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AJX Great Ajax

Filed: 6 May 21, 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, 2021
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.)

13190 SW 68th Parkway, Suite 110
Tigard, OR 97223
(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 5, 2021, 22,988,847 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, 2021December 31, 2020
ASSETS(Unaudited)
Cash and cash equivalents$137,579 $107,147 
Cash held in trust186 188 
Mortgage loans held-for-investment, net(1,2)
991,811 1,119,372 
Mortgage loans held-for-sale, net(3,4)
131,719 
Real estate owned properties, net(5)
7,098 8,526 
Investments in securities at fair value(6)
264,682 273,834 
Investments in beneficial interests(7)
94,893 91,418 
Receivable from servicer18,847 15,755 
Investments in affiliates28,294 28,616 
Prepaid expenses and other assets11,864 8,876 
Total assets$1,686,973 $1,653,732 
LIABILITIES AND EQUITY
Liabilities:
Secured borrowings, net(1,2,3,4,8)
$740,035 $585,403 
Borrowings under repurchase transactions305,093 421,132 
Convertible senior notes, net(8)
107,971 110,057 
Management fee payable2,270 2,247 
Put option liability16,149 14,205 
Accrued expenses and other liabilities5,920 6,197 
Total liabilities1,177,438 1,139,241 
Commitments and contingencies – see Note 800
Equity:
Preferred stock, $0.01 par value, 25,000,000 shares authorized
Series A 7.25% Fixed-to-Floating Rate Cumulative Redeemable, $25.00 liquidation preference per share, 2,307,400 shares issued and outstanding at March 31, 2021 and 2,307,400 shares issued or outstanding at December 31, 202051,100 51,100 
Series B 5.00% Fixed-to-Floating Rate Cumulative Redeemable, $25.00 liquidation preference per share, 2,892,600 shares issued and outstanding at March 31, 2021 and 2,892,600 shares issued and outstanding at December 31, 202064,044 64,044 
Common stock $0.01 par value; 125,000,000 shares authorized, 22,988,847 shares issued and outstanding at March 31, 2021 and 22,978,339 shares issued and outstanding at December 31, 2020231 231 
Additional paid-in capital314,709 317,424 
Treasury stock(1,159)(1,159)
Retained earnings56,500 53,346 
Accumulated other comprehensive gain1,681 375 
Equity attributable to stockholders487,106 485,361 
Non-controlling interests(9)
22,429 29,130 
Total equity509,535 514,491 
Total liabilities and equity$1,686,973 $1,653,732 

The accompanying notes are an integral part of the consolidated financial statements.
1


(1)Mortgage loans held-for-investment, net include $859.3 million and $842.2 million of loans at March 31, 2021 and December 31, 2020, 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 held-for-investment, net include $17.9 million and $13.7 million of allowance for loan credit losses at March 31, 2021 and December 31, 2020, respectively.     
(2)As of March 31, 2021, balances for Mortgage loans held-for-investment, net and Secured borrowings, net of deferred costs includes 0 from a 50% owned joint venture. As of December 31, 2020, balances for Mortgage loans held-for-investment, net include $307.1 million and Secured borrowings, net of deferred costs includes $250.6 million from 50.0% and 63.0% owned joint ventures, all of which the Company consolidates under U.S. Generally Accepted Accounting Principles ("U.S. GAAP"). The creditors do not have recourse to the primary beneficiary (Great Ajax Corp.). See Note 9 — Debt.
(3)Mortgage loans held-for-sale, net includes $131.7 million and 0 of loans at March 31, 2021 and December 31, 2020, respectively, transferred to securitization trusts that are 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.
(4)As of March 31, 2021, balances for Mortgage loans held-for-sale, net includes $131.7 million and Secured borrowings, net of deferred costs includes $97.3 million from a 50.0% owned joint venture. As of December 31, 2020, balances for Mortgage loans held-for-sale, net and Secured borrowings, net of deferred costs include 0 from 50.0% and 63.0% owned joint ventures. The creditors do not have recourse to the primary beneficiary (Great Ajax Corp.). See Note 9 — Debt.
(5)Real estate owned properties, net, includes valuation allowances of $1.3 million and $1.4 million at March 31, 2021 and December 31, 2020, respectively.
(6)As of March 31, 2021 and December 31, 2020, Investments in securities at fair value include amortized cost basis of $263.0 million and $273.4 million, respectively, and net unrealized gains of $1.7 million and $0.4 million, respectively.
(7)Investments in beneficial interests includes allowance for credit losses of $5.5 million and $4.5 million at March 31, 2021 and December 31, 2020, respectively.
(8)Secured borrowings and Convertible senior notes, net are presented net of deferred issuance costs.
(9)As of March 31, 2021 non-controlling interests includes $20.8 million from a 50.0% owned joint venture, $1.4 million from a 53.1% owned subsidiary and $0.2 million from a 99.9% owned subsidiary. As of December 31, 2020 non-controlling interests includes $27.4 million from the 50.0% and 63.0% owned joint ventures, $1.5 million from a 53.1% owned subsidiary and $0.2 million from a 99.9% owned subsidiary 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, 2021March 31, 2020
INCOME
Interest income$24,035 $26,888 
Interest expense(10,304)(13,070)
Net interest income13,731 13,818 
Recovery of/(provision for) losses5,516 (4,711)
Net interest income after recovery of/(provision for) losses19,247 9,107 
Income/(loss) from investments in affiliates163 (1,112)
Loss on sale of mortgage loans(1)
(705)
Other income356 747 
Total revenue, net19,766 8,037 
EXPENSE
Related party expense – loan servicing fees1,833 2,014 
Related party expense – management fee2,273 1,799 
Loan transaction expense187 (103)
Professional fees640 805 
Real estate operating expenses185 912 
Fair value adjustment on put option liability1,944 
Other expense1,117 1,025 
Total expense8,179 6,452 
Loss on debt extinguishment911 408 
Income before provision for income taxes10,676 1,177 
Provision for income taxes (benefit)34 (319)
Consolidated net income10,642 1,496 
Less: consolidated net income attributable to the non-controlling interest1,689 1,096 
Consolidated net income attributable to Company8,953 400 
Less: dividends on preferred stock1,949 
Consolidated net income attributable to common stockholders$7,004 $400 
Basic earnings per common share$0.30 $0.02 
Diluted earnings per common share$0.30 $0.02 
Weighted average shares – basic22,816,978 22,070,354 
Weighted average shares – diluted22,816,978 22,189,984 

(1)The Company sold 0 mortgage loans during the three months ended March 31, 2021. Comparatively, during the three months ended March 31, 2020, the Company sold 26 loans with a carrying value of $26.1 million and UPB of $26.2 million for a loss of $0.7 million.

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)20212020
Consolidated net income attributable to common stockholders$7,004 $400 
Other comprehensive income/(loss):
Net unrealized gain/(loss) on investments in available-for-sale debt securities1,306 (28,444)
Income tax expense related to items of other comprehensive income
Comprehensive income/(loss)$8,310 $(28,044)




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, 2021March 31, 2020
CASH FLOWS FROM OPERATING ACTIVITIES
Consolidated net income$10,642 $1,496 
Adjustments to reconcile net income to net cash from operating activities
Stock-based compensation expense294 214 
Non-cash interest income accretion on mortgage loans(5,878)(9,450)
Interest and discount accretion on investment in debt securities(2,476)(122)
Discount accretion on investment in beneficial interests(3,600)(2,672)
Loss on sale of mortgage loans705 
Loss on debt extinguishment911 408 
Gain on sale of property held-for-sale(105)(286)
Depreciation of property
Impairment of real estate owned171 897 
Provision for (benefit)/losses on mortgage loans(5,500)1,893 
Amortization of credit loss expense on mortgage loans454 229 
Provision for (benefit)/losses on beneficial interests(15)169 
Amortization of credit loss expense on beneficial interests139 2,818 
Amortization of debt discount and prepaid financing costs1,613 1,316 
Undistributed (income)/loss from investment in affiliates(163)1,112 
Fair value adjustment on put option liability1,944 
Other non-cash loan charges
Net change in operating assets and liabilities
Prepaid expenses and other assets(4,468)(28,878)
Receivable from Servicer(3,092)(278)
Accrued expenses, management fee payable, and other liabilities(254)12 
Net cash from operating activities(9,374)(30,409)
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of mortgage loans and related balances(35,637)(1,391)
Principal paydowns on mortgage loans43,578 34,597 
Proceeds from sale of mortgage loans25,412 
Draws on small balance commercial loans(85)
Purchase of securities(61,306)
Principal and interest collection on debt securities12,935 10,233 
Proceeds from sale of property held-for-sale1,587 3,017 
Distribution from affiliates485 453 
Net cash from investing activities22,863 11,015 
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from repurchase transactions89,652 72,417 
Repayments on repurchase transactions(205,691)(55,440)
Proceeds from sale of secured borrowings391,028 
Repayments on secured borrowings(225,232)(22,599)
Deferred financing costs(7,301)(34)
Purchase of bonds for non-controlling interest in subsidiaries(5,887)

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


Repurchase of the Company's senior convertible notes(2,430)(8,176)
Sale of common stock pursuant to dividend reinvestment plan47 
Redemption of non-controlling interest in subsidiaries(11,362)
Distribution to non-controlling interests(84)(84)
Issuance of non-controlling interests in subsidiaries145 
Dividends on common stock and preferred stock(5,799)
Net cash from financing activities16,941 (13,771)
NET CHANGE IN CASH, CASH EQUIVALENTS, AND CASH HELD IN TRUST30,430 (33,165)
CASH, CASH EQUIVALENTS AND CASH HELD IN TRUST, beginning of period107,335 64,363 
CASH, CASH EQUIVALENTS AND CASH HELD IN TRUST, end of period$137,765 $31,198 
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid for interest$8,441 $11,249 
Cash paid for income taxes$$
SUPPLEMENTAL DISCLOSURE OF NONCASH INVESTING AND FINANCING ACTIVITIES
Transfer of loans from mortgage held-for-investment, net to mortgage loans held-for-sale, net$131,719 $
Non-cash adjustments to basis in mortgage loans$1,324 $31 
Unrealized gain on available for sale securities, net of non-controlling interest and tax$1,306 $28,444 
Issuance of common stock for management fee and compensation expense$294 $214 
Net transfer of loans to rental property or property held-for-sale$228 $814 
Issuance of common stock for dividends$$7,097 
Treasury stock received through distributions from investment in Manager$$56 

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, 2021 and March 31, 2020 ($ in thousands):

March 31, 2021March 31, 2020
Cash and cash equivalents$137,579 $31,179 
Cash held in trust186 19 
Total cash and cash equivalents and restricted cash shown on the consolidated statements of cash flows$137,765 $31,198 


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)Preferred stock - Series A sharesPreferred stock - Series A amountPreferred stock - Series B sharesPreferred stock - Series B amountCommon stock sharesCommon stock amountTreasury stockAdditional Paid-in CapitalRetained EarningsAccumulated other comprehensive gain/(loss)Total Stockholders' EquityNon-controlling InterestTotal Equity
Balance at December 31, 2019$$22,142,143 $222 $(458)$309,395 $49,446 $1,277 $359,882 $24,202 $384,084 
Net income— — — — — — — — 400 — 400 1,096 1,496 
Issuance of shares of subsidiary— — — — — — — 145 — — 145 — 145 
Stock-based compensation expense— — — — 2,600 — — 214 — — 214 — 214 
Dividends declared ($0.32 per share) and distributions— — — — 781,222 — 7,089 (7,097)— — (84)(84)
Convertible senior notes repurchase— — — — — — — (81)— — (81)— (81)
Other comprehensive loss— — — — — — — — — (28,444)(28,444)— (28,444)
Treasury stock— — — — (4,030)— (56)— — — (56)— (56)
Balance at March 31, 2020$$22,921,935 $230 $(514)$316,762 $42,749 $(27,167)$332,060 $25,214 $357,274 
Balance at December 31, 20202,307,400 $51,100 2,892,600 $64,044 22,978,339 $231 $(1,159)$317,424 $53,346 $375 $485,361 $29,130 $514,491 
Net income— — — — — — — — 8,953 — 8,953 1,689 10,642 
Issuance of shares under dividend reinvestment plan— — — — 4,228 — — 47 — — 47 — 47 

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


Redemption of non-controlling interest in subsidiaries— — — — — — — (3,056)— — (3,056)(8,306)(11,362)
Stock-based compensation expense— — — — 6,280 — — 294 — — 294 — 294 
Dividends declared ($0.17 per share) and distributions— — — — — — — — (5,799)— (5,799)(84)(5,883)
Other comprehensive income— — — — — — — — — 1,306 1,306 — 1,306 
Balance at March 31, 20212,307,400 $51,100 2,892,600 $64,044 22,988,847 $231 $(1,159)$314,709 $56,500 $1,681 $487,106 $22,429 $509,535 


The accompanying notes are an integral part of the consolidated interim financial statements.
8


GREAT AJAX CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED INTERIM FINANCIAL STATEMENTS
March 31, 2021
(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 facilitates capital raising activities and operates 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 opportunistically targets, 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, as of March 31, 2021, held 99.9% of Great Ajax II REIT Inc. which holds an interest in Great Ajax II Depositor LLC which acts as the depositor of mortgage loans into rated securitization trusts and holds 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 securitization trusts and retained subordinated securities from the secured borrowings. These trusts are considered to be VIEs and the Company has determined that it is the primary beneficiary of these VIEs.

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 BFLD Holdings LLC, 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 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.
9


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 balance sheet and results of operations. At March 31, 2021 the Company owned approximately 22.9% of Gaea. 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, 2020, included in the Company's Annual Report on Form 10-K filed with the Securities and Exchange Commission (the "SEC") on March 5, 2021.

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, 2021. 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 3 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 owns residential mortgage loans and residential real estate assets; AS Ajax E II is 53.1% owned by the Company. Ajax Mortgage Loan Trust 2017-D ("2017-D") is a securitization trust that holds mortgage loans, REO property and secured debt; 2017-D is 50.0% owned by the Company. Great Ajax II REIT Inc. which holds an interest in Great Ajax II Depositor LLC which acts as the depositor of mortgage loans into securitization trusts and holds the subordinated securities issued by such trusts and any additional trusts the Company may form for additional secured borrowings and is 99.9% owned by the Company as of March 31, 2021 and December 31, 2020. 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.

During the first quarter of 2021, the Company acquired the remaining ownership of Ajax Mortgage Loan Trusts 2018-C ("2018-C"), a subsidiary that previously had non-controlling ownership interest held by third parties and was 63.0% owned by the Company as of December 31, 2020 and consolidated in the Company's consolidated financial statements. As a result of the transaction at March 31, 2021, the non-controlling ownership interest in 2018-C held by third parties is 0.

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, 2021, 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.
10


Note 2 — Summary of Significant Accounting Policies

Mortgage loans

Purchased Credit Deteriorated Loans ("PCD Loans")

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 as of March 31, 2020. The number of pools was then re-evaluated and increased to 6 as of June 30, 2020 through December 31, 2020 and is at 5 loan pools as of March 31, 2021. Each loan pool 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. Increases in loan yield expectations, whether caused by timing or loan performance, are reported in the period in which they arise and are reflected as a reduction in the provision for losses even if no provision expense was previously recorded. 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



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

Non PCD Loans

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 which are also subject to the provisions of CECL as discussed above.

As of December 31, 2020, the Company accounted for its non-PCD loans by estimating any allowance for credit losses for its non-PCD loans based on historical experience and the risk characteristics of the individual loans. 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 in Securities at Fair Value

The Company’s Investments in Securities at Fair Value as of March 31, 2021 and December 31, 2020 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, 2021 and December 31, 2020 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 certain investments. 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 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.



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

Preferred Stock

During the quarter ended June 30, 2020, the Company issued an aggregate of $125.0 million, net of offering costs, of preferred stock in two series and warrants to third party institutional accredited investors in a series of private placements. The Company issued 2,307,400 shares of 7.25% Series A Fixed-to-Floating Rate Preferred Stock and 2,892,600 shares of 5.00% Series B Fixed-to-Floating Rate Preferred Stock, each at a purchase price per share of $25.00. The shares have a liquidation preference of $25.00 per share.

Put Option Liability

As part of the Company’s capital raise transactions during the quarter ended June 30, 2020, the Company issued two series of five-year warrants to purchase an aggregate of 6,500,000 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. U.S. GAAP requires the Company to account for the outstanding warrants as if the put option will be exercised by the holders. The warrants were recorded as a liability in the Company's consolidated balance sheet as a put option liability with an original basis of $9.5 million. The Company is accreting the amount of the liability under the effective interest method to its expected future put value of $50.7 million and marks the obligation to market through earnings at each balance sheet date. The Company determines the fair value using a discounted cash flow method.

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. See Note 8 — Commitments and Contingencies.




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

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. No sinking fund has been established for redemption of the principal.

