Great Ajax Corp

Previous wording

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 Former Manager” refers to Thetis Asset Management LLC, a Delaware limited liability company; "our New Manager" refers to RCM GA LLC; “Aspen Capital” refers to the Aspen Capital group of companies; “the Servicer” or "Newrez" and “Gregory” or "our Former Manager" refer to Gregory Funding LLC, an Oregon limited liability company and our affiliate.

Current wording

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. and its affiliates; “Operating Partnership” refers to Great Ajax Operating Partnership L.P., a Delaware limited partnership; our “Former Manager” refers to Thetis Asset Management LLC, a Delaware limited liability company; our “New Manager” refers to RCM GA LLC; “Aspen Capital” refers to the Aspen Capital group of companies; “the Servicer” or “Newrez” refers to Newrez LLC, a Delaware limited liability company and an affiliate of RCM GA; “Rithm” or “Rithm Capital” refers to Rithm Capital Corp., a Delaware corporation and the parent entity of RCM GA; and “Gregory” or our “Former Servicer” refer to Gregory Funding LLC, an Oregon limited liability company.

Previous wording

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.

Current wording

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 our Quarterly Report on Form 10-Q for the quarter ended June 30, 2024, as well as other cautionary statements and risks described elsewhere in this report and our most recent Annual Report on Form 10-K.

Previous wording

Great Ajax Corp. is a Maryland corporation that is organized and operated in a manner intended to allow us to qualify as a REIT. Historically, we have primarily target acquisitions of (i) 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 and (ii) NPLs, which are residential mortgage loans on which the most recent three payments have not been made. We acquired RPLs and NPLs either directly or in joint ventures with institutional accredited investors. The joint ventures are structured as securitization trusts, of which we acquire debt securities and beneficial interests. We also acquire or 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 own a 19.8% equity interest in our Former Manager through GA-TRS, a wholly-owned subsidiary of the Operating Partnership. We have elected to treat GA-TRS as a taxable REIT subsidiary under the code. Our mortgage loans and real properties are serviced by Newrez, a Rithm affiliate.

Current wording

Great Ajax Corp. is a Maryland corporation that is organized and operated in a manner intended to allow us to qualify as a REIT. Historically, we have primarily targeted 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 and (ii) NPLs, which are residential mortgage loans on which the most recent three payments have not been made. Historically, we acquired RPLs and NPLs either directly or in security form through joint ventures with institutional accredited investors. As discussed below, under RCM GA’s management, we have started to shift our strategic direction towards investments in the commercial real estate sector and we have begun to invest in commercial mortgage loans. Our mortgage loans and real properties are serviced by Newrez, a Rithm affiliate.

Previous wording

On June 11, 2024, we completed our previously announced strategic transaction with Rithm. The Strategic Transaction was approved on May 20, 2024, by our stockholders of (i) the sale of $14.0 million of our common stock at a price of $4.87 per share (which represents the trailing five-day average closing price of our common stock on the NYSE as of the date of the Securities Purchase Agreement, entered into on February 26, 2024 by us, the Operating Partnership (as defined herein), Thetis Asset Management LLC and Rithm and (ii) a new Management Agreement with RCM GA, under which, RCM GA would become our new external manager. Additionally, on February 26, 2024, we entered into a $70.0 million Credit Agreement with NIC RMBS. For a full description of the Credit Agreement’s terms, conditions and covenants, see the section titled “The Transaction — Credit Agreement” in the Company’s Definitive Proxy Statement filed with the Securities and Exchange Commission on April 10, 2024. The term loan was accompanied by our agreement to issue a certain number of warrants to Rithm or one of its affiliates to purchase our common stock, which warrants are detachable. See Note 8 — Commitments and Contingencies. Concurrently with entry into the Credit Agreement with NIC RMBS, we terminated our existing management contract with the Former Manager primarily in exchange for approximately 3,174,645 shares of our common stock. We currently own 19.8% of the Former Manager. The Former Manager is expected to liquidate in the fourth quarter of 2024 and distribute its assets to its members, including us.

