UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-Q


	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2007
or


	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission File Number: 001-31458

Newcastle Investment Corp.
(Exact name of registrant as specified in its charter)


Maryland			81-0559116
(State or other jurisdiction of incorporation or organization)			(I.R.S. Employer Identification No.)


1345 Avenue of the Americas, New York, NY			10105
(Address of principal executive offices)			(Zip Code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of ‘‘accelerated filer and large accelerated filer’’ in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer Accelerated filer Non-accelerated filer

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes No

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the last practicable date.

Common stock, $0.01 par value per share: 52,779,179 shares outstanding as of August 3, 2007.

NEWCASTLE INVESTMENT CORP.
FORM 10-Q

INDEX


		PAGE
PART I. FINANCIAL INFORMATION
Item 1.	Financial Statements
	Consolidated Balance Sheets as of June 30, 2007 (unaudited) and December 31, 2006		1
	Consolidated Statements of Income (unaudited) for the three and six months ended June 30, 2007 and 2006		2
	Consolidated Statements of Stockholders’ Equity (unaudited) for the six months ended June 30, 2007 and 2006		3
	Consolidated Statements of Cash Flows (unaudited) for the six months ended June 30, 2007 and 2006		4
	Notes to Consolidated Financial Statements (unaudited)		6
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations		19
Item 3.	Quantitative and Qualitative Disclosures About Market Risk		46
Item 4.	Controls and Procedures		51
PART II. OTHER INFORMATION
Item 1.	Legal Proceedings		52
Item 1A.	Risk Factors		52
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds		53
Item 3.	Defaults upon Senior Securities		53
Item 4.	Submission of Matters to a Vote of Security Holders		53
Item 5.	Other Information		53
Item 6.	Exhibits		54
	SIGNATURES		55

Table of Contents

PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

NEWCASTLE INVESTMENT CORP. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS
(dollars in thousands, except share data)


	June 30, 2007				December 31, 2006
	(Unaudited)
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 – Note 5			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 – Note 5			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

Table of Contents

NEWCASTLE INVESTMENT CORP. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME (Unaudited)
(dollars in thousands, except share data)


	Three Months Ended June 30,								Six Months 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 (loss), net			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 – Note 6			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 – Note 5			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
Other Gains (Losses)
Other-than-temporary impairment – Note 3			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 (loss) 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 (loss) from discontinued operations per share of common stock
Basic		$	(0.00	)		$	(0.00	)		$	(0.00	)		$	0.01
Diluted		$	(0.00	)		$	(0.00	)		$	(0.00	)		$	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

Table of Contents

NEWCASTLE INVESTMENT CORP. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (Unaudited)
FOR THE SIX MONTHS ENDED JUNE 30, 2007 AND 2006
(dollars in thousands)


	Preferred Stock					Common Stock					Additional Paid-in Capital				Dividends in Excess of Earnings				Accum. Other Comp. Income (Loss)				Total Stockholders’ Equity
	Shares		Amount			Shares		Amount			Additional Paid-in Capital				Dividends in Excess of Earnings				Accum. Other Comp. Income (Loss)				Total Stockholders’ Equity
Stockholders’ equity – December 31, 2006		4,100,000		$	102,500		45,713,817		$	457		$	833,887			$	(10,848	)		$	75,984			$	1,001,980
Dividends declared		—			—		—			—			—				(77,155	)			—				(77,155	)
Issuance of common stock		—			—		6,980,000			70			199,687				—				—				199,757
Exercise of common stock options		—			—		83,198			1			1,442				—				—				1,443
Issuance of common stock to directors		—			—		2,164			—			60				—				—				60
Issuance of preferred stock		2,000,000			50,000		—			—			(1,760	)			—				—				48,240
Comprehensive income:
Net income		—			—		—			—			—				73,304				—				73,304
Net unrealized (loss) on securities		—			—		—			—			—				—				(151,730	)			(151,730	)
Reclassification of net realized (gain) loss on securities into earnings		—			—		—			—			—				—				(14,278	)			(14,278	)
Foreign currency translation		—			—		—			—			—				—				1,728				1,728
Net unrealized gain on derivatives designated as cash flow hedges		—			—		—			—			—				—				49,440				49,440
Reclassification of net realized loss on derivatives designated as cash flow hedges into earnings		—			—		—			—			—				—				597				597
Total comprehensive income (loss)																									(40,939	)
Stockholders’ equity – June 30, 2007		6,100,000		$	152,500		52,779,179		$	528		$	1,033,316			$	(14,699	)		$	(38,259	)		$	1,133,386
Stockholders’ equity – December 31, 2005		4,100,000		$	102,500		43,913,409		$	439		$	782,735			$	(13,235	)		$	45,564			$	918,003
Dividends declared		—			—		—			—			—				(60,736	)			—				(60,736	)
Exercise of common stock options		—			—		84,000			1			1,439				—				—				1,440
Issuance of common stock to directors		—			—		2,408			—			60				—				—				60
Comprehensive income:
Net income		—			—		—			—			—				61,949				—				61,949
Net unrealized (loss) on securities		—			—		—			—			—				—				(73,164	)			(73,164	)
Reclassification of net realized (gain) on securities into earnings		—			—		—			—			—				—				(1,694	)			(1,694	)
Foreign currency translation		—			—		—			—			—				—				795				795
Net unrealized gain on derivatives designated as cash flow hedges		—			—		—			—			—				—				96,649				96,649
Reclassification of net realized (gain) on derivatives designated as cash flow hedges into earnings		—			—		—			—			—				—				(2,954	)			(2,954	)
Total comprehensive income																									81,581
Stockholders’ equity – June 30, 2006		4,100,000		$	102,500		43,999,817		$	440		$	784,234			$	(12,022	)		$	65,196			$	940,348

