| NEWCASTLE INVESTMENT CORP. |
Contact:
Lilly H. Donohue
Director of Investor Relations
212-798-6118
Nadean Finke
Investor Relations
212-479-5295
Newcastle Announces Record First Quarter 2007 Results
First Quarter Highlights
| - | FFO of $0.71 per diluted share, up 9.2% from the first quarter 2006 |
| - | FFO return on average invested equity of 15.3% |
| - | Declared 1Q07 dividend of $0.69 per share, our eighteenth consecutive quarter of stable or growing dividends |
| - | Record $2.2 billion of new acquisitions in the quarter |
| - | Raised $123 million of equity capital through the issuance of 2.42 million common and 2 million perpetual preferred shares |
New York, NY, May 3, 2007 - Newcastle Investment Corp. (NYSE: NCT) reported that for the quarter ended March 31, 2007, Funds from Operations (“FFO”) were $33.9 million, or $0.71 per diluted share, compared to $0.65 per diluted share for the first quarter 2006. The Company generated an FFO return on average invested equity of 15.3% for the first quarter 2007.
For the three months ended March 31, 2007, income available for common stockholders was $33.7 million, or $0.70 per diluted share, compared to $0.65 per diluted share for the first quarter 2006.
For the quarter ended March 31, 2007, we declared a dividend of $0.69 per common share.
Our GAAP common equity book value was $18.39 per share or a total of $886 million at March 31, 2007 versus $19.68 per share or $899 million at year end 2006.
Kenneth Riis, Newcastle’s Chief Executive Officer and President, commented, “We had a record quarter both in terms of earnings and investment activity - FFO of $0.71 per share was the highest to date and we closed on $2.2 billion of new investments. The significant widening of credit spreads experienced in the quarter created opportunities to invest new capital at attractive risk-adjusted returns. It also demonstrated the stability of our business model as fluctuations in the value of our securities portfolio had no impact on our earnings or ability to pay dividends.”
For a reconciliation and discussion of GAAP net income to FFO and GAAP book equity to invested common equity, please refer to the tables following the presentation of GAAP results.
Selected Financial Data (Unaudited) ($ in millions, except per share data)
Operating Data: | | Three Months Ended March 31, 2007 | | Three Months Ended March 31, 2006 | |
| | | (Amount) | | (per diluted share) | | (Amount) | | (per diluted share) | |
| Funds from operations | | $ | 33.9 | | $ | 0.71 | | $ | 28.7 | | $ | 0.65 | |
| Income available for common stockholders | | $ | 33.7 | | $ | 0.70 | | $ | 28.6 | | $ | 0.65 | |
Balance Sheet Data: | | As of March 31, 2007 | | As of December 31, 2006 | |
| Total assets | | $ | 10,221 | | $ | 8,604 | |
| Total liabilities | | | 9,182 | | | 7,602 | |
| Common stockholders’ equity | | | 886 | | | 899 | |
| Preferred stock | | | 153 | | | 103 | |
| Total equity | | | 1,039 | | | 1,002 | |
The following table summarizes our investment portfolio at March 31, 2007 and December 31, 2006 ($ in millions):
| | | As of March 31, 2007 | | As of December 31, 2006 | |
Core | | Face Amount | | % Total | | Face Amount | | % Total | |
| Real Estate Securities and Related Loans | | $ | 6,782 | | | 65.2 | % | $ | 6,196 | | | 71.7 | % |
| Subprime Loans, Held for Sale | | | 1,049 | | | 10.1 | % | | - | | | 0.0 | % |
| Residential Mortgage Loans | | | 759 | | | 7.3 | % | | 813 | | | 9.4 | % |
