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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q

(Mark One)
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2021
OR
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
    For the transition period from                  to                 

001-36844
(Commission file number)
GREAT AJAX CORP.
(Exact name of registrant as specified in its charter)
Maryland

47-1271842

State or other jurisdiction
of incorporation or organization
(I.R.S. Employer
Identification No.)

13190 SW 68th Parkway, Suite 110
Tigard, OR 97223
(Address of principal executive offices and Zip Code)
503-505-5670
Registrant’s telephone number, including area code

Securities registered pursuant to Section 12(b) of the Act:
Title of each classTrading SymbolsName of each exchange on which registered
Common stock, par value $0.01 per shareAJXNew York Stock Exchange
7.25% Convertible Senior Notes due 2024AJXANew York Stock Exchange

Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  Yes ☒ No ☐

Indicate by check mark whether the Registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the Registrant was required to submit such files).  Yes ☒ No ☐

Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company or an emerging growth company. See definition of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and "emerging growth company" in Rule 12b-2 of the Exchange Act. (check one):
Large accelerated filerAccelerated filer
Non-accelerated filer (Do not check if a smaller reporting company)Smaller reporting company
Emerging Growth Company

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.  

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  Yes  No ☒

As of May 5, 2021, 22,988,847 shares of the registrant’s common stock, par value $0.01 per share, were outstanding.



TABLE OF CONTENTS

i


PART I. FINANCIAL INFORMATION

Item 1.    Consolidated Interim Financial Statements

GREAT AJAX CORP. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
($ in thousands except per share data) March 31, 2021December 31, 2020
ASSETS(Unaudited)
Cash and cash equivalents$137,579 $107,147 
Cash held in trust186 188 
Mortgage loans held-for-investment, net(1,2)
991,811 1,119,372 
Mortgage loans held-for-sale, net(3,4)
131,719  
Real estate owned properties, net(5)
7,098 8,526 
Investments in securities at fair value(6)
264,682 273,834 
Investments in beneficial interests(7)
94,893 91,418 
Receivable from servicer18,847 15,755 
Investments in affiliates28,294 28,616 
Prepaid expenses and other assets11,864 8,876 
Total assets$1,686,973 $1,653,732 
LIABILITIES AND EQUITY
Liabilities:
Secured borrowings, net(1,2,3,4,8)
$740,035 $585,403 
Borrowings under repurchase transactions305,093 421,132 
Convertible senior notes, net(8)
107,971 110,057 
Management fee payable2,270 2,247 
Put option liability16,149 14,205 
Accrued expenses and other liabilities5,920 6,197 
Total liabilities1,177,438 1,139,241 
Commitments and contingencies – see Note 8
Equity:
Preferred stock, $0.01 par value, 25,000,000 shares authorized
Series A 7.25% Fixed-to-Floating Rate Cumulative Redeemable, $25.00 liquidation preference per share, 2,307,400 shares issued and outstanding at March 31, 2021 and 2,307,400 shares issued or outstanding at December 31, 2020
51,100 51,100 
Series B 5.00% Fixed-to-Floating Rate Cumulative Redeemable, $25.00 liquidation preference per share, 2,892,600 shares issued and outstanding at March 31, 2021 and 2,892,600 shares issued and outstanding at December 31, 2020
64,044 64,044 
Common stock $0.01 par value; 125,000,000 shares authorized, 22,988,847 shares issued and outstanding at March 31, 2021 and 22,978,339 shares issued and outstanding at December 31, 2020
231 231 
Additional paid-in capital314,709 317,424 
Treasury stock(1,159)(1,159)
Retained earnings56,500 53,346 
Accumulated other comprehensive gain1,681 375 
Equity attributable to stockholders487,106 485,361 
Non-controlling interests(9)
22,429 29,130 
Total equity509,535 514,491 
Total liabilities and equity$1,686,973 $1,653,732 

The accompanying notes are an integral part of the consolidated financial statements.
1


