Newcastle Announces Fourth Quarter & Full Year 2012 Results

Newcastle Announces Fourth Quarter & Full Year 2012 Results

FOURTH QUARTER 2012 HIGHLIGHTS

  • GAAP income of $0.32 per diluted share
  • Core Earnings of $0.19 per diluted share
  • Declared common dividend of $0.22 per share
  • GAAP book value increased by $0.22 per share

FOURTH QUARTER 2012 FINANCIAL RESULTS


NEW YORK--(BUSINESS WIRE)-- Newcastle Investment Corp. (NYS: NCT) reported that in the fourth quarter of 2012, income available for common stockholders ("GAAP income") was $56 million, or $0.32 per diluted share, compared to $19 million, or $0.18 per diluted share, in the fourth quarter of 2011.

GAAP income of $56 million consisted of the following:

Core Earnings:

  • $33 million, or $0.19 per diluted share, which is equal to net interest income and other revenues less expenses excluding depreciation and amortization, net of preferred dividends

Other Income/Loss:

  • $16 million of other income primarily related to an $8 million break-up fee related to the "ResCap" transaction, $3 million related to non-cash mark-to-market gain related to interest rate derivatives in the CDOs, and $3 million related to non-cash mark-to-market gain related to excess MSRs investments
  • $12 million of non-cash mark-to-market net gain on loans held for sale and impairment recorded on investments
  • Less $5 million of depreciation and amortization

The Company generated $35 million of Cash Available for Distribution ("CAD"), compared to $36 million in the third quarter of 2012.

On December 18, 2012, the Board of Directors declared a quarterly dividend of $0.22 per common share, or $38 million, for the quarter. 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 November 1, 2012 and ending January 31, 2013.

As of December 31, 2012, GAAP book value was $5.86 per share, an increase of $0.22 per share from September 30, 2012.

FULL YEAR 2012 FINANCIAL RESULTS

In 2012, GAAP income was $429 million, or $2.94 per diluted share, consisted of the following:

Core Earnings:

  • $150 million, or $1.03 per diluted share, which is equal to net interest income and other revenues less expenses excluding depreciation and amortization, net of preferred dividends

Other Income/Loss:

  • $279 million of other income primarily related to a $224 million net gain on the sale of Newcastle's CDO X interests, a $24 million gain on extinguishment of debt, $9 million related to non-cash mark-to-market gain related to excess MSRs investments and an $8 million break-up fee related to the "ResCap" transaction.

The Company generated $112 million of Cash Available for Distribution ("CAD").

As of December 31, 2012, GAAP book value was $5.86 per share, an increase of $4.62 per share from December 31, 2011.

The following table summarizes the Company's operating results ($ in millions, except per share data):

             
Three Months Ended Year Ended
Dec 31,       Sep 30,       Dec 31, December 31,
2012 2012 2011 2012
Summary Operating Results:
 
GAAP income $ 56 $ 272 $ 19 $ 429
 
GAAP income, per diluted share $ 0.32 $ 1.63 $ 0.18 $ 2.94
 
 
Non-GAAP Results:
 
Core earnings $ 33 $ 43 $ 32 $ 150
 
Core earnings, per diluted share $ 0.19 $ 0.26 $ 0.30 $ 1.03
 
Cash Available for Distribution $ 35 $ 36 $ 18 $ 112
 

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.

FOURTH QUARTER 2012 INVESTMENT ACTIVITY

$145 million of unrestricted cash invested primarily in the following:

$87 million: Non-Agency RMBS investments

Invested $87 million to purchase $134 million face amount of Non‐Agency RMBS at an average price of 64.5% of par, with an expected unlevered yield of 6%, and a levered return of 12% assuming 65% financing.

$18 million: Bank Loan investments

Invested $18 million to purchase $52 million face amount of two bank loans in an existing investment at an average price of 34.9% of par.

$16 million: Senior Living Property investments

Invested $16 million (including working capital and transaction costs) to purchase four senior housing assets in two portfolios of $48 million financed with $32 million of non-recourse debt at a weighted average interest rate of 4.75% with a five-year maturity.

