Newcastle Announces First Quarter 2011 Results
NEW YORK--(BUSINESS WIRE)--
FIRST QUARTER 2011 FINANCIAL RESULTS
Newcastle Investment Corp. (NYSE: NCT) reported that in the first quarter of 2011, income applicable to common stockholders ("GAAP income") was $108 million, or $1.73 per diluted share, compared to $180 million, or $3.36 per diluted share, in the first quarter of 2010.
GAAP income of $108 million consisted of the following: $26 million, or $0.41 per diluted share, of net interest income less expenses (net of preferred dividends), compared to $13 million, or $0.24 per diluted share, in the first quarter of 2010; $45 million of other income primarily related to a $34 million net gain on the settlement of investments and an $11 million gain on the extinguishment of CDO debt; and $37 million representing the reversal of prior valuation allowances on loans net of impairment recorded on securities.
In the first quarter of 2011, GAAP book value increased $323 million or $5.16 per share. As of March 31, 2011, GAAP book value was $14 million or $0.18 per share, compared to $(309) million or $(4.98) per share as of December 31, 2010.
On March 29, 2011, Newcastle completed the sale of 17.3 million shares of its common stock, at a price of $6.00 per share. The net proceeds of the sale were $98 million, after deducting underwriting discounts and offering expenses.
On March 30, 2011, the Board of Directors declared dividends on the Company's Series B, Series C and Series D Preferred Stock for the period beginning February 1, 2011 and ending April 30, 2011. The Company paid total 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 first quarter of 2011, Newcastle's Board of Directors elected not to pay a dividend on its common stock.
For a reconciliation of income applicable to common stockholders to net interest income less expenses (net of preferred dividends), please refer to the tables following the presentation of GAAP results.
RECOURSE DEBT FINANCING AND CASH
As of May 4, 2011, the Company's cash and current financings are set forth below. These amounts do not include the use of $25 million of unrestricted cash and $208 million of restricted cash on committed but not funded investments which are described further in subsequent events:
-- Cash - The Company had unrestricted cash of $129 million. In addition,
the Company had $152 million of restricted cash available for
reinvestment within its consolidated CDOs;
-- Margin Exposure - The Company had margin exposure of $17 million related
to the financing of the Newcastle CDO VI Class I-MM notes (of which only
$4 million is recourse) and $106 million related to the financing of
FNMA and FHLMC securities.
The following table illustrates the change in cash and recourse financings, excluding junior subordinated notes ($ in millions):
May 4, Mar 31, Dec 31,
2011 2011 2010
CDO Cash for Reinvestment $ 152 $ 128 $ 150
Unrestricted Cash 129 161 34
Recourse Financings
Non-FNMA/FHLMC (non-agency)
NCT CDO senior bonds 4 4 5
Subtotal 4 4 5
FNMA/FHLMC Securities 106 79 -
Total Recourse Financings $ 110 $ 83 $ 5
CDO FINANCINGS
The following table summarizes the cash receipts in the first quarter of 2011 from the Company's consolidated CDO financings, their related coverage tests and negative watch assets ($ in thousands):
Interest
Coverage
% Excess Assets
Primary Over Collateralization Excess (Deficiency) on
(Deficiency)
Collateral Cash May 4, May 4, 2011(2) March 31, 2011(2) December 31, 2010(2) Negative
Type Receipts 2011 (2) % $ % $ % $ Watch(3)
(1)
CDO Securities $ 1,331 204.3% -2.6% (7,075 ) -2.6% (7,075 ) -10.8% (33,908 ) $ 11,046
IV
CDO Securities 132 102.6% -14.6% (50,979 ) -14.6% (50,979 ) -8.3% (30,319 ) 26,408
V
CDO Securities 207 -80.7% -53.2% (187,742 ) -52.0% (183,733 ) -46.9% (178,604 ) 22,133
VI
CDO Loans 3,783 327.0% 8.0% 51,422 7.3% 47,158 9.9% 63,954 -
VIII
CDO Loans 4,353 304.6% 14.2% 91,603 14.2% 91,539 18.5% 119,317 -
IX
CDO Securities 3,195 189.1% 1.7% 21,302 4.4% 53,500 4.0% 48,480 20,200
X
Total $ 13,001 $ 79,787
Represents cash received from each CDO based on all of the interests in
such CDO (including senior management fees but excluding principal
received from CDO bonds owned by the Company). Cash receipts for the
(1) quarter ended March 31, 2011 may not be indicative of cash receipts for
subsequent periods. See Forward-Looking Statements below for risks and
uncertainties that could cause cash receipts for subsequent periods to
differ materially from these amounts.
