Great Ajax Corp. (AJX) CEO Lawrence Mendelsohn on Q2 2021 Results - Earnings Call Transcript

Great Ajax Corp. (NYSE:AJX) Q2 2021 Earnings Conference Call August 5, 2021 5:00 PM ET

Company Participants

Lawrence Mendelsohn - Chief Executive Officer

Conference Call Participants

Kevin Barker - Piper Sandler

Eric Hagen - BTIG

Matthew Howlett - B. Riley

Stephen Laws - Raymond James

Operator

Good day and thank you for standing by, and welcome to the Great Ajax Corporation Q2 2021 Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question-and-answer session. [Operator Instructions]

I would now like to hand the conference over to your speaker today, Lawrence Mendelsohn, CEO. Sir, please go ahead.

Lawrence Mendelsohn

Thank you very much. Welcome everybody to the Great Ajax Corp., Second Quarter 2021 Conference Call. Also here with me are, Mary Doyle our CFO, and Russell Schaub our President.

Before we get started, I just want to have everyone quickly take a look at page 2, the safe harbor disclosure of the presentation. And with that, we can go on to page 3 and begin. As an introduction, the second quarter of 2021 was a good quarter.

Our overall corporate cost of funds further decreased, by approximately 25 basis points. And our asset-based cost of funds decreased even more, after decreasing nearly 50 basis points in Q3 of 2020, 26 basis points in Q4, 2020 and 30 basis points in Q1 of 2021.

Our cost of funds has continued to decrease in the third quarter of 2021 as well. A significant increase in loan performance and loan cash flow velocity continued. And it's also continued into the third quarter of 2021.

This continuing increase in loan cash flow velocity has led to an additional acceleration of income on loans during Q2 of 2021 of $4.7 million, as the present value of cash flow and payoff proceeds exceeded expectations.

We continue to be in an offensive position and in Q2 we purchased a significant amount of loans, primarily joint venture structures, at good prices and good locations, and at low percentages of the underlying property values.

The prices we paid are materially lower, than when mortgage loans are currently selling today. At June 30th 2021, we had approximately $88 million of cash and more than $300 million of unencumbered bonds, unencumbered beneficial interest and unencumbered mortgage loans combined.

As of July 31 2021, we still have approximately $88 million of cash and still have a similar amount of unencumbered bonds, beneficial and mortgage loans. The significant cash balance does create some earnings drag. And a significant cash flow velocity from our mortgage loans and mortgage loan JV structures reduces our loan and securities portfolio leverage as well.

We are however well equipped for volatility and the investment potential it creates. And we have good opportunities in our pipeline as well. And with that, we come to page 3, the business overview, starting out talking about our manager.

Our manager strength in analyzing loan characteristics and market metrics for REIT performance probabilities and pathways and its ability to source these mortgage loans through long-standing relationships, enables us to acquire loans that we believe have a material probability of long-term continuing REIT performance.

We've acquired loans in 338 different transactions since 2014, including six different transactions in the second quarter. Remember, that we owned a 19.8% interest in the equity of our manager.

Additionally, our affiliated servicer provides a strategic advantage in non-performing and non-regular paying loan resolution processes and timelines. And a data feedback loop for our managers' analytics.

In today's environment having our portfolio teams and analytics group at the manager working closely with the servicer is essential to maximize REIT performance probabilities loan, by loan, by loan.

We have certainly seen the benefit of this during the COVID pandemic in Q2 and Q3 2021 with a significant increase in loan cash flow velocity and credit performance. Like our 20% equity interest in our manager, we have a 20% economic interest in our servicer.

The analytics and sourcing of the manager and the effectiveness of affiliated servicer, also enables us to broaden our investment reach, through joint ventures with third-party institutional investors. On the leverage side, we still have low leverage.

Our June 30 2021 corporate leverage ratio was 2.3 times versus 2.3 times at March 31. Our Q2 2021 average asset base leverage was two times versus 2.1 times in Q1 of 2021, even though we made significant acquisitions in Q2.

