Newcastle Announces Second Quarter 2009 Results
NEW YORK--(BUSINESS WIRE)-- Newcastle Investment Corp. (NYSE: NCT):
Second Quarter 2009 Financial Results
Newcastle Investment Corp. (NYSE: NCT) reported that for the quarter ended June 30, 2009, GAAP loss was $47.4 million or $0.90 per diluted share, compared to GAAP loss of $1.66 per diluted share for the quarter ended June 30, 2008.
The GAAP loss of $47.4 million consists of net interest income less expenses (net of preferred dividends) of $20.9 million plus other income of $55.1 million, less impairments of $123.4 million.
Recourse Debt Reduction and Modifications
In April 2009, Newcastle entered into an Exchange Agreement, pursuant to which the Company agreed to exchange newly issued junior subordinated notes due 2035 in an initial aggregate principal amount of $101.7 million for $100 million in aggregate liquidation amount of our outstanding trust preferred securities. The new notes will accrue interest at a rate of 1.0% per year for a modification period (February 2009 through July 2010 unless we elect to terminate prior to this date), compared to the 7.574% interest rate that the Company was required to pay on the trust preferred securities, which were canceled as part of the transaction. Please review our Form 8-K dated May 4, 2009, for additional important details regarding this transaction.
Effective June 30, 2009, the Company entered into an agreement with the other parties to a commercial construction loan for which we previously had funding commitments of $37.9 million (excluding $13.2 million of commitments owned by our CDOs), pursuant to which all future funding commitments, including both the commitments of Newcastle and our CDOs, were permanently terminated. As a result, as of June 30, 2009, Newcastle and our CDOs do not have any future funding commitments with respect to this loan.
In the second quarter, the Company decreased its non-agency recourse debt by $13 million and decreased its FNMA/FHLMC recourse debt by $3 million. As detailed below, the Company's unrestricted cash balance currently exceeds its non-agency recourse liabilities (excluding our trust preferred securities, which are long-term obligations).
Financing and Liquidity
Certain details regarding our liquidity, current financings and capital obligations are set forth below as of August 5, 2009:
-- Cash - We had unrestricted cash of $69.1 million. In addition, we had $126.6 million of restricted cash for reinvestment in our CDOs; -- Margin Exposure - We have no financings subject to margin calls, other than one repurchase agreement with a face amount of $43.7 million which finances our FNMA/FHLMC investments and four interest rate swap agreements with an aggregate notional amount of $72.2 million; and -- Recourse Financings- Substantially all of our assets, other than our FNMA/FHLMC investments, are currently financed with term debt subject to amortization payments, as opposed to short-term debt such as repurchase agreements, which could be subject to margin requirements.
The following table compares the face amount of our recourse financings, excluding the trust preferred securities ($ in millions):
August 5, June 30, March 31, 2009 2009 2009 Recourse Financings Non-FNMA/FHLMC (non-agency) Real Estate Securities, Loans, and Properties $ 52 $ 73 $ 83 Manufacturing Housing Loans 16 17 20 Subtotal 68 90 103 FNMA/FHLMC Investments 44 45 48 Total Recourse Financings $ 112 $ 135 $ 151
The following table summarizes the scheduled repayments of our non-agency recourse financings ($ in millions):
Scheduled Repayments August 6, 2009 to September 30, 2009 $ 9 4th Quarter 2009 12 1st Quarter 2010 19 2nd Quarter 2010 23 3rd Quarter 2010 3 4th Quarter 2010 2 Total Recourse Financings $ 68
The following table summarizes our cash receipts in the second quarter 2009 from our CDO financings and their related coverage tests ($ in thousands):
Interest Primary Coverage Collateral % Excess Over Collateralization % Excess Cash June 30, 2009 June 30, 2009 March 31, Type Receipts (2) (2) 2009(2) Original (1) CDO IV Securities $ 2,428 109.3 % 0.6 % 1.0 % 3.5 % CDO V Securities 3,464 158.8 % 2.7 % 2.3 % 2.5 % CDO VI Securities 152 182.5 % -13.4 % -5.4 % 2.6 % CDO VII Securities 158 122.6 % -20.1 % -9.1 % 2.5 % CDO Loans 4,006 302.4 % 4.4 % 0.2 % 4.5 % VIII CDO IX Loans 4,234 218.0 % 2.3 % 4.8 % 8.1 % CDO X Securities 7,860 135.8 % 3.6 % 2.5 % 8.3 % Total $ 22,302
-- The cash receipts above include $7.5 million of non-recurring prepayment fees received in the CDOs. -- We currently have approximately $1.1 billion of CMBS and ABS assets held within our CDOs that are on downgrade watch by the rating agencies. These securities could be downgraded at any time, which could impact our future cash flows.