Represents excess or deficiency under the applicable interest coverage or
over collateralization test to the first threshold at which cash flow
would be redirected. The Company generally does not receive material
(2) interest cash flow from a CDO until a deficiency is corrected. The
information regarding coverage tests is based on data from the most recent
remittance date on or before May 4, 2011, March 31, 2011, or December 31,
2010, as applicable. The CDO IV and V tests are conducted only on a
quarterly basis (December, March, June and September).
Represents the face amount of assets on negative watch for possible
downgrade by at least one rating agency (Moody's, S&P or Fitch). Amounts
are as of the determination date pertaining to March 2011 remittances for
(3) CDO IV and V (these tests are conducted only on a quarterly basis) and as
of the determination date pertaining to April 2011 remittances for all
other CDOs. The amounts include $13 million of bonds issued by Newcastle,
which are eliminated in consolidation and not reflected in the investment
portfolio disclosures.
-- $1.7 million of the $13 million CDO cash receipts were senior collateral
management fees, which were not subject to the related CDO coverage
tests.
-- The cash receipts above also include $0.9 million of non-recurring fees.
-- In addition, the Company received $9.7 million of unrestricted cash from
principal repayments on Newcastle CDO debt. This cash represents a
return of principal and a realization of the difference between par and
the discounted purchase price of the Newcastle CDO debt.
SUBSEQUENT EVENTS
On May 4, 2011, Newcastle completed a new securitization to refinance its Manufactured Housing Loans Portfolio II (the "Portfolio"). Newcastle sold $197 million outstanding principal balance of manufactured housing loans, with an average net coupon of 8.7%, to Newcastle Investment Trust 2011-MH 1 (the "Trust"), an indirect wholly-owned subsidiary of Newcastle. The Trust issued $160 million aggregate principal amount of investment grade notes, of which $143 million was sold to third parties and $17 million was sold to one of Newcastle's CDOs. The Company invested $20 million of unrestricted cash to retain the below investment grade notes and residual interest in the securitization. The $160 million of investment grade notes that term financed the Portfolio is non-recourse to the Company and has a weighted average funding cost of 3.7%. At the closing of the securitization, Newcastle terminated the related interest rate swap contracts, repaid $164 million of existing debt, and paid related transaction costs. The weighted average funding cost of the repaid debt was 5.3%.
Since quarter-end, Newcastle invested or committed to invest $63 million of unrestricted cash with an expected average return of 20% and invested or committed to invest $228 million of restricted CDO cash with an average coupon of 7.5%.
Unrestricted cash investment activities:
In April 2011, Newcastle repurchased $37 million of Newcastle CDO debt at an average price of 49% of par, investing $18 million of unrestricted cash. Assuming the collateral in the CDOs is held to maturity, the Company projects the investment to have an average life of 8.3 years and generate an expected return of 17%.
On May 4, 2011, the Company purchased $12 million face amount of BB- rated notes and the residual interest in the Newcastle Investment Trust 2011-MH 1 for a total of $20 million. Assuming the loans are held to maturity, the Company projects the investment to have an average life of 8.0 years and generate an expected return of 30% on the $20 million investment.
The Company has committed to invest $25 million in two real estate related investments with an average expected return of 14.5%.
Restricted CDO cash investment activities:
In April 2011, the Company purchased $20 million of fixed rate assets with an average coupon of 6.6% at an average price of 99.5% of par, investing $19.9 million of restricted CDO cash. The assets have an average life of 9.9 years and an expected return of 6.8%.
The Company has committed to purchase $210 million of assets with an average coupon of 7.6% and an average price of 99.1% of par or $208 million. These investments will be funded from current restricted CDO cash and receipts from expected principal repayments and asset sales.
