Good day, and thank you for standing by, and welcome to the Great Ajax Corp. Q1 2021 Earnings Call. At this time, all participants are in a listen only mode. After the speakers' remarks, there will be a question and answer session. Please be advised that today's conference is being recorded.
I would now like to hand the conference over to your speaker today, Lawrence Mendelson. Please go ahead.
Thank you very much. Thank you everybody for joining us for our Q1 2021 conference call. Before we get started, I'd like to just point out Page 2 with the Safe Harbor disclosure for you all to read it at your leisure. And then with that, we can jump to Page 3, the business overview. Q1 2021 was a very good quarter in many ways.
Our overall corporate cost of funds further decreased by approximately 29 basis points and our asset based cost of funds decreased by even more. Our cost of funds has continued to decrease into the Q2 of 2021 as well. Our significant increase in loan performance and loan cash flow cash flow velocity continued from Q4 and has also continued into the Q2 of 2021. This increase in loan cash flow velocity led to additional acceleration of purchase discount on loans that paid off during Q1 of 2021 of $5, 500, 000 as actual payoff proceeds exceeded expectations. We continue to be in an offensive position.
At March 31, 2021, we had approximately $137, 000, 000 of cash and a significant amount of unencumbered bonds, unencumbered beneficial interest and unencumbered mortgage loans as well. As of April 30, 2021, we have approximately $144, 000, 000 of cash and still have a significant amount of unencumbered bonds, beneficial interest and mortgage loans. Significant cash balance does create earnings drag and the significant cash flow velocity from our mortgage loans and mortgage loan JV structures reduces our loan and securities portfolio leverage. We are, however, very well equipped for volatility and the investment potential it creates, and we have good opportunities in our pipeline as we'll talk about later in this call. Our manager strength in analyzing loan characteristics and market metrics for re performance, probabilities and re performance pathways and our managers ability to source these mortgage loans enables us to acquire loans that we believe have a material probability of long term continuing re performance and full payoff.
We've acquired 3.32 we've acquired loans in 3.32 different transactions since 2014, 6 transactions in the Q1 of 2021. And remember, we own just under 20% of our manager. Additionally, our affiliated servicer provides a strategic advantage in non performing and non regular paying resolution processes and timelines and a data feedback loop for our managers' analytics. In today's environment, having our portfolio teams and analytics group of the manager working closely with the servicer is quite essential to maximize re performance probabilities loan by loan by loan. We have certainly seen the benefit of this in Q3 and Q4 of 2020 and in Q1 of 2021 and so far in Q2 of 2021 with a significant increase in loan cash flow velocity and credit performance.
The analytics and sourcing of the manager and the effectiveness of our affiliated servicer also enables us to broaden our investment reach through joint ventures with 3rd party institutional investors. This gives us access to seeing more loans from more sources and more ways of financing it as well. We have a 20% economic interest in our servicer similar to our manager. On March 31, 2021, our corporate leverage ratio was 2.3x. Our Q1 20 21 average asset base leverage was 2.1x and our March 31, 2021 asset base leverage was 2x.
We also have an investment in Gaia Real Estate Corp, a REIT that invests in multifamily properties, multifamily repositioning mezzanine loans and triple net lease veterinary clinic real estate. We expect Gaia to grow materially also in 2021. If we jump to Page 4, I'll walk you through some highlights of the Q1. Net interest income from loans and securities, including a $5, 500, 000 acceleration of loan purchase discount from payoffs in excess of our expectations, this is $4, 300, 000 after deconsolidating $1, 200, 000 to non controlling interest, was approximately $19, 200, 000 in Q1 2021. In the Q1, we had only a small increase in our average balance of mortgage loans, securities and beneficial interest, primarily due to significant loan prepayment.
Approximately $30, 000, 000 investment in reperforming loans closed March 31 and was on the balance sheet for 1 day. As a result, we received no income benefit from that acquisition of 31, 000, 000 dollars on March 31. Our gross interest income, excluding the $5, 500, 000 income from loan purchase discount acceleration, was slightly lower than Q4 2020, but net interest income was $300, 000 higher due to reduced cost of funds, even though our average liability balance was $60, 000, 000 higher for the quarter due to timing differences. Interest expense decreased by approximately $500, 000 even though we had a 27 day timing difference between new securitization issuance and call dates on call securitizations. So we paid an extra 27 days of interest on 2 securitizations, which increased interest expense by approximately $400, 000 or nearly $0.02 per share.