(1)Mortgage loans held-for-investment, net include $859.3 million and $842.2 million of loans at March 31, 2021 and December 31, 2020, respectively, transferred to securitization trusts that are variable interest entities (“VIEs”); these loans can only be used to settle obligations of the VIEs. Secured borrowings consist of notes issued by VIEs that can only be settled with the assets and cash flows of the VIEs. The creditors do not have recourse to the primary beneficiary (Great Ajax Corp.). See Note 9 — Debt. Mortgage loans held-for-investment, net include $17.9 million and $13.7 million of allowance for loan credit losses at March 31, 2021 and December 31, 2020, respectively.     
(2)As of March 31, 2021, balances for Mortgage loans held-for-investment, net and Secured borrowings, net of deferred costs includes zero from a 50% owned joint venture. As of December 31, 2020, balances for Mortgage loans held-for-investment, net include $307.1 million and Secured borrowings, net of deferred costs includes $250.6 million from 50.0% and 63.0% owned joint ventures, all of which the Company consolidates under U.S. Generally Accepted Accounting Principles ("U.S. GAAP"). The creditors do not have recourse to the primary beneficiary (Great Ajax Corp.). See Note 9 — Debt.
(3)Mortgage loans held-for-sale, net includes $131.7 million and zero of loans at March 31, 2021 and December 31, 2020, respectively, transferred to securitization trusts that are VIEs; these loans can only be used to settle obligations of the VIEs. Secured borrowings consist of notes issued by VIEs that can only be settled with the assets and cash flows of the VIEs.
(4)As of March 31, 2021, balances for Mortgage loans held-for-sale, net includes $131.7 million and Secured borrowings, net of deferred costs includes $97.3 million from a 50.0% owned joint venture. As of December 31, 2020, balances for Mortgage loans held-for-sale, net and Secured borrowings, net of deferred costs include zero from 50.0% and 63.0% owned joint ventures. The creditors do not have recourse to the primary beneficiary (Great Ajax Corp.). See Note 9 — Debt.
(5)Real estate owned properties, net, includes valuation allowances of $1.3 million and $1.4 million at March 31, 2021 and December 31, 2020, respectively.
(6)As of March 31, 2021 and December 31, 2020, Investments in securities at fair value include amortized cost basis of $263.0 million and $273.4 million, respectively, and net unrealized gains of $1.7 million and $0.4 million, respectively.
(7)Investments in beneficial interests includes allowance for credit losses of $5.5 million and $4.5 million at March 31, 2021 and December 31, 2020, respectively.
(8)Secured borrowings and Convertible senior notes, net are presented net of deferred issuance costs.
(9)As of March 31, 2021 non-controlling interests includes $20.8 million from a 50.0% owned joint venture, $1.4 million from a 53.1% owned subsidiary and $0.2 million from a 99.9% owned subsidiary. As of December 31, 2020 non-controlling interests includes $27.4 million from the 50.0% and 63.0% owned joint ventures, $1.5 million from a 53.1% owned subsidiary and $0.2 million from a 99.9% owned subsidiary which the Company consolidates under U.S. GAAP.

The accompanying notes are an integral part of the consolidated interim financial statements.
2


GREAT AJAX CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
Three months ended
($ in thousands except per share data) March 31, 2021March 31, 2020
INCOME
Interest income$24,035 $26,888 
Interest expense(10,304)(13,070)
Net interest income13,731 13,818 
Recovery of/(provision for) losses5,516 (4,711)
Net interest income after recovery of/(provision for) losses19,247 9,107 
Income/(loss) from investments in affiliates163 (1,112)
Loss on sale of mortgage loans(1)
 (705)
Other income356 747 
Total revenue, net19,766 8,037 
EXPENSE
Related party expense – loan servicing fees1,833 2,014 
Related party expense – management fee2,273 1,799 
Loan transaction expense187 (103)
Professional fees640 805 
Real estate operating expenses185 912 
Fair value adjustment on put option liability1,944  
Other expense1,117 1,025 
Total expense8,179 6,452 
Loss on debt extinguishment911 408 
Income before provision for income taxes10,676 1,177 
Provision for income taxes (benefit)34 (319)
Consolidated net income10,642 1,496 
Less: consolidated net income attributable to the non-controlling interest1,689 1,096 
Consolidated net income attributable to Company8,953 400 
Less: dividends on preferred stock1,949  
Consolidated net income attributable to common stockholders$7,004 $400 
Basic earnings per common share$0.30 $0.02 
Diluted earnings per common share$0.30 $0.02 
Weighted average shares – basic22,816,978 22,070,354 
Weighted average shares – diluted22,816,978 22,189,984 

(1)The Company sold no mortgage loans during the three months ended March 31, 2021. Comparatively, during the three months ended March 31, 2020, the Company sold 26 loans with a carrying value of $26.1 million and UPB of $26.2 million for a loss of $0.7 million.

