Newcastle Announces Third Quarter 2008 Results

Highlights

- GAAP loss of $149.5 million or $2.83 per diluted share for the quarter ended September 30, 2008.

- Operating Income (net of preferred dividends) was $25.9 million, or $0.49 per diluted share, for the quarter ended September 30, 2008.

- GAAP book value of $(9.33) per share and adjusted book value of $21.91 per share at September 30, 2008.

- Unrestricted cash of $108 million as of November 5, 2008.

Third Quarter 2008 Financial Results

New York, Nov. 7 /PRNewswire-FirstCall/ -- Newcastle Investment Corp. (NYSE: NCT) reported that for the quarter ended September 30, 2008, Adjusted Funds from Operations ("AFFO")(1) loss was $154.7 million or $2.93 per diluted share and GAAP loss was $149.5 million or $2.83 per diluted share. This compares to an AFFO and GAAP loss of $0.74 per diluted share for the quarter ended September 30, 2007.

The GAAP loss of $149.5 million consists of Operating Income (net of preferred dividends) of $25.9 million less realized and other losses of $14.5 million and impairments of $160.9 million. Operating Income (net of preferred dividends) return on average invested equity was 16.1%.

(1) AFFO is equivalent to our previously stated FFO.

Book Value

Our GAAP book value decreased to $(9.33) per share, or $(492.6) million at September 30, 2008, down from $(1.08) per share, or $(56.8) million at June 30, 2008. The decrease in book value was primarily attributable to a market value decline in our portfolio.

Our securities portfolio is predominantly financed to maturity with long- term collateralized debt obligations ("CBOs") that are not callable as a result of changes in value and are non-recourse to the Company. While the assets in the CBOs are consolidated on our books for GAAP purposes, our exposure to losses is limited to our investment in each CBO. Our September 30, 2008 GAAP book value reflects approximately $789.4 million of unrealized losses in assets in our CBOs that could not be realized by the Company.

At September 30, 2008, our adjusted book value per share was $21.91. Our GAAP book value would equal our adjusted book value if we elected to mark all of our financial assets and liabilities to fair value under SFAS 159, "The Fair Value Option for Financial Assets and Financial Liabilities."

The following table compares Newcastle's book value per share as of September 30, 2008 and June 30, 2008:


                                       September 30,         June 30,
                                           2008                2008

    Adjusted book value (1)              $21.91               $20.01
    GAAP book value                      $(9.33)              $(1.08)

    (1) Represents GAAP book value as if Newcastle had elected to measure all
        of its financial assets and liabilities at fair value under SFAS 159.

For a reconciliation and discussion of GAAP net income (loss) attributable to common stockholders to AFFO, Operating Income (net of preferred dividends), and GAAP book equity to invested common equity, as well as GAAP book value to adjusted book value, please refer to the tables following the presentation of GAAP results.

Dividends

For the quarter ended September 30, 2008, Newcastle's Board of Directors declared a dividend of $0.25 per common share. We also declared dividends on our 9.75% Series B, 8.05% Series C and 8.38% Series D Cumulative Redeemable Preferred Stock in the amounts of $0.609375, $0.503125 and $0.523438 per share, respectively.

Investment Portfolio

Newcastle's current $6.6 billion investment portfolio consists of commercial, residential and corporate debt. During the quarter, the portfolio decreased by $71.6 million primarily as a result of paydowns of $112.1 million, sales of $34.1 million and realized writedowns of $56.1 million, offset by purchases of $127.2 million.



    The following table describes our investment portfolio ($ in millions):

                                                                     Weighted
                                                        Number        Average
                                Face    Basis            of            Life
                                Amount  Amount   % of  Invest- Credit (years)
                                  $       $      Basis  ments   (1)     (2)
    Commercial Assets
         CMBS                   $2,268  $2,153   36.1%     259  BBB-   5.3
         Mezzanine Loans           759     755   12.7%      23   67%   3.3
         B-Notes                   388     366    6.1%      14   58%   3.0
         Whole Loans                87      86    1.4%       4   63%   2.5
         ICH Loans                   5       5    0.1%       3   --    3.3
         Total Commercial
          Assets                 3,507   3,365   56.4%                 4.5

