Newcastle Announces Third Quarter 2016 Results

Newcastle Investment Corp. (NYSE:NCT; "Newcastle", the "Company") today reported the following information for the third quarter ended September 30, 2016.

THIRD QUARTER FINANCIAL HIGHLIGHTS ( A)
  • GAAP Income of $19 million, or $0.28 per basic share
  • Core Earnings of $23 million, or $0.35 per basic share
  • Adjusted Funds from Operations ("AFFO") of $28 million, or $0.42 per basic share

THIRD QUARTER HIGHLIGHTS
  • Real Estate Debt Portfolio - In the quarter, the Company monetized $120 million of principal recovery, including $110 million in repayment of a resort-related loan and $10 million from the sale of NCT CDO V bonds.
  • American Golf - As of September 30, 2016, the Company owned, leased and managed 84 golf properties across 13 states, of which more than 75% were located in the top 20 Metropolitan Statistical Areas.
    • On a same store basis, excluding managed courses, the golf business ended the third quarter with 8,890 full golf private members, an increase of 99 members over the prior year, and approximately 42,000 Players Club members for public properties, an increase of approximately 23,000 members over the prior year. Private member dues generated an additional $1 million of revenue in the quarter over the prior year, and The Players Club program generated an additional $2 million of revenue in the quarter over the prior year.
  • Drive Shack - The Company began developing an initial site in Orlando, Florida, which is expected to open in late 2017 or early 2018. The Company also continued to advance development of Drive Shack venues and is actively working through a pipeline of sites in markets across the U.S.
  • Cash Dividends - In October 2016, Newcastle declared a third quarter common cash dividend of $0.12 per share, or $8 million.
 
    3Q 2016   3Q 2015   2Q 2016
GAAP Results:
GAAP Income (B) $19 million $6 million $2 million
GAAP Income per WA Basic Share (B) $0.28 $0.10 $0.02
 
Non-GAAP Results:
Core Earnings (A) $23 million $10 million $14 million
Core Earnings per WA Basic Share (A) $0.35 $0.16 $0.21
 
AFFO (A) $28 million $16 million $11 million
AFFO per WA Basic Share (A) $0.42 $0.25 $0.16
 

WA: Weighted Average

(A) For a reconciliation of GAAP Income (as well as a definition and statement of purpose) to Core Earnings and AFFO, please refer to the Reconciliation of Core Earnings and AFFO below.

(B) GAAP Income for 3Q 2016 includes the impact of: 1) total depreciation and amortization of $6.7 million, 2) $1.1 million of amortization of favorable or unfavorable leasehold intangibles and 3) $1.4 million of accretion on golf membership deposit liabilities. GAAP Income for 3Q 2015 includes the impact of: 1) total depreciation and amortization of $7.1 million, 2) $1.2 million of amortization of favorable or unfavorable leasehold intangibles and 3) $1.5 million of accretion on golf membership deposit liabilities. GAAP Income for 2Q 2016 includes the impact of: 1) total depreciation and amortization of $6.5 million, 2) $1.1 million of amortization of favorable or unfavorable leasehold intangibles and 3) $1.4 million of accretion on golf membership deposit liabilities.

ADDITIONAL INFORMATION

For additional information that management believes to be useful for investors, please refer to the presentation posted on the Investor Relations section of Newcastle's website, www.newcastleinv.com. For consolidated investment portfolio information, please refer to the Company's Quarterly Report on Form 10-Q and Annual Report on Form 10-K , which are available on the Company's website, www.newcastleinv.com.

EARNINGS CONFERENCE CALL

Newcastle's management will host a conference call on Friday, November 4, 2016 at 9:30 A.M. Eastern Time. A copy of the earnings release will be posted to the Investor Relations section of Newcastle's website, www.newcastleinv.com.

All interested parties are welcome to participate on the live call. The conference call may be accessed by dialing 1-866-393-1506 (from within the U.S.) or 1-706-634-0623 (from outside of the U.S.) ten minutes prior to the scheduled start of the call; please reference "Newcastle Third Quarter 2016 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 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 call's completion through 11:59 P.M. Eastern Time on Friday, November 18, 2016 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 "11898313."

