Related Party Transactions

3 Months Ended

Mar. 31, 2024

Related Party Transactions [Abstract]

Related Party Transactions

Related Party Transactions

The Company’s consolidated statements of operations included the following significant related party transactions ($ in thousands):

			Three months ended March 31,
Transaction	Consolidated Statement of Operations location	Counterparty	2024		2023
Management fee (including management termination fee)	Related party expense – management fee	Manager	$	17,459	$	1,828
Income from equity investment	Income/(loss) from investments in affiliates	Manager	$	3,113	$	2
Interest income on securities and beneficial interest and net decrease in the net present value of expected credit losses on beneficial interests	Net interest (loss)/income after the impact of changes in the net present value of expected credit losses	Various non-consolidated joint ventures	$	2,357	$	4,570
Loan servicing fees	Related party expense – loan servicing fees	Servicer	$	1,734	$	1,860
Affiliate loan interest income	Interest income	Servicer	$	253	$	65
Affiliate loan interest income	Interest income	Gaea	$	92	$	—
Income from equity investment	Income/(loss) from investments in affiliates	AS Ajax E LLC	$	10	$	11
Loss from joint venture re-securitization on beneficial interests	Loss on joint venture refinancing on beneficial interests	2019-H	$	—	$	(995)
Loss from equity investment	Income/(loss) from investments in affiliates	Gaea	$	(1)	$	(243)
Loss from equity investment	Income/(loss) from investments in affiliates	Loan pool LLCs	$	(7)	$	(10)
Loss from equity investment	Income/(loss) from investments in affiliates	Servicer	$	(26)	$	(67)

The Company’s consolidated balance sheets included the following significant related party balances ($ in thousands):

Transaction	Consolidated Balance Sheet location	Counterparty	As of March 31, 2024
Investment in beneficial interests	Investments in beneficial interests	Various non-consolidated joint ventures	$	88,577
Affiliate loan receivable and interest	Prepaid expenses and other assets	Servicer	$	12,663
Receivables from Servicer	Receivable from servicer	Servicer	$	4,240
Affiliate loan receivable and interest	Prepaid expenses and other assets	Gaea	$	4,030
Management fee payable	Management fee payable	Manager	$	1,951
Servicing fee payable	Accrued expenses and other liabilities	Servicer	$	87

Transaction	Consolidated Balance Sheet location	Counterparty	As of December 31, 2023
Investment in beneficial interests	Investments in beneficial interests	Various non-consolidated joint ventures	$	104,162
Affiliate loan receivable and interest	Prepaid expenses and other assets	Servicer	$	12,591
Affiliate loan receivable and interest	Prepaid expenses and other assets	Gaea	$	7,545
Receivables from Servicer	Receivable from servicer	Servicer	$	7,307
Management fee payable	Management fee payable	Manager	$	1,998
Servicing fee payable	Accrued expenses and other liabilities	Servicer	$	89

The Company acquires debt securities and beneficial interests issued by joint ventures between the Company and third party institutional accredited investors. The joint ventures issue senior notes and beneficial interests and in certain transactions, the joint ventures also issue subordinated notes. As of March 31, 2024, the investments in debt securities AFS, investments in debt securities HTM and beneficial interests were carried on the Company's consolidated balance sheet at $125.1 million, $54.1 million and $88.6 million, respectively. As of December 31, 2023, the investments in debt securities AFS, investments in debt securities HTM and beneficial interests were carried on the Company's consolidated balance sheet at $131.6 million, $59.7 million and $104.2 million, respectively.

During the three months ended March 31, 2024, the Company sold no senior notes. Comparatively, during the three months ended March 31, 2023, the Company sold senior notes issued by certain joint ventures and recognized a loss of $3.0 million, which was recorded net to accumulated other comprehensive loss.

During February 2023, the Company purchased one residential RPL from the Servicer for $0.2 million with UPB of $0.2 million and collateral value of $0.4 million. The loans are included in Mortgage loans held-for-investment, net on the Company's consolidated balance sheets.

During January 2023, the Company contributed an additional $0.7 million equity interest in GAFS. As of both March 31, 2024 and December 31, 2023, the Company's ownership of GAFS was 9.7%. The Company accounts for its investment using the equity method.

During the first quarter of 2023, the Company re-securitized 2019-E, -G and -H into 2023-A. The re-securitization resulted in a loss of $1.0 million on its beneficial interests in 2019-H. Although the Company retained a proportionate interest in the underlying mortgage loans and related cash flows, the beneficial interests are accounted for as distinct legal securities and were received through a combination of the beneficial interests in 2023-A and the loss recorded represents the mark to market adjustment on the sale of the underlying loans to 2023-A.

