Drive Shack Inc. - FORM 8-K - EX-99.1 - PRESS RELEASE

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Exhibit 99.1


		NEWCASTLE INVESTMENT CORP.

Contact:

Investor Relations

212-479-3195

Newcastle Announces Second Quarter 2011 Results

SECOND QUARTER 2011 FINANCIAL RESULTS

New York, NY, August 5, 2011 – Newcastle Investment Corp. (NYSE: NCT) reported that in the second quarter of 2011, income available for common stockholders (“GAAP income”) was $98 million, or $1.23 per diluted share, compared to $118 million, or $1.90 per diluted share, in the second quarter of 2010.

GAAP income of $98 million consisted of the following:

•

$30 million, or $0.37 per diluted share, of net interest income less expenses (net of preferred dividends), compared to $22 million, or $0.36 per diluted share, in the second quarter of 2010.

•

$59 million of other income related to a $36 million net gain on the settlement of investments, a $33 million gain on the extinguishment of CDO debt, offset primarily by a $9 million non-cash mark-to-market loss related to an interest rate swap agreement in connection with the repurchase of Newcastle CDO IV Class I notes.

•

$9 million representing the reversal of prior valuation allowances on loans, net of impairment recorded on securities.

In the second quarter of 2011, GAAP book value increased $94 million or $1.18 per share. As of June 30, 2011, GAAP book value was $108 million or $1.36 per share, compared to $14 million or $0.18 per share as of March 31, 2011.

During the second quarter of 2011, the Company generated $15 million of cash flow from operations compared to $11 million in the first quarter of 2011. In addition, the Company received $48 million of unrestricted cash from principal repayments on Newcastle and third-party CDO securities that were purchased at a weighted average discounted price of 74% of par.

On June 17, 2011, the Board of Directors declared a quarterly dividend of $0.10 per common share or $8 million for the second quarter of 2011. The Board of Directors also declared dividends of $0.609375, $0.503125 and $0.523438 per share on the 9.75% Series B, 8.05% Series C and 8.375% Series D preferred stock, respectively, for the period beginning May 1, 2011 and ending July 30, 2011.

For a reconciliation of income available for common stockholders to net interest income less expenses (net of preferred dividends), please refer to the tables following the presentation of GAAP results.

SECOND QUARTER 2011 INVESTMENT ACTIVITY

$122 million of unrestricted cash investments:

Newcastle invested $121 million to purchase $169 million face amount of non-agency investments at an average price of 72% of par, with an expected average return of 19% and an average life of 4.1 years, including the following:

•

Invested $86 million to repurchase $119 million of Newcastle CDO debt at an average price of 72% of par. The Company expects the investment to have an average life of 3.5 years and to generate a return of 16%. These investments are further described below:

•

Invested $78 million to repurchase $92 million of the most senior bonds at an average price of 84% of par with an average life of 1.4 years.

•

Invested $8 million to repurchase $27 million of junior bonds at an average price of 31% of par with an average life of 10.8 years.

•

Invested $20 million to purchase BB- rated notes and the residual interest in Newcastle Investment Trust 2011-MH 1. Assuming the loans are held to maturity, the Company expects the investment to have an average life of 8.0 years and a return of 30%.

•

Invested $15 million to purchase $30 million face amount of two third-party CDO securities at an average price of 50%. These CDO securities have credit enhancements of 52.4%, an average life of 4.1 years and an expected average return of 26%.

The Company also invested $1 million in the quarter to purchase $24 million face amount of FNMA securities at an average price of 104% of par, financed with $24 million of repurchase agreements. On June 29^th, the Company purchased an additional $81 million face amount of FNMA and FHLMC securities at an average price of 105%, which settled on July 5^th, investing $4 million and financed with $82 million of repurchase agreements.

$293 million of restricted CDO cash investments:

Newcastle invested $293 million to purchase $315 million face amount of assets at an average price of 93% of par with an expected average yield of 8% and an average life of 4.7 years, including the following:

•

Invested $158 million to purchase $160 million face amount of three mezzanine loan and B-Notes at an average price of 99% of par, with an expected average yield of 9% and an average life of 3.7 years.

•

Invested $135 million to purchase $155 million face amount of CMBS, ABS, and third-party CDO securities at an average price of 88% of par, with an expected average yield of 7%, an average life of 5.7 years, and an average rating of BBB-.

CASH AND RECOURSE FINANCING

As of August 3, 2011, the Company’s cash and current recourse financings were as set forth below:

•

Cash – The Company had $84 million of unrestricted cash and $99 million of restricted cash available for reinvestment within its consolidated CDOs.

