Great Ajax Corp. [AJX] Filings

10-Q 1 ajx-20240630.htm 10-Q ajx-20240630

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2024

☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

001-36844

(Commission file number)

GREAT AJAX CORP.

(Exact name of registrant as specified in its charter)


Maryland			46-5211870
State or other jurisdiction of incorporation or organization			(I.R.S. Employer Identification No.)

799 Broadway

New York, NY 10003

(Address of principal executive offices and Zip Code)

212-850-7770

Registrant’s telephone number, including area code

Securities registered pursuant to Section 12(b) of the Act:

Title of each class

Trading Symbols

Name of each exchange on which registered

Common stock, par value $0.01 per share

AJX

New York Stock Exchange

Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the Registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the Registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company or an emerging growth company. See definition of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and "emerging growth company" in Rule 12b-2 of the Exchange Act. (check one):


Large accelerated filer	☐	Accelerated filer	☒
Non-accelerated filer (Do not check if a smaller reporting company)	☐	Smaller reporting company	☐
Emerging Growth Company	☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

As of July 30, 2024, 45,607,549 shares of the registrant’s common stock, par value $0.01 per share, were outstanding.

TABLE OF CONTENTS


PART I Financial Information

Item 1. Consolidated Interim Financial Statements			1

Cautionary Statement Regarding Forward-Looking Statements			49

Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations			50

Item 3. Quantitative and Qualitative Disclosures About Market Risk			75

Item 4. Controls and Procedures			76

PART II Other Information

Item 1. Legal Proceedings			78

Item 1A. Risk Factors			78

Item 2. Unregistered Sales of Equity Securities			82

Item 3. Defaults Upon Senior Securities			82

Item 4. Mine Safety Disclosure			82

Item 5. Other Information			82

Item 6. Exhibits			82

PART I. FINANCIAL INFORMATION

Item 1. Consolidated Interim Financial Statements

GREAT AJAX CORP. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS


($ in thousands except per share data)	June 30, 2024		December 31, 2023
ASSETS	(Unaudited)
Cash and cash equivalents	$	72,026	$	52,834
Mortgage loans held-for-sale, net(1)	108,868		55,718
Mortgage loans held-for-investment, net(1,2)	413,916		864,551
Real estate owned properties, net(3)	4,309		3,785
Investments in securities available-for-sale(4)	140,614		131,558
Investments in securities held-to-maturity(5)	48,050		59,691
Investments in beneficial interests(6)	88,269		104,162
Receivable from servicer	3,594		7,307
Investments in affiliates	24,771		28,000
Prepaid expenses and other assets	7,099		28,685
Total assets	$	911,516	$	1,336,291
LIABILITIES AND EQUITY
Liabilities:
Secured borrowings, net(1,7)	$	276,458	$	411,212
Borrowings under repurchase transactions	246,497		375,745
Convertible senior notes(7)	—		103,516
Notes payable, net(7)	107,216		106,844
Management fee payable	1,572		1,998
Warrant liability	—		16,644
Accrued expenses and other liabilities	25,292		9,437
Total liabilities	657,035		1,025,396
Commitments and contingencies – see Note 8
Equity:
Preferred stock $0.01 par value, 25,000,000 shares authorized
Series A 7.25% Fixed-to-Floating Rate Cumulative Redeemable, $25.00 liquidation preference per share, zero shares issued and outstanding at June 30, 2024 and 424,949 shares issued and outstanding at December 31, 2023(8)	—		9,411
Series B 5.00% Fixed-to-Floating Rate Cumulative Redeemable, $25.00 liquidation preference per share, zero shares issued and outstanding at June 30, 2024 and 1,135,590 shares issued and outstanding at December 31, 2023(8)	—		25,143
Common stock $0.01 par value; 125,000,000 shares authorized, 45,605,549 shares issued and outstanding at June 30, 2024 and 27,460,161 shares issued and outstanding at December 31, 2023	466		285
Additional paid-in capital	423,899		352,060
Treasury stock	(9,557)		(9,557)
Retained deficit	(147,361)		(54,382)
Accumulated other comprehensive loss	(13,895)		(14,027)
Equity attributable to stockholders	253,552		308,933
Non-controlling interests(9)	929		1,962
Total equity	254,481		310,895
Total liabilities and equity	$	911,516	$	1,336,291

The accompanying notes are an integral part of the consolidated financial statements.

(1)Mortgage loans held-for-sale, net and mortgage loans held-for-investment, net include $411.4 million and $628.6 million of loans at June 30, 2024 and December 31, 2023, respectively, transferred to securitization trusts that are variable interest entities (“VIEs”); these loans can only be used to settle obligations of the VIEs. Secured borrowings consist of notes issued by VIEs that can only be settled with the assets and cash flows of the VIEs. The creditors do not have recourse to the primary beneficiary (Great Ajax Corp.). See Note 9 — Debt. Mortgage loans held-for-investment, net include zero and $3.4 million of allowance for expected credit losses at June 30, 2024 and December 31, 2023, respectively.

(2)As of June 30, 2024 and December 31, 2023, balances for Mortgage loans held-for-investment, net include zero and $0.6 million, respectively, from a 50.0% owned joint venture, which the Company consolidates under U.S. Generally Accepted Accounting Principles ("U.S. GAAP" or "GAAP"). As of June 30, 2024, there is a balance for Mortgage loans held-for-sale, net of $0.5 million.

(3)Real estate owned properties, net, are presented net of valuation allowances of $1.7 million and $1.2 million at June 30, 2024 and December 31, 2023, respectively.

(4)Investments in securities available-for-sale (“AFS”) are presented at fair value. As of June 30, 2024, Investments in securities AFS include an amortized cost basis of $150.1 million and a net unrealized loss of $9.5 million. As of December 31, 2023, Investments in securities AFS include an amortized cost basis of $139.6 million and net unrealized loss of $8.0 million.

(5)On January 1, 2023, the Company transferred certain of its investments in securities to held-to-maturity ("HTM") due to European risk retention regulations. As of June 30, 2024, Investments in securities HTM includes an allowance for expected credit losses of zero and remaining discount of $4.4 million related to the unamortized unrealized loss in Accumulated other comprehensive income ("AOCI"). As of December 31, 2023, Investments in securities HTM includes an allowance for expected credit losses of zero and remaining discount of $6.0 million related to the unamortized unrealized loss in AOCI.

(6)Investments in beneficial interests includes allowance for expected credit losses of $9.1 million and $6.9 million at June 30, 2024 and December 31, 2023, respectively.

(7)Secured borrowings, net are presented net of deferred issuance costs of $1.7 million at June 30, 2024 and $3.1 million at December 31, 2023. Convertible senior notes are presented net of deferred issuance costs of zero at both June 30, 2024 and December 31, 2023. Notes payable, net are presented net of deferred issuance costs and discount of $2.8 million at June 30, 2024 and $3.2 million at December 31, 2023.

(8)During the six months ended June 30, 2024, the Company exchanged the remaining 424,949 shares of its outstanding 7.25% Series A Fixed-to-Floating Rate Preferred Stock and 1,135,590 shares of its outstanding 5.00% Series B Fixed-to-Floating Rate Preferred Stock and the associated warrants for 12,046,218 newly issued shares of its common stock. Of the 12,046,218 shares, 9,464,524 shares of its common stock were issued during the three months ended March 31, 2024 and the remaining 2,581,694 shares of its common stock were issued during the three months ended June 30, 2024 following the approval of the Company's stockholders on May 20, 2024.