The accompanying notes are an integral part of the consolidated interim financial statements.
3


GREAT AJAX CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Unaudited)
 
Three months ended March 31,
($ in thousands)20212020
Consolidated net income attributable to common stockholders$7,004 $400 
Other comprehensive income/(loss):
Net unrealized gain/(loss) on investments in available-for-sale debt securities1,306 (28,444)
Income tax expense related to items of other comprehensive income  
Comprehensive income/(loss)$8,310 $(28,044)




The accompanying notes are an integral part of the consolidated interim financial statements.
4


GREAT AJAX CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Three months ended
($ in thousands)March 31, 2021March 31, 2020
CASH FLOWS FROM OPERATING ACTIVITIES
Consolidated net income$10,642 $1,496 
Adjustments to reconcile net income to net cash from operating activities
Stock-based compensation expense294 214 
Non-cash interest income accretion on mortgage loans(5,878)(9,450)
Interest and discount accretion on investment in debt securities(2,476)(122)
Discount accretion on investment in beneficial interests(3,600)(2,672)
Loss on sale of mortgage loans 705 
Loss on debt extinguishment911 408 
Gain on sale of property held-for-sale(105)(286)
Depreciation of property3 8 
Impairment of real estate owned171 897 
Provision for (benefit)/losses on mortgage loans(5,500)1,893 
Amortization of credit loss expense on mortgage loans454 229 
Provision for (benefit)/losses on beneficial interests(15)169 
Amortization of credit loss expense on beneficial interests139 2,818 
Amortization of debt discount and prepaid financing costs1,613 1,316 
Undistributed (income)/loss from investment in affiliates(163)1,112 
Fair value adjustment on put option liability1,944  
Other non-cash loan charges6  
Net change in operating assets and liabilities
Prepaid expenses and other assets(4,468)(28,878)
Receivable from Servicer(3,092)(278)
Accrued expenses, management fee payable, and other liabilities(254)12 
Net cash from operating activities(9,374)(30,409)
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of mortgage loans and related balances(35,637)(1,391)
Principal paydowns on mortgage loans43,578 34,597 
Proceeds from sale of mortgage loans 25,412 
Draws on small balance commercial loans(85) 
Purchase of securities (61,306)
Principal and interest collection on debt securities12,935 10,233 
Proceeds from sale of property held-for-sale1,587 3,017 
Distribution from affiliates485 453 
Net cash from investing activities22,863 11,015 
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from repurchase transactions89,652 72,417 
Repayments on repurchase transactions(205,691)(55,440)
Proceeds from sale of secured borrowings391,028  
Repayments on secured borrowings(225,232)(22,599)
Deferred financing costs(7,301)(34)
Purchase of bonds for non-controlling interest in subsidiaries(5,887) 

The accompanying notes are an integral part of the consolidated interim financial statements.
5


Repurchase of the Company's senior convertible notes(2,430)(8,176)
Sale of common stock pursuant to dividend reinvestment plan47  
Redemption of non-controlling interest in subsidiaries(11,362) 
Distribution to non-controlling interests(84)(84)
Issuance of non-controlling interests in subsidiaries 145 
Dividends on common stock and preferred stock(5,799) 
Net cash from financing activities16,941 (13,771)
NET CHANGE IN CASH, CASH EQUIVALENTS, AND CASH HELD IN TRUST30,430 (33,165)
CASH, CASH EQUIVALENTS AND CASH HELD IN TRUST, beginning of period107,335 64,363 
CASH, CASH EQUIVALENTS AND CASH HELD IN TRUST, end of period$137,765 $31,198 
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid for interest$8,441 $11,249 
Cash paid for income taxes$ $ 
SUPPLEMENTAL DISCLOSURE OF NONCASH INVESTING AND FINANCING ACTIVITIES
Transfer of loans from mortgage held-for-investment, net to mortgage loans held-for-sale, net$131,719 $ 
Non-cash adjustments to basis in mortgage loans$1,324 $31 
Unrealized gain on available for sale securities, net of non-controlling interest and tax$1,306 $28,444 
Issuance of common stock for management fee and compensation expense$294 $214 
Net transfer of loans to rental property or property held-for-sale$228 $814 
Issuance of common stock for dividends$ $7,097 
Treasury stock received through distributions from investment in Manager$ $56 

The following table provides a reconciliation of cash, cash equivalents, and restricted cash reported within the consolidated balance sheet to the amount shown in the consolidated statements of cash flows as of March 31, 2021 and March 31, 2020 ($ in thousands):