•

Recourse Financing – The Company had $4 million related to the financing of senior Newcastle CDO bonds it repurchased and $205 million related to the financing of FNMA and FHLMC securities.

The following table illustrates the change in cash and recourse financings, excluding junior subordinated notes ($ in millions):


	August 3, 2011		June 30, 2011		March 31, 2011
CDO Cash for Reinvestment	$	99	$	168	$	128

Unrestricted Cash		84		101		161

Recourse Financings
NCT CDO senior bonds		4		4		4
FNMA/FHLMC Securities		205		104		79


Total Recourse Financings	$	209	$	108	$	83

NEWCASTLE CDO FINANCINGS

The following table summarizes the cash receipts in the second quarter of 2011 from the Company’s consolidated CDO financings and their related coverage tests ($ in thousands):


				Interest
				Coverage
	Primary			% Excess (Deficiency)			Over-Collateralization Excess (Deficiency)
	Collateral	Cash		Jul 31,			July 31, 2011 ⁽²⁾						June 30, 2011 ⁽²⁾						March 31, 2011 ⁽²⁾
	Type	Receipts ⁽¹⁾		2011 ⁽²⁾			%			$			%			$			%			$
CDO IV	Securities	$	473		151.1	%		-2.4	%		(4,987	)		-2.4	%		(4,987	)		-2.6	%		(7,075	)
CDO VI	Securities		179		-65.9	%		-57.9	%		(185,180	)		-56.3	%		(181,831	)		-52.0	%		(183,733	)
CDO VIII	Loans		5,178		284.3	%		8.7	%		56,331			8.7	%		56,396			7.3	%		47,158
CDO IX	Loans		4,570		319.1	%		14.7	%		94,640			14.2	%		91,926			14.2	%		91,539
CDO X	Securities		6,155		262.9	%		4.3	%		52,643			2.1	%		25,220			4.4	%		53,500

Total		$	16,555

(1)

Represents cash received from each CDO based on all of the interests in such CDO (including senior management fees but excluding $39.2 million of principal received from senior CDO bonds owned by the Company). Cash receipts for the quarter ended June 30, 2011 may not be indicative of cash receipts for subsequent periods. See Forward-Looking Statements below for risks and uncertainties that could cause cash receipts for subsequent periods to differ materially from these amounts.

(2)

Represents excess or deficiency under the applicable interest coverage or over-collateralization test to the first threshold at which cash flow would be redirected. The Company generally does not receive material interest cash flow from a CDO until a deficiency is corrected. The information regarding coverage tests is based on data from the most recent remittance date on or before July 31, 2011, June 30, 2011, or March 31, 2011, as applicable. The CDO IV test is conducted only on a quarterly basis (December, March, June and September).

•

Of the $17 million CDO cash receipts, $2.2 million were related to non-recurring fees and $1.7 million were related to senior collateral management fees, which were not subject to the related CDO coverage tests.

•

As of the July 2011 remittance, assets on negative watch for possible downgrade by at least one rating agency (Moody’s, S&P, or Fitch) for CDOs VIII, IX, and X were $47 million, $3 million, and $120 million, respectively.

•

In the second quarter, as a result of the failure of the collateral manager over-collateralization trigger, the Company deconsolidated Newcastle CDO V. The Company continued to receive the senior collateral management fee in this CDO.

INVESTMENT PORTFOLIO

Newcastle’s $3.8 billion investment portfolio (with a basis of $2.9 billion) consists of commercial, residential and corporate debt. During the quarter, the weighted average carrying value on the June 30, 2011 portfolio changed from 79.4% to 78.3%, a decrease of $42 million. The face amount of the portfolio decreased by $408 million, primarily as a result of the deconsolidation of Newcastle CDO V, which accounted for $333 million, principal repayments of $191 million, sales of $327 million and actual principal write-downs of $13 million, offset by purchases of $450 million.

