Newcastle Announces Fourth Quarter & Full Year 2012 Results
Newcastle Announces Fourth Quarter & Full Year 2012 Results
FOURTH QUARTER 2012 HIGHLIGHTS
* GAAP income of $0.32 per diluted share
* Core Earnings of $0.19 per diluted share
* Declared common dividend of $0.22 per share
* GAAP book value increased by $0.22 per share
FOURTH QUARTER 2012 FINANCIAL RESULTS
Business Wire
NEW YORK -- February 28, 2013
Newcastle Investment Corp. (NYSE: NCT) reported that in the fourth quarter of
2012, income available for common stockholders (“GAAP income”) was $56
million, or $0.32 per diluted share, compared to $19 million, or $0.18 per
diluted share, in the fourth quarter of 2011.
GAAP income of $56 million consisted of the following:
Core Earnings:
* $33 million, or $0.19 per diluted share, which is equal to net interest
income and other revenues less expenses excluding depreciation and
amortization, net of preferred dividends
Other Income/Loss:
* $16 million of other income primarily related to an $8 million break-up
fee related to the “ResCap” transaction, $3 million related to non-cash
mark-to-market gain related to interest rate derivatives in the CDOs, and
$3 million related to non-cash mark-to-market gain related to excess MSRs
investments
* $12 million of non-cash mark-to-market net gain on loans held for sale and
impairment recorded on investments
* Less $5 million of depreciation and amortization
The Company generated $35 million of Cash Available for Distribution (“CAD”),
compared to $36 million in the third quarter of 2012.
On December 18, 2012, the Board of Directors declared a quarterly dividend of
$0.22 per common share, or $38 million, for the quarter. The Board of
Directors also declared dividends of $0.609375, $0.503125 and $0.523438 per
share on the 9.75% Series B, 8.05% Series C and 8.375% Series D preferred
stock, respectively, for the period beginning November 1, 2012 and ending
January 31, 2013.
As of December 31, 2012, GAAP book value was $5.86 per share, an increase of
$0.22 per share from September 30, 2012.
FULL YEAR 2012 FINANCIAL RESULTS
In 2012, GAAP income was $429 million, or $2.94 per diluted share, consisted
of the following:
Core Earnings:
* $150 million, or $1.03 per diluted share, which is equal to net interest
income and other revenues less expenses excluding depreciation and
amortization, net of preferred dividends
Other Income/Loss:
* $279 million of other income primarily related to a $224 million net gain
on the sale of Newcastle’s CDO X interests, a $24 million gain on
extinguishment of debt, $9 million related to non-cash mark-to-market gain
related to excess MSRs investments and an $8 million break-up fee related
to the “ResCap” transaction.
The Company generated $112 million of Cash Available for Distribution (“CAD”).
As of December 31, 2012, GAAP book value was $5.86 per share, an increase of
$4.62 per share from December 31, 2011.
The following table summarizes the Company’s operating results ($ in millions,
except per share data):
Three Months Ended Year Ended
Dec 31, Sep 30, Dec 31, December
31,
2012 2012 2011 2012
Summary
Operating
Results:
GAAP income $ 56 $ 272 $ 19 $ 429
GAAP income, per $ 0.32 $ 1.63 $ 0.18 $ 2.94
diluted share
Non-GAAP
Results:
Core earnings $ 33 $ 43 $ 32 $ 150
Core earnings,
per diluted $ 0.19 $ 0.26 $ 0.30 $ 1.03
share
Cash Available $ 35 $ 36 $ 18 $ 112
for Distribution
For a reconciliation of income available for common stockholders to core
earnings and net cash flow provided by operating activities to cash available
for distribution, please refer to the tables following the presentation of
GAAP results.
FOURTH QUARTER 2012 INVESTMENT ACTIVITY
$145 million of unrestricted cash invested primarily in the following:
$87 million: Non-Agency RMBS investments
Invested $87 million to purchase $134 million face amount of Non‐Agency RMBS
at an average price of 64.5% of par, with an expected unlevered yield of 6%,
and a levered return of 12% assuming 65% financing.
$18 million: Bank Loan investments
Invested $18 million to purchase $52 million face amount of two bank loans in
an existing investment at an average price of 34.9% of par.
$16 million: Senior Living Property investments
Invested $16 million (including working capital and transaction costs) to
purchase four senior housing assets in two portfolios of $48 million financed
with $32 million of non-recourse debt at a weighted average interest rate of
4.75% with a five-year maturity.
