Rithm Property Trust Inc. (RPT) FY 2022 MD&A

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Overview

Great Ajax Corp. is a Maryland corporation that is organized and operated in a manner intended to allow us to qualify as a REIT. We primarily target acquisitions of (i) RPLs, which are residential mortgage loans on which at least five of the seven most recent payments have been made, or the most recent payment has been made and accepted pursuant to an agreement, or the full dollar amount, to cover at least five payments has been paid in the last seven months and (ii) NPLs, which are residential mortgage loans on which the most recent three payments have not been made. We may acquire RPLs and NPLs either directly or in joint ventures with institutional accredited investors. The joint ventures are structured as securitization trusts, of which we acquire debt securities and beneficial interests. We may also acquire or originate SBC loans. The SBC loans that we target through acquisitions generally have a principal balance of up to $5.0 million and are secured by multi-family residential and commercial mixed use retail/residential properties on which at least five of the seven most recent payments have been made, or the most recent payment has been made and accepted pursuant to an agreement, or the full dollar amount to cover at least five payments has been paid in the last seven months. Additionally, we invest in single-family and smaller commercial properties directly either through a foreclosure event of a loan in our mortgage portfolio, or, less frequently, through a direct acquisition. We own a 19.8% equity interest in our Manager and an 8.0% equity interest in the parent company of our Servicer through GA-TRS, a wholly owned subsidiary of the Operating Partnership. We have elected to treat GA-TRS as a taxable REIT subsidiary under the Code. Our mortgage loans and real properties are serviced by the Servicer, also an affiliated company.

In 2014, we formed Great Ajax Funding LLC, a wholly owned subsidiary of the Operating Partnership, to act as the depositor of mortgage loans into securitization trusts and to hold the subordinated securities issued by such trusts and any additional trusts we may form for additional secured borrowings. AJX Mortgage Trust I and AJX Mortgage Trust II are wholly owned subsidiaries of the Operating Partnership formed to hold mortgage loans used as collateral for financings under our repurchase agreements. On February 1, 2015, we formed GAJX Real Estate Corp., as a wholly owned subsidiary of the Operating Partnership, to own, maintain, improve and sell certain REOs purchased by us. We have elected to treat GAJX Real Estate Corp. as a TRS under the Code.

Our Operating Partnership, through interests in certain entities as of December 31, 2022, owns 99.9% of Great Ajax II REIT Inc. which owns Great Ajax II Depositor LLC which then acts as the depositor of mortgage loans into securitization trusts and holds subordinated securities issued by such trusts. Similarly, as of December 31, 2022, the Operating Partnership wholly owned Great Ajax III Depositor LLC, which was formed to act as the depositor into 2021-E, which is a REMIC. We have securitized mortgage loans through these securitization trusts and retained subordinated securities from the secured borrowings. These trusts are considered to be VIEs, and we have determined that we are the primary beneficiary of the VIEs.

In 2018, we formed Gaea as a wholly-owned subsidiary of the Operating Partnership that invests in multifamily properties with a focus on property appreciation and triple net lease veterinary clinics. We elected to treat Gaea as a TRS under the Code for 2018 and elected to treat Gaea as a REIT under the Code in 2019 and thereafter. Also during 2018, we formed Gaea Real Estate Operating Partnership LP, a wholly-owned subsidiary of Gaea, to hold investments in commercial real estate assets, and Gaea Real Estate Operating LLC, to act as its general partner. We also formed Gaea Veterinary Holdings LLC, BFLD Holdings LLC, Gaea Commercial Properties LLC, Gaea Commercial Finance LLC and Gaea RE Holdings LLC as subsidiaries of Gaea Real Estate Operating Partnership. In 2019, we formed DG Brooklyn Holdings LLC, also a subsidiary of Gaea Real Estate Operating Partnership LP, to hold investments in multi-family properties.

On November 22, 2019, Gaea completed a private capital raise transaction through which it raised $66.3 million from the issuance of its common stock to third parties to allow Gaea to continue to advance its investment strategy. Additionally, in January 2022, Gaea completed a second private capital raise in which it raised approximately $30.0 million from the issuance of its common stock and warrants. At December 31, 2022 we owned approximately 22.0% of Gaea. We account for our investment in Gaea under the equity method.

We elected to be taxed as a REIT for U.S. federal income tax purposes beginning with our taxable year ended December 31, 2014. Our qualification as a REIT depends upon our ability to meet, on a continuing basis, various complex requirements under the Code relating to, among other things, the sources of our gross income, the composition and values of our assets, our distribution levels and the diversity of ownership of our capital stock. We believe that we are organized in conformity with the requirements for qualification as a REIT under the Code, and that our current intended manner of operation enables us to meet the requirements for taxation as a REIT for U.S. federal income tax purposes.

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Our Portfolio

The following table outlines the carrying value of our portfolio of mortgage loan assets and single-family and smaller commercial properties as of December 31, 2022 and 2021 ($ in millions):

We closely monitor the status of our mortgage loans and, through our Servicer, work with our borrowers to improve their payment records.

Market Trends and Outlook

In December 2022, the Federal Reserve raised its benchmark federal-funds rate by half a percentage point. This follows rate increases in March, May, June, July, September and November for a year to date increase of 4.25 points. Also, in February 2023, the Federal Reserve raised its benchmark federal-funds rate by another quarter of a percentage point. The Federal Reserve indicated it would likely continue raising the federal-funds rate as long as inflation remained above its 2.00% target and would continue reducing its holdings of Treasury securities and agency debt and agency mortgage-backed securities. According to Freddie Mac, the 30-year fixed rate mortgage rate averaged 6.09% for the week of February 2, 2023.(1)

Ongoing disruption in the credit markets could result in margin calls from our financing counterparties and additional mark downs on our Investments in debt securities, beneficial interests and mortgage loans.

Through the end of the fourth quarter, the recent trends noted below have continued, including:

•rising interest rates have increased our borrowing costs;

•increasing mortgage interest rates and higher home prices, are slowing home purchases and refinancing activity resulting in lower prepayments of our loan and securities portfolios;

•rising home prices are triggering significant prepayments by borrowers selling their homes to downsize or relocate to lower cost markets;

•borrowers that purchased or refinanced in 2020 and 2021 have record low interest rates and will be unlikely to trade up in the current interest rate environment;

•the flight to the suburbs during the COVID pandemic has increased the demand for single-family and multi-family residential rental properties; and

•the Dodd-Frank risk retention rules for asset backed securities have reduced the universe of participants in the securitization markets.

The combination of these factors has also resulted in a significant number of families that cannot qualify to obtain new residential mortgage loans. We believe the U.S. federal regulations addressing “qualified mortgages” based on, among other factors such as employment status, debt-to-income level, impaired credit history or lack of savings, limit mortgage loan availability from traditional mortgage lenders. In addition, we believe that many homeowners displaced by foreclosure or who either cannot afford to own or cannot be approved for a mortgage will prefer to live in single-family rental properties with similar characteristics and amenities to owned homes as well as smaller multi-family residential properties. In certain demographic areas, new households are being formed at a rate that exceeds the new homes being added to the market, which we believe favors future demand for non-federally guaranteed mortgage financing for single-family and smaller multi-family rental properties. For all these reasons, we believe that demand for single-family and smaller multi-family rental properties will continue to increase in the near term and remain at heightened levels for the foreseeable future.

We believe that investments in residential RPLs and NPLs with positive equity provide an optimal investment value. As a result, we are currently focused on acquiring pools of RPLs and NPLs, at attractive prices. Through our Servicer, we work

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with our borrowers to improve their payment records. Once there is a period of continued performance, we expect that borrowers will typically refinance these loans at or near the estimated value of the underlying property.

We also believe there are significant attractive investment opportunities in the SBC loan and property markets and originate as well as purchase these loans, particularly in urban areas where there is a sustainable trend of young adults desiring to live near where they work. We focus on densely populated urban areas where we expect positive economic change based on certain demographic, economic and social statistical data. The primary lenders for smaller multi-family and mixed retail/residential properties are community banks and not regional and national banks and large institutional lenders. We believe the primary lenders and loan purchasers are less interested in these assets because they typically require significant commercial and residential mortgage credit and underwriting expertise, special servicing capability and active property management. It is also more difficult to create the large pools of these loans that primary banks, lenders and portfolio acquirers typically desire. We continually monitor opportunities to increase our holdings of these SBC loans and properties.

We also believe that banks and other mortgage lenders have strengthened their capital bases and are more aggressively foreclosing on delinquent borrowers or selling these loans to dispose of their inventory. Additionally, many NPL buyers are now interested in reducing their investment duration and are selling RPLs.

