Contact:
Lilly H. Donohue
Director of Investor Relations
212-798-6118
Nadean Finke
Investor Relations
212-479-5295
Newcastle Announces Fourth Quarter and Year End 2006 Results
and Appointment of Kenneth Riis as Newcastle’s Chief Executive Officer
Fourth Quarter Highlights
| - | FFO of $0.70 per diluted share, up 11.1% from the fourth quarter 2005 |
| - | Increased quarterly dividend to $0.69 per common share, up 10.4% from the fourth quarter 2005 |
| - | FFO return on average invested equity of 15.7% |
| - | Common equity book value totaled $899.5 million or $19.68 per common share, an increase of 6.0% from the fourth quarter 2005 |
| - | Issued $807.5 million of investment grade debt in our ninth CDO securitization to term finance $950 million of assets |
| - | $1.1 billion of fourth quarter investment activity - closed $845 million of acquisitions and committed to purchase an additional $210 million of assets that closed subsequent to quarter end |
| - | Raised net proceeds of $49.4 million through the issuance of 1.7 million common shares |
2006 Highlights
| - | Stock price appreciation and dividends paid resulted in a 39% total return to shareholders |
| - | Increased full year 2006 FFO by 14% |
| - | Total assets of $8.6 billion at December 31, 2006, up 39% from $6.2 billion at December 31, 2005 |
| - | Record $5.0 billion of new acquisitions in the year |
| - | Raised common equity and trust preferred securities totaling $146.8 million of net proceeds |
New York, NY, February 22, 2007 - Newcastle Investment Corp. (NYSE: NCT) reported that for the quarter ended December 31, 2006, Funds from Operations (“FFO”) were $31.9 million, or $0.70 per diluted share, compared to $0.63 per diluted share for the fourth quarter 2005. The Company generated an FFO return on average invested equity of 15.7% for the fourth quarter 2006.
FFO for the year ended December 31, 2006 was $119.4 million, or $2.69 per diluted share, compared to $2.37 per diluted share for the year ended December 31, 2005. The Company generated an FFO return on average invested equity of 14.9% for the year ended December 31, 2006.
For the three months ended December 31, 2006, income available for common stockholders was $31.6 million, or $0.70 per diluted share, compared to $0.63 per diluted share for the fourth quarter 2005.
For the year ended December 31, 2006, income available for common stockholders was $118.6 million or $2.67 per diluted share, compared to $2.51 per diluted share for the year ended December 31, 2005.
For the quarter ended December 31, 2006, we declared a dividend of $0.69 per common share. Common dividends declared in 2006 totaled $2.615 per share. In 2006, we declared preferred dividends totaling $2.438 per share and $2.013 per share on our 9.75% Series B and 8.05% Series C Cumulative Redeemable Preferred Stock, respectively.
Our GAAP common equity book value was $19.68 per share at December 31, 2006, up from $18.57 per share at December 31, 2005. GAAP common equity book value was $899.5 million at December 31, 2006 compared with $815.5 million at December 31, 2005.
For a reconciliation and discussion of GAAP net income to FFO and GAAP book equity to invested common equity, please refer to the tables following the presentation of GAAP results.
Kenneth Riis, Newcastle’s Chief Executive Officer and President, commented, “Newcastle had a strong fourth quarter and full year 2006 achieving our targeted earnings and dividend growth. In 2006, we generated a 14.9% return on invested equity, the fourth consecutive year of producing 14%+ returns since our IPO. Looking ahead, the continued activity in the real estate debt markets combined with our ability to source investments and create efficient financing structures, positions us well for earnings and dividend growth in 2007.”
Recent Event
On February 21, 2007, Kenneth M. Riis was named our Chief Executive Officer, replacing Wesley R. Edens who will remain as the Chairman of our board of directors. In addition, the Company's board of directors appointed Mr. Riis as a director effective immediately. Mr. Riis has been the President of Newcastle since its inception.
