Great Ajax Corp. (AJX)·Q2 2024 Earnings Summary

Executive Summary

• Q2 2024 showed materially lower GAAP net loss vs Q1 as the new external manager (RCM GA, an affiliate of Rithm) accelerated balance sheet cleanup and began redeploying into liquid CRE securities; diluted EPS was $(0.32) and Earnings Available for Distribution (EAD) was $(0.24) per share .
• Book value per common share fell to $5.56 on amortized cost; management disclosed an estimate of ~$4.20–$4.23 per share on a full fair-value mark, reflecting ongoing legacy asset sales and marks .
• Dividend was maintained at $0.06 per share (declared July 23); the Board will evaluate the dividend quarterly as earnings transition toward CRE mid-teens IRR targets under Rithm’s platform .
• Strategic transaction closed (June), with RCM GA replacing Thetis; loan sales of ~$305M UPB generated ~$45.1M net proceeds and ~$120M of assets remain to be sold—key catalysts for narrowing the gap to CRE deployment at 12–15% levered returns .
• Wall Street consensus (S&P Global) estimates were unavailable for AJX this quarter (mapping error), so no formal beat/miss determination vs Street is possible; focus remains on portfolio repositioning momentum and disclosure of fair value book [GetEstimates error].

What Went Well and What Went Wrong

What Went Well

• Completed the strategic transition: RCM GA became the new external manager; management emphasized a “clean canvas” to pivot AJX into opportunistic, cash-flowing CRE with mid-teens IRR targets .
  • “We are going to look to do the same playbook…looking at the commercial real estate market and the dislocations we see there…we’re really excited about the challenge as we look ahead” — Michael Nierenberg .
• Early CRE deployment: ~3 tranches of AAA CMBS purchased, targeting levered returns of ~12–15% as an initial placeholder while legacy assets are sold down .
• Dividend stability amid transition: Board maintained $0.06 and will evaluate quarterly, aligning payout with evolving earnings power under CRE focus .

What Went Wrong

• Negative net interest margin and continued losses: GAAP net loss of $(12.7)M and EAD loss of $(9.6)M; net interest income fell to $0.35M with mark-to-market impacts persisting on assets moved to fair value .
• Book value pressure: BV/share decreased to $5.56; management disclosed $(1.3) lower fair-value estimate ($4.20–$4.23), reflecting residual marks on legacy portfolios .
• Estimate transparency constraint: S&P Global Street estimates unavailable (tool mapping), limiting formal beat/miss benchmarking; the narrative hinges on execution of asset sales (~$120M left) and redeployment pace [GetEstimates error].

Financial Results

Key operational items in Q2:

• Loan sales: ~$305M UPB, net proceeds ~$45.1M; part of proceeds used to redeem 7.25% convertible senior notes (matured Apr 30, 2024) .
• Repurchase financing terms improved (reduced mark-to-market burden) .

Guidance Changes

No formal guidance was provided for revenue, margins, OpEx, OI&E, or tax rate.

Earnings Call Themes & Trends

Management Commentary

• “We are going to look to do the same playbook…with the difference this time looking at the commercial real estate market and the dislocations we see there…we’re really excited about the challenge as we look ahead.” — Michael Nierenberg .
• “We reported a GAAP net loss of $12.7 million…driven by mark-to-market losses as well as some additional realized losses on the sale of mortgage loans…we do still have a negative net interest margin.” — Mary Doyle .
• “If we went to a full fair value valuation, we'd be at around $4.20 [per share], and that is marking mostly the asset side of the balance sheet.” — Mary Doyle .
• “Currently…about 3 investments [mostly] AAA CMBS…levered return…between 12% and 15%.” — Michael Nierenberg .
• “About $120 million of assets…left to be sold.” — Michael Nierenberg .

Q&A Highlights

• Fair value BV sensitivity: Management indicated fair-value BV per share ~$4.20–$4.23 vs amortized cost BV $5.56, clarifying mark impacts and investor lens on equity value .
• Legacy portfolio wind-down: ~<$120M> of assets targeted for sale to complete balance sheet cleanup; CRE redeployment underway .
• Initial CRE posture: ~3 AAA CMBS tranches purchased; levered returns targeted ~12–15% as near-term placeholder before scaling broader CRE loans/mezz/opportunistic investments .
• Risk retention capital: ~$15–$16M equity capital supporting risk-retention assets; ~$35–$40M equity gap associated with non-risk retention assets/NPL/RPL securities .
• Dividend tone: Board kept $0.06; management to evaluate quarterly alongside earnings trajectory and potential accretive equity raises tied to high-return deployments .

Estimates Context

• S&P Global consensus estimates for AJX were unavailable due to a mapping error in our tool, so we cannot provide EPS/Revenue consensus or a beat/miss assessment this quarter [GetEstimates error].
• Company-reported results: Diluted EPS $(0.32); EAD per share $(0.24); interest income $11.9M; GAAP net loss to common $(12.7)M .
• Given the strategic pivot and non-core marks, Street estimates (when available) may need to adjust for the transition to CRE, the pace of asset sales, and fair-value disclosure.

Key Takeaways for Investors

• Transition execution is the driver: With ~$120M of assets left to sell and initial AAA CMBS purchases, the speed/price of asset sales and redeployment into mid-teens IRR CRE will likely shape near-term sentiment and BV trajectory .
• Book value lens: Fair-value BV (~$4.20–$4.23) provides a conservative anchor while amortized cost BV is $5.56; additional marks/sales could narrow the gap as CRE replaces legacy assets .
• Earnings inflection path: Net interest income margin fell to ~2.9% in Q2; management expects earnings power to improve as higher-yield CRE assets scale—monitor quarter-to-quarter dividend decisions as a signal .
• Balance sheet risk reduced: Convertible notes repaid; repurchase financing terms improved; liabilities and repurchase borrowings down materially vs Q4 as cash is redeployed prudently .
• Capital strategy: Management indicated equity raises could be accretive if deployed at ~12–15% returns vs ~6–7% implied equity costs—watch for opportunistic deals as catalysts .
• Near-term focus: Track further loan sale executions and additional CRE allocations; transparency around fair-value marks and portfolio mix should aid valuation clarity .
• Medium-term thesis: Rithm’s scale and CRE expertise (including Sculptor/GreenBarn teams) underpin the pivot; execution quality on sourcing, underwriting, and capital structure will determine sustainable EAD growth and dividend capacity .

Appendix: Non-GAAP Adjustments in Q2

• EAD reconciliation includes add-backs for realized/unrealized gains/losses, transaction-related expenses, other adjustments; Q2 adjustments included $2.06M realized/unrealized, $0.88M strategic transaction expenses, and other items, resulting in EAD $(9.598)M .