(9)As of June 30, 2024, non-controlling interests includes $0.8 million from a 50.0% owned joint venture, zero from a 53.1% owned subsidiary and $0.1 million from a 99.9% owned subsidiary which the Company consolidates. As of December 31, 2023, non-controlling interests includes $0.8 million from a 50.0% owned joint venture, $1.0 million from a 53.1% owned subsidiary and $0.1 million from a 99.9% owned subsidiary which the Company consolidates.

The accompanying notes are an integral part of the consolidated interim financial statements.

GREAT AJAX CORP. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)


	Three months ended				Six months ended
($ in thousands except per share data)	June 30, 2024		June 30, 2023		June 30, 2024		June 30, 2023
INCOME
Interest income	$	11,915	$	18,340	$	27,653	$	36,796
Interest expense	(11,567)		(15,039)		(25,673)		(29,964)
Net interest income	348		3,301		1,980		6,832
Net change in the allowance for credit losses	—		2,866		(4,230)		3,487
Net interest income/(loss) after the net change in the allowance for credit losses	348		6,167		(2,250)		10,319
Loss from investments in affiliates	(974)		(265)		(453)		(363)
Loss on joint venture refinancing on beneficial interests	—		(8,814)		—		(9,809)
Mark to market loss on mortgage loans held-for-sale, net	(6,488)		—		(53,795)		—
Other (loss)/income	(1,844)		498		(1,841)		(2,021)
Total loss, net	(8,958)		(2,414)		(58,339)		(1,874)
EXPENSE
Related party expense – loan servicing fees	1,324		1,827		3,058		3,687
Related party expense – management fee	2,173		2,001		19,632		3,829
Professional fees	855		989		1,560		1,923
Fair value adjustment on mark to market liabilities	(4,430)		1,839		(3,077)		3,461
Other expense	4,753		2,211		7,198		3,825
Total expense	4,675		8,867		28,371		16,725
Gain on debt extinguishment	—		—		—		(47)
Loss before provision for income taxes	(13,633)		(11,281)		(86,710)		(18,552)
(Benefit)/provision for income taxes	(772)		181		143		274
Consolidated net loss	(12,861)		(11,462)		(86,853)		(18,826)
Less: consolidated net (loss)/income attributable to the non-controlling interest	(119)		24		(133)		54
Consolidated net loss attributable to the Company	(12,742)		(11,486)		(86,720)		(18,880)
Less: dividends on preferred stock	—		548		341		1,095
Consolidated net loss attributable to common stockholders	$	(12,742)	$	(12,034)	$	(87,061)	$	(19,975)
Basic loss per common share	$	(0.32)	$	(0.51)	$	(2.47)	$	(0.85)
Diluted loss per common share	$	(0.32)	$	(0.51)	$	(2.47)	$	(0.85)
Weighted average shares – basic	39,344,128		23,250,725		35,021,845		23,087,717
Weighted average shares – diluted	39,344,128		23,565,351		35,021,845		23,087,717

The accompanying notes are an integral part of the consolidated interim financial statements.

GREAT AJAX CORP. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS

(Unaudited)


	Three months ended				Six months ended
($ in thousands)	June 30, 2024		June 30, 2023		June 30, 2024		June 30, 2023
Consolidated net loss attributable to common stockholders	$	(12,742)	$	(12,034)	$	(87,061)	$	(19,975)
Other comprehensive loss:
Unrealized (loss)/gain on available-for-sale securities	(1,807)		(906)		(1,433)		2,947
Amortization of unrealized gain/(loss) on debt securities available-for-sale transferred to held-to-maturity	770		1,139		1,565		3,172
Income tax expense related to items of other comprehensive income	—		—		—		—
Comprehensive loss	$	(13,779)	$	(11,801)	$	(86,929)	$	(13,856)

The accompanying notes are an integral part of the consolidated interim financial statements.

GREAT AJAX CORP. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)


	Six months ended
($ in thousands)	June 30, 2024		June 30, 2023
CASH FLOWS FROM OPERATING ACTIVITIES
Consolidated net loss	$	(86,853)	$	(18,826)
Adjustments to reconcile net income to net cash from operating activities
Stock-based management termination fee and compensation expense	16,952		892
Mark to market on mortgage loans held-for-sale, net	53,795		—
Discount accretion on mortgage loans	(2,367)		(3,281)
Interest and discount accretion on investment in debt securities	(2,745)		(4,946)
Discount accretion on investment in beneficial interests	(1,479)		(4,055)
Loss on sale of mortgage loans	2,971		—
Gain on debt extinguishment	—		(47)
Gain on sale of real estate owned properties	(454)		(73)
Loss on sale of securities	—		2,974
Impairment of real estate owned	516		796
Credit loss expense on mortgage loans and beneficial interests	53		114
Net increase/(decrease) in the net present value of expected credit losses	4,230		(3,487)
Loss on loans and joint venture refinancing on beneficial interests	—		9,809
Amortization of debt discount and prepaid financing costs	4,615		1,544
Undistributed loss from investment in affiliates	453		363
Fair value adjustment on put option liability and warrants	(3,077)		3,461
Net change in operating assets and liabilities
Prepaid expenses and other assets	21,527		(9,646)
Receivable from servicer	4,384		(64)
Accrued expenses, management fee payable, and other liabilities	(4,502)		836
Net cash from operating activities	8,019		(23,636)
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of mortgage loans and related balances	—		(14,088)
Principal paydowns on mortgage loans	27,928		48,541
Proceeds from sale of mortgage loans	311,279		—
Proceeds from refinancing and sale of securities available-for-sale and beneficial interests	—		29,413
Purchase of securities available-for-sale and beneficial interests	—		(16,335)
Principal and interest collection on debt securities available-for-sale and beneficial interests	31,357		24,046
Principal and interest collection on debt securities held-to-maturity	8,307		15,038
Proceeds from sale of property held-for-sale	1,456		1,874
Write-off/(investment) in equity method investments	2,521		(726)
Distribution from affiliates	255		495
Net cash from investing activities	383,103		88,258
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from repurchase transactions	91,450		24,095
Repayments on repurchase transactions	(220,698)		(56,824)
Repayments on secured borrowings	(136,204)		(29,630)

The accompanying notes are an integral part of the consolidated interim financial statements.


Repurchase of the Company's senior convertible notes	—		(952)
Redemption of senior convertible notes	(103,516)		—
Payment of prepaid financing costs on notes payable	—		(55)
Payment of transaction costs	(10,144)		—
Sale of common stock, net of offering costs	14,000		2,954
Distribution to non-controlling interests	(900)		(62)
Dividends paid on common stock and preferred stock	(5,918)		(11,677)
Net cash from financing activities	(371,930)		(72,151)
NET CHANGE IN CASH AND CASH EQUIVALENTS	19,192		(7,529)
CASH AND CASH EQUIVALENTS, beginning of period	52,834		47,845
CASH AND CASH EQUIVALENTS, end of period	$	72,026	$	40,316
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid for interest	$	20,096	$	28,481
Cash paid for income taxes	$	97	$	215
SUPPLEMENTAL DISCLOSURE OF NONCASH INVESTING AND FINANCING ACTIVITIES
Net transfer of loans from mortgage held-for-investment, net to mortgage loans held-for-sale, net	$	428,029	$	—
Preferred stock and warrants redeemed for common stock	$	58,031	$	—
Conversion of 2020 warrants for common shares	$	18,677	$	—
Common stock settled for management fee and compensation expense	$	16,952	$	892
Issuance of Rithm Warrants	$	2,734	$	—
Net transfer of loans to property held-for-sale	$	2,041	$	9
Amortization of unrealized loss on debt securities transferred to held-to-maturity	$	1,565	$	3,172
Other non-cash loan charges	$	671	$	—
Transfer of debt securities from investments in securities available-for-sale to investments in securities held-to-maturity	$	—	$	83,052
Other non-cash beneficial interest charges	$	—	$	504
Treasury stock received through distributions from investment in Former Manager	$	—	$	25
Unrealized (loss)/gain on available-for-sale securities	$	(1,433)	$	2,947

The accompanying notes are an integral part of the consolidated interim financial statements.