Selected Financial Data (Unaudited) ($ in millions, except per share data)
Operating Data: | | Three Months Ended December 31, 2006 | | Year Ended December 31, 2006 | |
| | | (Amount) | | (per diluted share) | | (Amount) | | (per diluted share) | |
| Funds from operations | | $ | 31.9 | | $ | 0.70 | | $ | 119.4 | | $ | 2.69 | |
| Income available for common stockholders | | $ | 31.6 | | $ | 0.70 | | $ | 118.6 | | $ | 2.67 | |
Balance Sheet Data: | | As of December 31, 2006 | | As of December 31, 2005 | |
| Total assets | | $ | 8,604.4 | | $ | 6,209.7 | |
| Total liabilities | | | 7,602.4 | | | 5,291.7 | |
| Common stockholders’ equity | | | 899.5 | | | 815.5 | |
| Preferred stock | | | 102.5 | | | 102.5 | |
| Total equity | | | 1,002.0 | | | 918.0 | |
The following table summarizes our investment portfolio at December 31, 2006 and December 31, 2005 ($ in millions):
| | | As of December 31, 2006 | | As of December 31, 2005 | |
Core | | Face Amount | | % Total | | Face Amount | | % Total | |
| Real Estate Securities and Related Loans | | $ | 6,196.2 | | | 71.7 | % | $ | 4,802.2 | | | 76.1 | % |
| Residential Mortgage Loans | | | 812.6 | | | 9.4 | % | | 611.0 | | | 9.7 | % |
| Subprime Loans Subject to Future Repurchase | | | 299.2 | | | 3.5 | % | | - | | | 0.0 | % |
| Investment in Joint Venture | | | 38.4 | | | 0.4 | % | | 38.2 | | | 0.6 | % |
| Subtotal | | $ | 7,346.4 | | | 85.0 | % | $ | 5,451.4 | | | 86.4 | % |
| | | | | | | | | | | | | | |
Non-Core | | | | | | | | | | | | | |
| Agency RMBS | | $ | 1,177.8 | | | 13.6 | % | $ | 697.5 | | | 11.0 | % |
| ICH Loans | | | 123.4 | | | 1.4 | % | | 165.5 | | | 2.6 | % |
Total Portfolio | | $ | 8,647.6 | | | 100.0 | % | $ | 6,314.4 | | | 100.0 | % |
The following tables compare certain supplemental data relating to our investment portfolio at December 31, 2006 versus December 31, 2005:
Supplemental Data:
| | | Total Portfolio | | Core Portfolio | |
| | | December 31, | | December 31, | |
| | | 2006 | | 2005 | | 2006 | | 2005 | |
| Weighted average asset yield | | | 7.28 | % | | 6.64 | % | | 7.63 | % | | 6.88 | % |
| Weighted average liability cost | | | 5.85 | % | | 5.20 | % | | 6.00 | % | | 5.27 | % |
| Weighted average net spread | | | 1.43 | % | | 1.44 | % | | 1.63 | % | | 1.61 | % |
Fourth Quarter Investment Activity
We purchased or had committed to purchase $1,055.3 million of assets; acquisitions of $845.0 million of assets closed in the fourth quarter while the remaining $210.3 million closed in the first quarter 2007.
Of the fourth quarter closings, $113.5 million was financed off balance sheet through a total rate of return swap. We recorded a deposit of $17.7 million towards the total rate of return swap.
The following table details our funded acquisitions in the quarter ($ in millions):
Real Estate Securities and Loans | | Face Amount | | Number | | Credit(1) | | WA Credit Spread(2) | |
Mezzanine Loans | | $ | 270.0 | | | 9 | | | 68% | | | 357 | |
| Real Estate Loans | | | 189.8 | | | 6 | | | 70% | | | 286 | |
| Commercial Mortgage Backed Securities (CMBS) | | | 181.1 | | | 22 | | | BB+ | | | 162 | |
| Bank Loans | | | 45.0 | | | 2 | | | 51% | | | 348 | |
| REIT Debt | | | 25.0 | | | 1 | | | BB | | | 232 | |
| Real Estate Related Asset Backed Securities (ABS) | | | 3.5 | | | 1 | | | BB+ | | | 495 | |
Total Core Real Estate Securities and Loans | | | 714.4 | | | 41 | | | | | | 274 | |
| | | | | | | | | | | | | | |
Agency RMBS | | | 130.6 | | | 3 | | | AAA(3) | | | 67 | |
TOTAL | | $ | 845.0 | | | 44 | | | | | | 237 | |
(1) Credit represents weighted average rating for rated assets and LTV for non-rated assets.