We also have $20 million invested in Gaea Real Estate Corp. a REIT that invests in multifamily properties, multifamily repositioning, mezzanine loans, and triple net lease veterinary clinic real estate. We think Gaea has a great deal of optionality. And we expect Gaea to grow materially in the second half of 2021 and 2022.

On page 4, we talk about highlights of the second quarter. It was a busy quarter. Net interest income from loans and securities, including a $4.7 million interest income from the increase in present value of loan payoffs and cash flow velocity in excess of expectations was approximately $18.95 million in the second quarter.

Our gross interest income, excluding the $4.7 million from income from the increase in present value of cash flow velocity was lower than Q1, but net interest income was $500,000 higher, due to our reduced cost of funds, interest expense decreased by approximately $1.47 million.

A GAAP item to keep in mind is that, interest income from our portion of joint ventures shows up in income from securities, not interest income from loans. For these joint venture interests servicing fees for securities are paid out of the securities waterfall.

So our interest income from joint ventures -- if its joint ventures securities, is net of servicing fees, unlike interest income from loans, which is gross of servicing fees. As a result, since our joint venture investments have been growing faster than our direct loan investments.

GAAP interest income will grow more slowly, than if we directly purchase loans outside the joint ventures, by the amount of the servicing fees and the GAAP servicing fee expense will decrease by the corresponding offsetting amount.

An important part of discussing interest income is the payment performance of our loan portfolio. At June 30, approximately 74.2% of our loan portfolio by UPB made at least 12 of the last 12 payments, as compared to only 13%, at the time we purchased the loans.

This is up from 73% at March 31, 2021.In our first quarter of 2020 last year investor call, we mentioned that we expected the COVID-19-related economic environment would negatively impact the percentage of 12 for 12 borrowers in our portfolio. Thus far, the impact on regular payment performance has been far less than expected and the percentage of our portfolio that is 12 of 12 has been quite stable and increasing since Q4 of 2020 and is only 2% lower than pre-COVID Q4 of 2020 -- or Q4, 2019.

Additionally, we have seen significant prepayment from a material subset of our COVID-impacted borrowers that had significant absolute dollars of equity and were in strong home price appreciation locations.

The continuing strong regular payment pattern and the prepayment pattern of certain previously delinquent loans led to the $4.7 million increase in the present value of borrower payments in excess of expectations in the quarter. Approximately 20% of our full loan payoffs in second quarter of 2021 were from loans over 180 days delinquent.

While regular paying loans produce higher total cash flows over the life of the loans on average, they can extend duration. And because we purchase loans at discounts, this can reduce percentage yield on the loan portfolio and interest income.

However, regular paying loans generally increase our NAV, enable financing at a lower cost of funds and provide regular cash flow. Loans that are not regular monthly pay status tend to have shorter durations. However, we have generally expected that this duration reduction would be less than typical due to the impact of certain COVID-19 resolution extension requirements.

As I mentioned earlier, most of our loans were purchased as non-regular paying loans and the borrowers, our servicer and portfolio team and our manager, have worked together overtime to reestablish these loans as regularly paying. We also expect that given the low mortgage rate environment and the stability of housing prices so far that higher prepayments will likely continue for both regular paying and non-regular paying loans. We have seen this trend continue in Q3 of 2021.

Our cost of funds in Q2 2021 was lower than Q1 by 25 basis points. This was due to spread reductions on repurchased facilities and the six securitizations we completed in Q1 and Q2 and two securitizations we called in late February of 2021.

We expect our cost of funds to continue decreasing materially, especially since we called four of our older securitizations and resecuritized the underlying loans in late Q2 of 2021 and will likely do so with some of our other older securitizations in the next few quarters. Net income attributable to common stockholders was $10.37 million or $0.45 per share after subtracting out $1.95 million of preferred dividends.

A couple of other things to note. We recorded $161,000 expense from the acceleration of the amortization of deferred issuance costs, as a result of repurchasing $5 million of our convertible bonds in the open market. We also paid approximately $100,000 in duplicate interest due to the three-week timing gap between resecuritizing loans and calling the underlying bonds that were previously backed by those loans.

