11. RECENT ACTIVITIES

These financial statements include a discussion of material events that have occurred subsequent to June 30, 2012 (referred to as “subsequent events”) through the issuance of these consolidated financial statements. Events subsequent to that date have not been considered in these financial statements.

On May 14, 2012, Newcastle entered into definitive agreements to acquire an investment in Excess MSRs in connection with Nationstar’s potential acquisition of certain mortgage servicing rights and other assets (“Mortgage Servicing Assets”) from Residential Capital, LLC and related entities (“ResCap”) in connection with ResCap’s proposed sale of these assets pursuant to an auction supervised under the U.S. Bankruptcy Code. Newcastle expects to invest between $150 million to $300 million to acquire an interest in Excess MSRs related to Nationstar’s proposed acquisition of primary mortgage servicing rights on a portfolio of residential mortgage loans with an outstanding principal balance of approximately $196 billion as of March 31, 2012. Newcastle has committed to invest up to $450 million to acquire an approximately 65% interest in these Excess MSRs, but it has retained the flexibility to sell a portion of its commitment to certain Fortress affiliates.  Nationstar will co-invest pari passu with Newcastle in 35% of the Excess MSRs and will be the servicer of the loans performing all servicing and advancing functions, and retaining the ancillary income, servicing obligations and liabilities as the servicer. Under the terms of this investment, to the extent that any loans in the portfolio are refinanced by Nationstar, the resulting excess mortgage servicing amount will be shared pro rata by Newcastle and Nationstar, subject to certain limitations. As background to Newcastle's proposed investment, ResCap and Nationstar have disclosed that ResCap has voluntarily filed a Chapter 11 petition in U.S. Bankruptcy Court and is seeking court approval to sell its Mortgage Servicing Assets in an auction process supervised by the court. Nationstar has agreed to serve as the "stalking horse" bidder for the auction of the Mortgage Servicing Assets, and if Nationstar is the successful bidder in the auction, then Newcastle will acquire up to 65% of the related Excess MSRs. Newcastle expects the auction to be completed by mid-September 2012, and, if successful, closing to be completed by late 2012. The auction timing and process are subject to the court's discretion and may change. On May 15, 2012, Newcastle funded a deposit of $16.8 million pursuant to the terms of the agreement.

On July 18, 2012, Newcastle completed the acquisition of eight senior housing assets [from entities owned and managed by Walter C. Bowen] for an aggregate purchase price of approximately $143.3 million plus related expenses. These assets comprise more than 800 beds in senior living facilities located in California, Oregon, Utah, Arizona and Idaho. Newcastle funded the purchase price with an equity investment of approximately $54.9 million and third-party financing of approximately $88.4 million. The financing is non-recourse, matures in seven years and currently has a weighted average interest rate of 3.45%. This acquisition will be accounted for as a business combination, under which all assets acquired are recognized at their acquisition-date fair value with acquisition-related costs being expensed as incurred. During the quarter ended June 30, 2012, Newcastle recorded approximately $3.2 million of expenses related to the acquisition as General and Administrative expenses in the consolidated statements of income, with the corresponding payables primarily recorded in Accrued Expenses and Other Liabilities in the consolidated balance sheets. Newcastle has retained an affiliate of Fortress to manage the properties. Pursuant to the management agreements, Newcastle will pay management fees equal to 6% of the properties’ gross income (as defined in the agreements) for the first two years and 7% thereafter. In addition, Newcastle will reimburse the manager for certain expenses, primarily the compensation expense associated with the on-site employees. In connection with the acquisition of the assets in July, Newcastle reimbursed Fortress for approximately $6.4 million (which had been recorded in Due to Affiliates as of June 30, 2012) of pre-acquisition disbursements related to the assets. Newcastle is currently evaluating the initial accounting for the business combination, which will be finalized and recorded during the third quarter of 2012.

In the first six months of 2012, Newcastle repurchased $30.1 million face amount of Newcastle CDO bonds for $9.2 million. As a result, Newcastle extinguished $30.1 million of CDO debt and recorded a gain on extinguishment of debt of $20.8 million.

In the first six months of 2012, Newcastle settled purchases of $178.3 million principal balance of non-agency residential mortgage backed securities for approximately $119.9 million using unrestricted cash. Newcastle purchased an additional $3.3 million principal balance of non-agency residential mortgage backed security on June 28, 2012 but had not yet settled this purchase at June 30, 2012. The purchased security is included in Real Estate Securities Available for Sale and the related payable is presented in Payables to Brokers, Dealers and Clearing Organizations in the consolidated balance sheets. From July 1, 2012 through August 7, 2012, Newcastle purchased $28.8 million face amount of non-agency residential mortgage backed securities for approximately $18.1 million, using its unrestricted cash. In addition, Newcastle financed two of the previously purchased non-agency residential mortgage backed securities with approximately $59.2 million of repurchase agreements in Juky 2012. These repurchase agreements bear interest at LIBOR plus 200 basis points, have a 90-day term ending on October 11, 2012, a 65% advance rate and are subject to customary margin call provisions.

In the first six months of 2012, Newcastle settled purchases of $101.5 million principal balance of FNMA/FHLMC securities (primarily one-year ARMs) for approximately $107.8 million, using $5.6 million of unrestricted cash and financed with $102.2 million of repurchase agreements. These repurchase agreements bear interest at 0.42%, mature in August 2012, and are subject to customary margin call provisions. Newcastle purchased an additional $61.6 million principal balance of FNMA/FHLMC security on June 26, 2012 but had not yet settled this purchase at June 30, 2012. The purchased security is included in Real Estate Securities Available for Sale and the related payable is presented as Payables to Brokers, Dealers and Clearing Organizations in the consolidated balance sheets. In July 2012, Newcastle purchased $123.9 million face amount of FNMA/FHLMC securities for approximately $130.1 million, using $7.2 million of unrestricted cash and financed with approximately $122.9 million of repurchase agreements. These repurchase agreements bear interest at 0.41%, mature in August 2012, and are subject to customary margin call provisions.

See note 7 regarding the public offerings of Newcastle’s common stock in April 2012, May 2012 and July 2012.