Great Ajax Corp (AJX) Q2 2021 Earnings Call Transcript

Image source: The Motley Fool.

Great Ajax Corp (AJX -3.28%)
Q2 2021 Earnings Call
Aug 5, 2021, 5:00 p.m. ET

Contents:

• Prepared Remarks
• Questions and Answers
• Call Participants

Prepared Remarks:

Operator

Good day and thank you for standing by. Welcome to the green Ajax Corporation q2 2021 earnings conference call. [Operator Instructions]

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

Lawrence Mendelsohn -- Chief Executive Officer

Thank you very much. Welcome everybody to the great Jack's quarter, second quarter 2021 conference call. Also here with the Mary Doyle, our CFO and muscle shop our president. Before we get started, I just want to have everyone quickly take a look at page two, the Safe Harbor disclosure presentation. And with that, we can go on to HD and B. 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 base cost of funds decreased even more after decreasing nearly 50 basis points in q3 of 2026 basis points in q4 20 and 30 basis points in q1 of 21. Our cost of funds has continued to decrease in the third quarter of 21. as well. A significant increase in loan performance and loan capital velocity continued. It's also continued into the third quarter of 2021. This continuing increase in loan capital losses led to an additional acceleration of income on loans during q2 of 2021 to 4.7 million.

As a present value of cash flow and pay off proceeds exceeded expectations. We continue to be an offensive position and in q2 we purchased a significant amount of loans primarily joint venture structures at good prices in good locations and low percentages of the underlying property values. The prices we paid are materially lower than when mortgage loans are currently selling today. at June 30 2021, we'd approximately 88 million of cash and more than 300 million of unencumbered bonds have uncovered beneficial interest in 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 sustained mortgage loans. The significant cash balance does create some earnings drag and the significant cash flow velocity from a mortgage loans and mortgage one JV structures reduces our loan insecurities portfolio leverage as well. We are however well equipped for volatility and the investment potential creates good opportunities in our pipeline as well.

With that, we jump to page three the business overview. Starting out talking about it, our manager, our manager strength and analyzing loan characteristics, and market metrics for real performance probabilities and pathways as 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 read performance. we've acquired loads and 338 different transactions since 2014, including six different transactions in the second quarter. Remember that we own a 19.8 interest in the equity of our manager. Additionally, our affiliated servicer provides a strategic Vantage and 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 read performance probabilities loans by loan by loan. We have certainly seen the benefit of this during the COVID pandemic and and q2 and q3 2021. With a significant increase in loan capital 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 left hand side, we still have low leverage our 230 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 29 invested in Gaia real estate court reads and invest in multifamily properties, multifamily repositioning, mezzanine loans, and triple net lease veterinary clinic real estate. We think guy has a great deal of optionality and we expect it to grow materially in the second half of 2021 and 2022. page four, we talked about highlights of the second quarter, it was a busy quarter.

Now interesting come from loans and securities, including a 4.7 million interest income from the increase in present value of loans paid off and capital velocity in excess of expectations was approximately 18.9 5 million in the second quarter. Our gross interest income excluding the 4.7 million from income, the 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 costs the funds interest expense decreased by approximately 1.4 7 million. A cap item to keep in mind is that interest income from our portion of joint ventures shows up in income from securities not interesting come from loans. For these joint venture interests, servicing fees for securities are paid out at the securities waterfall, so are interesting come from joint ventures. It's a joint venture securities is net of servicing fees. Unlike interest income from loans, which is grossest servicing fees. As a result, it's our joint venture investments have been growing faster than our direct loan investments. gap interest income will grow more slowly than if we directly purchased loans outside of joint ventures by the amount of the servicing fees and the gap servicing the expense will decrease by the corresponding offsetting amount. An important part of discussing interest income is the payment performance of our loan portfolio.

At 30, approximately 74.2% of our loan portfolio by UPV made at least 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% in March 31 2021. In our first quarter of 2020 last year investor call, we mentioned that we expected to COVID-19 related economic environments with negatively impact the percentage of 12 to 12 borrowers in our portfolio. That's why the impact on regular payment performance has been far less than expected. And the percentage of our portfolio that is 1212 has been quite stable and increasing since q4 2020. And is only 2% lower than pre COVID q4 of 2020 q4 2019. Additionally, we've seen significant prepayment from 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 irregular payments 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 to 20% of our full load pay offs in second quarter of 2021 with some 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 of a 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 duration. However, we have generally expected that this duration reduction would be less than typical 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 borrower's or servicer and portfolio team and our manager have worked together over time to re establish these loans as regular repay you.

