Great Ajax Corp. (AJX)·Q3 2024 Earnings Summary

Executive Summary

• Q3 delivered a narrower GAAP net loss of $(8.0)m, or $(0.18) per diluted share, with Earnings Available for Distribution (EAD) loss narrowing to $(5.4)m, or $(0.12) per diluted share .
• Net interest income rose sharply to $3.69m (from $0.35m in Q2), reflecting progress in repositioning into cash‑flowing CMBS and reducing interest expense .
• Management reiterated the transition from legacy residential assets, sold ~$148m UPB of loans/securities and grew CMBS to ~$102m UPB during Q3; the board maintained the $0.06 dividend for Q4 .
• Company announced intent to rebrand as Rithm Property Trust Inc. (NYSE: RPT) with an expected effective date on or about Nov 18, 2024; filed a $400m shelf to enhance capital flexibility .
• Management targets breakeven (pre‑dividend) by the end of Q1 2025, with catalysts including continued deployment into CMBS and potential opportunistic CRE loan acquisitions .

What Went Well and What Went Wrong

What Went Well

• Rapid improvement in core earnings power: net interest income increased to $3.69m in Q3 (vs $0.35m in Q2), aided by lower interest expense and redeployment to CMBS .
• Strategic repositioning milestones: sold ~$148.0m UPB of legacy residential loans/securities (net proceeds ~$31.7m) and acquired ~$81.9m UPB of CMBS, taking total CMBS to ~$101.9m .
• Management conviction and roadmap: “We expect [the company] to get breakeven as soon as possible from an earnings perspective… by the end of Q1 [pre‑dividend],” and committed to maintaining the $0.06 dividend while executing transformation .

What Went Wrong

• Continued GAAP and non‑GAAP losses: GAAP net loss of $(8.0)m and EAD loss of $(5.4)m; book value per share declined to $5.47 (vs $5.56 in Q2) .
• Ongoing mark‑to‑market and other losses: Q3 included mark‑to‑market loss on mortgage loans held‑for‑sale $(1.71)m and other loss $(3.28)m, highlighting residual balance‑sheet noise from legacy assets .
• Funding overhang and limited deployable equity: ~$20–$25m of remaining investable cash and ~$$100m of notes at 10.25% coupon identified as priorities to address before fully normalizing earnings .

Financial Results

Income Statement and Per‑Share Metrics (USD, millions unless noted)

Key drivers:

• QoQ net interest income rose due to lower interest expense and higher interest income from CMBS deployment; mark‑to‑market losses were lower in Q3 than Q2 .
• Book value per share declined modestly (Q3: $5.47 vs Q2: $5.56) as GAAP/EAD losses offset operational improvements .

Balance Sheet Snapshot (USD, millions)

Operations and KPI Highlights

Guidance Changes

Earnings Call Themes & Trends

Management Commentary

• “We made significant progress… by selling down $148 million UPB of legacy assets and growing our commercial real estate debt portfolio to over $100 million UPB. We are excited about the future of the Company and are committed to providing shareholders with growth and value creation.” — Michael Nierenberg, CEO .
• “Our mission… is to sell down legacy… negative carry residential assets and redeploy the capital into real cash flowing CMBS… to get breakeven… by the end of Q1 (pre‑dividend).” — Michael Nierenberg .
• “Book value during the quarter was $5.47… and we’re just not going to give away many of these smaller assets… We’ll be patient… continue to grow earnings and earn our way out of this.” — Michael Nierenberg .
• “We bid on $1 billion of sorted commercial real estate loans… starting to see some of the banks come out with assets… we need to make sure… transactions… are huge winners.” — Michael Nierenberg .

Q&A Highlights

• Asset class focus: Preference for cash‑flowing CRE; cautious on office; potential in affordable housing, student housing, data centers; CMBS AAA as liquid placeholders around low double‑digit levered returns .
• Rates and opportunity set: Even with rate cuts, distressed equity and recap needs should continue; banks tend to sell impaired assets to clean capital burdens, sustaining deal flow .
• Capital deployment and balance sheet: ~$20–$25m deployable equity in Q4; numerous small “odd lot” legacy positions to clean up; target fully deployed in commercial by end of Q4; address ~$100m notes at 10.25% coupon .
• Financing strategy: Bank lines for securities; consider market debt/equity (e.g., CLO, notes) longer‑term to diversify funding .

Estimates Context

• Wall Street consensus estimates (S&P Global) for AJX could not be retrieved due to a Capital IQ mapping issue; as a result, no EPS or revenue estimate comparison is included. Values retrieved from S&P Global were unavailable for AJX at this time.
• Implication: In the absence of formal consensus, directional assessment relies on company‑reported GAAP/EAD trends and management’s outlook .

Key Takeaways for Investors

• Earnings trajectory is improving: QoQ net interest income rose to $3.69m and EAD loss narrowed, indicating the CRE/CMBS repositioning is gaining traction .
• Near‑term priorities: Fully deploy remaining ~$20–$25m into cash‑flowing assets and address ~$100m 10.25% notes to further reduce the earnings drag and move to breakeven (pre‑dividend) by end of Q1 .
• Strategic flexibility: $400m shelf and amended management agreement (fees payable in stock or cash) expand capital and alignment options under the Rithm platform .
• Legacy clean‑up progressing: ~$148m UPB legacy resi sold in Q3 with ~$31.7m proceeds; mark‑to‑market losses are moderating as balance‑sheet mix shifts .
• Rebrand catalyst: Name/ticker change to Rithm Property Trust (RPT) expected around Nov 18, 2024, aligning external identity with the CRE‑focused strategy .
• Dividend maintained: Board declared $0.06/share for Q4; management aims to “earn through” deficit while preserving book value and selective deployment .
• Watch deal flow: Management bids on large CRE portfolios; focus on cash‑flowing, diversified verticals (multifamily, student housing, data centers) and potential mezz/preferred opportunities via Rithm’s Genesis platform .