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Section 1: 8-K (FORM 8-K)


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

FORM 8-K

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

Date of Report (Date of earliest event reported): November 1, 2017

Drive Shack Inc.
(Exact name of registrant as specified in its charter)


Maryland
(State or other jurisdiction of incorporation)

 001-31458
81-0559116
(Commission File Number)
(IRS Employer Identification No.)
   
1345 Avenue of the Americas, 45th Floor New York, New York
10105
(Address of principal executive offices)
(Zip Code)

Registrant’s telephone number, including area code (212) 798-6100

N/A
(Former name or former address, if changed since last report.)

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General Instruction A.2. below):

Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)
Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))
Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (17 CFR §230.405) or Rule 12b-2 of the Securities Exchange Act of 1934 (17 CFR §240.12b-2).

Emerging growth company 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.  ☐




Item 2.02.
Results of Operations and Financial Condition.
On November 1, 2017, Drive Shack Inc. (the “Company”) issued a press release announcing the Company’s results for its fiscal quarter ended September 30, 2017. A copy of the Company’s press release is attached to this Current Report on Form 8-K (the “Current Report”) as Exhibit 99.1 and is incorporated herein solely for purposes of this Item 2.02 disclosure.

This Current Report, including the exhibit attached hereto, is being furnished and shall not be deemed to be filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), or otherwise subject to the liabilities of that section, nor shall it be incorporated by reference into any of the Company’s filings under the Securities Act of 1933, as amended, or the Exchange Act, unless expressly set forth as being incorporated by reference into such filing.

Item 9.01.
Financial Statements and Exhibits.

(d)          Exhibits

Exhibit Number
 
Description
     
99.1
 
Press release, dated November 1, 2017, issued by Drive Shack Inc.


 
EXHIBIT INDEX
 
Exhibit Number
 
Description
     
 
Press release, dated November 1, 2017, issued by Drive Shack Inc.
 

 
SIGNATURE

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.


   
DRIVE SHACK INC.
 
(Registrant)
 
   
/s/ Lawrence A. Goodfield, Jr.
 
Lawrence A. Goodfield, Jr.
 
Chief Financial Officer, Chief Accounting Officer & Treasurer
 

Date:  November 1, 2017
 

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Section 2: EX-99.1 (EXHIBIT 99.1)


Exhibit 99.1
 

Investor Relations
212-479-3195

DRIVE SHACK INC. ANNOUNCES THIRD QUARTER 2017 RESULTS AND DECLARES FOURTH QUARTER 2017 PREFERRED STOCK DIVIDENDS

NEW YORK—(BUSINESS WIRE) — November 1, 2017 — Drive Shack Inc. (NYSE: DS; the “Company”) today reported the following information for the quarter ended September 30, 2017.

BUSINESS HIGHLIGHTS

§
Drive Shack The Company continues to develop its first venue in Orlando, Florida, which is targeted to open in 1Q 2018.
o
The Company has announced four other venues to date, which are in various stages of development, and continues to assess a national and global pipeline of locations.

§
American Golf – As of September 30, 2017, the Company owned, leased or managed 77 golf properties across 13 states, over 75% of which are located in the top 20 Metropolitan Statistical Areas (MSAs).
o
On a same-store basis, excluding managed courses, the traditional golf business ended the third quarter with approximately 43,000 The Players Club members for public properties, an increase of approximately 5,000 members over the end of the third quarter of the prior year.
o
On the private side of the business, there were approximately 9,000 full golf members at the end of 3Q 2017 representing an increase of 310 members from the third quarter of the prior year. Average annual dues per full golf private member increased by $203 since 3Q 2016, on a same-store basis, to $6,005.

§
Real Estate Debt Portfolio During 3Q 2017, the Company received the final pay down on the Intrawest-related loan in the amount of approximately $70 million, and received approximately $12 million of net proceeds related to sale and pay down of remaining agency securities.

THIRD QUARTER 2017 FINANCIAL RESULTS
§
GAAP (Loss) Income of $(2) million, or $(0.03) per share, compared to $19 million, or $0.28 per share, in 3Q 2016.
o
Year-over-year decrease is primarily due to lower interest income on the Intrawest-related loan, related to a $110 million pay down in 3Q 2016 and a $70 million pay down in 3Q 2017.
§
Core Earnings of $9 million, or $0.13 per share, compared to $23 million, or $0.35 per share, in 3Q 2016.

