Press Release Newcastle Announces Third Quarter 2006 Results Third Quarter Highlights - FFO of $0.68 per diluted common share, an 8% increase from the third quarter 2005 - Net income of $0.67 per diluted common share, a 6% increase from the third quarter 2005 - Declared dividend of $0.65 per common share - Record third quarter investment activity - closed $1.1 billion of acquisitions and committed to purchase an additional $361.6 million of assets that will close subsequent to quarter end Subsequent Events to Third Quarter - Issued 1.7 million common shares for net proceeds of $49.5 million - Priced our ninth collateralized debt obligation to finance $950 million of assets NEW YORK, Nov. 7 /PRNewswire-FirstCall/ -- Newcastle Investment Corp. (NYSE: NCT) reported that for the quarter ended September 30, 2006, Funds from Operations ("FFO") were $29.9 million, or $0.68 per diluted common share, compared to $0.63 per diluted common share for the quarter ended September 30, 2005. The Company generated an FFO return on average invested equity of 15.3% for the third quarter 2006. For the three months ended September 30, 2006, income available for common stockholders was $29.7 million, or $0.67 per diluted common share, compared to $0.63 per diluted common share for the third quarter 2005. For the quarter ended September 30, 2006, we declared a dividend of $0.65 per share of common stock. We also declared a dividend of $0.609 per share and $0.503 per share on our 9.75% Series B and 8.05% Series C Cumulative Redeemable Preferred Stock, respectively. Our GAAP common equity book value per share was $19.42 per share at September 30, 2006, up from $19.04 at June 30, 2006. GAAP common equity book value was $854.7 million at September 30, 2006 compared with $837.8 million at June 30, 2006. For a reconciliation and discussion of GAAP net income to FFO and GAAP book equity to invested common equity, please refer to the tables following the presentation of GAAP results. Kenneth Riis, Newcastle's President, commented, "We are pleased with our third quarter results and expect to achieve our targeted dividend growth for 2006. Our four year public company track record demonstrates the stability of our business model. We have consistently generated mid-teens returns on equity and grown earnings through the accretive deployment of new capital." Selected Financial Data (Unaudited) Operating Data: Three Months Ended Three Months Ended September 30, 2006 September 30, 2005 ($ in 000s) ($ per share) ($ in 000s) ($ per share) Funds from operations $ 29,920 $ 0.68 $ 27,795 $ 0.63 Income available for common stockholders $ 29,699 $ 0.67 $ 27,677 $ 0.63 Balance Sheet Data ($ in 000s): As of As of September 30, 2006 December 31, 2005 Total assets $ 8,126,081 $ 6,209,699 Total liabilities 7,168,915 5,291,696 Common stockholders' equity 854,666 815,503 Preferred stock 102,500 102,500 Total equity 957,166 918,003 The following tables compare certain supplemental data relating to our investment portfolio at September 30, 2006 versus June 30, 2006: Supplemental Data: Total Portfolio(1) Core Investment Portfolio(2) September 30, June 30, September 30, June 30, 2006 2006 2006 2006 Total portfolio (face amount) $ 8,087,848 $ 7,299,582 $ 6,494,616(3) $ 5,865,445(3) Percentage of total portfolio 100% 100% 80% 80% Weighted average asset yield 7.24% 7.18% 7.59% 7.52% Weighted average liability cost 5.83% 5.74% 5.97% 5.88% Weighted average net spread 1.41% 1.44% 1.62% 1.64% Notes: (1) Statistics exclude ICH and operating real estate. (2) Excludes non-core investments: ICH, agency RMBS and operating real estate of $1,294.0 million at September 30, 2006 and $1,135.0 million at June 30, 2006. (3) Face amount excludes $299.2 million of subprime loans subject to future repurchase. Third Quarter Investment Activity We purchased or have committed to purchase $1.5 billion of assets; acquisitions of $1.1 billion of