Good afternoon and welcome to the Great Ajax Corporation Fourth Quarter 2017 Financial Results Conference Call. All participants will be listen-only mode. [Operator Instructions]. Please note, this event is being recorded. I would now like to turn the conference over to Lawrence Mendelsohn, CEO. Please go ahead.

Thank you everybody. Thank you for joining Great Ajax Corp’s fourth quarter and year end 2017 conference call. I want to -- everybody take a quick look at page two with the Safe Harbor Disclosure, and we’ll be talking about some forward-looking things. And then we can quickly jump to page 3, I’ll give you a brief introduction and then get right into it. We had a good fourth quarter of 2017 and a very important strategic quarter in terms of what we were able to accomplish. Our loan portfolio continued to perform very, very well. We had a strong cash flow from monthly payments and prepayments. We had one of our best quarters for net asset value creation also. We significantly increased our percentage and absolute dollars of fixed rate non-mark-to-market funding and at very good rates. We are credit sensitive and long-term, value-focused business, as opposed to being an interest rate and mark-to-market risk taker, and that will -- you will see more examples of that throughout our call. Additionally, we grew our joint venture partnership materially in Q4 and we expanded our loan acquisition base as well, and we are already having a busy first quarter of 2018 even though first quarters generally tend be little slower for seasonal reasons. With that, I’ll jump into page 3 of our presentation. It’s very important to understand our long standing relationships to be able to buy loans at the prices we buy them and the kinds of loans that we actually want to buy, we don’t want to be an index fund buying loans everywhere, we want to own loans in certain specific places with certain characteristics and our sourcing network of long standing relationships. We did 12 transactions in Q4 2017 almost all of those happened in December,…

Okay, thank you. [Operator Instructions]. The first question comes from Tim Hayes with B. Riley FBR. Please go ahead.

Hey Larry, thanks for taking my questions.

Hi Tim.

First one, you had a lot of loans close at the end of the quarter, but had they all boarded and starting earning interest at this point?

They have all boarded, the last pool closed December 29 and so we’re earning interest on all of the loans that we bought in Q4, the last of which we closed on the 29th, so we’re earning interest on that day forward.

Got it, okay, is your expectation last quarter that you could achieve mid-teens ROE if you were to execute on your securitizations which you did, is it still your expectation especially now that you’ve deployed capital and have a bunch of loans that boarded at the end of last quarter and now in this quarter so far that you can still achieve those type of returns?

So let me give you an idea of simplest way to look at it, it’s not exact, but it’s simple if we take for example, our 2017 D structure, which was 80% of UPB at 3.75 fixed forever. The loans that went into that transaction, the $200 million or so of loans we bought it approximately at90 of UPB dollar price. So, you received senior financing of 80% of a 100%, which is 88% of the purchase price. So, you’ve got 8/9 leverage at 3.75 fixed forever. So let’s say you bought those loans to a 7% yield gross minus your cost of funds at 3.75 with 8x leverage, so you lever up the spread by 8 times and then you add the yield, it’s a very high number, now that’s before deal expenses so the 3.75 all in is probably a little over 4% and it’s before the servicing costs. So, on the - so from that leverage structure, it's pretty easy to get mid teens if not higher than that. If we look at our 2017 B deal, okay, which was our rated securitization where we did 70% of UPB at 3.16% fixed at par forever, what it shows is that when our loans that we buy in the 80s become 12 for 12, we can get 70% of 100% or approximately 4 to 1 leverage on those loans because we get on our purchase price of the -- in the 80s, we get 70 on the mid 80s, okay? You'll get about 4 to 1 leverage maybe 4.5 to 1 leverage at 3.16% forever. So when you start saying, okay, we bought those loans when they were six for six, we are probably earning in a portfolio Y over 9% on them. And we put those into a securitization with a 3.16% coupon once they're 12 for 12 and you get 4.5x leverage, all of a sudden it becomes a pretty high number. So the cost of funds and the advance rates in our structures are really important. That's why I mentioned in the beginning strategically this is one of the most important quarters we've ever had because we've got our first rated deal done and we were able to push the bar on our unrated securitizations pretty dramatically from our 2017 A deal of 65% advance rate with a three year step up to our 2017 C deal of 70% with a 4-year step up to our 2017 D deal of 80% with no step up ever. So as a result from the funding side and from the strategic kind of asset level debt side, it was a terrific and strategically important quarter.

