Newcastle Announces Fourth Quarter and Year End 2006 Results and Appointment of Kenneth Riis as Newcastle's Chief Executive Officer
Fourth Quarter Highlights
- FFO of $0.70 per diluted share, up 11.1% from the fourth quarter 2005
- Increased quarterly dividend to $0.69 per common share, up 10.4% from the fourth quarter 2005
- FFO return on average invested equity of 15.7%
- Common equity book value totaled $899.5 million or $19.68 per common share, an increase of 6.0% from the fourth quarter 2005
- Issued $807.5 million of investment grade debt in our ninth CDO securitization to term finance $950 million of assets
- $1.1 billion of fourth quarter investment activity - closed $845 million of acquisitions and committed to purchase an additional $210 million of assets that closed subsequent to quarter end
- Raised net proceeds of $49.4 million through the issuance of 1.7 million common shares
2006 Highlights
- Stock price appreciation and dividends paid resulted in a 39% total return to shareholders
- Increased full year 2006 FFO by 14%
- Total assets of $8.6 billion at December 31, 2006, up 39% from $6.2 billion at December 31, 2005
- Record $5.0 billion of new acquisitions in the year
- Raised common equity and trust preferred securities totaling $146.8 million of net proceeds
NEW YORK, Feb. 22 /PRNewswire-FirstCall/ -- Newcastle Investment Corp. (NYSE: NCT) reported that for the quarter ended December 31, 2006, Funds from Operations ("FFO") were $31.9 million, or $0.70 per diluted share, compared to $0.63 per diluted share for the fourth quarter 2005. The Company generated an FFO return on average invested equity of 15.7% for the fourth quarter 2006.
FFO for the year ended December 31, 2006 was $119.4 million, or $2.69 per diluted share, compared to $2.37 per diluted share for the year ended December 31, 2005. The Company generated an FFO return on average invested equity of 14.9% for the year ended December 31, 2006.
For the three months ended December 31, 2006, income available for common stockholders was $31.6 million, or $0.70 per diluted share, compared to $0.63 per diluted share for the fourth quarter 2005.
For the year ended December 31, 2006, income available for common stockholders was $118.6 million or $2.67 per diluted share, compared to $2.51 per diluted share for the year ended December 31, 2005.
For the quarter ended December 31, 2006, we declared a dividend of $0.69 per common share. Common dividends declared in 2006 totaled $2.615 per share. In 2006, we declared preferred dividends totaling $2.438 per share and $2.013 per share on our 9.75% Series B and 8.05% Series C Cumulative Redeemable Preferred Stock, respectively.
Our GAAP common equity book value was $19.68 per share at December 31, 2006, up from $18.57 per share at December 31, 2005. GAAP common equity book value was $899.5 million at December 31, 2006 compared with $815.5 million at December 31, 2005.
For a reconciliation and discussion of GAAP net income to FFO and GAAP book equity to invested common equity, please refer to the tables following the presentation of GAAP results.
Kenneth Riis, Newcastle's Chief Executive Officer and President, commented, "Newcastle had a strong fourth quarter and full year 2006 achieving our targeted earnings and dividend growth. In 2006, we generated a 14.9% return on invested equity, the fourth consecutive year of producing 14%+ returns since our IPO. Looking ahead, the continued activity in the real estate debt markets combined with our ability to source investments and create efficient financing structures, positions us well for earnings and dividend growth in 2007."
Recent Event
On February 21, 2007, Kenneth M. Riis was named our Chief Executive Officer, replacing Wesley R. Edens who will remain as the Chairman of our board of directors. In addition, the Company's board of directors appointed Mr. Riis as a director effective immediately. Mr. Riis has been the President of Newcastle since its inception.
