Great Ajax Corp (RPT)

A. Company Overview

Great Ajax Corp. is a Maryland-based corporation structured to qualify as a Real Estate Investment Trust (REIT). The company specializes in the acquisition and management of residential mortgage loans, particularly focusing on Residential Performing Loans (RPLs) and Non-Performing Loans (NPLs). The primary operational approach involves acquiring these loans directly or through joint ventures with institutional accredited investors, which often take the form of securitization trusts.

B. Business Model

Loan Acquisition Strategies

The primary targets for acquisition include:

1. Residential Performing Loans (RPLs):

- These are loans where the borrower has made at least five out of the most recent seven payments. Variants include situations where an agreement has been made for a missed payment, or the borrower has prepaid to cover the requisite payments.

1. Non-Performing Loans (NPLs):

- These loans involve situations where the borrower has defaulted on the most recent three payments.

In addition to RPLs and NPLs, the corporation may also acquire or originate Small Balance Commercial (SBC) loans—typically secured by multi-family and mixed-use retail/residential properties with similar performance histories. The selective acquisition strategy affords the company the ability to purchase these assets at prices significantly below their unpaid principal balances and current real estate values.

Joint Ventures and Subsidiaries

Great Ajax Corp. engages in joint ventures, collaborating with institutional investors which allow it to partake in securitization trusts. These trusts are integral to the company's financing methodologies, enabling it to hold debt securities, manage cash flows, and maintain liquidity in varying market conditions.

The company has set up several wholly-owned subsidiaries to manage different facets of its operations, including:

• Great Ajax Funding LLC: Established to act as a depositor of mortgage loans into securitization trusts.
• GAJX Real Estate Corp.: Owns, maintains, and sells real estate owned (REO) properties acquired via foreclosure or other means.
• Gaea Real Estate Corp.: Initially focused on investing in multifamily properties and is treated as a taxable REIT subsidiary (TRS) for tax purposes.

As of the end of 2023, the Operating Partnership owns interests in various subsidiaries that allow Great Ajax to efficiently manage its investment in mortgage loans and REO properties.

C. Strategic Focus

Investment Strategy

Great Ajax Corp. pursues a multifaceted investment strategy designed to yield both current income and long-term capital appreciation. Key aspects of this strategy include:

• Targeting Acquisitions at Discounts: The company seeks to acquire RPLs and SBC loans at significant discounts relative to both the unpaid principal balance and the underlying property's current value.
• Geographic Concentration: Investments are concentrated in specific urban centers and neighborhoods exhibiting favorable economic conditions, allowing for potential appreciation and liquidity.
• Asset Management via Servicing Agreements: Through agreements with licensed servicers, the company actively manages and services its loan portfolio to promote borrower performance and mitigate the risks associated with non-performance.
• Securitization and Financing: Securitizing portions of the loan portfolio is a strategy utilized to create stable, long-term financing sources while retaining certain tranches of subordinated securities to balance risk and leverage.

D. Operating Structure

Great Ajax Corp. operates through a combination of a holding corporation and its subsidiaries, which facilitate traditional real estate activities and the management of securities-related assets. The organization is designed to meet REIT qualifications while allowing for flexible investment opportunities that may not otherwise be available to more traditional real estate or investment entities.

Management Structure

The company relies on an external management team organized under a management agreement, which outlines the fiduciary responsibilities and operational oversight of investments. The manager is compensated through both a base management fee and performance-based incentives designed to align the interests of management and stockholders.

E. Recent Developments

In late 2023 and early 2024, Great Ajax Corp. announced significant strategic maneuvers, including the termination of a merger agreement with Ellington Financial and entering into a new strategic transaction with Rithm, a global asset manager. This new relationship is expected to access enhanced capital resources, improve operational flexibility, and allow for further exploration of real estate investment opportunities.

F. Portfolio Overview

As of the end of 2023, the portfolio consisted of a mix of RPLs, NPLs, and real estate assets, with ongoing monitoring of the performance of these assets under the purview of the investing management team. The approaches to valuation and asset acquisition emphasize a granular understanding of the real estate landscape, driven by extensive data analysis and utilization of proprietary models designed to project cash flows and assess investment performance.

By focusing on a combination of direct asset acquisition, structured financing options, joint ventures, and robust operational management, Great Ajax Corp. continues to work towards delivering attractive risk-adjusted returns to its investors in an evolving mortgage market.