Great Ajax Corp.

Good day and welcome to the Great Ajax Third Quarter 2024 Earnings Call. All participants will be in listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star, then one on a touch-tone phone. To withdraw your question, please press star, then two. Please note this event is being recorded. I would now like to turn the conference over to Emma Bola, Associate General Counsel. Please go ahead.

Thank you, and good morning, everyone. I would like to thank you for joining us today for Great Ajax's third quarter 2024 earnings call. Joining me today are Michael Nirenberg, Chairman, CEO, and President of Rhythm Capital, and CEO of Great Ajax, and Mary Doyle, Principal Financial Officer of Great Ajax. Throughout the call, we are going to reference the earnings supplement that was posted this morning to the Great Ajax website, www.greatajax.com. If you've not already done so, I'd encourage you to download the presentation now. I would like to point out that certain statements made today will be forward-looking statements. These statements, by their nature, are uncertain and may differ materially from actual results. I encourage you to review the disclaimers in our press release and earnings supplement regarding forward-looking statements and to review the risk factors contained in our annual and quarterly reports filed with the SEC. In addition, we will be discussing some non-GAAP financial measures during today's call. Reconciliations of these measures to the most directly comparable GAAP measures can be found in our earnings supplement. And with that, I will turn the call over to Michael.

Thanks, Emma. Good morning, everyone, and thanks for joining the Great Ajax Earnings Call. During the quarter, you know, our mission continues to be pretty much the same as what we discussed on our prior earnings call, which is to sell down legacy, what I would call negative carry residential assets and redeploying the capital into real cash flowing CMBS with the intent for the company to get break even as soon as possible from an earnings perspective. which we expect to happen by the end of Q1. Obviously, this is before dividends. Regarding the dividend, while the company does not make money today, we are hopeful that we will continue to earn our way out of this deficit while maintaining the current dividend of $0.08. Obviously, there are no guarantees. As I mentioned in the past, our playbook will be similar to what we've done at Fortress and what some of the other large alternative asset managers have done in the past. which is to grow earnings while looking for a transformational opportunity to grow the company. And as I pointed out, we've done that before while we were at Fortress, and that was in 2013 when New Residential was born out of a legacy mortgage rate known as Newcastle. Regarding the balance sheet today, we'll continue to unwind the legacy resi assets, which are on balance sheet, while attempting to maintain book value. Book value during the quarter was 547, which is essentially unchanged from the 550-something number that was reported last quarter. While saying that, we're just not going to give away many of these smaller assets that sit on the balance sheet. So we'll be patient. And again, we're going to continue to grow our earnings and earn our way out of this. When you look at other assets that sit on the balance sheet, the largest portion are some legacy securitizations where the actual cost of funds are 2.68%, so there's no reason to call those transactions, and those will stay outstanding for a while. Regarding opportunities, we'll be patient. This past week, we bid on a billion dollars of assorted commercial real estate loans. About half were multifamily and half were office. Obviously, they wouldn't all go into this vehicle, but just to give you a sense, we are starting to see a little bit of movement and starting to see some of the banks come out with some assets. While saying that, we need to make sure that whatever transaction or transactions we do around this balance sheet are huge winners. So we're going to be patient here, and again, and we'll continue to grow our way out of this earnings deficit. With that, I'm going to now refer to the supplement, which has been posted on the website. Page three, just so we're all on the same page, Great Ajax, it's an externally managed, what I would call, real estate investment platform. We intend to change the name from Great Ajax to Rhythm Property Trust at some point in the fourth quarter. We'll be updating our websites and all the associated information that go along with that. We took over the company or the management of the company in June of this year, June 11th to be exact. And again, between that time and where we are now, we've made tremendous progress cleaning up what I would call the legacy positions that sit on the balance sheet. When you look at this vehicle and we think about the market opportunity, think of it more from a go-forward basis. I look at it today as a clean platform. There's not much there. And again, I am confident that we are going to find the right transaction or transactions to transform this