 
3Q 2017
3Q 2016
  GAAP (Loss) Income
$(2) million
$19 million
  GAAP (Loss) Income per WA Basic Share
$(0.03)
$0.28
     
Non-GAAP Results:
   
  Core Earnings*
$9 million
$23 million
  Core Earnings per WA Basic Share*
$0.13
$0.35

WA:  Weighted Average

*For reconciliations of GAAP (Loss) Income to Core Earnings, please refer to the Reconciliation of Core Earnings below.

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FOURTH QUARTER 2017 PREFERRED STOCK DIVIDENDS

Drive Shack Inc.’s Board of Directors declared dividends on the Company's preferred stock for the period beginning November 1, 2017 and ending January 31, 2018. The dividends are payable on January 31, 2018 to stockholders of record on January 2, 2018. The Company will pay dividends of $0.609375, $0.503125 and $0.523438 per share on the 9.750% Series B, 8.050% Series C and 8.375% Series D preferred stock, respectively.

ADDITIONAL INFORMATION
For additional information that management believes to be useful for investors, please refer to the presentation posted on the Investor Relations section of the Company’s website, www.driveshack.com. For consolidated investment portfolio information, please refer to the Company’s most recent Annual Report on Form 10-K and Quarterly Report on Form 10-Q, which are available on the Company’s website, www.driveshack.com.

EARNINGS CONFERENCE CALL
The Company’s management will host a conference call on Wednesday, November 1, 2017 at 9:00 A.M. Eastern Time. A copy of the earnings release will be posted to the Investor Relations section of Drive Shack Inc.’s website, www.driveshack.com.

All interested parties are welcome to participate on the live call. The conference call may be accessed by dialing 1-866-913-6930 (from within the U.S.) or 1-409-983-9881 (from outside of the U.S.) ten minutes prior to the scheduled start of the call; please reference conference ID “8283737.”

A simultaneous webcast of the conference call will be available to the public on a listen-only basis at www.driveshack.com. Please allow extra time prior to the call to visit the website and download any necessary software required to listen to the internet broadcast.

A telephonic replay of the conference call will also be available three hours following the call’s completion through 11:59 P.M. Eastern Time on Wednesday, November 15, 2017 by dialing 1-800-585-8367 (from within the U.S.) or 1-404-537-3406 (from outside of the U.S.); please reference conference ID “8283737.”

2

 
Consolidated Statements of Operations (Unaudited)
($ in thousands, except share data)
 
 
 
Three Months Ended
September 30,
   
Nine Months Ended
September 30,
 
   
2017
   
2016
   
2017
   
2016
 
Revenues
                       
Golf course operations
 
$
62,034
   
$
63,249
   
$
168,969
   
$
174,718
 
Sales of food and beverages
   
19,657
     
19,913
     
53,223
     
55,086
 
Total revenues
   
81,691
     
83,162
     
222,192
     
229,804
 
Operating costs
                               
Operating expenses
   
67,385
     
69,251
     
187,730
     
195,670
 
Cost of sales - food and beverages
   
5,721
     
6,026
     
15,762
     
17,139
 
General and administrative expense
   
4,328
     
3,688
     
11,115
     
10,348
 
Management fee to affiliate
   
2,678
     
2,676
     
8,032
     
8,027
 
Depreciation and amortization
   
6,187
     
6,735
     
17,952
     
19,250
 
Impairment
   
28
     
611
     
60
     
3,564
 
Realized and unrealized (gain) loss on investments
   
(315
)
   
(6,605
)
   
6,361
     
(3,136
)
Total operating costs
   
86,012
     
82,382
     
247,012
     
250,862
 
Operating (loss) income
   
(4,321
)
   
780
     
(24,820
)
   
(21,058
)
Other income (expenses)
                               
Interest and investment income
   
8,418
     
32,310
     
22,701
     
73,770
 
Interest expense, net
   
(4,770
)
   
(13,138
)
   
(15,335
)
   
(39,089
)
Gain on deconsolidation
   
     
     
     
82,130
 
Other income, net
   
202
     
505
     
372
     
1,339
 
Total other income (expenses)
   
3,850
     
19,677
     
7,738
     
118,150
 
(Loss) Income before income tax
   
(471
)
   