Otherwise, interest expense would have decreased by approximately $900, 000 for the quarter versus Q4 2020. 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 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 purchased loans by the amount of the servicing fees and 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 March 31, approximately 73.1% 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 also up from 72% at December 31, 2020. In our Q1 of 2020 investor call, we mentioned that we expected the COVID-nineteen related economic environment would negatively impact the percentage of 12 of 12 borrowers in our portfolio. Thus far, the impact on 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.
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 regular payment pattern and the prepayment pattern of certain previously delinquent loans led to the $5, 500, 000 acceleration of purchase discount from prepayment of loans in excess of expectations in the quarter. Approximately 20 percent of all of our loan payoffs in full in Q1 2021 were from non performing loans. 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, as we'll see later in this call, enable financing at a lower cost of funds and provide regular cash flow.
Loans that are not regular monthly pay status tend to have a shorter duration. However, we have generally expected that this duration reduction would be less than typical due to the impact of COVID-nineteen. 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 paying. 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 regular paying loans. We have certainly seen this trend continue into Q2 of 2021.
Our cost of funds in Q1, 2021 was lower than Q4, 2020 by 29 basis points. This was primarily due to spread reductions on repurchase facilities and the 2 securitizations we completed in late January early February 2021 and 2 securitizations that we called in late February 2021. We expect our cost of funds to continue decreasing materially, especially since we called 3 of our older securitizations and re securitize the underlying loans in Q2 of 2021 and will likely do so with a few others in the next few quarters. Net income attributable to common stockholders was $7, 000, 000 or $0.30 per share after subtracting out $1, 950, 000 of preferred dividends and $1, 700, 000 of income attributable to non controlling interests. A couple of other things to note, we recorded a 911, 000 dollars expense or approximately $0.04 per share from the acceleration of amortization of deferred issuance costs as a result of calling our 2017 and 2018 securitizations in the Q1.
This would otherwise have been amortized over the remaining life of securitizations if we had not called them. Also as previously mentioned, since the new securitizations closed on average 27 days prior to the call date of the old securitizations, we double paid interest for 27 days of approximately $400, 000 or nearly $0.02 a share. The interest cost savings from calling and re securitizing the 2 securitizations is far greater than this per year. We expensed approximately $1, 900, 000 relating to the GAAP required accrual of the warrant put rights from our Q2 2020 issuance of preferred stock and warrants. Also in the Q1, we repurchased approximately $2, 500, 000 of our convertible bonds for $2, 400, 000 Book value per share was $16.18 at March 31, 2021.
Later in this call, we will compare March 31 book value and March 31 fair value estimates. A quick spoiler alert, March 31 fair value estimates continue to be materially higher than book value. Taxable income was $0.38 per share. Taxable income in Q4 was driven by several factors, including gains on some clean pay loans going to our January 2021 rated securitization, as well as a significant increase in prepayment, especially for delinquent loans. Delinquent loans usually generate tax gains at the time of foreclosure and the creation of related REO and then tax losses at sale of REO.
Less REO creation typically leads to lower taxable income. However, we saw many delinquent loans prepay and generate tax gains. Additionally, as our cost of funds decreases, we will have further declines in interest expense, which increases taxable income. Cash collections, at March 31, we had approximately $137, 000, 000 of and for Q1 2021, we had average daily cash and cash equivalent balance of approximately $115, 000, 000 We had $70, 200, 000 of cash collections in the Q1, which annualized is approximately 25% of the book value of the underlying assets. Our surplus cash tempers earnings, but this provides us with significant optionality and the related earnings drag should decrease as we get the cash invested over time.
As I mentioned earlier in this call, at March 31, 2020, in addition to $144, 000, 000 of cash, we also had approximately $266, 000, 000 base amount of unencumbered securities from our securitizations and joint ventures and approximately $43, 000, 000 of UPB of unencumbered mortgage loans. And as April 30, we have $144, 000, 000 cash on hand plus all those unencumbered assets. Securitizations in Q1, we completed 2 securitizations and called 2 securitizations. The first securitization was a tranche rated structure where we issued AAA through BBB bonds at approximately 85% of the unpaid principal balance attachment with a weighted average bond yield of 1.31%. The expected weighted average life of these issued bonds is approximately 7 years.
