Quarterly report pursuant to Section 13 or 15(d)

SEGMENT REPORTING

v3.5.0.2
SEGMENT REPORTING
6 Months Ended
Jun. 30, 2016
Segment Reporting [Abstract]  
SEGMENT REPORTING
SEGMENT REPORTING
 
Newcastle conducts its business through the following segments: (i) debt investments financed with collateralized debt obligations (“CDOs”), (ii) other debt investments (“Other Debt”), (iii) investment in golf properties and facilities (“Golf”) and (iv) corporate, which consists primarily of interest income on short-term investments, general and administrative expenses, interest expense on the junior subordinated notes payable and management fees pursuant to the Management Agreement.
Summary financial data on Newcastle’s segments is given below, together with reconciliation to the same data for Newcastle as a whole:
 
Debt Investments (A)
 
 
 
 
 
 
 
CDOs
 
Other Debt (B)
 
Golf
 
Corporate
 
Total
Six Months Ended June 30, 2016
 
 
 
 
 
 
 
 
 
Interest income
$
1,097

 
$
40,278

 
$
77

 
$
8

 
$
41,460

Interest expense
(491
)
 
(18,586
)
 
(5,363
)
 
(1,511
)
 
(25,951
)
Net interest income (expense)
606

 
21,692

 
(5,286
)
 
(1,503
)
 
15,509

Total impairment
110

 
2,843

 

 

 
2,953

Total operating revenues

 

 
146,642

 

 
146,642

Total other income (loss), net
82,130

 
(2,343
)
 
(292
)
 

 
79,495

Loan and security servicing expense
30

 
8

 

 

 
38

Operating expenses - golf (C)

 

 
117,818

 

 
117,818

Operating expenses - golf, repairs and maintenance expenses

 

 
4,286

 

 
4,286

Cost of sales - golf

 

 
15,428

 

 
15,428

General and administrative expense

 

 
1,546

 
3,666

 
5,212

General and administrative expense - acquisition and transaction expenses (D)

 

 
1,239

 
171

 
1,410

Management fee to affiliate

 

 

 
5,351

 
5,351

Depreciation and amortization

 

 
12,515

 

 
12,515

Income tax expense

 

 
182

 

 
182

Income (loss) from continuing operations
82,596

 
16,498

 
(11,950
)
 
(10,691
)
 
76,453

Net income (loss)
82,596

 
16,498

 
(11,950
)
 
(10,691
)
 
76,453

Preferred dividends

 

 

 
(2,790
)
 
(2,790
)
Net loss attributable to noncontrolling interests

 

 
12

 

 
12

Income (loss) applicable to common stockholders
$
82,596

 
$
16,498

 
$
(11,938
)
 
$
(13,481
)
 
$
73,675










Summary segment financial data (continued).
 
Debt Investments (A)
 
 
 
 
 
 
 
CDOs
 
Other Debt (B)
 
Golf
 
Corporate
 
Total
Three Months Ended June 30, 2016
 
 
 
 
 
 
 
 
 
Interest income
$

 
$
20,382

 
$
36

 
$
3

 
$
20,421

Interest expense

 
(9,153
)
 
(2,698
)
 
(566
)
 
(12,417
)
Net interest income (expense)

 
11,229

 
(2,662
)
 
(563
)
 
8,004

Total impairment

 
645

 

 

 
645

Total operating revenues

 

 
84,484

 

 
84,484

Total other income (loss), net

 
(940
)
 
(8
)
 

 
(948
)
Loan and security servicing expense

 
1

 

 

 
1

Operating expenses - golf (C)

 

 
63,105

 

 
63,105

Operating expenses - golf, repairs and maintenance expenses

 

 
2,394

 

 
2,394

Cost of sales - golf

 

 
9,217

 

 
9,217

General and administrative expense

 

 
706

 
1,782

 
2,488

General and administrative expense - acquisition and transaction expenses (D)

 

 
1,100

 
134

 
1,234

Management fee to affiliate

 

 

 
2,676

 
2,676

Depreciation and amortization

 

 
6,484

 

 
6,484

Income tax expense

 

 
138

 

 
138

Income (loss) from continuing operations

 
9,643

 
(1,330
)
 
(5,155
)
 
3,158

Net income (loss)

 
9,643

 
(1,330
)
 
(5,155
)
 
3,158

Preferred dividends

 

 

 
(1,395
)
 
(1,395
)
Net income attributable to noncontrolling interests

 

 
(112
)
 

 
(112
)
Income (loss) applicable to common stockholders
$

 
$
9,643

 
$
(1,442
)
 
$
(6,550
)
 
$
1,651










Summary segment financial data (continued).
 