GREAT AJAX CORP. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY

(Unaudited)


($ in thousands)	Preferred stock - series A shares	Preferred stock - series A amount		Preferred stock - series B shares	Preferred stock - series B amount		Common stock shares	Common stock amount		Treasury stock		Additional paid-in capital		Retained earnings/(deficit)		Accumulated other comprehensive loss		Total stockholders' equity		Non-controlling interest		Total equity
Balance at six months ended June 30, 2023
Balance at December 31, 2022	424,949	$	9,411	1,135,590	$	25,143	23,130,956	$	241	$	(9,532)	$	322,439	$	13,275	$	(25,649)	$	335,328	$	2,137	$	337,465
Net loss	—	—		—	—		—	—		—		—		(7,394)		—		(7,394)		30		(7,364)
Sale of shares	—	—		—	—		345,578	4		—		2,423		—		—		2,427		—		2,427
Stock-based compensation expense	—	—		—	—		32,912	—		—		600		—		—		600		—		600
Dividends declared ($0.25 per share) and distributions	—	—		—	—		—	—		—		—		(6,425)		—		(6,425)		(34)		(6,459)
Amortization of unrealized loss on debt securities available-for-sale transferred to held-to-maturity	—	—		—	—		—	—		—		—		—		2,033		2,033		—		2,033
Other comprehensive income	—	—		—	—		—	—		—		—		—		3,853		3,853		—		3,853
Balance at March 31, 2023	424,949	$	9,411	1,135,590	$	25,143	23,509,446	$	245	$	(9,532)	$	325,462	$	(544)	$	(19,763)	$	330,422	$	2,133	$	332,555
Net loss	—	—		—	—		—	—		—		—		(11,486)		—		(11,486)		24		(11,462)
Sale of shares	—	—		—	—		94,012	1		—		526		—		—		527		—		527
Stock-based compensation expense	—	—		—	—		28,395	1		—		291		—		—		292		—		292
Dividends declared ($0.20 per share) and distributions	—	—		—	—		—	—		—		—		(5,252)		—		(5,252)		(28)		(5,280)

The accompanying notes are an integral part of the consolidated interim financial statements.


($ in thousands)	Preferred stock - series A shares	Preferred stock - series A amount		Preferred stock - series B shares	Preferred stock - series B amount		Common stock shares	Common stock amount		Treasury stock		Additional paid-in capital		Retained earnings/(deficit)		Accumulated other comprehensive loss		Total stockholders' equity		Non-controlling interest		Total equity
Amortization of unrealized loss on debt securities available-for-sale transferred to held-to-maturity	—	—		—	—		—	—		—		—		—		1,139		1,139		—		1,139
Other comprehensive loss	—	—		—	—		—	—		—		—		—		(906)		(906)		—		(906)
Treasury stock	—	—		—	—		(4,176)	—		(25)		—		—		—		(25)		—		(25)
Balance at June 30, 2023	424,949	$	9,411	1,135,590	$	25,143	23,627,677	$	247	$	(9,557)	$	326,279	$	(17,282)	$	(19,530)	$	314,711	$	2,129	$	316,840

Balance at six months ended June 30, 2024
Balance at December 31, 2023	424,949	$	9,411	1,135,590	$	25,143	27,460,161	$	285	$	(9,557)	$	352,060	$	(54,382)	$	(14,027)	$	308,933	$	1,962	$	310,895
Net loss	—	—		—	—		—	—		—		—		(73,978)		—		(73,978)		(14)		(73,992)
Exchange of preferred shares and warrants	(424,949)	(9,411)		(1,135,590)	(25,143)		9,464,524	95		—		40,895		(341)		—		6,095		—		6,095
Stock-based management termination fee expense	—	—		—	—		—	—		—		15,506		—		—		15,506		—		15,506
Stock-based compensation expense	—	—		—	—		67,334	—		—		271		—		—		271		—		271
Dividends declared ($0.10 per share) and distributions	—	—		—	—		—	—		—		—		(3,699)		—		(3,699)		(9)		(3,708)

The accompanying notes are an integral part of the consolidated interim financial statements.


($ in thousands)	Preferred stock - series A shares	Preferred stock - series A amount		Preferred stock - series B shares	Preferred stock - series B amount		Common stock shares	Common stock amount		Treasury stock		Additional paid-in capital		Retained earnings/(deficit)		Accumulated other comprehensive loss		Total stockholders' equity		Non-controlling interest		Total equity
Amortization of unrealized loss on debt securities available-for-sale transferred to held-to-maturity	—	—		—	—		—	—		—		—		—		795		795		—		795
Other comprehensive income	—	—		—	—		—	—		—		—		—		374		374		—		374
Balance at March 31, 2024	—	$	—	—	$	—	36,992,019	$	380	$	(9,557)	$	408,732	$	(132,400)	$	(12,858)	$	254,297	$	1,939	$	256,236
Net loss	—	—		—	—		—	—		—		—		(12,742)		—		(12,742)		(119)		(12,861)
Sale of shares							2,874,744	29				14,000		—		—		14,029		—		14,029
Exchange of preferred shares and warrants	—	—		—	—		2,581,694	25		—		24		—		—		49		—		49
Stock-based management termination fee expense	—	—		—	—		3,174,645	32		—		(32)		—		—		—		—		—
Stock-based compensation expense	—	—		—	—		(17,553)	—		—		1,175		—		—		1,175		—		1,175
Dividends declared ($0.06 per share) and distributions	—	—		—	—		—	—		—		—		(2,219)		—		(2,219)		(891)		(3,110)
Amortization of unrealized loss on debt securities available-for-sale transferred to held-to-maturity	—	—		—	—		—	—		—		—		—		770		770		—		770

The accompanying notes are an integral part of the consolidated interim financial statements.


($ in thousands)	Preferred stock - series A shares	Preferred stock - series A amount		Preferred stock - series B shares	Preferred stock - series B amount		Common stock shares	Common stock amount		Treasury stock		Additional paid-in capital		Retained earnings/(deficit)		Accumulated other comprehensive loss		Total stockholders' equity		Non-controlling interest		Total equity
Other comprehensive income	—	—		—	—		—	—		—		—		—		(1,807)		(1,807)		—		(1,807)
Balance at June 30, 2024	—	$	—	—	$	—	45,605,549	$	466	$	(9,557)	$	423,899	$	(147,361)	$	(13,895)	$	253,552	$	929	$	254,481

The accompanying notes are an integral part of the consolidated interim financial statements.

