Newcastle Announces Third Quarter 2012 Results
Third Quarter 2012 Highlights
GAAP income of $1.63 per diluted share
Core Earnings of $0.26 per diluted share
Declared common dividend of $0.22 per share, the third increase in the past six quarters
GAAP book value increased by $1.96 per share
Third Quarter 2012 Financial Results
NEW YORK--(BUSINESS WIRE)-- Newcastle Investment Corp. (NYS: NCT) reported that in the third quarter of 2012, income available for common stockholders ("GAAP income") was $272 million, or $1.63 per diluted share, compared to $29 million, or $0.35 per diluted share, in the third quarter of 2011.
GAAP income of $272 million consisted of the following:
$43 million, or $0.26 per diluted share, which is equal to net interest income and other revenues less expenses excluding depreciation and amortization, net of preferred dividends
$229 million of other income related to a $224 million net gain on the sale of Newcastle's CDO X interests and a $5 million net gain on the sale of other securities
The Company generated $36 million of Cash Available for Distribution ("CAD"), compared to $21 million in the second quarter of 2012.
On September 13, 2012, the Board of Directors declared a quarterly dividend of $0.22 per common share, or $38 million, for the quarter, representing a 10% increase from the second quarter's dividend of $0.20 per common share, or $29 million. The Board of Directors also declared dividends of $0.609375, $0.503125 and $0.523438 per share on the 9.75% Series B, 8.05% Series C and 8.375% Series D preferred stock, respectively, for the period beginning August 1, 2012 and ending October 31, 2012.
As of September 30, 2012, GAAP book value was $5.64 per share, an increase of $1.96 per share from June 30, 2012.
The following table summarizes the Company's operating results ($ in millions, except per share data):
Three Months Ended
Summary Operating Results:
GAAP income, per diluted share
Core earnings, per diluted share
Cash Available for Distribution
For a reconciliation of income available for common stockholders to core earnings and net cash flow provided by operating activities to cash available for distribution, please refer to the tables following the presentation of GAAP results.
For additional information that management believes to be useful for investors, please refer to the "Quarterly Supplement - Third Quarter 2012" presentation posted to the Investor Relations section of Newcastle's website, www.newcastleinv.com.
For consolidated investment portfolio information, please refer to the Company's Annual Report on Form 10-K or Quarterly Report on Form 10-Q, which are also available on the Company's website, www.newcastleinv.com.
THIRD QUARTER 2012 EVENTS & INVESTMENT ACTIVITY
$167 million of common equity raised:
In July 2012, the Company completed the sale of approximately 25 million shares of its common stock at a price of $6.63 per share for net proceeds of approximately $167 million.
CDO X sale:
In September 2012, the Company completed the sale of 100% of its interests in CDO X to the sole owner of the senior notes and another third party, in connection with the liquidation and termination of CDO X. The Company received $130 million for $90 million face amount of subordinated notes and all of its equity in CDO X.
In addition, Newcastle deconsolidated the deal from its balance sheet, which reduced total assets by $1.1 billion and total liabilities by $1.2 billion. As a result, the Company recorded a $224 million gain on sale, increased GAAP book value by $1.22 per share, and decreased its debt to equity ratio from 3.8 to 2.2.
$205 million of unrestricted cash invested primarily in the following:
$50 million: Collateral formerly held in CDO X
In connection with the liquidation of CDO X, Newcastle negotiated the purchase of eight securities and loans. Prior to the sale of the Company's CDO X interests to the senior note holder, it invested $50 million to purchase $101 million face amount of assets at an average price of 49.4% of par. The Company expects to generate $100 million of cash flow or $50 million of profit over an average of 2.4 years. This purchase includes five Non-Agency residential securities with a face amount of $45 million, two bank loans with a face amount of $29 million, and one NCT CDO security with a face amount of $27 million.
$79 million:Non-Agency RMBS investments
Invested $79 million to purchase $140 million face amount of Non‐Agency RMBS at an average price of 56.6% of par, with an expected unlevered yield of 7%, and a levered return of 17% assuming 65% financing.
$65 million:Senior Living Property investments
Invested $65 million (including working capital and transaction costs) to purchase eight senior housing assets financed with $88 million of non-recourse debt at a weighted average interest rate of 3.45% with a seven-year maturity.
CASH AND RECOURSE FINANCING
As of October 23, 2012, the Company's cash and recourse financings, excluding junior subordinated notes, were as set forth below:
Unrestricted Cash Available to Invest - The Company had $184 million of unrestricted cash available to invest
Recourse Financing - The Company had $660 million of financing related to FNMA and FHLMC securities with a value of $695 million and $61 million of financing related to two Non-Agency RMBS bonds with a value of $93 million.
I.RESIDENTIAL SERVICING & SECURITIES
As of September 30, 2012, Newcastle's residential servicing and securities portfolio consisted of five Excess MSRs investments with a total carrying value of $258 million and 21 Non-Agency RMBS purchased outside of the Company's CDOs since April 2012 with a total carrying value of $200 million.
