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What changed in Rithm Property Trust Inc.'s 10-K — 2022 vs 2023

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Paragraph-level year-over-year comparison of Rithm Property Trust Inc.'s 2022 and 2023 10-K annual filings, covering the Business, Risk Factors, Legal Proceedings, Cybersecurity, MD&A and Market Risk sections. Every new, removed and edited paragraph is highlighted side-by-side so you can see exactly what management changed in the 2023 report.

+436 added−415 removedSource: 10-K (2024-02-28) vs 10-K (2023-03-03)

Top changes in Rithm Property Trust Inc.'s 2023 10-K

436 paragraphs added · 415 removed · 298 edited across 6 sections

Item 1. Business

Business — how the company describes what it does

47 edited+41 added−11 removed135 unchanged
Biggest changeWe may also acquire single-family homes, smaller multi-family residential properties, smaller mixed use retail/residential/office properties and smaller commercial properties either upon foreclosure or other settlement of our owned NPLs or in the market and generally sell such property. 7 Our Manager is authorized to finance our investment positions through repurchase agreements, secured debt and other financing arrangements, provided such agreements are negotiated with counterparties approved by the investment committee.
Biggest changeOur Manager may, without a vote of our stockholders, consider any investment consistent with our investment policy. We may also acquire single-family homes, smaller multi-family residential properties, smaller mixed use retail/residential/office properties and smaller commercial properties either upon foreclosure or other settlement of our owned NPLs or in the market and generally sell such property.
Policies with Respect to Certain Transactions Other than (i) transactions in which our Servicer is the holder of record because we or our subsidiaries may not hold the necessary license to hold those assets directly, but where we are the beneficial owner of at least 95% of the participation rights in those assets, or (ii) as approved by a majority of the independent members of our Board of Directors, we generally will not purchase portfolio assets from, or sell them to, our directors or officers or to our Manager, Aspen or any of their affiliates or engage in any transaction in which they have a direct or indirect pecuniary interest, including in connection with the securitization of any of our mortgage loan assets (other than our agreements with our Manager, the Servicer and Aspen described in more detail herein) without the consent of the Investment Supervisory Committee of the Board of Directors.
Policies with Respect to Certain Transactions Other than (i) transactions in which a licensed mortgage servicer is the holder of record because we or our subsidiaries may not hold the necessary license to hold those assets directly, but where we are the beneficial owner of at least 95% of the participation rights in those assets, or (ii) as approved by a majority of the independent members of our Board of Directors, we generally will not purchase portfolio assets from, or sell them to, our directors or officers or to our Manager, Aspen or any of their affiliates or engage in any transaction in which they have a direct or indirect pecuniary interest, including in connection with the securitization of any of our mortgage loan assets (other than our agreements with our Manager, the Servicer and Aspen described in more detail herein) without the consent of the Investment Supervisory Committee of the Board of Directors.
Our investment policy, the assets in our portfolio, the decision to use leverage and the appropriate level of leverage will be based on our Manager’s assessment of a variety of factors, including our historical and projected financial condition, liquidity and results of operations, financing covenants, the cash flow generation capability of assets, the availability of credit on favorable terms, our outlook for borrowing costs relative to the unlevered yields on our assets, our intention to qualify and maintain our qualification as a REIT and exemption from the Investment Company Act, applicable law, and other factors, as our Board of Directors may deem relevant from time to time.
Our investment policy, the assets in our portfolio, the decision to use leverage and the appropriate level of leverage will be based on our Manager’s assessment of a variety of factors, including our historical and projected financial condition, liquidity and results of operations, financing covenants, the cash flow generation capability of assets, the availability of credit on favorable terms, our outlook for borrowing costs relative to the unlevered yields on our assets, our intention to qualify and maintain our qualification as a REIT and exemption from the Investment Company Act, applicable law, and other factors, as our Board of Directors may deem relevant 11 from time to time.
To mitigate this risk, we may use derivative financial instruments such as interest rate swaps and interest rate options in an effort to reduce the variability of earnings caused by changes in the interest rates we pay on our debt, subject to our maintaining compliance with the terms of the no-action letter so that we are not treated as a commodity pool 9 operator for purposes of the Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Dodd-Frank Act”).
To mitigate this risk, we may use derivative financial instruments such as interest rate swaps and interest rate options in an effort to reduce the variability of earnings caused by changes in the interest rates we pay on our debt, subject to our maintaining compliance with the terms of the no-action letter so that we are not treated as a commodity pool operator for purposes of the Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Dodd-Frank Act”).
The SBC loans that we target through acquisitions generally have a principal balance of up to $5.0 million and are secured by multi-family residential and commercial mixed use retail/residential properties on which at least five of the seven most recent payments have 3 been made, or the most recent payment has been made and accepted pursuant to an agreement, or the full dollar amount to cover at least five payments has been paid in the last seven months.
The SBC loans that we target through acquisitions generally have a principal balance of up to $5.0 million and are secured by multi-family residential and commercial mixed use retail/residential properties on which at least five of the seven most recent payments have been made, or the most recent payment has been made and accepted pursuant to an agreement, or the full dollar amount to cover at least five payments has been paid in the last seven months.
From time to time, the Servicer may become party to certain regulatory inquiries or proceedings, which, even if unrelated to the residential mortgage servicing operation, may result in adverse findings, fines, penalties or other assessments and may affect adversely the Servicer’s reputation. The Servicer receives an annual servicing fee ranging from 0.65% annually of UPB to 1.25% annually of UPB.
From time to time, the Servicer may become party to certain regulatory inquiries or proceedings, which, even if unrelated to the residential mortgage servicing operation, may result in adverse findings, fines, penalties or other assessments and may affect adversely the Servicer’s reputation. 14 The Servicer receives an annual servicing fee ranging from 0.65% annually of UPB to 1.25% annually of UPB.
However, we may not be able to achieve our business objectives due to the competitive risks that we face. Operating and Regulatory Structure Tax Requirements We elected to be taxed as a REIT for U.S. federal income tax purposes beginning with our taxable year ended December 31, 2014.
We may not be able to achieve our business objectives due to the competitive risks that we face. Operating and Regulatory Structure Tax Requirements We elected to be taxed as a REIT for U.S. federal income tax purposes beginning with our taxable year ended December 31, 2014.
Servicing fees for our real property assets are the greater of (i) the servicing fee applicable to the underlying mortgage loan prior to foreclosure, or (ii) 1.00% 11 annually of the fair market value of the REO as reasonably determined by the Manager or 1.00% annually of the purchase price of any REO we otherwise purchase.
Servicing fees for our real property assets are the greater of (i) the servicing fee applicable to the underlying mortgage loan prior to foreclosure, or (ii) 1.00% annually of the fair market value of the REO as reasonably determined by the Manager or 1.00% annually of the purchase price of any REO we otherwise purchase.
Competition 12 In acquiring our assets, we compete with other mortgage and hybrid REITs, hedge funds, specialty finance companies, savings and loan associations, banks, mortgage bankers, insurance companies, mutual funds, investment banking firms, financial institutions, governmental bodies and other entities.
Competition In acquiring our assets, we compete with other mortgage and hybrid REITs, hedge funds, specialty finance companies, savings and loan associations, banks, mortgage bankers, insurance companies, mutual funds, investment banking firms, financial institutions, governmental bodies and other entities.
We may acquire RPLs and NPLs either directly or in joint ventures with institutional accredited investors. The joint ventures are structured as securitization trusts, of which we acquire debt securities and beneficial interests. We may also acquire or originate SBC loans.
We may acquire RPLs and NPLs 3 either directly or in joint ventures with institutional accredited investors. The joint ventures are structured as securitization trusts, of which we acquire debt securities and beneficial interests. We may also acquire or originate SBC loans.
We use proprietary models to predict probabilistic future cash flows for each loan and generate cash flow projections. Factors affecting our cash flow projections include resolution method, resolution timeline, foreclosure costs, rehabilitation costs and eviction costs.
We use proprietary models to predict probabilistic future cash flows for each loan and generate cash flow projections. Factors affecting our cash flow projections include resolution method, resolution timeline, foreclosure costs, 7 rehabilitation costs and eviction costs.
Similarly, as of December 31, 2022, the Operating Partnership wholly owned Great Ajax III Depositor LLC, which was formed to act as the depositor into Ajax Mortgage Loan Trust 2021-E ("2021-E"), which is a real estate mortgage investment conduit ("REMIC"). We have securitized mortgage loans through these securitization trusts and retained subordinated securities from the secured borrowings.
Similarly, as of December 31, 2023, the Operating Partnership wholly owned Great Ajax III Depositor LLC, which was formed to act as the depositor into Ajax Mortgage Loan Trust 2021-E ("2021-E"), which is a real estate mortgage investment conduit ("REMIC"). We have securitized mortgage loans through these securitization trusts and retained subordinated securities from the secured borrowings.
GAAP, and certain other non-cash items, is greater than zero for the most recently completed eight calendar quarters. In the event that the 10 payment of the quarterly base management fee has not reached the 50/50 split, all of the incentive fee is payable in shares of our common stock at our discretion and any until the 50/50 split occurs.
GAAP, and certain other non-cash items, is greater than zero for the most recently completed eight calendar quarters. In the event that the 13 payment of the quarterly base management fee has not reached the 50/50 split, all of the incentive fee is payable in shares of our common stock at our discretion and any until the 50/50 split occurs.
While the return to the mortgage loan owner is thus capped, there is also risk mitigation if the REO value decreases, until the value is less than the price the lender paid for the loan. 5 • If an RPL becomes an NPL, we, through the Servicer, have a number of ways to mitigate our loss.
While the return to the mortgage loan owner is thus capped, there is also risk mitigation if the REO value decreases, until the value is less than the price the lender paid for the loan. • If an RPL becomes an NPL, we, through a licensed mortgage servicer, have a number of ways to mitigate our loss.
Our principal objective is to generate attractive risk-adjusted returns for our stockholders over the long-term through dividends and capital appreciation. Our board of directors (“Board of Directors”) has adopted an investment policy designed to facilitate the management of our capital and assets and the maintenance of an investment portfolio profile that meets our objectives.
Our principal objective is to generate attractive risk-adjusted returns for our stockholders over the long-term through dividends and capital appreciation. The Board of Directors has adopted an investment policy designed to facilitate the management of our capital and assets and the maintenance of an investment portfolio profile that meets our objectives.
Our Operating Partnership, through interests in certain entities, as of December 31, 2022, owns 99.9% of Great Ajax II REIT Inc. which owns Great Ajax II Depositor LLC which then acts as the depositor of mortgage loans into securitization trusts and holds subordinated securities issued by such trusts.
Our Operating Partnership, through interests in certain entities, as of December 31, 2023, owns 99.9% of Great Ajax II REIT Inc. which owns Great Ajax II Depositor LLC which then acts as the depositor of mortgage loans into securitization trusts and holds subordinated securities issued by such trusts.
We believe that purchasing RPLs at a discount to UPB and a significant discount to underlying property values, as well as working, through our Servicer, to support continuing or new payments by borrowers, allows us to achieve our targeted returns.
We believe that purchasing RPLs at a discount to UPB and a significant discount to underlying property values, as well as working, through a licensed mortgage servicer, to support continuing or new payments by borrowers, allows us to achieve our targeted returns.
Additionally, we invest in single-family and smaller commercial properties directly either through a foreclosure event of a loan in our mortgage portfolio, or, less frequently, through a direct acquisition. We own a 19.8% equity interest in our Manager and an 8.0% equity interest in the parent company of our Servicer through GA-TRS, a wholly owned subsidiary of the Operating Partnership.
Additionally, we invest in single-family and smaller commercial properties directly either through a foreclosure event of a loan in our mortgage portfolio, or, less frequently, through a direct acquisition. We own a 19.8% equity interest in our Manager and an 9.5% equity interest in the parent company of our Servicer through GA-TRS, a wholly owned subsidiary of the Operating Partnership.
GAJX Real Estate Corp. is a wholly owned subsidiary of the Operating Partnership formed to own, maintain, improve and sell certain REO purchased by us. GA-TRS is a wholly owned subsidiary of our Operating Partnership that owns our 19.8% equity interest in our Manager and our 8.0% interest in the parent of our Servicer.
GAJX Real Estate Corp. is a wholly owned subsidiary of the Operating Partnership formed to own, maintain, improve and sell certain REO purchased by us. GA-TRS is a wholly owned subsidiary of our Operating Partnership that owns our 19.8% equity interest in our Manager and our 9.5% interest in the parent of our Servicer.
Our strategy consists of: • constructing and owning a portfolio of residential RPLs and SBC loans at discounts to the unpaid principal balance (“UPB”) and significant discounts to underlying property values; • expanding our acquisitions of RPLs, SBC loans, and limited acquisitions of NPLs through joint ventures; • constructing concentrations of investments in geographic areas, cities and neighborhoods with certain demographic and economic trends and attributes; 4 • working, through our Servicer, to (1) support the continued performance of RPLs; (2) convert a portion of our NPLs to performing status; (3) determine the optimal loss mitigation strategy on an asset-by-asset basis; and (4) manage the process and timelines for converting NPLs to REO held-for-sale; • when economically efficient, securitizing our RPL portfolio to create long-term, fixed rate, non-recourse financing, while retaining one or more tranches of any subordinated securities we may create; • opportunistically mitigating our interest rate and prepayment risk, including, potentially, through the use of a variety of hedging instruments; and • working through joint ventures with third party investors to acquire pools of mortgage loans and other mortgage related assets, which may create value additive opportunities for us, our Manager (an affiliated entity), and our Servicer (an affiliated entity).
Our strategy consists of: • constructing and owning a portfolio of residential RPLs and SBC loans at discounts to the unpaid principal balance (“UPB”) and significant discounts to underlying property values; • expanding our acquisitions of RPLs, SBC loans, and limited acquisitions of NPLs through joint ventures; • constructing concentrations of investments in geographic areas, cities and neighborhoods with certain demographic and economic trends and attributes; • working, through a licensed mortgage servicer, to (1) support the continued performance of RPLs; (2) convert a portion of our NPLs to performing status; (3) determine the optimal loss mitigation strategy on an asset-by-asset basis; and (4) manage the process and timelines for converting NPLs to REO held-for-sale; • when economically efficient, securitizing our RPL portfolio to create long-term, fixed rate, non-recourse financing, while retaining one or more tranches of any subordinated securities we may create; • opportunistically mitigating our interest rate and prepayment risk; and • working through joint ventures with third party investors to acquire pools of mortgage loans and other mortgage related assets, which may create value additive opportunities for us.
In the future, our Manager may make investments on our behalf with lower rates of return than those anticipated under current market conditions and/or may make investments with greater risks to achieve those anticipated returns.
Our Manager may make investments on our behalf with lower rates of return than those anticipated under current market conditions and/or may make investments with greater risks to achieve those anticipated returns.
Our Board of Directors has adopted the following additional investment guidelines: • investments and acquisitions that exceed 15% of our equity from time to time must be approved by the Investment Supervisory Committee of our Board of Directors; • no investment shall be made that would cause us to fail to qualify as a REIT for U.S. federal income tax purposes; • no investment shall be made that would cause us to be regulated as an investment company under the Investment Company Act; • our assets will be invested within our target assets, as described above; and • until appropriate investments can be identified, we may pay off short-term debt or invest the proceeds of any offering in interest-bearing, short-term investments, including funds that are consistent with qualifying and maintaining our qualification as a REIT.
We also acquire loans and other real estate assets through joint ventures. 10 Our Board of Directors has adopted the following additional investment guidelines: • investments and acquisitions that exceed 15% of our equity from time to time must be approved by the Investment Supervisory Committee of our Board of Directors; • no investment shall be made that would cause us to fail to qualify as a REIT for U.S. federal income tax purposes; • no investment shall be made that would cause us to be regulated as an investment company under the Investment Company Act; • our assets will be invested within our target assets, as described above; and • until appropriate investments can be identified, we may pay off short-term debt or invest the proceeds of any offering in interest-bearing, short-term investments, including funds that are consistent with qualifying and maintaining our qualification as a REIT.
At December 31, 2022, we owned an 8.0% equity interest in the parent company of our Servicer and warrants to acquire an additional 12.0%, all held through a TRS.
At December 31, 2023, we owned an 9.5% equity interest in the parent company of our Servicer and warrants to acquire an additional 12.0%, all held through a TRS.
The quantity of common stock is determined based on the average of the closing prices of its common stock on the New York Stock Exchange (“NYSE”) on the five business days preceding the record date of the most recent regular quarterly dividend to holders of the common stock.
The quantity of common stock is determined based on the average of the closing prices of its common stock on the NYSE on the five business days preceding the record date of the most recent regular quarterly dividend to holders of the common stock.
We may also hedge our interest rate exposure on our financing activities through the use of interest rate swaps, forwards, futures and options, subject to prior approval from the investment committee, though no such hedges are currently in use. We also acquire loans and other real estate assets through joint ventures.
We may also hedge our interest rate exposure on our financing activities through the use of interest rate swaps, forwards, futures and options, subject to prior approval from the investment committee, though no such hedges are currently in use.
Under the Servicing Agreement, the Servicer also provides property management, lease management and renovation management services associated with the real properties we acquire upon conversion of mortgage loans that we own or that we acquire directly and assists in finding third party financing for such properties.
The Servicer also services the mortgage loans underlying the MBS we create and sell to investors pursuant to customary agreements. 15 Under the Servicing Agreement, the Servicer also provides property management, lease management and renovation management services associated with the real properties we acquire upon conversion of mortgage loans that we own or that we acquire directly and assists in finding third party financing for such properties.
Environmental laws can impose liability on an owner or operator of real property for the investigation and remediation of contamination at or migrating from such real property, without regard to whether the owner or operator knew of or was responsible for the presence of the contaminants. The costs of any required investigation or cleanup of these substances could be substantial.
Environmental laws can impose liability on an owner or operator of real property for the 17 investigation and remediation of contamination at or migrating from such real property, without regard to whether the owner or operator knew of or was responsible for the presence of the contaminants.
Investment Process We value our portfolio on a loan-by-loan and property-by-property basis. Purchase prices generally are at a discount to UPB and a significant discount to current property value, based in part on up to two unaffiliated broker price opinions (“BPOs”) for every property.
Investment Process We value our portfolio on a loan-by-loan and property-by-property basis. Purchase prices generally are at a discount to UPB and a significant discount to current property value, based in part on up to two unaffiliated broker price opinions (“BPOs”) for every property. We estimate our resolution timelines using a combination of proprietary data, modeling and historical trends.
In addition, we conduct our operations so that neither we nor our Operating Partnership nor Great Ajax Funding come within the definition of an investment company by ensuring that less than 40% of the value of our total assets on an unconsolidated basis consists of “investment securities.” We monitor our compliance with the 40% test and the holdings of our subsidiaries to ensure that each of our subsidiaries is in compliance with an applicable exemption or exclusion from registration as an investment company under the Investment Company Act.