During November 2023, the Company renewed a promissory note with the Servicer under which the Servicer can borrow up to $12.0 million, secured by real property owned by a subsidiary of securitization trusts. Interest on the arrangement accrues at SOFR plus 300 basis points annually. At March 31, 2024 and December 31, 2023, the amount outstanding on the note and interest was $10.9 million and $9.3 million, respectively.

Also during November 2023, the Company renewed a promissory note with the Servicer under which the Servicer can borrow up to $3.5 million secured by equity in servicing advances owned by the Servicer, which are first in priority for reimbursement from loan payments. Interest on the arrangement accrues at SOFR plus 300 basis points. The note was originally executed on December 9, 2021 and was secured by securities held by the Servicer. At March 31, 2024 and December 31, 2023, the amount outstanding on the note and interest was $1.8 million and $3.3 million, respectively.

During November 2019 and January 2022, Gaea completed two private capital raises and has raised a total of $96.3 million and issued 6,247,794 shares of its common stock and warrants to third parties to advance its investment strategy. The Company has a total investment of $25.5 million in Gaea and has received 1,704,436 shares of common stock and 371,103 warrants. At both March 31, 2024 and December 31, 2023, the Company owned approximately 22.2% of Gaea with third party investors owning the remaining 77.8%. The Company accounts for its ownership interest in Gaea using the equity method.

During the year ended December 31, 2019, the Company acquired a cumulative 40.4% average ownership interest in three loan pool LLCs managed by the Servicer for $1.0 million, which hold investments in RPLs and NPLs. During the year

ended December 31, 2020, one of the loan pool LLCs sold its remaining loans. Also, during the year ended December 31, 2022, another loan pool LLCs sold its remaining loans to the Company for a purchase price of $0.3 million and UPB of $0.4 million. At both March 31, 2024 and December 31, 2023, the Company’s ownership interest was approximately 40.0% in one loan pool LLC managed by the Servicer. The Company accounts for its investment using the equity method.

On March 14, 2016, the Company formed AS Ajax E LLC to hold an equity interest in a Delaware trust formed to own residential mortgage loans and other residential real estate assets. AS Ajax E LLC owns a 5.0% equity interest in Ajax E Master Trust which holds a portfolio of RPLs. At both March 31, 2024 and December 31, 2023, the Company’s ownership interest in AS Ajax E LLC was approximately 16.5%. The Company accounts for its investment using the equity method.

Management Agreement

Currently, the Company is a party to the Third Amended and Restated Management Agreement with the Manager, as amended, which expires on March 5, 2034. Under the Management Agreement, the Manager implements the Company’s business strategy and manages the Company’s business and investment activities and day-to-day operations, subject to oversight by the Company’s Board of Directors. Among other services, the Manager, directly or through affiliates, provides the Company with a management team and necessary administrative and support personnel. The Company does not currently have any employees that it pays directly and does not expect to have any employees that it pays directly in the foreseeable future. Each of the Company’s executive officers is an employee or officer, or both, of the Manager or the Servicer.

Under the Management Agreement, the Company pays both a base management fee and an incentive fee to the Manager. The base management fee equals 1.5% of the Company's stockholders’ equity, including equity equivalents such as the Company's issuance of convertible senior notes, per annum and calculated and payable quarterly in arrears. Also, under the First Amendment to the Third Amended and Restated Management Agreement with the Manager, which has an effective date of March 1, 2023, the Company's quarterly base management fee will include, in its computation of equity managed, its unsecured debt securities to the extent the proceeds were used to repurchase the Company's preferred stock.

The management fee is payable with 50% paid in shares of the Company's common stock and 50% in cash. However, the Company has the option to pay its management fee with up to 100% in cash at its discretion, and pay the remainder in shares of its common stock.

In the event the Company elects to pay its Manager in shares of its common stock, the calculation to determine the number of shares of the Company's common stock to be issued to the Manager is outlined below. The Manager has agreed to hold any shares of common stock received by it as payment of the base management fee for at least three years from the date such shares of common stock are received.