assets closed in the third quarter while the remaining $361.6 million has either closed or is expected to close in the fourth quarter. Of the third quarter closings, $50.1 million was financed off balance sheet through a total rate of return swap. We recorded a deposit of $8.2 million towards the total rate of return swap. The following table details our funded acquisitions in the quarter: Real Estate Securities Face Amount Number Credit WA Credit and Loans ($ in mm) Spread(1) Mezzanine Loans $137.8 3 66% LTV 251 Bank Loans 128.1 3 B 280 Real Estate Related Asset Backed Securities (ABS) 117.0 18 BBB- 396 Real Estate Loans 74.8 2 71% LTV 714 REIT Debt 34.0 3 BB+ 162 Commercial Mortgage Backed Securities (CMBS) 10.0 1 BBB- 174 Total Real Estate Securities and Loans $501.7 30 354 Residential Mortgage Loans Manufactured Home Loans $434.7 13,285 705 319 Agency RMBS Agency RMBS $201.7 5 AAA 70 TOTAL $ 1,138.1 (1) Average spread based on applicable benchmark (US Treasury for fixed and LIBOR for floating). Kenneth Riis noted, "Credit spreads on CMBS continued to tighten to historic lows, resulting in minimal CMBS investment activity in the quarter. Our most recent activity has been focused on commercial real estate mezzanine loan and bank loan investments, as well as opportunistic acquisitions in the residential credit market. The purchase of the $435 million manufactured home loan portfolio demonstrates our broad investment capabilities. We continue to maintain flexibility in our asset allocations and are focused on deploying capital in assets offering attractive risk adjusted returns." Mr. Riis added, "I am excited about the growth of our business and our ability to source new investments. In the first nine months of 2006, we already acquired more assets than any prior year and I anticipate an active fourth quarter on the investment side." Capital Markets Activity Since the second quarter, we entered into $1.2 billion of term financing and raised $49.5 million of equity capital. Third quarter activities include: -- In August 2006, we financed the acquisition of a $434.7 million portfolio of manufactured housing loans with $391.3 million of 5 year term debt that adjusts monthly at an interest rate equal to one-month LIBOR + 125 basis points. Net of the financing, we have $37.1 million of invested equity with an expected ROE of 17.5%. Subsequent to quarter end activities: -- In October, we issued 1.7 million common shares, for net proceeds of approximately $49.5 million. The proceeds were used to pay down amounts drawn on our credit facility to fund new acquisitions. Currently, we have approximately $93.0 million drawn on our credit facility. -- In November, we priced our ninth collateralized bond obligation. We expect to issue $807.5 million of investment grade debt to term finance a $950.0 million portfolio consisting of approximately 38% mezzanine loans, 18% bank loans, 16% CMBS, 10% ABS, 8% B-Notes and 10% in other assets. The CBO has an expected maturity date of November 2016 and a weighted average life of approximately 7 years. Approximately 69%, or $560.5 million, of the issued debt is rated AAA. With the financing, we expect to invest approximately $126 million in the portfolio with an expected return on equity of approximately 20%. Upon closing, this financing will replace $665 million of recourse debt reflected on our third quarter balance sheet. Ms. Debra Hess, our Chief Financial Officer commented, "Our business model and match funding discipline have delivered stable returns to our shareholders and have insulated our earnings from changes in interest rates. At September 30, 2006, an immediate 100 basis point increase or decrease in short term interest rates would have affected our earnings by $0.01 per share." Investment Portfolio At September 30, 2006, our $7.6 billion investment portfolio represented 94% of our total portfolio and consisted of $5.6 billion