In addition, we conduct our operations so that neither we nor our Operating Partnership nor Great Ajax Funding come within the definition of an investment company by ensuring that less than 40% of the value of our total assets on an unconsolidated basis consists of “investment securities.” We monitor our compliance with the 40% test and the holdings of our subsidiaries to ensure that each of our subsidiaries is in compliance with an applicable exemption or exclusion from registration as an investment company under the Investment Company Act. 16 Our 19.8% equity interest in our Manager and our 9.5% equity interest in the parent company of our Servicer are owned by GA-TRS, which is a special purpose subsidiary of our Operating Partnership.
As a result, our acquisition and management decisions depend on prevailing market conditions, and our targeted investments may vary over time in response to market conditions. We may change our strategy and policies without a vote of our stockholders.
As a result, our acquisition and management decisions depend on prevailing market conditions, and our targeted investments may vary over time in response to market conditions. We may change our strategy and policies without a vote of our stockholders, including following the consummation or termination of the transactions with Rithm and its affiliates.
See “— Investment Guidelines.” Our Portfolio The following table outlines the carrying value of our portfolio of mortgage loan assets and single-family and smaller commercial properties as of December 31, 2022 and 2021 ($ in millions): December 31, 2022 December 31, 2021 Residential RPLs $ 872.9 $ 971.1 Residential NPLs 105.1 119.5 SBC loans 11.1 19.3 Real estate owned properties, net 6.3 6.1 Investments in securities at fair value 257.1 355.2 Investment in beneficial interests 134.6 139.6 Total mortgage related assets $ 1,387.1 $ 1,610.8 We closely monitor the status of our mortgage loans and, through our Servicer, work with our borrowers to improve their payment records.
See “— Investment Guidelines.” 8 Our Portfolio The following table outlines the carrying value of our portfolio of mortgage loan assets and single-family and smaller commercial properties as of December 31, 2023 and 2022 ($ in millions): December 31, 2023 December 31, 2022 Residential RPLs $ 822.1 $ 872.9 Residential NPLs 92.0 105.1 SBC loans 6.2 11.1 Real estate owned properties, net 3.8 6.3 Investments in securities available-for-sale 131.6 257.1 Investments in securities held-to-maturity 59.7 — Investment in beneficial interests 104.2 134.6 Total mortgage related assets $ 1,219.6 $ 1,387.1 We closely monitor the status of our mortgage loans and, through a license mortgage servicer, work with our borrowers to improve their payment records.
Therefore, although we expect to transact in these derivative instruments purely for risk management, they may not adequately protect us from fluctuations in our financing interest rate obligations. No such derivative instruments are currently in use. The Management Agreement We have 19.8% ownership in our Manager.
Therefore, although we expect 12 to transact in these derivative instruments purely for risk management, they may not adequately protect us from fluctuations in our financing interest rate obligations. No such derivative instruments are currently in use. The Management Agreement On February 26, 2024, we issued a notice to our Manager to terminate the existing Management Agreement.
The Servicer We are also a party to the Servicing Agreement (the “Servicing Agreement”), expiring July 8, 2029, with the Servicer. Our Servicer, Gregory, was formed by the members of our Manager’s management team to service “high-touch” assets, which are loans that require substantial and active interaction with the borrower for modification or other resolution.
Gregory was formed by the members of our Manager’s management team to service “high-touch” assets, which are loans that require substantial and active interaction with the borrower for modification or other resolution.
In the event that our Board of Directors determines to raise additional equity capital, it has the authority, without stockholder approval, to issue additional common stock or preferred stock in any manner and on such terms and for such consideration as it deems appropriate, at any time, subject to compliance with applicable regulatory requirements. 8 In addition, we expect to borrow money to finance or refinance the acquisition of RPLs, SBC loans and REO and for general corporate purposes, and we may borrow to finance the payment of dividends.
In the event that our Board of Directors determines to raise additional equity capital, it has the authority, without stockholder approval, to issue additional common stock or preferred stock in any manner and on such terms and for such consideration as it deems appropriate, at any time, subject to compliance with applicable regulatory requirements.
Our investment policy and guidelines may be changed from time to time by our Board of Directors without the approval of our stockholders. Broad Investment Policy Risks Our investment policy is very broad and, therefore, our Manager has great latitude in determining the types of assets that are appropriate investments for us, as well as the individual investment decisions.
Broad Investment Policy Risks Our investment policy is very broad and, therefore, our Manager has great latitude in determining the types of assets that are appropriate investments for us, as well as the individual investment decisions.
GA-TRS may rely on Section 3(c)(1) or 3(c)(7) for its Investment Company Act exclusion and, therefore, our interest in such subsidiary would constitute an 13 ‘‘investment security’’ for purposes of determining whether we pass the 40% test.
GA-TRS may rely on Section 3(c)(1) or 3(c)(7) for its Investment Company Act exclusion and, therefore, our interest in such subsidiary would constitute an ‘‘investment security’’ for purposes of determining whether we pass the 40% test. We also may form certain other wholly owned or majority-owned subsidiaries that will invest, subject to our investment guidelines, in other real estate-related assets.
On November 22, 2019, Gaea completed a private capital raise transaction through which it raised $66.3 million from the issuance of its common stock to third parties to allow Gaea to continue to advance its investment strategy.
On November 22, 2019, Gaea completed a private capital raise transaction through which it raised $66.3 million from the issuance of its common stock to third parties. Additionally, in January 2022, Gaea completed a second private capital raise in which it raised approximately $30.0 million from the issuance of its common stock and warrants.
We seek to build concentrations of loans and real properties in certain markets. These markets include, but are not limited to, Phoenix, Arizona; Los Angeles and San Diego, California; Miami, Ft.
By focusing on urban centers and targeted densely populated suburbs we are able to more efficiently manage our portfolio. We seek to build concentrations of loans and real properties in certain markets. These markets include, but are not limited to, Phoenix, Arizona; Los Angeles and San Diego, California; Miami, Ft.
The liability is generally not limited under such laws and could exceed the property’s 14 value and the aggregate assets of the liable party.
The costs of any required investigation or cleanup of these substances could be substantial. The liability is generally not limited under such laws and could exceed the property’s value and the aggregate assets of the liable party.
We elected to be taxed as a REIT for U.S. federal income tax purposes beginning with our taxable year ended December 31, 2014.
At December 31, 2023 we owned approximately 22.2% of Gaea. We account for our investment in Gaea under the equity method. We elected to be taxed as a REIT for U.S. federal income tax purposes beginning with our taxable year ended December 31, 2014.
We intend to continue to distribute substantially all of our REIT taxable income to our stockholders in accordance with applicable REIT qualification requirements.
This strategy enables us to generate attractive current yields and risk-adjusted total returns for our stockholders. We intend to continue to distribute substantially all of our REIT taxable income to our stockholders in accordance with applicable REIT qualification requirements.
Strategy We are continuing the opportunistic strategy developed by our Manager’s management team in a REIT structure that we believe provides us access to capital and allows us to compete for more significant investment opportunities in the evolving mortgage markets. This strategy enables us to generate attractive current yields and risk-adjusted total returns for our stockholders.
Strategy Until the transactions with Rithm and its affiliates are consummated or in the event the transactions with Rithm and its affiliates are terminated, we expect to continue the strategy developed by our Manager’s management team in a REIT structure that we believe provides us access to capital and allows us to compete for more significant investment opportunities in the evolving mortgage markets.
The following graphic outlines the process the Manager generally uses for assessing RPL and NPL portfolio purchase opportunities: Investment Guidelines All of our investment activities are conducted by our Manager on our behalf pursuant to the Third Amended and Restated Management Agreement with the Manager, which expires March 5, 2034 (the “Management Agreement”).
We evaluate geographic location priorities based on many different factors and data, including, but not limited to, employment rates and the local mismatch between employment rates and housing supply, demographic shifts, cost of new construction, social services, education, crime and voting participation rates. 9 The following graphic outlines the process the Manager generally uses for assessing RPL and NPL portfolio purchase opportunities: Investment Guidelines All of our investment activities are currently conducted by our Manager on our behalf pursuant to the Third Amended and Restated Management Agreement with the Manager, which expires March 5, 2034 (the “Management Agreement”).
We also may form certain other wholly owned or majority-owned subsidiaries that will invest, subject to our investment guidelines, in other real estate-related assets. These subsidiaries may rely upon the exclusion from the definition of investment company under the Investment Company Act pursuant to Section 3(c)(1) or 3(c)(7) of the Investment Company Act.
These subsidiaries may rely upon the exclusion from the definition of investment company under the Investment Company Act pursuant to Section 3(c)(1) or 3(c)(7) of the Investment Company Act.
Our Manager believes it is critical to structure any financing facilities to significantly limit the risk to our business from falling collateral values and margin calls.
Our Manager is currently authorized to finance our investment positions through repurchase agreements, secured debt and other financing arrangements, provided such agreements are negotiated with counterparties approved by the investment committee. Our Manager believes it is critical to structure any financing facilities to significantly limit the risk to our business from falling collateral values and margin calls.
We have an extensive due diligence process to validate data consistency, accuracy and compliance and to perform document and third-party lien reviews on all loan files. 6 The most important factors in analyzing RPLs are the level and duration of continued re-performance, the potential for HPA, prevailing interest rates, the potential for economic growth and the availability of financing for the borrower.
The most important factors in analyzing RPLs are the level and duration of continued re-performance, the potential for HPA, prevailing interest rates, the potential for economic growth and the availability of financing for the borrower.
We also use statistical models to determine the expected modification success probability and the expected short sale success probabilities.
We also use statistical models to determine the expected modification success probability and the expected short sale success probabilities. We have an extensive due diligence process to validate data consistency, accuracy and compliance and to perform document and third-party lien reviews on all loan files.
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Additionally, in January 2022, Gaea completed a second private capital raise in which it raised approximately $30.0 million from the issuance of its common stock and warrants. At December 31, 2022 we owned approximately 22.0% of Gaea. We account for our investment in Gaea under the equity method.
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Also, during the year ended December 31, 2023, GA-TRS received an additional 20,991 shares of Gaea common stock for $0.3 million due to the termination of Gaea's management agreement as Gaea's manager distributed its remaining shares to our Manager, which then our Manager distributed its shares to its investors and this increased our ownership.
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By focusing on urban centers and targeted densely populated suburbs we are able to more efficiently manage our portfolio and scale our Servicer's high-touch loan servicing platform. Our Manager has compiled data that suggests that HPA can vary significantly from neighborhood to neighborhood even within the same city.
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Termination of the Merger Agreement As we previously announced on October 20, 2023, we and Ellington Financial Inc. (“Ellington Financial”) mutually terminated our merger agreement with Ellington Financial. The termination was approved by both companies’ boards of directors after careful consideration of the proposed merger and the progress made towards completing the transaction.
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Our Manager’s proprietary analytics include inputs for economic and demographic data that includes unemployment rates, housing starts, crime rates, education, electoral participation and other variables that we believe closely correlate to property values. These analytics help us determine cities, neighborhoods and properties that we believe will experience HPA.
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In connection with the termination, Ellington Financial paid us $16.0 million, $5.0 million of which was paid in cash, and $11.0 million of which was paid in cash as consideration for approximately 1,666,666 shares of our common stock. The common 4 stock was purchased at $6.60 per share. The purchase price was determined based on the merger exchange ratio.
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In addition to its experienced servicing staff, our Servicer has contracted with local experts in areas where it services a significant number of loans that provide local area market intelligence, monitor properties and can manage rehabilitation projects for REO properties.
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Ellington Financial holds approximately 6.1% of our stock. An affiliate of Ellington Financial’s external manager owned 273,983 shares of our common stock or 1.2% as of June 30, 2023. Ellington Financial remains one of our securitization joint venture partners.
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We believe having affiliated local experts and a centralized management team provides us a competitive advantage and leads to more informed decision-making and better execution.
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As we discussed when we announced the now terminated transaction, our board regularly evaluates and considers our strategic direction, our objectives and our succession plans, as well as our ongoing business, all with a view to maximizing long-term value for our stockholders. This evaluation and consideration led to our entry into the merger agreement with Ellington Financial.
Removed
Employees and agents of our Manager periodically view the exteriors of properties prior to completion of due diligence and the information from such visits is incorporated into final loan pricing negotiations with the sellers. We estimate our resolution timelines using a combination of proprietary data, modeling and historical trends.
Added
Following termination of the agreement, the board engaged Piper Sandler & Co. as our financial adviser to assist us with a thorough evaluation of strategic alternatives, including, but not limited to, other strategic transactions, potential capital injections involving us and/or our affiliates, other monetization opportunities involving us and/or our affiliates, specific asset sales, or other opportunities.
Removed
We evaluate geographic location priorities based on many different factors and data, including, but not limited to, employment rates and the local mismatch between employment rates and housing supply, demographic shifts, cost of new construction, social services, education, crime and voting participation rates.
Added
Amended Bylaws As part of the transaction with Ellington Financial, our Board of Directors amended and restated our bylaws to include an exclusive forum bylaw, which states that unless we consent in writing to a selection of alternative forum for litigation, the Circuit Court for Baltimore City, Maryland, or if that court does not have jurisdiction, the United States District Court for the District of Maryland, Baltimore Division, shall be the sole and exclusive forum for certain types of actions filed against us, all as specified in the Bylaws that are filed herewith.
Removed
Our Manager may, without a vote of our stockholders, consider any investment consistent with our investment policy.
Added
New Strategic Transaction On February 26, 2024, we entered into a strategic transaction with Rithm, a global asset manager focused on real estate, credit and financial services. The following summarizes the principal transaction agreements executed by the parties.
Removed
The Servicer also services the mortgage loans underlying the MBS we create and sell to investors pursuant to customary agreements.
Added
Credit Agreement On February 26, 2024, we entered into a Credit Agreement (the “Credit Agreement”) with NIC RMBS LLC, an affiliate of Rithm (“NIC RMBS”), as sole lender, administrative agent and collateral agent. The Credit Agreement provides, subject to certain conditions, for a delayed draw term loan facility (the “Facility”), in an aggregate amount of up to $70.0 million.
Removed
In the face of this competition, we rely on our Manager’s professionals and their industry expertise, which we believe provides us with a competitive advantage and helps us assess risks and determine appropriate pricing for certain potential assets. In addition, we believe that these relationships enable us to compete more effectively for attractive asset acquisition opportunities.
Added
The Facility matures on February 25, 2025. Outstanding loans under the Facility will accrue interest at a rate equal to 10.0% per annum. Our obligations under the Credit Agreement are guaranteed by substantially all of our non-special purpose vehicle subsidiaries and are secured by a first-priority lien on substantially all of our and our subsidiaries’ assets.
Removed
Our 19.8% equity interest in our Manager and our 8.0% equity interest in the parent company of our Servicer are owned by GA-TRS, which is a special purpose subsidiary of our Operating Partnership.
Added
Proceeds under the Credit Agreement, together with cash on hand and proceeds from loan sales, will be used to repay the outstanding 2024 Notes (as defined below) upon their maturity in April 2024. The Credit Agreement contains customary conditions, representations and warranties, affirmative and negative covenants and events of default.
Added
The covenants include certain financial covenants requiring us to maintain compliance with (i) a quarterly minimum net asset value covenant set at the sum of $240.0 million plus 65% of our positive net equity capital activity, (ii) a quarterly minimum ratio covenant of our unencumbered assets to the sum of the aggregate principal amount of the loans outstanding under the Facility and of the outstanding indebtedness under the Operating Partnership’s 8.875% Senior Notes due 2027 set at 1.6:1.0, (iii) a quarterly maximum ratio covenant of our consolidated recourse indebtedness to our equity interests set at 4.0:1.0, (iv) a quarterly minimum liquidity covenant of $30.0 million and (v) a maximum ratio covenant of (i) the aggregate principal amount of the loans outstanding under the Facility to (ii) the difference between (a) the fair market value of our and our consolidated subsidiaries’ assets minus (b) our and our consolidated subsidiaries’ aggregate liabilities of 1.0:1.0.
Added
Changes in Our Management and Board of Directors On February 26, 2024, we issued a termination notice to our Manager. We are expected to pay the Manager the contractually stipulated termination fee substantially in Common Stock.
Added
Subject to receipt of stockholder approval, we will enter into an agreed form of termination and release agreement (“Form of Termination and Release Agreement”) with the Manager, and into a new management agreement with RCM GA, in the form agreed upon with RCM GA.
Added
As part of the contemplated transactions, subject to receipt of stockholder approval, our board of directors (“Board of Directors”) will be reconstituted as follows: the Board of Directors will become a five-member board, two members of which 5 will be existing directors, one member of which will be a director nominated by Rithm, and two members of which will be new independent directors.
Added
Warrant Agreement In connection with the Credit Agreement and pursuant to the Purchase Agreement (as described below), on February 26, 2024, we have agreed to issue (the “Warrant Issuance”) to Rithm (the “Rithm Holder”) five-year warrants (the “Warrants”) to purchase shares of Common Stock (such Common Stock issuable upon exercise of the Warrants, the “Warrant Shares”), at an exercise price per Warrant Share of $5.36 which represents a 10% premium to the trailing five-day average closing price of the Common Stock on the New York Stock Exchange (“NYSE”) as of the date of the Purchase Agreement.
Added
The number of Warrant Shares for which the Warrants may be exercised will equal the greater of 50% of (i) the amount drawn under the Facility and (ii) $35.0 million, in each case, divided by $5.36.
Added
In connection with the Warrant Issuance, we will enter into a warrant agreement with Equiniti Trust Company (the “Form of Warrant Agreement”), in its capacity as our warrant agent (“Warrant Agent”), in the form attached to the Purchase Agreement, pursuant to which the Warrant Agent agrees to act as the warrant agent in connection with, among other things, the issuance, registration, transfer and exercise of the Warrants.
Added
The Warrant Agreement includes a form of Warrant setting forth the number of Warrants to be held by the Rithm Holder and the terms and conditions applicable to such Warrants. The Warrants are exercisable on the earlier of the declaration of effectiveness of a resale registration statement (described below) relating to the Warrant Shares and August 26, 2024.
Added
The number of Warrant Shares issuable upon exercise of the Warrants will be capped at 19.99% of our then-current outstanding Common Stock, unless and until such exercise is approved by our stockholders (as described below).
Added
If approval of our stockholders regarding the transactions (as described below) is not obtained, the Warrants will be repurchased by us at a value agreed upon by an independent third-party valuation expert. Securities Purchase Agreement On February 26, 2024, we, the Operating Partnership and the Manager entered into a securities purchase agreement (the “Purchase Agreement”) with Rithm.
Added
Pursuant to the Purchase Agreement, we, in a private placement made in reliance on the exemption from the registration requirement of the Securities Act of 1933, as amended (the “Securities Act”), afforded by Section 4(a)(2) of the Securities Act, agreed to issue and sell, as applicable, to Rithm or its designated affiliate, shares of Common Stock, at a purchase price per share of $4.87 (the “Shares”), which represents the trailing five-day average closing price of the Common Stock on the NYSE as of the date of the Purchase Agreement for gross proceeds of approximately $14.0 million (the “Private Placement”), and (ii) the Warrants on the terms described above.