Selected Financial Data (Unaudited) ($ in millions, except per share data)
Operating Data: Three Months Ended Year Ended
December 31, 2006 December 31, 2006
(per diluted (per diluted
(Amount) share) (Amount) share)
Funds from operations $31.9 $0.70 $119.4 $2.69
Income available for
common stockholders $31.6 $0.70 $118.6 $2.67
As of December As of December
Balance Sheet Data: 31, 2006 31, 2005
Total assets $ 8,604.4 $ 6,209.7
Total liabilities 7,602.4 5,291.7
Common stockholders' equity 899.5 815.5
Preferred stock 102.5 102.5
Total equity 1,002.0 918.0
The following table summarizes our investment portfolio at December 31, 2006 and December 31, 2005 ($ in millions):
As of December As of December
31, 2006 31, 2005
Face Face
Core Amount % Total Amount % Total
Real Estate Securities and Related
Loans $6,196.2 71.7% $4,802.2 76.1%
Residential Mortgage Loans 812.6 9.4% 611.0 9.7%
Subprime Loans Subject to Future
Repurchase 299.2 3.5% - 0.0%
Investment in Joint Venture 38.4 0.4% 38.2 0.6%
Subtotal $7,346.4 85.0% $5,451.4 86.4%
Non-Core
Agency RMBS $1,177.8 13.6% $697.5 11.0%
ICH Loans 123.4 1.4% 165.5 2.6%
Total Portfolio $8,647.6 100.0% $6,314.4 100.0%
The following tables compare certain supplemental data relating to our
investment portfolio at December 31, 2006 versus December 31, 2005:
Supplemental Data:
Total Portfolio Core Portfolio
December 31, December 31,
2006 2005 2006 2005
Weighted average asset yield 7.28% 6.64% 7.63% 6.88%
Weighted average liability cost 5.85% 5.20% 6.00% 5.27%
Weighted average net spread 1.43% 1.44% 1.63% 1.61%
Fourth Quarter Investment Activity
We purchased or had committed to purchase $1,055.3 million of assets; acquisitions of $845.0 million of assets closed in the fourth quarter while the remaining $210.3 million closed in the first quarter 2007.
Of the fourth quarter closings, $113.5 million was financed off balance sheet through a total rate of return swap. We recorded a deposit of $17.7 million towards the total rate of return swap.
The following table details our funded acquisitions in the quarter ($ in millions):
Real Estate Securities WA Credit
and Loans Face Amount Number Credit(1) Spread(2)
Mezzanine Loans $270.0 9 68% 357
Real Estate Loans 189.8 6 70% 286
Commercial Mortgage
Backed Securities
(CMBS) 181.1 22 BB+ 162
Bank Loans 45.0 2 51% 348
REIT Debt 25.0 1 BB 232
Real Estate Related
Asset Backed Securities
(ABS) 3.5 1 BB+ 495
Total Core Real Estate
Securities and Loans 714.4 41 274
Agency RMBS 130.6 3 AAA (3) 67
TOTAL $845.0 44 237
(1) Credit represents weighted average rating for rated assets and LTV for
non-rated assets.
(2) Average spread based on applicable benchmark (US Treasury for fixed
and LIBOR for floating).
(3) Implied AAA.
In the quarter, we also sold two real estate securities totaling of $20.5 million with an average rating of B.
Kenneth Riis noted, "Our reputation and market penetration has resulted in stronger deal flow and investment opportunities. In 2006, we purchased a record $5 billion of new assets, nearly double our 2005 investment activity. The public to private activity in the commercial real estate market is contributing to the growth of the mezzanine loan market and is creating new opportunities to invest capital at attractive risk adjusted returns."
Capital Markets Activity
In the fourth quarter we raised $49.4 million of equity capital, issued $807.5 million of investment grade debt and closed a $2 billion asset backed commercial paper facility.
Fourth quarter activities include:
-- In October, we issued 1.7 million common shares, for net proceeds of
approximately $49.4 million. The proceeds were used to pay down
amounts drawn on our credit facility to fund new acquisitions.
-- In November, we priced our ninth collateralized bond obligation. We
issued $807.5 million of investment grade debt to term finance a $950.0
million portfolio consisting of approximately 35% mezzanine loans, 18%
bank loans, 16% CMBS, 10% ABS, 8% B-Notes and 13% in other assets.
This financing converted $664.9 million of recourse debt to
non-recourse. We have invested approximately $128 million of equity
with a target return on equity of 20%.
-- In December, we closed a $2 billion asset backed commercial paper
facility which is being used to finance agency RMBS. The initial
proceeds from the facility were used to repay a repurchase agreement of
approximately $1.1 billion, which we previously used to finance this
portfolio.
Subsequent to quarter end activities:
-- In January, we issued 2.42 million common shares, for net proceeds of
approximately $75.0 million. The proceeds were used to pay down
amounts drawn on our credit facility to fund new acquisitions.
Currently, we have approximately $89.5 million drawn on our credit
facility.