Current wording

On June 11, 2024, we completed our previously announced Strategic Transaction with Rithm. The Strategic Transaction included a Securities Purchase Agreement entered into by the Company, the Operating Partnership, the Former Manager and Rithm (the “Securities Purchase Agreement”) on February 26, 2024, which provided for , upon the approval of the Company’s stockholders on May 20, 2024, (i) the sale of $14.0 million of the Company’s common stock to Rithm at a price of $4.87 per share (which represents the trailing five-day average closing price of the Company’s common stock on the New York Stock Exchange (“NYSE”) as of the date of the Securities Purchase Agreement, and (ii) a new management agreement (as maybe amended, modified or supplemented from time to time, the “Management Agreement”) with RCM GA, under which RCM GA would become the Company's new external manager. In connection with the Strategic Transaction, we terminated our existing management contract with the Former Manager primarily in exchange for approximately 3.2 million shares of our common stock.

Previous wording

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, 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 as a TRS under the code.

Current wording

The Company conducts substantially all of its business through our Operating Partnership and its subsidiaries. The Company, through a wholly-owned subsidiary, Great Ajax Operating LLC, 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 Former Manager and previously owned an equity interest in the Former Servicer. GAJX Real Estate Corp. (“GAJX”) is a wholly-owned subsidiary of the Operating Partnership formed to own, maintain, improve and sell REO properties acquired by the Company. The Company elected to treat GA-TRS and GAJX as a taxable REIT subsidiaries (“TRS”) under the Internal Revenue 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. 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 (“REO”) properties acquired upon the foreclosure or other settlement of its owned NPLs.

Previous wording

Our Operating Partnership, through interests in certain entities as of June 30, 2024, owns 99.9% of Great Ajax II REIT Inc. which owns Great Ajax II Depositor LLC which then acts as the depositor of mortgage loans into securitization trusts and holds subordinated securities issued by such trusts. Similarly, as of June 30, 2024, the Operating Partnership wholly-owned Great Ajax III Depositor LLC, which was formed to act as the depositor into Ajax Mortgage Loan Trust 2021-E ("2021-E"), which is a real estate mortgage investment conduit ("REMIC"). We have securitized mortgage loans through these securitization trusts and retained subordinated securities from the secured borrowings. These trusts are considered to be variable interest entities ("VIEs"), and we have determined that we are the primary beneficiary of the VIEs.

Current wording

Our Operating Partnership, through interests in certain entities as of September 30, 2024, owns 99.9% of Great Ajax II REIT Inc. which owns Great Ajax II Depositor LLC which then acts as the depositor of mortgage loans into securitization trusts and holds subordinated securities issued by such trusts. Similarly, as of September 30, 2024, the Operating Partnership wholly-owned Great Ajax III Depositor LLC, which was formed to act as the depositor for a single joint venture with our partners. We have securitized mortgage loans through these securitization trusts and retained subordinated securities from the secured borrowings. These trusts are considered to be variable interest entities (“VIEs”), and we have determined that we are the primary beneficiary of the VIEs.

Previous wording

We believe the consummation of this strategic transaction will have a number of strategic benefits as our stockholders will have an opportunity to benefit from a shift in our strategic direction. We will seek to capitalize on commercial real estate investment opportunities and will be managed by RCM GA, which has an experienced team with a well-recognized track record of success in real estate investments.

Current wording

We believe the Strategic Transaction will have a number of strategic benefits for our stockholders, including the opportunity to benefit from a shift in our strategic direction and the opportunity for our Company to benefit from Rithm’s real estate, financial services and capital markets expertise, as well as Rithm’s industry relationships. Under RCM GA’s management, we seek to capitalize on commercial real estate investment opportunities.

Previous wording

We expect to pursue a flexible real estate investment strategy. Our target assets are currently expected to be in the commercial real estate sector, including commercial real estate, as well as preferred equity or debt instruments secured by mortgages on these types of properties, small balance commercial loans, mezzanine loans secured by pledges of equity interests in entities that own these types of properties or other forms of subordinated debt in connection with these types of properties, as well as commercial mortgage servicing rights and operating businesses in the sector. The post-closing Company does not currently anticipate investing in residential mortgage loans, RPLs or NPLs. Given the change in focus of our business, we intend to, over time, reposition much of our existing portfolio. We believe commercial real estate offers an attractive investment opportunity given market dynamics that are creating significant refinancing challenges and funding gaps.

