(MENAFNEditorial) NEW YORK, March 16, 2018 /PRNewswire/ --Five Oaks Investment Corp. (NYSE: OAKS ) ("we", "Five Oaks" or "the Company") today announced its financial results for the fourth quarter and for the year ended December 31, 2017. For the fourth quarter, the Company reported GAAP net income attributable to common shareholders of $8.0 million, or $0.36 per basic and diluted share, a comprehensive loss of $1.4 million, or $0.06 per basic and diluted share, and core earnings (1) of $2.3 million, or $0.10 per basic and diluted share. For the year, the Company reported GAAP net income of $1.2 million, or $0.06 per basic and diluted share, a comprehensive loss of $4.6 million, or $0.23 per basic and diluted share, and core earnings of $9.5 million, or $0.48 per basic and diluted share. The Company also reported a net book value of $4.91 per share on a basic and diluted basis at December 31, 2017.
In connection with the Hunt Transaction and the transition to a new strategic direction, as further described below, the Company also announced that in order to better align itself with its peers, with effect from the third quarter of 2018, it intends to switch from paying dividends on its common stock on a monthly basis to a quarterly basis. Accordingly, the Company will announce on or about September 14, 2018 its third quarter 2018 common stock dividend, payable on October 15, 2018 to stockholders of record on September 28, 2018.
The Company further announced that on March 15, 2018, its board of directors declared monthly cash dividend rates for the second quarter of 2018 of $0.02 per share of common stock for the months of April, May and June, equivalent to a quarterly rate of $0.06 per share. Further, in accordance with the terms of the 8.75% Cumulative Redeemable Preferred Stock ("Series A Preferred Stock"), the board of directors has also declared monthly cash dividend rates for the second quarter of 2018 of$0.1823per share of Series A Preferred Stock.
2017 Highlights
Realized a negative economic return on our common stock of 8.2% for the year after accounting for dividends of $0.60(2). Continued the reduction of our credit risk MBS exposure during the year. We reduced our Non-Agency RMBS exposure from $12.8 million at December 31, 2016 to $4.4 million at December 31, 2017 (on a non-GAAP combined basis), and reduced our Multi-Family MBS exposure from $91.5 million at December 31, 2016 to $27.4 million at December 31, 2017 (on a non-GAAP combined basis); since year end, we have sold $5.9 million of the remaining Multi-Family exposure. We also completed the sale of all remaining residential mortgage loans prior to year-end. We continued to redeploy the capital released from selling down our credit exposure into Agency RMBS, which increased from $790.2 million at December 31, 2016 to $1,285.1 million at December 31, 2017. In order to minimize the potential impact of interest rate volatility, the increase was composed of purchases of Agency hybrid-ARMs. On June 16, 2017, we issued 4,600,000 shares of common stock, inclusive of the underwriters' overallotment option, for $4.60 per share, raising net proceeds of approximately $19.8 million. The Hunt Transaction
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") and the concurrent mutual termination of our management agreement with Oak Circle Capital Partners, LLC ("Oak Circle"). Management by Hunt is expected to provide Five Oaks with a new strategic direction through the reallocation of capital into new investment opportunities focused in the commercial real estate mortgage space and direct access to Hunt's significant pipeline of transitional floating-rate multi-family and commercial real estate loans. Hunt and its affiliates have extensive experience in the origination, servicing, risk management and financing of this asset class and the floating-rate nature of the loans should reduce or eliminate the need for complex interest-rate hedging. The new management agreement is expected to better align our interests with those of our new manager through an incentive fee arrangement and agreed upon limitations on manager expense reimbursements from us. Pursuant to the terms of the termination agreement between Five Oaks and Oak Circle, the termination of the prior management agreement did not trigger, and Oak Circle was not paid, a termination fee by us. Hunt separately agreed to pay Oak Circle a negotiated payment in connection with the termination agreement.
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. The purchase price per share represents a 56.9% premium over the Five Oaks common share price as of the closing on January 17, 2018. In connection with the acquisition of shares from XL Investments, Xl Investments agreed to terminate all of its currently held Five Oaks warrants. 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, David Carroll resigned as a director, Chairman and CEO of the Company and 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.
(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
James Flynn, CEO commented: "2017 was characterized by further well-telegraphed increases in the Federal Funds rate and the Federal Reserve's announcement of a detailed plan to normalize its balance sheet holdings of Treasury and agency securities. The early part of 2018 has seen a continuation of positive economic growth both in the US and globally, and with a new Fed chairman in place, a continued expectation of further gradual increases in rates accompanied by the potential for a pick-up in inflation. Following the transaction that we announced in January 2018, we anticipate transitioning the Five Oaks portfolio into assets within the commercial real estate mortgage space that are less sensitive to interest rate volatility, and which we believe can benefit from Hunt's extensive historical experience in order to provide attractive investment opportunities for the company".
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 December 31, 2017:
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