    Residential Assets
         MH and Residential Loans  572     548    9.2%  14,478   696   5.7
         Subprime Securities       564     257    4.3%     121   BB-   4.6
         Subprime Retained
          Securities                80       9    0.2%       7  CCC+   2.4
         Subprime Residual
          Interests                  3       3    0.1%       2   647   0.6
         Real Estate ABS           101      95    1.6%      26   BBB   4.6
                                 1,320     912   15.4%                 4.9

         FNMA/FHLMC Securities     466     467    7.8%      17   AAA   3.8
         Total Residential
          Assets                 1,786   1,379   23.2%                 4.6

    Corporate Assets
         REIT Debt                 653     662   11.1%      65  BBB-   4.9
         Corporate Bank Loans      606     554    9.3%      16   B-    3.0
         Total Corporate Assets  1,259   1,216   20.4%                 4.0

    Total/Weighted Average (3)  $6,552  $5,960  100.0%                 4.5

    (1) Credit statistics represent minimum rating for rated assets, LTV for
        non-rated commercial assets, FICO score for non-rated residential
        assets and implied AAA for FNMA/FHLMC securities.
    (2) Mezzanine loans, B-Notes and whole loans are based on the fully
        extended maturity date.
    (3) Excludes real estate held for sale and loans subject to call option
        with a face amount of $14 million and $406 million, respectively.


The following table compares certain supplemental data relating to our investment portfolio ($ in millions):


                                                 September 30,        June 30,
                                                     2008              2008

         Face Amount ($)                              6,552             6,624

         Weighted average asset yield                 7.03%             6.62%
         Weighted average liability cost              5.05%             4.47%
         Weighted average net spread                  1.98%             2.15%

Excluding the FNMA/FHLMC securities, our weighted average net spread was 2.06% as of September 30, 2008 and 2.23% as of June 30, 2008.

Commercial Assets

We own $3.5 billion of commercial assets, which includes CMBS, mezzanine loans, B-Notes and whole loans.

-- During the quarter, we purchased $39.3 million, sold $14.5 million, had paydowns of $47.0 million and realized writedowns of $31.1 million for a net decrease of $53.3 million. The asset paydowns primarily consisted of $24.0 million of mezzanine loans, $14.8 million of CMBS and $5.9 million of ICH loans.

-- We had no CMBS upgraded and five securities or $44.1 million downgraded (from an average rating of BBB- to BB+).



    CMBS portfolio ($ in thousands):

                                                     Delin-
                            Face     Basis           quency  Principal Average
            Minimum         Amount   Amount   % of   60+/FC/  Subord-   Life
    Vintage Rating  Number    $        $      Basis    REO    ination   (yr)


    Pre 2004  BBB+    78   401,252   397,188  18.4%    1.0%     9.5%    4.2
    2004      BBB-    59   435,494   428,785  19.9%    0.2%     5.0%    5.3
    2005       BB+    49   576,187   545,233  25.3%    0.4%     4.6%    6.3
    2006      BBB-    37   455,308   429,361  20.0%    0.1%     4.8%    3.8
    2007      BBB+    36   400,056   352,749  16.4%    0.1%     9.2%    6.6

    TOTAL/WA  BBB-   259 2,268,297 2,153,316 100.0%    0.3%     6.4%    5.3


    Mezzanine loans, B-Notes and whole loan portfolio ($ in thousands):


                                                            Whole
                                        Mezzanine  B-Note   Loan     Total

       Face Amount ($)                   759,219  388,168  86,566  1,233,953
       Basis Amount ($)                  754,571  365,669  86,474  1,206,714

       WA First $ Loan To Value (1)        55.6%    46.0%    0.0%      48.7%
       WA Last $ Loan To Value (1)         67.0%    58.4%   62.9%      64.0%

       Delinquency                          0.0%     0.0%    0.0%       0.0%

       (1) Loan To Value is based on the appraised value at the time of
           purchase.


In the quarter, we recorded a $4.8 million charge on a B-Note secured by residential land, reducing our basis to zero. We also recorded a $21.3 million charge on two B-Notes secured by hotel/casino properties. Our remaining basis in these assets is $10.3 million. Additionally, we recorded a $20.2 million impairment on three CMBS with a principal face amount of $45.0 million.