(1)Freddie Mac Primary Mortgage Market Survey, U.S. weekly averages as of February 2, 2023.

Factors That May Affect Our Operating Results

Acquisitions. Our operating results depend heavily on sourcing residential RPLs and SBC loans and, when attractive opportunities are identified, NPLs. We believe that there is generally a large supply of RPLs available to us for acquisition and we believe the available supply provides for a steady acquisition pipeline of assets since large institutions are active sellers in the market. However, we expect that our residential mortgage loan portfolio may grow at an uneven pace, as opportunities to acquire distressed residential mortgage loans may be irregularly timed and may involve large portfolios of loans, and the timing and extent of our success in acquiring such loans cannot be predicted. In addition, for any given portfolio of loans that we agree to acquire, we typically acquire fewer loans than originally expected, as certain loans may be resolved prior to the closing date or may fail to meet our diligence standards. The number of loans not acquired typically constitutes a small portion of a particular portfolio. In any case where we do not acquire the full portfolio, we make appropriate adjustments to the applicable purchase price.

Financing. Our ability to grow our business by acquiring residential RPLs and SBC loans depends on the availability of adequate financing, including additional equity financing, debt financing or both in order to meet our objectives. We intend to leverage our investments with debt, the level of which may vary based upon the particular characteristics of our portfolio and on market conditions. We have funded and intend to continue to fund our asset acquisitions with non-recourse secured borrowings in which the underlying collateral is not marked to market and employ repurchase agreements without the obligation to mark to market the underlying collateral to the extent available. We securitize our whole loan portfolios, primarily as a financing tool, when economically efficient to create long-term, fixed rate, non-recourse financing with moderate leverage, while retaining one or more tranches of the subordinate MBS so created. The secured borrowings are structured as debt financings and not REMIC sales. We completed the securitization transactions pursuant to Rule 144A under the Securities Act of 1933, as amended (the “Securities Act”), in which we issued notes primarily secured by seasoned, performing and non-performing mortgage loans primarily secured by first liens on one-to-four family residential properties. Currently there is substantial uncertainty in the securitization markets which could limit our access to financing.

To qualify as a REIT under the Code, we generally will need to distribute at least 90% of our taxable income each year (subject to certain adjustments) to our stockholders. This distribution requirement limits our ability to retain earnings and thereby replenish or increase capital to support our activities.

Resolution Methodologies. We, through the Servicer, or our affiliates, employ various loan resolution methodologies with respect to our residential mortgage loans, including loan modification, collateral resolution and collateral disposition. The manner in which an NPL is resolved will affect the amount and timing of revenue we will receive. Our preferred resolution methodology is typically to cause the RPLs to continue to perform and NPLs to perform through loan modification. Following a period of continued performance, we expect that borrowers will typically refinance these loans at or near the estimated value of the underlying property. We believe modification followed by refinancing generates near-term cash flows, provides the highest possible economic outcome for us and is a socially responsible business strategy because it keeps more families in their homes. In certain circumstances, we may also consider selling these modified loans. Through historical experience, we expect that many of our NPLs will enter into foreclosure or similar proceedings, ultimately becoming REO that we can sell. We expect the timelines for these different processes to vary significantly. The exact nature of resolution will depend on a number of factors

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that are beyond our control, including borrower willingness, property value, availability of refinancing, interest rates, conditions in the financial markets, regulatory environment and other factors. To avoid the 100% prohibited transaction tax on the sale of dealer property by a REIT, we may dispose of assets that may be treated as held “primarily for sale to customers in the ordinary course of a trade or business” by contributing or selling the asset to a TRS prior to marketing the asset for sale. The state of the real estate market and home prices will determine proceeds from any sale of real estate.

Conversion to Rental Property. From time to time we may retain an REO property as a rental property. We do not expect to retain a material number of single family residential properties for use as rentals.

Expenses. Our expenses primarily consist of the fees and expenses payable by us under the Management Agreement and the Servicing Agreement. Additionally, our Manager incurs direct, out-of-pocket costs related to managing our business, which are contractually reimbursable by us. Loan transaction expense is the cost of performing due diligence on pools of mortgage loans under consideration for purchase. Professional fees are primarily for legal, accounting and tax services. Real estate operating expense consists of the ownership and operating costs of our REO properties, and includes any charges for impairments to the carrying value of these assets, which may be significant. Those expenses may increase due to extended eviction timelines caused by the pandemic. Interest expense, which is subtracted from our Interest income to arrive at Net interest income, consists of the costs to borrow money.

Changes in Home Prices. As discussed above, generally, rising home prices are expected to positively affect our results, particularly as this should result in greater levels of re-performance of mortgage loans, faster refinancing of those mortgage loans, more re-capture of principal on greater than 100% LTV (loan-to-value) mortgage loans and increased recovery of the principal of the mortgage loans upon sale of any REO. Conversely, declining real estate prices are expected to negatively affect our results, particularly if the home prices should decline below our purchase price for the loans and especially if borrowers determine that it is better to strategically default as their equity in their homes decline. We typically concentrate our investments in specific urban geographic locations in which we expect stable or better property markets. However, when we analyze loan and property acquisitions we do not take home price appreciation ("HPA") into account except for rural properties for which we model negative HPA related to our expectation of worse than expected property condition. While we initially expected the COVID-19 outbreak to have a material downward effect on home prices, we are generally seeing increases in HPA in our target markets. A significant decline in HPA could have an adverse impact on our operating results.

Changes in Market Interest Rates. With respect to our business operations, increases in existing interest rates, in general, may over time cause: (1) the value of our mortgage loan and MBS portfolio to decline; (2) coupons on our ARM and hybrid ARM mortgage loans and MBS to reset, although on a delayed basis, to higher interest rates; (3) prepayments on our mortgage loans and MBS portfolio to slow, thereby slowing the amortization of our purchase premiums and the accretion of our purchase discounts; (4) the interest expense associated with our borrowings to increase; and (5) to the extent we enter into interest rate swap agreements as part of our hedging strategy, the value of these agreements to increase. Conversely, decreases in interest rates, in general, may over time cause: (a) prepayments on our mortgage loan and MBS portfolio to increase, thereby accelerating the accretion of our purchase discounts; (b) the value of our mortgage loan and MBS portfolio to increase; (c) coupons on our ARM and hybrid ARM mortgage loans and MBS to reset, although on a delayed basis, to lower interest rates; (d) the interest expense associated with our borrowings to decrease; and (e) to the extent we enter into interest rate swap agreements as part of our hedging strategy, the value of these agreements to decrease.

Market Conditions. As the Federal Reserve continues its current trend toward monetary tightening, mortgage markets are undergoing a great deal of uncertainty with regard to both interest rates and origination volume. We believe that in spite of the continuing uncertain market environment for mortgage-related assets current market conditions offer potentially attractive investment opportunities for us, even in the face of a riskier and more volatile market environment. We expect that market conditions will continue to impact our operating results and will cause us to adjust our investment and financing strategies over time as new opportunities emerge and risk profiles of our business change.

COVID-19 Pandemic. While lock downs and restrictions from the pandemic have ended, the effects of the pandemic on inflation and resulting increase in interest rates have contributed to a substantial dislocation in the credit markets. A return to any COVID-19 pandemic restriction could also negatively impact our business if the reactions of federal, state and local governments caused additional disruption in the capital markets and in housing.

Critical Accounting Policies and Estimates

(See also Note 2 to the consolidated financial statements for a discussion of our significant accounting policies )

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The preparation of financial statements in accordance with GAAP requires us to make a number of judgments and assumptions that affect estimates of the reported amounts within our consolidated financial statements. Critical accounting estimates are important to the presentation of our financial condition and results of operations and require management to make difficult, complex, or subjective judgments and estimates, often regarding matters that are inherently uncertain. Actual results could differ from our estimates, and the use of different judgments and assumptions related to these estimates could have a material impact on our consolidated financial statements. For additional information about our critical accounting estimates and significant accounting policies, see the notes accompanying our consolidated financial statements.

Various elements of our accounting policies, by their nature, are inherently subject to estimation techniques, and other subjective assessments. In particular, we have identified six policies that, due to the judgment and estimates inherent in those policies, are critical to understanding our consolidated financial statements. These policies relate to (i) the allowance for credit losses, (ii) accounting for Interest income on our mortgage loan portfolio; (iii) accounting for Investments at fair value; (iv) accounting for investments in Beneficial Interests; (v) accounting for Interest expense on our secured borrowings, repurchase facilities, 2024 Notes and 2027 Notes; and (vi) fair values. We believe that the judgment and estimates used in the preparation of our consolidated financial statements are appropriate given the factual circumstances at the time. However, given the sensitivity of our consolidated financial statements to these critical accounting policies, the use of other judgments or estimates could result in material differences in our results of operations or financial condition.