GREAT AJAX CORP. AND SUBSIDIARIES

NOTES TO CONSOLIDATED INTERIM FINANCIAL STATEMENTS

June 30, 2024

(Unaudited)

Note 1 — Organization and Basis of Presentation

Great Ajax Corp., a Maryland corporation ("Great Ajax" or the “Company”), is an externally managed real estate investment trust ("REIT") formed on January 30, 2014, and capitalized on March 28, 2014, by its then sole stockholder, Aspen Yo (“Aspen”), a company affiliated with Aspen Capital, the trade name for the Aspen group of companies. The Company facilitates capital raising activities and operates as a mortgage REIT. Historically, the Company primarily targeted acquisitions of (i) re-performing loans (“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) non-performing loans ("NPLs"), which are residential mortgage loans on which the most recent three payments have not been made. The Company acquired RPLs and NPLs either directly or in joint ventures with institutional accredited investors. The joint ventures are structured as securitization trusts, of which the Company acquires debt securities and beneficial interests. The Company also historically acquired and originated small balance commercial loans (“SBC loans”). The SBC loans that the Company opportunistically targeted 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.

On June 11, 2024, the Company completed its previously announced strategic transaction with Rithm Capital Corp. ("Rithm") (such transactions together, the "Strategic Transaction"). Such Strategic Transaction included the approval on May 20, 2024, by the Company's stockholders of (i) the sale of $14.0 million of the Company's common stock 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, entered into on February 26, 2024 by the Company, the Operating Partnership (as defined herein), Thetis Asset Management LLC (the "Former Manager") and Rithm (the “Securities Purchase Agreement”)) and (ii) a new management agreement (the "Management Agreement") with RCM GA Manager LLC, an affiliate of Rithm (“RCM GA” or the "New Manager"), under which, RCM GA would become the Company's new external manager. Additionally, on February 26, 2024, the Company entered into a $70.0 million term loan (the "Credit Agreement") with NIC RMBS LLC (“NIC RMBS”), an affiliate of Rithm Capital Corp. (together with its subsidiaries, "Rithm"). 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 the Company’s agreement to issue a certain number of warrants to Rithm or one of its affiliates to purchase Company common stock, which warrants are detachable. See Note 8 — Commitments and Contingencies. Concurrently with entry into the Credit Agreement with NIC RMBS, the Company terminated its existing management contract with the Former Manager primarily in exchange for approximately 3,174,645 shares of the Company’s common stock. The Company currently owns 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 the Company.

In connection with the transactions described above, the Company terminated its agreement with Gregory Funding LLC ("Gregory" or Former Servicer"), the former loan servicer for the Company. The Company previously owned a 9.72% interest in Great Ajax FS LLC ("GAFS"), the parent company of Gregory, but disposed of its interest in the second quarter of 2024. On June 1, 2024, the Company assigned all of the servicing agreements for its mortgage loans and real property (the "Servicing Agreements") to Newrez LLC ("Newrez" or "Servicer"), an affiliate of Rithm. The terms of the Servicing Agreements remain unchanged.

The Company conducts substantially all of its business through its operating partnership, Great Ajax Operating Partnership L.P., a Delaware limited partnership (the “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. The Company elected to treat GA-TRS as a taxable REIT subsidiary (“TRS”) under the 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. The Company generally securitizes its mortgage loans through securitization trusts and retains subordinated securities from the secured borrowings. These trusts are considered to be variable interest entities ("VIEs"), and the Company has determined that it is the primary beneficiary of many of these VIEs. AJX Mortgage Trust I and AJX Mortgage Trust II are wholly-owned subsidiaries of the Operating Partnership

The accompanying notes are an integral part of the consolidated interim financial statements.

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, as well as through outright purchases. GAJX Real Estate Corp. ("GAJX") is a wholly-owned subsidiary of the Operating Partnership formed to own, maintain, improve and sell REO properties purchased by the Company. The Company has elected to treat GAJX as a TRS under the code.

The Operating Partnership, through interests in certain entities, as of June 30, 2024, held 99.9% of Great Ajax II REIT Inc., which owns Great Ajax II Depositor LLC, which was formed to act as the depositor of mortgage loans into securitization trusts and to hold the 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"). The Company has securitized mortgage loans through these securitization trusts and retained subordinated securities from the secured borrowings. These trusts are considered to be VIEs, and the Company has determined that it is the primary beneficiary of the VIEs.

In 2018, the Company formed Gaea Real Estate Corp. ("Gaea") to invest in multifamily properties with a focus on property appreciation and triple net lease veterinary clinics. The Company elected to treat Gaea as a TRS under the code in 2018 and elected to treat Gaea as a REIT under the code in 2019 and thereafter. Also during 2018, the Company formed Gaea Real Estate Operating Partnership LP, a wholly-owned subsidiary of Gaea, to hold investments in commercial real estate assets, and Gaea Real Estate Operating LLC, to act as its general partner. The Company also formed Gaea Veterinary Holdings LLC, BFLD Holdings LLC, Gaea Commercial Properties LLC, Gaea Commercial Finance LLC and Gaea RE Holdings LLC as subsidiaries of Gaea Real Estate Operating Partnership. In 2019, the Company formed DG Brooklyn Holdings LLC, also a subsidiary of Gaea Real Estate Operating Partnership LP, to hold investments in multi-family properties.

On November 22, 2019, Gaea completed a private capital raise transaction through which it raised $66.3 million from the issuance of its common stock to third parties to allow Gaea to continue to advance its investment strategy. Additionally, in January 2022, Gaea completed a second private capital raise in which it raised approximately $30.0 million from the issuance of its common stock and warrants. Also, during the year ended December 31, 2023, GA-TRS received an additional 20,991 shares of Gaea common stock for $0.3 million due to the termination of Gaea's management agreement, which increased the Company's ownership. At June 30, 2024, the Company owned approximately 22.2% of Gaea's total shares outstanding. The Company accounts for its investment in Gaea under the equity method.

Basis of Presentation and Use of Estimates

The consolidated interim financial statements should be read in conjunction with the Company's consolidated financial statements and the notes thereto for the year ended December 31, 2023, included in the Company's Annual Report on Form 10-K filed with the Securities and Exchange Commission (the "SEC") on February 28, 2024.

Interim financial statements are unaudited and prepared in accordance with U.S. GAAP for interim financial information and pursuant to the requirements for reporting on Form 10-Q and Regulation S-X. In the opinion of management, all adjustments, consisting solely of normal recurring accruals considered necessary for the fair presentation of consolidated financial statements for the interim period presented, have been included. The current period’s results of operations will not necessarily be indicative of results that ultimately may be achieved for the fiscal year ending December 31, 2024. The consolidated interim financial statements have been prepared in accordance with U.S. GAAP, as contained within the Accounting Standards Codification (“ASC”) of the Financial Accounting Standards Board (“FASB”) and the rules and regulations of the SEC, as applied to interim financial statements.

The Company consolidates the results and balances of three subsidiaries with non-controlling ownership interests held by third parties. The Company owned a 53.1% interest in AS Ajax E LLC II ("AS Ajax E LLC II"), which in turn held a 5.0% interest in a Delaware trust that owned residential mortgage loans and residential real estate assets. The Company received a liquidating distribution from AS Ajax E LLC II in June 2024 and its remaining investment at June 30, 2024 is zero. Ajax Mortgage Loan Trust 2017-D ("2017-D") is a securitization trust that holds mortgage loans, REO property and secured borrowings; 2017-D is 50.0% owned by the Company. Great Ajax II REIT Inc. wholly owns Great Ajax II Depositor LLC, which acts as the depositor of mortgage loans into securitization trusts and holds the subordinated securities issued by such trusts and certain additional trusts the Company may form for additional secured borrowings, and is 99.9% owned by the Company as of June 30, 2024 and December 31, 2023. The Company recognizes non-controlling interests in its consolidated financial statements for the amounts of the investments and income due to the third party investors for its consolidated subsidiaries.