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Item 1A. Risk Factors

Risk Factors — what could go wrong, per management

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Biggest changeUnder current Maryland law, our present and former directors and officers will not have any liability to us or our stockholders for money damages other than liability resulting from: • actual receipt of an improper benefit or profit in money, property or services; or • active and deliberate dishonesty by the director or officer that was established by a final judgment and is material to the cause of action. 39 In addition, our charter authorizes us to indemnify our present and former directors and officers for actions taken by them in those and other capacities to the maximum extent permitted by Maryland law and our bylaws require us to indemnify our present and former directors and officers, to the maximum extent permitted by Maryland law, in the defense of any proceeding to which he or she is made, or threatened to be made, a party by reason of his or her service to us as a director or officer in these and other capacities.
Biggest changeUnder current Maryland law, our present and former directors and officers will not have any liability to us or our stockholders for money damages other than liability resulting from: 42 • actual receipt of an improper benefit or profit in money, property or services; or • active and deliberate dishonesty by the director or officer that was established by a final judgment and is material to the cause of action.
In evaluating investments and other management strategies, the opportunity to earn incentive compensation may lead our Manager to place undue emphasis on the maximization of dividends at the expense of other criteria, such as preservation of capital, in order to achieve higher incentive compensation. Investments with higher yield potential are generally riskier or more speculative.
In evaluating investments and other management strategies, the opportunity to earn incentive compensation may lead our Manager to place undue emphasis on the maximization of dividends at the expense of other criteria, such as preservation of capital, in order to achieve higher incentive compensation. Investments with higher yield potential are generally riskier or more speculative.
The securities issued by our subsidiaries that are excluded from the definition of “investment company” under Section 3(c)(1) or Section 3(c)(7) of the Investment Company Act, together with other investment securities we may own, cannot exceed 40% of the value of all our assets (excluding U.S. government securities and cash) on an unconsolidated basis.
The securities issued by our subsidiaries that are 40 excluded from the definition of “investment company” under Section 3(c)(1) or Section 3(c)(7) of the Investment Company Act, together with other investment securities we may own, cannot exceed 40% of the value of all our assets (excluding U.S. government securities and cash) on an unconsolidated basis.
Rental rates and occupancy levels for single-family residential properties have benefited in recent periods from macroeconomic trends affecting the U.S. economy and residential real estate and mortgage markets in particular, including: • increases in housing costs which make the traditional concept of home ownership, especially for younger workers, more difficult; • a tightening of credit that has made it more difficult to finance a home purchase, combined with efforts by consumers generally to reduce their exposure to credit; • economic and employment conditions that have increased foreclosure rates; and 26 • a concentration of high-paying employment opportunities in certain large metropolitan areas currently experiencing significant HPA is pricing homes beyond the reach of many buyers, and also forcing reductions in HPA in outlying areas.
Rental rates and occupancy levels for single-family residential properties have benefited in recent periods from macroeconomic trends affecting the U.S. economy and residential real estate and mortgage markets in particular, including: • increases in housing costs which make the traditional concept of home ownership, especially for younger workers, more difficult; • a tightening of credit that has made it more difficult to finance a home purchase, combined with efforts by consumers generally to reduce their exposure to credit; • economic and employment conditions that have increased foreclosure rates; and • a concentration of high-paying employment opportunities in certain large metropolitan areas currently experiencing significant HPA is pricing homes beyond the reach of many buyers, and also forcing reductions in HPA in outlying areas.
Net operating 17 income of an income producing property can be affected by, among other things, tenant mix, success of tenant businesses, property management decisions, property location and condition, competition from comparable types of properties, changes in laws that increase operating expense, limit rents that may be charged, or that restrict eviction and replacement of nonpaying tenants, any need to address environmental contamination at the property, the occurrence of any uninsured casualty at the property, changes in national, regional or local economic conditions or specific industry segments, declines in regional or local real estate values, declines in regional or local rental or occupancy rates, increases in interest rates, real estate tax rates and other operating expenses, changes in governmental rules, regulations and fiscal policies, including environmental legislation, acts of God, terrorism, social unrest and civil disturbances.
Net operating income of an income producing property can be affected by, among other things, tenant mix, success of tenant businesses, property management decisions, property location and condition, competition from comparable types of properties, changes in laws that increase operating expense, limit rents that may be charged, or that restrict eviction and replacement of nonpaying tenants, any need to address environmental contamination at the property, the occurrence of any uninsured casualty at the property, changes in national, regional or local economic conditions or specific industry segments, declines in regional or local real estate values, declines in regional or local rental or occupancy rates, increases in interest rates, real estate tax rates and other operating expenses, changes in governmental rules, regulations and fiscal policies, including environmental legislation, acts of God, terrorism, social unrest and civil disturbances.
Net operating income of an income-producing property can be affected by, among other things: • tenant mix; • success of tenant businesses; • property management decisions; • property location and condition; • competition from comparable types of properties; • changes in laws that increase operating expenses or limit rents that may be charged; • any need to address environmental contamination at the property or the occurrence of any uninsured casualty at the property; • changes in national, regional or local economic conditions and/or specific industry segments; • declines in regional or local real estate values; • declines in regional or local rental or occupancy rates; • increases in interest rates; • real estate tax rates and other operating expenses; • changes in governmental rules, regulations and fiscal policies, including environmental legislation; and • acts of God, terrorist attacks, social unrest and civil disturbances.
Net operating income of an income-producing property can be affected by, among other things: 22 • tenant mix; • success of tenant businesses; • property management decisions; • property location and condition; • competition from comparable types of properties; • changes in laws that increase operating expenses or limit rents that may be charged; • any need to address environmental contamination at the property or the occurrence of any uninsured casualty at the property; • changes in national, regional or local economic conditions and/or specific industry segments; • declines in regional or local real estate values; • declines in regional or local rental or occupancy rates; • increases in interest rates; • real estate tax rates and other operating expenses; • changes in governmental rules, regulations and fiscal policies, including environmental legislation; and • acts of God, terrorist attacks, social unrest and civil disturbances.
Laws, regulations, rules and judicial and administrative decisions relating to mortgage loans include those pertaining to Real Estate Settlement Procedures Act (“RESPA”), equal credit opportunity, fair lending, fair credit reporting, truth in lending, fair debt collection practices, service members protections, compliance with net worth and financial statement delivery requirements, compliance with U.S. federal and state disclosure and 32 licensing requirements, the establishment of maximum interest rates, finance charges and other charges, qualified mortgages, secured transactions, payment processing, escrow, loss mitigation, collection, foreclosure, repossession and claims-handling procedures, and other trade practices and privacy regulations providing for the use and safeguarding of non-public personal financial information of borrowers.
Laws, regulations, rules and judicial and administrative decisions relating to mortgage loans include those pertaining to Real Estate Settlement Procedures Act (“RESPA”), equal credit opportunity, fair lending, fair credit reporting, truth in lending, fair debt collection practices, service members protections, compliance with net worth and financial statement delivery requirements, compliance with U.S. federal and state disclosure and licensing requirements, the establishment of maximum interest rates, finance charges and other charges, qualified mortgages, secured transactions, payment processing, escrow, loss mitigation, collection, foreclosure, repossession and claims-handling procedures, and other trade practices and privacy regulations providing for the use and safeguarding of non-public personal financial information of borrowers.
In the event that any such licensing requirement is applicable and we are not able to obtain such licenses in a timely manner or at all, our ability to implement our business strategy could be adversely affected, which could materially and adversely affect us. Certain jurisdictions require a license to purchase, hold, enforce or sell residential mortgage loans.
Certain jurisdictions require licenses to purchase, hold, enforce or sell residential mortgage loans. In the event that any such licensing requirement is applicable and we are not able to obtain such licenses in a timely manner or at all, our ability to implement our business strategy could be adversely affected, which could materially and adversely affect us.
In addition, claims may be assessed against us on account of our position as a mortgage holder or property owner, including assignee liability, responsibility for tax payments, environmental hazards and other liabilities. In some cases, 19 these liabilities may be “recourse liabilities” or may otherwise lead to losses in excess of the purchase price of the related mortgage or property.
In addition, claims may be assessed against us on account of our position as a mortgage holder or property owner, including assignee liability, responsibility for tax payments, environmental hazards and other liabilities. In some cases, these liabilities may be “recourse liabilities” or may otherwise lead to losses in excess of the purchase price of the related mortgage or property.
We therefore are required to retain five percent or more of the credit risk associated with the assets we securitize. In addition to these laws and rules, other U.S. federal or state laws and regulations that could affect our ability to sell assets into securitization programs may be proposed, enacted, or implemented.
We therefore are required to retain five percent or more of the credit risk associated with the assets we securitize. 25 In addition to these laws and rules, other U.S. federal or state laws and regulations that could affect our ability to sell assets into securitization programs may be proposed, enacted, or implemented.
For example, by relying on incorrect models and data, especially valuation or cash flow models, we may be induced to buy certain assets at prices that are too high, to sell certain other assets at prices that are too low, overestimate the timing or amount of cash flows expected to be collected, underestimate the timing or amount of cash flows expected to be collected, or to miss favorable opportunities altogether.
For example, by relying on incorrect models 27 and data, especially valuation or cash flow models, we may be induced to buy certain assets at prices that are too high, to sell certain other assets at prices that are too low, overestimate the timing or amount of cash flows expected to be collected, underestimate the timing or amount of cash flows expected to be collected, or to miss favorable opportunities altogether.
In addition to deterring 38 potential transactions that may be favorable to our stockholders, these provisions may also decrease your ability to sell our common stock. Our stockholders’ ability to control our operations is limited. Our Board of Directors approves our major strategies, including our strategies regarding investments, financing, growth, debt capitalization, REIT qualification and distributions.
In addition to deterring potential transactions that may be favorable to our stockholders, these provisions may also decrease your ability to sell our common stock. Our stockholders’ ability to control our operations is limited. Our Board of Directors approves our major strategies, including our strategies regarding investments, financing, growth, debt capitalization, REIT qualification and distributions.
Through the Servicing Agreement, the Servicer passes along to us many of the additional third-party expenses incurred by it in servicing these higher risk loans. The greater cost of servicing higher risk loans, which may be further increased through regulatory changes, could adversely affect our business, financial condition and results of operations.
Through the Servicing Agreement, the Servicer currently passes along to us many of the additional third-party expenses incurred by it in servicing these higher risk loans. The greater cost of servicing higher risk loans, which may be further increased through regulatory changes, could adversely affect our business, financial condition and results of operations.
A number of factors, including a general economic downturn, acts of nature, terrorism, social unrest and civil disturbances, may impair a borrower’s ability to repay a mortgage loan. Foreclosure of a mortgage loan can be an expensive and lengthy process, which could have a substantial negative effect on our anticipated return on a foreclosed mortgage loan.
A number of factors, including a general economic downturn, acts of nature, terrorism, social unrest and civil disturbances, may impair a borrower’s ability to repay a mortgage loan. Foreclosure of a mortgage loan can be an expensive and lengthy process, which could have a substantial 23 negative effect on our anticipated return on a foreclosed mortgage loan.
To assist us in qualifying as a REIT, among other purposes, our charter generally limits the beneficial or constructive ownership of our (a) common stock by any person to no more than 9.8% in value or in number of shares, whichever is more restrictive, of the aggregate of the outstanding shares of our common stock and (b) capital stock by any person to no more than 9.8% in value or in number of shares, whichever is more restrictive, of the aggregate of the outstanding shares of our capital stock.
To assist us in qualifying as a REIT, among other purposes, our charter generally limits the beneficial or constructive ownership of our (a) common stock by any person to no more than 9.8% in value or in number of shares, whichever is more restrictive, of the aggregate of the outstanding shares of our common stock and (b) capital stock by any person to no more than 9.8% in value or in number of shares, whichever is more restrictive, of the aggregate of the outstanding shares of our capital 41 stock.
To the extent that due diligence is conducted on potential assets, such due diligence may not reveal all of the risks associated with such assets and may not reveal other weaknesses in such assets, which could lead to losses. 20 Before making an investment, we conduct (either directly or using third parties) certain due diligence.
To the extent that due diligence is conducted on potential assets, such due diligence may not reveal all of the risks associated with such assets and may not reveal other weaknesses in such assets, which could lead to losses. Before making an investment, we conduct (either directly or using third parties) certain due diligence.
The Servicer’s failure to comply with applicable laws and regulations 24 could adversely affect our expenses and results of operations. If we were to determine to change servicers, there is no assurance that we could find servicers that satisfy our requirements or with whom we could enter into agreements on satisfactory terms.
The Servicer’s failure to comply with applicable laws and regulations could adversely affect our expenses and results of operations. If we were to determine to change servicers, there is no assurance that we could find servicers that satisfy our requirements or with whom we could enter into agreements on satisfactory terms.
Sources of leverage may include bank credit facilities, warehouse lines of credit, structured financing arrangements (including securitizations) and repurchase agreements, among others. We may also seek to raise additional capital through public or private offerings of debt or equity securities, depending upon market conditions.
Sources of leverage may include bank credit facilities, warehouse lines of credit, structured financing arrangements 33 (including securitizations) and repurchase agreements, among others. We may also seek to raise additional capital through public or private offerings of debt or equity securities, depending upon market conditions.
In addition, we may change our investment policy and guidelines and targeted asset classes at any time without the consent of our stockholders, and this could result in our making investments that are different in type from, and possibly riskier than, our current investments or the investments currently contemplated.
In addition, we may change our 39 investment policy and guidelines and targeted asset classes at any time without the consent of our stockholders, and this could result in our making investments that are different in type from, and possibly riskier than, our current investments or the investments currently contemplated.
Furthermore, new companies with significant amounts of capital have recently been formed or have 28 raised additional capital, and may continue to be formed and raise additional capital in the future, and these companies may have objectives that overlap with ours, which may create competition for assets we wish to acquire.
Furthermore, new companies with significant amounts of capital have recently been formed or have raised additional capital, and may continue to be formed and raise additional capital in the future, and these companies may have objectives that overlap with ours, which may create competition for assets we wish to acquire.
Despite our security measures, our information technology and infrastructure may be vulnerable to attacks by hackers or breached due to employee error, malfeasance or other disruptions. Any such breach could compromise our networks and the information stored there could be accessed, publicly disclosed, lost or stolen.
Despite our security measures, our information technology and infrastructure may be vulnerable to attacks by 32 hackers or breached due to employee error, malfeasance or other disruptions. Any such breach could compromise our networks and the information stored there could be accessed, publicly disclosed, lost or stolen.
The U.S. federal income tax rules, including those dealing with REITs, are constantly under review by persons involved in the legislative process, the IRS and the U.S. Treasury Department, which results in statutory changes as well as frequent revisions to regulations and interpretations.
The U.S. federal income tax rules, including those dealing with REITs, are constantly 37 under review by persons involved in the legislative process, the IRS and the U.S. Treasury Department, which results in statutory changes as well as frequent revisions to regulations and interpretations.
It is also possible that other residential mortgage servicers will agree to similar settlements. In addition, the U.S. Congress and numerous state legislatures have considered, proposed or adopted legislation to constrain foreclosures, or may do so in the future.
It is also possible that other residential mortgage servicers 21 will agree to similar settlements. In addition, the U.S. Congress and numerous state legislatures have considered, proposed or adopted legislation to constrain foreclosures, or may do so in the future.
The volume of new or modified laws and regulations has increased in recent years, and states and individual cities and counties continue to enact laws that either restrict or impose additional obligations in connection with certain loan origination, acquisition and servicing activities in those cities and counties.
The volume of new or modified laws and regulations has increased 28 in recent years, and states and individual cities and counties continue to enact laws that either restrict or impose additional obligations in connection with certain loan origination, acquisition and servicing activities in those cities and counties.
The properties we acquire may also be subject to covenants, conditions or restrictions that restrict the use or ownership of such properties, including zoning laws and regulations and prohibitions on leasing or on tenant evictions, or requirements to obtain the approval of home owner associations prior to leasing.
The properties we acquire may also be subject to covenants, conditions or restrictions that restrict the use or ownership of such properties, including zoning laws and regulations and prohibitions on leasing or on tenant 30 evictions, or requirements to obtain the approval of home owner associations prior to leasing.
While we retain and expect to retain the unrated equity component of securitizations and, therefore, still have exposure to any investments included in such securitizations, our inability to enter into such securitizations may increase our overall exposure to risks associated with direct ownership of such investments, including the risk of default.
While we retain and expect to retain the unrated equity 34 component of securitizations and, therefore, still have exposure to any investments included in such securitizations, our inability to enter into such securitizations may increase our overall exposure to risks associated with direct ownership of such investments, including the risk of default.
Any attempt by a stockholder to own or transfer our stock in excess of the ownership limit without the consent of our Board of Directors or in a manner that would cause us to be “closely held” under Section 856(h) of the Code (without regard to whether the stock is held during the last half of a taxable year) or would otherwise cause us to fail to qualify as a REIT will result in the stock being automatically transferred to a trustee for a charitable trust or, if the transfer to the charitable trust is not 40 automatically effective to prevent a violation of the stock ownership limit or the restrictions on ownership and transfer of our stock, any such transfer of our shares will be void ab initio.
Any 43 attempt by a stockholder to own or transfer our stock in excess of the ownership limit without the consent of our Board of Directors or in a manner that would cause us to be “closely held” under Section 856(h) of the Code (without regard to whether the stock is held during the last half of a taxable year) or would otherwise cause us to fail to qualify as a REIT will result in the stock being automatically transferred to a trustee for a charitable trust or, if the transfer to the charitable trust is not automatically effective to prevent a violation of the stock ownership limit or the restrictions on ownership and transfer of our stock, any such transfer of our shares will be void ab initio.
A change in our investment or leverage strategy may increase our exposure to interest rate and real estate market fluctuations or require us to sell a portion of our existing investments, which could result in gains or losses and therefore increase our earnings volatility.
A change in our investment or leverage strategy may increase our exposure to interest rate and real estate market fluctuations or require us to 31 sell a portion of our existing investments, which could result in gains or losses and therefore increase our earnings volatility.
We may, however, be limited or restricted in the amount of leverage we may employ by the terms and provisions of any financing or other agreements that we may enter into in the future, and we may be subject to margin calls as a result of our financing 30 activity.
We may, however, be limited or restricted in the amount of leverage we may employ by the terms and provisions of any financing or other agreements that we may enter into in the future, and we may be subject to margin calls as a result of our financing activity.
This could result in increased risk to the value of our investment portfolio. 34 As an externally managed REIT, we are entirely managed by our Manager, which negotiates all our agreements and deals with all our contractual counterparties on our behalf.
This could result in increased risk to the value of our investment portfolio. As an externally managed REIT, we are entirely managed by our Manager, which negotiates all our agreements and deals with all our contractual counterparties on our behalf.
If we are unable to sell our assets at favorable prices or at all, it could materially adversely affect our business, financial condition and results of operations and our ability to make distributions to our stockholders.
If we are unable to sell 19 our assets at favorable prices or at all, it could materially adversely affect our business, financial condition and results of operations and our ability to make distributions to our stockholders.
We may pay distributions from offering proceeds, borrowings or the sale of assets to the extent that distributions exceed earnings or cash flow from our investment activities. We may pay distributions from offering proceeds, borrowings or the sale of assets to the extent that distributions exceed earnings or cash flow from our investment activities.
We may pay distributions from offering proceeds, borrowings or the sale of assets to the extent that distributions exceed earnings or cash flow from our investment activities. 45 We may pay distributions from offering proceeds, borrowings or the sale of assets to the extent that distributions exceed earnings or cash flow from our investment activities.
As a result, values of 18 certain of our assets and the asset classes in which we intend to invest have experienced volatility.
As a result, values of certain of our assets and the asset classes in which we intend to invest have experienced volatility.
We cannot predict the effect, if any, of future sales of our common stock, or the availability of shares of 42 our common stock for future sales, on the value of our common stock.
We cannot predict the effect, if any, of future sales of our common stock, or the availability of shares of our common stock for future sales, on the value of our common stock.
Also, investors consisting of an investment fund for which Wellington Management Company LLP is the investment adviser and one or more other investment advisory clients of Wellington Management Company LLP (collectively, the “Wellington Investors”) owns 17.1% of our outstanding common stock as of December 31, 2022.
Also, investors consisting of an investment fund for which Wellington Management Company LLP is the investment adviser and one or more other investment advisory clients of Wellington Management Company LLP (collectively, the “Wellington Investors”) owns 17.1% of our outstanding common stock as of December 31, 2023.
These higher risk loans, combined with decreases in property values, have caused increases in loan-to-value ratios, resulting in borrowers having little or negative equity in their 15 property, which may provide an incentive to borrowers to strategically default on their loans.
These higher risk loans, combined with decreases in property values, have caused increases in loan-to-value ratios, resulting in borrowers having little or negative equity in their 20 property, which may provide an incentive to borrowers to strategically default on their loans.
Flexpoint Great Ajax Holdings LLC (“Flexpoint REIT Investor”) an affiliate of an investment fund managed by Flexpoint Ford LLC is one of our larger investors and owns 26.6% of our shares of series A preferred stock as of December 31, 2022.
Flexpoint Great Ajax Holdings LLC (“Flexpoint REIT Investor”) an affiliate of an investment fund managed by Flexpoint Ford LLC is one of our larger investors and owns 26.6% of our shares of series A preferred stock as of December 31, 2023.
We also rely on the Servicer to provide all of our property management, lease management and renovation management services associated with the real properties we acquire upon conversion of residential mortgage loans that we own or that we acquire directly.
We also rely on Gregory to provide all of our property management, lease management and renovation management services associated with the real properties we acquire upon conversion of residential mortgage loans that we own or that we acquire directly.
Residential mortgage loan modification, refinance, or forbearance programs, future legislative action, and other actions and changes in the general economy may materially and adversely affect the supply of, value of, and returns on RPLs and NPLs.
Residential mortgage loan modification, refinance, or forbearance programs, future legislative action, and other actions and changes in the general economy may materially and adversely affect the value of and expected returns on RPLs and NPLs.
