Great Ajax Corp (NYSE:AJX) Q2 2020 Earnings Conference Call - Final Transcript

Aug 04, 2020 • 05:00 pm ET

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Great Ajax Corp (NYSE:AJX) Q2 2020 Earnings Conference Call - Final Transcript

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Presentation
Operator
Operator

Ladies and gentlemen, thank you for standing by, and welcome to the Great Ajax Corp. Q2 2020 Earnings Call.

[Operator Instructions]

I would now like to hand the conference over to your speaker today, Mr. Lawrence Mendelsohn, CEO. Thank you. Please go ahead, sir.

Executive
Lawrence A. Mendelsohn

Thank you very much. Thank you everybody for joining us on our second quarter of 2020 earnings call. Before we get started on the presentation, I want to just have you take a look at Q2 -- or at Page 2 for the forward-looking statement disclosure.

And with that, we can get moving to Page 3, our business overview. Q2 2020 was a positive quarter in many ways. After navigating through March and April, we closed the second tranche of joint venture investment in loans that was purchased in a prefunded securitization structure that we created in March of 2020. We raised $125 million in net proceeds of perpetual preferred shares. We paid down significant amount repurchase facility debt in Q2 as a result of loan and mortgage bond cash flow. And beginning in late Q2 2020, we've seen our cost of funds start coming down dramatically versus the average Q2 cost of funds.

One thing I do want to add, volatile environments and declining economic times like we've seen in the last few months really show how important and strategic having our directly aligned operating and loan servicing platform can be, coupled with our value investing mentality. You can see this through the continued performance of our loan portfolio and the net asset value relative to book value.

On Page 3, our managers' strength in analyzing loan characteristics and market metrics for reperformance probabilities and pathways and our managers' ability to source mortgage loans enables us to acquire loans that, we believe, have a material probability of long-term continuing reperformance. We've acquired loans in 302 different transactions since 2014. Additionally, we believe having an affiliated servicer provides a strategic advantage in nonperforming and nonregular paying loan resolution processes and time lines.

In today's volatile environment, having our portfolio teams and analytics group with the manager working closely with the servicer is essential to maximize reperformance probabilities on a loan-by-loan basis. The analytics and sourcing of the manager and the effectiveness of the servicer also enables us to broaden our investment reach through joint ventures with third-party institutional investors.

Our June 30th, 2020, corporate leverage ratio decreased from 3.2 times at March 31st to 2.2 times at June 30th. We use primarily moderate leverage, especially for our sector and primarily non-mark-to-market leverage. Mark-to-market financing represents less than 25% of our financing and is approximately 90% backed by our Class A1 securities from our joint ventures.

On Page 4, we'll talk in-depth about the second quarter. Net interest income from loans and securities, including a $4.3 million partial reversal of COVID-19-related loan extension and credit losses, was approximately $15 million. For the second quarter, we had a lower average balance of mortgage loans due to prepayment and principal