Great Ajax Corp ((RPT)) has held its Q1 earnings call. Read on for the main highlights of the call.
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The recent earnings call for Great Ajax Corp presented a mixed sentiment, reflecting a company in a robust capital position with promising growth prospects through strategic investments and capital deployment. However, challenges such as an undervalued stock, low earnings per share compared to dividends, and legacy asset constraints pose significant hurdles. While optimism about future growth is evident, it is tempered by these current financial challenges.
Strong Capital Position
Great Ajax Corp is currently in a strong liquidity position, with Rithm Property Trust holding nearly $100 million in cash following a capital raise. This financial strength positions the company well to navigate market volatility and pursue strategic investments.
Growth Potential
The company has demonstrated its growth potential by deploying $65 million in various commercial real estate (CRE) debt. This includes $47 million in AAA CMBS bonds with an approximately 11% yield and a $35 million loan on a midtown office building, expecting 12% to 13% unlevered returns. These strategic investments highlight the company’s focus on high-yield opportunities.
Undervalued Stock
Despite a GAAP book value of $5.40 per share, Great Ajax Corp’s stock is currently trading at about $2.85, indicating a significant undervaluation. This disparity suggests potential for shareholder value creation if the market recognizes the company’s intrinsic value.
Successful Capital Raise
The company successfully raised $52 million through preferred equity issuance. This capital raise is aimed at growing earnings while being cautious of market volatility, showcasing the company’s proactive approach to financial management.
Earnings per Share
The earnings report revealed a GAAP income of $1.1 million, translating to $0.02 per diluted share. This is notably low compared to the dividend paid of $0.06 per share, highlighting a challenge in aligning earnings with dividend payouts.
Legacy Asset Constraints
Great Ajax Corp faces constraints with $25 million in legacy residential assets that are difficult to sell due to retained interests. This limits potential liquidity and poses a challenge to financial flexibility.
Dividend Coverage Challenge
The current earnings growth rate indicates that it would take another four quarters to fully cover the dividend without significant acquisitions or investments. This presents a challenge for the company to maintain its dividend policy in the near term.
Market Volatility Impact
Market volatility has negatively impacted the company’s equity price, despite a positive reaction following the last quarter’s earnings call. This underscores the challenges posed by external market conditions on stock performance.
Forward-Looking Guidance
During the earnings call, CEO Michael Nierenberg provided forward-looking guidance, emphasizing the company’s strong financial position and future growth plans. With approximately $300 million in equity and nearly $100 million in cash, Rithm Property Trust aims to grow earnings through strategic investments in high-yield opportunities. The company is also considering involving third-party partners or M&A transactions to enhance scale, highlighting a proactive approach to value creation.
In summary, the earnings call for Great Ajax Corp reflects a company with a strong capital base and promising growth potential through strategic investments. However, challenges such as undervaluation, low earnings per share, and legacy asset constraints present hurdles that need to be addressed. The forward-looking guidance suggests a focus on strategic growth and shareholder value creation, offering a balanced outlook for the company’s future.