Rithm Property Trust Inc. (RPT) FY 2021 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 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. 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 may also target investments in NPLs either directly or with joint venture partners. NPLs are loans on which the most recent three payments have not been made. 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, 2021, 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. 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 the VIEs.

In 2018, we formed Gaea as a wholly owned subsidiary of the Operating Partnership. We elected to treat Gaea as a TRS under the Code for 2018, and we 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. We also formed BFLD Holdings LLC, Gaea Commercial Properties LLC, Gaea Commercial Finance LLC and Gaea RE 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 in which it raised $66.3 million from the issuance of 4,419,641 shares of its common stock to third parties to allow Gaea to continue to advance its investment strategy. We retained a 23.2% ownership interest in Gaea following the transaction. At December 31, 2021 we own approximately 22.8% of Gaea with the dilution driven by Gaea's equity issuances.

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, 2021 and December 31, 2020 ($ 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

COVID-19

The COVID-19 pandemic that began during the first quarter of 2020 created a global public-health crisis that resulted in widespread volatility and deteriorations in household, business, and economic market conditions, including in the United States, where we conduct all of our business. During 2020 many governmental and nongovernmental authorities directed their actions toward curtailing household and business activity in order to contain or mitigate the impact of the COVID-19 pandemic and deployed fiscal- and monetary-policy measures in order to seek to partially mitigate the adverse effects. These programs have had varying degrees of success and the extent of the long term impact on the mortgage market remains unknown.

The COVID-19 pandemic began to meaningfully impact our operations in late March 2020 and any continuing disruption was reflected in our results of operations for the year ended December 31, 2021. The pandemic has continued to significantly and adversely impact certain areas of the United States. As a result, our forecast of macroeconomic conditions and expected lifetime credit losses on our mortgage loan and beneficial interest portfolios is subject to meaningful uncertainty and volatility. While the majority of our borrowers continued to make scheduled payments and we continued to receive payments in full, at the beginning of the pandemic we acted swiftly to support our borrowers with a mortgage forbearance program. Borrowers who requested COVID-19 related hardship assistance were asked to complete a standardized hardship questionnaire, including documentation to support the COVID-19 related hardship claim. The materials were reviewed, along with the borrower's monthly payment status, to determine if the borrower was eligible for a three-month forbearance plan. If the borrower was not eligible, they were encouraged to apply for loss mitigation. In the event the COVID-19 related hardship continued at the end of the forbearance period, it was extended for an additional period. At the end of the forbearance plan, the borrower was either required to repay the deferred amounts in a lump sum or was provided a repayment plan. Notwithstanding the foregoing, to the extent special rules applied to a mortgagor because of the jurisdiction or type of mortgage loan, the Servicer complied with those rules. Our Servicer has extensive experience dealing with delinquent borrowers and was well positioned to react on our behalf to any increase in mortgage delinquencies. Although requests for COVID-19 related hardship assistance have largely diminished, any assistance that may be provided on an ongoing basis is consistent with the foregoing. The following list shows the COVID-19 related forbearance activity in our mortgage loan portfolio as of February 28, 2022:

•Current number of COVID-19 forbearance relief inquiries: 1,237

•Total number of COVID-19 forbearance relief granted: 391

We expect continued volatility in the residential mortgage loan and securities markets in the short term. Extended forbearance, foreclosure timelines and eviction timelines could result in lower yields and losses on our mortgage loan and beneficial interest portfolios and losses on our REO held-for-sale. 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.

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

•historically low interest rates and elevated operating costs resulting from new regulatory requirements continue to drive sales of residential mortgage assets by banks and other mortgage lenders;

•higher prices, low inventory, tighter lending standards and increased down payment requirements are pricing first time homeowners out of the market

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

•rising home prices are increasing homeowner equity and reducing the incidence of strategic default;

•rising prices have resulted in millions of homeowners being in the money to refinance;

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

•historically low interest rates have increased prices for residential mortgage loans as investors search for yield in the market.

