New Residential Announces First Quarter 2014 Results

  New Residential Announces First Quarter 2014 Results

Business Wire

NEW YORK -- May 14, 2014

New Residential Investment Corp. (NYSE:NRZ; “New Residential” or the
“Company”) today reported the following information for the quarter ended
March 31, 2014:

FIRST QUARTER FINANCIAL HIGHLIGHTS:

  *GAAP Income of $49 million, or $0.19 per diluted share
  *Core Earnings of $42 million, or $0.16 per diluted share
  *Common Dividend of $44 million, or $0.175 per share

                                                
                                    Q1 2014         Q4 2013
Summary Operating Results:
GAAP Income                          $49 million     $81 million
GAAP Income per Diluted Share        $0.19           $0.31
                                                     
Non-GAAP Results:
Core Earnings*                       $42 million     $37 million
Core Earnings per Diluted Share*     $0.16           $0.14

*For a reconciliation of GAAP Income to Core Earnings, please refer to the
Reconciliation of Core Earnings below.

Highlights for the quarter ended March 31, 2014:

  *Excess Mortgage Servicing Rights (“Excess MSRs”) – During the quarter, New
    Residential invested $19 million to fund previously committed interests in
    pools of Excess MSRs related to $8 billion UPB of non-Agency residential
    mortgage loans. Returns on New Residential’s existing Excess MSR portfolio
    remain strong and have outperformed expectations. The Company has received
    $230 million of cash flow to date and still expects to receive
    approximately $1.2 billion in the future, although actual results may
    differ.
  *Servicer Advances – As of the end of Q1, a joint venture formed by New
    Residential and co-investors (the “Buyer”) acquired or agreed to acquire
    $6.3 billion of advances from Nationstar Mortgage Holdings Inc.
    (“Nationstar”). To date, returns on these investments have outperformed
    the Buyer’s initial projections. Advance balances have decreased by $1.8
    billion, versus the Buyer’s initial projection of a $0.5 billion decline,
    and the advance to UPB ratio has declined 1.4%, versus the Buyer’s initial
    estimate of a 0.3% decline. Furthermore, the Buyer closed on two financing
    facilities totaling $2.9 billion, one during the quarter and another
    subsequent to quarter end. Both facilities improved upon prior financing
    terms, with a loan-to-value of 94% and an average cost of funds of
    approximately 2.5%. Given the outperformance and improved financing terms,
    the Buyer’s projected lifetime IRR was revised to 20% from the initial
    target of 15%.
  *Non-Performing Loans (“NPLs”) – New Residential acquired $72 million UPB
    of NPLs during the quarter, bringing the total portfolio to $229 million
    UPB. Actual results on the existing portfolio to date have exceeded New
    Residential’s expectations. In the first quarter alone, the portfolio had
    50 liquidations, which represents an implied 24% cash-on-cash yield,
    although the lifetime yield may differ.
  *Non-Agency RMBS – Through a transaction that occurred during the quarter,
    New Residential purchased approximately $625 million current face amount
    of Non-Agency RMBS for approximately $553 million.

Highlights subsequent to March 31, 2014:

  *$175 Million Equity Offering – On  April 25, 2014, New Residential priced
    its first public offering of 25,000,000 shares of its common stock for
    gross proceeds of approximately $152.5 million, before deducting
    underwriting costs and expenses. Including the exercised overallotment
    option of 3,750,000 shares of common stock, the gross proceeds totaled
    approximately $175.4 million. The net proceeds from the offering will be
    used for general corporate purposes, including making a variety of
    investments, which may include, but are not limited to, investments in
    Excess MSRs, servicer advances, real estate securities and real estate
    related loans.
  *Excess Mortgage Servicing Rights (“Excess MSRs”)  –  On May 12, 2014, New
    Residential invested $34 million to acquire an interest in Excess MSRs
    related to $13 billion UPB of residential mortgage loans.
  *Servicer Advances – On May 2, 2014, the Buyer received $86 million from
    New Residential to fund the purchase of $618 million of new servicer
    advances.
  *Non-Performing Loans (“NPLs”) – Subsequent to quarter end, New Residential
    agreed on the purchase prices for two separate pools of NPLs with $618
    million UPB in total. New Residential expects to complete these
    investments in the second quarter, although there can be no assurance that
    these investments will be completed in such timeframe or at all.

ADDITIONAL INFORMATION

For additional information that management believes to be useful for
investors, please refer to the presentation posted on the Investor Relations
section of the Company’s website, www.newresi.com. For consolidated investment
portfolio information, please refer to the Company’s Annual Reports on Form
10-K and Quarterly Reports on Form 10-Q, which are available on the Company’s
website (www.newresi.com).