Allowance for Credit Losses

The allowance for credit losses represents management's estimate of expected credit losses over the contractual term of the mortgage loans and applies to all of our loans classified as held for investment on our consolidated balance sheets. Determining the appropriateness of the allowance for credit losses is a complex process that is subject to estimates and assumptions requiring significant management judgment about matters that involve a high degree of subjectivity. This process involves the use of models that requires management to make judgments about matters that are difficult to predict, the most significant of which are the probability of default and the severity of expected credit losses. Management regularly evaluates the underlying estimates and models we use when determining the allowance for credit losses and updates our assumptions to reflect our historical experience and current view of broader market conditions.

To the extent actual loan performance differs from management's expectations, our allowance for credit losses could increase or decrease. While no single factor determines the level of our allowance for credit losses, expected borrower performance and underlying property value are two key drivers that factor into our scenario based cash flow projections. Our historical data has demonstrated the number of payments made by a borrower, either in succession or as an aggregate, to be a significant factor in predicting repayment. Additionally, we include an estimate of underlying property value. Accordingly, if our delinquency estimate is overstated and our valuation estimates are overstated, there could be a negative impact on our allowance for credit losses.

Based on our review of the key inputs and our methodology used, we believe our current allowance for credit losses is properly stated at December 31, 2022 and 2021.

Mortgage Loans

We adopted ASU 2016-13, Financial Instruments - Credit Losses, otherwise known as CECL using the prospective transition approach for PCD assets on January 1, 2020. At the time, $10.2 million of loan discount was reclassified to the allowance for expected credit losses with no net impact on the amortized cost basis of the portfolio.

Purchased Credit Deteriorated Loans ("PCD Loans") — As of their acquisition date, the loans we acquired have generally suffered some credit deterioration subsequent to origination. As a result, our recognition of interest income for PCD loans is based upon our having a reasonable expectation of the amount and timing of the cash flows expected to be collected. When the timing and amount of cash flows expected to be collected are reasonably estimable, we use expected cash flows to apply the effective interest method of income recognition.

Acquired loans may be aggregated and accounted for as a pool of loans if the loans have common risk characteristics. A pool is accounted for as a single asset with a single composite interest rate and an aggregate expectation of cash flows. We may adjust our loan pools as the underlying risk factors change over time. We have aggregated our mortgage loan portfolio into loan pools based on similar risk factors. Excluded from the aggregate pools are loans that pay in full subsequent to the acquisition closing date but prior to pooling. Any gain or loss on these loans is recognized as interest income in the period the loan pays in full.

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Non-PCD Loans — While we generally acquire loans that have experienced deterioration in credit quality, we also acquire loans that have not experienced a deterioration in credit quality and originate SBC loans.

We account for our non-PCD loans by estimating any allowance for expected credit losses for our non-PCD loans based on the risk characteristics of the individual loans. If necessary, an allowance for expected credit losses is established through a provision for loan losses. The allowance is the difference between the net present value of the expected future cash flows from the loan and the contractual balance due.

Impaired loans are carried at the present value of expected future cash flows discounted at the loan’s effective interest rate, the loan’s market price, or the fair value of the collateral if the loan is collateral dependent.

Investments in Securities at Fair Value

Our Investments in Securities at Fair Value consist of investments in senior and subordinated notes issued by joint ventures, which we form with third party institutional accredited investors. We recognize income on the debt securities using the effective interest method. Additionally, the notes are classified as available-for-sale and are carried at fair value with changes in fair value reflected in our consolidated statements of comprehensive income. We mark our investments to fair value using prices received from our financing counterparties and believe any unrealized losses on our debt securities are expected to be temporary. Any other-than-temporary losses, which represent the excess of the amortized cost basis over the present value of expected future cash flows, are recognized in the period identified in our consolidated statements of income. Risks inherent in our debt securities portfolio, affecting both the valuation of the securities as well as the portfolio’s interest income include the risk of default, delays and inconsistency in the frequency and amount of payments, risks affecting borrowers such as man-made or natural disasters, or the pandemic, and damage to or delay in realizing the value of the underlying collateral. We monitor the credit quality of the mortgage loans underlying our debt securities on an ongoing basis, principally by considering loan payment activity or delinquency status. In addition, we assess the expected cash flows from the mortgage loans, the fair value of the underlying collateral and other factors, and evaluate whether and when it becomes probable that all amounts contractually due will not be collected.

Investments in Beneficial Interests

Our Investments in Beneficial Interests consist of the residual investment in the securitization trusts which we form with third party institutional accredited investors. We account for our Investments in Beneficial Interests under CECL, which we adopted using the prospective transition approach. At adoption, $1.7 million of discount was reclassified to the allowance for expected credit losses with no net impact on the amortized cost basis of the beneficial interests. Each beneficial interest is accounted for individually, and we recognize our ratable share of gain, loss, income or expense based on our percentage ownership interest.

Our Investments in Beneficial Interests are carried at amortized cost. Upon acquisition, the investments are recorded as three separate elements: (i) the amount of purchase discount which we expect to recover through eventual repayment of the investment, (ii) an allowance for future expected credit loss and (iii) the par value of the investment. The purchase discount which we expect to recover through eventual repayment of the investment gives rise to an accretable yield. We recognize this accretable yield as interest income on a prospective level yield basis over the life of the investment. Our recognition of interest income is based upon us having a reasonable expectation of the amount and timing of the cash flows expected to be collected. When the timing and amount of cash flows expected to be collected are reasonably estimable, we use these expected cash flows to apply the effective interest method of income recognition.

Our expectation of the amount of undiscounted cash flows to be collected is evaluated at the end of each calendar quarter. The net present value of changes in expected cash flows as compared to contractual amounts due, whether caused by timing or investment performance, is reported in the period in which it arises and is reflected as an increase or decrease in the allowance for expected credit losses to the extent a provision for expected credit losses is recorded against the investment. If no provision for expected credit losses is recorded against the investment, the increase in expected future cash flows is recognized prospectively as an increase in yield.

Risks inherent in our beneficial interest portfolio include the risk of default, delays and inconsistency in the frequency and amount of payments, risks affecting borrowers such as man-made or natural disasters and damage to or delay in realizing the value of the underlying collateral. We monitor the credit quality of the mortgage loans underlying our beneficial interests on an ongoing basis, principally by considering loan payment activity or delinquency status. In addition, we assess the expected cash flows from the mortgage loans, the fair value of the underlying collateral and other factors, and evaluate whether and when it becomes probable that all amounts contractually due will not be collected.

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Debt

Secured Borrowings — Through securitization trusts which are VIEs, we issue callable debt secured by our mortgage loans in the ordinary course of business. The secured borrowings facilitated by the trusts are structured as debt financings, and the mortgage loans used as collateral remain on our consolidated balance sheet as we are the primary beneficiary of the securitization trusts. These secured borrowing VIEs are structured as pass through entities that receive principal and interest on the underlying mortgages and distribute those payments to the holders of the notes. Our exposure to the obligations of the VIEs is generally limited to our investments in the entities; the creditors do not have recourse to the primary beneficiary. Coupon interest expense on the debt is recognized using the accrual method of accounting. Deferred issuance costs, including original issue discount and debt issuance costs, are carried on our consolidated balance sheets as a deduction from Secured borrowings, and are amortized to interest expense on an effective yield basis based on the underlying cash flow of the mortgage loans serving as collateral. We assume the debt will be called at the specified call date for purposes of amortizing discount and issuance costs because we believe it will have the intent and ability to call the debt on the call date. Changes in the actual or projected underlying cash flows are reflected in the timing and amount of deferred issuance cost amortization.

Repurchase Facilities — We enter into repurchase financing facilities under which we nominally sell assets to a counterparty and simultaneously enter into an agreement to repurchase the sold assets at a price equal to the sold amount plus an interest factor. Despite being legally structured as sales and subsequent repurchases, repurchase transactions are generally accounted for as debt secured by the underlying assets. At the maturity of a repurchase financing, unless the repurchase financing is renewed, we are required to repay the borrowing including any accrued interest and concurrently receive back our pledged collateral from the lender. The repurchase financings are treated as collateralized financing transactions; pledged assets are recorded as assets in our consolidated balance sheets, and debt is recognized at the contractual amount. Interest is recorded at the contractual amount on an accrual basis. Costs associated with the set-up of a repurchasing contract are recorded as deferred expense at inception and amortized over the contractual life of the agreement. Any draw fees associated with individual transactions and any facility fees assessed on the amounts outstanding are recorded as expense when incurred.