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 with positive equity provide an optimal investment value. As a result, we are currently focused on acquiring pools of RPLs, though we may acquire NPLs, either directly or with joint venture partners, if attractive opportunities exist. Through our Servicer, we work 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.

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.

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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 real estate investment conduit (“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 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 and may acquire rental properties through direct purchases at attractive prices. 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.

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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. Due to the dramatic repricing of real estate assets that occurred during the 2008 financial crisis and the continuing uncertainty regarding the direction and strength of the real estate markets including as a result of the COVID-19 pandemic, we believe a void in the debt and equity capital available for investing in real estate exists as many financial institutions, insurance companies, finance companies and fund managers have determined to reduce or discontinue investment in debt or equity related to real estate. We believe the dislocations in the residential real estate market have resulted or will result in an “over-correction” in the repricing of real estate assets, creating a potential opportunity for us to capitalize on these market dislocations and capital void to the extent we are able to obtain financing for additional purchases.

We believe that in spite of the continuing uncertain market environment for mortgage-related assets, including as a result of the pandemic outbreak, 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. The pandemic has also impacted, and is likely to continue to impact, directly or indirectly, many of the other factors discussed above, as well as other aspects of our business. New developments continue to emerge and it is not possible for us to predict with certainty which factors will impact our business. In addition, we cannot assess the impact of each factor on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements. In particular, it is difficult to fully assess the impact of the pandemic at this time due to, among other things, uncertainty regarding the severity and duration of the outbreak domestically and internationally and the effectiveness of federal, state and local government efforts to contain the spread of COVID-19 and its variants, the effects of those efforts on our business, the indirect impact on the U.S. economy and economic activity and the impact on the mortgage markets and capital markets.

Critical Accounting Policies and Estimates

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

Critical Accounting Estimates

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.

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

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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, 2021 and December 31, 2020.

Critical Accounting Policies

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.

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

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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 investments in the trust certificates issued by joint ventures which we form with third party institutional accredited investors. The trust certificates represent the residual interest of any special purpose entity formed to facilitate certain investments. We account for our Investments in beneficial interests under CECL, as discussed under Mortgage Loans. The methodology is similar to that described in “Mortgage Loans” except that we only recognize the ratable share of gain, loss income or expense. We account for each beneficial interest individually.

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.

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.

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Recent Accounting Pronouncements

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

Results of Operations

For the year ended December 31, 2021, we had net income attributable to common stockholders of $34.1 million, or $1.48 per share for basic and $1.41 per share for diluted common shares. For the year ended December 31, 2020, we had net income attributable to common stockholders of $22.8 million or $1.00 per share for basic and diluted common shares. For the year ended December 31, 2019, we had net income attributable to common stockholders of $34.7 million, or $1.74 per share for basic and $1.59 for diluted common shares. Key items for the year ended December 31, 2021 include:

•Interest income of $93.4 million; net interest income of $56.6 million

•Net income attributable to common stockholders of $34.1 million

•Basic earnings per share of $1.48 per share

•Book value per share of $15.92 at December 31, 2021

•Taxable income of $1.55 per share

•Formed six joint ventures that acquired $2.4 billion in UPB of mortgage loans with collateral values of $4.4 billion and retained $342.9 million of varying classes of securities. Of the $2.4 billion, $1.3 billion of UPB relates to newly acquired joint ventures while $1.1 billion relates to joint ventures that were re-securitized

•Purchased $185.7 million of RPLs, with UPB of $191.3 million and 54.8% of property value, $91.5 million of NPLs, with UPB of $94.8 million and 63.6% of property value, and $9.0 million of SBC loans, with UPB of $8.9 million and 40.5% of property value, to end the year with $1.1 billion in net mortgage loans

•Collected total cash of $318.5 million, from loan payments, sales of REO and collections from investments in debt securities and beneficial interests

•Held $84.4 million of cash and cash equivalents at December 31, 2021; average daily cash balance was $99.1 million

