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Press Release

Five Oaks Investment Corp. Reports First Quarter 2018 Financial Results

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:

For the period ended

March 31, 2018

Agency MBS

Multi-Family MBS
(1)(2)

Non-Agency
RMBS (1)(2)

Residential
Loans (3)

Unrestricted
Cash  (4)

Total

Amortized Cost

1,118,672,405

15,991,089

11,063,922

4,951,539

42,257,248

1,192,936,203

Market Value

1,095,189,264

20,339,324

4,152,493

4,027,374

42,257,248

1,165,965,703

Repurchase Agreements

1,174,281,000)

-

(2,779,000)

-

-

(1,177,060,000)

Hedges

18,132,700

-

-

-

-

18,132,700

Other (5)

146,476,696

28,836

43,516

-

(1,143,428)

145,405,620

Restricted Cash and Due to Broker

(2,082,900)

-

-

-

-

(2,082,900)

Equity Allocated

83,434,760

20,368,160

1,417,009

4,027,374

41,113,820

150,361,123








Debt/Net Equity (6)

14.07

-

1.96

-

-

7.83















For the period ended

March 31, 2018

Agency MBS

Multi-Family MBS

Non-Agency
RMBS

Residential 

 Loans (7)

Unrestricted
Cash

Total

Yield on Earning Assets (8)

2.22%

15.83%

-0.39%

23.23%

-

2.46%

Less Cost of Funds

1.55%

0.18%

1.18%

-

-

1.49%

Net Interest Margin (9)

0.67%

15.65%

-1.58%

23.23%

-

0.98%




(1)

Information with respect to Non-Agency RMBS and Multi-Family MBS, and the resulting total is presented on a non-GAAP basis. On a GAAP basis, which excludes the impact of consolidation of the FREMF 2011-K13, FREMF 2012-KF01, and CSMC 2014-OAK1 Trusts, the fair value of both our investments in Non-Agency RMBS and Multi-Family MBS is zero.

(2)

Includes the fair value of our net investments in the FREMF 2011-K13, FREMF 2012-KF01, and CSMC 2014-OAK1 Trusts.

(3)

Includes mortgage servicing rights.

(4)

Includes cash and cash equivalents.

(5)

Includes interest receivable, prepaid and other assets, interest payable, dividend payable and accrued expenses and other liabilities.

(6)

 

Ratio is a reflection of the average haircuts for each asset categories. It does not reflect or include the unrestricted cash that the Company set aside for these asset categories.

(7)

Includes income on mortgage servicing rights.

(8)

Information is presented on a non-GAAP basis. On a GAAP basis, the total yield on average interest earning assets is 2.26%.

(9)

Net Interest Margin is the difference between our Yield on Earning Assets and our Cost of Funds.


 

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:


Quarter Ended March 31, 2018 

Quarter Ended December 31, 2017




Earnings

Earnings

Per diluted
weighted share

Annualized
return on
average
equity

Earnings

Per diluted
weighted share

Annualized
return on
average
equity

Core Earnings *

$926,625

$                0.04

1.63%

$   2,299,279

$              0.10

4.07%

GAAP Net Income (Loss)

$10,434,491

$              0.45

18.37%

$   8,000,436

$            0.36

14.15%

Comprehensive Income (Loss)

$(430,856)

$             (0.02)

(0.76)%

$   (1,410,949)

$            (0.06)

(2.49)%








Weighted Ave Shares Outstanding 


23,392,387



22,142,926


Weighted Average Equity 


$230,310,376



$224,379,148


 

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

Month

Dividend

Record Date

Payment Date





April 2018

$0.02

April 16, 2018

April 27, 2018





May 2018

$0.02

May 15, 2018

May 30, 2018





June 2018

$0.02

June 15, 2018

June 29, 2018

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

Month

Dividend

Record Date

Payment Date





April 2018

$0.1823

April 16, 2018

April 27, 2018





May 2018

$0.1823

May 15, 2018

May 29, 2018





June 2018

$0.1823

June 15, 2017

June 27, 2017

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

GAAP to Core Earnings Reconciliation

Three Months Ended

Three Months Ended





March 31, 2018

December 31, 2017

Reconciliation of GAAP to non-GAAP Information



Net Income (loss) attributable to common shareholders

$

10,434,491

$

8,000,436

Adjustments for non-core earnings



Realized (Gain) Loss on sale of investments, net

$

2,848,007

$

(562,833)

