Newcastle Announces Second Quarter 2007 Results
Second Quarter Highlights
-- Net book value per share increased to $18.59 per share from $18.39 per share at March 31, 2007
-- Declared 2Q07 dividend of $0.72 per share, up 4.3% from our 1Q07 dividend of $0.69 per share
-- Raised $125 million of equity capital through the issuance of 4.56 million common shares
Subsequent Events
-- Board of Directors approved a potential buy back of up to $100 million of common shares
-- Completed $2.5 billion of non-recourse term financings
NEW YORK, Aug. 2 /PRNewswire-FirstCall/ -- Newcastle Investment Corp. (NYSE: NCT) reported that for the quarter ended June 30, 2007, Funds from Operations ("FFO") excluding the effect of a non-cash impairment charge was $38.5 million, or $0.73 per diluted share, compared to $0.66 per diluted share for the second quarter 2006. The Company generated an FFO return on average invested equity of 15.5% excluding the effect of the impairment charge.
For the three months ended June 30, 2007, income available for common stockholders excluding the effect of a non-cash impairment charge was $38.2 million, or $0.73 per share, compared to $0.65 per diluted share for the second quarter 2006.
For the quarter ended June 30, 2007, we declared a dividend of $0.72 per common share. This represents a 4.3% increase from the prior quarter's dividend of $0.69 per common share.
Our GAAP common equity book value increased by $0.20 per share to $18.59 per share or a total of $981 million at June 30, 2007 from $18.39 per share or $886 million at March 31, 2007.
For a reconciliation and discussion of GAAP net income to FFO and GAAP book equity to invested common equity, please refer to the tables following the presentation of GAAP results.
For the second quarter, we recognized a non-cash charge of $6 million on five of our subprime securities with an aggregate $18 million face amount representing an other than temporary impairment under U.S. GAAP. This resulted in a reduction of FFO and net income of $0.09 per diluted share.
Selected Financial Data (Unaudited) ($ in millions, except per share data)
Operating Data: Three Months Ended Three Months Ended
June 30, 2007 June 30, 2006
(Amount) (per diluted (Amount) (per diluted
share) share)
FFO(1) $38.5 $0.73 -- --
FFO $34.0 $0.64 $28.9 $0.66
Income available for common
stockholders(1) $38.2 $0.73 -- --
Income available for common
stockholders $33.7 $0.64 $28.7 $0.65
As of As of
June 30, 2007 March 31, 2007
Balance Sheet Data:
Total assets $ 10,024 $ 10,221
Total liabilities 8,890 9,182
Common stockholders' equity 981 887
Preferred stock 152 152
Total equity 1,133 1,039
The following table summarizes our investment portfolio at June 30, 2007(2) and March 31, 2007 ($ in millions):
As of June 30, As of March 31,
2007 2007
Face Face
Core Amount % Total Amount % Total
Real Estate Securities and Related
Loans $6,535 71.7% $6,782 65.2%
Subprime Loans, Held for Sale - 0.0% 1,049 10.1%
Residential Mortgage Loans 706 7.7% 759 7.3%
Subprime Loans Subject to Call
Options 406 4.5% 299 2.8%
Investment in Real Estate Joint
Venture 39 0.4% 38 0.4%
Subtotal $7,686 84.3% $8,927 85.8%
Non-Core
Agency RMBS $1,317 14.4% $1,349 13.0%
ICH Loans 118 1.3% 122 1.2%
Total Portfolio $9,121 100.0% $10,398 100.0%
The following tables compare certain supplemental data relating to our investment portfolio at June 30, 2007 versus March 31, 2007:
Supplemental Data:
Total Portfolio Core Portfolio
June 30, March 31, June 30, March 31,
2007(2) 2007 2007(2) 2007
Weighted average asset yield 7.46% 7.45% 7.85% 7.80%
Weighted average liability cost 5.96% 5.88% 6.13% 6.03%
Weighted average net spread 1.50% 1.57% 1.72% 1.77%
(1) Excludes the effect of a non-cash impairment charge.