Current wording

Under RCM GA’s management, we have started to shift our strategic direction towards investments in the commercial real estate sector, and we have begun to invest in CMBS. Our target assets are expected to include preferred equity or debt instruments secured by mortgages on commercial real estate, small balance commercial loans, mezzanine loans secured by pledges of equity interests in entities that own commercial real estate or other forms of subordinated debt in connection with commercial real estate, as well as commercial mortgage servicing rights and operating businesses in the commercial real estate sector.

Previous wording

Acquisitions. In light of current market conditions and certain financial challenges, including the significant losses we have incurred to date and limited sources of financing, we do not expect to be in a position to make new acquisitions of residential mortgage assets in the near future.

Current wording

Acquisitions. In light certain financial challenges, including the significant losses we have incurred to date and limited sources of financing, we do not expect to be able to acquire significant new commercial mortgage assets in the near future.

Previous wording

Financing. 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 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 has limited our access to financing.

Current wording

Financing. We previously securitized 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 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 has limited our access to financing.

Previous wording

Distributions. 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.

Current wording

Distributions. To qualify as a REIT under the code, we generally 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.

Previous wording

Expenses. Our expenses primarily consist of the fees and expenses payable by us under the Management Agreement and the Servicing Agreements. Additionally, our Former Manager incurred and our New 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. 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, and includes any charges for impairments to the carrying value of these assets, which may be significant. Interest expense, which is subtracted from our Interest income to arrive at Net interest income, consists of the costs to borrow money.

Current wording

Expenses. Our expenses primarily consist of the fees and expenses payable by us under the Management Agreement and the Servicing Agreements. Additionally, our Former Manager incurred and our New Manager incurs direct, out-of-pocket costs and expenses 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. 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, and includes any charges for impairments to the carrying value of these assets, which may be significant. Interest expense, which is subtracted from our Interest income to arrive at Net interest income, consists of the costs to borrow money.

Previous wording

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 further 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) impact adversely our ability to securitize, re-securitize or sell our assets on attractive terms; (4) reduce the ability or desire of borrowers to refinance their loans; (5) mortgage related assets may become more illiquid during periods of interest rate volatility; (6) difficulties refinancing our securitizations and increases in the costs of our repurchase facility financings; (7) increase our financing costs as we seek to renew or replace borrowing facilities; and (8) 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.

Current wording

Changes in Market Interest Rates. The FOMC recently cut the federal funds rate by 50 basis points which has had a favorable impact on the cost of funds of our repurchase lines of credit. Increases in interest rates, in general, may over time cause: (1) the value of our mortgage loan and MBS portfolio to further 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) impact adversely our ability to securitize, re-securitize or sell our assets on attractive terms; (4) reduce the ability or desire of borrowers to refinance their loans; (5) mortgage related assets may become more illiquid during periods of interest rate volatility; (6) difficulties refinancing our securitizations and increases in the costs of our repurchase facility financings; (7) increase our financing costs as we seek to renew or replace borrowing facilities; and (8) 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: (1) prepayments on our mortgage loan and MBS portfolio to increase, thereby accelerating the accretion of our purchase discounts; (2) the value of our mortgage loan and MBS portfolio to increase; (3) coupons on our ARM and hybrid ARM mortgage loans and MBS to reset, although on a delayed basis, to lower interest rates; (4) 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.

Previous wording

Various elements of our accounting policies, by their nature, are inherently subject to estimation techniques, and other subjective assessments. In particular, we have identified six policies that, due to the judgment and estimates inherent in those policies, are critical to understanding our consolidated financial statements. These policies relate to (i) the allowance for credit losses, (ii) accounting for Interest income on our mortgage loan portfolio; (iii) accounting for Investments in securities available-for-sale ("AFS") and Investments in securities held-to-maturity ("HTM"); (iv) accounting for Investments in beneficial interests; (v) accounting for Interest expense on our secured borrowings, repurchase facilities, 2024 Notes and 2027 Notes; and (vi) fair values. We believe that the judgment and estimates used in the preparation of our consolidated financial statements are appropriate given the factual circumstances at the time. However, given the sensitivity of our consolidated financial statements to these critical accounting policies, the use of other judgments or estimates could result in material differences in our results of operations or financial condition. For further information, please refer to the Critical Accounting Policies and Estimates in our Form 10-K for our calendar year ended December 31, 2023, as there have been no changes to these policies.