During the first quarter of 2021, the Company completed a convertible note repurchase with a principal amount of $2.5 million for a purchase price of $2.4 million. The carrying amount of the equity component representing the embedded conversion feature reversed from Additional paid-in capital due to the first quarter of 2021 transaction was 0. During the first and third quarter of 2020, the Company completed a series of convertible note repurchases for aggregate principal amounts of $8.0 million and $2.5 million, respectively, for total purchase prices of $8.2 million and $2.3 million, respectively. The carrying amounts of the equity component representing the embedded conversion feature reversed from Additional paid-in capital due to the first and third quarter of 2020 transactions were $0.1 million and 0, respectively.

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, 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



The accompanying notes are an integral part of the consolidated interim financial statements.
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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 non-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% 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 an 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 behalf. The total fees incurred by the Company for these services will be dependent upon the UPB and the 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 76,000 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. The Company may also periodically issue additional restricted stock awards to its independent directors under the Director Plan. In addition, each of the Company’s independent directors receives an annual fee of $100,000, payable quarterly, 40% in shares of the Company’s common stock and 60% in cash. 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. 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.




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

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 borrowings, and is segregated from the Company’s other cash deposits. Cash held in trust is not available to the Company for any purpose 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 of the Company’s Consolidated net income attributable to common stockholders, consisting of Consolidated net income, less dividends on the Company’s Series A and Series B preferred stock, is allocated to common shares and participating securities, based on their respective rights to receive dividends. Basic earnings per share is determined by dividing Consolidated net income attributable to common stockholders, 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 Consolidated net income attributable to diluted shareholders, which adds back to Consolidated net income attributable to common stockholders 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 warrants were 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. The Company uses the Treasury Stock method of accounting for the outstanding warrants. Under the Treasury Stock method, the exercise of the warrants is assumed at the beginning of the period, and shares of common stock are assumed to have been issued. The proceeds from the exercise are assumed to be used by the Company to repurchase treasury stock, thereby reducing the assumed dilution from the warrant exercise. In applying the Treasury Stock method, all dilutive potential common shares, regardless of whether they are exercisable, are treated as if they had been exercised.

In the event that any of the adjustments normally included to arrive at diluted earnings per share were to produce an anti-dilutive result, one that either increased earnings or reduced the quantity of shares used in the calculation, the anti-dilutive adjustment would not be included in the diluted earnings per share calculation.



The accompanying notes are an integral part of the consolidated interim financial statements.
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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 loans. 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 the 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. The Company also relies on its Manager's proprietary pricing model to estimate the underlying cash flows expected to be collected on its investments in beneficial interests.

The Company's investment in the Manager is valued by applying an earnings multiple to base fee revenue.

The Company's investments in AS Ajax E LLC and AS Ajax E II LLC are valued using estimates provided by financing counterparties and other publicly available information.

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

The fair value of the Company's investment in Gaea is estimated using a projected net operating income for its property portfolio.

The fair value of the Company's investment in the loan pool LLCs is determined by using estimates of underlying assets and liabilities taken from its Manager's pricing model.

The fair value of the Company's put option liability is adjusted to approximate market value through earnings. Fair value is determined using a discounted cash flow methodology based on the future value of the liability.

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.

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 accompanying notes are an integral part of the consolidated interim financial statements.
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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 broker price opinions, appraisals, or other market indicators of fair value, which are then reduced by anticipated selling costs. Net unrealized losses due to changes in market value are recognized through a valuation allowance by charges to income.

The carrying values of the Company's 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.

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 2 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 2 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 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.

Reclassifications

The Company combined its Property held-for-sale, net and Rental property, net lines with balances of $7.8 million and $0.7 million, respectively, in its December 31, 2020 consolidated balance sheet into a single line, Real estate owned properties, net, to conform to the current period presentation. There was no effect on the Company's reported earnings or cash flows for the periods presented. The Company reclassified its put option liability of $14.2 million at December 31, 2020, from Accrued expenses and other liabilities on the consolidated balance sheets to a separate line, Put option liability, to conform to the current period presentation. There was no effect on the Company's reported earnings or cash flows for the periods presented. The Company also reclassified its loans and securities credit loss expenses of $0.4 million for the three month period ended March 31, 2020, from Recovery of/(provision for) losses to Interest income on its consolidated statement of income to align the presentation with the method the Company uses to evaluate these results.




The accompanying notes are an integral part of the consolidated interim financial statements.
18


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 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 adopted ASU 2019-12 in the first quarter of 2021 with no effect on its consolidated assets or liabilities, consolidated net income or equity or cash flows on the date of adoption.

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 adopted ASU 2020-01 in the first quarter of 2021 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 August 2020, the FASB issued ASU 2020-06, Debt – Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging – Contracts in an Entity’s Own Equity (Subtopic 815-40). The amendments in this update simplify the accounting for convertible instruments by removing certain accounting models that require separation of convertible instruments into debt and equity components with conversion features that are not required to be accounted for as derivatives or that do not result in substantial premiums. Consequently a convertible instrument will be accounted for as a single liability measured as its amortized cost and convertible preferred stock will be accounted for as a single instrument recorded at historical cost as long as no other features require bifurcation and recognition as derivatives. This guidance is effective for interim and annual reporting periods beginning after December 15, 2021, 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 RPLs, NPLs and SBC loans as of March 31, 2021 and December 31, 2020 ($ in thousands):

March 31, 2021December 31, 2020
Loan portfolio basis by asset typeMortgage loans held-for-investment, netMortgage loans held-for-sale, netMortgage loans held-for-investment, netMortgage loans held-for-sale, net
Residential RPLs$928,844 $131,719 $1,057,454 $
Residential NPLs37,912 38,724 
SBC loans25,055 23,194 
Total$991,811 $131,719 $1,119,372 $

Included on the Company’s consolidated balance sheets as of March 31, 2021 and December 31, 2020 are approximately $1.0 billion and $1.1 billion, respectively, of RPLs, NPLs, and SBCs that are held-for-investment and approximately $131.7 million and 0, respectively, of RPLs that are held-for-sale. The categorization of RPLs, NPLs and



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


SBCs is determined at acquisition. The carrying value of RPLs, NPLs and SBCs reflects the original investment amount, plus accretion of interest income and credit and non-credit discount, less principal and interest cash flows received. The carrying values at March 31, 2021 and December 31, 2020 for the Company's loans in the table above are presented net of a cumulative allowance for loan credit losses of $17.9 million and $13.7 million, respectively, reflected in the appropriate lines in the table by loan type. For the three months ended March 31, 2021, the Company recognized a $5.5 million acceleration of purchase discount on loans that paid off during the quarter as actual payoffs exceeded modeled expectations. For the three months ended March 31, 2020, the Company recognized $1.9 million of provision for loan losses. For the three months ended March 31, 2021 and March 31, 2020, the Company accreted $23.1 million and $19.6 million, respectively, net of credit impairments and recoveries into interest income with respect to its RPL, NPL and SBC loans.

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 loans. 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 the Manager's 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.

During the three months ended March 31, 2021 and 2020, the Company purchased 199 and 26 RPLs with UPB of $36.0 million and $2.0 million, respectively. During the three months ended March 31, 2021 and 2020, 3 and 1 NPLs were purchased with UPB of $0.7 million and $0.2 million, respectively. During the three months ended March 31, 2021, the Company acquired 1 SBC loan with UPB of $3.6 million. NaN SBC loans were acquired during the three months ended March 31, 2020.

During the three months ended March 31, 2021 the Company sold 0 mortgage loans. Comparatively, during the three months ended March 31, 2020 the Company sold 26 loans with a carrying value of $26.1 million and UPB of $26.2 million and collateral value of $44.2 million. See Note 10 — Related Party Transactions.

The Company adopted CECL using the prospective transition approach for PCD assets on January 1, 2020. At the time, $10.2 million of loan discount was reclassified to the allowance for credit losses with no net impact on the amortized cost basis of the portfolio. The Company views its mortgage loan portfolio based on loan performance, or legal ownership for loans held by certain consolidated trusts, and uses 5 and 6 pools at March 31, 2021 and December 31, 2020, respectively, to aggregate its portfolio of PCD loans, and 1 pool for its non-PCD loans as of both March 31, 2021 and December 31, 2020. Among the PCD loans, separate pools exist for loans that have been securitized in rated secured borrowings during 2019, 2020 and 2021 ("Great Ajax II REIT") and for loans that are consolidated under U.S. GAAP but where the Company does not own 100% of the loan pool (2017-D and 2018-C). During the quarter ending March 31, 2021 the Company acquired the non-controlling interest in securitization trust 2018-C previously held by its joint venture partner. As a result of the acquisition, the non-controlling interest was eliminated and the loans in securitization trust 2018-C were reclassified into to new pools based on their status as of the acquisition date of the non-controlling interest. Subsequent to the acquisition date, a significant portion of the loans from 2018-C were added to the Great Ajax II REIT pool as these loans became the collateral for a secured borrowing at that entity. As of March 31, 2021 the loans pooled under 2017-D were designated as held-for-sale while these loans were considered held-for-investment as of December 31, 2020. Since the criteria for pooling loans includes a combination of both performance and legal ownership by subsidiary trust, these factors are not always mutually exclusive. The following table presents information regarding the year of origination of the Company's mortgage loan portfolio by basis as of March 31, 2021 and December 31, 2020 ($ in thousands):




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


March 31, 2021
Mortgage loans held-for-investment, net2021202020192018201720162009-20152006-20082005 and priorTotal
Great Ajax II REIT$$860 $179 $1,305 $489 $2,046 $53,144 $394,518 $143,521 $596,062 
California2,207 926 368 4,396 47,600 12,496 67,993 
7f7 and better1,116 291 14,039 77,071 29,411 121,928 
4f4-6f6 and below1,563 2,034 341 305 24,420 103,672 40,279 172,614 
Non-PCD3,600 21,652 4,468 74 2,562 118 706 22 12 33,214 
Total$3,600 $24,719 $7,326 $4,339 $3,760 $2,760 $96,705 $622,883 $225,719 $991,811 

March 31, 2021
Mortgage loans held-for-sale, net2021202020192018201720162009-20152006-20082005 and priorTotal
2017-D$$$$$121 $$6,929 $93,353 $31,316 $131,719 
Total$$$$$121 $$6,929 $93,353 $31,316 $131,719 

December 31, 2020
Mortgage loans held-for-investment, net202020192018201720162009-20152006-20082005 and priorTotal
Great Ajax II REIT$$$257 $488 $1,991 $41,746 $280,606 $99,909 $424,997 
2018-C14,100 119,343 39,778 173,221 
2017-D121 6,826 94,711 32,238 133,896 
California2,221 952 1,484 362 5,292 60,393 18,084 88,788 
7f7 and better911 434 2,125 17,520 88,414 32,831 142,235 
4f4-6f6 and below872 1,397 2,054 336 305 13,409 78,202 30,239 126,814 
Non-PCD21,387 4,738 64 2,493 99 611 20 29,421 
Total$24,480 $7,998 $4,293 $3,800 $4,520 $99,504 $721,689 $253,088 $1,119,372 

The following table presents a reconciliation between the purchase price and par value for the Company's loan acquisitions and originations for the three months ended March 31, 2021 and 2020 ($ in thousands):

Three months ended March 31,
20212020
PCD LoansNon PCD LoansPCD LoansNon PCD Loans
Par$36,696 $3,611 $227 $1,952 
Discount(2,929)(8)(37)(747)
Allowance(1,733)(4)
Purchase Price$32,034 $3,603 $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



The accompanying notes are an integral part of the consolidated interim financial statements.
21


loan credit 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 loss. A decrease in the allowance is generally facilitated by reclassifying amounts from non-credit discount to the allowance and then recording the recovery. During the three months ended March 31, 2021 the Company recorded a $5.4 million reclassification from non-credit discount to the allowance for losses followed by a $5.5 million reversal of the allowance for losses for loans that prepaid in full or in part during the quarter where actual payments exceeded expectations and a $3.8 million reclassification from non-credit discount to the allowance to reflect the impact of dissolving pool 2018-C and moving the loans to the remaining pools. The Company also reclassified $1.7 million of allowance to non-credit discount to reflect the impact of moving pool 2017-D to mortgage loans held-for-sale, net and recorded a $1.7 million increase in the allowance for new acquisitions. Comparatively, during the three months ended March 31, 2020, the Company recorded a reclassification from non-credit discount to the allowance for losses in the amount of $1.9 million and an incremental provision expense of $1.9 million. An analysis of the balance in the allowance for loan losses account follows ($ in thousands):

Three months ended March 31,
20212020
Allowance for loan credit losses, beginning of period$(13,712)$(1,960)
Beginning period adjustment for CECL(10,156)
Reclassification from non-credit discount to the allowance for changes in payment expectations(5,398)
Reclassification from non-credit discount to the allowance for losses for repooling adjustments(3,834)
Increase in allowance for loan credit losses for loan acquisitions(1,733)(4)
Amortization of credit loss expense on mortgage loans(454)(229)
Reclassification from non-credit discount to the allowance for losses for increases in actual and projected cash flows(1,894)
Reversal of/(increase in) provision for credit losses due to increases/(decreases) in actual and/or forecasted cash flows5,500 (1,893)
Reversal of allowance for reclass of pool 2017-D to mortgage loans held-for-sale, net1,741 
Allowance for loan credit losses, end of period$(17,890)$(16,136)

The following table sets forth the carrying value of the Company’s mortgage loans by delinquency status as of March 31, 2021 and December 31, 2020 ($ in thousands):

March 31, 2021
Mortgage loans held-for-investment, netCurrent306090ForeclosureTotal
Great Ajax II REIT$488,212 $47,370 $17,714 $40,859 $1,907 $596,062 
California9,911 6,569 9,795 35,319 6,399 67,993 
7f7 and better23,961 19,887 19,316 57,878 886 121,928 
4f4-6f6 and below9,374 15,289 9,229 103,353 35,369 172,614 
Non-PCD32,400 67 63 47 637 33,214 
Total$563,858 $89,182 $56,117 $237,456 $45,198 $991,811 

March 31, 2021
Mortgage loans held-for-sale, netCurrent306090ForeclosureTotal
2017-D$65,047 $20,019 $9,678 $35,067 $1,908 $131,719 
Total$65,047 $20,019 $9,678 $35,067 $1,908 $131,719 




The accompanying notes are an integral part of the consolidated interim financial statements.
22


December 31, 2020
Mortgage loans held-for-investment, netCurrent306090ForeclosureTotal
Great Ajax II REIT$311,941 $48,266 $19,559 $43,364 $1,867 $424,997 
2018-C70,034 20,541 15,300 57,538 9,808 173,221 
2017-D58,198 24,906 12,437 36,106 2,249 133,896 
California42,214 7,660 5,519 29,343 4,052 88,788 
7f7 and better72,613 14,003 12,447 41,383 1,789 142,235 
4f4-6f6 and below13,976 10,773 7,157 68,677 26,231 126,814 
Non-PCD22,562 6,099 56 704 29,421 
Total$591,538 $132,248 $72,475 $277,115 $45,996 $1,119,372 

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.

Property Held-for-Sale and Rental Property

The Company's REO property consists of property held-for-sale and rental property. REO property is considered held-for-sale if the REO is expected to be actively marketed for sale. As of March 31, 2021 and December 31, 2020, the Company’s net investments in real estate owned properties were $7.1 million and $8.5 million, respectively, which included balances relating to properties held-for-sale of $6.7 million and $7.8 million, respectively, and rental properties of $0.4 million and $0.7 million, respectively. Also, included in the properties held-for-sale balance for both periods as of March 31, 2021 and December 31, 2020, was $0.3 million for properties undergoing renovation or which are otherwise in the process of being brought to market. As of March 31, 2021 and December 31, 2020, the Company had a total of 31 and 38 real estate owned properties, respectively, which included 26 and 32 held-for-sale properties, respectively, and 5 and 6 rental properties, respectively. For the three months ended March 31, 2021 and 2020, 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 and transfers from rental properties.

The following table presents the activity in the Company’s carrying value of property held-for-sale and rental property for the three months ended March 31, 2021 and 2020 ($ in thousands):

Three months ended March 31,
20212020
Property Held-for-sale and Rental PropertyCountAmountCountAmount
Balance at beginning of period38 $8,526 68 $15,071 
Net transfers from mortgage loans228 814 
Adjustments to record at lower of cost or fair value (171)(897)
Depreciation on rental properties(3)(8)
Disposals(9)(1,482)(19)(2,730)
Balance at end of period31 $7,098 54 $12,250 

Dispositions

During the three months ended March 31, 2021 and 2020, the Company sold 9 and 19 REO properties, respectively, realizing net gains of approximately $0.1 million and $0.4 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, 2021 and 2020 of $0.2 million and $0.9 million, respectively.

Note 5 — Investments



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



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 holding pools of mortgage loans. 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. 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 pandemic, 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, 2021
Basis(1)
Gross unrealized gainsGross unrealized lossesCarrying value (fair value)
Debt securities$263,001 $1,926 $(245)$264,682 
Beneficial interests in securitization trusts94,893 94,893 
Total investments$357,894 $1,926 $(245)$359,575 

(1)Basis amount is net of any amortized discount, allowance for credit losses, principal paydowns and interest receivable on securities of $0.2 million.

