Real estate investment trust ZAIS Financial Corp.'s acquisition of privately owned mortgage company GMFS proved to be highly dilutive to earnings, according to figures released Wednesday.
ZAIS' net income fell by more than 97% to $216,938 in the fourth quarter of 2014 from over $9 million during the same period the year before. Earnings per diluted share were 2 cents.
This was the expected result of its acquisition of Baton Rouge, La.-based GMFS, which was completed at the end of October 2014. The addition of GMFS contributed to $4.6 million in additional expenses, which was offset in part by increases to noninterest income, net interest income and in tax benefit.
The Red Bank, N.J., REIT's interest expense also grew to $4.4 million from $3.1 million during the fourth quarter of 2013, largely on interest expense related to GMFS warehouse lines of credit, increased borrowing from the REIT's loan repurchase facility with Citibank, and the impact of interest expense on senior notes issued in November 2013.
Despite the growth in expenses — from $2.7 million in 2013 to $8.2 million in 2014 — the REIT's revenue rose. Net interest income increased slightly to $5.8 million this quarter from $5.6 million the year prior. The acquisition of GMFS also added nearly $5.5 million in income from mortgage banking to the mix.
Looking ahead to fiscal year 2015, the REIT expects its acquisition of GMFS to pay off even more.
"This transaction has immediate financial benefits while also bringing long-term strategic benefits to the company," said Michael Szymanski, ZAIS president and CEO, in the earnings release.
"Additionally, we are continuing to expand the loan purchase program for newly originated, nonagency mortgage loans while maintaining discipline in pricing and risk management. We will continue to broaden our operational capabilities as we execute on our residential mortgage market strategy."
