NEW YORK, Aug. 3 /PRNewswire-FirstCall/ -- Newcastle Investment Corp. reported that for the quarter ended June 30, 2006, Funds from Operations ("FFO") were $28.9 million, or $0.66 per diluted common share, compared to $0.52 per diluted common share for the quarter ended June 30, 2005. The Company generated an FFO return on average invested equity of 14.8% for the second quarter 2006.
For the three months ended June 30, 2006, income available for common stockholders was $28.7 million, or $0.65 per diluted common share, compared to $0.63 per diluted common share for the second quarter 2005.
For the quarter ended June 30, 2006, Newcastle declared a dividend of $0.65 per share of common stock, representing a 4% increase from the first quarter dividend of $0.625 per share.
Our GAAP common equity book value per share remained relatively constant at $19.04 per share at June 30, 2006 from $19.03 at March 31, 2006. GAAP common equity book value was $837.8 million at June 30, 2006 compared with $836.8 million at March 31, 2006.
For a reconciliation and discussion of GAAP net income to FFO and GAAP book equity to invested common equity, please refer to the tables following the presentation of GAAP results.
Kenneth Riis, Newcastle's President, commented, "We have had a very productive first half of the year. Our investment pipeline and activity is strong. Taking into account our purchases and commitments to date, we expect our recurring net income in the second half of the year to meet or exceed our current dividend of $0.65 per share."
Selected Financial Data (Unaudited)(amount in thousands)
Operating Data: Three Months Three Months
Ended June Ended June
30, 2006 30, 2005
Funds from operations $28,911 $22,961
Income available for common stockholders 28,701 27,957
As of June As of March
Balance Sheet Data: 30, 2006 31, 2006
Total assets $7,139,475 $7,885,774
Total liabilities 6,199,127 6,946,497
Common stockholders' equity 837,848 836,777
Preferred stock 102,500 102,500
Total equity 940,348 939,277
At March 31, 2006, pro forma for the securitization of subprime loans, which occurred in the second quarter, total assets and total liabilities would have been $6.8 billion and $5.8 billion, respectively.
The following tables compare certain supplemental data relating to our investment portfolio at June 30, 2006 versus March 31, 2006: Supplemental Data:
Total Portfolio(1)(3) Core Investment Portfolio(2)(3)
June 30, March 31, June 30, March 31,
2006 2006 2006 2006
Total portfolio
(face amount)(4) $7,299,582 $6,867,316 $5,865,445 $5,575,515
Percentage of total
portfolio 100% 100% 80% 81%
Weighted average
asset yield 7.18% 7.01% 7.52% 7.32%
Weighted average
liability cost 5.74% 5.52% 5.88% 5.67%
Weighted average net
spread 1.44% 1.49% 1.64% 1.65%
Notes:
(1) Statistics exclude ICH and operating real estate.
(2) Excludes non-core investments: ICH, agency RMBS and operating real
estate of $1,135.0 million at June 30, 2006 and $992.6 million at
March 31, 2006.
(3) March 31, 2006 pro forma for our investment in subprime mortgage loans
post our April 2006 securitization.
(4) Face amount of core investment portfolio excludes $299.2 million of
subprime loans subject to future repurchase.
Second Quarter Investment Activity
In the second quarter 2006, we purchased or committed to purchase $1.4 billion of assets. $864.7 million of assets closed in the second quarter with the remaining $583.0 million has either closed or is expected to close in the third quarter. Of the second quarter closings, $97.0 million was financed off balance sheet through a total rate of return swap. We recorded a deposit of $14.5 million towards the total rate of return swap.
The following table details our acquisitions in the quarter:
Face Amount WA Credit
($ in 000s) Number Credit Spread(1)
Asset Type
Commercial Mortgage Backed $170,305 12 BBB- 206
Securities (CMBS)
Mezzanine Loans 130,450 4 74% 297
B-Notes 127,500 4 66% 326
Real Estate Related Asset 84,562 13 BB+ 464
Backed Securities (ABS)
Bank Loans 77,000 2 B+ 225
REIT Debt 30,000 2 BBB- 164
Agency RMBS 244,874 5 AAA 68
Total $864,691 42 224
(1) Average spread based on applicable benchmark (US Treasury for fixed
and LIBOR for floating).
