Newcastle Announces Second Quarter 2012 Results

NEW YORK--(BUSINESS WIRE)-- Newcastle Investment Corp. (NYSE: NCT): 

SECOND QUARTER 2012 HIGHLIGHTS

• Core Earnings of $0.29 per diluted share
• GAAP income of $0.21 per diluted share
• Declared Common Dividend of $0.20 per share, or $29 million
• $240 million of average un-invested capital in the quarter

SECOND QUARTER 2012 FINANCIAL RESULTS

Newcastle Investment Corp. (NYSE: NCT) reported that in the second quarter of 2012, income available for common stockholders (“GAAP income”) was $29 million, or $0.21 per diluted share, compared to $98 million, or $1.23 per diluted share, in the second quarter of 2011.

GAAP income of $29 million consisted of the following:

Core Earnings:

• $39 million, or $0.29 per diluted share, which is equal to net interest income less expenses, net of preferred dividends

Other Income/Loss:

• $1 million of other losses related to a $1 million net loss on the settlement of investments and a $1 million net loss in non-cash mark-to-market offset by $1 million of other fee income
• $9 million of non-cash mark-to-market net loss on loans held for sale and impairment recorded on investments

During the second quarter of 2012, the Company generated $21 million of Cash Available for Distribution (“CAD”), compared to $20 million in the first quarter of 2012.

On June 13, 2012, the Board of Directors declared a quarterly dividend of $0.20 per common share, or $29 million, for the second quarter of 2012. The Board of Directors also declared dividends of $0.609375, $0.503125 and $0.523438 per share on the 9.75% Series B, 8.05% Series C and 8.375% Series D preferred stock, respectively, for the period beginning May 1, 2012 and ending July 31, 2012.

In the second quarter of 2012, GAAP book value increased by $1.19 per share. As of June 30, 2012, GAAP book value was $3.68 per share, compared to $2.49 per share as of March 31, 2012.

The following table summarizes the Company’s operating results ($ in millions, except per share data):

For a reconciliation of income available for common stockholders to core earnings and net cash flow provided by operating activities to cash available for distribution, please refer to the tables following the presentation of GAAP results.

ADDITIONAL INFORMATION

For additional information that management believes to be useful for investors, please refer to the “Quarterly Supplement – Second Quarter 2012” presentation posted to the Investor Relations section of Newcastle’s website, www.newcastleinv.com.

For consolidated investment portfolio information, please refer to the Company’s Annual Report on Form 10-K or Quarterly Report on Form 10-Q, which are also available on the Company’s website, www.newcastleinv.com.

SECOND QUARTER 2012 EVENTS & INVESTMENT ACTIVITY

$272 million of common equity raised:

In April 2012, the company completed the sale of approximately 19 million shares of its common stock at an average price of $6.22 per share. The total gross proceeds from the sale were approximately $118 million.

In May 2012, the Company completed the sale of 23 million shares of its common stock at an average price of $6.71 per share. The total gross proceeds from the sale were approximately $154 million.

$284 million of unrestricted cash invested:

Excess MSRs investments – total of $220 million:

Invested $44 million to purchase a 65% interest in the Excess MSRs on a $10 billion residential mortgage loan portfolio. The Company expects the investment to generate a 17% IRR and $90 million of total cash flow, or 2.1x its initial investment.

Invested $176 million to purchase a 65% interest in Excess MSRs on three portfolios with a total of $64 billion of residential mortgage loans. The Company expects the three investments to generate an average 18% IRR and $355 million of total cash flow, or 2.0x its initial investment.

Non-Agency RMBS investments – total of $64 million:

Invested $123 million to purchase $182 million of Non‐Agency RMBS at an average price of 67.4% of par, with an expected unlevered yield of 9%, and an average life of 4.6 years. In July, the Company entered into $59 million of recourse financing resulting in an overall portfolio leverage of 48% with an expected levered return of 14%.

$89 million of restricted CDO cash invested:

Invested $43 million to purchase $51 million face amount of six CMBS and an ABS at an average price of 85% of par, with an expected average yield of 7%, an average life of 9 years, and an average rating of BBB+.

Invested $46 million to purchase two commercial real estate loans at par, with an expected average yield of 9%, an average loan-to-value ratio of 56%, and an average life of 2 years.

In May 2012, Newcastle committed to invest up to $450 million, with an expected investment of between $150 and $300 million, to acquire up to a 65% interest in Excess MSRs from Nationstar Mortgage in connection with their stalking horse bid on mortgage servicing assets from ResCap.

SUBSEQUENT EVENTS & INVESTMENT ACTIVITY

$170 million of common equity raised:

On July 31, 2012, the Company completed the sale of approximately 25 million shares of its common stock and the gross proceeds from the sale were approximately $170 million.