EARNINGS CONFERENCE CALL

New Residential’s management will host a conference call on Wednesday, May 14,
2014 at 10:00 A.M. Eastern Time. A copy of the earnings release will be posted
to the Investor Relations section of New Residential’s website,
www.newresi.com.

All interested parties are welcome to participate on the live call. The
conference call may be accessed by dialing 1-866-393-1506 (from within the
U.S.) or 1-706-634-0623 (from outside of the U.S.) ten minutes prior to the
scheduled start of the call; please reference “New Residential First Quarter
2014 Earnings Call.”

A simultaneous webcast of the conference call will be available to the public
on a listen-only basis at www.newresi.com. Please allow extra time prior to
the call to visit the website and download any necessary software required to
listen to the internet broadcast.

A telephonic replay of the conference call will also be available two hours
following the call’s completion through 11:59 P.M. Eastern Time on Wednesday,
May 28, 2014 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
“35071533.”


Unaudited Condensed Consolidated Statements of Income

($ in thousands, except per share data)
                                             Three Months Ended March 31,
                                               2014            2013
                                                                 
Interest income                                $ 71,490          $ 16,191
Interest expense                                38,997           899
Net Interest Income                             32,493           15,292
                                                                 
Impairment
Other-than-temporary impairment ("OTTI")         328               -
on securities
Valuation allowance on loans                    164              -
                                                492              -
                                                                 
Net interest income after impairment             32,001            15,292
                                                                 
Other Income
Change in fair value of investments in           6,602             1,858
excess mortgage servicing rights
Change in fair value of investments in
excess mortgage servicing rights, equity         6,374             969
method investees
Earnings from investments in consumer            16,360            -
loans, equity method investees
Gain on settlement of investments                4,357             -
Other income                                    1,357            -
                                                35,050           2,827
                                                                 
Operating Expenses
General and administrative expenses              2,075             2,719
Management fee allocated by Newcastle            -                 2,325
Management fee to affiliate                      4,486             -
Incentive compensation to affiliate             3,338            -
                                                9,899            5,044
                                                                 
Income (Loss) Before Income Taxes                57,152            13,075
                                                                 
Income tax expense                              287              -
Net Income (Loss)                              $ 56,865          $ 13,075
Noncontrolling interests in Income (Loss)      $ 8,093           $ -
of Consolidated Subsidiaries
Net Income (Loss) Attributable to Common       $ 48,772          $ 13,075
Stockholders
                                                                 
                                                                 
Net Income Per Share of Common Stock
Basic                                          $ 0.19            $ 0.05
Diluted                                        $ 0.19            $ 0.05
                                                                 
Weighted Average Number of Shares of
Common Stock Outstanding
Basic                                           253,209,019      253,025,645
Diluted                                         259,839,934      253,025,645
                                                                 
Dividends Declared per Share of Common         $ 0.175           $ -
Stock



Consolidated Balance Sheets

($ in thousands)
                                        March 31, 2014   December 31, 2013
                                          (Unaudited)
Assets
Investments in:
Excess mortgage servicing rights, at      $   341,704        $    324,151
fair value
Excess mortgage servicing rights,
equity method investees, at fair              338,307             352,766
value
Servicer advances, at fair value              3,457,385           2,665,551
Real estate securities,                       2,345,221           1,973,189
available-for-sale
Residential mortgage loans,                   34,045              33,539
held-for-investment
Consumer loans, equity method                 231,422             215,062
investees
Cash and cash equivalents                     140,495             271,994
Restricted cash                               34,607              33,338
Derivative assets                             45,040              35,926
Other assets                                 30,608             53,142
                                          $   6,998,834      $    5,958,658
                                                             
Liabilities and Equity
                                                             
Liabilities
Repurchase agreements                     $   2,143,094      $    1,620,711
Notes payable                                 3,234,805           2,488,618
Trades payable                                -                   246,931
Due to affiliates                             7,997               19,169
Dividends payable                             44,312              63,297
Accrued expenses and other                   7,977              6,857
liabilities
                                             5,438,185          4,445,583
                                                             
Commitments and Contingencies
                                                             
Equity
Common Stock, $0.01 par value,
2,000,000,000 shares authorized,
253,209,669 and 253,197,974 issued            2,532               2,532
and outstanding at March 31,
2014 and December 31, 2013,
respectively
Additional paid-in capital                    1,156,408           1,157,118
Retained earnings                             107,446             102,986
Accumulated other comprehensive              9,928              3,214
income, net of tax
Total New Residential stockholders'           1,276,314           1,265,850
equity
Noncontrolling interests in equity of        284,335            247,225
consolidated subsidiaries
Total Equity                                 1,560,649          1,513,075
                                          $   6,998,834      $    5,958,658



