Good day and thank you for standing by. Welcome to the Great Ajax Corporation Q2 2021 Earnings Conference Call. At this time, all participants are in a listen only mode. After the speakers' presentation, there will be a question and answer session. I would now like to hand the conference over to your speaker today, Lawrence Mendelson, CEO.
Sir, please go ahead.
Thank you very much. Welcome everybody to the Great Ajax Corp. Q2 2021 conference call. Also here with me are Mary Doyle, our CFO and Russell Schaub, our President. Before we get started, I just want to have everyone quickly take a look at Page 2, the safe harbor disclosure of the presentation.
And with that, we can go on to Page 3 and begin. As an introduction, the Q2 of 2021 was a good quarter. Our overall corporate cost of funds further decreased by approximately 25 basis points and our asset based cost of funds decreased even more after decreasing nearly 50 basis points in Q3 of '20, 26 basis points in Q4 of 'twenty and 30 basis points in Q1 of 'twenty 1. Our cost of funds has continued to decrease in the 3rd quarter of 2021 as well. A significant increase in loan performance and loan cash flow velocity continued and has also continued into the Q3 of 2021.
This continuing increase in loan cash flow losses led to an additional acceleration of income on loans during Q2 of 2021 of 4, 700, 000 dollars as the present value of cash flow and payoff proceeds exceeded expectations. We continue to be in an offensive position, and in Q2, we purchased a significant amount of loans, primarily in joint venture structures at good prices, in good locations and at low percentages of the underlying property values. The prices we paid are materially lower than when mortgage loans are currently selling today. At June 30, 2021, we had approximately $88, 000, 000 of cash and more than $300, 000, 000 of unencumbered bonds, unencumbered beneficial interest and unencumbered mortgage loans combined. As of July 31, 2021, we still have approximately $88, 000, 000 of cash and still have a similar amount of unencumbered bonds, beneficial mortgage loans.
This significant cash balance does create some earnings drag and a significant cash flow velocity from our mortgage loans and mortgage loan JV structures reduces our loan and securities portfolio leverage as well. We are, however, well equipped for volatility and the investment potential it creates, we have good opportunities in our pipeline as well. And with that, we jump to Page 3, the business overview, starting out talking about our manager, our manager's strength in analyzing loan characteristics and market metrics for reperformance probabilities and pathways and its ability to source these mortgage loans through long standing relationships enables us to acquire loans that we believe have a material probability of long term continuing re performance. We've acquired loans in 3.38 different transactions since 2014, including 6 different transactions in the Q2. Remember that we own a 19.8 interest in the equity of our manager.
Additionally, our affiliated servicer provides a strategic advantage in non performing and non regular paying loan resolution processes and time lines and a data feedback loop for our managers' analytics. In today's environment, having our portfolio teams and analytics group as the manager working closely with the servicer is essential to maximize re performance probabilities loan by loan by loan. We have certainly seen the benefit of this during the COVID pandemic and in Q2 and Q3 2021 with the significant increase The analytics and sourcing of the manager and the effectiveness of affiliated servicer also enables us to broaden our investment reach through joint ventures with 3rd party institutional investors. On the leverage side, we still have low leverage. Our June 30, 2021 corporate leverage ratio was 2.3x versus 2.3x at March 31.
Our Q2 2021 average asset base leverage was 2x versus 2.1x in Q1 of 2021, even though we made significant acquisitions in Q2. We also have $20, 000, 000 invested in Gaia Real Estate Corp, a REIT that invests in multi family properties multifamily repositioning mezzanine loans and triple net lease veterinary clinic real estate. We think Gaia has a great deal of optionality and we expect Gaia to grow materially in the second half of 20 21 and 20 22. On Page 4, we can talk about highlights of the 2nd quarter. It was a busy quarter.
