NEW YORK, Nov. 12, 2014 /PRNewswire/ — Five Oaks Investment Corp. (NYSE: OAKS) ("Five Oaks" or "the Company") today announced its financial results for the quarter ended September 30, 2014.

Quarterly Highlights

  • Reported comprehensive net income attributable to common stockholders of $0.18 per common share for the quarter ended September 30, 2014, including net income per common share of $0.28 and other comprehensive income/(loss) ("OCI") of $(0.10) per common share.
  • Reported Book Value of $12.50 per share on a basic and diluted basis at September 30, 2014.
  • Delivered a positive economic return on common equity of 0.9%, or 3.6% annualized, comprised of $0.38 dividend per common share more than offsetting a $0.26 decrease in net book value per share.
  • Acquired on September 16, 2014 in the secondary market our first investment in the first loss tranche of a Freddie Mac K-Series Multi-Family MBS transaction, together with a related interest-only tranche, for a combined investment amount of $55.5 million, and consolidated the assets and liabilities of the Trust in our third quarter financial statements. The consolidated liabilities of the Trust only have recourse to the Trust's assets, and are therefore non-recourse to us as the consolidator.
  • Increased the level of our investments in prime jumbo mortgage loans, and, shortly after the end of the quarter on October 9, 2014, concluded our inaugural participation in a prime jumbo securitization transaction. We were the largest single contributor of loans, selling approximately $106 million to the securitization trust.  Having purchased all of the subordinated Class B certificates, we expect to consolidate the assets and liabilities of the Trust in our fourth quarter financial statements.
  • Declared a monthly common stock dividend of $0.125 per share for October, November and December 2014.

Management Observations

David Carroll, Five Oaks' Chairman and CEO commented: "Against a somewhat choppy economic and interest rate backdrop, we delivered another positive economic return to stockholders. Just as importantly, we continued to make continued significant progress in changing our business model to that of an operating company focused on credit. Having already invested in several mezzanine tranches of the Freddie Mac Multi-Family K-Series, we bought our initial first loss tranche in such a deal, and consolidated the trust on the balance sheet. Jumbo mortgage loan volumes continued to increase, and just after quarter end, we contributed over $100mm to a J.P. Morgan securitization transaction. We bought all of the subordinated classes from this deal, and therefore expect to consolidate the trust's assets and liabilities in the fourth quarter, in line with our previously announced strategy of being actively involved in the quality of credit risk being originated for our balance sheet. We look forward to continuing the progress made in the third quarter of 2014 towards our goal of building an operating company model focused on new issue mortgage credit opportunities."

Third Quarter 2014 Operating Results

For the quarter ended September 30, 2014, the Company reported net income attributable to common stockholders of $4.2 million, or $0.28 per basic and diluted share. Our comprehensive income attributable to common stockholders was $2.6 million, or $0.18 per basic and diluted share. Besides net interest income of $4.7 million for the third quarter, the main driver of the result was net other income of $3.4 million. This comprised unrealized gain and net interest income on Linked Transactions totaling $0.8 million and realized gains of $1.0 million on sale of investments, combined with net realized and unrealized gains on derivatives aggregating $0.9 million, net realized and unrealized gains on mortgage loans held for sale of $0.4 million, and unrealized gain on multi-family mortgage loans held in securitization trusts of $0.3 million. Our total expenses for the third quarter were $2.9 million, up 23.8% from the second quarter of 2014, and primarily due to continued build out of our residential whole loan strategy.

Stockholders' Equity and Book Value Per Share

As of September 30, 2014, our stockholders' equity was $221.1 million, up 1.3% from $218.3 million at the end of the second quarter. Our book value per common share was $12.50 on a basic and fully diluted basis. This represents a 2.0% decline in book value per common share from $12.76 as of June 30, 2014, reflecting the issuance of an additional 525,000 shares in July 2014 pursuant to the underwriters' exercise of the "green shoe" relating to our June 2014 common stock offering, offset by dividends paid during the quarter.

Investment Portfolio

The following table summarizes certain characteristics of our investment portfolio as of September 30, 2014 on a non-GAAP combined basis (which reflects the inclusion of the Non-Agency RMBS underlying our Linked Transactions, and Multi-Family MBS underlying both our Linked Transactions and our net investment in the 2011-K13 Trust combined with our GAAP-reported RMBS):

 

$ in thousands

 

Principal 

 Balance

   

Unamortized 

 Premium 

 (Discount)

   

Designated 

 Credit 

 Reserve

   

Amortized 

 Cost

   

Unrealized 

 Gain/

 (Loss)

   

Fair 

 Value

   

Net 

 Weighted 

 Average 

 Coupon(1)

   

Average 

 Yield(2)

 

Agency RMBS

                                                               

15 year fixed-rate

 

