8-K: Great Ajax Corp. Announces Second Quarter 2024 Financial Results and Strategic Shift

Great Ajax Corp. reported a net loss for the second quarter of 2024, while also announcing a strategic shift towards commercial real estate investments under new management.

Summary

• Great Ajax Corp. reported a GAAP net loss of $12.7 million, or $0.32 per diluted share, for the second quarter of 2024.
• Earnings Available for Distribution, a non-GAAP measure, was a loss of $9.6 million, or $0.24 per diluted share.
• The company's book value per common share decreased to $5.56 as of June 30, 2024.
• A common dividend of $2.2 million, or $0.06 per share, was paid during the quarter.
• The company completed a strategic transaction with Rithm Capital, resulting in a new external manager and a shift in investment focus towards commercial real estate.
• Great Ajax sold loans with an unpaid principal balance of approximately $305 million, generating net proceeds of approximately $45.1 million.
• A portion of the proceeds was used to redeem convertible senior notes that matured on April 30, 2024.
• The company moved repurchase financing from full daily mark to market to non-mark to market or non-daily mark to market with margin holidays.
• A cash dividend of $0.06 per common share was declared on July 23, 2024, payable on August 30, 2024.

Sentiment

Score: 4

Explanation: The sentiment is negative due to the reported net loss and decrease in book value, however, the strategic shift and new management provide some hope for future improvement.

Positives

• The company completed a strategic transaction with Rithm Capital, which is expected to bring strategic benefits.
• The company is transitioning to a commercial real estate focused investment strategy, which is expected to improve earnings over time.
• The company sold loans generating $45.1 million in net proceeds.
• The company moved repurchase financing to more favorable terms.
• The company declared a dividend of $0.06 per share.

Negatives

• The company reported a GAAP net loss of $12.7 million for the quarter.
• Earnings Available for Distribution was also negative at $9.6 million.
• Book value per common share decreased to $5.56.
• The company's previous management agreement was terminated, incurring termination fees.
• The company's loan servicing agreement with Gregory Funding LLC was terminated.

Risks

• The company is undergoing a significant strategic shift, which carries inherent risks.
• The transition to commercial real estate may not yield the expected results.
• The company's financial performance is subject to market fluctuations and economic conditions.
• The company's reliance on Rithm Capital for management and servicing could pose risks if the relationship changes.
• The company's book value per share has decreased.

Future Outlook

The company expects to transition to a flexible commercial real estate focused investment strategy and leverage Rithm's operating platform to realize strategic benefits and grow earnings over time.

Management Comments

• Michael Nierenberg, Chief Executive Officer of Rithm Capital, stated that they are excited to be taking over the management of Great Ajax.
• Management plans to reposition the portfolio to take advantage of attractive opportunities in the commercial real estate sector.
• Management expects to see earnings grow over time as they deploy capital into higher yielding assets.
• Management is excited about the future of Great Ajax and creating value for shareholders.

Industry Context

The strategic shift towards commercial real estate reflects a broader trend of investors seeking higher yields in alternative asset classes. The involvement of Rithm Capital, a well-established player in the real estate sector, could provide Great Ajax with a competitive advantage.

Comparison to Industry Standards

• The reported net loss is worse than the previous quarter, indicating a challenging period for the company.
• The decrease in book value per share is a negative trend compared to industry standards for REITs.
• The strategic shift to commercial real estate is a significant change from the company's historical focus on re-performing and non-performing loans, which may be viewed as a higher risk strategy compared to peers with more established commercial real estate portfolios.
• Companies like Blackstone Mortgage Trust (BXMT) and Starwood Property Trust (STWD) are established players in the commercial real estate lending space, and Great Ajax will need to demonstrate its ability to compete effectively.
• The company's reliance on Rithm Capital for management and servicing is similar to other externally managed REITs, but the success of this model depends on the alignment of interests and the quality of the external manager.

Management Changes

Related Party Transactions

• The company completed a strategic transaction with Rithm Capital, resulting in a new external manager, RCM GA Manager LLC, an affiliate of Rithm.
• The company issued warrants and shares to affiliates of Rithm Capital.
• The company entered into a $70 million term loan with NIC RMBS LLC, an affiliate of Rithm.
• The company assigned loan servicing agreements to Newrez LLC, an affiliate of Rithm.

Stakeholder Impact

• Shareholders experienced a decrease in book value per share.
• Shareholders will receive a dividend of $0.06 per share.
• Employees may experience changes due to the new management and strategic shift.
• Customers and suppliers may be impacted by the change in investment focus.

Next Steps

• The company will continue to transition its investment focus to commercial real estate.
• The company will leverage Rithm's operating platform and network.
• The company will deploy capital into higher yielding assets.
• The company will host a conference call to discuss the results.

Key Dates

Keywords

commercial real estate, strategic transaction, Rithm Capital, net loss, book value, dividend, loan sales, external manager, REIT, financial results