Exhibit 99.1

 

LOGO

  

 

NEWCASTLE INVESTMENT CORP.

Contact:

Investor Relations

212-479-3195

Newcastle Announces Third Quarter 2011 Results

– Reports Core Earnings of $0.39 per diluted share

– Reports GAAP income of $0.35 per diluted share

– Declared Common Dividend of $0.15 per share for the third quarter of 2011

– Increased Over-collateralization in CDO X to $106 million at quarter-end

– $190 million of Current Unrestricted Cash to invest

THIRD QUARTER 2011 FINANCIAL RESULTS

New York, NY, November 8, 2011 – Newcastle Investment Corp. (NYSE: NCT) reported that in the third quarter of 2011, income available for common stockholders (“GAAP income”) was $29 million, or $0.35 per diluted share, compared to $162 million, or $2.61 per diluted share, in the third quarter of 2010.

GAAP income of $29 million consisted of the following:

 

   

$31 million, or $0.39 per diluted share, of core earnings, which is equal to net interest income less expenses (net of preferred dividends)

 

   

$19 million of other income related to a $6 million net gain on the settlement of investments, a $16 million gain on the extinguishment of CDO debt, offset primarily by a $3 million non-cash mark-to-market loss related to interest rate derivatives in the CDOs

 

   

$21 million of non-cash mark-to-market loss on loans held for sale and impairment recorded on securities

In the third quarter of 2011, GAAP book value decreased by $0.34 per share. As of September 30, 2011, GAAP book value was $1.02 per share, compared to $1.36 per share as of June 30, 2011.

During the third quarter of 2011, the Company generated $15 million of cash flow from operations compared to $15 million in the second quarter of 2011. In addition, the Company received $9 million of unrestricted cash from principal repayments on Newcastle’s repurchased CDO debt and other CDO securities that were purchased at a weighted average price of 57% of par.

On September 14, 2011, the Board of Directors declared a quarterly dividend of $0.15 per common share or $16 million for the third quarter of 2011, representing a 50% increase from the prior quarter’s dividend of $0.10 per common share. The Board of Directors also declared dividends of $0.609375, $0.503125 and $0.523438 per share on the 9.75% Series B, 8.05% Series C and 8.375% Series D preferred stock, respectively, for the period beginning August 1, 2011 and ending October 31, 2011.

On September 27, 2011, Newcastle completed the sale of 25.9 million shares of its common stock, at a price of $4.55 per share. The net proceeds of the sale were $112.3 million, after deducting underwriting discounts and offering expenses.

 

1


The following table summarizes the Company’s operating results ($ in millions, except per share data):

 

     Three Months Ended  
     September 30,
2011
     June 30,
2011
     September 30,
2010
 

Summary Operating Results:

        

GAAP income

   $ 29       $ 98       $ 162   

GAAP income, per diluted share

   $ 0.35       $ 1.23       $ 2.61   

Non-GAAP Results:

        

Core earnings (1)

   $ 31       $ 30       $ 30   

Core earnings, (1) per diluted share

   $ 0.39       $ 0.37       $ 0.48   

Cash flow from:

        

Operations

   $ 15       $ 15       $ 16   

Principal repayments on repurchased CDO debt & other CDO securities (2)

   $ 9       $ 48       $ —     

 

(1) Previously referred to as “net interest income less expenses (net of preferred dividends)”.
(2) The related repurchased CDO debt and other CDO securities were purchased at a weighted average price of 57% of par, and 74% of par for the three months ended September 30, 2011 and June 30, 2011, respectively. During the three months ended September 30, 2010, no such repayments were received.

For a reconciliation of income available for common stockholders to core earnings, please refer to the tables following the presentation of GAAP results.

THIRD QUARTER 2011 INVESTMENT ACTIVITY

$10 million of unrestricted cash investments:

Newcastle invested $9 million to purchase $26 million face amount of Newcastle CDO bonds at an average price of 33% of par, with an expected average return of 27% and an average life of 3.9 years.

The Company also invested $1 million in the quarter to purchase $31 million face amount of FNMA securities at an average price of 106% of par, financed with $31 million under repurchase agreements.

$185 million of restricted CDO cash investments:

Newcastle invested $185 million to purchase $225 million face amount of assets at an average price of 82% of par with an expected average yield of 10% and an average life of 5.9 years, including the following:

 

   

Invested $115 million to purchase $155 million face amount of CMBS, ABS, and CDO securities at an average price of 74% of par, with an expected average yield of 11%, an average life of 7.6 years, and an average rating of BBB.

 

   

Invested $70 million to purchase one senior mezzanine loan at a price of par, with a coupon of 1-Month LIBOR plus 7% subjected to a 1% LIBOR floor. The loan is secured by 13 hotel properties, has a loan-to-value of 53%, and an average life of 2.1 years.

CASH AND RECOURSE FINANCING

As of November 4, 2011, the Company’s cash and current recourse financings were as set forth below:

 

   

Cash – The Company had $190 million of unrestricted cash and $84 million of restricted cash available for reinvestment within its consolidated CDOs.

 

   

Recourse Financing – The Company had $3 million related to the financing of senior Newcastle CDO bonds it repurchased and $207 million related to the financing of FNMA and FHLMC securities.