•At December 31, 2021, 72.3% of our portfolio based on UPB had made at least the last 12 out of 12 payments

Our consolidated net income attributable to common stockholders increased $11.3 million for the year ended December 31, 2021 compared to the year ended December 31, 2020. The increase was primarily driven by a $12.0 million decrease in our interest expense and a net decrease in the net present value of expected credit losses of $5.7 million. Our net interest income increased $7.0 million for the year ended December 31, 2021 compared to the year ended December 31, 2020 primarily due to the same interest expense decrease of $12.0 million partially offset by a lower average balance and lower average yields of our mortgage loan portfolio. Comparatively, consolidated net income attributable to common stockholders decreased $11.9 million for the year ended December 31, 2020 compared to the year ended December 31, 2019. The decrease was primarily due to lower other income as we sold 26 mortgage loans with a carrying value of $26.1 million and UPB of $26.2 million for a loss of $0.7 million during the year ended 2020 compared to 965 mortgage loans sold with a carrying value of $178.8 million and UPB of $202.1 million for a gain of $7.1 million during the year ended 2019. This was partially offset by a net decrease in the net present value of expected credit losses of $12.6 million during the year ended 2020 compared to a net increase in the net present value of expected credit losses of $0.8 million in 2019. Our net interest income decreased $3.4 million for the year ended December 31, 2020 compared to the year ended December 31, 2019 primarily due to a lower average balance of our mortgage loan portfolio offset by an increase in the average balance of our debt securities and beneficial interests.

Our book value increased to $15.92 per common share from $15.59 at December 31, 2021 and December 31, 2020, respectively, an increase of $0.33. The increase is driven by our buyout of our joint venture partner's interest in Ajax Mortgage Loan Trust 2018-C ("2018-C") in the first quarter of 2021 and the sale of the loans from Ajax Mortgage Loan Trust 2017-D ("2017-D"), both of which reduced our non-controlling interest. Net book value also increased due to the repurchase of $8.8 million of our convertible senior notes and an increase in common equity resulting from net fair value adjustments of $0.6 million on our portfolio of debt securities recorded to Other comprehensive income since December 31, 2020.

We recorded income from our investment in affiliates of $0.7 million for the year ended December 31, 2021, a loss of $0.2 million for the year ended 2020 and income of $1.3 million for the year ended 2019. The primary driver of the change year over year is the flow-through impact of the mark to market 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.

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We recorded $0.3 million in impairments on our REO held-for-sale portfolio in real estate operating expense for the year ended December 31, 2021 compared to $1.4 million for the year ended 2020 and $2.1 million for the year ended 2019. Impairments during the year were driven primarily by the costs of holding the properties. We continue to liquidate our REO properties held-for-sale at a faster rate than we acquire properties, with 33 properties sold during the year ended December 31, 2021 while 26 were added to REO held-for-sale through foreclosures and direct purchase. During the year ended December 31, 2020 we sold 50 REO properties while adding 20 through foreclosures.

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, 2021, December 31, 2020, and December 31, 2019. 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. Net interest income after recording the impact of the net present value of decreases in expected credit losses increased to $74.9 million for the year ended December 31, 2021 from $62.2 million for the year ended December 31, 2020 and $52.3 million for the year ended December 31, 2019 primarily as a result of a net $18.2 million impact of the net decrease in the net present value of expected credit losses for the year ended December 31, 2021 compared to a $12.6 million decrease for the year ended December 31, 2020 and a net increase in the net present value of

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expected credit losses of $0.8 million for the year ended December 31, 2019. 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. Comparatively, 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. Of the $0.8 million for the year ended December 31, 2019, all $0.8 million relates to our mortgage loan portfolio. To date, the COVID-19 pandemic has not had a significant negative impact on our expected cash flows due to the low interest rate environment and rising home prices.