The following table describes the investment portfolio as of June 30, 2011 ($ in millions):


					% of			Carrying							Weighted
	Face		Basis		Total			Value		Number of					Average
	Amount $		Amount $ ⁽¹⁾		Basis			Amount $		Investments		Credit ⁽²⁾			Life (years)⁽³⁾
Commercial Assets
CMBS	$	1,505	$	1,070		37.5	%	$	1,156		211		BB			3.8
Mezzanine Loans		530		413		14.5	%		413		16		64	%		2.3
B-Notes		255		187		6.6	%		187		9		71	%		2.0
Whole Loans		31		31		1.1	%		31		3		48	%		2.8
Third-Party CDO Securities		77		57		2.0	%		55		2		BB+			4.1
Other Investments ⁽⁴⁾		25		25		0.9	%		25		1		—			—

Total Commercial Assets		2,423		1,783		62.6	%		1,867							3.2

Residential Assets
MH and Residential Loans		404		352		12.3	%		352		10,647		704			6.8
Subprime Securities		265		140		4.9	%		153		63		B+			6.2
Real Estate ABS		57		43		1.5	%		43		14		BBB			5.8

		726		535		18.7	%		548							6.5

FNMA/FHLMC Securities		185		194		6.8	%		194		21		AAA			4.6

Total Residential Assets		911		729		25.5	%		742							6.1

Corporate Assets
REIT Debt		172		172		6.0	%		179		26		BB+			3.2
Corporate Bank Loans		273		169		5.9	%		169		6		CC			3.3

Total Corporate Assets		445		341		11.9	%		348							3.2


Total/Weighted Average ⁽⁵⁾	$	3,779	$	2,853		100.0	%	$	2,957							3.9

(1)	Net of impairment.

(2)

Credit represents the weighted average of minimum ratings for rated assets, the Loan to Value ratio (based on the appraised value at the time of purchase or refinancing) for non-rated commercial assets, or the FICO score for non-rated residential assets and an implied AAA rating for FNMA/FHLMC securities. Ratings provided herein were determined by third party rating agencies as of a particular date, may not be current and are subject to change at any time.

(3)	Weighted average life is based on the timing of expected principal reduction on the asset.

(4)	Relates to an equity investment in a REO property.

(5)	Excludes third-party CDO securities with a face amount of $117 million with zero value, operating real estate held for sale of $8 million and loans subject to call option with a face amount of $406 million.

Commercial Assets

The Company owns $2.4 billion of commercial assets (with a basis of $1.8 billion), which includes CMBS, mezzanine loans, B-Notes, whole loans, third-party CDO securities, and other investments.

•

During the quarter, the Company purchased $326 million of mezzanine loans, B-Notes and CMBS, sold $258 million of CMBS and mezzanine loans, and received principal repayments of $157 million.

•

Regarding the Company’s CMBS portfolio, four securities or $14 million were upgraded (from a weighted average rating of A to AA-), no securities were affirmed and 17 securities or $145 million were downgraded (from a weighted average rating of B+ to B-).

•

The weighted average carrying value of these assets changed from 78.2% to 77.1%, a decrease of $25 million in the quarter.

CMBS portfolio ($ in thousands):


	Average Minimum			Face		Basis		% of Total			Carrying Value		Delinquency			Principal			Weighted Average
Vintage ⁽¹⁾	Rating ⁽²⁾	Number		Amount $		Amount $		Basis			Amount $		60+/FC/REO ⁽³⁾			Subordination ⁽⁴⁾			Life (yrs) ⁽⁵⁾
Pre 2004	BBB-		71		349,023		332,645		31.1	%		314,444		5.2	%		11.9	%		1.9
2004	BB+		37		204,746		160,401		15.0	%		158,681		2.3	%		7.5	%		3.1
2005	BB		30		319,027		167,703		15.7	%		214,563		4.6	%		7.5	%		3.9
2006	BB		44		387,932		257,630		24.1	%		298,697		6.2	%		12.1	%		4.1
2007	B		17		123,638		36,679		3.4	%		57,116		10.2	%		11.6	%		4.0
2010	BBB-		5		51,798		48,231		4.5	%		47,507		0.0	%		6.0	%		9.3
2011	BBB-		7		69,000		66,616		6.2	%		64,764		0.0	%		5.7	%		7.9

TOTAL/WA	BB		211		1,505,164		1,069,905		100.0	%		1,155,772		4.9	%		9.9	%		3.8

(1)	The year in which the securities were originally issued.

(2)	Ratings provided above were determined by third party rating agencies as of a particular date, which may not be current and are subject to change at any time. The Company had no CMBS assets that were on negative watch for possible downgrade by at least one rating agency as of June 30, 2011.

(3)	The percentage of underlying loans that are 60+ days delinquent, in foreclosure or considered real estate owned (REO).

(4)	The percentage of the outstanding face amount of securities that is subordinate to the Company’s investments.

(5)	Weighted average life is based on the timing of expected principal reduction on the asset.

