TRANSACTIONS WITH AFFILIATES AND AFFILIATED ENTITIES
|3 Months Ended
Mar. 31, 2016
|Transactions With Affiliates And Affiliated Entity [Abstract]
|TRANSACTIONS WITH AFFILIATES AND AFFILIATED ENTITIES
TRANSACTIONS WITH AFFILIATES AND AFFILIATED ENTITIES
Newcastle is party to a Management Agreement with FIG LLC, its Manager and an affiliate of Fortress, which provides for automatically renewing one-year terms subject to certain termination rights. The Manager’s performance is reviewed annually and the Management Agreement may be terminated by Newcastle by payment of a termination fee, as defined in the Management Agreement, equal to the amount of management fees earned by the Manager during the 12 consecutive calendar months immediately preceding the termination, upon the affirmative vote of at least two-thirds of the independent directors, or by a majority vote of the holders of common stock. Pursuant to the Management Agreement, the Manager provides for a management team and other professionals who are responsible for implementing our business strategy, subject to the supervision of our board of directors. Our Manager is responsible for, among other things, (i) setting investment criteria in accordance with broad investment guidelines adopted by our board of directors, (ii) sourcing, analyzing and executing acquisitions, (iii) providing financial and accounting management services and (iv) performing other duties as specified in the Management Agreement. For performing these services, Newcastle pays the Manager an annual management fee equal to 1.5% of the gross equity of Newcastle, as defined, including adjustments for return of capital dividends. During the three months ended March 31, 2016 and 2015, Newcastle incurred management fees of $2.6 million and $2.6 million, respectively, under the Management Agreement, which are included in “Management fee to affiliate” in the Consolidated Statements of Operations.
The Management Agreement provides that Newcastle will reimburse the Manager for various expenses incurred by the Manager or its officers, employees and agents on Newcastle’s behalf, including costs of legal, accounting, tax, auditing, administrative and other similar services rendered for Newcastle by providers retained by the Manager or, if provided by the Manager’s employees, in amounts which are no greater than those which would be payable to outside professionals or consultants engaged to perform such services pursuant to agreements negotiated on an arm’s-length basis. During the three months ended March 31, 2016 and 2015, Newcastle incurred expense reimbursements of $0.1 million and $0.1 million, respectively, under the Management Agreement, which are included in “Management fee to affiliate” in the Consolidated Statements of Operations. In addition to expense reimbursements for expenses incurred by the Manager, Newcastle is responsible for reimbursing the Manager for certain expenses incurred by Newcastle that are initially paid by the Manager on behalf of Newcastle.
To provide an incentive for the Manager to enhance the value of the common stock, the Manager is entitled to receive an incentive return (the “Incentive Compensation’’) on a cumulative, but not compounding, basis in an amount equal to the product of (A) 25% of the dollar amount by which (1) (a) the Funds from Operations (defined as the net income available for common stockholders before Incentive Compensation, excluding extraordinary items, plus depreciation of operating real estate and after adjustments for unconsolidated subsidiaries, if any) of Newcastle per share of common stock (based on the weighted average number of shares of common stock outstanding) plus (b) gains (or losses) from debt restructuring and from sales of property and other assets per share of common stock (based on the weighted average number of shares of common stock outstanding), exceed (2) an amount equal to (a) the weighted average of the price per share of common stock in the IPO and the value attributed to the net assets transferred to Newcastle by its predecessor, and in any subsequent offerings by Newcastle (adjusted for prior return of capital dividends or capital distributions) multiplied by (b) a simple interest rate of 10% per annum (divided by four to adjust for quarterly calculations) multiplied by (B) the weighted average number of shares of common stock outstanding. The Manager earned no incentive compensation during the three months ended March 31, 2016 and 2015.
At March 31, 2016, Fortress, through its affiliates, and principals of Fortress, owned 1.0 million shares of Newcastle’s common stock and Fortress, through its affiliates, had options relating to an additional 5.1 million shares of Newcastle’s common stock (Note 14).
At March 31, 2016 and December 31, 2015, due to affiliates was comprised of $0.9 million and $0.9 million, respectively, of management fees and expense reimbursements payable to the Manager.
Other Affiliated Entities
In April 2006, Newcastle securitized Subprime Portfolio I and, through Securitization Trust 2006, entered into a servicing agreement with a subprime home equity mortgage lender (the “Subprime Servicer”) to service this portfolio. In July 2006, private equity funds managed by an affiliate of Newcastle’s Manager completed the acquisition of the Subprime Servicer. As compensation under the servicing agreement, the Subprime Servicer will receive, on a monthly basis, a net servicing fee equal to 0.5% per annum on the unpaid principal balance of the portfolio. In March 2007, through Securitization Trust 2007, Newcastle entered into a servicing agreement with the Subprime Servicer to service Subprime Portfolio II under substantially the same terms. At March 31, 2016, the outstanding unpaid principal balances of Subprime Portfolios I and II were approximately $266.7 million and $382.4 million, respectively.
In April 2010, Newcastle, through two of its CDOs, made a cash investment of $75.0 million in a new real estate related loan to a portfolio company of a private equity fund managed by an affiliate of Newcastle’s Manager. Newcastle’s chairman is an officer of the borrower. This investment improved the applicable CDOs’ results under some of their respective tests, and is expected to yield approximately 22%. The loan is secured by subordinated interests in the properties of the borrower and its maturity has been extended to June 2019. Interest on the loan will be accrued and deferred until maturity.
As of March 31, 2016, Newcastle held on its balance sheet total investments of $149.9 million face amount of real estate securities and related loans issued by affiliates of the Manager. Newcastle earned approximately $8.1 million and $4.5 million of interest on investments issued by affiliates of the Manager for the three months ended March 31, 2016 and 2015, respectively.
In each instance described above, affiliates of Newcastle’s Manager have an investment in the applicable affiliated fund and receive from the fund, in addition to management fees, incentive compensation if the fund’s aggregate investment returns exceed certain thresholds.
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 the aircraft operator market rates for the charters.