Related Party Transactions

6 Months Ended

Jun. 30, 2019

The Company’s consolidated statements of income included the following significant related party transactions ($ in thousands):


			Three months ended June 30,
Transaction	Consolidated Statement of Income location	Counterparty	2020		2019
Interest income	Interest income	Various non-consolidated joint ventures	$	7,831	$	3,140
Management fee	Related party expense – management fee	Thetis	$	2,143	$	1,652
Loan servicing fees	Related party expense – loan servicing fees	Gregory	$	1,936	$	2,274
Income from equity investment	Income from investments in affiliates	Thetis	$	527	$	196
Income from equity investment	Income from investments in affiliates	Great Ajax FS	$	72	$	1
Gain on sale of mortgage loans	Gain on sale of mortgage loans	2019-C	$	—	$	7,014


			Six months ended June 30,
Transaction	Consolidated Statement of Income location	Counterparty	2020		2019
Interest income	Interest income	Various non-consolidated joint ventures	$	9,850	$	5,556
Loan servicing fees	Related party expense – loan servicing fees	Gregory	$	3,950	$	4,780
Management fee	Related party expense – management fee	Thetis	$	3,942	$	3,340
Gain on sale of mortgage loans	Gain on sale of mortgage loans	2019-C	$	—	$	7,014
Income/(loss) from equity investment	Income from investments in affiliates	Great Ajax FS	$	(204)	$	129
Income/(loss) from equity investment	Income from investments in affiliates	Thetis	$	(439)	$	475
Loss on sale of mortgage loans	Loss on sale of mortgage loans	Gaea	$	(705)	$	—

The Company’s consolidated balance sheets included the following significant related party balances ($ in thousands):

As of June 30, 2020

Transaction

Consolidated Balance Sheet location

Counterparty

Amount

Receivables from Servicer

Receivable from Servicer

Gregory

15,460

Management fee payable

Thetis

2,139

Expense reimbursement receivable

Prepaid expenses and other assets

Gregory

918

Expense reimbursement receivable

Prepaid expenses and other assets

Various non-consolidated joint ventures

560

Expense reimbursement receivable

Prepaid expenses and other assets

Thetis

As of December 31, 2019

Transaction

Consolidated Balance Sheet location

Counterparty

Amount

Receivables from Servicer

Receivable from Servicer

Gregory

17,013

Management fee payable

Thetis

1,634

Expense reimbursements receivable

Prepaid expenses and other assets

Gregory

687

Advances to Servicer

Prepaid expenses and other assets

Gregory

585

Expense reimbursements receivable

Prepaid expenses and other assets

Various non-consolidated joint ventures

241

Expense reimbursements receivable

Prepaid expenses and other assets

Thetis

Expense reimbursements

Accrued expenses and other liabilities

Gaea

Expense reimbursements

Accrued expenses and other liabilities

Various non-consolidated joint ventures

During the three months ended June 30, 2020, the Company sold no mortgage loans, however, during the six months ended June 30, 2020, the Company sold 26 SBC mortgage loans with a carrying value $26.1 million and UPB of $26.2 million, for a loss of $0.7 million to Gaea, a related party. Comparatively, during the three and six months ended June 30, 2019, the Company sold 962 mortgage loans with a carrying value of $176.9 million and UPB of $200.1 million to a related party joint venture, 2019-C, and retained 34% or $8.0 million of the trust certificates and $12.1 million in debt securities. The Company recorded a $7.0 million gain on the sale. The retained securities are included in the notes and beneficial interests discussed in the paragraph below.

During the three and six months ended June 30, 2020, the Company acquired $0 and $61.3 million in notes and beneficial interests issued by joint ventures between the Company and third party institutional accredited investors. Comparatively for the three and six months ended June 30, 2019, the Company acquired notes and beneficial interests of $20.2 million and $84.2 million, respectively. Each joint venture issued senior notes and beneficial interests, which are trust certificates representing the residual balance of the trust after the outstanding debt obligations have been settled. In certain transactions, the joint venture also issued subordinate notes. Of the $61.3 million acquired in the six months ended June 30, 2020, the Company retained $49.6 million, in senior notes and $4.6 million, in subordinate notes. Comparatively, during the three and six months ended in June 30, 2019, the Company retained $7.5 million and $57.5 million, respectively, in senior notes and $4.7 million and $9.3 million, respectively, in subordinate notes. The notes are accounted for as debt securities carried at fair value. As of June 30, 2020 and December 31, 2019, the Notes were carried on the Company’s consolidated balance sheet at a fair value of $258.0 million and $231.7 million, respectively.

