Great Ajax Corp. (NYSE: AJX) stock has maintained its Neutral rating by BTIG as the company progresses in its transformation into a commercial mortgage real estate investment trust (REIT). The firm's coverage transition comes after Great Ajax completed a major transaction and restructured its investment portfolio.
Recently, Great Ajax completed the sale of a significant portion of its residential loan portfolio, finalizing a transaction with Rithm Capital. This included Rithm Capital becoming the external manager and acquiring $14 million of AJX stock at a price of $4.87 per share, along with providing a $70 million term loan to facilitate the retirement of convertible notes.
In the second quarter of 2024, AJX sold mortgage loans totaling $263.7 million, reducing its portfolio to $522.8 million. The company then invested approximately $25 million into AAA-rated commercial mortgage-backed securities (CMBS) notes.
The firm anticipates further divestment of residential loans by the end of 2024, with proceeds initially reinvested into CMBS investments and later into commercial mortgage loans.
BTIG recognizes the advantageous timing for Great Ajax's entry into the commercial mortgage space, with increased activity in the transaction market and expanding opportunities for alternative lenders due to traditional banks retreating from commercial real estate lending.
Despite the positive market outlook, BTIG remains cautious, seeking clarity on various factors before revising its position. The firm has reiterated its Neutral rating and maintains previous estimates for Great Ajax Corp.
Additionally, Great Ajax announced a strategic shift towards commercial real estate during its Q2 2024 earnings call, expressing confidence in the market's potential to enhance earnings and dividends over time.
Analysis:
Great Ajax Corp. is undergoing a significant transformation into a commercial mortgage REIT, with recent transactions and investments reflecting a strategic shift towards commercial real estate. The company's divestment of residential loans and focus on CMBS and commercial mortgage loans indicate a shift towards higher-yield assets in a favorable market environment.
BTIG's Neutral rating suggests cautious optimism, with a focus on monitoring the company's capital allocation decisions and the pace of reinvestment. Investors should pay attention to Great Ajax's progress in executing its strategy and the potential impact on earnings and dividends.
Overall, Great Ajax's strategic pivot presents opportunities for income growth and potential returns for investors, but the company's ability to navigate the changing market environment will be crucial in determining its long-term success.