$82 million of unrestricted cash invested:

Invested $64 million (including $9 million of working capital and closing costs) to purchase 8 senior housing assets financed with $88 million of non-recourse debt at a weighted average interest rate of 3.45% with a 7-year maturity.

Invested $18 million to purchase $29 million of Non-Agency RMBS at an average price of 62.9% of par, with an expected unlevered yield of 8.2%, and an average life of 7.3 years.

$85 million of restricted CDO cash invested:

Invested $85 million to purchase $76 million face amount of CMBS and $18 million face amount of ABS at a total average price of 90% of par, with an expected average yield of 6.5%, an average life of 4.1 years, and an average rating of BBB.

As of July 20, 2012, all CDOs were fully invested and past their reinvestment periods.

CASH AND RECOURSE FINANCING

As of August 7, 2012, the Company’s cash and recourse financings, excluding junior subordinated notes, were as set forth below:

• Unrestricted Cash Available to Invest – The Company had $173 million of unrestricted cash available to invest
• Recourse Financing – The Company had $497 million of financing related to FNMA and FHLMC securities with a value of $523 million and $59 million of financing related to two Non-Agency RMBS bonds with a value of $91 million. In addition, the Company had $2 million of financing related to senior Newcastle CDO bonds it repurchased.

I. RESIDENTIAL SERVICING & SECURITIES PORTFOLIO

As of June 30, 2012, Newcastle’s residential servicing and securities portfolio consisted of five Excess MSRs investments with a total carrying value of $265 million and 10 newly purchased Non-Agency RMBS with a total carrying value of $119 million.

Excess MSRs

As of June 30, 2012, $265 million of investments represent 65% interests in Excess MSRs on a total unpaid principal balance of $82 billion.

During the quarter, Pool 1 generated $4.3 million of total cash flow, of which $1.9 million contributed to CAD. The first payments on Pools 2 through 5 were received subsequent to the quarter.

As of June 30, 2012 for the total Excess MSRs portfolio:

• The average updated IRR with actual performance was 18%, compared to an initial expected IRR of 18%
• Weighted Average Constant Prepayment Rate (“CPR”) was 12.5% compared to an initial CPR projection of 20%

Non-Agency RMBS

As of June 30, 2012, the Company’s newly purchased Non-Agency RMBS portfolio consisted of $177 million face amount of assets (value of 67.3% of par). During the second quarter of 2012, these investments generated $4.2 million of total cash flow, of which $1.0 million contributed to CAD.

II. REAL ESTATE DEBT & OTHER ASSETS PORTFOLIO

As of June 30, 2012, the Company’s real estate debt and other assets portfolio consisted of $3.9 billion of diversified assets financed with $2.9 billion of primarily match funded, non-recourse debt. Assets included 355 commercial, residential and corporate real estate securities and loan investments with an average investment size of $10 million, and 9,436 mortgage loans backed by residential real estate.

During the second quarter of 2012, the portfolio generated total cash flow of $35 million of which $29 million contributed to CAD. During the quarter, the weighted average carrying value of the June 30, 2012 portfolio changed from a price of 81.1 to 81.3, an increase of 0.2% or $6 million.

Newcastle CDO financings

As of June 30, 2012, Newcastle’s five CDOs consisted of $3.2 billion face amount of collateral (value of 81.1% of par) financed with $2.4 billion of debt. During the second quarter of 2012, the CDOs generated $29.1 million of total cash flow which included:

• $21.0 million of CDO cash receipts consisting of $16.4 million of excess interest, $3.1 million of interest on retained and repurchased CDO debt, and $1.5 million of senior collateral management fees
• $8.1 million of principal repayments on repurchased CDO debt, of which $1.7 million contributed to CAD

The following table summarizes the cash receipts in the second quarter of 2012 from the Company’s consolidated CDO financings and the results of their related coverage tests ($ in thousands):

Other Real Estate Related Investments

As of June 30, 2012, other real estate related investments were comprised of $718 million face amount of assets (value of 91.1% of par) financed with $559 million of debt. During the second quarter of 2012, these investments generated $5.6 million of total cash flow which included:

• $5.3 million consisting of excess interest, interest on retained debt, and senior collateral management fees
• $0.3 million of principal repayments from a commercial real estate loan

INVESTMENT PORTFOLIO

The following table describes the investment portfolio as of June 30, 2012 ($ in millions):

CONFERENCE CALL

Newcastle’s management will conduct a live conference call on Thursday, August 9, 2012 at 8:00 A.M. Eastern Time to review the financial results for the second quarter 2012. A copy of the earnings press release is 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 2012 Earnings Call.”