Net interest income from loans and securities, including a $4, 700, 000 interest income from the increase in present value of loan payoffs and cash flow velocity in excess of expectations was approximately $18, 950, 000 in the 2nd quarter. Our gross interest income, excluding the $4, 700, 000 from income income from the increase in present value of cash flow velocity, was lower than Q1, but net interest income was $500, 000 higher due to our reduced cost of funds. Interest expense decreased by approximately 1, 470, 000 dollars A GAAP item to keep in mind is that interest income from our portion of joint ventures shows up in income from securities, not interest income from loans. For these joint venture interests, servicing fees for securities are paid out of the securities waterfall. So our interest income from joint ventures the joint venture securities is net of servicing fees, unlike interest income from loans, which is gross of servicing fees.
As a result, since our joint venture investments have been growing faster than our direct loan investments, GAAP interest income will grow more slowly than if we directly purchase loans outside of joint ventures by the amount of the servicing fees, and the GAAP servicing fee expense will decrease by the corresponding offsetting amount. An important part of discussing interest income is the payment performance of our loan portfolio. At June 30, approximately 74.2 percent of our loan portfolio by UPB made at least 12 of the last 12 payments as compared to only 13% at the time we purchased the loans. This is up from 73% at March 31, 2021. In our Q1 of 2020 last year investor call, we mentioned that we expected the COVID-nineteen related economic environment would negatively impact the percentage of 12 for 12 borrowers in our portfolio.
Thus far, the impact on regular payment performance has been far less than expected, and the percentage of our portfolio that is 12 of 12 has been quite stable and increasing since Q4 of 2020 and is only 2% lower than pre COVID Q4 of 2020 Q4 of 2019. Additionally, we have seen significant prepayment from material subset of our COVID impacted borrowers that had significant absolute dollars of equity and were in strong home price appreciation locations. The continuing strong irregular payment pattern and the prepayment pattern of certain previously delinquent loans led to the $4, 700, 000 increase in the present value of borrower payments in excess of expectations in the quarter. Approximately 20% of our full loan payoffs in Q2 of 2021 were from loans over 180 days delinquent. While regular paying loans produce higher total cash flows over the life of the loans on average, they can extend duration and because we purchase loans at discounts, this can reduce percentage yield on the loan portfolio and interest income.
However, regular paying loans generally increase our NAV, enable financing at a lower cost of funds and provide regular cash flow. Loans that are not regular monthly pay status tend to have shorter duration. However, we have generally expected that this duration reduction would be less than typical due to the impact of certain COVID-nineteen resolution extension requirements. As I mentioned earlier, most of our loans were purchased as non regular paying loans and the borrowers, our servicer and portfolio team and our manager have worked together over time to reestablish these loans as regularly paid. We also expect that given the low mortgage rate environment and the stability of housing prices so far that higher prepayments will likely continue for both regular paying and non irregular paying loans.
We have seen this trend in Q3 continue in Q3 of 2021. Our cost of funds in Q2 2021 was lower than Q1 by 25 basis points. This was due to spread reductions on repurchase facilities and the 6 securitizations we completed in Q1 and Q2 and 2 securitizations we called in late February of 2021. We expect our cost of funds to continue decreasing materially, especially since we called 4 of our older securitizations and re securitize the underlying loans in late Q2 of 2021 and will likely do so with some of our other older securitizations in the next few quarters. Net income attributable to common stockholders was $10, 370, 000 or $0.45 per share after subtracting out $1, 950, 000 of preferred dividends.
A couple of other things to note. We recorded $161, 000 expense from the acceleration of the amortization of deferred issuance costs as a result of repurchasing $5, 000, 000 of our convertible bonds in the open market. We also paid approximately $100, 000 in duplicate interest due to the 3 week timing gap between re securitizing loans and calling the underlying bonds that were previously backed by those loans. Additionally, we expensed approximately $2, 200, 000 relating to the GAAP required accrual of the warrant put rights from our Q2 2020 issuances of preferred stock and warrants versus $1, 950, 000 in the Q1 of 2021. Book value per share was 15.86 dollars at June 30, 2021, versus $16.18 per share at March 31.