Convertible Senior Notes

During 2017 and 2018, we completed the public offer and sale of our convertible senior notes due 2024 (the "2024 Notes"). At December 31, 2022 and 2021, the UPB of the debt was $104.5 million and $104.6 million, respectively. The 2024 Notes bear interest at a rate of 7.25% per annum, payable quarterly in arrears on January 15, April 15, July 15 and October 15 of each year. The 2024 Notes will mature on April 30, 2024, unless earlier repurchased, converted or redeemed. During certain periods and subject to certain conditions the 2024 Notes will be convertible by their holders into shares of our common stock at a current conversion rate of 1.7405 shares of common stock per $25.00 principal amount of the 2024 Notes, which represents a conversion price of approximately $14.36 per share of common stock. The conversion rate, and thus the conversion price, are subject to adjustment under certain circumstances.

Coupon interest on the 2024 Notes is recognized using the accrual method of accounting. Discount and deferred issuance costs are carried on our consolidated balance sheets as a reduction of the carrying value of the 2024 Notes, and are amortized to interest expense on an effective yield basis through April 30, 2023, the date at which the 2024 Notes can be converted. We assume the debt will be converted at the specified conversion date for purposes of amortizing issuance costs because we believe such conversion will be in the economic interest of the holders. No sinking fund has been established for redemption of the principal.

On January 1, 2022, we adopted ASU 2020-06, Debt – Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging – Contracts in an Entity’s Own Equity (Subtopic 815-40) by recording a reduction in our additional paid-in capital account of $0.7 million and a corresponding increase in the carrying value of our Convertible senior notes of $0.7 million, representing the carrying value of the conversion feature associated with the 2024 Notes.

Notes Payable

During August 2022, our Operating Partnership issued $110.0 million aggregate principal amount of 8.875% senior unsecured notes due September 2027 (the "2027 Notes"). The 2027 Notes have a five-year term and were issued at 99.009% of par value and are fully and unconditionally guaranteed by us and two of our subsidiaries: Great Ajax Operating LLC (the "GP Guarantor") and Great Ajax II Operating Partnership L.P. (the "Subsidiary Guarantor," and together with us and the GP Guarantor, "Guarantors"). Interest on the 2027 Notes is payable semi-annually on March 1 and September 1, with the first payment due and payable on March 1, 2023. The 2027 Notes will mature on September 1, 2027. Net proceeds from the sale of the 2027 Notes totaled approximately $106.1 million, after deducting the discount, commissions, and offering expenses which

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will be amortized over the term of the unsecured 2027 Notes using the effective interest method.

Fair Value

Fair Value of Financial Instruments — A fair value hierarchy has been established that requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. The standard describes three levels of inputs that may be used to measure fair value:

•Level 1 — Quoted prices in active markets for identical assets or liabilities.

•Level 2 — Observable inputs other than Level 1 prices, such as quoted prices for similar assets and liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.

•Level 3 — Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.

The degree of judgment utilized in measuring fair value generally correlates to the level of pricing observability. Assets and liabilities with readily available actively quoted prices or for which fair value can be measured from actively quoted prices generally will have a higher degree of pricing observability and a lesser degree of judgment utilized in measuring fair value. Conversely, assets and liabilities rarely traded or not quoted will generally have little or no pricing observability and a higher degree of judgment utilized in measuring fair value. Pricing observability is impacted by a number of factors, including the type of asset or liability, whether it is new to the market and not yet established, and the characteristics specific to the transaction.

Recent Accounting Pronouncements

Refer to the notes to our consolidated financial statements for a description of relevant recent accounting pronouncements.

Results of Operations

Key items for the year ended December 31, 2022 include:

•Interest income of $82.6 million; net interest income of $39.0 million

•Net loss attributable to common stockholders of $(28.7) million

•Earnings per share ("EPS") per basic common share of $(1.24)

•Operating income of $17.7 million

•Operating income per basic common share of $0.77

•Taxable income of $1.24 per share attributable to common stockholders after payment of dividends on our preferred stock

•Book value per common share of $13.00 at December 31, 2022

•Repurchased and retired $91.0 million face amount of our preferred stock and associated warrants

•Repurchased 475,355 shares of common stock at an average purchase price of $9.77 per share

•Issued $110.0 million aggregate principal amount of 8.875% senior unsecured notes due 2027

•Formed one joint venture that acquired $293.6 million in UPB of mortgage loans with collateral values of $653.1 million and retained $44.6 million of varying classes of related securities issued by the joint venture

•Refinanced four joint ventures into two new joint ventures with $436.3 million in UPB of mortgage loans with collateral values of $1.1 billion and retained $86.0 million of varying classes of related agency rated securities to end the year with $391.6 million of investments in debt securities and beneficial interests

•Collected total cash of $261.2 million from loan payments, sales of REO and collections from investments in debt securities and beneficial interests

•Invested an additional $6.1 million in Gaea to increase our total investment to $25.5 million, or 22.0%

•Held $47.8 million of cash and cash equivalents at December 31, 2022; average daily cash balance was $60.9 million

•As of December 31, 2022, approximately 79.6% of portfolio based on acquisition UPB made at least 12 out of the last 12 payments

We generated a consolidated net loss attributable to common stockholders under GAAP for the year ended December 31, 2022 of $(28.7) million or $(1.24) per common share after preferred dividends, and Operating income of $17.7 million or $0.77 per common share. Operating income is a non-GAAP financial measure which adjusts GAAP earnings by removing gains and losses as well as certain other non-core income and expenses and preferred dividends. We consider

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Operating income a useful measure for comparing the results of our ongoing operations over multiple quarters. Comparatively, our GAAP consolidated net income attributable to common stockholders for the years ended December 31, 2021 and 2020 was $34.1 million and $22.8 million, or $1.48 and $1.00 per common share, respectively. Operating income during the years ended December 31, 2021 and 2020 was $34.1 million and $27.8 million, or $1.48 and $1.22 per common share, respectively.

During the year ended December 31, 2022, we repurchased and retired 1,882,451 shares of our series A preferred stock, 1,757,010 shares of our series B preferred stock and 4,549,328 warrants for our common stock in a series of repurchases transactions. The series A and series B preferred stock was repurchased for an aggregate of $88.7 million at an average price of $24.37 per share, representing a discount of approximately 2.5% to the face value of $25.00 per share. The warrants were repurchased for an aggregate of $35.0 million which is equal to the expected future put value obligation of $20.00 per warrant. The repurchase of the preferred stock caused the recognition of $8.2 million of GAAP preferred stock discount, and the repurchase of the warrants accelerated future GAAP accretion expense on the warrant's put option of $12.3 million. The repurchase of the preferred stock is expected to save us approximately $5.6 million annually in preferred dividends while the repurchase of the warrants will reduce future put option accretion expense by $10.8 million annually.

At December 31, 2022, our book value decreased to $13.00 per common share from $15.92 at December 31, 2021, driven by the effect of mark to market adjustments of $26.7 million on our investments in debt securities, dividends on our common stock of $24.5 million and the year-to-date net loss attributable to common stockholders of $28.7 million, partially offset by the repurchase of 475,355 shares of our common stock during the second quarter at an average price of $9.77 per share and the removal of our convertible senior notes from the calculation due to their antidilutive effect on our earnings per share.

During the three months ended March 31, 2022, we invested an additional $6.1 million in Gaea to increase our total investment to $25.5 million, or 22.2% of total shares outstanding. In addition to common stock, we received 371,103 warrants to purchase additional shares at $16.41 per share for a two year period following the date that the common stock commences trading on a trading market. At December 31, 2022, we owned approximately 22.0% of Gaea.

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Table 1: Results of Operations

(1)Net decrease in the net present value of expected credit losses represents the net decrease to the allowance resulting from changes in actual and expected cash flows during the years ended December 31, 2022, 2021 and 2020. It represents the net increase of the present value of the expected cash flows in excess of contractual cash flows offset by any incremental provision expense on the Mortgage loan pools and Beneficial interests. The decrease is calculated at the pool level for Mortgage loans and at the security level for Beneficial interests. To the extent a pool or Beneficial interest has an associated allowance, the decrease in expected credit losses is recorded in the period in which the change occurs, otherwise it is recognized prospectively as an increase in yield.

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(1)Net decrease in the net present value of expected credit losses represents the net decrease to the allowance resulting from changes in actual and expected cash flows during the years ended December 31, 2022, 2021 and 2020. It represents the net increase of the present value of the expected cash flows in excess of contractual cash flows offset by any incremental provision expense on the Mortgage loan pools and Beneficial interests. The decrease is calculated at the pool level for Mortgage loans and at the security level for Beneficial interests. To the extent a pool or Beneficial interest has an associated allowance, the decrease in expected credit losses is recorded in the period in which the change occurs, otherwise it is recognized prospectively as an increase in yield.