$10 million: Non-Agency securities issued by Newcastle
Invested $10 million to purchase $12 million face amount of senior Non-Agency
securities issued by Newcastle at an average price of 82.0% of par
SUBSEQUENT EVENTS & INVESTMENT ACTIVITY
$780 million of common equity raised:
Since December 31, 2012, the Company completed the sale of approximately 80.5
million shares of its common stock for gross proceeds of approximately $780
million.
$660 million of unrestricted cash invested or committed to invest primarily in
the following:
$347 million: Excess MSRs investments
Invested or committed to invest approximately $320 million to purchase a 33%
interest in Excess MSRs on four portfolios with a total of approximately $215
billion unpaid principal balance (“UPB”) of residential mortgage loans. The
Company expects the four investments to generate an average 16% IRR and $635
million of total cash flow, or 2.0x its initial investment.
Invested $27 million to purchase a 33% interest in the Excess MSRs on a $13
billion UPB of residential mortgage loan portfolio. The Company expects the
investment to generate a 16% IRR and $57 million of total cash flow, or 2.1x
its initial investment.
$191 million: Non-Agency RMBS investments
Invested $191 million to purchase $322 million face amount of Non‐Agency RMBS
at an average price of 59.3% of par, with an expected unlevered yield of 5%,
and a levered return of 11% assuming 65% financing.
$66 million: Bank Loan investments
Invested $66 million to purchase $186 million face amount of two bank loans in
an existing investment at an average price of 35.5% of par.
$35 million: Non-performing loans
Invested $35 million to purchase 70% interest in a pool of non-performing
loans with a total UPB of $83 million at a price of 59.7% of par, with an
expected unlevered yield of 10%, and a levered return in the mid-teens
assuming 50% financing.
$10 million: Newcastle CDO senior bond
Invested $10 million to repurchase $11 million face amount of a Newcastle CDO
senior bond at a price of 89% of par, with an expected unlevered yield of 8%.
CASH AND RECOURSE FINANCING
As of February 27, 2013, the Company’s cash and recourse financings, excluding
junior subordinated notes, were as set forth below:
* Unrestricted Cash Available to Invest after commitments – The Company had
$284 million of unrestricted cash available to invest after commitments.
* Recourse Financing – The Company had $924 million of financing related to
FNMA and FHLMC securities with a value of $972 million and $157 million of
financing related to a portion of its Non-Agency RMBS portfolio with a
value of $240 million. The Company also had an additional $400 million
face amount of Non-Agency RMBS with a value of approximately $235 million
that was unlevered.
I. RESIDENTIAL SERVICING & SECURITIES
As of December 31, 2012, Newcastle’s residential servicing and securities
portfolio consisted of five Excess MSRs investments with a total carrying
value of $245 million and 29 Non-Agency RMBS purchased outside of the
Company’s CDOs since April 2012 with a total carrying value of $290 million.
During the quarter, this portfolio generated total cash flow of $43 million,
including an $8 million break-up fee related to the “ResCap” transaction, and
increased in value by $14 million.
Excess MSRs
As of December 31, 2012, the total carrying value of the Company’s Excess MSR
investments was $245 million, representing a 65% interest in the net MSR cash
flows on five loan portfolios with a total unpaid principal balance of $77
billion.
During the quarter, these investments generated $27 million of total cash flow
and increased in value by $3 million.
* The average updated IRR with actual performance was 19%, compared to an
initial expected IRR of 18%
* Received $55 million of life-to-date total cash flow through the end of
December, or 21% of the initial investment of $262 million over an average
of 7 months
* Weighted Average Constant Prepayment Rate (“CPR”) life-to-date was 12%
compared to the Company’s initial CPR projection of 20%
Non-Agency RMBS
As of December 31, 2012, the Company’s Non-Agency RMBS portfolio consisted of
$434 million face amount of assets (value of 66.8% of par). During the
quarter, these investments generated $8 million of total cash flow and
increased in value by $11 million.
II. COMMERCIAL REAL ESTATE DEBT & OTHER ASSETS
As of December 31, 2012, the Company’s commercial real estate debt and other
assets portfolio consisted of $3.0 billion of diversified assets financed with
$2.0 billion of primarily match funded, non-recourse debt In addition, the
portfolio consisted of $188 million of senior living properties financed with
$121 million of non-recourse mortgage notes. Assets included 226 commercial,
residential and corporate real estate securities and loan investments with an
average investment size of $12 million, 8,881 mortgage loans backed by
residential real estate, and 12 senior living properties.
