Newcastle Announces Record First Quarter 2007 Results
First Quarter Highlights
-- FFO of $0.71 per diluted share, up 9.2% from the first quarter 2006
-- FFO return on average invested equity of 15.3%
-- Declared 1Q07 dividend of $0.69 per share, our eighteenth consecutive quarter of stable or growing dividends
-- Record $2.2 billion of new acquisitions in the quarter
-- Raised $123 million of equity capital through the issuance of 2.42 million common and 2 million perpetual preferred shares
NEW YORK, May 3 /PRNewswire-FirstCall/ -- Newcastle Investment Corp. (NYSE: NCT) reported that for the quarter ended March 31, 2007, Funds from Operations ("FFO") were $33.9 million, or $0.71 per diluted share, compared to $0.65 per diluted share for the first quarter 2006. The Company generated an FFO return on average invested equity of 15.3% for the first quarter 2007.
For the three months ended March 31, 2007, income available for common stockholders was $33.7 million, or $0.70 per diluted share, compared to $0.65 per diluted share for the first quarter 2006.
For the quarter ended March 31, 2007, we declared a dividend of $0.69 per common share.
Our GAAP common equity book value was $18.39 per share or a total of $886 million at March 31, 2007 versus $19.68 per share or $899 million at year end 2006.
Kenneth Riis, Newcastle's Chief Executive Officer and President, commented, "We had a record quarter both in terms of earnings and investment activity -- FFO of $0.71 per share was the highest to date and we closed on $2.2 billion of new investments. The significant widening of credit spreads experienced in the quarter created opportunities to invest new capital at attractive risk-adjusted returns. It also demonstrated the stability of our business model as fluctuations in the value of our securities portfolio had no impact on our earnings or ability to pay dividends."
For a reconciliation and discussion of GAAP net income to FFO and GAAP book equity to invested common equity, please refer to the tables following the presentation of GAAP results.
Selected Financial Data (Unaudited) ($ in millions, except per share data)
Three Months Ended Three Months Ended
Operating Data: March 31, 2007 March 31, 2006
(per diluted (per diluted
(Amount) share) (Amount) share)
Funds from operations $33.9 $0.71 $28.7 $0.65
Income available for
common stockholders $33.7 $0.70 $28.6 $0.65
As of As of
Balance Sheet Data: March 31, December 31,
2007 2006
Total assets $ 10,221 $ 8,604
Total liabilities 9,182 7,602
Common stockholders' equity 886 899
Preferred stock 153 103
Total equity 1,039 1,002
The following table summarizes our investment portfolio at March 31, 2007 and December 31, 2006 ($ in millions):
As of March 31, As of December 31,
2007 2006
Face Face
Core Amount % Total Amount % Total
Real Estate Securities and Related
Loans $6,782 65.2% $6,196 71.7%
Subprime Loans, Held for Sale 1,049 10.1% - 0.0%
Residential Mortgage Loans 759 7.3% 813 9.4%
Subprime Loans Subject to Call
Option 299 2.8% 299 3.5%
Investment in Real Estate Joint
Venture 38 0.4% 38 0.4%
Subtotal $8,927 85.8% $7,346 85.0%
Non-Core
Agency RMBS $1,349 13.0% $1,178 13.6%
ICH Loans 122 1.2% 123 1.4%
Total Portfolio $10,398 100.0% $8,647 100.0%
The following tables compare certain supplemental data relating to our investment portfolio at March 31, 2007 versus December 31, 2006:
Supplemental Data:
Total Portfolio Core Portfolio
March 31, Dec. 31, March 31, Dec. 31,
2007 2006 2007 2006
Weighted average asset yield 7.45% 7.28% 7.80% 7.63%
Weighted average liability cost 5.88% 5.85% 6.03% 6.00%
Weighted average net spread 1.57% 1.43% 1.77% 1.63%
First Quarter Investment Activity
We purchased $2.2 billion of assets in the first quarter and, in addition, committed to purchase $248 million of assets that will close subsequent to quarter-end, our most active quarter to date.
Of the first quarter closings, $374 million was financed off balance sheet through total rate of return swaps. We recorded a deposit of $56 million towards the total rate of return swaps.
The following table details our funded acquisitions in the quarter ($ in millions):
Face WA Credit
Real Estate Securities and Loans Amount Number Credit(1) Spread(2)
Commercial Real Estate
Mezzanine Loans $508 4 78% 360
Bank Loans 292 8 55% 217
Commercial Real Estate B-Notes 60 2 56% 363
Commercial Real Estate Whole Loans 46 1 78% 178
Commercial Mortgage Backed
Securities (CMBS) 47 3 BBB 167
Real Estate Related Asset
Backed Securities (ABS) 10 1 BBB- 335
Total Real Estate
Securities and Loans 963 19 298
Residential Mortgage Loans
Subprime Loans, Held for Sale 1,051 4,402 642 NR
Agency RMBS 220 7 AAA 69
TOTAL $2,234
(1) Credit represents weighted average rating for rated assets, LTV for
non-rated assets, FICO score for residential mortgage loans and
implied AAA for Agency RMBS.