Our gross interest income before the effect of the net present value of decreases in expected credit losses decreased by $5.0 million to $93.4 million in the year ended December 31, 2021 from $98.3 million in the year ended 2020 primarily due to a lower average balance and lower average yields of our mortgage loan portfolio. This was offset by a decrease of $12.0 million in interest expense to $36.7 million in the year ended December 31, 2021 from $48.7 million in the year ended December 31, 2020 primarily due to decreases in the average interest rates applicable to our borrowings. Similarly, our gross interest income decreased by $14.1 million to $98.3 million in the year ended December 31, 2020 from $112.4 million in the year ended December 31, 2019 primarily due to a decrease in average yield. This was offset by a decrease in interest expense of $10.6 million to $48.7 million in the year ended December 31, 2020 from $59.3 million in the year ended December 31, 2019 similarly due to a decrease in the average interest rates applicable to our borrowings.

During the year ended December 31, 2021, we collected $318.5 million in cash payments and proceeds on our mortgage loans, securities and REO held-for-sale compared to $240.3 million in the year ended 2020 and $253.6 million in the year ended 2019. These amounts exclude any cash proceeds from sales of debt securities. The increase in cash collections in 2021 compared to 2020 is due to a higher volume of payoffs on mortgage loans as borrowers continued to refinance or sell the underlying property, while conversely the decrease in cash collections in 2020 compared to 2019 was driven by lower volumes of loan payoffs, partially offset by higher cash collections on securities.

The interest income detail for the years ended December 31, 2021, 2020 and 2019 is included in the table below ($ in thousands):

Table 2: Interest income detail

(1)Includes reclass of loan and beneficial interest credit losses from net decrease in the present value of expected credit losses to accretable yield recognized on RPL, NPL and SBC loans and accretable yield recognized on beneficial interests, respectively.

(2)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, 2021, 2020 and 2019. 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 decrease in the accretable yield recognized on RPL, NPL and SBC loans is driven by decreases in the average yield and average balance of our mortgage loan portfolio. The average balance of our portfolio declined primarily as a result of significantly higher levels of prepayments on our mortgage loans and from the timing of loan acquisitions and sales during the year. The average carrying balances of our mortgage loan portfolio, debt securities, beneficial interests and debt outstanding for the years ended December 31, 2021 and 2020 are included in the table below ($ in thousands):

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Table 3: Average Balances

Our average balance in mortgage loans declined primarily as a result of significantly higher levels of prepayments on our mortgage loans and from the timing of loan acquisitions and sales during the year.

Other Income

Other income increased for the year ended December 31, 2021 as compared to the year ended 2020 primarily due to increases in late fee income and a gain on sale of mortgage loans in 2021 versus a loss in 2020. Other income decreased for the year ended December 31, 2020 as compared to the year ended 2019 primarily as a result of a gain on sale of mortgage loans in 2019 versus a loss in 2020, decreased rental income in 2020 from the impact on our rental portfolio of our Gaea capital raise in November 2019 and lower income from the federal government’s HAMP program as more loans reached the five-year threshold beyond which no additional fees are earned. This was partially offset by a larger gain on sales of property held-for-sale and gain on sale of securities in 2020 compared to 2019. A breakdown of Other income is provided in the table below ($ in thousands):

Table 4: Other Income

Expenses

Total expenses for the year ended December 31, 2021 increased from the year ended 2020 primarily as a result of our put option expense on our outstanding common stock warrants. Similarly, the increase from 2019 to 2020 was a result of expense on the put option as well as an increase in management fees driven by an increase in our capital base as a result of our private placements of preferred stock and warrants completed during the second quarter of 2020. Our professional fees were higher in 2021 than 2020 and in 2020 from 2019 primarily from increases in fees for tax consulting and legal services. For the year ended December 31, 2021 as compared to the year ended 2020 and 2019 these increases were 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. Real estate operating expense decreased in 2021 by $1.2 million over 2020, due to lower impairment on our REO held-for-sale properties. Comparatively, real estate operating expense decreased by $2.2 million from 2019 to 2020 due to the carve out of Gaea and the related commercial property portfolio in November 2019. A breakdown of our expenses is provided in the table below ($ in thousands):

