 | PRESS RELEASE |
CONTACT:
Scott Eckstein
Financial Relations Board
212-827-3766
ZAIS FINANCIAL CORP. REPORTS FIRST QUARTER 2013 RESULTS
Red Bank, NJ – May 14, 2013 – ZAIS Financial Corp. (NYSE: ZFC) (“ZAIS Financial” or the “Company”) today reported financial results for the three months ended March 31, 2013. On February 13, 2013, the Company completed its initial public offering (“IPO”) selling 5,650,000 shares of its common stock at a price of $21.25 per share for net proceeds of $118.9 million. Accordingly, the Company’s results for the first quarter ended March 31, 2013 may not be representative of results in future periods. In addition, the Company’s Board of Directors has declared a cash dividend of $0.22 pershare of the Company’s common stockand operating partnership units (“OP unit”), payable on May 31, 2013, tostockholders and OP unit holders of record as of theclose of business on May 24, 2013.
FIRST QUARTER 2013 HIGHLIGHTS
- GAAP net income of$2.0 million, or$0.32 per weighted average share outstanding, for the first quarter of 2013
- Core Earnings of $0.8 million, or $0.13 per weighted average share outstanding, for the first quarter of 2013
- Book value per share of common stockand OP unit of$21.50 as of March 31, 2013
- $455.9 million residential mortgage-backed securities (“RMBS”) portfolio with a fair value as of March 31, 2013 consisting of:
- $273.6 million non-Agency RMBS
- $182.3 million Agency RMBS
- Acquired mortgage loans with a principal balance of $17.7 million for $10.8 million
- 2.05x effective leverage ratio as of March 31, 2013 (whichincludes $109.5 million in fair valueas of March 31, 2013 of Agency RMBS exposure acquired throughcontracts to acquire to-be-announced (“TBA”) securities)
- Agency RMBS Constant Prepayment Rate (“CPR”) three and six-month averages for theperiods ended March 31, 2013 were 5.2% and 7.3%, respectively
- Non-Agency RMBS CPR three and six-month averages for theperiods ended March 31, 2013 were 16.7% and 18.2%, respectively
“The Company had a solid first quarter, successfully deployingapproximately $291 million into Agency and non-Agency RMBS,entering into Agency TBA contractswith a notional amount as of March 31, 2013 of $104million, as well as completing our first whole loan purchase of approximately $10.8 million. We continue to see interesting whole loan investment opportunities that are consistent with our investment strategy,” commented Michael Szymanski, President and Chief Executive Officer of ZAIS Financial. “We are pleased to declare our initial common stock cash dividend as a public company. Going forward we expect to announce quarterly dividends late in the calendar quarter, consistent with the majority of our peers.”
First Quarter 2013 Results
ZAIS Financial reported GAAP net income for the quarter ended March 31, 2013 of$2.0 million, or$0.32 per weighted average share outstanding. For the first quarter ended March 31, 2013, the Company reported Core Earnings of $0.8 million, or $0.13 per weighted average shareand OP unit outstanding. Core Earnings is a non-GAAP financial measure.
The Company had 7,970,886 and 2,071,096 shares of common stock outstanding as of March 31, 2013 and December 31, 2012, respectively.
The March 31, 2013 book valueof $21.50 per shareof common stock and OP unit in ZAIS Financial Partners, L.P., the Company's consolidated operating partnershipsubsidiary, decreased from the December 31, 2012 book value per shareand OP unit of $21.68principally as a result of the issuance of 5,650,000 shares of common stock upon completion of the Company’s IPO,partially offset by earnings for thequarter.
The Company earned interest income of $3.4 million for the three months ended March 31, 2013, as compared with $2.8 million of interest income for the three months ended March 31, 2012. The increase was due to an increase in the Company’s average investment portfolio, partially offset by a decline in its average asset yield. The Company incurred interest expense of $0.5 million for this period, compared with $0.3 million for the three months ended March 31, 2012. The increase in interest expense was due to an increase in borrowings from repurchase agreements.