(2) Investments portfolio proforma for the securitization of the subprime
loans held for sale that closed on July 12, 2007.
Investment Portfolio
Newcastle's $9.1 billion investment portfolio consists primarily of commercial, residential and corporate debt. The following describes our investment portfolio at June 30, 2007(1) ($ in millions):
Face % of Total WA
Amount Portfolio Number Credit(2) Life
Commercial
CMBS $2,413 26.5% 288 BBB- 5.4
Mezzanine Loans 1,124 12.3% 27 68% 2.4
B-Notes 403 4.4% 13 65% 2.2
Real Estate Loans 128 1.4% 5 75% 1.3
Other 157 1.7% 171 NR 3.7
Total Commercial 4,225 46.3% 504 4.1
Residential
Subprime Securities 644 7.0% 122 BBB+ 2.1
ABS Manufactured Housing &
Franchise 128 1.4% 29 BBB+ 5.5
Subprime Residual / Retained
Securities 159 1.7% 8 NR 3.1
Agency RMBS 1,317 14.4% 43 AAA 4.4
Manufactured Home Loans 589 6.5% 16,878 692 6.1
Residential Mortgage Loans 117 1.3% 375 716 2.8
Other 406 4.5% 2 NR 2.1
Total Residential 3,360 36.8% 17,457 3.9
Corporate
REIT Debt 938 10.3% 95 BBB- 5.6
Corporate Bank Loans 598 6.6% 14 58% 3.3
Total Corporate 1,536 16.9% 109 4.7
TOTAL $9,121 100% 4.1
(1) Investment portfolio proforma for the securitization of the subprime
loans held for sale that closed on July 12, 2007.
(2) Credit represents weighted average rating for rated assets, LTV for
non-rated commercial assets, FICO score for non-rated residential
assets and implied AAA for Agency RMBS.
Commercial Debt
We owned $4.2 billion face amount of commercial assets (CMBS, Mezzanine Loans, B-Notes and Real Estate Loans). During the quarter, we purchased $261.3 million, sold $30.5 million and had pay downs of $554.9 million for a net decrease of $324.1 million. Our $2.4 billion CMBS portfolio continues to perform well as only 0.39% of the underlying loans are delinquent. We have no delinquencies in our Mezzanine Loans, B-Notes and Real Estate Loans. We had 17 or $105.5 million CMBS securities upgraded with 1 or $9.0 million downgraded. Credit spreads widened on average by 24 basis points on our CMBS portfolio and were unchanged on our Mezzanine Loans, B-Notes and Real Estate Loans portfolio.
Residential Debt
We owned $3.4 billion face amount of residential assets (Subprime Securities, ABS Manufactured Housing, Subprime Residual / Retained Securities, Agency RMBS, Manufactured Home Loans and Residential Mortgage Loans). During the quarter, we purchased $254.0 million, sold $32.5 million and had paydowns of $278.6 million for a net decrease of $57.1 million. 60+ delinquencies on our Manufactured Housing loan portfolio decreased to 0.7% from 1.0% in March. The current average rating of our $640 million Subprime Securities portfolio was unchanged at BBB+. Our Subprime Securities portfolio had 2 or $12.7 million of securities downgraded with 1 or $6.5 million of securities upgraded. The following table illustrates the exposure by vintage in our subprime securities portfolio as of June 30, 2007.
