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Newcastle Announces Third Quarter 2013 Results

A simultaneous webcast of the conference call will be available to the public at www.newcastleinv.com. Please allow extra time prior to the call to visit the website and download any necessary software required to listen to the internet broadcast.

A telephonic replay of the conference call will also be available two hours following the completion of the call through 11:59 P.M. Eastern Time on Friday, November 8, 2013 by dialing 1-855-859-2056 (from within the U.S.) or 1-404-537-3406 (from outside of the U.S.); please reference access code “75872614.”

             
 
 

Investment Portfolio as of September 30, 2013 ($ in millions, except where otherwise noted)

 

OutstandingFace Amount

AmortizedCost Basis  (1)

% of TotalAmortizedCost Basis

CarryingValue

Number ofInvestments

Credit  (2)

WeightedAverage Life(years) (3)

 

Investment

Commercial Real Estate Debt & Other Assets
Commercial Assets
CMBS $

344

 

$

229

 

9.7 % $

286

 

51 BB-

 

3.0

 

Mezzanine Loans 338 269 11.3 % 269 12 84% 1.8
B-Notes 110 95 4.0 % 95 4 76% 0.7
Whole Loans 30 30 1.3 % 30 2 49% 0.2
CDO Securities (4) 80 61 2.6 % 63 3 BB+ 3.0
Other Investments (5)   68     68   2.9 %   68   3 -   -  
Total Commercial Assets   970     752   31.8 %   811     2.2  
 
Residential Assets
MH and Residential Loans 291 258 10.9 % 258 8,014 705 5.5
Non-Agency RMBS 101 41 1.7 % 58 34 CCC 5.0
Real Estate ABS   8     -   0.0 %   -   1 C   -  
400 299 12.6 % 316 5.3
FNMA/FHLMC securities   362     382   16.2 %   383   46 AAA   3.7  
Total Residential Assets   762     681   28.8 %   699     4.5  
 
Corporate Assets
REIT Debt 29 29 1.2 % 31 5 BB+ 1.8
Corporate Bank Loans   875     402   17.0 %   402   7 CC   1.2  
Total Corporate Assets   904     431   18.2 %   433     1.2  
 
Total Real Estate Debt & Other Assets 2,636 1,864 78.8 % 1,943 2.6

Equity Method Investment in Local Media Group (6)

57 57 2.4 % 57 - - -
Senior Housing Investments (7)   465     444   18.8 %   444   31 -   -  
 
Total Portfolio/Weighted Average $ 3,158   $ 2,365   100.0 % $ 2,444     2.6  

WA – Weighted average, in all tables

1)

Net of impairment.

2)

Credit represents the weighted average of minimum rating for rated assets, the loan-to-value ratio (based on the appraised value at the time of purchase or refinancing) for non-rated commercial assets, or the 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, represent the most recent credit ratings available as of the reporting date and may not be current.

3)

Weighted average life is based on the expected timing of expected principal reduction on the asset.

4)

Represents non-consolidated CDO securities, excluding nine securities with a zero value, which had an aggregate face amount of $113.7 million.

5)

Represents a $25 million equity investment in a real estate owned property and $43 million related to a linked transaction.

6)

Face amount of the investment in Local Media Group represents the gross carrying value.

7)

Face amount of Senior Housing Investments represents the gross carrying amount, including intangibles, which excludes accumulated depreciation and amortization.

       
 

Unaudited Consolidated Statements of Income ($ in thousands, except per share data)

 

Three Months Ended September 30,

Nine Months Ended September 30,

  2013       2012     2013       2012  
 
Interest income $ 47,486 $ 72,947 $ 171,642 $ 223,765
Interest expense   20,555     28,411     65,263     88,038  
Net interest income   26,931     44,536     106,379     135,727  
 
Impairment/(Reversal)
Valuation allowance (reversal) on loans (12,998 ) 4,094 (11,473 ) (8,160 )
Other-than-temporary impairment on securities - (236 ) 4,405 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)

  -     1,156     44     (1,913 )
Total impairment (reversal)   (12,998 )   5,014     (7,024 )   6,433  
 
Net interest income after impairment/reversal 39,929 39,522 113,403 129,294
Other Revenues
Rental income 21,149 6,660 44,344 7,684
Care and ancillary income   3,763     1,411     8,081     1,411  
Total other revenues   24,912     8,071     52,425     9,095  
Other Income
Gain on settlement of investments, net 1,388 229,239 6,451 232,885
Gain on extinguishment of debt 3,359 2,345 4,565 23,127
Equity in earnings of Local Media Group 1,045 - 1,045 -
Other income, net   1,963     2,424     9,554     1,650  
Total other income   7,755     234,008     21,615     257,662  
Expenses
Loan and security servicing expense 908 1,054 2,963 3,256
Property operating expenses 15,804 5,043 32,576 5,500
General and administrative expense 9,356 4,020 23,507 11,023
Management fee to affiliate 7,166 6,852 24,879 17,459
Depreciation and amortization   7,732     2,385     15,881     2,389  
Total expenses   40,966     19,354     99,806     39,627  
Income from continuing operations 31,630 262,247 87,637 356,424
Income (loss) from discontinued operations   (2,386 )   10,974     33,343     20,707  
Net Income 29,244 273,221 120,980 377,131
Preferred dividends   (1,395 )   (1,395 )   (4,185 )   (4,185 )
Income Available for Common Stockholders $ 27,849   $ 271,826   $ 116,795   $ 372,946  
 
Income Per Share of Common Stock
Basic $ 0.09   $ 1.65   $ 0.44   $ 2.77  
Diluted $ 0.09   $ 1.63   $ 0.43   $ 2.74  