As of March 31, 2013, the weighted average net interest spread between the yield on the Company’s assets and the cost of funds, including the impact of interest rate hedging, was 1.58% for the Company’s Agency RMBS and 3.97% for the Company’s non-Agency RMBS. As of March 31, 2012, the weighted average net interest spread between the yield on the Company’s assets and the cost of funds, including the impact of interest rate hedging, was 2.69% for the Company’s Agency RMBS and 4.72% for the Company’s non-Agency RMBS.
For the three months ended March 31, 2013,the Company incurred professional fees of $1.3 million as compared to $0.5 million in professional fees for the three months ended March 31, 2012. The increase in professional fees was primarily due to an increase inyear-end audit fees of $0.6 million, all of whichwas recognized upon the completion of the audit in the first quarter. In addition, this year's audit reflects the increased reporting requirements of becoming a public company. In addition to increased audit fees, we incurred an increase in fees of $0.2 million related to whole loan acquisitions. Pursuant to the terms of the Investment Advisory Agreement with the Company’s Advisor, ZAIS REIT Management, LLC, for the three months ended March 31, 2013, the Company incurred advisory fee expense of $0.5 million as compared to $0.2 million for the three months ended March 31, 2012, which was recorded as an advisory fee expense to a related party.
For the three months ended March 31, 2013, general and administrative expenses totaled $0.4 million, as compared with $0.04 million for thethree months ended March 31, 2012. The increase was primarily due to increased insurance expense anddirectors’ feespayable toindependent directors who joined the Company in connection with the Company’s IPO in February 2013.
As of March 31, 2013, the Company had fully deployed the IPO proceeds but it was not fully invested in its long-term target assets and was not leveraged to the extent contemplated by its long-term business plan. Consequently, the Company’s results for this quarterly period are not indicative of the results expected to be achieved once the Company is fully invested in its long-term target assets and leveraged to the extent contemplated by its long-term business plan.
PORTFOLIO SUMMARY
As of March 31, 2013, the Company held a diversified portfolio of RMBS witha fair value of $455.9 million. The RMBS portfolio consisted primarily of senior tranches of non-Agency RMBS that were originally highly rated but subsequently downgraded, and Agency RMBS collateralized by either fixed rate loans or adjustable rate loans. The borrowings the Company used to fund the purchase of its portfolio totaled approximately $295.6 million as of March 31, 2013 under three master repurchase agreements. The Company also heldat March 31, 2013 contracts to purchase TBAsecurities of Agency RMBS, which had anotional value of $104 million and a fair value(because they are carried as derivative securities on the Company’s consolidated balance sheet) of $0.4million. TBA securities are forward contracts for the purchase of Agency RMBS at a predetermined price with a stated coupon,face amount and maturity at an agreed upon future date. Also atMarch 31, 2013, the Company held a portfolio of mortgage loans with an aggregate unpaid principal balance of approximately $17.7 million anda fair value of approximately $10.8 million, consisting of mortgage loans on residential real estate located throughout the United States.