In the quarter, we also sold five real estate securities totaling $141.5 million with an average rating of BB+.
Capital Markets Activity
In April 2006, we securitized our $1.5 billion subprime mortgage loan portfolio which we acquired in March 2006. As of June 30, 2006, the portfolio is performing as expected with $62.6 million of invested equity generating a loss adjusted return of 20%.
In May 2006, we closed a $200.0 million revolving credit facility priced at 1 month LIBOR + 175 basis points. At quarter end, we had $50.5 million drawn.
The Company entered into an agreement with a major investment bank in the second quarter to warehouse finance the purchase of $850 million real estate securities and loans. As of August 3, 2006, we have purchased or committed to purchase $790 million, or 93%, of the targeted portfolio. We plan to term finance the portfolio in the third quarter upon the issuance of our ninth collateralized debt obligation.
Investment Portfolio
At June 30, 2006, our $5.9 billion core investment portfolio represented 80% of our total portfolio and consisted of $5.4 billion of real estate securities and real estate related loans and $495.9 million of residential mortgage loans.
Face Amount % of Total
($ in mm) Portfolio Number WA Life
Real Estate Securities
CMBS $2,140.6 29% 265 5.96
REIT Debt 958.1 13% 100 6.50
ABS 835.1 11% 141 3.56
ABS Residual 54.6 1% 1 3.05
Subtotal $3,988.4 54% 507 5.55
Face Amount % of Total
($ in mm) Portfolio Number WA Life
Real Estate Related Loans
Mezzanine Loans $591.7 8% 12 2.09
Bank Loans 398.5 5% 7 3.31
B-Notes 342.0 5% 34 6.43
Real Estate Loans 48.9 1% 2 0.93
Subtotal $1,381.1 19% 55 3.48
Total Real Estate
Securities and Loans $5,369.5 73% 562 5.01
Face Amount % of Total
($ in mm) Portfolio Number WA Life
Residential Mortgage Loans
Manufactured Home Loans $262.7 4% 6,549 6.31
Residential Mortgage Loans 233.2 3% 667 2.80
Total Residential Mortgage $495.9 7% 7,216 4.66
Loans
TOTAL $5,865.4 80% 4.98
$4.5 billion of real estate securities and loans were rated by third parties with an average rating of BBB-. $873.5 million of real estate securities and real estate related loans (Mezzanine loans, B-Notes and real estate loans) were non-rated but had an average loan to value of 71.6%. The average FICO score of the borrowers in our residential mortgage loans portfolio was 707.
Our average investment size in the real estate securities and loan portfolio was $9.6 million, with our largest single investment being $110.0 million, at quarter end.
The credit profile of our real estate securities investment portfolio continued to improve during the second quarter. This can be demonstrated by the ratio of upgrades to downgrades in the quarter, where 45 securities ($282.8 million face amount) experienced credit rating upgrades, versus two securities ($32.3 million face amount) which experienced credit rating downgrades.
Our real estate securities and related loans portfolio had a weighted average credit spread of 261 basis points as of quarter end versus 260 basis points at March 31, 2006.
With respect to $415.3 million face amount of real estate related loans that are financed via total rate of return swaps, we reported to other income a net unrealized mark to market loss of $1.7 million for the second quarter 2006.
Newcastle's Business Strategy
We invest in real estate securities and other real estate related assets. Our business strategy is to "lock in" and optimize the difference between the yield on our assets and the cost of our liabilities (which we refer to as the "net spread"). We finance our investments in a manner that matches the interest rates and maturities of our assets and liabilities in an effort to minimize the impact of interest rate fluctuations on our earnings and to reduce the risk of having to refinance our liabilities prior to the maturities of our assets. As a result of this strategy, our earnings are relatively unaffected by a change in rates. As of June 30, 2006, excluding an anticipated hedge of debt issued after quarter end, an immediate 100 basis point increase in short-term interest rates would have affected our earnings by $0.01 per share.