| Subprime Loans Subject to Call Option | | | 299 | | | 2.8 | % | | 299 | | | 3.5 | % |
| Investment in Real Estate Joint Venture | | | 38 | | | 0.4 | % | | 38 | | | 0.4 | % |
| | | | | | | | | | | | | | |
| Subtotal | | $ | 8,927 | | | 85.8 | % | $ | 7,346 | | | 85.0 | % |
| | | | | | | | | | | | | | |
Non-Core | | | | | | | | | | | | | |
| Agency RMBS | | $ | 1,349 | | | 13.0 | % | $ | 1,178 | | | 13.6 | % |
| ICH Loans | | | 122 | | | 1.2 | % | | 123 | | | 1.4 | % |
| | | | | | | | | | | | | | |
| | | | | | | | | | | | | | |
Total Portfolio | | $ | 10,398 | | | 100.0 | % | $ | 8,647 | | | 100.0 | % |
The following tables compare certain supplemental data relating to our investment portfolio at March 31, 2007 versus December 31, 2006:
Supplemental Data:
| | | Total Portfolio | | Core Portfolio | |
| | | March 31, 2007 | | December 31, 2006 | | March 31, 2007 | | December 31, 2006 | |
| Weighted average asset yield | | | 7.45 | % | | 7.28 | % | | 7.80 | % | | 7.63 | % |
| Weighted average liability cost | | | 5.88 | % | | 5.85 | % | | 6.03 | % | | 6.00 | % |
| Weighted average net spread | | | 1.57 | % | | 1.43 | % | | 1.77 | % | | 1.63 | % |
First Quarter Investment Activity
We purchased $2.2 billion of assets in the first quarter, and in addition, committed to purchase $248 million of assets that will close subsequent to quarter-end, our most active quarter to date.
Of the first quarter closings, $374 million was financed off balance sheet through total rate of return swaps. We recorded a deposit of $56 million towards the total rate of return swaps.
The following table details our funded acquisitions in the quarter ($ in millions):
Real Estate Securities and Loans | | Face Amount | | Number | | Credit(1) | | WA Credit Spread(2) | |
| Commerical Real Estate Mezzanine Loans | | $ | 508 | | | 4 | | | 78% | | | 360 | |
| Bank Loans | | | 292 | | | 8 | | | 55% | | | 217 | |
| Commerical Real Estate B-Notes | | | 60 | | | 2 | | | 56% | | | 363 | |
| Commerical Real Estate Whole Loans | | | 46 | | | 1 | | | 78% | | | 178 | |
| Commercial Mortgage Backed Securities (CMBS) | | | 47 | | | 3 | | | BBB | | | 167 | |
| Real Estate Related Asset Backed Securities (ABS) | | | 10 | | | 1 | | | BBB- | | | 335 | |
Total Real Estate Securities and Loans | | | 963 | | | 19 | | | | | | 298 | |
| | | | | | | | | | | | | | |
Residential Mortgage Loans | | | | | | | | | | | | | |
| Subprime Loans, Held for Sale | | | 1,051 | | | 4,402 | | | 642 | | | NR | |
| | | | | | | | | | | | | | |
Agency RMBS | | | 220 | | | 7 | | | AAA | | | 69 | |
TOTAL | | $ | 2,234 | | | | | | | | | | |
(1) Credit represents weighted average rating for rated assets, LTV for non-rated assets, FICO score for residential mortgage loans and implied AAA for Agency RMBS.
(2) Average spread based on applicable benchmark (US Treasury for fixed and LIBOR for floating).
In the quarter, we also sold 10 real estate securities totaling $88 million with an average rating of BBB-.
Kenneth Riis noted, “We took advantage of the dislocation in the subprime residential market with the acquisition of $1.3 billon of loans, representing 75% of our original commitment made in March. Our ability to underwrite the risk and have a Fortress affiliate service the loans, positioned us well to invest in this transaction. We also continue to see good relative value in the commercial and corporate sector as almost half of our new asset acquisitions were commercial real estate debt and bank loans.”