Realized (Gain) Loss on derivative contracts, net

$

(2,792,794)

$

(170,319)

Unrealized (Gain) Loss on derivative contracts, net

$

(12,783,088)

$

(5,878,687)

Unrealized (Gain) Loss on mortgage servicing rights

$

(57,689)

$

30,136

Unrealized (Gain) Loss on multi-family loans held in securitization trusts

$

1,355,774

$

(555,799)

Unrealized (Gain) Loss on residential loans held in securitization trusts

$

255,403

$

187,426

Other income

$

-

$

(12,987)

Subtotal

$

(11,174,387)

$

(6,963,063)






Other Adjustments





Recognized compensation expense related to restricted common stock

$

4,804

$

3,951

Adjustment for consolidated securities/securitization costs

$

1,283,061

$

1,257,955

Adjustment for one-time charges

$

378,656

$

-

Core Earnings

$

926,625

$

2,299,279

Weighted average shares outstanding - Basic and Diluted


23,392,387


22,142,926






Core Earnings per weighted average shares outstanding - Basic and Diluted

$

0.04

$

0.10

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:

Multi-Family Loans held in Securitization Trusts, at fair value (1)

$

1,111,092,391

Multi-Family Securitized Debt Obligations (non-recourse) (2)

$

(1,090,602,617)

Net Carrying Value

$

20,339,324

Cash and Other

$

28,836

Net Capital in Multi-Family

$

20,368,160


(1)    Includes interest receivable

(2)    Includes interest payable

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:

Residential Loans held in Securitization Trusts, at fair value (1)(2)

$

111,134,486

Residential Securitized Debt Obligations (non-recourse) (3)

$

(106,981,993)

Net Carrying Value

$

4,152,493

Cash and Other

$

43,516

Repurchase Agreements

$

(2,779,000)

Net Capital in Non-Agency

$

1,417,009



(1)    Excludes $1,005,825 in Mortgage Servicing Rights

(2)    Includes interest receivable

(3)    Includes interest payable           

 

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.

 

FIVE OAKS INVESTMENT CORP. AND SUBSIDIARIES




Consolidated Balance Sheets













03/31/2018


12/31/2017

ASSETS

(unaudited)



Available-for-sale securities, at fair value (includes pledged securities of $1,099,341,757 and $1,295,225,428 for March 31, 2018 and December 31, 2017, respectively)

$   1,095,189,264


$   1,290,825,648

Multi-family loans held in securitization trusts, at fair value

1,106,592,612


1,130,874,274

Residential loans held in securitization trusts, at fair value

111,764,070


119,756,455

Mortgage servicing rights, at fair value

3,021,549


2,963,861

Cash and cash equivalents

42,257,248


34,347,339

Restricted cash

11,658,225


11,275,263

Deferred offering costs

186,999


179,382

Accrued interest receivable

8,854,367


8,852,036

Investment related receivable (includes pledged securities of $138,262,099 for March 31, 2018)

143,801,279


7,461,128

Derivative assets, at fair value

18,132,700


5,349,613

Other assets

512,358


656,117





Total assets

$        2,541,970,671


$        2,612,541,116





LIABILITIES AND STOCKHOLDERS' EQUITY




LIABILITIES:




Repurchase agreements:




Available-for-sale securities

$        1,177,060,000


$        1,234,522,000

Multi-family securitized debt obligations

1,086,279,589


1,109,204,743

Residential securitized debt obligations

106,676,747


114,418,318

Accrued interest payable

6,009,300


6,194,464

Dividends payable

39,132


39,132

Deferred income

273,968


222,518

Due to broker

13,741,125


1,123,463

Fees and expenses payable to Manager

1,319,711


752,000

Other accounts payable and accrued expenses

209,976


273,201





Total liabilities

$        2,391,609,548


$        2,466,749,839





COMMITMENTS AND CONTINGENCIES (NOTE 15)