Table of Contents

NEWCASTLE INVESTMENT CORP. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOW (Unaudited)
(dollars in thousands)


	Six Months Ended June 30,
	2007				2006
Cash Flows From Operating Activities
Net income		$	73,304			$	61,949
Adjustments to reconcile net income to net cash provided by (used in) operating activities (inclusive of amounts related to discontinued operations):
Depreciation and amortization			671				477
Accretion of discount and other amortization			(13,649	)			(11,969	)
Equity in earnings of unconsolidated subsidiaries			(1,666	)			(2,410	)
Distributions of earnings from unconsolidated subsidiaries			1,666				2,410
Deferred rent			151				(1,057	)
Gain on sale of investments			(9,113	)			(7,784	)
Unrealized gain on non-hedge derivatives and hedge ineffectiveness			(6,338	)			(4,167	)
Loss on extinguishment of debt			6,260				—
Provision for credit losses			5,125				3,186
Provision for losses, loans held for sale			5,754				4,127
Other-than-temporary impairment			5,953				—
Purchase of loans held for sale – Notes 4 and 5			(1,089,202	)			(1,511,086	)
Sale of loans held for sale – Note 5			—				1,507,588
Non-cash directors’ compensation			60				60
Change in:
Restricted cash			71,067				10,958
Receivables and other assets			(10,458	)			2,633
Due to affiliates			(5,724	)			(1,939	)
Accrued expenses and other liabilities			899				3,687
Net cash provided by (used in) operating activities			(965,240	)			56,663
Cash Flows From Investing Activities
Purchase of real estate securities			(289,027	)			(807,396	)
Proceeds from sale of real estate securities			116,555				273,062
Purchase of and advances on loans			(862,978	)			(407,862	)
Repayments of loan and security principal			632,005				291,759
Margin received on derivative instruments			55,152				—
Return of margin on derivative instruments			(39,960	)			30,350
Margin deposits on total rate of return swaps (treated as derivative instruments)			(56,249	)			(30,060	)
Return of margin deposits on total rate of return swaps (treated as derivative instruments)			59,941				23,593
Proceeds from termination of derivative instruments			24,191				17,955
Proceeds from sale of derivative instrument into Securitization Trust – Note 5			—				5,623
Purchase and improvement of operating real estate			(865	)			(806	)
Contributions to unconsolidated subsidiaries			(201	)			(100	)
Distributions of capital from unconsolidated subsidiaries			435				1,214
Net cash used in investing activities			(361,001	)			(602,668	)

Continued on Page 5

Table of Contents

NEWCASTLE INVESTMENT CORP. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOW (Unaudited)
(dollars in thousands)


	Six Months Ended June 30,
	2007				2006
Cash Flows From Financing Activities
Repayments of CBO bonds payable			(984,776	)			(10,672	)
Issuance of other bonds payable			587,628				240,719
Repayments of other bonds payable			(55,123	)			(259,101	)
Repayments of notes payable			(35,073	)			(74,802	)
Borrowings under repurchase agreements			3,399,557				2,305,541
Repayments of repurchase agreements			(1,709,386	)			(1,732,662	)
Issuance of repurchase agreement subject to ABCP facility			247,409				—
Repayments of repurchase agreement subject to ABCP facility			(110,002	)			—
Draws under credit facility			382,800				274,900
Repayments of credit facility			(476,600	)			(244,400	)
Issuance of junior subordinated notes payable			—				100,100
Issuance of common stock			199,791				—
Costs related to issuance of common stock			—				—
Exercise of common stock options			1,443				1,440
Issuance of preferred stock			50,000
Costs related to issuance of preferred stock			(1,760	)			—
Dividends paid			(69,464	)			(59,636	)
Payment of deferred financing costs			(1,711	)			(6,653	)
Net cash provided by financing activities			1,424,733				534,774
Net Increase (Decrease) in Cash and Cash Equivalents			98,492				(11,231	)
Cash and Cash Equivalents, Beginning of Period			5,371				21,275
Cash and Cash Equivalents, End of Period		$	103,863			$	10,044
Supplemental Disclosure of Cash Flow Information
Cash paid during the period for interest expense		$	231,226			$	156,634
Cash paid during the period for income taxes		$	—			$	244
Supplemental Schedule of Non-Cash Investing and Financing Activities
Common stock dividends declared but not paid		$	38,001			$	28,600
Preferred stock dividends declared but not paid		$	2,785			$	1,552
Foreclosure of loans		$	—			$	12,200
Acquisition and financing of loans subject to call option		$	—			$	286,315