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Table 5: Expenses

Other Expense

Other expense for the year ended December 31, 2021 increased from the year ended 2020 primarily due to employee and service provider grants, and directors' fees and grants, offset by lower travel expense and borrowing related expense. Other expense for the year ended 2020 decreased from 2019 primarily due to a recovery of loan transaction expense and lower employee and service provider grant expense, partially offset by increases primarily in insurance and borrowing related expenses and other miscellaneous expenses. A breakdown of other expense is provided in the table below ($ in thousands):

Table 6: Other Expense

Equity and Net Book Value per Share

Our net book value per share was $15.92 and $15.59 at December 31, 2021 and 2020, respectively, an increase of $0.33. The increase in book value was primarily driven by our buyout of our joint venture partner's interest in 2018-C in the first quarter of 2021 and the sale of mortgage loans from 2017-D, both of which reduced non-controlling interest. Net book value also increased due to the repurchase of $8.8 million of our convertible senior notes and an increase in common equity resulting from net fair value adjustments of $0.6 million on our portfolio of debt securities recorded to Other comprehensive income since December 31, 2020. We believe our calculation is representative of our book value on a per share basis, and our Manager believes book value per share is a valuable metric for evaluating our business. The net book value per share is calculated by taking equity at the balance sheet date (i) less preferred stock and non-controlling interest, (ii) adjusted for any addition for potential conversion of our convertible senior notes, divided by outstanding shares at the balance sheet date adjusted to include (i) unvested restricted stock earned but unissued and (ii) any share equivalents for our convertible senior notes or our put option liability as determined by the dilution requirements for our EPS calculation. A breakdown of our book value per share is set forth in the table below ($ in thousands except per share amounts):

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Table 7: Book Value per Common Share

(1)The settlement of the put option in shares is not included in the book value calculation as of December 31, 2021 or 2020 as it has an anti-dilutive effect on our earnings per share calculation.

Mortgage Loan Portfolio

For the years ended December 31, 2021 and 2020, we purchased $185.7 million and $55.1 million of RPLs with UPB of $191.3 million and $61.7 million, respectively, at 54.8% and 59.4% of the underlying property value, 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, 2021 and 2020 we purchased $91.5 million and $14.1 million of NPLs with UPB of $94.8 million and $16.0 million, respectively, at 63.6% and 50.7% of the underlying property value, respectively. For the years ended December 31, 2021 and December 31, 2020, we purchased $9.0 million and $19.8 million of SBC loans with UPB of $8.9 million and $20.3 million, respectively, at 40.5% and 52.8% of the underlying property value, respectively. We ended the period with $1.1 billion of mortgage loans with an aggregate UPB of $1.2 billion as of December 31, 2021 and $1.1 billion of mortgage loans with an aggregate UPB of $1.2 billion as of December 31, 2020.

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The following table shows loan portfolio acquisitions for the years ended December 31, 2021 and 2020 ($ 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, 2021, 1,502 mortgage loans, representing 25.4% of our ending UPB, were liquidated. Comparatively, during the year ended 2020, 538 mortgage loans, representing 11.1% of our ending UPB, were liquidated. Our loan portfolio activity for the years ended December 31, 2021 and 2020 are presented below ($ in thousands):

Table 9: Loan Portfolio Activity

(1)As of December 31, 2021, the sale of mortgage loans relates to loans we previously consolidated in 2017-D.

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Table 10: Portfolio Composition

As of December 31, 2021 and December 31, 2020, our portfolios consisted of the following ($ in thousands):

(1)Includes the impact of 1,003 mortgage loans with a purchase price of $177.3 million, UPB of $194.3 million and collateral value of $295.3 million acquired in the fourth quarter of 2017 through a 50.0% owned joint venture which we consolidate.