Current wording

Various elements of our accounting policies, by their nature, are inherently subject to estimation techniques, and other subjective assessments. In particular, we have identified six policies that, due to the judgment and estimates inherent in those policies, are critical to understanding our consolidated financial statements. These policies relate to (i) the allowance for credit losses, (ii) accounting for Interest income on our mortgage loan portfolio; (iii) accounting for Investments in securities available-for-sale and Investments in securities held-to-maturity (“HTM”); (iv) accounting for Investments in beneficial interests; (v) accounting for Interest expense on our secured borrowings, repurchase facilities, 2024 Notes and 2027 Notes; and (vi) fair values. We believe that the judgment and estimates used in the preparation of our consolidated financial statements are appropriate given the factual circumstances at the time. However, given the sensitivity of our consolidated financial statements to these critical accounting policies, the use of other judgments or estimates could result in material differences in our results of operations or financial condition. For further information, please refer to the Critical Accounting Policies and Estimates in our Annual Report on Form 10-K for the fiscal year ended December 31, 2023, as there have been no changes to these policies.

Previous wording

•Common dividend of $2.2 million, or $0.06 per common share

Current wording

•Common dividend of $2.7 million, or $0.06 per common share

Previous wording

We generated a consolidated net loss attributable to common stockholders under U.S. Generally Accepted Accounting Principles ("U.S. GAAP" or "GAAP") for the three months ended June 30, 2024 of $(12.7) million or $(0.32) per diluted common share after preferred dividends, and Earnings Available for Distribution of $(9.6) million or $(0.24) per diluted common share. Earnings Available for Distribution is a non-GAAP financial measure which adjusts GAAP earnings by removing gains and losses as well as certain other non-core income and expenses and preferred dividends. We consider Earnings Available for Distribution a useful measure for comparing the results of our ongoing operations over multiple quarters. Comparatively, our GAAP Net Loss attributable to common stockholders for the three months ended June 30, 2023 was $(12.0) million or $(0.51) per common share, and Earnings Available for Distribution was $(2.5) million, or $(0.11) per common share.

Current wording

We generated a consolidated net loss attributable to common stockholders under U.S. Generally Accepted Accounting Principles (“U.S. GAAP” or “GAAP”) for the three months ended September 30, 2024, of $(8.0) million or $(0.18) per diluted common share after preferred dividends. Comparatively, our GAAP net loss attributable to common stockholders for the three months ended September 30, 2023, was $(6.1) million or $(0.25) per common share.

Previous wording

The interest income detail for the three and six months ended June 30, 2024 and 2023 are included in the table below ($ in thousands):

Current wording

The interest income detail for the three and nine months ended September 30, 2024 and 2023, are included in the table below ($ in thousands):

Previous wording

The average carrying balance of our mortgage loan portfolio decreased for the three months ended June 30, 2024 versus the comparative period in 2023 primarily due to loan sales. Additionally, the average carrying balances of our debt securities, beneficial interests and debt outstanding decreased for the three months ended June 30, 2024 versus the comparative period in 2023 due to paydowns, sales and redemptions and no acquisitions. The average carrying balances for our portfolio are included in the table below ($ in thousands):

Current wording

The average carrying balance of our mortgage loan portfolio decreased for the three months ended September 30, 2024, versus the comparative period in 2023 primarily due to loan sales as we reposition our balance sheet into CMBS. Additionally, the average carrying balances of our debt securities, beneficial interests and debt outstanding decreased for the three months ended September 30, 2024, versus the comparative period in 2023 due to paydowns, sales and redemptions offset by investments in CMBS. The average carrying balances for our portfolio are included in the table below ($ in thousands):

