Exhibit 99.1
[GRAPHIC OMITTED] NEWCASTLE INVESTMENT CORP
FOR IMMEDIATE RELEASE
Contact:
Lilly H. Donohue
Director of Investor Relations
212-798-6118
Newcastle Announces First Quarter 2006 Results and Closing of a New Credit
Facility
- --------------------------------------------------------------------------------
Highlights
- - FFO and net income of $0.65 per diluted common share; FFO increased 10% and
net income increased 5% from the first quarter 2005
- - Record investment quarter - purchased $1.0 billion of assets, investing
$127.4 million of capital
- - Common equity book value per share increased $0.46 to $19.03 at March 31,
2006
- - Issued $100 million of trust preferred securities
- - On May 2, 2006, closed a new $200.0 million revolving credit facility
New York, NY. May 3, 2006 - Newcastle Investment Corp. (NYSE: NCT) reported that
for the quarter ended March 31, 2006, Funds from Operations ("FFO") were $28.7
million, or $0.65 per diluted common share, compared to $0.59 per diluted common
share for the quarter ended March 31, 2005. The Company generated an FFO return
on average invested equity of 14.6% for the first quarter 2006.
For the three months ended March 31, 2006, income available for common
stockholders was $28.6 million, or $0.65 per diluted common share, compared with
$27.2 million, or $0.62 per diluted common share, in the first quarter 2005.
For the quarter ended March 31, 2006, Newcastle declared a dividend of $0.625
per share of common stock.
Our GAAP common equity book value per share increased $0.46 per share to $19.03
at March 31, 2006 from $18.57 at December 31, 2005. GAAP common equity book
value was $836.8 million at March 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.
Recent Event
On May 2, 2006, the Company closed a new $200.0 million revolving credit
facility priced at 1 month LIBOR + 175 basis points. The new credit facility
replaces the Company's prior $100.0 million revolving credit facility that had
an interest rate of 1 month LIBOR + 250 basis points. The new credit facility
matures in November 2007 and will be used to fund investments and for other
working capital needs.
Kenneth Riis, Newcastle's President, commented, "Our new financing gives us $100
million more borrowing capacity at a lower cost including both a 75 basis point
reduction in interest rate and lower fees. The more favorable economic terms and
the increased financial flexibility of this credit facility are a result of the
diversity and solid credit profile of our investment portfolio and the strength
of our balance sheet."
The initial amount drawn under the new credit facility is approximately $60.0
million, and the proceeds were used to repay all of the outstanding indebtedness
under the prior credit facility. The Company will record an expense of $0.7
million in the second quarter, representing the write-off of unamortized
financing costs related to the prior credit facility.
Selected Financial Data (Unaudited)
(amount in thousands)
Three Months Ended Three Months Ended
March 31, 2006 March 31, 2005
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Operating Data:
Funds from operations $ 28,722 $ 25,623
Income available for common stockholders 28,591 27,161
As of As of
Balance Sheet Data: March 31, 2006 December 31, 2005
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Total assets $ 7,885,774 $ 6,209,699
Total liabilities 6,946,497 5,291,696
Common stockholders' equity 836,777 815,503
Preferred stock 102,500 102,500
Total equity 939,277 918,003
The following tables compare certain supplemental data relating to our
investment portfolio at March 31, 2006 versus December 31, 2005:
Supplemental Data - Total Investment Portfolio:
Total Portfolio(1) Core Investment Portfolio(2)
------------------ ----------------------------
March 31, 2006 December 31, 2005 March 31, 2006 December 31, 2005
-------------- ----------------- -------------- -----------------
Total portfolio (face amount) $ 7,754,510 $ 6,111,464 $ 6,977,785 $ 5,413,142
Percentage of total assets(3)(4) 93% 92% 82% 80%
Weighted average asset yield(3) 7.01% 6.59% 7.32% 6.85%
Weighted average liability cost(3) 5.52% 5.12% 5.67% 5.22%
Weighted average net spread(3) 1.49% 1.47% 1.65% 1.63%
Supplemental Data - Real Estate Securities and Real Estate Related Loans(2):
March 31, 2006 December 31, 2005
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Real estate securities and real estate
related loans (face amount) $ 4,927,803 $ 4,802,172
Percentage of total assets(3)(4) 68% 70%
Weighted average credit rating BB+ BB+
Percentage investment grade 67% 67%
Number of securities and loans 538 534
Weighted average asset credit spread 260 261
Supplemental Data - Residential Mortgage Loans:
March 31, 2006 December 31, 2005
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Residential mortgage loans (unpaid principal amount) $ 2,049,982 $ 610,970
Percentage of total assets(3)(4) 14% 10%
Weighted average FICO score 637 712
Number of residential mortgage loans 18,809 7,986
Notes:
(1) Excludes ICH of $145.4 million at March 31, 2006 and $165.5 million at
December 31, 2005.