March 31, 2021March 31, 2020
Cash and cash equivalents$137,579 $31,179 
Cash held in trust186 19 
Total cash and cash equivalents and restricted cash shown on the consolidated statements of cash flows$137,765 $31,198 


The accompanying notes are an integral part of the consolidated interim financial statements.
6


GREAT AJAX CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
(Unaudited)
($ in thousands)Preferred stock - Series A sharesPreferred stock - Series A amountPreferred stock - Series B sharesPreferred stock - Series B amountCommon stock sharesCommon stock amountTreasury stockAdditional Paid-in CapitalRetained EarningsAccumulated other comprehensive gain/(loss)Total Stockholders' EquityNon-controlling InterestTotal Equity
Balance at December 31, 2019 $  $ 22,142,143 $222 $(458)$309,395 $49,446 $1,277 $359,882 $24,202 $384,084 
Net income— — — — — — — — 400 — 400 1,096 1,496 
Issuance of shares of subsidiary— — — — — — — 145 — — 145 — 145 
Stock-based compensation expense— — — — 2,600 — — 214 — — 214 — 214 
Dividends declared ($0.32 per share) and distributions
— — — — 781,222 8 — 7,089 (7,097)— — (84)(84)
Convertible senior notes repurchase— — — — — — — (81)— — (81)— (81)
Other comprehensive loss— — — — — — — — — (28,444)(28,444)— (28,444)
Treasury stock— — — — (4,030)— (56)— — — (56)— (56)
Balance at March 31, 2020 $  $ 22,921,935 $230 $(514)$316,762 $42,749 $(27,167)$332,060 $25,214 $357,274 
Balance at December 31, 20202,307,400 $51,100 2,892,600 $64,044 22,978,339 $231 $(1,159)$317,424 $53,346 $375 $485,361 $29,130 $514,491 
Net income— — — — — — — — 8,953 — 8,953 1,689 10,642 
Issuance of shares under dividend reinvestment plan— — — — 4,228 — — 47 — — 47 — 47 

The accompanying notes are an integral part of the consolidated interim financial statements.
7


Redemption of non-controlling interest in subsidiaries — — — — — — — (3,056)— — (3,056)(8,306)(11,362)
Stock-based compensation expense— — — — 6,280 — — 294 — — 294 — 294 
Dividends declared ($0.17 per share) and distributions
— — — — — — — — (5,799)— (5,799)(84)(5,883)
Other comprehensive income— — — — — — — — — 1,306 1,306 — 1,306 
Balance at March 31, 20212,307,400 $51,100 2,892,600 $64,044 22,988,847 $231 $(1,159)$314,709 $56,500 $1,681 $487,106 $22,429 $509,535 


The accompanying notes are an integral part of the consolidated interim financial statements.
8


GREAT AJAX CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED INTERIM FINANCIAL STATEMENTS
March 31, 2021
(Unaudited)
Note 1 — Organization and Basis of Presentation

Great Ajax Corp., a Maryland corporation (the “Company”), is an externally managed real estate company formed on January 30, 2014, and capitalized on March 28, 2014, by its then sole stockholder, Aspen Yo (“Aspen”), a company affiliated with Aspen Capital, the trade name for the Aspen group of companies. The Company facilitates capital raising activities and operates as a mortgage real estate investment trust (“REIT”). The Company primarily targets acquisitions of re-performing loans (“RPLs”), which are residential mortgage loans 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. The Company also acquires and originates small balance commercial loans (“SBC loans”). The SBC loans that the Company opportunistically targets, through acquisitions, or originations, 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. Additionally, the Company invests in single-family and smaller commercial properties directly either through a foreclosure event of a loan in its mortgage portfolio or, less frequently, through a direct acquisition. Historically, the Company has also targeted investments in non-performing loans (“NPL”). NPLs are loans on which the most recent three payments have not been made. The Company may acquire NPLs from time to time, either directly or with joint venture partners. The Company’s manager is Thetis Asset Management LLC (the “Manager” or “Thetis”), an affiliated company. The Company owns 19.8% of the Manager and 8.0% of Great Ajax FS LLC ("GAFS" or "The Parent of the Servicer") which owns substantially all of the interest in Gregory Funding LLC ("Gregory" or the "Servicer"), the Company's loan and real property servicer that is also an affiliated company. The Company has elected to be taxed as a REIT under the Internal Revenue Code of 1986, as amended (the “Code”).