($ in thousands)
Collateral Characteristics
Deal Collateral Delinq 3 month Cum Loss
Vintage Age Factor 90+/FC/REO CRR to Date
2003 Vintage 46 0.16 10.6 % 22.1 % 2.0 %
2004 Vintage 36 0.22 11.0 % 30.9 % 0.9 %
2005 Vintage 23 0.49 11.4 % 33.6 % 0.6 %
2006 Vintage 11 0.80 9.4 % 20.3 % 0.1 %
2007 Vintage 3 0.97 0.1 % 14.4 % 0.0 %
Total 26 0.45 10.6 % 28.1 % 0.7 %
Security Characteristics
Average Current Principal
Vintage Rating Balance % Subord
2003 Vintage A $55,529 8.6 % 25.2 %
2004 Vintage A- 218,889 34.0 % 21.5 %
2005 Vintage BBB+ 202,030 31.4 % 12.4 %
2006 Vintage BB+ 159,497 24.8 % 3.7 %
2007 Vintage BBB+ 7,750 1.2 % 9.6 %
Total BBB+ $643,695 100.0 % 14.4 %
In addition to the principal credit support of 14.4%, the securities are further supported by approximately 200 basis points of excess spread. Our Subprime Securities portfolio had 2 or $12.7 million of securities downgraded with 1 or $6.5 million of securities upgraded.
Corporate Debt
We owned $1.5 billion face amount of corporate assets (Bank Loans and REIT Debt). During the quarter, we purchased $102.4 million, sold $32.5 million and had pay downs of $30.2 million for a net increase of $39.7 million. Our Bank Loan portfolio had no rating changes and we had only 2 or $46.4 million downgrades in our REIT Debt portfolio. Credit spreads widened on average by 7 basis points on our REIT Debt portfolio and were unchanged on our Bank Loan portfolio.
Funded Investments in the Second Quarter ($ in millions)
Commercial Face Number Credit WA Credit Spread
CMBS $62 8 BB+ 212
Mezz Loans 99 3 55% 221
Whole Loan 25 1 68% 175
B-Notes 75 2 63% 293
Total Commercial 261 14 235
Residential
Subprime Securities 8 3 BBB+ 353
Agency RMBS 31 1 AAA 71
Subprime Loans, held for sale 215 988 652 NR
Total Residential 254 992 127
Corporate
REIT 33 6 BBB+ 65
Bank Loans 70 3 56% 202
Total Corporate 103 9 157
TOTAL $618 1015 205
Capital Markets Activity
In April, we issued 4.56 million common shares, and raised net proceeds of approximately $125 million. The proceeds were used to pay down amounts drawn on our credit facility.
In April, we priced our tenth collateralized debt obligation ("CDO"). The proceeds from this issuance were used to term finance an $825 million portfolio of newly acquired mezzanine loans, bank loans, B-Notes, CMBS and other commercial real estate assets including whole loans. Net of this financing, we invested approximately $123 million of capital with a targeted return on equity of 16.5%.
Subsequent to quarter-end:
-- As of today, we have $200 million available on our credit facility, $35
million of cash and $154 million of restricted cash to invest in our
CBOs. In addition, we have three committed warehouse facilities
aggregating $1.2 billion of which $900 million is available.
-- In July, we closed a $1.09 billion securitization of the subprime
mortgage loan portfolio which we acquired in March and April 2007.
Newcastle, through the securitization trust, issued $1.02 billion face
amount of investment grade notes of which $979 million were sold to
third parties. Newcastle invested approximately $50 million of equity
in the transaction. This comprises approximately $46 million invested
in 100% of the low investment grade notes and equity and approximately
$4 million, net of financing, invested in $39 million face amount of
notes rated Baa1 through Baa3 by Moody's Investors Service and A to BBB
by Standard & Poor's. In connection with the transaction, we recorded
in the second quarter a loss of $5.8 million related to changes in
rates on the loans held for sale offset by a $5.8 million gain upon
termination of the swap which was hedging our interest rate exposure.
No write down for credit was recorded on these loans.
-- In July, we closed a $1.4 billion collateralized debt obligation where
the proceeds from the offering were used to redeem securities issued in
three of our prior securitizations. The portfolio initially consisted
of approximately 56% CMBS, 26% REIT debt and 18% real estate related
ABS. We were able to reduce our financing cost by 39 basis points on
$1,288 million of debt and extend the average expected maturity on our
debt from 5.6 to 10.0 years. In connection with this transaction, we
recorded one-time costs of $7.3 million in the second quarter.
