Exhibit 99.1
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL INFORMATION
The following unaudited pro forma condensed consolidated financial information was derived from the application of pro forma adjustments to the consolidated financial statements of Newcastle Investment Corp. and its subsidiaries (collectively, “Newcastle”). These unaudited pro forma condensed consolidated financial statements should be read in conjunction with the related notes to these financial statements and with Newcastle’s historical consolidated financial statements and the related notes included in Newcastle’s previous filings with the Securities and Exchange Commission.
The unaudited pro forma information set forth below reflects the historical information of Newcastle, as adjusted to give effect to the following transactions:
| • | A spin-off in which Newcastle would separate certain of its residential real estate related investments from the rest of its assets by distributing shares of common stock of New Residential Investment Corp. (“New Residential”), which is currently a wholly-owned subsidiary of Newcastle. The completion of this transaction is subject to a number of conditions. |
| • | The agreement to invest approximately $340 million for a 50% interest in an equity method investee, subsequent to September 30, 2012, that is expected to acquire a 67% interest in excess mortgage servicing rights (“Excess MSRs”) on a portfolio of residential mortgage loans with an unpaid principal balance of approximately $215 billion as of November 30, 2012. The completion of this transaction is subject to regulatory and third party approvals. |
| • | The investment of approximately $27 million for a 50% interest in an equity method investee, subsequent to September 30, 2012, that acquired a 67% interest in Excess MSRs on a portfolio of residential mortgage loans with an unpaid principal balance of approximately $13 billion as of November 30, 2012. |
| • | The proposed offering of $ million of common stock. |
The unaudited pro forma condensed consolidated statements of operations give effect to the spin-off of New Residential as if the spin-off had occurred on January 1, 2011. The unaudited pro forma condensed consolidated statements of operations exclude the impact of the proposed offering of common stock and the investments in equity method investees since the impact will depend on future returns, which are based on various assumptions which could prove to be incorrect. The unaudited pro forma condensed consolidated balance sheet assumes that the spin-off of New Residential, the proposed offering of common stock and the investments in equity method investees occurred on September 30, 2012.
The historical statements of operations presented in the unaudited pro forma condensed consolidated financial information are for the nine months ended September 30, 2012 as presented in Newcastle’s Quarterly Report on Form 10-Q for the nine months ended September 30, 2012, filed on October 26, 2012, and for the year ended December 31, 2011 as presented in Newcastle’s Annual Report on Form 10-K for the year ended December 31, 2011, filed on March 15, 2012. The historical balance sheet presented in the unaudited pro forma condensed consolidated financial information is as of September 30, 2012 as presented in Newcastle’s Quarterly Report on Form 10-Q for the nine months ended September 30, 2012.
In the opinion of management, all adjustments necessary to reflect the effects of the potential transactions described in the notes to the unaudited pro forma condensed consolidated financial statements have been included and are based upon available information and assumptions that Newcastle believes are reasonable.
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Further, the historical financial information presented herein has been adjusted to give pro forma effect to events that Newcastle believes are factually supportable and which are expected to have a continuing impact on Newcastle’s results. However, such adjustments are estimates and may not prove to be accurate. Information regarding these adjustments is subject to risks and uncertainties that could cause actual results to differ materially from those anticipated.
These unaudited pro forma condensed consolidated financial statements are provided for information purposes only. The unaudited pro forma condensed consolidated statements of operations and the unaudited pro forma condensed consolidated balance sheet do not purport to represent what Newcastle’s results of operations would have been had such transactions been consummated on the dates indicated, nor do they represent the financial position or results of operations of either Newcastle or New Residential for any future date or period.