 

2


The following table illustrates the change in cash and recourse financings, excluding junior subordinated notes ($ in millions):

 

     November 4,
2011
     September 30,
2011
     June 30,
2011
 

CDO Cash for Reinvestment

   $ 84       $ 138       $ 168   

Unrestricted Cash

     190         205         101   

Recourse Financings

        

NCT CDO senior bonds

     3         3         4   

FNMA/FHLMC Securities

     207         209         104   
  

 

 

    

 

 

    

 

 

 

Total Recourse Financings

   $ 210       $ 212       $ 108   

NEWCASTLE CDO FINANCINGS

The following table summarizes the cash receipts in the third quarter of 2011 from the Company’s consolidated CDO financings and their related coverage tests ($ in thousands):

 

     Primary
Collateral
Type
   Cash
Receipts  (1)
     Interest
Coverage

% Excess
(Deficiency)
Oct 31,

2011 (2)
    Over-Collateralization Excess (Deficiency) (2)  
           October 31, 2011     September 30,2011     June 30, 2011  
           %     $     %     $     %     $  

CDO IV

   Securities    $ 394         44.5     -5.1     (10,260     -5.1     (10,260     -2.4     (4,987

CDO VI

   Securities      155         -93.2     -56.7     (172,787     -54.3     (165,735     -56.3     (181,831

CDO VIII

   Loans      4,686         342.4     8.8     56,590        8.4     54,135        8.7     56,396   

CDO IX

   Loans      5,245         383.8     14.9     96,190        14.4     93,283        14.2     91,926   

CDO X

   Securities      5,704         240.9     8.3     97,654        9.0     105,811        2.1     25,220   
     

 

 

                

Total

      $ 16,184                  
     

 

 

                

 

(1) Represents cash received from each CDO based on all of the interests in such CDO (including senior management fees but excluding $8.2 million of principal received from senior CDO bonds owned by the Company). Cash receipts for the quarter ended September 30, 2011 may not be indicative of cash receipts for subsequent periods. See Forward-Looking Statements below for risks and uncertainties that could cause cash receipts for subsequent periods to differ materially from these amounts.
(2) Represents excess or deficiency under the applicable interest coverage or over-collateralization test to the first threshold at which cash flow would be redirected. The Company generally does not receive material interest cash flow from a CDO until a deficiency is corrected. The information regarding coverage tests is based on data from the most recent remittance date on or before October 31, 2011, September 30, 2011, or June 30, 2011, as applicable. The CDO IV test is conducted only on a quarterly basis (December, March, June and September).

 

   

Of the $16 million CDO cash receipts, $1.5 million were related to senior collateral management fees, which were not subject to the related CDO coverage tests.

 

   

During the quarter, the over-collateralization in CDO X increased by $81 million from $25 million to $106 million. As of the October 2011 remittance, assets on negative watch for possible downgrade by at least one rating agency (Moody’s, S&P, or Fitch) for CDOs VIII, IX, and X were $26 million, $1 million, and $67 million, respectively.

INVESTMENT PORTFOLIO

Newcastle’s $3.8 billion investment portfolio (with a basis of $2.9 billion) consists of commercial, residential and corporate debt. During the quarter, the weighted average carrying value on the September 30, 2011 portfolio changed from 78.3% to 75.1%, a decrease of $121 million. The face amount of the portfolio increased by $15 million, primarily as a result of purchases of $262 million, offset by sales of $156 million, principal repayments of $84 million, and actual principal write-downs of $13 million.

 

3


The following table describes the investment portfolio as of September 30, 2011 ($ in millions):

 

     Face
Amount $
     Basis
Amount $  (4)
     % of
Total
Basis
    Carrying
Value
Amount $
     Number of
Investments
     Credit (5)     Weighted
Average
Life (years) (6)
 

Commercial Assets

                  

CMBS

   $ 1,493       $ 1,069         37.3   $ 1,061         206         BB        3.9   

Mezzanine Loans

     560         443         15.5     443         16         68     2.3   

B-Notes

     255         188         6.5     188         9         78     1.8   

Whole Loans

     31         31         1.1     31         3         48     2.1   

CDO Securities (1)

     90         68         2.4     57         3         BB+        3.7   

Other Investments (2)

     25         25         0.9     25         1         —          —     
  

 

 

    

 

 

    

 

 

   

 

 

         

 

 

 

Total Commercial Assets

     2,454         1,824         63.7     1,805              3.3   

Residential Assets

                  

MH and Residential Loans

     391         338         11.8     338         10,340         705        6.3   

Subprime Securities

     270         144         5.0     151         64         B+        6.5   

Real Estate ABS

     53         41         1.4     40         14         BBB        6.4   
  

 

 

    

 

 

    

 

 

   

 

 

         

 

 

 
     714         523         18.2     529              6.4   

FNMA/FHLMC Securities

     211         221         7.7     221         26         AAA        4.6   
  

 

 

    

 

 

    

 

 

   

 

 

         

 

 

 

Total Residential Assets

     925         744         25.9     750              6.0   

Corporate Assets

                  

REIT Debt

     137         137         4.8     134         20         BB+        2.7   

Corporate Bank Loans

     278         160         5.6     160         6         CC        3.0   
  

 