$

2,616

   

$

64

   

$

   

$

2,679

   

$

(37)

   

$

2,642

     

2.50

%

   

1.97

%

30 year fixed-rate

   

118,304

     

6,672

     

     

124,976

     

(3,975)

     

121,001

     

3.50

%

   

2.69

%

Hybrid ARMS

   

320,757

     

(740)

     

     

320,016

     

2,155

     

322,171

     

2.44

%

   

2.68

%

                                                                 

Total Agency RMBS

   

441,676

     

5,996

     

     

447,672

     

(1,857)

     

445,815

     

2.72

%

   

2.68

%

 

Non-Agency RMBS

   

309,865

     

(56,195)

     

(57,501)

     

196,170

     

17,109

     

213,279

     

0.39

%

   

7.74

%

 

Multi-Family MBS

   

34,283

     

(78)

     

     

34,204

     

282

     

34,486

     

5.35

%

   

5.39

%

Multi-Family MBS PO

   

98,760

     

(25,692)

     

     

73,069

     

2,487

     

75,556

     

0.00

%

   

6.36

%

 

Total Multi-Family MBS

   

133,043

     

(25,770)

     

     

107,273

     

2,769

     

110,042

     

1.38

%

   

6.05

%

 

Multi-Family MBS IO, fair value option

   

1,024,656

     

     

     

7,845

     

(35)

     

7,810

     

0.18

%

   

N/A

 

Multi-Family MBS PO, fair value option

   

79,746

     

     

     

47,671

     

320

     

47,992

     

0.00

%

   

N/A

 

 

Total Multi-Family MBS, fair value option

   

1,104,403

     

     

     

55,516

     

285

     

55,802

     

0.16

%

   

N/A

 
                                                                 

Residential Mortgage Loans

   

226,430

     

     

     

226,430

     

567

     

226,997

     

4.27

%

   

4.27

%

 

Total/Weighted Average (GAAP)

 

$

2,215,417

   

$

(75,969)

   

$

(57,501)

   

$

1,033,061

   

$

18,873

   

$

1,051,934

     

1.20

%

   

4.44

%

 

(1)Weighted average coupon is presented net of servicing and other fees.

(2)Average yield incorporates future prepayment assumptions.

(3)Non-Agency RMBS and Multi-Family MBS is presented on a non-GAAP combined basis (which reflects the inclusion of the Non-Agency RMBS underlying our Linked Transactions, and Multi-Family MBS underlying both our Linked Transactions and our net investment in the 2011-K13 Trust, combined with our GAAP-reported MBS).

Portfolio Financing and Hedging

At September 30, 2014, the Company financed its MBS investment portfolio with borrowings under master repurchase agreements of $499.4 million, on a GAAP basis, and $685.7 million on a non-GAAP basis (including the repurchase agreement financing associated with the Non-Agency RMBS underlying Linked Transactions, and Multi-Family MBS underlying both our Linked Transactions and our net investment in the 2011-K13 Trust). The Company financed its residential mortgage loans under two additional master repurchase agreements and one loan and security agreement, with borrowings of $205.2 million on both a GAAP and non-GAAP basis at September 30, 2014. Our weighted average borrowing cost under our MBS financing agreements was 0.57%, on a GAAP basis, and 0.89% on a non-GAAP basis as of September 30, 2014. As of September 30, 2014, the weighted average borrowing cost under our residential mortgage loan financing agreements was 2.55%. As of September 30, 2014, we borrowed 3.2 times our stockholders' equity on a GAAP basis, and 4.0 times on a non-GAAP basis representing, an increase from 2.3 times and 3.3 times, respectively, as of June 30, 2014, as we fully deployed the net proceeds of our June 2014 common stock offering.

The Company is also a party to approximately $226 million notional amount of pay-fixed receive-LIBOR swaps that have variable maturities of up to ten years, certain of which have forward start dates. The Company is also party to one interest rate swaption. The following table summarizes our hedging activity as of September 30, 2014:

 

Current Maturity Date for Interest 

 Rate Swaps

 

Notional 

 Amount

 

Fair Value

 

Fixed 

 Rate Pay

   

Receive 

 Rate

   

Maturity 

 Years

 

3 years or less

 

35,000,000

 

(109,480)

 

0.66

%

 

0.19

%

 

1.4

 

Greater than 3 years and less than 5 years

 

191,000,000

 

(720,280)

 

1.66

%

 

0.23

%

 

4.0

 

Total

 

226,000,000

 

(829,759)

 

1.51

%

 

0.23

%

 

3.6

 

 

   

Option

 

Underlying Swap

Current Option 

 Expiration Date for 

 Interest Rate 

 Swaptions

 

Cost

 

Fair  Value

 

Weighted 

 Average 

 Years to 

 Expiration

 

Notional  

 Amount

 

Pay Rate

   

Weighted  

Average Term 

 (Years)

2 years or less

 

168,000

 

325,880

 

0.5

 

25,000,000

 

3.00%

   

10.0

 

Dividends

The Company declared a dividend of $0.125 per share of common stock for the months of October, November and December 2014. Based on the closing price of $10.50 as at September 30, 2014, this equates to an annualized dividend yield of 14.3%.

