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GENERAL
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6 Months Ended |
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Jun. 30, 2014
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| Organization, Consolidation and Presentation of Financial Statements [Abstract] | |
| GENERAL |
1. GENERAL
Newcastle
Investment Corp. (and its subsidiaries, “Newcastle”) is a Maryland corporation that was formed in 2002. Newcastle
focuses on opportunistically investing in, and actively managing, a variety of real estate-related and other investments. Newcastle
is organized and conducts its operations to qualify as a real estate investment trust (“REIT”) for U.S. federal income
tax purposes. As such, Newcastle will generally not be subject to U.S. federal corporate income tax on that portion of its net
income that is distributed to stockholders if it distributes at least 90% of its REIT taxable income to its stockholders by prescribed
dates and complies with various other requirements. Newcastle's common stock is traded on the New York Stock Exchange under the
symbol "NCT".
On
February 13, 2014, Newcastle completed the spin-off of New Media Investment Group Inc. ("New Media"), and established New Media
as a separate, publicly traded company (NYSE:NEWM). The spin-off was effected as a taxable pro rata distribution by Newcastle
of all of the outstanding shares of common stock it held of New Media to Newcastle’s common stockholders of record at the
close of business on February 6, 2014. The distribution ratio was 0.0722 shares of New Media common stock for each share of Newcastle
common stock.
In
December 2013, Newcastle restructured an investment in mezzanine debt issued by NGP Mezzanine, LLC (“NGP”), the indirect
parent of NGP Realty Sub, L.P. (“National Golf”). National Golf owns 27 golf properties across 8 states, and leases these
properties to American Golf Corporation (“American Golf”), an affiliated operating company. American Golf also leases
an additional 52 golf properties and manages 11 properties, all owned by third parties. As part of the transaction, Newcastle acquired
the equity of NGP and American Golf’s indirect parent, AGC Mezzanine Pledge LLC (“AGC”), and therefore is consolidating
these entities.
As
a result, Newcastle now conducts its business through the following segments: (i) investments in senior housing properties (“senior
housing”), (ii) debt investments financed with collateralized debt obligations (“CDOs”), (iii) other debt investments
(“other debt”), (iv) investments in golf properties and facilities (“Golf”) and (v) corporate. With respect
to the CDOs and other debt investments, subject to the passing of certain periodic coverage tests, Newcastle is generally entitled
to receive the net cash flows from these structures on a periodic basis.
Newcastle
is party to a management agreement (the "Management Agreement") with FIG LLC (the "Manager"), a subsidiary of Fortress Investment
Group LLC (“Fortress”), under which the Manager advises Newcastle on various aspects of its business and manages its
day-to-day operations, subject to the supervision of Newcastle's board of directors. For its services, the Manager is entitled
to an annual management fee and incentive compensation, both as defined in, and in accordance with the terms of, the Management
Agreement.
Newcastle
either leases senior housing properties under triple net leases or has its senior housing properties managed pursuant to
property management agreements (the “Senior Housing Management Agreements”) with third parties (collectively, the
“Senior Housing Managers”). Currently, the Senior Housing Managers are affiliates or subsidiaries of either
Holiday Acquisition Holdings LLC (“Holiday”), a portfolio company that is majority owned by private equity funds
managed by an affiliate of Newcastle’s Manager, or FHC Property Management LLC (together with its
subsidiaries, “Blue Harbor”), an affiliate of Newcastle’s Manager.
On
June 16, 2014, Newcastle announced that its board of directors unanimously approved a plan to spin off its senior housing business.
Newcastle intends to effect the spin-off by distributing shares of its subsidiary, New Senior Investment Group Inc. (“New
Senior”, NYSE: SNR). New Senior will be a publicly traded REIT that primarily targets senior housing related investments.
New Senior has filed a registration statement with the SEC with respect to the planned spin-off. The spin-off is subject to certain
conditions, such as the SEC declaring effective New Senior’s registration statement, the filing and approval of an application
to list New Senior’s common stock on the NYSE and the formal declaration of the distribution by the board of directors.
Approximately
6.4 million shares of Newcastle’s common stock were held by Fortress, through its affiliates, and its principals at
June 30, 2014. In addition, Fortress, through its affiliates, held options to purchase approximately 25.5 million shares
of Newcastle’s common stock at June 30, 2014.
A principal of the Manager owned or leased aircraft that Newcastle chartered from a third-party aircraft operator for business purposes in the course of operations. Newcastle paid market rates for the charters. The operators remitted a portion of these amounts to the principal. These amounts totaled less than $0.1 million for the six months ended June 30, 2014 and 2013.
The
accompanying consolidated financial statements and related notes of Newcastle have been prepared in accordance with
accounting principles generally accepted in the United States for interim financial reporting and the instructions to Form
10-Q and Rule 10-01 of Regulation S-X. Accordingly, certain information and footnote disclosures normally included in financial statements
prepared under U.S. generally accepted accounting principles (“GAAP”) have been condensed or omitted. In the
opinion of management, all adjustments considered necessary for a fair presentation of Newcastle's financial position,
results of operations and cash flows have been included and are of a normal and recurring nature. The operating results
presented for interim periods are not necessarily indicative of the results that may be expected for any other interim period
or for the entire year. These financial statements should be read in conjunction with Newcastle's consolidated financial
statements for the year ended December 31, 2013 and notes thereto included in Newcastle’s Annual Report on Form 10-K filed with the SEC. Capitalized terms used herein, and not otherwise defined, are defined in Newcastle’s consolidated financial statements for the year ended December 31, 2013.
