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First Quarter 2009 Financial Results
Newcastle Investment Corp. (NYSE: NCT | Quote | Chart | News | PowerRating) reported that for the quarter ended March 31, 2009, GAAP loss was $242.2 million or $4.59 per diluted share, compared to GAAP loss of $0.84 per diluted share for the quarter ended March 31, 2008.
The GAAP loss of $242.2 million consists of Operating Income (before impairments and net of preferred dividends) of $51.1 million plus other income of $13.8 million, less impairments of $307.1 million.
Recourse Debt Reduction and Modifications
In the first quarter, the Company decreased its non-agency recourse debt by $51 million and decreased its FNMA/FHLMC recourse debt by $125 million.
During the first quarter, the Company eliminated its exposure to "mark-to-market" recourse debt subject to margin calls on its non-FNMA/FHLMC (non-agency) investments. Furthermore, we eliminated our exposure to equity-related debt covenants with respect to our recourse financings. In return for these modifications, we pledged additional assets that were previously unlevered and agreed to a fixed repayment schedule through the end of 2010.
In April 2009, Newcastle entered into an Exchange Agreement, pursuant to which the Company agreed to exchange newly issued junior subordinated notes due 2035 in an initial aggregate principal amount of $101.7 million for $100 million in aggregate liquidation amount of our outstanding trust preferred securities. The new notes will accrue interest at a rate of 1.0% per year for a modification period (February 2009 through July 2010 unless we elect to terminate prior to this date), compared to the 7.574% interest rate that the Company was required to pay on the trust preferred securities, which were canceled as part of the transaction. Please review our Form 8-K for additional important details regarding this transaction.
Financing and Liquidity
Certain details regarding our liquidity, current financings and capital obligations are set forth below as of May 6, 2009:
-- Cash - We had unrestricted cash of $53.8 million. In addition, we had $34.3 million of restricted cash for reinvestment in our CDOs;
-- Margin Exposure - We have no financings subject to margin calls, other than one repurchase agreement with a face amount of $46.4 million which finances our FNMA/FHLMC investments and four interest rate swap agreements with an aggregate notional amount of $74.4 million;
-- Construction Loan Funding Commitment - We have an outstanding recourse funding commitment with respect to a commercial construction loan of $37.9 million (excluding commitments owned by our CDOs), subject to certain conditions to be met by the borrowers. This commitment is expected to be funded over the next 16 months; and
-- Recourse Financings - Substantially all of our assets, other than our FNMA/FHLMC investments, are currently financed with term debt subject to amortization payments, as opposed to short-term debt such as repurchase agreements, which could be subject to margin requirements or termination.
The following table compares the face amount of our recourse financings, excluding the trust preferred securities ($ in millions):
May 6, March 31, December 31,
2009 2009 2008
Recourse Financings
Non-FNMA/FHLMC (non-agency)
Real Estate Securities and Loans $ 81 $ 83 $ 103
Manufacturing Housing Loans 19 20 51
Subtotal 100 103 154
FNMA/FHLMC Investments 46 48 173
Total Recourse Financings $ 146 $ 151 $ 327
The following table summarizes the scheduled repayments of our non-agency recourse financings ($ in millions):
Scheduled Repayments
May 7, 2009 to June 30, 2009 $ 9
3rd Quarter 2009 13
4th Quarter 2009 24
1st Quarter 2010 26
2nd Quarter 2010 23
3rd Quarter 2010 3
4th Quarter 2010 2
Total Recourse Financings $ 100
The following table summarizes our cash receipts in the first quarter 2009 from our CDO financings and their related coverage tests ($ in thousands):
Interest
Primary Coverage
Collateral % Excess Over Collateralization % Excess
Type Cash Receipts (1) Mar 31, 2009 (2) Mar 31, 2009 (2) Original
CDO IV Securities $ 1,601 60.4% 1.0% 3.5%
CDO V Securities 1,691 63.6% 2.3% 2.5%
CDO VI Securities 608 256.5% -5.4% 2.6%
CDO VII Securities 160 214.6% -9.1% 2.5%
CDO VIII Loans 6,423 288.2% 0.2% 4.5%
CDO IX Loans 5,541 225.6% 4.8% 8.1%
CDO X Securities 4,453 55.4% 2.5% 8.3%
Total $ 20,477
(1) Represents net cash received from each CDO based on all of our
interests in such CDO (including senior management fees). Cash
receipts for the quarter-ended March 31, 2009 may not be indicative
of cash receipts for subsequent periods. See forward-looking
statements below for risks and uncertainties that could cause our
cash receipts for subsequent periods to differ materially from these
amounts.