Debt Investments (A)
 
 
 
 
 
 
 
CDOs
 
Other Debt (B)
 
Golf
 
Corporate
 
Total
June 30, 2016
 
 
 
 
 
 
 
 
 
Investments
$

 
$
994,041

 
$
298,103

 
$

 
$
1,292,144

Cash and restricted cash

 
665

 
10,718

 
46,742

 
58,125

Other assets

 
379,119

 
38,184

 
82

 
417,385

Total assets

 
1,373,825

 
347,005

 
46,824

 
1,767,654

Debt, net

 
724,016

 
112,843

 
51,221

 
888,080

Other liabilities

 
456,694

 
164,100

 
3,141

 
623,935

Total liabilities

 
1,180,710

 
276,943

 
54,362

 
1,512,015

Preferred stock

 

 

 
61,583

 
61,583

Noncontrolling interests

 

 
(269
)
 

 
(269
)
Equity (deficit) attributable to common stockholders
$

 
$
193,115

 
$
70,331

 
$
(69,121
)
 
$
194,325

 
 
 
 
 
 
 
 
 
 
Additions to investments in real estate during the six months ended June 30, 2016
$

 
$

 
$
10,822

 
$

 
$
10,822


Summary segment financial data (continued).

 
Debt Investments (A)
 
 
 
 
 
Discontinued
 
 
 
 
 
CDOs
 
Other Debt
 
Golf
 
Corporate
 
Operations
 
Eliminations
 
Total
Six Months Ended June 30, 2015
 
 
 
 
 
 
 
 
 
 
 
 
 
Interest income
$
29,607

 
$
24,660

 
$
72

 
$
9

 
$

 
$
(3,005
)
 
$
51,343

Interest expense
(5,313
)
 
(19,173
)
 
(10,305
)
 
(1,891
)
 

 
3,005

 
(33,677
)
Inter-segment elimination
(3,005
)
 

 
3,005

 

 

 

 

Net interest income (expense)
21,289

 
5,487

 
(7,228
)
 
(1,882
)
 

 

 
17,666

Total impairment
12,206

 
1,878

 

 

 

 

 
14,084

Total operating revenues

 

 
143,629

 

 

 

 
143,629

Total other income (loss), net
30,271

 
(177
)
 
(228
)
 
8

 

 

 
29,874

Loan and security servicing expense
214

 

 

 

 

 

 
214

Operating expenses - golf (C)

 

 
115,988

 

 

 

 
115,988

Operating expenses - golf, repairs and maintenance expenses

 

 
4,387

 

 

 

 
4,387

Cost of sales - golf

 

 
15,161

 

 

 

 
15,161

General and administrative expense

 

 
1,041

 
3,821

 

 

 
4,862

General and administrative expense - acquisition and transaction expenses (D)

 

 
321

 
17

 

 

 
338

Management fee to affiliate

 

 

 
5,342

 

 

 
5,342

Depreciation and amortization

 

 
13,872

 

 

 

 
13,872

Income tax expense

 

 
73

 

 

 

 
73

Income (loss) from continuing operations
39,140

 
3,432

 
(14,670
)
 
(11,054
)
 

 

 
16,848

Income from discontinued operations

 

 

 

 
639

 

 
639

Net income (loss)
39,140

 
3,432

 
(14,670
)
 
(11,054
)
 
639

 

 
17,487

Preferred dividends

 

 

 
(2,790
)
 

 

 
(2,790
)
Net loss attributable to non-controlling interests

 

 
230

 

 

 

 
230

Income (loss) applicable to common stockholders
$
39,140

 
$
3,432

 
$
(14,440
)
 
$
(13,844
)
 
$
639

 
$

 
$
14,927






Summary segment financial data (continued).
 