Additionally, we expensed approximately $2.2 million relating to the GAAP-required accrual of the warrant put rights from our Q2 2020 issuances of preferred stock and warrants versus $1.95 million in the first quarter of 2021.

Book value per share was $15.86 at June 30, 2021, versus $16.18 per share at March 31. The difference in book value comes from GAAP treatment of our convertible bonds based on changes in earnings amounts and share price. Our stock price at March 31 was $10.90 and at June 30 was $13.

Taxable income was $0.34 a share. Taxable income in Q2 was primarily driven by lower interest expense, increases in prepayment, especially for delinquent loans and from cash flow velocity on performing loans.

Delinquent loans usually generate tax gains at the time of a foreclosure and the creation of related REO and then tax losses at the sale of REO. Less REO creation typically leads to lower taxable income. However, we saw many delinquent loans prepay in full and generate tax gains. Additionally and probably more importantly, as our cost of funds decreases, we should have further reductions in interest expense, which increases taxable income.

In Q2, we completed four securitizations and joint venture structures totaling $1.4 billion in UPB and we called for securitizations. The four new securitization structures contained approximately $900 million of newly purchased loans, as well as approximately $535 million of loans from the four called securitizations.

The new securitizations combined will reduce funding costs by approximately 150 basis points per year for the approximate $120 million UPB, that is our percentage ownership of the $535 million of resecuritized loans from the securitizations we called in the second quarter.

Of the approximately $900 million of newly purchased loans in these four securitized joint venture structures, we retained another approximately $140 million UPB in the foreign debt securities and beneficial interests.

Cash collections at June 30, 2021, we had approximately $88 million of cash and for Q2, 2021, we had an average daily cash and cash equivalent balance of approximately $114 million. We had $78.9 million of cash collections in the second quarter, which is an 11% increase over the first quarter.

Our surplus cash tempers earnings and return on equity, but this provides us with significant optionality and the related earnings drag decreases, as we get cash invested over time, like we did in the second quarter.

As I mentioned earlier in this call, at June 30 we also had approximately $289 million face amount of unencumbered securities from our securitizations and joint ventures and approximately $53 million unpaid principal balance of unencumbered mortgage loans.

As of July 31, we still have $88 million of cash and unencumbered assets even -- and approximately $300 million of unencumbered assets, even though we invested approximately $85 million in the month of July.

As I mentioned earlier on this call, approximately 74.2% of our portfolio by UPB made at least 12 of their last 12 payments compared to only 13% at the time of loan acquisition. This difference creates material embedded net asset value versus loan purchase discount. It also enables us to continue reducing our cost of funds and advance rates through rated securitization structures.

On page 5, we continue to be primarily RPL-driven with purchased RPLs representing approximately 96% of our loan portfolio at June 30. We primarily purchased RPLs that have made less than seven consecutive payments and have certain loan level and underlying property specifications that our analytics suggest will have positive payment migration on average. The positive payment migration of these purchased RPLs resulted in an increase in the fair market value of the loans and the related decrease in cost of funding.

On page 6, you can see on RPLs we continue to buy and own lower loan-to-value loans. Our overall RPL purchase price is approximately 51% of the property value and 88.2% of UPB.

On page 7, non-performing loans -- again an important discussion. Purchased non-performing loans have declined over time relative to the total loan portfolio. For NPLs on our balance sheet our overall purchase price is 79% of UPB and 47.2% of property value.

As a result of the low loan-to-value and higher absolute dollars of equity on average for our RPL and NPL portfolios, we have seen that rising home prices and relatively low mortgage rates have significantly accelerated prepayment and regular payment velocity on our loans as borrowers can capture significant and growing equity.

This leads to greater interest income by accelerating the receipt of loan purchase discount and the present value of cash flow velocity. Subsequent to June 30, we have purchased a significant amount of NPLs and have agreed to purchase approximately $100 million of NPLs subject to due diligence in Q3. I will discuss this in more detail on page 10 in this presentation.

Our target markets. California continues to represent the largest segment of our loan portfolio. Our California mortgage loans are primarily in Los Angeles, Orange and San Diego counties.