Five Oaks Investment Corp.

Five Oaks Investment Corp. is a real estate investment trust ("REIT"), and as a "hybrid" REIT is focused on investing in, financing and managing a portfolio of mortgage-backed securities ("MBS"), including residential mortgage-backed securities ("RMBS"), multi-family mortgage-backed securities ("Multi-Family MBS"), residential mortgage loans and other mortgage related investments. The Company's objective is to deliver attractive risk-adjusted returns to its investors, primarily through dividends and secondarily through capital appreciation, via an investment approach centered on taking advantage of relative value opportunities available across the whole residential mortgage market.

Five Oaks Investment Corp. is externally managed and advised by Oak Circle Capital Partners LLC.

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 and the general economy.  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 account for certain of our Non-Agency RMBS and Multi-Family MBS and the associated repurchase agreement financing as Linked Transactions, and requires us to consolidate the assets and liabilities of the 2011-K13 Trust. However, in managing and evaluating the composition and performance of our MBS portfolio, we do not view the purchase of our Non-Agency RMBS or Multi-Family MBS and the associated repurchase agreement financing as transactions that are linked, and our maximum exposure to loss from consolidation of the Trust is limited to the fair value of our net investment therein. We therefore have also presented certain information that includes the Non-Agency RMBS underlying our Linked Transactions, and Multi-Family MBS underlying both Linked Transactions and our net investment in the Trust. This information constitutes non-GAAP financial measures within the meaning of Regulation G, as promulgated by the SEC. We believe that this non-GAAP information enhances the ability of investors to analyze our MBS portfolio and the performance of our MBS in the same way that we assess our MBS portfolio and such assets. 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, 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 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, 19th Floor, New York, NY 10022, Attention: Investor Relations.

 

FIVE OAKS INVESTMENT CORP. AND SUBSIDIARIES

           

Condensed Consolidated Statements of Operations

           
                           
                           
                           
                           
             

Three

 

Three

 

Nine

 

Nine

             

Months Ended

 

Months Ended

 

Months Ended

 

Months Ended

             

September 30, 2014

 

September 30, 2013

 

September 30, 2014

 

September 30, 2013

             

 (unaudited) 

 

 (unaudited) 

 

 (unaudited) 

 

 (unaudited) 

Revenues:

                 
 

Interest income:

               
   

Available-for-sale securities

$

4,513,999

$

4,338,448

$

12,904,238

$

14,924,426

   

Mortgage loans held-for-sale

 

1,310,068

 

 

1,317,585

 

   

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

2,433,318

 

 

2,433,318

 

   

Cash and cash equivalents

 

9,802

 

3,154

 

18,395

 

9,929

 

Interest expense:

               
   

Repurchase agreements – available-for-sale securities

 

(635,062)

 

(793,142)

 

(1,797,322)

 

(4,121,579)

   

Repurchase agreements – mortgage loans held-for-sale

 

(721,239)

 

 

(727,005)

 

   

Multi-family securitized debt obligations

 

(2,239,797)

 

 

(2,239,797)

 

                           
       

Net interest income

 

4,671,089

 

3,548,460

 

11,909,412

 

10,812,776

                           

Other income:

               
 

Realized gain (loss) on sale of investments, net

 

1,024,168

 

(17,080,871)

 

(2,433,071)

 

(31,358,766)

 

Unrealized gain (loss) and net interest income from Linked Transactions

 

754,189

 

(154,913)

 

15,458,922

 

111,905

 

Realized gain (loss) on derivative contracts, net

 

(9,079,091)

 

8,401,396

 

(10,771,684)

 

19,466,902

 

Unrealized gain (loss) on derivative contracts, net

 

10,009,742

 

(10,274,003)

 

(1,091,127)

 

(3,174,076)

 

Realized loss on mortgage loans held-for-sale

 

(73,132)

 

 

(73,132)

 

 

Unrealized gain on mortgage loans held-for-sale

 

474,095

 

 

567,337

 

 

Unrealized gain on multi-family loans held in securitization trusts

 

285,328

 

 

285,328

 

                           
       

Total other income (loss)

 

3,395,299

 

(19,108,391)

 

1,942,573

 

(14,954,035)

                           

Expenses:

                 
 

Management fee

 

790,188

 

413,164

 

1,880,566

 

941,166

 

General and administrative expenses

 

728,488

 

229,324

 