into a real winner. So patience, investors will be rewarded, I think, if you're patient here. When you look at how this is managed, again, when we were all part of Fortress, New Residential at that point was externally managed. The Rhythm team here continues to work aggressively on Any and all opportunities around the space and we have a very good team here going back to the Fortress days we started new residential with a billion dollars of capital and today We're roughly seven and a half to eight billion of permanent capital. So a good success story And then again, you know, we when you look to the right side of the page We're very committed to grow this vehicle, but we have to be smart about how we do that fourth third quarter financial highlights Gap net income loss of $8 million, or $0.18 per diluted share. Earnings available for distribution, negative $5.4 million, or $0.12 per diluted share. We declared the dividend in the third quarter of $0.06. I think I misquoted. I said $0.08 before, so we'll maintain that $0.06. Dividend yield currently 7.2% at the end of 9-30. Cash and equivalents sitting on balance sheet 84 million. Of that 84 million, the way I would think about it is roughly 30 odd million is available for investment. Some of that money has already been committed. And then we're going to keep a roughly $50 million reserve. And then stockholder equity is a little under $250 million. You look at the transformation of this company. During Q3, we sold $85 million of residential mortgage loans, generating a little under $18 million in cash. Since the end of Q1, the company sold roughly 91% of its legacy residential mortgage loans that they've held for sale. We also sold $62.7 million of residential securities, which generated $14 million of cash. And then during the quarter, the team deployed $100 million of assets where we actually closed on $100 million of notional amount of AAA CMBS at roughly a 12% levered return. When you look to the bottom, you can see what's really left on balance sheet. Obviously, there's not a lot there. You can look to the middle part of the page. You can see the breakout of our commercial real estate investing. And then I think one of the more important things, while small, Look at what we've done with net interest income as it went from $1.6 million and we've up 126% to $3.6 million closing at the end of Q3. And again, going back to my earlier comments, we expect to run this company break even before dividends, and hopefully we can cover the dividend no later than the end of Q1. When we look at the path to profitability, we've done a few things here as well. We moved all of the legacy assets There was a bunch of resi-servicing, then went to Shell Point Mortgage, which is one of our wholly-owned subs at Rhythm. We drove servicing expense saves probably, I think, by about, I think we lowered the servicing fee by about 30% or so. I think that's about the number. We took all of the financing. We went from full daily mark-to-market to either non-mark-to-market or non-daily mark-to-market with margin holidays, and we improved our cost of funds by 28 basis points. On sales, again, we sold a significant portion of the legacy resi assets. This is not that much left there, honestly, to talk about. Ongoing initiatives, cleaning up some of the legacy stuff, and then continue to look to source opportunities in the commercial space. Playbook, I'm not going to spend any real time on this. It's everything we've been talking about. Look to the future. Clean up the remaining small items that sit on balance sheet and redeploy capital. Look for that opportunistic either deal or investments to recapitalize the company, and that will come as we go forward here. As you look at the real estate sector, obviously there's a lot of talk about real estate commercial now. The time is now. What I would say is we see a lot of opportunities or not opportunities, I should say. And there's a lot of hair on a lot of the things that come out. And you've got to be really, really careful here. And we are really, really careful here. We want to make sure the transactions that we do or that we do contemplate are going to be, obviously, are going to be the right ones. And that first large transaction we do in this vehicle is going to be very, very important. So we're going to be really patient. You're starting to see a little bit more flow come out of some of the banks, I would say. But, you know, we haven't seen a ton come out yet, but we'll continue to see more. When we look at the portfolio on page nine going forward, this is just a snapshot of what it could look like. It could look, quite frankly, it could look like something totally different. But really what we're trying to do is create a portfolio, cash flowing portfolio, which returns in kind of the low to mid teens for the so-called great Ajax or rhythm property trust shareholders. We are obviously involved in the equity. That was part of the deal when we took over the manager. And we're all highly vested in seeing the success of this company. So with that, I'll turn it back to the operator. We can open up to some questions. Thank you.