We have seen consistent payment and performance patterns from loans in these markets. Performance in Southern California has far outperformed expectation during the COVID-19 pandemic period. We have also seen consistently strong prepayment patterns and even more so in recent quarters. Since May of 2020, California prepayments represent nearly 40% of all our prepayments.

Until May of 2020, we can see material negative effects from the tax law SALT provisions in New York City metro and in suburban New Jersey and Southern Connecticut home values and home sale liquidity. We have seen a quick positive turn in liquidity in these suburban locations as a result of COVID-19.

It's too early to tell though whether this is a short-term phenomenon or a longer-term change in lifestyle as a result of COVID-19 and it also is likely to be affected by any potential new tax law changes becoming effective.

Related to this, we have also seen demand and prices for homes and home rentals increased materially in several of our metro areas of Florida, Phoenix, Dallas, Charlotte, Atlanta and a number of others. We're seeing the strength primarily in single-family homes and a bit less so though for condominiums.

On page 9, we can talk about portfolio migration. At June 30, approximately 74.2% of our loan portfolio made at least 12 of the last 12 payments including approximately 67% of our portfolio that made at least 24 of 24. Again this compares to approximately 13% at the time of purchase.

Non-paying loans which usually have shorter durations than paying loans get time lines extended as a result of COVID moratoriums. This affects the yield on true non-performing loans as extended resolution time lines can lead to more property tax, more insurance payments, more repair expenses. However, in the past four quarters and continuing so far in Q3, 2021 we've seen prepayment of non-performing loans shorten duration on average rather than extend duration from COVID.

Since we purchased most of our loans when they were less for 12 of 12 payment history and at a discount, our servicers worked with most of our borrowers over time. While it was too soon to understand the full impacts of COVID-19 on home prices and mortgage loan performance so far the impact on our portfolio has been significantly positive as we have seen demand for homes in our target markets generally increase cash flow velocity on the loans increase and prepayment in full on COVID-impacted loans increase.

12 for 12 loans in today's low market trade and materially higher prices in our cost basis they trade significantly over par. As a result, our portfolio and related implied corporate NAV estimates are materially higher than GAAP book value which presents our loans at the lower of market or amortized cost.

Subsequent events on page 10. Since June 30 it's continued to be busy. In July of 2021, we purchased $170 million of RPLs and NPLs into a joint venture securitization that we closed in June of 2021 with a securitized prefunding structure. We own 20% of this joint venture.

The purchase price was made at 98% of UPB significantly lower as a percentage of owing balance and 54.2% of the underlying property value. We also directly purchased $3.1 million of non-performing loans at 74.2% of UPB and 69.7% of underlying property value.

We've also agreed to purchase approximately $103 million UPB of NPLs in five transactions subject to due diligence. The purchase price for the loans is approximately 97% of UPB approximately 91% of the owning balance and 64% of the value of the underlying properties.

One of these purchases is approximately $90 million of UPB with 100% of the related underlying properties in Miami, Dade, Broward and Palm Beach Counties Florida. We expect these transactions to close in August and we expect to own 100% interest in these loans.

We have agreed to purchase subject to due diligence $3.8 million of RPLs in four transactions at a price of 78.9% of UPB and 51.7% of underlying collateral value. We expect these transactions to close in August and to own 100% interest in these loans. In July, we completed a $518 million rated joint venture securitization with a subset of loans from two of our 2020 joint venture structures.

The AAA through A classes represent 83% of UPB. AAA through B represents 95.5% of UPB. We retained approximately $53 million of various classes of securities in this joint venture. On August 5, we declared a cash dividend of $0.21 per share to be paid on August 31 to holders of record of August 16.

On Page 11 we have some financial metrics. And there's a couple that I'd like to share. One average loan yield excluding the increase in the present value of cash flow declined marginally by approximately 0.1%. For debt securities and beneficial interest however remember that yield is net of servicing fees and yield on loans is gross of servicing fees. Debt securities and beneficial interest is how our interest in our JV structures are presented under GAAP. As our JVs increase as they did in 2020 and 2021 relative to loans, the GAAP reporting will show lower average asset yields by the amount of the servicing fees.