The following table sets forth certain information regardingthe Company's RMBS as of March 31, 2013:
| Premium | Amortized | Gross Unrealized(1) | Fair | Weighted Average | ||||||||||||||||||||||
| Principal Balance | (Discount) | Cost | Gains | Losses | Value | Coupon | Yield(2) | |||||||||||||||||||
| Real estate securities | ||||||||||||||||||||||||||
| Agency RMBS | ||||||||||||||||||||||||||
| 30-year adjustable rate | ||||||||||||||||||||||||||
| mortgage | $ | 2,939,138 | $ | 443,080 | $ | 3,382,218 | $ | - | $ | (303,810 | ) | $ | 3,078,408 | 2.83 | % | 2.28 | % | |||||||||
| 30-year fixed rate mortgage | 170,322,090 | 7,593,622 | 177,915,712 | 1,865,453 | (570,884 | ) | 179,210,281 | 3.36 | 3.07 | |||||||||||||||||
| Non-Agency RMBS | ||||||||||||||||||||||||||
| Alternative - A | 114,455,922 | (21,415,546 | ) | 93,040,376 | 4,359,861 | (36,009 | ) | 97,364,228 | 5.31 | 5.90 | ||||||||||||||||
| Pay option adjustable rate | 40,163,597 | (8,849,272 | ) | 31,314,325 | 328,480 | (33,897 | ) | 31,608,908 | 1.25 | 5.25 | ||||||||||||||||
| Prime | 117,188,899 | (13,506,628 | ) | 103,682,271 | 6,582,403 | (27,319 | ) | 110,237,355 | 5.50 | 6.03 | ||||||||||||||||
| Subprime | 47,558,339 | (13,700,810 | ) | 33,857,529 | 721,412 | (149,648 | ) | 34,429,293 | 0.66 | 6.62 | ||||||||||||||||
| Total RMBS | $ | 492,627,985 | $ | (49,435,554 | ) | $ | 443,192,431 | $ | 13,857,609 | $ | (1,121,567 | ) | $ | 455,928,473 | 3.94 | % | 4.80 | % | ||||||||
| (1) | The Company has elected the fair value option pursuant to ASC 825 for its RMBS. Net change in unrealized gain/loss of $0.9 million is recognized in earnings as change in unrealized gain/loss on real estate securitiesand mortgage loans in the consolidated statement of operations for the three months ended March 31, 2013. | |
| (2) | Unleveraged yield. |
During the quarter ended March 31, 2013, the Company acquired Agency RMBS with a principal balance of $111.0 million for $115.4 million and non-Agency RMBS with a principal balance of $216.7 million for $175.1 million. During the same period, the Company did not sell any Agency or non-Agency RMBS. Thefair values of the Company’s Agency RMBS and non-Agency RMBS at March 31, 2013 were $182.3 million and $273.6 million, respectively.
The three-month average and the six-month average CPR for theperiods ended March 31, 2013 of the Company’s Agency RMBS were 5.2% and 7.3%, respectively. For the Company’s non-Agency RMBS, the three-month average and six-month average CPR for theperiods ended March 31, 2013 were 16.7% and 18.2%, respectively. The non-Agency RMBS CPR includes both voluntary and involuntary prepayments.
LEVERAGE AND HEDGING ACTIVITIES
As of March 31, 2013, the Company had an effective leverage ratio of 2.05x which includes$109.5 million in fair value of Agency RMBSsubject to purchase throughthe TBA securities and the Company had financing arrangements consisting of repurchase agreements outstanding of $295.6 million. These agreements are secured by a portion of the Company’s Agency RMBS and non-Agency RMBS and bear interest at rates that have historically moved in close relationship to LIBOR.
As of March 31, 2013, the Company had outstanding interest rate swap agreements designed to mitigate the effects of increases in interest rates on a portion of its repurchase agreements. These swap agreements provide for the Company to pay fixed interest rates and receive floating interest rates indexed to LIBOR, effectively fixing the floating interest rates on $169.4 million of borrowings under its repurchase agreements as of March 31, 2013.
COMMON STOCK DIVIDEND
Today, ZAIS FinancialCorp. announced that its Board of Directors declared a cash dividend of $0.22per share of common stock and OP unit.The dividend will be paid on May 31, 2013,to stockholders and OP unit holders of record as of theclose of business on May 24, 2013.
The Company’s current policy is to pay quarterly distributions which, on an annual basis, will equal all or substantially all of its net taxable income. Taxable and GAAP earnings will typically differ due to differences in premium amortization and discount accretion, certain non-taxable unrealized and realized gains and losses, and non-deductible general and administrative expenses.
INVESTOR CONFERENCE CALL
Management will host a conference call today, May 14, 2013, at 11:00 a.m. eastern time to review the Company’s financial results. The number to call for this interactive teleconference is (480) 629-9771. A replay of the conference call will be available through Tuesday May 21, 2013, by dialing (303) 590-3030 and entering the confirmation number, 4617864.
