OAKS Five Oaks Investment Corp. (delisted)

NEW YORK, May 10, 2018 /PRNewswire/ -- Five Oaks Investment Corp. (NYSE: OAKS) ("we", "Five Oaks" or "the Company") today announced its financial results for the first quarter ended March 31, 2018. For the first quarter, the Company reported GAAP net income attributable to common shareholders of $10.4 million, or $0.45 per basic and diluted share, a comprehensive loss of $0.4 million, or $0.02 per basic and diluted share, and core earnings ⁽¹⁾ of $0.9 million, or $0.04 per basic and diluted share. The Company also reported a net book value of $4.78 per share on a basic and diluted basis at March 31, 2018.

First Quarter Summary and Subsequent Events

• Reported an economic loss on common equity of 0.6% for the quarter after accounting for dividends of $0.10⁽²⁾.
• Reduced our Agency RMBS exposure from $1,285.1 million as of December 31, 2017 to $1,095.2 million as of March 31, 2018. The capital released from this reduction is expected to be redeployed into new investment opportunities in the commercial real estate space; since quarter end, we have sold an additional $605.6 million in Agency RMBS.
• During the quarter, we continued the reduction of our credit risk MBS exposure. We reduced our Multi-Family MBS exposure from $27.4 million at December 31, 2017 to $20.3 million as of March 31, 2018 (on a non-GAAP combined basis).
• On January 18, 2018, we issued 1,539,406 shares of common stock, for $4.77 per share, raising net proceeds of approximately $7.3 million in connection with the Hunt Transaction.
• As a first and significant step in our strategic transition, on April 30, 2018, the Company announced that it had acquired 100% of the equity interests of Hunt CMT Equity, LLC from Hunt Mortgage Group, LLC for an aggregate purchase price of approximately $68.05 million. Assets of Hunt CMT Equity, LLC include the junior retained notes and preferred shares of a commercial real estate collateralized loan obligation, a licensed commercial mortgage lender and eight loan participations.

⁽¹⁾ Core Earnings is a non-GAAP measure that we define as GAAP net income, excluding impairment losses, realized and unrealized gains or losses on the aggregate portfolio and certain non-recurring upfront costs related to securitization transactions or other one-time charges. As defined, Core Earnings includes interest income or expense and premium income or loss on derivative instruments.

⁽²⁾ Economic return is a non-GAAP measure that we define as the sum of the change in net book value per common share and dividends declared on our common stock during the period over the beginning net book value per common share.

The Hunt Transaction And New Strategic Direction

On January 18, 2018, we announced a new strategic direction, and the entry into a new external management agreement with Hunt Investment Management, LLC, an affiliate of the Hunt Companies Inc. ("Hunt").  Under management by Hunt, Five Oaks is expected to endeavor to reallocate capital into investment opportunities focused in the commercial real estate mortgage space and gain direct access to Hunt's significant pipeline of transitional floating-rate multi-family and commercial real estate loans.

In connection with the transaction, an affiliate of Hunt purchased 1,539,406 shares of our common stock in a private placement, at a purchase price of $4.77 per share resulting in an aggregate capital raise of $7,342,967.  In addition, an affiliate of Hunt also purchased 710,495 Five Oaks shares from our largest shareholder, XL Investments Ltd. ("XL Investments"), for the same price per share. After completion of these share purchases, Hunt and its affiliates own approximately 9.5% of Five Oaks outstanding common shares.  Also in connection with the transaction, the Five Oaks board appointed James C. ("Chris") Hunt as a director and Chairman of the board and named James P. Flynn as CEO of Five Oaks and Michael P. Larsen as President of Five Oaks.

As a first and significant step in our strategic transition, we announced on April 30, 2018 that we had acquired 100% of the equity interests of Hunt CMT Equity, LLC from Hunt Mortgage Group, LLC for an aggregate purchase price of approximately $68.05 million. Assets of Hunt CMT Equity, LLC include the junior retained notes and preferred shares of a commercial real estate collateralized loan obligation, a licensed commercial mortgage lender and eight loan participations. The assets of the CLO consist of performing transitional floating rate commercial mortgage loans with a portfolio balance of $346.3 million as of March 31, 2018, collateralized by a diverse mix of property types, including multifamily, retail, office, mixed use, industrial and student housing. The securitization pool is financed by $290.7 million of investment grade notes that bear a weighted average cost of 138 basis points over one month LIBOR, excluding fees and transaction costs. The CLO has a replenishment period that allows principal proceeds from repayments of the portfolio assets to be reinvested in qualifying replacement assets, subject to certain conditions.

Management Observations

James Flynn, CEO commented: "The modest decline in our first quarter book value can be viewed relatively positively given the meaningful rise in interest rates during the quarter. We also began the process of transitioning our portfolio out of RMBS securities, and after quarter end we concluded the first meaningful step in reallocating capital towards commercial real estate mortgage assets with the successful conclusion of the Hunt CMT Equity transaction. Going forward, we anticipate further similar investments as we continue to reposition the Company's business in line with our new strategic direction.".

Investment Portfolio and Capital Allocation

The following table summarizes certain characteristics of our investment portfolio and the related allocation of our equity capital on a non-GAAP combined basis as of March 31, 2018:

Operating Performance

The following table summarizes the Company's GAAP and non-GAAP earnings measurements for the quarters ended March 31, 2018 and December 31, 2017:

Stockholders' Equity and Book Value Per Share

As of March 31, 2018, our stockholders' equity was $150.4 million and our book value per common share was $4.78 on a basic and fully diluted basis.