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


			Face		Basis		% of Total			Carrying Value		WA First $			WA Last $
Asset Type	Number		Amount ($)		Amount ($)		Basis			Amount ($)		Loan to Value⁽¹⁾			Loan to Value⁽¹⁾			Delinquency (%) ⁽²⁾
Mezzanine Loans		16		529,882		413,007		65.4	%		413,007		54.9	%		64.3	%		9.7	%
B-Notes		9		255,147		187,436		29.7	%		187,436		59.6	%		71.4	%		17.7	%
Whole Loans		3		30,772		30,772		4.9	%		30,772		0.0	%		48.2	%		0.0	%

Total/WA		28		815,801		631,215		100.0	%		631,215		54.3	%		65.9	%		11.9	%

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

(2)	The percentage of underlying loans that are non-performing, in foreclosure, under bankruptcy filing or considered real estate owned (REO).

Third-party CDO Securities ($ in thousands):


			Average								Carrying
			Minimum	Face		Basis		% of Total			Value		Principal
Asset Type	Number		Rating ⁽¹⁾	Amount $		Amount $		Basis			Amount $		Subordination ⁽²⁾
CDO - CMBS		1	BBB-		71,278		54,990		95.7	%		52,746		50.8	%
CDO - ABS		1	CC		5,500		2,481		4.3	%		2,475		73.7	%

TOTAL/WA		2	BB+		76,778		57,471		100.0	%		55,221		52.4	%

(1)	Ratings provided above were determined by third party rating agencies as of a particular date, which may not be current and are subject to change at any time.

(2)	The percentage of the outstanding face amount of securities that is subordinate to the Company’s investments.

Residential Assets

The Company owns $911 million of residential assets (with a basis of $729 million), which include manufactured housing (“MH”) loans, residential loans, subprime securities, real estate ABS and FNMA/FHLMC securities.

•

During the quarter, the Company purchased $124 million of subprime securities and FNMA/FHLMC securities, sold $16 million of subprime securities, received principal repayments of $25 million and had $13 million of actual principal write-downs on subprime securities.

•

Regarding the Company’s ABS portfolio, no securities were upgraded, 6 securities or $26 million were affirmed and 3 securities or $6 million were downgraded (from a weighted average rating of C to D).

•

The weighted average carrying value of these assets changed from 82.1% to 81.2%, a decrease of $9 million in the quarter.

Manufactured housing and residential loan portfolios ($ in thousands):


Deal	Average FICO Score		Face Amount $		Basis Amount $		% of Total Basis			Carrying Value Amount $		Average Loan Age (years)		Original Balance $		Delinquency 90+/FC/REO ⁽¹⁾			Cumulative Loss to Date
MH Loans Portfolio 1		702		144,227		116,863		33.2	%		116,863		9.7		327,855		1.1	%		7.3	%
MH Loans Portfolio 2		701		197,603		187,554		53.3	%		187,554		12.1		434,743		1.7	%		5.5	%
Residential Loans Portfolio 1		715		58,372		43,828		12.5	%		43,828		8.1		646,357		12.5	%		0.4	%
Residential Loans Portfolio 2		737		3,795		3,361		1.0	%		3,361		6.2		83,950		0.0	%		0.0	%

TOTAL/WA		704		403,997		351,606		100.0	%		351,606		10.6		1,492,905		3.0	%		5.4	%

(1)	The percentage of loans that are 90+ days delinquent, in foreclosure or considered real estate owned (REO).

Subprime Securities portfolio ($ in thousands):

Security Characteristics:


Vintage ⁽¹⁾	Average Minimum Rating ⁽²⁾	Number		Face Amount $		Basis Amount $		% of Total Basis			Carrying Value Amount $		Principal Subordination ⁽³⁾			Excess Spread ⁽⁴⁾
2003	B-		14		14,674		7,211		5.2	%		8,081		24.2	%		4.4	%
2004	BB-		8		29,157		12,961		9.2	%		16,257		17.2	%		3.5	%
2005	B-		26		108,272		40,050		28.6	%		44,143		31.3	%		4.5	%
2006	BB-		7		61,470		40,877		29.1	%		42,984		41.3	%		5.5	%
2007 & Later	BB		8		51,371		39,195		27.9	%		41,528		21.0	%		2.7	%

TOTAL/WA	B+		63		264,944		140,294		100.0	%		152,993		29.7	%		4.3	%

Collateral Characteristics:


Vintage ⁽¹⁾	Average Loan Age (years)		Collateral Factor ⁽⁵⁾		3 Month CPR ⁽⁶⁾			Delinquency 90+0/FC/REO ⁽⁷⁾			Cumulative Loss to Date
2003		8.5		0.09		8.5	%		16.5	%		3.9	%
2004		7.2		0.15		7.5	%		11.8	%		3.6	%
2005		6.2		0.19		9.2	%		29.0	%		9.8	%
2006		5.3		0.34		13.2	%		25.6	%		17.2	%
2007 & Later		3.3		0.35		8.2	%		16.5	%		13.4	%

