Release Date: July 24, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Great Ajax Corp (AJX, Financial) is transitioning to focus on commercial real estate, leveraging the expertise of the Rithm Capital team.
- The company has a clean balance sheet with no legacy commercial real estate assets, positioning it well for future growth.
- The Board voted to maintain the current dividend, indicating confidence in future earnings potential.
- Great Ajax Corp (AJX) has increased its cash reserves, preparing to deploy capital into higher-yielding commercial real estate assets.
- The company is targeting mid-teens returns on new investments, which could be highly accretive for shareholders.
Negative Points
- Great Ajax Corp (AJX) reported a GAAP net loss of $12.7 million for the quarter, driven by mark-to-market losses and realized losses on mortgage loan sales.
- The company continues to have a negative net interest margin, contributing to ongoing financial losses.
- There is a need for more equity capital over time to support growth, which may dilute existing shareholders.
- The transition to a commercial real estate focus will take time, and the company is not yet cash flow positive.
- Book value per share has decreased, with a full fair value mark-to-market valuation significantly lower than the amortized cost value.
Q & A Highlights
Great Ajax Corp (AJX) Q2 2024 Earnings Call Highlights
Q: Can we start by repeating the impact of marking the whole book to fair value? And just looking at the balance sheet, what is the balance of the legacy RPL portfolio right now? And what's in commercial real estate?
A: Michael Nierenberg, CEO: Full mark-to-market takes us in and around $4. The total going forward will be about $120 million of assets left to be sold. Currently, we've made reinvestments mostly in AAA CMBS with levered returns of 12% to 15%.
Q: On the commercial real estate side, are we talking mostly securities initially and what's the balance there right now? What kind of returns are you guys seeing there?
A: Michael Nierenberg, CEO: We've made investments mostly in AAA CMBS, highly liquid securities, with levered returns of 12% to 15%. We expect to sell the remaining $120 million from the RPL portfolio by the end of the year.
Q: As you look at the legacy assets, how much capital will be needed to support the first loss pieces or risk retention, and how much will be freed up for new investments?
A: Michael Nierenberg, CEO: Risk retention assets have approximately $15 million to $16 million of equity capital. Non-risk retention assets and some RPL and NPL securities have around $35 million to $40 million of equity capital.
Q: Do you expect the portfolio to be largely CRE whole loans or a mix of securities? Do you need to build out the origination effort?
A: Michael Nierenberg, CEO: We see a mix of CMBS, senior loans, mez loans, and opportunistic investments, targeting mid-teens returns. We have sufficient resources between Rithm and Sculptor teams and do not need to build out further.
Q: How willing are you to acquire something highly distressed but with issues to work through?
A: Michael Nierenberg, CEO: We are willing to take on distressed assets with potential, as demonstrated by past acquisitions like Ditak and Caliber. We aim for high returns, even if it involves dealing with complex situations.
Q: In terms of senior loan focus, is there a specific geography or asset class you will target first?
A: Michael Nierenberg, CEO: Currently, we are deploying excess cash into highly liquid AAA CMBS. We will consider any investment that offers favorable risk-adjusted returns.
Q: What is the impact of the recent transaction where Rithm took over the management contract from Great Ajax?
A: Michael Nierenberg, CEO: The transaction allows us to focus on commercial real estate opportunities without legacy issues. We aim to grow earnings and potentially increase the dividend over time.
Q: Can you provide more details on the financial highlights and book value adjustments?
A: Mary Doyle, CFO: We reported a GAAP net loss of $12.7 million, driven by mark-to-market losses and realized losses on mortgage loan sales. Book value at $5.56 per common share, with a fair value around $4.20.
Q: How do you plan to manage the dividend policy going forward?
A: Michael Nierenberg, CEO: The Board voted to keep the dividend the same. We will evaluate the dividend quarter-to-quarter based on our ability to grow earnings and deploy capital effectively.
Q: What are the strategic goals for Great Ajax in the commercial real estate market?
A: Michael Nierenberg, CEO: We aim to leverage our expertise to capitalize on dislocations in the commercial real estate market, focusing on high-yielding assets and opportunistic investments to grow the company and generate real earnings.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