Reconciliation of Core Earnings

($ in thousands)
                                        Three Months Ended
                                          March 31, 2014   December 31, 2013
                                                             
Net income (loss) attributable to         $  48,772          $    80,507
common stockholders
Impairment                                   492                  1,698
Other Income                                 (35,050  )           (83,804  )
Incentive compensation to affiliate          3,338                11,499
Non-capitalized deal inception costs         -                    1,369
Core earnings of equity method
investees:
Excess mortgage servicing rights             9,225                9,861
Consumer loans                              14,987             15,643   
Core Earnings                             $  41,764         $    36,773   


CORE EARNINGS

New Residential has four primary variables that impact its operating
performance: (i) the current yield earned on its investments, (ii) the
interest expense incurred on the debt used to finance its investments, (iii)
its operating expenses and (iv) its realized and unrealized gain or losses,
including any impairment, on its investments. “Core earnings” is a non-GAAP
measure of the Company’s operating performance excluding the fourth variable
above and adjusting the earnings from the consumer loan investment to a level
yield basis. It is used by management to gauge the Company’s current
performance without taking into account: (i) realized and unrealized gains and
losses, which although they represent a part of the Company’s recurring
operations, are subject to significant variability and are only a potential
indicator of future economic performance; (ii) incentive compensation paid to
the Company’s Manager; and (iii) non-capitalized deal inception costs.

While incentive compensation paid to New Residential’s Manager may be a
material operating expense, the Company excludes it from core earnings because
(i) from time to time, a component of the computation of this expense will
relate to items (such as gains or losses) that are excluded from core
earnings, and (ii) it is impractical to determine the portion of the expense
related to core earnings and non-core earnings, and the type of earnings
(loss) that created an excess (deficit) above or below, as applicable, the
incentive compensation threshold. To illustrate why it is impractical to
determine the portion of incentive compensation expense that should be
allocated to core earnings, note that, as an example, in a given period, New
Residential may have core earnings in excess of the incentive compensation
threshold but incur losses (which are excluded from core earnings) that reduce
total earnings below the incentive compensation threshold. In such case, the
Company would either need to (a) allocate zero incentive compensation expense
to core earnings, even though core earnings exceeded the incentive
compensation threshold, or (b) assign a “pro forma” amount of incentive
compensation expense to core earnings, even though no incentive compensation
was actually incurred. New Residential believes that neither of these
allocation methodologies achieves a logical result. Accordingly, the exclusion
of incentive compensation facilitates comparability between periods and avoids
the distortion to the Company’s non-GAAP operating measure that would result
from the inclusion of incentive compensation that relates to non-core
earnings. With regard to non capitalized deal inception costs, management does
not view these costs as part of the Company’s core operations. Non-capitalized
deal inception costs are generally legal and valuation service costs, as well
as other professional service fees, incurred when the Company acquires certain
investments. These costs are recorded as general and administrative expenses
in its statements of income. Management believes that the adjustments to
compute “core earnings” specified above allow investors and analysts to
readily identify the operating performance of the assets that form the core of
the Company’s activity, assist in comparing the core operating results between
periods, and enable investors to evaluate the Company’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 the Company’s liquidity and is not
necessarily indicative of cash available to fund cash needs.

ABOUT NEW RESIDENTIAL

New Residential focuses on opportunistically investing in, and actively
managing, investments related to residential real estate. The Company
primarily targets investments in: (1) mortgage servicing related assets, (2)
residential mortgage backed securities (“RMBS”), (3) residential mortgage
loans and (4) other related investments. New Residential 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 statements in this press release may constitute forward-looking
statements within the meaning of the Private Securities Litigation Reform Act
of 1995 such as the statements that the Company expects to receive
approximately $1.2 billion of cash flow from its Excess MSR investments and to
complete additional investments in NPLs relating to $618 million of UPB. 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 the Company’s control. For instance,
actual cash flow from our Excess MSRs could differ materially from our
expectations if prepayment and delinquency rates were higher than expected and
recapture rates were lower than expected. The Company can give no assurance
that its expectations will be attained. 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” incorporated by reference in the Company’s Annual
Reports on Form 10-K and Quarterly Reports on Form 10-Q, which are available
on the Company’s website (www.newresi.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.
The Company 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.

Contact:

New Residential Investment Corp.
Investor Relations, 212-479-3150
 
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