-- In January, we entered into a $700.0 million non-recourse warehouse
agreement to finance collateral for our tenth collateralized bond
obligation. We expect to invest approximately $124 million of equity
with a targeted return on equity in the high teens.
Ms. Debra Hess, our Chief Financial Officer commented, "In the fourth quarter, we tapped the liquidity of the commercial paper market which enabled us to reduce our cost of funds on the financing of our agency RMBS portfolio as well as diversify our lender base. We believe there are additional opportunities in 2007 to more efficiently finance certain of our current assets."
Investment Portfolio
The following table details our investment portfolio at December 31, 2006 ($ in millions):
Real Estate Securities and Face % of Total
Related Loans Amount Portfolio Number Credit(1) WA Life
CMBS $2,490.1 28.8% 298 BBB- 5.6
REIT Debt 1,004.5 11.6% 101 BBB- 6.2
Mezzanine Loans 1,000.4 11.6% 24 69.1 2.7
ABS 887.0 10.3% 155 BBB 3.2
Bank Loans 439.9 5.1% 8 56.1 2.6
B-Notes 248.3 2.9% 9 68.5 2.7
Real Estate Loans 81.1 0.9% 4 70.4 1.6
ABS Residual 44.9 0.5% 1 NR 2.5
Total Core Real Estate
Securities and Loans 6,196.2 71.7% 600 4.5
Agency RMBS 1,177.8 13.6% 35 AAA 4.3
Total Real Estate
Securities and Loans 7,374.0 85.3% 635
Residential Mortgage Loans
Manufactured Home Loans 643.9 7.4% 18,343 692 6.0
Residential Mortgage Loans 168.7 2.0% 491 715 2.8
Total Residential Mortgage
Loans 812.6 9.4% 18,834 697 5.4
Other 461.0 5.3% 176 2.4
TOTAL $8,647.6 100.0% 4.4
(1) Credit represents weighted average rating for rated assets. LTV for
non-rated commercial assets and FICO score for non-rated residential
assets.
Total real estate securities and loans of $7.4 billion face amount representing 85.3% of the total portfolio.
-- $6.0 billion or 81% of this portfolio is rated by third parties, or had
an implied AAA rating, with a weighted average rating of BBB+.
-- $1.4 billion or 19% of this portfolio is not rated by third parties but
had a weighted average loan to value ratio of 68.6%.
-- 63% of this portfolio has an investment grade rating (BBB- or higher).
-- 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 of $6.2 billion was 2.56%.
-- This portfolio had 635 investments. The largest investment was $179.5
million and the average investment size was $11.6 million.
-- The credit profile of our real estate securities portfolio continued to
improve during the fourth quarter. This can be demonstrated by the
ratio of upgrades to downgrades in the quarter, where 38 securities
($246.2 million face amount) experienced credit rating upgrades, versus
three securities ($42.6 million face amount) which experienced a credit
rating downgrade.
Residential mortgage loans of $0.8 billion face amount, representing 9.4% of the total portfolio.
-- These residential loans are to high quality borrowers with an average
FICO score of 697.
-- Our residential and manufactured housing loans were well diversified
with 491 and 18,343 loans, respectively.
Conference Call
Newcastle's management will conduct a live conference call today, February 22, 2007, at 1:00 P.M. eastern time to review the financial results for the quarter and year ended December 31, 2006. All interested parties are welcome to participate on the live call. You can access the conference call by dialing (888) 802-2278 (from within the U.S.) or (913) 312-1264 (from outside of the U.S.) ten minutes prior to the scheduled start of the call; please reference "Newcastle Year End 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 March 31, 2007.
A telephonic replay of the conference call will also be available from 3:00 P.M. eastern time on February 22, 2007 until 11:59 P.M. eastern time on Thursday, March 1, 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 "8848643."
