Great Ajax(AJX) - 2024 Q4 - Annual Report

Strategic Transactions and Management Changes - The company completed a strategic transaction with Rithm on June 11, 2024, involving the sale of $14.0 million of common stock at a price of$4.87 per share[21]. - The company terminated its existing management contract with the former manager in exchange for approximately 3.2 million shares of common stock and $0.6 million in cash[21]. - The management agreement with RCM GA is effective until June 11, 2027, with automatic renewals for successive two-year terms[42]. - The company disposed of its interest in Great Ajax FS LLC and assigned servicing agreements to Newrez as part of the strategic transaction[22]. Investment Strategy and Asset Management - The company shifted its investment strategy to focus on originating and acquiring loans and securities collateralized by various commercial real estate assets, moving away from RPLs and NPLs[26]. - The new investment strategy includes targeting senior loans, subordinated debt, mezzanine loans, preferred equity, and commercial mortgage servicing rights[27]. - The company anticipates financing its strategy through various options, including borrowing under credit facilities and issuing commercial real estate collateralized loan obligations[28]. - The investment guidelines adopted by the board allow for changes in target asset classes without stockholder approval[31]. - The company does not currently hedge the risk associated with its investment portfolio but may undertake risk mitigation activities in the future[36]. Financial Performance and Risks - The company incurred a net loss attributable to common stockholders of$92.2 million for the year ended December 31, 2024[82]. - The market value of the company's residential and commercial mortgage loans has significantly deteriorated, leading to substantial operating losses[82]. - Higher historical interest rates are expected to continue negatively impacting the company's loan assets, extending duration and decreasing fair market value[83]. - The company has identified certain mortgage loans for potential sale, but unfavorable market conditions may result in losses upon sale[84]. - The company may face significant liabilities related to environmental contamination at properties it owns or acquires[74]. Compliance and Regulatory Risks - The company intends to qualify as a REIT and must distribute at least 90% of its current taxable income each year to avoid federal income tax[64]. - The company conducts operations to avoid registration as an investment company under the Investment Company Act, ensuring less than 40% of total assets consist of investment securities[66]. - The company monitors compliance with the Investment Company Act to ensure subsidiaries meet applicable exemptions or exclusions[69]. - Regulatory compliance is critical for the Servicer, and any failure could increase expenses and adversely affect results[147]. - The Dodd-Frank Act has introduced significant regulatory changes that impact the financial services industry, including enhanced regulations for mortgage lending and servicing[186]. Market Conditions and Economic Factors - The overall level of commercial mortgage loan defaults remains significant, with many underlying commercial real estate market values distressed[93]. - The company is exposed to risks from weather conditions and natural disasters, which could materially impact asset values and financial performance[95]. - Difficult conditions in the mortgage and real estate markets have adversely affected asset values and are expected to persist in the foreseeable future[100]. - Changes in underwriting standards by Freddie Mac, Fannie Mae, or FHA could adversely affect the company's ability to refinance mortgage loans, impacting business operations[113]. Conflicts of Interest and Management Challenges - Conflicts of interest may arise between the company and its New Manager, potentially leading to decisions that prioritize incentive compensation over capital preservation[199]. - The Servicing Agreements are not negotiated at arm's length, which may result in less favorable terms compared to agreements with unaffiliated third parties[201]. - Rithm's investment policy allows for significant latitude in asset selection, which may lead to investments with lower returns or higher risks than anticipated[209]. - The complexity of managing conflicts of interest may lead to regulatory scrutiny or litigation, negatively impacting Rithm's business and financial condition[208]. Financial Strategies and Risks - The company uses leverage to enhance financial returns, but this increases both potential gains and losses, impacting cash available for distribution to stockholders[168]. - The company's financing strategy relies on placing debt at rates that provide a positive net spread; widening spreads could severely restrict future financings[162]. - The company may pursue various hedging strategies to reduce exposure to adverse interest rate changes, but these strategies can be expensive and may not provide the intended protection[179]. - The inability to refinance short-term facilities may require the company to seek less attractive financing options or liquidate assets at unfavorable times[176].