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 $250 million of equity capital. We were opportunistic in tapping the capital markets as the added liquidity enabled us to take advantage of market dislocations and make accretive investments. We also entered into multiple financing arrangements with flexible terms that position us well for future growth."
The following table details our investment portfolio at March 31, 2007 ($ 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.
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."
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.
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