Interest Income

Our primary source of income is accretion earned on our mortgage loan portfolio offset by the interest expense incurred to fund and hold portfolio acquisitions. Our gross interest income excluding the impact of credit losses decreased to $82.6 million for the year ended December 31, 2022 from $93.4 million for the year ended 2021 and $98.3 million for the year ended 2020 primarily due to lower yields on our mortgage loan portfolio and beneficial interests.

Interest expense for the year ended December 31, 2022 increased to $43.6 million from $36.7 million for the year ended 2021 due to increases in the effective interest rate on our borrowings on repurchase lines of credit. Comparatively, interest expense for the year ended December 31, 2021 decreased from $48.7 million for the year ended 2020 due to decreases in the average interest rates applicable to our borrowings.

Net interest income after recording the impact of the net present value of decreases in expected credit losses decreased to $47.0 million for the year ended December 31, 2022 from $74.9 million for the year ended 2021 and increased from $62.2 million for the year ended 2020 primarily as a result of a net $8.0 million impact of the net decrease in the net present value of expected credit losses for the year ended December 31, 2022 compared to a $18.2 million decrease for the year ended 2021 and $12.6 million decrease for the year ended 2020. Of the $8.0 million for the year ended December 31, 2022, $8.1 million relates to the net decrease in the net present value of expected credit losses on our mortgage loan portfolio and $0.1 million relates to the net increase in the net present value of expected credit losses on our investments in beneficial interests. Comparatively, of the $18.2 million for the year ended December 31, 2021, $13.7 million relates to our mortgage loan portfolio and $4.6 million to our investments in beneficial interests. Of the $12.6 million for the year ended December 31, 2020, $9.4 million relates to our mortgage loan portfolio and $3.2 million to our investments in beneficial interests.

During the year ended December 31, 2022, we collected $261.2 million in cash payments and proceeds on our mortgage loans, securities and REO held-for-sale compared to $318.5 million and $240.3 million for the years ended December 31, 2021 and 2020, respectively.

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The interest income detail for the years ended December 31, 2022, 2021 and 2020 is included in the table below ($ in thousands):

Table 2: Interest Income Detail

(1)Net decrease in the net present value of expected credit losses represents the net decrease to the allowance resulting from changes in actual and expected cash flows during the years ended December 31, 2022, 2021 and 2020. It represents the net increase of the present value of the expected cash flows in excess of contractual cash flows offset by any incremental provision expense on the Mortgage loan pools and Beneficial interests. The decrease is calculated at the pool level for Mortgage loans and at the security level for Beneficial interests. To the extent a pool or Beneficial interest has an associated allowance, the decrease in expected credit losses is recorded in the period in which the change occurs, otherwise it is recognized prospectively as an increase in yield.

The average carrying balance of our mortgage loan portfolio increased for the year ended December 31, 2022 versus the prior year of 2021 primarily due to loan acquisitions in the fourth quarter of 2021. The average carrying balances of our debt securities and beneficial interests increased for the year ended December 31, 2022 versus the prior year of 2021 due to acquisitions outpacing paydowns and sales. The average carrying balance of our debt outstanding decreased for the year ended December 31, 2022 versus the prior year of 2021 as paydowns and sales outpaced acquisitions. The average carrying balances for our portfolio are included in the table below ($ in thousands):

Table 3: Average Balances

Loss/Income from Equity Method Investments

We recorded a loss from our investments in affiliates of $1.2 million for the year ended December 31, 2022, income of $0.7 million for the year ended 2021 and loss of $0.2 million for the year ended 2020. The change year over year is partially due to the flow-through impact of the mark to market adjustment on shares of our stock held by our Manager and our Servicer. We account for our investments in our Manager and our Servicer using the equity method of accounting.

During the three months ended March 31, 2022, we invested an additional $6.1 million in Gaea to increase our total investment to $25.5 million, or 22.2% of total shares outstanding. In addition to common stock, we received 371,103 warrants to purchase additional shares at $16.41 per share for a two year period following the date that the common stock commences trading on a trading market. At December 31, 2022, we owned approximately 22.0% of Gaea.

Loss on Joint Venture Refinancing on Beneficial Interests

The was a $6.1 million loss on joint venture refinancing on beneficial interests driven by $4.0 million other than temporary impairment on the partial redemption of our beneficial interests in Ajax Mortgage Loan Trusts 2018-D and 2018-G ("2018-D and -G") during the first quarter of 2022, which became a realized loss when the transaction closed in April 2022. The 2018-D and -G trusts were re-securitized in the second quarter of 2022 and the underlying mortgage loans were used to form

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Ajax Mortgage Loan Trust 2022-A ("2022-A"). We also had a $2.1 million loss on the partial redemption of our beneficial interests in Ajax Mortgage Loan Trust 2019-A and 2019-B ("2019-A and -B") during the second quarter of 2022. The 2019-A and -B trusts were also re-securitized in the second quarter of 2022 and the underlying mortgage loans were used to form Ajax Mortgage Loan Trust 2022-B ("2022-B"). Although we continue to own approximately the same interest in the underlying mortgage loans and related cash flows, we account for our beneficial interests as legal securities and recorded a loss on the transaction as a result. The beneficial interests were exchanged for a combination of the beneficial interest in 2022-A and -B, respectively, and cash received from the sale of the underlying loans to 2022-A and -B, respectively.

Other Loss/Income

Other loss/income decreased for the year ended December 31, 2022 by $6.4 million from 2021. The decrease in Other income was driven by a $4.8 million loss on the disposition of debt securities, primarily driven by the sale of securities in Ajax Mortgage Loan Trust 2021-F and lower of cost or market adjustment on our mortgage loan portfolio of $1.8 million due to extension of a portion of our loan portfolio as previously delinquent borrowers have become more consistent payers. This was partially offset by an increase in the first quarter in late fee income. Other income increased for the year ended December 31, 2021 by $0.8 million from 2020, primarily due to increases in late fee income and a gain on sale of mortgage loans in 2021 versus a loss in 2020. A breakdown of Other income is provided in the table below ($ in thousands):

Table 4: Other (Loss)/Income

(1)Includes a reclass of Gain/(loss) on sale of mortgage loans, HAMP fees and Rental income to Other (loss)/gain.

Expenses

Total expenses for the year ended December 31, 2022 increased from the year ended 2021 as a result of our put option expense on our outstanding common stock warrants and an increase in loan servicing fees as NPLs increased as a percentage of the total portfolio. These were partially offset by lower management fees in 2022 due to a reduction in stockholders' equity. Similarly, total expenses for the year ended 2021 increased from 2020 as a result of our put option expense on our outstanding common stock warrants. This was partially offset by lower loan servicing fees as a result of the lower average carrying balance of our mortgage loan portfolio due to increased investments in our joint ventures. A breakdown of our expenses is provided in the table below ($ in thousands):

Table 5: Expenses

(1)Previously presented to include Real estate operating expense as its own line item, which has now been reclassed to Other expense.

Other Expense

Other expense for the year ended December 31, 2022 increased from the year ended 2021 primarily due to an increase in employee and service provider grants and travel, meals and entertainment, partially offset by lower non due diligence lien release. Other expense for the year ended 2021 decreased from 2020 primarily due to real estate operating expense, partially

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offset by employee and service provider grants and directors' fees and grants. A breakdown of other expense is provided in the table below ($ in thousands):

Table 6: Other Expense

(1)Includes a reclass of Real estate operating expense.

(2)Includes a reclass of Loan transaction expense and Lien release non due diligence to Other expense.

Acceleration of Put Option Settlement

During the year ended December 31, 2022, we repurchased and retired 4,549,328 warrants for our common stock in a series of repurchase transactions. The warrants were repurchased for an aggregate of $35.0 million at a price equal to the expected future put value obligation of $20.00 per warrant. The repurchase of the warrants accelerated future accretion expense on the warrant's put option of $12.3 million. The repurchase is expected to reduce future put option expense by $10.8 million annually. There was no repurchase of warrants during the years ended December 31, 2021and 2020.

Loss on Debt Extinguishment

During the year ended December 31, 2022, we had no acceleration of deferred issuance costs from refinancing activities. Comparatively, for years ended December 31, 2021 and 2020, we recorded $1.4 million and $0.7 million, respectively, related to the acceleration of deferred issuance costs for calling and re-securitizing our secured borrowings at a lower cost of funds.