Capital Markets Activity
First quarter activities include:
| - | In January, we issued 2.42 million common shares, for net proceeds of approximately $75 million. |
| - | In March 2007, we issued 2 million shares of newly designated 8.375% Series D Cumulative Redeemable Preferred Stock for net proceeds of $48 million. |
| - | The net proceeds from both capital raises were used to pay down amounts drawn on our credit facility to fund new acquisitions. |
Subsequent to quarter-end activities:
| - | In April, we issued 4.56 million common shares, and raised net proceeds of approximately $125 million. The proceeds were used to pay down amounts drawn on our credit facility to fund new acquisitions. |
| - | In April, we priced our tenth collateralized debt obligation (“CDO”). The proceeds from this issuance were used to term finance an $825 million portfolio of newly acquired mezzanine loans, bank loans, B-Notes, CMBS and other commercial real estate assets including whole loans. Net of this financing, we expect to invest approximately $120 million of capital with a targeted return on equity of 16.5%. |
Ms. Debra Hess, our Chief Financial Officer commented, “Since year-end, we have raised and invested $250 million of equity capital. We were opportunistic in tapping the capital markets as the added liquidity enabled us to take advantage of market dislocations and make accretive investments. We also entered into multiple financing arrangements with flexible terms that position us well for future growth.”
Investment Portfolio
The following table details our investment portfolio at March 31, 2007 ($ in millions):
Real Estate Securities and Related Loans | | Face Amount | | % of Total Portfolio | | Number | | Credit(1) | | WA Life | |
| CMBS | | $ | 2,462 | | | 23.7 | % | | 294 | | | BBB- | | | 5.4 | |
| Mezzanine Loans | | | 1,447 | | | 13.9 | % | | 27 | | | 68% | | | 2.4 | |
| REIT Debt | | | 954 | | | 9.2 | % | | 96 | | | BBB- | | | 6.0 | |
| ABS | | | 862 | | | 8.3 | % | | 153 | | | BBB | | | 3.0 | |
| Bank Loans | | | 543 | | | 5.2 | % | | 13 | | | 57% | | | 3.2 | |
| B-Notes | | | 346 | | | 3.3 | % | | 12 | | | 65% | | | 2.7 | |
| Real Estate Loans | | | 128 | | | 1.2 | % | | 5 | | | 74% | | | 1.8 | |
| ABS Residual | | | 40 | | | 0.4 | % | | 1 | | | NR | | | 2.3 | |
Total Core Real Estate Securities and Loans | | | 6,782 | | | 65.2 | % | | 601 | | | | | | 4.1 | |
Agency RMBS | | | 1,349 | | | 13.0 | % | | 42 | | | AAA | | | 4.3 | |
Total Real Estate Securities and Loans | | | 8,131 | | | 78.2 | % | | 643 | | | | | | 4.2 | |
Residential Mortgage Loans | | | | | | | | | | | | | | | | |
| Manufactured Home Loans | | | 618 | | | 5.9 | % | | 17,660 | | | 691 | | | 5.8 | |
| Residential Mortgage Loans | | | 141 | | | 1.4 | % | | 423 | | | 718 | | | 2.8 | |
Total Residential Mortgage Loans | | | 759 | | | 7.3 | % | | 18,083 | | | 696 | | | 5.2 | |
| | | | | | | | | | | | | | | | | |
Subprime Loans Held for Sale | | | 1,049 | | | 10.1 | % | | 4,402 | | | 642 | | | 2.5 | |
Other | | | 459 | | | 4.4 | % | | 182 | | | | | | 2.3 | |
| | | | | | | | | | | | | | | | | |
TOTAL | | $ | 10,398 | | | 100.0 | % | | | | | | | | 4.0 | |
(1) Credit represents weighted average rating for rated assets, LTV for non-rated commercial assets, FICO score for non-rated residential assets and implied AAA for Agency RMBS.
Total real estate securities and loans of $8.1 billion face amount representing 78.2% of the total portfolio.
| - | $6.8 billion or 84% of this portfolio is rated by third parties, or had an implied AAA rating, with a weighted average rating of BBB. |
| - | $4.7 billion or 58% of this portfolio has an investment grade rating (BBB- or higher) or an implied AAA rating. |
| - | 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 (excluding subprime residual) of $6.8 billion was 2.81% at March 31, 2007 versus 2.56% at December 31, 2006. |
| - | The core real estate securities and loans portfolio had 601 investments. The largest investment was $321 million and the average investment size was $11 million. |
| - | The credit profile of our real estate securities portfolio continued to improve during the first quarter. This can be demonstrated by the ratio of upgrades to downgrades in the quarter, where 29 securities ($235 million face amount) experienced credit rating upgrades, versus 6 securities ($65 million face amount) which experienced a credit rating downgrade. |
Residential mortgage loans of $759 million face amount, representing 7.3% of the total portfolio.