STOCKHOLDERS' EQUITY:




Preferred Stock: par value $0.01 per share; 50,000,000 shares authorized, 8.75% Series A cumulative redeemable, $25 liquidation preference, 1,610,000 and 1,610,000 issued and outstanding at March 31, 2018 and December 31, 2017, respectively

37,156,972


37,156,972

Common Stock: par value $0.01 per share; 450,000,000 shares authorized, 23,683,164 and 22,143,758 shares issued and outstanding, at March 31, 2018 and December 31, 2017, respectively

236,787


221,393

Additional paid-in capital

231,348,163


224,048,169

Accumulated other comprehensive income (loss)

(25,919,831)


(15,054,484)

Cumulative distributions to stockholders

(107,845,430)


(104,650,235)

Accumulated earnings (deficit)

15,384,462


4,069,462





Total stockholders' equity

150,361,123


145,791,277





Total liabilities and stockholders' equity

$        2,541,970,671


$        2,612,541,116





 

FIVE OAKS INVESTMENT CORP. AND SUBSIDIARIES




Condensed Consolidated Statements of Operations













Three Months Ended March 31,


2018


2017

Revenues:




Interest income:




Available-for-sale securities

$                7,079,590


$                6,822,622

Mortgage loans held-for-sale

-


28,763

Multi-family loans held in securitization trusts

13,227,188


13,948,754

Residential loans held in securitization trusts

1,147,641


1,355,438

Cash and cash equivalents

61,042


35,734

Interest expense:




Repurchase agreements - available-for-sale securities

(4,951,537)


(2,095,474)

Multi-family securitized debt obligations

(12,526,295)


(13,237,724)

Residential securitized debt obligations

(920,057)


(1,074,352)

Net interest income

3,117,572


5,783,761

Other income:




Realized gain (loss) on sale of investments, net

(2,848,007)


(9,317,003)

Change in unrealized gain (loss) on fair value option securities

-


9,448,270

Realized gain (loss) on derivative contracts, net

2,792,794


2,233,051

Change in unrealized gain (loss) on derivative contracts, net

12,783,088


(3,077,088)

Realized gain (loss) on mortgage loans held-for-sale, net

-


(174)

Change in unrealized gain (loss) on mortgage loans held-for-sale

-


(3,709)

Change in unrealized gain (loss) on mortgage servicing rights

57,689


(126,446)

Change in unrealized gain (loss) on multi-family loans held in securitization trusts

(1,355,774)


1,299,630

Change in unrealized gain (loss) on residential loans held in securitization trusts

(255,403)


(368,343)

Other interest expense

-


(152,322)

Servicing income

219,978


252,738

Other income

15,875


12,171

Total other income (loss)

11,410,240


200,775

Expenses:




Management fee

576,135


544,510

General and administrative expenses

1,390,061


1,588,572

Operating expenses reimbursable to Manager

746,092


1,208,943

Other operating expenses

404,469


220,496

Compensation expense

96,055


52,874

Total expenses

3,212,812


3,615,395

Net income (loss)

11,315,000


2,369,141

Dividends to preferred stockholders

(880,509)


(880,509)

Net income (loss) attributable to common stockholders

$              10,434,491


$                1,488,632

Earnings (loss) per share:




Net income (loss) attributable to common stockholders (basic and diluted)

$              10,434,491


$                1,488,632

Weighted average number of shares of common stock outstanding

23,392,387


17,539,258

Basic and diluted income (loss) per share

$                         0.45


$                         0.08

Dividends declared per weighted average share of common stock

$                         0.10


$                         0.15





 

Five Oaks Investment Corp. logo. (PRNewsFoto/Five Oaks Investment Corp.)

 

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SOURCE Five Oaks Investment Corp.

David Oston, Chief Financial Officer, Five Oaks Investment Corp. (212) 588 2049