During the quarter, this portfolio generated total cash flow of $47 million
and increased in value by $21 million. During the quarter, the weighted
average carrying value of the real estate debt portfolio changed from a price
of 83.9% to 84.7% of par.
Newcastle CDO financings
As of December 31, 2012, Newcastle’s four CDOs consisted of $1.8 billion face
amount of collateral (value of 80.3% of par) financed with $1.1 billion of
non-recourse debt. During the quarter, the CDOs generated $35 million of total
cash flow, which included:
* $14 million of CDO cash receipts consisting of $10 million of excess
interest, $3 million of interest on retained and repurchased CDO debt, and
$1 million of senior collateral management fees
* $21 million of principal repayments on repurchased CDO debt
The following table summarizes the cash receipts in the quarter from the
Company’s consolidated CDO financings and the results of their related
coverage tests ($ in thousands):
Interest
Coverage
% Excess
Primary Over-Collateralization Excess (Deficiency) ^(2)(3)
(Deficiency)
Collateral Cash Feb 27, February 27, 2013 December 31, 2012 September 30, 2012
Type Receipts 2013 ((2)) % $ % $ % $
^(1)
CDO Securities $ 348 35.2 % -3.7 % (5,586 ) -3.7 % (5,586 ) 0.1 % 213
IV
CDO Securities 140 -206.9 % -70.5 % (171,187 ) -70.4 % (171,434 ) -64.8 % (176,780 )
VI
CDO Loans 5,883 369.2 % 11.3 % 78,506 10.6 % 74,593 9.8 % 70,553
VIII
CDO Loans 7,622 689.9 % 24.7 % 139,312 23.4 % 134,675 20.6 % 127,199
IX
Total $ 13,993
Cash receipts exclude $21 million of principal repayments from
repurchased bonds. Cash receipts for the quarter ended December 31,
^(1) 2012 may not be indicative of cash receipts for subsequent periods. See
Forward-Looking Statements below for risks and uncertainties that could
cause cash receipts for subsequent periods to differ materially from
these amounts.
Represents the excess or deficiency under the applicable interest
coverage or over-collateralization test to the first threshold at which
cash flow would be redirected. The Company generally does not receive
^(2) material interest cash flow from a CDO until a deficiency is corrected.
The information regarding coverage tests is based on data from the most
recent remittance date on or before February 27, 2013, December 31,
2012 or September 30, 2012, as applicable. The CDO IV test is conducted
only on a quarterly basis (December, March, June and September).
As of the February 2013 remittance, the face amount of assets on
^(3) negative watch for possible downgrade by at least one rating agency
(Moody’s, S&P, or Fitch) for CDOs VIII and IX was zero.
Other Real Estate Related Investments
As of December 31, 2012, other real estate related investments consisted of
$1.3 billion face amount of assets (value of 91.1% of par) financed with $1.0
billion of debt. During the quarter, these investments generated $9 million of
total cash flow which included:
* $8 million of excess interest and interest on retained debt
* $1 million of principal repayments
Senior Living Property Investments
As of December 31, 2012, the Company owned 12 senior living properties
consisting of $188 million of assets financed with $121 million of debt.
During the quarter, the investments generated $2.1 million of total cash flow,
$0.4 million more than projected.