| - | These residential loans are to high quality borrowers with an average FICO score of 696. |
| - | Our residential and manufactured housing loans were well diversified with 423 and 17,660 loans, respectively. |
Subprime loans held for sale of $1.0 billion face amount, representing 10.1% of the total portfolio.
| | - | Our subprime loans held for sale were well diversified with 4,402 loans. |
| - | Approximately 95% of the portfolio is secured first liens and 93% are owner occupied. |
Conference Call
Newcastle’s management will conduct a live conference call today, May 3, 2007, at 1:00 P.M. eastern time to review the financial results for the quarter ended March 31, 2007. All interested parties are welcome to participate on the live call. You can access the conference call by dialing (888) 811-7286 (from within the U.S.) or (913) 981-4902 (from outside of the U.S.) ten minutes prior to the scheduled start of the call; please reference “Newcastle First Quarter 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 June 30, 2007.
A telephonic replay of the conference call will also be available from 3:00 P.M. eastern time on May 3, 2007 until 11:59 P.M. eastern time on Thursday, May 10, 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 “3124207.”
About Newcastle
Newcastle Investment Corp. owns and manages a $10.4 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 approximately $35.1 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)
| | | For the Three Months Ended March 31, | |
| | | 2007 | | 2006 | |
Revenues | | | | | |
| Interest income | | $ | 162,221 | | $ | 113,907 | |
| Rental and escalation income | | | 1,253 | | | 2,008 | |
| Gain on sale of investments, net | | | 2,212 | | | 1,928 | |
| Other income | | | 743 | | | 5,705 | |
| | | | 166,429 | | | 123,548 | |
Expenses | | | | | | | |
| Interest expense | | | 116,757 | | | 76,965 | |
| Property operating expense | | | 1,036 | | | 818 | |
| Loan and security servicing expense | | | 1,983 | | | 2,006 | |
| Provision for credit losses | | | 2,036 | | | 2,007 | |
| Provision for losses, loans held for sale | | | - | | | 4,127 | |
| General and administrative expense | | | 1,337 | | | 1,630 | |
| Management fee to affiliate | | | 3,906 | | | 3,471 | |
| Incentive compensation to affiliate | | | 3,688 | | | 2,852 | |
| Depreciation and amortization | | | 329 | | | 199 | |
| | | | 131,072 | | | 94,075 | |
| | | | | | | | |
| Income before equity in earnings of unconsolidated subsidiaries | | | 35,357 | | | 29,473 | |
| Equity in earnings of unconsolidated subsidiares | | | 847 | | | 1,195 | |
| Income from continuing operations | | | 36,204 | | | 30,668 | |
| Income (loss) from discontinued operations | | | (13 | ) | | 251 | |
Net Income | | | 36,191 | | | 30,919 | |
| Preferred dividends | | | (2,515 | ) | | (2,328 | ) |
Income Available For Common Stockholders | | $ | 33,676 | | $ | 28,591 | |
Net Income Per Share of Common Stock | | | | | | | |
Basic | | $ | 0.71 | | $ | 0.65 | |
Diluted | | $ | 0.70 | | $ | 0.65 | |
| Income from continuing operations per share of common stock, after | | | | | | | |
| preferred dividends | | | | | | | |
| Basic | | $ | 0.71 | | $ | 0.64 | |
| Diluted | | $ | 0.70 | | $ | 0.64 | |
| Income from discontinued operations per share of common stock | | | | | | | |
| Basic | | $ | - | | $ | 0.01 | |
| Diluted | | $ | - | | $ | 0.01 | |
Weighted Average Number of Shares of | | | | | | | |
Common Stock Outstanding | | | | | | | |
Basic | | | 47,572,895 | | | 43,944,820 | |
Diluted | | | 47,823,497 | | | 44,063,940 | |
| | | | | | | | |
Dividends Declared per Share of Common Stock | | $ | 0.690 | | $ | 0.625 | |
Newcastle Investment Corp.