(2)Includes the impact of 256 mortgage loans with a purchase price of $47.4 million, UPB of $52.8 million and collateral value of $68.1 million acquired in the third quarter of 2018 through a 63.0% owned joint venture which we consolidate.

(3)At December 31, 2021 and 2020, our loan portfolio consists of fixed rate (60.6% of UPB), ARM (7.5% of UPB) and Hybrid ARM (31.9% of UPB); and fixed rate (53.5% of UPB), ARM (8.9% of UPB) and Hybrid ARM (37.6% of UPB), respectively.

(4)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.

(5)As of the reporting date.

(6)UPB as of December 31, 2021 and 2020, divided by market value of collateral and weighted by the UPB of the loan.

(7)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.

(8)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.

(9)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, 2021 and December 31, 2020 ($ in thousands):

Portfolio at December 31, 2021

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Portfolio at December 31, 2020

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, 2021 and December 31, 2020 ($ in thousands):

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(1)As of the reporting date.

Table 13: Debt Securities and Beneficial Interest Acquisitions

The following table shows our debt securities and beneficial interest acquisitions for the years ended December 31, 2021 and 2020 ($ in thousands):

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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 the COVID-19 pandemic 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 the potential for HPA decline. 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, 2021 and December 31, 2020, substantially all of our invested capital was in RPLs, NPLs, SBC loans, property held-for-sale, debt securities and beneficial interests. We also held approximately $84.4 million of cash and cash equivalents, a decrease of $22.7 million from our balance of $107.1 million at December 31, 2020, which was an increase of $42.8 million from our balance of $64.3 million at December 31, 2019. Our average daily cash balance during 2021 was $99.1 million, a decrease from our average daily cash balance of $110.5 million during the year ended December 31, 2020 and an increase from our average daily balance of $57.6 million at December 31, 2019.

Our collections of principal and interest payments on mortgages and securities, payoffs and proceeds and on the sale of our property held-for-sale were $318.5 million, $240.3 million and $253.6 million for the years ended December 31, 2021, 2020 and 2019, respectively.

Our operating cash outflows, including the effect of restricted cash, for the year ended December 31, 2021, 2020 and 2019 were $15.3 million, $13.9 million and $15.0 million, respectively. Our primary operating cash inflow is cash interest payments on our mortgage loan pools, which was $47.3 million, $48.1 million and $57.0 million, respectively, for the years ended December 31, 2021, 2020 and 2019, respectively. Non-cash interest income accretion was $19.5 million, $29.0 million and $39.1 million for the years ended December 31, 2021, 2020 and 2019, respectively. Interest income on beneficial interests was $16.0 million, $11.8 million and $6.4 million during the years ended December 31, 2021, 2020 and 2019, respectively. Interest income on debt securities was $11.0 million, $9.9 million and $6.7 million during the years ended December 31, 2021, 2020 and 2019, respectively. During the year ended December 31, 2021 we recognized a gain of $0.1 million for the 760 loans sold from 2017-D with a carrying value of $129.2 million and UPB of $133.8 million to a joint venture formed between us and a third party accredited institutional investor, and retained various classes of securities from the joint venture. During the year ended December 31, 2020, we recognized a loss of $0.7 million from the sale of 26 mortgage loans to Gaea, an affiliated entity. During the year ended December 31, 2019 we recognized a gain of $7.1 million from the sale of 965 mortgage loans to a related party joint venture, 2019-C.

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. We expect that the impact of the COVID-19 outbreak will put pressure on our cash flow from operations as we enter into loan modifications on certain of our loans permitting interest payments to be deferred.

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 on and payoffs of our debt securities and beneficial interests 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 payments on and payoffs of our debt securities and beneficial interests 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

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beneficial interests of $144.7 million and acquisitions of mortgage loans of $89.0 million. For the year ended December 31, 2019 our investing cash inflows of $100.2 million were driven primarily by the proceeds from the sale of mortgage loans of $212.6 million to 2019-C, principal payments on and payoffs of our mortgage loan portfolio of $134.7 million, principal payments on and payoffs of our debt securities and beneficial interests of $42.4 million, and the sale of $39.6 million of debt securities held as investments. This was offset by purchases of debt securities and beneficial interests of $187.8 million and acquisitions of mortgage loans of $129.2 million.