(2) Average spread based on applicable benchmark (US Treasury for fixed and LIBOR for floating).
(3) Implied AAA.
In the quarter, we also sold two real estate securities totaling of $20.5 million with an average rating of B.
Kenneth Riis noted, “Our reputation and market penetration has resulted in stronger deal flow and investment opportunities. In 2006, we purchased a record $5 billion of new assets, nearly double our 2005 investment activity. The public to private activity in the commercial real estate market is contributing to the growth of the mezzanine loan market and is creating new opportunities to invest capital at attractive risk adjusted returns.”
Capital Markets Activity
In the fourth quarter we raised $49.4 million of equity capital, issued $807.5 million of investment grade debt and closed a $2 billion asset backed commercial paper facility.
Fourth quarter activities include:
| - | In October, we issued 1.7 million common shares, for net proceeds of approximately $49.4 million. The proceeds were used to pay down amounts drawn on our credit facility to fund new acquisitions. |
| - | In November, we priced our ninth collateralized bond obligation. We issued $807.5 million of investment grade debt to term finance a $950.0 million portfolio consisting of approximately 35% mezzanine loans, 18% bank loans, 16% CMBS, 10% ABS, 8% B-Notes and 13% in other assets. This financing converted $664.9 million of recourse debt to non-recourse. We have invested approximately $128 million of equity with a target return on equity of 20%. |
| - | In December, we closed a $2 billion asset backed commercial paper facility which is being used to finance agency RMBS. The initial proceeds from the facility were used to repay a repurchase agreement of approximately $1.1 billion, which we previously used to finance this portfolio. |
Subsequent to quarter end activities:
| - | In January, we issued 2.42 million common shares, for net proceeds of approximately $75.0 million. The proceeds were used to pay down amounts drawn on our credit facility to fund new acquisitions. Currently, we have approximately $89.5 million drawn on our credit facility. |
| - | In January, we entered into a $700.0 million non-recourse warehouse agreement to finance collateral for our tenth collateralized bond obligation. We expect to invest approximately $124 million of equity with a targeted return on equity in the high teens. |
Ms. Debra Hess, our Chief Financial Officer commented, “In the fourth quarter, we tapped the liquidity of the commercial paper market which enabled us to reduce our cost of funds on the financing of our agency RMBS portfolio as well as diversify our lender base. We believe there are additional opportunities in 2007 to more efficiently finance certain of our current assets.”
Investment Portfolio
The following table details our investment portfolio at December 31, 2006 ($ in millions):
Real Estate Securities and Related Loans | | Face Amount | | % of Total Portfolio | | Number | | Credit(1) | | WA Life | |
| CMBS | | $ | 2,490.1 | | | 28.8 | % | | 298 | | | BBB- | | | 5.6 | |
| REIT Debt | | | 1,004.5 | | | 11.6 | % | | 101 | | | BBB- | | | 6.2 | |
Mezzanine Loans | | | 1,000.4 | | | 11.6 | % | | 24 | | | 69.1 | | | 2.7 | |
| ABS | | | 887.0 | | | 10.3 | % | | 155 | | | BBB | | | 3.2 | |
| Bank Loans | | | 439.9 | | | 5.1 | % | | 8 | | | 56.1 | | | 2.6 | |
| B-Notes | | | 248.3 | | | 2.9 | % | | 9 | | | 68.5 | | | 2.7 | |
| Real Estate Loans | | | 81.1 | | | 0.9 | % | | 4 | | | 70.4 | | | 1.6 | |