The live broadcast of ZAIS Financial Corp. quarterly conference call will also be available online at the Company's website, www.zaisfinancial.com on Tuesday May 14, 2013, beginning at 11:00 a.m. eastern time. The online replay will follow shortly after the call and will be available for approximately one year.
USE OF NON-GAAP FINANCIAL INFORMATION
In addition to the results presented in accordance with generally accepted accounting principles (“GAAP”), this press release includes certain non-GAAP financial information, including Core Earnings. Core Earnings is a non-GAAP measure that the Company defines as GAAP net income, excluding changes in unrealized gains or losses on real estate securitiesand mortgage loans, realized gains or losses on real estate securitiesand mortgage loans, gains or losses on derivative instruments, and certain non-recurring adjustments.
The Company believes that providing investors with this non-GAAP financial information, in addition to the related GAAP measures, gives investors greater transparency to the information used by management in its financial and operational decision-making. However, because Core Earnings is an incomplete measure of the Company's financial performance and involves differences from net income computed in accordance with GAAP, it should be considered along with, but not as an alternative to, the Company's net income computed in accordance with GAAP as a measure of the Company's financial performance. In addition, because not all companies use identical calculations, the Company’s presentation of Core Earnings may not be comparable to other similarly-titled measures of other companies.
The following table reconciles net income computed in accordance with GAAP with CoreEarnings:
ZAIS FINANCIAL CORP. AND SUBSIDIARIES
RECONCILIATION OF GAAP NET INCOME TO CORE EARNINGS
| Three Months Ended March 31, | ||||||||
| 2013 | 2012 | |||||||
| (unaudited) | (unaudited) | |||||||
| Net income - GAAP | $ | 1,973,695 | $ | 6,233,153 | ||||
| Recurring adjustments for non-core earnings: | ||||||||
| Change in unrealized gain / loss on real estate securities and mortgage loans | (874,371 | ) | (6,489,794 | ) | ||||
| Realized loss on real estate securities | - | 2,061,045 | ||||||
| Gain on derivative instruments | (281,144 | ) | (141,815 | ) | ||||
| Core Earnings - non-GAAP | $ | 818,180 | $ | 1,662,589 | ||||
| Core Earnings - per weighted average share outstanding - non-GAAP | $ | 0.13 | $ | 0.55 | ||||
ABOUT ZAIS FINANCIAL CORP.
ZAIS Financial Corp. is a real estate investment trust(“REIT”) which invests in, finances and manages a diversified portfolio of residential mortgage assets, other real estate-related securities and financial assets. The Company is externally managed and advised by ZAIS REIT Management, LLC, a subsidiary of ZAIS Group, LLC. Additional information can be found on the Company's website at www.zaisfinancial.com.
This press release contains statements that constitute "forward-looking statements," as such term is defined in Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, and such statements are intended to be covered by the safe harbor provided by the same. These statements are based on management's current expectations and beliefs and are subject to a number of trends and uncertainties that could cause actual results to differ materially from those described in the forward-looking statements; the Company can give no assurance that its expectations will be attained. Factors that could cause actual results to differ materially from the Company's expectations include, but are not limited to, availability of suitable investment opportunities; changes in interest rates; changes in the yield curve; changes in prepayment rates; the availability and terms of financing; general economic conditions; market conditions; conditions in the market for mortgage-related investments; legislative and regulatory changes that could adversely affect the business of the Company; and other factors, including those set forth in the Risk Factors section of the Company's Annual Report on Form 10-K for the year ended December 31, 2012 and other reports filed by the Company with the Securities and Exchange Commission (the “SEC”), copies of which are available on the SEC's website, www.sec.gov. The Company undertakes no obligation to update these statements for revisions or changes after the date of this release, except as required by law.