The Servicing Agreement 36 has an initial term of 15 years, expiring July 8, 2029.
The Servicing Agreement has an initial term of 15 years, expiring July 8, 2029.
Our 19.8% equity interest in our Manager and our 8.0% equity interest in the parent 37 company of our Servicer are held by GA-TRS, which is a special purpose subsidiary of our Operating Partnership, and GA-TRS may rely on Section 3(c)(1) or Section 3(c)(7) for its Investment Company Act exclusion and, therefore, our interest in such subsidiary would constitute an “investment security” for purposes of determining whether we pass the 40% test (see “Item 1.
Our 19.8% equity interest in our Manager and our 9.5% equity interest in the parent company of our Servicer are held by GA-TRS, which is a special purpose subsidiary of our Operating Partnership, and GA-TRS may rely on Section 3(c)(1) or Section 3(c)(7) for its Investment Company Act exclusion and, therefore, our interest in such subsidiary would constitute an “investment security” for purposes of determining whether we pass the 40% test (see “Item 1.
Risks Related to Our Management and Our Relationship with Our Manager, the Servicer and Aspen We have conflicts of interest with our Manager, the Servicer and Aspen, and certain members of our Board of Directors, as well as our management team, have, or could have in the future, conflicts of interest due to their respective relationships with these entities, and such conflicts could be resolved in a manner adverse to us.
We have conflicts of interest with our Manager, the Servicer and Aspen, and certain members of our Board of Directors, as well as our management team, have, or could have in the future, conflicts of interest due to their respective relationships with these entities, and such conflicts could be resolved in a manner adverse to us.
In January 2018, we acquired a 4.9% equity interest in the parent company of our Servicer which increased to 8.0% in May 2018, and we also own warrants to purchase additional equity interests.
In January 2018, we acquired a 4.9% equity interest in the parent company of our Servicer which increased to 8.0% in May 2018 and then increased to 9.5% in 2023, and we also own warrants to purchase additional equity interests.
For example, tenants may default on payment of rent, make unreasonable and repeated demands for service or improvements, make unsupported or unjustified complaints to regulatory or political authorities, make use of our properties for illegal purposes, damage or make unauthorized structural changes to our properties that may not be fully covered by security deposits, refuse to leave the property when the lease is terminated, engage in domestic violence or similar disturbances, disturb nearby residents with noise, trash, odors or eyesores, fail to comply with applicable regulations, sub-let to less desirable individuals in violation of our leases or permit unauthorized persons to occupy the property. 27 In addition, defaulting tenants will often be effectively judgment-proof.
For example, tenants may default on payment of rent, make unreasonable and repeated demands for service or improvements, make unsupported or unjustified complaints to regulatory or political authorities, make use of our properties for illegal purposes, damage or make unauthorized structural changes to our properties that may not be fully covered by security deposits, refuse to leave the property when the lease is terminated, engage in domestic violence or similar disturbances, disturb nearby residents with noise, trash, odors or eyesores, fail to comply with applicable regulations, sub-let to less desirable individuals in violation of our leases or permit unauthorized persons to occupy the property.
The frequency at which prepayments (including voluntary prepayments by borrowers, loan buyouts and liquidations due to defaults and foreclosures) occur on mortgage loans, including those underlying MBS, is affected by a variety of factors, 21 including the impact of the COVID-19 pandemic, home price appreciation, prevailing level of interest rates as well as economic, demographic, tax, social, legal, and other factors.
The frequency at which prepayments (including voluntary prepayments by borrowers, loan buyouts and liquidations due to defaults and foreclosures) occur on mortgage loans, including those underlying MBS, is affected by a variety of factors, including, home price appreciation, prevailing level of interest rates as well as economic, demographic, tax, social, legal, and other factors.
We own a 19.8% equity interest in our Manager and an 8.0% equity interest in the parent company of our Servicer through GA-TRS, with warrants to purchase an additional equity interest in GAFS.
We own a 19.8% equity interest in our Manager and an 9.5% equity interest in the parent company of our Servicer through GA-TRS, with warrants to purchase an additional equity interest in GAFS.
Concerns about the residential mortgage market, as well as the COVID-19 pandemic, inflation, energy costs, geopolitical issues, concerns over the creditworthiness of governments worldwide and the stability of the global banking system, continuing relatively high unemployment and under-employment and the availability and cost of credit have contributed to increased volatility and diminished expectations for the economy and markets going forward.
Concerns about the residential mortgage market, inflation, energy costs, geopolitical issues, concerns over the creditworthiness of governments worldwide and the stability of the global banking system, continuing relatively high unemployment and under-employment and the availability and cost of credit have contributed to increased volatility and diminished expectations for the economy and markets going forward.
Some of the other factors that could negatively affect our share price or result in fluctuations in our share price include: • economic and public health impact as a result of the COVID-19 pandemic; • weakening of the mortgage loan market; • actual or anticipated variations in our quarterly operating results; • increases in market interest rates that lead purchasers of our common stock to demand a higher yield; • changes in our cumulative core earnings or earnings estimates; • changes in market valuations of similar companies; • actions or announcements by our competitors; • actual or perceived conflicts of interest, or the discontinuance of our strategic relationships, with our Manager, the Servicer or Aspen; • adverse market reaction to any increased indebtedness we incur in the future; • additions or departures of key personnel; • actions by stockholders; • speculation in the press or investment community; • our ability to maintain the listing of our common stock on a national securities exchange; • failure to qualify or maintain our qualification as a REIT; and • failure to maintain our exemption from registration under the Investment Company Act.
Some of the other factors that could negatively affect our share price or result in fluctuations in our share price include: • weakening of the mortgage loan market; • actual or anticipated variations in our quarterly operating results; • increases in market interest rates that lead purchasers of our common stock to demand a higher yield; • changes in our cumulative core earnings or earnings estimates; • changes in market valuations of similar companies; • political and social unrest or instability and military conflicts; • actions or announcements by our competitors; • actual or perceived conflicts of interest, or the discontinuance of our strategic relationships, with our Manager, the Servicer or Aspen; • adverse market reaction to any increased indebtedness we incur in the future; • additions or departures of key personnel; • actions by stockholders; • speculation in the press or investment community; • our ability to maintain the listing of our common stock on a national securities exchange; • failure to qualify or maintain our qualification as a REIT; and • failure to maintain our exemption from registration under the Investment Company Act.
We and our Manager are required to comply with a wide array of U.S. federal, state and local laws and regulations that regulate, among other things, the manner in which each of us conducts our businesses. These regulations directly impact our business and require constant compliance, monitoring and internal and external audits.
The residential mortgage industry is highly regulated. We and our Manager are required to comply with a wide array of U.S. federal, state and local laws and regulations that regulate, among other things, the manner in which each of us conducts our businesses. These regulations directly impact our business and require constant compliance, monitoring and internal and external audits.
Changes in our investment policy and guidelines and targeted asset classes may increase our exposure to interest rate risk, counterparty risk, default risk and real estate market fluctuations, which could materially and adversely affect us. We depend on our Manager.
Changes in our investment policy and guidelines and targeted asset classes may increase our exposure to interest rate risk, counterparty risk, default risk and real estate market fluctuations, which could materially and adversely affect us.
A significant percentage of the mortgage loans we own are higher risk loans, meaning that the loans are made to less creditworthy borrowers or for properties the value of which has decreased, including as a result of the COVID-19 pandemic. These loans are more expensive to service because they require more frequent interaction with customers and greater monitoring and oversight.
A significant percentage of the mortgage loans we own are higher risk loans, meaning that the loans are made to less creditworthy borrowers or for properties the value of which has decreased. These loans are more expensive to service because they require more frequent interaction with customers and greater monitoring and oversight.
The failure of the Servicer to effectively service our mortgage loan assets, including the mortgage loans underlying any MBS we may own, REO and other real estate-related assets could negatively impact the value of our investments and our performance.
The failure of Gregory (or a third party mortgage servicer) to effectively service our mortgage loan assets, including the mortgage loans underlying any MBS we may own, REO and other real estate-related assets could negatively impact the value of our investments and our performance.
The process of evicting a defaulting tenant from a family residence can be adversarial, protracted and costly. Furthermore, some tenants facing eviction may damage or destroy the property. Damage to our properties may significantly delay re-leasing after eviction, necessitate expensive repairs or impair the rental revenue or value of the property.
In addition, defaulting tenants will often be effectively judgment-proof. The process of evicting a defaulting tenant from a family residence can be adversarial, protracted and costly. Furthermore, some tenants facing eviction may damage or destroy the property. Damage to our properties may significantly delay re-leasing after eviction, necessitate expensive repairs or impair the rental revenue or value of the property.
The principal and interest payments on our retained MBS are not guaranteed by any entity and, therefore, are subject to increased risks, including credit risk as a result of the COVID-19 pandemic. We create and retain MBS that are backed by residential mortgage loans that do not conform to the Fannie Mae or Freddie Mac underwriting guidelines.
The principal and interest payments on our retained MBS are not guaranteed by any entity and, therefore, are subject to increased risks, including credit risk. We create and retain MBS that are backed by residential mortgage loans that do not conform to the Fannie Mae or Freddie Mac underwriting guidelines.
Unpredictable events, such as the recent COVID-19 pandemic, may create economic shocks, to which federal, state, and local governments respond with new borrower and tenant rights and protections. Certain federal and state regulators continue to consider proposals to apply regulatory prudential standards to nonbank servicers, which may impact how our service providers, including the Servicer, are regulated.
Unpredictable events, such as the current ongoing military conflicts, may create economic shocks, to which federal, state, and local governments respond with new borrower and tenant rights and protections. Certain federal and state regulators continue to consider proposals to apply regulatory prudential standards to nonbank servicers, which may impact how our service providers, including the Servicer, are regulated.
Difficult conditions in the mortgage, residential real estate and smaller commercial real estate markets as well as general market concerns may adversely affect the value of the assets in which we invest and these conditions may persist for the foreseeable future.
Difficult conditions in the mortgage, residential real estate and smaller commercial real estate markets as well as general market concerns have adversely affected the value of the assets in which we invest and these conditions continue to persist for the foreseeable future.
The lack of liquidity of our assets may adversely affect our business, including our ability to sell our assets. We acquire assets, securities or other instruments that are not liquid or publicly traded, and market conditions could significantly and negatively affect the liquidity of other assets.
The lack of liquidity of our assets has adversely affected our business, including our ability to sell our assets. We acquire assets, securities or other instruments that are not liquid or publicly traded, and recent market conditions have significantly and negatively affected the liquidity of our assets.
The need to operate within these parameters could limit the use of swaps by us below the level that we would otherwise consider optimal or may lead to the registration of our company or our directors as commodity pool operators, which will subject us to additional regulatory oversight, compliance and costs. 33 Certain jurisdictions require licenses to purchase, hold, enforce or sell residential mortgage loans.
The need to operate within these parameters could limit the use of swaps by us below the level that we would otherwise consider optimal or may lead to the registration of our company or our directors as commodity pool operators, which will subject us to additional regulatory oversight, compliance and costs.
As a result of the COVID-19 pandemic, the asset-backed securitization markets have experienced unprecedented disruptions, and securitization volumes have decreased sharply. These recent conditions in the securitization markets include reduced liquidity, increased risk premiums for issuers, reduced investor demand, financial distress among financial guaranty insurance providers, a general tightening of credit and substantial regulatory uncertainty.
In recent years, the asset-backed securitization markets have experienced unprecedented disruptions, and securitization volumes have decreased sharply due to, among other reasons, heightened inflation. These recent conditions in the securitization markets include reduced liquidity, increased risk premiums for issuers, reduced investor demand, financial distress among financial guaranty insurance providers, a general tightening of credit and substantial regulatory uncertainty.
Further, we cannot predict or control the impact future actions by the Federal Reserve will have on our business. Accordingly, future actions by the Federal Reserve could have a material and adverse effect on our business, financial condition and results of operations and our ability to pay distributions to our stockholders.
Accordingly, future actions by the Federal Reserve could have a material and adverse effect on our business, financial condition and results of operations and our ability to pay distributions to our stockholders.
The occurrence of any of the above-described events could materially and adversely affect us. The incentive fee payable to our Manager under the Management Agreement will be payable quarterly based on the dividends declared by our Board of Directors and may cause our Manager to select investments in more risky assets to increase its incentive compensation.
The incentive fee payable to our Manager under the Management Agreement will be payable quarterly based on the dividends declared by our Board of Directors and may cause our Manager to select investments in more risky assets to increase its incentive compensation.
We expect that legislative and regulatory changes will continue in the foreseeable future, which may increase our operating expenses, either to comply with applicable law, to deal with regulatory examinations or investigations, or to satisfy our lenders and investors that we are in compliance with those laws, regulations and rules that are applicable to our business.
We expect that legislative and regulatory changes will continue in the foreseeable future, which may increase our operating expenses, either to comply with applicable law, to deal with regulatory examinations or investigations, or to satisfy our lenders and investors that we are in compliance with those laws, regulations and rules that are applicable to our business. 36 Any of these new, or changes in, laws, regulations or rules could adversely affect our business, financial condition and results of operations.
Risks Related to Our Business A significant portion of our mortgage loans may become NPLs, which could increase our risk of loss. We may acquire mortgage loans where the borrower has failed to make timely payments of principal and/or interest currently or in the past.
A significant portion of our mortgage loans may become NPLs, which could further increase the significant losses we have incurred to date. We may acquire mortgage loans where the borrower has failed to make timely payments of principal and/or interest currently or in the past.
We are subject to risks of loss from weather conditions, man-made or natural disasters and climate change. Weather conditions and man-made or natural disasters such as hurricanes, tornadoes, earthquakes, floods, droughts, fires and other environmental conditions can damage properties that we own or that collateralize our loans.
Weather conditions and man-made or natural disasters such as hurricanes, tornadoes, earthquakes, floods, droughts, fires and other environmental conditions can damage properties that we own or that collateralize our loans.
Certain states have imposed or encouraged similar forbearance programs, or may do so in the future. Extended forbearance, foreclosure timelines and eviction timelines could result in lower yields and losses on our mortgage loan and beneficial interest portfolios and losses on our REO held-for-sale.
Certain states have imposed or encouraged forbearance programs, aiming at assisting at-risk homeowners or reducing the number of properties going into foreclosure, or may do so in the future. Extended forbearance, foreclosure timelines and eviction timelines could result in lower yields and losses on our mortgage loan and beneficial interest portfolios and losses on our REO held-for-sale.
In particular, the number of commercial property delinquencies and foreclosures has, and is expected to continue to, significantly increase as a result of the COVID-19 pandemic.
In particular, the number of commercial property delinquencies and foreclosures has and is expected to continue to, significantly increase.
Management’s Discussion and Analysis of Financial Condition and Results of Operations” for a discussion of the accounting estimates, judgments and assumptions that we believe are the most critical to an understanding of our future plan of operations.
Any such charges could significantly harm our business, financial condition, results of operations and the price of our securities. See “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations” for a discussion of the accounting estimates, judgments and assumptions that we believe are the most critical to an understanding of our future plan of operations.
Market conditions as a result of the COVID-19 pandemic and other factors may affect our ability to securitize assets, which could increase our financing costs and adversely affect our results of operations and ability to make distributions.
Market conditions may affect our ability to securitize assets, which could increase our financing costs and adversely affect our results of operations and ability to make distributions.
Real estate assets are subject to various risks, including: • declines in the value of real estate, including as a result of the COVID-19 pandemic; • acts of nature, including earthquakes, floods and other natural disasters, which may result in uninsured losses; • acts of war or terrorism, including the consequences of terrorist attacks, such as those that occurred on September 11, 2001; • adverse changes in national and local economic and market conditions; • changes in governmental laws and regulations, fiscal policies and zoning ordinances and the related costs of compliance with laws and regulations, fiscal policies and ordinances; • costs of remediation and liabilities associated with environmental conditions such as indoor mold; and • the potential for uninsured or under-insured property losses. 22 The occurrence of any of the foregoing or similar events may reduce our return from an affected property or asset and, consequently, materially adversely affect our business, financial condition and results of operations and our ability to make distributions to our stockholders.
Real estate assets are subject to various risks, including: • declines in the value of real estate; 26 • acts of nature, including earthquakes, floods and other natural disasters, which may result in uninsured losses; • acts of war or terrorism, including the consequences of terrorist attacks, such as those that occurred on September 11, 2001; • adverse changes in national and local economic and market conditions; • changes in governmental laws and regulations, fiscal policies and zoning ordinances and the related costs of compliance with laws and regulations, fiscal policies and ordinances; • costs of remediation and liabilities associated with environmental conditions such as indoor mold; and • the potential for uninsured or under-insured property losses.
We currently do not hold any such licenses, and there is no assurance that we will be able to obtain them or, if obtained, that we will be able to maintain them.
Certain jurisdictions require a license to purchase, hold, enforce or sell residential mortgage loans. We currently do not hold any such licenses, and there is no assurance that we will be able to obtain them or, if obtained, that we will be able to maintain them.
Certain mortgage loans our Servicer services are higher risk loans, meaning that the loans are made to less credit worthy borrowers or for properties the value of which has decreased. These loans are more expensive to service because they require more frequent interaction with customers and greater monitoring and oversight.
Certain mortgage loans our Servicer services are higher risk loans, which are more expensive to service than conventional mortgage loans. Certain mortgage loans our Servicer services are higher risk loans, meaning that the loans are made to less credit worthy borrowers or for properties the value of which has decreased.
If we are unable to obtain and renew short-term facilities or to consummate securitizations to finance our investments on a long-term basis, we may be required to seek other forms of potentially less attractive financing or to liquidate assets at an inopportune time or price. 31 Additionally, our secured debt is structured with multiple interest rate step-ups generally beginning after an initial three-year borrowing term.
If we are unable to obtain and renew short-term facilities or to consummate securitizations to finance our investments on a long-term basis, we may be required to seek other forms of potentially less attractive financing or to liquidate assets at an inopportune time or price.
Lenders may continue to rely on heightened credit standards, in light of the economic effects of the COVID-19 crisis or other crises. In addition, the prices at which both residential and SBC RPLs can be acquired may increase due to the entry of new participants into the distressed loan marketplace or a smaller supply of RPLs in the marketplace.
In addition, the prices at which both residential and SBC RPLs can be acquired may increase due to the entry of new participants into the distressed loan marketplace or a smaller supply of RPLs in the marketplace.
Lower revenue growth or significant unanticipated expenditures may result from our need to comply with changes in (i) laws imposing remediation requirements and potential liability for environmental conditions existing on properties or the restrictions on discharges or other conditions, (ii) rent control or rent stabilization laws or other residential landlord-tenant laws or (iii) other governmental rules and regulations or enforcement policies affecting the rehabilitation, use and operation of any single-family rental properties we may own, including changes to building codes and fire and life-safety codes.
Lower revenue growth or significant unanticipated expenditures may result from our need to comply with changes in (i) laws imposing remediation requirements and potential liability for environmental conditions existing on properties or the restrictions on discharges or other conditions, (ii) rent control or rent stabilization laws or other residential landlord-tenant laws or (iii) other governmental rules and regulations or enforcement policies affecting the rehabilitation, use and operation of any single-family rental properties we may own, including changes to building codes and fire and life-safety codes. 29 Our decision whether to rent or sell any REO we acquire upon conversion of NPLs or acquire directly will depend on conditions in the relevant geographic markets, and if our assumptions about rental rates and occupancy levels in our markets are not accurate, our operating results and cash available for distribution could be adversely affected.
In addition, mortgage-related assets generally experience periods of illiquidity, including periods of delinquencies and defaults with respect to residential and commercial mortgage loans. Further, validating third-party pricing for illiquid assets may be more subjective than for liquid assets. Any illiquidity of our assets may make it difficult for us to sell such assets if the need or desire arises.
Further, validating third-party pricing for illiquid assets may be more subjective than for liquid assets. Any illiquidity of our assets may make it difficult for us to sell such assets if the need or desire arises.
Risks Related to Regulatory and Legislative Actions We operate in a highly regulated industry and continually changing U.S. federal, state and local laws and regulation could materially adversely affect our business, financial condition and results of operations and our ability to pay dividends to our stockholders. The residential mortgage industry is highly regulated.
Our hedging transactions, which would be intended to limit losses, may actually adversely affect our earnings, which could reduce our cash available for distribution to our stockholders. 35 Risks Related to Regulatory and Legislative Actions We operate in a highly regulated industry and continually changing U.S. federal, state and local laws and regulation could materially adversely affect our business, financial condition and results of operations and our ability to pay dividends to our stockholders.
As an owner of real estate, we are required to comply with numerous U.S. federal, state and local laws and regulations, some of which may conflict with one another or be subject to limited judicial or regulatory interpretations. These laws and regulations may include zoning laws, building codes, landlord-tenant laws and other laws generally applicable to business operations.
Changes in applicable laws or noncompliance with applicable law could materially and adversely affect us. As an owner of real estate, we are required to comply with numerous U.S. federal, state and local laws and regulations, some of which may conflict with one another or be subject to limited judicial or regulatory interpretations.
We may change our investment policy and guidelines without stockholder consent, which may materially and adversely affect the market price of our common stock and our ability to make distributions to our stockholders. 35 Our Manager is authorized to follow a very broad investment policy and guidelines and, therefore, has great latitude in determining the types of assets that are proper investments for us, as well as the individual investment decisions.
Our Manager is authorized to follow a very broad investment policy and guidelines and, therefore, has great latitude in determining the types of assets that are proper investments for us, as well as the individual investment decisions.
Particular risks associated with our license for the name “Great Ajax.” If the Management Agreement expires or is terminated for any reason, the trademark license agreement pursuant to which we license the mark “Great Ajax” from Aspen will also terminate within 30 days.
In addition, the Servicer is generally not prohibited from providing similar services to other owners of mortgage loans and real estate assets, including other affiliates of Aspen. 38 Particular risks associated with our license for the name “Great Ajax.” If the Management Agreement expires or is terminated for any reason, the trademark license agreement pursuant to which we license the mark “Great Ajax” from Aspen will also terminate within 30 days.
Business — The Servicer.” The Servicing Agreement was not negotiated at arm’s length; accordingly, it may contain terms that are less favorable to us than agreements negotiated with one or more unaffiliated third parties might contain. Failure of our Servicer to effectively perform its obligations under the Servicing Agreement could materially and adversely affect us.
Business — The Servicer.” The Servicing Agreement was not negotiated at arm’s length; accordingly, it may contain terms that are less favorable to us than agreements negotiated with one or more unaffiliated third parties might contain. Our Manager has a contractually defined duty to us rather than a fiduciary duty.