| ABS Residual | | | 44.9 | | | 0.5 | % | | 1 | | | NR | | | 2.5 | |
Total Core Real Estate Securities and Loans | | | 6,196.2 | | | 71.7 | % | | 600 | | | | | | 4.5 | |
| | | | | | | | | | | | | | | | | |
Agency RMBS | | | 1,177.8 | | | 13.6 | % | | 35 | | | AAA | | | 4.3 | |
| | | | | | | | | | | | | | | | | |
Total Real Estate Securities and Loans | | | 7,374.0 | | | 85.3 | % | | 635 | | | | | | | |
| | | | | | | | | | | | | | | | | |
Residential Mortgage Loans | | | | | | | | | | | | | | | | |
| Manufactured Home Loans | | | 643.9 | | | 7.4 | % | | 18,343 | | | 692 | | | 6.0 | |
| Residential Mortgage Loans | | | 168.7 | | | 2.0 | % | | 491 | | | 715 | | | 2.8 | |
Total Residential Mortgage Loans | | | 812.6 | | | 9.4 | % | | 18,834 | | | 697 | | | 5.4 | |
| | | | | | | | | | | | | | | | | |
Other | | | 461.0 | | | 5.3 | % | | 176 | | | | | | 2.4 | |
| | | | | | | | | | | | | | | | | |
TOTAL | | $ | 8,647.6 | | | 100.0 | % | | | | | | | | 4.4 | |
(1) Credit represents weighted average rating for rated assets. LTV for non-rated commercial assets and FICO score for non-rated residential assets.
Total real estate securities and loans of $7.4 billion face amount representing 85.3% of the total portfolio.
| - | $6.0 billion or 81% of this portfolio is rated by third parties, or had an implied AAA rating, with a weighted average rating of BBB+. |
| - | $1.4 billion or 19% of this portfolio is not rated by third parties but had a weighted average loan to value ratio of 68.6%. |
| - | 63% of this portfolio has an investment grade rating (BBB- or higher). |
| - | The weighted average credit spread (i.e., the yield premium on our investments over the comparable US Treasury or LIBOR) for the core real estate securities and loans of $6.2 billion was 2.56%. |
| - | This portfolio had 635 investments. The largest investment was $179.5 million and the average investment size was $11.6 million. |
| - | The credit profile of our real estate securities portfolio continued to improve during the fourth quarter. This can be demonstrated by the ratio of upgrades to downgrades in the quarter, where 38 securities ($246.2 million face amount) experienced credit rating upgrades, versus three securities ($42.6 million face amount) which experienced a credit rating downgrade. |
Residential mortgage loans of $0.8 billion face amount, representing 9.4% of the total portfolio.
| - | These residential loans are to high quality borrowers with an average FICO score of 697. |
| - | Our residential and manufactured housing loans were well diversified with 491 and 18,343 loans, respectively. |
Conference Call
Newcastle’s management will conduct a live conference call today, February 22, 2007, at 1:00 P.M. eastern time to review the financial results for the quarter and year ended December 31, 2006. All interested parties are welcome to participate on the live call. You can access the conference call by dialing (888) 802-2278 (from within the U.S.) or (913) 312-1264 (from outside of the U.S.) ten minutes prior to the scheduled start of the call; please reference “Newcastle Year End Earnings Call.”
A simultaneous webcast of the conference call will be available to the public on a listen-only basis at 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 March 31, 2007.
A telephonic replay of the conference call will also be available from 3:00 P.M. eastern time on February 22, 2007 until 11:59 P.M. eastern time on Thursday, March 1, 2007 by dialing (888) 203-1112 (from within the U.S.) or (719) 457-0820 (from outside of the U.S.); please reference access code “8848643.”