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NEWCASTLE INVESTMENT CORP. AND SUBSIDIARIES
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
As of September 30, 2012
(dollars in thousands)
| Newcastle Consolidated Historical (a) | Capital Raise (b) | Equity Method Investments, Excess MSRs (c) | Spin-Off of New Residential (d) | Newcastle Consolidated Pro Forma | ||||||||||||||||
Assets | ||||||||||||||||||||
Non-Recourse VIE Financing Structures | ||||||||||||||||||||
Real estate securities, available-for-sale | $ | 591,929 | $ | — | $ | — | $ | — | $ | 591,929 | ||||||||||
Real estate related loans, held-for-sale, net | 832,885 | — | — | — | 832,885 | |||||||||||||||
Residential mortgage loans, held-for-investment, net | 301,370 | — | — | — | 301,370 | |||||||||||||||
Subprime mortgage loans subject to call option | 405,525 | — | — | — | 405,525 | |||||||||||||||
Operating real estate, held-for-sale | 7,839 | — | — | — | 7,839 | |||||||||||||||
Other investments | 18,883 | — | — | — | 18,883 | |||||||||||||||
Restricted cash | 2,829 | — | — | — | 2,829 | |||||||||||||||
Receivables and other assets | 6,432 | — | — | — | 6,432 | |||||||||||||||
| 2,167,692 | — | — | — | 2,167,692 | ||||||||||||||||
Recourse Financing Structures, Mortgaged Real Estate and |
| |||||||||||||||||||
Real estate securities, available-for-sale | 788,431 | — | — | (199,862 | ) | 579,569 | ||||||||||||||
Real estate related loans, held-for-sale, net | 9,418 | — | — | — | 9,418 | |||||||||||||||
Residential mortgage loans, held-for-sale, net | 2,566 | — | — | — | 2,566 | |||||||||||||||
Investments in excess mortgage servicing rights at fair value | 258,347 | — | — | (258,347 | ) | — | ||||||||||||||
Investments in equity method investees, excess mortgage service rights | — | — | 367,261 | (367,261 | ) | — | ||||||||||||||
Investments in real estate, net of accumulated depreciation | 126,798 | — | — | — | 126,798 | |||||||||||||||
Resident lease intangibles, net of accumulated amortization | 14,755 | — | — | — | 14,755 | |||||||||||||||
Other investments | 6,024 | — | — | — | 6,024 | |||||||||||||||
Cash and cash equivalents | 229,036 | (367,261 | ) | — | (f) | |||||||||||||||
Derivative assets | 224 | — | — | — | 224 | |||||||||||||||
Receivables and other assets | 33,571 | — | — | (25,258 | ) | 8,313 | ||||||||||||||
| 1,469,170 | — | (850,728 | ) | |||||||||||||||||
| $ | 3,636,862 | $ | $ | — | $ | (850,728 | ) | $ | ||||||||||||
Liabilities and Stockholders’ Equity Liabilities |
| |||||||||||||||||||
Non-Recourse VIE Financing Structures | ||||||||||||||||||||
CDO bonds payable | $ | 1,155,080 | $ | — | $ | — | $ | — | $ | 1,155,080 | ||||||||||
Other bonds and notes payable | 197,583 | — | — | — | 197,583 | |||||||||||||||
Repurchase agreements | 5,368 | — | — | — | 5,368 | |||||||||||||||
Financing of subprime mortgage loans subject to call option | 405,525 | — | — | — | 405,525 | |||||||||||||||
Derivative liabilities | 36,519 | — | — | — | 36,517 | |||||||||||||||
Accrued expenses and other liabilities | 8,241 | — | — | — | 8,241 | |||||||||||||||
| 1,808,316 | — | — | — | 1,808,316 | ||||||||||||||||
Recourse Financing Structures, Mortgages and Other Liabilities |
| |||||||||||||||||||
Repurchase agreements | 599,959 | — | — | (59,646 | ) | 540,313 | ||||||||||||||
Mortgage notes payable | 88,400 | — | — | — | 88,400 | |||||||||||||||
Junior subordinated notes payable | 51,245 | — | — | — | 51,245 | |||||||||||||||
Dividends payable | 38,877 | — | — | — | 38,877 | |||||||||||||||
Due to affiliates | 3,351 | — | — | (463 | )(e) | 2,888 | ||||||||||||||
Purchase price payable on investments in excess mortgage servicing rights | 3,250 | — | — | (3,250 | ) | — | ||||||||||||||
Accrued expenses and other liabilities | 9,278 | — | — | (2,161 | ) | 7,117 | ||||||||||||||
| 794,360 | — | — | (65,520 | ) | 728,840 | |||||||||||||||
| 2,602,676 | — | — | (65,520 | ) | 2,537,156 | |||||||||||||||
Stockholders’ Equity | ||||||||||||||||||||
Preferred stock | 61,583 | — | — | — | 61,583 | |||||||||||||||