(1) Represents net cash received from each CDO based on all of our interests in such CDO (including senior management fees). Cash receipts for the quarter-ended June 30, 2009 may not be indicative of cash receipts for subsequent periods. See forward-looking statements below for risks and uncertainties that could cause our cash receipts for subsequent periods to differ materially from these amounts.
(2) Represents excess or deficiency under the applicable interest coverage or over collateralization tests. We generally do not receive material cash flow from the CDO until the deficiency is corrected. The information regarding coverage tests is based on data from the most recent remittance date on or before June 30, 2009 or March 31, 2009 as applicable.
Book Value
Our GAAP book value increased to $(44.15) per share, or $(2.3) billion at June 30, 2009, up from $(49.95) per share, or $(2.6) billion at March 31, 2009.
For a reconciliation of net interest income to net interest income less expenses (net of preferred dividends), please refer to the tables following the presentation of GAAP results.
Dividends
For the quarter ended June 30, 2009, Newcastle's Board of Directors elected not to pay a common stock or preferred stock dividend. The Company decided to retain capital to further reduce recourse debt and for working capital purposes.
Investment Portfolio
Newcastle's $5.8 billion investment portfolio (with a basis of $3.6 billion) consists of commercial, residential and corporate debt. During the quarter, the portfolio decreased by $91.4 million primarily as a result of principal repayments of $124.3 million, sales of $146.9 million and actual principal writedowns of $49.6 million, offset by purchases and fundings of a prior commitment of $229.4 million.
The following table describes our investment portfolio as of June 30, 2009 ($ in millions):
Weighted Face Basis % of Number of Average Life Amount $ Amount $(1) Basis Investments Credit(2) (years) (3) Commercial Assets CMBS $ 2,366 $ 1,581 44.4 % 282 BBB- 3.6 Mezzanine 755 297 8.3 % 23 68% 2.1 Loans B-Notes 310 81 2.3 % 11 60% 2.0 Whole Loans 102 67 1.9 % 4 45% 1.9 Total Commercial 3,533 2,026 56.9 % 3.1 Assets Residential Assets MH and Residential 517 373 10.5 % 13,340 694 6.8 Loans Subprime 502 205 5.7 % 111 B 4.2 Securities Subprime Retained 76 4 0.1 % 8 CC/650 1.9 Securities & Residuals Real Estate 89 69 2.0 % 26 BBB 4.7 ABS 1,184 651 18.3 % 5.2 FNMA/FHLMC 52 52 1.5 % 3 AAA 4.0 Securities Total Residential 1,236 703 19.8 % 5.2 Assets Corporate Assets REIT Debt 564 555 15.6 % 59 BB+ 4.5 Corporate Bank 452 273 7.7 % 12 CCC 2.4 Loans Total Corporate 1,016 828 23.3 % 3.6 Assets Total/Weighted $ 5,785 $ 3,557 100.0 % 3.6 Average(4)
(1) Net of impairments.
(2) Credit represents weighted average of minimum rating for rated assets, LTV (based on the appraised value at the time of purchase) for non-rated commercial assets, 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 as of a particular date, may not be current and are subject to change (including the assignment of a "negative outlook" or "credit watch") at any time.
(3) Weighted average life represents the timing of expected principal payments on the asset. For an asset with an expected loss, weighted average life represents the timing of all remaining expected cash flows, both principal and interest payments.
(4) Excludes operating real estate held for sale and loans subject to call option with a face amount of $11 million and $406 million, respectively.
Commercial Assets
We own $3.5 billion of commercial assets (with a basis of $2.0 billion), which includes CMBS, mezzanine loans, B-Notes and whole loans.
-- During the quarter, we funded a prior commitment of $1.6 million, purchased CMBS assets of $186.5 million, had principal repayments of $88.4 million and no actual principal writedowns for a net increase of $99.7 million. We purchased 28 CMBS assets with an average rating of "AA+." -- We had no commercial assets upgraded and 20 securities or $219.5 million downgraded (from an average rating of BB+ to B). -- We currently have approximately $1 billion of CMBS assets that are on downgrade watch by S&P.