As of December 31, 2020
Basis(1)
Gross unrealized gainsGross unrealized lossesCarrying value (fair value)
Debt securities$273,459 $1,152 $(777)$273,834 
Beneficial interests in securitization trusts91,418 91,418 
Total investments$364,877 $1,152 $(777)$365,252 

(1)Basis amount is net of any amortized costs, principal paydowns and interest receivable on securities of $0.2 million.

The following table presents a breakdown of the Company's gross unrealized losses ($ in thousands):

As of March 31, 2021
Step-up date(1)
Basis(2)
Gross unrealized lossesCarrying value (fair value)
Debt securities due September 2059(3)
February 2023/April 2023$21,390 $(245)$21,145 
Total$21,390 $(245)$21,145 

(1)Step-up date is the date at which the coupon interest rate on the security increases. The Company expects the security to be called before the step-up date.
(2)Basis amount is net of any realized amortized costs and principal paydowns.
(3)This line is comprised of two securities that are both due in September 2059 and both have been in an unrealized loss position for 12 months or longer.




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


As of December 31, 2020
Step-up date(1)
Basis(2)
Gross unrealized lossesCarrying value (fair value)
Debt securities due September 2059(3)
February 2023/April 2023$22,216 $(238)$21,978 
Debt securities due November 2059(4)
April 202314,738 (61)14,677 
Debt securities due December 2059(4)
July 202347,270 (315)46,955 
Debt securities due September 2060(4)
March 202434,970 (44)34,926 
Debt securities due June 2060(4)
March 202435,127 (119)35,008 
Total$154,321 $(777)$153,544 
(1)Step-up date is the date at which the coupon interest rate on the security increases. The Company expects the security to be called before the step-up date.
(2)Basis amount is net of any realized amortized costs and principal paydowns.
(3)This line is comprised of two securities that are both due September 2059. One security with a balance of $0.2 million has been in an unrealized loss position for less than 12 months and has a step-up date in April 2023 and the other security of $0.1 million has been in a loss position for 12 months or longer and has a step-up date in February 2023.
(4)This security has been in an unrealized loss position for less than 12 months.

As of March 31, 2021, the Company recorded $1.9 million gross unrealized gains and a gross unrealized loss of $0.2 million in fair valuation adjustments in accumulated other comprehensive income on the consolidated balance sheet at a fair value of $264.7 million, which includes $0.2 million in interest receivable. As of December 31, 2020, the Company recorded $1.2 million gross unrealized gains and a gross unrealized loss of $0.8 million in fair valuation adjustments in accumulated other comprehensive income on the consolidated balance sheet at fair value of $273.8 million, which includes $0.2 million in interest receivable.

During the three months ended March 31, 2021, the Company acquired no debt securities and beneficial interests. Comparatively during the three months ended March 31, 2020, the Company acquired $61.3 million in debt securities 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 in the trust.  In certain transactions, the joint ventures also issued subordinated notes. Of the $61.3 million of debt securities acquired in the three months ended March 31, 2020, the Company acquired $49.6 million in senior notes, $4.6 million in subordinate notes and $7.1 million in beneficial interests issued by joint ventures. As of March 31, 2021, the investments in debt securities and beneficial interests were carried on the Company's consolidated balance sheet at $264.7 million and $94.9 million, respectively. At December 31, 2020, the investments in debt securities and beneficial interests were carried on the Company's consolidated balance sheet at $273.8 million and $91.4 million, respectively. As of March 31, 2021 and December 31, 2020, 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 three months ended March 31, 2021 and 2020 ($ in thousands):

Three months ended March 31,
20212020
Par$$11,970 
Discount(2,335)
Allowance(2,553)
Purchase Price$$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 $1.7 million was reclassified from discount to allowance for credit losses for its Investments in beneficial interests. Under CECL, the Company adjusts its allowance for beneficial interest 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. Management assesses the credit quality of the portfolio and the adequacy of loss reserves on a quarterly basis, or more frequently as necessary. During the three months ended March 31, 2021, the Company recorded a $15 thousand reversal of the allowance for losses for beneficial interests. During the three months ended March 31, 2020, the Company recorded a provision



The accompanying notes are an integral part of the consolidated interim financial statements.
25


expense of $0.2 million. An analysis of the balance in the allowance for beneficial interest losses account follows ($ in thousands):

Three months ended March 31,
20212020
Allowance for beneficial interests credit losses, beginning balance$(4,453)$
Beginning period adjustment for CECL(1,668)
Incremental increase in allowance for beneficial interests(953)
Increase in allowance for beneficial interest credit losses for acquisitions(2,553)
Amortization of credit loss expense on beneficial interests(139)(2,818)
Reversal of/(increase in) provision for credit losses due to increases/(decreases) in actual and/or forecasted cash flows15 (169)
Allowance for beneficial interests credit losses, end balance$(5,530)$(7,208)

Note 6 — Fair Value

Recurring financial assets and liabilities measured and carried at fair value by level within the fair value hierarchy as of March 31, 2021 and December 31, 2020 ($ in thousands):

Level 1Level 2Level 3
March 31, 2021Carrying ValueQuoted prices in active marketsObservable inputs other than Level 1 pricesUnobservable inputs
Recurring financial assets
Investment in debt securities at fair value$264,682 $$264,682 $
Recurring financial liabilities
Put option liability$16,149 $$$16,149 

Level 1Level 2Level 3
December 31, 2020Carrying ValueQuoted prices in active marketsObservable inputs other than Level 1 pricesUnobservable inputs
Recurring financial assets
Investment in debt securities at fair value$273,834 $$273,834 $
Recurring financial liabilities
Put option liability$14,205 $$$14,205 

The following tables set forth the fair value of financial instruments by level within the fair value hierarchy as of March 31, 2021 and December 31, 2020 ($ in thousands):




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


Level 1Level 2Level 3
March 31, 2021Carrying valueQuoted prices in active marketsObservable inputs other than Level 1 pricesUnobservable inputs
Financial assets
Mortgage loans held-for-investment, net$991,811 $$$1,088,730 
Mortgage loans held-for-sale, net$131,719 $$$141,780 
Investments in beneficial interests$94,893 $$$94,893 
Investment in Manager$1,535 $$$11,818 
Investment in AS Ajax E LLC$723 $$877 $
Investment in AS Ajax E II LLC$3,115 $$3,261 $
Investment in GAFS, including warrants$2,650 $$$3,320 
Investment in Gaea$19,897 $$$19,133 
Investment in Loan pool LLCs$374 $$$707 
Financial liabilities
Secured borrowings, net$740,035 $$743,762 $
Borrowings under repurchase transactions$305,093 $$305,093 $
Convertible senior notes, net$107,971 $111,382 $$

Level 1Level 2Level 3
December 31, 2020Carrying valueQuoted prices in active marketsObservable inputs other than Level 1 pricesUnobservable inputs
Financial assets
Mortgage loans held-for-investment, net$1,119,372 $$$1,232,081 
Investment in beneficial interests$91,418 $$$91,418 
Investment in Manager$1,366 $$$11,709 
Investment in AS Ajax E LLC$776 $$934 $
Investment in AS Ajax E II LLC$3,381 $$3,484 $
Investment in GAFS, including warrants$2,711 $$$3,320 
Investment in Gaea$20,001 $$$19,150 
Investment in Loan pool LLCs$381 $$$701 
Financial liabilities
Secured borrowings, net$585,403 $$586,419 $
Borrowings under repurchase agreement$421,132 $$421,132 $
Convertible senior notes, net$110,057 $110,675 $$

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. The Company also relies on its Manager's proprietary pricing model to estimate the underlying cash flows expected to be collected on its investments in beneficial interests.

The Company's investment in the Manager is valued by applying an earnings multiple to base fee revenue.

The Company’s investments in AS Ajax E LLC and AS Ajax E II LLC are valued using estimates provided by financing counterparties or other publicly available information.



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



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

The Company's investment in Gaea is estimated using a projected net operating income for its property portfolio.

The Company's fair value of its investment in the loan pool LLCs is determined by using estimates of underlying assets and liabilities taken from the Manager's pricing model.

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.

The Company's put option liability is adjusted to approximate market value through earnings. Fair value is determined by using a discounted cash flow model based on the future value of the liability.

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 cost (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, 2021 and December 31, 2020 ($ in thousands):

Level 1Level 2Level 3
March 31, 2021Carrying 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$6,736 $(171)$$$6,736 
 Level 1Level 2Level 3
December 31, 2020Carrying valueFair value adjustment recognized in the consolidated statements of incomeQuoted prices in active marketsObservable inputs other than Level 1 pricesUnobservable inputs
Non-financial assets    
Property held-for-sale$7,807 $(1,359)$$$7,807 

Note 7 — Affiliates

Unconsolidated Affiliates




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


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. At March 31, 2021 the Company owned approximately 22.9% of Gaea with third party investors owning the remaining approximately 77.1%. 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 loan pool 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. On January 26, 2018, the Company in an initial closing 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, 2021 and December 31, 2020, 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%20212020
Thetis Asset Management LLC$851 $(4,877)
Gaea Real Estate Corp.$78 $15 
AS Ajax E LLC$54 $62 
Loan pool LLCs$(16)$198 
Great Ajax FS LLC$(777)$(3,450)

March 31, 2021December 31, 2020
Assets and Liabilities at 100%AssetsLiabilitiesAssetsLiabilities
Thetis Asset Management LLC$9,681 $1,533 $9,531 $2,122 
Gaea Real Estate Corp.$94,259 $11,844 $94,639 $11,886 
AS Ajax E LLC$4,482 $$4,808 $
Loan pool LLCs$2,410 $3,964 $2,423 $3,961 
Great Ajax FS LLC$56,457 $36,807 $56,532 $36,101 




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


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 share20212020
Thetis Asset Management LLC$168 $(966)
Gaea Real Estate Corp.$18 $
AS Ajax E LLC$$10 
Loan pool LLCs$(7)$79 
Great Ajax FS LLC$(62)$(276)

March 31, 2021December 31, 2020
Assets and Liabilities at the Company's shareAssetsLiabilitiesAssetsLiabilities
Thetis Asset Management LLC$1,917 $304 $1,887 $420 
Gaea Real Estate Corp.$21,642 $2,719 $21,729 $2,729 
AS Ajax E LLC$738 $$791 $
Loan pool LLCs$967 $1,597 $973 $1,595 
Great Ajax FS LLC$4,517 $2,945 $4,523 $2,888 

Consolidated Affiliates

The Company consolidates the results and balances of certain 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 certain of these VIEs. See Note 9 — Debt.

The Company also consolidates the activities and balances of its controlled affiliates, which include AS Ajax E II LLC, 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, 2021, AS Ajax E II was 53.1% owned by the Company, with the remainder held by third-parties. 2017-D is a securitization trust formed to hold mortgage loans, REO property and secured debt. As of March 31, 2021, 2017-D was 50.0% owned by a third-party institutional accredited investor. Great Ajax II REIT holds an interest in Great Ajax II Depositor LLC which acts as the depositor of mortgage loans into securitization trusts and holds the subordinated securities issued by such trusts and any additional trusts the Company may form for additional secured borrowings. Great Ajax II REIT was 99.9% owned by the Company as of March 31, 2021 and December 31, 2020.

During the first quarter of 2021, the Company acquired the remaining ownership of 2018-C, a subsidiary that previously had non-controlling ownership interest held by third parties and was 63.0% owned by the Company as of December 31, 2020. As of March 31, 2021, 2018-C was 100.0% owned by the Company and the previous non-controlling interest had been reduced to 0.

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.

At March 31, 2021, the Company had commitments to purchase, subject to due diligence, 235 RPLs and NPLs secured by single-family residences with aggregated UPB of $104.5 million. 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.

During the quarter ended June 30, 2020, the Company issued an aggregate of $125.0 million, net of offering costs, of preferred stock in two series and warrants to institutional accredited investors in a series of private placements. The Company issued 2,307,400 shares of 7.25% Series A Fixed-to-Floating Rate Preferred Stock and 2,892,600 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 6,500,000 shares of the Company's common stock at an exercise price of $10.00 per share. Each series



The accompanying notes are an integral part of the consolidated interim financial statements.
30


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. U.S. GAAP requires the Company to account for the outstanding warrants as if the put option will be exercised by the holders. Accordingly, the Company has recognized a liability on its consolidated balance sheet within accrued expenses and other liabilities at March 31, 2021 for the present value of the put liability of $16.1 million. The Company is accreting the amount of the liability under the effective interest method to its expected future put value of $50.7 million and marks the obligation to market through earnings. The expense is recognized in the Fair value adjustment on put option liability line of the Company's consolidated statements of income. The following table sets forth the details of the Company's put option liability ($ in thousands):

Three months ended March 31,
20212020
Beginning balance$14,205 $
Fair value adjustments during the period1,944 
Ending balance$16,149 $

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, 2021, 0 contingencies have been recorded on the Company's consolidated balance sheet as a result of COVID-19, however as the global pandemic continues, 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, 2021, 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 is 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 Company's 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 4 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 between 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 accompanying notes are an integral part of the consolidated interim financial statements.
31



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

March 31, 2021
Maturity DateOrigination dateMaximum Borrowing CapacityAmount OutstandingAmount of CollateralPercentage of Collateral CoverageInterest Rate
April 5, 2021January 6, 2021$34,568 $34,568 $43,784 127 %1.74 %
April 6, 2021January 6, 20217,530 7,530 9,723 129 %1.79 %
April 6, 2021January 6, 20214,588 4,588 5,890 128 %1.79 %
April 6, 2021January 6, 20214,544 4,544 5,738 126 %1.79 %
April 6, 2021January 6, 20213,233 3,233 4,667 144 %1.94 %
April 9, 2021October 13, 202033,084 33,084 41,718 126 %2.35 %
April 12, 2021January 11, 20215,706 5,706 7,328 128 %1.77 %
April 15, 2021January 14, 20216,582 6,582 8,145 124 %1.83 %
April 20, 2021January 20, 202112,127 12,127 15,505 128 %1.82 %
April 22, 2021March 17, 20213,896 3,896 5,130 132 %1.66 %
April 26, 2021January 27, 20217,982 7,982 9,279 116 %1.21 %
April 26, 2021January 27, 20215,177 5,177 6,063 117 %1.21 %
April 26, 2021January 27, 20216,295 6,295 7,276 116 %1.21 %
April 30, 2021February 1, 202111,992 11,992 14,767 123 %1.81 %
April 30, 2021February 1, 202111,825 11,825 15,005 127 %1.81 %
April 30, 2021February 1, 20215,157 5,157 6,610 128 %1.81 %
April 26, 2021February 1, 20213,892 3,892 4,876 125 %1.81 %
April 30, 2021February 1, 20212,794 2,794 3,662 131 %1.81 %
April 30, 2021February 1, 20212,369 2,369 3,360 142 %1.96 %
April 30, 2021February 1, 20211,133 1,133 1,607 142 %1.96 %
May 12, 2021February 12, 20213,100 3,100 4,428 143 %1.95 %
June 4, 2021March 5, 202124,453 24,453 32,366 132 %1.54 %
June 4, 2021March 5, 202123,972 23,972 31,589 132 %1.54 %
June 17, 2021March 17, 20219,440 9,440 11,986 127 %1.73 %
June 17, 2021March 17, 20217,803 7,803 10,166 130 %1.73 %
June 17, 2021March 17, 20211,175 1,175 1,687 144 %1.88 %
June 24, 2021March 24, 20212,510 2,510 3,250 129 %1.75 %
July 9, 2021July 10, 2020250,000 15,724 23,488 149 %2.61 %
September 23, 2021September 24, 2020400,000 42,442 63,743 150 %2.61 %
Totals/weighted averages$896,927 $305,093 $402,836 132 %1.93 %

December 31, 2020
Maturity DateOrigination dateMaximum Borrowing CapacityAmount OutstandingAmount of CollateralPercentage of Collateral CoverageInterest Rate
January 6, 2021October 9, 2020$35,635 $35,635 $46,120 129 %2.33 %
January 6, 2021September 28, 20207,697 7,697 10,075 131 %2.33 %
January 6, 2021September 28, 20206,311 6,311 9,038 143 %2.48 %
January 6, 2021September 28, 20204,755 4,755 6,114 129 %2.33 %
January 6, 2021September 28, 20204,666 4,666 6,044 130 %2.33 %
January 6, 2021September 28, 20203,213 3,213 4,667 145 %2.48 %
January 11, 2021September 29, 20205,879 5,879 7,575 129 %2.32 %



The accompanying notes are an integral part of the consolidated interim financial statements.
32


