|
GENERAL
|
9 Months Ended |
|---|---|
|
Sep. 30, 2014
|
|
| 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. However, certain of our activities are conducted through taxable REIT subsidiaries ("TRS") and therefore are subject to federal and state income taxes at regular corporate tax rates. Newcastle's common stock is traded on the New York Stock Exchange under the symbol "NCT".
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 on March 3, 2014 and on Form 8-K
filed with the SEC on May 5, 2014. 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. All per share amounts, common shares outstanding and options for the third quarter of 2014 and all prior periods reflect Newcastle's 1-for-3 reverse stock split, which was effective August 18, 2014 and Newcastle's 1-for-2 reverse stock split, which was effective October 22, 2014.
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 conducts its business through the following segments: (i) investments in senior housing properties
(“senior housing”), which Newcastle expects to spin off on November 6, 2014 as described in more detail below,
(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”). 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. New Senior Investment Group Inc. (“New Senior”, NYSE: SNR), a subsidiary of Newcastle, filed a registration statement with the SEC with respect to the planned spin-off, which the SEC declared effective on October 24, 2014. New Senior will be a publicly traded REIT that primarily targets senior housing related investments.
The spin-off will be effected as a distribution of all of the outstanding shares of common stock of New Senior to the holders of Newcastle common stock. Newcastle will distribute one share of New Senior common stock for each share of Newcastle common stock held by Newcastle stockholders of record as of the record date, October 27, 2014. The distribution is expected to occur on November 6, 2014. The distribution ratio is based on the number of Newcastle shares outstanding following the 1-for-2 reverse stock split.
In connection with the spin-off, Newcastle will contribute to New Senior all of its investments in senior housing properties, any liabilities relating to these properties and a cash and cash equivalents balance of approximately $243 million.
In August 2014, Newcastle issued 7,654,166 shares of its common stock in a public offering at a price to the underwriters of $25.92 per share for net proceeds of approximately $197.9 million (see Note 13).
Approximately 1.1 million shares of Newcastle’s common stock were held by Fortress, through its affiliates, and its principals at September 30, 2014. In addition, Fortress, through its affiliates, held options to purchase approximately 5.0 million shares of Newcastle’s common stock at September 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. These amounts totaled $0.2 million and less than $0.1 million for the nine months ended September 30, 2014 and 2013.
Significant
Accounting Policies
As a result of the Golf acquisition on December 30, 2013, the following summarizes significant accounting policies related to this segment.
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 certain 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 raises the threshold
for disposals to qualify as discontinued operations. A discontinued
operation is defined as: (1) a component of an entity or group of components that has been disposed of or classified as held for
sale and represents a strategic shift that has or will have a major effect on an entity’s operations and financial results;
or (2) an acquired business that is classified as held for sale on the acquisition date. ASU 2014-08 also requires additional
disclosures regarding discontinued operations, as well as material disposals that do not meet the definition of discontinued operations.
The application of this guidance is prospective from the date of adoption and applies only to disposals (or new classifications
to held for sale) that have not been reported as discontinued operations in Newcastle's previously issued financial statements.
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 Revenue
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, Transfers and Servicing (Topic 860): 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 that are economically similar to repurchase agreements
and the types of collateral pledged in repurchase agreements and similar transactions accounted for as a secured borrowing. 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.
In
August 2014, the FASB issued ASU 2014-13, Consolidation (Topic 810): Measuring the Financial Assets and the Financial Liabilities
of a Consolidated Collateralized Financing Entity (“CFE”). The standard allows a reporting entity that consolidates
a CFE, to elect to measure the financial assets and the financial liabilities of that CFE using the measurement alternative. Under
the measurement alternative, the reporting entity should measure both the financial assets and the financial liabilities of that
CFE in its consolidated financial statements using the more observable of the fair value of the financial assets and the fair value
of the financial liabilities. This guidance is effective for Newcastle in the first quarter of 2016. An entity can elect either
a retrospective or modified retrospective transition method, and early adoption is permitted as of the beginning of an annual
period. Newcastle is currently evaluating the new guidance to determine the impact it may have to 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.
|