 

Unaudited Consolidated Statements of Operations

($ in thousands, except share data)
 
    Three Months Ended September 30,  

Nine Months Ended September 30,
  2016       2015     2016       2015  
Interest income $ 32,310 $ 23,010 $ 73,770 $ 74,353
Interest expense   (13,138 )   (14,715 )   (39,089 )   (48,392 )
Net interest income   19,172     8,295     34,681     25,961  
Impairment (Reversal)
Valuation allowance on loans 611 3,010 3,454 7,684
Other-than-temporary impairment on securities and other investments 427 56 9,899
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)       23     54     (39 )
Total impairment   611     3,460     3,564     17,544  
Net interest income after impairment 18,561 4,835 31,117 8,417
Operating Revenues
Golf course operations 48,515 49,418 135,291 137,150
Sales of food and beverages - golf 19,913 20,035 55,086 53,991
Other golf revenue   14,734     13,411     39,427     35,352  
Total operating revenues   83,162     82,864     229,804     226,493  
Other Income (Loss)
Gain (loss) on settlement of investments, net 6,350 (3,168 ) 4,838 24,623
Gain (loss) on extinguishment of debt, net (227 ) 14,878 (607 ) 15,367
Gain on deconsolidation 82,130
Other income, net   987     277     244     1,871  
Total other income   7,110     11,987     86,605     41,861  
Expenses
Loan and security servicing expense 32 41 70 255
Operating expenses - golf 67,027 67,984 189,131 188,359
Cost of sales - golf 8,250 8,842 23,678 24,003
General and administrative expense 3,656 3,876 10,278 9,076
Management fee to affiliate 2,676 2,675 8,027 8,017
Depreciation and amortization   6,735     7,111     19,250     20,983  
Total expenses   88,376     90,529     250,434     250,693  
Income from continuing operations before income tax 20,457 9,157 97,092 26,078
Income tax expense (benefit)   (38 )   1,257     144     1,330  
Income from continuing operations 20,495 7,900 96,948 24,748
Income from discontinued operations, net of tax       7         646  
Net Income 20,495 7,907 96,948 25,394
Preferred dividends (1,395 ) (1,395 ) (4,185 ) (4,185 )
Net (income) loss attributable to noncontrolling interests   (177 )   (13 )   (165 )   217  
Income Applicable to Common Stockholders $ 18,923   $ 6,499   $ 92,598   $ 21,426  
Income Applicable to Common Stock, per share
Basic $ 0.28   $ 0.10   $ 1.39   $ 0.32  
Diluted $ 0.27   $ 0.09   $ 1.35   $ 0.31  
Income from continuing operations per share of common stock, after preferred dividends and noncontrolling interests
Basic $ 0.28   $ 0.10   $ 1.39   $ 0.31  
Diluted $ 0.27   $ 0.09   $ 1.35   $ 0.30  
Income from discontinued operations per share of common stock
Basic $   $   $   $ 0.01  
Diluted $   $   $   $ 0.01  
Weighted Average Number of Shares of Common Stock Outstanding
Basic   66,730,583     66,484,962     66,688,962     66,445,705  
Diluted   69,072,676     69,069,659     68,753,532     69,053,302  
Dividends Declared per Share of Common Stock $ 0.12   $ 0.12   $ 0.24   $ 0.36  
 

 

Consolidated Balance Sheets

($ in thousands, except share data)
 
   

September 30, 2016
  December 31, 2015
(Unaudited)
Assets
Real estate securities, available-for-sale $ 3,430 $ 59,034
Real estate securities, available-for-sale - pledged as collateral 663,559 105,963
Real estate related and other loans, held-for-sale, net 52,874 149,198
Subprime mortgage loans subject to call option 353,347 380,806
Investments in real estate, net of accumulated depreciation 227,327 227,907
Intangibles, net of accumulated amortization 67,738 74,472
Other investments 21,724 20,595
Cash and cash equivalents 134,289 45,651
Restricted cash 6,725 4,469
Receivables from brokers, dealers and clearing organizations 858,233 361,341
Receivables and other assets   47,693     38,546  
Total Assets $ 2,436,939   $ 1,467,982  
 