During the three and six months ended June 30, 2020 the Company also acquired $0 and $7.1 million in beneficial interests issued by joint ventures during the three and six months ended June 30, 2020. Comparatively, for the three and six months ended June 30, 2019, the Company acquired $8.0 million and $17.4 million, respectively, in beneficial interests issued by joint ventures. As of June 30, 2020 and December 31, 2019, the Investments in beneficial interests were carried on the Company's consolidated balance sheet at $69.9 million and $58.0 million, respectively.

In June 2019, the Company entered into an arrangement with the Servicer as the borrower and the Company as the lender to advance funds secured by real property to facilitate the purchase of real estate from certain of the Company's joint ventures. Such funds are repaid no later than the liquidation of the real estate. The maximum amount available to the Servicer is $12.0 million. At June 30, 2020, and December 31, 2019, the Company had advanced $0 and $0.6 million, respectively, to the Servicer. Interest on the arrangement accrues at 7.2% annually.

Management Agreement

The Company is a party to the Amended and Restated Management Agreement with the Manager, which expires on March 5, 2034. Under the Management Agreement, the Manager implements the Company’s business strategy and manages the Company’s business and investment activities and day-to-day operations, subject to oversight by the Company’s Board of Directors. Among other services, the Manager, directly or through affiliates, provides the Company with a management team and necessary administrative and support personnel. The Company does not currently have any employees that it pays directly

and does not expect to have any employees that it pays directly in the foreseeable future. Each of the Company’s executive officers is an employee or officer, or both, of the Manager or the Servicer.

Under the Management Agreement, the Company pays both a base management fee and an incentive fee to the Manager. The base management fee equals 1.5% of the Company's stockholders’ equity, including equity equivalents such as the Company's issuance of convertible senior notes, per annum and calculated and payable quarterly in arrears. The Company has the option to pay its management fee with between 50% to 100% cash at its discretion, and pay the remainder in shares of its common stock.

In the event the Company elects to pay its Manager in shares of its common stock, the calculation to determine the number of shares of the Company's common stock to be issued to the Manager is outlined below. The initial $1.0 million of the quarterly base management fee will be payable at least 75% in cash and up to 25% in shares of the Company’s common stock (allocated at the Company's discretion). Any amount of the base management fee in excess of $1.0 million may be payable in shares of the Company’s common stock (at the Company's discretion) until payment is at least 50% in cash and up to 50% in shares (the “50/50 split”). Any remaining amount of the quarterly base management fee after the 50/50 split threshold is reached may be payable in equal amounts of cash and shares (at the Company's discretion). The base management fee currently exceeds the 50/50 split threshold. The Manager has agreed to hold any shares of common stock received by it as payment of the base management fee for at least three years from the date such shares of common stock are received.

The Manager is also entitled to an incentive fee, payable quarterly and calculated in arrears, which, through the end of 2018, was calculated as 20% of the amount by which total dividends on common stock and distributions on OP units exceeded 8% of book value on a per share basis. Effective as of March 5, 2019, the incentive fee was restructured into both a quarterly and annual component. A quarterly incentive fee is payable to the Manager if the sum of the Company’s dividends on its common stock, its distributions on its externally-held operating partnership units and its increase in book value, all relative to the applicable quarter and calculated per-share on an annualized basis, exceed 8%. The Manager will also be entitled to an annual incentive fee if the sum of the Company’s quarterly cash dividends on its common stock, special cash dividends on its common stock and distributions on its externally-held operating partnership units within the applicable calendar year exceed 8% of the Company’s book value per share as of the end of the calendar year. However, no incentive fee will be payable to the Manager with respect to any calendar quarter unless the Company’s cumulative core earnings, defined as U.S. GAAP net income or loss less non-cash equity compensation, unrealized gains or losses from mark-to-market adjustments, one-time adjustments to earnings resulting from changes to U.S. GAAP, and certain other non-cash items, is greater than zero for the most recently completed eight calendar quarters. In the event that the payment of the quarterly base management fee has not reached the 50/50 split, up to 100% of the incentive fee will be payable in shares of the Company’s common stock, at the Company's discretion, until the 50/50 split occurs. In the event that the total payment of the quarterly base management fee and the incentive fee has reached the 50/50 split, up to 20% of the remaining incentive fee is payable in shares of the Company’s common stock at the Company's discretion and the remaining incentive fee is payable in cash. During the three and six months ended June 30, 2020, the Company did not record an incentive fee payable to the Manager. Comparatively during the three and six months ended June 30, 2019, the Company recorded $0 and $0.2 million, respectively, for an incentive fee payable to the Manager.