January 14, 2021October 29, 20206,991 6,991 8,738 125 %2.35 %
January 20, 2021October 20, 202013,263 13,263 16,582 125 %2.22 %
January 29, 2021October 30, 20207,762 7,762 9,702 125 %2.21 %
January 29, 2021October 30, 20207,153 7,153 9,537 133 %2.21 %
February 1, 2021December 1, 202012,258 12,258 16,052 131 %1.88 %
February 1, 2021December 1, 202012,015 12,015 15,794 131 %1.88 %
February 1, 2021December 1, 20205,298 5,298 6,895 130 %1.88 %
February 1, 2021December 1, 20203,985 3,985 5,136 129 %1.88 %
February 1, 2021December 1, 20202,887 2,887 3,790 131 %1.88 %
February 1, 2021December 1, 20202,332 2,332 3,360 144 %2.03 %
February 1, 2021December 1, 20201,132 1,132 1,607 142 %2.03 %
February 12, 2021November 13, 20202,945 2,945 4,428 150 %2.02 %
March 5, 2021December 7, 202024,946 24,946 33,348 134 %1.78 %
March 5, 2021December 7, 202024,312 24,312 32,571 134 %1.78 %
March 17, 2021December 17, 202010,219 10,219 13,172 129 %1.78 %
March 17, 2021December 17, 20208,381 8,381 10,872 130 %1.78 %
March 17, 2021December 17, 20203,894 3,894 5,193 133 %1.78 %
March 17, 2021December 17, 20201,145 1,145 1,687 147 %1.93 %
March 24, 2021December 24, 20207,016 7,016 10,024 143 %1.94 %
March 24, 2021December 24, 20205,008 5,008 6,637 133 %1.79 %
March 24, 2021December 24, 20202,577 2,577 3,367 131 %1.79 %
April 9, 2021October 13, 202033,084 33,084 43,069 130 %2.35 %
July 9, 2021July 10, 2020250,000 53,256 84,337 158 %2.64 %
September 23, 2021September 24, 2020400,000 101,117 160,068 158 %2.65 %
Totals/weighted averages$916,759 $421,132 $595,599 141 %2.29 %

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. As of March 31, 2021 and December 31, 2020, the Company had $8.8 million and $4.7 million, respectively, of cash collateral on deposit with financing counterparties. This cash is included in Prepaid expenses and other assets on its consolidated balance sheets and is not netted against its Borrowings under repurchase agreements. The amount outstanding on the Company’s repurchase facilities and the carrying value of the Company’s loans pledged as collateral are presented as gross amounts in the Company’s consolidated balance sheets at March 31, 2021 and December 31, 2020 in the table below ($ in thousands):

Gross amounts not offset in balance sheet
March 31, 2021December 31, 2020
Gross amount of recognized liabilities$305,093 $421,132 
Gross amount of loans and securities pledged as collateral402,836 595,599 
Other prepaid collateral8,815 4,653 
Net collateral amount$106,558 $179,120 

Secured Borrowings

From inception (January 30, 2014) to March 31, 2021, the Company has completed 18 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, 2021. 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



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


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 non-rated secured borrowings are generally structured with Class A notes, subordinated 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, the Company has retained the subordinate notes and the applicable trust certificates from the 1 other non-rated secured borrowing outstanding at March 31, 2021.

The Company’s rated secured borrowings are generally structured as “REIT TMP” transactions which allow the Company to issue multiple classes of securities without using a REMIC structure or being subject to an entity level tax. The Company’s rated secured borrowings generally issue classes of debt from AAA through mezzanine. The Company generally retains the mezzanine and residual certificates in the transactions. The Company has retained the applicable mezzanine and residual certificates from the other 4 rated secured borrowings at March 31, 2021. The Company’s rated secured borrowings are designated in the table below.

The Company's 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 notes. The Company has retained 50% of both the Class A notes and Class B certificates from 2017-D.

The Company's 2018-C secured borrowing was structured with 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 had retained 5% of the Class A notes and 63% of the Class B notes and trust certificates. During the first quarter of 2021 the Company acquired the remaining 37% ownership of the Class B notes and trust certificates and settled the remaining 95% of the outstanding Class A notes.

The Company's secured borrowings carry no provision for a step-up in interest rate on any of the Class B notes, except for 2021-B.

For the Company's secured borrowing for 2017-D, if the Class A notes have not been redeemed by the payment date or otherwise paid in full 36 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 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, 2021 at their respective cutoff dates:

Issuing Trust/Issue DateInterest Rate Step-up DateSecurityOriginal PrincipalInterest Rate
Non-rated
Ajax Mortgage Loan Trust 2017-D/ December 2017April 25, 2021
Class A notes due 2057(1)
$177.8 million3.75 %
None
Class B certificates(1)
$44.5 million%
Deferred issuance costs$(1.1) million%
Rated
Ajax Mortgage Loan Trust 2019-D/ July 2019July 25, 2027Class A-1 notes due 2065$140.4 million2.96 %
July 25, 2027Class A-2 notes due 2065$6.1 million3.50 %



The accompanying notes are an integral part of the consolidated interim financial statements.
34


July 25, 2027Class A-3 notes due 2065$10.1 million3.50 %
July 25, 2027
Class M-1 notes due 2065(2)
$9.3 million3.50 %
None
Class B-1 notes due 2065(3)
$7.5 million3.50 %
None
Class B-2 notes due 2065(3)
$7.1 million
variable(4)
None
Class B-3 notes due 2065(3)
$12.8 million
variable(4)
Deferred issuance costs$(2.7) million%
Rated
Ajax Mortgage Loan Trust 2019-F/ November 2019November 25, 2026Class A-1 notes due 2059$110.1 million2.86 %
November 25, 2026Class A-2 notes due 2059$12.5 million3.50 %
November 25, 2026Class A-3 notes due 2059$5.1 million3.50 %
November 25, 2026
Class M-1 notes due 2059(2)
$6.1 million3.50 %
None
Class B-1 notes due 2059(3)
$11.5 million3.50 %
None
Class B-2 notes due 2059(3)
$10.4 million
variable(4)
None
Class B-3 notes due 2059(3)
$15.1 million
variable(4)
Deferred issuance costs$(1.8) million%
Rated
Ajax Mortgage Loan Trust 2020-B/ August 2020July 25, 2027Class A-1 notes due 2059$97.2 million1.70 %
July 25, 2027Class A-2 notes due 2059$17.3 million2.86 %
July 25, 2027
Class M-1 notes due 2059(2)
$7.3 million3.70 %
None
Class B-1 notes due 2059(3)
$5.9 million3.70 %
None
Class B-2 notes due 2059(3)
$5.1 million
variable(4)
None
Class B-3 notes due 2059(3)
$23.6 million
variable(4)
Deferred issuance costs$(1.8) million%
Rated
Ajax Mortgage Loan Trust 2021-A/ January 2021January 25, 2029Class A-1 notes due 2065$146.2 million1.07 %
January 25, 2029Class A-2 notes due 2065$21.1 million2.35 %
January 25, 2029
Class M-1 notes due 2065(2)
$7.8 million3.15 %
None
Class B-1 notes due 2065(3)
$5.0 million3.80 %
None
Class B-2 notes due 2065(3)
$5.0 million
variable(4)
None
Class B-3 notes due 2065(3)
$21.5 million
variable(4)
Deferred issuance costs$(2.5) million%
Non-rated
Ajax Mortgage Loan Trust 2021-B/ February 2021August 25, 2024Class A notes due 2066$215.9 million2.24 %
February 25, 2025
Class B notes due 2066(3)
$20.2 million4.00 %
Deferred issuance costs$(4.3) million%

(1)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 U.S. 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.
(2)The Class M notes are subordinated, sequential pay, fixed rate notes. The Company has retained the Class M notes, with the exception of AJAXM 2021-A.



The accompanying notes are an integral part of the consolidated interim financial statements.
35


(3)The Class B notes are subordinated, 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.
(4)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. 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, 2021 and December 31, 2020, and the securitization cutoff date ($ in thousands):

Balances at March 31, 2021Balances at December 31, 2020Original 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$$%$110,062 $68,729 160 %$165,850 $115,846 
2017-D131,719 48,660 (1)271 %133,897 51,256 (1)261 %203,870 (2)88,903 
2018-C%173,221 131,983 (3)131 %222,181 (4)167,910 
2019-D140,383 115,651 121 %148,641 125,008 119 %193,301 156,670 
2019-F134,884 102,555 132 %139,996 108,184 129 %170,876 127,673 
2020-B132,863 101,707 131 %136,360 105,601 129 %156,468 114,534 
2021-A187,932 169,995 111 %%206,528 175,116 
2021-B263,267 212,111 124 %%287,895 215,912 
$991,048 $750,679 (5)132 %$842,177 $590,761 (5)143 %$1,606,969 $1,162,564 
(1)The gross amount of senior bonds at March 31, 2021 and December 31, 2020 were $97.4 million and $102.6 million however, only $48.7 million and $51.3 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 contained 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 December 31, 2020 were $132.7 million and $15.9 million, however, only $126.1 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 $10.6 million and $5.4 million as of March 31, 2021 and December 31, 2020.
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. No sinking fund has been established for redemption of the principal.




The accompanying notes are an integral part of the consolidated interim financial statements.
36


During the first quarter of 2021, the Company completed a convertible note repurchase with a principal amount of $2.5 million for a purchase price of $2.4 million. The carrying amount of the equity component representing the embedded conversion feature reversed from Additional paid-in capital due to the first quarter of 2021 transaction was 0. During the first and third quarters of 2020, the Company completed a series of convertible note repurchases for aggregate principal amounts of $8.0 million and $2.5 million, respectively, for total purchase prices of $8.2 million and $2.3 million, respectively. The carrying amounts of the equity component representing the embedded conversion feature reversed from Additional paid-in capital due to the first and third quarter of 2020 transactions were $0.1 million and 0, respectively.

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, 2021 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, 2021, the amount by which the if-converted value falls short of the principal value for the entire series is $27.3 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, 2021, the outstanding aggregate principal amount of the notes was $110.9 million, and discount and deferred expenses were $2.9 million. During the three months ended March 31, 2021 the Company recognized interest expense of $2.4 million which includes $0.3 million of amortization of discount and deferred expenses. Comparatively at March 31, 2020, the outstanding aggregate principal amount of the notes was $115.9 million, and discount and deferred expenses were $4.4 million. During the three months ended March 31, 2020 the Company recognized interest expense of $2.4 million which includes $0.3 million of amortization of discount and deferred expenses. The effective interest rates of the notes for the quarters ended March 31, 2021 and March 31, 2020 were 9.01% and 8.72%, respectively.

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 locationCounterparty20212020
Interest income on securities and beneficial interest and recovery of/(provision for) losses on beneficial interestsNet interest income after recovery of/(provision for) lossesVarious non-consolidated joint ventures$5,952 $2,019 
Management feeRelated party expense – management feeThetis$2,270 $1,799 
Loan servicing feesRelated party expense – loan servicing feesGregory$1,833 $2,014 
Income/(loss) from equity investmentIncome/(loss) from investments in affiliatesThetis$168 $(966)
Income from equity investmentIncome/(loss) from investments in affiliatesGaea$18 $
Income from equity investmentIncome/(loss) from investments in affiliatesAS Ajax E LLC$$10 
Loss on sale of mortgage loansLoss on sale of mortgage loansGaea$$(705)
(Loss)/income from equity investmentIncome/(loss) from investments in affiliatesLoan pool LLCs$(7)$79 



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


Loss from equity investmentIncome/(loss) from investments in affiliatesGreat Ajax FS$(62)$(276)

The Company’s consolidated balance sheets included the following significant related party balances ($ in thousands):

As of March 31, 2021
TransactionConsolidated Balance Sheet locationCounterpartyAmount
Investment in beneficial interestsInvestments in beneficial interestsVarious non-consolidated joint ventures$94,893 
Receivables from ServicerReceivable from ServicerGregory$18,847 
Affiliate loan receivableMortgage loans held-for-investment, netGaea$11,000 
Management fee payableManagement fee payableThetis$2,270 
Expense reimbursement receivablePrepaid expenses and other assetsVarious non-consolidated joint ventures$1,133 
Expense reimbursementAccrued expenses and other liabilitiesGregory$(84)

As of December 31, 2020
TransactionConsolidated Balance Sheet locationCounterpartyAmount
Investment in beneficial interestsInvestments in beneficial interestsVarious non-consolidated joint ventures$91,418 
Receivables from ServicerReceivable from ServicerGregory$15,755 
Affiliate loan receivableMortgage loans held-for-investment, netGaea$11,000 
Management fee payableManagement fee payableThetis$2,247 
Affiliate loan purchaseMortgage loans held-for-investment, netGreat Ajax FS$1,838 
Expense reimbursement receivablePrepaid expenses and other assetsVarious non-consolidated joint ventures$876 
Expense reimbursement receivablePrepaid expenses and other assetsThetis$18 
Expense reimbursementsAccrued expenses and other assetsGregory$(44)

At March 31, 2021 and December 31, 2020, the Company had an outstanding originated SBC loan to Gaea, a related party of $11.0 million. The loan is secured by 20 of Gaea's SBC loans. The loan carries an interest rate of 4.25% and matured on March 31, 2021. The loan was paid off on April 5, 2021. The loan is included in Mortgage loans held-for-investment, net on the Company's consolidated balance sheets.

At December 31, 2020, the Company purchased 15 RPLs from GAFS, a related party, for $1.8 million with UPB of $2.1 million and collateral value of $3.7 million. The loans are all included in Mortgage loans held-for-investment, net on the Company's consolidated balance sheets.

The Company sold 0 mortgage loans during the three months ended March 31, 2021. Comparatively, during the three months ended March 31, 2020, the Company 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 to Gaea, a related party. The retained securities are included in the notes and beneficial interests discussed in the paragraph below.

During the three months ended March 31, 2021, the Company acquired no debt securities and beneficial interests. Comparatively during the three months ended March 31, 2020, the Company acquired $61.3 million in debt securities 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 in the trust. 



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


In certain transactions, the joint ventures also issued subordinated notes. The debt securities are carried at fair value. Of the $61.3 million of debt securities acquired in the three months ended March 31, 2020, the Company acquired $49.6 million in senior notes, $4.6 million in subordinate notes and $7.1 million in beneficial interests issued by joint ventures. As of March 31, 2021, the investments in debt securities and beneficial interests were carried on the Company's consolidated balance sheet at $264.7 million and $94.9 million, respectively. At December 31, 2020, the investments in debt securities and beneficial interests were carried on the Company's consolidated balance sheet at $273.8 million and $91.4 million, respectively. As of March 31, 2021 and December 31, 2020, the Company had 0 securities that were past due.

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, 2021, and December 31, 2020, the Company had 0 advances outstanding to the Servicer. Interest on the arrangement accrues at 7.2% annually.

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. At March 31, 2021 the Company owned approximately 22.9% of Gaea with third party investors owning the remaining approximately 77.1%. 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 loan pool 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.

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 5.0% 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, 2021 and December 31, 2020, the Company’s interest in AS Ajax E LLC was approximately 16.5%. The Company accounts for its investment using the equity method.

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 is 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 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. 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 accompanying notes are an integral part of the consolidated interim financial statements.
39



The Manager is also entitled to an incentive fee, payable quarterly and calculated in arrears, which contains both a quarterly and annual component. A quarterly incentive fee is payable to the Manager if the sum of the Company’s dividends on its common stock 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 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. During the three months ended March 31, 2021 and March 31, 2020, the Company did 0t record 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% 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.

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 the 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.
40


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 three months ended March 31, 2021 of $2.3 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. Comparatively, for the three months ended March 31, 2020, the Company recognized a base management fee of $1.8 million, of which NaN was payable in shares of its common stock.

In addition, each of the Company’s independent directors received an annual retainer of $100,000, payable quarterly, 40% of which is payable in shares of the Company's common stock using the same valuation method as defined for the stock portion of the management fee payable to the Manager and 60% in cash.

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

Stock-based Director Fees

For the three months ended March 31,
20212020
Number of shares
Amount of expense recognized(1)
Number of shares
Amount of expense recognized(1)
Independent director fees3,945 $50 3,468 $40 
Totals3,945 $50 3,468 $40 

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

Restricted Stock

The Company periodically grants shares of its common 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.

Each independent member of the Company's Board of Directors is issued a restricted stock award of 2,000 shares of the Company’s common stock. Additionally, the Company may issue grants of its shares of common stock from time to time to its directors.

Under the Company’s 2014 Director Equity Plan and 2016 Equity Incentive Plan the Company made grants of restricted stock to its Directors and to employees of its Manager and Servicer as set forth the table below:




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


Employee and Service Provider GrantsDirector Grants
SharesWeighted Average Grant Date Fair ValueSharesWeighted Average Grant Date Fair Value
March 31, 2021 outstanding unvested share grants163,083$11.07 0$
Shares vested00
Shares forfeited0(2,000)12.00 
Shares granted02,00012.00 
December 31, 2020 outstanding unvested share grants163,083$11.07 0$
March 31, 2020 outstanding unvested share grants114,334$13.83 0$
Shares vested00
Shares forfeited00
Shares granted00
December 31, 2019 outstanding unvested share grants114,334$13.83 0$

The following table presents the expenses for the Company's restricted stock plan for the years ended ($ in thousands):

Three months ended March 31,
20212020
Restricted stock grants$207 $174 
Director grants24 
Total expenses for plan grants$231 $174 

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. 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 four taxable years following the year in which it lost its REIT qualification.