This portfolio generated total cash flow of $27 million and increased in value by $10 million.
As of September 30, 2012, the total carrying value of the Company's Excess MSR investment was $258 million, representing a 65% interest in the net MSR cash flows on five loan portfolios with a total unpaid principal balance of $80 billion.
During the quarter, these investments generated $18 million of total cash flow and increased in value by $2 million.
The average updated IRR with actual performance was 19%, compared to an initial expected IRR of 18%
Received $29 million of life-to-date total cash flow through the end of September, or 11% of the initial investment of $262 million over an average of 4 months
Weighted Average Constant Prepayment Rate ("CPR") for September was 9.5% compared to the Company's initial CPR projection of 20%
As of September 30, 2012, the Company's Non-Agency RMBS portfolio consisted of $309 million face amount of assets (value of 64.7% of par). During the quarter, these investments generated $9 million of total cash flow and increased in value by $8 million.
II.COMMERCIAL REAL ESTATE DEBT & OTHER ASSETS
As of September 30, 2012, the Company's commercial real estate debt and other assets portfolio consisted of $2.8 billion of diversified assets financed with $1.9 billion of primarily match funded, non-recourse debt In addition, the portfolio consisted of $144 million of senior living properties financed with $88 million of non-recourse mortgage notes. Assets included 219 commercial, residential and corporate real estate securities and loan investments with an average investment size of $11 million, 9,137 mortgage loans backed by residential real estate, and eight senior living properties.
This portfolio generated total cash flow of $172 million and increased in value by $39 million. During the quarter, the weighted average carrying value of the real estate debt portfolio changed from a price of 82.0% to 83.3% of par.
Newcastle CDO financings
As of September 30, 2012, Newcastle's four CDOs consisted of $1.8 billion face amount of collateral (value of 79.9% of par) financed with $1.2 billion of non-recourse debt. During the quarter, the CDOs generated $159 million of total cash flow, which included:
$25 million of CDO cash receipts consisting of $21 million of excess interest, $3 million of interest on retained and repurchased CDO debt, and $1 million of senior collateral management fees
$134 million of proceeds from the sale of the CDO X interests and principal repayments on repurchased CDO debt
In addition, CDO IV passed its quarterly over-collateralization tests in September 2012. As a result of deferred interest payments on debt that is senior to the Company's Class V and equity holdings, the Company did not receive any additional cash flow during the quarter. If CDO IV continues to pass the over-collateralization tests, the Company should begin to receive additional cash flow to these holdings.
The following table summarizes the cash receipts in the quarter from the Company's consolidated CDO financings and the results of their related coverage tests ($ in thousands):
Over-Collateralization Excess (Deficiency)(2)(3)
September 30, 2012
June 30, 2012
(1) Cash receipts exclude $10 million of principal repayments from repurchased bonds and $124 million of proceeds in connection with the sale of CDO X interests. Cash receipts for the quarter ended September 30, 2012 may not be indicative of cash receipts for subsequent periods. See Forward-Looking Statements below for risks and uncertainties that could cause cash receipts for subsequent periods to differ materially from these amounts.
(2) Represents the excess or deficiency under the applicable interest coverage or over-collateralization test to the first threshold at which cash flow would be redirected. The Company generally does not receive material interest cash flow from a CDO until a deficiency is corrected. The information regarding coverage tests is based on data from the most recent remittance date on or before September 30, 2012 or June 30, 2012, as applicable. The CDO IV test is conducted only on a quarterly basis (December, March, June and September).
(3) As of the September 2012 remittance, the face amount of assets on negative watch for possible downgrade by at least one rating agency (Moody's, S&P, or Fitch) for CDOs IV, VIII and IX were $1.7 million, $53.8 million and zero, respectively
Other Real Estate Related Investments
As of September 30, 2012, other real estate related investments consisted of $988 million face amount of assets (value of 89.6% of par) financed with $741 million of debt. During the quarter, these investments generated $11 million of total cash flow which included:
$8 million of excess interest and interest on retained debt
$3 million of principal repayments
Senior Living Property Investments
As of September 30, 2012, the Company owned eight senior living properties consisting of $144 million of assets financed with $88 million of debt.
During the quarter, the investments generated $1.6 million of total cash flow, $0.4 million more than projected.
Average occupancy rate was 88%, equal to the Company's underwriting projection
Average monthly revenue per occupied unit was $4,213, compared to $4,132 in the underwriting projection
The following table describes the investment portfolio as of September 30, 2012 ($ in millions):
I. Residential Servicing & Securities
Excess MSRs Investments
Non-Agency RMBS (1)
Total Residential Servicing & Securities Assets
II. Commercial Real Estate Debt & Other Assets
Third-Party CDO Securities (2)
Other Investments (3)
Total Commercial Assets
MH and Residential Loans
Real Estate ABS
Total Residential Assets
Corporate Bank Loans