OAKS Five Oaks Investment Corp. (delisted)

NEW YORK, May 10, 2017 /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, 2017. For the first quarter, the Company reported GAAP net income of $1.5 million, or $0.08 per basic and diluted share, comprehensive income of $5.0 million, or $0.29 per basic and diluted share, and core earnings ⁽¹⁾ of $2.7 million, or $0.15 per basic and diluted share. The Company also reported a net book value of $6.14 per share on a basic and diluted basis at March 31, 2017.

First Quarter Summary

• Realized a positive economic return on our common stock of 4.8% (19.3% annualized), comprised of $0.14 increase in net book value per share and $0.15 dividend per common share ⁽²⁾.
• We continued the reduction of Non-Agency RMBS exposure from $12.8 million at December 31, 2016 to $4.9 million at March 31, 2017 (on a non-GAAP combined basis).  We also reduced our Multi-Family MBS exposure from $91.5 million at December 31, 2016 to $55.5 million at March 31, 2017.
• We continued to redeploy a portion of the capital released from selling down our credit exposure into Agency RMBS, which increased from $790.2 million at December 31, 2016 to $999.9 million at March 31, 2017. In order to minimize the potential impact of interest rate volatility, the increase was composed of purchases of Agency hybrid-ARMs.

⁽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.

Management Observations

David Carroll, Five Oaks' Chairman and CEO commented: "As we had anticipated when reporting our fourth quarter 2016 results, market expectations for speedy implementation of the new administration's economic and fiscal plans faded somewhat during the first quarter, and market conditions as a result exhibited lower volatility than the prior quarter. The 10-year treasury fluctuated within a relatively narrow band of 2.31% to 2.63%, but uncertainty persists with regard to the extent and timing of future Federal Reserve interest rate increases as well as the manner in which the Fed plans to begin reducing their balance sheet investment portfolio. Mortgage spreads have already widened out somewhat since quarter end, likely in anticipation of future Fed actions, and we retain a defensive bias in expectation that there may be further spread widening to come as such actions unfold.

We have now effectively completed our transition to a simpler business strategy that is easier to understand. In particular, we have sold substantially all of our Non-Agency RMBS securities, and significantly reduced our Multi-Family MBS exposure, focusing on those positions that were repo financed. We have continued to reallocate a portion of the capital released from these sales into intermediate Agency hybrid floating-rate securities, a sector that we believe still offers attractive risk-adjusted investment opportunities, and for which financing conditions remain positive after last year's money market reforms. I am particularly pleased that an increase of $0.14 in book value per share made a positive contribution to our overall economic return of 4.8% for the quarter. While this will not always be possible should volatility spike again, I do believe it validates our continued focus on methodical and dynamic hedging strategies. On the cost side, as is typical, the first quarter included some front-loading of annual expenses and some residual expenses associated with our exit from the prime jumbo business. We expect the cost reduction benefits of this to be evident over the remainder of the year,

Looking ahead to the balance of 2017, we will continue to search for incremental cost saving opportunities, as well as further growth of our backstop guarantee business for rep and warranty risk on prime jumbo mortgage loans. When combined with our core holdings in Multi-Family MBS, I believe that our simplified business strategy concentrated on the Agency hybrid sector positions us well within the mortgage REIT sector".

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, 2017:

Comparative Expenses

The following table provides a detailed breakdown of the composition of our expenses on a non-GAAP basis for the quarters ended March 31, 2017 and December 31, 2016 (percentages are annualized):

The increase in G&A, Other Operating, Reimbursable and Compensation Expenses as a percentage of Capital over the past quarter is primarily a function of higher audit, administrator and legal expenses relative to the fourth quarter of 2016. Certain of these expenses are front-loaded for the year, and accordingly we anticipate a decline in such expenses for the remainder of 2017.

Operating Performance

The following table summarizes the Company's GAAP and non-GAAP earnings measurements for the quarters ended March 31, 2017 and December 31, 2016:

Stockholders' Equity and Book Value Per Share

As of March 31, 2017, our stockholders' equity was $144.9 million and our book value per common share was $6.14 on a basic and fully diluted basis.

Dividends

The Company declared a dividend of $0.05 per share of common stock for the months of April, May and June 2017.

Second Quarter 2017 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 2017 of $0.1823 per share of Series A Preferred Stock:

Second Quarter 2017 Series A Preferred Stock Dividends

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.

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, 2017 and December 31, 2016 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.

Additional Information

As of March 31, 2017, 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, 2017 is set forth below:

As of March 31, 2017, 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, 2017 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, primarily through dividends and secondarily through capital appreciation. Five Oaks Investment Corp. is externally managed and advised by Oak Circle Capital Partners 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., 540 Madison Avenue, 19 ^th  Floor, New York, NY 10022, Attention: Investor Relations.

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SOURCE Five Oaks Investment Corp.