Residential Assets

We own $1.8 billion of residential assets, which includes manufactured housing loans ("MH"), residential loans, subprime securities and FNMA/FHLMC securities.

-- During the quarter, we purchased $87.9 million, sold $3.6 million, had paydowns of $54.9 million and realized writedowns of $25.0 million for a net increase of $4.4 million. The asset paydowns primarily consisted of $18.2 million of subprime securities, $16.7 million of MH loans, $11.6 million of agency securities and $6.6 million of residential mortgage loans.

-- We had no ABS securities upgraded and 20 securities or $99.8 million downgraded (from an average rating of BB to CCC+).



    Manufactured housing loan portfolios ($ in thousands):

                                                                       Projec-
                                                               Actual    ted
                                      Weighted                 Cumula- Cumula-
                                       Average          Delin-  tive    tive
                 Face    Basis          Loan   Original quency  Loss    Loss
                 Amount  Amount  % of    Age   Balance  90+/FC/  to      to
      Deal         $       $     Total (months)   $      REO    Date    Date

    Portfolio 1 195,807 182,886  39.6%    85   327,855   0.9%   3.9%    5.6%
    Portfolio 2 289,791 278,787  60.4%   115   434,743   0.6%   2.2%    3.8%

     TOTAL/WA   485,598 461,673 100.0%   103   762,598   0.7%   2.9%    4.5%

Subprime securities portfolio excluding our residuals and retained interests in our own securitizations ($ in thousands):


    Security Characteristics:

                          Face           Basis
            Minimum       Amount  % of   Amount   % of   Principal    Excess
    Vintage Rating Number   $     Total    $     Total Subordination  Spread

    2003     A-     15    29,792   5.3%  25,177   9.8%     19.8%       2.2%
    2004     BBB    30   129,614  23.0%  94,794  36.9%     13.2%       2.5%
    2005     B      43   189,960  33.6%  78,802  30.6%     12.9%       3.3%
    2006     B      27   181,032  32.1%  41,552  16.2%      9.2%       3.0%
    2007     A+      6    33,656   6.0%  16,760   6.5%     21.0%       3.1%

    TOTAL/WA BB-   121   564,054 100.0% 257,085 100.0%     12.7%       3.0%


    Collateral Characteristics:

               Average
               Loan Age   Collateral   3 Month   Delinquency    Cumulative
    Vintage   (months)     Factor     CPR (1)    90+/FC/REO   Loss to Date

    2003         66         0.12       11.3%        12.8%         2.0%
    2004         53         0.16       14.6%        14.8%         2.0%
    2005         40         0.31       23.9%        26.1%         3.3%
    2006         27         0.65       21.3%        27.4%         3.5%
    2007         21         0.81       13.4%        26.0%         1.7%

    TOTAL/WA     39         0.41       19.6%        23.2%         2.9%

    (1) CPR is constant prepayment rate.


In the quarter, we recorded a $43.8 million charge related to our subprime securities portfolio. The majority of the charge was related to a $27.6 million impairment on 36 of our 2005 vintage securities and a $13.3 million impairment on 18 of our 2004 vintage securities.

Residuals and retained securities

    We own $80.4 million of retained securities with a basis of $9.2 million
and $2.6 million of residual interests in two subprime portfolio
securitizations from 2006 ("Portfolio 1") and 2007 ("Portfolio 2").  The
following table summarizes our subprime portfolio securitizations ($ in
thousands):



                     Security Characteristics

                     Face     Basis       % of
       Deal        Amount $  Amount $    Basis

    Portfolio 1      41,719     5,311    45.2%
    Portfolio 2      41,234     6,446    54.8%

     TOTAL/WA        82,953    11,757   100.0%


                            Portfolio Characteristics

                Average  Original                         Actual    Projected
                  Loan   Securi-            Delinquency Cumulative Cumulative
                  Age    tization   Current   90+/FC/      Loss       Loss
        Deal    (months) Balance $  Balance $   REO       to Date    to Date