The Company’s consolidated financial statements include the operations of 2 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, 2021 the Company had consolidated taxable income of $8.7 million; and provisions for income taxes of $34 thousand. For the three months ended March 31, 2020, the Company’s consolidated taxable income was $1.2 million; and income tax benefit of $0.3 million. The Company recognized 0 deferred income tax assets or liabilities on its consolidated balance sheets at March 31, 2021 or 2020. The Company also recorded 0 interest or penalties for the three months ended March 31, 2021 or 2020.




The accompanying notes are an integral part of the consolidated interim financial statements.
42


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, 2021Three months ended March 31, 2020
Income
(Numerator)
Shares
(Denominator)
Per Share
Amount
Income
(Numerator)
Shares
(Denominator)
Per Share
Amount
Basic EPS
Consolidated net income attributable to common stockholders$7,004 22,816,978 $400 22,070,354 
Allocation of earnings to participating restricted shares(52)(2)
Consolidated net income attributable to unrestricted common stockholders$6,952 22,816,978 $0.30 $398 22,070,354 $0.02 
Effect of dilutive securities(1, 2)
Restricted stock grants and Manager and director fee shares(3)
119,630 
Diluted EPS
Consolidated net income attributable to common stockholders and dilutive securities$6,952 22,816,978 $0.30 $400 22,189,984 $0.02 

(1)The Company's outstanding warrants for an addition 6,500,000 shares of common stock and effect of the put option share settlement would have an anti-dilutive effect on diluted earnings per share for the three months ended March 31, 2021, and have not been included in the calculation.
(2)The effect of interest expense and assumed conversion of shares from convertible notes on the Company's diluted EPS calculation for the three months ended March 31, 2021 would have been anti-dilutive and have been removed from the calculation.
(3)The effect of restricted stock grants and manager and director fee shares on the Company's diluted EPS calculation for the three months ended March 31, 2021 would have been anti-dilutive and have been removed from the calculation.

Note 14 — Equity

Common stock

As of March 31, 2021 and December 31, 2020, the Company had 22,988,847 and 22,978,339 shares, respectively, of $0.01 par value common stock outstanding with 125,000,000 shares authorized at each period end.

Preferred stock

During the quarter ended June 30, 2020, the Company issued to institutional accredited investors an aggregate of $130.0 million of preferred stock in two series and warrants in a series of private placements. The Company issued 2,307,400 shares of 7.25% Series A Fixed-to-Floating Rate Preferred Stock and 2,892,600 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 6,500,000 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. The Company expects to use the net proceeds from the private placement to acquire mortgage loans and mortgage-related assets consistent with the Company's investment strategy.

The Company had 2,307,400 shares of Series A preferred stock and 2,892,600 shares of Series B preferred stock outstanding at March 31, 2021 and December 31, 2020. There were 25,000,000 shares, cumulative for all series, authorized as of both March 31, 2021 and December 31, 2020.




The accompanying notes are an integral part of the consolidated interim financial statements.
43


Treasury stock and Stock Repurchase Plan

On February 28, 2020, the Company's Board of Directors approved a stock repurchase of up to $25.0 million of its common shares. The amount and timing of any repurchases will depend on a number of factors, including but not limited to the price and availability of the common shares, trading volume and general circumstances and market conditions.

As of March 31, 2021 and December 31, 2020, the Company held 107,243 shares of treasury stock consisting of 58,779 shares received through distributions of the Company's shares previously held by its Manager and 48,464 shares acquired through open market purchases in the fourth quarter of 2020 under the Company's approved stock repurchase plan.

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, 2021 4,228 shares were issued under the plan for total proceeds of approximately $47 thousand. Comparatively, during the three months ended March 31, 2020 0 shares were issued under the plan.

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, 2021 and 2020, 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. Total accumulated other comprehensive gain on the Company’s balance sheet at March 31, 2021 and December 31, 2020 was as follows ($ in thousands):

Investments in securities:March 31, 2021December 31, 2020
Unrealized gains$1,926 $1,152 
Unrealized losses(245)(777)
Accumulated other comprehensive gain$1,681 $375 

Non-controlling Interest

At December 31, 2020, the Company had non-controlling interests attributable to ownership interests for 4 legal entities. During the first quarter of 2021, the Company acquired the remaining ownership of 2018-C. This decreased the number of third party non-controlling interests as of March 31, 2021 to 3 legal entities. Legal entities consolidated by the Company which have non-controlling interests held by third parties are described below.

AS Ajax E II LLC was formed by the Company during 2017 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, 2021 and December 31, 2020, the Company owned 53.1% of AS Ajax E II LLC and consolidated the assets, liabilities, revenues and expenses of the entity.

2017-D, a securitization trust, was formed by the Company during 2017. It is 50.0% held by an accredited institutional investor. As of March 31, 2021 and December 31, 2020, the Company owned 50.0% of 2017-D and consolidated the assets, liabilities, revenues and expenses of the trust.

Great Ajax II REIT was formed by the Company during 2019 to hold an interest in Great Ajax II Depositor LLC, which acts as the depositor of mortgage loans into securitization trusts and holds the subordinated securities issued by such trusts and any additional trusts the Company may form for additional secured borrowings. As of March 31, 2021 and December 31, 2020, Great Ajax II REIT was 0.1% held by third parties. As of March 31, 2021 and December 31, 2020, the Company owned 99.9% of Great Ajax II REIT and consolidated the assets, liabilities, revenues and expenses of the entity.



The accompanying notes are an integral part of the consolidated interim financial statements.
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2018-C, a securitization trust was formed by the Company during 2018 and was 37.0% held by an accredited institutional investor. The remaining 37.0% ownership was purchased by the Company during the first quarter of 2021. As of March 31, 2021 the Company owned 100.0% of 2018-C. Comparatively, as of December 31, 2020 the Company owned 63.0% of 2018-C and consolidated the assets, liabilities, revenues and expenses of the trust.

The following table sets forth the effects of changes in ownership of the Company's non-controlling interests due to transfers to or from non-controlling interest for the calendar preceding the Consolidated balance sheet dates ($ in thousands):

March 31, 2021December 31, 2020
Decrease from redemption of 2018-C$(8,306)$
Change in non-controlling interest$(8,306)$

Note 15 — Subsequent Events

The Company has agreed to acquire, subject to due diligence, 106 residential RPLs in 7 transactions, and 9 NPLs in 2 transactions, with aggregate UPB of $14.1 million and $3.1 million, respectively. The purchase price of the residential RPLs equals 88.7% of UPB and 62.2% of the estimated market value of the underlying collateral of $20.1 million. The purchase price of the NPLs equals 90.3% of UPB and 70.0% of the estimated market value of the underlying collateral of $4.0 million.

The Company has agreed to acquire, subject to due diligence, 4,739 residential RPLs with aggregate UPB of $790.4 million in one transaction from a single seller. The purchase price equals 97.5% of UPB and 54.0% of the estimated market value of the underlying collateral of $1.4 billion. These loans are expected to be acquired through a joint venture with third-party institutional accredited investors.

The Company has also agreed to acquire, subject to due diligence, 132 NPLs with aggregate UPB of $88.4 million in one transaction from a single seller. The purchase price equals 100.3% of UPB and 67.2% of the estimated market value of the underlying collateral of $131.9 million. These loans are expected to be acquired through a joint venture with third-party institutional accredited investors.

On April 7, 2021, the Company co-invested with third-party institutional investors to form Ajax Mortgage Loan Trust 2021-C ("2021-C") and retained $26.3 million of varying classes of related securities. The Company acquired 5.01% of the class A securities and 31.9% of the class B securities and trust certificates from the trust, which acquired 1,290 RPLs and NPLs with UPB of $259.6 million and an aggregate property value of $483.1 million. The senior securities represent 75% of the UPB of the underlying mortgage loans and carry a 2.115% coupon. Based on the structure of the transaction the Company will not consolidate 2021-C under U.S. GAAP. The assets included in the 2021-C securitization came from calling the bonds associated with the Company's 2017-D, 2018-A and 2018-B securitizations, all of which were joint ventures with third party institutional accredited investors.

In April 2021, the Company completed two repurchases of its convertible senior notes for an aggregate principal amount of $5.0 million and a total purchase price of $5.0 million.

On May 6, 2021, the Company’s Board of Directors declared a cash dividend of $0.19 per share to be paid on May 31, 2021 to stockholders of record as of May 20, 2021.




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 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 our 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 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 REOs 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 as of March 31, 2021 and December 31, 2020, holds 99.9% of Great Ajax II REIT Inc. which holds an interest in Great Ajax II Depositor LLC which acts as the depositor of mortgage loans into securitization trusts and holds the subordinated securities issued by such trusts and any additional trusts we may form for additional secured borrowings. We have securitized mortgage loans through securitization trusts and retained subordinated securities from the secured borrowings. These trusts are considered to be VIEs, and we have determined that we are the primary beneficiary of the VIEs.

In 2018, we formed Gaea as a wholly owned subsidiary of the Operating Partnership. We elected to treat Gaea as a TRS under the Code for 2018, and we elected to treat Gaea as a REIT under the Code in 2019 and thereafter. 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, 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, LLC, 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. At March 31, 2021 we owned approximately 22.9% of Gaea.

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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, 2021 and December 31, 2020 ($ in millions):

March 31, 2021December 31, 2020
Residential RPLs$1,060.6 $1,057.5 
Residential NPLs37.9 38.7 
SBC loans25.1 23.2 
Real estate owned properties, net7.1 8.5 
Investments in securities at fair value264.7 273.8 
Investment in beneficial interests94.9 91.4 
Total mortgage related assets$1,490.3 $1,493.1 

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 COVID-19 pandemic that began during the first quarter of 2020 created a global public-health crisis that 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. During 2020 many governmental and nongovernmental authorities directed their actions toward curtailing household and business activity in order to contain or mitigate the impact of the COVID-19 pandemic and deployed fiscal- and monetary-policy measures in order to seek to partially mitigate the adverse effects. These programs have had varying degrees of success and the extent of the long term impact on the mortgage market remains unknown.

The COVID-19 pandemic began to meaningfully impact our operations in late March 2020 and this disruption was reflected in our results of operations for the quarter ended March 31, 2020. The pandemic has continued and continues to significantly and adversely impact certain areas of the United States. 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 the majority of 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 terms similar to those required for GSE loans. Borrowers who request COVID-19 related hardship assistance are asked to complete a standardized hardship questionnaire, including documentation to support the COVID-19 related hardship claim. The materials are reviewed, along with the borrower's monthly payment status, to determine if the borrower is eligible for the three-month forbearance plan. If the borrower is not eligible, they are encouraged to apply for loss mitigation. In the event the COVID-19 related hardship is continuing at the end of the forbearance period, it may be extended for an additional period. At the end of the forbearance plan, the borrower may repay the amounts in a lump sum, or our Servicer will work with the borrower on repayment options or traditional loan modification options. Notwithstanding the foregoing, to the extent special rules apply to a mortgagor because of the jurisdiction or type of the Mortgage Loan, the Servicer will comply with those rules. 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 mortgage loan portfolio as of April 30, 2021(1) :

Number of COVID-19 forbearance relief inquiries: 1,069
Number of COVID-19 forbearance relief granted: 297
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(1)Statistics are for loans carried on our balance sheet including loans held in Ajax 2017-D where third parties own 50%. Statistics do not include non-consolidated joint ventures where we own bonds and beneficial interests issued by the joint ventures.

We expect continued volatility in the residential mortgage securities market in the short term and increased acquisition opportunities. 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 margin calls from our financing counterparties and additional mark downs on our Investments in debt securities, beneficial interests and mortgage loans.

We believe that certain cyclical trends continue to drive a significant realignment within the mortgage sector notwithstanding the impact of the pandemic. 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 in certain areas 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;
rising home prices are increasing homeowner equity and reducing the incidence of strategic default;
rising prices have resulted in millions of homeowners being in the money to refinance;
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 the COVID-19 pandemic; and
an increase in the prices of residential mortgage loans and residential real estate 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 remains 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 the pandemic 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 on, among other factors such as 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.

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, particularly in urban areas where there is a sustainable trend of young adults desiring to live near where they work. We focus on densely populated urban areas where we expect positive economic change based on certain demographic, economic and social statistical data. 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 primary banks, lenders and portfolio acquirers typically desire. We continually monitor opportunities to increase our holdings of these SBC loans and properties.
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We also believe that banks and other mortgage lenders have strengthened their capital bases and are more aggressively foreclosing on delinquent borrowers or selling these loans to dispose of their inventory. Additionally, many NPL buyers are now interested in reducing their investment duration and are selling RPLs.

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. However, 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 the pandemic. 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 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.

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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 the pandemic. 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 HPA into account except for rural properties for which we model negative HPA related to our expectation of worse than expected property condition. The COVID-19 outbreak has not had as material of an impact on HPA on our markets as we initially expected. 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 portfolio to decline; (2) coupons on our 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 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 strength of the real estate markets including as a result of the pandemic, 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.
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We believe that in spite of the continuing uncertain market environment for mortgage-related assets, including as a result of the pandemic 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 Pandemic. The pandemic 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 the pandemic 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

Purchased Credit Deteriorated Loans ("PCD Loans") — As of their acquisition date, the loans we acquired 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 PCD loans is based upon our 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 us to adjust our loan pools as the underlying risk factors change over time. Under ASC 310-30, RPLs were determined by us 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, we have re-aggregated our loan pools around similar risk factors or legal ownership, 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 four as of March 31, 2020. The number of pools was then re-evaluated and increased to six as of June 30, 2020 through December 31, 2020, and is at five loan pools as of March 31, 2021. Each loan pool is oriented around similar risk factors or legal ownership. 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.

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. Our 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. Increases in loan yield expectations, whether caused by timing or loan performance, are reported in the period in which they arise and are reflected as a reduction in the provision for losses even if no provision expense was previously recorded. 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 our 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
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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 evaluate whether and when it becomes probable that all amounts contractually due will not be collected.

Borrower payments on our 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. Generally Accepted Accounting Principles ("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.

Non-PCD Loans — 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 which are also subject to the provisions of CECL as discussed above.

As of December 31, 2020, we estimate any allowance for credit losses for our non-PCD loans based on historical experience and the risk characteristics of the individual loans. 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

Real estate owned Property — We acquire real estate properties directly through purchases, when we foreclose on the borrower and take title to the underlying property, or the borrower surrenders the deed in lieu of foreclosure. Property is recorded at cost if purchased, or at the present value of future cash flows if obtained through foreclosure. Property that we expect 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 our portfolio such as when a mortgage loan is foreclosed upon and we take 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. We also acquire rental properties through direct purchases of properties for our rental portfolio. 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 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.
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Renovations are performed by the Servicer, and those costs are then reimbursed to the Servicer. Any renovations on properties which we elect 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. We may perform property renovations to maximize the value of a property for either its rental strategy or for resale.

Investments in Securities at Fair Value

Our Investments in Securities at Fair Value as of March 31, 2021 and December 31, 2020 consist of investments in senior and subordinated 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 pandemic, and damage to or delay in realizing the value of the underlying collateral. We monitor the credit quality of the mortgage loans underlying our 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.

Investments in Beneficial Interests

Our Investments in beneficial interests as of March 31, 2021 and December 31, 2020 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 certain investments. We account for our Investments in beneficial interests under CECL, as discussed under Mortgage Loans. The methodology is similar to that described in “Mortgage Loans” except that we only recognize the ratable share of gain, loss income or expense.

Debt

Secured Borrowings — Through securitization trusts which are VIEs, we issue callable debt secured by our 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 our consolidated balance sheet as we are 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. Our exposure to the obligations of the VIEs is generally limited to our 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 our 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. We assume the debt will be called at the specified call date for purposes of amortizing discount and issuance costs because we believe 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 — 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
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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 loans. 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.

We value our investments in debt securities using estimates provided by our financing counterparties. We also rely on our 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. We also rely on our Manager's proprietary pricing model to estimate the underlying cash flows expected to be collected on our investments in beneficial interests. During the quarter ended September 30, 2020, we transferred our beneficial interests from level 2 to level 3 due to our increased reliance on our Manager’s pricing model for these valuations.

Our investment in the Manager is valued by applying an earnings multiple to base fee revenue.

Our investments in AS Ajax E LLC and AS Ajax E II LLC are valued using estimates provided by financing counterparties and other publicly available information.

The fair value of our investment in GAFS, including warrants, is determined by applying an earnings multiple to expected earnings.

The fair value of our investment in Gaea is estimated using a projected net operating income for its property portfolio.

The fair value of our investment in the loan pool LLCs is determined by using estimates of underlying assets and liabilities taken from our Manager's pricing model.

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

Our put option liability is adjusted to approximate market value through earnings. Fair value is determined by using the discounted cash flows based on the future value of the liability.

Our borrowings under repurchase agreements are short-term in nature, and our 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.

