Newcastle Announces Second Quarter 2007 Results

Second Quarter Highlights

-- Net book value per share increased to $18.59 per share from $18.39 per share at March 31, 2007

-- Declared 2Q07 dividend of $0.72 per share, up 4.3% from our 1Q07 dividend of $0.69 per share

-- Raised $125 million of equity capital through the issuance of 4.56 million common shares

Subsequent Events

-- Board of Directors approved a potential buy back of up to $100 million of common shares

-- Completed $2.5 billion of non-recourse term financings

NEW YORK, Aug. 2 /PRNewswire-FirstCall/ -- Newcastle Investment Corp. (NYSE: NCT) reported that for the quarter ended June 30, 2007, Funds from Operations ("FFO") excluding the effect of a non-cash impairment charge was $38.5 million, or $0.73 per diluted share, compared to $0.66 per diluted share for the second quarter 2006. The Company generated an FFO return on average invested equity of 15.5% excluding the effect of the impairment charge.

For the three months ended June 30, 2007, income available for common stockholders excluding the effect of a non-cash impairment charge was $38.2 million, or $0.73 per share, compared to $0.65 per diluted share for the second quarter 2006.

For the quarter ended June 30, 2007, we declared a dividend of $0.72 per common share. This represents a 4.3% increase from the prior quarter's dividend of $0.69 per common share.

Our GAAP common equity book value increased by $0.20 per share to $18.59 per share or a total of $981 million at June 30, 2007 from $18.39 per share or $886 million at March 31, 2007.

For a reconciliation and discussion of GAAP net income to FFO and GAAP book equity to invested common equity, please refer to the tables following the presentation of GAAP results.

For the second quarter, we recognized a non-cash charge of $6 million on five of our subprime securities with an aggregate $18 million face amount representing an other than temporary impairment under U.S. GAAP. This resulted in a reduction of FFO and net income of $0.09 per diluted share.



    Selected Financial Data (Unaudited) ($ in millions, except per share data)

    Operating Data:                Three Months Ended   Three Months Ended
                                      June 30, 2007       June 30, 2006
                                   (Amount) (per diluted (Amount) (per diluted
                                                 share)               share)
    FFO(1)                           $38.5      $0.73       --         --
    FFO                              $34.0      $0.64    $28.9      $0.66
    Income available for common
     stockholders(1)                 $38.2      $0.73       --         --
    Income available for common
     stockholders                    $33.7      $0.64    $28.7      $0.65



                                            As of          As of
                                        June 30, 2007   March 31, 2007
    Balance Sheet Data:
    Total assets                         $ 10,024       $ 10,221
    Total liabilities                       8,890          9,182
    Common stockholders' equity               981            887
    Preferred stock                           152            152
    Total equity                            1,133          1,039


The following table summarizes our investment portfolio at June 30, 2007(2) and March 31, 2007 ($ in millions):

                                           As of June 30,   As of March 31,
                                                2007             2007

                                            Face            Face
    Core                                   Amount % Total  Amount  % Total
      Real Estate Securities and Related
       Loans                               $6,535   71.7%   $6,782   65.2%
      Subprime Loans, Held for Sale             -    0.0%    1,049   10.1%
      Residential Mortgage Loans              706    7.7%      759    7.3%
      Subprime Loans Subject to Call
       Options                                406    4.5%      299    2.8%
      Investment in Real Estate Joint
       Venture                                 39    0.4%       38    0.4%
    Subtotal                               $7,686   84.3%   $8,927   85.8%

    Non-Core
      Agency RMBS                          $1,317   14.4%   $1,349   13.0%
      ICH Loans                               118    1.3%      122    1.2%
    Total Portfolio                        $9,121  100.0%  $10,398  100.0%


The following tables compare certain supplemental data relating to our investment portfolio at June 30, 2007 versus March 31, 2007:

    Supplemental Data:

                                      Total Portfolio      Core Portfolio

                                     June 30,  March 31, June 30,   March 31,
                                     2007(2)     2007    2007(2)      2007

    Weighted average asset yield      7.46%      7.45%   7.85%        7.80%
    Weighted average liability cost   5.96%      5.88%   6.13%        6.03%
    Weighted average net spread       1.50%      1.57%   1.72%        1.77%

    (1) Excludes the effect of a non-cash impairment charge.
    (2) Investments portfolio proforma for the securitization of the subprime
        loans held for sale that closed on July 12, 2007.