    Portfolio 1     37   1,502,181    756,073  17.9%        2.1%       1.4%
    Portfolio 2     20   1,087,942    951,107  14.7%        0.9%       0.3%

      TOTAL/WA      28   2,590,123  1,707,180  16.1%        1.5%       0.8%


In the quarter, we updated our future loan loss and prepayment assumptions. Based on current market conditions we lowered our prepayment assumptions which resulted in higher projected loan defaults and future loan losses. Under the new assumptions, our basis in the residuals was reduced by a $9.5 million impairment charge and $1.2 million return of principal. In addition, we recorded impairments of $42.4 million on the retained securities. The following summarizes the changes in our basis, loss assumptions and prepayment assumptions on both portfolios ($ in thousands):



                                       Portfolio Characteristics
                                     Portfolio 1       Portfolio 2

    Retained Interest (Basis)
    June 30, 2008                       $32,652           $18,253
    Current                               5,147             4,037
      Change                           $(27,505)         $(14,216)

    Residual (Basis)
    June 30, 2008                        $1,757           $11,517
    Current                                 164             2,409
      Change                            $(1,593)          $(9,108)

    Cumulative Loss Assumptions
    June 30, 2008                         11.2%             16.3%
    Revised                               17.5%             30.7%
      Change                              +6.3%            +14.4%

    Lifetime Constant Voluntary
     Prepayment Rate Assumptions
    June 30, 2008                         16.9%             13.3%
    Revised                               13.8%              9.2%
      Change                              -3.1%             -4.1%


Corporate Assets

We own $1.3 billion of corporate assets, including REIT debt and corporate bank loans.

-- During the quarter, we made no purchases, sold $16.0 million and had paydowns of $10.2 million for a net decrease of $26.2 million. All of the asset paydowns were from bank loans.

-- We had three bank loans or $162.0 million downgraded (from an average rating of B+ to B-) and seven REIT securities or $73.1 million downgraded (from BBB to BB+).



    REIT debt portfolio ($ in thousands):

                     Minimum          Face      Basis     % of
    Industry         Rating  Number  Amount $  Amount $   Basis

    Retail            BB+       16   200,035   202,529    30.6%
    Diversified       BBB-      14   151,463   152,041    23.0%
    Office            BBB       14   132,919   135,739    20.5%
    Multifamily       BBB+       8    44,508    45,683     6.9%
    Hotel             BBB-       4    42,720    43,403     6.5%
    Healthcare        BBB-       4    36,600    37,197     5.6%
    Storage            A-        2    23,406    24,102     3.6%
    Industrial        BBB        3    20,865    21,701     3.3%

    TOTAL/WA          BBB-      65   652,516   662,395   100.0%


    Corporate bank loan portfolio ($ in thousands):

                     Minimum          Face     Basis     % of
    Industry         Rating  Number  Amount $  Amount $   Basis

    Real Estate        B-        5   174,310   168,296    30.4%
    Resorts           BB-        1   110,488   100,888    18.2%
    Media             CCC+       2   112,000   101,814    18.4%
    Retail             B-        1   100,000    94,515    17.1%
    Restaurant        CCC        2    44,223    34,949     6.3%
    Transportation     C         1    27,000    26,137     4.7%
    Gaming            CCC-       3    29,557    19,067     3.4%
    Theatres           B         1     8,541     8,541     1.5%

    TOTAL/WA           B-       16   606,119   554,207   100.0%


In the quarter, we recorded a $13.8 million charge related to four senior bank loans.

Financing and Liquidity

In the third quarter, the Company decreased its non-agency recourse debt by $64 million and increased its agency recourse debt by $53 million. As of November 5, 2008, our non-agency recourse debt was reduced to $311 million, our agency recourse debt was reduced to $176 million and our unrestricted cash was $108 million.

The following table compares the face amount of our financings as of September 30, 2008 compared to June 30, 2008 ($ in millions):


                                       September 30,   June 30,
                                           2008          2008
    Recourse Financings
       Real Estate Securities and
        Loans (1)                          $307          $332
       Manufacturing Housing Loans           53            92
       FNMA/FHLMC Securities                451           398
       Total Recourse Financings            811           822

    Non-Recourse Financings
       CBOs and Other                     4,719         4,737
       Total Financings                  $5,530        $5,559

    Recourse Financings as % of
     Total Financings                     14.7%         14.8%

    (1) Recourse financings on our real estate securities and loans include
        off-balance sheet debt (in the form of total return swaps) of $59
        million as of September 30, 2008 and $72 million as of June 30, 2008.

