Business Context and Reporting Period
This Form 8-K was filed by Five Oaks Investment Corp. (not Lument Finance Trust, Inc.) on December 20, 2013. The report details the designation of 920,000 shares of authorized but unissued preferred stock as 8.75% Series A Cumulative Redeemable Preferred Stock. The Articles Supplementary became effective upon filing on December 20, 2013.
Key Financial Metrics
This filing does not report revenue, profit, cash flow, margins, or general liquidity metrics. It focuses exclusively on the terms of a new preferred stock issuance.
- Shares Designated: 920,000 shares of Series A Preferred Stock.
- Liquidation Preference: $25.00 per share.
- Initial Dividend Rate: 8.75% per annum ($2.1875 per share) from issuance until December 27, 2018.
- Subsequent Dividend Rate: Three-Month LIBOR + 7.151% (with a floor of 8.75%) starting December 27, 2018.
- First Dividend Payment: $0.2066 per share, payable January 15, 2014.
- Redemption Price: $25.00 per share plus accrued dividends (redeemable at company option on or after December 23, 2018).
Material Changes
The primary material change is the creation of a new class of senior securities. The filing establishes a cumulative dividend obligation accruing from December 23, 2013. Additionally, the filing imposes a restriction on future issuances of preferred stock ranking pari passu or senior to the Series A Preferred Stock; such issuances are capped if the aggregate liquidation preference would exceed 25.0% of the Company's total stockholders' equity.
Guidance, Risks, and Unusual Items
Dividend Reset Mechanism: If the Company fails to pay dividends in full on any six dividend payment dates (consecutive or not), the dividend rate will increase by an additional 2.00% per annum ($0.50 per share) until all arrears are paid.
Redemption and Conversion: The stock is not redeemable prior to December 23, 2018, except to preserve REIT qualification or upon a Change of Control. Upon a Change of Control, holders have the right to convert shares into common stock based on a formula, unless the Company exercises its redemption right first.
Voting Rights: Holders generally have no voting rights, subject to limited exceptions.
REIT Qualification: Ownership restrictions are in place to preserve the Company's status as a Real Estate Investment Trust.
Investor Verification Checklist
- Verify the total capital raised from the issuance of the 920,000 shares (920,000 x $25.00).
- Confirm the Company's current stockholders' equity to assess the 25% cap on future senior preferred stock issuances.
- Review the Articles Supplementary (Exhibit 3.1) for specific definitions of "Change of Control" and the conversion formula.
- Monitor the Company's ability to pay the first dividend on January 15, 2014, to avoid triggering the dividend rate reset mechanism.