1,361,290

 

529,436

 

Operating expenses reimbursable to Manager

 

843,943

 

634,001

 

2,383,413

 

1,542,099

 

Other operating expenses

 

439,198

 

103,919

 

944,328

 

202,921

 

Compensation expense

 

51,408

 

74,229

 

185,890

 

159,193

                           
       

Total expenses

 

2,853,225

 

1,454,637

 

6,755,487

 

3,374,815

                           
       

Net income (loss) before provision for income taxes

 

5,213,163

 

(17,014,568)

 

7,096,498

 

(7,516,074)

 

(Provision for) benefit fron income taxes

 

(179,136)

 

 

(179,136)

 

       

Net income (loss)

$

5,034,027

$

(17,014,568)

$

6,917,362

$

(7,516,074)

                           
       

Dividends to preferred stockholders

 

(880,509)

 

 

(1,997,004)

 

(2,326)

                           
       

Net income (loss) attributable to common stockholders

$

4,153,518

$

(17,014,568)

$

4,920,358

$

(7,518,400)

                           
 

Earnings (loss) per share:

               
   

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

$

4,153,518

$

(17,014,568)

$

4,920,358

$

(7,518,400)

     

Weighted average number of shares of common stock outstanding

 

14,640,065

 

7,360,350

 

11,564,737

 

5,695,881

     

Basic and diluted income (loss) per share

$

0.28

$

(2.31)

$

0.43

$

(1.32)

   

Dividends declared per share of common stock

$

0.38

$

0.48

$

1.10

$

1.28

                           

 

 

FIVE OAKS INVESTMENT CORP. AND SUBSIDIARIES

       

Condensed Consolidated Balance Sheets

       
                   
                   
             

September 30, 2014

 

December 31, 2013

             

 (unaudited) 

   

ASSETS

       

Available-for-sale securities, at fair value (includes pledged securities of $506,275,939 and $444,984,955 for

       

     September 30, 2014 and December 31, 2013, respectively)

$

506,974,444

$

444,984,955

Mortgage loans held-for-sale, at fair value

 

226,997,450

 

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

 

1,368,692,410

   

Linked transactions, net, at fair value

 

75,804,679

 

33,352,562

Cash and cash equivalents

 

21,056,526

 

33,062,931

Restricted cash

         

37,103,295

 

13,343,173

Deferred offering costs

   

666,329

 

Accrued interest receivable

 

5,005,439

 

1,045,191

Investment related receivable

 

980,953

 

506,892

Derivative assets, at fair value

 

325,918

 

1,839,154

Other assets

           

153,481

 

66,547

                   
       

Total assets (1)

$

2,243,760,924

$

528,201,405

                   

LIABILITIES AND STOCKHOLDERS' EQUITY

       
                   

LIABILITIES:

             

Repurchase agreements:

       
 

Available-for-sale securities

$

499,462,000

$

412,172,000

 

Mortgage loans held-for-sale

 

205,161,626

 

Multi-family securitized debt obligations

 

1,312,890,841

 

Derivative liabilities, at fair value

 

669,304

 

839,413

Accrued interest payable

 

2,935,156

 

274,615

Dividends payable

     

29,349

 

42,501

Fees and expenses payable to Manager

 

855,000

 

330,000

Other accounts payable and accrued expenses

 

503,935

 

617,514

Deferred tax liability

     

179,136

 

                   
       

Total liabilities (1)

 

2,022,686,347

 

414,276,043

                   

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 800,000 issued and outstanding at September 30,

       

     2014 and December 31, 2013, respectively

 

37,156,972

 

18,060,898

Common Stock: par value $0.01 per share; 450,000,000 shares authorized, 14,718,750 and 7,389,250

       

     shares issued and outstanding, at September 30, 2014 and December 31, 2013, respectively

 

146,953

 

73,563

Additional paid-in capital

 

189,378,368

 

110,129,489

Accumulated other comprehensive income (loss)

 

5,425,904

 

(11,094,954)

Cumulative distributions to stockholders

 

(25,996,718)

 

(11,289,370)

Accumulated earnings

   

14,963,098

 

8,045,736

                   
       

Total stockholders' equity

 

221,074,577

 

113,925,362

                   
       

Total liabilities and stockholders' equity

$

2,243,760,924

$

528,201,405

                   
                   
 

 

(1) Our condensed consolidated balance sheets include assets and liabililties of consolidated variable initerest entities ("VIEs") as the Company is primary beneficiary of these VIEs.  As of September 30, 2014 and December 31, 2013, assets of consolidated VIEs totaled $1,371,125,728 and $0, respectively, and the liabilities of consolidated VIEs totaled $1,315,249,444 and $0, respectively.

 
 
           
                   

 

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SOURCE Five Oaks Investment Corp.

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