* Average occupancy rate was 87.4%, compared to 86.0% in the Company’s
initial projection
* Average monthly revenue per occupied unit was $3,845, compared to $3,874
initially projected
* Total operating expenses were $6.9 million, compared to $7.1 million
initially projected
INVESTMENT PORTFOLIO
The following table describes the investment portfolio as of December 31, 2012
($ in millions):
Weighted
Face Basis % of Carry Number of Average
Value
Amount Amount Amount Credit Life
$ $ ^(6) Basis $ Investments ^(7) (years)
^(8)
I. Residential
Servicing &
Securities
Excess MSRs $ 245 $ 236 7.4 % $ 245 5 -- 5.4
Investments
Non-Agency RMBS 434 275 8.7 % 290 29 CC 6.8
^(1)
Total
Residential
Servicing & 679 511 16.1 % 535 6.3
Securities
Assets
II. Commercial
Real Estate
Debt & Other
Assets
Commercial
Assets
CMBS 475 337 10.6 % 376 76 BB- 3.2
Mezzanine 528 443 13.9 % 443 17 77% 2.2
Loans
B-Notes 171 162 5.1 % 162 6 68% 2.1
Whole Loans 30 30 0.9 % 30 3 48% 1.1
Third-Party CDO 96 67 2.1 % 71 5 BB 3.3
Securities ^(2)
Other
Investments 25 25 0.8. % 25 1 -- --
^(3)
Total
Commercial 1,325 1,064 33.4 % 1,107 2.6
Assets
Residential
Assets
MH and
Residential 332 290 9.1 % 290 8,881 705 6.1
Loans
Subprime 124 47 1.5 % 66 40 CCC 5.0
Securities
Real Estate 10 2 0.1 % 1 3 CCC- 4.7
ABS
466 339 10.7 % 357 5.8
FNMA/FHLMC 769 811 25.5 % 813 58 AAA 3.5
Securities
Total
Residential 1,235 1,150 36.2 % 1,170 4.4
Assets
Corporate
Assets
REIT Debt 63 62 2.0 % 66 10 BBB- 1.8
Corporate Bank 392 209 6.6 % 209 7 CC 3.6
Loans
Total Corporate 455 271 8.6 % 275 3.3
Assets
Senior Living
Property 188 182 5.7 % 182 12 -- --
Investments^(4)
Total
Commercial Real 3,203 2,667 83.9 % 2,734 3.4
Estate Debt &
Other Assets
Total/Weighted $ 3,882 $ 3,178 100.0 % $ 3,269 4.0
Average ^(5)
^(1) Represents Non-Agency RMBS purchased outside of the Company’s CDOs
since April 2012.
^(2) Represents non-consolidated CDO securities, excluding eight securities
with a zero value that had an aggregate face amount of $107 million.
^(3) Relates to an equity investment in a REO property.
Face amount of Senior Living Property Investments represents the gross
^(4) carrying amount, which excludes accumulated depreciation and
amortization.
^(5) Excludes an investment in real estate of $7 million and loans subject
to a call option with a face amount of $406 million.
^(6) Net of impairment.
Credit represents the weighted average of minimum ratings for rated
assets, the Loan to Value ratio (based on the appraised value at the
time of purchase or refinancing) for non-rated commercial assets, or
^(7) the FICO score for non-rated residential assets and an implied and
assumed AAA rating for FNMA/FHLMC securities. Ratings provided herein
were determined by third-party rating agencies as of a particular date,
may not be current and are subject to change at any time.
^(8) Weighted average life is an estimate based on the timing of expected
principal reduction on the asset.
ADDITIONAL INFORMATION
For additional information that management believes to be useful for
investors, please refer to the “Quarterly Supplement – Fourth Quarter 2012”
presentation posted to the Investor Relations section of Newcastle’s website,
www.newcastleinv.com. For consolidated investment portfolio information,
please refer to the Company’s Quarterly Report on Form 10-Q, which are also
available on the Company’s website, www.newcastleinv.com.
CONFERENCE CALL
Newcastle’s management will conduct a live conference call on Thursday,
February 28, 2013 at 8:30 A.M. Eastern Time to review the financial results
for the fourth quarter and full year 2012. A copy of the earnings press
release is posted to the Investor Relations section of Newcastle’s website,
www.newcastleinv.com.
All interested parties are welcome to participate on the live call. The
conference call may be accessed by dialing 1-888-243-2046 (from within the
U.S.) or 1-706-679-1533 (from outside of the U.S.) ten minutes prior to the
scheduled start of the call; please reference “Newcastle Fourth Quarter 2012
Earnings Call.”
A simultaneous webcast of the conference call will be available to the public
on a listen-only basis at http://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.
A telephonic replay of the conference call will also be available two hours
following the completion of the call through 11:59 P.M. Eastern Time on
Friday, March 8, 2013 by dialing 1-855-859-2056 (from within the U.S.) or
1-404-537-3406 (from outside of the U.S.); please reference access code
“13755210”.
ABOUT NEWCASTLE
Newcastle Investment Corp. focuses on opportunistically investing in, and
actively managing, real estate related assets. The Company primarily invests
in two distinct areas: (1) Residential Servicing and Securities and (2)
Commercial Real Estate Debt and Other Assets. The Company is organized and
conducts its operations to qualify as a real estate investment trust (REIT)
for federal income tax purposes. The Company is managed by an affiliate of
Fortress Investment Group LLC, a global investment management firm.
