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Press release from Business Wire

Newcastle Announces Second Quarter 2013 Results

Wednesday, August 07, 2013

Newcastle Announces Second Quarter 2013 Results

06:00 EDT Wednesday, August 07, 2013

NEW YORK (Business Wire) -- Newcastle (NYSE: NCT; the “Company”) today reported the following information for the quarter ended June 30, 2013:

  • Income available for common stockholders (“GAAP Income”) of $52.3 million, or $0.20 per diluted share, an increase of 43% and 33%, respectively, compared to Q1 2013
  • Core earnings of $43.0 million, an increase from $37.4 million in Q1 2013, and core earnings per diluted share of $0.16, in-line with Q1 2013

The Company's second quarter results include forty-five days of earnings attributable to the operations of New Residential Investment Corp. (NYSE: NRZ; “New Residential”), which was spun off on May 15, 2013. Excluding earnings attributable to New Residential, the Company's GAAP Income was $27.8 million, or $0.11 per diluted share, and core earnings was $23.3 million, or $0.09 per diluted share.

      Q1 2013       Q2 2013       Q2 2013, Pro forma Excluding NRZ    
Summary Operating Results:            
GAAP Income $36.6 million $52.3 million $27.8 million
GAAP Income per Diluted Share $0.15 $0.20 $0.11
Non-GAAP Results:
Core Earnings $37.4 million $43.0 million $23.3 million
Core Earnings per Diluted Share $0.16 $0.16 $0.09

At quarter end, the Company had approximately $216 million of cash to invest. If this cash were fully invested at a 15% return, the Company expects that it could add approximately $0.03 to future quarterly earnings. The Company's cash on hand as of August 5, 2013 was fully committed.

For a reconciliation of GAAP Income to core earnings and Pro forma GAAP Income to pro forma core earnings, please refer to the table below following the presentation of GAAP results.

Highlights for the quarter ended June 30, 2013:

  • Spin-Off of New Residential – Completed the spin-off of New Residential on May 15, 2013.
  • Investment Activity – Invested $119 million in debt related investments, including $43 million to purchase debt backed by CDO VIII notes.
  • CDO IV Collapse – Generated $68 million of proceeds to the Company by selling all of the collateral in CDO IV at an average price of 95% of par, or $145 million, and paying off $77 million of third-party debt (including $5 million to CDO VIII) at par. Proceeds included $60 million on debt that the Company had repurchased at an average price of 52% of par.
  • Dividend – Dividend of $0.17 per common share, or $43 million, for the second quarter declared on June 3, 2013.
  • Capital Raise– Raised approximately $200 million of gross proceeds from the sale of 40 million shares of common stock, which priced on June 11, 2013.

Highlights subsequent to June 30, 2013:

  • Senior Living Acquisitions – Invested $86 million to purchase 17 senior living assets financed with $177 million of non-recourse debt at a weighted average rate of 4.3% and a weighted average maturity of 5.2 years, for a total gross initial investment of $263 million, including related transaction costs and working capital.
  • Other Investment Activity – Invested or committed to invest up to approximately $115 million in opportunistic investments, with total equity expected to be $80 million after financing.

ADDITIONAL INFORMATION

For additional information that management believes to be useful for investors, please refer to the presentation posted on the Investor Relations section of Newcastle's website, www.newcastleinv.com. For consolidated investment portfolio information, please refer to the Company's Quarterly Report on Form 10-Q, which is also available on the Company's website, www.newcastleinv.com.

             
Newcastle Investment Corp.
Investment Portfolio as of June 30, 2013

($ in millions)

 
% of Weighted
Outstanding Face Amortized Total Carrying Number of Average
Amount $   Cost Basis (1)   Basis   Value   Investments   Credit (2)   Life (years) (3)

Investment

 
Real Estate Debt & Other Assets
Commercial Assets
CMBS $ 353 227 11.1% 281 51 BB- 3.6
Mezzanine Loans 431 350 17.1% 350 15 80% 1.0
B-Notes 111 94 4.6% 94 4 77% 1.1
Whole Loans 30 30 1.5% 30 2 48% 0.7
CDO Securities (4) 93 66 3.2% 69 5 BB 2.9
Other Investments (5)   68   68   3.3% 68 3 -- --
Total Commercial Assets 1,086 835 40.8% 892 2.1
 
Residential Assets
MH and Residential Loans 307 271 13.3% 271 8,316 705 5.8
Non-Agency RMBS 108 42 2.1% 59 34 CCC 4.8
Real Estate ABS   8   -   0.0% - 1 C 4.4
423 313 15.3% 330 5.5
 
FNMA/FHLMC Securities   312   329   16.1% 329 39 AAA 3.7
Total Residential Assets 735 642 31.4% 659 4.7
 
Corporate Assets
REIT Debt 29 29 1.4% 31 5 BB+ 2.1
Corporate Bank Loans   783   363   17.9% 363 7 CC 1.5
Total Corporate Assets 812 392 19.3% 394 1.5
 
Total Real Estate Debt & Other Assets   2,633   1,869   91.4% 1,945 2.7
 
Senior Living Facilities (6) 188 175 8.6% 175 12 -- --
             
Total Portfolio/Weighted Average $ 2,821   2,044   100.0% 2,120 2.7
 

WA – Weighted average, in all tables

1) Net of impairment.