The second securitization was an unrated tranche structure where we issued only Class A senior securities at 75% of UPB with a yield of 2.25%. The expected weighted average life of this issued bond is approximately 3 plus years. With 2 securitizations combined will reduce funding costs by approximately 150 plus basis points per year for the approximate $490, 000, 000 UPB of the re securitized loans versus the securitizations we called beginning in March of 2021. As I mentioned earlier on this call, approximately 73.1 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 loan value versus loan purchase cost.
I will discuss the importance of this in greater detail when we get to Pages 9 17 of this presentation. If we jump to Page 5, we continue to be primarily RPL driven with purchased RPLs representing approximately 96% of our loan portfolio. We primarily purchased RPLs that have made less than 7 consecutive payments and strive for positive payment migration of these purchased RPLs and the resulting increase in fair market value of the loans from this payment migration. On Page 6, we continue to buy and own lower loan to value loans. Our overall RPL purchase price is approximately 51% of property value and 85.65 percent of UPB.
When you compare this to our securitization advance rates, the collateral really stands out. On Page 7, purchased NPLs have declined over time relative to the total loan portfolio. For NPLs on our balance sheet, our overall purchase price is 77.8 percent of UPB and 48.6 percent of property value. As a result of the low loan to value and higher absolute dollars of equity on our average for our RPL and NPL portfolios, we've seen that rising home prices and relatively low mortgage rates have significantly accelerated prepayment on our loans as borrowers can capture significant equity. This leads to greater interest income by accelerating the receipt of our loan purchase discount.
On Page 8, 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 consistent prepayment patterns 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 Suburban New Jersey and Southern Connecticut home values and in home sale liquidity. We've seen a quick positive turn in liquidity in these suburban locations as a result of COVID-nineteen as New York City apartment dwellers look for suburban residences. It's too early to tell whether this is a short term phenomenon or a longer term change in lifestyle as a result of COVID-nineteen. It's also likely to be affected by any potential new tax law changes becoming affected.
Related to this, we have also seen demand and prices for homes and home rentals increase materially in several metro areas of Florida as well as the Phoenix, Dallas, Charlotte, Atlanta and a few other metro areas. We're seeing the strength primarily in single family homes, less so for condominiums. We have seen a significant increase in prepayment, however, of on homes with material equity in the New York City metro area. On Page 9, at March 31, approximately 73.1% of our loan portfolio made at least 12 of last 12 payments, including 67% of our portfolio that made at least 24 of the last 24 payments compared to 13% at the time of purchase. Non paying loans, which usually have shorter durations in paying loans get timelines extended as a result of COVID-nineteen.
This affects the yield on true non performing loans. However, in the past 3 quarters and continuing so far into Q2 of 2021, we've seen the opposite prepayment of non performing loans has accelerated duration on average rather than extended duration. Since we purchased most of our loans when they were less for 12 for 12, our servicers worked with the borrowers. It's too soon to understand the full impacts of COVID-nineteen on home price and mortgage performance, but so far the impact has been significantly positive. We've seen demand for homes in our target markets increase generally, cash flow velocity on the loans increased generally and prepayment in full on impacted loans has increased.
12 for 12 loans in today's loan market trade at materially higher prices than our cost basis, well 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 marketer amortized cost. Subsequent events, it's been really busy since April 1 as well. Subsequent to March 31, we've agreed to purchase approximately $800, 000, 000 UPB of RPLs in 8 transactions subject to due diligence. The purchase price for the loans was approximately 97% of UPB and 54% on the value of the underlying properties.
We continue to buy low LTV RPLs with material amounts of equity. We have another approximately $91, 000, 000 UPB of NPLs under contract to purchase in 3 transactions also subject to due diligence. Purchase price is approximately 100% of UPB and 67% of underlying property value. In April, we called 3 joint venture securitizations, our 2017 D, 2018 A and 2018 B, we re securitized the combined loans in AgeX Mortgage Loan Trust 2021 C. The 2017 destructure was previously consolidated on our balance sheet and income statements.
We retained 5% of the Class A senior bond of 2021C and approximately 32% of the mezzanine bond and equity trust certificate. The issued Class A senior bond has a par coupon of 2.115%. In April, we repurchased another 5, 000, 000 principal amount of our convertible notes for purchase price of $5, 000, 000 and we declared a cash dividend of $0.19 per share to be paid on May 31 to holders of record on May 20, 2021. On Page 11, there's a few metrics I'd like to mention. Average loan yields excluding reserve recapture, remained fairly constant.