- $160 million are commercial real estate mezzanine loans with an initial average coupon of 7.1% that adjusts monthly at a rate of one month LIBOR + 6.1%, subject to interest rate floors.
- $50 million is a commercial real estate mezzanine loan with a fixed coupon of 9%.
INVESTMENT PORTFOLIO
Newcastle's $4.2 billion investment portfolio (with a basis of $3.1 billion) consists of commercial, residential and corporate debt. During the quarter, the weighted average carrying value on the March 31, 2011 portfolio changed from 73.4% to 77.3%, an increase of $162 million. The face amount of the portfolio decreased by $129 million, primarily as a result of principal repayments of $250 million, sales of $177 million and actual principal write-downs of $44 million, offset by purchases of $337 million at a weighted average price of 98% of par, a weighted average yield of 6.0%, and a weighted average life of 5.0 years.
The following table describes the investment portfolio as of March 31, 2011 ($ in millions):
% of Carrying Weighted
Face Basis Total Value Number of Average
Amount Amount Basis Amount $ Investments Credit Life
$ $(1) (2) (yrs)(3)
Commercial
Assets
CMBS $ 1,890 $ 1,319 43.0% $ 1,444 248 BB 3.7
Mezzanine Loans 531 395 12.9% 395 16 62% 2.3
B-Notes 233 159 5.2% 159 9 77% 1.6
Whole Loans 31 31 1.0% 31 3 48% 3.0
Other 25 25 0.8% 25 1 -- --
Investments (4)
Total
Commercial 2,710 1,929 62.9% 2,054 3.2
Assets
Residential
Assets
MH and
Residential 415 361 11.7% 361 10,959 703 6.7
Loans
Subprime 326 157 5.1% 179 82 B- 5.7
Securities
Real Estate ABS 71 48 1.6% 50 21 BB+ 5.5
812 566 18.4% 590 6.2
FNMA/FHLMC 88 91 3.0% 92 13 AAA 4.7
Securities
Total
Residential 900 657 21.4% 682 6.0
Assets
Corporate
Assets
REIT Debt 299 298 9.7% 315 38 BBB- 3.4
Corporate Bank 278 184 6.0% 184 7 CC 3.4
Loans
Total Corporate 577 482 15.7% 499 3.4
Assets
Total/Weighted $ 4,187 $ 3,068 100.0% $ 3,235 3.9
Average(5)
(1) Net of impairment.
Credit represents the weighted average of minimum ratings 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
(2) score for non-rated residential assets and an implied AAA rating for
FNMA/FHLMC securities. Ratings provided herein were determined by third
party rating agencies as of a particular date, may not be current and are
subject to change (including a "negative watch" assignment) at any time.
(3) Weighted average life is based on the timing of expected principal
reduction on the asset.
(4) Relates to an equity investment in a REO property.
Excludes unconsolidated CDO securities with a face amount of $169 million
(5) (valued at $6 million), operating real estate held for sale of $8 million
and loans subject to call option with a face amount of $406 million.
Commercial Assets
The Company owns $2.7 billion of commercial assets (with a basis of $1.9 billion), which includes CMBS, mezzanine loans, B-Notes, whole loans and other investments.
-- During the quarter, the Company purchased $179 million of mezzanine
loans and CMBS, sold $154 million of CMBS, received principal repayments
of $130 million of mezzanine loans and CMBS and had $25 million of
actual mezzanine loan principal write-downs.
-- Regarding the Company's CMBS portfolio, one security or $3 million was
upgraded (from a rating of BB+ to BBB-), six securities or $77 million
were affirmed and 29 securities or $214 million were downgraded (from a
weighted average rating of BB- to CCC+).
-- The weighted average carrying value of these assets changed from 66.9%
to 75.8%, an increase of $146 million in the quarter.
