IPO Report: Great Ajax (AJX)

Francis Gaskins |

Great_Ajax_Logo.jpgGreat Ajax (AJX) focuses primarily on acquiring, investing in and managing a portfolio of re-performing and non-performing mortgage loans secured by single-family residences and, to a lesser extent, single-family properties. It is based in Beaverton, OR.

Six other companies are scheduled for the week of Feb. 9, 2015. The full IPO calendar is available at IPOpremium.

SEC Documents

Manager, Joint-managers: FBR/ Sterne Agee, Nomura
Co-managers: Ladenburg Thalmann/ MLV & Co.

AJX scheduled a $93 million IPO with a market capitalization of $260 million at a price range midpoint of $16 for Friday, Feb. 13, 2015 on NYSE.

Great Ajax Overview

AJX is a Maryland corporation that focuses primarily on acquiring, investing in and managing a portfolio of re-performing and non-performing mortgage loans secured by single-family residences and, to a lesser extent, single-family properties.

AJX also invests in loans secured by multi-family residential and commercial mixed use retail/residential properties, as well as in the properties directly. 

Great Ajax Valuation

Glossary

Per share dilution

.

.

-$1.66

     

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Valuation Ratios

Mrkt Cap (mm)

Price /Sls

Price /Erngs

Price /BkVlue

Price /TanBV

% offered in IPO

annualizing Sept 9 mos

         

Great Ajax (AJX)

$261

n/a

n/a

1.2

1.1

36%

             

Great Ajax Conclusion

Neutral

Proceeds to acquire mortgage loans

Non-performing, sub-performing & re-performing loans

No indication of yield

25% to selling shareholders

Price-to-book 1.2

Great Ajax Business

AJX is a Maryland corporation that focuses primarily on acquiring, investing in and managing a portfolio of re-performing and non-performing mortgage loans secured by single-family residences and, to a lesser extent, single-family properties.

AJX also invests in loans secured by multi-family residential and commercial mixed use retail/residential properties, as well as in the properties directly.

The multi-family and commercial mixed-use properties generally have loan values of up to approximately $5 million. AJX refers to these as “smaller commercial properties.” AJX commenced operations on July 8, 2014.

Great Ajax Private Placements

In July and August 2014 AJX closed the Original Private Placement that resulted in net proceeds to AJX of $128.4 million.

In December 2014, AJX closed the Second Private Placement, which resulted in net proceeds to it of $41.2 million.

Through December 31, 2014, AJX has acquired mortgage loans and other mortgage-related assets with an aggregate UPB of approximately $304.5 million. AJX is organized and operated in a manner intended to allow it to qualify as a REIT.

Great Ajax Strategy:  Non-Performing, Sub-Performing & Re-Performing Loans

AJX’s primary strategy is to acquire, own and manage re-performing, sub-performing and non-performing mortgage loans, which are serviced by Gregory Funding LLC, its affiliated servicer.

AJX seeks to acquire loans at significant discounts to its estimates of the value of the underlying real estate and of the UPB of the loan.

Great Ajax Proprietary Models

Unlike other loan acquirers, who often rely on pooled estimates in analyzing and pricing portfolios, AJX’s Manager uses proprietary models and data developed by its affiliates to evaluate individual assets and to help determine cities, neighborhoods and properties that it believes will experience HPA.

These proprietary analytics have inputs for economic and demographic data that include changes in unemployment rates, median household incomes, housing starts, crime rates, education, electoral participation and other variables that AJX believes closely correlate to property values.

The proprietary models predict probabilistic future cash flows for each loan AJX seeks to acquire.

Factors affecting AJX’s cash flow projections include resolution method, resolution timeline, foreclosure costs, rehabilitation costs and eviction costs.

The database for these proprietary models contains foreclosure timelines on an individual county basis and, in some instances, also on an individual judge basis. AJX believes that these proprietary models permit AJX to acquire loans at prices AJX and the Manager believe represent a discount to UPB and current property values in non-auction purchases.

Great Ajax Intellectual Property

None

Great Ajax Competition

In acquiring its assets, AJX competes with other mortgage and hybrid REITs, hedge funds, specialty finance companies, savings and loan associations, banks, mortgage bankers, insurance companies, mutual funds, investment banking firms, financial institutions, governmental bodies and other entities.

Great Ajax 5% Shareholders Pre-IPO

Ithan Creek Master Investors (Cayman) L.P.        19.5%   ​            ​

Flexpoint Great Ajax Holdings LLC         15.5%               ​

Luxor Capital Group, LP            11.0%  

Lawrence Mendelsohn   ​            6.8%    

Great Ajax Dividends

To satisfy the distribution requirement necessary to qualify as a REIT and to avoid paying U.S. federal tax on AJX’s income, AJX intends to make regular quarterly distributions of substantially all of its REIT taxable income to holders of its common stock.

Any distributions AJX makes will be at the discretion of its board of directors and will depend upon its earnings and financial condition, qualification and maintenance of REIT status, applicable provisions of the MGCL and such other factors as its board of directors deems relevant.

Great Ajax Use of Proceeds

AJX expects to receive $64 million from its IPO and use it for the following:

77.4% of the net proceeds from this offering  to complete acquisitions of mortgage loans.

DISCLOSURE: The views and opinions expressed in this article are those of the authors, and do not represent the views of equities.com. Readers should not consider statements made by the author as formal recommendations and should consult their financial advisor before making any investment decisions. To read our full disclosure, please go to: http://www.equities.com/disclaimer

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