tuesday, Big Ajax Corp . (NYSE:) shares maintained a Neutral rating by BTIG as the company moves forward with becoming a commercial mortgage real estate investment trust (REIT). The firm’s move to scope comes after Greater Ajax completed a major transaction and restructured its investment portfolio.
Great Ajax Corp recently completed the sale of a significant portion of its residential loan portfolio. On June 11, 2024, the company completed a transaction with Rithm Capital, in which Rithm Capital became the external manager and acquired $14 million of AJX stock at a price of $4.87 per share. In addition, Rithm Capital extended a $70 million term loan to Great Ajax to facilitate the retirement of its convertible notes.
In the second quarter of 2024, AJX sold $263.7 million in mortgage loans, reducing its portfolio to $522.8 million. Following this, the company invested approximately $25 million in AAA-rated commercial mortgage-backed securities (CMBS).
The firm expects Great Ajax to continue divesting its residential loan book through the end of 2024, investing initially in additional CMBS investments and later in commercial mortgage loans.
An analyst from BTIG acknowledges that Greater Ajax is entering the commercial mortgage space at a potentially profitable time. The transaction market is seeing increased activity after a period of slow growth, and as traditional banks pull back from commercial real estate (CRE) lending, opportunities for alternative lenders are expanding. This change presents a favorable picture for Greater Ajax, with more deal flow expected in wider spreads and supported by strong sponsors.
Despite the positive market outlook, BTIG remains cautious, seeking further clarity on the timeline for the sale of residential loans and joint venture investments, the pace of redeployment of funds and the team responsible for the capital allocation at Greater Ajax.
The firm’s position is to observe how the company manages these changes before revising its position. BTIG reiterated its Neutral rating and maintained its previous estimate for Great Ajax Corp.
In other recent news, Great Ajax Corp. announced a strategic shift toward commercial real estate during its second quarter 2024 earnings call. Although it reported a GAAP net loss of $12.7 million, primarily due to mark-to-market and realized losses on mortgage loan sales, the company is shifting from refinanced residential assets to cash-flowing commercial real estate assets. This move was marked by a recent landmark agreement.
Major Ajax also announced a common stock dividend of $0.06 per share, and expressed confidence in the commercial real estate market’s potential to increase earnings and dividends over time. The company currently sells approximately $120 million worth of older residential assets and earns leveraged returns of 12% or more on investments in AAA CMBS securities.
There are also plans to explore potential mergers and acquisitions and the acquisition of distressed assets. The company aims to reinvest capital from the asset sale into newly targeted commercial real estate opportunities, considering a diverse mix of investments to generate returns in the mid-teens. These latest developments mark a significant move for Greater Ajax as it navigates the current market environment.
InvestingPro Insights
Great Ajax Corp. (NYSE:AJX) continues its strategic move toward becoming a commercial mortgage REIT, InvestingPro’s latest data and insights can give investors a clearer picture of the company’s financial health and market position. According to InvestingPro, analysts are optimistic about AJX’s revenue growth potential, expecting net income to increase this year. This is in line with the company’s ongoing portfolio restructuring and may indicate confidence in its transition strategy.
InvestingPro data highlights a significant market cap of $159.63 million for AJX, with a notable dividend yield of 6.86% as of the latest data, indicating substantial returns to shareholders. This is particularly relevant for income-oriented investors, given AJX’s history of maintaining dividend payments for 10 consecutive years. Furthermore, the stock has made a significant return over the past week with a total price return of 9.72% reflecting the current investor sentiment and market dynamics.
However, it should be noted that the company is known for its volatility, and the movement of share prices is considered quite unstable. This, combined with the fact that AJX has not generated returns in the past twelve months, suggests that investors should be cautious when analysts forecast profitability for the current year. For a more comprehensive analysis, more than 9 additional InvestingPro Tips for AJX are available at https://www.investing.com/pro/AJX, which offer deeper insights into the company’s performance and outlook.
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