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.
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The carrying values of our 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.

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, 2021, we had net income attributable to common stockholders of $7.0 million, or $0.30 per share for basic and for diluted common shares. 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. Key items for the three months ended March 31, 2021 include:

Purchased $31.6 million RPLs, with UPB of $36.0 million at 57.2% of property value, $0.4 million of NPLs, with UPB of $0.7 million at 50.1% of property value, and $3.6 million SBCs, with UPB of $3.6 million at 36.5% of property value, to end the quarter with $1.1 billion in net mortgage loans
Interest income of $24.0 million; net interest income of $13.7 million excluding a net $5.5 million acceleration of purchase discount on loans that paid off during the quarter as actual payoffs exceeded modeled expectations
Net income attributable to common stockholders of $7.0 million
Basic earnings per common share ("EPS") of $0.30
Book value per common share of $16.18 at March 31, 2021
Taxable income of $0.38 per common share
Collected total cash of $70.2 million, from loan payments, sales of REO and investments in debt securities and beneficial interests
Completed two securitizations materially reducing our cost of funds, with $175.1 million of AAA, A and BBB rated securities placed at a weighted average coupon of 1.31% in the first transaction and $215.9 million of senior securities placed at a coupon of 2.24% in the second transaction
Held $137.6 million of cash and cash equivalents at March 31, 2021; average daily cash balance for the quarter was $115.2 million
At March 31, 2021, approximately 73.1% of portfolio based on UPB made at least 12 out of the last 12 payments

Our consolidated net income attributable to common stockholders increased $6.6 million for the quarter ended March 31, 2021 compared to the quarter ended March 31, 2020. The increase in our earnings compared to the quarter ended March 31, 2020 was primarily driven by an increase in our net interest income offset by preferred stock dividends of $1.9 million and a $1.9 million fair value adjustment of the put option liability which derived from a capital raise that occurred after March 31, 2020. The increase in net interest income was primarily driven by a $5.5 million acceleration of purchase discount on loans that paid off during the quarter as actual payoffs exceeded modeled expectations versus a $4.7 million provision expense in the first quarter of 2020. Under CECL, increases in loan yield expectations, whether caused by timing or loan performance, are reported in earnings in the period in which they arise and are reflected as a reduction in the provision losses even if no provision expense was previously recorded. Our book value increased to $16.18 per common share from $15.59 at December 31, 2020.

We recorded $0.2 million in impairments on our REO held-for-sale portfolio in real estate operating expense for the quarter ended March 31, 2021 compared to $0.9 million for the quarter ended March 31, 2020. Impairments for the quarter were driven primarily by additional costs of holding the properties. We continue to liquidate our REO properties held-for-sale at a faster rate than we acquire properties, with nine properties sold in the first quarter of 2021 while two were added to REO held-for-sale through foreclosures. Limited housing inventory has accelerated our REO liquidation timelines while we are continuing to experience some COVID-19 related delays in foreclosure proceedings. During the quarter ended March 31, 2020 we sold 19 REO properties while adding five through foreclosures.

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Table 1: Results of Operations
Three months ended March 31,
($ in thousands)20212020
INCOME
Interest income$24,035 $26,888 
Interest expense(10,304)(13,070)
Net interest income13,731 13,818 
Recovery of/(provision for) losses5,516 (4,711)
Net interest income after recovery of/(provision for) losses19,247 9,107 
Income/(loss) from investments in affiliates163 (1,112)
Loss on sale of mortgage loans— (705)
Other income356 747 
Total revenue, net19,766 8,037 
EXPENSE
Related party expense – loan servicing fees1,833 2,014 
Related party expense – management fee2,273 1,799 
Loan transaction expense187 (103)
Professional fees640 805 
Real estate operating expenses185 912 
Fair value adjustment on put option liability1,944 — 
Other expense1,117 1,025 
Total expense8,179 6,452 
Loss on debt extinguishment911 408 
Income before provision for income taxes10,676 1,177 
Provision for income taxes (benefit)34 (319)
Consolidated net income10,642 1,496 
Less: consolidated net income attributable to the non-controlling interest1,689 1,096 
Consolidated net income attributable to Company8,953 400 
Less: dividends on preferred stock1,949 — 
Consolidated net income attributable to common stockholders$7,004 $400 

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. For the three months ended March 31, 2021 and 2020 net interest income after the reversal of the provision for losses increased to $19.2 million from $9.1 million, respectively, primarily as a result of a net $5.5 million acceleration of purchase discount on loans that paid off during the quarter as actual cash flows exceeded modeled expectations for the three months ended March 31, 2021 compared to a provision expense of $4.7 million for the three months ended March 31, 2020. Of the $5.5 million for the three months ended March 31, 2021, $5.5 million relates to our mortgage loan portfolio and $16 thousand to our investments in beneficial interests. Comparatively during the three months ended March 31, 2020, of the $4.7 million, $1.9 million relates to our mortgage loan portfolio and $2.8 million to our investments in beneficial interests. To date, the COVID-19 impact on cash flow extensions has not been as material as we initially expected.

Our gross interest income decreased by $2.9 million to $24.0 million in the quarter ended March 31, 2021 from $26.9 million in the quarter ended March 31, 2020 primarily due to a decrease in the average balance of our mortgage loan portfolio as paydowns and payoffs exceeded loan purchases, and by decreases in the average yield on our loan portfolio based on our cash flows as of the beginning of the quarter. This was offset by a decrease in interest expense of $2.8 million to $10.3 million in the quarter ended March 31, 2021 from $13.1 million in the quarter ended March 31, 2020 primarily due to decreases in the average interest rates applicable to our mortgage and bond repurchase agreements. Additionally, we have been able to refinance our secured borrowings at significantly lower rates in recent quarters. We expect our cost of funds to continue to decrease in the current interest rate and credit environment.
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During the first quarter of 2021, we collected $70.2 million in cash payments and proceeds on our mortgage loans, securities and REO held-for-sale compared to $62.4 million for the first quarter of 2020. The increase in cash collections in 2021 is due to a higher volume of payoffs as borrowers continued to refinance or sell the underlying property.

The interest income detail for the three months ended March 31, 2021 and 2020 are included in the table below ($ in thousands):

Table 2: Interest income detail
Three months ended March 31,
2021
2020(1,2)
Accretable yield recognized on RPL, NPL and SBC loans$18,181 $21,892 
Interest income on beneficial interests3,461 2,672 
Interest income on debt securities2,476 2,165 
Bank interest income66 121 
Other interest (loss)/income(149)38 
Interest income$24,035 $26,888 
Recovery of/(provision for) losses5,516 (4,711)
Interest income after recovery of/(provision for) losses$29,551 $22,177 

(1)Includes reclass of loan and beneficial interest credit losses from recovery of/(provision for) losses to accretable yield recognized on RPL, NPL and SBC loans and interest income on beneficial interests, respectively.
(2)Previously presented combination of interest income on securities and interest income on beneficial interests has been bifurcated to show each separately.

The average balance of our mortgage loan portfolio, debt securities, beneficial interests and debt outstanding for the three months ended March 31, 2021 and 2020 are included in the table below ($ in thousands):

Table 3: Average Balances
Three months ended March 31,
2021
2020(1)
Average mortgage loan portfolio$1,103,180 $1,135,336 
Average carrying value of debt securities$269,267 $238,030 
Average carrying value of beneficial interests$92,585 $60,274 
Total average asset level debt$1,088,936 $1,067,983 

(1)Previously presented combination of average carrying value of debt securities and beneficial interests has been bifurcated to show to average carrying value of debt securities and average carrying value of beneficial interests separately.

Loss on sale of mortgage loans

We sold 0 mortgage loans during the three months ended March 31, 2021. Comparatively, during the three months ended March 31, 2020 we sold 26 mortgage loans with an aggregate carrying value of $26.1 million and UPB of $26.2 million for a loss of $0.7 million.

Other Income

Other income decreased for the three months ended March 31, 2021 over the comparable period in 2020 due to lower gain on sale for property held-for-sale and lower income from the federal government's Home Affordable Modification Program ("HAMP") as more loans reached the five-year threshold and no additional fees are earned. A breakdown of Other income is provided in the table below ($ in thousands):

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Table 4: Other Income
Three months ended March 31,
20212020
Late fee income$190 $185 
Net gain on sale of Property held-for-sale105 413 
HAMP fees48 138 
Rental Income13 11 
Total other income$356 $747 

Expenses

Total expenses increased for the three months ended March 31, 2021 over the comparable period in 2020 as a result of our put option amortization expense and an increase in management fees driven by an increase in our capital base as a result of our private placements of preferred stock and warrants completed during the second quarter of 2020. This was partially offset by lower real estate operating expense due to lower REO impairments. A breakdown of expenses is provided in the table below ($ in thousands):

Table 5: Expenses
Three months ended March 31,
20212020
Related party expense – management fee$2,273 $1,799 
Fair value adjustment on put option liability1,944 — 
Related party expense – loan servicing fees1,833 2,014 
Other expense1,117 1,025 
Professional fees640 805 
Loan transaction expense187 (103)
Real estate operating expenses185 912 
Total expenses$8,179 $6,452 

Other expense increased for the three months ended March 31, 2021 over the comparable period in 2020 primarily due to directors' fees and grants associated with an additional board position, as well as higher insurance expense, offset by lower travel expense. A breakdown of other expense is provided in the table below ($ in thousands):

Table 6: Other Expense
Three months ended March 31,
2021
2020(1)
Insurance$229 $184 
Employee and service provider share grants207 174 
Borrowing related expenses187 170 
Directors' fees and grants169 109 
Other expense101 64 
Software licenses and amortization85 70 
Taxes and regulatory expense61 46 
Internal audit services38 37 
Travel, meals, entertainment31 138 
Lien release non due diligence33 
Total other expense$1,117 $1,025 

(1)Includes reclass of other expense to lien release non due diligence.

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Equity and Net Book Value per Share

Our net book value per common share was $16.18 and $15.59 at March 31, 2021 and December 31, 2020, respectively. The increase in book value was primarily driven by our buyout of our joint venture partner's interest in 2018-C, the removal of our convertible senior notes from the calculation due to their antidilutive effect on our earnings per share calculation and a recovery in common equity that resulted from net fair value adjustments of $1.3 million taken on our portfolio of debt securities recorded to Other comprehensive income since December 31, 2020. While U.S. GAAP does not specifically define the parameters for calculating book value, we believe our calculation is representative of our book value on a per share basis, and our Manager believes book value per share is a valuable metric for evaluating our business. The net book value per share is calculated by dividing equity, after adjusting for the anticipated conversion of the senior convertible notes into shares of common stock, the subtraction of non-controlling interests and preferred shares classified in equity, and shares for Manager and director fees that were approved but still unissued as of the date indicated, unvested employee and service provider stock grants and the common shares from assumed conversion of our senior convertible notes. A breakdown of our book value per share is set forth in the table below ($ in thousands except per share amounts):

Table 7: Book Value per Common Share
March 31, 2021December 31, 2020
Outstanding shares22,988,847 22,978,339 
Adjustments for:  
Unvested grants of restricted stock, and Manager and director shares earned but not issued as of the date indicated3,945 4,280 
Conversion of convertible senior notes into shares of common stock(1)
— 7,834,299 
Settlement of put option in shares(2)
— — 
Total adjusted shares outstanding22,992,792 30,816,918 
Equity at period end$509,535 $514,491 
Net increase in equity from expected conversion of convertible senior notes(1)
— 110,250 
Adjustment for equity due to preferred shares(115,144)(115,144)
Net adjustment for equity due to non-controlling interests(22,429)(29,130)
Adjusted equity$371,962 $480,467 
Book value per share$16.18 $15.59 

(1)The conversion of convertible senior notes was removed as of March 31, 2021 due to it having an anti-dilutive effect on our earnings per share calculation.
(2)The effect of the put option share settlement was removed as of March 31, 2021and December 31, 2020 due to it having an anti-dilutive effect on our earnings per share calculation.

Table 8: Fair Value Balance Sheet

The table below presents a summarized version of our U.S. GAAP balance sheets as compared to a summarized balance sheet presented at our estimates of fair values. While U.S. GAAP does not specifically define the parameters for the presentation of a fair value balance sheet, we believe the presentation is representative of our fair value, and our Manager believes this presentation is a valuable metric for evaluating our business below ($ in thousands):

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March 31, 2021December 31, 2020
GAAPAdjustments for fair valueFair ValueGAAPAdjustments for fair valueFair Value
ASSETS
Cash and Cash held in trust$137,765 $— $137,765 $107,335 $— $107,335 
Mortgage loans held-for-investment, net991,811 96,919 1,088,730 1,119,372 112,709 1,232,081 
Mortgage loans held-for-sale, net (1)
131,719 10,061 141,780 — — — 
Investments in debt securities and beneficial interests359,575 — 359,575 365,252 — 365,252 
Investments in affiliates, real property and other assets66,103 10,822 76,925 61,773 10,682 72,455 
Total Assets$1,686,973 $117,802 $1,804,775 $1,653,732 $123,391 $1,777,123 
LIABILITIES AND EQUITY
Liabilities:
Secured borrowings, net$740,035 $3,727 $743,762 $585,403 $1,016 $586,419 
Borrowings under repurchase agreements305,093 — 305,093 421,132 — 421,132 
Convertible senior notes, net107,971 3,411 111,382 110,057 618 110,675 
Put option liability16,149 — 16,149 14,205 — 14,205 
Other liabilities8,190 — 8,190 8,444 — 8,444 
Total Liabilities1,177,438 7,138 1,184,576 1,139,241 1,634 1,140,875 
Equity:
Total Equity509,535 110,664 620,199 514,491 121,757 636,248 
Total Liabilities and Equity$1,686,973 $117,802 $1,804,775 $1,653,732 $123,391 $1,777,123 

(1)Our mortgage loans held for sale are held in a consolidated joint venture which is 50% owned by an accredited institutional investor. The effect of any eventual sale on consolidated net income available to common stockholders would be substantially less than the indicated fair value adjustment on the loans.

The adjustments for fair value for our mortgage loans are determined using our 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 loans.

The fair values of our investments in affiliates are determined using methodologies appropriate to each affiliate. Our investment in the Manager is valued by applying an earnings multiple to base fee revenue. Our investment in AS Ajax E LLC and AS Ajax E II LLC are valued using estimates provided by financing counterparties or other publicly available information. The fair value of our investment in GAFS, including warrants, is determined by applying an earnings multiple to expected earnings. Our investment in Gaea is estimated using a projected net operating income for its property portfolio. Our investment in the loan pool LLCs are presented by using estimates of underlying assets and liabilities from our Manager's pricing model.

The fair value of secured borrowings is estimated using estimates provided by our 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.

The fair value of our convertible senior notes is determined from the NYSE closing price of such notes on the balance sheet date.

Mortgage Loan Portfolio

For the three months ended March 31, 2021, we purchased $31.6 million RPLs with UPB of $36.0 million at 57.2% of property value, $0.4 million NPLs with UPB of $0.7 million at 50.1% of property value, and $3.6 million SBC loans with UPB of $3.6 million at 36.5% of property value. Comparatively, for the three months ended March 31, 2020, we purchased $1.2
61


million RPLs with UPB of $2.0 million at 38.6% of property value, $0.2 million NPLs with UPB of $0.2 million at 62.9% of property value, and no SBC loans. We ended the period with $1.1 billion of net mortgage loans with an aggregate UPB of $1.2 billion as of March 31, 2021 and $1.1 billion of net mortgage loans with an aggregate UPB of $1.2 billion as of March 31, 2020.