CMBS portfolio ($ in thousands):
Average Weighted Face Basis % of Delinquency Principal Average Minimum Vintage Rating Number Amount $ Amount $ Basis 60+/FC/REO Subordination Life (1) (2) (3) (4) (yr) Pre 2004 BBB+ 77 400,963 393,643 24.9% 2.9% 11.7% 3.5 2004 BB+ 61 446,969 367,993 23.3% 2.8% 5.4% 4.2 2005 BBB- 55 608,759 288,451 18.2% 1.7% 6.0% 3.8 2006 BBB- 49 461,555 319,283 20.2% 1.4% 9.7% 3.2 2007 BB 40 447,729 211,857 13.4% 2.3% 10.7% 3.1 TOTAL/WA BBB- 282 2,365,975 1,581,227 100.0% 2.1% 8.5% 3.6
(1) The year in which the securities were issued.
(2) 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 the assignment of a "negative outlook" or "credit watch") at any time.
(3) The percentage of underlying loans that are 60+ days delinquent, or in foreclosure or considered real estate owned (REO).
(4) The percentage of the outstanding face amount of securities that is subordinate to our investments.
Mezzanine loans, B-Notes and whole loan portfolio ($ in thousands):
Whole Mezzanine B-Note Loan Total Face Amount ($) 755,477 309,710 102,053 1,167,240 Basis Amount ($) 296,542 80,568 66,763 443,873 WA First $ Loan To Value (1) 55.8% 48.0% 0.0% 48.8% WA Last $ Loan To Value (1) 68.1% 59.9% 44.8% 63.9% Delinquency (%) (2) 6.0% 30.7% 0.0% 12.0%
(1) Loan To Value is based on the appraised value at the time of purchase.
(2) The percentage of underlying loans that are non-performing, in foreclosure, under bankruptcy filing or considered real estate owned.
Residential Assets
We own $1.2 billion of residential assets (with a basis of $0.7 billion), which includes manufactured housing loans ("MH"), residential loans, subprime securities and FNMA/FHLMC securities.
-- During the quarter, we purchased $39.8 million, sold $47.3 million, had principal repayments of $34.6 million and actual principal writedowns of $33.7 million for a net decrease of $75.8 million. We purchased four ABS assets with an average rating of "AA." -- We had no ABS securities upgraded and 24 securities or $99.3 million downgraded (from an average rating of BB+ to B-). -- We currently have approximately $70 million of ABS securities that are on downgrade watch by the rating agencies.
Manufactured housing loan portfolios ($ in thousands):
Weighted Average Actual Face Basis % of Loan Age Original Delinquency Cumulative Deal Amount Amount Basis (months) Balance 90+/FC/REO Loss to $ $ $ (1) Date Portfolio 180,823 122,191 37.4% 94 327,855 1.6% 4.7% 1 Portfolio 261,938 204,625 62.6% 123 434,743 1.1% 2.9% 2 TOTAL/WA 442,761 326,816 100.0% 111 762,598 1.3% 3.6%
(1) The percentage of loans that are 90+ days delinquent, or in foreclosure or considered real estate owned (REO).
Subprime securities portfolio excluding our residuals and retained interests in our own securitizations ($ in thousands):
Security Characteristics:
Average Minimum Face Basis % of Principal Excess Vintage Rating Number Amount $ Amount $ Basis Subordination Spread(4) (1) (2) (3) 2003 BBB+ 15 24,763 18,248 8.9% 20.5% 4.2% 2004 BB 30 101,920 45,727 22.4% 12.9% 4.4% 2005 B- 45 190,941 49,885 24.4% 20.2% 5.2% 2006 CCC- 14 114,699 45,952 22.5% 17.9% 4.5% 2007 BB+ 7 70,013 44,686 21.8% 30.1% 4.7% TOTAL/WA B 111 502,336 204,498 100.0% 19.6% 4.7%
Collateral Characteristics:
Average Loan Age Collateral 3 Month Delinquency Cumulative Vintage(1) (months) Factor(5) CPR(6) 90+/FC/REO(7) Loss to Date 2003 75 0.11 10.7% 13.7% 2.5% 2004 62 0.15 12.3% 18.0% 2.5% 2005 49 0.26 19.6% 31.4% 6.7% 2006 35 0.59 16.0% 35.0% 7.7% 2007 32 0.73 16.7% 32.4% 6.0% TOTAL/WA 47 0.37 16.5% 28.8% 5.8%
(1) The year in which the securities were issued.
(2) Ratings provided above were determined by third party rating agencies as of June 30, 2009, may not be current and are subject to change (including the assignment of a "negative outlook" or "credit watch") at any time.