 

    

 

 

    

 

 

   

 

 

         

 

 

 

Total Corporate Assets

     415         297         10.4     294              2.9   
  

 

 

    

 

 

    

 

 

   

 

 

         

 

 

 

Total/Weighted Average (3)

   $ 3,794       $ 2,865         100.0   $ 2,849              3.9   
  

 

 

    

 

 

    

 

 

   

 

 

         

 

 

 

 

(1) Represents non-consolidated CDO securities excluding ten securities with a zero value, which had an aggregate face amount of $117 million.
(2) Relates to an equity investment in a REO property.
(3) Excludes operating real estate held for sale of $8 million and loans subject to call option with a face amount of $406 million.
(4) Net of impairment.
(5) Credit represents the weighted average of minimum ratings for rated assets, the Loan to Value ratio (based on the appraised value at the time of purchase or refinancing) for non-rated commercial assets, or the FICO score for non-rated residential assets and an implied and assumed AAA rating for FNMA/FHLMC securities. Ratings provided herein were determined by third party rating agencies as of a particular date, may not be current and are subject to change at any time.
(6) Weighted average life is based on the timing of expected principal reduction on the asset.

Commercial Assets

The Company owns $2.5 billion of commercial assets (with a basis of $1.8 billion), which includes CMBS, mezzanine loans, B-Notes, whole loans, CDO securities, and other investments.

 

   

During the quarter, the Company purchased $214 million of CMBS, mezzanine loans and CDO securities, sold $122 million of CMBS and mezzanine loans, received principal repayments of $57 million and had $4 million of actual principal write-downs on CMBS.

 

   

Regarding the Company’s CMBS portfolio, five securities or $18 million were upgraded (from a weighted average rating of AA- to AA), one security or $2 million was affirmed and 21 securities or $141 million were downgraded (from a weighted average rating of BB- to B).

 

   

The weighted average carrying value of these assets changed from 77.3% to 73.6%, a decrease of $92 million in the quarter.

 

4


CMBS portfolio ($ in thousands):

 

Vintage (1)

   Average
Minimum
Rating (2)
   Number      Face
Amount $
     Basis
Amount $
     % of Total
Basis
    Carrying
Value
Amount $
     Delinquency
60+/FC/REO  (3)
    Principal
Subordination  (4)
    Weighted
Average
Life (yrs) (5)
 

Pre 2004

   BB+      67         330,670         311,149         29.1     287,725         6.4     13.7     1.6   

2004

   BB+      31         144,015         112,741         10.5     105,214         3.1     7.7     3.6   

2005

   BB      30         312,213         175,555         16.4     201,250         4.6     7.8     3.3   

2006

   BB      43         387,280         261,494         24.5     254,312         7.6     11.9     3.9   

2007

   B      16         121,638         34,936         3.3     52,134         19.7     11.5     4.4   

2010

   BB+      4         46,798         43,434         4.1     39,608         0.0     3.5     9.1   

2011

   BBB      15         150,000         129,639         12.1     120,391         0.0     6.8     8.8   
  

 

  

 

 

    

 

 

    

 

 

    

 

 

   

 

 

    

 

 

   

 

 

   

 

 

 

TOTAL/WA

   BB      206         1,492,614         1,068,948         100.0     1,060,634         6.3     10.2     3.9   
  

 

  

 

 

    

 

 

    

 

 

    

 

 

   

 

 

    

 

 

   

 

 

   

 

 

 

 

(1) The year in which the securities were originally issued.
(2) Ratings provided above were determined by third party rating agencies as of a particular date, which may not be current and are subject to change at any time. The Company had $24 million of CMBS assets that were on negative watch for possible downgrade by at least one rating agency as of September 30, 2011.
(3) The percentage of underlying loans that are 60+ days delinquent, in foreclosure or considered real estate owned (REO).
(4) The percentage of the outstanding face amount of securities that is subordinate to the Company’s investments.
(5) Weighted average life is based on the timing of expected principal reduction on the asset.

Mezzanine loans, B-Notes and whole loans portfolio ($ in thousands):

 

Asset Type

   Number      Face
Amount ($)
     Basis
Amount ($)
     % of Total
Basis
    Carrying Value
Amount ($)
    WA First $
Loan to Value (1)
    WA Last $
Loan to Value (1)
    Delinquency (%)  (2)  

Mezzanine Loans

     16         560,563         443,361         67.0     443,361        57.5     68.0     11.3

B-Notes

     9         255,085         187,865         28.4     187,865        65.0     77.7     17.7

Whole Loans

     3         30,670         30,670         4.6     30,670        0.0     48.2     0.0
  

 

 

    

 

 

    

 

 

    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total/WA

     28         846,318         661,896         100.0     661,896        57.7     70.2     12.8
  

 

 

    

 

 

    

 

 

    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

(1) Loan to Value is based on the appraised value at the time of purchase or refinancing.
(2) The percentage of underlying loans that are non-performing, in foreclosure, under bankruptcy filing or considered real estate owned (REO).