CMBS portfolio ($ in thousands):
Average % of Carrying Weighted
Face Basis Total Value Delinquency Principal Average
Minimum
Vintage Rating Number Amount $ Amount $ Basis Amount $ 60+/FC/REO Subordination Life
(1) (2) (3) (4) (yrs)(5)
Pre 2004 BB+ 78 398,584 368,674 28.0% 353,819 5.2% 10.7% 2.3
2004 BB- 51 344,700 252,062 19.1% 222,352 2.8% 6.7% 3.3
2005 BB- 35 376,324 207,958 15.8% 279,530 4.6% 8.6% 4.1
2006 BB+ 52 487,365 347,370 26.3% 406,930 5.0% 12.1% 3.7
2007 B 23 195,684 58,778 4.5% 95,582 11.6% 11.8% 3.8
2010 BBB- 5 56,798 53,166 4.0% 55,254 0.0% 5.5% 9.6
2011 BBB+ 4 31,000 30,576 2.3% 30,481 0.0% 10.0% 9.8
TOTAL/WA BB 248 1,890,455 1,318,584 100.0% 1,443,948 5.0% 9.9% 3.7
(1) The year in which the securities were originally issued.
Ratings provided above were determined by third party rating agencies as
of a particular date, which may not be current and are subject to change
(2) (including a "negative watch" assignment) at any time. The Company had
approximately $25 million of CMBS assets that were on negative watch for
possible downgrade by at least one rating agency as of March 31, 2011.
(3) The percentage of underlying loans that are 60+ days delinquent, in
foreclosure or considered real estate owned (REO).
(4) The percentage of the outstanding face amount of securities that is
subordinate to the Company's investments.
(5) Weighted average life is based on the timing of expected principal
reduction on the asset.
Mezzanine loans, B-Notes and whole loans portfolio ($ in thousands):
% of Carrying WA WA
Face Basis Total Value First Last
$ $
Loan Loan
Asset Number Amount Amount Basis Amount to to Delinquency
Type ($) ($) ($) Value Value (%)(2)
(1) (1)
Mezzanine 16 530,664 394,656 67.5% 394,656 50.5% 62.0% 9.7%
Loans
B-Notes 9 233,132 159,069 27.2% 159,069 62.1% 76.6% 19.3%
Whole 3 30,872 30,872 5.3% 30,872 0.0% 48.2% 0.0%
Loans
Total/WA 28 794,668 584,597 100.0% 584,597 52.0% 65.7% 12.2%
(1) Loan to Value is based on the appraised value at the time of purchase or
refinancing.
(2) The percentage of underlying loans that are non-performing, in foreclosure,
under bankruptcy filing or considered real estate owned.
Residential Assets
The Company owns $900 million of residential assets (with a basis of $657 million), which include manufactured housing ("MH") loans, residential loans, subprime securities, real estate ABS and FNMA/FHLMC securities.
-- During the quarter, the Company purchased $106 million of subprime
securities, real estate ABS and FNMA/FHLMC securities, sold $17 million
of subprime securities and real estate ABS, received principal
repayments of $20 million and had $16 million of subprime securities
actual principal write-downs.
-- Regarding the Company's ABS portfolio, one security or $22 million was
upgraded (from a weighted average rating of B to BB), 16 securities or
$31 million were affirmed and 20 securities or $54 million were
downgraded (from a weighted average rating of BB- to CCC).
-- The weighted average carrying value of these assets changed from 70.3%
to 75.9%, an increase of $5 million in the quarter.
Manufactured housing and residential loan portfolios ($ in thousands):
% of Carrying Average
Average Face Basis Total Value Loan Age Original Delinquency Cumulative
Deal FICO Amount Amount Basis Amount $ (months) Balance $ 90+/FC/REO Loss to
Score $ $ (1) Date
MH Loans 700 147,937 119,647 33.1% 119,647 111 327,855 0.8% 7.1%
Portfolio 1
MH Loans 701 204,675 191,515 53.1% 191,515 143 434,743 1.5% 5.2%
Portfolio 2
Residential
Loans 715 58,900 46,614 12.9% 46,614 94 646,357 8.4% 0.3%
Portfolio 1
Residential
Loans 737 3,795 3,352 0.9% 3,352 74 83,950 0.0% 0.0%
Portfolio 2
TOTAL/WA 703 415,307 361,128 100.0% 361,128 124 1,492,905 2.2% 5.2%
(1) The percentage of loans that are 90+ days delinquent, in foreclosure or
considered real estate owned (REO).
