Tuesday, Great Ajax Corp . (NYSE:AJX) stock maintained its Neutral rating by BTIG, as the company progresses in its transformation into a commercial mortgage real estate investment trust (REIT). The firm's coverage transition comes after Great Ajax completed a major transaction and restructured its investment portfolio.
Great Ajax Corp. has recently completed the sale of a significant portion of its residential loan portfolio. On June 11, 2024, the company finalized its transaction with Rithm Capital, which included Rithm Capital becoming the external manager and acquiring $14 million of AJX stock at a price of $4.87 per share. Additionally, Rithm Capital provided a $70 million term loan to Great Ajax to facilitate the retirement of its convertible notes.
In the second quarter of 2024, AJX sold mortgage loans totaling $263.7 million, reducing its portfolio to $522.8 million. Following this, the company invested approximately $25 million into AAA-rated commercial mortgage-backed securities (CMBS) notes.
The firm anticipates that Great Ajax will continue to divest its residential loan book by the end of 2024, initially reinvesting the proceeds into additional CMBS investments and later into commercial mortgage loans.
The analyst from BTIG recognizes that Great Ajax is entering the commercial mortgage space at a potentially advantageous time. The transaction market is seeing increased activity after a period of slow growth, and with traditional banks retreating from commercial real estate (CRE) lending, opportunities for alternative lenders are expanding. This shift presents a favorable landscape for Great Ajax, with more deal flow expected at wider spreads and backed by robust sponsors.
Despite the positive outlook on the market, BTIG remains cautious, seeking further clarity on the timeline for the sales of residential loans and joint venture investments, the rate at which funds will be redeployed, and the team responsible for capital allocation at Great Ajax.
The firm's stance is to observe how the company navigates these changes before revising its position. BTIG has reiterated its Neutral rating and maintains its previous estimates for Great Ajax Corp.
In other recent news, Great Ajax Corp has announced a strategic shift towards commercial real estate during its Q2 2024 earnings call. Despite reporting a GAAP net loss of $12.7 million, primarily due to mark-to-market and realized losses on mortgage loan sales, the company is transitioning from reperforming residential assets to cash-flowing commercial real estate assets. This move was marked by a significant deal closed recently.
Great Ajax also declared a common stock dividend of $0.06 per share and expressed confidence in the commercial real estate market's potential to enhance earnings and dividends over time. The company is currently selling approximately $120 million of legacy residential assets and is generating levered returns of 12% or more from 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 asset sales into new targeted commercial real estate opportunities, considering a diverse mix of investments to achieve mid-teen returns. These recent developments indicate a significant move for Great Ajax as it navigates the current market environment.
InvestingPro Insights
As Great Ajax Corp. (NYSE:AJX) continues its strategic pivot towards becoming a commercial mortgage REIT, recent data and insights from InvestingPro could provide investors with a clearer picture of the company's financial health and market position. According to InvestingPro, analysts are optimistic about AJX's potential for income growth, expecting net income to rise this year. This aligns with the company's ongoing portfolio restructuring and could signal 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 a substantial return to shareholders. This is particularly relevant for income-focused investors considering AJX's history of maintaining dividend payments for 10 consecutive years. Additionally, the stock has experienced a significant return over the last week, with a 9.72% price total return, reflecting current investor sentiment and market dynamics.
However, it is important to note that the company has been marked by volatility, with stock price movements considered quite erratic. This, coupled with the fact that AJX was not profitable over the last twelve months, suggests that investors should approach with caution, even as analysts predict profitability for the current year. For a more comprehensive analysis, there are over 9 additional InvestingPro Tips available for AJX at https://www.investing.com/pro/AJX, offering deeper insights into the company's performance and outlook.
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