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Newcastle Investment Corp. (NYSE:NCT)

Acquisition of Dow Jones Local Media Group Conference Call

September 04, 2013 2:30 PM ET

Executives

Sarah Watterson – Director of Investor Relations

Wesley R. Edens – Chairman

Jonathan R. Brown – Interim Chief Financial Officer and Principal Accounting Officer

Andrew White – Managing Director

Kenneth M. Riis – President, Chief Executive Officer & Director

Michael E. Reed – Dow Jones Local Media Group

Analysts

Douglas Harter – Credit Suisse

Jason M. Stewart – Compass Point Research & Trading, LLC

Matthew Howlett – UBS Securities LLC

Steve J. Errico – Locust Wood Capital Advisers LLC

Operator

Good afternoon. My name is Jasmine and I will be your conference operator today. At this time, I would like to welcome everyone to the Newcastle Update Conference Call. All lines have been placed on mute to prevent any background noise. After the speaker’s remarks, there will be a question-and-answer session. [Operator Instructions]. Thank you. Ms. Waterson you may begin your conference.

Sarah Waterson

Thank you, Jasmine. And welcome everyone, thank you for joining us on short notice for this Investor Update Call. I want to make sure that you had a chance to check out on our website. On our Investor Relations section we’ve posted a presentation with materials related to what we’ll be speaking about today. And with me I have Wes Edens; I have Ken Riis; I have Jon Brown; and I have Andrew White.

I’d like turn the call over to Wes now.

Wesley R. Edens

Great. Thanks Sarah and thank you everyone for dialing in on a short notice. It’s pre-holiday night. I wanted to give an update to a transaction, which we announced on market before the open of business this morning and to give you some color as to both around the transaction itself the spin of adding to a new company. So at the end of the day, probably the next 60 days to 90 days or so every Newcastle shareholder will now be a shareholder in both Newcastle as well as the spin company, which is called New Media.

Got an update to our existing core business, which as all you I’m sure to know we’ve been very focused on kin of to transition the old legacy mortgage business into the senior housing business. That’s a transition that continues and has had a lot of successes and there is a lot of good things to talk about with that and I’ll turn it over to Andrew to talk about that and them I’m happy to answer questions for you.

As Sarah mentioned, we have posted on the website a flip book that I’ll refer to some of the pages. Where I won’t go through all of them and hope that will give you some good disclosures to what is going on.

So first of all on Page 3, the executive summary. We’ve made two investments in Newcastle in two high yielding media companies, local media companies that will be combined and spun into the new company called New Media. First of all, we announced as well as Dow Jones announced we’re going to buy 33 local newspapers from them for a total of $82 million, that investment is financed with $33 million in Glasgow [ph], it’s a total equity investment of $49 million.

Second of all we have had an investment in the debt of a company called GateHouse, which is a local media company, which has been a public company for a number of years. That company is not currently in bankruptcy, but the company is over leveraged has been a company, that’s sector. We bought that originally many years ago. Over the last six months to nine months, we’ve made a number of other follow-on investments as much, lower prices deeply introduced prices and concurrent with the transaction with Dow Jones, we’ve reached an agreement with other debt holders to essentially convert the debt of that company into equity, those two things combined will be spun out.

And so what all of you with all of the Newcastle shareholders will end up with as a confirmation of that process which we expect to be some time later this year probably in November or early December. It is one share of Newcastle which will now even be more concentrated in the senior housing sector and again we will walk through what that looks like as well as in one share of the newspaper business.

In fact at the expense of flipping to the back, what we have done is back on Page number 15, have done some of the post-analysis to show you what it means to all of us as Newcastle’s shareholders on what the resulting companies will look like, what it means to the valuation of the enterprise.

The senior housing business, which today we have invested equity of about $167 million, we have a current run rate of return on investment in the high-teens, 70% here that’s been very, very prolific business for us, its Andrew White who heads that business, has done a terrific job both putting the team together as well as buying assets as well as operating the assets and we generated terrific results in a short period of time.

