Great Ajax Corp.

Good afternoon. My name is Dennis, and I will be your conference operator today. At this time, I would like to welcome everyone to the Great Ajax Corp. Second Quarter 2022 Financial Results Conference Call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session. If you would like to ask a question during this time, simply press star, then the number one on your telephone keypad. To withdraw your question, press star one again. I would now like to turn the conference over to Larry Mendelson, CEO. Please go ahead.

Thank you very much. Thank you, everybody, for joining us for the Great Ajax Second Quarter 2022 conference call. Before we get started with the presentation, I'd like to point out page two, the safe harbor disclosure for all the things we talked about. On page three, a quick introduction and then a business overview. Q2 2022 was a good quarter. However, there's quite a bit of noise in the income statement numbers, which makes it a bit confusing, but we'll walk through this on today's call. Loan performance and cash flow velocity continued and has also continued into the third quarter of 2022 as well. The significant cash flow velocity from our mortgage loans and mortgage loan JV structures increases income acceleration through the application of CECL, but it also rapidly pays down our loan and securities portfolio as well, and the associated asset-based financing, which can also reduce income and ROE. At June 30, we had approximately $52 million of cash, as well as a significant amount of unencumbered securities and loans. In the second quarter, we used cash on hand to repurchase $25 million face amount of our preferred shares and the associated warrants. While these repurchases create a one-time charge, it will create very significant savings going forward. We also repurchased approximately 475,000 common shares with cash on hand. On page three, business overview, our manager's data science guides the analysis of loan characteristics and geographic market metrics for performance and resolution probabilities and its ability to source these mortgage loans through long-standing relationships enables us to acquire loans that we believe have a material probability of prepayment and long-term continuing re-performance. We've acquired loans in 362 different transactions since 2014 and six transactions in the second quarter. We own approximately 20% of the equity of our manager at a zero basis, and we do not mark to market our ownership interest on our balance sheet or through the income statement. As a result, our book value does not reflect the market value of our 20% interest in the manager. Additionally, our affiliated servicer, Gregory Funding, provides a strategic advantage in non-performing and non-regular paying loan resolution processes and timelines, and it also gives us a data feedback loop, enabling more analytics from our manager. In today's volatile environment, having our portfolio teams and analytics group at the manager working closely with the servicer has been essential. We've certainly seen the benefit of this during the COVID pandemic and in 2022 so far with significant ongoing loan cash flow velocity and credit performance, and with our 2022A and 2022B securitization structures, the first AAA-rated structures with up to approximately 40% of loans greater than 60 days or more delinquent and still rated AAA. Like our 20% equity interest in our manager, we have a 20% economic interest in our servicer, at a very low basis. We don't mark this to market on our balance sheet either or in our income statement. Our servicer is currently evaluating a potential private equity round as part of rolling out a few new data and technology driven programs. The data analytics and sourcing relationships of our manager and the effectiveness of our servicer also enabled us to broaden our investment reach through joint ventures with third party institutional investors and thereby invest in larger transactions as well. The servicer's loan expertise is definitely appreciated by our JV partners, as several of our JV partners now pay our servicer for providing third-party due diligence services for other transactions they'd be working on, and they've also hired our servicer to solve problems they may have with other servicers. We still have low leverage. At June 30, our quarter end corporate leverage was 2.6 times Our Q2 2022 average asset-based leverage was 2.2 times. Our corporate leverage increased as we used cash on hand to repurchase preferred shares and their associated warrants, as well as common stock. We keep trying to increase asset-based leverage, but the significant cash flow from our loan portfolio offsets this. We own 22% equity interest in Gaia Real Estate Corp. Gaia is an equity REIT that primarily invests in repositioning multifamily properties in specific markets and in triple net lease free-stranding veterinary clinics. We carry our Gaia interest on balance sheet at the lower of cost or market. Gaia completed an additional round of equity in the first quarter of 2022 at a premium to our carrying value, but our balance sheet and income statement do not reflect any markup. We think Gaia has a great deal of optionality and that Gaia can grow materially.

If we go to page four, highlights for the quarter.