Discount on Retirement of Preferred Stock

During the year ended December 31, 2022, we repurchased and retired 1,882,451 shares of our series A preferred stock and 1,757,010 shares of our series B preferred stock in a series of repurchase transactions. The series A and series B preferred stock was repurchased for an aggregate of $88.7 million at an average price of $24.37 per share, representing a discount of approximately 2.5% to the face value of $25.00 per share. The repurchase of the preferred stock caused the recognition of $8.2 million of preferred stock discount during the year ended December 31, 2022. The repurchase is expected to save us approximately $5.6 million annually in preferred dividends. There was no repurchase of preferred stock during the years ended December 31, 2021 and 2020.

Equity and Net Book Value per Share

Our net book value per common share was $13.00 and $15.92 at December 31, 2022 and 2021, respectively. The decrease in book value was primarily due to the year to date net loss attributable to common stockholders of $28.7 million, the effect of mark to market adjustments of $26.7 million on our investments in debt securities and dividends on our common stock of $24.5 million, partially offset by the repurchase of 475,355 shares of our common stock at an average price of $9.77 per share and the removal of our convertible senior notes from the calculation due to their antidilutive effect on our earnings per share. We believe our calculation is representative of our book value on a per share basis, and our Manager believes book value per share is a valuable metric for evaluating our business. The net book value per share is calculated by taking equity at the balance sheet date (i) less preferred stock and non-controlling interest, (ii) adjusted for any addition for potential conversion of

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our 2024 Notes, divided by outstanding shares at the balance sheet date adjusted to include (i) unvested restricted stock earned but unissued and (ii) any share equivalents for our 2024 notes or our put option liability as determined by the dilution requirements for our EPS calculation. A breakdown of our book value per share is set forth in the table below ($ in thousands except per share amounts):

Table 7: Book Value per Common Share

(1)The conversion of convertible senior notes was removed as of December 31, 2022 due to it having an anti-dilutive effect on our earnings per share calculation.

(2)The settlement of the put option in shares is not included in the book value calculation as of December 31, 2022 or 2021 as it has an anti-dilutive effect on our earnings per share calculation.

Mortgage Loan Portfolio

For the years ended December 31, 2022 and 2021, we purchased $10.1 million and $185.7 million of RPLs with UPB of $11.2 million and $191.3 million, respectively, at 44.7% and 54.8% of property value, respectively, and 89.7% and 97.1% of UPB, respectively, including loans acquired from Ajax Mortgage Loan Trust 2019-C ("2019-C") in December 2021, wherein we acquired the outstanding equity certificate of 2019-C, resulting in recognition of the underlying loans on our consolidated balance sheet. For the years ended December 31, 2022 and 2021 we purchased $1.3 million and $91.5 million of NPLs with UPB of $1.5 million and $94.8 million, respectively, at 54.0% and 63.6% of the underlying property value, respectively, and 87.5% and 96.6% of UPB, respectively. For the year ended December 31, 2022, we purchased no SBC loans, however, during the year ended 2021, we purchased $9.0 million of SBC loans with UPB of $8.9 million at 40.5% of the underlying property value and 101.4% of UPB. We ended the period with $1.0 billion for both our mortgage loans and aggregate UPB as of December 31, 2022 and $1.1 billion of mortgage loans with an aggregate UPB of $1.2 billion as of 2021.

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The following table shows loan portfolio acquisitions for the years ended December 31, 2022 and 2021 ($ in thousands):

Table 8: Loan Portfolio Acquisitions

(1)During the fourth quarter of 2021 we acquired the remaining trust certificates of our non-consolidated joint venture, 2019-C resulting in the addition of 772 loans to our loan portfolio. Our 34.0% investment was previously reflected in our investment in debt securities and beneficial interests.

During the year ended December 31, 2022, 667 mortgage loans, representing 12.5% of our ending UPB, were liquidated. Comparatively, during the year ended 2021, 1,502 mortgage loans, representing 25.4% of our ending UPB, were liquidated. Our loan portfolio activity for the years ended December 31, 2022 and 2021 are presented below ($ in thousands):

Table 9: Loan Portfolio Activity

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Table 10: Portfolio Composition

As of December 31, 2022 and 2021, our portfolios consisted of the following ($ in thousands):

(1)At December 31, 2022 and 2021, our loan portfolio consists of fixed rate (61.2% of UPB), ARM (6.8% of UPB) and Hybrid ARM (32.0% of UPB); and fixed rate (60.6% of UPB), ARM (7.5% of UPB) and Hybrid ARM (31.9% of UPB), respectively.

(2)Amounts that have been deferred in connection with a loan modification on which interest does not accrue. These amounts generally become payable at the time of maturity.

(3)As of the reporting date.

(4)UPB as of December 31, 2022 and 2021, divided by market value of collateral and weighted by the UPB of the loan.

(5)Market value of REO is based on net realizable value. Fair market value is determined based on appraisals, BPOs, or other market indicators of fair value including list price or contract price.

(6)Loans that have made at least 12 of the last 12 payments, or for which the full dollar amount to cover at least 12 payments has been made in the last 12 months.

(7)Loans that have made at least 24 of the last 24 payments, or for which the full dollar amount to cover at least 24 payments has been made in the last 24 months.

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Table 11: Portfolio Characteristics

The following tables present certain characteristics about our mortgage loans by year of origination as of December 31, 2022 and 2021 ($ in thousands):

Portfolio at December 31, 2022

Portfolio at December 31, 2021

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Table 12: Loans by State

The following table identifies our mortgage loans by state, number of loans, loan value, collateral value and percentages thereof at December 31, 2022 and 2021 ($ in thousands):

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(1)As of the reporting date.

Table 13: Debt Securities and Trust Certificate Acquisitions

The following table shows our debt securities and trust certificate acquisitions for the years ended December 31, 2022 and 2021 ($ in thousands):

(1)The securities were received in exchange for our investments in 2018-D and -G and 2019-A and -B and include cash and non-cash components for the year ended December 31, 2022.

(2)The securities were received in exchange for our investments in Ajax Mortgage Loan Trust 2020-C and Ajax Mortgage Loan Trust 2020-D and include cash and non-cash components for the year ended December 31, 2021.

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Liquidity and Capital Resources

Source and Uses of Cash

Our primary sources of cash have consisted of proceeds from our securities offerings, our secured borrowings, repurchase agreements, principal and interest payments on our loan portfolio, principal paydowns on securities, and sales of properties held-for-sale. Depending on market conditions, we expect that our primary financing sources will continue to include secured borrowings, repurchase agreements, and securities offerings in addition to transaction or asset specific funding arrangements and credit facilities (including term loans and revolving facilities). We expect that these sources of funds will be sufficient to meet our short-term and long-term liquidity needs. We believe we have access to adequate resources to meet the needs of our existing operations, mandatory capital expenditures, dividend payments, and working capital, to the extent not funded by cash provided by operating activities. However, we expect market events, including inflation and the related Federal Reserve bank actions, may adversely impact our future operating cash flows due to the inability of some of our borrowers to make scheduled payments on time or at all, and through increased interest rates on secured borrowings and repurchase lines of credit. From time to time, we may invest with third parties and acquire interests in loans and other real estate assets through investments in joint ventures using special purpose entities that can result in investments at fair value and investments in beneficial interests, which are included on our consolidated balance sheet.

As of December 31, 2022 and 2021, substantially all of our invested capital was in RPLs, NPLs, SBC loans, debt securities, and beneficial interests. We also held approximately $47.8 million of cash and cash equivalents, a decrease of $36.6 million from our balance of $84.4 million at December 31, 2021, which was a decrease of $22.7 million from our balance of $107.1 million at 2020. Our average daily cash balance during the year ended December 31, 2022 was $60.9 million, a decrease from our average daily cash balance of $99.1 million during the year ended 2021 and a decrease from our average daily cash balance of $110.5 million during the year ended 2020.

Our collections of principal and interest payments on mortgages and securities, and payoffs and proceeds on the sale of our property held-for-sale were $261.2 million, $318.5 million and $240.3 million for the years ended December 31, 2022, 2021 and 2020, respectively.

Annual Operating, Investing and Financing Cash Flows

Our operating cash inflows for the year ended December 31, 2022 were $1.1 million. Our operating cash outflows for the year ended December 31, 2021 and 2020 were $18.2 million and $14.1 million, respectively. Our primary operating cash inflow is cash interest payments on our mortgage loan pools of $46.6 million, $47.6 million and $48.8 million for the years ended December 31, 2022, 2021 and 2020, respectively. Non-cash interest income accretion on our mortgage loans was $13.8 million, $19.5 million and $29.0 million for the years ended December 31, 2022, 2021 and 2020 respectively. Interest income on beneficial interests was $10.8 million, $16.0 million and $11.8 million during the years ended December 31, 2022, 2021 and 2020, respectively. Interest income on debt securities was $10.6 million, $11.0 million and $9.9 million during the years ended December 31, 2022, 2021 and 2020, respectively.