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Item 3. Legal Proceedings

Legal Proceedings — active lawsuits and investigations

1 edited+0 added−0 removed1 unchanged
Biggest changeMine Safety Disclosures Not applicable. 43 PART II
Biggest changeMine Safety Disclosures Not applicable. 47 PART II

Item 5. Market for Registrant's Common Equity

Market for Common Equity — stock, dividends, buybacks

5 edited+0 added−2 removed11 unchanged
Biggest changeThe graph and table below shall not be deemed to be “soliciting material” or to be “filed,” or to be incorporated by reference in future filings with the SEC, or to be subject to the liabilities of Section 18 of the Exchange Act, except to the extent that we specifically incorporate it by reference into a document filed under the Securities Act or the Exchange Act. 44 Purchases of Equity Securities by the Issuer and Affiliated Purchasers On February 28, 2020, our Board of Directors approved a stock repurchase of up to $25.0 million of our common shares.
Biggest changeThe graph and table below shall not be deemed to be “soliciting material” or to be “filed,” or to be incorporated by reference in future filings with the SEC, or to be subject to the liabilities of Section 18 of the Exchange Act, except to the extent that we specifically incorporate it by reference into a document filed under the Securities Act or the Exchange Act. 48 Unregistered Sales of Equity Securities In private placement transactions in 2023 pursuant to Section 4(a)(2) of the Securities Act, we issued our five independent directors an aggregate of 13,020 shares of our common stock on May 8, 2023 in payment of part of their quarterly director fees for 2023 and 10,580 shares of our common stock on March 9, 2023 in payment of part of their quarterly director fees for the fourth quarter of 2022.
Performance Graph The following graph shows the cumulative total shareholder return at market close on February 13, 2015 (the first day of trading of our common stock) through December 31, 2022 for (1) our common stock ("AJX"), (2) the Russell 2000 and (3) the FTSE NAREIT Mortgage REIT index (“FNMR”).
Performance Graph The following graph shows the cumulative total shareholder return at market close on February 13, 2015 (the first day of trading of our common stock) through December 31, 2023 for (1) our common stock ("AJX"), (2) the Russell 2000 and (3) the FTSE NAREIT Mortgage REIT index (“FNMR”).
Of the five independent directors, four were in their positions during the fourth quarter of 2020 and were issued an aggregate of 4,280 shares of our common stock on March 8, 2021 in payment of part of their quarterly director fees.
Of the five independent directors, four were in their positions during the fourth quarter of 2020 and were issued an aggregate of 4,280 shares of our common stock on March 8, 2021 in payment of part of their quarterly director fees. Item 6. [Reserved]
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities Our shares of common stock have been listed on the NYSE since February 13, 2015 under the symbol “AJX.” Holders As of March 1, 2023, there were 258 common stockholders of record.
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities Our shares of common stock have been listed on the NYSE since February 13, 2015 under the symbol “AJX.” Holders As of February 26, 2024, there were 242 common stockholders of record.
In private placement transactions in 2020 pursuant to Section 4(a)(2) of the Securities Act, we issued our four independent directors an aggregate of 12,784 shares of our common stock on May 7, 2020, August 6, 2020 and November 9, 2020 in payment of part of their quarterly director fees for 2020 and 2,600 shares of our common stock on March 5, 2020 in payment of part of their quarterly director fees for the fourth quarter of 2019.
In private placement transactions in 2022 pursuant to Section 4(a)(2) of the Securities Act, we issued 39,558 shares of our common stock on March 7, 2022 in payment of the stock-based portion of the management fee for the fourth quarter of 2021.
Removed
The amount and timing of any repurchases depends on a number of factors, including but not limited to the price and availability of the common shares, trading volume and general circumstances and market conditions. For the years ended December 31, 2022 and 2021, we repurchased 475,355 and 1,220 shares, respectively, of our common stock through open market transactions.
Removed
A summary of the repurchase activity for the years ended December 31, 2022 and 2021 is set forth in the table below ($ in thousands, except for per share amounts): Period Total Number of Shares Repurchased Average Price Per Share Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs Approximate Dollar Value of Shares that May Yet Be Purchased Under the Plan or Programs January 1 - December 31, 2021 1,220 $ 13.49 49,684 $ 24,547 January 1 - December 31, 2022 475,355 $ 9.77 525,039 $ 19,904 Unregistered Sales of Securities In private placement transactions in 2022 pursuant to Section 4(a)(2) of the Securities Act, we issued 39,558 shares of our common stock on March 7, 2022 in payment of the stock-based portion of the management fee for the fourth quarter of 2021.

