Newcastle Investment Corp. (NYSE:NCT)
Q3 2016 Earnings Conference Call
November 4, 2016 9:30 AM ET
BoHee Yoon - Counsel
Wesley Edens - Chairman of the Board
Sarah Watterson - President and Chief Executive Officer
Lawrence Goodfield - Chief Financial Officer, Chief Accounting Officer & Treasurer
Good morning. My name is Casey, and I will be your conference operator today. At this time, I would like to welcome everyone to the Newcastle’s Third Quarter 2016 Earnings Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers’ remarks, there will be a question-and-answer session. [Operator Instructions] Thank you. BoHee Yoon, you may begin your conference.
Thank you, Casey, and good morning, everyone. I would like to welcome you today to Newcastle’s third quarter 2016 earnings call.
Joining us today are Wes Edens, the Chairman of our Board of Directors; Sarah Watterson, our Chief Executive Officer; Larry Goodfield, our Chief Financial Officer and Chief Accounting Officer; and Sara Yakin, our Chief Operating Officer. We have posted an Investor Presentation on our website, which we encourage you to download if you have not already done so.
Before I turn the call over to Wes, I would like to point out that certain statements made today will be forward-looking statements. These statements by their nature are uncertain and may differ materially from actual results. In addition, we will be discussing some non-GAAP financial measures during the call today and the reconciliations of those measures to the most directly comparable GAAP measures can be found in the investor presentation. We encourage you to review the disclaimers in our press release and investor presentation and to review the risk factors contained in our annual and quarterly reports filed with the SEC.
And now, I would like to turn the call over to Wes.
Great. Thanks very much and welcome, everyone. Good morning. I’m going to start with Page 2 of the supplemental that we’ve now passed out just to give a few introductory remarks before I turn it over to Sarah.
The quarter that recently concluded was a very good one for the firm. Highlights listed on the page here. GAAP income $19 million, or $0.28 per share, had a big uptick in debt recoveries as we’re very close to being fully out of our debt business, and so we realized $125 million in proceeds. American Golf, which is our golf business continues to perform very well at the midpoint of our expectations at the value of about $306 million, which represents about 1.7 times multiple on the equity from what we paid for a few years ago and core earnings of $23 million, or $0.35 per share.
If you just flip to Page 3, we have little more detail. Debt business largely completed the debt monetizations. We expect the majority of the remaining recovery to come in the first quarter of next year. So we’re very, very close to the end of the restructuring that we started back at the end of 2012. $120 million of monetization in the third quarter, which included $100 million, the largest loan that we had in portfolio, the balance that we expect to be completed to this in the first part of next year.
Golf business, very solid performance. Our targeted 2016 adjusted EBITDA $33 million to $35 million, up 10% from the midpoint in 2015. This in spite of some challenging weather conditions around the country, our performance has been very, very solid.
Lastly, and what we’re very proud about is that, we’ve continued the development of Drive Shack. We’re very optimistic about the development of a whole list of venues. We’ve been actively developing our initial site in Orlando. We expect it to be completed [Technical Difficulty] and we hope that there’s a very, very substantial pipeline, I guess, Sarah will talk about that [Technical Difficulty].
So one last word on the debt business on the following page before I hand it over to Sarah. In 2012, when we made a change of strategy and decided to liquidate in an orderly manner the debt on the portfolio, we estimated at that time that we thought the total proceeds would be approximately $800 million. I’m happy to report that since then, we have recovered to-date $703 million, and our expectation now is that, we’ll exceed the initial estimate by a fair margin.
So our current number $825 million is probably another $25 million to $50 million on top of that. But you can see, it’s been a very orderly recovery for us. I think that the time and the prudence that we’ve exercised has been very well received, but we are now very much at the end of the day. And I think the big news is that we expect to be essentially out of the debt business entirely on our portfolio by the first quarter of next year.
So with that, let me turn it over to Sarah to walk through the business. Sarah?
Great. Thanks, Wes. So, guys, I’m turning to Page 5, just an overview of our American Golf portfolio remain one of the largest owners and operators of golf properties in the U.S. 84 properties across 13 states. Our golf portfolio remains diversified across private and public courses, owned, leased and managed courses as well, and over 75% of our courses are in the top 20 U.S. metro areas and the majority of which are well situated in four season golf climate. We have 58,000 members and over 4 million rounds are played in our courses over the last year.