The accompanying notes are an integral part of the consolidated interim financial statements.

Note 2 — Summary of Significant Accounting Policies

Mortgage Loans

Purchased Credit Deteriorated Loans ("PCD loans")

As of their acquisition date, the loans acquired by the Company have generally suffered some credit deterioration subsequent to origination. As a result, the Company’s recognition of interest income for PCD loans is typically based upon it having a reasonable expectation of the amount and timing of the cash flows expected to be collected. When the timing and amount of cash flows expected to be collected are reasonably estimable, the Company uses expected cash flows to apply the effective interest method of income recognition. The Company adopted ASU 2016-13, Financial Instruments - Credit Losses, otherwise known as CECL using the prospective transition approach for PCD assets on January 1, 2020.

Acquired loans may be aggregated and accounted for as a pool of loans if the loans have common risk characteristics. A pool is accounted for as a single asset with a single composite interest rate and an aggregate expectation of cash flows. The Company may adjust its loan pools as the underlying risks change over time. The Company has aggregated its mortgage loan portfolio into loan pools based on similar risk factors. Excluded from the aggregate pools are loans that pay in full subsequent to the acquisition closing date but prior to pooling. Any gain or loss on these loans is recognized as interest income in the period the loan pays in full.

The Company’s accounting for PCD loans gives rise to an accretable yield and an allowance for expected credit losses. Upon the acquisition of PCD loans the Company records the acquisition as three separate elements for (i) the amount of purchase discount which the Company expects to recover through eventual repayment by the borrower, (ii) an allowance for future expected credit loss and (iii) the unpaid principal balance (“UPB”) of the loan. The purchase price discount which the Company expects at the time of acquisition to collect over the life of the loans is the accretable yield. Expected cash flows from acquired loans include all cash flows directly related to the loan, including those expected from the underlying collateral. The Company recognizes the accretable yield as interest income on a prospective level yield basis over the life of the pool. The Company’s expectation of the amount of undiscounted cash flows to be collected is evaluated at the end of each calendar quarter. The net present value of changes in expected cash flows as compared to contractual amounts due, whether caused by timing or loan performance, is reported in the period in which it arises and is reflected as an increase or decrease in the provision for expected credit losses to the extent a provision for expected credit losses is recorded against the pool of mortgage loans. If no provision for expected credit losses is recorded against the pool of assets, the increase in expected future cash flows is recognized prospectively as an increase in yield. Additionally, slower than expected prepayments can result in lower yields as the Company's mortgage loans were acquired at discounts.

The Company’s mortgage loans are secured by real estate. The Company monitors the credit quality of the mortgage loans in its portfolio on an ongoing basis, principally by considering loan payment activity or delinquency status. In addition, the Company assesses the expected cash flows from the mortgage loans, the fair value of the underlying collateral and other factors, and evaluates whether and when it becomes probable that all amounts contractually due will not be collected.

Borrower payments on the Company’s mortgage loans are classified as principal, interest, payments of fees, or escrow deposits. Amounts applied as interest on the borrower account are similarly classified as interest for accounting purposes and are classified as operating cash flows in the Company’s consolidated statement of cash flows. Amounts applied as principal on the borrower account including amounts contractually due from borrowers that exceed the Company’s basis in loans purchased at a discount, are similarly classified as principal for accounting purposes and are classified as investing cash flows in the consolidated statement of cash flows as required under U.S. GAAP. Amounts received as payments of fees are recorded in Other income and classified as operating cash flows in the consolidated statement of cash flows.

Non-PCD Loans

While the Company generally acquires loans that have experienced deterioration in credit quality, from time to time, it may acquire loans that have not experienced a deterioration in credit quality or originate SBC loans.

The Company accounts for its non-PCD loans by estimating any allowance for expected credit losses for its non-PCD loans based on the risk characteristics of the individual loans. If necessary, an allowance for expected credit losses is established through a provision for loan losses. The allowance is the difference between the net present value of the expected future cash flows from the loan and the contractual balance due. Non-performing collateral dependent loans are carried at net realizable value of collateral.

The accompanying notes are an integral part of the consolidated interim financial statements.

Mortgage Loans Held-for-sale

From time to time the Company will identify specific loans that it will sell. When the loans are identified and a plan to sell the loans is in place, the Company will reclassify the loans from Mortgage Loans held-for-investment, net to Mortgage loans held-for-sale, net. When a loan is designated as held-for-sale, it is held at the lower of amortized cost or fair value with any mark to market adjustment recorded in the Company's consolidated statements of operations.

Investments in Securities

The Company’s Investments in Securities Available-for-Sale ("AFS") and Investments in Securities Held-to-Maturity ("HTM") consist of investments in senior and subordinated notes issued by joint ventures which the Company forms with third party institutional accredited investors. Investments in debt securities for which the Company does not have the positive intent and ability to hold to maturity are classified as AFS. Investments in debt securities for which the Company has the positive intent, ability, or is required to hold to maturity are classified as HTM.

The Company recognizes income on the AFS debt securities using the effective interest method. Historically, the notes have been classified as AFS and are carried at fair value with changes in fair value reflected in the Company's consolidated statements of comprehensive loss. The Company marks its investments to fair value using prices received from its financing counterparties and third-party pricing vendors and believes any unrealized losses on its debt securities are expected to be temporary. Any other-than-temporary losses, which represent the excess of the amortized cost basis over the present value of expected future cash flows, are recognized in the period identified in the Company’s consolidated statements of operations.

On January 1, 2023, the Company transferred a carrying value of $83.0 million of investment securities from AFS to HTM due to sale restrictions pursuant to Article 6(1) of Regulation (EU) 2017/2402 of the European Parliament and of the Council (as amended, the “EU 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, the Company 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, 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.

Transfers of securities from AFS to HTM are non-cash transactions and are recorded at fair value. Unrealized gains or losses recorded to accumulated other comprehensive loss for the transferred securities continue to be reported in accumulated other comprehensive loss and are amortized into interest income on a level-yield basis over the remaining life of the securities. This amortization will offset the effect on interest income of the amortization of the discount resulting from the transfer recorded at fair value.

The Company accounts for its investments in securities HTM under CECL and carries them at amortized cost. Interest income is recognized using the effective interest method and is based upon the Company having a reasonable expectation of the amount and timing of the cash flows expected to be collected. The Company’s expectation of the amount of undiscounted cash flows to be collected, and the corresponding need for an allowance for credit loss, is evaluated at the end of each calendar quarter and takes into consideration past events, current conditions, and supportable forecasts about the future. The net present value of changes in expected cash flows as compared to contractual amounts due, whether caused by timing or investment performance, is reported in the period in which it arises and is reflected as an increase or decrease in the allowance for credit loss to the extent an allowance for credit loss is recorded against the investments. If no allowance for credit loss is recorded against the investment, the increase in expected future cash flows is recognized prospectively as an increase in yield.

Risks inherent in the Company's debt securities portfolio, affecting both the valuation of its securities as well as the portfolio's interest income and recovery of principal include the risk of default, delays and inconsistency in the frequency and amount of payments, risks affecting borrowers such as man-made or natural disasters and damage to or delay in realizing the value of the underlying collateral. The Company monitors the credit quality of the mortgage loans underlying its debt securities on an ongoing basis, principally by considering loan payment activity or delinquency status. In addition, the Company assesses the expected cash flows from the mortgage loans, the fair value of the underlying collateral and other factors and evaluates whether and when it becomes probable that all amounts contractually due will not be collected. Additionally, slower prepayments can result in lower yields on the Company's debt securities acquired at a discount.