If you look at other healthcare REITs and the fact that it traded sub 5% dividend yield, 6% FFO yields, we think that are too fast-forward to be end of the year and forecasting that we are going to be about $400 million in equity deployed, that’s our estimate based on current market conditions and on current pipeline that although we have in front of us.

You would end up with $400 million in capital, yielding 17% to the extent that those are valued at 6%, 7%, 8%, 9% yields. It’s a multiple between 2x and 3x that we paid for it. So that would be a big valuation increase on that portion of the business.

The media assets which performed in this transaction, we have $230 million invested in the cash-on-cash dividend yield to investors we’re forecasting to be 20%. So it is an out of favor asset. We think it’s a terrific investment that we’re delivering to shareholders. After a while, we think that in a minute, but they are very cash flow positive assets with very low leverage. 20% cash and cash return to the extent that traded at 20% yield and it’s basically worth what we have paid for to the extent that it trades at 15% or 10% yield, then obviously it’s worth incrementally 1.5x to 2x.

The CDO and debt position continues to be little down as I can and we – there is just really timing considerations in terms of when that all is expected to turn into cash. We expect the bulk of that if not all of that would be deployed eventually into the senior housing business and the investable cash left on balance sheet that we assume that we’re going to make some multiple on, as we deploy that into the senior housing as well.

If you add all that up, you end up with valuations and from the low side; we’re little over $5 a share. Obviously trades more than that, but really we think that the – my expectation is that once this is all executed properly, you end up with $7, $8, $9, hopefully $10 a share on this part of it. Which when we add that back on to the NRZ what we did earlier this year, we think it’s got a potential to have a spectacular result for shareholders that’s obviously what we are shooting for. So with that as a kind of a broad frame of reference, if we go back to the beginning of it and just walk you through a few of the highlights on this, and then I’ll turn over to Andrew for a second.

So New Media will be a spun out company. We’re very concerned with this transaction to make sure we didn’t dilute the value of everything else that we’ve got on the balance sheet. So the media assets trade at different multiples than the healthcare assets obviously. So we expect to file a pre-packaged bankruptcy for the GateHouse Company next week, Wednesday, Thursday, Friday, in this case where 90-plus percent of the debt holders have already agreed to the restructuring. It is a formality that’s too strong a word, but it’s a very, very straight forward process, and we expect to culminate with the company coming out as a restructured company 60 days to 75 days afterwards.

It will have as I said it will have a cash-on-cash dividend yield of about 20% and we expect to pay through that dividend, the total debt on the company would be less than 2x, it’s a very, very low leveraged transaction and I think very importantly in addition to the assets themselves which are local newspaper assets in the most part. So assets that have been very resilient even during the downturn and all the internet issues that have affected lot of the big city newspapers.

The opportunity is to buy other assets, we think in a very, very attractive levels is one that you create a lot of growth. I mean our big picture hopes and forecast of the business as we come out of the company that’s got a 20% dividend yield and then if we do a good job in both foreign cash flows organically, some of the digital initiatives that we have, they are like Mike Reed who is the CEO of that business, talk about in just a sec. Plus the acquisition opportunities where we think we can buy lots of assets, they used to trade at 10x, 12x multiples at 2x to 3x multiples that we can generate a lot of growth and hopefully double the adherence of that company over the next couple of years.

So if you flip to Page 5, local newspaper as you can see from the chart on the right hand side here, while they were certainly very affected by the downturn in 2005, 2006, 2007, they even actually stabilized to a very significant degree. The stable cash flow characteristics of them are what I think are attractive to from our standpoint and be also attractive to Warren Buffet probably, I kind of quote from his letter in 2012, local newspapers are essential parts of the local community.

Everyone wants to see who is drunk driving and whose kid did well in the high school volleyball game. The local content is new replaceable part of the community and as part of that, once you’ve had these declines in the local advertising, the circulation numbers that actually stayed very stable. And if you look at the chart in the right-hand side, the digital part of it, which we think is a big part of the future of this company, is becoming an increasingly prominent aspect of it.