Investment Portfolio

Newcastle's $9.1 billion investment portfolio consists primarily of commercial, residential and corporate debt. The following describes our investment portfolio at June 30, 2007(1) ($ in millions):



                                    Face   % of Total                    WA
                                   Amount  Portfolio  Number Credit(2)  Life
    Commercial
      CMBS                         $2,413     26.5%     288    BBB-      5.4
      Mezzanine Loans               1,124     12.3%      27     68%      2.4
      B-Notes                         403      4.4%      13     65%      2.2
      Real Estate Loans               128      1.4%       5     75%      1.3
      Other                           157      1.7%     171     NR       3.7
      Total Commercial              4,225     46.3%     504              4.1

    Residential
      Subprime Securities             644      7.0%     122    BBB+      2.1
      ABS Manufactured Housing &
       Franchise                      128      1.4%      29    BBB+      5.5
      Subprime Residual / Retained
       Securities                     159      1.7%       8     NR       3.1
      Agency RMBS                   1,317     14.4%      43    AAA       4.4
      Manufactured Home Loans         589      6.5%  16,878    692       6.1
      Residential Mortgage Loans      117      1.3%     375    716       2.8
      Other                           406      4.5%       2     NR       2.1
      Total Residential             3,360     36.8%  17,457              3.9

    Corporate
      REIT Debt                       938     10.3%      95    BBB-      5.6
      Corporate Bank Loans            598      6.6%      14     58%      3.3
      Total Corporate               1,536     16.9%     109              4.7

      TOTAL                        $9,121      100%                      4.1

    (1) Investment portfolio proforma for the securitization of the subprime
        loans held for sale that closed on July 12, 2007.
    (2) Credit represents weighted average rating for rated assets, LTV for
        non-rated commercial assets, FICO score for non-rated residential
        assets and implied AAA for Agency RMBS.


Commercial Debt

We owned $4.2 billion face amount of commercial assets (CMBS, Mezzanine Loans, B-Notes and Real Estate Loans). During the quarter, we purchased $261.3 million, sold $30.5 million and had pay downs of $554.9 million for a net decrease of $324.1 million. Our $2.4 billion CMBS portfolio continues to perform well as only 0.39% of the underlying loans are delinquent. We have no delinquencies in our Mezzanine Loans, B-Notes and Real Estate Loans. We had 17 or $105.5 million CMBS securities upgraded with 1 or $9.0 million downgraded. Credit spreads widened on average by 24 basis points on our CMBS portfolio and were unchanged on our Mezzanine Loans, B-Notes and Real Estate Loans portfolio.

Residential Debt

We owned $3.4 billion face amount of residential assets (Subprime Securities, ABS Manufactured Housing, Subprime Residual / Retained Securities, Agency RMBS, Manufactured Home Loans and Residential Mortgage Loans). During the quarter, we purchased $254.0 million, sold $32.5 million and had paydowns of $278.6 million for a net decrease of $57.1 million. 60+ delinquencies on our Manufactured Housing loan portfolio decreased to 0.7% from 1.0% in March. The current average rating of our $640 million Subprime Securities portfolio was unchanged at BBB+. Our Subprime Securities portfolio had 2 or $12.7 million of securities downgraded with 1 or $6.5 million of securities upgraded. The following table illustrates the exposure by vintage in our subprime securities portfolio as of June 30, 2007.