of real estate securities and related loans, $0.9 billion of residential mortgage loans and $1.1 billion of agency RMBS. Real Estate Securities and Related Loans Face Amount % of Total Number WA Life ($ in mm) Portfolio CMBS $2,120.3 26% 256 5.81 REIT Debt 979.6 12% 100 6.33 ABS 906.0 11% 157 3.45 Mezzanine Loans 729.7 10% 15 2.73 Bank Loans 396.6 5% 6 2.85 B-Notes 341.4 4% 34 6.19 Real Estate Loans 101.7 1% 3 1.51 ABS Residual 50.1 1% 1 2.88 Total Real Estate Securities and Loans $5,625.4 70% 572 4.83 Residential Mortgage Loans Manufactured Home Loans $674.0 8% 19,148 6.05 Residential Mortgage Loans 195.2 2% 566 2.79 Total Residential Mortgage Loans $869.2 10% 19,714 5.32 Agency RMBS Agency RMBS $ 1,091.0 14% 32 4.33 TOTAL $ 7,585.6 94% Of the $7.6 billion investment portfolio, 75% were rated by third parties or implied AAA (agency RMBS) with an average rating of BBB+. 14% of the portfolio including mezzanine loans, B-notes and real estate loans were non- rated but had an average loan to value of 71.0%. 11% were residential mortgage loans to high quality borrowers with an average FICO score of 706. Our average investment size in the real estate securities and related loans portfolio was $9.8 million, with our largest single investment being $123.1 million, at quarter end. Our real estate securities and related loans portfolio had a weighted average credit spread of 255 basis points as of quarter end versus 261 basis points at June 30, 2006. The credit profile of our real estate securities portfolio continued to improve during the third quarter. This can be demonstrated by the ratio of upgrades to downgrades in the quarter, where 29 securities ($155.3 million face amount) experienced credit rating upgrades, versus one security ($3.0 million face amount) which experienced a credit rating downgrade. Conference Call Newcastle's management will conduct a live conference call today, November 7, 2006 at 1:00 P.M. eastern time to review the financial results for the quarter ended September 30, 2006. All interested parties are welcome to participate on the live call. You can access the conference call by dialing (800) 811-8824 (from within the U.S.) or (913) 981-4903 (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 http://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 December 31, 2006. A telephonic replay of the conference call will also be available until 11:59 P.M. eastern time on Tuesday, November 14, 2006 by dialing (888) 203- 1112 (from within the U.S.) or (719) 457-0820 (from outside of the U.S.); please reference access code "4136816." About Newcastle Newcastle Investment Corp. owns and manages an $8.1 billion highly diversified real estate debt securities and loan portfolio that is primarily financed with low-cost match funded debt. Newcastle targets real estate debt securities and other real estate related assets with moderate credit risk. 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 Fortress Investment Group LLC, a global alternative investment and asset management firm with over $24 billion in equity capital currently under management. For more information regarding Newcastle Investment Corp. or to be added to our e-mail distribution list, please visit http://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) Three Months Ended Nine Months Ended September 30, September 30, 2006 2005 2006 2005 Revenues Interest income $140,330 $88,021 $378,446 $254,035 Rental and escalation income 834 1,871 3,616 4,850 Gain on sale of investments, net 2,642 6,750 10,064 12,099 Other income 288 3,208 4,545 4,594 144,094 99,850 396,671 275,578 Expenses Interest expense 100,239 58,681 265,113 163,238 Property operating expense 1,041 594 2,808 1,827 Loan and security servicing expense 1,553 1,483 4,961 4,646 Provision for credit losses 2,682 4,091 5,868 5,990 Provision for losses, loans held for sale - - 4,127 - General and administrative expense 1,187 1,034 