(2) Excludes investments that are not a part of our core strategies: ICH of
$145.4 million and agency RMBS of $776.7 million at March 31, 2006 and ICH
of $165.5 million and agency RMBS of $698.3 million at December 31, 2005.
(3) March 31, 2006 is proforma for our investment in subprime mortgage loans
post our April 2006 securitization.
(4) Unamortized cost basis as percentage of total assets.
Capital Markets Activity
In January 2006, we entered into a three year term financing on our manufactured
housing loan portfolio. The interest rate on the $237.1 million of issued debt
adjusts monthly at LIBOR + 125 basis points. At the time of the closing, we
entered into an interest rate swap to hedge against changes in interest rates.
In March 2006, Newcastle issued $100 million of trust preferred securities. The
securities have a fixed rate coupon of 7.574% for 10 years and a floating rate
of three-month LIBOR + 225 basis points thereafter. The securities mature in 30
years and are callable at par beginning in April 2011.
Subsequent to quarter-end, we securitized our $1.5 billion subprime mortgage
loan portfolio which we acquired in March 2006. Newcastle, through the
securitization trust, issued $1.45 billion of investment grade debt to term
finance the portfolio. Post securitization, Newcastle retained three classes of
investment grade bonds rated BBB- to BBB+ with a face amount of $37.6 million as
well as the equity in the trust. In the aggregate, Newcastle has approximately
$70 million of capital invested in this portfolio with a projected loss adjusted
return of approximately 20%.
Wesley R. Edens, Chairman and Chief Executive Officer, commented, "We had a
strong first quarter. The results of our recent investment and capital markets
activities are beginning to add to our core earnings. The full accretive impact
of these activities will be realized in future quarters and position us to
achieve our targeted dividend growth in 2006."
First Quarter Investment Activity
In the first quarter 2006, we purchased a total of $2.1 billion of assets.
Adjusted for the sale of the subprime assets in April, the total assets
purchased is $1.0 billion.
Real Estate Securities and Real Estate Related Loans. We purchased $634.0
million in face amount of real estate securities and real estate related loans,
representing 35 securities and loans: $597.0 million on balance sheet; and the
remaining $37.0 million of a bank loan financed through a total rate of return
swap. With respect to the total rate of return swap in the quarter, we recorded
a deposit of $15.5 million on our balance sheet.
Our purchases during the first quarter had an average credit rating of BB-. The
investments were comprised of: $258.5 of real estate related loans (including
$221.5 million of mezzanine loans and $37.0 million of bank loans); $218.1
million of commercial mortgage backed securities (CMBS); $110.3 million of
agency RMBS; $32.1 million of real estate related asset backed securities (ABS);
and $15.0 million of real estate investment trust (REIT) debt. In addition, we
sold $58.4 million of real estate securities with an average credit rating of
BBB-.
Residential Mortgage Loans. We purchased a portfolio of approximately 11,300
subprime residential mortgage loans for approximately $1.5 billion. The loans
are secured by residential homes located throughout the U.S. Approximately 92%
of the portfolio is secured by first liens, substantially all the assets are
owner occupied and the borrowers have a weighted average FICO score of 612. The
loans have a weighted average gross coupon of 7.6% and an average loan to value
of 81.0%. Substantially all of the loans are current.
Kenneth Riis commented, "We had a record first quarter in both the amount of
assets purchased and capital deployed. To date, we have already invested
approximately $225 million of capital at a high teens return and we continue to
see a strong pipeline of investment opportunities."
Core Investment Portfolio
At March 31, 2006, our $7.0 billion core investment portfolio (excluding the ICH
loans and agency RMBS) represented 82% of our total assets on a proforma basis
and consisted of $4.9 billion of real estate securities and real estate related
loans and $2.1 billion of residential mortgage loans.
Real Estate Securities and Real Estate Related Loans. Our core portfolio was
well diversified with 538 securities and loans. Of these investments, 62% were
fixed rate investments and the remaining 38% were floating rate. The portfolio
consisted of 42% CMBS, 19% REIT debt, 16% ABS, 15% B-Notes and mezzanine loans
and 8% real estate loans and bank loans.