TOTAL/WA		5.7		0.25		9.7	%		23.2	%		11.2	%

Real Estate ABS portfolios ($ in thousands):

Security Characteristics:


Asset Type	Average Minimum Rating ⁽²⁾	Number		Face Amount $		Basis Amount $		% of Total Basis			Carrying Value Amount $		Principal Subordination ⁽³⁾			Excess Spread ⁽⁴⁾
Manufactured Housing	BBB+		7		32,727		31,779		73.9	%		33,255		40.6	%		1.5	%
Small Business Loans	BB+		7		24,399		11,199		26.1	%		9,958		32.6	%		1.3	%

TOTAL/WA	BBB		14		57,126		42,978		100.0	%		43,213		37.2	%		1.4	%

Collateral Characteristics:


	Average
	Loan Age		Collateral		3 Month			Delinquency			Cumulative
Asset Type	(years)		Factor ⁽⁵⁾		CPR ⁽⁶⁾			90+/FC/REO ⁽⁷⁾			Loss to Date
Manufactured Housing		11.9		0.26		7.2	%		1.3	%		13.1	%
Small Business Loans		6.1		0.62		8.2	%		28.5	%		8.9	%

TOTAL/WA		9.4		0.41		7.6	%		12.9	%		11.3	%

(1)	The year in which the securities were issued.

(2)

Ratings provided above were determined by third party rating agencies as of a particular date, may not be current and are subject to change at any time. The Company had approximately $179 million of subprime and ABS securities that were on negative watch for possible downgrade by at least one rating agency as of June 30, 2011.

(3)	The percentage of the outstanding face amount of securities and residual interests that is subordinate to the Company’s investments.

(4)	The annualized amount of interest received on the underlying loans in excess of the interest paid on the securities, as a percentage of the outstanding collateral balance.

(5)	The ratio of original unpaid principal balance of loans still outstanding.

(6)	Three month average constant prepayment rate.

(7)	The percentage of underlying loans that are 90+ days delinquent, in foreclosure or considered real estate owned (REO).

Corporate Assets

The Company owns $445 million of corporate assets (with a basis of $341 million), including REIT debt and corporate bank loans.

•

During the quarter, the Company sold $53 million of REIT debt and received $10 million of principal repayments from the bank loans.

•

Regarding the Company’s REIT debt portfolio, three securities or $10 million were upgraded (from a weighted average rating of BBB to BBB+), and no securities were affirmed or downgraded.

•

The weighted average carrying value of these assets changed from 80.1% to 78.2%, a decrease of $8 million in the quarter.

REIT debt portfolio ($ in thousands):


	Average							% of			Carrying
	Minimum			Face		Basis		Total			Value
Industry	Rating ⁽¹⁾	Number		Amount $		Amount $		Basis			Amount $
Retail	BBB+		6		44,025		43,036		25.1	%		47,998
Diversified	CCC+		4		39,286		39,291		22.9	%		35,892
Office	BBB		6		41,717		42,234		24.6	%		43,900
Multifamily	BBB		4		13,765		13,818		8.0	%		14,820
Hotel	BBB-		2		12,000		11,988		7.0	%		12,971
Healthcare	BBB-		4		21,600		21,316		12.4	%		23,874

TOTAL/WA	BB+		26		172,393		171,683		100.0	%		179,455

Corporate bank loan portfolio ($ in thousands):


	Average							% of			Carrying
	Minimum			Face		Basis		Total			Value
Industry	Rating ⁽¹⁾	Number		Amount $		Amount $		Basis			Amount $
Real Estate	NR		1		17,811		16,208		9.6	%		16,208
Media	CCC-		2		110,710		39,763		23.6	%		39,763
Resorts	NR		1		125,947		95,947		56.9	%		95,947
Restaurant	B-		2		18,090		16,584		9.9	%		16,584

TOTAL/WA	CC		6		272,558		168,502		100.0	%		168,502

(1)	Ratings provided above were determined by third party rating agencies as of a particular date, may not be current and are subject to change at any time. The Company had no corporate assets that were on negative watch for possible downgrade as of June 30, 2011.

CONFERENCE CALL

Newcastle’s management will conduct a live conference call today, August 5, 2011, at 11:00 A.M. Eastern Time to review the financial results for the second quarter ended June 30, 2011. A copy of the earnings press release is posted to the Investor Relations section of Newcastle’s website, www.newcastleinv.com

All interested parties are welcome to participate on the live call. You can access the conference call by dialing 1-888-243-2046 (from within the U.S.) or 1-706-679-1533 (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.

