateral values of $3.1 million to end the quarter with $1.1 billion in net mortgage loans
Interest income of $27.3 million; net interest income after provision for credit losses of $9.1 million
Overall cost of funds decreased approximately 21 basis points
Net income attributable to common stockholders of $0.4 million
Basic earnings per share ("EPS") of $0.02
Taxable income of $0.05 per share
Book value per share of $14.37 at March 31, 2020
Collected total cash of $62.4 million, from loan payments, sales of real estate owned ("REO") and investments in debt securities and beneficial interests
Held $31.2 million of cash and cash equivalents at March 31, 2020; average daily cash balance for the quarter was $58.6 million
At March 31, 2020, approximately 74% of our portfolio based on UPB had made at least the last 12 out of 12 payments

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Table 1: Results of Operations

Three months ended March 31,
($ in thousands)20202019
INCOME
Interest income$27,286  $29,452  
Interest expense(13,070) (15,685) 
Net interest income14,216  13,767  
Provision for credit losses(5,109) (154) 
Net interest income after provision for credit losses9,107  13,613  
Income/(Loss) from investments in affiliates(1,112) 461  
Loss on sale of mortgage loans(705) —  
Other income747  1,110  
Total income8,037  15,184  
EXPENSE
Related party expense – loan servicing fees2,014  2,506  
Related party expense – management fee1,799  1,688  
Loan transaction expense(103) 69  
Professional fees805  862  
Real estate operating expenses912  786  
Other expense1,025  1,081  
Total expense6,452  6,992  
Loss on debt extinguishment408  —  
Income before provision for income taxes1,177  8,192  
Provision for income taxes (benefit)(319) 71  
Consolidated net income1,496  8,121  
Less: consolidated net income attributable to the non-controlling interest1,096  791  
Consolidated net income attributable to common stockholders$400  $7,330  

Our consolidated net income attributable to common stockholders decreased $6.9 million for the quarter ended March 31, 2020 compared to the quarter ended March 31, 2019 primarily as a result of a $5.1 million provision for losses on our loan and investments in beneficial interest portfolios driven primarily by the expectation of deferrals of borrower payments, extended duration on loans and extensions of foreclosure timelines as a result of the relief provisions for the global pandemic caused by COVID-19. This reserve reflects the macroeconomic impact of the COVID-19 outbreak on mortgage loan and residential real estate markets generally and is not specific to any loan losses or impairments in our portfolio. We recorded a provision for losses in the amount of $0.2 million for the quarter ended March 31, 2019. Our book value declined to $14.37 per share from $15.80 at December 31, 2019 primarily from the effects of a $28.4 million non-cash mark-to-market adjustment to the fair value of our debt securities as generally determined by marks provided by our financing counterparties.

On January 1, 2020 we adopted Accounting Standards Update (ASU) No. 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments (“CECL”). Under CECL, we are required to record the net present value of the expected life of loan losses on our Mortgage loans and our Investments in beneficial interests. Our transition adjustment on January 1, 2020 resulted in a reclassification from discount to the allowance for losses in the amount of $14.4 million with no impact on Shareholder equity. On March 31, 2020, we recorded a charge to accrete $0.4 million of credit loss expense resulting from the January 1 transition adjustment and a $4.7 million increase in the allowance for losses driven by expectations derived from the COVID-19 outbreak, as described above. This resulted in a total provision for loss expense of $5.1 million for the first quarter of 2020.

We recorded a loss from our investments in affiliates of $1.1 million for the quarter ended March 31, 2020 compared to a gain of $0.5 million for the quarter ended March 31, 2019. The loss is primarily due to the flow through impact of mark-to-market losses on shares of our stock held by our Manager and our Servicer. We account for our investments in our Manager
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and our Servicer using the equity method of accounting and all elements of income, expense, gain and loss are picked up in proportion to our investment. Additionally, during the quarter ended March 31, 2020 we sold 26 SBC mortgage loans with a carrying value of $26.1 million and UPB of $26.2 million for a loss of $0.7 million. We sold no loans in the quarter ended March 31, 2019.

We recorded $0.9 million in impairments on our REO held-for-sale portfolio in real estate operating expense for the quarter ended March 31, 2020 compared to $0.5 million for the quarter ended March 31, 2019. We continue to liquidate our REO properties held-for-sale at a faster rate than we acquire properties, with 19 properties sold in the first quarter while five were added to REO held-for-sale through foreclosures. The impairment was driven primarily by an extension of expected liquidation timelines based on state and local eviction moratoriums, and additional related expenses, and an overall slow-down in real estate sales due to the impact of the COVID-19 outbreak. We expect the rate of new foreclosures to slow due to the current moratorium in many states.

Interest Income

Our primary source of income is accretion earned on our mortgage loan portfolio offset by the interest expense incurred to fund and hold portfolio acquisitions. Net interest income after provision for loan losses decreased to $9.1 million for the three months ended March 31, 2020 from $13.6 million for the three months ended March 31, 2019 primarily as a result of $5.1 million in provisions for credit losses from across various aspects of our portfolio. The increase in the provision for credit losses is the result of losses driven by expectations derived from the COVID-19 outbreak, including the potential effect of Government mandated forbearance arrangements. As a result, for the three months ended March 31, 2020 we recorded provisions for credit losses of $2.1 million on our mortgage loan portfolio and $3.0 million on our investments in debt securities. Comparatively during the three months ended March 31, 2019 we recorded provisions for credit losses of $0.2 million on our mortgage loan portfolio and no provisions for credit losses on our investments in debt securities.