2) Credit represents the weighted average minimum rating for rated assets, the loan-to-value ratio (based on the appraised value at the time of purchase or refinancing) for non-rated commercial assets, or the FICO score for non-rated residential assets and an implied AAA rating for FNMA/FHLMC securities. Ratings provided above were determined by third party rating agencies, represent the most recent credit ratings available as of the reporting date and may not be current.

3) Weighted average life is based on the timing of expected principal reduction on the asset.

4) Represents non-consolidated CDO securities, excluding eight securities with a zero value, which had an aggregate face amount of $109 million.

5) Represents a $25 million equity investment in a real estate owned property and $43 million related to a linked transaction.

6) Face amount of Senior Living Facilities investments represents the gross carrying amount, including intangibles, which excludes accumulated depreciation and amortization.

       
Newcastle Investment Corp.
Unaudited Consolidated Statements of Income

(dollars in thousands, except share data)

 
Three Months Ended June 30, Six Months Ended June 30,
2013   2012 2013   2012
Interest income $ 62,824 $ 77,956 $ 124,156 $ 150,818
Interest expense   21,998       29,462     44,708       59,627  
Net interest income   40,826       48,494     79,448       91,191  
 
Impairment (Reversal)
Valuation allowance (reversal) on loans (709 ) (3,223 ) 1,525 (12,254 )
Other-than-temporary impairment on securities 3,430 10,859 4,405 16,742

Portion of other-than-temporary impairment on securities recognized in other comprehensive income (loss), net of reversal of other comprehensive loss into net income (loss)

 

480

     

863

   

44

     

(3,069

)

Total impairment   3,201       8,499     5,974       1,419  
 
Net interest income after impairment/reversal 37,625 39,995 73,474 89,772
 
Other Revenues
Rental income 11,721 515 23,195 1,024
Care and ancillary income   2,292       -     4,318       -  
Total other revenues   14,013       515     27,513       1,024  
 
Other Income (Loss)
Gain (loss) on settlement of investments, net 5,066 (1,177 ) 5,063 3,646
Gain on extinguishment of debt - 39 1,206 20,782
Other income (loss), net   3,024       (3,744 )   7,591       (774 )
Total other income (loss)   8,090       (4,882 )   13,860       23,654  
 
Expenses
Loan and security servicing expense 1,021 1,104 2,055 2,202
Property operating expenses 8,409 231 16,772 457
General and administrative expense 9,938 4,841 14,151 7,003
Management fee to affiliate 8,148 5,631 17,713 10,607
Depreciation and amortization   4,070       2     8,149       4  
Total expenses   31,586       11,809     58,840       20,273  
 
Income from continuing operations 28,142 23,819 56,007 94,177
Income (loss) from discontinued operations   25,581       6,620     35,729       9,733  
Net Income 53,723 30,439 91,736 103,910
Preferred dividends   (1,395 )     (1,395 )   (2,790 )     (2,790 )
Income Available for Common Stockholders $ 52,328     $ 29,044   $ 88,946     $ 101,120  
Income Per Share of Common Stock
Basic $ 0.20     $ 0.21   $ 0.36     $ 0.84  
Diluted $ 0.20     $ 0.21   $ 0.35     $ 0.84  

Income from continuing operations per share of common stock, after preferred dividends

Basic $ 0.10     $ 0.17   $ 0.22     $ 0.76  
Diluted $ 0.10     $ 0.17   $ 0.21     $ 0.76  

Income (loss) from discontinued operations per share of common stock

Basic $ 0.10     $ 0.04   $ 0.14     $ 0.08  
Diluted $ 0.10     $ 0.04   $ 0.14     $ 0.08  
 
Weighted Average Number of Shares of Common Stock Outstanding
Basic   259,228,343       134,115,335     247,249,101       119,648,172  
Diluted   265,396,219       135,172,953     252,807,613       120,421,528  
 
Dividends Declared per Share of Common Stock $ 0.17     $ 0.20   $ 0.39     $ 0.40  
 
 
Newcastle Investment Corp.
Consolidated Balance Sheets

(dollars in thousands)