Common stock | 1,725 | — | — | |||||||||||||||||
Additional paid-in capital | 1,709,905 | — | — | |||||||||||||||||
Accumulated deficit | (788,725 | ) | — | — | (777,895 | ) | (1,566,620 | ) | ||||||||||||
Accumulated other comprehensive income (loss) | 49,698 | — | — | (7,313 | ) | 42,385 | ||||||||||||||
| 1,034,186 | — | (785,208 | ) | |||||||||||||||||
| $ | 3,636,862 | $ | $ | — | $ | (850,728 | ) | $ | ||||||||||||
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NOTES TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
| (a) | Amounts as originally reported by Newcastle in its fiscal 2012 third quarter report filed on Form 10-Q. |
| (b) | Represents the net cash proceeds received, common stock issued and additional paid-in capital from the issuance of shares of common stock at a price of $ per share. |
| (c) | Represents the investments in equity method investees, which are invested in Excess MSRs. |
| (d) | Represents the historical financial position of New Residential as of September 30, 2012 adjusted for: (i) the investments in equity method investees described in (c) above; (ii) the contribution of proceeds from Newcastle to New Residential to complete these investments; and (iii) the adjustment to due to affiliates described in (e) below. Newcastle expects to contribute an as yet determined amount of certain other investments, including investments in Agency RMBS, prior to the spin-off. New Residential expects to finance a portion of these assets with repurchase agreements. |
| (e) | Represents a reduction of Newcastle’s due to affiliates for the allocation of one month of accrued and unpaid management fees from Newcastle to New Residential. |
| (f) | Represents Newcastle’s cash and cash equivalents at September 30, 2012, the cash received from the proposed offering and the investment of cash for the investments in equity method investees described in (c) above. Newcastle’s uninvested unrestricted cash balance at the date hereof is lower than the cash and cash equivalents balance at September 30, 2012 since Newcastle has committed or deployed cash for investments in Excess MSRs, senior living facilities, residential mortgage backed securities and other investments. In addition, Newcastle expects to contribute to New Residential an as of get determined amount of cash and cash equivalents prior to the spin-off. |
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NEWCASTLE INVESTMENT CORP. AND SUBSIDIARIES
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
Nine Months Ended September 30, 2012
(dollars in thousands)
| Newcastle Consolidated Historical (a) | Spin-Off of New Residential (b) | Newcastle Consolidated Pro Forma | ||||||||||
Interest income | $ | 240,187 | $ | (18,811 | ) | $ | 221,376 | |||||
Interest expense | 88,038 | (298 | ) | 87,740 | ||||||||
Net interest income | 152,149 | (18,513 | ) | 133,636 | ||||||||
Impairment/(Reversal) | ||||||||||||
Valuation allowance (reversal) on loans | (8,160 | ) | — | (8,160 | ) | |||||||
Other-than-temporary impairment on securities | 16,506 | — | 16,506 | |||||||||
Portion of other-than-temporary impairment on securities recognized in other comprehensive income (loss), net of the reversal of other comprehensive loss into net income (loss) | (1,913 | ) | — | (1,913 | ) | |||||||
| 6,433 | — | 6,433 | ||||||||||
Net interest income after impairment/reversal | 145,716 | (18,513 | ) | 127,203 | ||||||||
Other Revenues | ||||||||||||
Rental income | 6,137 | — | 6,137 | |||||||||
Care and ancillary income | 1,411 | — | 1,411 | |||||||||
Total other revenues | 7,548 | — | 7,548 | |||||||||
Other Income (Loss) | ||||||||||||
Gain (loss) on settlement of investments, net | 232,885 | — | 232,885 | |||||||||
Gain on extinguishment of debt | 23,127 | — | 23,127 | |||||||||
Change in fair value of investments in excess mortgage servicing rights | 6,513 | (6,513 | ) | — | ||||||||
Other income (loss), net | 1,650 | — | 1,650 | |||||||||
| 264,175 | (6,513 | ) | 257,662 | |||||||||
Expenses | ||||||||||||