Previous wording

Other expense increased for the three and six months ended June 30, 2024 over the comparable periods in 2023 primarily due to the amortization on deferred issuance costs for our Credit Agreement and an increase in employee and service provider share grants due to all restricted shares vesting on the transaction date. A breakdown of Other expense is provided in the table below ($ in thousands):

Current wording

A breakdown of Other expense is provided in the table below ($ in thousands):

Previous wording

Our loan portfolio activity for the three and six months ended June 30, 2024 and 2023 is presented below ($ in thousands):

Current wording

Our loan portfolio activity for the three and nine months ended September 30, 2024 and 2023, is presented below ($ in thousands):

Previous wording

(3)At June 30, 2024 and December 31, 2023, our loan portfolio consists of fixed rate (56.0% of UPB), ARM (7.0% of UPB) and Hybrid ARM (37.0% of UPB); and fixed rate (60.0% of UPB), ARM (6.4% of UPB) and Hybrid ARM (33.6% of UPB), respectively.

Current wording

(1)At September 30, 2024 and December 31, 2023, our loan portfolio consists of fixed rate (56.0% of UPB), ARM (7.0% of UPB) and Hybrid ARM (37.0% of UPB); and fixed rate (60.0% of UPB), ARM (6.4% of UPB) and Hybrid ARM (33.6% of UPB), respectively.

Previous wording

(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.

Current wording

(2)Represents 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.

Previous wording

(5)As of the reporting date.

Current wording

(3)As of the reporting date.

Previous wording

(6)UPB as of June 30, 2024 and December 31, 2023, divided by market value of collateral and weighted by the UPB of the loan.

Current wording

(4)UPB as of September 30, 2024 and December 31, 2023, divided by market value of collateral and weighted by the UPB of the loan.

Previous wording

During the six months ended June 30, 2024, our primary sources of cash have consisted of proceeds from loan sales. Historically, our primary sources of cash have also included 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).

Current wording

During the nine months ended September 30, 2024, our primary sources of cash have consisted of proceeds from the sale of residential mortgage loans and securities as well as paydowns and interest income from our investment portfolio. Historically, our primary sources of cash have also included 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).

Previous wording

As of June 30, 2024 and December 31, 2023, substantially all of our invested capital was in RPLs, NPLs, SBC loans, debt securities, and beneficial interests. We also held approximately $72.0 million of cash and cash equivalents, an increase of $19.3 million from our balance of $52.8 million at December 31, 2023. Our average daily cash balance during the quarter was $57.8 million, an increase of $2.6 million from our average daily cash balance of $55.2 million during the three months ended December 31, 2023.

Current wording

As of September 30, 2024 and December 31, 2023, substantially all of our invested capital was residential mortgage loans, residential mortgage backed securities and CMBS, and beneficial interests. We also held approximately $84.0 million of cash and cash equivalents, an increase of $31.2 million from our balance of $52.8 million at December 31, 2023. Our average daily cash balance during the quarter was $76.6 million, an increase of $21.4 million from our average daily cash balance of $55.2 million during the three months ended December 31, 2023.

Previous wording

Six Month Operating, Investing and Financing Cash Flows

Current wording

Operating, Investing and Financing Cash Flows

Previous wording

Our operating cash inflow for the six months ended June 30, 2024 were $8.0 million. Our operating cash outflows for the six months ended June 30, 2023 were $23.6 million. Our primary operating cash inflow is cash interest payments on our mortgage loan pools of $7.8 million and $23.0 million for the six months ended June 30, 2024 and 2023, respectively. Non-cash interest income accretion on our mortgage loans was $2.4 million and $3.3 million for the six months ended June 30, 2024 and 2023, respectively. Non-cash interest income on beneficial interests was $1.5 million and $4.1 million during the six months ended June 30, 2024 and 2023, respectively. Interest income on debt securities was $2.7 million and $4.9 million during the six months ended June 30, 2024 and 2023, respectively.