About Newcastle
Newcastle Investment Corp. owns and manages an $8.6 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 over $30 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)
Three Months Ended Year Ended
December 31, December 31,
2006 2005 2006 2005
Revenues
Interest income $151,562 $94,481 $530,006 $348,516
Rental and escalation income 1,245 1,797 4,861 6,647
Gain on sale of investments,
net 2,276 8,206 12,340 20,305
Other income 857 (1,849) 5,402 2,745
155,940 102,635 552,609 378,213
Expenses
Interest expense 109,156 63,208 374,269 226,446
Property operating expense 997 536 3,805 2,363
Loan and security servicing
expense 1,984 1,347 6,944 5,993
Provision for credit losses 3,570 2,431 9,438 8,421
Provision for losses, loans
held for sale - - 4,127 -
General and administrative
expense 967 908 4,946 4,159
Management fee to affiliate 3,598 3,430 14,018 13,325
Incentive compensation to
affiliate 3,465 2,356 12,245 7,627
Depreciation and amortization 318 188 1,085 641
124,055 74,404 430,877 268,975
Income before equity in
earnings of unconsolidated
subsidiaries 31,885 28,231 121,732 109,238
Equity in earnings of
unconsolidated subsidiaries 2,052 1,302 5,968 5,930
Income taxes on related
taxable subsidiaries - - - (321)
Income from continuing
operations 33,937 29,533 127,700 114,847
Income from discontinued
operations 10 57 223 2,108
Net Income 33,947 29,590 127,923 116,955
Preferred dividends (2,329) (2,114) (9,314) (6,684)
Income Available for Common
Stockholders $31,618 $27,476 $118,609 $110,271
Net Income Per Share of Common
Stock
Basic $0.70 $0.63 $2.68 $2.53
Diluted $0.70 $0.63 $2.67 $2.51
Income from continuing operations
per share of common stock, after
preferred dividends
Basic $0.70 $0.63 $2.67 $2.48
Diluted $0.70 $0.63 $2.67 $2.46
Income from discontinued
operations per share of common
stock
Basic $- $- $0.01 $0.05
Diluted $- $- $- $0.05
Weighted Average Number of
Shares of Common Stock
Outstanding
Basic 45,128,969 43,897,354 44,268,575 43,671,517
Diluted 45,384,810 44,058,634 44,417,113 43,985,642
Dividends Declared per Share
of Common Stock $0.690 $0.625 $2.615 $2.500
Newcastle Investment Corp.
Consolidated Balance Sheets
(dollars in thousands, except share data)
(Unaudited)
As of As of
December 31, December 31,
2006 2005
Assets
Real estate securities, available
for sale $5,581,228 $4,554,519
Real estate related loans, net 1,568,916 615,551
Residential mortgage loans, net 809,097 600,682
Subprime mortgage loans subject to
future repurchase 288,202 -
Investments in unconsolidated subsidiaries 22,868 29,953
Operating real estate, net 29,626 16,673
Cash and cash equivalents 5,371 21,275
Restricted cash 184,169 268,910
Derivative assets 62,884 63,834
Receivables and other assets 52,031 38,302
$8,604,392 $6,209,699
Liabilities and Stockholders' Equity
Liabilities
CBO bonds payable $4,313,824 $3,530,384
Other bonds payable 675,844 353,330
Notes payable 128,866 260,441
Repurchase agreements 760,346 1,048,203
Repurchase agreements subject to asset
backed commercial paper facility 1,143,749 -
Financing of subprime mortgage loans
subject to future repurchase 288,202 -
Credit facility 93,800 20,000
Junior subordinated notes payable
(security for trust preferred) 100,100 -
Derivative liabilities 17,715 18,392
Dividends payable 33,095 29,052
Due to affiliates 13,465 8,783
Accrued expenses and other liabilities 33,406 23,111
7,602,412 5,291,696
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 and 1,600,000
shares of 8.05% Series C Cumulative
Redeemable Preferred Stock, liquidation
preference $25.00 per share, issued and
outstanding 102,500 102,500
Common stock, $0.01 par value, 500,000,000
shares authorized, 45,713,817 and
43,913,409 shares issued and outstanding
at December 31, 2006 and 2005, respectively 457 439
Additional paid-in capital 833,887 782,735
Dividends in excess of earnings (10,848) (13,235)
Accumulated other comprehensive income 75,984 45,564
1,001,980 918,003
$8,604,392 $6,209,699
Newcastle Investment Corp.
Reconciliation of GAAP Net Income to FFO
(dollars in thousands)
(Unaudited)
Three Months Ended Year Ended
December 31, December 31,
2006 2006
Net income available for common stockholders $ 31,618 $ 118,609
Operating real estate depreciation 250 812
Funds from operations ("FFO") $ 31,868 $ 119,421
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)
December 31, 2006
Book equity $1,001,980
Preferred stock (102,500)
Accumulated depreciation on operating
real estate 4,188
Accumulated other comprehensive income (75,984)
Invested common equity $827,684
SOURCE Newcastle Investment Corp.
Released February 22, 2007