FORWARD-LOOKING STATEMENTS
Certain items in this press release may constitute forward-looking statements
within the meaning of the Private Securities Litigation Reform Act of 1995,
including, but not limited to, the average life of an investment, the expected
returns, or expected yield on an investment, statements relating to our
liquidity, future losses and impairment charges, our ability to acquire assets
with attractive returns and the delinquent and loss rates on our subprime
portfolios. 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, many of which are beyond our control. 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, the risk that market conditions cause
downgrades of a significant number of our securities or the recording of
additional impairment charges or reductions in shareholders’ equity; the risk
that we can find additional suitably priced investments; the risk that
investments made or committed to be made cannot be financed on the basis and
for the term at which we expect; the relationship between yields on assets
which are paid off and yields on assets in which such monies can be
reinvested; actual recapture rates with respect to any Excess MSR investment;
and the relative spreads between the yield on the assets we invest in and the
cost and availability of debt and equity financing. Accordingly, you should
not place undue reliance on any forward-looking statements contained in this
press release. For a discussion of some of the risks and important factors
that could affect such forward-looking statements, see the sections entitled
“Risk Factors” and “Management’s Discussion and Analysis of Financial
Condition and Results of Operation” in the Company’s Annual Report on Form
10-K or Quarterly Report on Form 10-Q, which is available on the Company’s
website (www.newcastleinv.com). In addition, new risks and uncertainties
emerge from time to time, and it is not possible for the Company to predict or
assess the impact of every factor that may cause its actual results to differ
from those contained in any forward-looking statements. 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.
CAUTIONARY NOTE REGARDING EXPECTED RETURNS AND EXPECTED YIELDS PRESENTED IN
THIS PRESS RELEASE
Expected returns and expected yields are estimates of the annualized effective
rate of return that we presently expect to be earned over the expected average
life of an investment (i.e., IRR), after giving effect, in the case of
returns, to existing leverage, and calculated on a weighted average basis.
Expected returns and expected yields reflect our estimates of an investment’s
coupon, amortization of premium or discount, and costs and fees, and they
contemplate our assumptions regarding prepayments, defaults and loan losses,
among other things. In the case of Excess MSRs, these assumptions include, but
are not limited to, the recapture rate. Income recognized by the Company in
future periods may be significantly less than the income that would have been
recognized if an expected return or expected yield were actually realized, and
the estimates we use to calculate expected returns and expected yields could
differ materially from actual results.
Statements about expected returns and expected yields in this press release
are forward-looking statements. You should carefully read the cautionary
statement above under the caption “Forward-looking Statements,” which directly
applies to our discussion of expected returns and expected yields.
Newcastle Investment Corp.
Consolidated Statements of Income
(dollars in thousands, except share data)
Three Months Ended December 31, Year Ended
2012 2011 December 31,
2012
(unaudited) (unaudited)
Interest income $ 70,272 $ 73,557 $ 310,459
Interest expense 21,886 31,533 109,924
Net interest income 48,386 42,024 200,535
Impairment (Reversal)
Valuation allowance (16,427 ) 23,055 (24,587 )
(reversal) on loans
Other-than-temporary
impairment on 2,853 (1,478 ) 19,359
securities
Impairment of - - -
long-lived assets
Portion of
other-than-temporary
impairment on
securities
recognized in other
comprehensive income 1,477 3,723 (436 )
(loss),
net of reversal of
other comprehensive
loss into net income
(loss)
(12,097 ) 25,300 (5,664 )
Net interest income 60,483 16,724 206,199
after impairment
Other Revenues
Rental income 9,397 488 17,081
Care and ancillary 1,583 - 2,994
income
Total other revenues 10,980 488 20,075
Other Income (Loss)
Gain (loss) on
settlement of 12 2,847 232,897
investments, net
Gain on
extinguishment of 958 5,708 24,085
debt
Change in fair value
of investments in 2,510 367 9,023
excess mortgage
servicing rights
Other income (loss), 12,062 3,708 13,712
net
15,542 12,630 279,717
Expenses
Loan and security 1,004 1,191 4,260
servicing expense
Property operating 7,443 306 12,943
expenses
General and
administrative 9,739 2,654 22,942
expense
Management fee to 7,234 4,976 24,693
affiliate
Depreciation and 4,586 1 6,975
amortization
30,006 9,128 71,813
Income from continuing 56,999 20,714 434,178
operations
Income (loss) from
discontinued (20 ) (18 ) (68 )
operations
Net Income 56,979 20,696 434,110
Preferred dividends (1,395 ) (1,395 ) (5,580 )
Income Available for $ 55,584 $ 19,301 $ 428,530
Common Stockholders
Income Per Share of
Common Stock
Basic $ 0.32 $ 0.18 $ 2.97
Diluted $ 0.32 $ 0.18 $ 2.94
Income from continuing
operations per share
of common stock,
after preferred
dividends
Basic $ 0.32 $ 0.18 $ 2.97
Diluted $ 0.32 $ 0.18 $ 2.94
Income (loss) from
discontinued
operations per share
of common stock
Basic $ - $ - $ -
Diluted $ - $ - $ -
Weighted Average
Number of Shares of
Common Stock
Outstanding
Basic 172,518,808 105,175,323 144,146,370
Diluted 175,413,251 105,175,323 145,766,413
Dividends Declared per $ 0.22 $ 0.15 $ 0.84
Share of Common Stock
Newcastle Investment Corp.