Our gross interest income decreased by $2.2 million to $27.3 million in the quarter ended March 31, 2020 from $29.5 million in the quarter ended March 31, 2019 due primarily to a decrease in the average balance of our mortgage loan portfolio driven partly by sales of mortgage loans, including the sale of loans to our 2019-C securitization on May 1, 2019, as well as from payoff of mortgage loans by borrowers. The volume of payoffs on the portfolio remained robust during the first quarter of 2020, with $47.0 million collected on our loan portfolio for the first quarter as compared to $44.7 million for the first quarter of 2019, as borrowers refinance or sell the underlying property.

Our interest expense decreased $2.6 million to $13.1 million in the quarter ended March 31, 2020 from $15.7 million in the quarter ended March 31, 2019 primarily due to a full quarter's impact of our rated secured borrowing that closed in November 2019.

The weighted average balance of our mortgage loan portfolio was $1.1 billion for the three months ended March 31, 2020 compared to $1.3 billion for the three months ended March 31, 2019. Additionally, we collected $62.4 million, excluding the loan sales proceeds, in cash payments and proceeds on our mortgage loans, our REO held-for-sale and our investments in securities for the three months ended March 31, 2020 compared to collections of $63.2 million for the three months ended March 31, 2019.

The interest income detail for the three months ended March 31, 2020 and 2019 are included in the table below ($ in thousands):

Table 2: Interest income detail
Three months ended March 31,
20202019
Accretable yield recognized on RPLs, NPLs and SBC loans, pooled$21,737  $26,553  
Interest income on securities5,006  2,416  
Interest income earned on other loans384  158  
Bank interest income121  320  
Other interest income38   
Interest income$27,286  $29,452  
Provision for credit losses(5,109) (154) 
Interest income after provision for credit losses$22,177  $29,298  
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The average balance of our mortgage loan portfolio, investment in securities and debt outstanding for the three months ended March 31, 2020 and 2019 are included in the table below ($ in thousands):

Table 3: Average Balances
Three months ended March 31,
20202019
Average mortgage loan portfolio$1,135,336  $1,306,500  
Average carrying value of debt securities and beneficial interests$298,304  $135,449  
Total average asset level debt$1,067,983  $1,127,673  

Other Income

Other income decreased for the three months ended March 31, 2020 as compared to the three months ended March 31, 2019 due to decreased rental income from the impact on our rental portfolio as a result our Gaea capital raise in November 2019 and lower income from the federal government's Home Affordable Modification Program ("HAMP") as more loans reach the five-year threshold for where any additional fees will have been earned. This was offset by increased net gain on sale of property held-for-sale. A breakdown of Other income is provided in the table below ($ in thousands):

Table 4: Other Income
Three months ended March 31,
20202019
Net gain on sale of Property held-for-sale$413  $103  
Late fee income185  230  
HAMP fees138  384  
Rental Income11  385  
Other income—   
Total Other Income$747  $1,110  

Expenses

Total expenses for the three months ended March 31, 2020 decreased from the three months ended March 31, 2019 due to a decrease in loan servicing fees as a result of a lower average balance of our mortgage loan portfolio and because our interest income from debt securities and beneficial interests is recorded net of servicing fees. This was offset by REO impairments, an element of our real estate operating expenses, which increased from $0.5 million for the three months ended March 31, 2019 to $0.9 million for the three months ended March 31, 2020. A breakdown of expenses is provided in the table below ($ in thousands):

Table 5: Expenses
Three months ended March 31,
20202019
Related party expense – loan servicing fees$2,014  $2,506  
Related party expense - management fee1,799  1,688  
Other expense1,025  1,081  
Real estate operating expenses912  786  
Professional fees805  862  
Loan transaction expense(103) 69  
Total expenses$6,452  $6,992  

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Other expense decreased for the three months ended March 31, 2020 over the comparable period in 2019 primarily due to a decrease in employee and service provider share grants and taxes and regulatory expense offset by lower travel expense. Travel expense is primarily incurred during due diligence prior to and subsequent to portfolio acquisition. A breakdown of other expense is provided in the table below ($ in thousands):

Table 6: Other Expense
Three months ended March 31,
20202019
Insurance$184  $159  
Employee and service provider share grants174  250  
Borrowing related expenses170  197  
Travel, meals, entertainment138  101  
Directors' fees and grants109  97  
Other expense97  67  
Software licenses and amortization70  47  
Taxes and regulatory expense46  112  
Internal audit services37  51  
Total Other expense$1,025  $1,081  

Equity and Net Book Value per Share

Our net book value per share was $14.37 and $15.80 at March 31, 2020 and December 31, 2019, respectively. Our decrease in book value was driven primarily by the reduction in equity that resulted from the fair value adjustments of $28.4 million taken on our portfolio of debt securities recorded to Other comprehensive income. While GAAP does not specifically define the parameters for calculating book value, we believe our calculation is representative of our book value on a per share basis, and our Manager believes book value per share is a valuable metric for evaluating our business. The net book value per share is calculated by dividing equity, after adjusting for the anticipated conversion of the senior convertible notes into shares of common stock, the subtraction of non-controlling interests classified in equity, and shares for Manager and director fees that were approved but still unissued as of the date indicated, unvested employee and service provider stock grants and the common shares from assumed conversion of our Senior convertible notes. A breakdown of our book value per share is set forth in the table below ($ in thousands except per share amounts):

Table 7: Book Value per Share
March 31, 2020December 31, 2019
Outstanding shares22,921,935  22,142,143  
Adjustments for:      
Unvested grants of restricted stock, and Manager and director shares earned but not issued as of the date indicated3,468  2,600  
Conversion of convertible senior notes into shares of common stock8,007,089  8,270,208  
Total adjusted shares outstanding30,932,492  30,414,951  
Equity at period end$357,274  $384,084  
Net increase in equity from expected conversion of convertible senior notes112,750  120,669  
Adjustment for equity due to non-controlling interests(25,414) (24,257) 
Adjusted equity$444,610  $480,496  
Book value per share$14.37  $15.80  

Mortgage Loan Portfolio

For the three months ended March 31, 2020, we acquired 26 RPLs with an aggregated acquisition price of $1.2 million, representing 61.7% of UPB. Comparatively, for the three months ended March 31, 2019, we acquired 38 RPLs with an aggregate acquisition price of $7.2 million, representing 84.8% of UPB. We acquired one NPL loan for an acquisition price of
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$0.2 million, representing 81.5% of UPB for the three month periods ended March 31, 2020. Comparatively, during the three months ended March 31, 2019 we acquired no NPLs.

