Newcastle Investment Corp. (NCT) filed Quarterly Report for the period ended 2012-09-30.
Newcastle Investment Corporation has a market cap of $1.36 billion; its shares were traded at around $8.04 with a P/E ratio of 6 and P/S ratio of 4.7. The dividend yield of Newcastle Investment Corporation stocks is 11.2%.
Highlight of Business Operations:We typically seek to match fund our investments with respect to interest rates and maturities in order to reduce the impact of interest rate fluctuations on earnings and reduce the risk of refinancing our liabilities prior to the maturity of the investments. We seek to finance a substantial portion of our real estate securities and loans through the issuance of term debt, which generally represents obligations issued in multiple classes secured by an underlying portfolio of assets. Specifically, our CDO financings offer us the structural flexibility to buy and sell certain investments to manage risk and, subject to certain limitations, to optimize returns.
We utilize multiple forms of financing, depending on their appropriateness and availability, to finance our investments, including sales of common or preferred equity, collateralized debt obligations or other securitizations, term loans, trust preferred securities, and short-term financing in the form of loans and repurchase agreements. One component of our investment strategy is to use match funded financing structures, such as CDOs, at rates that provide a positive net spread relative to our investment returns.
We acquired our first portfolio of senior living assets in July 2012 for an aggregate purchase price of approximately $143 million plus related expenses. These assets comprise more than 800 beds in senior living facilities located in California, Oregon, Utah, Arizona and Idaho. We funded the purchase price with an equity investment of approximately $55 million and non-recourse financing of approximately $88 million. The financing currently has a weighted average interest rate of 3.45% and is secured by, among other things, a first lien security interest in each of the properties. We have retained affiliates of Fortress to manage the properties. Pursuant to a management agreement for each property, we pay a management fee equal to 6% of the properties’ gross income (as defined in each agreement) for the first two years and 7% thereafter, and we reimburse the manager for certain property-level expenses. We are exploring opportunities to invest in additional senior living facilities.
We are also pursuing investments in residential mortgage backed securities (“RMBS”) that have been securitized by either public or private trusts (“non-Agency RMBS”). Since the onset of the financial crisis in 2007, there has been significant volatility in the prices for non-Agency RMBS. This has resulted from a widespread contraction in capital available for this asset class, deteriorating housing fundamentals, and an increase in forced selling by institutional investors (often in response to rating agency downgrades). While the prices of these assets have started to recover from their lows, we believe a meaningful gap still exists between current prices and the recovery value of many non-Agency RMBS. Accordingly, we believe there are opportunities to acquire non-Agency RMBS at attractive risk-adjusted yields, with the potential for meaningful upside if the U.S. economy and housing market continue to strengthen. We believe the value of existing non-Agency RMBS may also rise if the number of buyers returns to pre-2007 levels. As of September 30, 2012, we had acquired non-Agency RMBS with a face amount of approximately $322 million for a total purchase price of $202 million, or 62.7% of face amount.
With respect to dividends, we expect to pay dividends on our preferred stock on October 31, 2012. We declared a quarterly dividend of $0.22 per common share for the third quarter of 2012, which will be paid on October 31, 2012. We may elect to adjust or not to pay any future dividend payments to reflect our current and expected cash from operations or to satisfy future liquidity needs.
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