CDO Securities ($ in thousands) (1):

 

Collateral Manager

   Primary
Collateral Type
   Number      Average
Minimum
Rating (2)
   Face
Amount $
     Basis
Amount $
     % of  Total
Basis
    Carrying
Value
Amount $
     Principal
Subordination  (3)
 

Third Party

   CMBS      1       BBB-      78,338         60,791         89.5     50,136         51.6

Newcastle

   CMBS      1       BBB-      6,053         4,562         6.7     4,562         27.7

Newcastle

   ABS      1       CC      5,500         2,540         3.8     2,640         56.4
     

 

 

    

 

  

 

 

    

 

 

    

 

 

   

 

 

    

 

 

 

TOTAL/WA

        3       BB+      89,891         67,893         100.0     57,338         50.3
     

 

 

    

 

  

 

 

    

 

 

    

 

 

   

 

 

    

 

 

 

 

(1) Represents non-consolidated CDO securities excluding ten securities with a zero value, which had an aggregate face amount of $117 million.
(2) Ratings provided above were determined by third party rating agencies as of a particular date, which may not be current and are subject to change at any time.
(3) The percentage of the outstanding face amount of securities that is subordinate to the Company’s investments.

Residential Assets

The Company owns $925 million of residential assets (with a basis of $744 million), which include manufactured housing (“MH”) loans, residential loans, subprime securities, real estate ABS and FNMA/FHLMC securities.

 

   

During the quarter, the Company purchased $48 million of subprime securities and FNMA/FHLMC securities, received principal repayments of $26 million and had $9 million of actual principal write-downs.

 

   

Regarding the Company’s ABS portfolio, no securities were upgraded, 8 securities or $55 million were affirmed and 8 securities or $37 million were downgraded (from a weighted average rating of B+ to B-).

 

   

The weighted average carrying value of these assets changed from 82.1% to 81.1%, a decrease of $9 million in the quarter.

 

5


Manufactured housing and residential loan portfolios ($ in thousands):

 

Deal

   Average
FICO Score
     Face
Amount $
     Basis
Amount $
     % of
Total
Basis
    Carrying
Value
Amount $
     Average
Loan  Age
(years)
     Original
Balance $
     Delinquency
90+/FC/REO  (1)
    Cumulative
Loss to Date
 

MH Loans Portfolio 1

     703         139,891         113,566         33.2     113,566         9.8         327,855         1.1     7.6

MH Loans Portfolio 2

     702         190,022         180,371         53.3     180,371         12.1         434,743         1.7     5.8

Residential Loans Portfolio 1

     715         57,612         40,699         12.5     40,699         8.3         646,357         12.5     0.4

Residential Loans Portfolio 2

     737         3,779         3,395         1.0     3,395         7.1         83,950         0.0     0.0
  

 

 

    

 

 

    

 

 

    

 

 

   

 

 

    

 

 

    

 

 

    

 

 

   

 

 

 

TOTAL/WA

     705         391,304         338,031         100.0     338,031         10.6         1,492,905         3.0     5.6
  

 

 

    

 

 

    

 

 

    

 

 

   

 

 

    

 

 

    

 

 

    

 

 

   

 

 

 

 

(1) The percentage of loans that are 90+ days delinquent, in foreclosure or considered real estate owned (REO).

Subprime Securities portfolio ($ in thousands):

Security Characteristics:

 

Vintage (1)

   Average
Minimum
Rating (2)
   Number    Face
Amount $
     Basis
Amount $
     % of
Total
Basis
    Carrying
Value
Amount $
     Principal
Subordination  (3)
    Excess
Spread  (4)
 

2003

   B-    14      14,313         6,945         4.8     8,337         24.5     4.2

2004

   BB-    9      36,162         17,484         12.1     19,478         24.8     3.8

2005

   B-    26      111,255         43,171         30.0     44,355         32.5     4.6

2006

   B+    7      59,541         39,545         27.5     40,240         41.3     5.1

2007 & Later

   BB    8      49,159         36,903         25.6     38,494         20.5     2.5
  

 

  

 

  

 

 

    

 

 

    

 

 

   

 

 

    

 

 

   

 

 

 

TOTAL/WA

   B+    64      270,430         144,048         100.0     150,904         30.8     4.2
  

 

  

 

  

 

 

    

 

 

    

 

 

   

 

 

    

 

 

   

 

 

 

Collateral Characteristics:

 

Vintage (1)

   Average
Loan  Age
(years)
     Collateral
Factor (5)
     3 Month
CPR (6)
    Delinquency
90+/FC/REO  (7)
    Cumulative
Loss to  Date
 

2003

     8.8         0.09         6.6     17.0     4.0

2004

     7.3         0.14         8.4     17.4     4.1

2005

     6.4         0.18         11.0     28.8     10.7

2006

     5.5         0.33         13.1     24.2     17.9

2007 & Later

     3.4         0.33         6.8     15.9     13.8
  

 

 

    

 

 

    

 

 

   

 

 

   

 

 

 

TOTAL/WA

     5.9         0.23         10.1     23.3     11.6
  

 

 

    

 

 

    

 

 

   

 

 

   

 

 

 

Real Estate ABS portfolios ($ in thousands):

Security Characteristics:

 

Asset Type

   Average
Minimum
Rating (2)
   Number      Face
Amount $
     Basis
Amount $
     % of
Total
Basis
    Carrying
Value
Amount $
     Principal
Subordination  (3)
    Excess
Spread  (4)
 