(2) Average spread based on applicable benchmark (US Treasury for fixed
and LIBOR for floating).
In the quarter, we also sold 10 real estate securities totaling $88 million with an average rating of BBB-.
Kenneth Riis noted, "We took advantage of the dislocation in the subprime residential market with the acquisition of $1.3 billion of loans, representing 75% of our original commitment made in March. Our ability to underwrite the risk and have a Fortress affiliate service the loans positioned us well to invest in this transaction. We also continue to see good relative value in the commercial and corporate sector as almost half of our new asset acquisitions were commercial real estate debt and bank loans."
Capital Markets Activity
First quarter activities include:
-- In January, we issued 2.42 million common shares, for net proceeds of
approximately $75 million.
-- In March, we issued 2 million shares of newly designated 8.375% Series
D Cumulative Redeemable Preferred Stock for net proceeds of $48
million.
-- The net proceeds from both capital raises were used to pay down amounts
drawn on our credit facility to fund new acquisitions.
Subsequent to quarter-end activities:
-- 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 to fund new acquisitions.
-- 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 expect to invest approximately $120
million of capital with a targeted return on equity of 16.5%.
Ms. Debra Hess, our Chief Financial Officer commented, "Since year-end, we have raised and invested approximately $250 million of equity capital. We were opportunistic in tapping the capital markets as the added liquidity enabled us to take advantage of market dislocations and make accretive investments. We also entered into multiple financing arrangements with flexible terms that position us well for future growth."
Investment Portfolio
The following table details our investment portfolio at March 31, 2007 ($
in millions):
% of
Total
Real Estate Securities and Face Port-
Related Loans Amount folio Number Credit(1) WA Life
CMBS $2,462 23.7% 294 BBB- 5.4
Mezzanine Loans 1,447 13.9% 27 68% 2.4
REIT Debt 954 9.2% 96 BBB- 6.0
ABS 862 8.3% 153 BBB 3.0
Bank Loans 543 5.2% 13 57% 3.2
B-Notes 346 3.3% 12 65% 2.7
Real Estate Loans 128 1.2% 5 74% 1.8
ABS Residual 40 0.4% 1 NR 2.3
Total Core Real Estate
Securities and Loans 6,782 65.2% 601 4.1
Agency RMBS 1,349 13.0% 42 AAA 4.3
Total Real Estate Securities
and Loans 8,131 78.2% 643 4.2
Residential Mortgage Loans
Manufactured Home Loans 618 5.9% 17,660 691 5.8
Residential Mortgage Loans 141 1.4% 423 718 2.8
Total Residential
Mortgage Loans 759 7.3% 18,083 696 5.2
Subprime Loans Held for Sale 1,049 10.1% 4,402 642 2.5
Other 459 4.4% 174 2.3
TOTAL $10,398 100.0% 4.0
(1) 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.
Total real estate securities and loans of $8.1 billion face amount representing 78.2% of the total portfolio.
-- $6.8 billion or 84% of this portfolio is rated by third parties, or had
an implied AAA rating, with a weighted average rating of BBB.
-- $4.7 billion or 58% of this portfolio has an investment grade rating
(BBB- or higher) or an implied AAA rating.
-- The weighted average credit spread (i.e., the yield premium on our
investments over the comparable US Treasury or LIBOR) for the core real
estate securities and loans (excluding subprime residual) of $6.8
billion was 2.81% at March 31, 2007 versus 2.56% at December 31, 2006.
-- The core real estate securities and loans portfolio had 601
investments. The largest investment was $321 million and the average
investment size was $11 million.
-- The credit profile of our real estate securities portfolio continued to
improve during the first quarter. This can be demonstrated by the ratio
of upgrades to downgrades in the quarter, where 29 securities ($235
million face amount) experienced credit rating upgrades, versus 6
securities ($65 million face amount) which experienced a credit rating
downgrade.
Residential mortgage loans of $759 million face amount, representing 7.3% of the total portfolio.
-- These residential loans are to high quality borrowers with an average
FICO score of 696.
-- Our residential and manufactured housing loans were well diversified
with 423 and 17,660 loans, respectively.
Subprime loans held for sale of $1.0 billion face amount, representing 10.1% of the total portfolio.
-- Our subprime loans held for sale were well diversified with 4,402
loans.
