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Newcastle Investment Corp. Message Board

  • mreitcmbs mreitcmbs Jan 5, 2012 6:22 PM Flag

    Extremely Disappointed

    I have to say I'm extremely disappointed with management's handling of the capital raises over the course of 2010. Now that I'm reflecting back on my investment decisions for the year I'm beginning to agree with some of the bashers on this board (For the record, I hold 50k shares of NCT). The capital raise done at the end of Q1 has shown no accretion to the earnings per share and the second capital raise still sits in cash. To that end, pretty much both capital raises still sit in the bank as cash (effectively ~200 in the bank), earning virtually nothing. So here I am, looking at this stock - after having been dilluted by 70% over the course of the year and wondering what management is going to do with the remaining capital. They have been sitting on the cash from the last capital raise for almost 3 1/2 months and did a tiny MSR deal that will probably add 2-3 cents per share in free cash flow. Great - when is the rest of the capital going to be deployed? They said there is a strong pipeline for investments, but the pace of investments proves otherwise.

    I guess I'll start rotating out of this investment at the end of the month if management remains silent as I'm fearing another capital raise around the corner. Why, some might ask? Well I've been asking myself the same question when they raised the 112m in September and did nothing with the cash (That 44m MSR deal could have easily been done with cash on hand).

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    • I'd be concerned about a super-HARP, one that lets homeowners that are under water to refinance. Think of MSR as an annuity that pays off each month until the mortgage dies. The mortgage dies when it is paid in full, typically through home sale or refinance (default kills it too). In the best case for the MSR collector, the homeowner makes monthly payments for the full 30 years of the mortgage. Ironically, improvement in the housing market spells trouble for the MSR business. I think NCT management is wary of the situation and is wise not to jump into the business with both feet.

    • Contrary to popular belief, the housing market is NOT part of the current economic issues that really matter right now. It's all of the austerity that is being implemented around the world - we are heading into a global recession right now - although the US might squeak by with all the QE and loose monetary policy - that is IF Asia doesn't implode. I hope and have to believe the Obama administration understands this and won't institute a third massive plan. Even if housing was chugging along right now (pre-2000 levels), I've seen varying analysts state it would only add in a range of 0.5% - 1.5% to GDP.

      I am not concerned about the current HARP 2.0 refinancing that started on October 24 of last year as NCT has already built in a high level of refinancing assumptions in their base case scenario (30% levels for the first 2 years of the program) which supports the 20% IRR. Also remember that more than likely the push to refinance will go through the existing lenders like the current HARP implementation since the refinance fees are waived in those cases. One more point is that the excess fee that is paid which is built into the income stream will not decrease with the new refinance as it is a set fee which is determined by Freddie Mac and Fannie Mae. Now if the servicing fee structure changes - then I would be concerned, but I can't see that happening.

    • If the rumored Obama refinance plan actually occurs, MSR values may decline substantially. I'm not sure what the average life of a mortgage is these days, prior to the housing crunch it had fallen to about 7.5 years, but it's risen since then due to inability of many to refinance. There is a lot of pent up demand from underwater borrowers.

    • I've listened to or read all of their conference call transcripts, 8Ks, and 10Qs for the past several years. I think you are missing my point. I'm disappointed that they raised 112m to only have it sit on the balance sheet for several months. I know the Nationstar servicing deal closed in September and the capital raise probably was anticipation of a quick closing thereafter of the MSR deal. Obviously, they ran into some issues in closing the deal and management has not given any explanation as to the delay. Could it be that MSRs aren't the way forward? I question this as Ken wasn't specific to MSRs when he said there was a strong pipeline of investments (but I'm just speculating here). At the end of the day, I am more concerned about the business model going forward since the CDO market is dead and unlikely to revived in the near future - if ever. I am less concerned about them growing the dividend.

    • There are so many pros and cons regarding the fundamentals, hard for an honest person to know for sure. That's when I look seriously at the chart. Here is what I think. On a year chart I think it has bottomed and will very likely not make new lows, unless something pretty bad happens to our economy or with NCT itself. However, in the short term it is likely to go lower, perhaps near the level that ronrunoff likes, but I don't think it will go that low. But I do thing it may well get to the 4.30 area. I think if you believe in the mgt; it's worth owning a small amount here, perhaps another chunk in the 4.50 area, and another around 4.30; if it goes under 4 (w/o good reason) back up the truck! If I owned 50K I would sell 80% and look to buy back as it falls (assuming it is not your major holding). Be diversified with more div stocks. I think the biggest concern for me is BV.

      • 1 Reply to jrfillion
      • I have been a supporter of this company for years, but I find this discussion echos my sentiments exactly. I am amazed that the company has not announced a new investment. I am also upset by the last capital raise. I think managements willingness to sell the stock at such a low price is a little scary.

        For years I held this stock while the price moved up and down in the twenties. Every time it went up a little they issued new shares, but the dividend steadily grew. When that is the business pattern you have to ask yourself, "What is managements idea of an appropriate level for the stock price?". I worry that it is really low. I wonder whether they are willing to allow a capital gain or will they always squash it with new shares.

        The dividend was meaningless last year to holders who had a net loss of over 20% in this stock. I think unless management begins to do a better job of communicating and begins to make clear that it cares about capital appreciation for stockholders, perhaps it would be best to sell these shares and move on.

    • mreit: My guess is you won't be rotating out of your position at the end of the month. The potential of NCT going forward is just too great. These posters are just traders (self admitted), not long term holders, and they don't see it as an investment for the future, only a means to make a few dollars currently. I sincerely doubt there is an equity raise in the near term with them sitting on a load of cash (as far as we know right now). Their labeling the company as a Ponzi Scheme exposes their ignorance.

      • 1 Reply to bobdbeck
      • Oh, I know the company isn't a Ponzi Scheme - NCT has strong cash flow which more than covers the dividend. Yes they use leverage, but it is well documented in their filings and these bashers have no clue what they are talking about - its apparent in their posts.

        However, I am beginning to loose faith in the company given the amount of time in between communications with investors. I know Wes stated they would be more forthcoming with communication, but that's a departure from their historical MO. I see them beating the forecast EPS of 31 cents for Q4, but where does it go from there? I was expecting them to close a deal 3 times the size of the MSR one they closed last quarter. It was an exciting idea as they can significantly grow their cash from operations with that asset class.

        Like I said, I'm sticking around until the end of the month as I'm re-reviewing some other dividend playing reits with potential upside via dividend growth (i.e. CXS). I'm still hoping they close a substantial deal this month. I guess I just feel like the 44m MSR deal was more of a token gesture than anything else as I view it as a minor blip on the radar given its 2-3 cents EPS per quarter.

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