3,979 3,251 Management fee to affiliate 3,475 3,316 10,420 9,895 Incentive compensation to affiliate 3,094 2,416 8,780 5,271 Depreciation and amortization 290 182 767 453 113,561 71,797 306,823 194,571 Income before equity in earnings of unconsolidated subsidiaries 30,533 28,053 89,848 81,007 Equity in earnings of unconsolidated subsidiaries 1,506 1,104 3,916 4,628 Income taxes on related taxable subsidiaries - (43) - (321) Income from continuing operations 32,039 29,114 93,764 85,314 Income from discontinued operations (12) 86 212 2,051 Net Income 32,027 29,200 93,976 87,365 Preferred dividends (2,328) (1,523) (6,985) (4,570) Income Available for Common Stockholders $29,699 $27,677 $86,991 $82,795 Net Income Per Share of Common Stock Basic $0.68 $0.63 $1.98 $1.90 Diluted $0.67 $0.63 $1.97 $1.88 Income from continuing operations per share of common stock, after preferred dividends Basic $0.68 $0.63 $1.97 $1.85 Diluted $0.67 $0.63 $1.97 $1.84 Income from discontinued operations per share of common stock Basic $0.00 $0.00 $0.01 $0.05 Diluted $0.00 $0.00 $- $0.04 Weighted Average Number of Shares of Common Stock Outstanding Basic 43,999,817 43,789,819 43,978,625 43,595,411 Diluted 44,136,956 44,121,263 44,091,003 43,961,044 Dividends Declared per Share of Common Stock $0.650 $0.625 $1.925 $1.875 Newcastle Investment Corp. Consolidated Balance Sheets (dollars in thousands, except share data) As of As of September 30, December 31, 2006 2005 (Unaudited) Assets Real estate securities, available for sale $5,369,641 $4,554,519 Real estate related loans, net 1,238,418 615,551 Residential mortgage loans, net 863,788 600,682 Subprime mortgage loans subject to future repurchase 287,546 - Investments in unconsolidated subsidiaries 28,549 29,953 Operating real estate, net 30,271 16,673 Cash and cash equivalents 16,317 21,275 Restricted cash 183,334 268,910 Derivative assets 64,218 63,834 Receivables and other assets 43,999 38,302 $8,126,081 $6,209,699 Liabilities and Stockholders' Equity Liabilities CBO bonds payable $3,505,906 $3,530,384 Other bonds payable 704,785 353,330 Notes payable 153,957 260,441 Repurchase agreements 2,197,780 1,048,203 Financing of subprime mortgage loans subject to future repurchase 287,546 - Credit facility 125,000 20,000 Junior subordinated notes payable (security for trust preferred) 100,100 - Derivative liabilities 26,576 18,392 Dividends payable 30,152 29,052 Due to affiliates 9,938 8,783 Accrued expenses and other liabilities 27,175 23,111 7,168,915 5,291,696 Stockholders' Equity Preferred stock, $0.01 per value, 100,000,000 shares authorized, 2,500,000 shares of 9.75% Series B Cumulative Redeemable Preferred Stock and 1,600,000 shares of 8.05% Series C Cumulative Redeemable Preferred Stock, liquidation preference $25.00 per share, issued and outstanding 102,500 102,500 Common stock, $0.01 per value, 500,000,000 shares authorized, 43,999,817 and 43,913,409 shares issues and outstanding at September 30, 2006 and December 31, 2005, respectively 440 439 Additional paid-in capital 784,234 782,735 Dividends in excess of earnings (10,923) (13,235) Accumulated other comprehensive income 80,915 45,564 957,166 918,003 $8,126,081 $6,209,699 Newcastle Investment Corp. Reconciliation of GAAP Net Income to FFO (dollars in thousands) (Unaudited) Three Months Ended Three Months Ended September 30, 2006 September 30, 2005 Net income available for common stockholders $ 29,699 $ 27,677 Operating real estate depreciation 221 118 Funds from operations ("FFO") $29,920 $ 27,795 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) September 30, 2006 Book equity $957,166 Preferred stock (102,500) Accumulated depreciation on operating real estate 4,108 Accumulated other comprehensive income (80,915) Invested common equity $777,859 SOURCE Newcastle Investment Corp. CONTACT: Lilly H. Donohue, Director of Investor Relations of Newcastle Investment Corp., +1-212-798-6118