(3) The percentage of the outstanding face amount of securities and residual interests that is subordinate to our investments.
(4) The annualized amount of interest received on the underlying loans in 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, or in foreclosure or considered real estate owned (REO).
Residuals and retained securities
We own $76.1 million of retained securities with a basis of $4.1 million and residual interests with a basis of $0.4 million in two subprime portfolio securitizations from 2006 and 2007.
Corporate Assets
We own $1.0 billion of corporate assets (with a basis of $0.8 billion), including REIT debt and corporate bank loans.
-- During the quarter, we purchased $1.5 million, sold $99.6 million, had principal repayments of $1.4 million, and actual principal writedowns of $15.9 million for a net decrease of $115.4 million. Our purchase consisted of one REIT asset with a rating of "A-." -- We had one REIT asset or $5.0 million upgraded (from a rating of A- to A). We had no bank loans upgraded and 16 securities or $291.9 million downgraded (from an average rating of B- to CCC).
REIT debt portfolio ($ in thousands):
Average Face Basis % of Minimum Industry Rating(1) Number Amount $ Amount $ Basis Retail BB+ 17 163,935 151,980 27.4% Diversified B+ 14 151,463 151,857 27.3% Office BBB 12 130,219 132,604 23.9% Multifamily BBB 4 18,765 17,490 3.1% Hotel BBB- 4 37,220 37,818 6.8% Healthcare BBB- 4 36,600 37,124 6.7% Storage A- 1 5,000 5,084 0.9% Industrial BB- 3 20,865 21,506 3.9% TOTAL/WA BB+ 59 564,067 555,463 100.0%
Corporate bank loan portfolio ($ in thousands):
Average Face Basis % of Minimum Industry Rating(1) Number Amount $ Amount $ Basis Real Estate CC 3 115,299 55,803 20.4% Media CCC 2 112,000 27,625 10.1% Retail B- 1 97,438 97,438 35.7% Resorts BB- 1 76,406 54,630 20.0% Restaurant B 2 19,436 13,755 5.0% Gaming CCC 1 3,000 276 0.1% Transportation NR 1 27,000 22,275 8.2% Theatres B- 1 1,464 1,388 0.5% TOTAL/WA CCC 12 452,043 273,190 100.0%
(1) 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 the assignment of a "negative outlook" or "credit watch") at any time.
Conference Call
Newcastle's management will conduct a live conference call today, August 7, 2009, at 1:00 P.M. Eastern Time to review the financial results for the quarter ended June 30, 2009. All interested parties are welcome to participate on the live call. You can access the conference call by dialing (888) 243-2046 (from within the U.S.) or (706) 679-1533 (from outside of the U.S.) ten minutes prior to the scheduled start of the call; please reference "Newcastle Second 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, August 14, 2009 by dialing (800) 642-1687 (from within the U.S.) or (706) 645-9291 (from outside of the U.S.); please reference access code "22705137."
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 alternative asset manager. For more information regarding Newcastle Investment Corp. or to be added to our e-mail distribution list, please visit www.newcastleinv.com.
Safe Harbor
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 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 the ongoing credit and liquidity crisis continues to cause downgrades of a significant number of our securities and 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 Annual Report on Form 10-K and Quarterly Report on Form 10-Q, which are 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.