Conference Call

Newcastle's management will conduct a live conference call today, November 7, 2008, at 11:00 A.M. eastern time to review the financial results for the quarter ended September 30, 2008. All interested parties are welcome to participate on the live call. You can access the conference call by dialing (888) 243-2046 (from within the U.S.) or (706) 679-1533 (from outside of the U.S.) ten minutes prior to the scheduled start of the call; please reference "Newcastle Third Quarter Earnings Call."

A simultaneous webcast of the conference call will be available to the public on a listen-only basis at www.newcastleinv.com. Please allow extra time prior to the call to visit the site and download the necessary software required to listen to the internet broadcast.

A telephonic replay of the conference call will also be available from 2:00 P.M. eastern time on November 7, 2008 until 11:59 P.M. eastern time on Friday, November 14, 2008 by dialing (800) 642-1687 (from within the U.S.) or (706) 645-9291 (from outside of the U.S.); please reference access code "70221244."

About Newcastle

Newcastle Investment Corp. owns and manages a $6.6 billion portfolio of highly diversified, credit sensitive real estate debt that is primarily financed with match funded debt. Our business strategy is to "lock in" and optimize the difference between the yield on our assets and the cost of our liabilities. Newcastle is organized and conducts its operations to qualify as a real estate investment trust (REIT) for federal income tax purposes. Newcastle is managed by an affiliate of Fortress Investment Group LLC, a global alternative asset manager with approximately $35.1 billion in assets under management as of June 30, 2008. For more information regarding Newcastle Investment Corp. or to be added to our e-mail distribution list, please visit www.newcastleinv.com.

Safe Harbor

Certain items in this press release may constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, including statements relating to our liquidity, our ability to acquire assets with attractive returns and the delinquent and loss rates on our subprime portfolios. These statements are based on management's current expectations and beliefs and are subject to a number of trends and uncertainties that could cause actual results to differ materially from those described in the forward-looking statements, many of which are beyond our control. Newcastle can give no assurance that its expectations will be attained. Factors that could cause actual results to differ materially from Newcastle's expectations include, but are not limited to, the risk that the ongoing credit and liquidity crisis continues to cause downgrades of a significant number of our securities and recording of reductions in shareholders' equity; the risk that we can find additional suitably priced investments; the risk that investments made or committed to be made cannot be financed on the basis and for the term at which we expect; the relationship between yields on assets which are paid off and yields on assets in which such monies can be reinvested; and the relative spreads between the yield on the assets we invest in and the cost and availability of debt and equity financing. Accordingly, you should not place undue reliance on any forward- looking statements contained in this press release. For a discussion of some of the risks and important factors that could affect such forward-looking statements, see the sections entitled "Risk Factors" and "Management's Discussion and Analysis of Financial Condition and Results of Operation" in the Company's Annual Report on Form 10-K and Quarterly Report on Form 10-Q, which available on the Company's website (www.newcastleinv.com). In addition, new risks and uncertainties emerge from time to time, and it is not possible for the Company to predict or assess the impact of every factor that may cause its actual results to differ from those contained in any forward-looking statements. Such forward-looking statements speak only as of the date of this press release. Newcastle expressly disclaims any obligation to release publicly any updates or revisions to any forward-looking statements contained herein to reflect any change in the Company's expectations with regard thereto or change in events, conditions or circumstances on which any statement is based.