Consolidated Balance Sheets
(dollars in thousands)
December 31,
2012 2011
Assets
Real estate securities, $ 1,691,575 $ 1,731,744
available-for-sale
Real estate related loans, 843,132 813,580
held-for-sale, net
Residential mortgage loans, 292,461 331,236
held-for-investment, net
Residential mortgage loans, 2,471 2,687
held-for-sale, net
Investments in excess mortgage 245,036 43,971
servicing rights at fair value
Subprime mortgage loans subject to 405,814 404,723
call option
Investments in real estate, net of 169,473 -
accumulated depreciation
Intangibles, net of accumulated 19,086 -
amortization
Operating real estate, - 7,741
held-for-sale
Other investments 24,907 24,907
Cash and cash equivalents 231,898 157,356
Restricted cash 2,064 105,040
Derivative assets 165 1,954
Receivables and other assets 17,230 26,860
Total Assets $ 3,945,312 $ 3,651,799
Liabilities and Stockholders' Equity
Liabilities
CDO bonds payable $ 1,091,354 $ 2,403,605
Other bonds and notes payable 183,390 200,377
Repurchase agreements 929,435 239,740
Mortgage notes payable 120,525 -
Financing of subprime mortgage 405,814 404,723
loans subject to call option
Junior subordinated notes payable 51,243 51,248
Derivative liabilities 31,576 119,320
Dividends payable 38,884 16,707
Due to affiliates 3,620 1,659
Purchase price payable on
investments in excess mortgage 59 3,250
servicing rights
Accrued expenses and other 16,352 19,081
liabilities
Total Liabilities 2,872,252 3,459,710
Stockholders' Equity
Preferred stock, $0.01 par value,
100,000,000 shares authorized,
1,347,321 shares of 9.75% Series B
Cumulative Redeemable Preferred
Stock
496,000 shares of 8.05% Series C
Cumulative Redeemable Preferred
Stock, and
620,000 shares of 8.375% Series D
Cumulative Redeemable Preferred
Stock,
liquidation preference $25.00 per
share, issued and outstanding as of
December 31, 2012 and
December 31, 2011 61,583 61,583
Common stock, $0.01 par value,
500,000,000 shares authorized,
172,525,645 and
105,181,009 shares issued and
outstanding at December 31, 2012 1,725 1,052
and 2011, respectively
Additional paid-in capital 1,710,083 1,275,792
Accumulated deficit (771,095 ) (1,073,252 )
Accumulated other comprehensive 70,764 (73,086 )
income (loss)
Total Equity 1,073,060 192,089
Total Liabilities and Stockholders' $ 3,945,312 $ 3,651,799
Equity
Newcastle Investment Corp.