Conference Call
Newcastle's management will conduct a live conference call Friday, August 4, 2006 at 8:00 A.M. Eastern Time to review the financial results for the quarter ended June 30, 2006. All interested parties are welcome to participate on the live call. You can access the conference call by dialing (866) 323-3742 (from within the U.S.) or (706) 643-3330 (from outside of the U.S.) ten minutes prior to the scheduled start of the call; please reference "Newcastle Second Quarter 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. An online replay of the webcast will be available until September 30, 2006.
A telephonic replay of the conference call will be available until 11:59 P.M. eastern time on Friday, August 11, 2006 by dialing (800) 642-1687 (from within the U.S.) or (706) 645-9291 (from outside of the U.S.); please reference access code "3256813."
About Newcastle
Newcastle Investment Corp. invests in real estate securities and other real estate related assets. Newcastle is organized and conducts its operations to qualify as a real estate investment trust (REIT) for federal income tax purposes. Newcastle is managed by Fortress Investment Group LLC, a global alternative investment and asset management firm with approximately $22 billion in equity capital currently under management. For more information regarding Newcastle Investment Corp. or to be added to our e-mail distribution list, please visit http://www.newcastleinv.com/.
Safe Harbor
Certain items in this press release may constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, including statements relating to our net income and the performance of our subprime mortgage portfolio. 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; 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 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; the relative spreads between the yield on the assets we invest in and the cost of financing; the risks that default and recovery rates on our subprime portfolio exceed our underwriting estimates. 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.
Newcastle Investment Corp
Consolidated Statements of Income
(dollars in thousands, except share data)
(Unaudited)
Three Months Ended Six Months Ended
June 30, June 30,
2006 2005 2006 2005
Revenues
Interest income $124,209 $86,978 $238,116 $166,014
Rental and escalation
income 774 1,715 2,782 2,979
Gain on sale of
investments, net 5,493 3,635 7,421 5,349
Other income (1,449) (263) 4,256 1,386
129,027 92,065 252,575 175,728
Expenses
Interest expense 87,909 55,791 164,874 104,557
Property operating expense 949 540 1,767 1,223
Loan and security
servicing expense 1,402 1,580 3,408 3,163
Provision for credit
losses 1,179 1,187 3,186 1,899
Provision for losses,
loans held for sale - - 4,127 -
General and administrative
expense 1,161 1,326 2,791 2,217
Management fee to
affiliate 3,474 3,316 6,945 6,579
Incentive compensation to
affiliate 2,834 883 5,686 2,855
Depreciation and
amortization 278 135 477 271
99,186 64,758 193,261 122,774
Income before equity in
earnings of
unconsolidated
subsidiaries 29,841 27,307 59,314 52,954
Equity in earnings of
unconsolidated
subsidiaries 1,215 1,438 2,410 3,524
Income taxes on related
taxable subsidiaries - (45) - (278)
Income from continuing
operations 31,056 28,700 61,724 56,200
Income from discontinued
operations (26) 781 225 1,965
Net Income 31,030 29,481 61,949 58,165
Preferred dividends (2,329) (1,524) (4,657) (3,047)
Income Available for
Common Stockholders $28,701 $27,957 $57,292 $55,118
Net Income Per Share of
Common Stock
Basic $0.65 $0.64 $1.30 $1.27
Diluted $0.65 $0.63 $1.30 $1.26
Income from continuing
operations per share of
common stock, after
preferred dividends
Basic $0.65 $0.62 $1.29 $1.22
Diluted $0.65 $0.61 $1.29 $1.21
Income from discontinued
operations per share of
common stock
Basic (0.00) $0.02 $0.01 $0.05
Diluted (0.00) $0.02 $0.01 $0.05
Weighted Average Number of
Shares of Common Stock
Outstanding
Basic 43,990,635 43,768,381 43,967,854 43,496,597