Our financing cash flows are driven primarily by funding used to acquire mortgage loan pools. We fund our mortgage loan pool acquisitions primarily through secured borrowings, repurchase agreements and the proceeds from our convertible debt and equity offerings. 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 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. We had net financing cash outflows for the year ended 2019 of $76.0 million due to repayments on repurchase transactions of $444.4 million and secured debt of $241.1 million, offset by additional borrowings through repurchase transactions of $322.6 million, on secured debt of $283.9 million and proceeds of $34.3 million from the sale of our common stock under our At the Market program (see Financing Activities - Equity offerings below). For the years ended December 31, 2021, 2020 and 2019 we paid $29.2 million, $17.8 million and $27.1 million, respectively, in cash 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 will depend 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, 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, of which 1,220 shares were acquired in the fourth quarter of 2021 under our approved stock buyback plan. As of December 31, 2020 we held 107,243 shares of treasury stock consisting of 58,779 shares received through distributions of our shares previously held by our Manager and 48,464 shares acquired through open market purchases in the fourth quarter of 2020 under our approved stock buyback plan.

During 2020, we issued an aggregate of $130.0 million of preferred stock and warrants to institutional accredited investors in a series of private placements. We issued 2,307,400 shares of 7.25% Series A Fixed-to-Floating Rate Preferred Stock and 2,892,600 shares of 5.00% Series B Fixed-to-Floating Rate Preferred Stock, each at a purchase price per share of $25.00 and two series of five-year warrants to purchase an aggregate of 6,500,000 shares of our common stock at an exercise price of $10.00 per share. Each series of warrants includes a put option that allows the holder to sell the warrants to us at a specified put price on or after July 6, 2023. Under U.S. GAAP, we are required to allocate the proceeds between the Preferred stock and warrants. The allocation of the proceeds, net of all offering costs, resulted in the Preferred series A shares receiving an allocation of $51.1 million, the Preferred series B shares receiving an allocation of $64.0 million and the warrants an allocation of $9.5 million. We mark the obligation for the warrants and future put liability to market though earnings. We are using the net proceeds from the private placement to acquire mortgage loans and mortgage-related assets consistent with our investment strategy.

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, which we sell, through our agents, shares of common stock with an aggregate offering price of up to $100.0 million. During the year ended December 31, 2020, we did not sell any shares of common stock under our At the Market program. During the year ended December 31, 2019, we sold 2,278,518 shares of common stock for proceeds, net of issuance costs of $34.3 million 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.

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Financing Activities — Secured Borrowings and Convertible Senior Notes

From our inception (January 30, 2014) to December 31, 2021, we have completed 18 secured borrowings, not including borrowings we completed for our non-consolidated joint ventures (See Table 17: Investments in joint ventures), through securitization trusts pursuant to Rule 144A under the Securities Act, five of which were outstanding at December 31, 2021. The secured borrowings are structured as debt financings and not REMIC sales, and the loans included in the secured borrowings remain on our consolidated balance sheet as we are the primary beneficiary of the secured borrowing trusts, which are VIEs. The 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 notes that are issued by the secured borrowing 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, 2021.

Our rated secured borrowings are generally structured as “REIT TMP” transactions which allow 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, 2021. 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 Ajax Mortgage Loan Trust 2021-C ("2021-C"). Based on the structure of the transaction we do not consolidate 2021-C under U.S. GAAP.

Our 2018-C secured borrowing was structured with Class A notes, Class B notes and trust certificates representing the residual interest in the mortgages held within the securitization trusts subsequent to repayment of the Class A debt. We had retained 5.0% of the Class A notes and 63.0% of the Class B notes and trust certificates. During the first quarter of 2021 we acquired the remaining 37.0% ownership of the Class B notes and trust certificates and settled the remaining 95.0% of the outstanding Class A notes.