    ($ in thousands)
                                    Collateral Characteristics
                     Deal    Collateral          Delinq    3 month   Cum Loss
    Vintage           Age      Factor         90+/FC/REO     CRR      to Date

    2003 Vintage       46       0.16            10.6 %     22.1 %      2.0 %
    2004 Vintage       36       0.22            11.0 %     30.9 %      0.9 %
    2005 Vintage       23       0.49            11.4 %     33.6 %      0.6 %
    2006 Vintage       11       0.80             9.4 %     20.3 %      0.1 %
    2007 Vintage        3       0.97             0.1 %     14.4 %      0.0 %

    Total              26       0.45            10.6 %     28.1 %      0.7 %


                             Security Characteristics
                    Average        Current                      Principal
    Vintage         Rating         Balance             %          Subord

    2003 Vintage       A           $55,529           8.6 %        25.2 %
    2004 Vintage       A-          218,889          34.0 %        21.5 %
    2005 Vintage     BBB+          202,030          31.4 %        12.4 %
    2006 Vintage      BB+          159,497          24.8 %         3.7 %
    2007 Vintage     BBB+            7,750           1.2 %         9.6 %

    Total            BBB+         $643,695         100.0 %        14.4 %

In addition to the principal credit support of 14.4%, the securities are further supported by approximately 200 basis points of excess spread. Our Subprime Securities portfolio had 2 or $12.7 million of securities downgraded with 1 or $6.5 million of securities upgraded.

Corporate Debt

We owned $1.5 billion face amount of corporate assets (Bank Loans and REIT Debt). During the quarter, we purchased $102.4 million, sold $32.5 million and had pay downs of $30.2 million for a net increase of $39.7 million. Our Bank Loan portfolio had no rating changes and we had only 2 or $46.4 million downgrades in our REIT Debt portfolio. Credit spreads widened on average by 7 basis points on our REIT Debt portfolio and were unchanged on our Bank Loan portfolio.



    Funded Investments in the Second Quarter ($ in millions)


    Commercial                        Face    Number  Credit  WA Credit Spread
      CMBS                             $62        8    BB+        212
      Mezz Loans                        99        3    55%        221
      Whole Loan                        25        1    68%        175
      B-Notes                           75        2    63%        293
      Total Commercial                 261       14               235

    Residential
      Subprime Securities                8        3   BBB+        353
      Agency RMBS                       31        1   AAA          71
      Subprime Loans, held for sale    215      988   652          NR
      Total Residential                254      992               127

    Corporate
      REIT                              33        6   BBB+         65
      Bank Loans                        70        3    56%        202
      Total Corporate                  103        9               157

      TOTAL                           $618     1015               205


Capital Markets Activity

In April, we issued 4.56 million common shares, and raised net proceeds of approximately $125 million. The proceeds were used to pay down amounts drawn on our credit facility.

In April, we priced our tenth collateralized debt obligation ("CDO"). The proceeds from this issuance were used to term finance an $825 million portfolio of newly acquired mezzanine loans, bank loans, B-Notes, CMBS and other commercial real estate assets including whole loans. Net of this financing, we invested approximately $123 million of capital with a targeted return on equity of 16.5%.

    Subsequent to quarter-end:

    -- As of today, we have $200 million available on our credit facility, $35
       million of cash and $154 million of restricted cash to invest in our
       CBOs.  In addition, we have three committed warehouse facilities
       aggregating $1.2 billion of which $900 million is available.
    -- In July, we closed a $1.09 billion securitization of the subprime
       mortgage loan portfolio which we acquired in March and April 2007.
       Newcastle, through the securitization trust, issued $1.02 billion face
       amount of investment grade notes of which $979 million were sold to
       third parties.  Newcastle invested approximately $50 million of equity
       in the transaction.  This comprises approximately $46 million invested
       in 100% of the low investment grade notes and equity and approximately
       $4 million, net of financing, invested in $39 million face amount of
       notes rated Baa1 through Baa3 by Moody's Investors Service and A to BBB
       by Standard & Poor's.  In connection with the transaction, we recorded
       in the second quarter a loss of $5.8 million related to changes in
       rates on the loans held for sale offset by a $5.8 million gain upon
       termination of the swap which was hedging our interest rate exposure.
       No write down for credit was recorded on these loans.
    -- In July, we closed a $1.4 billion collateralized debt obligation where
       the proceeds from the offering were used to redeem securities issued in
       three of our prior securitizations.  The portfolio initially consisted
       of approximately 56% CMBS, 26% REIT debt and 18% real estate related
       ABS.  We were able to reduce our financing cost by 39 basis points on
       $1,288 million of debt and extend the average expected maturity on our
       debt from 5.6 to 10.0 years.  In connection with this transaction, we
       recorded one-time costs of $7.3 million in the second quarter.