Page 6, with the distress, comes hand-in-hand the buying opportunity. And so many of the public companies were over leveraged and were forced to restructure. There has been number of Chapter 11s and number of Chapter 22s, which were, obviously, multiple bankruptcies of the company. There’s been over 80 sales completed since 2009 with transaction values of over $5 billion, over $2 billion this year alone. And very importantly, there are very few buyers of assets that actually have the wealth to do it right now.

So those companies that have been restructured, those companies that are in bankruptcy or come out of bankruptcy, end up with very high debt burdens and, as a result, they lack the ability to be effective buyers and we think that that creates this total asset values and then a tremendous amount of upside in buying these. And simply put, buying assets at 2x to 5x multiples for the newspapers and 1x to 2x multiples for the directory and then applying our own management, our own digital processes, again, I’ll let Mike Reed talk about, we think that the net of value that you can create is to tremendous amount of value.

The next couple of pages give some information about the papers themselves, about Jones papers. First of all, you can see these are very much small town newspapers, 200,000 subscribers per week in seven different states and we bought them, we think at a very attractive price, Page 8, we basically paid $82 million, that’s about $33 million in real estate value. So if you look at just the operating cash flow that we bought, we paid roughly $50 million for an asset that we think is going to produce $25 million in cash flow next year. So maybe not to grow, see just assets in the world from this point forward, but $50 million for $25 million in this market we think is a tremendous asset.

The GateHouse overview it’s quite a bit larger enterprise, 400 different newspapers, 300 different websites, lots of [indiscernible] in the country. You can see there was again a significant decline in the EBITDA 2007, 2008, 2009, Mike has done a terrific job with that and has been stable as of late, first half of the year was what we think a real pivot point for the company. We see the results coming through now in the third quarter and headed to the second half of the year where we think that the business is stabilizing and growing and I’ll turn over to Mike just in a second to talk about that.

The net of it is what will you own as a Newcastle shareholder, you will contribute the equity value on Dow Jones, you will contribute our portion of the GateHouse debt that’s being converted and pro forma of the transaction today, we would own $230 million in capital 59% of Newcastle.

Page 11, to give some financial metrics to what we are hoping to accomplish here, this is a very simple model that just simply says, if you take the current earnings and [indiscernible] per share, the circle there on the green on the left hand side, $0.25 per share, if we can invest $1 billion in assets over the next three years, we basically double the overall dividend rate of it.

So again a company that starts at 20% where we think it should trade at a better yield than that, a higher multiple in other words and one that we think we can double, but we do a good job executing the core business as well as being prolific on the investment side, I think that’s the growth platform over there.

So a big part of our activities and focus in the last number of years, in addition to the core business of running the company day to day has been to focus on our digital aspect of the business and what we can do with our customers and we created a company called Propel a couple years ago. Page 12 gives you a timeline of that but let me take a pause at this point and turn it over to Mike to walk through it. Mike.

Michael E. Reed

Thanks Wes. I guess I would start quickly by saying that there is two key components to our strategy and Wes mentioned one that’s to stabilize the core and I think an important factor to note is that over 60% of the revenues from our traditional print media business is now coming from categories that are stable to growing so the stabilization characteristics are there and in that the top line now and the small erosion that we are seeing on the print advertising side is also becoming a much smaller category for the industry and for the company.

It’s also not fair to paint the entire industry with the same brush. There has been a lot of headlines in the last few months about larger newspaper losing money, cash flow negative situations with regard to some of the recent sales and as you just on Page 9 our newspaper business is one where we actually produce over $80 million of cash flow from a core business and $470 million of revenue.

So there is significant cash flows in the local market newspaper business and those cash flows are starting to stabilize an importantly stabilizing from at the top line level.

And then what we really see as the opportunity is to leverage the strong local brands and the local sales forces we have in all of these markets to grow in the digital space and where there is a real tremendous opportunity is in the digital marketing services business.