The dividend book value comes from GAAP treatment of our convertible bonds based on changes in earnings amounts and share price. Our stock price at March 31 was $10.90 and at June 30 was 13. Taxable income was $0.34 a share. Taxable income in Q2 was primarily driven by lower interest expense, increases in prepayment, especially for delinquent loans and from cash flow velocity on performing loans. Delinquent loans usually generate tax gains at the time of a foreclosure and the creation of related REO and then tax losses at the sale of REO.
Less REO creation typically leads to lower taxable income. However, we saw many delinquent loans prepay in full and generate tax gains. Additionally, and probably more importantly, as our cost of funds decreases, we should have further reductions in interest expense, which increases taxable income. In Q2, we completed 4 securitizations in joint venture structures totaling $1, 400, 000, 000 in UPB and we called 4 securitizations. The 4 new securitization structures contain approximately $900, 000, 000 of newly purchased loans as well as approximately $535, 000, 000 of loans from the 4 called securitizations.
The new securitizations combined will reduce funding costs by approximately 150 basis points per year for the approximate $120, 000, 000 UPB that is our percentage ownership of the $535, 000, 000 of re securitized loans from the securitizations we called in the 2nd quarter. Of the approximately $900, 000, 000 of newly purchased loans in these 4 securitized joint venture structures, we retained another approximately $140, 000, 000 UPB in the form of debt securities and beneficial interests. Cash collections at June 30, 2021, we had approximately $88, 000, 000 of cash and for Q2 2021, we had an average daily cash and cash equivalent balance of approximately $114, 000, 000 We had $78, 900, 000 of cash collections in the 2nd quarter, which is an 11 percent increase over the Q1. Our surplus cash tempers earnings and return on equity, but this provides us with significant optionality and the related earnings drag decreases as we get cash invested over time like we did in the Q2. As I mentioned earlier in this call, at June 30, we also had approximately $289, 000, 000 face amount of unencumbered securities from our securitizations and joint ventures and approximately $53, 000, 000 unpaid principal balance of unencumbered mortgage loans.
As of July 31, we still have $88, 000, 000 of cash and unencumbered assets even and approximately $300, 000, 000 of unencumbered assets even though we invested approximately $85, 000, 000 in the month of July. As I mentioned earlier on this call, approximately 74.2 percent of our portfolio by UPB made at least 12 of their last 12 payments compared to only 13% at the time of loan acquisition. This difference creates material embedded net asset value versus loan purchase discount. It also enables us to continue reducing our cost of funds and advance rates through rated securitization structures. On Page 5, we continue to buy we continue to be primarily RPL driven with purchased RPLs representing approximately 96 percent of our loan portfolio at June 30.
We primarily purchased RPLs that have made less than 7 consecutive payments have certain loan level and underlying property specifications that our analytics suggest will have positive payment migration on average. The positive payment migration of these purchased RPLs resulted in increase in the fair market value of the loans and the related decrease in cost of funding. On Page 6, you can see on RPLs, we continue to buy and own lower property value and 88.2% of UPB. On Page 7, non performing loans, important discussion. Purchased non performing loans have declined over time relative to the total loan portfolio.
For NPLs on our balance sheet, our overall purchase price is 79 percent of UPB and 47.2 percent of property value. As a result of the low loan to value and higher absolute dollars of equity on average for our RPL and NPL portfolios, we have seen that rising home prices and relatively low mortgage rates have significantly accelerated prepayment and regular payment velocity on our loans as borrowers can capture significant and growing equity. This leads to greater interest income by accelerating the receipt of loan purchase discount and the present value of cash flow velocity. Subsequent to June 30, we have purchased a significant amount of NPLs and agreed to purchase approximately $100, 000, 000 of NPLs subject to due diligence in Q3. I will discuss this in more detail on Page 10 in this presentation.