For the three months ended March 31, 2020, we acquired no SBC loans. Comparatively, for the three months ended March 31, 2019 we acquired 19 SBC loans, with UPB of $17.8 million that represented 62.0% of the underlying collateral value of $28.7 million. We ended the period with $1.1 billion of mortgage loans with an aggregate UPB of $1.2 billion as of March 31, 2020 and $1.3 billion of mortgage loans with an aggregate UPB of $1.5 billion as of March 31, 2019.

The following table shows loan portfolio acquisitions that includes paid in full loans after acquisition but before boarding by the Servicer, for the three months ended March 31, 2020, and 2019 ($ in thousands):

Table 8: Loan Portfolio Acquisitions
Three months ended March 31,
20202019
RPLs
Count26  38  
UPB$1,952  $8,495  
Purchase price$1,205  $7,205  
Purchase price % of UPB61.7 %84.8 %
NPLs
Count —  
UPB$227  $—  
Purchase price$185  $—  
Purchase price % of UPB81.5 %— %

Table 9: Commercial loans non-pooled
Three months ended March 31,
20202019
SBC loans non-pooled
Count—  19  
UPB$—  $17,776  
Undrawn UPB at acquisition$—  $469  
Issue price % of collateral value— %62.0 %

During the three months ended March 31, 2020, 151 mortgage loans, representing 4.5% of our ending UPB, were liquidated. Comparatively, during the three months ended March 31, 2019, 151 mortgage loans, representing 1.7% of our ending UPB, were liquidated. Our loan portfolio activity for the three months ended March 31, 2020 and 2019 are presented below ($ in thousands):

Table 10: Loan Portfolio Activity
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Three months ended March 31,
20202019
Beginning carrying value$1,151,469  $1,310,873  
RPL, NPL and SBC pool portfolio acquisitions, net cost basis185  7,205  
Other non-pooled portfolio acquisitions, net cost basis1,206  17,793  
Accretion recognized21,745  26,586  
Payments received, net(46,960) (44,460) 
Reclassifications to REO(814) (4,171) 
Sale of mortgage loans(26,111) —  
Provision for credit losses on mortgage loans(2,122) (154) 
Other31   
Ending carrying value$1,098,629  $1,313,677  

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Table 11: Portfolio Composition

As of March 31, 2020 and December 31, 2019, our portfolios consisted of the following ($ in thousands):

March 31, 2020(1,2)
December 31, 2019(1,2)
No. of Loans6,060  No. of Loans6,184  
Total UPB$1,207,885  Total UPB$1,268,126  
Interest-Bearing Balance$1,131,370  Interest-Bearing Balance$1,190,917  
Deferred Balance(3)
$76,515  
Deferred Balance(3)
$77,209  
Market Value of Collateral(4)
$1,917,331  
Market Value of Collateral(4)
$1,783,856  
Price/Total UPB(5)
82.4 %
Price/Total UPB(5)
82.9 %
Price/Market Value of Collateral54.8 %Price/Market Value of Collateral61.9 %
Weighted Average Coupon4.52 %Weighted Average Coupon4.55 %
Weighted Average LTV(6)
74.5 %
Weighted Average LTV(6)
83.5 %
Weighted Average Remaining Term (months)304  Weighted Average Remaining Term (months)311  
No. of first liens6,001  No. of first liens6,124  
No. of second liens59  No. of second liens60  
No. of Rental Properties No. of Rental Properties10  
Capital Invested in Rental Properties$1,394  Capital Invested in Rental Properties$1,591  
RPLs loans97.1 %RPLs loans95.3 %
NPLs loans2.5 %NPLs loans2.7 %
Small-balance commercial loans0.4 %Small-balance commercial loans2.0 %
No. of Other REO45  No. of Other REO58  
Market Value of Other REO(7)
$11,329  
Market Value of Other REO(7)
$13,987  
Carrying value of debt securities and beneficial interests in trusts$346,450  Carrying value of debt securities and beneficial interests in trusts$288,362  
Loans with 12 for 12 payments as an approximate percentage of UPB (8)
74.0 %
Loans with 12 for 12 payments as an approximate percentage of UPB (8)
76.0 %
Loans with 24 for 24 payments as an approximate percentage of UPB (9)
67.0 %
Loans with 24 for 24 payments as an approximate percentage of UPB (9)
64.0 %

(1)Includes the impact of 1,003 mortgage loans with a purchase price of $177.3 million, UPB of $194.3 million and collateral value of $295.3 million acquired in the fourth quarter of 2017 through a 50% owned joint venture which we consolidate.
(2)Includes the impact of 256 mortgage loans with a purchase price of $47.4 million, UPB of $52.8 million and collateral value of $68.1 million acquired in the third quarter of 2018 through a 63.0% owned joint venture which we consolidate.
(3)Amounts that have been deferred in connection with a loan modification on which interest does not accrue. These amounts generally become payable at the time of maturity.​
(4)As of date of acquisition.
(5)At March 31, 2020 and December 31, 2019, our loan portfolio consists of fixed rate (52.1% of UPB), ARM (9.4% of UPB) and Hybrid ARM (38.5% of UPB); and fixed rate (52.8% of UPB), ARM (9.5% of UPB) and Hybrid ARM (37.7% of UPB), respectively.​
(6)UPB as of March 31, 2020 and December 31, 2019, divided by market value of collateral and weighted by the UPB of the loan.
(7)Market value of REO is based on net realizable value. Fair market value is determined based on appraisals, BPOs, or other market indicators of fair value including list price or contract price.
(8)Loans that have made at least 12 of the last 12 payments, or for which the full dollar amount to cover at least 12 payments has been made in the last 12 months.
(9)Loans that have made at least 24 of the last 24 payments, or for which the full dollar amount to cover at least 24 payments has been made in the last 24 months.