And if I could summarize that really put before you, what we really do is offer a small to medium size business in all of our communities. The ability first to build a presence and the web mobile and social media platforms that are applicable to them and two once they build the presence we help them get found, it’s not enough just to be there, you have to have actually be found.

And number three once found, we help them actually engage with the customer. You need to deliver the right message and you also need to know what people are saying about you. So those are really the three key components of Propel’s product offering today and it’s something that small to medium-sized businesses praise today and that need will actually only continue to grow.

When you think about the small mom and pops out there, they don’t have IT departments, they don’t have big marketing departments and they don’t have the sophistication level to really understand and navigate through this new environment they have to navigate through, nor do they have the time.

So what our newspaper assets can really do leveraging the brand and the sales force would become the outsource marketing and IT department for these SMBs. And a significant amount of lead generation in the future for these businesses will actually come through this type of service.

The other thing it really does for a traditional media business is it extends the customer pool. in the markets, the newspaper actually operates in. Newspapers currently penetrate 10% to 15% of the businesses in a community. And these particular services apply to all businesses of the community. So the customer pools expanded tremendously.

So the opportunity to grow organically, leveraging the core, which is starting to stabilize through these digital marketing services is something that we see as tremendous potential in our business.

Wesley R. Edens

Yeah. when you look at Page 13, there’s no part of the industry that has been harder hit than the core directors businesses, these were once considered to be the more stable kind of cashed out. In media industry, they traded at multiple of 10x, 11x, 12x obviously; the Internet has taken a huge whack of these businesses you’ve seen kind of the year-over-year decline in revenues, 15%, 20% for a number of years.

We own one directory in the portfolio right now that is out in Sacramento. About a year ago, we actually applied a Propel folks to go in there, take that sales force, go out and pitch the customers to do some of the things Mike was talking about in terms of other digital activities and then the results have been striking, right? It looks to us this year; our forecast is basically the company is revenue neutral this year versus last year, which is, obviously, a tremendous result.

A lot of these records businesses trade at very, very low multiples because people are worried and kind of rightfully so. They’re going to go to a business to the extent we can take these kind of digital superpowers and apply them to these other kinds of old-line media businesses. We do think that there is a lot of upside to it.

So that’s the conclusion. Before I turn it over to questions, maybe just kind of big part of the core business at Newcastle restated business, senior housing business, so I’ll just turn over to Andrew for a second. Andrew is going to give a little bit of update on kind of the business and what we are up to.

Andrew White

Sure. So our portfolio right now includes the $467 million of assets we had closed on as of the last earnings call about $167 million of equity invested. We continue to be on track on the operating side with respect to that portfolio. We had targeted kind of 12% to 14% going in lever yields, stabilizing at the high-teens low-20s and we continue to be on track for that.

The first portfolio we acquired about a year ago. We are now just reaching the one year anniversary of that investment and we are at a 22% leverage yield on that investment. So, again, with respect to the first $0.5 billion or so of acquisitions we’ve closed, we continue to be kind of on track operating wise.

We have given guidance that the current portfolio is targeted to be between $600 million to $800 million of total assets, about $200 million of equity to be invested in the balance of the year and we continue to feel good about that. In the last month or so, since the earnings call, we tied up about $150 million of total asset, so we continue to see some track of our year end goal.

Again, same return profile and kind of operating profile as the portfolio we closed on to-date going in levered returns in kind of the 12% to 14% range with the expectation we stabilize in the low-20s. And again all of that is against the backdrop of the competitive set which trades kind of in the 5% to 6% levered yield range. So I think that’s kind of the recap for the senior housing [ph] portfolio right now.

Wesley R. Edens

All right. So again the – for all the shareholders that are on the call, you’ll start – starting today with a share of Newcastle stock, you’ll end up with two shares of stock, a Newcastle share and New Media share, here in the next 60 days to 90 days and you’d be free to do whatever you like. We think there’s some prime reasons to keep us with [ph] both companies. That’s how I feel about it obviously. But of course you’ll be able [indiscernible] about it.

So with that, I’ll let – I’ll pause and operator if you can open up for questions.