We also expect that given the low mortgage rate environment and the stability of housing prices so far that higher prepayments will likely continue to go to regular paying and non your regular paying loans. We've seen the strength in q3 continue in q3 of 2021. Our cost the funds in q2 2021 was lower than q1 by 25 basis points. This was due to spread reductions on the purchase facilities and the six securitizations we completed in q1 and q2, and two securitizations. We call in late February of 2020. We expect our cost of funds to continue decreasing materially, especially since we called four of our older securitizations and re securitize the underlying loan. 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 10.3 7 million or 45 cents per share, after subtracting out 1.9 5 million have 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 interests due to the three week timing gap between re securitizing loans and calling the underlying bonds that were previously backed by those loans. Additionally, we expensed approximately 2.2 million relating to the gap required approval approval accrual of the Warren foot rights from our q2 2020 issuances of preferred stock and warrants versus 1.9 5 million in the first quarter of 21. book value per share was 1586 at June 30 2021, for 1618 per share at March 31. The difference in book value comes from gap treatment of our convertible bonds based on changes in earnings amounts and share price. Our stock price at March 31 was 1090 and 1830 was 13. taxable income was 34 cents a share. taxable income in q2 was primarily driven by lower interest expense increases in prepayment, especially for delinquent loans, and from capital velocity of performing loans. delinquent loans usually generate tax gains at the time of a foreclosure and the creation that related aureo and then tax losses at the sale of Oreo.

Less Oreo 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 into to be completed for securitizations in joint venture structures totaling 1.4 billion and up, and we call for securitizations for new securitization structures containing approximately 900 million of newly purchase 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 100 and 20 million UPV. That is our percentage of ownership of the 535 million securitized loans from the securitizations we call the second quarter of the approximate we 900 million of newly purchased loans in these four securitized joint venture structures. We retained another approximately 100 and 40 million UPV and the foreign debt securities and beneficial interest. cash collections at June 30 2021, we had approximately 88 million of cash and for q2 2021, we had an average game of cash and cash equivalent balance of approximately 114 million.

We had 78 point 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 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 have 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 80 million cash and unencumbered assets even and approximately 300 million of undiscovered 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 UPV 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 first of all purchase discount. It also enables us to continue reducing our cost of funds and advanced rates through rated securitization structures.

On page five, we continue to buy we continue to be primarily RPL driven with purchased rpls representing approximately 96% of our loan portfolio which even 30 we primarily purchase RPL to that made less than seven consecutive payments. have certain loan level and underlying property specific specifications that our analytics suggests will have positive payment migration on average positive payment migration of these purchase rpls results an increase in the fair market value of the loans and related decrease in cost of funding. On Page Six, you can see on rpls we continue to buy and own lower loan to value loans over all RPL purchase price is approximately 51% of property value and 88.2%. Up on page seven non performing loans important discussing purchase non performing loans has declined over time relative to the total loan portfolio. For NpLS on our balance sheet, our overall purchase price is 79% of GDP and 47.2% of property value, as a result of the low loan to value and higher absolute dollars of equity on average for RPL and MTO. portfolios.

We have seen that rising home prices and relatively low mortgage rates have significantly accelerated prepayment and regular payment velocity and 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 Gen 30. We have purchased a significant amount of NpLS and have agreed to purchase approximately 100 million wnbl subject to due diligence in q3. I will discuss this more detail on page 10. In this presentation. Our target markets California continues to represent the largest segment of our loan portfolio. California mortgage loans are primarily in Los Angeles, orange and San Diego counties. We have seen consistent payment of performance patterns from loans in these markets. performance in Southern California has far outperformed expectations 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're seeing material negative effects from the tax loss all provisions in New York City metro and suburban New Jersey and southern connected home values and home sales.

We've seen quick positive turning to 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 nine, we can talk about portfolio migration. at June 30, approximately 74.2% of our own portfolio made at least 12 of the last 12 payments, including approximately 67% of our portfolio, it needs 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. timelines extended as result of COVID moratoriums. This affects the yield on true non performing loans as extended resolution timelines 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 and non performing loans shortened duration on average, rather than extend duration from COVID. Since we purchased most of our loans when they were less for 1212 payment history, and a discount. servicers worked with most of our borrowers over time 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 to 12. loans in today's loan market trade materially higher prices and our cost basis they trade significantly over par. As a result, our portfolio and related implied corporate nav estimates are materially higher than gap of 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 rtls and NpLS into a joint venture securitization that we closed in June of 2021. With a securitize prefunding structure, we own 20% of this joint venture. The purchase price was made at 98% of up significantly lower as a percentage of own balance, and 54.2% of the underlying property value. We also directly purchase 3.1 million of non performing loans at 72 point 74.2% of UPV and 69.7 of underlying property.