Current wording

Our operating cash inflows for the nine months ended September 30, 2024 were $2.7 million. Comparatively, our operating cash outflows for the nine months ended September 30, 2023 were $34.4 million. Our primary operating cash inflow is cash interest payments on our mortgage loans of $23.8 million and $33.4 million for the nine months ended September 30, 2024 and 2023, respectively. Non-cash interest income accretion on our mortgage loans was $2.7 million and $5.2 million for the nine months ended September 30, 2024 and 2023, respectively. Non-cash interest income on beneficial interests was $3.8 million and $6.0 million during the nine months ended September 30, 2024 and 2023, respectively. Interest income on debt securities was $5.4 million and $7.2 million during the nine months ended September 30, 2024 and 2023, respectively.

Previous wording

For the six months ended June 30, 2024, our investing cash inflows of $383.1 million were driven by the net proceeds from the sales of our mortgage loans of $311.3 million, principal and interest collections on our securities of $39.7 million, principal payments and payoffs of our mortgage loan portfolio of $27.9 million. For the six months ended June 30, 2023, our investing cash inflows of $88.3 million were driven by payoffs of our mortgage loan portfolio of $48.5 million, principal and interest collections on our securities of $39.1 million and proceeds from refinancing and sale of our debt securities of $29.4 million, partially offset by the purchase of securities of $16.3 million and acquisitions of mortgage loans of $14.1 million and the contribution of an additional $0.7 million equity interest in our GAFS affiliate.

Current wording

For the nine months ended September 30, 2024, our investing cash inflows of $428.3 million were driven by the net proceeds from the sales of our mortgage loans of $384.1 million, sales of our debt securities of $57.8 million, principal and interest collections on our securities of $45.5 million, principal payments and payoffs of our mortgage loan portfolio of $40.6 million offset by purchases of CMBS of $101.7 million. For the nine months ended September 30, 2023, our investing cash inflows of $149.0 million were driven by payoffs of our mortgage loan portfolio of $71.2 million, principal and interest collections on our securities of $101.3 million and proceeds from refinancing and sale of our debt securities of $61.7 million, partially offset by the purchase of securities of $74.3 million and acquisitions of mortgage loans of $14.4 million.

Previous wording

Our financing cash flows are driven primarily by funding used to acquire mortgage loan pools and debt securities as well as debt service on our 2024 Notes and 2027 Notes. We fund our mortgage loan pools primarily through secured borrowings and repurchase agreements and we fund our debt securities primarily through repurchase agreements. For the six months ended June 30, 2024, we had net financing cash outflows of $371.9 million primarily driven by the redemption of our 2024 Notes of $103.5 million, repayments of $220.7 million on repurchase transactions, pay downs of secured borrowings of $136.2 million, partially offset by additional borrowing through repurchase transactions of $91.5 million. For the six months ended June 30, 2023, we had net financing cash outflows of $72.2 million primarily driven by repayments of $56.8 million on repurchase transactions and pay downs of existing debt obligations of $29.6 million on secured borrowings, partially offset by additional borrowing through repurchase transactions of $24.1 million. For the six months ended June 30, 2024 and 2023, we paid $6.8 million and $11.7 million, respectively, in combined dividends and distributions.

Current wording

Our financing cash flows are driven primarily by funding used to acquire mortgage assets as well as the debt service on our 2024 Notes and 2027 Notes. We fund our mortgage loan pools primarily through secured borrowings and repurchase agreements and we fund our debt securities primarily through repurchase agreements. For the nine months ended September 30, 2024, we had net financing cash outflows of $399.9 million primarily driven by the redemption of our 2024 Notes of $103.5 million, net repayments on our repurchase transactions of $144.3 million, and pay downs of our secured borrowings of $146.1 million. For the nine months ended September 30, 2023, we had net financing cash outflows of $98.5 million primarily driven by repayments of $53.8 million on repurchase transactions and pay downs of existing debt obligations of $43.8 million on secured borrowings. For the nine months ended September 30, 2024 and 2023, we paid $9.6 million and $17.1 million, respectively, in combined dividends and distributions.

Previous wording

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 depends 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 June 30, 2024 and 2023, we held 1,035,785 shares of treasury stock consisting of 148,834 shares received through distributions of our shares previously held by our Former Manager, 361,912 shares received through our Former Servicer and 525,039 shares acquired through open market purchases.