Consolidated Statements of Cash Flows
(dollars in thousands)
Three Months Ended December 31 Year Ended
December 31
2012 2011 2012
(unaudited) (unaudited)
Cash flows From
Operating Activities
Net income 56,979 20,696 434,110
Adjustment to reconcile net income to net cash
provided by (used in) operating activities
(inclusive of amounts
related to discontinued
operations):
Depreciation and 4,750 87 7,451
amortization
Accretion of discount (6,659 ) (11,572 ) (45,582 )
and other amortization
Interest income in CDOs
redirected for (2,540 ) (1,298 ) (5,484 )
reinvestment or CDO bond
paydown
Interest income on
investments accrued to (6,076 ) (5,204 ) (22,835 )
principal balance
Interest expense on
debt accrued to 109 109 437
principal balance
Non-cash directors' 60 27 280
compensation
Reversal of valuation (16,427 ) 23,055 (24,587 )
allowance on loans
Other-than-temporary
impairment on 4,330 2,245 18,923
securities
Change in fair value on
investments in excess (2,510 ) (367 ) (9,023 )
mortgage servicing
rights
Gain on settlement of
investments (net) and (12 ) (2,847 ) (232,897 )
real estate
held-for-sale
Unrealized loss on
non-hedge derivatives (3,048 ) (2,911 ) (2,547 )
and hedge
ineffectiveness
Gain on extinguishment (958 ) (5,708 ) (24,085 )
of debt
Change in:
Restricted cash 482 (88 ) 2,223
Receivables and other (2,790 ) (1,870 ) (1,702 )
assets
Due to affiliates 269 127 1,961
Accrued expenses and (359 ) 929 1,259
other liabilities
Payment of Deferred - - (568 )
Interest
Net cash provided by
(used in) operating 25,600 15,410 97,334
activities
Cash Flows From
Investing Activities
Principal repayments
from repurchased CDO 21,488 8,804 42,835
debt
Principal repayments 568 894 2,014
from CDO securities
Principal repayments 8,289 11 20,729
from non-Agency RMBS
Return of investment in
excess mortgage 15,840 760 29,167
servicing rights
Principal repayments
from loans and non-CDO 55,727 17,140 126,125
securities (excluding
non-Agency RMBS)
Purchase of real estate (391,940 ) (30,794 ) (989,709 )
securities
Purchase of real estate (18,010 ) - (27,226 )
loans
Proceeds from sale of - - 127,000
investments
Acquisition of
investments in excess (3,190 ) (40,492 ) (221,832 )
mortgage servicing
rights
Acquisition of
investments in real (44,110 ) - (185,686 )
estate
Additions to
investments in real (270 ) - (296 )
estate
Deposit paid on - - (25,857 )
investments
Return of deposit paid 25,582 - 25,582
on investments
Net cash provided by
(used in) investing (330,026 ) (43,677 ) (1,077,154 )
activities
Cash flows From
Financing Activities
Repurchases of CDO (53 ) (10,915 ) (35,748 )
bonds payable
Repayments of other (9,266 ) (9,772 ) (42,443 )
bonds payable
Borrowings under 374,871 29,202 782,749
repurchase agreements
Repayments of (50,763 ) (10,390 ) (93,054 )
repurchase agreements
Margin deposits under (43,935 ) (10,270 ) (87,895 )
repurchase agreement
Return of margin
deposits under 44,448 10,270 87,895
repurchase agreements
Borrowings under 32,125 - 120,525
mortgage notes payable
Issuance of common - - 435,821
stock
Costs related to
issuance of common (243 ) (437 ) (1,083 )
stock
Common Stock dividends (37,947 ) (15,776 ) (104,196 )
paid
Preferred Stock (1,395 ) (1,395 ) (5,580 )
dividends paid
Payment of deferred (554 ) - (2,385 )
financing costs
Purchase of derivative - - (244 )
instruments
Restricted cash
returned from - (74 ) -
refinancing activities
Net cash provided by
(used in) financing 307,288 (19,557 ) 1,054,362
activities
Net Increase (Decrease)
in Cash and Cash 2,862 (47,824 ) 74,542
Equivalents
Cash and Cash
Equivalents, Beginning 229,036 205,180 157,356
of Period
Cash and Cash
Equivalents, End of $ 231,898 $ 157,356 $ 231,898
Period
Supplemental Disclosure
of Cash Flow
Information
Cash paid during the
period for interest 12,011 22,366 $ 71,395
expense
Supplemental Schedule of
Non-Cash Investing and
Financing Activities
Preferred stock
dividends declared but $ 930 $ 930 $ 930
not paid
Common stock dividends $ 37,954 $ 15,776 $ 37,954
declared but not paid
Purchase price payable
on investments in excess $ - $ - $ 59
mortgage servicing
rights
Re-issuance of other
bonds and notes payable $ 29,959 $ 5,751 $ 29,959
to third parties upon
deconsolidation of CDO
Newcastle Investment Corp.