Our target markets, California continues to represent the largest segment of our loan portfolio. Our California mortgage loans are primarily in Los Angeles, Orange and San Diego Counties. We have seen consistent payment and performance patterns from loans in these markets. Performance in Southern California has far outperformed expectation during the COVID-nineteen pandemic period. We have also seen consistently strong prepayment patterns and even more so in recent quarters.
Since May of 2020, California prepayments represent nearly 40% of all our prepayments. Until May of 2020, we had been seeing material negative effects from the tax loss SALT provisions in New York City Metro and in Suburban New Jersey and Southern Connecticut home values and home sale liquidity. We've seen quick positive turn in the liquidity in these suburban locations as a result of COVID-nineteen. It's too early to tell though whether this is a short term phenomenon or a longer term change in lifestyle as a result of COVID-nineteen and it also is likely to be affected by any potential new tax law changes becoming effective. Related to this, we have also seen demand and prices for homes and home rentals increase materially in several of our metro areas of Florida, Phoenix, Dallas, Charlotte, Atlanta and a number of others.
We're seeing this strength primarily in single family homes and a bit less so though for condominiums. On Page 9, we can talk about portfolio migration. At June 30, approximately 74.2 percent of our loan portfolio made at least 12 of the last 12 payments, including approximately 67 percent of our portfolio that made at least 24 of 24. Again, this compares to approximately 13% at the time of purchase. Non paying loans, which usually have shorter durations than paying loans get timelines extended as a result of COVID moratoriums.
This affects the yield on true non performing loans as extended resolution timelines can lead to more property tax, more insurance payments, more repair expenses. However, in the past 4 quarters and continuing so far in Q3 2021, we've seen prepayment of non performing loans shorten duration on average rather than extend duration from COVID. Since we purchased most of our loans when they were less for 12 of 12 payment history and at a discount, our servicers worked with most of our borrowers over time, while it's too soon to understand the full impacts of COVID-nineteen on home prices and mortgage loan performance. So far the impact on our portfolio has been significantly positive as we have seen demand for homes in our target markets generally increase, cash flow velocity on the loans increase and prepayment in full on COVID impacted loans increase. 12 loans in today's loan market trade materially higher prices in our cost basis and trade significantly over par.
As a result, our portfolio and related implied corporate NAV estimates are materially higher than GAAP book value, which presents our loans at the lower of market or amortized cost. Subsequent events on Page 10. Since June 30, it's continued to be busy. In July of 2021, we purchased $170, 000, 000 of RPLs and NPLs into a joint venture securitization that we closed in June of 2021 with a securitized prefunding structure. We own 20% of this joint venture.
The purchase price was made at 98% of UPB, significantly lower as a percentage of owing balance and 54 point 2% of the underlying property value. We also directly purchased $3, 100, 000 of non performing loans at 74.2 percent of UPB and $69, 700, 000 of underlying property value. We've also agreed to purchase approximately $103, 000, 000 UPB of NPLs in 5 transactions subject to due diligence. The purchase price for the loans is approximately 97% of UPB, approximately 91% of the owing balance and 64% of the value of the underlying properties. 1 of these purchases is approximately $90, 000, 000 of UPB with 100% of the related underlying properties in Miami, Dade, Broward and Palm Beach Counties, Florida.
We expect these transactions to close in August and we expect to own 100% interest in these loans. We've agreed to purchase subject to due diligence $3, 800, 000 of RPLs in 4 transactions at a price of 78.9 percent of UPB and 51.7 percent of underlying collateral value. We expect these transactions to close in August and to own a 100 percent interest in these loans. In July, we completed a 518 venture securitization with a subset of loans from 2 of our 2020 joint venture structures. The AAA through A classes represent 83% of UPB.