Current wording

On February 28, 2020, our board of directors (“Board of Directors”) approved a stock repurchase program of up to $25.0 million of our common stock. The amount and timing of any repurchases depends on a number of factors, including but not limited to the price and availability of the common stock, trading volume and general circumstances and market conditions. We have repurchased 525,039 shares of common stock for an aggregate purchase price of $5.1 million leaving $19.1 million remaining under the authorization. No shares were repurchased during the nine months ended September 30, 2024 and 2023.

Previous wording

On June 11, 2024 we entered into a termination and release agreement with the Former Manager and issued 3,174,645 shares of common stock to our Former Manager in connection with the termination for an exercise price of $5.36 per share. In connection with the execution of our new Management Agreement, we issued 2,874,744 shares of common stock to Rithm at a purchase price of $4.87 per share, for aggregate proceeds of approximately $14.0 million.

Current wording

On June 11, 2024, we entered into a termination and release agreement with the Former Manager and issued approximately 3.2 million shares of common stock to our Former Manager in connection at a share price of $4.87 per share. In connection with the execution of our new Management Agreement, we issued 2.9 million shares of common stock to Rithm at a purchase price of $4.87 per share, for aggregate proceeds of approximately $14.0 million.

Previous wording

During the six months ended June 30, 2024, we exchanged the remaining 424,949 shares of our outstanding 7.25% Series A Fixed-to-Floating Rate Preferred Stock and 1,135,590 shares of our outstanding 5.00% Series B Fixed-to-Floating Rate Preferred Stock and the associated warrants for newly issued shares of our common stock. A total of the 12,046,218 common shares were issued pursuant to the exchange with 9,464,524 shares of common stock exchanged during the quarter ended March 31, 2024 and 2,581,694 shares of common stock exchanged subsequent to the approval of the Company's shareholders on May 20, 2024. No preferred stock or warrants were exchanged during the three and six months ended June 30, 2023.

Current wording

During the nine months ended September 30, 2024, we exchanged the remaining 424,949 shares of our outstanding 7.25% Series A Fixed-to-Floating Rate Preferred Stock and 1,135,590 shares of our outstanding 5.00% Series B Fixed-to-Floating Rate Preferred Stock and the associated warrants for newly issued shares of our common stock. A total of 12,046,218 shares of common stock were issued pursuant to the exchange. No preferred stock or warrants were exchanged during the nine months ended September 30, 2023.

Previous wording

During the three and six months ended June 30, 2024, we did not sell any shares of common stock under our At the Market program. Comparatively, during the three and six months ended June 30, 2023, we sold 94,012 and 439,590 shares, respectively, of common stock for proceeds, net of issuance costs of $0.5 million and $3.0 million, respectively, under our At the Market program, which we sell, through our agents, shares of common stock with an aggregate offering price of up to $100.0 million. In accordance with the terms of the agreements, we may offer and sell shares of our common stock at any time and from time to time through the sales agents. Sales of the shares, if any, will be made by means of ordinary brokers’ transactions on the New York Stock Exchange or otherwise at market prices prevailing at the time of the sale.

Current wording

During the nine months ended September 30, 2024, we did not sell any shares of common stock under our At the Market program. Comparatively, during the three and nine months ended September 30, 2023, we sold 2,182,152 and 2,621,742 shares, respectively, of common stock for proceeds, net of issuance costs of $14.2 million and $17.2 million, respectively. Under our At the Market program, which we sell, through our agents, we may sell shares of common stock with an aggregate offering price of up to $100.0 million. In accordance with the terms of the agreements, we may offer and sell shares of our common stock at any time and from time to time through the sales agents. Sales of the shares, if any, will be made by means of ordinary brokers’ transactions on the New York Stock Exchange or otherwise at market prices prevailing at the time of the sale.

Previous wording

We generally finance our business through secured borrowings. The secured borrowings are generally structured as debt financings. The loans included in the secured borrowings remain on our consolidated balance sheet as we are the primary beneficiary of the securitization trusts, which are VIEs. The securitization VIEs are structured as pass through entities that receive principal and interest on the underlying mortgages and distribute those payments to the holders of the notes. Our exposure to the obligations of the VIEs is generally limited to our 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 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.