Certain
prior period amounts have been reclassified to conform to the current period’s presentation.
Recently Adopted Accounting Policies
The following accounting policies have been adopted in connection with Golf.
REVENUE RECOGNITION
Revenue from green fees, cart rentals, food and beverage sales, merchandise sales and other income (consisting primarily of range income, banquets, and club and other rental income) are generally recognized at the time of sale, when services are rendered and collection is reasonably assured.
Revenue from membership dues is recognized in the month earned. Membership dues received in advance are included in deferred revenues and recognized as revenue ratably over the appropriate period, which is generally twelve months or less. The monthly dues are generally structured to cover the club operating costs and membership services.
Private
country club members generally pay an advance initiation fee upon their acceptance as a member to the country club. Initiation
fees at most private clubs are deposits which are generally refundable 30 years after the date of acceptance as a member. Revenue
related to membership deposits is recognized over the expected life of an active membership. For membership deposits, the difference
between the amount paid by the member and the present value of the refund obligation is deferred and recognized on a straight-line
basis over the expected life of an active membership.
The present value of the refund obligation is recorded as a membership deposit liability in the consolidated balance sheets and accretes over the nonrefundable term (30 years) using the effective interest method. This accretion is recorded as interest expense in the consolidated statements of income.
EXPENSE RECOGNITION
Operating Leases and Other Operating Expenses - Other operating expenses for the Golf business consist primarily of equipment leases, utilities, repairs and maintenance, supplies, seed, soil and fertilizer, and marketing. Many of the golf properties and related facilities are leased under long-term operating leases. In addition to minimum payments, certain leases require payment of the excess of various percentages of gross revenue or net operating income over the minimum rental payments. The leases generally require the payment of taxes assessed against the leased property and the cost of insurance and maintenance. The majority of lease terms range from 10 to 20 years, and typically, the leases contain renewal options. Certain leases include minimum scheduled increases in rental payments at various times during the term of the lease. These scheduled rent increases are recognized on a straight-line basis over the term of the lease, resulting in an accrual, which is included in accounts payable, accrued expenses and other liabilities, for the amount by which the cumulative straight-line rent exceeds the contractual cash rent.
CAPITAL LEASES
The
Golf business leases golf carts and other equipment that are classified as capital leases. The value of capital leases is recorded
as an asset on the balance sheet, along with a liability related to the associated payments. Amortization of capital lease assets
is calculated using the straight-line method over the shorter of the estimated useful lives and the initial lease terms. The cost
of equipment under capital leases is included in investments in other real estate in the consolidated balance sheets. Payments
under the lease are treated as reductions of the liability, with a portion being recorded as interest expense under the effective
interest method.
Recent
Accounting Pronouncements
In April 2014, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update (“ASU”) 2014-08, Presentation of Financial Statements (Topic 205) and Property, Plant, and Equipment (Topic 360): Reporting Discontinued Operations and Disclosures of Disposals of Components of an Entity. ASU 2014-08 changes the criteria for reporting a discontinued operation. Under the new pronouncement, a disposal of a part of an organization that has a major effect on its operations and financial results is a discontinued operation. This update is effective for Newcastle in the first quarter of 2015. Newcastle is currently evaluating the new guidance to determine the impact it may have to its consolidated financial statements.
In May 2014, the FASB and the International Accounting Standards Board ("IASB") issued ASU 2014-09 Revenues from Contracts with Customers (Topic 606). The standard’s core principle is that a company will recognize revenue when it transfers promised goods or services to customers in an amount that reflects the consideration to which the company expects to be entitled in exchange for those goods or services. In doing so, companies will need to use more judgment and make more estimates than under today’s guidance. These may include identifying performance obligations in the contract, estimating the amount of variable consideration to include in the transaction price and allocating the transaction price to each separate performance obligation. The ASU is effective for Newcastle in the first quarter of 2017. Early application is not permitted. Entities have the option of using either a full retrospective or a modified approach to adopt the guidance in the ASU. Newcastle is currently evaluating the new guidance to determine the impact it may have on its consolidated financial statements.
In
June 2014, the FASB issued ASU No. 2014-11, Repurchase-to-Maturity Transactions, Repurchase Financings, and Disclosures. The
standard changes the accounting for repurchase-to-maturity transactions and linked repurchase financing transactions to secured
borrowing accounting. The ASU also expands disclosure requirements related to certain transfers of financial assets that are accounted
for as sales and certain transfers accounted for as secured borrowings. The ASU is effective for Newcastle in the first quarter
of 2015. Early application is not permitted. Disclosures are not required for comparative periods presented before the effective
date. Newcastle is currently evaluating the new guidance to determine the impact it may have on its consolidated financial statements.
The FASB has recently issued or discussed a number of proposed standards on such topics as consolidation, financial statement presentation, leases, financial instruments and hedging. Some of the proposed changes are significant and could have a material impact on Newcastle’s reporting. Newcastle has not yet fully evaluated the potential impact of these proposals, but will make such an evaluation as the standards are finalized.
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