A telephonic replay of the conference call will also be available until 11:59 P.M. Eastern Time on Friday, August 12, 2011 by dialing 1-855-859-2056 (from within the U.S.) or 1-404-537-3406 (from outside of the U.S.); please reference access code “84152001.”

ABOUT NEWCASTLE

Newcastle Investment Corp. owns and manages a portfolio of diversified, credit sensitive real estate debt that is primarily financed with match funded debt. 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 investment management firm. For more information regarding Newcastle Investment Corp. or to be added to our e-mail distribution list, please visit www.newcastleinv.com.

FORWARD-LOOKING STATEMENTS

Certain items in this press release may constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, including, but not limited to, the expected average life of an investment, the expected returns, or expected yield on an investment, statements relating to our liquidity, future losses and impairment charges, 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 market conditions cause downgrades of a significant number of our securities or the recording of additional impairment charges or 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 Quarterly Report on Form 10-Q, which is 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.

CAUTIONARY NOTE REGARDING EXPECTED RETURNS AND EXPECTED YIELDS PRESENTED IN THIS PRESS RELEASE

Expected returns and expected yields are estimates of the annualized effective rate of return that we presently expect to be earned over the expected average life of an investment (i.e., IRR), after giving effect, in the case of returns, to existing leverage, and calculated on a weighted average basis. Expected returns and expected yields reflect our estimates of an investment’s coupon, amortization of premium or discount, and costs and fees, and they contemplate our assumptions regarding prepayments and loan losses, among other things. Income recognized by the Company in future periods may be significantly less than the income that would have been recognized if an expected return or expected yield were actually realized, and the estimates we use to calculate expected returns and expected yields could differ materially from actual results.

Statements about expected returns and expected yields in this press release are forward-looking statements. You should carefully read the cautionary statement above under the caption “Forward-looking Statements,” which directly applies to our discussion of expected returns and expected yields.

Newcastle Investment Corp.

Consolidated Statements of Operations (Unaudited)

(dollars in thousands, except per share data)


	Three Months Ended June 30,						Six Months Ended June 30,
	2011			2010			2011			2010
Interest income	$	74,143		$	74,183		$	146,346		$	144,275
Interest expense		35,750			43,141			73,915			88,730

Net interest income		38,393			31,042			72,431			55,545


Impairment (Reversal)
Valuation allowance (reversal) on loans		(14,555	)		(91,534	)		(55,862	)		(187,308	)
Other-than-temporary impairment on securities		5,784			33,925			8,896			98,781
Portion of other-than-temporary impairment on securities recognized in other comprehensive income (loss), net of reversal of other comprehensive loss into net income (loss)		(296	)		15,114			693			(22,000	)

		(9,067	)		(42,495	)		(46,273	)		(110,527	)


Net interest income after impairment/ reversal		47,460			73,537			118,704			166,072

Other Income (Loss)
Gain (loss) on settlement of investments, net		35,606			8,954			69,698			18,631
Gain on extinguishment of debt		33,443			46,728			44,485			95,074
Other income (loss), net		(10,160	)		(2,298	)		(9,825	)		(3,778	)

		58,889			53,384			104,358			109,927


Expenses
Loan and security servicing expense		1,200			1,322			2,260			2,357
General and administrative expense		1,649			2,000			3,250			5,101
Management fee to affiliate		4,555			4,258			8,744			8,735

		7,404			7,580			14,254			16,193


Income from continuing operations		98,945			119,341			208,808			259,806
Income (loss) from discontinued operations		190			13			—			(27	)

Net Income		99,135			119,354			208,808			259,779
Preferred dividends		(1,395	)		(1,395	)		(2,790	)		(4,663	)
Excess of carrying amount of exchanged preferred stock over fair value of consideration paid		—			—			—			43,043

Income Available for Common Stockholders	$	97,740		$	117,959		$	206,018		$	298,159


Income Per Share of Common Stock
Basic	$	1.23		$	1.90		$	2.90		$	5.16

Diluted	$	1.23		$	1.90		$	2.90		$	5.16


Income from continuing operations per share of common stock, after preferred dividends and excess of carrying amount of exchanged preferred stock over fair value of consideration paid
Basic	$	1.23		$	1.90		$	2.90		$	5.16

Diluted	$	1.23		$	1.90		$	2.90		$	5.16


Income (loss) from discontinued operations per share of common stock
Basic	$	—		$	—		$	—		$	—

Diluted	$	—		$	—		$	—		$	—


Weighted Average Number of Shares of Common Stock Outstanding
Basic		79,282,480			62,010,570			70,988,410			57,838,286

Diluted		79,282,480			62,010,570			70,992,828			57,838,286


Dividends Declared per Share of Common Stock	$	0.10		$	—		$	0.10		$	—

Newcastle Investment Corp.