Question-and-Answer Session

Operator

[Operator Instructions] Your question comes form the line Douglas Harter.

Douglas Harter – Credit Suisse

Well, I was just hoping you could tell us what has to happen before the spin out of New Media? Is it similar process that we went through within New Residential?

Andrew White

Yes, what we are going to actually do is, we will file the company for a – this pre-package bankruptcy some time next week. Basically, the same time, plus or minus, probably, a day or two of time lapse, we except to file with the SEC for the spin. And then it’s just a question of kind of grinding through the Hall of Justice with the SEC.

So when that happens based on our experience with it and where things currently stand, we think that the expected timing for that should be sometime maybe in the second half of November or first half of December, but as we get more clarity, we’ll obviously pass that along.

But it should be, we think, pretty straight forward. It is a little bit unusual to file a company for bankruptcy and file it for the spin at the same time, but we think that the nature of what we are doing here is so straightforward that it shouldn’t be that difficult for folks to get through. That’s our expectation.

Douglas Harter – Credit Suisse

And then can you walk through the thought processes as to why – with all the pockets of Fortress, how it came at the Newcastle, this opportunity came to Newcastle?

Wesley R. Edens

Well, we actually had been an investor in GateHouse debt for many, many years. It’s probably been five, six, seven years, and so we had a position in GateHouse, in the debt. Historically, we obviously know the company well, and know the operations, know Mike well, like actually business, like the prospects of the business. The company was overleveraged obviously. So it was a real candid for exactly the kind of restructuring that we’re doing right here, but given that we already have the position in the debt side of Newcastle to say at least that the media’s – investment for a REIT to be making, we did have the legacy investment.

We think it produces a company that has got a tremendous amount of upside and that’s why we made it follow-on investments into Newcastle. That said, I want to make sure that as the result the company has a chance to stand on its own and not hurt the multiple potential for the senior housing business and thus the decision to spin it at the same time, we actually could clear the restructuring is really the right thing to do.

Douglas Harter – Credit Suisse

All right. Thanks for that color Wes.

Operator

Your next question comes from the line of Jason Stewart.

Jason M. Stewart – Compass Point Research & Trading, LLC

Hi. Good afternoon, on the REIT eligibility requirements, how does this investment change? How you view those or is there anything you have to work around in terms of asset or concentration limits?

Wesley R. Edens

No, we have lost the coverage on all the tests for this year and so we’re – we got really no issues with that whatsoever. Obviously, if we are own it for a long-term REIT, we have issues we have to deal with and it’s not a good REIT asset except for the real estate it’s owned by the different companies, but all has a move point with that being spun out. It will be spot, obviously core fund stand on this.

Jason M. Stewart – Compass Point Research & Trading, LLC

Okay. And then the determination on any impacts of the NOL, that’s remaining at NCT, I don’t recall those NRZ, any specificity around how that’s changed, but I mean this obviously would I assume change it as well?

Wesley R. Edens

Jon Brown CFO.

Jonathan R. Brown

The NOL will be maintained at the NCT level, not go along with the spin-out and it primarily relates two things in the debt business and some future deferred income in the debt business will probably offset against those NOLs in future.

Jason M. Stewart – Compass Point Research & Trading, LLC

Okay, all right. Two more if you don’t mind; when I add up the investments in media, I get to something closer to $296 million or so, how do you get down to $230 million from that level if you do the…

Wesley R. Edens

We anticipate putting on about $150 million in debt against Newcastle which will be a little bit less than two times of leverage and GateHouse about two times of leverage. We did, did a financing in conjunction with the Dow Jones acquisition so we think we’ve got good color and clarity as to where that market is. We didn’t think it’s accessible and so your math is right on a gross basis, but then once you take out $150 million, which we actually are beneficial owner kind of half of it, that will bring you down to $230.

Jason M. Stewart – Compass Point Research & Trading, LLC

Will that capital would be available at NCT to make other investments?

Wesley R. Edens

It will be, it will be done kind of concurrently with the spin.