Table 12: Portfolio Characteristics

The following tables present certain characteristics of our mortgage loans by year of origination as of March 31, 2020 and December 31, 2019, respectively ($ in thousands):

Portfolio at March 31, 2020
61


Years of Origination
After 20082006 – 20082005 and prior
Number of loans612  3,516  1,932  
Unpaid principal balance$123,662  $806,805  $277,418  
Mortgage loan portfolio by year of origination10.2 %66.8 %23.0 %
Loan Attributes:
Weighted average loan age (months)107.3  157.6  196.5  
Weighted Average loan-to-value72.4 %78.8 %64.8 %
Delinquency Performance:
Current51.4 %55.1 %54.0 %
30 days delinquent13.1 %12.6 %13.9 %
60 days delinquent9.1 %8.4 %10.1 %
90+ days delinquent22.7 %19.1 %18.3 %
Foreclosure3.7 %4.8 %3.7 %

Portfolio at December 31, 2019
Years of Origination
After 20082006 – 20082005 and prior
Number of loans625  3,576  1,983  
Unpaid principal balance$153,923  $826,684  $287,519  
Mortgage loan portfolio by year of origination12.1 %65.2 %22.7 %
Loan Attributes:
Weighted average loan age (months)88.0  154.5  193.3  
Weighted Average loan-to-value72.7 %81.2 %66.5 %
Delinquency Performance:
Current61.9 %56.9 %58.8 %
30 days delinquent9.5 %13.0 %12.6 %
60 days delinquent6.5 %8.4 %8.2 %
90+ days delinquent20.5 %17.3 %17.3 %
Foreclosure1.6 %4.4 %3.1 %

Table 13: Loans by State

The following table identifies our mortgage loans by state, number of loans, loan value, collateral value and percentages thereof at March 31, 2020 and December 31, 2019 ($ in thousands):

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March 31, 2020December 31, 2019
StateCountUPB% UPB
Collateral
Value(1)
% of
Collateral
Value
StateCountUPB% UPB
Collateral
Value(1)
% of
Collateral
Value
CA(2)
962  $330,994  27.4 %$575,714  30.0 %CA1,010  $370,838  29.2 %$564,169  31.6 %
FL676  117,008  9.7 %183,163  9.6 %FL689  119,728  9.4 %156,967  8.8 %
NY(2)
327  103,473  8.6 %175,429  9.1 %NY331  105,853  8.3 %161,646  9.1 %
NJ (2)
295  66,828  5.5 %88,579  4.6 %NJ290  66,762  5.3 %80,472  4.5 %
MD253  61,581  5.1 %78,503  4.1 %MD257  63,349  5.0 %74,027  4.2 %
GA355  47,694  4.0 %71,522  3.7 %GA363  48,969  3.9 %62,960  3.5 %
VA201  43,217  3.6 %60,873  3.2 %VA206  44,193  3.5 %57,678  3.2 %
IL223  41,929  3.5 %53,587  2.8 %IL228  42,962  3.4 %49,586  2.8 %
TX392  38,310  3.2 %75,244  3.9 %TX399  39,689  3.1 %69,874  3.9 %
MA177  36,146  3.0 %59,155  3.1 %MA181  37,596  3.0 %53,785  3.0 %
NC244  31,259  2.6 %46,895  2.5 %NC240  31,402  2.5 %42,977  2.4 %
WA109  27,364  2.3 %48,364  2.5 %WA114  28,489  2.2 %43,372  2.4 %
AZ152  25,884  2.2 %40,914  2.1 %AZ154  26,321  2.1 %34,277  1.9 %
NV106  20,989  1.8 %33,355  1.7 %NV107  21,384  1.7 %27,540  1.5 %
PA175  20,287  1.7 %28,736  1.5 %PA180  20,978  1.7 %26,936  1.5 %
SC127  14,855  1.2 %22,757  1.2 %SC129  15,282  1.2 %21,263  1.2 %
MI95  13,283  1.1 %22,704  1.2 %MI98  14,339  1.1 %21,876  1.2 %
OH109  13,271  1.1 %17,030  0.9 %OH110  13,515  1.1 %15,451  0.9 %
OR64  12,678  1.1 %21,749  1.1 %OR66  12,991  1.0 %19,519  1.1 %
CT72  12,521  1.0 %16,224  0.8 %CT72  12,594  1.0 %15,832  0.9 %
TN112  11,960  1.0 %21,090  1.1 %TN115  12,566  1.0 %19,203  1.1 %
CO59  11,633  1.0 %23,735  1.2 %CO63  12,368  1.0 %22,471  1.3 %
MO80  9,951  0.8 %13,275  0.7 %MN54  10,200  0.8 %12,753  0.7 %
MN53  9,839  0.8 %13,651  0.7 %MO80  10,003  0.8 %12,427  0.7 %
IN98  9,407  0.8 %13,789  0.7 %IN100  9,521  0.8 %12,545  0.7 %
UT51  8,705  0.7 %17,196  0.9 %UT52  8,923  0.7 %13,957  0.8 %
LA72  7,531  0.6 %11,259  0.6 %LA74  7,585  0.6 %11,389  0.6 %
HI17  7,207  0.6 %10,444  0.6 %HI17  7,229  0.6 %10,093  0.6 %
DE33  6,540  0.5 %7,702  0.4 %DE33  6,566  0.5 %7,626  0.4 %
WI37  4,738  0.4 %6,126  0.3 %WI37  4,772  0.4 %5,827  0.3 %
DC16  4,525  0.4 %7,180  0.4 %DC16  4,542  0.4 %6,368  0.4 %
NM30  4,498  0.4 %5,985  0.3 %NM30  4,525  0.4 %5,407  0.3 %
KY34  3,951  0.3 %5,551  0.3 %KY34  3,969  0.3 %5,213  0.3 %
AL42  3,435  0.3 %4,303  0.2 %AL43  3,569  0.3 %4,480  0.3 %
RI15  3,220  0.3 %4,700  0.3 %RI15  3,232  0.3 %4,188  0.2 %
NH17  3,003  0.3 %4,608  0.3 %NH17  3,016  0.2 %4,290  0.3 %
OK29  2,610  0.2 %4,048  0.2 %OK30  2,631  0.2 %3,948  0.2 %
MS28  2,525  0.2 %3,435  0.2 %MS25  2,389  0.2 %3,062  0.2 %
ID14  1,717  0.1 %3,311  0.2 %ID14  1,723  0.1 %2,755  0.2 %
IA16  1,588  0.1 %2,028  0.1 %IA16  1,599  0.1 %2,011  0.1 %
WV17  1,585  0.1 %2,014  0.1 %WV17  1,595  0.1 %2,208  0.1 %
ME11  1,553  0.1 %1,903  0.1 %ME11  1,564  0.1 %1,829  0.1 %
KS18  1,375  0.1 %2,736  0.2 %KS18  1,391  0.1 %2,435  0.1 %
AR18  1,313  0.1 %1,814  0.1 %AR18  1,318  0.1 %1,777  0.1 %
MT 692  0.1 %1,076  0.1 %NE 702  0.1 %836  0.1 %
PR 541  — %629  — %MT 697  0.1 %1,005  0.1 %
NE 532  — %581  — %PR 546  — %838  0.1 %
WY 517  — %589  — %WY 519  — %593  — %
SD 508  — %701  0.1 %SD 509  — %678  — %
VT 462  — %505  — %VT 467  — %470  — %
ND 401  — %481  — %ND 403  — %595  — %
AK 252  — %389  — %AK 253  — %372  — %
6,060  $1,207,885  100.0 %$1,917,331  100.0 %6,184  $1,268,126  100.0 %$1,783,856  100.0 %
63