Consolidated Balance Sheets

(dollars in thousands)


	June 30, 2011 (Unaudited)			December 31, 2010
Assets

Non-Recourse VIE Financing Structures
Real estate securities, available for sale	$	1,585,960		$	1,859,984
Real estate related loans, held for sale, net		793,083			750,130
Residential mortgage loans, held for investment, net		306,505			124,974
Residential mortgage loans, held for sale, net		47,305			252,915
Subprime mortgage loans subject to call option		404,239			403,793
Operating real estate, held for sale		8,335			8,776
Other investments		18,883			18,883
Restricted cash		171,255			157,005
Derivative assets		5,534			7,067
Receivables from brokers, dealers and clearing organizations		4,118			—
Receivables and other assets		23,605			29,206

		3,368,822			3,612,733

Recourse Financing Structures and Unlevered Assets
Real estate securities, available for sale		197,678			600
Real estate related loans, held for sale, net		6,634			32,475
Residential mortgage loans, held for sale, net		3,371			298
Other investments		6,024			6,024
Cash and cash equivalents		100,838			33,524
Receivables and other assets		3,435			1,457

		317,980			74,378

	$	3,686,802		$	3,687,111


Liabilities and Stockholders’ Equity (Deficit)
Liabilities
Non-Recourse VIE Financing Structures
CDO bonds payable	$	2,451,880		$	3,010,868
Other bonds and notes payable		219,959			261,165
Repurchase agreements		10,829			14,049
Financing of subprime mortgage loans subject to call option		404,239			403,793
Derivative liabilities		126,501			176,861
Payables to brokers, dealers and clearing organizations		38,487			—
Accrued expenses and other liabilities		9,114			8,445

		3,261,009			3,875,181


Recourse Financing Structures and Other Liabilities
Repurchase agreements		107,216			4,683
Junior subordinated notes payable		51,251			51,253
Dividends payable		8,860			—
Due to affiliates		1,518			1,419
Payables to brokers, dealers and clearing organizations		85,278			—
Accrued expenses and other liabilities		2,303			2,160

		256,426			59,515

		3,517,435			3,934,696


Stockholders’ Equity (Deficit)
Preferred stock, $0.01 par value, 100,000,000 shares authorized, 1,347,321 shares of 9.75% Series B Cumulative Redeemable Preferred Stock 496,000 shares of 8.05% Series C Cumulative Redeemable Preferred Stock, and 620,000 shares of 8.375% Series D Cumulative Redeemable Preferred Stock, liquidation preference $25.00 per share, issued and outstanding as of June 30, 2011 and December 31, 2010		61,583			61,583
Common stock, $0.01 par value, 500,000,000 shares authorized, 79,300,197 and 62,027,184 shares issued and outstanding at June 30, 2011 and December 31, 2010, respectively		793			620
Additional paid-in capital		1,163,726			1,065,377
Accumulated deficit		(1,089,548	)		(1,328,987	)
Accumulated other comprehensive income (loss)		32,813			(46,178	)

		169,367			(247,585	)

	$	3,686,802		$	3,687,111

Newcastle Investment Corp.

Consolidated Statements of Cash Flows (Unaudited)

(dollars in thousands)


	Three Months Ended June 30,						Six Months Ended June 30,
	2011			2010			2011			2010
Cash flows From Operating Activities
Net income	$	99,135		$	119,354		$	208,808		$	259,779
Adjustment to reconcile net income to net cash provided by (used in)
operating activities (inclusive of amounts related to discontinued operations):
Depreciation and amortization		91			62			137			125
Accretion of discount and other amortization		(11,036	)		(7,196	)		(21,807	)		(8,377	)
Interest income in CDOs redirected for reinvestment or CDO bonds paydown		(2,855	)		(3,604	)		(6,579	)		(12,705	)
Interest income on investments accrued to principal balance		(4,763	)		(3,789	)		(9,298	)		(3,789	)
Interest expense on debt accrued to principal balance		104			715			514			1,645
Deferred Interest received		—			44			1,027			44
Non-cash directors’ compensation		122			60			122			60
Reversal of valuation allowance on loans		(14,555	)		(91,534	)		(55,862	)		(187,308	)
Other-than-temporary impairment on securities		5,488			49,039			9,589			76,781
Impairment on real estate held for sale		—			60			433			60
Gain on settlement of investments, net		(35,608	)		(8,954	)		(68,766	)		(18,631	)
Unrealized loss on non-hedge derivatives and hedge ineffectiveness		10,993			2,550			11,194			4,299
Gain on extinguishment of debt		(33,443	)		(46,728	)		(44,485	)		(95,074	)
Change in:
Restricted cash		136			3,713			245			3,018
Receivables and other assets		1,116			621			1,076			2,967
Due to affiliates		167			(63	)		99			(78	)
Accrued expenses and other liabilities		(12	)		(2,090	)		(73	)		(1,346	)