The Company also reimburses the Manager for all third-party, out-of-pocket costs incurred by the Manager for managing its business, including third-party due diligence and valuation consultants, legal expenses, auditors and other financial services. The reimbursement obligation is not subject to any dollar limitation. Expenses are reimbursed in cash on a monthly basis.

The Company will be required to pay the Manager a termination fee in the event that the Management Agreement is terminated as a result of (i) a termination by the Company without cause, (ii) its decision not to renew the Management Agreement upon the determination of at least two thirds of the Company’s independent directors for reasons including the failure to agree on revised compensation, (iii) a termination by the Manager as a result of the Company becoming regulated as an “investment company” under the Investment Company Act of 1940, as amended (the “Investment Company Act”) (other than as a result of the acts or omissions of the Manager in violation of investment guidelines approved by the Company’s Board of Directors), or (iv) a termination by the Manager if the Company defaults in the performance of any material term of the Management Agreement (subject to a notice and cure period). The termination fee will be equal to twice the combined base fee and incentive fees payable to the Manager during the 12-month period ended as of the end of the most recently completed fiscal quarter prior to the date of termination.

Servicing Agreement

The Company is also a party to the Servicing Agreement, expiring July 8, 2029, with the Servicer. The Company’s overall servicing costs under the Servicing Agreement will vary based on the types of assets serviced.

Servicing fees range from 0.65% to 1.25% annually UPB at acquisition (or the fair market value or purchase price of REO), and are paid monthly. For certain of the Company's securitization trusts, the servicing fee rate for RPLs is reduced to an annual servicing fee rate of 0.42% annually on a loan-by-loan basis for any loan that makes seven consecutive payments. The servicing fee is based upon the status of the loan at acquisition. A change in status from RPL to NPL does not cause a change in the servicing fee rate.

Servicing fees for the Company’s real property assets that were previously RPLs that are not held in joint ventures are the greater of (i) the servicing fee applicable to the underlying mortgage loan prior to foreclosure, or (ii) 1.00% annually of the fair market value of the REO as reasonably determined by the Manager or 1.00% annually of the purchase price of any REO otherwise purchased by the Company. The servicing fee for NPLs that convert to real property assets does not change. For the joint ventures, a conversion from a loan to a real property asset does not cause a change in servicing fee rate.

The Servicer is reimbursed for all customary, reasonable and necessary out-of-pocket costs and expenses incurred in the performance of its obligations, including the actual cost of any repairs and renovations undertaken on the Company’s behalf. The total fees incurred by the Company for these services will be dependent upon the UPB and type of mortgage loans that the Servicer services, property values, previous UPB of the relevant loan, and the number of REO properties.

If the Servicing Agreement has been terminated other than for cause and/or the Servicer terminates the servicing agreement, the Company will be required to pay a termination fee equal to the aggregate servicing fees payable under the servicing agreement for the immediate preceding 12-month period.

Trademark Licenses

Aspen has granted the Company a non-exclusive, non-transferable, non-sublicensable, royalty-free license to use the name “Great Ajax” and the related logo. The Company also has a similar license to use the name “Thetis.” The agreement has no specified term. If the Management Agreement expires or is terminated, the trademark license agreement will terminate within 30 days. In the event that this agreement is terminated, all rights and licenses granted thereunder, including, but not limited to, the right to use “Great Ajax” in its name will terminate. Aspen also granted to the Manager a substantially identical non-exclusive, non-transferable, non-sublicensable, royalty-free license use of the name “Thetis.”