Share Buy Back
Our board of directors has approved a potential repurchase of up to $100 million of shares of our common stock.
Conference Call
Newcastle's management will conduct a live conference call today, August 2, 2007, at 1:00 P.M. eastern time to review the financial results for the quarter ended June 30, 2007. All interested parties are welcome to participate on the live call. You can access the conference call by dialing (800) 289-0743 (from within the U.S.) or (913) 981-5546 (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. An online replay of the webcast will be available until September 30, 2007.
A telephonic replay of the conference call will also be available until 11:59 P.M. eastern time on Thursday, August 9, 2007 by dialing (888) 203-1112 (from within the U.S.) or (719) 457-0820 (from outside of the U.S.); please reference access code "8941573."
About Newcastle
Newcastle Investment Corp. owns and manages a $9.1 billion highly diversified real estate debt portfolio with moderate credit risk that is primarily financed with match funded debt. Our business strategy is to "lock in" and optimize the difference between the yield on our assets and the cost of our liabilities. 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 management firm with approximately $36 billion in assets under management as of March 31, 2007. 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 statements relating to the stability of our business model and achievement of certain goals. 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; 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 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; the relative spreads between the yield on the assets we invest in and the cost of financing. 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 Income
(dollars in thousands, except share data)
(Unaudited)
For the Three Months For the Six Months
Ended June 30, Ended June 30,
2007 2006 2007 2006
Revenues
Interest income $191,869 $124,209 $354,090 $238,116
Rental and escalation
income 1,322 774 2,575 2,782
Gain on sale of
investments, net 6,977 5,493 9,189 7,421
Other income 5,753 (1,449) 6,496 4,256
205,921 129,027 372,350 252,575
Expenses
Interest expense 133,917 87,909 250,674 164,874
Loss on extinguishment of
debt 7,280 - 7,280 -
Property operating
expense 1,044 949 2,080 1,767
Loan and security
servicing expense 3,698 1,402 5,681 3,408
Provision for credit
losses 3,089 1,179 5,125 3,186
Provision for losses,
loans held for sale 5,754 - 5,754 4,127
General and
administrative expense 1,478 1,161 2,815 2,791
Management fee to
affiliate 4,545 3,474 8,451 6,945
Incentive compensation to
affiliate 2,521 2,834 6,209 5,686
Depreciation and
amortization 342 278 671 477
163,668 99,186 294,740 193,261
Income before other gains
(losses) 42,253 29,841 77,610 59,314
Other Gains (Losses)
Other than temporary
impairment (5,953) - (5,953) -
Income before equity in
earnings of unconsolidated
subsidiaries 36,300 29,841 71,657 59,314
Equity in earnings of
unconsolidated subsidiaries 819 1,215 1,666 2,410
Income from continuing
operations 37,119 31,056 73,323 61,724
Income from discontinued
operations (6) (26) (19) 225
Net Income 37,113 31,030 73,304 61,949
Preferred dividends (3,375) (2,329) (5,890) (4,657)
Income Available For
Common Stockholders $33,738 $28,701 $67,414 $57,292
Net Income Per Share of
Common Stock
Basic $0.64 $0.65 $1.35 $1.30
Diluted $0.64 $0.65 $1.34 $1.30
Income from continuing
operations per share of
common stock, after
preferred dividends
Basic $0.64 $0.65 $1.35 $1.29
Diluted $0.64 $0.65 $1.34 $1.29
Income from discontinued
operations per share of
common stock
Basic $ - $ - $ - $0.01
Diluted $ - $ - $ - $0.01
Weighted Average Number of
Shares of
Common Stock Outstanding
Basic 52,273,988 43,990,635 49,936,428 43,967,854
Diluted 52,467,019 44,071,310 50,158,085 44,067,645
Dividends Declared per
Share of Common Stock $0.720 $0.650 $1.410 $1.275
Newcastle Investment Corp.