Net cash provided by (used in) operating activities		15,080			12,260			26,374			21,470


Cash Flows From Investing Activities
Purchase of real estate securities		(90,644	)		(2,288	)		(180,245	)		(2,291	)
Proceeds from sale of real estate securities		3,885			—			3,885			26,022
Acquisition of servicing rights		(186	)		—			(2,268	)		—
Principal repayments on loans and securities other than third-party CDO		14,328			29,313			51,933			45,083
Principal repayments on third-party CDO securities		8,865			—			8,865			—
Principal repayments from repurchased CDO debt		39,155			28			48,881			53
Margin received on derivative instruments		—			—			—			5,073
Payments on settlement of derivative instruments		(14,322	)		(7,726	)		(14,322	)		(11,394	)
Distributions of capital from equity method investees		—			7			—			159

Net cash provided by (used in) investing activities		(38,919	)		19,334			(83,271	)		62,705


Cash flows From Financing Activities
Repurchase of CDO bonds payable		(85,981	)		(9,783	)		(87,064	)		(9,927	)
Issuance of other bonds payable		142,736			97,650			142,736			97,650
Repayments of other bonds payable		(173,782	)		(112,758	)		(184,242	)		(124,104	)
Borrowings under repurchase agreements		28,598			—			108,576			—
Repayments of repurchase agreements		(6,356	)		(12,889	)		(9,263	)		(71,309	)
Issuance of common stock		—			—			98,843			—
Costs related to issuance of common stock		(410	)		—			(468	)		—
Cash consideration paid in exchange for junior subordinated notes		—			—			—			(9,715	)
Cash consideration paid to redeem preferred stock		—			—			—			(16,001	)
Dividends paid		(1,396	)		(542	)		(5,581	)		(19,484	)
Payment of deferred financing costs		(1,546	)		(1,677	)		(1,546	)		(1,677	)
Restricted cash returned from refinancing activities		62,220			34,251			62,220			39,776

Net cash provided by (used in) financing activities		(35,917	)		(5,748	)		124,211			(114,791	)


Net Increase (Decrease) in Cash and Cash Equivalents		(59,756	)		25,846			67,314			(30,616	)
Cash and Cash Equivalents, Beginning of Period		160,594			11,838			33,524			68,300

Cash and Cash Equivalents, End of Period	$	100,838		$	37,684		$	100,838		$	37,684


Supplemental Disclosure of Cash Flow Information
Cash paid during the period for interest expense	$	24,410		$	33,440		$	53,169		$	65,946

Supplemental Schedule of Non-Cash Investing and Financing Activities
Common stock dividends declared but not paid	$	7,930		$	—		$	7,930		$	—
Preferred stock dividends declared but not paid	$	930		$	—		$	930		$	—
Common stock issued to redeem preferred stock	$	—		$	—		$	—		$	28,457
Face amount of CDO bonds issued in exchange for previously issued junior subordinated notes of $52,904	$	—		$	—		$	—		$	37,625
Securities purchased not yet settled	$	85,278		$	—		$	85,278		$	—

Newcastle Investment Corp.

Reconciliation of Net Interest Income Less Expenses (Net of Preferred Dividends)

(dollars in thousands)


	Three Months Ended June 30,						Six Months Ended June 30,
	2011			2010			2011			2010
Income available for common stockholders	$	97,740		$	117,959		$	206,018		$	298,159
Add (Deduct):
Impairment reversal		(9,067	)		(42,495	)		(46,273	)		(110,527	)
Other income		(58,889	)		(53,384	)		(104,358	)		(109,927	)
Excess of carrying amount of exchanged preferred stock over fair value of consideration paid		—			—			—			(43,043	)
Income (Loss) from discontinued operations		(190	)		(13	)		—			27

	$	29,594		$	22,067		$	55,387		$	34,689

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