(1) As of date of acquisition.
(2) State significantly impacted by the COVID-19 pandemic.
Liquidity and Capital Resources

Source and Uses of Cash

Our primary sources of cash have consisted of proceeds from our securities offerings, our secured borrowings, repurchase agreements, principal and interest payments on our loan portfolio, principal paydowns on securities, and sales of properties held-for-sale. Depending on market conditions, we expect that our primary financing sources will continue to include secured borrowings, repurchase agreements, and securities offerings in addition to transaction or asset specific funding arrangements and credit facilities (including term loans and revolving facilities). We expect that these sources of funds will be sufficient to meet our short-term and long-term liquidity needs. From time to time, we may invest with third parties and acquire interests in loans and other real estate assets through investments in joint ventures using special purpose entities that can result in investments at fair value and investments in beneficial interests, which are reflected on our consolidated balance sheet.

As of March 31, 2020 and December 31, 2019, substantially all of our invested capital was in RPLs, NPLs, SBC loans, property held-for-sale, debt securities, beneficial interests and rental properties. We also held approximately $31.2 million of cash and cash equivalents, a decrease of $33.2 million from our balance of $64.3 million at December 31, 2019. Our average daily cash balance during the quarter was $58.6 million, a decrease of $7.5 million from our average daily cash balance of $66.1 million during the three months ended December 31, 2019.

Our collections of principal and interest payments on mortgage loans and securities, payoffs of mortgage loans and proceeds on the sale of our property held-for-sale and sale of debt securities held as investments were $62.4 million and $63.2 million for the three months ended March 31, 2020 and 2019, respectively. We currently expect the pace of loan prepayments to slow due to COVID-19.

Our operating cash outflows, including the effect of restricted cash, for the three months ended March 31, 2020 and 2019 were $30.4 million and $5.0 million, respectively. Our primary operating cash inflow is cash interest payments on our mortgage loan pools of $12.3 million and $15.7 million for the three months ended March 31, 2020 and 2019, respectively. Non-cash interest income accretion was $9.5 million and $10.9 million for the three months ended March 31, 2020 and 2019, respectively. We also recognized a loss of $0.7 million from the sale of 26 mortgage loans during the quarter to Gaea, an affiliated entity. No loans were sold during the three months ended March 31, 2019. We expect, however, that the impact of the COVID-19 outbreak will put pressure on our cash flow from operations as we enter into loan modifications on certain of our loans permitting interest payments to be deferred. Though the ownership of mortgage loans and other real estate assets is our business, GAAP requires that operating cash flows do not include the portion of principal payments that are allocable to the discount we recognize on our mortgage loans including proceeds from loans that pay in full or are liquidated in a short sale or third party sale at foreclosure or the proceeds on the sales of our property held-for-sale. These activities are all considered to be Investing activities under GAAP, and the cash flows from these activities are included in the investing section of our consolidated statements of cash flows.