That being said, yields on beneficial interest increased in Q2 as cash flow velocity increased. Our average asset level net interest margin increased as well. Leverage continues to be low specifically for companies and -- especially for companies in our sector. We ended Q2 2021 with asset level debt of 2.1x and average asset level debt for the quarter was 2x.

Our asset level debt cost of funds was lower in Q2 2021 than Q1 by approximately 25 basis points and the cost of our asset level debt has further declined so far in the third quarter. As we get our surplus cash invested as we did in the second quarter, we should see increases in interest income and net interest income as well. Also, as we continue to repurchase our convertible notes in the open market our cost of funds and interest expense further decreases.

On the next page -- actually two pages securities and loan repurchase agreement funding. Our total repurchase agreement related debt on June 30 was approximately $394 million of which $42 million was non-mark-to-market mortgage loan financing and $283 million was financing on Class A1 senior bonds in our joint ventures. At June 30, we had 155 million face of unencumbered bonds, as well as $132 million of unencumbered equity beneficial interest certificates and $53 million UPB of unencumbered mortgage loans. Combined with $88 million of cash at June 30 we have significant resources for being on offense and defense.

That concludes my discussion and presentation. If anybody has any questions very happy to answer whatever you might have interest in.

Question-and-Answer Session

Operator

[Operator Instructions] Our first question from Kevin Barker of Piper Sandler. Please ask the question.

Kevin Barker

Hey Larry how are you doing?

Lawrence Mendelsohn

Yes. And how are you, Kevin?

Kevin Barker

Good. Congrats on a good quarter. It looks like a very strong quarter.

Lawrence Mendelsohn

Busy it was a busy quarter.

Kevin Barker

Very busy. When we think about the pricing changes that you're seeing by refi calling a bunch of your securitization reissuing from the securitizations a very strong trajectory there on interest expense and pretty strong commentary as well. Can you give us an idea of like where you think interest expense, could drop to on a run rate basis after you've done the majority of these cleaner calls or at least calling the securities that you see out there today?

Lawrence Mendelsohn

Sure. We have a couple more 2018 securitizations and the number of 2019 that we can already call. Those have coupons anywhere between 3% and 4.5% and we can issue now all-in sub-2%. So we would expect that additional calls in these securitization would get us somewhere between 150 and 200 basis points of savings for each call.

Kevin Barker

Okay. So on a net basis when we think about your total funding cost across all different -- not only securitizations, but other forms of financing what orders of magnitude do you think you could see your interest expense drop to by the start of 2022 relative to what we saw on a run rate basis versus 2020?

Lawrence Mendelsohn

Sure. So if you look at now our profile -- well if you look at now our total cost of funds -- overall cost of funds excluding our convert is in the low 3s. Excluding our convertible bond that could go down by at least another 100 basis points from the refinance everything maybe a little bit more than that.

Kevin Barker

Okay. That's a pretty strong result. And then what about -- and you also had positive commentary on the interest income side as well. Could you obviously talk about that on the top line and the potential run rate that you could see and the increase in potential yields that you're talking about?

Lawrence Mendelsohn

Yes. Since we buy loans at discounts so interest income shows up in kind of two different places. One, it shows up from regular monthly payments; and two from captured discount. You see on the loan side, it's more direct. When we own the securities side, we have both debt securities and beneficial interests. Beneficial interest you see it more in accretive value, because they don't get direct cash flow until you call the deal. We're on the loan side you get it every single month. In the debt securities and beneficial interest side, you got a debt securities coupon, but you turbo Class A principal before you get that.

So on the interest income side, you'll see it pick up -- obviously, more prepayment is good more monthly cash flow is good. Cash flow velocity is still pretty stable. Also we increased our portfolio pretty considerably in the late second quarter, and we'll do so even more in the third quarter with the purchases of loans. So, we would see income -- interest income pick up from those new purchases that came on in June, July and August really start to pick up in late Q3.

Kevin Barker

Got it. Okay. And then so that's obviously helping out your provision expense as well, right?

Lawrence Mendelsohn

Yes, it's kind of funky, because we buy loans at discounts it's -- the concept of a provision is a little bit different. What you do is you have a modeled expectation of how much of that discount you're going to collect. And what we're finding is we're collecting significantly more than we expected of that discount capture.