AAA through Single B represents 95.5 percent of UPB. We retained approximately $53, 000, 000 of various classes of securities in this joint venture. On August 5, we declared a cash dividend of $0.21 per share to be paid on August 31 to holders of record of August 16. On Page 11, we have some financial metrics, and there's a couple that I'd like to share. 1, average loan yields, excluding the increase in the present value of cash flow declined marginally by approximately 0.1%.
For debt securities and beneficial interests, however, remember that yield is net of servicing fees and yield on loans is gross of servicing fees. Debt securities and beneficial interest is how our interest in our JV structures are presented under GAAP. As our JVs increase as they did in 2020 2021 relative to loans, the GAAP reporting will show lower average asset yields by the amount of the servicing fees. That being said, yields on beneficial interest increased in Q2 as cash flow velocity increased. Our average asset level net interest margin increased as well.
Leverage continues to be low specifically for companies and especially for companies in our sector. We ended Q2 2021 with asset level debt of 2.1 times and average asset level debt for the quarter was 2 times. Our asset level debt cost of funds was lower in Q2 2021 than Q1 by approximately 25 basis points and the cost of our asset level debt has further declined so far in the Q3. As we get our surplus cash invested, as we did in the Q2, we should see increases in interest income and net interest income as well. Also, as we continue to repurchase our convertible notes in the open market, our cost of funds interest expense further decreases.
On the next page, actually 2 pages on securities and loan repurchase agreement funding. Our total repurchase agreement related debt on June 30 was approximately $394, 000, 000 of which $42, 000, 000 was non mark to market mortgage loan financing and $283, 000, 000 was financing on Class A1 senior bonds in our joint ventures. At June 30, we had $155, 000, 000 face of unencumbered bonds as well as $132, 000, 000 of unencumbered equity beneficial interest certificates and $53, 000, 000 UPB of unencumbered mortgage loans. Combined with $88, 000, 000 of cash at June 30, we have significant resources for being on offense and defense. That concludes my discussion and presentation.
If anybody has any questions, very happy to answer whatever you might have interest in.
Thank you, sir. Our first question from Kevin Barker of Piper Sandler. Please ask your question.
Hey, Larry. How are you doing?
Good. How are you, Kevin?
Good. Congrats on a good quarter. Looks like a strong quarter.
Thank you. Busy. It was a busy quarter.
It was very busy. When we think about the pricing changes that you're seeing despite calling a bunch of your securitization and reissuing some of the securitizations, very strong trajectory there on interest expense and pretty strong commentary as well. Can you give us an idea of like where you think interest expense could drop to on a run rate basis after you've done the majority of these cleaner calls or at least call on the securities that you see out there today?
Sure. We have a couple more 2018 seconduritizations and a number of 2019 that we can already call. Those have coupons anywhere between 3% 4.5%. And we can issue now all in sub-two percent. So we would expect that additional calls and re securitization would get us somewhere between 150 basis points 200 basis points of savings for each call.
Okay. So on a net basis, when we think about your total funding your total funding across all different, not only securitizations, but other forms of financing. What orders of magnitude do you think you could see your interest expense drop to by the start of 2022 relative to what we saw on like a run rate basis versus 2020?
Sure. So if you look at now our total cost
of funds well, if
you look at now our total cost of funds overall cost of funds, excluding our convert is in the low 3s. Excluding our convertible bond, that could go down by at least another 100 basis points from the refinancing, maybe a
little bit more than that. Okay. That's a pretty strong result. And then what about and you also had positive commentary on the interest income side as well. Could you talk about that on the top line and potential run rate that you could see the increase in potential yields that you're talking about?
Yes.
Since we buy loans at discounts, so interest income shows up in kind of 2 different places. 1, it shows up from regular monthly payments and 2, from captured discount. You see on the loan side, it's more direct. When we own the security side, we have both debt securities and beneficial interest. Beneficial interest, you see it more in accretive value because they don't get direct cash flow until you call the deal, where on the loan side, you get it every single month.