(2) Represents excess or deficiency under the applicable interest
coverage or over collateralization tests. We generally do not
receive cash flow from the CDO until the deficiency is corrected.
The information regarding coverage tests is based on data from the
most recent remittance date on or before March 31, 2009.
Book Value
Our GAAP book value decreased to $(49.95) per share, or $(2.6) billion at March 31, 2009, down from $(48.23) per share, or $(2.5) billion at December 31, 2008.
The following table compares Newcastle's book value per share as of March 31, 2009 and December 31, 2008:
March 31, 2009 December 31, 2008
Adjusted book value (1) $ 18.69 $ 17.58
GAAP book value $ (49.95) $ (48.23)
(1) Represents GAAP book value as if Newcastle had elected to measure
all of its financial assets and liabilities at fair value under SFAS
159, "The Fair Value Option for Financial Assets and Financial
Liabilities." Adjusted book value could only be realized if
Newcastle were able to repurchase all of its outstanding debt at its
estimated fair value, which would require significantly more
liquidity than we currently possess.
For a reconciliation of operating income (loss) to operating income (before impairments and net of preferred dividends) and of GAAP book value to adjusted book value, please refer to the tables following the presentation of GAAP results.
Dividends
For the quarter ended March 31, 2009, Newcastle's Board of Directors elected not to pay a common stock or preferred stock dividend. The Company decided to retain capital to further reduce recourse debt and for working capital purposes.
Investment Portfolio
Newcastle's $5.9 billion investment portfolio (with a basis of $2.4 billion) consists of commercial, residential and corporate debt. During the quarter, the portfolio decreased by $259.7 million primarily as a result of principal repayments of $51.1 million, sales of $254.3 million and realized writedowns of $18.3 million, offset by purchases and fundings of a prior commitment of $64.2 million.
The following table describes our investment portfolio as of March 31, 2009 ($ in millions):
Weighted
Face Basis % of Number of Average
Amount $ Amount $ (1) Basis Investments Credit (2) Life (years) (3)
Commercial Assets
CMBS $ 2,267 $ 707 29.3% 262 BB+ 4.9
Mezzanine Loans 756 313 13.0% 23 66% 2.8
B-Notes 310 108 4.5% 11 60% 2.2
Whole Loans 100 69 2.9% 4 54% 2.2
Total Commercial Assets 3,433 1,197 49.7% 4.1
Residential Assets
MH and Residential Loans 533 381 15.8% 13,735 694 6.8
Subprime Securities 550 140 5.8% 120 B 4.3
Subprime Retained Securities & Residuals 81 6 0.3% 8 CC/650 2.3
Real Estate ABS 98 47 1.9% 26 BB+ 7.6
1,262 574 23.8% 5.5
FNMA/FHLMC Securities 49 49 2.0% 2 AAA 2.7
Total Residential Assets 1,311 623 25.8% 5.4
Corporate Assets
REIT Debt 633 382 15.9% 62 BB 4.6
Corporate Bank Loans 499 209 8.6% 14 CCC+ 2.2
Total Corporate Assets 1,132 591 24.5% 3.6
Total/Weighted Average (4) $ 5,876 $ 2,411 100.0% 4.3
(1) Net of impairments.