Item 7. Management's Discussion & Analysis

Management's Discussion & Analysis (MD&A) — revenue / margin commentary

141 edited+61 added−61 removed108 unchanged
Biggest changeAt December 31, 2022, we owned approximately 22.0% of Gaea. 54 Table 1: Results of Operations For the year ended December 31, ($ in thousands) 2022 2021 2020 INCOME Interest income $ 82,582 $ 93,383 $ 98,336 Interest expense (43,632) (36,742) (48,692) Net interest income 38,950 56,641 49,644 Net decrease in the net present value of expected credit losses (1) 8,026 18,223 12,555 Net interest income after the impact of changes in the net present value of expected credit losses 46,976 74,864 62,199 (Loss)/income from investment in affiliates, net (1,218) 699 (155) Loss on joint venture refinancing on beneficial interests (6,115) — — Other (loss)/income (4,007) 2,385 1,567 Total revenue, net 35,636 77,948 63,611 EXPENSE Related party expense – loan servicing fees 7,960 7,433 7,678 Related party expense – management fee 8,326 9,116 8,456 Professional fees 2,052 2,940 2,834 Fair value adjustment on put option liability 11,143 9,462 4,733 Other expense 5,912 5,490 5,680 Total expense 35,393 34,441 29,381 Acceleration of put option settlement 12,344 — — Loss on debt extinguishment — 1,439 661 (Loss)/income before provision for income taxes (12,101) 42,068 33,569 Provision for income taxes (benefit) 2,835 293 (39) Consolidated net (loss)/income (14,936) 41,775 33,608 Less: consolidated net (loss)/income attributable to the non-controlling interest 75 (80) 5,112 Consolidated net (loss)/income attributable to the Company (15,011) 41,855 28,496 Less: dividends on preferred stock 5,474 7,798 5,740 Less: discount on retirement of preferred stock 8,194 — — Consolidated net (loss)/income attributable to common stockholders $ (28,679) $ 34,057 $ 22,756 Basic (loss)/earnings per common share $ (1.24) $ 1.48 $ 1.00 Diluted (loss)/earnings per common share $ (1.24) $ 1.41 $ 1.00 (1) Net decrease in the net present value of expected credit losses represents the net decrease to the allowance resulting from changes in actual and expected cash flows during the years ended December 31, 2022, 2021 and 2020.
Biggest changeAt December 31, 2023, our book value decreased to $9.99 per common share from $13.00 at December 31, 2022, driven by the year-to-date net loss attributable to common stockholders of $49.3 million and dividends on our common stock of $18.4 million, partially offset by the sale of our common stock of $28.2 million, the effect of mark to market net gain adjustments of $6.7 million on our investments in debt securities AFS and amortization of $5.0 million of unrealized losses on our investments in debt securities AFS transferred to HTM. 58 Table 1: Results of Operations For the year ended December 31, ($ in thousands) 2023 2022 2021 INCOME Interest income $ 72,332 $ 82,582 $ 93,383 Interest expense (59,286) (43,632) (36,742) Net interest income 13,046 38,950 56,641 Net (increase)/decrease in the net present value of expected credit losses (8,137) 8,026 18,223 Net interest income after the impact of changes in the net present value of expected credit losses 4,909 46,976 74,864 (Loss)/income from investment in affiliates, net (1,308) (1,218) 699 Loss on joint venture refinancing on beneficial interests (11,024) (6,115) — Other (loss)/income (9,651) (4,007) 2,385 Total (loss)/revenue, net (17,074) 35,636 77,948 EXPENSE Related party expense – loan servicing fees 7,269 7,960 7,433 Related party expense – management fee 7,769 8,326 9,116 Professional fees 3,157 2,052 2,940 Fair value adjustment on put option liability 4,491 11,143 9,462 Other expense 6,985 5,912 5,490 Total expense 29,671 35,393 34,441 Acceleration of put option settlement — 12,344 — (Gain)/loss on debt extinguishment (31) — 1,439 (Loss)/income before provision for income taxes (46,714) (12,101) 42,068 Provision for income taxes 243 2,835 293 Consolidated net (loss)/income (46,957) (14,936) 41,775 Less: consolidated net income/(loss) attributable to the non-controlling interest 114 75 (80) Consolidated net (loss)/income attributable to the Company (47,071) (15,011) 41,855 Less: dividends on preferred stock 2,190 5,474 7,798 Less: discount on retirement of preferred stock — 8,194 — Consolidated net (loss)/income attributable to common stockholders $ (49,261) $ (28,679) $ 34,057 Basic (loss)/earnings per common share $ (2.01) $ (1.24) $ 1.48 Diluted (loss)/earnings per common share $ (2.01) $ (1.24) $ 1.41 59 For the year ended December 31, ($ in thousands) 2023 2022 2021 Reconciliation of consolidated net (loss)/income attributable to common stockholders to consolidated operating (loss)/income Consolidated net (loss)/income attributable to common stockholders $ (49,261) $ (28,679) $ 34,057 Dividends on preferred stock (2,190) (5,474) (7,798) Discount on retirement of preferred stock — (8,194) — Consolidated net (loss)/income attributable to the Company (47,071) (15,011) 41,855 Provision for income taxes (243) (2,835) (293) Consolidated net (income)/loss attributable to the non-controlling interest (114) (75) 80 (Loss)/income before provision for income taxes (46,714) (12,101) 42,068 Loss on joint venture refinancing on beneficial interests (11,024) (6,115) — Realized (loss)/gain on sale of securities (3,347) (4,775) 201 Net (increase)/decrease in the net present value of expected credit losses (8,137) 8,026 18,223 Fair value adjustment on put option liability (4,491) (11,143) (9,462) Acceleration of put option settlement — (12,344) — Mark to market on mortgage loans held-for-sale, net (8,559) — — Other adjustments (2,373) (3,489) (1,033) Consolidated operating (loss)/income $ (8,783) $ 17,739 $ 34,139 Basic operating (loss)/income per common share $ (0.36) $ 0.77 $ 1.48 Diluted operating (loss)/income per common share $ (0.36) $ 0.77 $ 1.42 Interest Income Our primary source of income is accretion earned on our mortgage loan portfolio offset by the interest expense incurred to fund and hold portfolio acquisitions.
During certain periods and subject to certain conditions the 2024 Notes will be convertible by their holders into shares of our common stock at a current conversion rate of 1.7405 shares of common stock per $25.00 principal amount of the 2024 Notes, which represents a conversion price of approximately $14.36 per share of common stock.
During certain periods and subject to certain conditions the 2024 Notes will be convertible by their holders into shares of our common stock at a current conversion rate of 1.7405 shares of common stock per $25.00 principal amount of the 2024 Notes, which represents a conversion price of approximately $14.36 per share of common stock.
(2) Maximum borrowing capacity subject to pledging sufficient collateral as of December 31, 2022 was $150.0 million. (3) Maximum borrowing capacity subject to pledging sufficient collateral as of December 31, 2022 was $400.0 million. (4) Includes $42.8 million of bonds that are consolidated on our balance sheet for GAAP as of December 31, 2022.
(2) Maximum borrowing capacity subject to pledging sufficient collateral as of December 31, 2022 was $400.0 million. (3) Maximum borrowing capacity subject to pledging sufficient collateral as of December 31, 2022 was $150.0 million. (4) Includes $42.8 million of bonds that are consolidated on our balance sheet for GAAP as of December 31, 2022.
The 2024 Notes will mature on April 30, 2024 unless earlier repurchased, converted or redeemed.
The 2024 Notes will mature on April 30, 2024 unless earlier repurchased, converted or redeemed.
The net book value per share is calculated by taking equity at the balance sheet date (i) less preferred stock and non-controlling interest, (ii) adjusted for any addition for potential conversion of 59 our 2024 Notes, divided by outstanding shares at the balance sheet date adjusted to include (i) unvested restricted stock earned but unissued and (ii) any share equivalents for our 2024 notes or our put option liability as determined by the dilution requirements for our EPS calculation.
The net book value per share is calculated by taking equity at the balance sheet date (i) less preferred stock and non-controlling interest, (ii) adjusted for any addition for potential conversion of our 2024 Notes, divided by outstanding shares at the balance sheet date adjusted to include (i) unvested restricted stock earned but unissued and (ii) any share equivalents for our 2024 Notes or our put option liability as determined by the dilution requirements for our EPS calculation.
To qualify as a REIT under the Code, we generally will need to distribute at least 90% of our taxable income each year (subject to certain adjustments) to our stockholders. This distribution requirement limits our ability to retain earnings and thereby replenish or increase capital to support our activities. Resolution Methodologies .
To qualify as a REIT under the Code, we generally will need to distribute at least 90% of our taxable income each year (subject to certain adjustments) to our stockholders. This distribution requirement limits our ability to retain earnings and thereby replenish or increase capital to support our activities. 52 Resolution Methodologies .
In addition, we believe that many homeowners displaced by foreclosure or who either cannot afford to own or cannot be approved for a mortgage will prefer to live in single-family rental properties with similar characteristics and amenities to owned homes as well as smaller multi-family residential properties.
In addition, we believe that many homeowners displaced by foreclosure or who 51 either cannot afford to own or cannot be approved for a mortgage will prefer to live in single-family rental properties with similar characteristics and amenities to owned homes as well as smaller multi-family residential properties.
During certain periods and subject to certain conditions the 2024 Notes will be convertible by their holders into shares of our common stock at a current conversion rate of 1.7405 shares of common stock per $25.00 principal amount of the notes, which represents a conversion price of approximately $14.36 per share of common stock.
During certain periods and subject to certain conditions the 2024 Notes will be convertible by their holders into shares of our common stock at a current conversion rate of 1.7405 shares of common stock per $25.00 principal amount of the notes, which represents 79 a conversion price of approximately $14.36 per share of common stock.
A pool is accounted for as a single asset with a single composite interest rate and an aggregate expectation of cash flows. We may adjust our loan pools as the underlying risk factors change over time. We have aggregated our mortgage loan portfolio into loan pools based on similar risk factors.
A pool is accounted for as a single asset with a single composite interest rate and an aggregate expectation of cash flows. We 54 may adjust our loan pools as the underlying risk factors change over time. We have aggregated our mortgage loan portfolio into loan pools based on similar risk factors.
However, we expect that our residential mortgage loan portfolio may grow at an uneven pace, as opportunities to acquire distressed residential mortgage loans may be irregularly timed and may involve large portfolios of loans, and the timing and extent of our success in acquiring such loans cannot be predicted.
We expect that our residential mortgage loan portfolio may grow at an uneven pace, as opportunities to acquire distressed residential mortgage loans may be irregularly timed and may involve large portfolios of loans, and the timing and extent of our success in acquiring such loans cannot be predicted.
The degree of judgment utilized in measuring fair value generally correlates to the level of pricing observability. Assets and liabilities with readily available actively quoted prices or for which fair value can be measured from actively quoted prices generally will have a higher degree of pricing observability and a lesser degree of judgment utilized in measuring fair value.
The degree of judgment utilized in measuring fair value generally correlates to the level of pricing observability. Assets and liabilities with readily available actively quoted prices or for which fair value can be measured from actively quoted 57 prices generally will have a higher degree of pricing observability and a lesser degree of judgment utilized in measuring fair value.
The exact nature of resolution will depend on a number of factors 48 that are beyond our control, including borrower willingness, property value, availability of refinancing, interest rates, conditions in the financial markets, regulatory environment and other factors.
The exact nature of resolution will depend on a number of factors that are beyond our control, including borrower willingness, property value, availability of refinancing, interest rates, conditions in the financial markets, regulatory environment and other factors.
Net proceeds from the sale of the 2027 Notes totaled approximately $106.1 million, after deducting the discount, commissions, and offering expenses which 52 will be amortized over the term of the unsecured 2027 Notes using the effective interest method.
Net proceeds from the sale of the 2027 Notes totaled approximately $106.1 million, after deducting the discount, commissions, and offering expenses which will be amortized over the term of the unsecured 2027 Notes using the effective interest method.
We have elected to treat GA-TRS as a taxable REIT subsidiary under the Code. Our mortgage loans and real properties are serviced by the Servicer, also an affiliated company.
We have elected to treat GA-TRS as 49 a taxable REIT subsidiary under the Code. Our mortgage loans and real properties are serviced by the Servicer, also an affiliated company.
(See "Critical Accounting Policies" above.) Under the indenture governing the 2027 Notes, a subsidiary guarantor's guarantee will terminate upon: (i) the sale, exchange, disposition or other transfer (including by way of consolidation or merger) of the subsidiary guarantor or the sale or 69 disposition of all or substantially all the assets of the subsidiary guarantor otherwise permitted by the indenture, (ii) satisfaction of the requirements for legal or covenant defeasance or discharge of the 2027 Notes, or (iii) no default or event of default has occurred and is continuing under the indenture.
(See "Critical Accounting Policies" above.) Under the indenture governing the 2027 Notes, a subsidiary guarantor's guarantee will terminate upon: (i) the sale, exchange, disposition or other transfer (including by way of consolidation) of the subsidiary guarantor or the sale or disposition of all or substantially all the assets of the subsidiary guarantor otherwise permitted by the indenture, (ii) satisfaction of the requirements for legal or covenant defeasance or discharge of the 2027 Notes, or (iii) no default or event of default has occurred and is continuing under the indenture.
The following table sets forth the original terms of all outstanding notes from our secured borrowings outstanding at December 31, 2022 at their respective cutoff dates: Table 14: Secured Borrowings Issuing Trust/Issue Date Interest Rate Step-up Date Security Original Principal Interest Rate Rated Ajax Mortgage Loan Trust 2019-D/ July 2019 July 25, 2027 Class A-1 notes due 2065 $140.4 million 2.96 % July 25, 2027 Class A-2 notes due 2065 $6.1 million 3.50 % July 25, 2027 Class A-3 notes due 2065 $10.1 million 3.50 % July 25, 2027 Class M-1 notes due 2065 (1) $9.3 million 3.50 % None Class B-1 notes due 2065 (2) $7.5 million 3.50 % None Class B-2 notes due 2065 (2) $7.1 million variable (3) None Class B-3 notes due 2065 (2) $12.8 million variable (3) Deferred issuance costs $(2.7) million — % Rated Ajax Mortgage Loan Trust 2019-F/ November 2019 November 25, 2026 Class A-1 notes due 2059 $110.1 million 2.86 % November 25, 2026 Class A-2 notes due 2059 $12.5 million 3.50 % November 25, 2026 Class A-3 notes due 2059 $5.1 million 3.50 % November 25, 2026 Class M-1 notes due 2059 (1) $6.1 million 3.50 % None Class B-1 notes due 2059 (2) $11.5 million 3.50 % None Class B-2 notes due 2059 (2) $10.4 million variable (3) None Class B-3 notes due 2059 (2) $15.1 million variable (3) Deferred issuance costs $(1.8) million — % 68 Issuing Trust/Issue Date Interest Rate Step-up Date Security Original Principal Interest Rate Rated Ajax Mortgage Loan Trust 2020-B/ August 2020 July 25, 2027 Class A-1 notes due 2059 $97.2 million 1.70 % July 25, 2027 Class A-2 notes due 2059 $17.3 million 2.86 % July 25, 2027 Class M-1 notes due 2059 (1) $7.3 million 3.70 % None Class B-1 notes due 2059 (2) $5.9 million 3.70 % None Class B-2 notes due 2059 (2) $5.1 million variable (3) None Class B-3 notes due 2059 (2) $23.6 million variable (3) Deferred issuance costs $(1.8) million — % Rated Ajax Mortgage Loan Trust 2021-A/ January 2021 January 25, 2029 Class A-1 notes due 2065 $146.2 million 1.07 % January 25, 2029 Class A-2 notes due 2065 $21.1 million 2.35 % January 25, 2029 Class M-1 notes due 2065 (1) $7.8 million 3.15 % None Class B-1 notes due 2065 (2) $5.0 million 3.80 % None Class B-2 notes due 2065 (2) $5.0 million variable (3) None Class B-3 notes due 2065 (2) $21.5 million variable (3) Deferred issuance costs $(2.5) million — % Non-rated Ajax Mortgage Loan Trust 2021-B/ February 2021 August 25, 2024 Class A notes due 2066 $215.9 million 2.24 % February 25, 2025 Class B notes due 2066 (2) $20.2 million 4.00 % Deferred issuance costs $(4.3) million — % (1) The Class M notes are subordinated, sequential pay, fixed rate notes.
The following table sets forth the original terms of all outstanding notes from our secured borrowings outstanding at December 31, 2023 at their respective cutoff dates: Table 14: Secured Borrowings Issuing Trust/Issue Date Interest Rate Step-up Date Security Original Principal Interest Rate Rated Ajax Mortgage Loan Trust 2019-D/ July 2019 July 25, 2027 Class A-1 notes due 2065 $140.4 million 2.96 % July 25, 2027 Class A-2 notes due 2065 $6.1 million 3.50 % July 25, 2027 Class A-3 notes due 2065 $10.1 million 3.50 % July 25, 2027 Class M-1 notes due 2065 (1) $9.3 million 3.50 % None Class B-1 notes due 2065 (2) $7.5 million 3.50 % None Class B-2 notes due 2065 (2) $7.1 million variable (3) None Class B-3 notes due 2065 (2) $12.8 million variable (3) Deferred issuance costs $(2.7) million — % Rated Ajax Mortgage Loan Trust 2019-F/ November 2019 November 25, 2026 Class A-1 notes due 2059 $110.1 million 2.86 % November 25, 2026 Class A-2 notes due 2059 $12.5 million 3.50 % November 25, 2026 Class A-3 notes due 2059 $5.1 million 3.50 % November 25, 2026 Class M-1 notes due 2059 (1) $6.1 million 3.50 % None Class B-1 notes due 2059 (2) $11.5 million 3.50 % None Class B-2 notes due 2059 (2) $10.4 million variable (3) None Class B-3 notes due 2059 (2) $15.1 million variable (3) Deferred issuance costs $(1.8) million — % Rated Ajax Mortgage Loan Trust 2020-B/ August 2020 July 25, 2027 Class A-1 notes due 2059 $97.2 million 1.70 % July 25, 2027 Class A-2 notes due 2059 $17.3 million 2.86 % July 25, 2027 Class M-1 notes due 2059 (1) $7.3 million 3.70 % None Class B-1 notes due 2059 (2) $5.9 million 3.70 % None Class B-2 notes due 2059 (2) $5.1 million variable (3) None Class B-3 notes due 2059 (2) $23.6 million variable (3) Deferred issuance costs $(1.8) million — % 71 Issuing Trust/Issue Date Interest Rate Step-up Date Security Original Principal Interest Rate Rated Ajax Mortgage Loan Trust 2021-A/ January 2021 January 25, 2029 Class A-1 notes due 2065 $146.2 million 1.07 % January 25, 2029 Class A-2 notes due 2065 $21.1 million 2.35 % January 25, 2029 Class M-1 notes due 2065 (1) $7.8 million 3.15 % None Class B-1 notes due 2065 (2) $5.0 million 3.80 % None Class B-2 notes due 2065 (2) $5.0 million variable (3) None Class B-3 notes due 2065 (2) $21.5 million variable (3) Deferred issuance costs $(2.5) million — % Non-rated Ajax Mortgage Loan Trust 2021-B/ February 2021 August 25, 2024 Class A notes due 2066 $215.9 million 2.24 % February 25, 2025 Class B notes due 2066 (2) $20.2 million 4.00 % Deferred issuance costs $(4.3) million — % (1) The Class M notes are subordinated, sequential pay, fixed rate notes.
The secured borrowings are generally structured as debt financings. The loans included in the secured borrowings remain 67 on our consolidated balance sheet as we are the primary beneficiary of the securitizations trusts, which are VIEs.
The secured borrowings are generally structured as debt financings. The loans included in the secured borrowings remain on our consolidated balance sheet as we are the primary beneficiary of the securitizations trusts, which are VIEs.
Financing Activities — Secured Borrowings, 2024 Notes and 2027 Notes Secured Borrowings From our inception (January 30, 2014) to December 31, 2022, we have completed 18 secured borrowings, not including borrowings we completed for our non-consolidated joint ventures (See "Table 18: Investments in joint ventures"), through securitization trusts pursuant to Rule 144A under the Securities Act, five of which were outstanding at December 31, 2022.
Financing Activities — Secured Borrowings, 2024 Notes and 2027 Notes Secured Borrowings From our inception (January 30, 2014) to December 31, 2023, we have completed 18 secured borrowings, not including borrowings we completed for our non-consolidated joint ventures (See "Table 18: Investments in Joint Ventures"), through securitization trusts pursuant to Rule 144A under the Securities Act, five of which were outstanding at December 31, 2023.
Similarly, as of December 31, 2022, the Operating Partnership wholly owned Great Ajax III Depositor LLC, which was formed to act as the depositor into 2021-E, which is a REMIC. We have securitized mortgage loans through these securitization trusts and retained subordinated securities from the secured borrowings.
Similarly, as of December 31, 2023, the Operating Partnership wholly owned Great Ajax III Depositor LLC, which was formed to act as the depositor into 2021-E, which is a REMIC. We have securitized mortgage loans through these securitization trusts and retained subordinated securities from the secured borrowings.
During the year ended December 31, 2022, we recorded incentive fees payable to the Manager of $0.3 million. Comparatively, during the years ended December 31, 2021 and 2020 we recorded no incentive fee payable to the Manager. Our dividend payments are driven by the amount of our taxable income, subject to IRS rules for maintaining our status as a REIT.
During the years ended December 31, 2023 and 2021, we recorded no incentive fee payable to the Manager. Comparatively, during the year ended December 31, 2022 we recorded incentive fees payable to the Manager of $0.3 million. Our dividend payments are driven by the amount of our taxable income, subject to IRS rules for maintaining our status as a REIT.
Accordingly, if our delinquency estimate is overstated and our valuation estimates are overstated, there could be a negative impact on our allowance for credit losses. Based on our review of the key inputs and our methodology used, we believe our current allowance for credit losses is properly stated at December 31, 2022 and 2021.
Accordingly, if our delinquency estimate is overstated and our valuation estimates are overstated, there could be a negative impact on our allowance for credit losses. Based on our review of the key inputs and our methodology used, we believe our current allowance for credit losses is properly stated at December 31, 2023 and 2022.
Our Operating Partnership, through interests in certain entities as of December 31, 2022, owns 99.9% of Great Ajax II REIT Inc. which owns Great Ajax II Depositor LLC which then acts as the depositor of mortgage loans into securitization trusts and holds subordinated securities issued by such trusts.
Our Operating Partnership, through interests in certain entities as of December 31, 2023, owns 99.9% of Great Ajax II REIT Inc. which owns Great Ajax II Depositor LLC which then acts as the depositor of mortgage loans into securitization trusts and holds subordinated securities issued by such trusts.
We focus on densely populated urban areas where we expect positive economic change based on certain demographic, economic and social statistical data. The primary lenders for smaller multi-family and mixed retail/residential properties are community banks and not regional and national banks and large institutional lenders.
We focus on urban areas where we expect positive economic change based on certain demographic, economic and social statistical data. The primary lenders for smaller multi-family and mixed retail/residential properties are community banks and not regional and national banks and large institutional lenders.
For the year ended December 31, 2022, our investing cash inflows of $223.1 million were driven by proceeds from refinancing and sale of our debt securities and beneficial interests of $147.9 million, principal payments on and payoffs of our mortgage loan portfolio of $147.3 million and principal and interest collections on our securities of $68.2 million, partially offset by the purchase of securities of $129.1 million, acquisitions of our mortgage loans of $11.4 million and the purchase of additional shares of common stock in Gaea of $6.1 million.
For the year ended December 31, 2022, our investing cash inflows of $223.1 million were driven by proceeds from principal payments on and payoffs of our mortgage loan portfolio of $147.3 million and principal and interest collections on our securities of $68.2 million and refinancing and sale of our debt securities and beneficial interests of $147.9 million, partially offset by the purchase of securities of $129.1 million, acquisitions of mortgage loans of $11.4 million and a $6.1 million purchase of additional shares in Gaea.
The repurchase of the preferred stock caused the recognition of $8.2 million of preferred stock discount during the year ended December 31, 2022. The repurchase is expected to save us approximately $5.6 million annually in preferred dividends. There was no repurchase of preferred stock during the years ended December 31, 2021 and 2020.
The repurchase of the preferred stock caused the recognition of $8.2 million of preferred stock discount during the year ended December 31, 2022. The repurchase is expected to save us approximately $5.6 million annually in preferred dividends. There was no repurchase of preferred stock during the years ended December 31, 2023 and 2021.
Our rated secured borrowings generally issue classes of debt from AAA through mezzanine. We generally retain the mezzanine and residual certificates in the transactions. We have retained the applicable mezzanine and residual certificates from the other four rated secured borrowings outstanding at December 31, 2022. Our rated secured borrowings are designated in the table below.
Our rated secured borrowings generally issue classes of debt from AAA through mezzanine. We generally retain the mezzanine and residual certificates in the transactions. We have retained the applicable mezzanine and residual certificates from the other four rated secured borrowings outstanding at December 31, 2023. Our rated secured borrowings are designated in the table below.
(2) Maximum borrowing capacity subject to pledging sufficient collateral as of December 31, 2021 was $150.0 million. (3) Maximum borrowing capacity subject to pledging sufficient collateral as of December 31, 2021 was $400.0 million. (4) Includes $42.8 million of bonds that are consolidated on our balance sheet for GAAP as of December 31, 2021.
(2) Maximum borrowing capacity subject to pledging sufficient collateral as of December 31, 2023 was $400.0 million. (3) Maximum borrowing capacity subject to pledging sufficient collateral as of December 31, 2023 was $150.0 million. (4) Includes $42.8 million of bonds that are consolidated on our balance sheet for GAAP as of December 31, 2023.
Other Expense Other expense for the year ended December 31, 2022 increased from the year ended 2021 primarily due to an increase in employee and service provider grants and travel, meals and entertainment, partially offset by lower non due diligence lien release.
Other expense for the year ended 2022 increased from 2021 primarily due to an increase in employee and service provider grants and travel, meals and entertainment, partially offset by lower non due diligence lien release.
Additionally, we invest in single-family and smaller commercial properties directly either through a foreclosure event of a loan in our mortgage portfolio, or, less frequently, through a direct acquisition. We own a 19.8% equity interest in our Manager and an 8.0% equity interest in the parent company of our Servicer through GA-TRS, a wholly owned subsidiary of the Operating Partnership.
Additionally, we invest in single-family and smaller commercial properties directly either through a foreclosure event of a loan in our mortgage portfolio, or, less frequently, through a direct acquisition. We own a 19.8% equity interest in our Manager and an 9.5% equity interest in the parent company of our Servicer through GA-TRS, a wholly owned subsidiary of the Operating Partnership.
As of December 31, 2022 and 2021, we did not have any credit facilities or other outstanding debt obligations other than the repurchase facilities, secured borrowings, put option liability, 2024 Notes and 2027 Notes.
As of December 31, 2023 and 2022, we did not have any credit facilities or other outstanding debt obligations other than the repurchase facilities, secured borrowings, put option liability, 2024 Notes and 2027 Notes.
Any other-than-temporary losses, which represent the excess of the amortized cost basis over the present value of expected future cash flows, are recognized in the period identified in our consolidated statements of income.
Any other-than-temporary losses, which represent the excess of the amortized cost basis over the present value of expected future cash flows, are recognized in the period identified in our consolidated statements of operations.
The series A and series B preferred stock was repurchased for an aggregate of $88.7 million at an average price of $24.37 per share, representing a discount of approximately 2.5% to the face value of $25.00 per share. The repurchase of the preferred stock caused the recognition of $8.2 million of discount during the year ended December 31, 2022.
The series A and series B preferred stock were repurchased for an aggregate of $88.7 million at an average price of $24.37 per share, representing discounts of approximately 2.5% to the face value of $25.00 per share. The repurchase of the preferred stock caused the recognition of $8.2 million of discount during the year ended December 31, 2022.
Each series of warrants includes a put option that allows the holder to sell the warrants back to us at a specified put price on or after July 6, 2023. We believe the most economically beneficial result for the holders will be to exercise the put, which we expect to settle for $15.7 million.
Each series of warrants includes a put option that allows the holder to sell the warrants back to us at a specified put price on or after July 6, 2023. We believe the most economically beneficial result for the holders will be to exercise the put, which we expect to settle for $16.6 million.