We've also agreed to purchase approximately 103 million UPV of NpLS in five transactions subject to due diligence. The purchase price for the loans is approximately 97% of up be approximately 91% of the selling balance and 64% of the value of the underlying properties. One of these purchases is approximately 90 million of up 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've agreed to purchase subject to due diligence. 3.8 million of rpls is for transactions at a price of 78.9% of UPV and 61.7% 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 triple A through A classes represent 83% of uppp. Triple H or single B represents 95.5% of UCB, we retained approximately 53 million of various classes of securities in this joint venture. On August 5, we declared a cash dividend of 21 cents 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 point 1%. For debt securities and beneficial is interest. However, remember that yield is negative servicing fees and yield on loans is gross of servicing these debt securities and beneficial interest is our interest in our JV structures are presented under gap as our jayvees increase it they did in 2020 and 2021. Relative to loans, the gap reporting will show lower average asset yields by the amount of the servicing fee. That being said yields and beneficial interest increased. In q2 as capital 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 data of 2.1 times an average asset level debt for the quarter was two times our asset level debt cost of funds was lower in q2 2021, then 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 second quarter, we should see increases in interest income and debt interest income as well. Also, as we continue to repurchase convertible notes in the open market, our cost of funds and interest expense further decreases. On the next page, actually two pages of securities and loans the purchase agreement funding or totally Purchase 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 eight one senior bonds in our joint ventures that June 30, we had 165 million space of unencumbered bonds as well as 132 million have been encumbered equity beneficial interest certificates, and 53 million UPV of unencumbered mortgage loans. Combined with 88 million of cash and 30. We have significant resources for being on offense and defense.

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

Questions and Answers:

Operator

Thank you, [Operator Instructions] Our first question from Kevin Barker of Piper Sandler. You may ask your question.

Kevin Barker -- Piper Sandler -- Analyst

Good afternoon. How are you doing?

Lawrence Mendelsohn -- Chief Executive Officer

Good? How are you?

Kevin Barker -- Piper Sandler -- Analyst

Good congrats on a good quarter looks like a busy, busy close, very busy. When when we think about the pricing changes that you're seeing, by refight calling a bunch of your securitization, reissuing some of the securitizations, very strong trajectory there on interest expense, and pretty strong commentary as well 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 CCleaner calls, or at least call on your securities that you see out there today?

Lawrence Mendelsohn -- Chief Executive Officer

Sure, we have, we have a couple, a couple more 2018 securitizations and a number of 2019 that we can already call, though, those have coupons anywhere between three and four and a half percent. And we can issue now all in some 2%. So we would expect that additional calls and securitization would get us somewhere between 150 and 200 basis points of savings for each call.

Kevin Barker -- Piper Sandler -- Analyst

Okay, so on a net basis, when we think about, you know, your total funding, your total funding cross across all different, not only securitizations, but other forms of financing. You know, what orders of magnitude, you think you could see your interest expense to drop to buy the started 2022 relative to what we saw on like a run rate basis versus 2020.

Lawrence Mendelsohn -- Chief Executive Officer

Sure, so if you look at now our look at now our total cost of funds, overall cost of executing our convert is in the low threes. Excellent exluding are covered one that could go down by least another 100 basis points from refinances everything, maybe a little bit more than that.

Kevin Barker -- Piper Sandler -- Analyst

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

Lawrence Mendelsohn -- Chief Executive Officer

Yeah, since we, you know, we buy loans and discounts. So interesting, some shows up in kind of two different places. One, it shows up from regular monthly payments, and two from captures discount. You see, on the loan side, it's more direct, and we own the security side, we have both depth areas and beneficial interests, beneficial interest, you see it more in accreted value because they don't get direct cash flow until you call the deal. We're on the loan side to get it every single month. In the debt securities and beneficial interest side you get a debt securities coupon, but you you turbo class a principle before you get that. So on the interest income side, you'll see it pick up prepay obviously more prepayment is good, more monthly cash flow is good. cash flow velocity is still pretty stable. Also, we increase our portfolio pretty considerably in late second quarter and will do so even more in the third quarter with the purchases of loans. So we would see in some interesting some pick up from those new purchases that came on in June, July and August. really start to pick up in late q3.

Kevin Barker -- Piper Sandler -- Analyst

Okay, and then. So that's obviously helping out your your provision expense as well.