Though the ownership of mortgage loans and other real estate assets is our business, U.S. GAAP requires that operating cash flows do not include the portion of principal payments that are allocable to the discount we recognize on our mortgage loans including proceeds from loans that pay in full or are liquidated in a short sale or third party sale at foreclosure or the proceeds on the sales of our property held-for-sale. These activities are all considered to be investing activities under U.S. GAAP, and the cash flows from these activities are included in the investing section of our consolidated statements of cash flows.

For the year ended December 31, 2022, our investing cash inflows of $223.1 million were driven by proceeds from refinancing and sale of our debt securities and beneficial interests of $147.9 million, principal payments on and payoffs of our mortgage loan portfolio of $147.3 million and principal and interest collections on our securities of $68.2 million, partially offset by the purchase of securities of $129.1 million, acquisitions of our mortgage loans of $11.4 million and the purchase of additional shares of common stock in Gaea of $6.1 million. For the year ended December 31, 2021, our investing cash outflows of $50.2 million were driven primarily by the purchases of debt securities and beneficial interests of $341.8 million and acquisitions of mortgage loans of $286.2 million. This was offset by proceeds from principal payments on and payoffs of our mortgage loan portfolio of $218.8 million, principal payments and interest collections on our securities of $155.2 million, the sale of $90.2 million of debt securities held as investments and the proceeds from the sale of loans from our 2017-D mortgage loan trust of $126.0 million. For the year ended December 31, 2020 our investing cash inflows of $24.2 million were driven primarily by the proceeds from principal payments on and payoffs of our mortgage loan portfolio of $127.5 million, principal

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and interest collections on our securities of $53.5 million, the sale of $38.9 million of debt securities held as investments and the sale of our mortgage loans to Gaea in the amount of $25.4 million. This was offset by purchases of debt securities and beneficial interests of $144.7 million and acquisitions of mortgage loans of $89.0 million.

Our financing cash flows are driven primarily by funding used to acquire mortgage loan pools and debt securities. We fund our mortgage loan pools primarily through secured borrowings and repurchase agreements and we fund our debt securities primarily through repurchase agreements. For the year ended December 31, 2022, we had net financing cash outflows of $260.8 million primarily driven by repayments of $284.1 million on repurchase transactions and pay downs of existing debt obligations of $111.0 million on secured borrowings, partially offset by additional borrowing through repurchase transactions of $183.9 million. We repurchased $125.0 million of our preferred stock and warrants, net of discount, which was partially funded by issuing $106.1 million of unsecured debt, net of discount and deferred expenses. For the year ended December 31, 2021, we had net financing cash inflows of $45.7 million due to the borrowings through repurchase transactions of $560.6 million and secured debt of $391.0 million, offset by repayments of $435.7 million on repurchase transactions and pay downs of existing debt obligations of $393.0 million on secured debt. We purchased the remaining 37% ownership of the Class B notes and trust certificates of 2018-C for a total of $17.2 million. We had net financing cash inflows for the year ended December 31, 2020 of $32.7 million due to the issuance of our preferred stock and warrants, net of any offering costs for $125.0 million in a series of private placements to institutional accredited investors. Financing cash flows were also impacted by additional borrowings through repurchase transactions of $315.4 million and secured debt of $114.5 million, offset by repayments of $308.3 million on repurchase transactions and pay downs of existing debt obligations of $183.5 million on secured debt. For the years ended December 31, 2022, 2021 and 2020, we paid $31.1 million, $29.2 million and $17.8 million, respectively, in combined dividends and distributions.

Financing Activities — Equity Offerings

On February 28, 2020, our Board of Directors approved a stock repurchase of up to $25.0 million of our common shares. The amount and timing of any repurchases depends on a number of factors, including but not limited to the price and availability of the common shares, trading volume and general circumstances and market conditions. As of December 31, 2022, we held 1,031,609 shares of treasury stock consisting of 144,658 shares received through distributions of our shares previously held by our Manager, 361,912 shares received through our Servicer and 525,039 shares acquired through open market purchases. As of December 31, 2021, we held 147,370 shares of treasury stock consisting of 97,686 shares received through distributions of our shares previously held by our Manager and 49,684 shares acquired through open market purchases.

During the year ended December 31, 2022, we repurchased and retired 1,882,451 shares of our series A preferred stock and 1,757,010 shares of our series B preferred stock in a series of repurchase transactions. The series A and series B preferred stock was repurchased for an aggregate of $88.7 million at an average price of $24.37 per share, representing a discount of approximately 2.5% to the face value of $25.00 per share. The repurchase of the preferred stock caused the recognition of $8.2 million of discount during the year ended December 31, 2022. The repurchase is expected to save us approximately $5.6 million annually in preferred dividends. There were no repurchases of preferred stock during the years ended December 31, 2021 and 2020. Also, during the year ended December 31, 2022, we repurchased and retired 4,549,328 of our outstanding warrants for $35.0 million resulting in the acceleration of $12.3 million of accretion expense, which will result in less accretion expense in future periods.

During the year ended December 31, 2022, we sold 613,337 shares of common stock for proceeds, net of issuance costs of $4.8 million under our At the Market program, which we sell, through our agents, shares of common stock with an aggregate offering price of up to $100.0 million. Comparatively, during the year ended December 31, 2021, we sold 24,951 shares of common stock for proceeds, net of issuance costs of $0.3 million under our At the Market program. During the year ended December 31, 2020, we did not sell any shares of common stock under our At the Market program. In accordance with the terms of the agreements, we may offer and sell shares of our common stock at any time and from time to time through the sales agents. Sales of the shares, if any, will be made by means of ordinary brokers’ transactions on the NYSE or otherwise at market prices prevailing at the time of the sale.

Financing Activities — Secured Borrowings, 2024 Notes and 2027 Notes

Secured Borrowings

From our inception (January 30, 2014) to December 31, 2022, we have completed 18 secured borrowings, not including borrowings we completed for our non-consolidated joint ventures (See "Table 18: Investments in joint ventures"), through securitization trusts pursuant to Rule 144A under the Securities Act, five of which were outstanding at December 31, 2022. The secured borrowings are generally structured as debt financings. The loans included in the secured borrowings remain

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on our consolidated balance sheet as we are the primary beneficiary of the securitizations trusts, which are VIEs. The securitization VIEs are structured as pass through entities that receive principal and interest on the underlying mortgages and distribute those payments to the holders of the notes. Our exposure to the obligations of the VIEs is generally limited to our investments in the entities. The notes that are issued by the securitization trusts are secured solely by the mortgages held by the applicable trusts and not by any of our other assets. The mortgage loans of the applicable trusts are the only source of repayment and interest on the notes issued by such trusts. We do not guarantee any of the obligations of the trusts under the terms of the agreement governing the notes or otherwise.

Our non-rated secured borrowings are generally structured with Class A notes, subordinated notes, and trust certificates, which have rights to the residual interests in the mortgages once the notes are repaid. We have retained the subordinate notes and the applicable trust certificates from one non-rated secured borrowing outstanding at December 31, 2022.

Our rated secured borrowings are generally structured as “REIT TMP” transactions which allows us to issue multiple classes of securities without using a REMIC structure or being subject to an entity level tax. Our rated secured borrowings generally issue classes of debt from AAA through mezzanine. We generally retain the mezzanine and residual certificates in the transactions. We have retained the applicable mezzanine and residual certificates from the other four rated secured borrowings outstanding at December 31, 2022. Our rated secured borrowings are designated in the table below.

At March 31, 2021, our 2017-D secured borrowing contained Class A notes and Class B certificates representing the residual interests in the mortgages held within the securitization trusts subsequent to repayment of the Class A debt. We had retained 50.0% of both the Class A notes and Class B certificates from 2017-D; and the assets and liabilities were included on our consolidated balance sheets. During the second quarter of 2021, the majority of the loans in 2017-D were sold into 2021-C and the Class A note was redeemed. Based on the structure of the transaction we do not consolidate 2021-C under U.S. GAAP.

Our secured borrowings carry no provision for a step-up in interest rate on any of the Class B notes, except for 2021-B.

The following table sets forth the original terms of all outstanding notes from our secured borrowings outstanding at December 31, 2022 at their respective cutoff dates:

Table 14: Secured Borrowings

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(1)The Class M notes are subordinated, sequential pay, fixed rate notes. We have retained the Class M notes, with the exception of Ajax Mortgage Loan Trust 2021-A.

