Great Ajax Corp.

Please stand by. We're about to begin. Good afternoon, ladies and gentlemen. Welcome to the Great Ajax Corporation Q3 2022 Financial Results Call. At this time, all participants are in a listen-only mode, and please be advised that this call is being recorded. After the speaker's prepared remarks, there will be a question and answer session. If you would like to ask a question during this time, simply press star 1 on your telephone keypad. And if you would like to withdraw your question, simply press star 1 again. And now I'd like to turn the call over to the Great Ajax Chief Executive Officer, Mr. Larry Mendelson. Please go ahead, sir.

Thank you very much. Thank you very much, everybody, for joining us on the Great Ajax third quarter earnings call. I apologize for my voice. I'm getting over some laryngitis over the last few weeks, so it may come and go a little. Before we get started, I want to point you to page two of the presentation, the safe harbor disclosure and disclosure regarding forward-looking statements. And with that, we can jump to page three, the business overview and an introduction regarding the third quarter. Q3 was what I would call a patient quarter. However, there is some noise in the Q3 income statement numbers, which makes it a bit confusing, and we'll walk through this on today's call. Loan performance increased and loan cash flow velocity from property sales continued and has also continued into the fourth quarter of 2022. Repayments from borrower refinancing declined as you would expect. The significant cash flow velocity from the mortgage loans and mortgage loan JV structures increases income acceleration through the requirements of CECL, but it also rapidly pays down our loan and securities portfolio, as well as the associated asset-based financing, which can also reduce net interest income and the return on equity. At September 30, we had approximately 73 million of cash, as well as a significant amount of unencumbered securities and loans, And in Q3, we repurchased 66 million base amount of our preferred shares and the associated warrants. While these repurchases create a one-time charge, it creates very significant savings going forward beginning Q4. Our manager's data science guides the analysis of loan characteristics and geographic market metrics, which you'll see later are really important for performance and resolution pathway probabilities and its ability to source these mortgage loans through the long-standing relationships it's developed really enables us to acquire mortgage loans that we believe have a material probability of repayment and or long-term continuing re-performance. We've acquired loans now in 372 different transactions since 2014, 10 of which were in Q3 of 2022. We own just under 20% of the equity of our manager and have a zero basis. We don't market to market on our balance sheet or through the income statement. As a result, book value does not reflect market value of our 20% interest in our agency. Additionally, our affiliated servicer, Gregory Funding, provides us a significant advantage in non-performing and non-regular paying loan resolutions and timelines. And it also provides a data feedback loop for our manager's analytics. In today's volatile environment, having the portfolio teams and the analytics group working together with the servicer is really essential. We've certainly seen the benefit of this with significant increases in credit performance, as you'll see, our consistent prepayment for property sales, especially for delinquent loans, and with the securitization structures that we've done so far this year, the first-ever AAA-rated structures with 40% of the loans greater than 60 days delinquent at the time of issuance. Like our 20% equity interest in our manager, we have a 20% economic interest in the servicer, also at a minimal basis. We don't mark to market our equity interest in the servicer and the balance sheet or income statement either. Our servicer currently is evaluating a private equity round as part of rolling out a few new data technology driven programs through joint ventures. The data analytics and sourcing relationships of the manager and the effectiveness of our servicer enables us to broaden our investment reach through joint ventures with third-party institutional investors, and that way we can invest as a co-investor in very large transactions as well and control the outcome of the loan. The servicer's loan expertise is definitely appreciated by the JV partners, as several of our JV partners now pay the servicer for providing third-party diligence services for other transactions they've been working on. They've hired the servicer to solve problems they may have with other servicers they use. We still have low leverage. At September 30, our quarter and corporate leverage ratio is 3.3 times. Our third quarter average asset base leverage was 2.5 times. Our corporate leverage increased as we issued $110 million of unsecured debt securities and used a portion of the proceeds to redeem $66 million in preferred shares and their associated warrants and programs. We also own a 22% equity interest in Gaia Real Estate Corp. Gaia is currently a private equity REIT that primarily invests in repositioning multifamily properties in specific markets and a triple net lease freestanding veterinary clinic properties in conjunction with large national veterinary practice owners. We carry Gaia Our GAIA interest on our balance sheet at the lower cost or market. GAIA completed an additional round of equity in the first quarter of 22 at a premium to our carrying value, but our balance sheet income statement don't reflect any market. We expect that GAIA will raise additional equity and ultimately become a public company in 2023.

On page four, some highlights from the quarter.