For the three months ended March 31, 2020 our investing cash inflow of $11.0 million was primarily driven by the sale of mortgage loans to Gaea in the amount of $25.4 million and principal payments on and payoffs of our mortgage loan portfolio of $34.6 million, principal payments on and payoffs of our debt securities and beneficial interests of $10.2 million, offset by purchases of debt securities and beneficial interests of $61.3 million and acquisitions of mortgage loans of $1.4 million. For the three months ended March 31, 2019 our investing cash outflow of $5.6 million was primarily driven by the acquisitions of our mortgage loans of $25.0 million and purchases of debt securities, beneficial interests and equity securities of $64.0 million offset by principal payments on and payoffs of our mortgage loan portfolio of $28.8 million, principal payments on and payoffs of our debt securities and beneficial interests of $11.9 million, sale of our debt securities of $39.6 million and sale of our property held-for-sale.

Our financing cash flows are driven primarily by funding used to acquire mortgage loan pools. We fund our mortgage loan pool acquisitions primarily through secured borrowings, repurchase agreements and the proceeds from our convertible debt and equity offerings. For the three months ended March 31, 2020, we had net financing cash outflows of $13.8 million from our pay down of existing debt obligations, primarily driven by repayments of $55.4 million on repurchase transactions, $22.6 million on secured debt and the repurchase of our senior convertible notes for a net cash impact of $8.2 million, partially offset by additional borrowing through repurchase transactions of $72.4 million. For the three months ended March 31, 2019, we had net cash outflows from financing activities of $3.0 million primarily driven by our pay down of existing debt obligations of $45.5 million on repurchase transactions and $17.8 million on secured debt offset by proceeds from our
64


repurchase transactions of $67.5 million. For the three months ended March 31, 2020 and 2019 we paid $0.1 million and $7.2 million, respectively, in combined dividends and distributions.

Financing Activities — Equity offerings

During the three months ended March 31, 2020, we did not sell any shares of common stock under our at-the-market program which we established in October 2016, to sell, through our agents, shares of common stock with an aggregate offering price of up to $50.0 million. In accordance with the terms of the agreements, we may offer and sell shares of our common stock at any time and from time to time through the sales agents. Sales of the shares, if any, will be made by means of ordinary brokers’ transactions on the New York Stock Exchange or otherwise at market prices prevailing at the time of the sale.

Financing Activities — Secured Borrowings and Convertible Senior Notes

From inception (January 30, 2014) to March 31, 2020, we have completed 15 secured borrowings, not including borrowings we completed for our non-consolidated joint ventures (See Table 17: Investments in joint ventures), through securtiziation trusts pursuant to Rule 144A under the Securities Act, six of which were outstanding at March 31, 2020. The secured borrowings are structured as debt financings and not REMIC sales, and the loans included in the secured borrowings remain on our consolidated balance sheet as we are the primary beneficiary of the secured borrowing trusts, which are VIEs. The secured borrowing VIEs are structured as pass through entities that receive principal and interest on the underlying mortgages and distribute those payments to the holders of the notes. Our exposure to the obligations of the VIEs is generally limited to our investments in the entities. The notes that are issued by the secured borrowing trusts are secured solely by the mortgages held by the applicable trusts and not by any of our other assets. The mortgage loans of the applicable trusts are the only source of repayment and interest on the notes issued by such trusts. We do not guarantee any of the obligations of the trusts under the terms of the agreement governing the notes or otherwise.

Our secured borrowings are generally structured with Class A notes, subordinate notes, and trust certificates, which have rights to the residual interests in the mortgages once the notes are repaid. With the exception of our Ajax Mortgage Loan Trusts 2017-D ("2017-D") secured borrowings, from which we sold a 50% interest in the Class A notes and a 50% interest in the residual equity to third parties and 2018-C secured borrowings, from which we sold a 95% interest in the Class A notes and 37% in the Class B and trust certificates, we have retained the subordinate notes and the applicable trust certificates from the other six secured borrowings outstanding at March 31, 2020.

For all of our secured borrowings the Class A notes are senior, sequential pay, fixed rate notes, and with the exception of 2017-D and 2018-C as noted above, the Class B notes are subordinate, sequential pay, fixed rate notes with the exception of 2019-D which are subordinate, sequential pay, fixed rate notes for Class B-1 and variable rate notes for Class B-2 and Class B-3. The interest rate is effectively the rate equal to the spread between the gross average rate of interest the trust collects on its mortgage loan portfolio minus the rate derived from the sum of the servicing fee and other expenses of the trust. The Class M notes issued under 2017-B, 2019-D and 2019-F are also mezzanine, sequential pay, fixed rate notes.

For all of our secured borrowings, except 2017-B, 2019-D and 2019-F, which contains no interest rate step-up, if the Class A notes have not been redeemed by the payment date or otherwise paid in full 36 months after issue, or in the case of 2017-C, 48 months after issue, an interest rate step-up of 300 basis points is triggered. Twelve months after the 300 basis point step up is triggered, an additional 100 basis point step up will be triggered, and an amount equal to the aggregate interest payment amount that accrued and would otherwise be paid to the subordinate notes will be paid as principal to the Class A notes on that date and each subsequent payment date until the Class A notes are paid in full. After the Class A notes are paid in full, the subordinate notes will resume receiving their respective interest payment amounts and any interest that accrued but was not paid while the Class A notes were outstanding. As the holder of the trust certificates, we are entitled to receive any remaining amounts in the trusts after the Class A notes and subordinate notes have been paid in full.