The following table shows loan portfolio acquisitions for the three months ended March 31, 2021, and 2020 ($ in thousands):

Table 9: Loan Portfolio Acquisitions
Three months ended March 31,
20212020
RPLs
Count199 26 
UPB$36,031 $1,952 
Purchase price$31,587 $1,205 
Purchase price % of UPB87.7 %61.7 %
NPLs
Count
UPB$665 $227 
Purchase price$447 $185 
Purchase price % of UPB67.2 %81.5 %
SBC loans
Count— 
UPB$3,611 $— 
Purchase price$3,603 $— 
Purchase price % of UPB99.8 %— %

During the three months ended March 31, 2021, 162 mortgage loans, representing 3.2% of our ending UPB, were liquidated. Comparatively, during the three months ended March 31, 2020, 151 mortgage loans, representing 4.5% of our ending UPB, were liquidated. Our loan portfolio activity for the three months ended March 31, 2021 and 2020 is presented below ($ in thousands):

Table 10: Loan Portfolio Activity
Three months ended March 31,
20212020
Mortgage loans held-for-investment, netMortgage loans held-for-sale, netMortgage loans held-for-investment, netMortgage loans held-for-sale, net
Beginning carrying value$1,119,372 $— $1,151,469 $— 
RPL, NPL and SBC portfolio acquisitions, net cost basis35,637 — 1,391 — 
Draws on SBC loans85 — — — 
Accretion recognized18,521 — 21,745 — 
Payments received on loans, net(56,221)— (46,960)— 
Reclassifications to mortgage loans held-for-sale, net(131,719)131,719 — — 
Reclassifications to REO(228)— (814)— 
Sale of mortgage loans— — (26,111)— 
Provision for credit benefit/(losses) on mortgage loans5,500 — (1,893)— 
Mortgage loans credit loss expense(454)— (229)— 
Other1,318 — 31 — 
Ending carrying value$991,811 $131,719 $1,098,629 $— 
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Table 11: Portfolio Composition

As of March 31, 2021 and December 31, 2020, our portfolios consisted of the following ($ in thousands):

March 31, 2021(1)
December 31, 2020(1,2)
No. of Loans6,075 No. of Loans6,031 
Total UPB(3)
$1,201,108 
Total UPB(3)
$1,204,804 
Interest-Bearing Balance$1,123,219 Interest-Bearing Balance$1,127,499 
Deferred Balance(4)
$77,889 
Deferred Balance(4)
$77,305 
Market Value of Collateral(5)
$2,014,513 
Market Value of Collateral(5)
$1,967,419 
Original Purchase Price/Total UPB79.6 %Original Purchase Price/Total UPB82.2 %
Original Purchase Price/Market Value of Collateral50.9 %Original Purchase Price/Market Value of Collateral53.7 %
Weighted Average Coupon4.41 %Weighted Average Coupon4.44 %
Weighted Average LTV(6)
70.9 %
Weighted Average LTV(6)
72.8 %
Weighted Average Remaining Term (months)294 Weighted Average Remaining Term (months)297 
No. of first liens6,011 No. of first liens5,973 
No. of second liens64 No. of second liens58 
No. of Rental PropertiesNo. of Rental Properties
Capital Invested in Rental Properties$408 Capital Invested in Rental Properties$710 
RPLs94.4 %RPLs94.4 %
NPLs3.4 %NPLs3.5 %
SBC loans2.2 %SBC loans2.1 %
No. of REO properties held-for-sale26 No. of REO properties held-for-sale32 
Market Value of Other REO(7)
$7,706 
Market Value of Other REO(7)
$8,105 
Carrying value of debt securities and beneficial interests in trusts$363,424 Carrying value of debt securities and beneficial interests in trusts$369,330 
Loans with 12 for 12 payments as an approximate percentage of UPB (8)
73.1 %
Loans with 12 for 12 payments as an approximate percentage of UPB (8)
71.9 %
Loans with 24 for 24 payments as an approximate percentage of UPB (9)
66.9 %
Loans with 24 for 24 payments as an approximate percentage of UPB (9)
65.1 %

(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% owned joint venture which we consolidated as of December 31, 2020.
(3)At March 31, 2021 and December 31, 2020, our loan portfolio consists of fixed rate (54.4% of UPB), ARM (9.0% of UPB) and Hybrid ARM (36.6% of UPB); and fixed rate (53.5% of UPB), ARM (8.9% of UPB) and Hybrid ARM (37.6% of UPB), respectively.
(4)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.
(5)As of date of acquisition.
(6)UPB as of March 31, 2021 and December 31, 2020, 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 about our mortgage loans by year of origination as of March 31, 2021 and December 31, 2020, respectively ($ in thousands):

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Portfolio at March 31, 2021
Years of Origination
Mortgage loans held-for-investment, netAfter 20082006 – 20082005 and prior
Number of loans615 2,997 1,683 
Unpaid principal balance$153,703 $672,720 $237,723 
Mortgage loan portfolio by year of origination14.4 %63.2 %22.4 %
Loan Attributes:
Weighted average loan age (months)90.9 169.8 209.2 
Weighted Average loan-to-value67.2 %75.3 %61.4 %
Delinquency Performance:
Current58.8 %56.1 %55.5 %
30 days delinquent7.4 %9.1 %9.4 %
60 days delinquent3.4 %5.7 %6.9 %
90+ days delinquent26.5 %23.5 %24.0 %
Foreclosure3.9 %5.6 %4.2 %

Years of Origination
Mortgage loans held-for-sale, netAfter 20082006 – 20082005 and prior
Number of loans39 472 269 
Unpaid principal balance$7,437 $97,567 $31,958 
Mortgage loan portfolio by year of origination5.4 %71.2 %23.4 %
Loan Attributes:
Weighted average loan age (months)127.5 169.5 206.6 
Weighted Average loan-to-value63.7 %74.4 %57.4 %
Delinquency Performance:
Current53.8 %46.4 %54.5 %
30 days delinquent3.3 %16.0 %15.2 %
60 days delinquent5.7 %7.4 %6.6 %
90+ days delinquent37.2 %28.2 %23.1 %
Foreclosure— %2.0 %0.6 %

Portfolio at December 31, 2020
Years of Origination
Mortgage loans held-for-investment, netAfter 20082006 – 20082005 and prior
Number of loans639 3,471 1,921 
Unpaid principal balance$156,250$780,956$267,598
Mortgage loan portfolio by year of origination13.0 %64.8 %22.2 %
Loan Attributes:
Weighted average loan age (months)91.0 166.7 205.8 
Weighted Average loan-to-value69.4 %77.0 %62.6 %
Delinquency Performance:
Current53.0 %51.9 %53.3 %
30 days delinquent13.6 %11.4 %10.9 %
60 days delinquent3.8 %6.7 %6.8 %
90+ days delinquent25.3 %25.1 %25.4 %
Foreclosure4.3 %4.9 %3.6 %

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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, 2021 and December 31, 2020 ($ in thousands):

March 31, 2021December 31, 2020
StateCountUPB% UPB
Collateral
Value(1)
% of
Collateral
Value
StateCountUPB% UPB
Collateral
Value(1)
% of
Collateral
Value
CA914 $313,452 26.1 %$577,048 28.6 %CA947 $329,725 27.4 %$589,225 30.0 %
FL647 107,170 8.9 %178,338 8.9 %FL655 108,293 9.0 %174,849 8.9 %
TX417 42,780 3.6 %86,040 4.3 %TX410 42,432 3.5 %81,810 4.2 %
GA354 46,093 3.8 %75,281 3.8 %GA352 45,817 3.8 %71,586 3.7 %
NY353 108,907 9.1 %186,947 9.3 %NY329 103,475 8.6 %177,524 9.0 %
NJ317 73,272 6.1 %102,599 5.1 %NJ287 65,764 5.5 %89,389 4.5 %
MD249 60,790 5.1 %81,391 4.0 %MD248 60,082 5.0 %77,693 4.0 %
NC244 36,251 3.0 %63,018 3.1 %NC240 33,146 2.8 %52,217 2.7 %
IL231 42,153 3.6 %55,526 2.8 %IL227 41,410 3.5 %54,379 2.8 %
VA208 43,965 3.7 %65,684 3.3 %VA205 43,563 3.6 %63,132 3.2 %
PA192 22,186 1.8 %33,125 1.6 %PA185 21,294 1.8 %31,248 1.6 %
MA177 35,602 3.0 %63,344 3.1 %MA177 35,454 2.9 %61,220 3.1 %
AZ142 27,020 2.2 %44,976 2.2 %AZ150 29,765 2.5 %47,835 2.4 %
SC131 13,928 1.2 %22,251 1.1 %SC129 14,206 1.2 %22,213 1.1 %
TN116 11,819 1.0 %21,502 1.1 %TN115 12,721 1.1 %22,690 1.2 %
OH112 12,843 1.1 %18,149 0.9 %OH110 12,929 1.1 %17,843 0.9 %
WA100 23,069 1.9 %43,969 2.2 %WA104 23,874 2.0 %43,784 2.2 %
IN97 9,007 0.7 %14,960 0.7 %IN98 9,180 0.8 %14,476 0.7 %
NV94 17,817 1.5 %29,982 1.5 %NV97 18,614 1.5 %30,344 1.5 %
MI94 12,649 1.1 %19,743 1.0 %MI97 13,103 1.1 %19,832 1.0 %
CT78 14,003 1.2 %19,054 0.9 %CT77 13,529 1.1 %18,115 0.9 %
LA78 7,739 0.6 %12,404 0.6 %LA76 7,631 0.6 %11,910 0.6 %
MO75 8,443 0.7 %11,868 0.6 %MO75 9,383 0.8 %12,545 0.6 %
OR69 24,054 2.0 %46,662 2.3 %OR70 24,303 2.0 %46,279 2.4 %
CO52 10,157 0.8 %22,472 1.1 %CO54 10,450 0.9 %22,665 1.2 %
MN48 8,308 0.7 %12,824 0.6 %MN49 9,121 0.8 %13,242 0.7 %
AL47 3,870 0.3 %5,387 0.3 %UT44 6,895 0.6 %14,932 0.8 %
UT44 6,844 0.6 %15,591 0.8 %AL44 3,670 0.3 %4,891 0.2 %
WI42 5,510 0.5 %7,679 0.4 %WI37 4,696 0.4 %6,385 0.3 %
KY36 4,129 0.3 %6,173 0.3 %KY36 4,158 0.3 %6,032 0.3 %
DE34 6,184 0.5 %7,812 0.4 %DE34 6,509 0.5 %7,999 0.4 %
NM30 4,443 0.4 %6,412 0.3 %NM30 4,450 0.4 %6,207 0.3 %
OK27 2,401 0.2 %3,748 0.2 %OK27 2,511 0.2 %3,827 0.2 %
MS27 2,144 0.2 %3,267 0.2 %MS26 2,149 0.2 %3,168 0.2 %
AR21 1,547 0.1 %2,206 0.1 %AR20 1,447 0.1 %2,016 0.1 %
KS19 1,414 0.1 %3,054 0.2 %KS19 1,379 0.1 %2,897 0.1 %
DC18 5,434 0.5 %8,499 0.4 %NH18 3,223 0.3 %5,087 0.3 %
NH18 3,207 0.3 %5,272 0.3 %IA18 1,736 0.1 %2,267 0.1 %
WV18 1,336 0.1 %1,948 0.1 %DC17 5,131 0.4 %8,138 0.4 %
RI17 3,589 0.3 %5,369 0.3 %WV17 1,258 0.1 %1,830 0.1 %
IA17 1,563 0.1 %2,196 0.1 %HI16 6,456 0.5 %9,305 0.5 %
HI16 6,432 0.5 %9,494 0.5 %RI14 3,084 0.3 %4,481 0.2 %
ID15 1,824 0.2 %3,848 0.2 %ID12 1,496 0.1 %2,971 0.2 %
ME10 1,362 0.1 %1,873 0.1 %ME10 1,372 0.1 %1,801 0.1 %
MT1,018 0.1 %1,610 0.1 %MT803 0.1 %1,336 0.1 %
PR596 — %544 — %PR518 — %592 — %
NE564 — %657 — %SD537 — %872 — %
SD535 — %881 — %NE528 — %603 — %
VT613 0.1 %586 — %WY438 — %356 — %
WY435 — %381 — %ND395 — %472 — %
65


ND394 — %473 — %VT452 — %518 — %
AK243 — %396 — %AK249 — %391 — %
6,075 $1,201,108 100.0 %$2,014,513 100.0 %6,031 $1,204,804 100.0 %$1,967,419 100.0 %
(1)As of date of acquisition.

Table 14: Debt Securities and Beneficial Interest Acquisitions
Three months ended March 31,
20212020
Class A securities
UPB$— $49,876 
Purchase price$— $49,602 
Purchase price % of UPB— %99.5 %
Class B securities
UPB$— $4,656 
Purchase price$— $4,623 
Purchase price % of UPB— %99.3 %
Beneficial interests
Purchase price$— $7,082 

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. As the local and global economies have weakened as a result of the COVID-19 pandemic, ensuring adequate liquidity is critical. We believe we have access to adequate resources to meet the needs of our existing operations, mandatory capital expenditures, dividend payments, and working capital, to the extent not funded by cash provided by operating activities. However, we expect the COVID-19 pandemic to adversely impact our future operating cash flows due to the inability of some of our borrowers to make scheduled payments on time or at all, and the potential for HPA decline. 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, 2021 and December 31, 2020, 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 $137.6 million of cash and cash equivalents, an increase of $30.5 million from our balance of $107.1 million at December 31, 2020. Our average daily cash balance during the quarter was $115.2 million, a decrease of $13.5 million from our average daily cash balance of $128.7 million during the three months ended December 31, 2020.

Our collections of principal and interest payments on mortgages and securities, payoffs and proceeds and on the sale of our property held-for-sale were $70.2 million and $62.4 million for the three months ended March 31, 2021 and 2020, respectively.

Our operating cash outflows, including the effect of restricted cash, for the three months ended March 31, 2021 and 2020 were $9.4 million and $30.4 million, respectively. Our primary operating cash inflow is cash interest payments on our mortgage loan pools of $12.6 million and $12.3 million for the three months ended March 31, 2021 and 2020, respectively. Non-cash interest income accretion was $5.9 million and $9.5 million for the three months ended March 31, 2021 and 2020, respectively. Interest income on beneficial interests was $3.6 million and $2.7 million during the three months ended March 31, 2021 and 2020, respectively. Interest income on debt securities was $2.5 million and $2.3 million during the three months ended March 31, 2021 and 2020, respectively. No mortgage loans were sold during the three months ended March 31, 2021.
66


During the three months ended March 31, 2020 we recognized a loss of $0.7 million from the sale of 26 mortgage loans to Gaea, an affiliated entity.

Though the ownership of mortgage loans and other real estate assets is our business, U.S. 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 U.S. GAAP, and the cash flows from these activities are included in the investing section of our consolidated statements of cash flows. We expect 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.

For the three months ended March 31, 2021, our investing cash inflows of $22.9 million were driven primarily by the proceeds from principal payments on and payoffs of our mortgage loan portfolio of $43.6 million and principal payments on and payoffs of our debt securities and beneficial interests of $12.9 million, offset by acquisitions of mortgage loans of $35.6 million. 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 on debt securities and beneficial interests held as investments 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.

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, 2021, we had net financing cash inflows of $16.9 million primarily driven by additional borrowing through secured debt of $391.0 million and repurchase transactions of $89.7 million, offset by pay downs of existing debt obligations of $225.2 million on secured debt and repayments of $205.7 million on repurchase transaction. Also, we purchased the remaining 37% ownership of the Class B notes and trust certificates of 2018-C for a total of $17.2 million. For the three months ended March 31, 2020, we had net cash outflows from financing activities 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, 2021 and 2020 we paid $5.9 million and $0.1 million, respectively, in combined dividends and distributions.

Financing Activities — Equity offerings

On February 28, 2020, our Board of Directors approved a stock repurchase of up to $25.0 million of our common shares. The amount and timing of any repurchases will depend on a number of factors, including but not limited to the price and availability of the common shares, trading volume and general circumstances and market conditions. As of March 31, 2021 we held 107,243 shares of treasury stock consisting of 58,779 shares received through distributions of our shares previously held by our Manager and 48,464 shares acquired through open market purchases in the fourth quarter of 2020 under our approved stock repurchase plan. As of March 31, 2020 we held 37,278 shares of treasury stock received through distributions of our shares previously held by our Manager.

During 2020, we issued an aggregate of $130.0 million of preferred stock and warrants to institutional accredited investors in a series of private placements. We issued 2,307,400 shares of 7.25% Series A Fixed-to-Floating Rate Preferred Stock and 2,892,600 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 6,500,000 shares of our 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 us at a specified put price on or after July 6, 2023. Under U.S. GAAP, we are required to allocate the proceeds between the Preferred stock and warrants. The allocation of the proceeds, net of all offering costs, resulted in the Preferred series A shares receiving an allocation of $51.1 million, the Preferred series B shares receiving an allocation of $64.0 million and the warrants an allocation of $9.5 million. We mark the obligation for the warrants and future put liability to market though earnings. We expect to use the net proceeds from the private placement to acquire mortgage loans and mortgage-related assets consistent with our investment strategy.
67



During the three months ended March 31, 2021 and 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 NYSE 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, 2021, we have completed 18 secured borrowings, not including borrowings we completed for our non-consolidated joint ventures (See Table 18: Investments in joint ventures), through securitization trusts pursuant to Rule 144A under the Securities Act, six of which were outstanding at March 31, 2021. 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 non-rated secured borrowings are generally structured with Class A notes, subordinated 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 we have retained the subordinate notes and the applicable trust certificates from the one other remaining non-rated secured borrowing outstanding at March 31, 2021.

Our rated secured borrowings are generally structured as “REIT TMP” transactions which allow the Company to issue multiple classes of securities without using a REMIC structure or being subject to an entity level tax. Our rated secured borrowings generally issue classes of debt from AAA through mezzanine. We generally retain the mezzanine and residual certificates in the transactions. We have retained the applicable mezzanine and residual certificates from the other four rated secured borrowings outstanding at March 31, 2021. Our rated secured borrowings are designated in the table below.

Our 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. We have retained 50% of both the Class A notes and Class B certificates from 2017-D.