-- Approximately 96% of the portfolio is secured by first liens and 93%
are owner occupied.
Conference Call
Newcastle's management will conduct a live conference call today, May 3, 2007, at 1:00 P.M. eastern time to review the financial results for the quarter ended March 31, 2007. All interested parties are welcome to participate on the live call. You can access the conference call by dialing (888) 811-7286 (from within the U.S.) or (913) 981-4902 (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. An online replay of the webcast will be available until June 30, 2007.
A telephonic replay of the conference call will also be available from 3:00 P.M. eastern time on May 3, 2007 until 11:59 P.M. eastern time on Thursday, May 10, 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 "3124207."
About Newcastle
Newcastle Investment Corp. owns and manages a $10.4 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 $35.1 billion in assets under management as of December 31, 2006. 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
Ended March 31,
2007 2006
Revenues
Interest income $162,221 $113,907
Rental and escalation income 1,253 2,008
Gain on sale of investments, net 2,212 1,928
Other income 743 5,705
166,429 123,548
Expenses
Interest expense 116,757 76,965
Property operating expense 1,036 818
Loan and security servicing expense 1,983 2,006
Provision for credit losses 2,036 2,007
Provision for losses, loans held
for sale - 4,127
General and administrative expense 1,337 1,630
Management fee to affiliate 3,906 3,471
Incentive compensation to affiliate 3,688 2,852
Depreciation and amortization 329 199
131,072 94,075
Income before equity in earnings of
unconsolidated subsidiaries 35,357 29,473
Equity in earnings of unconsolidated
subsidiaries 847 1,195
Income from continuing operations 36,204 30,668
Income (loss) from discontinued operations (13) 251
Net Income 36,191 30,919
Preferred dividends (2,515) (2,328)
Income Available For Common Stockholders $33,676 $28,591
Net Income Per Share of Common Stock
Basic $0.71 $0.65
Diluted $0.70 $0.65
Income from continuing operations per share
of common stock, after preferred dividends
Basic $0.71 $0.64
Diluted $0.70 $0.64
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 47,572,895 43,944,820
Diluted 47,823,497 44,063,940
Dividends Declared per Share of
Common Stock $0.690 $0.625
Newcastle Investment Corp.
Consolidated Balance Sheets
(dollars in thousands, except share data)
March 31, 2007 December 31,
(unaudited) 2006
Assets
Real estate securities, available
for sale $5,581,179 $5,581,228
Real estate related loans, net 2,138,974 1,568,916
Residential mortgage loans, net 752,590 809,097
Subprime mortgage loans, held for sale 1,018,080 -
Subprime mortgage loans subject to
call option 289,021 288,202
Investments in unconsolidated
subsidiaries 22,778 22,868
Operating real estate, net 29,684 29,626
Cash and cash equivalents 3,929 5,371
Restricted cash 267,903 184,169
Derivative assets 51,032 62,884
Receivables and other assets 65,801 52,031
$10,220,971 $8,604,392
Liabilities and Stockholders' Equity
Liabilities
CBO bonds payable $4,282,503 $4,313,824
Other bonds payable 649,853 675,844
Notes payable 109,922 128,866
Repurchase agreements 2,198,064 760,346
Repurchase agreements subject to asset
backed commercial paper facility 1,312,209 1,143,749
Financing of subprime mortgage loans
subject to call option 289,021 288,202
Credit facility 125,500 93,800
Junior subordinated notes payable
(security for trust preferred) 100,100 100,100
Derivative liabilities 22,726 17,715
Dividends payable 35,003 33,095
Due to affiliates 5,035 13,465
Accrued expenses and other
liabilities 52,085 33,406
9,182,021 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 152,500 102,500
Common stock, $0.01 par value,
500,000,000 shares authorized,
48,209,699 and 45,713,817 shares issued
and outstanding at March 31, 2007 and
December 31, 2006, respectively 482 457
Additional paid-in capital 908,368 833,887
Dividends in excess of earnings (10,437) (10,848)
Accumulated other comprehensive
income (loss) (11,963) 75,984
1,038,950 1,001,980
$10,220,971 $8,604,392
Newcastle Investment Corp.
Reconciliation of GAAP Net Income to FFO
(dollars in thousands)
(Unaudited)
Three Months Ended Three Months Ended
March 31, 2007 March 31, 2006
Net income available for common
stockholders $ 33,676 $ 28,591
Operating real estate depreciation 256 131
Funds from operations (''FFO'') $ 33,932 $ 28,722
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)
March 31, 2007
Book equity $1,038,950
Preferred stock (152,500)
Accumulated depreciation on operating real estate 4,487
Accumulated other comprehensive income 11,963
Invested common equity $902,900
SOURCE Newcastle Investment Corp.
Released May 3, 2007