Loan and security servicing expense | 3,256 | — | 3,256 | |||||||||
Property operating expenses | 4,742 | — | 4,742 | |||||||||
General and administrative expense | 13,193 | (2,363 | ) | 10,830 | ||||||||
Management fee to affiliate | 17,459 | (1,733 | ) | 15,726 | ||||||||
Depreciation and amortization | 2,370 | — | 2,370 | |||||||||
| 41,020 | (4,096 | ) | 36,924 | |||||||||
Income from continuing operations | 376,419 | (20,930 | ) | 355,489 | ||||||||
Preferred dividends | (4,185 | ) | — | (4,185 | ) | |||||||
Income from continuing operations after preferred dividends | $ | 372,234 | $ | (20,930 | ) | $ | 351,304 | |||||
Income from continuing operations per share of common stock, after preferred dividends | ||||||||||||
Basic | $ | 2.77 | $ | 2.61 | ||||||||
Diluted | $ | 2.74 | $ | 2.59 | (c) | |||||||
Weighted Average Number of Shares of Common Stock Outstanding | ||||||||||||
Basic | 134,619,858 | 134,619,858 | ||||||||||
Diluted | 135,869,332 | 135,869,332 | (c) | |||||||||
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NEWCASTLE INVESTMENT CORP. AND SUBSIDIARIES
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
Twelve Months Ended December 31, 2011
(dollars in thousands)
| Newcastle Consolidated Historical (a) | Spin-Off of New Residential (b) | Newcastle Consolidated Pro Forma | ||||||||||
Interest income | $ | 292,296 | $ | (1,260 | ) | $ | 291,036 | |||||
Interest expense | 138,035 | — | 138,035 | |||||||||
Net interest income | 154,261 | (1,260 | ) | 153,001 | ||||||||
Impairment/(Reversal) | ||||||||||||
Valuation allowance (reversal) on loans | (15,163 | ) | — | (15,163 | ) | |||||||
Other-than-temporary impairment on securities | 12,955 | — | 12,955 | |||||||||
Portion of other-than-temporary impairment on securities recognized in other comprehensive income (loss), net of the reversal of other comprehensive loss into net income (loss) | 2,885 | — | 2,885 | |||||||||
| 677 | — | 677 | ||||||||||
Net interest income after impairment/reversal | 153,584 | (1,260 | ) | 152,324 | ||||||||
Other Income (Loss) | ||||||||||||
Gain (loss) on settlement of investments, net | 78,181 | — | 78,181 | |||||||||
Gain on extinguishment of debt | 66,110 | — | 66,110 | |||||||||
Other income (loss), net | (8,501 | ) | (367 | ) | (8,868 | ) | ||||||
| 135,790 | (367 | ) | 135,423 | |||||||||
Expenses | ||||||||||||
Loan and security servicing expense | 4,649 | — | 4,649 | |||||||||
General and administrative expense | 7,295 | (874 | ) | 6,421 | ||||||||
Management fee to affiliate | 18,289 | (39 | ) | 18,250 | ||||||||
| 30,233 | (913 | ) | 29,320 | |||||||||
Income from continuing operations | 259,141 | (714 | ) | 258,427 | ||||||||
Preferred dividends | (5,580 | ) | — | (5,580 | ) | |||||||
Income from continuing operations after preferred dividends | $ | 253,561 | $ | (714 | ) | $ | 252,847 | |||||
Income from continuing operations per share of common stock, after preferred dividends | ||||||||||||
Basic | $ | 3.09 | $ | 3.08 | ||||||||
Diluted | $ | 3.09 | $ | 3.08 | (c) | |||||||
Weighted Average Number of Shares of CommonStock Outstanding | ||||||||||||
Basic | 81,983,973 | 81,983,973 | ||||||||||
Diluted | 81,990,297 | 81,990,297 | (c) | |||||||||
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NOTES TO UNAUDITED PRO FORMA CONDENSED
CONSOLIDATED STATEMENT OF OPERATIONS
| (a) | Amounts as originally reported by Newcastle in its fiscal 2012 third quarter report filed on Form 10-Q and fiscal 2011 annual report on Form 10-K. |
| (b) | Represents New Residential’s results of operations for the nine months ended September 30, 2012 and the period from December 8, 2011 (commencement of operations) to December 31, 2011. |
| (c) | Does not include potential additional diluted shares as a result of changes to outstanding Newcastle options from the potential spin-off. The number of additional diluted shares will vary depending on various factors, including the share prices of Newcastle and New Residential subsequent to the spin-off. |
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