Dividends

The Company declared a dividend of $0.02 per share of common stock for the months of April, May and June 2018.

Second Quarter 2018 Common Stock Dividends

In accordance with the terms of the 8.75% Cumulative Redeemable Preferred Stock ("Series A Preferred Stock") of the Company, the board of directors has also declared monthly cash dividend rates for the second quarter of 2018 of $0.1823 per share of Series A Preferred Stock:

Second Quarter 2018 Series A Preferred Stock Dividends

Non-GAAP Financial Measures

For financial statement reporting purposes, GAAP requires us to consolidate the assets and liabilities of the FREMF 2011-K13, FREMF 2012-KF01, and CSMC 2014-OAK1 Trusts.  However, our maximum exposure to loss from consolidation of the trusts is limited to the fair value of our net investment therein. We therefore have also presented certain information as of March 31, 2018 and December 31, 2017 that includes our net investments in the consolidated trusts. This information as well as core earnings, economic return and comparative expenses constitute non-GAAP financial measures within the meaning of Item 10(e) of Regulation S-K, as promulgated by the SEC. While we believe the non-GAAP information included in this press release provides supplemental information to assist investors in analyzing that portion of our portfolio composed of Non-Agency RMBS and Multi-Family MBS, and to assist investors in comparing our results with other peer issuers, these measures are not in accordance with GAAP, and they should not be considered a substitute for, or superior to, our financial information calculated in accordance with GAAP. Our GAAP financial results and the reconciliations from these results should be carefully evaluated.

Reconciliation of GAAP to Core Earnings

Additional Information

As of March 31, 2018, we have determined that we were the primary beneficiary of two Multi-Family MBS securitization trusts, the FREMF 2011-K13 Trust, and the FREMF 2012-KF01 Trust. As a result, we are required to consolidate the trusts' underlying multi-family loans together with their liabilities, income and expenses in our consolidated financial statements. We have elected the fair value option on the assets and liabilities held within the trusts, which requires that changes in valuation in the assets and liabilities of these trusts be reflected in our consolidated statements of operations.

A reconciliation of our net capital investment in multi-family investments to our financial statements as of March 31, 2018 is set forth below:

As of March 31, 2018, we have determined that we were the primary beneficiary of one prime jumbo residential mortgage securitization trust, CSMC 2014-OAK1. As a result, we are required to consolidate the trusts' underlying prime jumbo residential loans together with their liabilities, income and expenses in our consolidated financial statements. We have elected the fair value option on the assets and liabilities held within the trusts, which requires that changes in valuation in the assets and liabilities of the trusts be reflected in our consolidated statements of operations.

A reconciliation of our net capital investment in Non-Agency RMBS to our financial statements as of March 31, 2018 is set forth below:

Five Oaks Investment Corp.

Five Oaks Investment Corp. is a real estate investment trust ("REIT") focused with its subsidiaries on investing on a leveraged basis in mortgage and other real estate-related assets, particularly mortgage-backed securities ("MBS"), including residential mortgage-backed securities ("RMBS") and multi-family mortgage-backed securities ("Multi-Family MBS"), and mortgage servicing rights. The Company's objective remains to deliver attractive cash flow returns over time to its investors.

Five Oaks Investment Corp. is externally managed and advised by Hunt Investment Management, LLC.

Additional Information and Where to Find It

Investors, security holders and other interested persons may find additional information regarding the Company at the SEC's Internet site at http://www.sec.gov/ or the Company website www.fiveoaksinvestment.com or by directing requests to: Five Oaks Investment Corp., 230 Park Avenue, 19th Floor, New York, NY 10169, Attention: Investor Relations.

Forward-Looking Statements

This press release includes "forward-looking statements" within the meaning of the U.S. securities laws that are subject to risks and uncertainties. These forward-looking statements include information about possible or assumed future results of the Company's business, financial condition, liquidity, results of operations, plans and objectives. You can identify forward-looking statements by use of words such as "believe," "expect," "anticipate," "estimate," "plan," "continue," "intend," "should," "may" or similar expressions or other comparable terms, or by discussions of strategy, plans or intentions. Statements regarding the following subjects, among others, may be forward-looking: the return on equity; the yield on investments; the ability to borrow to finance assets; and risks associated with investing in real estate assets, including changes in business conditions, interest rates, the general economy and political conditions and related matters. Forward-looking statements are based on the Company's beliefs, assumptions and expectations of its future performance, taking into account all information currently available to the Company. Actual results may differ from expectations, estimates and projections and, consequently, you should not rely on these forward looking statements as predictions of future events. Forward-looking statements are subject to substantial risks and uncertainties, many of which are difficult to predict and are generally beyond the Company's control. Additional information concerning these and other risk factors are contained in the Company's most recent filings with the Securities and Exchange Commission, which are available on the Securities and Exchange Commission's website at www.sec.gov.

All subsequent written and oral forward-looking statements that the Company makes, or that are attributable to the Company, are expressly qualified in their entirety by this cautionary notice. Any forward-looking statement speaks only as of the date on which it is made. Except as required by law, the Company is not obligated to, and does not intend to, update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.

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SOURCE Five Oaks Investment Corp.