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

A telephonic replay of the conference call will also be available until 11:59 P.M. Eastern Time on Thursday, August 16, 2012 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 “15139033”.

ABOUT NEWCASTLE

The Company invests in real estate debt and other real estate related assets, including excess mortgage servicing rights. The Company is organized and 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. For more information regarding the Company or to be added to our e-mail distribution list, please visit http://www.newcastleinv.com.

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, the average life of an investment, the expected returns, or expected yield on an investment, statements relating to our liquidity, future losses and impairment charges, our ability to acquire assets with attractive returns and the delinquent and loss rates on our subprime portfolios. 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. Newcastle can give no assurance that its expectations will be attained. Factors that could cause actual results to differ materially from Newcastle's expectations include, but are not limited to, the risk that market conditions cause downgrades of a significant number of our securities or the recording of additional impairment charges or reductions in shareholders’ equity; the risk that we can find additional suitably priced investments; the risk that investments made or committed to be made cannot be financed on the basis and for the term at which we expect; the relationship between yields on assets which are paid off and yields on assets in which such monies can be reinvested; actual recapture rates with respect to any Excess MSR investment; and the relative spreads between the yield on the assets we invest in and the cost and availability of debt and equity financing. 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 affect 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 Annual Report on Form 10-K or Quarterly Report on Form 10-Q, which is available on the Company’s website (www.newcastleinv.com). 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. Newcastle 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.

CAUTIONARY NOTE REGARDING EXPECTED RETURNS AND EXPECTED YIELDS PRESENTED IN THIS PRESS RELEASE

Expected returns and expected yields are estimates of the annualized effective rate of return that we presently expect to be earned over the expected average life of an investment (i.e., IRR), after giving effect, in the case of returns, to existing leverage, and calculated on a weighted average basis. Expected returns and expected yields reflect our estimates of an investment’s coupon, amortization of premium or discount, and costs and fees, and they contemplate our assumptions regarding prepayments, defaults and loan losses, among other things. In the case of Excess MSRs, these assumptions include, but are not limited to, the recapture rate. Income recognized by the Company in future periods may be significantly less than the income that would have been recognized if an expected return or expected yield were actually realized, and the estimates we use to calculate expected returns and expected yields could differ materially from actual results.

Statements about expected returns and expected yields in this press release are forward-looking statements. You should carefully read the cautionary statement above under the caption “Forward-looking Statements,” which directly applies to our discussion of expected returns and expected yields.

Core Earnings

• Core earnings is used by management to gauge the current performance of Newcastle without taking into account gains and losses, which, although they represent a part of our recurring operations, are subject to significant variability and are only a potential indicator of future economic performance. Management views this measure as Newcastle’s “core” current earnings, while gains and losses (including impairment) are simply a potential indicator of future earnings. Management believes that this measure provides investors with useful information regarding Newcastle’s “core” current earnings, and it enables investors to evaluate Newcastle’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 net income as an indicator of the Company’s operating performance or as an alternative to cash flow as a measure of its liquidity and 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.

Cash Available for Distribution (“CAD”)

• Management believes that CAD is useful for investors because it is a meaningful measure of the Company’s operating liquidity. It represents GAAP net cash provided by operating activities adjusted for two factors:
  
  1. Principal payments received in excess of the portion which represents a return of Newcastle’s invested capital in certain of Newcastle’s investments, which were acquired at a significant discount to par. These investments include repurchased CDO debt, CDO securities and non-Agency RMBS. Although these net principal repayments are reported as investing activities for GAAP purposes, they actually represent a portion of Newcastle’s return on these investments (or yield), rather than a return of Newcastle’s invested capital.
  
  2. Preferred dividends. Although these dividends are reported as financing activities for GAAP purposes, they represent a recurring use of Newcastle’s operating cash flow similar to interest payments on debt.
• Management uses CAD as an important input in determining cash available to pay dividends to Newcastle’s common stockholders.
• CAD excludes principal repayments on assets purchased at par or assets where the principal received is required to pay down Newcastle’s debt (assets held in the its CDOs, MH loans and Agency securities). Furthermore, net cash provided by operating activities, a primary element of CAD, includes timing differences based on changes in accruals. CAD does not represent cash generated from operating activities in accordance with GAAP and should not be considered an alternative to net income as an indicator of the Company’s operating performance or as an alternative to cash flow as a measure of the Company’s liquidity and is not necessarily indicative of cash available to fund cash needs. The Company’s calculation of CAD may be different from the calculation used by other companies and therefore comparability may be limited.

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

Source: Newcastle Investment Corp.

Released August 9, 2012