(2) Credit represents weighted average of minimum rating for rated
assets, LTV (based on the appraised value at the time of purchase)
for non-rated commercial assets, FICO score for non-rated
residential assets and an implied AAA rating for FNMA/FHLMC
securities. Ratings provided above were determined by third party
rating agencies as of a particular date, may not be current and are
subject to change (including the assignment of a "negative outlook"
or "credit watch") at any time.
(3) The weighted average lives of our Mezzanine Loans, B-Notes and Whole
Loans are based on the fully extended maturity dates.
(4) Excludes operating real estate held for sale and loans subject to
call option with a face amount of $11 million and $406 million,
respectively.
Commercial Assets
We own $3.4 billion of commercial assets (with a basis of $1.2 billion), which includes CMBS, mezzanine loans, B-Notes and whole loans.
-- During the quarter, we purchased and funded a prior commitment totaling $44.8 million, sold $84.5 million, had principal repayments of $15.4 million and no realized writedowns for a net decrease of $55.1 million. We purchased one CMBS asset with a rating of "A."
-- We had three securities or $14.3 million upgraded (from an average rating of AA to AAA) and 67 securities or $686.0 million downgraded (from an average rating of BBB to BB-).
CMBS portfolio ($ in thousands):
Average Face Basis % of Delinquency Principal Average
Minimum
Vintage (1) Rating (2) Number Amount $ Amount $ Basis 60+/FC/REO (3) Subordination (4) Life (yr)
Pre 2004 BBB+ 77 401,008 162,989 23.0% 2.2% 11.3% 3.7
2004 BB+ 59 435,044 156,058 22.1% 1.3% 5.2% 5.0
2005 BBB- 50 567,890 94,539 13.4% 1.0% 5.5% 6.0
2006 BB 39 453,507 204,920 29.0% 0.5% 5.5% 3.4
2007 BB+ 37 409,054 88,628 12.5% 1.4% 9.2% 6.2
TOTAL/WA BB+ 262 2,266,503 707,134 100.0% 1.2% 7.1% 4.9
(1) The year in which the securities were issued.
(2) Ratings provided above were determined by third party rating
agencies as of a particular date, may not be current and are subject
to change (including the assignment of a "negative outlook" or
"credit watch") at any time.
(3) The percentage of underlying loans that are 60+ days delinquent, or
in foreclosure or considered real estate owned (REO).
(4) The percentage of the outstanding face amount of securities that is
subordinate to our investments.
Mezzanine loans, B-Notes and whole loan portfolio ($ in thousands):
Whole
Mezzanine B-Note Loan Total
Face Amount ($) 756,427 309,901 100,538 1,166,866
Basis Amount ($) 313,364 108,328 68,506 490,198
WA First $ Loan To Value (1) 55.3% 48.1% 0.0% 48.6%
WA Last $ Loan To Value (1) 66.1% 59.9% 54.4% 63.4%
Delinquency (%) (2) 5.3% 16.1% 0.0% 7.7%
(1) Loan To Value is based on the appraised value at the time of
purchase.
(2) The percentage of underlying loans that are non-performing, in
foreclosure, under bankruptcy filing or considered real estate owned.
Residential Assets
We own $1.3 billion of residential assets (with a basis of $0.6 billion), which includes manufactured housing loans ("MH"), residential loans, subprime securities and FNMA/FHLMC securities.
-- During the quarter, we purchased $6.5 million, sold $131.0 million, had principal repayments of $33.8 million and realized writedowns of $18.3 million for a net decrease of $176.6 million. We purchased one subprime ABS asset with a rating of "AAA."
-- We had no ABS securities upgraded and 69 securities or $380.8 million downgraded (from an average rating of BBB- to B-).