(2)The Class B notes are subordinated, sequential pay, with B-2 and B-3 notes having variable interest rates and subordinate to the Class B-1 notes. The Class B-1 notes are fixed rate notes. We have retained the Class B notes.

(3)The interest rate is effectively the rate equal to the spread between the gross average rate of interest the trust collects on its mortgage loan portfolio minus the rate derived from the sum of the servicing fee and other expenses of the trust.

2024 Notes (Convertible Senior Notes)

During 2017 and 2018, we completed the public offer and sale of our 2024 Notes, in three separate offerings which form a single series of fungible securities. At December 31, 2022 and 2021, the UPB of the debt was $104.5 million and $104.6 million, respectively. The 2024 Notes bear interest at a rate of 7.25% per annum, payable quarterly in arrears on January 15, April 15, July 15 and October 15 of each year. The 2024 Notes will mature on April 30, 2024, unless earlier repurchased, converted or redeemed. During certain periods and subject to certain conditions the 2024 Notes will be convertible by their holders into shares of our common stock at a current conversion rate of 1.7405 shares of common stock per $25.00 principal amount of the 2024 Notes, which represents a conversion price of approximately $14.36 per share of common stock. The conversion rate, and thus the conversion price, may be subject to adjustment under certain circumstances. (See "Critical Accounting Policies" above.)

2027 Notes (Unsecured Notes)

During August 2022, our Operating Partnership issued $110.0 million aggregate principal amount of 8.875% 2027 Notes. The 2027 Notes were issued at 99.009% of par value and are fully and unconditionally guaranteed by the Guarantors. (See "Critical Accounting Policies" above.)

Under the indenture governing the 2027 Notes, a subsidiary guarantor's guarantee will terminate upon: (i) the sale, exchange, disposition or other transfer (including by way of consolidation or merger) of the subsidiary guarantor or the sale or

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disposition of all or substantially all the assets of the subsidiary guarantor otherwise permitted by the indenture, (ii) satisfaction of the requirements for legal or covenant defeasance or discharge of the 2027 Notes, or (iii) no default or event of default has occurred and is continuing under the indenture.

The following table presents summarized financial information for the Guarantors and our Operating Partnership, on a combined basis after eliminating (i) intercompany transactions and balances among the guarantor entities and (ii) equity in earnings from, and any investments in, any subsidiary that is a non-guarantor ($ in thousands):

Table 15: Summary of Issuer and Guarantor Financial Statements

Repurchase Transactions

We have two repurchase facilities whereby we, through two wholly owned Delaware trusts (the “Trusts”), acquire pools of mortgage loans, which are then sold by the Trusts, as “Seller” to two separate counterparties, the “buyer” or “buyers.” One facility has a ceiling of $150.0 million and the other $400.0 million at any one time. Upon the time of the initial sale to the buyer, each Trust, with a simultaneous agreement, also agrees to repurchase the pools of mortgage loans from the buyer. Mortgage loans sold under these facilities carry interest calculated based on a spread to one-month SOFR, which are fixed for the term of the borrowing. The purchase price that the Trust realizes upon the initial sale of the mortgage loans to the buyer can vary between 75% and 90% of the asset’s acquisition price, depending upon the facility being utilized and/or the quality of the underlying collateral. The obligations of the Trust to repurchase these mortgage loans at a future date are guaranteed by the Operating Partnership. The difference between the market value of the asset and the amount of the repurchase agreement is generally the amount of equity we have in the position and is intended to provide the buyer with some protection against fluctuations in the value of the collateral, and/or a failure by us to repurchase the asset and repay the borrowing at maturity. We also have four repurchase facilities substantially similar to the mortgage loan repurchase facilities where the pledged assets are securities retained from our securitization transactions. These facilities have no effective ceilings. Each repurchase transaction represents its own borrowing. As such, the ceilings associated with these transactions are the amounts currently borrowed at any one time. We have effective control over the assets subject to all of these transactions; therefore, our repurchase transactions are accounted for as financing arrangements.

A summary of our outstanding repurchase transactions at December 31, 2022 and 2021 is as follows ($ in thousands):

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Table 16: Repurchase Transactions by Maturity Date

(1)Maximum borrowing capacity subject to pledging sufficient collateral is the equivalent of the amount outstanding as of December 31, 2022.

(2)Maximum borrowing capacity subject to pledging sufficient collateral as of December 31, 2022 was $150.0 million.

(3)Maximum borrowing capacity subject to pledging sufficient collateral as of December 31, 2022 was $400.0 million.

(4)Includes $42.8 million of bonds that are consolidated on our balance sheet for GAAP as of December 31, 2022.

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(1)Maximum borrowing capacity subject to pledging sufficient collateral is the equivalent of the amount outstanding as of December 31, 2021.

(2)Maximum borrowing capacity subject to pledging sufficient collateral as of December 31, 2021 was $150.0 million.

(3)Maximum borrowing capacity subject to pledging sufficient collateral as of December 31, 2021 was $400.0 million.

(4)Includes $42.8 million of bonds that are consolidated on our balance sheet for GAAP as of December 31, 2021.

As of December 31, 2022, we had $445.9 million outstanding under our repurchase transactions compared to $546.1 million as of December 31, 2021. The maximum month-end balance outstanding during the year ended December 31, 2022 was $548.9 million, compared to a maximum month-end balance for the year ended 2021 of $563.0 million. The following table presents certain details of our repurchase transactions for the years ended December 31, 2022 and 2021 ($ in thousands):

Table 17: Repurchase Balances

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The increase in our average balance from $369.9 million for the year ended December 31, 2021 to $497.7 million for the year ended December 31, 2022 as a result of certain assets being on the repurchase line for the entire year.

As of December 31, 2022 and 2021, we did not have any credit facilities or other outstanding debt obligations other than the repurchase facilities, secured borrowings, put option liability, 2024 Notes and 2027 Notes.

We are not required by our investment guidelines to maintain any specific debt-to-equity ratio, and we believe that the appropriate leverage for the particular assets we hold depends on the credit quality and risk of those assets, as well as the general availability and terms of stable and reliable financing for those assets.

Dividends

We may declare dividends based on, among other things, our earnings, our financial condition, our working capital needs, new opportunities, and distribution requirements imposed on REITs. The declaration of dividends to our stockholders and the amount of such dividends are at the discretion of our Board of Directors.

On March 2, 2023, our Board of Directors declared a dividend of $0.25 per share, to be paid on March 31, 2023 to stockholders of record as of March 17, 2023. Our Management Agreement with our Manager requires the payment of an incentive management fee above the amount of the base management fee if either, (1) for any quarterly incentive fee, the sum of cash dividends on our common stock paid out of our taxable income plus any quarterly increase in book value, all calculated on an annualized basis, exceed 8% of our book value, or (2) for any annual incentive fee, the value of quarterly cash dividends on our common stock plus cash special dividends on our common stock paid out of our taxable income, plus the increase in our book value, taken together exceeds 8% (on an annualized basis) of our stock’s book value at the end of the year. During the year ended December 31, 2022, we recorded incentive fees payable to the Manager of $0.3 million. Comparatively, during the years ended December 31, 2021 and 2020 we recorded no incentive fee payable to the Manager. Our dividend payments are driven by the amount of our taxable income, subject to IRS rules for maintaining our status as a REIT.

Our most recently declared quarterly dividend represents a payment of approximately 7.69% on an annualized basis of our book value of $13.00 per share at December 31, 2022. If our taxable income increases, we could exceed the threshold for paying an incentive fee to our Manager, and thereby trigger such payments. See Note 10 — Related Party Transactions.

Off-Balance Sheet Arrangements

Other than our investments in debt securities and beneficial interests issued by joint ventures, which are summarized below by securitization trust, and our equity method investments discussed elsewhere in this report, we do not have any relationships with unconsolidated entities or financial partnerships, such as entities often referred to as structured finance or special purpose entities, which would have been established for the purpose of facilitating off-balance sheet arrangements or other contractually narrow or limited purposes. Further, we have not guaranteed any obligations of unconsolidated entities nor do we have any commitment or intent to provide funding to any such entities. As such, we are not materially exposed to any market, credit, liquidity or financing risk that could arise if we had engaged in such relationships.

Table 18: Investments in Joint Ventures

We form joint ventures with third party institutional accredited investors to purchase mortgage loans and other mortgage related assets. The debt securities and beneficial interests we carry on our consolidated balance sheets are issued by securitization trusts formed by these joint ventures, which are VIEs, that we have sponsored but which we do not consolidate since we have determined we are not the primary beneficiary.

A summary of our investments in joint ventures is presented below ($ in thousands):

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