Consolidated Balance Sheets
(dollars in thousands, except share data)
(Unaudited)
| | | March 31, 2007 (unaudited) | | December 31, 2006 | |
Assets | | | | | |
| Real estate securities, available for sale | | $ | 5,581,179 | | $ | 5,581,228 | |
| Real estate related loans, net | | | 2,138,974 | | | 1,568,916 | |
| Residential mortgage loans, net | | | 752,590 | | | 809,097 | |
| Subprime mortgage loans, held for sale | | | 1,018,080 | | | - | |
| Subprime mortgage loans subject to call option | | | 289,021 | | | 288,202 | |
| Investments in unconsolidated subsidiaries | | | 22,778 | | | 22,868 | |
| Operating real estate, net | | | 29,684 | | | 29,626 | |
| Cash and cash equivalents | | | 3,929 | | | 5,371 | |
| Restricted cash | | | 267,903 | | | 184,169 | |
| Derivative assets | | | 51,032 | | | 62,884 | |
| Receivables and other assets | | | 65,801 | | | 52,031 | |
| | | $ | 10,220,971 | | $ | 8,604,392 | |
Liabilities and Stockholders' Equity | | | | | | | |
| | | | | | | | |
Liabilities | | | | | | | |
| CBO bonds payable | | $ | 4,282,503 | | $ | 4,313,824 | |
| Other bonds payable | | | 649,853 | | | 675,844 | |
| Notes payable | | | 109,922 | | | 128,866 | |
| Repurchase agreements | | | 2,198,064 | | | 760,346 | |
| Repurchase agreements subject to asset backed commercial paper facility | | | 1,312,209 | | | 1,143,749 | |
| Financing of subprime mortgage loans subject to call option | | | 289,021 | | | 288,202 | |
| Credit facility | | | 125,500 | | | 93,800 | |
| Junior subordinated notes payable (security for trust preferred) | | | 100,100 | | | 100,100 | |
| Derivative liabilities | | | 22,726 | | | 17,715 | |
| Dividends payable | | | 35,003 | | | 33,095 | |
| Due to affiliates | | | 5,035 | | | 13,465 | |
| Accrued expenses and other liabilities | | | 52,085 | | | 33,406 | |
| | | | 9,182,021 | | | 7,602,412 | |
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 | | | | | | | |
| 1,600,000 shares of 8.05% Series C Cummulative Redeemable Preferred Stock, | | | | | | | |
| and 2,000,000 shares of 8.375% Series D Cummulative Redeemable Preferred Stock | | | | | | | |
| liquidation preference $25.00 per share, issued and outstanding | | | 152,500 | | | 102,500 | |
| Common stock, $0.01 par value, 500,000,000 shares authorized, 48,209,699 and | | | | | | | |
| 45,713,817 shares issued and outstanding at March 31, 2007 and | | | | | | | |
| December 31, 2006, respectively | | | 482 | | | 457 | |
| | | | | | | | |
| Additional paid-in capital | | | 908,368 | | | 833,887 | |
| | | | | | | | |
| Dividends in excess of earnings | | | (10,437 | ) | | (10,848 | ) |
| | | | | | | | |
| Accumulated other comprehensive income | | | (11,963 | ) | | 75,984 | |
| | | | 1,038,950 | | | 1,001,980 | |
| | | $ | 10,220,971 | | $ | 8,604,392 | |
Newcastle Investment Corp.
Reconciliation of GAAP Net Income to FFO
(dollars in thousands)
(Unaudited)
| | | Three Months Ended March 31, 2007 | | Three Months Ended March 31, 2006 | |
| Net income available for common stockholders | | $ | 33,676 | | $ | 28,591 | |
| Operating real estate depreciation | | | 256 | | | 131 | |
| Funds from operations (“FFO”) | | $ | 33,932 | | $ | 28,722 | |
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)
| | | March 31, 2007 | |
| Book equity | | $ | 1,038,950 | |
| Preferred stock | | | (152,500 | ) |
| Accumulated depreciation on operating real estate | | | 4,487 | |
| Accumulated other comprehensive income | | | 11,963 | |
| Invested common equity | | $ | 902,900 | |