Manufactured housing loan portfolios ($ in thousands):
Weighted
Average Actual
Face Basis % of Loan Age Original Delinquency Cumulative
Deal Amount $ Amount $ Basis (months) Balance $ 90+/FC/REO (1) Loss to Date
Portfolio 1 185,895 122,174 37.3% 91 327,855 1.3% 4.3%
Portfolio 2 271,596 205,783 62.7% 120 434,743 1.0% 2.6%
TOTAL/WA 457,491 327,956 100.0% 108 762,598 1.1% 3.3%
(1) The percentage of loans that are 90+ days delinquent, or in
foreclosure or considered real estate owned (REO).
Subprime securities portfolio excluding our residuals and retained interests in our own securitizations ($ in thousands):
Security Characteristics:
Average Face Basis % of Principal Excess
Minimum
Vintage (1) Rating (2) Number Amount $ Amount $ Basis Subordination (3) Spread (4)
2003 BBB+ 15 26,638 12,962 9.2% 20.0% 4.0%
2004 BB+ 30 108,877 36,928 26.4% 12.8% 4.4%
2005 CCC+ 46 205,900 35,851 25.6% 16.4% 5.2%
2006 CCC 19 143,224 28,549 20.4% 15.3% 4.4%
2007 BB- 10 64,882 25,854 18.4% 26.8% 4.5%
TOTAL/WA B 120 549,521 140,144 100.0% 16.8% 4.7%
Collateral Characteristics:
Average
Loan Age Collateral 3 Month Delinquency Cumulative
Vintage (1) (months) Factor (5) CPR (6) 90+/FC/REO (7) Loss to Date
2003 72 0.12 10.0% 12.6% 2.4%
2004 59 0.15 10.1% 17.1% 2.3%
2005 46 0.30 20.0% 30.3% 6.0%
2006 33 0.60 15.7% 32.8% 5.9%
2007 28 0.76 15.9% 31.6% 4.1%
TOTAL/WA 44 0.39 15.9% 27.7% 4.8%
(1) The year in which the securities were issued.
(2) Ratings provided above were determined by third party rating
agencies as of March 31, 2009, may not be current and are subject to
change (including the assignment of a "negative outlook" or "credit
watch") at any time.
(3) The percentage of the outstanding face amount of securities and
residual interests that is subordinate to our investments.
(4) The annualized amount of interest received on the underlying loans
in excess of the interest paid on the securities, as a percentage of
the outstanding collateral balance.
(5) The ratio of original unpaid principal balance of loans still
outstanding.
(6) Three month average constant prepayment rate.
(7) The percentage of underlying loans that are 90+ days delinquent, or
in foreclosure or considered real estate owned (REO).
Residuals and retained securities
We own $80.4 million of retained securities with a basis of $5.4 million and residual interests with a basis of $0.9 million in two subprime portfolio securitizations from 2006 and 2007.
Corporate Assets
We own $1.1 billion of corporate assets (with a basis of $0.6 billion), including REIT debt and corporate bank loans.
-- During the quarter, we purchased $12.8 million, sold $38.8 million and had principal repayments of $1.9 million for a net decrease of $27.9 million. Our purchases primarily consisted of two REIT assets with a weighted average rating of "A-."
-- We had one bank loan or $98.7 million upgraded (from an average rating of B to B+). We also had no REIT securities upgraded and 21 securities or $267.9 million downgraded (from an average rating of B to B-).