Kevin Barker

Okay. And then just one more before I get back in the queue. You raised the dividend again. Your taxable is running fairly high. Can you remind us of your capital allocation policies going through the end of the year here? How do you think about that dividend relative to the amount of taxable income you're producing right now?

Lawrence Mendelsohn

Well, at the minimum we have to pay 90% of taxable income and that includes the preferred dividend. I think our Board will bias back to a higher dividend. But on the flip side, they want to make sure there isn't another March and April of 2020 that comes out of the blue and affects dividends. So they want to do it over a long steady predictable tenor as opposed to all at once.

Kevin Barker

Okay. Do you feel like you're going to be forced to do something? Here is your…

Lawrence Mendelsohn

If the taxable income continues to dissipate, we have no choice, correct.

Kevin Barker

Yes. All right. Thank you very much.

Operator

And our next question is from Eric Hagen of BTIG. You may ask your question.

Eric Hagen

Hey, good afternoon. Hope you guys are well? I have a few question here on prepay speeds and cash flow velocity. I guess the question is focused on the folks that haven't found an opportunity to refinance. And I guess what the opportunity looks like for them specifically as it relates to the potential for mortgage rates to go up?

Lawrence Mendelsohn

Sure. So we've seen -- so we spend a lot of time tracking prepayments sources of prepayments and where the payoff wire comes from. And we found different break points based on different absolute dollars of equity and different delinquency history. And one of the things we found is that a real turning point is about $130,000 of equity and for our borrowers that have been more than 180 days and have more than $130,000 of equity we see a lot of their payoffs from selling their home and moving, as opposed to just refinance.

We see a significant refinance in certain markets for example in Texas and in Florida. But for example, more of a higher percentage of our California payoffs are sales versus refinances. So a lot depends on characteristics of the loan itself location of the loan itself.

But the lion's share of payoffs on our over 180-day delinquents are loans over $130,000 of equity and it's the sale of the home as opposed to a refinance of the home. And we see that kicks in even more so when you get to about $220,000 of equity that is almost overwhelmingly sales of the home versus refinance.

Where we -- in our 12 of 12 and 24 of 24 the higher percentage is refinancing. Keep in mind that our weighted average coupon on portfolio is still in the mid-4s. So we saw from a mortgage rate kind of refinance competition if you think you need at least 0.5 point or one point reduction to be worthy of refinancing, as long as mortgage rates stay under about 350 or 360 our borrowers are still more than one point away from the average coupon on our loans -- or the effective coupon on our loans. But we still see significance from the resale -- or from the sale of properties rather than just from refinance.

So I would say, it's more a function of whether you believe in the stability of home prices for those loans rather than the stability of mortgage rates. Now that being said there may be some from a buyer's perspective of the property that our delinquent borrower is selling. The buyer might care about mortgage rates to get to that price, but that's more of an HPA question than just a rate question.

Eric Hagen

Right. That was good detail. Thank you. And then a couple of questions on the activity since quarter end. Can you talk about how you're financing the package of NPLs that you're buying? And how much capital you expect to allocate to that transaction? And then I'm also just looking at the purchase price on the RPLs that looks like maybe 81% of par and then the NPL is at 98% of par. I'm just trying to square the difference there.

Lawrence Mendelsohn

So it depends on two things. One the seller their need for liquidity and also what the actual owing balance is. So on the NPLs the -- while the -- it may be 98% of UPB. It's only about 91% of the -- or 92% of the actual owing balance, because in NPLs we get all prior servicer advances and all past due interests without having to pay for it and that's part of the owing balance.

So -- and we also expect a significant amount of those to re-perform based on the absolute dollars of equity that those loans have. So we look at them almost as bad RPLs versus NPLs or sub-performing RPLs versus NPLs, from an expected performance given the locations and the characteristics of the loans themselves.

But loan price is definitely a function of -- we get calls just before ends of quarters all the time from people that are looking to sell loans who need liquidity and they need it before the end of the quarter. So there's a different price for a loan where someone needs six days closing versus where someone needs six weeks closing.