   
June 30, 2013 December 31,
(Unaudited) 2012
Assets
Real estate securities, available-for-sale $ 777,102 $ 1,691,575
Real estate related loans, held-for-sale, net 837,427 843,132
Residential mortgage loans, held-for-investment, net 273,332 292,461
Residential mortgage loans, held-for-sale, net 2,266 2,471
Subprime mortgage loans subject to call option 406,217 405,814
Investments in real estate, net of accumulated depreciation 167,878 169,473
Intangibles, net of accumulated amortization 13,349 19,086
Other investments 24,907 24,907
Cash and cash equivalents 271,052 231,898
Restricted cash 7,173 2,064
Derivative assets 43,470 165
Due from Affiliates 1,254 -
Receivables and other assets 19,907 17,197
Assets of discontinuted operations   -     245,069  
Total Assets $ 2,845,334   $ 3,945,312  
 
Liabilities and Stockholders' Equity
Liabilities
CDO bonds payable $ 844,484 $ 1,091,354
Other bonds and notes payable 163,718 183,390
Repurchase agreements 311,276 929,435
Mortgage notes payable 120,525 120,525
Financing of subprime mortgage loans subject to call option 406,217 405,814
Junior subordinated notes payable 51,240 51,243
Derivative liabilities 20,197 31,576
Dividends Payable 43,951 38,884
Due to affiliates 3,216 3,620
Accrued expenses and other liabilities 16,884 15,931
Liabilities of discontinued operations   -     480  
Total Liabilities $ 1,981,708   $ 2,872,252  
 
 

Stockholders' Equity

Preferred stock, $0.01 par value, 100,000,000 shares authorized, 1,347,321 shares of 9.75% Series B Cumulative Redeemable Preferred Stock, 496,000 shares of 8.05% Series C Cumulative Redeemable Preferred Stock, and 620,000 shares of 8.375% Series D Cumulative Redeemable Preferred Stock, liquidation preference $25.00 per share, issued and outstanding as of June 30, 2013 and December 31, 2012

$ 61,583 $ 61,583

Common stock, $0.01 par value, 1,000,000,000 and 500,000,000 shares authorized, 293,326,085 and 172,525,645 shares issued and outstanding at June 30, 2013 and December 31, 2012, respectively

2,933 1,725
Additional paid-in capital 2,670,444 1,710,083
Accumulated deficit (1,940,305 ) (771,095 )
Accumulated other comprehensive income (loss)   68,971     70,764  
Total Equity $ 863,626   $ 1,073,060  
 
Total Liabilities and Stockholders' Equity $ 2,845,334   $ 3,945,312  
 
     
Newcastle Investment Corp.
Unaudited Pro Forma Condensed Consolidated Statement of Operations(1)

Three Months Ended June 30, 2013

 
Newcastle Pro Forma Newcastle
Consolidated Adjustments Consolidated
Historical New Residential Pro Forma
Interest income $ 62,824 $ (5,863 ) $ 56,961
Interest expense   21,998     (1,253 )   20,745  
Net interest income   40,826     (4,610 )   36,216  
 
Impairment (Reversal)
Valuation allowance (reversal) on loans (709 ) - (709 )
Other-than-temporary impairment on securities 3,430 (3,756 ) (326 )

Portion of other-than-temporary impairment on securities recognized in other comprehensive income (loss), net of reversal of other comprehensive loss into net income (loss)

 

480

   

-

   

480

 
Total impairment   3,201     (3,756 )   (555 )
 
Net interest income after impairment/reversal 37,625 (854 ) 36,771
 
Other Revenues
Rental income 11,721 - 11,721
Care and ancillary income   2,292     -     2,292  
Total other revenues   14,013     -     14,013  
 
Other Income (Loss)
Gain (loss) on settlement of investments, net 5,066 (58 ) 5,008
Gain on extinguishment of debt - - -
Other income (loss), net   3,024     -     3,024  
Total other income (loss)   8,090     (58 )   8,032  
 
Expenses
Loan and security servicing expense 1,021 (115 ) 906
Property operating expenses 8,409 - 8,409
General and administrative expense 9,938 (26 ) 9,912
Management fee to affiliate 8,148 (1,809 ) 6,339
Depreciation and amortization   4,070     -     4,070  
Total expenses   31,586     (1,950 )   29,636  
 
Income from continuing operations 28,142 1,038 29,180
Preferred dividends   (1,395 )   -     (1,395 )
Income from continuing operations after preferred dividends $ 26,747   $ 1,038   $ 27,785  

Income from continuing operations per share of common stock, after preferred dividends

Basic $ 0.10   $ 0.11  
Diluted $ 0.10   $ 0.10  
 
Weighted Average Number of Shares of Common Stock Outstanding
Basic   259,228,343     259,228,343  
Diluted   265,396,219     265,396,219  
 

(1) Refer to Quarterly Report on Form 10-Q for explanations of the adjustments.

