Newcastle plans REIT spin off for MSR, RMBS investments

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Newcastle Investment Corp. ($5.95 0.23%) [3] announced the establishment of New Residential Investment Corp., a publicly traded real estate investment trust that will primarily target investments including excess mortgage servicing rights and residential mortgage-backed securitizations.

The intended spin off will be effective the first quarter of 2013. The REIT will be externally managed by an affiliate of Fortress Investment Group with similar to the terms of Newcastle’s management agreement.

New Residential filed a registration statement with the U.S. Securities and Exchange Commission with respect to the planned spin off.

"I am very pleased to announce these significant investments in Excess MSRs and the spin-off of New Residential," said CEO Kenneth Riis at Newcastle. "We believe these investments offer a compelling opportunity to drive attractive returns for shareholders."

He added, "In addition, we believe the separation of Newcastle and New Residential will optimize corporate transparency and create value for each standalone company."

The company will focus investments on two specific areas including commercial real estate debt and residential servicing and securities.

Each business is anticipated to be sizable enough to stand alone with the new acquisitions. Also, a significant investment pipeline for each business is expected.

By separating Newcastle and New Residential, the two businesses are projected to improve transparency and unlock shareholder value.

Residential peers with comparable portfolios trade between 6% and 9% yield, compared to Newcastle’s average of 12%.

Click on the graph to view New Residential's competition.

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Newcastle also announced its intention to publicly offer 40 million shares of its common stock. The stock will trade on the New York Stock Exchange under NCT.

In connection with the offering, the company plans to grant the underwriters an option for 30 days to purchase up to an additional 6 million shares of common stock.

The proceeds from the offering are intended to be used toward making a variety of investments as well as the funding of a co-investment in excess mortgage servicing rights on a portfolio with an unpaid principal balance of $215 billion.

Credit Suisse Securities ($30.26 0.59%) [5], Barclays ($20.03 0.51%) [6], Citigroup ($51.45 0.84%) [7] and UBS Securities ($18.55 0.51%) [8] are the joint book-running managers on the offering.

Keefe, Bruyette & Woods ($0.00 0%) [9] and Macquarie Capital are serving as co-manager for the offering.

Newcastle is an affiliate of special mortgage servicer Nationstar Mortgage Holdings ($45.32 0.83%) [10], which acquired [11] billions of dollars worth of mortgage servicing rights and other assets from Bank of America ($13.43 0.07%) [12] as part of a major settlement [13] agreement between the company and Fannie Mae.

cmlynski@housingwire.com [14]