Reconciliation of Core Earnings
(dollars in thousands)
Three Months Ended December 31, Year Ended
December 31,
2012 2011 2012
Income (loss)
applicable to $ 55,584 $ 19,301 $ 428,530
common
stockholders
Add (Deduct):
Impairment (12,097 ) 25,300 (5,664 )
(Reversal)
Other income (15,542 ) (12,630 ) (279,717 )
(Income) loss from
discontinued 20 18 68
operations
Depreciation and 4,586 1 6,975
amortization
Core earnings $ 32,551 $ 31,990 $ 150,192
Core Earnings
Core earnings is used by management to gauge the current performance of
Newcastle without taking into account of gains and losses, which, although
they represent a part of our recurring operations, are subject to significant
variability and are only a potential indicator of future economic performance.
Management views this measure as Newcastle’s “core” current earnings, while
gains and losses (including impairment) are simply a potential indicator of
future earnings. It also excludes the effect of depreciation and amortization
charges, which, in the judgment of management, are not indicative of operating
performance.
Management believes that this measure provides investors with useful
information regarding Newcastle’s “core” current earnings, and it enables
investors to evaluate Newcastle’s current performance using the same measure
that management uses to operate the business. Core earnings 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 the
Company’s operating performance or as an alternative to cash flow as a measure
of its liquidity and is not necessarily indicative of cash available to fund
cash needs. The Company’s calculation of core earnings may be different from
the calculation used by other companies and, therefore, comparability may be
limited.
Newcastle Investment Corp.
Reconciliation of Cash Available for Distribution
(dollars in thousands)
Three Months Ended December 31, Year Ended
December 31,
2012 2011 2012
Reconciliation of Cash
Available for
Distribution:
Net cash provided by 25,600 15,410 97,334
operating activities
Principal repayments 30,345 9,698 65,578
bought at a discount^(1)
Less: Return of capital (19,305 ) (5,608 ) (45,522)
included above ^ (2)
Subtotal 36,640 19,500 117,390
Preferred dividends^(3) (1,395 ) (1,395 ) (5,580)
Cash Available for $ 35,245 $ 18,105 $111,810
Distribution
Other data from the
Consolidated Statements
of Cash Flows:
Net cash provided by
(used in) investing $ (330,026 ) $ (43,677 ) $(1,077,154)
activities
Net cash provided by
(used in) financing 307,288 (19,557 ) 1,054,362
activities
Net increase (decrease)
in cash and cash 2,862 (47,824 ) 74,542
equivalents
Excludes principal repayments on assets purchased at par or assets where
^(1) the principal received is required to pay down Newcastle’s debt (assets
held in its CDO’s, MH loans and Agency securities).
Represents the portion of principal repayments from repurchased CDO debt,
^(2) CDO securities, and Non-Agency RMBS computed based on the ratio of
Newcastle’s purchase price of such debt or securities to the aggregate
principal payments expected to be received from such debt or securities.
^(3) Represents preferred dividends to be paid on an accrual basis (payments
are made at the end of Jan, Apr, Jul and Oct).
Cash Available for Distribution (“CAD”)
* Management believes that CAD is useful for investors because it is a
meaningful measure of the Company’s operating liquidity. It represents
GAAP net cash provided by operating activities adjusted for two factors:
1. Principal payments received in excess of the portion which represents a
return of Newcastle’s invested capital in certain of Newcastle’s
investments, which were acquired at a significant discount to par. These
investments include repurchased CDO debt, CDO securities and Non-Agency
RMBS. Although these net principal repayments are reported as investing
activities for GAAP purposes, they actually represent a portion of
Newcastle’s return on these investments (or yield), rather than a return
of Newcastle’s invested capital.
2. Preferred dividends. Although these dividends are reported as financing
activities for GAAP purposes, they represent a recurring use of
Newcastle’s operating cash flow similar to interest payments on debt.
* Management uses CAD as an important input in determining cash available to
pay dividends to Newcastle’s common stockholders.
* CAD excludes principal repayments on assets purchased at par or assets
where the principal received is required to pay down Newcastle’s debt
(assets held in the its CDOs, MH loans and Agency securities).
Furthermore, net cash provided by operating activities, a primary element
of CAD, includes timing differences based on changes in accruals. CAD does
not represent cash generated from operating activities in accordance with
GAAP and should not be considered an alternative to net income as an
indicator of the Company’s operating performance or as an alternative to
cash flow as a measure of the Company’s liquidity and is not necessarily
indicative of cash available to fund cash needs. The Company’s calculation
of CAD may be different from the calculation used by other companies and
therefore comparability may be limited.
Contact:
Newcastle Investment Corp.
Investor Relations
212-479-3195
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