Turning to Page 6, the third quarter results for American Golf, another kind of great quarter and as Wes mentioned, well on our way to achieving our 2016 adjusted EBITDA $33 million to $35 million. Q3 same-store revenue grew about 2% year-over-year to $83 million and trailing 12 months same-store revenue grew 4% to $297 million.
3Q 2016 adjusted EBITDA grew 11% to $10 million, and trailing 12-month adjusted EBITDA grew 27% to $33 million, and so very much in line, if fourth quarter pans out, we are on our way to meeting our adjusted EBITDA target of $33 million to $35 million. A lot of this growth achieved in this quarter was really by our team on both private and public sides.
Private side 20 courses in the same-store portfolio. Growth in this area continues to be driven by occupancy growth, which you can see continued to tick up and we’ve added 99 full golf members over the past year, so now have a total of 8,900 full golf members, and our average trailing 12-month dues are up $228 per member.
On the public side, we have 53 courses in our same-store portfolio and we experienced steady growth within our public member program, The Players Club. At the end of the quarter, this club is 42,000 members, which is up 23,000 members versus the prior year. So it’s really been a phenomenal program and we continue to kind of grow members and now that we’ve kind of accumulated a large volume of members, we’ll start to look to other things to do with the program as well.
Turn to Page 7, as Wes alluded to, the result of the efforts I described on the prior page have really shown through earning and driven value for the business. I think Newcastle’s acquisitions through 2016 year-end, targeted earnings will have grown about 50% from the $22 million of adjusted EBITDA we achieved in 2013.
As a result, enterprise value has grown by about $80 million to $300 million after accounting for about $100 million of debt we put on the business in June, the equity value of the business is $200 million, which implies a nearly 2 times multiple on Newcastle’s invested equity of $120 million. So looking ahead, we remain committed to growing this business organically and continuing to create additional value for shareholders.
Turning to Page 8, we continue to remain really excited about Drive Shack and the prospects of Drive Shack. Again, as Wes mentioned, we hope this will be the business that will be the – fuel the growth of Newcastle going forward. For those of you, who aren’t familiar with the concept, three-story indoor/outdoor ranges that really combine the best aspects of food, entertainment, hitting games that friends, family, and really golfers/non-golfers of all skill levels can enjoy.
We’re happy to announce that we’re developing our first site in Orlando, Florida, which we aim to about – aim to open in about plus or minus 12 months. Furthermore, behind that, we have a robust pipeline of 25 plus sites that we’re working alongside taylor made to advance and really look forward to updating you as we continue to develop these venues over the near-term.
And so with that, I’ll turn it over to Larry for some more thoughts on the financial results.
Thanks, Sarah, and good morning, everyone. Given the seasonality of our golf business, we look at our Q3 operating metrics in comparison to the prior year’s quarter. So if you turn to Page 9 to see that we generated $90 million of GAAP net income, or $0.28 a share versus $6 million, or $0.10 a share in Q3 2015, resulting in roughly a $30 million increase.
We’re had core earnings of $23 million, or $0.35 a share versus $10 million, or $0.16 a share in Q3 2015, also resulting in roughly a $13 million increase. Our AFFO, which adjusts GAAP net income for depreciation and amortization was $28 million, or $0.42 a share versus $16 million, or $0.25 a share in Q3 2015, resulting in roughly a $12 million increase.
Contributing to both our GAAP core and AFFO increases is approximately $10 million of accretion income recognized associated with $110 million partial pay down on our corporate resort loan. The remaining increases are primarily associated with the improvements in our golf business. And you will see that even if you adjust for the more one-time $10 million of interest accretion, the metrics are still up in comparison to Q3 2015.
And so with that, I’ll open up the call for questions and turn it back to the operator.
[Operator Instructions] There are no questions at this time.
Great. Well, thanks, everyone, for dialing in another solid quarter for the company. We look forward to giving you – giving results to you early next year. Thanks much.
This concludes today’s call. You may now disconnect.
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