20,457
     
(17,082
)
   
97,092
 
Income tax (benefit) expense
   
(2
)
   
(38
)
   
1,047
     
144
 
Net (Loss) Income
   
(469
)
   
20,495
     
(18,129
)
   
96,948
 
Preferred dividends
   
(1,395
)
   
(1,395
)
   
(4,185
)
   
(4,185
)
Net income attributable to noncontrolling interest
   
     
(177
)
   
     
(165
)
(Loss) Income Applicable to Common Stockholders
 
$
(1,864
)
 
$
18,923
   
$
(22,314
)
 
$
92,598
 
(Loss) Income Applicable to Common Stock, per share
                               
Basic
 
$
(0.03
)
 
$
0.28
   
$
(0.33
)
 
$
1.39
 
Diluted
 
$
(0.03
)
 
$
0.27
   
$
(0.33
)
 
$
1.35
 
Weighted Average Number of Shares of Common Stock Outstanding
                               
Basic
   
66,932,744
     
66,730,583
     
66,883,291
     
66,688,962
 
Diluted
   
66,932,744
     
69,072,676
     
66,883,291
     
68,753,532
 
Dividends Declared per Share of Common Stock
 
$
   
$
0.12
   
$
   
$
0.24
 

3

 
Consolidated Balance Sheets
($ in thousands, except share data)
 
 
September 30,
2017
(Unaudited)
   
December 31,
2016
 
Assets
           
Current Assets
           
Cash and cash equivalents
 
$
182,371
   
$
140,140
 
Restricted cash
   
4,629
     
4,992
 
Accounts receivable, net
   
8,540
     
8,047
 
Real estate securities, available-for-sale
   
2,236
     
629,254
 
Other current assets
   
22,540
     
78,687
 
Total Current Assets
   
220,316
     
861,120
 
Restricted cash, noncurrent
   
1,407
     
1,412
 
Property and equipment, net of accumulated depreciation
   
226,049
     
217,611
 
Intangibles, net of accumulated amortization
   
59,309
     
65,112
 
Other investments
   
20,601
     
19,256
 
Other assets
   
8,433
     
7,447
 
Total Assets
 
$
536,115
   
$
1,171,958
 
                 
Liabilities and Equity
               
Current Liabilities
               
Obligations under capital leases
 
$
4,484
   
$
3,699
 
Membership deposit liabilities
   
8,830
     
8,491
 
Repurchase agreements
   
     
600,964
 
Accounts payable and accrued expenses
   
33,672
     
26,249
 
Deferred revenue
   
9,955
     
29,851
 
Other current liabilities
   
21,753
     
28,968
 
Total Current Liabilities
   
78,694
     
698,222
 
Credit facilities and obligations under capital leases
   
112,383
     
111,585
 
Junior subordinated notes payable
   
51,210
     
51,217
 
Membership deposit liabilities, noncurrent
   
84,896
     
80,549
 
Deferred revenue, noncurrent
   
6,900
     
6,256
 
Other liabilities
   
5,724
     
6,062
 
Total Liabilities
 
$
339,807
   
$
953,891
 
                 
Commitments and contingencies
               
                 
Equity
               
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 September 30, 2017 and December 31, 2016
 
$
61,583
   
$
61,583
 
                 
                 
Common stock, $0.01 par value, 1,000,000,000 shares authorized, 66,932,744 and 66,824,304 shares issued and outstanding at September 30, 2017 and December 31, 2016, respectively
   
669
     
668
 
Additional paid-in capital
   
3,173,095
     
3,172,720
 
Accumulated deficit
   
(3,040,386
)
   
(3,018,072
)
Accumulated other comprehensive income
   
1,347
     
1,168
 
Total Equity
 
$
196,308
   
$
218,067
 
                 
Total Liabilities and Equity
 
$
536,115
   
$
1,171,958
 

4



Reconciliation of Core Earnings
($ in thousands)
   
Three Months Ended September 30,
 
   
2017
   
2016
 
(Loss) Income applicable to common stockholders
 
$
(1,864
)
 
$
18,923
 
Add (Deduct):
               
Impairment
   
28
     
611
 
Realized and unrealized gain on investments
   
(315
)
   
(6,605
)
Other loss (income)(A)
   
185
     
(121
)
Depreciation and amortization(B)
   