Subprime Securities portfolio ($ in thousands):
Security
Characteristics:
Average % of Carrying
Minimum Face Basis Total Value Principal Excess
Vintage Rating Number Amount Amount Basis Amount $ Subordination Spread
(1) (2) $ $ (3) (4)
2003 CCC+ 15 16,589 8,151 5.2% 8,721 22.6% 4.1%
2004 CCC+ 23 69,390 21,406 13.6% 28,455 17.6% 3.7%
2005 B- 26 99,481 35,595 22.7% 42,151 31.0% 4.5%
2006 CCC+ 9 73,701 45,621 29.1% 49,858 34.8% 4.7%
2007 & B+ 9 66,932 46,052 29.4% 50,270 20.3% 2.9%
Later
TOTAL/WA B- 82 326,093 156,825 100.0% 179,455 26.4% 4.0%
Collateral Characteristics:
Average
Loan Age Collateral 3 Month Delinquency Cumulative
Vintage(1) (months) Factor(5) CPR(6) 90+/FC/REO Loss to Date
(7)
2003 99 0.09 9.0% 16.1% 3.6%
2004 83 0.14 8.4% 21.1% 3.9%
2005 72 0.18 9.4% 32.7% 8.4%
2006 59 0.37 12.2% 28.6% 18.0%
2007 & Later 42 0.41 8.0% 19.0% 13.7%
TOTAL/WA 66 0.26 9.5% 25.6% 10.4%
Real Estate ABS portfolios ($ in thousands):
Security
Characteristics
Average % of Carrying
Minimum Face Basis Total Value Principal Excess
Asset Type Rating Number Amount Amount Basis Amount $ Subordination Spread
(2) $ $ (3) (4)
Manufactured BBB+ 7 34,141 33,148 68.4% 34,623 39.9% 1.5%
Housing
Small
Business B+ 14 36,885 15,328 31.6% 15,865 24.8% 2.1%
Loans
TOTAL/WA BB+ 21 71,026 48,476 100.0% 50,488 32.1% 1.8%
Collateral Characteristics:
Average
Loan Age Collateral 3 Month Delinquency Cumulative
Asset Type (months) Factor(5) CPR(6) 90+/FC/REO Loss to Date
(7)
Manufactured 140 0.27 5.7% 2.5% 12.9%
Housing
Small
Business 70 0.60 9.2% 27.9% 8.0%
Loans
TOTAL/WA 104 0.44 7.5% 15.7% 10.4%
(1) The year in which the securities were issued.
Ratings provided above were determined by third party rating agencies as of
a particular date, may not be current and are subject to change (including
(2) a "negative watch" assignment) at any time. The Company had approximately
$54 million of subprime and ABS securities that were on negative watch for
possible downgrade by at least one rating agency as of March 31, 2011.
(3) The percentage of the outstanding face amount of securities and residual
interests that is subordinate to the Company's investments.
The annualized amount of interest received on the underlying loans in
(4) excess of the interest paid on the securities, as a percentage of the
outstanding collateral balance.
(5) The ratio of original unpaid principal balance of loans still outstanding.
(6) Three month average constant prepayment rate.
(7) The percentage of underlying loans that are 90+ days delinquent, in
foreclosure or considered real estate owned (REO).
Corporate Assets
The Company owns $577 million of corporate assets (with a basis of $482 million), including REIT debt and corporate bank loans.
-- During the quarter, the Company received $99 million of principal
repayments, purchased $51 million of REIT debt and corporate bank loans
and sold $6 million of REIT debt.
-- Regarding the Company's REIT debt portfolio, four securities or $39
million were upgraded (from a weighted average rating of CCC- to B+), no
securities were affirmed or downgraded.
-- The weighted average carrying value of these assets changed from 85.7%
to 86.5%, an increase of $11 million in the quarter.