Manufactured Housing

   BBB+      7         31,446         30,614         73.8     31,909         41.1     1.5

Small Business Loans

   BBB-      7         21,177         10,869         26.2     8,101         24.6     0.9
  

 

  

 

 

    

 

 

    

 

 

    

 

 

   

 

 

    

 

 

   

 

 

 

TOTAL/WA

   BBB      14         52,623         41,483         100.0     40,010         34.5     1.3
  

 

  

 

 

    

 

 

    

 

 

    

 

 

   

 

 

    

 

 

   

 

 

 

 

6


Collateral Characteristics:

 

Asset Type

   Average
Loan Age
(years)
     Collateral
Factor (5)
     3 Month
CPR (6)
    Delinquency
90+/FC/REO  (7)
    Cumulative
Loss to Date
 

Manufactured Housing

     12.1         0.26         7.0     1.1     13.2

Small Business Loans

     6.2         0.55         9.3     20.0     15.3
  

 

 

    

 

 

    

 

 

   

 

 

   

 

 

 

TOTAL/WA

     9.7         0.37         7.9     8.7     14.1
  

 

 

    

 

 

    

 

 

   

 

 

   

 

 

 

 

(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 at any time. The Company had approximately $79 million of subprime and ABS securities that were on negative watch for possible downgrade by at least one rating agency as of September 30, 2011.
(3) The percentage of the outstanding face amount of securities and residual interests that is subordinate to the Company’s 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, in foreclosure or considered real estate owned (REO).

Corporate Assets

The Company owns $415 million of corporate assets (with a basis of $297 million), including REIT debt and corporate bank loans.

 

   

During the quarter, the Company sold $34 million and received $1 million of principal repayments from REIT debt.

 

   

Regarding the Company’s REIT debt portfolio, there were no upgraded, affirmed or downgraded securities.

 

   

The weighted average carrying value of these assets changed from 75.7% to 70.9%, a decrease of $20 million in the quarter.

REIT debt portfolio ($ in thousands):

 

Industry

   Average
Minimum
Rating (1)
   Number    Face
Amount $
     Basis
Amount $
     % of
Total
Basis
    Carrying
Value
Amount $
 

Retail

   A-    4      34,525         33,671         24.6     36,497   

Diversified

   CCC+    4      39,286         39,282         28.7     31,631   

Office

   BBB    6      34,117         34,501         25.2     35,116   

Multifamily

   BBB    3      12,765         12,800         9.4     13,522   

Healthcare

   BBB-    3      16,700         16,506         12.1     17,585   
  

 

  

 

  

 

 

    

 

 

    

 

 

   

 

 

 

TOTAL/WA

   BB+    20      137,393         136,760         100.0     134,351   
  

 

  

 

  

 

 

    

 

 

    

 

 

   

 

 

 

Corporate bank loan portfolio ($ in thousands):

 

Industry

   Average
Minimum
Rating (1)
   Number    Face
Amount $
     Basis
Amount $
     % of
Total
Basis
    Carrying
Value
Amount $
 

Real Estate

   NR    1      17,811         16,208         10.1     16,208   

Media

   CCC-    2      110,710         28,830         18.0     28,830   

Resorts

   NR    1      130,952         100,952         63.2     100,952   

Restaurant

   B    2      18,068         13,888         8.7     13,888   
  

 

  

 

  

 

 

    

 

 

    

 

 

   

 

 

 

TOTAL/WA

   CC    6      277,541         159,878         100.0     159,878   
  

 

  

 

  

 

 

    

 

 

    

 

 

   

 

 

 

 

(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 at any time. The Company had no corporate assets that were on negative watch for possible downgrade as of September 30, 2011.

 

7


CONFERENCE CALL

Newcastle’s management will conduct a live conference call on November 9, 2011, at 9:00 A.M. Eastern Time to review the financial results for the third quarter ended September 30, 2011. A copy of the earnings press release is posted to the Investor Relations section of Newcastle’s website, www.newcastleinv.com

All interested parties are welcome to participate on the live call. You can access the conference call by dialing 1-888-243-2046 (from within the U.S.) or 1-706-679-1533 (from outside of the U.S.) ten minutes prior to the scheduled start of the call; please reference “Newcastle Third 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 Wednesday, November 16, 2011 by dialing 1-855-859-2056 (from within the U.S.) or 1-404-537-3406 (from outside of the U.S.); please reference access code “21132178.”

ABOUT NEWCASTLE

Newcastle Investment Corp. owns and manages a portfolio of diversified, credit sensitive real estate 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 investment management firm. For more information regarding Newcastle Investment Corp. or to be added to our e-mail distribution list, please visit www.newcastleinv.com.

FORWARD-LOOKING STATEMENTS

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, the expected average life of an investment, the expected returns, or expected yield on an investment, 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 market conditions cause downgrades of a significant number of our securities or the 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 Quarterly Report on Form 10-Q, which is 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.