8,826
     
9,259
 
Acquisition, transaction, restructuring and spin-off related expenses(C)
   
1,953
     
1,093
 
Core earnings
 
$
8,813
   
$
23,160
 


(A)
Other (loss) income reconciliation:

   
Three Months Ended September 30,
 
   
2017
   
2016
 
Total other income (loss)
 
$
3,850
   
$
19,677
 
Add (deduct):
               
Equity in earnings from equity method investees
   
(387
)
   
(384
)
Interest and investment income
   
(8,418
)
   
(32,310
)
Interest expense, net
   
4,770
     
13,138
 
Other (loss) income
 
$
(185
)
 
$
121
 

(B)
Including accretion of membership deposit liabilities of $1.6 million and amortization of favorable and unfavorable leasehold intangibles of $1.0 million in the three months ended September 30, 2017. Including accretion of membership deposit liabilities of $1.4 million and amortization of favorable and unfavorable leasehold intangibles of $1.1 million in the three months ended September 30, 2016. The accretion of membership deposit liabilities was recorded to interest expense, net and the amortization of favorable and unfavorable leasehold intangibles was recorded to operating expenses.

(C)
Including acquisition and transaction expenses of $1.9 million and restructuring expenses of less than $0.1 million during the three months ended September 30, 2017. Including acquisition and transaction expenses of $1.1 million and restructuring expenses of zero during the three months ended September 30, 2016. The acquisition and transaction costs were recorded to general and administrative expense and restructuring expenses were recorded to operating expenses. Excludes costs associated with Hurricane Irma damage.

CORE EARNINGS
The following primary variables impact our operating performance: (i) the current yield earned on our investments that are not included in non-recourse financing structures (i.e., unlevered investments, including investments in equity method investees and investments subject to recourse debt), (ii) the net yield we earn from our non-recourse financing structures, (iii) the interest expense and dividends incurred under our recourse debt and preferred stock, (iv) the net operating income on our real estate and golf investments, (v) our operating expenses and (vi) our realized and unrealized gains or losses, net of related provision for income taxes, including any impairment, on our investments, derivatives and debt obligations. Core earnings is a non-GAAP measure of our operating performance excluding the sixth variable listed above. Core earnings also excludes depreciation and amortization charges, including the accretion of membership deposit liabilities and the impact of the application of acquisition accounting, acquisition and spin-off related expenses and restructuring expenses. Core earnings is used by management to evaluate our  performance without taking into account gains and losses, net of related provision for income taxes, which, although they represent a part of our recurring operations, are subject to significant variability and are only a potential indicator of future performance. These adjustments to our (loss) income applicable to common stockholders are not indicative of the performance of the assets that form the core of our activity.
5


Management utilizes core earnings as a measure in its decision-making process relating to the underlying fundamental operations of our investments, as well as the allocation of resources between those investments, and management also relies on core earnings as an indicator of the results of such decisions.  As such, core earnings is not intended to reflect all of our activity and should be considered as only one of the factors in assessing our performance, along with GAAP net (loss) income, which is inclusive of all of our activities.  Management also believes that the exclusion from core earnings of the items specified above allows investors and analysts to readily identify and track the operating performance of the assets that form the core of our activity, assists in comparing the core operating results between periods, and enables investors to evaluate our current core performance using the same measure that management uses to operate the business.

Core earnings does not represent an alternative to net (loss) income as an indicator of our operating performance or as an alternative to cash flows from operating activities as a measure of our liquidity, and is not indicative of cash available to fund cash needs. Our calculation of core earnings may be different from the calculation used by other companies and, therefore, comparability may be limited.

ABOUT DRIVE SHACK INC.
Drive Shack Inc. is a leading owner and operator of golf-related leisure and entertainment businesses. Drive Shack Inc. is managed by an affiliate of Fortress Investment Group LLC, a global investment management firm.

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 statements regarding the Company’s targets and expectations regarding Drive Shack’s venue in Orlando, Florida, and other venues in the national and global pipeline of locations. 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 Drive Shack’s control. The Company can give no assurance that its expectations will be attained. 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 cause actual results to differ from such forward-looking statements, see the sections entitled “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in the Company’s most recent Annual Report on Form 10-K and most recent Quarterly Report on Form 10-Q.  Furthermore, 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. The Company 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.

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