Consolidated Balance Sheets
(dollars in thousands, except share data)
June 30, 2007 December
(unaudited) 31, 2006
Assets
Real estate securities, available for sale $5,338,347 $5,581,228
Real estate related loans, net 2,060,789 1,568,916
Residential mortgage loans, net 698,453 809,097
Subprime mortgage loans, held for sale 1,095,821 -
Subprime mortgage loans subject to
call option 289,742 288,202
Investments in unconsolidated subsidiaries 22,634 22,868
Operating real estate, net 31,553 29,626
Cash and cash equivalents 103,863 5,371
Restricted cash 241,248 184,169
Derivative assets 76,789 62,884
Receivables and other assets 64,329 52,031
$10,023,568 $8,604,392
Liabilities and Stockholders' Equity
Liabilities
CBO bonds payable $3,924,672 $4,313,824
Other bonds payable 621,562 675,844
Notes payable 93,793 128,866
Repurchase agreements 2,450,517 760,346
Repurchase agreements subject to
ABCP facility 1,281,156 1,143,749
Financing of subprime mortgage loans
subject to call option 289,742 288,202
Credit facility - 93,800
Junior subordinated notes payable
(security for trust preferred) 100,100 100,100
Derivative liabilities 8,000 17,715
Dividends payable 40,786 33,095
Due to affiliates 7,741 13,465
Accrued expenses and other liabilities 72,113 33,406
8,890,182 7,602,412
Stockholders' Equity
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, issued and outstanding (Series
D issued in 2007) 152,500 102,500
Common stock, $0.01 par value, 500,000,000
shares authorized, 52,779,179 and
45,713,817 shares issued and outstanding
at June 30, 2007 and December 31, 2006,
respectively 528 457
Additional paid-in capital 1,033,316 833,887
Dividends in excess of earnings (14,699) (10,848)
Accumulated other comprehensive
income (loss) (38,259) 75,984
1,133,386 1,001,980
$10,023,568 $8,604,392
Newcastle Investment Corp.
Reconciliation of GAAP Net Income to FFO
(dollars in thousands)
(Unaudited)
Three Months Ended Three Months Ended
June 30, 2007 June 30, 2006
Net income available for
common stockholders $ 33,738 $ 28,701
Operating real estate depreciation 271 210
Funds from operations (''FFO'') $ 34,009 $ 28,911
We believe FFO is one appropriate measure of the operating performance of real estate companies because it provides investors with information regarding our ability to service debt and make capital expenditures. We also believe that FFO is an appropriate supplemental disclosure of operating performance for a REIT due to its widespread acceptance and use within the REIT and analyst communities. Furthermore, FFO is used to compute our incentive compensation to our manager. FFO, for our purposes, represents net income available for common stockholders (computed in accordance with GAAP), excluding extraordinary items, plus real estate depreciation, and after adjustments for unconsolidated subsidiaries, if any. We consider gains and losses on resolution of our investments to be a normal part of our recurring operations and therefore do not exclude such gains and losses when arriving at FFO. Adjustments for unconsolidated subsidiaries, if any, are calculated to reflect FFO on the same basis. FFO 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 our operating performance or as an alternative to cash flow as a measure of liquidity and is not necessarily indicative of cash available to fund cash needs. Our calculation of FFO may be different from the calculation used by other companies and, therefore, comparability may be limited.
Newcastle Investment Corp.
Reconciliation of GAAP Book Equity to Invested Common Equity
(dollars in thousands)
(Unaudited)
June 30, 2007
Book equity $1,133,386
Preferred stock (152,500)
Accumulated depreciation on operating real estate 5,100
Accumulated other comprehensive income 38,259
Invested common equity $1,024,245
SOURCE Newcastle Investment Corp.
Released August 2, 2007