The average credit quality was BB+, and 67% of these investments were rated
investment grade. Our average investment size was $9.2 million, with our largest
single investment being $110.0 million, at quarter end. The weighted average
credit spread was unchanged (i.e., the yield premium on our investments over the
comparable U.S. Treasury rate or LIBOR) at 260 basis points as of March 31, 2006
versus 261 basis points as of December 31, 2005.
The credit profile of our real estate securities investment 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 ($233.5 million face
amount) experienced credit rating upgrades versus one security ($2.4 million
face amount) which experienced credit rating downgrades.
At quarter-end, we had $106.7 million of restricted cash to be invested in our
eight CBO financings versus $173.4 million at December 31, 2005. Based on
current commitments, we now have $51.1 million of unrestricted cash to invest.
With respect to $335.6 million face amount of real estate related loans that are
financed via total rate of return swaps, we reported to other income a net
unrealized mark to market loss of $0.2 million for the first quarter 2006.
Residential Mortgage Loans. Our portfolio is comprised of $276.4 million of
residential mortgage loans, $271.4 million of manufactured housing loans and
$1.5 billion of subprime mortgage loans. The residential, manufactured housing
and subprime loan portfolios were well diversified with 785 loans, 6,752 loans,
and 11,272 loans, respectively. The residential mortgage loans had an average
maturity of 2.80 years, the manufactured housing loans had an average maturity
of 5.77 years and the subprime mortgage loans had an average maturity of 2.49
years at quarter-end.
Our core business strategy is to "lock in" and optimize the difference between
the yield on our assets and the cost of our liabilities (which we refer to as
the "net spread"). We finance our investments in a manner that matches the
interest rates and maturities of our assets and liabilities in an effort to
minimize the impact of interest rate fluctuations on our earnings and to reduce
the risk of having to refinance our liabilities prior to the maturities of our
assets. As a result of this strategy, our earnings are relatively unaffected by
a change in rates. As of March 31, 2006, excluding our investment in the
subprime mortgage loan portfolio, an immediate 100 basis point increase in
short-term interest rates would have increased our earnings by approximately
$0.7 million per annum, or less than $0.02 per share.
Results of Operations
Our first quarter 2006 results include the effect of our acquisition of the $1.5
billion portfolio of subprime residential mortgage loans temporarily financed
via a repurchase agreement. At the same time, we entered into an interest rate
swap to hedge our exposure to changes in market interest rates. We intended to
sell the loans through a securitization transaction, as such the loans were
classified as held for sale on our balance sheet at quarter end. As a result,
both the change in value of the loans and the swap were recorded through the
income statement in the first quarter. We recorded a net gain of $1.4 million
representing a gain on the swap of $5.5 million recorded to other income and a
provision for losses on the loans held for sale of $4.1 million. The provision
taken for the loan portfolio was primarily related to changes in interest rates.
Upon closing of the securitization on April 6, 2006, we sold the loans and the
swap into the securitization trust. We retained all of the equity and the low
investment grade bonds issued by the trust. In connection with our equity
interest, we have the right to call the deal when the principal balance of the
loans is equal to or less than 20% of the balance at the time of the
securitization. Because 20%, or approximately $300.0 million, of the loans are
subject to future repurchase by Newcastle, these loans were not treated as sold.
Following the securitization, Newcastle holds the following interests in the
subprime loan portfolio (i) the equity of the trust representing $62.4 million
(ii) the retained bonds of $37.6 million face amount ($33.7 million unamortized
cost) financed with $28.0 million of repurchase agreements and (iii) loans
subject to future repurchase of $286.3 million with a corresponding financing
for 100% of the loans retained.
Conference Call
Newcastle's management will conduct a live conference call today at 4:00 P.M.
Eastern Time to review the financial results for the quarter ended March 31,
2006. All interested parties are welcome to participate on the live call. You
can access the conference call by dialing 866-323-3742 (from within the U.S.) or
706-643-0550 (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, 2006.
A telephonic replay of the conference call will be available until 11:59 P.M.
eastern time on Wednesday, May 10, 2006 by dialing 800-642-1687 (from within the
U.S.) or 706-645-9291 (from outside of the U.S.); please reference access code
"8456438."