Share Buy Back

Our board of directors has approved a potential repurchase of up to $100 million of shares of our common stock.

Conference Call

Newcastle's management will conduct a live conference call today, August 2, 2007, at 1:00 P.M. eastern time to review the financial results for the quarter ended June 30, 2007. All interested parties are welcome to participate on the live call. You can access the conference call by dialing (800) 289-0743 (from within the U.S.) or (913) 981-5546 (from outside of the U.S.) ten minutes prior to the scheduled start of the call; please reference "Newcastle Second 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. An online replay of the webcast will be available until September 30, 2007.

A telephonic replay of the conference call will also be available until 11:59 P.M. eastern time on Thursday, August 9, 2007 by dialing (888) 203-1112 (from within the U.S.) or (719) 457-0820 (from outside of the U.S.); please reference access code "8941573."

About Newcastle

Newcastle Investment Corp. owns and manages a $9.1 billion highly diversified real estate debt portfolio with moderate credit risk 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 management firm with approximately $36 billion in assets under management as of March 31, 2007. 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 the stability of our business model and achievement of certain goals. 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; 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 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; the relative spreads between the yield on the assets we invest in and the cost of financing. 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 Income
                  (dollars in thousands, except share data)
                                 (Unaudited)

                                  For the Three Months     For the Six Months
                                     Ended June 30,          Ended June 30,
                                    2007        2006        2007        2006
    Revenues
      Interest income            $191,869    $124,209    $354,090    $238,116
      Rental and escalation
       income                       1,322         774       2,575       2,782
      Gain on sale of
       investments, net             6,977       5,493       9,189       7,421
      Other income                  5,753      (1,449)      6,496       4,256
                                  205,921     129,027     372,350     252,575
    Expenses
      Interest expense            133,917      87,909     250,674     164,874
      Loss on extinguishment of
       debt                         7,280           -       7,280           -
      Property operating
       expense                      1,044         949       2,080       1,767
      Loan and security
       servicing expense            3,698       1,402       5,681       3,408
      Provision for credit
       losses                       3,089       1,179       5,125       3,186
      Provision for losses,
       loans held for sale          5,754           -       5,754       4,127
      General and
       administrative expense       1,478       1,161       2,815       2,791
      Management fee to
       affiliate                    4,545       3,474       8,451       6,945
      Incentive compensation to
       affiliate                    2,521       2,834       6,209       5,686
      Depreciation and
       amortization                   342         278         671         477
                                  163,668      99,186     294,740     193,261

    Income before other gains
     (losses)                      42,253      29,841      77,610      59,314

    Other Gains (Losses)
      Other than temporary
       impairment                  (5,953)          -      (5,953)          -
    Income before equity in
     earnings of unconsolidated
     subsidiaries                  36,300      29,841      71,657      59,314
    Equity in earnings of
     unconsolidated subsidiaries      819       1,215       1,666       2,410
    Income from continuing
     operations                    37,119      31,056      73,323      61,724
    Income from discontinued
     operations                        (6)        (26)        (19)        225

    Net Income                     37,113      31,030      73,304      61,949
    Preferred dividends            (3,375)     (2,329)     (5,890)     (4,657)

    Income Available For
     Common Stockholders          $33,738     $28,701     $67,414     $57,292

