Great Ajax(AJX) - 2019 Q1 - Quarterly Report

PART I Financial Information This section presents Great Ajax Corp.'s unaudited consolidated financial statements and management's discussion and analysis of financial performance Consolidated Interim Financial Statements This section presents Great Ajax Corp.'s unaudited consolidated financial statements and comprehensive notes for the period ended March 31, 2019 Consolidated Balance Sheets Great Ajax Corp. reported total assets of $1.616 billion and total liabilities of $1.280 billion as of March 31, 2019, reflecting slight increases from year-end 2018 Consolidated Balance Sheet Highlights (in thousands) | Account | March 31, 2019 | December 31, 2018 | | :--- | :--- | :--- | | Assets | | | | Cash and cash equivalents | $41,542 | $55,146 | | Mortgage loans, net | $1,313,677 | $1,310,873 | | Investments at fair value | $152,083 | $146,811 | | Total assets | $1,616,182 | $1,602,871 | | Liabilities & Equity | | | | Secured borrowings, net | $593,121 | $610,199 | | Borrowings under repurchase transactions | $560,404 | $534,089 | | Convertible senior notes, net | $117,838 | $117,525 | | Total liabilities | $1,279,507 | $1,268,592 | | Total equity | $336,675 | $334,279 | Consolidated Statements of Income For Q1 2019, consolidated net income attributable to common stockholders was $7.3 million, with diluted EPS of $0.36, a slight decrease from the prior year Consolidated Statements of Income (in thousands, except per share data) | Metric | Three months ended March 31, 2019 | Three months ended March 31, 2018 | | :--- | :--- | :--- | | Net interest income | $13,767 | $13,097 | | Total income | $15,184 | $14,743 | | Total expense | $6,992 | $6,405 | | Consolidated net income | $8,121 | $8,322 | | Consolidated net income attributable to common stockholders | $7,330 | $7,665 | | Basic earnings per common share | $0.39 | $0.41 | | Diluted earnings per common share | $0.36 | $0.38 | Consolidated Statements of Cash Flows Net cash used in operating activities significantly increased to $5.0 million in Q1 2019, contributing to a $13.6 million decrease in cash and cash equivalents Net Cash Flow Summary (in thousands) | Cash Flow Activity | Three months ended March 31, 2019 | Three months ended March 31, 2018 | | :--- | :--- | :--- | | Net cash from operating activities | $(5,044) | $(715) | | Net cash from investing activities | $(5,593) | $12,824 | | Net cash from financing activities | $(2,968) | $(45,386) | | Net change in cash | $(13,605) | $(33,277) | Notes to Consolidated Interim Financial Statements These notes detail the company's business, accounting policies, asset and liability composition, debt financing, and related party transactions - The company primarily acquires re-performing loans (RPLs) and small balance commercial (SBC) loans, and is externally managed by Thetis Asset Management LLC with loans serviced by the affiliated Gregory Funding LLC[15] - Acquired loans with credit deterioration are accounted for under ASC 310-30, which involves estimating expected cash flows to determine an accretable yield, recognized as interest income over the life of the loan pool[25][26][28] - The company uses various financing methods, including securitization trusts (VIEs), repurchase facilities, and convertible senior notes to fund its operations and acquisitions[41][43][44] Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses Q1 2019 financial performance, highlighting net income of $7.3 million, portfolio composition, liquidity, and $63.2 million cash collection from assets - For Q1 2019, net income attributable to common stockholders was $7.3 million, with basic EPS of $0.39 and diluted EPS of $0.36[260] - The company collected $63.2 million in cash during the quarter, including $49.8 million from its mortgage loan and REO portfolio and $13.4 million from its investments in debt securities and beneficial interests[262] Portfolio Carrying Value (in millions) | Asset Type | March 31, 2019 | December 31, 2018 | | :--- | :--- | :--- | | Residential RPL loan pools | $1,229.0 | $1,242.2 | | SBC loan pools & non-pooled | $49.7 | $32.3 | | Residential NPL loan pools | $35.0 | $36.3 | | REO | $37.8 | $37.0 | | Investment in debt securities | $152.1 | $146.8 | | Investment in beneficial interests | $30.8 | $22.1 | | Total Real Estate Assets | $1,534.4 | $1,516.7 | Results of Operations Net interest income after provision increased to $13.6 million in Q1 2019, while total expenses rose to $7.0 million, impacting overall profitability Results of Operations Summary (in thousands) | Metric | Three months ended March 31, 2019 | Three months ended March 31, 2018 | | :--- | :--- | :--- | | Net interest income after provision | $13,613 | $13,097 | | Total income | $15,184 | $14,743 | | Total expense | $6,992 | $6,405 | | Net income attributable to common stockholders | $7,330 | $7,665 | - Book value per share remained stable at $15.59 at March 31, 2019, the same as at December 31, 2018[273][274] Mortgage Loan Portfolio In Q1 2019, the company acquired $7.2 million in RPLs and $17.8 million UPB in SBC loans, bringing the total mortgage loan portfolio to a $1.3 billion carrying value - Acquired 38 RPLs for $7.2 million (84.8% of UPB) and 19 SBC loans with $17.8 million UPB during Q1 2019[275][276][277] Loan Portfolio Activity Q1 2019 (in thousands) | Activity | Amount | | :--- | :--- | | Beginning carrying value | $1,310,873 | | Portfolio acquisitions | $24,998 | | Accretion recognized | $26,586 | | Payments received, net | $(44,460) | | Reclassifications to REO | $(4,171) | | Ending carrying value | $1,313,677 | Liquidity and Capital Resources The company's liquidity is supported by securities offerings and secured borrowings, with $41.5 million in cash and $739.9 million in total contractual obligations as of March 31, 2019 - Cash and cash equivalents decreased by $13.6 million during the quarter to $41.5 million as of March 31, 2019[291] - The company had $560.4 million outstanding under repurchase agreements and six outstanding secured borrowings as of March 31, 2019[298][306] Contractual Obligations as of March 31, 2019 (in thousands) | Obligation | Total | Less than 1 Year | 1 – 3 Years | 3 – 5 Years | More than 5 Years | | :--- | :--- | :--- | :--- | :--- | :--- | | Convertible senior notes | $123,850 | $— | $— | $— | $123,850 | | Borrowings under repurchase agreements | $560,404 | $560,404 | $— | $— | $— | | Interest on convertible senior notes | $47,514 | $8,979 | $17,958 | $17,958 | $2,619 | | Interest on repurchase agreements | $8,083 | $8,083 | $— | $— | $— | | Total | $739,851 | $577,466 | $17,958 | $17,958 | $126,469 | Quantitative and Qualitative Disclosures About Market Risk The company identifies real estate, interest rate, prepayment, and credit risks as primary market exposures, each impacting asset values, financing costs, or yields - Key market risks include real estate risk from property value volatility, interest rate risk affecting asset values and financing costs, prepayment risk impacting yields, and credit risk from borrower defaults[328] - Rising interest rates may slow refinancing and home price increases, but could also be accompanied by inflation and higher household incomes, potentially benefiting rental income and property values[329][331] - An increase in prepayments on the company's discounted loan portfolio would accelerate the repayment of the discount and increase yield, but also introduces re-investment risk[332] Controls and Procedures Management concluded that disclosure controls and procedures were effective as of March 31, 2019, with no material changes to internal control over financial reporting - The CEO and CFO concluded that as of the end of Q1 2019, the company's disclosure controls and procedures were effective[336] - No material changes were made to the company's internal control over financial reporting during the first quarter of 2019[337] PART II Other Information This section provides additional information including legal proceedings, risk factors, equity sales, and a list of exhibits filed with the report Legal Proceedings The company and its affiliates are not subject to any material legal or regulatory proceedings as of the report date - As of the report date, the company is not involved in any material legal proceedings[339] Risk Factors No material changes have occurred to the risk factors previously disclosed in the company's 2018 Annual Report on Form 10-K - No material changes have occurred to the risk factors disclosed in the 2018 Form 10-K[340] Unregistered Sales of Equity Securities and Use of Proceeds The company issued common stock in private transactions to its Manager and independent directors for fees, exempt from registration under Section 4(a)(2) of the Securities Act - On February 19, 2019, issued 1,549 shares to the Manager for the incentive fee[341] - On March 6, 2019, issued 51,007 shares to the Manager for the management fee[342] - On March 6, 2019, issued 606 shares to each of the four independent directors for their quarterly fees[343] Exhibits This section lists exhibits filed with the Form 10-Q, including CEO and CFO certifications and XBRL data files - The report includes required certifications from the CEO and CFO, as well as XBRL instance documents[344][346]