$10 million: Non-Agency securities issued by Newcastle

Invested $10 million to purchase $12 million face amount of senior Non-Agency securities issued by Newcastle at an average price of 82.0% of par

SUBSEQUENT EVENTS & INVESTMENT ACTIVITY

$780 million of common equity raised:

Since December 31, 2012, the Company completed the sale of approximately 80.5 million shares of its common stock for gross proceeds of approximately $780 million.

$660 million of unrestricted cash invested or committed to invest primarily in the following:

$347 million: Excess MSRs investments

Invested or committed to invest approximately $320 million to purchase a 33% interest in Excess MSRs on four portfolios with a total of approximately $215 billion unpaid principal balance ("UPB") of residential mortgage loans. The Company expects the four investments to generate an average 16% IRR and $635 million of total cash flow, or 2.0x its initial investment.

Invested $27 million to purchase a 33% interest in the Excess MSRs on a $13 billion UPB of residential mortgage loan portfolio. The Company expects the investment to generate a 16% IRR and $57 million of total cash flow, or 2.1x its initial investment.

$191 million: Non-Agency RMBS investments

Invested $191 million to purchase $322 million face amount of Non‐Agency RMBS at an average price of 59.3% of par, with an expected unlevered yield of 5%, and a levered return of 11% assuming 65% financing.

$66 million: Bank Loan investments

Invested $66 million to purchase $186 million face amount of two bank loans in an existing investment at an average price of 35.5% of par.

$35 million: Non-performing loans

Invested $35 million to purchase 70% interest in a pool of non-performing loans with a total UPB of $83 million at a price of 59.7% of par, with an expected unlevered yield of 10%, and a levered return in the mid-teens assuming 50% financing.

$10 million: Newcastle CDO senior bond

Invested $10 million to repurchase $11 million face amount of a Newcastle CDO senior bond at a price of 89% of par, with an expected unlevered yield of 8%.

CASH AND RECOURSE FINANCING

As of February 27, 2013, the Company's cash and recourse financings, excluding junior subordinated notes, were as set forth below:

  • Unrestricted Cash Available to Invest after commitments - The Company had $284 million of unrestricted cash available to invest after commitments.
  • Recourse Financing - The Company had $924 million of financing related to FNMA and FHLMC securities with a value of $972 million and $157 million of financing related to a portion of its Non-Agency RMBS portfolio with a value of $240 million. The Company also had an additional $400 million face amount of Non-Agency RMBS with a value of approximately $235 million that was unlevered.

I. RESIDENTIAL SERVICING & SECURITIES

As of December 31, 2012, Newcastle's residential servicing and securities portfolio consisted of five Excess MSRs investments with a total carrying value of $245 million and 29 Non-Agency RMBS purchased outside of the Company's CDOs since April 2012 with a total carrying value of $290 million.

During the quarter, this portfolio generated total cash flow of $43 million, including an $8 million break-up fee related to the "ResCap" transaction, and increased in value by $14 million.

Excess MSRs

As of December 31, 2012, the total carrying value of the Company's Excess MSR investments was $245 million, representing a 65% interest in the net MSR cash flows on five loan portfolios with a total unpaid principal balance of $77 billion.

During the quarter, these investments generated $27 million of total cash flow and increased in value by $3 million.

  • The average updated IRR with actual performance was 19%, compared to an initial expected IRR of 18%
  • Received $55 million of life-to-date total cash flow through the end of December, or 21% of the initial investment of $262 million over an average of 7 months
  • Weighted Average Constant Prepayment Rate ("CPR") life-to-date was 12% compared to the Company's initial CPR projection of 20%

Non-Agency RMBS

As of December 31, 2012, the Company's Non-Agency RMBS portfolio consisted of $434 million face amount of assets (value of 66.8% of par). During the quarter, these investments generated $8 million of total cash flow and increased in value by $11 million.

II. COMMERCIAL REAL ESTATE DEBT & OTHER ASSETS

As of December 31, 2012, the Company's commercial real estate debt and other assets portfolio consisted of $3.0 billion of diversified assets financed with $2.0 billion of primarily match funded, non-recourse debt In addition, the portfolio consisted of $188 million of senior living properties financed with $121 million of non-recourse mortgage notes. Assets included 226 commercial, residential and corporate real estate securities and loan investments with an average investment size of $12 million, 8,881 mortgage loans backed by residential real estate, and 12 senior living properties.