Yes. Understood and thanks for all the color around that.

That being said we did three -- we called two securitizations and issued three in the three week period and I think it took a couple of weeks for people to get their sleep patterns back after that.

I hope you guys are on a better schedule now. Yes, so to your comments like this is a very active quarter for you guys on the securitization front obviously, but can you just talk about your appetite or pipeline for future securitizations at this point given kind of the execution you believe you can get today?

Yes. Our 2016 A securitization was the most expensive one we've ever done, and that becomes eligible for call in the -- right after the spring, so in April. And our expectation is we will probably call that deal early on in its two year -- post its two year call period and add in other collateral and do another securitization. We also expect that we’ll do either an additional unrated securitization or an additional rated securitization my guess between now and approximately June 30.

Got it. Great. Thanks. I'll jump back in the queue for now.

Sure.

The next question comes from Steve DeLaney with JMP Securities. Please go ahead.

Thanks. Congrats on all the transactions Larry.

Thank you.

Great quarter. I wanted -- you surprised me a little bit with the apartment building in Phoenix. Can you just -- let us -- give us some color how much you paid for that. Will you lever it and what type of cash on cash return are you going to be looking for there?

Sure. We paid $3.4 million for it for 32 units in Inner City Phoenix. It's fully rented and in a location that we think is changing over a five or ten year period. So think of it as in New York say, Bed Stuy 10 years ago, and it's the way I would think about it. We like that particular market on the small multifamily. For us 32 units is actually a big property. So that would probably be as big a Phoenix Property as we'd ever buy. We are looking for other inner city properties in five or six markets, Phoenix being one of them, Atlanta being one, parts of Los Angeles although we've not seen anything in Los Angeles where the prices make sense. But we like certain markets there, we've been pretty active in bridge financing other requires in that market. I wouldn't say that we're going to dramatically drive the apartment side but we do think that we bought this to a current cash flow in the 7s and we'll be able and we paid cash but we have the availability to finance it on a credit facility if we choose. But given that we have some $50 million of cash lying around, there's no reason to finance it yet.

Understood. Understood. And do you have a plan for some CapEx that would allow you to roll some rinse up going forward?

Yes. We do have that and we're also looking to acquire some other properties in the same neighborhood and ideally we would do that sooner rather than later so that we can actually have some scale in the CapEx itself.

Okay, great. And just one final one from me, the Gregory investment, I think that's important strategically how should we think about the income recognition going forward on that investment. Will that be equity method or how will you account for it and will there be any cash flow coming on that as well as maybe a GAAP income recognition? Thanks.

Sure. So, Mary says it will be the equity method, okay. She is sitting next to me. She says it will be the equity method. The servicer does from time to time pay some dividends although there I would not expect it to be material to Great Ajax from a cash perspective for future investing. But the servicer paid two dividends in 2017 and I would expect it would likely do similar that basically are like a 3% or 4% dividend yield. But the real benefit to the servicer is able to drive it scale as well as its brand. There's a lot of as you can see from our joint ventures there's a lot of parties who think the servicer does a really good job compared to other servicers. And as a result we think there's material upside to it and we also think that there's great benefits to Great Ajax getting in early. We have some pretty sophisticated outside directors who negotiated this and when JV -- potential JV partners are calling us up trying to get Great Ajax to invest they quickly figured out that if you're going to make an investment for servicer you make the investment before you give it permission to service for others not after. So as part of making the investment, the outside directors have permitted Gregory to service for pure third parties so long it doesn't have a negative impact on what it does for Great Ajax itself.

Well, thanks for the comments. Appreciate it.

The next question comes from Scott Valentin with Compass Point. Please go ahead.

Good afternoon. Thanks for taking my question. Just regard to the ATM, I know you guys issued some shares under the ATM. Just wondering what your philosophy is there in terms of when you decide to issue shares how does the price of issuance affect your thoughts on issuance?