Jason M. Stewart – Compass Point Research & Trading, LLC

Okay. And one last one and then I will jump out. The status of the GateHouse loan at NCT, I don’t actually know if it was a accruing or if it was take or cash volume, if you could just give us some update there?

Wesley R. Edens

It was all current pay. The company was current on all of its obligations, it just is over leveraged, so but it – the company has never missed a payment on anything, so this is just simply a – it’s a voluntary restructuring given the leverage levels of the company, not the financial condition of it.

Jason M. Stewart – Compass Point Research & Trading, LLC

And then, it was LIBOR plus 150 or 200, am I thinking of right part of the capital structure?

Jonathan R. Brown

Yes, 250.

Wesley R. Edens

Yes, 250 and it was – had discounted the price that which all of this is converted, it’s $0.40, so it was mid-single-digit return on a current basis that will actually be converted into equity that essentially earns 20%. So we think there’s a huge amount of value that’s unlocked by doing this and that’s the road behind it.

Jason M. Stewart – Compass Point Research & Trading, LLC

Thanks for taking the questions.

Wesley R. Edens

You bet.

Operator

Your next question comes from the line of Matthew Howlett.

Matthew Howlett – UBS Securities LLC

Thanks for doing this call. Thanks for taking my question. Want to just clarify, if your – the senior living pipeline that’s on track, then when we can presume that the collapse of CDO 6 and CDO 8 this year are on track?

Wesley R. Edens

Well, I’ll let Ken deal this specifically. I mean our publicly stated ambitions are to convert all the legacy businesses and the capital that can be redeployed, in particular, in the senior housing business. And all those things are very much kind of happening as we expect. There’s obviously timing considerations, market considerations that come into play as you talk about collapse in various fields. And so Ken, I’ll let you talk about whatever you feel comfortable.

Kenneth M. Riis

Sure. I mean we have sort of two weeks ago, we own all of the senior bonds in the CDO 6. So either we can collapse our deal, or we can sell out the whole senior class position there, a much higher pricing when we bought it, that’s one option, which is very simple to do or easy to do. And then the collapse could take 30 days or so and really the other deals CDOs 8 and 9, and that’s just really a function of timing as the senior living pipeline sort of comes to needing funding and then as timing the sale and class of the other two deals. So it’s really willingness to us, we’re generating good cash flows on CDO VIII and CDO IX. So my goal is the time the classes eight and nine as we deploy back in the senior living assets and within a very short period of time of the class versus the reinvestment and that’s really where we are with that.

Matthew Howlett – UBS Securities LLC

Got you. You feel pretty good like with the volatility coming up with that said I mean you feel that you still going to prevent execution on the assets where you had them valued at June 30th to be able to go and pay all the third-party debt-offs and obviously recover what you guys have missed.

Wesley R. Edens

Yeah, I do, yeah.

Matthew Howlett – UBS Securities LLC

Okay. And then, okay, can we simply, by this time next year that all three seniors will be gone effectively.

Wesley R. Edens

That's the goal.

Kenneth M. Riis

Yeah, that’s our goal.

Matthew Howlett – UBS Securities LLC

Okay. And then just going forward just the focus on the company going to be just the senior living, I mean, are other things to think about or where you just see opportunities and take advantage of them as they come your way or is it really just focusing on filling the pipeline and hopefully then getting the re-rating on the dividend yield what should be more in line with the senior living peer group?

Wesley R. Edens

Well, I mean we show up everyday trying to find interesting things to do right. The markets are – there is lots of challenging things in the world, finding attractive investments and we think we’ve got the right kind of opportunities set is the hard one. But the fine thing is we can at a great return as well as our in sectors that are big enough and viable enough that you could actually then really execute on different things is always a challenge.

We don’t have anything else that is really material, if it isn’t in the hopper right now. But our business is to find things to do and we look for it. I think the expectation that I have for the core business right now is to do exactly as we have laid out and have done, I mean remember the senior housing business for us is in this company is a relatively new endeavor as well. We first started making investments in July of last year. so it’s been just a shade over a year in that time.