65


The following table sets forth the original terms of all outstanding notes from our secured borrowings outstanding at March 31, 2020 at their respective cutoff dates:

Table 14: Secured Borrowings
Issuing Trust/Issue DateInterest Rate Step-up DateSecurityOriginal PrincipalInterest Rate
Ajax Mortgage Loan Trust 2017-B/ December 2017NoneClass A notes due 2056$115.8 million   3.16 %
None
Class M-1 notes due 2056(3)
$9.7 million   3.50 %
None
Class M-2 notes due 2056(3)
$9.5 million   3.50 %
None
Class B-1 notes due 2056(1)
$9.0 million   3.75 %
None
Class B-2 notes due 2056(1)
$7.5 million   3.75 %
Trust certificates(2)
$14.3 million   — %
Deferred issuance costs$(1.8) million — %
Ajax Mortgage Loan Trust 2017-C/ November 2017November 25, 2021Class A notes due 2060$130.2 million   3.75 %
May 25, 2022
Class B-1 notes due 2060(1)
$13.0 million   5.25 %
Trust certificates(2)
$42.8 million   — %
Deferred issuance costs$(1.7) million — %
Ajax Mortgage Loan Trust 2017-D/ December 2017April 25, 2021
Class A notes due 2057(4)
$177.8 million   3.75 %
None
Class B certificates(4)
$44.5 million   — %
Deferred issuance costs$(1.1) million — %
Ajax Mortgage Loan Trust 2018-C/ September 2018October 25, 2021
Class A notes due 2065(5)
$170.5 million   4.36 %
April 25, 2022
Class B notes due 2065(5)
$15.9 million   5.25 %
Trust certificates(5)
$40.9 million   — %
Deferred issuance costs$(2.0) million — %
Ajax Mortgage Loan Trust 2019-D/ July 2019NoneClass A-1 notes due 2065$140.4 million  2.96 %
NoneClass A-2 notes due 2065$6.1 million  3.50 %
NoneClass A-3 notes due 2065$10.1 million  3.50 %
None
Class M-1 notes due 2065(3)
$9.3 million  3.50 %
None
Class B-1 notes due 2065(6)
$7.5 million  3.50 %
None
Class B-2 notes due 2065(6)
$7.1 million  
variable(7)
None
Class B-3 notes due 2065(6)
$12.8 million  
variable(7)
Deferred issuance costs$(2.7) million — %
Ajax Mortgage Loan Trust 2019-F/ November 2019NoneClass A-1 notes due 2059$110.1 million  2.86 %
NoneClass A-2 notes due 2059$12.5 million  3.50 %
NoneClass A-3 notes due 2059$5.1 million  3.50 %
None
Class M-1 notes due 2059(1)
$6.1 million  3.50 %
None
Class B-1 notes due 2059(6)
$11.5 million  3.50 %
None
Class B-2 notes due 2059(6)
$10.4 million  
variable(7)
None
Class B-3 notes due 2059(6)
$15.1 million  
variable(7)
Deferred issuance costs$(1.8) million — %
66


(1)The Class B notes are subordinate, sequential pay, fixed rate notes with Class B-2 notes subordinate to the Class B-1 notes. We have retained the Class B notes.​
(2)The trust certificates issued by the trusts and the beneficial ownership of the trusts are retained by Great Ajax Funding LLC as the depositor. As the holder of the trust certificates, we are entitled to receive any remaining amounts in the trusts after the Class A notes, Class M notes, where present, and Class B notes have been paid in full.
(3)The Class M notes are subordinate, sequential pay, fixed rate notes with Class M-2 notes subordinate to the Class M-1 notes. We retained the Class M notes. ​
(4)AJAXM 2017-D is a joint venture in which a third party owns 50% of the Class A notes and 50% of the Class B certificates. We are required to consolidate 2017-D and are reflecting 100% of the mortgage loans, in Mortgage loans, net. 50% of the Class A notes, which are held by the third party, are included in Secured borrowings, net. The 50% portion of the Class A notes retained by us have been encumbered under a repurchase agreement. 50% of the Class B certificates are recognized as Non-controlling interest.
(5)AJAXM 2018-C is a joint venture in which a third party owns 95% of the Class A notes and 37% of the Class B notes and certificates. We are required to consolidate 2018-C and are reflecting 100% of the mortgage loans, in Mortgage loans, net. 95% of the Class A notes and 37% of the Class B notes, which are held by the third party, are included in Secured borrowings, net. The 5% portion of the Class A notes retained by us have been encumbered under the repurchase agreement. 37% percent of the Class C certificates are recognized as Non-controlling interest.
(6)The Class B notes are subordinate, sequential pay, with B-2 and B-2 notes having variable interest rates and subordinate to the Class B-1 notes. The Class B-1 notes are fixed rate notes. We have retained the Class B notes.
(7)The interest rate is effectively the rate equal to the spread between the gross average rate of interest the trust collects on its mortgage loan portfolio minus the rate derived from the sum of the servicing fee and other expenses of the trust.

Repurchase Transactions

We have two repurchase facilities whereby we, through two wholly-owned Delaware trusts (the “Trusts”), acquire pools of mortgage loans which are then sold by the Trusts, as “Seller” to two separate counterparties, the “buyer” or “buyers.” One facility has a ceiling of $250.0 million and the other $400.0 million at any one time. Upon the time of the initial sale to the buyer, each Trust, with a simultaneous agreement, also agrees to repurchase the pools of mortgage loans from the buyer. Mortgage loans sold under these facilities carry interest calculated based on a spread to one-month LIBOR, which are fixed for the term of the borrowing. The purchase price that the Trust realizes upon the initial sale of the mortgage loans to the buyer can vary between 70% and 85% of the asset’s acquisition price, depending upon the facility being utilized and/or the quality of the underlying collateral. The obligations of the Trust to repurchase these mortgage loans at a future date are guaranteed by the Operating Partnership. The difference between the market value of the asset and the amount of the repurchase agreement is generally the amount of equity we have in the position and is intended to provide the buyer with some protection against fluctuations in the value of the collateral, and/or a failure by us to repurchase the asset and repay the borrowing at maturity. We also have three repurchase facilities substantially similar to the mortgage loan repurchase facilities where the pledged assets are the class B bonds and certificates from our securitization transactions. These facilities have no effective ceilings. Each repurchase transaction represents its own borrowing. As such, the ceilings associated with these transactions are the amounts currently borrowed at any one time. We have effective control over the assets subject to all of these transactions; therefore, our repurchase transactions are accounted for as financing arrangements.