About Newcastle
Newcastle Investment Corp. owns and manages an $8.6 billion highly diversified real estate debt portfolio with moderate credit risk that is primarily financed with match funded debt. Our business strategy is to “lock in” and optimize the difference between the yield on our assets and the cost of our liabilities. 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 an affiliate of Fortress Investment Group LLC, a global alternative asset management firm with over $30 billion in assets under management as of December 31, 2006. For more information regarding Newcastle Investment Corp. or to be added to our e-mail distribution list, please visit 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 the stability of our business model and achievement of certain goals. 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 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; the relative spreads between the yield on the assets we invest in and the cost of financing. 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 | | Year Ended | |
| | December 31, | | December 31, | |
| | | 2006 | | 2005 | | 2006 | | 2005 | |
Revenues | | | | | | | | | | | | | |
| Interest income | | $ | 151,562 | | $ | 94,481 | | $ | 530,006 | | $ | 348,516 | |
| Rental and escalation income | | | 1,245 | | | 1,797 | | | 4,861 | | | 6,647 | |
| Gain on sale of investments, net | | | 2,276 | | | 8,206 | | | 12,340 | | | 20,305 | |
| Other income | | | 857 | | | (1,849 | ) | | 5,402 | | | 2,745 | |
| | | | 155,940 | | | 102,635 | | | 552,609 | | | 378,213 | |
| | | | | | | | | | | | | | |
Expenses | | | | | | | | | | | | | |
| Interest expense | | | 109,156 | | | 63,208 | | | 374,269 | | | 226,446 | |
| Property operating expense | | | 997 | | | 536 | | | 3,805 | | | 2,363 | |
| Loan and security servicing expense | | | 1,984 | | | 1,347 | | | 6,944 | | | 5,993 | |
| Provision for credit losses | | | 3,570 | | | 2,431 | | | 9,438 | | | 8,421 | |
| Provision for losses, loans held for sale | | | - | | | - | | | 4,127 | | | - | |
| General and administrative expense | | | 967 | | | 908 | | | 4,946 | | | 4,159 | |
| Management fee to affiliate | | | 3,598 | | | 3,430 | | | 14,018 | | | 13,325 | |
| Incentive compensation to affiliate | | | 3,465 | | | 2,356 | | | 12,245 | | | 7,627 | |
| Depreciation and amortization | | | 318 | | | 188 | | | 1,085 | | | 641 | |
| | | | 124,055 | | | 74,404 | | | 430,877 | | | 268,975 | |
| Income before equity in earnings of unconsolidated subsidiaries | | | 31,885 | | | 28,231 | | | 121,732 | | | 109,238 | |
| Equity in earnings of unconsolidated subsidiaries | | | 2,052 | | | 1,302 | | | 5,968 | | | 5,930 | |
| Income taxes on related taxable subsidiaries | | | - | | | - | | | - | | | (321 | ) |
| Income from continuing operations | | | 33,937 | | | 29,533 | | | 127,700 | | | 114,847 | |
| Income from discontinued operations | | | 10 | | | 57 | | | 223 | | | 2,108 | |
Net Income | | | 33,947 | | | 29,590 | | | 127,923 | | | 116,955 | |
| Preferred dividends | | | (2,329 | ) | | (2,114 | ) | | (9,314 | ) | | (6,684 | ) |
Income Available for Common Stockholders | | $ | 31,618 | | $ | 27,476 | | $ | 118,609 | | $ | 110,271 | |
Net Income Per Share of Common Stock | | | | | | | | | | | | | |
| Basic | | $ | 0.70 | | $ | 0.63 | | $ | 2.68 | | $ | 2.53 | |
| Diluted | | $ | 0.70 | | $ | 0.63 | | $ | 2.67 | | $ | 2.51 | |
| Income from continuing operations per share of | | | | | | | | | | | | | |
| common stock, after preferred dividends | | | | | | | | | | | | | |
| Basic | | $ | 0.70 | | $ | 0.63 | | $ | 2.67 | | $ | 2.48 | |
| Diluted | | $ | 0.70 | | $ | 0.63 | | $ | 2.67 | | $ | 2.46 | |
| Income from discontinued operations per share of | | | | | | | | | | | | | |
| common stock | | | | | | | | | | | | | |
| Basic | | $ | - | | $ | - | | $ | 0.01 | | $ | 0.05 | |
| Diluted | | $ | - | | $ | - | | $ | - | | $ | 0.05 | |
Weighted Average Number of Shares of | | | | | | | | | | | | | |
Common Stock Outstanding | | | | | | | | | | | | | |
| Basic | | | 45,128,969 | | | 43,897,354 | | | 44,268,575 | | | 43,671,517 | |
| Diluted | | | 45,384,810 | | | 44,058,634 | | | 44,417,113 | | | 43,985,642 | |
| | | | | | | | | | | | | | |
Dividends Declared per Share of Common Stock | | $ | 0.690 | | $ | 0.625 | | $ | 2.615 | | $ | 2.500 | |
Newcastle Investment Corp.