REIT debt portfolio ($ in thousands):
Average Face Basis % of
Minimum
Industry Rating (1) Number Amount $ Amount $ Basis
Retail B+ 19 222,835 121,632 31.8%
Diversified BB- 14 151,463 78,845 20.6%
Office BBB 12 130,219 92,627 24.2%
Multifamily BBB 5 28,765 21,642 5.7%
Hotel BBB- 4 37,220 23,475 6.1%
Healthcare BBB- 4 36,600 25,563 6.7%
Storage A- 1 5,000 4,214 1.1%
Industrial BB 3 20,865 14,353 3.8%
TOTAL/WA BB 62 632,967 382,351 100.0%
Corporate bank loan portfolio ($ in thousands):
Average Face Basis % of
Minimum
Industry Rating (1) Number Amount $ Amount $ Basis
Real Estate CCC+ 3 115,299 56,406 27.1%
Media CCC+ 2 112,000 22,770 11.0%
Retail B- 1 98,688 45,347 21.8%
Resorts BB- 1 76,505 43,417 20.9%
Restaurant CCC 2 38,026 11,445 5.5%
Gaming CC 3 29,557 5,192 2.5%
Transportation NR 1 27,000 22,140 10.6%
Theatres B 1 1,468 1,339 0.6%
TOTAL/WA CCC+ 14 498,543 208,055 100.0%
(1) Ratings provided above were determined by third party rating
agencies as of a particular date, may not be current and are subject
to change (including the assignment of a "negative outlook" or
"credit watch") at any time.
Conference Call
Newcastle's management will conduct a live conference call today, May 8, 2009, at 1:00 P.M. Eastern Time to review the financial results for the quarter ended March 31, 2009. All interested parties are welcome to participate on the live call. You can access the conference call by dialing (888) 243-2046 (from within the U.S.) or (706) 679-1533 (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.
A telephonic replay of the conference call will also be available until 11:59 P.M. Eastern Time on Friday, May 15, 2009 by dialing (800) 642-1687 (from within the U.S.) or (706) 645-9291 (from outside of the U.S.); please reference access code "97487463."
About Newcastle
Newcastle Investment Corp. owns and manages a portfolio of diversified, credit sensitive real estate debt that is primarily financed with match funded debt. 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 manager. 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, but not limited to, statements relating to our liquidity, future losses and impairment charges, our ability to acquire assets with attractive returns and the delinquent and loss rates on our subprime portfolios. 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, many of which are beyond our control. 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 the ongoing credit and liquidity crisis continues to cause downgrades of a significant number of our securities and recording of additional impairment charges or reductions in shareholders' equity; 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; and the relative spreads between the yield on the assets we invest in and the cost and availability of debt and equity financing. Accordingly, you should not place undue reliance on any forward-looking statements contained in this press release. For a discussion of some of the risks and important factors that could affect such forward-looking statements, see the sections entitled "Risk Factors" and "Management's Discussion and Analysis of Financial Condition and Results of Operation" in the Company's Annual Report on Form 10-K and Quarterly Report on Form 10-Q, which available on the Company's website (www.newcastleinv.com). In addition, new risks and uncertainties emerge from time to time, and it is not possible for the Company to predict or assess the impact of every factor that may cause its actual results to differ from those contained in any forward-looking statements. 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 Operations
(dollars in thousands, except share data)
(Unaudited)
Three Months Ended March 31,
2009 2008
Revenues
Interest income $ 124,473 $ 132,894
124,473 132,894
Expenses
Interest expense 60,544 89,375
Loan and security servicing expense 1,402 1,730
Provision for credit losses 1,907 2,505
General and administrative expense 1,626 1,592
Management fee to affiliate 4,491 4,597
Depreciation and amortization 72 72
70,042 99,871
54,431 33,023
Impairment
Other-than-temporary impairment 186,582 46,372
Loan impairment 120,526 20,326
307,108 66,698
Operating Income (Loss) (252,677 ) (33,675 )
Other Income (Loss)
Gain (loss) on sale of investments, net (6,502 ) 6,526
Gain on extinguishment of debt 26,845 8,533
Other income (loss), net (6,494 ) (19,308 )
Equity in earnings of unconsolidated subsidiaries 13 708
13,862 (3,541 )
Income (loss) from continuing operations (238,815 ) (37,216 )
Income (loss) from discontinued operations (33 ) (3,688 )
Net Income (Loss) (238,848 ) (40,904 )
Preferred dividends (3,375 ) (3,375 )
Income (loss) applicable to common stockholders $ (242,223 ) $ (44,279 )
Net income (loss) per share of common stock
Basic $ (4.59 ) $ (0.84 )
Diluted $ (4.59 ) $ (0.84 )
Income (loss) from continuing operations per share of common stock,
after
preferred dividends
Basic $ (4.59 ) $ (0.77 )
Diluted $ (4.59 ) $ (0.77 )
Income from discontinued operations per share of common stock
Basic $ - $ (0.07 )
Diluted $ - $ (0.07 )
Weighted Average Number of Shares of Common Stock Outstanding
Basic 52,807,232 52,780,319
Diluted 52,807,232 52,780,319
Dividends Declared per Share of Common Stock $ - $ 0.250
Newcastle Investment Corp.