Income from continuing operations per share of common stock, after preferred dividends

Basic $ 0.10   $ 1.59   $ 0.32   $ 2.62  
Diluted $ 0.10   $ 1.57   $ 0.31   $ 2.59  

Income (loss) from discontinued operations per share of common stock

Basic $ (0.01 ) $ 0.06   $ 0.12   $ 0.15  
Diluted $ (0.01 ) $ 0.06   $ 0.12   $ 0.15  

Weighted Average Number of Shares of Common Stock Outstanding

Basic   293,373,891     164,237,757     262,792,986     134,619,858  
Diluted   301,027,917     166,429,120     269,057,682     135,869,332  
 
Dividends Declared per Share of Common Stock $ 0.10   $ 0.22   $ 0.49   $ 0.62  

         

Consolidated Balance Sheet ($ in thousands)

 

September 30, 2013 (Unaudited)

December 31, 2012

Assets
Real estate securities, available-for-sale $ 825,499 $ 1,691,575
Real estate related and other loans, held-for-sale, net 795,297 843,132
Residential mortgage loans, held-for-investment, net 260,463 292,461
Residential mortgage loans, held-for-sale, net 2,236 2,471
Subprime mortgage loans subject to call option 406,217 405,814
Investments in real estate, net of accumulated depreciation 409,041 169,473
Intangibles, net of accumulated amortization 41,371 19,086
Equity method investment in Local Media Group 57,384 -
Other investments 25,133 24,907
Cash and cash equivalents 92,134 231,898
Restricted cash 1,827 2,064
Derivative assets 43,172 165
Receivables and other assets 27,003 17,197
Assets of discontinued operations   -     245,069  
Total Assets $ 2,986,777   $ 3,945,312  
 
 
Liabilities and Stockholders' Equity
Liabilities
CDO bonds payable $ 718,473 $ 1,091,354
Other bonds and notes payable 153,798 183,390
Repurchase agreements 376,886 929,435
Mortgage notes payable 335,238 120,525
Financing of subprime mortgage loans subject to call option 406,217 405,814
Junior subordinated notes payable 51,239 51,243
Derivative liabilities 17,115 31,576
Dividends Payable 30,279 38,884
Due to affiliates 4,911 3,620
Accrued expenses and other liabilities 25,266 15,931
Liabilities of discontinued operations   2,380     480  
Total Liabilities $ 2,121,802   $ 2,872,252  
 
Commitments and contingencies
 
Stockholders' Equity

Preferred stock, $0.01 par value, 100,000,000 shares authorized, 1,347,321 shares of 9.75% Series B Cumulative Redeemable Preferred Stock, 496,000 shares of 8.05% Series C Cumulative Redeemable Preferred Stock, and 620,000 shares of 8.375% Series D Cumulative Redeemable Preferred Stock, liquidation preference $25.00 per share, issued and outstanding as of September 30, 2013 and December 31, 2012

$ 61,583 $ 61,583

Common stock, $0.01 par value, 1,000,000,000 and 500,000,000 shares authorized, 293,488,981 and 172,525,645 shares issued and outstanding, at September 30, 2013 and December 31, 2012, respectively

2,935 1,725
Additional paid-in capital 2,670,442 1,710,083
Accumulated deficit (1,941,805 ) (771,095 )
Accumulated other comprehensive income   71,820     70,764  
Total Stockholders' Equity $ 864,975   $ 1,073,060  
 
Total Liabilities and Stockholders' Equity $ 2,986,777   $ 3,945,312  
               
 

Reconciliation of Core Earnings and Pro forma Core Earnings* ($ in thousands)

 

Three Months EndedSeptember 30,

Three Months EndedJune 30,

  2013       2012     2013  
Income available for common stockholders $ 27,849 $ 271,826 $ 52,328
Add (Deduct):
Impairment (reversal) (12,998 ) 5,014 3,201
Other (income) loss (7,168 ) (234,008 ) (8,090 )

Impairment (reversal), other (income) loss and other adjustments from discontinued operations

2,386 (1,772 ) (8,534 )
Depreciation and amortization 8,677 2,385 4,070
Acquisition and spin-off related expenses   5,168     1,697     6,192  
Core Earnings $ 23,914   $ 45,142   $ 49,167  
 
 
 

Three Months EndedJune 30, 2013

Pro forma income (loss) from continuing operations after preferred dividends

$ 27,785
Add (Deduct):
Impairment (reversal) (555 )
Other (income) loss (8,032 )
Depreciation and amortization 4,070
Acquisition and spin-off related expenses   5,726  
Pro forma Core Earnings $ 28,994  

*

Pro forma core earnings excludes the 45 days of earnings in the three months ended June 30, 2013 generated by New Residential prior to New Residential’s spin-off from Newcastle on May 15, 2013.

 

CORE EARNINGS

Newcastle has the following primary variables that impact its operating performance: (i) the current yield earned on its investments that are not included in non-recourse financing structures (i.e., unlevered investments, including investments in equity method investees and investments subject to recourse debt), (ii) the net yield it earns from its non-recourse financing structures, (iii) the interest expense and dividends incurred under its recourse debt and preferred stock, (iv) the net operating income on its real estate investments, (v) its operating expenses and (vi) its realized and unrealized gains or losses, including any impairment, on its investments, derivatives and debt obligations. Core Earnings is a non-GAAP measure of the operating performance of Newcastle excluding the sixth variable listed above and adjusting the consumer loans portfolio accounting to a level yield methodology. It also excludes depreciation and amortization charges and acquisition and spin-off related expenses.

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