REIT debt portfolio ($ in thousands):
Average Face Basis % of Carrying
Minimum Total Value
Industry Rating(1) Number Amount $ Amount $ Basis Amount $
Retail BBB+ 9 66,025 62,453 20.9% 72,523
Diversified B 7 65,036 65,573 22.0% 63,315
Office BBB 8 76,877 77,941 26.1% 81,420
Multifamily BBB 4 13,765 13,838 4.7% 14,566
Hotel BBB- 3 29,220 29,555 9.9% 31,054
Healthcare BBB 5 41,600 41,656 14.0% 44,574
Storage A- 1 5,000 5,046 1.7% 5,388
Industrial BB- 1 2,000 2,060 0.7% 2,041
TOTAL/WA BBB- 38 299,523 298,122 100.0% 314,881
Corporate bank loan portfolio ($ in thousands):
Average % of Carrying
Minimum Face Basis Total Value
Industry Rating(1) Number Amount $ Amount $ Basis Amount $
Real Estate CC 2 27,654 26,373 14.2% 26,373
Media CCC- 2 110,710 49,847 27.1% 49,847
Resorts NR 1 121,184 91,184 49.5% 91,184
Restaurant B- 2 18,112 16,861 9.2% 16,861
TOTAL/WA CC 7 277,660 184,265 100.0% 184,265
Ratings provided above were determined by third party rating agencies as of
a particular date, may not be current and are subject to change (including
(1) a "negative watch" assignment) at any time. The Company had no corporate
assets that were on negative watch for possible downgrade as of March 31,
2011.
CONFERENCE CALL
Newcastle's management will conduct a live conference call today, May 6, 2011, at 11:00 A.M. Eastern Time to review the financial results for the first quarter ended March 31, 2011. 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. You can access the conference call 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 First Quarter 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 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 Friday, May 13, 2011 by dialing 1-800-642-1687 (from within the U.S.) or 1-706-645-9291 (from outside of the U.S.); please reference access code "61984745."
ABOUT NEWCASTLE
Newcastle Investment Corp. owns and manages a portfolio of diversified, credit sensitive real estate debt that is primarily financed with match funded debt. Newcastle is organized and conducts its operations to qualify as a real estate investment trust (REIT) for federal income tax purposes. Newcastle is managed by an affiliate of Fortress Investment Group LLC, a global investment management firm. For more information regarding Newcastle Investment Corp. or to be added to our e-mail distribution list, please visit 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, projected average life of an investment, expected returns 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; 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 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 PRESENTED IN THIS PRESS RELEASE
Expected returns are an estimate of the annualized effective rate of return that we presently expect to be earned over the projected life of an investment (i.e., IRR), after giving effect to existing leverage and calculated on a weighted average basis. Expected returns reflect our estimates of the coupon, amortization of premium or discount, and costs and fees and contemplate our assumptions regarding prepayments and loan losses, among other things. Expected returns may not equal income recognized in future periods, and the estimates we use to calculate expected returns could differ materially from actual results.
The expected returns presented 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.
Newcastle Investment Corp.
Consolidated Statements of Operations (Unaudited)
(dollars in thousands, except per share data)
Three Months Ended March 31,
2011 2010
Interest income $ 72,203 $ 70,092
Interest expense 38,165 45,589
Net interest income 34,038 24,503
Impairment (Reversal)
Valuation allowance (reversal) on loans (41,307 ) (95,774 )
Other-than-temporary impairment on 3,112 64,856
securities
Portion of other-than-temporary impairment
on
securities recognized in other 989 (37,114 )
comprehensive income (loss),
net of reversal of other comprehensive
loss into net income (loss)
(37,206 ) (68,032 )
Net interest income after impairment 71,244 92,535
Other Income (Loss)
Gain (loss) on settlement of investments, 34,092 9,677
net
Gain on extinguishment of debt 11,042 48,346
Other income (loss), net 335 (1,480 )
45,469 56,543
Expenses
Loan and security servicing expense 1,060 1,035
General and administrative expense 1,601 3,101
Management fee to affiliate 4,189 4,477
6,850 8,613
Income from continuing operations 109,863 140,465
Income (loss) from discontinued operations (190 ) (40 )
Net Income 109,673 140,425
Preferred dividends (1,395 ) (3,268 )
Excess of carrying amount of exchanged
preferred stock - 43,043
over fair value of consideration paid
Income Available for Common Stockholders $ 108,278 $ 180,200
Income Per Share of Common Stock
Basic $ 1.73 $ 3.36
Diluted $ 1.73 $ 3.36
Income from continuing operations per
share of common stock,
after preferred dividends and excess of
carrying amount of
exchanged preferred stock over fair value
of consideration paid
Basic $ 1.73 $ 3.36
Diluted $ 1.73 $ 3.36
Income from discontinued operations per
share
of common stock
Basic $ - $ -
Diluted $ - $ -
Weighted Average Number of Shares of
Common Stock Outstanding
Basic 62,602,184 53,619,643
Diluted 62,611,070 53,619,643
Dividends Declared per Share of Common $ - $ -
Stock
Newcastle Investment Corp.