ZAIS FINANCIAL CORP. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
| (Expressed in United States Dollars) | ||||||
| March 31, 2013 | December 31, 2012 | |||||
| Assets | (unaudited) | |||||
| Cash | $ | 12,808,368 | $ | 19,061,110 | ||
| Restricted cash | 9,860,556 | 3,768,151 | ||||
| Real estate securities, at fair value - $354,448,161 and $133,538,998 pledged as collateral, respectively | 455,928,473 | 170,671,683 | ||||
| Mortgage loans, at fair value | 10,839,809 | - | ||||
| Derivative assets, at fair value | 436,876 | - | ||||
| Other assets | 1,870,572 | 1,345,665 | ||||
| Receivable for real estate securities sold | - | 6,801,398 | ||||
| Total assets | $ | 491,744,654 | $ | 201,648,007 | ||
| Liabilities | ||||||
| Repurchase agreements | $ | 295,609,039 | $ | 116,080,467 | ||
| Derivative liabilities, at fair value | 1,086,340 | 1,144,744 | ||||
| Accounts payable and other liabilities | 3,576,335 | 1,820,581 | ||||
| Accrued interest payable | 204,154 | 74,966 | ||||
| Common stock repurchase liability | - | 11,190,687 | ||||
| Payable for real estate securities purchased | - | 6,195,767 | ||||
| Total liabilities | 300,475,868 | 136,507,212 | ||||
| Commitments and contingencies (Note 11) | ||||||
| Stockholders’ equity | ||||||
| 12.5% Series A cumulative non-voting preferred stock, $0.0001 par value; 50,000,000 | ||||||
| shares authorized; zero shares and 133 shares issued and outstanding, respectively | - | - | ||||
| Common stock $0.0001 par value; 500,000,000 shares authorized; | ||||||
| 7,970,886 shares issued and 7,970,886 shares outstanding, and | ||||||
| 2,586,131, shares issued and 2,071,096 shares outstanding, respectively | 798 | 207 | ||||
| Additional paid-in capital | 164,401,707 | 39,759,770 | ||||
| Retained earnings | 6,941,163 | 5,281,941 | ||||
| Total ZAIS Financial Corp. stockholders' equity | 171,343,668 | 45,041,918 | ||||
| Non-controlling interests in Operating Partnership | 19,925,118 | 20,098,877 | ||||
| Total stockholders' equity | 191,268,786 | 65,140,795 | ||||
| Total liabilities and stockholders' equity | $ | 491,744,654 | $ | 201,648,007 | ||
ZAIS FINANCIAL CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
| (Expressed in United States Dollars) | ||||||
| Three Months Ended March 31, | ||||||
| 2013 | 2012 | |||||
| Interest income | ||||||
| Real estate securities | $ | 3,407,127 | $ | 2,761,050 | ||
| Mortgage loans | 28,906 | - | ||||
| Total interest income | 3,436,033 | 2,761,050 | ||||
| Interest expense | ||||||
| Repurchase agreements | 514,035 | 288,740 | ||||
| Total interest expense | 514,035 | 288,740 | ||||
| Net interest income | 2,921,998 | 2,472,310 | ||||
| Other gains / (losses) | ||||||
| Change in unrealized gain / loss on real estate securities and mortgage loans | 874,371 | 6,489,794 | ||||
| Realized loss on real estate securities | - | (2,061,045 | ) | |||
| Gain on derivative instruments | 281,144 | 141,815 | ||||
| Total other gains / (losses) | 1,155,515 | 4,570,564 | ||||
| Expenses | ||||||
| Professional fees | 1,261,184 | 545,111 | ||||
| Advisory fee - related party | 488,385 | 227,295 | ||||
| General and administrative expenses | 354,249 | 37,315 | ||||
| Total expenses | 2,103,818 | 809,721 | ||||
| Net income | 1,973,695 | 6,233,153 | ||||
| Net income allocated to non-controlling interests | 299,094 | - | ||||
| Preferred dividends | 15,379 | 3,417 | ||||
| Net income attributable to ZAIS Financial Corp. | ||||||
| common stockholders | $ | 1,659,222 | $ | 6,229,736 | ||
| Net income per share applicable to common | ||||||
| stockholders - basic and diluted | $ | .32 | $ | 2.06 | ||
| Weighted average number of shares of common stock: | ||||||
| Basic | 5,142,053 | 3,022,617 | ||||
| Diluted | 6,068,967 | 3,022,617 | ||||