In the debt securities and then for the insurance side, you get a debt securities coupon, but you turbo Class A principal before you get that. So on the interest income side, you'll see it pick up prepay obviously, more prepayment is good, more monthly cash flow is good. Cash flow velocity is still pretty stable. Also, we increased our portfolio pretty considerably in late Q2 and will do so even more in the Q3 with the purchases of loans. So we would see income interest income pick up from those new purchases that came on in June, July August really start to pick up in late Q3.
Got it. Okay. And then so that's obviously helping out your provision expense as well, right? Yes.
Yes. It's kind of funky. Because we buy loans at discounts, it's the concept of a provision is a little bit different. What you do is you have a modeled expectation of how much of that discount you're going to collect. And what we're finding is we're collecting significantly more than we expected of that discount capture.
Okay. And then just 1 more before I get back in the queue. You raised the dividend again. Your taxable income is running fairly high. Yes.
Can you remind us of your capital allocation policies going through the end of the year here? How you think about the dividend relative to the amount of taxable income you're producing right now?
Well, at a minimum, we have to take 90% of taxable income and that includes the preferred dividend. I think our Board is biased to a higher dividend, but on the flip side, they want to make sure there isn't another March April of 2020 that comes out of the blue and affects dividends. So they want to do it over a long, steady, predictable tenor as opposed to all at once.
Okay. Do you feel like you're going to be forced to do something here,
your If the test runs have continued at this stage, you will have no choice, correct.
Okay. All right. Thank you very much.
And our next question from Eric Hagen of BTIG. You may ask your question.
Hey, good afternoon. Hope you guys are well. I have a discussion here on prepay speeds and cash flow velocity. I guess the question is focused on the folks that haven't found an opportunity to refinance. And I guess what the opportunity looks like for them specifically as it relates to the potential for mortgage rates to go up?
Sure. So we've seen so we spend a lot of time tracking prepayment sources of prepayments and where the payoff wire comes from. And we found different break points based on different absolute dollars of equity and different delinquency history. And 1 of the things we found is that a real turning point is about $130, 000 of equity and for borrowers that have been more than 180 days and have more than $130, 000 of equity, we see a lot of their payoffs from selling their home and moving as opposed to just refinance. We see significant refinance in certain markets, for example, in Texas and in Florida.
But for example, more of our a higher percentage of our California payoffs are sales versus refinances. So a lot depends on characteristics of the loan itself, location of the loan itself. But the lion's share of payoffs on our over 180 day delinquents are loans over $130, 000 of equity and it's a sale of the home as opposed to a refinance of the home. And we see that kicks in even more so when you get to about $220, 000 of equity that is almost overwhelmingly sales of the home versus a refinance. Where we and our 12 of 12s of 24 to 24 is a higher percentage is refinancing.
Keep in mind that our weighted average coupon on portfolio is still in the mid-4s. So we still from a mortgage rate kind of refinance competition, if you think you need at least 0.5. Or 1. Reduction to be worthy of refinancing, as long as mortgage rates stay under about 3.50 or 3.60, our borrowers are still more than 1 point away from the average coupon on our loans or the effective coupon on our loans. But we still see significance from the resale or from the sale of properties rather than just from refinance.
So I would say it's more a function of whether you believe in the stability of home prices for those loans rather than the stability of mortgage rates. Now that being said, there may be some from a buyer's perspective of the property that our delinquent borrower is selling, the buyer might care about mortgage rates to get to that price. But that's more of an HPA question than just a rate question.
Right. That was good detail. Thank you for that. And then a couple of questions on the activity since quarter end. Can you talk about how you're financing the package of NPLs that you're buying and how much capital you expect to allocate to that transaction?
And then I'm also just looking at the purchase price on the RPLs that looks like maybe 81% of par and then
the NPLs at 98% of par.
I'm just trying to square the difference there.
