Highlights
- FFO and GAAP loss of $87.7 million, or $1.66 per diluted share, for the quarter ended June 30, 2008.
- Operating Income (net of preferred dividends) was $27.7 million, or $0.52 per diluted share, for the quarter ended June 30, 2008.
- GAAP book value of $(1.08) per share and adjusted book value of $20.01 per share at June 30, 2008.
- Increased unrestricted cash from $101 million as of March 31, 2008 to $170 million as of August 8, 2008.
Second Quarter 2008 Financial Results
NEW YORK, Aug. 11 /PRNewswire-FirstCall/ -- Newcastle Investment Corp.
(NYSE: NCT) reported that for the quarter ended June 30, 2008, Funds from
Operations ('FFO') loss and GAAP loss was $87.7 million, or $1.66 per diluted
share. This compares to FFO and GAAP income of $0.64 per diluted share for
the quarter ended June 30, 2007.
FFO loss and GAAP loss of $87.7 million consists of Operating Income (net
of preferred dividends) of $27.7 million plus realized gains and other income
of $8.7 million less impairments of $118.5 million and loss on real estate
assets held for sale of $5.6 million. Operating Income return on average
invested equity was 15.3%.
Book Value
Our GAAP book value increased to $(1.08) per share, or $(56.8) million at
June 30, 2008, up from $(4.12) per share, or $(217.5) million at March 31,
2008. The increase in book value was primarily attributable to an unrealized
market value increase in our portfolio and income generated in excess of the
dividend paid in the second quarter.
Our securities portfolio is predominantly financed to maturity with long-
term collateralized debt obligations ('CBOs') that are not callable as a
result of changes in value and are non-recourse to the Company. While the
assets in the CBOs are consolidated on our books for GAAP purposes, our
exposure to losses is limited to our investment in each CBO. Our June 30,
2008 GAAP book value reflects approximately $483.8 million of unrealized
losses in assets in our CBOs that could not be realized by the Company.
We believe that a better measure of shareholder value is our adjusted book
value, which marks-to-market all of our financial assets and liabilities. At
June 30, 2008, our adjusted book value per share was $20.01. Our GAAP book
value would equal our adjusted book value if we elected to mark all of our
financial assets and liabilities to fair value under SFAS 159, 'The Fair Value
Option for Financial Assets and Financial Liabilities.'
The following table compares Newcastle's book value per share as of June
30, 2008 and March 31, 2008:
June 30, 2008 March 31, 2008
Adjusted book value (1) $20.01 $16.28
GAAP book value $(1.08) $(4.12)
(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.
For a reconciliation and discussion of GAAP net income (loss) attributable
to common stockholders to FFO, Operating Income (net of preferred dividends),
and GAAP book equity to invested common equity, as well as GAAP book value to
adjusted book value, please refer to the tables following the presentation of
GAAP results.
Dividends
For the quarter ended June 30, 2008, Newcastle's Board of Directors
declared a dividend of $0.25 per common share. We also declared dividends on
our 9.75% Series B, 8.05% Series C and 8.38% Series D Cumulative Redeemable
Preferred Stock in the amounts of $0.609375, $0.503125 and $0.523438 per
share, respectively.
Investment Portfolio
Newcastle's current $6.6 billion investment portfolio consists primarily
of commercial, residential and corporate debt. During the quarter, the
portfolio decreased by $98.6 million primarily as a result of paydowns of
$142.9 million and sales of $16.0 million, offset by purchases of $89.2
million. Of the asset paydowns, $62.0 million were commercial, $80.2 million
were residential and $0.7 million were corporate.