During the quarter, this portfolio generated total cash flow of $47 million and increased in value by $21 million. During the quarter, the weighted average carrying value of the real estate debt portfolio changed from a price of 83.9% to 84.7% of par.

Newcastle CDO financings

As of December 31, 2012, Newcastle's four CDOs consisted of $1.8 billion face amount of collateral (value of 80.3% of par) financed with $1.1 billion of non-recourse debt. During the quarter, the CDOs generated $35 million of total cash flow, which included:

  • $14 million of CDO cash receipts consisting of $10 million of excess interest, $3 million of interest on retained and repurchased CDO debt, and $1 million of senior collateral management fees
  • $21 million of principal repayments on repurchased CDO debt

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):

                                           
Interest
Coverage
Primary % Excess

(Deficiency)

Over-Collateralization Excess (Deficiency) (2)(3)
Collateral Cash Feb 27, February 27, 2013 December 31, 2012 September 30, 2012
Type Receipts (1) 2013 ((2)) % $ % $ % $
CDO IV Securities $ 348 35.2 % -3.7 % (5,586 ) -3.7 % (5,586 ) 0.1 % 213
CDO VI Securities 140 -206.9 % -70.5 % (171,187 ) -70.4 % (171,434 ) -64.8 % (176,780 )
CDO VIII Loans 5,883 369.2 % 11.3 % 78,506 10.6 % 74,593 9.8 % 70,553
CDO IX Loans   7,622 689.9 % 24.7 % 139,312 23.4 % 134,675 20.6 % 127,199
Total $ 13,993
 

(1)

  Cash receipts exclude $21 million of principal repayments from repurchased bonds. Cash receipts for the quarter ended December 31, 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 February 27, 2013, December 31, 2012 or September 30, 2012, as applicable. The CDO IV test is conducted only on a quarterly basis (December, March, June and September).

(3)

As of the February 2013 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 VIII and IX was zero.
 

Other Real Estate Related Investments

As of December 31, 2012, other real estate related investments consisted of $1.3 billion face amount of assets (value of 91.1% of par) financed with $1.0 billion of debt. During the quarter, these investments generated $9 million of total cash flow which included:

  • $8 million of excess interest and interest on retained debt
  • $1 million of principal repayments

Senior Living Property Investments

As of December 31, 2012, the Company owned 12 senior living properties consisting of $188 million of assets financed with $121 million of debt.

During the quarter, the investments generated $2.1 million of total cash flow, $0.4 million more than projected.

  • Average occupancy rate was 87.4%, compared to 86.0% in the Company's initial projection
  • Average monthly revenue per occupied unit was $3,845, compared to $3,874 initially projected
  • Total operating expenses were $6.9 million, compared to $7.1 million initially projected

INVESTMENT PORTFOLIO

The following table describes the investment portfolio as of December 31, 2012 ($ in millions):

                                 
Weighted
Face Basis % of Carry Value Number of Average
Amount $     Amount $ (6)     Basis       Amount $     Investments     Credit (7)     Life (years) (8)
I. Residential Servicing & Securities
Excess MSRs Investments $ 245 $ 236 7.4 % $ 245 5 -- 5.4
Non-Agency RMBS (1)   434       275     8.7 %   290 29 CC 6.8
Total Residential Servicing & Securities Assets 679 511 16.1 % 535 6.3
 
II. Commercial Real Estate Debt & Other Assets
Commercial Assets
CMBS 475 337 10.6 % 376 76 BB- 3.2
Mezzanine Loans 528 443 13.9 % 443 17 77% 2.2
B-Notes 171 162 5.1 % 162 6 68% 2.1
Whole Loans 30 30 0.9 % 30 3 48% 1.1
Third-Party CDO Securities (2) 96 67 2.1 % 71 5 BB 3.3
Other Investments (3)   25       25     0.8. %   25 1 -- --
Total Commercial Assets 1,325 1,064 33.4 % 1,107 2.6
 
Residential Assets
MH and Residential Loans 332 290 9.1 % 290 8,881 705

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