Remember that yield on debt securities and beneficial interest 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 JVs are presented under GAAP. As our JVs increase as they did in 2020, relative to loans, the GAAP reporting will show lower average yields by the amount of the servicing fees. Our leverage continues to be low, especially for companies in our sector. We ended Q1 with asset level debt of 2 times and average asset level debt for the quarter was 2.1 times.
Our asset level debt cost of funds was lower in Q1 than Q4 by approximately 35 basis points and the cost of our asset level debt has further declined in Q2. As we get our surplus cash invested, we should see material increases in interest income and net interest income as well. Also as we repurchase our convertible notes in the open market, our cost of funds and interest expense further decreases. If we jump to Page 13, our total repurchase agreement related debt at March 31 was approximately $305, 000, 000 of which $42, 000, 000 was non mark to market mortgage loan financing and $216, 000, 000 was financing on Class A1 senior bonds in our joint ventures. As of April 30, total repurchase agreement funding is lower as a result of prepayment and securitization.
At March 31, we had $173, 000, 000 face of unencumbered bonds as well as $96, 000, 000 UPB of unencumbered trust certificates in our joint ventures and $44, 000, 000 UPB of unencumbered mortgage loans. Combined with $137, 000, 000 of cash at March 31 and now $144, 000, 000 of cash as of April 30, we have significant resources for being on offense and defense. If we jump to Page 17, I can go through our fair value balance sheet. As I mentioned earlier on the call, we estimate that the fair value of our balance sheet equity is materially higher than our book value. The explanations and discussion of fair value are included in Table 8 in the MD and A section of our 10 Q.
We invest in mortgage loans at discounts to UPB based on our managers' analytics. Our servicer works with borrowers and helps get loans back on track. When they become regular paying loans, they become significantly more valuable. Our GAAP balance sheet shows our mortgage loans at the lower of amortized cost or book value. Our estimate of fair value fully diluted book value per share at March 31 is over $20 per share for SCAP book value of $16.18 And with that, I would like to open it up to any questions that anybody might have.
Thank you. We have our first question coming from the line of Kevin Barker with Piper Sandler. Your line is open.
Good afternoon, Larry. How are you doing?
Hi, Kevin. How are you?
Good. So you took another sizable negative provision today, I mean, this quarter. It seems obviously with home prices rising, prepayments high, that provision might sustain itself or at least your very strong credit. Could you just give us a little bit of additional color on the outlook for the provision expense and then your expectations just in general for credit within the loan?
Sure. So when we since we buy loans at discounts, so let's say we buy a loan at $90 price. In that $90 we have an expectation for how much of $90, 000, 000 or higher we're going to collect. To the extent we think it's only going to be 95% collectible, we will effectively have a 5 point discount and then a 5 point allowance except we didn't pay for the allowance. If the loan prepays, we pick up the 5 points we expected plus the 5 points we didn't expect, okay, plus any additional interest or fees or arrearage, things like that, okay.
Because we buy loans at discounts, HPA has made it so that what we've actually been receiving in payoffs is materially higher than what we would have expected and hadn't been part of our amortization of discount in prior quarters because we didn't expect to receive it. Home price appreciation has made considerably more of our loans loan total UPB and arrearage collectible than previously, but we're taking it through income to the extent we've actually received it as opposed to we propose to receive it. So the $5, 500, 000 in this quarter that we took through interest income and the $8, 000, 000 last quarter, that's from money actually received that we did not expect to receive from the loans that made those payments. We would expect that to continue as we've seen so far in April early May and into Q2. And the pace of that does to some extent depend on stability of home prices.
Home prices have gone up so much that we don't expect it to decelerate in any material way until there's almost like a burnout effect of people. There's just no 1 who wants to sell their home anymore. We have seen certain triggers. We've spent a lot of time looking into the weeds, analytics of which loans are prepaying and what are the characteristics of them. And we have seen certain, what I'll call behavioral economics 101 turning points that we've noticed in those in the analytics that once loans hit certain amounts of absolute equity, when they're delinquent, they prepay on average.