So it depends on 2 things. 1, the seller, their need for liquidity and also what the actual owing balance is. So on the NPLs, the while the UPB it may be 98% of UPB, it's only about 91 percent of the or 92% of the actual owing balance because in NPLs, we get all prior servicer advances and all past due interest without having to pay for it, and that's part of the owing balance. So and we also expect a significant amount of those to reperform based on the absolute dollars of equity that those loans have. So we look at them almost as bad RPLs versus NPLs or sub performing RPLs versus NPLs from an expected performance given the locations and the characteristics of the loans themselves.
But loan price is definitely a function of we get calls just before ends of quarters all the time from people that are looking to sell loans who need liquidity and they need it before the end of the quarter. So there's a different price for loan where someone needs 6 days closing versus where someone needs 6 weeks closing.
Got it. That's helpful. And how about the financing and balance sheet as a result?
Sure. On the financing side, Sure. On the financing side, we will take down the August closings into a non mark to market repurchase facility. And we will likely call 1 or 2 old securitizations and put these into 1 of those re
Got it. So just trying to understand how much capital would be assigned or allocated to the
So figure 5, 000, 000 dollars On day 1, about 25%. Okay. And then once securitized, about 15%.
Got it. Thank you.
And sir, our next question is from Matthew Howick of B. Riley. You may ask your question.
Larry, thanks for taking my question.
Sure, absolutely.
Larry, I look at the balance sheet and you get the JV retained interest that's growing and then loans have been flattish down a little bit. Remind me again, what's the economic to AJAX from an economic perspective? I realize the accounting recognition difference between servicing income and interest income. Is there any difference from an economic standpoint for doing it 100% or doing a JV where you take a partial interest back?
The only difference is the size of the underlying combined acquisitions. So if we have 4 or 5 acquisitions that we know together are going to be $400, 000, 000 or $500, 000, 000 we'll do those in a JV structure and we'll take, say, dollars 100, 000, 000 of it verticals and our joint venture partner will also take it. And then we have rights of refusal on any time they might want to sell a piece of what they own. But on the flip side, this is why it's so important for us to own a 20% interest in our servicer because our servicer gets the servicing on all $400, 000, 000 of it. So we get kind of a little bit of extra piece from that as well.
And then going forward, do you expect that?
I'm sorry?
Going forward, do you expect continued growth in the retained interest and the outpacing the loan, the whole loan or the on balance sheet net
of the portfolio?
It's really a question of the number and size of each acquisition we make. So for acquisitions that are $20, 000, 000 $30, 000, 000 we do those ourselves. For acquisitions that are where we just close it into a securitized structure. And then, then where we just close it into a securitized structure. And then has similar economics overall to owning the loans directly.
It's as if you bought it's really just a loan participation structure in a CUSIP form. So that if we bought $200, 000, 000 of loans into a joint venture structure and we were say, 30% of it. So we'd have it's like having a 60% participation in our partner or a $60, 000, 000 participation and our partner would have $140, 000, 000 participation. We just put it into a CUSIP form because a lot of our joint venture partners want to be able to have securities mark to market daily for their funds.
Got it. And your partners, are these institutional quality
They're all brand named in the securitization and money management world, exactly right.
Got it. Okay. And then speaking of sort of values, your servicer gets a piece of that and that goes your UPB and servicing. I mean, the GAAP so locum on GAAP, you mentioned, I mean, with the book is materially GAAP book is materially below. I mean, can you make any more comments on what the locum how do you think about the locum?
Sure. What the comp how do you think about the low comp?
Well, the easy way to think about it is the 20% interest we have in our manager and the 20% economic interest in our servicer, our total GAAP carrying value is about $2, 000, 000
For the manager and servicer?
Yes. So it's not Does that make sense? They're obviously worth more than that, right? Right.
I mean, the loans, I mean, the 2 are worth more?