 
Newcastle Investment Corp.
Reconciliation of Core Earnings and Pro forma Core Earnings

(dollars in thousands)

       
Three Months Ended June 30, Six Months Ended June 30,
2013   2012 2013   2012
Income (loss) applicable to common stockholders $ 52,328 $ 29,044 $ 88,946 $ 101,120
Add (Deduct):
Impairment (reversal) 3,201 8,499 5,974 1,419
Other (income) loss (8,090 ) 4,882 (13,860 ) (23,654 )
Impairment (reversal), other (income) loss and other adjustments from discontinued operations (8,534 ) (3,525 ) (8,815 ) (4,740 )
Depreciation and amortization   4,070       2     8,149       4  
Core earnings $ 42,975     $ 38,902   $ 80,394     $ 74,149  
 
 
Three Months Ended
June 30, 2013
 

Pro forma income (loss) from continuing operations after preferred dividends

$ 27,785
Add (Deduct):
Impairment (reversal) (555 )
Other (income) loss (8,032 )
Depreciation and amortization   4,070  
Pro forma core earnings $ 23,268  
 

Core Earnings

Core earnings is a non-GAAP measure used by management to gauge the Company's current performance. Core earnings excludes realized and unrealized gains and losses on investments, derivatives and debt obligations, which, although they represent a part of the Company's recurring operations, are subject to significant variability and are only a potential indicator of future economic performance. In addition, core earnings excludes the effect of depreciation and amortization charges, which, in the judgment of management, are not indicative of operating performance. Finally, core earnings accounts for the Company's investment in a consumer loan portfolio (which was spun-off on May 15, 2013) on a level yield methodology.

Management believes that core earnings allows investors and analysts to readily identify the operating performance of the assets that form the core of the Company's activities and to evaluate the Company's current performance using the same measure that management uses to operate the business.

Core earnings does not represent cash generated from operating activities in accordance with GAAP and therefore should not be considered an alternative to GAAP Income as an indicator of the Company's operating performance or as an alternative to cash flow as a measure of its liquidity, and core earnings is not necessarily indicative of cash available to fund cash needs. The Company's calculation of core earnings may be different from the calculation used by other companies and, therefore, comparability may be limited.

CONFERENCE CALL

Newcastle's management will host a conference call on Wednesday, August 7, 2013 at 8:30 A.M. Eastern Time. A copy of the earnings release will be posted to the Investor Relations section of Newcastle's website, www.newcastleinv.com.

All interested parties are welcome to participate on the live call. The conference call may be accessed by dialing 1-888-243-2046 (from within the U.S.) or 1-706-679-1533 (from outside of the U.S.) ten minutes prior to the scheduled start of the call; please reference “Newcastle Second Quarter 2013 Earnings Call.”

A simultaneous webcast of the conference call will be available to the public on a listen-only basis at www.newcastleinv.com. Please allow extra time prior to the call to visit the website and download any necessary software required to listen to the internet broadcast.

A telephonic replay of the conference call will also be available two hours following the call's completion through 11:59 P.M. Eastern Time on Wednesday, August 14, 2013 by dialing 1-855-859-2056 (from within the U.S.) or 1-404-537-3406 (from outside of the U.S.); please reference access code “17380530.”

ABOUT NEWCASTLE

The Company focuses on opportunistically investing in, and actively managing, real estate related assets and primarily invests in two distinct areas: (1) Senior Housing Assets and (2) Real Estate & Other Debt. The Company conducts its operations to qualify as a real estate investment trust ("REIT") for federal income tax purposes. The Company is managed by an affiliate of Fortress Investment Group LLC, a global investment management firm.

FORWARD-LOOKING STATEMENTS

Certain items in this press release may constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, including, but not limited to, statements relating to committed investments and expected financing with respect to such investments. These statements are based on management's current expectations and beliefs and are subject to a number of trends and uncertainties that could cause actual results to differ materially from those described in the forward-looking statements, many of which are beyond our control. The Company can give no assurance that its expectations will be attained. Factors that could cause actual results to differ materially from its expectations include, but are not limited to, the risk that committed investments cannot be financed on the basis and for the term at which we expect. Accordingly, you should not place undue reliance on any forward-looking statements contained in this press release. For a discussion of some of the risks and important factors that could cause actual results to differ from such forward-looking statements, see the sections entitled “Risk Factors” and “Management's Discussion and Analysis of Financial Condition and Results of Operation” in the Company's most recent Annual Report on Form 10-K and Quarterly Report on Form 10-Q. In addition, new risks and uncertainties emerge from time to time, and it is not possible for the Company to predict or assess the impact of every factor that may cause its actual results to differ from those contained in any forward-looking statements. Such forward-looking statements speak only as of the date of this press release. The Company expressly disclaims any obligation to release publicly any updates or revisions to any forward-looking statements contained herein to reflect any change in the Company's expectations with regard thereto or change in events, conditions or circumstances on which any statement is based.

Newcastle Investment Corp.
Investor Relations, 212-479-3195

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