Investments in Beneficial Interests

The Company’s Investments in Beneficial Interests consist of the residual investment in the securitization trusts which the Company forms with third party institutional accredited investors. The Company accounts for its Investments in Beneficial

The accompanying notes are an integral part of the consolidated interim financial statements.

Interests under CECL, which it adopted using the prospective transition approach. Each beneficial interest is accounted for individually, and the Company recognizes its ratable share of gain, loss, income or expense based on its percentage ownership interest.

The Company's Investments in Beneficial Interests are carried at amortized cost. Upon acquisition, the investments are recorded as three separate elements: (i) the amount of purchase discount which the Company expects to recover through eventual repayment of the investment, (ii) an allowance for future expected credit loss and (iii) the par value of the investment. The purchase discount which the Company expects to recover through eventual repayment of the investment gives rise to an accretable yield. The Company recognizes this accretable yield as interest income on a prospective level yield basis over the life of the investment. The Company’s recognition of interest income is based upon it having a reasonable expectation of the amount and timing of the cash flows expected to be collected. When the timing and amount of cash flows expected to be collected are reasonably estimable, the Company uses these expected cash flows to apply the effective interest method of income recognition.

The Company’s expectation of the amount of undiscounted cash flows to be collected is evaluated at the end of each calendar quarter. The net present value of changes in expected cash flows as compared to contractual amounts due, whether caused by timing or investment performance, is reported in the period in which it arises and is reflected as an increase or decrease in the allowance for expected credit losses to the extent a provision for expected credit losses is recorded against the investment. If no provision for expected credit losses is recorded against the investment, the increase in expected future cash flows is recognized prospectively as an increase in yield.

Risks inherent in the Company's beneficial interest portfolio include the risk of default, delays and inconsistency in the frequency and amount of payments, risks affecting borrowers such as man-made or natural disasters and damage to or delay in realizing the value of the underlying collateral. Additionally, lower than expected prepayments could reduce the Company's yields on its beneficial interest portfolio. The Company monitors the credit quality of the mortgage loans underlying its beneficial interests on an ongoing basis, principally by considering loan payment activity or delinquency status. In addition, the Company assesses the expected cash flows from the mortgage loans, the fair value of the underlying collateral and other factors, and evaluates whether and when it becomes probable that all amounts contractually due will not be collected.

Real Estate

The Company generally acquires real estate properties through one of three instances, either directly through purchases, when it forecloses on a borrower and takes title to the underlying property, or when the borrower surrenders the deed in lieu of foreclosure. Property is recorded at cost if purchased, or at the present value of future cash flows if obtained through foreclosure by the Company. Property that the Company expects to actively market for sale is classified as held-for-sale. Property held-for-sale is carried at the lower of its acquisition basis or net realizable value (fair market value less expected selling costs, and any additional costs necessary to prepare the property for sale). Fair market value is determined based on broker price opinions (“BPOs”), appraisals, or other market indicators of fair value including list price or contract price, if listed or under contract for sale at the balance sheet date. Net unrealized losses due to changes in market value are recognized through a valuation allowance by charges to income through real estate operating expenses. No depreciation or amortization expense is recognized on properties held-for-sale. Holding costs are generally incurred by the Servicer and are subtracted from the Servicer’s remittance of sale proceeds upon ultimate disposition of properties held-for-sale.

Preferred Stock

During the year ended December 31, 2020, the Company issued an aggregate of $125.0 million, net of offering costs, of preferred stock in two series and warrants to institutional accredited investors in a series of private placements. The Company issued 2,307,400 shares of 7.25% Series A Fixed-to-Floating Rate Preferred Stock and 2,892,600 shares of 5.00% Series B Fixed-to-Floating Rate Preferred Stock. The shares had a liquidation preference of $25.00 per share.

During the year ended December 31, 2022, the Company completed a series of preferred share repurchases. The Company repurchased and retired 1,882,451 shares of its 7.25% Series A Fixed-to-Floating Rate Preferred Stock and 1,757,010 shares of its 5.00% Series B Fixed-to-Floating Rate Preferred Stock.

The accompanying notes are an integral part of the consolidated interim financial statements.

During the six months ended June 30, 2024, the Company exchanged the remaining 424,949 shares of its outstanding 7.25% Series A Fixed-to-Floating Rate Preferred Stock and 1,135,590 shares of its outstanding 5.00% Series B Fixed-to-Floating Rate Preferred Stock and the associated warrants for newly issued shares of its common stock. Of the 12,046,218 shares, 9,464,524 shares of its common stock were issued during the three months ended March 31, 2024 and the remaining 2,581,694 shares of its common stock were issued during the three months ended June 30, 2024 following the approval of the Company's stockholders on May 20, 2024.

Warrants

As part of the Company’s capital raise transactions during the three months ended June 30, 2020, the Company issued two series of five-year warrants to purchase an aggregate of 6,500,000 shares of the Company's common stock at an exercise price of $10.00 per share.

The warrants included a put option that allows the holder to sell the warrants to the Company at a specified put price on or after July 6, 2023. U.S. GAAP requires the Company to account for the warrants as if the put option will be exercised by the holders. The warrants were recorded as a liability on the Company's consolidated balance sheets with an original basis of $9.5 million. Because the warrants have been substantially out of the money since issuance, the Company assumed the put option would be exercised and accreted the liability to the initial redemption value. During the year ended December 31, 2022, the Company repurchased and retired a portion of its warrants. The remaining warrants continued to accrete to their redemption value in July 2023. During the six months ended June 30, 2024, the Company entered into exchange agreements with the current holders of the remaining outstanding warrants, pursuant to which the Company acquired all of the remaining outstanding warrants in exchange for its common shares.

Pursuant to the Credit Agreement, the Company issued to Rithm five-year warrants that may be exercised for common stock of the Company at an exercise price of $5.36 per share (the "Rithm Warrants"). The Company recorded the warrants at fair value on the transaction date with an offset to deferred issuance costs. The warrants will be accounted for as a liability at fair value with any changes in fair value recorded in earnings. The deferred issuance costs will be amortized over the 125 days draw period as an expense and fully expensed at June 30, 2024. On May 20, 2024, the warrants were reclassified to equity at fair value of $0.9 million.

During the six months ended June 30, 2024, the Company exchanged the remaining 424,949 shares of its outstanding 7.25% Series A Fixed-to-Floating Rate Preferred Stock and 1,135,590 shares of its outstanding 5.00% Series B Fixed-to-Floating Rate Preferred Stock and the associated warrants for newly issued shares of its common stock. A total of 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.

Secured Borrowings

The Company, through securitization trusts which are VIEs, issues callable debt secured by its mortgage loans in the ordinary course of business. The secured borrowings facilitated by the trusts are structured as debt financings, and the mortgage loans used as collateral remain on the Company’s consolidated balance sheet as the Company is the primary beneficiary of the securitization trusts. These secured borrowing 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. The Company’s exposure to the obligations of the VIEs is generally limited to its investments in the entities; the creditors do not have recourse to the primary beneficiary. Coupon interest expense on the debt is recognized using the accrual method of accounting. Deferred issuance costs, including original issue discount and debt issuance costs, are carried on the Company’s consolidated balance sheets as a deduction from Secured borrowings, and are amortized to interest expense on an effective yield basis based on the underlying cash flow of the mortgage loans serving as collateral. The Company's unrated securitizations have a call provision and the Company assumes the debt will be called at the specified call date for purposes of amortizing discount and issuance costs because the Company believes it will have the intent and ability to call the debt on the call date. Changes in the actual or projected underlying cash flows are reflected in the timing and amount of deferred issuance cost amortization. See Note 8 — Commitments and Contingencies.