And we've seen the similar in re performance that once loans go from having little equity up to more equity over a certain threshold, they're much more likely to re perform as well as a result of home price appreciation. So to the extent that you think there's more HPA coming, these numbers will keep steady and perhaps increase. And if you think home price appreciation just stays where it is, we would think that these numbers will be pretty level for a while.
Okay.
That was a very wrong answer. Sorry.
That was very thorough. I appreciate it. So on another topic, the RPL purchase that you announced, the nearly $800, 000, 000 is a very large transaction for you guys. Yes. Could you just detail the how much of the joint venture are honing?
And also, what's the impact going to look like here on the income statement and balance sheet, just given the joint ventures are a little bit different than how we look at the loans that are on balance sheet. So any color you can provide there would be really helpful.
Sure. So in that $800, 000, 000 there's a number of different purchases. The largest is about $770, 000, 000 which is a joint venture. We will be 12.6 percent of that joint venture, so just under 100, 000, 000 dollars The with 2 other parties, the and so single seller, The expectation is that will close in mid to late June. So we won't receive material income from it this quarter, but certainly will beginning in Q3.
The other purchases are of RPLs are excuse me, directly ours, and then we also have another 100, 000, 000 of NPLs that we're purchasing with 1 of our institutional partners in a joint venture as well and will be 20% of that joint venture.
Okay. And so when we think about so your rates are 100, 000, 000 Right. Those will show
up in securities and beneficial interests, not in loans. Even though we effectively own loans, we will own them in a joint venture structure, so they'll show up in securities and beneficial interests.
Okay. And just from And
about $30, 000, 000 or $40, 000, 000 of it will show up in loans of that total $900, 000, 000 call it $800, 000, 000 plus $100, 000, 000
Okay. And so what's your expected impact from net interest income?
We would expect net interest income to increase pretty dramatically since we have plenty of cash on hand that we can fund it without having any material interest expense. So it will be a significant increase in revenue interest revenue without any material increase in interest expense.
Given there is a limited discount to UPD, can you size up the weighted average loan?
Yes. These are classic loans that we buy where they're relatively sloppier paying loans. So if you look at the RPLs, the purchase price is 54% of property value. The average equity in the homes is about $140, 000 per home. So we and the average arrearage is a little less than 6 months.
So as a result, there's about including advances that we don't have to pay for and arrears that we don't have to pay for, the owing balance is actually approximately $103, 000, 000 or $103, 000, 000 not $100, 000, 000 So we're paying 97.5 of 100, 000, 000 but really only 95% of the owing amount. The coupon is above 4% and because of the amount of equity, we would expect these loans to be shorter duration than they otherwise would have been say 2 years ago.
We have our next question coming from the line of Eric Hagen with BTIG. Your line is open.
Hey, thanks. I've got a couple. Do you have an expectation or even just a ballpark of how much taxable income you might generate going forward as a result of the faster pay downs and lower interest expense you discussed? And do you see it creating a situation where you need to distribute a special dividend at the end of the year? And the second question is on the package of RPLs that you were just talking about, maybe I could ask it in a more kind of clear fashion.
I mean, what's the return on equity that you expect from that transaction?
Giving it well, we don't need to because of the amount of liquidity we have, we don't need to finance it in the beginning. So the return on equity will be lower because it will be delevered. Once we finance it, we would expect that return on equity to be somewhere low to mid teens.
Got it. Okay.
Okay. The from a taxable income perspective, you see our Board increased our dividend from $0.17 to $0.19 a quarter. They did that because of their expectation that taxable income will continue to be relatively stable or rising. They tend to be relatively conservative with quarterly dividends so that like you have in March or April of 2020, where when strange things happen, they don't want to have to reduce dividends My gut feels if there is a My gut feels if there is a need if they start to feel a need for the special dividend, they would raise the quarterly dividend to try to make a special dividend less of a percentage of the total. And they would rather have a higher regularly quarterly dividend once they get comfortable that that's a completely stable predictable number.
So this is kind of the first step towards that From a conservative position, they didn't want to increase it too rapidly, but I think they all believe that the quarterly dividend over time will need to increase.
Thank you. Sure.
Thank you. There are no further questions at this time. Turning the call back over to the presenters for additional comments.
Thank you everybody for joining our Q1 conference call for Great Ajax Corp. Feel free to reach out if you have questions. And thanks again for attending and have a good Thursday night.
This concludes today's conference call. Thank you for participating. You may now disconnect.