Consolidated Balance Sheets
(dollars in thousands, except share data)
March 31, 2009 December 31, 2008
(unaudited)
Assets
Real estate securities, available for sale $ 1,453,341 $ 1,668,748
Real estate related loans, net 698,269 843,212
Residential mortgage loans, net 391,853 409,632
Subprime mortgage loans subject to call option 399,288 398,026
Investments in unconsolidated subsidiaries 349 384
Operating real estate, held for sale 10,516 11,866
Cash and cash equivalents 56,730 49,746
Restricted cash 85,360 44,282
Receivables and other assets 38,333 47,727
$ 3,134,039 $ 3,473,623
Liabilities and Stockholders' Equity
Liabilities
CDO bonds payable 4,328,196 4,359,981
Other bonds payable 341,023 380,620
Repurchase agreements 130,898 276,472
Financing of subprime mortgage loans subject to call option 399,288 398,026
Junior subordinated notes payable (security for trust preferred) 100,100 100,100
Derivative liabilities 308,946 333,977
Due to affiliates 1,497 1,532
Accrued expenses and other liabilities 9,375 16,447
5,619,323 5,867,155
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 Cumulative Redeemable Preferred
Stock, and
2,000,000 shares of 8.375% Series D Cumulative Redeemable Preferred
Stock
liquidation preference $25.00 per share, issued and outstanding 152,500 152,500
Common stock, $0.01 par value, 500,000,000 shares authorized,
52,808,531 and
52,789,050 shares issued and outstanding at March 31, 2009 and
December 31, 2008, respectively 528 528
Additional paid-in capital 1,033,431 1,033,416
Dividends in excess of earnings (3,511,251 ) (3,272,403 )
Accumulated other comprehensive income (loss) (160,492 ) (307,573 )
(2,485,284 ) (2,393,532 )
$ 3,134,039 $ 3,473,623
Newcastle Investment Corp.
Reconciliation of Operating Income (Before Impairments and Net
of Preferred Dividends)
(dollars in thousands)
(Unaudited)
Three Months Ended
March 31, 2009 March 31, 2008
Operating Income (Loss) $ (252,677 ) $ (33,675 )
Plus: Impairments 307,108 66,698
Less: Preferred dividends (3,375 ) (3,375 )
Operating Income (Before Impairments and Net of Preferred Dividends) $ 51,056 $ 29,648
Newcastle Investment Corp.
Reconciliation of GAAP Book Value to Adjusted Book Value
(dollars in thousands, except per share)
(Unaudited)
Amount Per Share
GAAP Book Value $ (2,637,784 ) $ (49.95 )
Adjustments to Fair Value:
CDO Liabilities 3,501,401 66.30
Other Debt Obligations 123,520 2.34
Total Adjustments 3,624,921 68.64
Adjusted Book Value $ 987,137 $ 18.69
SOURCE: Newcastle Investment Corp.
Newcastle Investment Corp. Lilly H. Donohue, 212-798-6118 Director of Investor Relations or Nadean Finke, 212-479-5295 Investor Relations
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