Consolidated Balance Sheets
(dollars in thousands, except share data)
(Unaudited)
| | | As of | | As of | |
| | | December 31, 2006 | | December 31, 2005 | |
| | | | | | |
Assets | | | | | | | |
| Real estate securities, available for sale | | $ | 5,581,228 | | $ | 4,554,519 | |
| Real estate related loans, net | | | 1,568,916 | | | 615,551 | |
| Residential mortgage loans, net | | | 809,097 | | | 600,682 | |
| Subprime mortgage loans subject to future repurchase | | | 288,202 | | | - | |
| Investments in unconsolidated subsidiaries | | | 22,868 | | | 29,953 | |
| Operating real estate, net | | | 29,626 | | | 16,673 | |
| Cash and cash equivalents | | | 5,371 | | | 21,275 | |
| Restricted cash | | | 184,169 | | | 268,910 | |
| Derivative assets | | | 62,884 | | | 63,834 | |
| Receivables and other assets | | | 52,031 | | | 38,302 | |
| | | $ | 8,604,392 | | $ | 6,209,699 | |
Liabilities and Stockholders’ Equity | | | | | | | |
Liabilities | | | | | | | |
| CBO bonds payable | | $ | 4,313,824 | | $ | 3,530,384 | |
| Other bonds payable | | | 675,844 | | | 353,330 | |
| Notes payable | | | 128,866 | | | 260,441 | |
| Repurchase agreements | | | 760,346 | | | 1,048,203 | |
| Repurchase agreements subject to asset backed commercial paper facility | | | 1,143,749 | | | - | |
| Financing of subprime mortgage loans subject to future repurchase | | | 288,202 | | | - | |
| Credit facility | | | 93,800 | | | 20,000 | |
| Junior subordinated notes payable (security for trust preferred) | | | 100,100 | | | - | |
| Derivative liabilities | | | 17,715 | | | 18,392 | |
| Dividends payable | | | 33,095 | | | 29,052 | |
| Due to affiliates | | | 13,465 | | | 8,783 | |
| Accrued expenses and other liabilities | | | 33,406 | | | 23,111 | |
| | | | 7,602,412 | | | 5,291,696 | |
| | | | | | | | |
Stockholders’ Equity | | | | | | | |
| Preferred stock, $0.01 par 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 Cummulative Redeemable Preferred Stock, liquidation preference $25.00 per share, issued and outstanding | | | 102,500 | | | 102,500 | |
| Common stock, $0.01 par value, 500,000,000 shares authorized, 45,713,817 | | | | | | | |
| and 43,913,409 shares issued and outstanding at December 31, 2006 and 2005, respectively | | | 457 | | | 439 | |
| Additional paid-in capital | | | 833,887 | | | 782,735 | |
| Dividends in excess of earnings | | | (10,848 | ) | | (13,235 | ) |
| Accumulated other comprehensive income | | | 75,984 | | | 45,564 | |
| | | | 1,001,980 | | | 918,003 | |
| | | | | | | | |
| | | $ | 8,604,392 | | $ | 6,209,699 | |
Newcastle Investment Corp.
Reconciliation of GAAP Net Income to FFO
(dollars in thousands)
(Unaudited)
| | | Three Months Ended December 31, 2006 | | Year Ended December 31, 2006 | |
| Net income available for common stockholders | | $ | 31,618 | | $ | 118,609 | |
| Operating real estate depreciation | | | 250 | | | 812 | |
| Funds from operations (“FFO”) | | $ | 31,868 | | $ | 119,421 | |
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)
| | | December 31, 2006 | |
| Book equity | | $ | 1,001,980 | |
| Preferred stock | | | (102,500 | ) |
| Accumulated depreciation on operating real estate | | | 4,188 | |
| Accumulated other comprehensive income | | | (75,984 | ) |
| Invested common equity | | $ | 827,684 | |