Current wording

We historically have financed our business through secured borrowings. The secured borrowings are generally structured as debt financings. The loans included in the secured borrowings remain on our consolidated balance sheet as we are the primary beneficiary of the securitization trusts, which are VIEs. The securitization VIEs are structured as pass through entities that receive principal and interest on the underlying mortgages and distribute those payments to the holders of the notes. Our exposure to the obligations of the VIEs is generally limited to our 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 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.

Previous wording

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 $150.0 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 SOFR, 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 75% and 90% 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, as of June 30, 2024, substantially similar to the mortgage loan repurchase facilities where the pledged assets are bonds retained from our securitization transactions. These facilities have no effective ceilings. Each repurchase transaction represents its own borrowing. As such, the ceilings associated with these transactions are the amounts currently borrowed at any one time. We have effective control over the assets subject to all of these transactions; therefore, our repurchase transactions are accounted for as financing arrangements.

Current wording

The Company has entered into two repurchase facilities whereby the Company, through two wholly-owned Delaware trusts (the “Trusts”) acquires pools of mortgage loans which are then sold by the Trusts, as “Seller” to a counterparty, the “buyer” . As of the quarter ended September 30, 2024, only one facility is outstanding. 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 SOFR, which is fixed for the term of the borrowing. The advance rate is between 75% and 90% of the asset’s acquisition price, d The obligations of the Trust to repurchase these mortgage loans at a future date are guaranteed by the Company’s Operating Partnership.

Previous wording

As of June 30, 2024, we had $246.5 million outstanding under our repurchase transactions compared to $375.7 million as of December 31, 2023. The maximum month-end balance outstanding during the three months ended June 30, 2024 was $408.9 million, compared to a maximum month-end balance for the three months ended December 31, 2023, of $392.0 million. The following table presents certain details of our repurchase transactions for the three months ended June 30, 2024 and December 31, 2023 ($ in thousands):

Current wording

The following table presents certain details of our repurchase transactions for the three months ended September 30, 2024 and December 31, 2023, ($ in thousands):

Previous wording

The decrease in our average balance from $378.4 million for the three months ended December 31, 2023 to our average balance of $304.1 million for the three months ended June 30, 2024 is a result of paydowns and asset sales.

Current wording

The decrease in our average balance from $378.4 million for the three months ended December 31, 2023, to our average balance of $239.8 million for the three months ended September 30, 2024, is a result of paydowns and asset sales.

Previous wording

Securitization Regulation” and, together with applicable regulatory and implementing technical standards in relation thereto, the “EU Securitization Rules”). Pursuant to the terms of these debt securities, we must hold at least 5.01% of the nominal value of each class of securities offered or sold to investors (the "EU Retained Interest") subject to the EU Securitization Rules. Under the EU Securitization Rules, we are prohibited from selling, transferring or otherwise surrendering all or part of the EU Retained Interest until all such classes are paid in full or redeemed. The EU risk retention component of our investments in securities is classified as HTM on our consolidated balance sheets.

Current wording

On January 1, 2023, we transferred $83.0 million of investment securities from AFS to HTM due to sale restrictions under the European risk retention requirements for securitizations. The Company’s investment in HTM securities represent the 5.01% the company is required to retain under the European risk retention rules for our secured borrowings (the “EU Retained Interest”). Article 6(1) of Regulation (EU) 2017/2402 of the European Parliament and of the Council. Pursuant to the terms of these debt securities, the Company must hold at least 5.01% of the nominal value of each class of securities offered or sold to investors and the Company is prohibited from selling, transferring or otherwise surrendering all or part of the EU Retained Interest until all such classes are paid in full or redeemed.

Previous wording

(1)Ajax Mortgage Loan Trust 2021-E was formed on July 19, 2021 which was subsequent to completing Ajax Mortgage Loan Trust 2021-F and 2021-G. The trust made an election to be taxed as a REMIC however the residual class was placed with an unrelated third party.

Current wording

(1)Ajax Mortgage Loan Trust 2021-E made an election to be taxed as a REMIC however the residual class was placed with an unrelated third party.