Repurchase Facilities

The Company enters into repurchase financing facilities under which it nominally sells assets to a counterparty and simultaneously enters into an agreement to repurchase the sold assets at a price equal to the sold amount plus an interest factor.

The accompanying notes are an integral part of the consolidated interim financial statements.

Despite being legally structured as sales and subsequent repurchases, repurchase transactions are generally accounted for as debt secured by the underlying assets. At the maturity of a repurchase financing, unless the repurchase financing is renewed, the Company is required to repay the borrowing including any accrued interest and concurrently receives back its pledged collateral from the lender. The repurchase financings are treated as collateralized financing transactions; pledged assets are recorded as assets in the Company’s consolidated balance sheets, and the debt is recognized at the contractual amount. Interest is recorded at the contractual amount on an accrual basis. Costs associated with the set-up of a repurchasing contract are recorded as deferred issuance cost at inception and amortized over the contractual life of the agreement. Any draw fees associated with individual transactions and any facility fees assessed on the amounts outstanding are recorded as expense when incurred.

Convertible Senior Notes

During 2017 and 2018, the Company completed the public offer and sale of its convertible senior notes due 2024 (the "2024 Notes"). At June 30, 2024 and December 31, 2023, the UPB of the debt was zero and $103.5 million, respectively. The 2024 Notes had an interest at a rate of 7.25% per annum and were payable quarterly in arrears on January 15, April 15, July 15 and October 15 of each year.

Coupon interest on the 2024 Notes was recognized using the accrual method of accounting. Discount and deferred issuance costs were carried on the Company’s consolidated balance sheets as a reduction of the carrying value of the 2024 Notes, and were amortized to interest expense on an effective yield basis. The 2024 Notes matured on April 30, 2024 and the Company redeemed the notes in full for an aggregate amount of $103.5 million and 15 days of accrued interest.

Notes Payable

During August 2022, the Operating Partnership issued $110.0 million aggregate principal amount of 8.875% senior unsecured notes due September 2027 (the "2027 Notes"). The 2027 Notes have a five year term and were issued at 99.009% of par value and are fully and unconditionally guaranteed by the Company and two of its subsidiaries: Great Ajax Operating LLC (the "GP Guarantor") and Great Ajax II Operating Partnership L.P. (the "Subsidiary Guarantor," and together with the Company and the GP Guarantor, the "Guarantors"). The 2027 Notes are included in the Company's liabilities in its consolidated balance sheet at June 30, 2024 and December 31, 2023. Interest on the 2027 Notes is payable semi-annually on March 1 and September 1, with the first payment due and payable on March 1, 2023. The 2027 Notes will mature on September 1, 2027. Net proceeds from the sale of the 2027 Notes totaled approximately $106.1 million, after deducting the discount, commissions, and offering expenses which will be amortized over the term of the 2027 Notes using the effective interest method. The Company used $90.0 million of the proceeds to repurchase and retire a portion of its outstanding 7.25% Series A and 5.00% Series B Fixed-to-Floating Rate Preferred Stock at a discount, and a proportionate amount of outstanding warrants. The remainder of the proceeds was used for general corporate purposes. At both June 30, 2024 and December 31, 2023, the UPB of the 2027 Notes was $110.0 million.

On June 30, 2024, the Company received notification that the 2027 Notes were downgraded from BBB- to BB+. Under the terms of the indenture governing the 2027 Notes, the downgrade results in a 100 basis point increase in the interest rate from 8.875% to 9.875% effective September 1, 2024.

Management Fee and Expense Reimbursement

On June 11, 2024, the Company entered into a Management Agreement with RCM GA in the form previously agreed upon with RCM GA and filed with the Company's Current Report on Form 8-K dated February 26, 2024. The Management Agreement, which has an effective date of June 11, 2024, shall be in effect until June 11, 2027 and shall be automatically renewed for a successive two-year term each anniversary date thereafter unless terminated by a party. Under the Management Agreement, RCM GA implements the Company’s business strategy and manages the Company’s business and investment activities and day-to-day operations subject to oversight by the Company’s Board of Directors. Among other services, RCM GA provides the Company with a management team and necessary administrative and support personnel. Additionally, the Company pays directly for the internal audit function that reports directly to the Audit Committee and the Board of Directors. The Company does not currently have any employees that it pays directly and does not expect to have any employees that it pays directly in the foreseeable future.

Under the Management Agreement, the Company pays both a base management fee and an incentive fee to the New Manager calculated and payable quarterly with respect to each calendar quarter (or partial quarter that the agreement is in effect) in arrears in cash. The base management fee equals 1.5% of the Company's stockholders’ equity, including equity equivalents such as the Company's issuance of convertible senior notes, per annum. Also, under the Management Agreement,

The accompanying notes are an integral part of the consolidated interim financial statements.

the Company's quarterly base management fee will include, in its computation of equity managed, its unsecured debt securities to the extent the proceeds were used to repurchase the Company's preferred stock.

The New Manager will be entitled to the Incentive Fee, which is payable quarterly in arrears in cash in an amount equal to 20% of the dollar amount by which (i) Earnings Available for Distribution (as defined below) exceeds the product of (A) the average common book value per share (excluding fair value marks, impairments, transaction/deal expenses and associated tax impact and such other items that in the judgment of the Company officers should be excluded) of the common stock of Ajax (“Ajax Common Stock”) during such calendar quarter and (B) 8%. Notwithstanding either of the foregoing, no Incentive Fee will be payable to the New Manager with respect to any period unless the Company’s cumulative Earnings Available for Distribution is greater than zero for the most recently completed four calendar quarters (which cumulative Earnings Available for Distribution shall be reset at the completion of every fourth quarter following the date hereof and each subsequent fourth quarter thereafter (each, a “Reset Date”) so as not to take into account prior calendar quarters), or, if less, (i) the number of completed calendar quarters since the date hereof or (ii) the number of completed calendar quarters since the last Reset Date.

“Earnings Available for Distribution” is a non-GAAP financial measure and is defined as net income (loss) as determined according to GAAP, excluding tax-effected, non-cash equity compensation expense and any unrealized gains or losses from mark-to-market valuation changes (including impairments) that are included in net income for the applicable period. The amount will be adjusted to exclude on a tax-effected basis (A) one-time events pursuant to changes in GAAP, (B) transaction and deal expenses that in the opinion of the Manager should be excluded for purposes of calculating Earnings Available for Distribution and be amortized over the life of the related investment / transaction, and (C) non-cash items (including depreciation and amortization) that in the judgment of the Company’s officers should not be included in Earnings Available for Distribution, which adjustments in clauses (A), (B) and (C) shall only be excluded after discussions between the Manager and the Ajax Independent Directors and after approval by a majority of the Ajax Independent Directors. Book value per share of Ajax Common Stock shall be as set forth in the consolidated financial statements of the Company prepared in accordance with GAAP.

Management fees are expensed in the quarter incurred. See Note 10 — Related Party Transactions.