                          Newcastle Investment Corp.
                    Consolidated Statements of Operations
                  (dollars in thousands, except share data)
                                 (Unaudited)

                              For the Three Months   For the Nine Months
                               Ended September 30,    Ended September 30,
                                  2008       2007       2008       2007
    Revenues
       Interest income         $ 113,549   $169,766   $361,461   $523,846
                                 113,549    169,766    361,461    523,846
    Expenses
       Interest expense           73,651    117,415    236,739    368,064
       Loan and security
        servicing expense          1,718      2,091      5,236      7,772
       Provision for credit
        losses                     2,077      2,820      6,450      7,945
       General and administrative
        expense                    2,135      1,297      5,619      4,025
       Management fee to
        affiliate                  4,597      4,597     13,791     13,048
       Incentive compensation to
        affiliate                      -          -          -      6,209
       Depreciation and
        amortization                  73         74        218        218
                                  84,251    128,294    268,053    407,281

    Operating Income              29,298     41,472     93,408    116,565

    Other Income (Loss)
       Gain (Loss) on sale of
        investments, net          (2,569)     4,825      3,920     14,014
       Other income (loss)       (17,912)    (7,033)   (35,793)      (569)
       Other than temporary
        impairment              (121,047)   (67,860)  (269,216)   (73,813)
       Loan impairment           (39,831)         -    (76,916)         -

       Provision for losses,
        loans held for sale            -          -          -     (5,754)
       Gain (Loss) on
        extinguishment of debt     5,315    ( 7,752)     13,848   (15,032)
       Equity in earnings of
        unconsolidated
        subsidiaries                 419        488      8,189      2,154
                                (175,625)   (77,332)  (355,968)   (79,000)
    Income (loss) from
     continuing operations      (146,327)   (35,860)  (262,560)    37,565
       Income (loss) from
        discontinued operations      227        (37)    (8,724)      (158)
    Net Income (Loss)           (146,100)   (35,897)  (271,284)    37,407
    Preferred dividends           (3,375)    (3,375)   (10,126)    (9,265)
    Income Available For Common
     Stockholders              $(149,475)  $(39,272) $(281,410)   $28,142
    Net Income Per Share of
     Common Stock
       Basic                      $(2.83)    $(0.74)   $ (5.33)     $0.55
       Diluted                    $(2.83)    $(0.74)   $ (5.33)     $0.55
    Income from continuing
     operations per share of
     common stock, after
     preferred dividends
       Basic                      $(2.84)    $(0.74)    $(5.17)     $0.55
       Diluted                    $(2.84)    $(0.74)    $(5.17)     $0.55
    Income from discontinued
     operations per share of
     common stock

       Basic                      $ 0.01         $-     $(0.16)       $ -

       Diluted                    $ 0.01         $-     $(0.16)       $ -

    Weighted Average Number of
     Shares of Common Stock
     Outstanding
       Basic                  52,788,766 52,779,179 52,784,048 50,894,424
       Diluted                52,788,766 52,779,179 52,784,048 51,045,418

    Dividends Declared per
     Share of Common Stock         $0.25      $0.72      $0.75      $2.13



                          Newcastle Investment Corp.
                         Consolidated Balance Sheets
                  (dollars in thousands, except share data)

                                               September 30,
                                                   2008         December 31,
                                                (unaudited)         2007
    Assets
       Real estate securities, available for
        sale                                     $2,784,744       $4,835,884
       Real estate related loans, net             1,686,707        1,856,978
       Residential mortgage loans, net              560,111          634,605
       Subprime mortgage loans subject to call
        option                                      396,943          393,899
       Investments in unconsolidated
        subsidiaries                                    442           24,477
       Operating real estate, held for sale          13,150           34,399
       Cash and cash equivalents                    166,623           55,916
       Restricted cash                              127,686          133,126
       Derivative assets                                245            4,114
       Receivables and other assets                  48,575           64,372
                                                 $5,785,226       $8,037,770
    Liabilities and Stockholders' Equity

    Liabilities
       CBO bonds payable                          4,362,958        4,716,535
       Other bonds payable                          396,134          546,798
       Repurchase agreements                        699,025        1,634,362
       Financing of subprime mortgage loans
        subject to call option                      396,943          393,899
       Junior subordinated notes payable
        (security for trust preferred)              100,100          100,100
       Derivative liabilities                       141,411          133,510
       Dividends payable                             15,447           40,251
       Due to affiliates                              1,532            7,741
       Accrued expenses and other liabilities        11,777           16,949
                                                  6,125,327        7,590,145