About Newcastle
Newcastle Investment Corp. invests in real estate securities and other real
estate related assets. 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 Fortress Investment Group LLC. 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 our ability to grow dividends and returns on
equity, including returns on our subprime mortgage portfolio. 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, our ability to take advantage of opportunities in
additional asset classes at attractive risk-adjusted prices; our ability to
deploy capital accretively; the risks that default and recovery rates on our
loan portfolios exceed our underwriting estimates; the risk that investments
made in the first quarter cannot be financed on the basis and for the term at
which we expect; and other risks detailed from time to time in Newcastle's SEC
reports. 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
March 31,
--------------------------------
2006 2005
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Revenues
Interest income $ 113,907 $ 79,036
Rental and escalation income 2,008 1,264
Gain on sale of investments, net 1,928 1,714
Other income 5,705 1,649
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123,548 83,663
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Expenses
Interest expense 76,965 48,766
Property operating expense 818 693
Loan and security servicing expense 2,006 1,583
Provision for credit losses 2,007 712
Provision for losses, loans held for sale 4,127 -
General and administrative expense 1,630 891
Management fee to affiliate 3,471 3,263
Incentive compensation to affiliate 2,852 1,972
Depreciation and amortization 199 136
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94,075 58,016
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Income before equity in earnings of
unconsolidated subsidiaries 29,473 25,647
Equity in earnings of unconsolidated
subsidiaries 1,195 2,086
Income taxes on related taxable
subsidiaries - (233)
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Income from continuing operations 30,668 27,500
Income from discontinued operations 251 1,184
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Net Income 30,919 8,684
Preferred dividends (2,328) (1,523)
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Income Available for Common Stockholders $ 28,591 $ 27,161
============== ==============
Net Income Per Share of Common Stock
Basic $ 0.65 $ 0.63
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Diluted $ 0.65 $ 0.62
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Income from continuing operations per share of
common stock, after preferred dividends
Basic $ 0.64 $ 0.60
============== ==============
Diluted $ 0.64 $ 0.59
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Income from discontinued operations per share
of common stock
Basic $ 0.01 $ 0.03
============== ==============
Diluted $ 0.01 $ 0.03
============== ==============
Weighted Average Number of Shares of Common
Stock Outstanding
Basic 43,944,820 43,221,792
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Diluted 44,063,940 43,629,078
============== ==============
Dividends Declared per Share of Common Stock $ 0.625 $ 0.625
============== ==============
Newcastle Investment Corp
Consolidated Balance Sheets
(dollars in thousands, except share data)
As of As of
March 31, 2006 December 31, 2005
(Unaudited)
--------------------- --------------------
Assets
Real estate securities, available for sale $ 4,732,563 $ 4,554,519
Real estate related loans, net 670,938 615,551
Residential mortgage loans, net 540,231 600,682
Subprime mortgage loans, held for sale 1,510,022 -
Investments in unconsolidated subsidiaries 28,946 29,953
Operating real estate, net 28,821 16,673
Cash and cash equivalents 38,475 21,275
Restricted cash 190,259 268,910
Derivative assets 109,944 63,834
Receivables and other assets 35,575 38,302
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$ 7,885,774 $ 6,209,699
===================== ====================
Liabilities and Stockholders' Equity
Liabilities
CBO bonds payable $ 3,521,395 $ 3,530,384
Other bonds payable 352,050 353,330
Notes payable 220,825 260,441
Repurchase agreements 2,674,127 1,048,203
Credit facility - 20,000
Junior subordinated notes payable (security for
trust preferred) 100,100 -
Derivative liabilities 9,108 18,392
Dividends payable 29,032 29,052
Due to affiliates 4,011 8,783
Accrued expenses and other liabilities 35,849 23,111
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6,946,497 5,291,696
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Stockholders' Equity
Preferred stock, $0.01 per 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, $0.01 per value, 500,000,000
shares authorized, 43,967,409 and 43,913,409
shares issues and outstanding at March 31,
2006 and December 31, 2005, respectively 440 439
Additional paid-in capital 783,784 782,735
Dividends in excess of earnings (12,124) (13,235)
Accumulated other comprehensive income 64,677 45,564
--------------------- --------------------
939,277 918,003
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$ 7,885,774 $ 6,209,699
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Newcastle Investment Corp.
Reconciliation of GAAP Net Income to FFO
(dollars in thousands)
(Unaudited)
Three Months Ended Three Months Ended
March 31, 2006 March 31, 2005
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Net income available for common stockholders $ 28,591 $ 27,161
Accumulated depreciation on operating real estate sold - (1,829)
Operating real estate depreciation 131 291
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Funds from operations ("FFO") $ 28,722 $ 25,623
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, 2006
--------------
Book equity $ 939,277
Preferred stock (102,500)
Accumulated depreciation on operating real estate 3,518
Accumulated other comprehensive income (64,677)
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Invested common equity $ 775,618
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