NEWCASTLE INVESTMENT CORP. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
JUNE 30, 2007
(dollars in tables in thousands, except share data)


1.	GENERAL

Newcastle Investment Corp. (and its subsidiaries, ‘‘Newcastle’’) is a Maryland corporation that was formed in 2002. Newcastle conducts its business through three primary segments: (i) real estate securities and real estate related loans, (ii) residential mortgage loans, and (iii) operating real estate.

Newcastle is organized and conducts its operations to qualify as a real estate investment trust (‘‘REIT’’) for U.S. federal income tax purposes. As such, Newcastle will generally not be subject to U.S. federal corporate income tax on that portion of its net income that is distributed to stockholders if it distributes at least 90% of its REIT taxable income to its stockholders by prescribed dates and complies with various other requirements.

Newcastle is party to a management agreement (the ‘‘Management Agreement’’) with FIG LLC (the ‘‘Manager’’), an affiliate of Fortress Investment Group LLC, under which the Manager advises Newcastle on various aspects of its business and manages its day-to-day operations, subject to the supervision of Newcastle’s board of directors. For its services, the Manager receives an annual management fee and incentive compensation, both as defined in the Management Agreement.

Approximately 5.1 million shares of Newcastle’s common stock were held by the Manager, through its affiliates, and its principals at June 30, 2007. In addition, the Manager, through its affiliates, held options to purchase approximately 1.5 million shares of Newcastle’s common stock at June 30, 2007.

The accompanying consolidated financial statements and related notes of Newcastle have been prepared in accordance with accounting principles generally accepted in the United States for interim financial reporting and the instructions to Form 10-Q and Rule 10-01 of Regulation S-X. Accordingly, certain information and footnote disclosures normally included in financial statements prepared under U.S. generally accepted accounting principles have been condensed or omitted. In the opinion of management, all adjustments considered necessary for a fair presentation of Newcastle’s financial position, results of operations and cash flows have been included and are of a normal and recurring nature. The operating results presented for interim periods are not necessarily indicative of the results that may be expected for any other interim period or for the entire year. These financial statements should be read in conjunction with Newcastle’s consolidated financial statements for the year ended December 31, 2006 and notes thereto included in Newcastle’s annual report on Form 10-K filed with the Securities and Exchange Commission. Capitalized terms used herein, and not otherwise defined, are defined in Newcastle’s consolidated financial statements for the year ended December 31, 2006.

NEWCASTLE INVESTMENT CORP. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
JUNE 30, 2007
(dollars in tables in thousands, except share data)


2.	INFORMATION REGARDING BUSINESS SEGMENTS

Newcastle conducts its business through three primary segments: real estate securities and real estate related loans, residential mortgage loans, and operating real estate.

Summary financial data on Newcastle’s segments is given below, together with a reconciliation to the same data for Newcastle as a whole:


	Real Estate Securities and Real Estate Related Loans				Residential Mortgage Loans				Operating Real Estate				Unallocated				Total
June 30, 2007 and the Six Months then Ended
Gross revenues		$	282,606			$	86,877			$	2,566			$	301			$	372,350
Operating expenses			(1,399	)			(15,182	)			(2,167	)			(17,367	)			(36,115	)
Operating income (loss)			281,207				71,695				399				(17,066	)			336,235
Interest expense			(191,375	)			(53,200	)			(25	)			(6,074	)			(250,674	)
Loss on extinguishment of debt			(7,280	)			—				—				—				(7,280	)
Other-than-temporary impairment			(5,953	)			—				—				—				(5,953	)
Depreciation and amortization			—				—				(527	)			(144	)			(671	)
Equity in earnings of unconsolidated subsidiaries			482				—				1,180				4				1,666
Income (loss) from continuing operations			77,081				18,495				1,027				(23,280	)			73,323
Income (loss) from discontinued operations			—				—				(19	)			—				(19	)
Net income (loss)			77,081				18,495				1,008				(23,280	)			73,304
Preferred dividends

(212) 798-6100

(Registrant’s telephone number, including area code)

(Former name, former address and former fiscal year, if changed since last report)