Lawrence Mendelsohn -- Chief Executive Officer

Alright. Yeah. Yeah. It's, it's kind of it's kind of funky. Because we buy loans and discounts. It's the concept of a provision is a little bit different. You when you do you have a model 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 -- Piper Sandler -- Analyst

Okay, and then it's one more before I get back in the queue. You raise the dividend again, you're running fairly high. He reminded us of your capital allocation policies going into the end of the year here. How do you think about the dividend relative to the amount of taxable income you're producing?

Lawrence Mendelsohn -- Chief Executive Officer

Well 90% of taxable income, and that includes the preferred dividends. I think our board is biased 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 dividends. So they want to do it over a long, steady, predictable tenor, as opposed to all at once. Do you feel like you're gonna be forced to do something? Here, you're gonna continue to dissipate?

Kevin Barker -- Piper Sandler -- Analyst

We'll have no choice. Thank you very much.

Operator

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

Eric Hagen -- BTIG -- Analyst

Hey, good afternoon. Hope you guys are well. Well, session here on pre prepared speeds and, 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, what the opportunity looks like for them, specifically as it relates to the potential for mortgage rates to go up?

Lawrence Mendelsohn -- Chief Executive Officer

Sure. So we've seen so we we spent a lot of time tracking three payments, sources of pre payments 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 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 significant refinance in certain markets. For example, in Texas, 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, the location of the loan itself. But the lion's share of payoffs on are over 180 days delinquent, our loans over 130,000 of equity, and in 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 it's almost overwhelmingly sales of the home versus a refinance. Where are we in our 1212 to 2424 is a higher percentage is refinancing. Keep in mind that our weighted average coupon portfolio is still in the mid fours. So we still from from a mortgage rate, kind of refinance competition, if you think you need at least a half a point or a point reduction to be worthy of refinancing, as long as mortgage rates stay under about 350 or 360. Our borrowers are still more than a point away from the average coupon on our loans or the effects of coupon on our loans. But we still see significant from the 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 -- BTIG -- Analyst

Right. So good detail. Thank you for that. And then a couple questions on the activity since quarter end. Can you talk about how you're financing the package of MPLS that you're buying, and how much capital you expect allocates that transaction, and then I'm also just looking at the purchase price on the RPL that looks like they'd be 81% apart. And then the MPL is at 98% apart, just trying to square the difference there.

Lawrence Mendelsohn -- Chief Executive Officer

So it depends on two things, one, the seller, their need for liquidity, and also what the actual owing balances. So on the NpLS the O v while the UPV may be 98% of UPV. It's only about 91% of the or 92% of the actual own balance because In MPLS, we get all prior service or advances in all pass through interest without having to pay for it. And that's part of the only balance. So, and we also expect a significant amount of those to be performed based on absolute dollars of equity that those loans house. So we look at them almost as bad rpls versus NpLS, or sub sub performing rpls versus MPLS. From a expected performance, given the locations and the characteristics of the loans themselves. But one price is definitely a function of, you know, 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 to 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.Got it?

Eric Hagen -- BTIG -- Analyst

That's helpful, how about the financing and about financing, financing the financing side.

Lawrence Mendelsohn -- Chief Executive Officer

We will take down the August closings into a non mark to market repurchase facility. And we will likely call at one or two old securitizations and put these into one of those re securitizations in either late q3 or q4.

Eric Hagen -- BTIG -- Analyst

Got it so just trying to understand how much capital will be assigned or allocated to do so.

Lawrence Mendelsohn -- Chief Executive Officer

So figure million on on day on day one, about 25%.

Eric Hagen -- BTIG -- Analyst

Okay, and then one securitize about 15%. Got it. Thank you. Sure.

Operator

Answer our next question from Matthew holid of the Reilly. You may ask your question.

Matthew holid -- Reilly -- Analyst

Thanks for taking my question. You're absolutely right, you know, look at the balance sheet and you'll see the JV retain interest that that's growing, and then your loans have been flattish down a little bit. Remind me again, what's the economic to Ajax from an economic perspective.

Lawrence Mendelsohn -- Chief Executive Officer

I realized the counting recognitions difference between servicing income, interest income, is there any difference, but from an economic standpoint for doing it 100% or doing a JV when you take a partial introspect, 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 four 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 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 I service it against the servicing on all 400 million of it.

Matthew holid -- Reilly -- Analyst

Right, we get kind of a little bit of extra piece from that as well. And going forward, I was really excited. I'm sorry. But going forward, you expect continued growth in the retain interest and outpacing the loan of the whole loan or the on balance sheet.