Sure. So the issuance was done at about 14.60. Almost all of that was to one buyer. And the Board of Directors gave us a specific cap where the follow on convertible that we did in August was about $20 million and they gave us the authority to do a maximum of up to one-third. So it would make the debt ratio 3 to 1 on the follow on. And that was the bulk of the logic. So there was a specific very low cap and probably wouldn't have done it if it wouldn't have been one reverse enquiry buyer for most of it.

Okay. That's very helpful. And then I think you were going to discuss leverage obviously with the 80% advance rates in some of the AVS transaction. Is there room to take leverage up from where it is today or do you feel comfortable leaving it where it is around 3x?

Yes. Three is a good number although our Board is comfortable with a little bit more leverage on the asset-based side for good performing loans. So they wouldn't want to be over levered with mark-to-market repo in a rising rate environment where LIBOR is your enemy as opposed to your friend. But in a fixed rate non-mark-to-market match funded structure, our Board is comfortable with a bit more leverage on the good performing loans in our portfolio. That being said, it's not going to be 4x leverage, it is going to go -- I would anticipate leverage going up a bit on the asset level side not corporately.

Okay. All right. Great. And another question. The change in the tax laws, suppose I guess just think from a corporate structure perspective as well as maybe the asset class you guys invest in housing market. Do you see -- anticipate any changes or you seeing any changes?

Well, the tax law is complicated and I'm not sure that anybody knows 105% of the rules including the IRS at this point yet in terms of how it's going to be interpreted. Obviously, our Board as a matter of fiduciary responsibility wants us to look at about -- I hate to say it about 24 different scenarios. We thought it was eight, then they had three scenarios for each of the eight. So it's now 24 scenarios of both REIT and non-REIT for the same scenario to see what the difference in tax rate means to total value creation as a structure. And that will take a while to figure out and the Board has given a certain target, [hates] [ph] to give them information and output. And that -- so I'm not saying that we don't expect to be a REIT, what I am saying is, the Board feels that they have fiduciary responsibility to at least examine the difference between the new tax law and the REIT structure as a board and then think about what all that information means it's a complicated tax law. And I think that over the next six months to a year, there is going to be a lot of interpretation of it. It's not necessarily based on the language and the tax law but based on some rules that come out to opine on it. And I don't think -- until we see some of that it will be very hard to make a decision as to what it actually means from a structural perspective.

Okay. Thanks. And then, this is regard to the state local tax change and you have some high cost housing markets particularly in Southern California, do you see any impact there on housing at all?

Not so much in the properties we are involved in. So if you were to take markets, 80% of our loans are in 10 markets basically. If you were to take those markets and split housing into deciles 1 through 10; 10 being the most expensive and 1 being the cheapest. We are probably 90 plus percent of our assets are probably deciles 4 through 7 or 4 through 7 in a quarter. With the biggest ball probably deciles 5 to 6 -- 6.5. Especially on the property tax side, it's not as big an issue for our portfolio than if for example our portfolio was all -- California has relatively low property tax, but if our property was all New Jersey, New York or Illinois where you know Chicago with high property tax. We'd be a little bit more nervous especially on the higher end, but for our property kind of characteristic and decile levels location by location by location we don't think it'd be particularly impactful. It's one of the reasons why we stay away from the very high decile property, decile 8, 9 and 10, especially 9 and 10. They're very hard to comp. A lot of it has to do with the matter of taste and a lot of it has to do with who the next buyer is -- not who the last buyer was. And as a result, it's hard to figure out and we tend to stay away from it because of its lack of predictability and lack of liquidity and in many locations the new tax laws make those much more expensive doing.

Okay. Thanks very much for that color. Helpful.

[Operator Instructions] Okay. Seeing no further questions in the queue. This concludes our question-and-answer session. I would like to turn the conference back over to Larry Mendelsohn for any closing remarks.

Thank you everybody. I appreciate all the good questions and listening to me go on and on for the last 50 minutes. Thanks for joining us on our fourth quarter year end 2017 conference call. And we're seemingly always around and if you have other questions that come up over the next few days weeks feel free to give us a call. We're happy to help any way we can. And thanks again and thanks for being on at 6 o'clock Eastern Time.

Okay. Thank you. The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.