Liabilities and Equity
Liabilities
CDO bonds payable $ $ 92,933
Other bonds and notes payable 16,162
Repurchase agreements 831,741 418,458
Credit facilities and obligations under capital leases 114,697 11,258
Financing of subprime mortgage loans subject to call option 353,347 380,806
Junior subordinated notes payable 51,219 51,225
Dividends payable 8,929
Membership deposit liabilities 87,539 83,210
Payables to brokers, dealers and clearing organizations 663,456 105,940
Accounts payable, accrued expenses and other liabilities   77,292     88,939  
Total Liabilities $ 2,179,291   $ 1,257,860  
 
Commitments and contingencies
 
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, 2016 and December 31, 2015 $ 61,583 $ 61,583
Common stock, $0.01 par value, 1,000,000,000 shares authorized, 66,734,136 and 66,654,598 shares issued and outstanding at September 30, 2016 and December 31, 2015, respectively 667 667
Additional paid-in capital 3,172,721 3,172,370
Accumulated deficit (2,980,016 ) (3,057,538 )
Accumulated other comprehensive income   2,785     33,297  
Total Newcastle Stockholders' Equity 257,740 210,379
Noncontrolling interests   (92 )   (257 )
Total Equity $ 257,648   $ 210,122  
 
Total Liabilities and Equity $ 2,436,939   $ 1,467,982  
 

   

Reconciliation of Core Earnings

($ in thousands)
 
Three Months EndedSeptember 30, 2016 Three Months EndedSeptember 30, 2015 Three Months EndedJune 30, 2016
Income applicable to common stockholders $ 18,923 $ 6,499 $ 1,651
Add (Deduct):
Impairment 611 3,460 645
Other loss (income)(A) (6,725) (10,458) 1,322
Depreciation and amortization(B) 9,259 9,791 9,029
Acquisition, restructuring and spin-off related expenses(C) 1,093 1,131 1,246
Core Earnings $ 23,161 $ 10,423 $ 13,893
 

(A) Net of $0.4 million, $0.3 million and $0.4 million related to other income from an equity method investment during the three months ended September 30, 2016, September 30, 2015 and June 30, 2016, respectively. Net of $1.2 million of provision for income taxes relating to the gain on extinguishment of debt during the three months ended September 30, 2015.

(B) Including depreciation and amortization of $6.7 million, accretion of membership deposit liabilities of $1.4 million and amortization of favorable or unfavorable leasehold intangibles of $1.1 million in the three months ended September 30, 2016. Including depreciation and amortization of $7.1 million, accretion of membership deposit liabilities of $1.5 million and amortization of favorable or unfavorable leasehold intangibles of $1.2 million in the three months ended September 30, 2015. Including depreciation and amortization of $6.5 million, accretion of membership deposit liabilities of $1.4 million and amortization of favorable or unfavorable leasehold intangibles of $1.1 million in the three months ended June 30, 2016. The accretion of membership deposit liabilities was recorded to interest expense and the amortization of favorable or unfavorable leasehold intangibles was recorded to operating expenses - golf.

(C) Including acquisition and transaction expenses of $1.1 million during the three months ended September 30, 2016. Including acquisition and transaction expenses of $1.0 million and restructuring expenses of $0.1 million during the three months ended September 30, 2015. Including acquisition and transaction expenses of $1.2 million during the three months ended June 30, 2016. The acquisition and transaction costs were recorded to general and administrative expense and restructuring expenses were recorded to operating expenses - golf.

CORE EARNINGS

The following primary variables impact our operating performance: (i) the current yield earned on our 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 we earn from our non-recourse financing structures, (iii) the interest expense and dividends incurred under our recourse debt and preferred stock, (iv) the net operating income on our real estate and golf investments, (v) our operating expenses and (vi) our realized and unrealized gains or losses, net of related provision for income taxes, including any impairment, on our investments, derivatives and debt obligations. Core earnings is a non-GAAP measure of our operating performance excluding the sixth variable listed above. Core earnings also excludes depreciation and amortization charges, including the accretion of membership deposit liabilities and the impact of the application of acquisition accounting, acquisition and spin-off related expenses and restructuring expenses. Core earnings is used by management to evaluate our performance without taking into account gains and losses, net of related provision for income taxes, which, although they represent a part of our recurring operations, are subject to significant variability and are only a potential indicator of future performance. These adjustments to our income applicable to common stockholders are not indicative of the performance of the assets that form the core of our activity.