During the last two weeks of March 2020, we received margin calls from financing counterparties in the amount of $28.2 million due to the turmoil in the financial markets resulting from the COVID-19 outbreak. As of March 31, 2020, we had $32.4 million of cash collateral on deposit with financing counterparties. This cash is included in Prepaid expenses and other assets on our consolidated balance sheet at March 31, 2020 and is not netted against our Borrowings under repurchase agreements

A summary of our outstanding repurchase transactions at March 31, 2020 and December 31, 2019 is as follows ($ in thousands):

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Table 15: Repurchase Transactions by Maturity Date
March 31, 2020
Maturity DateOrigination dateMaximum
Borrowing
Capacity
Amount
Outstanding
Amount of
Collateral
Percentage of Collateral CoverageInterest Rate
April 2, 2020January 3, 2020$1,758  $1,758  $2,388  136 %2.96 %
April 2, 2020January 3, 20201,684  1,684  2,287  136 %2.96 %
April 13, 2020March 12, 202037,201  37,201  49,877  134 %2.46 %
April 13, 2020March 12, 20203,236  3,236  4,655  144 %2.56 %
April 22, 2020March 24, 202035,381  35,381  51,679  146 %5.00 %
April 27, 2020January 28, 20205,749  5,749  7,464  130 %3.00 %
April 27, 2020March 27, 20204,811  4,811  10,024  208 %3.71 %
April 27, 2020March 27, 20204,108  4,108  7,101  173 %3.71 %
April 27, 2020January 28, 20202,522  2,522  3,381  134 %2.80 %
April 27, 2020March 27, 20202,153  2,153  10,938  508 %3.86 %
June 3, 2020March 3, 202020,987  20,987  27,814  133 %3.11 %
June 3, 2020March 3, 202011,181  11,181  14,682  131 %3.11 %
June 3, 2020March 3, 202010,019  10,019  13,192  132 %3.11 %
June 3, 2020December 6, 20196,097  6,097  7,565  124 %3.64 %
June 3, 2020March 3, 20205,161  5,161  6,616  128 %3.11 %
June 3, 2020December 6, 20194,704  4,704  5,755  122 %3.64 %
June 3, 2020March 3, 20203,827  3,827  4,907  128 %3.11 %
June 3, 2020December 6, 20193,053  3,053  3,959  130 %3.64 %
June 3, 2020December 6, 20192,332  2,332  3,360  144 %3.79 %
June 3, 2020March 3, 20201,848  1,848  2,640  143 %3.21 %
June 3, 2020December 6, 20191,132  1,132  1,607  142 %3.79 %
June 19, 2020March 20, 202014,599  14,599  19,893  136 %6.22 %
June 19, 2020December 19, 201913,447  13,447  17,077  127 %3.55 %
June 19, 2020March 20, 20209,571  9,571  13,043  136 %6.22 %
June 19, 2020March 20, 20204,691  4,691  6,089  130 %6.22 %
June 19, 2020March 20, 20202,665  2,665  4,050  152 %6.72 %
June 19, 2020December 19, 20191,155  1,155  1,687  146 %3.70 %
June 26, 2020March 26, 202020,906  20,906  31,930  153 %9.23 %
June 30, 2020January 3, 20208,328  8,328  3,656  44 %3.56 %
June 30, 2020January 3, 20206,099  6,099  9,038  148 %3.56 %
June 30, 2020December 30, 20195,286  5,286  6,850  130 %3.57 %
June 30, 2020January 3, 20205,116  5,116  6,721  131 %3.56 %
June 30, 2020December 30, 20193,324  3,324  4,667  140 %3.72 %
July 10, 2020January 13, 20209,020  9,020  13,016  144 %3.67 %
July 31, 2020February 3, 20207,763  7,763  9,702  125 %3.56 %
July 31, 2020February 3, 20207,151  7,151  9,537  133 %3.56 %
July 10, 2020July 15, 2016250,000  30,141  44,217  147 %3.38 %
September 24, 2020September 25, 2019400,000  112,885  164,103  145 %3.11 %
Totals$938,065  $431,091  $607,167  141 %3.86 %

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December 31, 2019
Maturity DateOrigination dateMaximum
Borrowing
Capacity
Amount
Outstanding
Amount of
Collateral
Percentage of Collateral CoverageInterest Rate
January 3, 2020November 26, 2019$8,411  $8,411  $11,098  132 %3.45 %
January 3, 2020November 26, 20196,093  6,093  9,038  148 %3.45 %
January 3, 2020November 26, 20195,175  5,175  6,855  132 %3.45 %
January 3, 2020December 2, 201911,966  11,966  15,742  132 %3.45 %
January 3, 2020December 2, 201910,648  10,648  14,058  132 %3.45 %
January 3, 2020December 2, 20195,485  5,485  7,050  129 %3.45 %
January 3, 2020December 2, 20194,096  4,096  5,261  128 %3.45 %
January 3, 2020December 2, 20191,644  1,644  2,388  145 %3.55 %
January 3, 2020December 2, 20191,576  1,576  2,287  145 %3.55 %
January 10, 2020December 11, 201921,088  21,088  28,284  134 %3.47 %
January 10, 2020December 11, 20191,808  1,808  2,640  146 %3.57 %
January 13, 2020July 11, 20198,956  8,956  13,016  145 %