The following table sets forth the original terms of all outstanding securitization notes at their respective cutoff dates as of December 31, 2021:

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.

Convertible Senior Notes

During 2017 and 2018, we completed the public offer and sale of $123.9 million in aggregate principal amount of our convertible senior notes (the “notes”) due 2024, in three separate offerings which form a single series of fungible securities. The 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 notes will mature on April 30, 2024, unless earlier repurchased, converted or redeemed. During certain periods and subject to certain conditions the notes will be convertible by their holders into shares of our common stock at a current conversion rate of 1.7279 shares of common stock per $25.00 principal amount of the notes, which represents a conversion

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price of approximately $14.47 per share of common stock. The conversion rate, and thus the conversion price, may be subject to adjustment under certain circumstances.

During the first, second and fourth quarters of 2021, we completed a series of convertible note repurchases for aggregate principal amounts of $2.5 million, $5.0 million and $1.3 million, respectively, for total purchase prices of $2.4 million, $5.1 million and $1.3 million, respectively. The carrying amounts of the equity component representing the embedded conversion feature reversed from Additional paid-in capital due to the first and second quarters of 2021 were both zero and for the fourth quarter of 2021 was $8 thousand. There were no convertible note repurchases during the third quarter of 2021. During the first and third quarters of 2020, we completed a series of convertible note repurchases for aggregate principal amounts of $8.0 million and $2.5 million, respectively, for total purchase prices of $8.2 million and $2.3 million, respectively. The carrying amounts of the equity component representing the embedded conversion feature reversed from Additional paid-in capital due to the first and third quarter of 2020 transactions were $0.1 million and zero, respectively. There were no convertible note repurchases during the second and fourth quarters of 2020.

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 LIBOR, 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 70% and 85% 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 five 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, 2021 and 2020 follows ($ in thousands):

Table 15: Repurchase Transactions by Maturity Date

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As of December 31, 2021, we had $546.1 million outstanding under our repurchase transactions compared to $421.1 million as of December 31, 2020. The maximum month-end balance outstanding during the year ended December 31, 2021 was $563.0 million, compared to a maximum month-end balance for the year ended 2020 of $467.3 million. The following table presents certain details of our repurchase transactions for the years ended December 31, 2021 and 2020 ($ in thousands):

Table 16: Repurchase Balances

The decrease in our average balance from $411.4 million for the year ended December 31, 2020 to our average balance of $369.9 million for the year ended December 31, 2021, as a result of repayments on pledged securities and the securitization of certain assets previously on the repurchase lines.

As of December 31, 2021 and 2020, we did not have any credit facilities or other outstanding debt obligations other than the repurchase facilities, secured borrowings, put option liability and our Senior convertible 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 December 30, 2021, our Board of Directors declared a special cash dividend of $0.10 per share of our common stock due to our 2021 taxable income, which was paid on January 25, 2022 to our common stockholders of record as of January 10, 2022.

On March 3, 2022, our Board of Directors declared a dividend of $0.26 per share, to be paid on March 31, 2022 to stockholders of record as of March 18, 2022. Our Management Agreement with our Manager requires the payment of an

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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, 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, plus distributions on our externally-held operating partnership units all paid out within the applicable calendar year, paid out of our taxable income, exceeds 8% (on an annualized basis) of our stock’s book value. For the years ended December 31, 2021 and 2020 we recorded no expense for an incentive fee payable to the Manager. Comparatively, for the year ended December 31, 2019 we recorded an expense of $0.7 million for an 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 6.53% on an annualized basis of an adjusted book value of $15.92 per share at December 31, 2021. If our taxable income increases we could exceed the threshold for paying an incentive fee to our Manager, and thereby trigger such payment. 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 17: 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 either sponsored or contributed assets to, 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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