The Company conducts substantially all of its business through its operating partnership, Great Ajax Operating Partnership L.P., a Delaware limited partnership (the “Operating Partnership”), and its subsidiaries. The Company, through a wholly owned subsidiary, is the sole general partner of the Operating Partnership. GA-TRS LLC ("GA-TRS") is a wholly owned subsidiary of the Operating Partnership that owns the equity interest in the Manager and the Parent of the Servicer. The Company elected to treat GA-TRS as a taxable REIT subsidiary (“TRS”) under the Code. Great Ajax Funding LLC is a wholly owned subsidiary of the Operating Partnership formed to act as the depositor of mortgage loans into securitization trusts and to hold the subordinated securities issued by such trusts and any additional trusts the Company may form for additional secured borrowings. The Company generally securitizes its mortgage loans through securitization trusts and retains subordinated securities from the secured borrowings. These trusts are considered to be variable interest entities ("VIEs"), and the Company has determined that it is the primary beneficiary of many of these VIEs. AJX Mortgage Trust I and AJX Mortgage Trust II are wholly owned subsidiaries of the Operating Partnership formed to hold mortgage loans used as collateral for financings under the Company’s repurchase agreements. In addition, the Company, through its Operating Partnership, holds real estate owned properties (“REO”) acquired upon the foreclosure or other settlement of its owned NPLs, as well as through outright purchases. GAJX Real Estate Corp. is a wholly owned subsidiary of the Operating Partnership formed to own, maintain, improve and sell REO properties purchased by the Company. The Company has elected to treat GAJX Real Estate Corp. as a TRS under the Code.

The Operating Partnership, through interests in certain entities, as of March 31, 2021, held 99.9% of Great Ajax II REIT Inc. which holds an interest in Great Ajax II Depositor LLC which acts as the depositor of mortgage loans into rated securitization trusts and holds the subordinated securities issued by such trusts and any additional trusts the Company may form for additional secured borrowings. The Company has securitized mortgage loans through securitization trusts and retained subordinated securities from the secured borrowings. These trusts are considered to be VIEs and the Company has determined that it is the primary beneficiary of these VIEs.

In 2018, the Company formed Gaea Real Estate Corp. ("Gaea"), a wholly owned subsidiary of the Operating partnership to hold investments in multi-family, mixed use commercial real estate. The Company had elected to treat Gaea as a TRS under the Code. Also during 2018, the Company formed Gaea Real Estate Operating Partnership LP, a wholly owned subsidiary of Gaea, to hold investments in commercial real estate assets. The Company also formed BFLD Holdings LLC, Gaea Commercial Properties LLC, Gaea Commercial Finance LLC and Gaea RE LLC as subsidiaries of Gaea Real Estate Operating Partnership. In 2019, the Company formed DG Brooklyn Holdings, LLC also as a subsidiary of Gaea Real Estate Operating Partnership LP, to hold investments in multi-family properties.

The accompanying notes are an integral part of the consolidated interim financial statements.
9


On November 22, 2019, Gaea completed a private capital raise transaction in which it raised $66.3 million from the issuance of 4,419,641 shares of its common stock to third parties to allow Gaea to continue to advance its investment strategy. The purchase price per share was $15.00. Upon completion of the private placement, the Company retained ownership of approximately 23.2% of Gaea with third party investors owning the remaining approximately 76.8%. Prior to the date of the capital raise, the Company consolidated Gaea's balance sheet and results of operations. At March 31, 2021 the Company owned approximately 22.9% of Gaea. From the date of the capital raise forward, the Company accounts for its investment in Gaea under the equity method.

Basis of Presentation and Use of Estimates

The consolidated interim financial statements should be read in conjunction with the Company's consolidated financial statements and the notes thereto for the period ended December 31, 2020, included in the Company's Annual Report on Form 10-K filed with the Securities and Exchange Commission (the "SEC") on March 5, 2021.

Interim financial statements are unaudited and prepared in accordance with U.S. GAAP for interim financial information and pursuant to the requirements for reporting on Form 10-Q and Regulation S-X. In the opinion of management, all adjustments, consisting solely of normal recurring accruals considered necessary for the fair presentation of consolidated financial statements for the interim period presented, have been included. The current period’s results of operations will not necessarily be indicative of results that ultimately may be achieved for the fiscal year ending December 31, 2021. The consolidated interim financial statements have been prepared in accordance with U.S. GAAP, as contained within the Accounting Standards Codification (“ASC”) of the Financial Accounting Standards Board (“FASB”) and the rules and regulations of the SEC, as applied to interim financial statements.