Servicing Fees

The Company is a party to the Servicing Agreements with Newrez. The servicing agreements are identical to the servicing agreements the Company was previously a party to with its former Servicer. Under the Servicing Agreements, the Company pays a fee ranging from 0.42% annually for loans that are in rated securitizations, 0.65% annually for loans that are not in rated securitizations that were re-performing at acquisition and 1.25% annually for loans that were non-performing at acquisition. Servicing fees are paid monthly and are calculated based on UPB. The fees do not change if an RPL becomes non-performing or vice versa. Servicing fees for the Company’s real property assets are the greater of (i) the servicing fee applicable to the underlying mortgage loan prior to foreclosure, or (ii) 1.00% annually of the fair market value of the REO as reasonably determined by the New Manager or 1.00% annually of the purchase price of any REO otherwise purchased by the Company. The Servicer is reimbursed for all customary, reasonable and necessary out-of-pocket costs and expenses incurred in the performance of its obligations, including the actual cost of any repairs and renovations undertaken on the Company’s behalf. The Company accrues the servicing fees pursuant to the terms of the agreement. Such fees are then netted against the monthly remittance due to the Company by the Servicer.

Stock-based Payments and Directors’ Fees

Under the Company’s 2014 Director Equity Plan (the “Director Plan”), the Company may make stock-based awards to its directors. The Director Plan is designed to promote the Company’s interests by attracting and retaining qualified and experienced individuals for service as non-employee directors. The Director Plan is administered by the Company’s Board of Directors. The total number of shares of common stock or other stock-based awards, including grants of long-term incentive plan units (“LTIP Units”) from the Operating Partnership, available for issuance under the Director Plan is 35,000 shares. The Company issued to each of its independent directors restricted stock awards of 2,000 shares of its common stock upon joining the Board of Directors. The Company may also periodically issue additional restricted stock awards to its independent directors under the Director Plan. Stock-based expense for the directors’ annual fee and the committee chairperson’s annual fee is expensed as earned, in equal quarterly amounts during the year, and accrued at quarter end.

Each of the Company’s independent directors receives an annual retainer of $140,000, payable quarterly in shares of the Company's common stock and/or in cash at the directors discretion. The committee chairpersons also receive annual fees for their services. The chairpersons of the Compensation and Corporate Governance committees each received an annual retainer of

The accompanying notes are an integral part of the consolidated interim financial statements.

$15,000, payable quarterly, 100% in cash. The chairperson of the Audit committee received an annual fee of $20,000, payable quarterly, 100% in cash. During the second quarter of 2023, the Board approved the appointment of a lead director and an additional payment to the lead director of $20,000 per year, payable quarterly, 100% in cash. Also, during the second quarter of 2023, due to conflicts of interests by certain Board members, the Board established a special committee, comprised solely of independent directors (the "Special Committee") to evaluate and review the merger agreement with Ellington Financial (the "Merger Agreement"), the Merger and the other transactions contemplated by the Merger Agreement, as well as other strategic opportunities. The directors on the Special Committee received a one-time cash payment of $20,000, except for the lead director who received a one-time cash payment of $30,000 and a one-time stock payment of $15,000, paid in the shares of the Company's common stock. The expense related to directors’ fees is accrued, and the portion payable in common stock is accrued in the period in which it is incurred.

Under the Company's 2016 Equity Incentive Plan (the “2016 Plan”) the Company may make stock-based awards to attract and retain non-employee directors, executive officers, key employees and service providers, including officers and employees of the Company’s affiliates. The 2016 Plan authorized the issuance of up to 5% of the Company’s outstanding shares from time to time on a fully diluted basis (assuming, if applicable, the conversion of any outstanding warrants and convertible senior notes into shares of common stock). Grants of restricted stock under the 2016 Plan use grant date fair value of the stock as the basis for measuring the cost of the grant. Forfeitures of granted shares are accounted for in the period in which they occur. Share grants vest over the relevant service periods. The grant shares may not be sold by the recipient until the end of the service period, even if certain of the shares were subject to a ratable vesting and were fully vested before completion of the service period.

In connection with the Rithm transaction, on March 25, 2024, the Company’s Board of Directors approved an amendment to the 2016 Plan that would permit the issuance of equity or equity-based incentive awards to RCM GA, which may in turn issue incentives to the directors, managers, officers, employees of, or advisors or consultants to, RCM GA or its affiliates. The Amendment was approved by the Company’s stockholders on May 20, 2024.

Variable Interest Entities

In the normal course of business, the Company enters into various types of transactions with special purpose entities, which have primarily consisted of trusts established for the Company’s secured borrowings (see “Secured Borrowings” above and Note 9 to the consolidated financial statements). Additionally, from time to time, the Company may enter into joint ventures with unrelated entities, which also generally involves the formation of a special purpose entity. The Company evaluates each transaction and its resulting beneficial interest to determine if the entity formed pursuant to the transaction should be classified as a VIE. If an entity created in a transaction meets the definition of a VIE and the Company determines that it or a consolidated subsidiary is the primary beneficiary, the Company will include the entity in its consolidated financial statements.

Cash and Cash Equivalents

Highly liquid investments with an original maturity of three months or less when purchased are considered cash equivalents. The Company generally maintains cash and cash equivalents at insured banking institutions with minimum assets of $1 billion. Certain account balances exceed Federal Deposit Insurance Corporation (“FDIC”) insurance coverage and, as a result, there is a concentration of credit risk related to amounts on deposit in excess of FDIC insurance coverage.

Earnings per Share

The Company periodically grants restricted common shares which entitle the recipients to receive dividend equivalents during the vesting period on a basis equivalent to the dividends paid to holders of common shares. Unvested share-based compensation awards containing non-forfeitable rights to receive dividends or dividend equivalents (collectively, “dividends”) are classified as “participating securities” and are included in the basic earnings per share calculation using the two-class method.

Under the two-class method, all of the Company’s Consolidated net income attributable to common stockholders, consisting of Consolidated net income, less dividends on the Company’s Series A and Series B preferred stock, is allocated to common shares and participating securities, based on their respective rights to receive dividends. Basic earnings per share is determined by dividing Consolidated net income attributable to common stockholders, reduced by income attributable to the participating securities, by the weighted-average common shares outstanding during the period.

The accompanying notes are an integral part of the consolidated interim financial statements.

Diluted earnings per share is determined by dividing Consolidated net income attributable to diluted shareholders, which adds back to Consolidated net income attributable to common stockholders the interest expense and applicable portion of management fee expense, net of applicable income taxes, on the Company’s convertible senior notes, by the weighted-average common shares outstanding, assuming all dilutive securities, including stock grants, shares that would be issued in the event that warrants were redeemed for shares of common stock of the Company, shares issued in respect of the stock-based portion of the base fee payable to the Former Manager and independent directors, and shares that would be issued in the event of conversion of the Company’s outstanding convertible senior notes, were issued. In the event the Company were to record a net loss, potentially dilutive securities would be excluded from the diluted loss per share calculation, as their effect on loss per share would be anti-dilutive. The Company uses the treasury stock method of accounting for its outstanding warrants. Under the treasury stock method, the exercise of the warrants is assumed at the beginning of the period, and shares of common stock are assumed to have been issued. The proceeds from the exercise are assumed to be used by the Company to repurchase treasury stock, thereby reducing the assumed dilution from the warrant exercise. In applying the treasury stock method, all dilutive potential common shares, regardless of whether they are exercisable, are treated as if they had been exercised.

In the event that any of the adjustments normally included to arrive at diluted earnings per share were to produce an anti-dilutive result, one that either increased earnings or reduced the quantity of shares used in the calculation, the anti-dilutive adjustment would not be included in the diluted earnings per share calculation.

Fair Value of Financial Instruments

Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. A fair value hierarchy has been established that requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. The standard describes three levels of inputs that may be used to measure fair value:

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