The following table describes our investment portfolio ($ in millions):
Number
of
Face Basis % of Invest- Average
Amount$ Amount$ Basis ments Credit(1) Life(years)(2)
Commercial
Assets
CMBS $2,264 $2,177 35.4% 257 BBB- 5.5
Mezzanine
Loans 780 776 12.6% 23 67% 3.5
B-Notes 420 393 6.4% 15 61% 3.1
Whole Loans 83 82 1.3% 4 65% 2.8
ICH Loans 11 10 0.2% 5 -- 8.1
Total
Commercial
Assets 3,558 3,438 55.9% 4.7
Residential
Assets
MH and
Residential
Loans 597 572 9.3% 14,960 695 5.6
Subprime
Securities 579 302 4.9% 124 BB- 5.6
Subprime
Retained
Securities 80 51 0.8% 7 B+ 12.2
Subprime
Residual
Interests 13 13 0.2% 2 645 2.8
Real Estate
ABS 103 101 1.6% 26 BBB- 4.7
1,372 1,039 16.8% 5.9
FNMA/FHLMC
Securities 409 411 6.7% 15 AAA 3.8
Total
Residential
Assets 1,781 1,450 23.5% 5.4
Corporate
Assets
REIT
Debt 653 663 10.8% 65 BBB 5.1
Corporate
Bank
Loans 632 602 9.8% 17 B- 3.2
Total
Corporate
Assets 1,285 1,265 20.6% 4.2
Total/Weighted
Average (3) $6,624 $6,153 100.0% 4.8
(1) Credit statistics represent weighted average rating for rated assets,
LTV for non-rated commercial assets, FICO score for non-rated residential
assets and implied AAA for FNMA/FHLMC securities.
(2) Mezzanine loans, B-Notes and whole loans are based on the fully
extended maturity date.
(3) Excludes real estate held for sale and loans subject to call option
with a face amount of $31 million and $406 million, respectively.
The following table compares certain supplemental data relating to our
investment portfolio ($ in millions):
June 30, March 31,
2008 2008
Face Amount ($) 6,624 6,723
Weighted average asset yield 6.62% 6.55%
Weighted average liability cost 4.47% 4.54%
Weighted average net spread 2.15% 2.01%
Excluding the FNMA/FHLMC securities, our weighted average net spread was
2.23% as of June 30, 2008 and 2.09% as of March 31, 2008.
Commercial Assets
We own $3.6 billion of commercial assets, which includes CMBS, mezzanine
loans, B-Notes and whole loans.
-- During the quarter, we purchased $24.4 million, made no sales and had
paydowns of $62.1 million for a net decrease of $33.0 million. Of the asset
paydowns, $40.5 million were mezzanine loans and $17.0 million were ICH loans.
-- We had 6 CMBS securities or $40.2 million upgraded (from an average
rating of BBB- to BBB+) with 2 securities or $35.5 million downgraded (from an
average rating of BB+ to B+).
CMBS portfolio ($ in thousands):
Delin-
quency
60+/ Principal
Average Face Basis % of FC/ Subordin- Average
Vintage Rating Number Amount $ Amount $ Basis REO ation Life (yr)
Pre
2004 A- 79 410,892 406,905 18.7% 0.9% 9.4% 4.4
2004 BBB- 59 435,703 428,733 19.7% 0.2% 5.0% 5.6
2005 BB+ 50 586,285 554,368 25.5% 0.4% 4.8% 6.5
2006 BB+ 35 446,768 426,219 19.6% 0.1% 5.1% 3.8
2007 BBB+ 34 384,056 360,418 16.6% 0.1% 9.0% 6.8
TOTAL/
WA BBB- 257 2,263,703 2,176,642 100.0% 0.3% 6.4% 5.5
Mezzanine loans, B-Notes and whole loan portfolio ($ in thousands):
Whole
Mezzanine B-Note Loan Total
Face Amount ($) 780,181 420,140 82,536 1,282,857
Basis Amount ($) 775,550 392,627 82,452 1,250,629
WA First $ Loan To Value 55.6% 45.4% 0.0% 48.7%
WA Last $ Loan To Value 66.9% 60.5% 64.8% 64.6%
Delinquency 0.0% 0.0% 0.0% 0.0%
In the quarter, we recorded an $11.2 million charge on a B-Note secured by
residential land located in Mobile, AZ.