And I think that few people were excited that we are prospecting into it. but also I wanted to give us credit for what we had done, not what we were talking about doing. And I think that we’re just now getting the benefits as Andrew and his squad have done a terrific job of both making investments, as well as executing on them.

I mean the first investment we made last July into a marketplace where I think most people would say there is a lot of investment capital chasing it has generated, has gone from the leveraged return in the high single-digit, low double-digit to 22%, that’s where the current rate on it right now.

So that’s a great accomplishment on that, first piece of capital and we’re trying to replicate that over and over, because we do think that – again, if you look at the biggest companies in that sector, they are many, many times of size of us. But they were our size not that long ago. So I think that that’s obviously puts the opportunity.

Matthew Howlett – UBS Securities LLC

Right, now I would now agree. I would just say that in order to get that market peer re-rating, then you would have the cash flow stream, you would have to be obviously, most of it coming from the senior living space in order to you will get the full market re-rating of the story. But I think it’s been a terrific job and gradually we see in the team.

Wesley R. Edens

Thank you.

Operator

Your next question comes from the line of Adam Forsted.

Steve J. Errico – Locust Wood Capital Advisers LLC

Hi Wes, it’s actually it’s Steve Errico. Thanks for taking the question. If you could just help me do a little bit of a bridge here from the second quarter’s EPS or FFO. I think you guys reported $0.09. And there was about of $0.015 of one-time expenses from the spin of NRZ, so that brings us to $10.05. And then I had another $0.05, because you didn’t have the healthcare properties that you bought for the entire quarter, so that would get us to $0.11.

In that $0.11, you have this $230 million of capital, earning about 6%, so if I want to take that out, that get you to $0.10 to the – what I am going to call the core CDO/senior living business. And this new acquisition is about $0.15 accretive or about $0.04 a quarter. So am I looking at that right, the spin-off, the core business without this media business is going to be about $0.10 a share a quarter or $0.40 a year?

Wesley R. Edens

I think that is – that’s a good summary and if you think back to the guidance that we gave at the time when we are doing the spin as to what our expectations were in the fourth quarter, we’re forecasting to get to kind of a $0.14 run rate. So that’s the $0.10 going to $0.14 and some portion of that was that we thought we would get a full pay through of this capital being deployed at 20% rather than at 6%.

Steve J. Errico – Locust Wood Capital Advisers LLC

Okay.

Wesley R. Edens

So, in terms of the specific guidance for the quarter, we haven’t obviously had a board meeting, talk to our directors about where our dividend is going to be and wherever else, but I think that the math that you go through is pretty consistent.

Steve J. Errico – Locust Wood Capital Advisers LLC

So the way you think about is, if I took that some of the parts and let’s just say, you took the mid-point on this thing, traded at a 13% yield, you’ve got a $5.60 stock, you back out $1.20 or $1.32 for your spin-off thing, you are creating the stub or the senior living business at $4.20 or so and without any growth, we would that expect that to pay a $0.40 dividend, which is anything now from 9% yield versus the comps that are 5% or 6%?

Wesley R. Edens

Yes, and obviously, the more capital that we deploy – I mean the magic to it and it’s not magic, I use the term achieved [ph], but the goal obviously is if you can generate 20% returns in a business where the industry is valued at 5%, every dollar capital we deploy there is very accretive.

Steve J. Errico – Locust Wood Capital Advisers LLC

Got you, great.

Wesley R. Edens

That’s what our focus is on and then we are too.

Steve J. Errico – Locust Wood Capital Advisers LLC

Well congratulations and look forward to seeing the spin documents. Thanks again.

Wesley R. Edens

All right.

Operator

This concludes the question and answer session. I’ll now turn the call back over to Wes.

Wesley R. Edens

Great. Well thanks everyone for calling on short notice. We’ve tried hard to be very clear in the presentation we put up online to answer lot of your questions. This has hopefully been helpful as well. And look forward to talking to you soon. Thanks so much.

Operator

Thank you. This concludes today’s conference. You may now disconnect.

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