Eric Hagen

Got it. That's helpful. And how about the financing and how about the financing...

Lawrence Mendelsohn

On the finance side, we will take down the August closings into a non-mark-to-market repurchase facility and we will likely call one or two-old securitizations and put these into one of those re-securitizations in either late Q3 or Q4.

Eric Hagen

Got it. So just trying to understand how much capital would be assigned or allocated to the -- is it $0.5 million?

Lawrence Mendelsohn

So figure -- on day one about 25%.

Eric Hagen

Okay

Lawrence Mendelsohn

And then once securitized about 15%.

Eric Hagen

Got it. Thank you. Thanks for the color.

Lawrence Mendelsohn

Sure.

Operator

And sir, our next question from Matthew Howlett of B. Riley. You may ask your question.

Matthew Howlett

Good morning. Thanks for taking my question.

Lawrence Mendelsohn

Sure. Absolutely.

Matthew Howlett

Sorry, I look at the balance sheet and you get the JV retained interest that's growing and then loans have been flattish down a little bit. Remind me again, what's the economic to Ajax from an economic perspective? I realize accounting recognition difference between servicing income and interest income. Is there any difference from an economic standpoint for doing it 100% or doing a JV and you take a partial interest back?

Lawrence Mendelsohn

The only difference is the size of the underlying combined acquisitions. So, if we have four or five acquisitions that we know together are going to be $400 million or $500 million, we'll do those in a JV structure and we'll take say $100 million of it verticals and our joint venture partner will also take it.

And then, we have rights of refusal on any time they might want to sell a piece of what they own. But on the flip side, this is why it's so important for us to own a 20% interest in our servicer, because as servicer you get servicing on all $400 million of it. So, we get kind of a little bit of extra piece from that as well.

Matthew Howlett

Going forward --

Lawrence Mendelsohn

I’m sorry.

Matthew Howlett

Going forward, do you expect continued growth in the retained interest and outpacing the loan the whole loan or on balance sheet and equity or...

Lawrence Mendelsohn

It's really a question of the number and size of each acquisition we make. So for acquisitions that are $20 million, $30 million, we do those ourselves. For acquisitions that are $230 million, we'll generally put them into a securitized joint venture structure, and then a deal where we just closed into a securitized structure. And then, it has similar economics overall to owning the loans directly.

It's as if you bought -- it's really just a loan participation structure in a CUSIP form. So that, if we bought $200 million of loans into a joint venture structure and we were say 30% of it, so we'd have -- it's like having a 60% participation in our -- $60 million participation and our partner would have $140 million participation. We just put it into a CUSIP form because a lot of our joint venture partners want to be able to have securities mark-to-market daily for their funds.

Matthew Howlett

Got it. And your partners are they institutional-quality...

Lawrence Mendelsohn

They're all brand-named in the securitization and money management world, exactly right.

Matthew Howlett

Got it, okay. And then, speaking of sort of value, so your servicer gets piece of that and that goes to your UPB and servicing. I mean the GAAP -- the low common GAAP you mentioned -- I mean with the book, it's materially -- GAAP looks materially below. I mean can you make more comments on what the low comp is here? How to think about the low comp?

Lawrence Mendelsohn

Sure. Well, the easy way to think about it is the 20% interest we have in our manager and the 20% economic interest in our servicer, our total GAAP-carrying value is about $2 million.

Matthew Howlett

For the manager and servicer?

Lawrence Mendelsohn

Yes.

Matthew Howlett

So it's not...

Lawrence Mendelsohn

They're obviously worth more than that right?

Matthew Howlett

Right. And the loans the managed -- do they worth more?

Lawrence Mendelsohn

And the loans, if you look at our cost basis of loans, which is sub-90 and in the loan market it's all over par, right?

Matthew Howlett

Right.

Lawrence Mendelsohn

And beneficial interests are just a CUSIP form of loans. So the easiest way to think about beneficial interest is, if you know the UPB of the loans underlying beneficial interest, it's UPB times market price of loan minus A, minus B would be effectively the value there. And obviously our cost basis is materially below that if all the loans are worth over par.