 

8


CAUTIONARY NOTE REGARDING EXPECTED RETURNS AND EXPECTED YIELDS PRESENTED IN THIS PRESS RELEASE

Expected returns and expected yields are estimates of the annualized effective rate of return that we presently expect to be earned over the expected average life of an investment (i.e., IRR), after giving effect, in the case of returns, to existing leverage, and calculated on a weighted average basis. Expected returns and expected yields reflect our estimates of an investment’s coupon, amortization of premium or discount, and costs and fees, and they contemplate our assumptions regarding prepayments and loan losses, among other things. Income recognized by the Company in future periods may be significantly less than the income that would have been recognized if an expected return or expected yield were actually realized, and the estimates we use to calculate expected returns and expected yields could differ materially from actual results.

Statements about expected returns and expected yields in this press release are forward-looking statements. You should carefully read the cautionary statement above under the caption “Forward-looking Statements,” which directly applies to our discussion of expected returns and expected yields.

 

9


Newcastle Investment Corp.

Consolidated Statements of Operations (Unaudited)

(dollars in thousands, except per share data)

 

     Three Months Ended September 30,     Nine Months Ended September 30,  
     2011     2010     2011     2010  

Interest income

   $ 72,393      $ 81,040      $ 218,739      $ 225,315   

Interest expense

     32,587        42,547        106,502        131,277   
  

 

 

   

 

 

   

 

 

   

 

 

 

Net interest income

     39,806        38,493        112,237        94,038   
  

 

 

   

 

 

   

 

 

   

 

 

 

Impairment (Reversal)

        

Valuation allowance (reversal) on loans

     17,644        (105,360     (38,218     (292,668

Other-than-temporary impairment on securities

     5,537        3,616        14,433        102,397   

Portion of other-than-temporary impairment on securities recognized in other comprehensive income (loss), net of reversal of other comprehensive loss into net income (loss)

     (1,531     6,425        (838     (15,575
  

 

 

   

 

 

   

 

 

   

 

 

 
     21,650        (95,319     (24,623     (205,846
  

 

 

   

 

 

   

 

 

   

 

 

 

Net interest income after impairment

     18,156        133,812        136,860        299,884   

Other Income (Loss)

        

Gain (loss) on settlement of investments, net

     5,636        (1,134     75,334        17,497   

Gain on extinguishment of debt

     15,917        46,624        60,402        141,698   

Other income (loss), net

     (2,751     (8,828     (12,576     (12,606
  

 

 

   

 

 

   

 

 

   

 

 

 
     18,802        36,662        123,160        146,589   
  

 

 

   

 

 

   

 

 

   

 

 

 

Expenses

        

Loan and security servicing expense

     1,198        1,116        3,458        3,473   

General and administrative expense

     1,399        1,811        4,649        6,912   

Management fee to affiliate

     4,569        4,258        13,313        12,993   
  

 

 

   

 

 

   

 

 

   

 

 

 
     7,166        7,185        21,420        23,378   
  

 

 

   

 

 

   

 

 

   

 

 

 

Income from continuing operations

     29,792        163,289        238,600        423,095   

Income (loss) from discontinued operations

     151        213        151        186   
  

 

 

   

 

 

   

 

 

   

 

 

 

Net Income

     29,943        163,502        238,751        423,281   

Preferred dividends

     (1,395     (1,395     (4,185     (6,058

Excess of carrying amount of exchanged preferred stock over fair value of consideration paid

     —          —          —          43,043   
  

 

 

   

 

 

   

 

 

   

 

 

 

Income Available for Common Stockholders

   $ 28,548      $ 162,107      $ 234,566      $ 460,266   
  

 

 

   

 

 

   

 

 

   

 

 

 

Income Per Share of Common Stock

        

Basic

   $ 0.35      $ 2.61      $ 3.16      $ 7.77   
  

 

 

   

 

 

   

 

 

   

 

 

 

Diluted

   $ 0.35      $ 2.61      $ 3.16      $ 7.77   
  

 

 

   

 

 

   

 

 

   

 

 

 

Income from continuing operations per share of common stock, after preferred dividends and excess of carrying amount of exchanged preferred stock over fair value of consideration paid

        

Basic

   $ 0.35      $ 2.61      $ 3.16      $ 7.77   
  

 

 

   

 

 

   

 

 

   

 

 

 

Diluted

   $ 0.35      $ 2.61      $ 3.16      $ 7.77   
  

 

 

   

 

 

   

 

 

   

 

 

 

Income (loss) from discontinued operations per share of common stock

        

Basic

   $ —        $ —        $ —        $ —     
  

 

 

   

 

 

   

 

 

   

 

 

 

Diluted

   $ —        $ —        $ —        $ —     
  

 

 

   

 

 

   

 

 

   

 

 

 

Weighted Average Number of Shares of Common Stock Outstanding

        

Basic

     80,425,197        62,024,945        74,168,573        59,249,175   
  

 

 

   

 

 

   

 

 

   

 

 

 

Diluted

     80,441,593        62,024,945        74,177,027        59,249,175   
  

 

 

   

 

 

   

 

 

   

 

 

 

Dividends Declared per Share of Common Stock

   $ 0.15      $ —        $ 0.25      $ —     
  

 

 

   

 

 

   

 

 

   

 

 

 

 

10


Newcastle Investment Corp.