Diluted 44,071,310 44,127,381 44,067,645 43,879,606
Dividends Declared per
Share of Common Stock $0.650 $0.625 $1.275 $1.250
Newcastle Investment Corp
Consolidated Balance Sheets
(dollars in thousands, except share data)
As of As of
June 30, December
2006 31, 2005
(Unaudited)
Assets
Real estate securities, available for sale $5,036,880 $4,554,519
Real estate related loans, net 822,973 615,551
Residential mortgage loans, net 489,096 600,682
Subprime mortgage loans subject to future
repurchase 286,917 -
Investments in unconsolidated subsidiaries 28,839 29,953
Operating real estate, net 30,008 16,673
Cash and cash equivalents 10,044 21,275
Restricted cash 257,593 268,910
Derivative assets 136,112 63,834
Receivables and other assets 41,013 38,302
$7,139,475 $6,209,699
Liabilities and Stockholders' Equity
Liabilities
CBO bonds payable $3,521,926 $3,530,384
Other bonds payable 333,108 353,330
Notes payable 185,639 260,441
Repurchase agreements 1,621,082 1,048,203
Financing of subprime mortgage loans 286,917 -
subject to future repurchase
Credit facility 50,500 20,000
Junior subordinated notes payable 100,100 -
(security for trust preferred)
Derivative liabilities 6,429 18,392
Dividends payable 30,152 29,052
Due to affiliates 6,844 8,783
Accrued expenses and other liabilities 56,430 23,111
6,199,127 5,291,696
Stockholders' Equity
Preferred stock, $0.01 per value,
100,000,000 shares authorized, 2,500,000
shares of 9.75% Series B Cumulative
Redeemable Preferred Stock and 1,600,000
shares of 8.05% Series C Cumulative
Redeemable Preferred Stock, liquidation
preference $25.00 per share, issued and
outstanding 102,500 102,500
Common stock, $0.01 per value, 500,000,000
shares authorized, 43,999,817 and
43,913,409 shares issues and outstanding
at June 30, 2006 and December 31, 2005,
respectively 440 439
Additional paid-in capital 784,234 782,735
Dividends in excess of earnings (12,022) (13,235)
Accumulated other comprehensive income 65,196 45,564
940,348 918,003
$7,139,475 $6,209,699
Newcastle Investment Corp.
Reconciliation of GAAP Net Income to FFO
(dollars in thousands)
(Unaudited)
Three Months Three Months
Ended Ended
June 30, 2006 June 30, 2005
Net income available for common
stockholders $28,701 $27,957
Accumulated depreciation on - (5,110)
operating real estate sold
Operating real estate 210 114
depreciation
Funds from operations ("FFO") $28,911 $22,961
We believe FFO is one appropriate measure of the operating performance of real estate companies because it provides investors with information regarding our ability to service debt and make capital expenditures. We also believe that FFO is an appropriate supplemental disclosure of operating performance for a REIT due to its widespread acceptance and use within the REIT and analyst communities. Furthermore, FFO is used to compute our incentive compensation to our manager. FFO, for our purposes, represents net income available for common stockholders (computed in accordance with GAAP), excluding extraordinary items, plus real estate depreciation, and after adjustments for unconsolidated subsidiaries, if any. We consider gains and losses on resolution of our investments to be a normal part of our recurring operations and therefore do not exclude such gains and losses when arriving at FFO. Adjustments for unconsolidated subsidiaries, if any, are calculated to reflect FFO on the same basis. FFO 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 our operating performance or as an alternative to cash flow as a measure of liquidity and is not necessarily indicative of cash available to fund cash needs. Our calculation of FFO may be different from the calculation used by other companies and, therefore, comparability may be limited.
Newcastle Investment Corp.
Reconciliation of GAAP Book Equity to Invested Common Equity
(dollars in thousands)
(Unaudited)
June 30, 2006
Book equity $940,348
Preferred stock (102,500)
Accumulated depreciation on
operating real estate 3,889
Accumulated other
comprehensive income (65,196)
Invested common equity $776,541