Lawrence Mendelsohn -- Chief Executive Officer

It's really a question of the number and size of each acquisition we makes. So for acquisitions that are 20 30 million we do those ourselves for acquisitions that are 230 million, we will generally put them into a securitized joint venture structure. And then a deal where we just close it into a securitized structure. And then has similar economics overall to owning the loans directly. It says if you bought it's really just a loan participation structure in accusative form. So that if we bought 200 million loans into a joint venture structure, and we were, say, 30% of that, so we have we it's like having a 60% participation in our partner 60 million participation and our partner would have $140 million participation. We just put it into a piece of form, because a lot of our joint venture partners wants to be able to have securities mark to market daily for their funds.

Matthew holid -- Reilly -- Analyst

Got it. Your partners are the institutional quality, you know,

Lawrence Mendelsohn -- Chief Executive Officer

They're all they're all They're all brand names in the securitization and money management world. Exactly. Right.

Matthew holid -- Reilly -- Analyst

Got it. Okay. And then speaking of sort of values, you're in your service or get piece of that. And that goes, you're up and servicing. I mean, the gap, the low common gap you mentioned. I mean, the book is materially gasoline materially below, can you make a comment on what the low carb, low carb?

Lawrence Mendelsohn -- Chief Executive Officer

Well, you know, the easiest way to think about is the 20% interest, we have an advantage here and the 20% economic interest in our service, or our total gap carrying value is about $2 million.

Matthew holid -- Reilly -- Analyst

For the manager and servicer.

Lawrence Mendelsohn -- Chief Executive Officer

Yeah. So it's not so obviously, they're obviously worth more than that,

Matthew holid -- Reilly -- Analyst

Right. I mean, we do our work. In the long run, You know, if you look at our cost basis of loans, which is sub 90, and in the loan market is all over par. Right?

Lawrence Mendelsohn -- Chief Executive Officer

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

Matthew holid -- Reilly -- Analyst

Got a great hook. Got it. Thanks for that, if you're buying back through, so buying that that convertible debt, and that's great.

Lawrence Mendelsohn -- Chief Executive Officer

We still are taking a look at the last day that that Emerson put right. I mean, that's definitely, at some point that's gonna go away, he just remind me how on the way, sure, there's two ways you can go away, either we can just pay it in cash, or we can pay it in shares, or combo cash and shares. And if we pay in shares, then the whole liability on the balance sheet goes to zero. And then you have more shares, or you 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 23. One sorry that you.

Matthew holid -- Reilly -- Analyst

Got it. And got Okay, got it off. It makes I think clearly it makes sense to go do that. And we actually have had, we've had some discussions with the owners, there's three of them about paying a small premium to extinguish the put right and just jalon versus waiting fill. 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 a inkling on that. But I met with the owners two weeks ago. And had that started that discussion. That'd be really interesting. But please keep us updated on that.

Lawrence Mendelsohn -- Chief Executive Officer

Sure.

Operator

So our answer we have our question from Stephen loss of Raymond. James, you may ask your question.

Stephen loss -- Raymond James -- Analyst

By Good afternoon, Larry. Hey, how are you? Good, long time hope you're doing well. And congratulations on a nice quarter. I was a little late with with some overlap on some calls, but glad to make most of the discussion and just wanted to follow up on slide eight, you know, you're talking about the attractive market. Sure. And are there any other markets now that you're starting to see become an opportunity either, you know, due to, you know, population migration shifts, demographic changes. sunbelt and se are obviously mentioned a lot. But are you seeing any other markets that you think you may move into?

Lawrence Mendelsohn -- Chief Executive Officer

We absolutely are and have increased some allocations in certain markets. But they're not thinking of markets that you could 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'll never become a significantly material part versus where it wasn't portfolio, say in 2009, or 2010, from acquisitions.

But Birmingham and Nashville, we've 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 it found it almost impossible are places small parts like Jackson Hole in 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 scale ability in those markets. And one of the things that matters is it has to be a market that we think has positive, you know, demographics, positive data, pointing to improvement there, but it also has to be, to some extent scalable. And, you know, there's some markets that are scalable, but right now I'd say that 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 loss -- Raymond James -- Analyst

Great. Well, I really appreciate the color on that. And quite a few you're good. Well take care. Thanks, you too.

Operator

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

Lawrence Mendelsohn -- Chief Executive Officer

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 has died.

Operator

[Operator Closing Remarks]

Duration: 47 minutes

Call participants:

Lawrence Mendelsohn -- Chief Executive Officer

Kevin Barker -- Piper Sandler -- Analyst

Eric Hagen -- BTIG -- Analyst

Matthew holid -- Reilly -- Analyst

Stephen loss -- Raymond James -- Analyst

More AJX analysis

All earnings call transcripts