Matthew Howlett

Got it. Great. Okay. Got it. Thanks for that. And then, if you're buying back, you're still buying back that convertible debt?

Lawrence Mendelsohn

Yes, we still are right.

Matthew Howlett

And I guess the last thing is that amortization of that put right, I mean that at some point that's going to go away. Can you just remind how? I mean what part of...

Lawrence Mendelsohn

Yes. One, when it goes away -- sure, there's two ways it could go away either we can just pay it in cash or we can pay it in shares or a combo of cash and shares. And if we pay with shares then the whole liability on the balance sheet goes to zero, and then you have more shares. Or you can just pay it in cash and then that liability goes away and you have less cash or you can pay it in some combination. We can call that put right in 39 months from April of 2020. So that's summer of 2023.

Matthew Howlett

Certainly, got it. Okay. Got it. I mean, obviously – I think it clearly makes sense to go do that as the business –

Lawrence Mendelsohn

We actually have had – we have had some discussions with the put right owners there's three of them about paying a small premium to extinguish the put right, and just go on versus waiting until and we're – had some premium discussions. I wouldn't say that, will happen or not happen. It's too early to kind of have an inkling on that, but I met with the owners two weeks ago of the put rights, and had that – started that discussion.

Matthew Howlett

So that would be really interesting, but please keep us updated on that.

Lawrence Mendelsohn

Sure.

Matthew Howlett

Thanks a lot Larry.

Operator

And so we have our question from Stephen Laws of Raymond James. You may ask your question.

Stephen Laws

Hi, good afternoon, Larry.

Lawrence Mendelsohn

Hey, how are you?

Stephen Laws

Good. Long time, hope you are doing well. Congratulations on the nice quarter.

Lawrence Mendelsohn

Yeah.

Stephen Laws

I was a little late with some overlap on some calls, but glad to make most of the discussion. And I just wanted to follow-up on slide 8. You talked about the attractive market share and are there any other markets now that you're starting to see become an opportunity, either due to population migration shifts, demographic changes, sunbelt and southeast, your graph obviously mentioned a lot. But are you seeing any other markets that you think you may move into?

Lawrence Mendelsohn

We absolutely are and have increased some allocations in certain markets, but they're not big enough markets that you should ever have an enormous amount. So some of those markets are like Nashville, Birmingham, we – once COVID started, we started seeing – we started getting nervous about Las Vegas, because if there was any market where you would expect no travel to have a material effect on economics that would be the market. And – but what we've seen is significant numbers of home sellers especially from California moving to Las Vegas, and we've seen a significant increase in home price demand and home prices in Las Vegas.

So we started expanding there a little bit maybe about seven, eight months ago. But given how fast prices have gone up there it will never become a significantly material part versus where it was in our portfolio say in 2009 or 2010 from acquisitions. But Birmingham and Nashville, we definitely also increased our Charlotte and metro areas of Charlotte, in terms of the acquisition side. The other markets, where we've tried to get more involved, but we found it almost impossible are places small parts like Jackson Hole, and Wyoming and some parts of Montana and things like that.

But those, one, could never be big markets. And two, it's very hard to find any aggregation like scalability in those markets. And one of the things that matters is it has to be a market that, we think has positive demographics positive data pointing to improvement there, but it also has to be to some extent scalable. And there are some markets that are not scalable. But right now, I'd say that, they aren't on this map probably the ones that we're – we've spent a lot of time with is Charlotte, Birmingham and Nashville.

Stephen Laws

Great. Larry, really appreciate the color on that. And glad to hear, you go well. Take care, mate.

Lawrence Mendelsohn

Thanks, you too.

Operator

And that would be our last question for this call. I'll turn the call over to Mr. Mendelsohn for your closing remarks.

Lawrence Mendelsohn

Thank you everybody for joining us in our second quarter of 2021 conference call. Feel free to reach out to us, if you have additional questions. And Q3 has been busy already, and we look forward to welcoming you back again after the end of Q3 for our next conference call. And with that, everybody have a good night.

Operator

This concludes today's conference call. Thank you all for joining. You may now disconnect.