And the loans, if you look at our cost basis of loans, which is sub-ninety percent and in the loan market is all over par, right?
Right.
And beneficial interests are just a CUSIP form of loans. So the easiest way to think about beneficial interest is if you know the UPB of the loans underlying the beneficial interest, it's UPB times market price of loan minus A minus B would be effectively the value there. And obviously, our cost basis is material below that if all the loans are worth over par.
Got it. Great. Okay. Got it. Thanks for that.
And then if you're buying back, you're still buying back that convertible debt.
Yes. We still are, correct?
Again, I guess the last thing is that amortization of that put right, I mean that's and at some point that's going to go away. Can you just remind
how Yes. When it goes away, sure, there's 2 ways it can go away. Either we can just pay it in cash or we can pay it in shares or a combo of cash and shares. And if we pay it in shares, then the whole liability on the balance sheet goes to 0 and then you have more shares or you can just pay it in cash and then that liability goes away and you have less cash or you can pay it in some combination. We can call that put right in 39 months from April of 2020.
So that's summer of 2023. Got it.
And got it. Okay. Got it. I mean, obviously, it makes I think it clearly makes sense to go do that. Yes.
We actually have had some discussions with the put right owners, there's 3 of them, about paying a small premium to extinguish the put right and just go on versus waiting till and we're had some premium discussions. I wouldn't say that will happen or not happen. It's too early to kind of have an inkling on that. But I met with the owners 2 weeks ago of the put rights and had that started that discussion.
That would be really interesting. But please keep us updated on that.
Sure. Thanks a lot, Larry.
And sir, we have our question from Stephen Laws of Raymond James. You may ask your question.
Hi. Good afternoon, Larry.
Hey, how are you?
Good. Long time. Hope you're doing well and congratulations on a nice quarter. I think I was a little late with some overlap on some calls, but glad to make most of the discussion. And just wanted to follow-up on Slide 8.
You talked about the attractive markets you're in. Are there any other markets that you're starting to see become an opportunity either due to population migration shifts, demographic changes, Sunbelt and Southeastern are obviously mentioned a lot. But are you seeing any other markets that you
think you may move into?
We absolutely are and have increased some allocations in certain markets, but they're not big enough markets that you should ever have an enormous amount. So some of those markets are like Nashville, Birmingham. We once COVID started, we started seeing we started getting nervous about Las Vegas, because if there was any market where you would expect no travel to have a material effect on economics, that would be the market. And but what we've seen is significant numbers of home sellers, especially from California moving to Las Vegas, and we've seen a significant increase in home price demand and home prices in Las Vegas. So we expanding there a little bit, maybe about 7, 8 months ago.
But given how fast prices have gone up there, it will never become a significantly material part versus where it was in our portfolio, say, in 2, 009 or 2010 from acquisitions. But Birmingham and Nashville, we definitely also increased our Charlotte and metro areas of Charlotte in terms of the acquisition side. The other markets where we've tried to get more involved, but it found it almost impossible, our places, small parts like Jackson Hole and Wyoming and some parts of Montana and things like that. But those, 1, could never be big markets and 2, it's very hard to find any aggregation like scalability in those markets. And 1 of the things that matters is it has to be a market that we think has positive demographics, positive data pointing to improvement there, but it also has to be, to some extent, scalable.
And there's some markets that aren't scalable. But right now, I'd say that aren't on this map, probably the ones that we're we've spent a lot of time with is Charlotte, Birmingham and Nashville.
Great. Well, I really appreciate the color on that and glad to
hear good luck. Take care, Larry.
Thanks. You too.
And that would be our last question for this call. I'll turn the call over to Mr. Mendelson for your closing remarks.
Thank you everybody for joining us in our Q2 of 2021 conference call. Feel free to reach out to us if you have additional questions. And Q3 has been busy already, and we look forward to welcoming you back again after the end of Q3 for our next conference call. And with that, everybody have a good night.