The Manager is also entitled to an incentive fee, payable quarterly and calculated in arrears, which contains both a quarterly and annual component. A quarterly incentive fee is payable to the Manager if the sum of the Company’s dividends on its common stock paid out of taxable income and its increase in book value, all relative to the applicable quarter and calculated per-share on an annualized basis, exceed 8%. The Manager will also be entitled to an annual incentive fee if the sum of the Company’s quarterly cash dividends on its common stock paid out of taxable income, special cash dividends on its common stock paid out of taxable income and increase in book value within the applicable calendar year exceed 8% of the Company’s book value per share as of the end of the calendar year. However, no incentive fee will be payable to the Manager with respect to any calendar quarter unless the Company’s cumulative core earnings, defined as U.S. GAAP net income or loss less non-cash equity compensation, unrealized gains or losses from mark to market adjustments, one-time adjustments to earnings resulting from changes to U.S. GAAP, and certain other non-cash items, is greater than zero for the most recently completed eight calendar quarters. In the event that the payment of the quarterly base management fee has not reached the 50/50 split, all of the incentive fee is payable in shares of the Company’s common stock at its discretion and any until the 50/50 split occurs. In the event that the total payment of the quarterly base management fee and the incentive fee has reached the 50/50 split, 20% of the remaining incentive fee is payable in shares of the Company's common stock and 80% of the remaining incentive fee is payable in cash. Notwithstanding the foregoing, the Company may elect to pay the incentive fee entirely in cash at its discretion. During the three months ended March 31, 2024 and 2023, the Company did not record an incentive fee payable to the Manager.

The Company also reimburses the Manager for all third party, out-of-pocket costs incurred by the Manager for managing its business, including third party due diligence and valuation consultants, legal expenses, auditors and other financial services. The reimbursement obligation is not subject to any dollar limitation. Expenses are reimbursed in cash on a monthly basis.

The Company will be required to pay the Manager a termination fee in the event that the Management Agreement is terminated as a result of (i) a termination by the Company without cause, (ii) its decision not to renew the Management Agreement upon the determination of at least two-thirds of the Company’s independent directors for reasons including the failure to agree on revised compensation, (iii) a termination by the Manager as a result of the Company becoming regulated as an “investment company” under the Investment Company Act of 1940, as amended (the “Investment Company Act”) (other than as a result of the acts or omissions of the Manager in violation of investment guidelines approved by the Company’s Board of Directors), or (iv) a termination by the Manager if the Company defaults in the performance of any material term of the Management Agreement (subject to a notice and cure period). The termination fee will be equal to twice the combined base fee and incentive fees payable to the Manager during the 12-month period ended as of the end of the most recently completed fiscal quarter prior to the date of termination.

On February 26, 2024, the Company issued a termination notice to the Manager, in connection with the Rithm transaction, and agreed to pay the Manager the termination fee pursuant to the Management Agreement primarily in shares of common stock.

Servicing Agreement

The Company is also a party to the Servicing Agreement, expiring July 8, 2029, with the Servicer. The Company’s overall servicing costs under the Servicing Agreement will vary based on the types of assets serviced.

Servicing fees for mortgage loans range from 0.65% to 1.25% annually of UPB at acquisition (or the fair market value or purchase price of REO), and are paid monthly. The servicing fee is based upon the status of the loan at acquisition. A change in status from RPL to NPL does not cause a change in the servicing fee rate.

Servicing fees for the Company’s real property assets that are not held in joint ventures 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 otherwise purchased by the Company.

The Servicer is reimbursed for all customary, reasonable and necessary out-of-pocket costs and expenses incurred in the performance of its obligations, including the actual cost of any repairs and renovations to foreclosed property undertaken on the Company’s behalf. The total fees incurred by the Company for these services will be dependent upon the UPB and the type of mortgage loans that the Servicer services, for fees based on mortgage loans, and property values, previous UPB of the relevant loan, and the number of REO properties for fees based on REO properties.

If the Servicing Agreement has been terminated other than for cause and/or the Servicer terminates the servicing agreement, the Company will be required to pay a termination fee equal to the aggregate servicing fees payable under the servicing agreement for the immediate preceding 12-month period.

Trademark Licenses

Aspen has granted the Company a non-exclusive, non-transferable, non-sublicensable, royalty-free license to use the name “Great Ajax” and the related logo. The Company also has a similar license to use the name “Thetis.” The agreement has no specified term. If the Management Agreement expires or is terminated, the trademark license agreement will terminate within 30 days. In the event that this agreement is terminated, all rights and licenses granted thereunder, including, but not limited to, the right to use “Great Ajax” in its name will terminate. Aspen also granted to the Manager a substantially identical non-exclusive, non-transferable, non-sublicensable, royalty-free license use of the name “Thetis.”