    Stockholders' Equity
       Preferred stock, $0.01 par value,
        100,000,000 shares authorized, 2,500,000
        shares of 9.75% Series B Cumulative
        Redeemable Preferred Stock
        1,600,000 shares of 8.05% Series C
        Cumulative Redeemable Preferred Stock,
        and 2,000,000 shares of 8.375% Series D
        Cumulative Redeemable Preferred Stock
        liquidation preference $25.00 per share,
        issued and outstanding (Series D issued
        in 2007)                                    152,500          152,500
       Common stock, $0.01 par value,
        500,000,000 shares authorized, 52,789,050
        and 52,779,179 shares issued and
        outstanding at September 30, 2008 and
        December 31, 2007, respectively                 528              528
       Additional paid-in capital                 1,033,416        1,033,326
       Dividends in excess of earnings             (557,210)        (236,213)
       Accumulated other comprehensive income      (969,335)        (502,516)
                                                   (340,101)         447,625
                                                 $5,785,226       $8,037,770



                          Newcastle Investment Corp.
               Reconciliation of GAAP Net Income (Loss) to AFFO
                            (dollars in thousands)
                                 (Unaudited)

                                                   Three Months Ended
                                              September 30,     September 30,
                                                   2008              2007
    Net income (loss) attributable to
     common stockholders                         $(149,475)         $(39,272)
    Operating real estate depreciation              (5,223)              285
    Adjusted Funds from operations ("AFFO")      $(154,698)         $(38,987)


We believe AFFO is one appropriate measure of the operating performance of real estate companies because it provides investors with information regarding our ability to service debt and make capital expenditures. We also believe that AFFO is an appropriate supplemental disclosure of operating performance for a REIT. Furthermore, AFFO is used to compute our incentive compensation to our manager. AFFO, for our purposes, represents net income available for common stockholders (computed in accordance with GAAP), excluding extraordinary items, plus real estate depreciation, and after adjustments for unconsolidated subsidiaries, if any. We consider gains and losses on resolution of our investments to be a normal part of our recurring operations and therefore do not exclude such gains and losses when arriving at AFFO. Adjustments for unconsolidated subsidiaries, if any, are calculated to reflect AFFO on the same basis. AFFO does not represent cash generated from operating activities in accordance with GAAP and therefore should not be considered an alternative to net income as an indicator of our operating performance or as an alternative to cash flow as a measure of liquidity and is not necessarily indicative of cash available to fund cash needs. Our calculation of AFFO may be different from the calculation used by other companies and, therefore, comparability may be limited.

As a result of the sale or expected sale of all of our operating real estate, and the resultant discontinuation of depreciation, our income (loss) applicable to common stockholders is now equal to our AFFO.



                          Newcastle Investment Corp.
       Reconciliation of Operating Income (Net of Preferred Dividends)
                            (dollars in thousands)
                                 (Unaudited)

                                                 Three Months Ended
                                         September 30,        September 30,
                                             2008                 2007

    Operating Income                         $29,298              $41,472
        Preferred dividends                   (3,375)              (3,375)
    Operating Income (Net of Preferred
     Dividends)                              $25,923              $38,097



                          Newcastle Investment Corp.
         Reconciliation of GAAP Book Equity to Invested Common Equity
                            (dollars in thousands)
                                 (Unaudited)

                                                    September 30,
                                                        2008

    Book equity                                       $(340,101)
      Preferred stock                                  (152,500)
      Accumulated depreciation on
        operating real estate                             1,003
      Accumulated other comprehensive loss              969,335
    Invested common equity                             $477,737



                          Newcastle Investment Corp.
           Reconciliation of GAAP Book Value to Adjusted Book Value
                   (dollars in thousands, except per share)
                                 (Unaudited)

                                              Amount     Per Share

    GAAP Book Value                          $(492,601)    $(9.33)
    Adjustments to Fair Value:
      Commercial Real Estate Loans            (343,694)     (6.51)
      CDO Liabilities                        1,988,502      37.67
      Other Loan Investments and Debt
       Obligations                               4,505       0.08
    Total Adjustments                        1,649,313      31.24

    Adjusted Book Value                     $1,156,712     $21.91

SOURCE Newcastle Investment Corp.