Consolidated Balance Sheets

(dollars in thousands)

 

     September 30, 2011
(Unaudited)
    December 31,
2010
 

Assets

    

Non-Recourse VIE Financing Structures

    

Real estate securities, available for sale

   $ 1,437,893      $ 1,859,984   

Real estate related loans, held for sale, net

     815,140        750,130   

Residential mortgage loans, held for investment, net

     340,489        124,974   

Residential mortgage loans, held for sale, net

     —          252,915   

Subprime mortgage loans subject to call option

     404,476        403,793   

Operating real estate, held for sale

     7,743        8,776   

Other investments

     18,883        18,883   

Restricted cash

     178,121        157,005   

Derivative assets

     2,383        7,067   

Receivables and other assets

     23,818        29,206   
  

 

 

   

 

 

 
     3,228,946        3,612,733   
  

 

 

   

 

 

 

Recourse Financing Structures and Unlevered Assets

    

Real estate securities, available for sale

     230,463        600   

Real estate related loans, held for sale, net

     6,634        32,475   

Residential mortgage loans, held for sale, net

     3,031        298   

Other investments

     6,024        6,024   

Cash and cash equivalents

     205,180        33,524   

Receivables and other assets

     2,775        1,457   
  

 

 

   

 

 

 
     454,107        74,378   
  

 

 

   

 

 

 
   $ 3,683,053      $ 3,687,111   
  

 

 

   

 

 

 

Liabilities and Stockholders’ Equity (Deficit)

    

Liabilities

    

Non-Recourse VIE Financing Structures

    

CDO bonds payable

   $ 2,428,294      $ 3,010,868   

Other bonds and notes payable

     210,033        261,165   

Repurchase agreements

     8,764        14,049   

Financing of subprime mortgage loans subject to call option

     404,476        403,793   

Derivative liabilities

     132,056        176,861   

Payables to brokers, dealers and clearing organizations

     37,341        —     

Accrued expenses and other liabilities

     9,107        8,445   
  

 

 

   

 

 

 
     3,230,071        3,875,181   
  

 

 

   

 

 

 

Recourse Financing Structures and Other Liabilities

    

Repurchase agreements

     212,164        4,683   

Junior subordinated notes payable

     51,250        51,253   

Dividends payable

     16,706        —     

Due to affiliates

     1,532        1,419   

Accrued expenses and other liabilities

     2,805        2,160   
  

 

 

   

 

 

 
     284,457        59,515   
  

 

 

   

 

 

 
     3,514,528        3,934,696   
  

 

 

   

 

 

 

Stockholders’ Equity (Deficit)

    

Preferred stock, $0.01 par value, 100,000,000 shares authorized, 1,347,321 shares of 9.75% Series B Cumulative Redeemable Preferred Stock 496,000 shares of 8.05% Series C Cumulative Redeemable Preferred Stock, and 620,000 shares of 8.375% Series D Cumulative Redeemable Preferred Stock, liquidation preference $25.00 per share, issued and outstanding as of September 30, 2011 and December 31, 2010

     61,583        61,583   

Common stock, $0.01 par value, 500,000,000 shares authorized, 105,175,197 and 62,027,184 shares issued and outstanding at September 30, 2011 and December 31, 2010, respectively

     1,052        620   

Additional paid-in capital

     1,275,765        1,065,377   

Accumulated deficit

     (1,076,776     (1,328,987

Accumulated other comprehensive income (loss)

     (93,099     (46,178
  

 

 

   

 

 

 
     168,525        (247,585
  

 

 

   

 

 

 
   $ 3,683,053      $ 3,687,111   
  

 

 

   

 

 

 

 

11


Newcastle Investment Corp.

Consolidated Statements of Cash Flows (Unaudited)

(dollars in thousands)

 

     Three Months Ended September 30,     Nine Months Ended September 30,  
     2011     2010     2011     2010  

Cash flows From Operating Activities

        

Net income

   $ 29,943      $ 163,502      $ 238,751      $ 423,281   

Adjustment to reconcile net income to net cash provided by (used in) operating activities (inclusive of amounts related to discontinued operations):

        

Depreciation and amortization

     88        36        225        161   

Accretion of discount and other amortization

     (11,407     (3,352     (33,214     (11,729

Interest income in CDOs redirected for reinvestment or CDO bonds pay down

     (2,402     (5,280     (8,981     (17,985

Interest income on investments accrued to principal balance

     (5,005     (4,288     (14,303     (8,077

Interest expense on debt accrued to principal balance

     105        634        619        2,279   

Deferred interest received

     —          —          1,027        44   

Non-cash directors’ compensation

     —          —          122        60   

Reversal of valuation allowance on loans

     17,644        (105,360     (38,218     (292,668

Other-than-temporary impairment on securities

     4,006        10,041        13,595        86,822   

Impairment on real estate held for sale

     —          —          433        60   

Gain on settlement of real estate held for sale

     (61     —          (61     —     

Gain on settlement of investments, net

     (5,636     1,134        (74,402     (17,497

Unrealized loss on non-hedge derivatives and hedge ineffectiveness

     3,289        9,057        14,483        13,356   

Gain on extinguishment of debt

     (15,917     (46,624     (60,402     (141,698

Change in:

        