The Company consolidates the results and balances of three subsidiaries with non-controlling ownership interests held by third parties. AS Ajax E II LLC ("AS Ajax E II") holds a 5.0% interest in a Delaware trust owns residential mortgage loans and residential real estate assets; AS Ajax E II is 53.1% owned by the Company. Ajax Mortgage Loan Trust 2017-D ("2017-D") is a securitization trust that holds mortgage loans, REO property and secured debt; 2017-D is 50.0% owned by the Company. Great Ajax II REIT Inc. which holds an interest in Great Ajax II Depositor LLC which acts as the depositor of mortgage loans into securitization trusts and holds the subordinated securities issued by such trusts and any additional trusts the Company may form for additional secured borrowings and is 99.9% owned by the Company as of March 31, 2021 and December 31, 2020. The Company recognizes non-controlling interests in its consolidated financial statements for the amounts of the investments and income due to the third-party investors for its consolidated subsidiaries.

During the first quarter of 2021, the Company acquired the remaining ownership of Ajax Mortgage Loan Trusts 2018-C ("2018-C"), a subsidiary that previously had non-controlling ownership interest held by third parties and was 63.0% owned by the Company as of December 31, 2020 and consolidated in the Company's consolidated financial statements. As a result of the transaction at March 31, 2021, the non-controlling ownership interest in 2018-C held by third parties is zero.

At inception, the Operating Partnership was a majority owned partnership that had a non-controlling ownership interest held by an unaffiliated third party included in non-controlling interests on the Company’s consolidated balance sheet. At December 31, 2018, the Company owned 96.8% of the outstanding operating partnership units ("OP Units") and the remaining 3.2% of the OP Units were owned by the unaffiliated holder. The OP units were exchangeable on a 1-for-1 basis with shares of the Company’s common stock. During the second quarter of 2019, all 624,106 OP units held by the unaffiliated holder were exchanged for shares of the Company’s common stock. As a result, at March 31, 2021, the Operating Partnership was 100% owned by the Company. All controlled subsidiaries are included in the Company's consolidated financial statements and all intercompany accounts and transactions have been eliminated in consolidation.

The Company’s 19.8% investment in the Manager and 8.0% investment in GAFS are accounted for using the equity method because the Company can exercise influence on the operations of these entities through common officers and directors. There is no traded or quoted price for the interests in the Manager or GAFS since each is privately held.

The preparation of consolidated financial statements in conformity with U.S. GAAP requires the Company to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities as of the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting periods. The Company considers significant estimates to include expected cash flows from its holdings of mortgage loans and beneficial interests in trusts, and their resolution methods and timelines, including foreclosure costs, eviction costs and property rehabilitation costs. Other significant estimates are fair value measurements, and the net realizable value of REO properties held-for-sale.




The accompanying notes are an integral part of the consolidated interim financial statements.
10


Note 2 — Summary of Significant Accounting Policies

Mortgage loans

Purchased Credit Deteriorated Loans ("PCD Loans")

As of their acquisition date, the loans acquired by the Company have generally suffered some credit deterioration subsequent to origination. As a result, prior to the adoption of ASU 2016-13, Financial Instruments - Credit Losses, otherwise known as CECL, on January 1, 2020, the Company was required to account for the mortgage loans pursuant to ASC 310-30, Accounting for Loans with Deterioration in Credit Quality. Under both standards, the Company’s recognition of interest income for loans with deteriorated credit quality ("PCD loans") is based upon its having a reasonable expectation of the amount and timing of the cash flows expected to be collected. When the timing and amount of cash flows expected to be collected are reasonably estimable, the Company uses expected cash flows to apply the effective interest method of income recognition.

Under both CECL and ASC 310-30, acquired loans may be aggregated and accounted for as a pool of loans if the loans have common risk characteristics. A pool is accounted for as a single asset with a single composite interest rate and an aggregate expectation of cash flows. However, CECL allows more flexibility to the Company to adjust its loan pools as the underlying risk factors change over time. Under ASC 310-30, RPLs were determined by the Company to have common risk characteristics and were accounted for as a single loan pool for loans acquired within each three-month calendar quarter. Similarly, NPLs were determined to have common risk characteristics and were accounted for as a single non-performing pool for loans acquired within each three-month calendar quarter. The result was generally two additional pools (RPLs and NPLs) each quarter. Under CECL, the Company has re-aggregated its loan pools around similar risk factors, while eliminating the previous distinction for the quarter in which loans were acquired. This resulted in a reduction of the number of loan pools to