Our 2018-C secured borrowing was structured with 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. We had retained 5% of the Class A notes and 63% of the Class B notes and trust certificates. During the first quarter of 2021 we acquired the remaining 37% ownership of the Class B notes and trust certificates and settled the remaining 95% of the outstanding Class A notes.

For our secured borrowing for 2017-D, if the Class A notes have not been redeemed by the payment date or otherwise paid in full 36 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.

The following table sets forth the original terms of all outstanding notes from our secured borrowings outstanding at March 31, 2021 at their respective cutoff dates:





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Table 15: Secured Borrowings

Issuing Trust/Issue DateInterest Rate Step-up DateSecurityOriginal PrincipalInterest Rate
Non-rated
Ajax Mortgage Loan Trust 2017-D/ December 2017April 25, 2021
Class A notes due 2057(1)
$177.8 million3.75 %
None
Class B certificates(1)
$44.5 million— %
Deferred issuance costs$(1.1) million— %
Rated
Ajax Mortgage Loan Trust 2019-D/ July 2019July 25, 2027Class A-1 notes due 2065$140.4 million2.96 %
July 25, 2027Class A-2 notes due 2065$6.1 million3.50 %
July 25, 2027Class A-3 notes due 2065$10.1 million3.50 %
July 25, 2027
Class M-1 notes due 2065(2)
$9.3 million3.50 %
None
Class B-1 notes due 2065(3)
$7.5 million3.50 %
None
Class B-2 notes due 2065(3)
$7.1 million
variable(4)
None
Class B-3 notes due 2065(3)
$12.8 million
variable(4)
Deferred issuance costs$(2.7) million— %
Rated
Ajax Mortgage Loan Trust 2019-F/ November 2019November 25, 2026Class A-1 notes due 2059$110.1 million2.86 %
November 25, 2026Class A-2 notes due 2059$12.5 million3.50 %
November 25, 2026Class A-3 notes due 2059$5.1 million3.50 %
November 25, 2026
Class M-1 notes due 2059(2)
$6.1 million3.50 %
None
Class B-1 notes due 2059(3)
$11.5 million3.50 %
None
Class B-2 notes due 2059(3)
$10.4 million
variable(4)
None
Class B-3 notes due 2059(3)
$15.1 million
variable(4)
Deferred issuance costs$(1.8) million— %
Rated
Ajax Mortgage Loan Trust 2020-B/ August 2020July 25, 2027Class A-1 notes due 2059$97.2 million1.70 %
July 25, 2027Class A-2 notes due 2059$17.3 million2.86 %
July 25, 2027
Class M-1 notes due 2059(2)
$7.3 million3.70 %
None
Class B-1 notes due 2059(3)
$5.9 million3.70 %
None
Class B-2 notes due 2059(3)
$5.1 million
variable(4)
None
Class B-3 notes due 2059(3)
$23.6 million
variable(4)
Deferred issuance costs$(1.8) million— %
Rated
Ajax Mortgage Loan Trust 2021-A/ January 2021January 25, 2029Class A-1 notes due 2065$146.2 million1.07 %
January 25, 2029Class A-2 notes due 2065$21.1 million2.35 %
January 25, 2029
Class M-1 notes due 2065(2)
$7.8 million3.15 %
None
Class B-1 notes due 2065(3)
$5.0 million3.80 %
None
Class B-2 notes due 2065(3)
$5.0 million
variable(4)
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Issuing Trust/Issue DateInterest Rate Step-up DateSecurityOriginal PrincipalInterest Rate
None
Class B-3 notes due 2065(3)
$21.5 million
variable(4)
Deferred issuance costs$(2.5) million— %
Non-rated
Ajax Mortgage Loan Trust 2021-B/ February 2021August 25, 2024Class A notes due 2066$215.9 million2.24 %
February 25, 2025
Class B notes due 2066(3)
$20.2 million4.00 %
Deferred issuance costs$(4.3) million— %
(1)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. 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.
(2)The Class M notes are subordinated, sequential pay, fixed rate notes. The Company has retained the Class M notes, with the exception of AJAXM 2021-A.
(3)The Class B notes are subordinated, 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.
(4)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.

Convertible Senior Notes

On April 25, 2017, we completed the public offer and sale of $87.5 million in aggregate principal amount of our 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 our 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 our 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.

During the first quarter of 2021, we completed a convertible note repurchase with a principal amount of $2.5 million for a purchase price of $2.4 million. The carrying amount of the equity component representing the embedded conversion feature reversed from Additional paid-in capital due to the first quarter of 2021 transaction was zero. During the first and third quarter of 2020, we completed a series of convertible note repurchases for aggregate principal amounts of $8.0 million and $2.5 million, respectively, for total purchase prices of $8.2 million and $2.3 million, respectively. The carrying amounts of the equity component representing the embedded conversion feature reversed from Additional paid-in capital due to the first and third quarter of 2020 transactions were $0.1 million and zero, respectively.

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 four 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
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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.

A summary of our outstanding repurchase transactions at March 31, 2021 and December 31, 2020 is as follows ($ in thousands):

Table 16: Repurchase Transactions by Maturity Date
March 31, 2021
Maturity DateOrigination dateMaximum Borrowing CapacityAmount OutstandingAmount of CollateralPercentage of Collateral CoverageInterest Rate
April 5, 2021January 6, 2021$34,568 $34,568 $43,784 127 %1.74 %
April 6, 2021January 6, 20217,530 7,530 9,723 129 %1.79 %
April 6, 2021January 6, 20214,588 4,588 5,890 128 %1.79 %
April 6, 2021January 6, 20214,544 4,544 5,738 126 %1.79 %
April 6, 2021January 6, 20213,233 3,233 4,667 144 %1.94 %
April 9, 2021October 13, 202033,084 33,084 41,718 126 %2.35 %
April 12, 2021January 11, 20215,706 5,706 7,328 128 %1.77 %
April 15, 2021January 14, 20216,582 6,582 8,145 124 %1.83 %
April 20, 2021January 20, 202112,127 12,127 15,505 128 %1.82 %
April 22, 2021March 17, 20213,896 3,896 5,130 132 %1.66 %
April 26, 2021January 27, 20217,982 7,982 9,279 116 %1.21 %
April 26, 2021January 27, 20215,177 5,177 6,063 117 %1.21 %
April 26, 2021January 27, 20216,295 6,295 7,276 116 %1.21 %
April 30, 2021February 1, 202111,992 11,992 14,767 123 %1.81 %
April 30, 2021February 1, 202111,825 11,825 15,005 127 %1.81 %
April 30, 2021February 1, 20215,157 5,157 6,610 128 %1.81 %
April 26, 2021February 1, 20213,892 3,892 4,876 125 %1.81 %
April 30, 2021February 1, 20212,794 2,794 3,662 131 %1.81 %
April 30, 2021February 1, 20212,369 2,369 3,360 142 %1.96 %
April 30, 2021February 1, 20211,133 1,133 1,607 142 %1.96 %
May 12, 2021February 12, 20213,100 3,100 4,428 143 %1.95 %
June 4, 2021March 5, 202124,453 24,453 32,366 132 %1.54 %
June 4, 2021March 5, 202123,972 23,972 31,589 132 %1.54 %
June 17, 2021March 17, 20219,440 9,440 11,986 127 %1.73 %
June 17, 2021March 17, 20217,803 7,803 10,166 130 %1.73 %
June 17, 2021March 17, 20211,175 1,175 1,687 144 %1.88 %
June 24, 2021March 24, 20212,510 2,510 3,250 129 %1.75 %
July 9, 2021July 10, 2020250,000 15,724 23,488 149 %2.61 %
September 23, 2021September 24, 2020400,000 42,442 63,743 150 %2.61 %
Totals/weighted averages$896,927 $305,093 $402,836 132 %1.93 %

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December 31, 2020
Maturity DateOrigination dateMaximum Borrowing CapacityAmount OutstandingAmount of CollateralPercentage of Collateral CoverageInterest Rate
January 6, 2021October 9, 2020$35,635 $35,635 $46,120 129 %2.33 %
January 6, 2021September 28, 20207,697 7,697 10,075 131 %2.33 %
January 6, 2021September 28, 20206,311 6,311 9,038 143 %2.48 %
January 6, 2021September 28, 20204,755 4,755 6,114 129 %2.33 %
January 6, 2021September 28, 20204,666 4,666 6,044 130 %2.33 %
January 6, 2021September 28, 20203,213 3,213 4,667 145 %2.48 %
January 11, 2021September 29, 20205,879 5,879 7,575 129 %2.32 %
January 14, 2021October 29, 20206,991 6,991 8,738 125 %2.35 %
January 20, 2021October 20, 202013,263 13,263 16,582 125 %2.22 %
January 29, 2021October 30, 20207,762 7,762 9,702 125 %2.21 %
January 29, 2021October 30, 20207,153 7,153 9,537 133 %2.21 %
February 1, 2021December 1, 202012,258 12,258 16,052 131 %1.88 %
February 1, 2021December 1, 202012,015 12,015 15,794 131 %1.88 %
February 1, 2021December 1, 20205,298 5,298 6,895 130 %1.88 %
February 1, 2021December 1, 20203,985 3,985 5,136 129 %1.88 %
February 1, 2021December 1, 20202,887 2,887 3,790 131 %1.88 %
February 1, 2021December 1, 20202,332 2,332 3,360 144 %2.03 %
February 1, 2021December 1, 20201,132 1,132 1,607 142 %2.03 %
February 12, 2021November 13, 20202,945 2,945 4,428 150 %2.02 %
March 5, 2021December 7, 202024,946 24,946 33,348 134 %1.78 %
March 5, 2021December 7, 202024,312 24,312 32,571 134 %1.78 %
March 17, 2021December 17, 202010,219 10,219 13,172 129 %1.78 %
March 17, 2021December 17, 20208,381 8,381 10,872 130 %1.78 %
March 17, 2021December 17, 20203,894 3,894 5,193 133 %1.78 %
March 17, 2021December 17, 20201,145 1,145 1,687 147 %1.93 %
March 24, 2021December 24, 20207,016 7,016 10,024 143 %1.94 %
March 24, 2021December 24, 20205,008 5,008 6,637 133 %1.79 %
March 24, 2021December 24, 20202,577 2,577 3,367 131 %1.79 %
April 9, 2021October 13, 202033,084 33,084 43,069 130 %2.35 %
July 9, 2021July 10, 2020250,000 53,256 84,337 158 %2.64 %
September 23, 2021September 24, 2020400,000 101,117 160,068 158 %2.65 %
Totals/weighted averages$916,759 $421,132 $595,599 141 %2.29 %

As of March 31, 2021, we had $305.1 million outstanding under our repurchase transactions compared to $421.1 million as of December 31, 2020. The maximum month-end balance outstanding during the three months ended March 31, 2021 was $436.3 million, compared to a maximum month-end balance for the three months ended December 31, 2020, of $422.3 million. The following table presents certain details of our repurchase transactions for the three months ended March 31, 2021 and December 31, 2020 ($ in thousands):

Table 17: Repurchase Balances
Three months ended
March 31, 2021December 31, 2020
Balance at the end of period$305,093 $421,132 
Maximum outstanding balance during the quarter$436,296 $422,322 
Average balance$352,739 $417,973 

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The decrease in our average balance from $418.0 million for the three months ended December 31, 2020 to our average balance of $352.7 million for the three months ended March 31, 2021 was due to a net decrease in repurchase financing during the three months ended March 31, 2021, as a result of repayments on pledged securities.

As of March 31, 2021 and December 31, 2020, we did not have any credit facilities or other outstanding debt obligations other than the repurchase facilities, secured borrowings, put option liability and our senior convertible notes.

We are not required by our investment guidelines to maintain any specific debt-to-equity ratio, and we believe that the appropriate leverage for the particular assets we hold depends on the credit quality and risk of those assets, as well as the general availability and terms of stable and reliable financing for those assets.

Dividends

We may declare dividends based on, among other things, our earnings, our financial condition, our working capital needs, new opportunities, and distribution requirements imposed on REITs. The declaration of dividends to our stockholders and the amount of such dividends are at the discretion of our Board of Directors.

On May 6, 2021, our Board of Directors declared a dividend of $0.19 per share, to be paid on May 31, 2021 to stockholders of record as of May 20, 2021. Our Management Agreement with our Manager requires the payment of an incentive management fee above the amount of the base management fee if either, (1) for any quarterly incentive fee, the sum of cash dividends on our common stock plus any quarterly increase in book value, all calculated on an annualized basis, exceed 8% of our book value, or (2) for any annual incentive fee, the value of quarterly cash dividends on our common stock plus cash special dividends on our common stock, all paid out within the applicable calendar year, paid out of our taxable income, exceeds of 8% (on an annualized basis) of our stock’s book value. During the three months ended March 31, 2021 and March 31, 2020, we recorded no incentive fee payable to the Manager. Our dividend payments are driven by the amount of our taxable income, subject to IRS rules for maintaining our status as a REIT.

Our most recently declared quarterly dividend represents a payment of approximately 4.70% on an annualized basis of our book value of $16.18 per share at March 31, 2021. If our taxable income increases to the levels we experienced during 2019, we could exceed the threshold for paying an incentive fee to our Manager, and thereby trigger such payments. See Note 10 — Related party transactions.

Off-Balance Sheet Arrangements

Other than our investments in debt securities and beneficial interests issued by joint ventures, which are summarized below by securitization trust and our equity method investments discussed elsewhere in this report, we do not have any relationships with unconsolidated entities or financial partnerships, such as entities often referred to as structured finance or special purpose entities, which would have been established for the purpose of facilitating off-balance sheet arrangements or other contractually narrow or limited purposes. Further, we have not guaranteed any obligations of unconsolidated entities nor do we have any commitment or intent to provide funding to any such entities. As such, we are not materially exposed to any market, credit, liquidity or financing risk that could arise if we had engaged in such relationships.

Table 18: Investments in joint ventures

We form joint ventures with third party institutional accredited investors to purchase mortgage loans and other mortgage related assets. The debt securities and beneficial interests we carry on our consolidated balance sheets are issued by securitization trusts formed by these joint ventures, which are VIEs, that we have sponsored but which we do not consolidate since we have determined we are not the primary beneficiary.

A summary of our investments in joint ventures is presented below(1) ($ in thousands):

Great Ajax Corp. Ownership
Issuing Trust/Issue DateSecurityTotal Original Outstanding PrincipalCouponOwnership PercentOriginal Stated or Notional Principal Balance RetainedCurrent Owned Stated or Notional Principal Balance Retained
Ajax Mortgage Loan Trust 2018-A/ April 2018Class A notes due 2058$91,036 3.85 %9.36 %$8,521 $5,738 
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Trust certificates$22,759 — %9.36 %$2,130 $2,144 
Ajax Mortgage Loan Trust 2018-B/ June 2018Class A notes due 2057$66,374 3.75 %20.00 %$13,275 $5,130 
Trust certificates$28,447 — %20.00 %$5,689 $4,097 
Ajax Mortgage Loan Trust 2018-D/ September 2018Class A notes due 2058$80,664 3.75 %20.00 %$16,133 $12,973 
Trust certificates$20,166 — %20.00 %$4,033 $3,915 
Ajax Mortgage Loan Trust 2018-E/ December 2018Class A notes due 2058$86,089 4.38 %5.01 %$4,313 $3,666 
Class B notes due 2058$8,035 5.25 %20.00 %$1,607 $1,605 
Trust certificates$20,662 — %20.00 %$4,132 $4,130 
Ajax Mortgage Loan Trust 2018-F/ December 2018Class A notes due 2058$180,002 4.38 %5.01 %$9,018 $6,610 
Class B notes due 2058$16,800 5.25 %20.00 %$3,360 $3,360 
Trust certificates$43,201 — %20.00 %$8,640 $8,252 
Ajax Mortgage Loan Trust 2018-G/ December 2018Class A notes due 2057$173,562 4.38 %25.00 %$43,390 $25,671 
Class B notes due 2057$16,199 5.25 %25.00 %$4,050 $4,050 
Trust certificates$41,655 — %25.00 %$10,414 $10,585 
Ajax Mortgage Loan Trust 2019-A/ March 2019Class A notes due 2057$127,801 3.75 %20.00 %$25,560 $14,767 
Class B notes due 2057$11,928 5.25 %20.00 %$2,386 $2,388 
Trust certificates$30,672 — %20.00 %$6,134 $6,137 
Ajax Mortgage Loan Trust 2019-B/ March 2019Class A notes due 2059$163,325 3.75 %15.00 %$24,499 $15,005 
Class B notes due 2059$15,244 5.25 %15.00 %$2,287 $2,287 
Trust certificates$39,198 — %15.00 %$5,880 $5,976 
Ajax Mortgage Loan Trust 2019-C/ May 2019Class A notes due 2058$150,037 3.95 %5.00 %$7,502 $5,878 
Class B notes due 2058$14,003 5.25 %34.00 %$4,761 $4,761 
Trust certificates$36,009 — %34.00 %$12,243 $12,417 
Ajax Mortgage Loan Trust 2019-E/ September 2019Class A notes due 2059$181,101 3.00 %6.55 %$11,862 $8,145