Management utilizes core earnings as a measure in its decision-making process relating to the underlying fundamental operations of our investments, as well as the allocation of resources between those investments, and management also relies on core earnings as an indicator of the results of such decisions. As such, core earnings is not intended to reflect all of our activity and should be considered as only one of the factors in assessing our performance, along with GAAP net income, which is inclusive of all of our activities. Management also believes that the exclusion from core earnings of the items specified above allows investors and analysts to readily identify and track the operating performance of the assets that form the core of our activity, assists in comparing the core operating results between periods, and enables investors to evaluate our current core performance using the same measure that management uses to operate the business.

Core earnings does not represent an alternative to net income as an indicator of our operating performance or as an alternative to cash flows from operating activities as a measure of our liquidity, and is not indicative of cash available to fund cash needs. Our calculation of core earnings may be different from the calculation used by other companies and, therefore, comparability may be limited.

 

Reconciliation of AFFO

($ in thousands)
 
Three Months EndedSeptember 30, 2016   Three Months EndedSeptember 30, 2015   Three Months EndedJune 30, 2016
Income applicable to common stockholders $ 18,923 $ 6,499 $ 1,651
Add:
Depreciation and amortization(A) 9,259 9,791 9,029
AFFO $ 28,182 $ 16,290 $ 10,680
 

(A) Including depreciation and amortization of $6.7 million, accretion of membership deposit liabilities of $1.4 million and amortization of favorable or unfavorable leasehold intangibles of $1.1 million in the three months ended September 30, 2016. Including depreciation and amortization of $7.1 million, accretion of membership deposit liabilities of $1.5 million and amortization of favorable or unfavorable leasehold intangibles of $1.2 million in the three months ended September 30, 2015. Including depreciation and amortization of $6.5 million, accretion of membership deposit liabilities of $1.4 million and amortization of favorable or unfavorable leasehold intangibles of $1.1 million in the three months ended June 30, 2016. The accretion of membership deposit liabilities was recorded to interest expense and the amortization of favorable or unfavorable leasehold intangibles was recorded to operating expenses - golf.

ADJUSTED FUNDS FROM OPERATIONS

We define AFFO as net income applicable to common stockholders plus depreciation and amortization, including accretion of membership deposit liabilities and amortization of favorable or unfavorable leasehold intangibles. We believe AFFO provides useful information to investors regarding our performance, because it provides a measure of operating performance without regard to depreciation and amortization, which reduce the value of real estate assets over time even though actual real estate values may fluctuate with market conditions, accretion of membership deposit liabilities and amortization of favorable or unfavorable leasehold intangibles. We believe AFFO is useful because it facilitates the evaluation of the performance on our portfolio of assets between periods on a consistent basis.

AFFO does not represent cash generated from operating activities in accordance with GAAP and therefore should not be considered an alternative to net income (loss) as an indicator of our operating performance or as an alternative to cash flow as a measure of our liquidity, and it is not necessarily indicative of cash available to fund cash needs. Our calculation of AFFO may be different from the calculation used by other companies and, therefore, comparability may be limited. Our definition of AFFO differs from the definition of FFO established by the National Association of Real Estate Investment Trusts ("NAREIT"), which defines FFO as net income (or loss) (computed in accordance with GAAP) excluding losses or gains from sales of depreciable property, impairment of depreciable real estate, real estate-related depreciation and amortization and the portion of such items related to unconsolidated affiliates.

ABOUT NEWCASTLE

Newcastle focuses on investing in, and actively managing, real estate related assets, including traditional and innovative golf assets. Newcastle conducts its operations to qualify as a REIT for federal income tax purposes. Newcastle is managed by an affiliate of Fortress Investment Group LLC, a global investment management firm.

FORWARD-LOOKING STATEMENTS

Certain items in this press release may constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, including statements regarding the Company's ability to open a Drive Shack site in Orlando, FL in late 2017 or early 2018, and the Company's pipeline. 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 Newcastle's control. The Company can give no assurance that its expectations will be attained. 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 cause actual results to differ from such forward-looking statements, see the sections entitled "Risk Factors" and "Management's Discussion and Analysis of Financial Condition and Results of Operations" in the Company's most recent Annual Report on Form 10-K and Quarterly Report on Form 10-Q. Furthermore, 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. The Company 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

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