We monitor the credit quality of the mortgage loans underlying our debt securities on an ongoing basis, principally by considering loan payment activity or delinquency status.
We monitor the credit quality of the mortgage loans underlying its debt securities on an ongoing basis, principally by considering loan payment activity or delinquency status.
(6) Loans that have made at least 12 of the last 12 payments, or for which the full dollar amount to cover at least 12 payments has been made in the last 12 months.
(7) Loans that have made at least 12 of the last 12 payments, or for which the full dollar amount to cover at least 12 payments has been made in the last 12 months.
A summary of our outstanding repurchase transactions at December 31, 2022 and 2021 is as follows ($ in thousands): 70 Table 16: Repurchase Transactions by Maturity Date December 31, 2022 Maturity Date Amount Outstanding Amount of Collateral Interest Rate Barclays - bonds (1) $ 126,458 $ 181,667 6.10 % A Bonds January 3, 2023 12,345 18,399 5.33 % January 20, 2023 47,591 64,692 5.76 % April 26, 2023 27,655 37,216 6.60 % May 3, 2023 11,879 15,535 5.97 % May 22, 2023 2,107 3,421 6.17 % B Bonds March 13, 2023 12,639 20,755 6.45 % April 26, 2023 2,943 5,174 7.00 % May 3, 2023 3,627 6,405 6.77 % May 22, 2023 4,306 7,606 6.77 % M Bonds May 3, 2023 292 521 6.12 % May 22, 2023 1,074 1,943 6.37 % Nomura - bonds (1) $ 35,742 $ 55,303 6.02 % A Bonds January 12, 2023 3,910 5,458 5.32 % February 14, 2023 6,481 9,818 5.81 % February 24, 2023 3,795 5,178 6.05 % March 23, 2023 11,186 17,202 6.08 % B Bonds February 14, 2023 5,619 9,542 6.24 % February 24, 2023 1,054 1,689 6.45 % March 23, 2023 3,697 6,416 6.48 % Goldman Sachs - bonds (1) $ 3,102 $ 4,044 5.58 % A Bonds January 13, 2023 3,102 4,044 5.58 % JP Morgan - bonds (1) $ 56,656 $ 82,071 5.59 % A Bonds March 7, 2023 11,103 14,836 5.62 % March 24, 2023 22,131 30,215 5.41 % B Bonds February 3, 2023 7,846 13,583 5.86 % M Bonds March 7, 2023 490 893 5.85 % April 11, 2023 15,086 22,544 5.70 % JP Morgan - loans (2) July 10, 2023 $ 11,750 $ 17,839 6.90 % Nomura - loans (3) October 5, 2023 $ 212,147 $ 292,415 6.65 % Totals/weighted averages $ 445,855 $ 633,339 (4) 6.31 % (1) Maximum borrowing capacity subject to pledging sufficient collateral is the equivalent of the amount outstanding as of December 31, 2022.
December 31, 2022 Maturity Date Amount Outstanding Amount of Collateral Interest Rate Barclays - bonds (1) $ 126,458 $ 181,667 6.10 % A Bonds January 3, 2023 12,345 18,399 5.33 % January 20, 2023 47,591 64,692 5.76 % April 26, 2023 27,655 37,216 6.60 % May 3, 2023 11,879 15,535 5.97 % May 22, 2023 2,107 3,421 6.17 % B Bonds March 13, 2023 12,639 20,755 6.45 % April 26, 2023 2,943 5,174 7.00 % May 3, 2023 3,627 6,405 6.77 % May 22, 2023 4,306 7,606 6.77 % M Bonds May 3, 2023 292 521 6.12 % May 22, 2023 1,074 1,943 6.37 % Nomura - bonds (1) $ 35,742 $ 55,303 6.02 % A Bonds January 12, 2023 3,910 5,458 5.32 % 74 December 31, 2022 Maturity Date Amount Outstanding Amount of Collateral Interest Rate February 14, 2023 6,481 9,818 5.81 % February 24, 2023 3,795 5,178 6.05 % March 23, 2023 11,186 17,202 6.08 % B Bonds February 14, 2023 5,619 9,542 6.24 % February 24, 2023 1,054 1,689 6.45 % March 23, 2023 3,697 6,416 6.48 % Goldman Sachs - bonds (1) $ 3,102 $ 4,044 5.58 % A Bonds January 13, 2023 3,102 4,044 5.58 % JP Morgan - bonds (1) $ 56,656 $ 82,071 5.59 % A Bonds March 7, 2023 11,103 14,836 5.62 % March 24, 2023 22,131 30,215 5.41 % B Bonds February 3, 2023 7,846 13,583 5.86 % M Bonds March 7, 2023 490 893 5.85 % April 11, 2023 15,086 22,544 5.70 % Nomura - loans (2) October 5, 2023 $ 212,147 $ 292,415 6.65 % JP Morgan - loans (3) July 10, 2023 $ 11,750 $ 17,839 6.90 % Totals/weighted averages $ 445,855 $ 633,339 (4) 6.31 % (1) Maximum borrowing capacity subject to pledging sufficient collateral is the equivalent of the amount outstanding as of December 31, 2022.
(2) Amounts that have been deferred in connection with a loan modification on which interest does not accrue. These amounts generally become payable at the time of maturity. (3) As of the reporting date. (4) UPB as of December 31, 2022 and 2021, divided by market value of collateral and weighted by the UPB of the loan.
(3) Amounts that have been deferred in connection with a loan modification on which interest does not accrue. These amounts generally become payable at the time of maturity. (4) As of the reporting date. (5) UPB as of December 31, 2023 and 2022, divided by market value of collateral and weighted by the UPB of the loan.
As of December 31, 2022 and 2021, substantially all of our invested capital was in RPLs, NPLs, SBC loans, debt securities, and beneficial interests.
As of December 31, 2023 and 2022, substantially all of our invested capital was in RPLs, NPLs, SBC loans, debt securities, and beneficial interests.
Risks inherent in our debt securities portfolio, affecting both the valuation of the securities as well as the portfolio’s interest income include the risk of default, delays and inconsistency in the frequency and amount of payments, risks affecting borrowers such as man-made or natural disasters, or the pandemic, and damage to or delay in realizing the value of the underlying collateral.
Risks inherent in our debt securities portfolio, affecting both the valuation of its securities as well as the portfolio's interest income and recovery of principal include the risk of default, delays and inconsistency in the frequency and amount of payments, risks affecting borrowers such as man-made or natural disasters and damage to or delay in realizing the value of the underlying collateral.
(5) Market value of REO is based on net realizable value. Fair market value is determined based on appraisals, BPOs, or other market indicators of fair value including list price or contract price.
(6) Market value of REO is based on net realizable value. Fair market value is determined based on appraisals, BPOs, or other market indicators of fair value including list price or contract price.
The conversion rate, and thus the conversion price, may be subject to adjustment under certain circumstances. (See “Critical Accounting Policies” above.) Our 2027 Notes had an outstanding principal balance of $110.0 million at December 31, 2022 and zero at 2021. The 2027 Notes will mature on September 1, 2027.
The conversion rate, and thus the conversion price, may be subject to adjustment under certain circumstances. (See “Critical Accounting Policies” above.) Our 2027 Notes had an outstanding principal balance of $110.0 million at both December 31, 2023 and 2022. The 2027 Notes will mature on September 1, 2027.
We have retained the subordinate notes and the applicable trust certificates from one non-rated secured borrowing outstanding at December 31, 2022. Our rated secured borrowings are generally structured as “REIT TMP” transactions which allows us to issue multiple classes of securities without using a REMIC structure or being subject to an entity level tax.
We have retained the subordinated notes and the applicable trust certificates from one non-rated secured borrowing outstanding at December 31, 2023. 70 Our rated secured borrowings are generally structured as “REIT TMP” transactions which allows us to issue multiple classes of securities without using a REMIC structure or being subject to an entity level tax.
Market Conditions . As the Federal Reserve continues its current trend toward monetary tightening, mortgage markets are undergoing a great deal of uncertainty with regard to both interest rates and origination volume.
Market Conditions . As the Fed continues its current trend toward monetary tightening, mortgage markets are undergoing a great deal of uncertainty with regard to both interest rates and origination volume.
Operating income is a non-GAAP financial measure which adjusts GAAP earnings by removing gains and losses as well as certain other non-core income and expenses and preferred dividends. We consider 53 Operating income a useful measure for comparing the results of our ongoing operations over multiple quarters.
Operating (loss)/income is a non-GAAP financial measure which adjusts GAAP earnings by removing gains and losses as well as certain other non-core income and expenses and preferred dividends. We consider Operating (loss)/income a useful measure for comparing the results of our ongoing operations over multiple years.
At December 31, 2022 and 2021, the UPB of the debt was $104.5 million and $104.6 million, respectively. The 2024 Notes bear interest at a rate of 7.25% per annum, payable quarterly in arrears on January 15, April 15, July 15 and October 15 of each year.
At December 31, 2023 and 2022, the UPB of the debt was $103.5 million and $104.5 million, respectively. The 2024 Notes bear interest at a rate of 7.25% per annum, payable quarterly in arrears on January 15, April 15, July 15 and October 15 of each year.
However, we expect market events, including inflation and the related Federal Reserve bank actions, may adversely impact our future operating cash flows due to the inability of some of our borrowers to make scheduled payments on time or at all, and through increased interest rates on secured borrowings and repurchase lines of credit.
Additionally, market events, including inflation and the related Federal Reserve bank actions, may still adversely impact our future operating cash flows due to the inability of some of our borrowers to make scheduled payments on time or at all, and through increased interest rates on secured borrowings and repurchase lines of credit.
Interest expense for the year ended December 31, 2022 increased to $43.6 million from $36.7 million for the year ended 2021 due to increases in the effective interest rate on our borrowings on repurchase lines of credit.
Interest expense for the year ended December 31, 2023 increased to $59.3 million from $43.6 million for the year ended 2022 and increased from $36.7 million for the year ended 2021 due to increases in the effective interest rate on our borrowings on repurchase lines of credit.
(2) The settlement of the put option in shares is not included in the book value calculation as of December 31, 2022 or 2021 as it has an anti-dilutive effect on our earnings per share calculation.
(3) The settlement of the put option in shares is not included in the book value calculation as of December 31, 2023 or 2022 as it has an anti-dilutive effect on our earnings per share calculation.
Convertible Senior Notes During 2017 and 2018, we completed the public offer and sale of our convertible senior notes due 2024 (the "2024 Notes"). At December 31, 2022 and 2021, the UPB of the debt was $104.5 million and $104.6 million, respectively.
Convertible Senior Notes During 2017 and 2018, we completed the public offer and sale of our convertible senior notes due 2024 (the "2024 Notes"). At December 31, 2023 and 2022, the UPB of the debt was $103.5 million and $104.5 million, respectively.
We also have four repurchase facilities substantially similar to the mortgage loan repurchase facilities where the pledged assets are securities retained from our securitization transactions. These facilities have no effective ceilings. Each repurchase transaction represents its own borrowing. As such, the ceilings associated with these transactions are the amounts currently borrowed at any one time.
We also have four repurchase facilities, as of December 31, 2023, substantially similar to the mortgage loan repurchase facilities where the pledged assets are bonds retained from our securitization transactions. These facilities have no effective ceilings. Each repurchase transaction represents its own borrowing. As such, the ceilings associated with these transactions are the amounts currently borrowed at any one time.
Comparatively, for years ended December 31, 2021 and 2020, we recorded $1.4 million and $0.7 million, respectively, related to the acceleration of deferred issuance costs for calling and re-securitizing our secured borrowings at a lower cost of funds.
Comparatively, for years ended December 31, 2022 and 2021, we recorded zero and $1.4 million, respectively, related to the acceleration of deferred issuance costs for calling and re-securitizing our secured borrowings at a lower cost of funds.
From time to time, we may invest with third parties and acquire interests in loans and other real estate assets through investments in joint ventures using special purpose entities that can result in investments at fair value and investments in beneficial interests, which are included on our consolidated balance sheet.
From time to time, we may invest with third parties and acquire interests in loans and other real estate assets through investments in joint ventures using special purpose entities that can result in investments AFS, investments held-to-maturity and investments in beneficial interests, which are included on our consolidated balance sheet.
Our most recently declared quarterly dividend represents a payment of approximately 7.69% on an annualized basis of our book value of $13.00 per share at December 31, 2022. If our taxable income increases, we could exceed the threshold for paying an incentive fee to our Manager, and thereby trigger such payments. See Note 10 — Related Party Transactions.
Our most recently declared quarterly dividend represents a payment of approximately 4.00% on an annualized basis of our book value of $9.99 per share at December 31, 2023. If our taxable income increases, we could exceed the threshold for paying an incentive fee to our Manager, and thereby trigger such payments. See Note 10 — Related Party Transactions.
Our interest expense expected to be paid on our 2027 Notes at December 31, 2022 and 2021, was $49.0 million and zero, respectively. Interest expense accrued on our repurchase financings is paid upon the maturity of a financing.
Our interest expense expected to be paid on our 2027 Notes at December 31, 2023 and 2022, was $39.1 million and $49.0 million, respectively. Interest expense accrued on our repurchase financings is paid upon the maturity of a financing.
Discount and deferred issuance costs are carried on our consolidated balance sheets as a reduction of the carrying value of the 2024 Notes, and are amortized to interest expense on an effective yield basis through April 30, 2023, the date at which the 2024 Notes can be converted.
Discount and deferred issuance costs are carried on our consolidated balance sheets as a reduction of the carrying value of the 2024 Notes, and are amortized to interest expense on an effective yield basis through April 30, 2023..
At December 31, 2022 and 2021, our repurchase obligations totaled $445.9 million and $546.1 million, respectively. Our repurchase financing is considered short term in nature as the underlying agreements generally renew within one year. (See “Repurchase Transactions” above.) Our 2024 Notes had outstanding principal balances of $104.5 million and $104.6 million at December 31, 2022 and 2021, respectively.
At December 31, 2023 and 2022, our repurchase obligations totaled $375.7 million and $445.9 million, respectively. Our repurchase financing is considered short term in nature as the underlying agreements generally renew within one year. (See “Repurchase Transactions” above.) Our 2024 Notes had outstanding principal balances of $103.5 million and $104.5 million at December 31, 2023 and 2022, respectively.
Interest income on beneficial interests was $10.8 million, $16.0 million and $11.8 million during the years ended December 31, 2022, 2021 and 2020, respectively. Interest income on debt securities was $10.6 million, $11.0 million and $9.9 million during the years ended December 31, 2022, 2021 and 2020, respectively.
Discount accretion on beneficial interests was $8.0 million, $10.8 million and $16.0 million during the years ended December 31, 2023, 2022 and 2021, respectively. Interest income and discount accretion on debt securities was $9.5 million, $10.6 million and $11.0 million during the years ended December 31, 2023, 2022 and 2021, respectively.
Our primary operating cash inflow is cash interest payments on our mortgage loan pools of $46.6 million, $47.6 million and $48.8 million for the years ended December 31, 2022, 2021 and 2020, respectively. Non-cash interest income accretion on our mortgage loans was $13.8 million, $19.5 million and $29.0 million for the years ended December 31, 2022, 2021 and 2020 respectively.
Our primary operating cash inflow is cash interest payments on our mortgage loan pools of $43.5 million, $46.6 million and $47.6 million for the years ended December 31, 2023, 2022 and 2021, respectively. Non-cash interest income accretion on our mortgage loans was $8.1 million, $13.8 million and $19.5 million for the years ended December 31, 2023, 2022 and 2021 respectively.
Also, during the year ended December 31, 2022, we repurchased and retired 4,549,328 of our outstanding warrants for $35.0 million resulting in the acceleration of $12.3 million of accretion expense, which will result in less accretion expense in future periods.
Also, during the year ended December 31, 2022, we repurchased and retired 4,549,328 of our outstanding warrants for $35.0 million, resulting in the acceleration of $12.3 million of accretion expense, which will result in less accretion expense in future periods. There were no repurchases of warrants during the years ended December 31, 2023 and 2021.
Annual Operating, Investing and Financing Cash Flows Our operating cash inflows for the year ended December 31, 2022 were $1.1 million. Our operating cash outflows for the year ended December 31, 2021 and 2020 were $18.2 million and $14.1 million, respectively.
Annual Operating, Investing and Financing Cash Flows Our operating cash outflows for the year ended December 31, 2023 were $46.5 million. Our operating cash inflows/(outflows) for the year ended December 31, 2022 and 2021 were $1.1 million and $(18.2) million, respectively.
Our Investments in Beneficial Interests are carried at amortized cost. Upon acquisition, the investments are recorded as three separate elements: (i) the amount of purchase discount which we expect to recover through eventual repayment of the investment, (ii) an allowance for future expected credit loss and (iii) the par value of the investment.
Upon acquisition, the investments are recorded as three separate elements: (i) the amount of purchase discount which we expect to recover through eventual repayment of the investment, (ii) an allowance for future expected credit loss and (iii) the par value of the investment.
These policies relate to (i) the allowance for credit losses, (ii) accounting for Interest income on our mortgage loan portfolio; (iii) accounting for Investments at fair value; (iv) accounting for investments in Beneficial Interests; (v) accounting for Interest expense on our secured borrowings, repurchase facilities, 2024 Notes and 2027 Notes; and (vi) fair values.
These policies relate to (i) the allowance for credit losses, (ii) accounting for Interest income on our mortgage loan portfolio; (iii) accounting for Investments in securities available-for-sale ("AFS") and Investments in securities held-to-maturity ("HTM"); (iv) accounting for investments in beneficial interests; (v) accounting for Interest expense on our secured borrowings, repurchase facilities, 2024 Notes and 2027 Notes; and (vi) fair values.
For the year ended December 31, 2021, we had net financing cash inflows of $45.7 million due to the borrowings through repurchase transactions of $560.6 million and secured debt of $391.0 million, offset by repayments of $435.7 million on repurchase transactions and pay downs of existing debt obligations of $393.0 million on secured debt.
For the year ended December 31, 2021, we had net financing cash inflows of $45.7 million due to the borrowings through repurchase transactions of $560.6 million and secured borrowings of $391.0 million, partially offset by repayments of $435.7 million on repurchase transactions, pay downs of $393.0 million on secured borrowings and common and preferred dividends of $28.8 million.
Our average daily cash balance during the year ended December 31, 2022 was $60.9 million, a decrease from our average daily cash balance of $99.1 million during the year ended 2021 and a decrease from our average daily cash balance of $110.5 million during the year ended 2020.
Our average daily cash balance during the year ended December 31, 2023 was $50.6 million, a decrease from our average daily cash balance of $60.9 million during the year ended 2022 and a decrease from our average daily cash balance of $99.1 million during the year ended 2021.
(See "Critical Accounting Policies" above.) Our accrued interest expense associated with our repurchase obligations at December 31, 2022 and 2021, was $2.3 million and $0.6 million, respectively. Our interest expense expected to be paid on our 2024 Notes at December 31, 2022 and 76 2021, was $11.7 million and $19.3 million, respectively.
(See "Critical Accounting Policies" above.) Our accrued interest expense associated with our repurchase obligations at December 31, 2023 and 2022, was $2.3 million and $2.3 million, respectively. Our interest expense expected to be paid on our 2024 Notes at December 31, 2023 and 2022, was $4.1 million and $11.7 million, respectively.
Risks inherent in our beneficial interest portfolio include the risk of default, delays and inconsistency in the frequency and amount of payments, risks affecting borrowers such as man-made or natural disasters and damage to or delay in realizing the value of the underlying collateral.
Risks inherent in our beneficial interest portfolio include the risk of default, delays and inconsistency in the frequency and amount of payments, risks affecting borrowers such as man-made or natural disasters and damage to or delay in realizing the value of the underlying collateral. Additionally, lower than expected prepayments could reduce our yields on our beneficial interest portfolio.
A summary of our investments in joint ventures is presented below ($ in thousands): Great Ajax Corp.
A summary of our investments in beneficial interests issued by joint ventures is presented below ($ in thousands): Great Ajax Corp.
Depending on market conditions, we expect that our primary financing sources will continue to include secured borrowings, repurchase agreements, and securities offerings in addition to transaction or asset specific funding arrangements and credit facilities (including term loans and revolving facilities). We expect that these sources of funds will be sufficient to meet our short-term and long-term liquidity needs.
Depending on market conditions, we expect that our primary financing sources will continue to include secured borrowings, repurchase agreements, and securities offerings in addition to transaction or asset specific funding arrangements and credit facilities (including term loans and revolving facilities).
During the year ended December 31, 2022, we sold 613,337 shares of common stock for proceeds, net of issuance costs of $4.8 million under our At the Market program, which we sell, through our agents, shares of common stock with an aggregate offering price of up to $100.0 million.
During the year ended December 31, 2023, we sold 2,621,742 shares of common stock for proceeds, net of issuance costs of $17.2 million under our At the Market program, which we sell, through our agents, shares of common stock with an aggregate offering price of up to $100.0 million.
Additionally, the notes are classified as available-for-sale and are carried at fair value with changes in fair value reflected in our consolidated statements of comprehensive income. We mark our investments to fair value using prices received from our financing counterparties and believe any unrealized losses on our debt securities are expected to be temporary.
Historically, the notes have been classified as AFS and are carried at fair value with changes in fair value reflected in our consolidated statements of comprehensive income. We mark our investments to fair value using prices received from its financing counterparties and believes any unrealized losses on its debt securities are expected to be temporary.
Net interest income after recording the impact of the net present value of decreases in expected credit losses decreased to $47.0 million for the year ended December 31, 2022 from $74.9 million for the year ended 2021 and increased from $62.2 million for the year ended 2020 primarily as a result of a net $8.0 million impact of the net decrease in the net present value of expected credit losses for the year ended December 31, 2022 compared to a $18.2 million decrease for the year ended 2021 and $12.6 million decrease for the year ended 2020.
Net interest income after recording the impact of changes in the net present value of expected credit losses decreased to $4.9 million for the year ended December 31, 2023 from $47.0 million for the year ended 2022 and decreased from $74.9 million for the year ended 2021 primarily as a result of a net $8.1 million impact of the net increase in the net present value of expected credit losses for the year ended December 31, 2023 compared to a $8.0 million decrease for the year ended 2022 and $18.2 million decrease for the year ended 2021.
Comparatively, of the $18.2 million for the year ended December 31, 2021, $13.7 million relates to our mortgage loan portfolio and $4.6 million to our investments in beneficial interests. Of the $12.6 million for the year ended December 31, 2020, $9.4 million relates to our mortgage loan portfolio and $3.2 million to our investments in beneficial interests.
Comparatively, of the $8.0 million for the year ended December 31, 2022, $8.1 million relates to our mortgage loan portfolio and $0.1 million to our investments in beneficial interests. Of the $18.2 million for the year ended December 31, 2021, $13.7 million relates to our mortgage loan portfolio and $4.6 million to our investments in beneficial interests.
The average carrying balances for our portfolio are included in the table below ($ in thousands): Table 3: Average Balances For the year ended December 31, 2022 2021 Average mortgage loan portfolio $ 1,033,907 $ 1,028,528 Average carrying value of debt securities $ 327,387 $ 325,543 Average carrying value of beneficial interests $ 133,121 $ 118,303 Total average asset backed debt $ 1,016,804 $ 1,053,572 Loss/Income from Equity Method Investments We recorded a loss from our investments in affiliates of $1.2 million for the year ended December 31, 2022, income of $0.7 million for the year ended 2021 and loss of $0.2 million for the year ended 2020.
The average carrying balances for our portfolio are included in the table below ($ in thousands): Table 3: Average Balances For the year ended December 31, 2023 2022 Average mortgage loan portfolio $ 957,478 $ 1,033,907 Average carrying value of debt securities $ 240,453 $ 327,387 Average carrying value of beneficial interests $ 126,776 $ 133,121 Total average asset backed debt $ 850,607 $ 1,016,804 Loss/Income from Equity Method Investments We recorded a loss from our investments in affiliates of $1.3 million for the year ended December 31, 2023, a loss of $1.2 million for the year ended 2022 and income of $0.7 million for the year ended 2021.
The secured borrowings facilitated by the trusts are structured as debt financings, and the mortgage loans used as collateral remain on our consolidated balance sheet as we are the primary beneficiary of the securitization trusts.
Debt Secured Borrowings — Through securitization trusts which are VIEs, we issue callable debt secured by our mortgage loans in the ordinary course of business. The secured borrowings facilitated by the trusts are structured as debt financings, and the mortgage loans used as collateral remain on our consolidated balance sheet as we are the primary beneficiary of the securitization trusts.
The repurchase is expected to save us approximately $5.6 million annually in preferred dividends. There were no repurchases of preferred stock during the years ended December 31, 2021 and 2020.
There were no repurchases of preferred stock during the years ended December 31, 2023 and 2021. The repurchase is expected to reduce preferred dividends by $5.6 million annually.
Comparatively, during the year ended December 31, 2021, we sold 24,951 shares of common stock for proceeds, net of issuance costs of $0.3 million under our At the Market program. During the year ended December 31, 2020, we did not sell any shares of common stock under our At the Market program.
Comparatively, during the year ended December 31, 2022, we sold 613,337 shares of common stock for proceeds, net of issuance costs of $4.8 million under our At the Market program. During the year ended December 31, 2021, we sold 24,951 shares of common stock for proceeds, net of issuance costs of $0.3 million under our At the Market program.
As of December 31, 2022, we had $445.9 million outstanding under our repurchase transactions compared to $546.1 million as of December 31, 2021. The maximum month-end balance outstanding during the year ended December 31, 2022 was $548.9 million, compared to a maximum month-end balance for the year ended 2021 of $563.0 million.
As of December 31, 2023, we had $375.7 million outstanding under our repurchase transactions compared to $445.9 million as of December 31, 2022. The maximum month-end balance outstanding during the year ended December 31, 2023 was $447.3 million, compared to a maximum month-end balance for the year ended 2022 of $548.9 million.
For all these reasons, we believe that demand for single-family and smaller multi-family rental properties will continue to increase in the near term and remain at heightened levels for the foreseeable future. We believe that investments in residential RPLs and NPLs with positive equity provide an optimal investment value.
For all these reasons, we believe that demand for single-family and smaller multi-family rental properties will continue to be stable in the near term and for the foreseeable future. We believe that investments in residential RPLs and NPLs with positive equity can provide a good investment value.
Equity and Net Book Value per Share Our net book value per common share was $13.00 and $15.92 at December 31, 2022 and 2021, respectively.
Equity and Net Book Value per Share Our net book value per common share was $9.99 and $13.00 at December 31, 2023 and 2022, respectively.
The decrease in Other income was driven by a $4.8 million loss on the disposition of debt securities, primarily driven by the sale of securities in Ajax Mortgage Loan Trust 2021-F and lower of cost or market adjustment on our mortgage loan portfolio of $1.8 million due to extension of a portion of our loan portfolio as previously delinquent borrowers have become more consistent payers.
Other loss/income decreased for the year ended December 31, 2022 by $6.4 million from 2021, primarily due to a $4.8 million loss on the disposition of debt securities, primarily driven by the sale of securities and a lower of cost or market adjustment on our mortgage loan portfolio of $1.8 million due to extension of a portion of our loan portfolio as previously delinquent borrowers have become more consistent payers.