Consolidated Balance Sheets
(dollars in thousands)
March 31, 2011
December 31, 2010
(Unaudited)
Assets
Non-Recourse VIE Financing Structures
Real estate securities, available for $ 1,994,079 $ 1,859,984
sale
Real estate related loans, held for 764,254 750,130
sale, net
Residential mortgage loans, held for 121,661 124,974
investment, net
Residential mortgage loans, held for 246,298 252,915
sale, net
Subprime mortgage loans subject to call 404,011 403,793
option
Operating real estate, held for sale 8,339 8,776
Other investments 18,883 18,883
Restricted cash 131,540 157,005
Derivative assets 7,535 7,067
Receivables and other assets 31,420 29,206
3,728,020 3,612,733
Recourse Financing Structures and
Unlevered Assets
Real estate securities, available for 94,587 600
sale
Real estate related loans, held for 4,608 32,475
sale, net
Residential mortgage loans, held for 277 298
sale, net
Other investments 6,024 6,024
Cash and cash equivalents 160,594 33,524
Receivables and other assets 3,586 1,457
269,676 74,378
$ 3,997,696 $ 3,687,111
Liabilities and Stockholders' Equity
(Deficit)
Liabilities
Non-Recourse VIE Financing Structures
CDO bonds payable $ 2,944,193 $ 3,010,868
Other bonds payable 246,561 256,809
Notes payable 4,296 4,356
Repurchase agreements 12,527 14,049
Financing of subprime mortgage loans 404,011 403,793
subject to call option
Derivative liabilities 153,944 176,861
Accrued expenses and other liabilities 11,745 8,445
3,777,277 3,875,181
Recourse Financing Structures and Other
Liabilities
Repurchase agreements 83,276 4,683
Junior subordinated notes payable 51,252 51,253
Dividends payable 930 -
Due to affiliates 1,351 1,419
Accrued expenses and other liabilities 7,656 2,160
144,465 59,515
3,921,742 3,934,696
Stockholders' Equity (Deficit)
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 61,583 61,583
Redeemable Preferred Stock, liquidation
preference $25.00 per share, issued and
outstanding as of March 31, 2011 and
December 31, 2010
Common stock, $0.01 par value,
500,000,000 shares authorized,
79,277,184
and 62,027,184 shares issued and
outstanding at March 31, 2011 and 793 620
December 31, 2010, respectively
Additional paid-in capital 1,163,604 1,065,377
Accumulated deficit (1,224,429 ) (1,328,987 )
Accumulated other comprehensive income 74,403 (46,178 )
(loss)
75,954 (247,585 )
$ 3,997,696 $ 3,687,111
Newcastle Investment Corp.
Reconciliation of Net Interest Income Less Expenses (Net of Preferred
Dividends)
(dollars in thousands)
Three Months Ended March 31,
2011 2010
Income available for common stockholders $ 108,278 $ 180,200
Add (Deduct):
Impairment reversal (37,206 ) (68,032 )
Other income (45,469 ) (56,543 )
Excess of carrying amount of exchanged preferred - (43,043 )
stock over fair value of consideration paid
Loss from discontinued operations 190 40
Net interest income less expenses (net of $ 25,793 $ 12,622
preferred dividends)
Source: Newcastle Investment Corp.
Released May 6, 2011