Debt Investments (A)
 
 
 
 
 
Discontinued
 
 
 
 
 
CDOs
 
Other Debt
 
Golf
 
Corporate
 
Operations
 
Eliminations
 
Total
Three Months Ended June 30, 2015
 
 
 
 
 
 
 
 
 
 
 
 
 
Interest income
$
13,685

 
$
12,065

 
$
36

 
$
5

 
$

 
$
(1,526
)
 
$
24,265

Interest expense
(2,730
)
 
(9,594
)
 
(5,207
)
 
(945
)
 

 
1,526

 
(16,950
)
Inter-segment elimination
(1,526
)
 

 
1,526

 

 

 

 

Net interest income (expense)
9,429

 
2,471

 
(3,645
)
 
(940
)
 

 

 
7,315

Total impairment (reversal)
11,869

 
1,810

 

 

 

 

 
13,679

Total operating revenues

 

 
82,803

 

 

 

 
82,803

Total other income (loss), net
29,740

 
(140
)
 
(235
)
 
8

 

 

 
29,373

Loan and security servicing expense
118

 

 

 

 

 

 
118

Operating expenses - golf (C)

 

 
63,017

 

 

 

 
63,017

Operating expenses - golf, repairs and maintenance expenses

 

 
2,421

 

 

 

 
2,421

Cost of sales - golf

 

 
9,108

 

 

 

 
9,108

General and administrative expense

 

 
793

 
2,392

 

 

 
3,185

General and administrative expense - acquisition and transaction expenses (D)

 

 
285

 
17

 

 

 
302

Management fee to affiliate

 

 

 
2,674

 

 

 
2,674

Depreciation and amortization

 

 
7,119

 

 

 

 
7,119

Income tax expense

 

 
27

 

 




27

Income (loss) from continuing operations
27,182

 
521

 
(3,847
)
 
(6,015
)
 

 

 
17,841

Income from discontinued operations

 

 

 

 
524

 

 
524

Net income (loss)
27,182

 
521

 
(3,847
)
 
(6,015
)
 
524

 

 
18,365

Preferred dividends

 

 

 
(1,395
)
 

 

 
(1,395
)
Net loss attributable to non-controlling interests

 

 
49

 

 

 

 
49

Income (loss) applicable to common stockholders
$
27,182

 
$
521

 
$
(3,798
)
 
$
(7,410
)
 
$
524

 
$

 
$
17,019

(A)
Assets held within non-recourse structures, including all of the assets in the CDO segment, are not available to satisfy obligations outside of such financings, except to the extent net cash flow distributions are received from such structures. Furthermore, creditors or beneficial interest holders of these structures generally have no recourse to the general credit of Newcastle. Therefore, the exposure to the economic losses from such structures generally is limited to invested equity in them and economically their book value cannot be less than zero. Therefore, impairment recorded in excess of Newcastle’s investment, which results in negative GAAP book value for a given non-recourse financing structure, cannot economically be incurred and will eventually be reversed through amortization, sales at gains, or as gains at the deconsolidation or termination of such non-recourse financing structure.
(B)
The following table summarizes the investments and debt in the Other Debt segment:
 
June 30, 2016
 
Investments
 
Debt
Non-Recourse
Outstanding
Face Amount
 
Carrying
Value
 
Outstanding
Face Amount
 
Carrying
Value
Subprime mortgage loans subject to call options
$
362,931

 
$
362,931

 
$
362,931

 
$
362,931

Other
 
 
 
 
 
 
 
Unlevered real estate securities (E)
37,540

 
12,988

 

 

Levered real estate securities (F)
428,881

 
452,815

 
361,085

 
361,085

Real estate related and other loans
235,612

 
143,526

 

 

Other investments
N/A

 
21,339

 

 

Residential mortgage loans
777

 
442

 

 

 
$
1,065,741

 
$
994,041

 
$
724,016

 
$
724,016


(C)
Operating expenses - golf includes rental expenses recorded under operating leases for carts and equipment in the amount of $1.0 million and $1.9 million for the three and six months ended June 30, 2016, respectively, and $1.2 million and $2.3 million for the three and six months ended June 30, 2015, respectively.
(D)
Includes all transaction related expenses.
(E)
Excludes 12 securities with zero value, which had an aggregate face amount of $183.5 million.
(F)
These investments represent purchases that were traded on June 30, 2016 but settled on July 14, 2016. These represent repurchase agreements collateralized by sold investments that were traded on June 30, 2016 and settled on July 14, 2016.