Restricted cash

     1,004        (4,372     1,249        (1,354

Receivables and other assets

     (548     814        528        3,781   

Due to affiliates

     14        —          113        (78

Accrued expenses and other liabilities

     130        164        57        (1,182
  

 

 

   

 

 

   

 

 

   

 

 

 

Net cash provided by (used in) operating activities

     15,247        16,106        41,621        37,576   
  

 

 

   

 

 

   

 

 

   

 

 

 

Cash Flows From Investing Activities

        

Principal repayments from repurchased CDO debt

     8,227        —          57,108        53   

Principal repayments on CDO securities

     969        —          9,834        —     

Principal repayments on loans and non-CDO securities

     13,823        10,200        65,756        55,283   

Purchase of real estate securities

     (122,856     —          (303,101     (2,291

Proceeds from sale of real estate securities

     —          —          3,885        26,022   

Acquisition of servicing rights

     —          —          (2,268     —     

Purchase of and advances on loans

     —          (6,024     —          (6,024

Margin received on derivative instruments

     —          —          —          5,073   

Payments on settlement of derivative instruments

     —          —          (14,322     (11,394

Proceeds from sale of real estate held for sale

     650        840        650        840   

Distributions of capital from equity method investees

     —          2        —          161   
  

 

 

   

 

 

   

 

 

   

 

 

 

Net cash provided by (used in) investing activities

     (99,187     5,018        (182,458     67,723   
  

 

 

   

 

 

   

 

 

   

 

 

 

Cash flows From Financing Activities

        

Repurchases of CDO bonds payable

     (3,975     (1,473     (91,039     (11,400

Issuance of other bonds payable

     —          —          142,736        97,650   

Repayments of other bonds payable

     (10,137     (9,923     (194,379     (134,027

Borrowings under repurchase agreements

     183,242        —          291,818        —     

Repayments of repurchase agreements

     (80,359     —          (89,622     (71,309

Issuance of common stock

     112,724        —          211,567        —     

Costs related to issuance of common stock

     —          —          (468     —     

Cash consideration paid in exchange for junior subordinated notes

     —          —          —          (9,715

Cash consideration paid to redeem preferred stock

     —          —          —          (16,001

Dividends paid

     (9,325     —          (14,906     (19,484

Payment of deferred financing costs

     (35     —          (1,581     (1,677

Restricted cash returned (paid) from refinancing activities

     (3,853     10,924        58,367        50,700   
  

 

 

   

 

 

   

 

 

   

 

 

 

Net cash provided by (used in) financing activities

     188,282        (472     312,493        (115,263
  

 

 

   

 

 

   

 

 

   

 

 

 

Net Increase (Decrease) in Cash and Cash Equivalents

     104,342        20,652        171,656        (9,964

Cash and Cash Equivalents, Beginning of Period

     100,838        37,684        33,524        68,300   
  

 

 

   

 

 

   

 

 

   

 

 

 

Cash and Cash Equivalents, End of Period

   $ 205,180      $ 58,336      $ 205,180      $ 58,336   
  

 

 

   

 

 

   

 

 

   

 

 

 

Supplemental Disclosure of Cash Flow Information

        

Cash paid during the period for interest expense

   $ 23,561      $ 32,002      $ 76,730      $ 97,948   

Supplemental Schedule of Non-Cash Investing and Financing Activities

        

Common stock dividends declared but not paid

   $ 15,776      $ —        $ 15,776      $ —     

Preferred stock dividends declared but not paid

   $ 930      $ —        $ 930      $ —     

Common stock issued to redeem preferred stock

   $ —        $ —        $ —        $ 28,457   

Face amount of CDO bonds issued in exchange for previously issued junior subordinated notes of $52,904

   $ —        $ —        $ —        $ 37,625   

 

12


Newcastle Investment Corp.

Reconciliation of Core Earnings (1)

(dollars in thousands)

 

     Three Months Ended September 30,     Nine Months Ended September 30,  
     2011     2010     2011     2010  

Income available for common stockholders

   $ 28,548      $ 162,107      $ 234,566      $ 460,266   

Add (Deduct):

        

Impairment reversal

     21,650        (95,319     (24,623     (205,846

Other income

     (18,802     (36,662     (123,160     (146,589

Excess of carrying amount of exchanged preferred stock over fair value of consideration paid

     —          —          —          (43,043

Income from discontinued operations

     (151     (213     (151     (186
  

 

 

   

 

 

   

 

 

   

 

 

 
   $ 31,245      $ 29,913      $ 86,632      $ 64,602   
  

 

 

   

 

 

   

 

 

   

 

 

 

 

(1) Previously referred to as “Net Interest Income Less Expenses (Net of Preferred Dividends)”.

Management believes that core earnings provides investors with useful information because it enables investors to evaluate Newcastle’s current performance using the same measure that management uses to operate the business. Management uses core earnings to gauge the current performance of Newcastle without taking into account gains and losses, which, although they represent a part of recurring operations, are subject to significant variability and are only a potential indicator of future economic performance.

Core earnings 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 operating performance or as an alternative to cash flow as a measure of liquidity, and it is not necessarily indicative of cash available to fund cash needs. The calculation of core earnings above may be different from the calculation used by other companies and, therefore, comparability may be limited.

 

13