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Item 7A. Quantitative and Qualitative Disclosures About Market Risk

Market Risk — interest-rate, FX, commodity exposure

4 edited+0 added−1 removed14 unchanged
Biggest changeWe seek to actively manage these and other risks and to acquire and hold assets at prices that we believe justify bearing those risks, and to maintain capital levels consistent with those risks. The pandemic presents risks and uncertainties that we describe under “Risk Factors” and many of these are outside of our control.
Biggest changeWe seek to actively manage these and other risks and to acquire and hold assets at prices that we believe justify bearing those risks, and to maintain capital levels consistent with those risks.
Real Estate Risk Residential property values are subject to volatility and may be affected adversely by a number of factors, including, but not limited to, national, regional and local economic conditions (which may be adversely affected by industry slowdowns, public health crises and other factors); local real estate conditions (such as an oversupply of housing); construction quality, age and design; demographic factors; and retroactive changes to building or similar codes.
Real Estate Risk Residential property values are subject to volatility and may be affected adversely by a number of factors, including, but not limited to, national, regional and local economic conditions (which may be adversely affected by industry slowdowns, public health crises and other factors); local real estate conditions (such as an oversupply of housing); construction quality, age 80 and design; demographic factors; and retroactive changes to building or similar codes.
We currently expect the pace of loan prepayments to slow due to rising interest rates. 78 Credit Risk We are subject to credit risk in connection with our assets.
We currently expect the pace of loan prepayments to slow due to rising interest rates. Credit Risk We are subject to credit risk in connection with our assets.
We will rely on the Servicer to mitigate our risk. Such mitigation efforts may include loan modifications and prompt foreclosure and property liquidation following a default. If a sufficient number of re-performing borrowers default, our results of operations will suffer and we may not be able to pay our own financing costs. Item 8.
We will rely on the Servicer to mitigate our risk. Such mitigation efforts may include loan modifications and prompt foreclosure and property liquidation following a default. If a sufficient number of re-performing borrowers default, our results of operations will suffer and we may not be able to pay our own financing costs.
Removed
Consolidated Financial Statements and Supplementary Data The consolidated financial statements required by this item are set forth in Item 15. of this Annual Report and are incorporated herein by reference. Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure None.

Other RPT 10-K year-over-year comparisons