    Net Income Per Share of
     Common Stock
      Basic                         $0.64       $0.65       $1.35       $1.30
      Diluted                       $0.64       $0.65       $1.34       $1.30

    Income from continuing
     operations per share of
     common stock, after
     preferred dividends
      Basic                         $0.64       $0.65       $1.35       $1.29
      Diluted                       $0.64       $0.65       $1.34       $1.29

    Income from discontinued
     operations per share of
     common stock
      Basic                          $  -        $  -        $  -       $0.01
      Diluted                        $  -        $  -        $  -       $0.01

    Weighted Average Number of
     Shares of
     Common Stock Outstanding
      Basic                    52,273,988  43,990,635  49,936,428  43,967,854
      Diluted                  52,467,019  44,071,310  50,158,085  44,067,645

    Dividends Declared per
     Share of Common Stock         $0.720      $0.650      $1.410      $1.275



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

                                               June 30, 2007        December
                                                (unaudited)         31, 2006
    Assets
      Real estate securities, available for sale $5,338,347        $5,581,228
      Real estate related loans, net              2,060,789         1,568,916
      Residential mortgage loans, net               698,453           809,097
      Subprime mortgage loans, held for sale      1,095,821                 -
      Subprime mortgage loans subject to
       call option                                  289,742           288,202
      Investments in unconsolidated subsidiaries     22,634            22,868
      Operating real estate, net                     31,553            29,626
      Cash and cash equivalents                     103,863             5,371
      Restricted cash                               241,248           184,169
      Derivative assets                              76,789            62,884
      Receivables and other assets                   64,329            52,031
                                                $10,023,568        $8,604,392
    Liabilities and Stockholders' Equity

    Liabilities
      CBO bonds payable                          $3,924,672        $4,313,824
      Other bonds payable                           621,562           675,844
      Notes payable                                  93,793           128,866
      Repurchase agreements                       2,450,517           760,346
      Repurchase agreements subject to
       ABCP facility                              1,281,156         1,143,749
      Financing of subprime mortgage loans
       subject to call option                       289,742           288,202
      Credit facility                                     -            93,800
      Junior subordinated notes payable
       (security for trust preferred)               100,100           100,100
      Derivative liabilities                          8,000            17,715
      Dividends payable                              40,786            33,095
      Due to affiliates                               7,741            13,465
      Accrued expenses and other liabilities         72,113            33,406
                                                  8,890,182         7,602,412
    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           102,500
      Common stock, $0.01 par value, 500,000,000
       shares authorized, 52,779,179 and
       45,713,817 shares issued and outstanding
       at June 30, 2007 and December 31, 2006,
       respectively                                     528               457
      Additional paid-in capital                  1,033,316           833,887
      Dividends in excess of earnings               (14,699)          (10,848)
      Accumulated other comprehensive
       income (loss)                                (38,259)           75,984
                                                  1,133,386         1,001,980
                                                $10,023,568        $8,604,392



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

                                    Three Months Ended      Three Months Ended
                                       June 30, 2007          June 30, 2006
    Net income available for
     common stockholders                 $ 33,738                $ 28,701
    Operating real estate depreciation        271                     210

    Funds from operations (''FFO'')      $ 34,009                $ 28,911


We believe FFO 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 FFO is an appropriate supplemental disclosure of operating performance for a REIT due to its widespread acceptance and use within the REIT and analyst communities. Furthermore, FFO is used to compute our incentive compensation to our manager. FFO, 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 FFO. Adjustments for unconsolidated subsidiaries, if any, are calculated to reflect FFO on the same basis. FFO 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 FFO may be different from the calculation used by other companies and, therefore, comparability may be limited.



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

                                                        June 30, 2007
    Book equity                                           $1,133,386
      Preferred stock                                       (152,500)
      Accumulated depreciation on operating real estate        5,100
      Accumulated other comprehensive income                  38,259
    Invested common equity                                $1,024,245

SOURCE Newcastle Investment Corp.