Newcastle Investment Corp. Consolidated Statements of Operations (dollars in thousands, except share data) (Unaudited) Three Months Ended Six Months Ended June 30, June 30, 2009 2008 2009 2008 Interest income $ 87,338 $ 115,018 $ 211,811 $ 247,912 Interest expense 54,172 73,713 114,716 163,088 Net interest income 33,166 41,305 97,095 84,824 Impairment Provision for credit 3,557 1,868 5,464 4,373 losses on loan pools Valuation allowance (reversal) on loans (34,426 ) 16,759 86,100 37,085 held for sale Other-than-temporary impairment on 211,812 101,797 398,394 148,169 securities Portion of other-than-temporary impairment on (57,536 ) - (57,536 ) - securities recognized in other comprehensive income 123,407 120,424 432,422 189,627 Net interest income (90,241 ) (79,119 ) (335,327 ) (104,803 ) after impairment Other Income (Loss) Gain (loss) on settlement of 17,544 (37 ) 11,042 6,489 investments, net Gain on extinguishment of 26,830 - 53,675 8,533 debt Other income (loss), 10,939 1,427 4,445 (17,881 ) net Equity in earnings of unconsolidated (28 ) 7,062 (15 ) 7,770 subsidiaries 55,285 8,452 69,147 4,911 Expenses Loan and security 1,370 1,788 2,772 3,518 servicing expense General and administrative 2,965 1,892 4,591 3,484 expense Management fee to 4,492 4,597 8,983 9,194 affiliate Depreciation and 73 73 145 145 amortization 8,900 8,350 16,491 16,341 Income (loss) from continuing (43,856 ) (79,017 ) (282,671 ) (116,233 ) operations Income (loss) from discontinued (142 ) (5,263 ) (175 ) (8,951 ) operations Net Income (Loss) (43,998 ) (84,280 ) (282,846 ) (125,184 ) Preferred dividends (3,376 ) (3,376 ) (6,751 ) (6,751 ) Income (Loss) Applicable to Common $ (47,374 ) $ (87,656 ) $ (289,597 ) $ (131,935 ) Stockholders Income (loss) Per Share of Common Stock Basic $ (0.90 ) $ (1.66 ) $ (5.48 ) $ (2.50 ) Diluted $ (0.90 ) $ (1.66 ) $ (5.48 ) $ (2.50 ) Income (loss) from continuing operations per share of common stock, after preferred dividends Basic $ (0.90 ) $ (1.56 ) $ (5.48 ) $ (2.33 ) Diluted $ (0.90 ) $ (1.56 ) $ (5.48 ) $ (2.33 ) Income (loss) from discontinued operations per share of common stock Basic $ - $ (0.10 ) $ - $ (0.17 ) Diluted $ - $ (0.10 ) $ - $ (0.17 ) Weighted Average Number of Shares of Common Stock Outstanding Basic 52,836,208 52,783,006 52,821,800 52,781,662 Diluted 52,836,208 52,783,006 52,821,800 52,781,662 Dividends Declared per Share of Common $ - $ 0.250 $ - $ 0.500 Stock
Newcastle Investment Corp. Consolidated Balance Sheets (dollars in thousands, except share data) June 30, 2009 December 31, 2008 (unaudited) Assets Real estate securities, available for sale $ 1,568,324 $ 1,668,748 Real estate related loans, held for sale 717,078 843,212 Residential mortgage loans, held for sale 381,709 409,632 Subprime mortgage loans subject to call 400,474 398,026 option Investments in unconsolidated subsidiaries 221 384 Operating real estate, held for sale 10,266 11,866 Cash and cash equivalents 66,628 49,746 Restricted cash 77,573 44,282 Receivables and other assets 43,024 47,727 $ 3,265,297 $ 3,473,623 Liabilities and Stockholders' Equity Liabilities CDO bonds payable 4,270,103 4,359,981 Other bonds payable 329,256 380,620 Repurchase agreements 117,478 276,472 Financing of subprime mortgage loans subject 400,474 398,026 to call option Junior subordinated notes payable 101,700 100,100 Derivative liabilities 222,252 333,977 Due to affiliates 1,497 1,532 Accrued expenses and other liabilities 6,068 16,447 5,448,828 5,867,155 Stockholders' Equity (Deficit) Preferred stock, $0.01 par value, 100,000,000 shares authorized, 2,500,000 shares of 9.75% Series B Cumulative Redeemable Preferred Stock 1,600,000 shares of 8.05% Series C Cumulative Redeemable Preferred Stock, and 2,000,000 shares of 8.375% Series D Cumulative Redeemable Preferred Stock liquidation preference $25.00 per share, 152,500 152,500 issued and outstanding Common stock, $0.01 par value, 500,000,000 shares authorized, 52,905,335 and 52,789,050 shares issued and outstanding at June 30, 2009 and December 31, 2008, respectively 529 528 Additional paid-in capital 1,033,506 1,033,416 Accumulated deficit (2,266,325 ) (3,272,403 ) Accumulated other comprehensive loss (1,103,741 ) (307,573 ) (2,183,531 ) (2,393,532 ) $ 3,265,297 $ 3,473,623
Newcastle Investment Corp. Reconciliation of Net Interest Income Less Expenses (Net of Preferred Dividends) (dollars in thousands) (Unaudited) Three Months Ended June 30, 2009 June 30, 2008 Net Interest Income $ 33,166 $ 41,305 Less: Expenses (8,900 ) (8,350 ) Less: Preferred dividends (3,376 ) (3,376 ) Net Interest Income less Expenses (Net of $ 20,890 $ 29,579 Preferred Dividends)
Source: Newcastle Investment Corp.
Released August 7, 2009