Newcastle Investment Trust (NCT), a diversified REIT sponsored by Fortress Investment (FIG), announced dismal fourth-quarter results today, posting a GAAP quarterly loss of $2.01/share. The loss was driven by a huge $202.6 million other-than-temporary impairment charge, primarily related to NCT's portfolio of subprime RMBS and residual interests. The writedowns do not have an economic impact on NCT's business, but do give insight into the market's continued distate for subprime assets.
More interestingly (at least to me), was the update that Newcastle provided for the first quarter of 2008. The Company has sold $1.3 billion of assets, about 16% of the balance sheet, since December 31. The sales resulted in a $14.2 million net loss. Of the $1.3 billion, NCT was only able to unload $45 million in junk assets, while $770 million of the assets sold were agency-backed securities. The nature of the sales suggest that NCT was a bit desperate for liquidity, and the sale of a material amount of the portfolio at a significant loss may pressure future taxable income. While Newcastle fully covered its 2007 dividends with taxable income, I would be cautious with NCT stock until the first quarter dividend is declared.
More interestingly (at least to me), was the update that Newcastle provided for the first quarter of 2008. The Company has sold $1.3 billion of assets, about 16% of the balance sheet, since December 31. The sales resulted in a $14.2 million net loss. Of the $1.3 billion, NCT was only able to unload $45 million in junk assets, while $770 million of the assets sold were agency-backed securities. The nature of the sales suggest that NCT was a bit desperate for liquidity, and the sale of a material amount of the portfolio at a significant loss may pressure future taxable income. While Newcastle fully covered its 2007 dividends with taxable income, I would be cautious with NCT stock until the first quarter dividend is declared.
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