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Section 1: 10-Q (10-Q)

Document
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549 
FORM 10-Q
x
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2017
or
o
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 
Drive Shack Inc.
(Exact name of registrant as specified in its charter)
Maryland
 
81-0559116
(State or other jurisdiction of incorporation
 
(I.R.S. Employer Identification No.)
or organization)
 
 
1345 Avenue of the Americas, New York, NY
 
10105
(Address of principal executive offices)
 
(Zip Code)
(212) 798-6100
(Registrant’s telephone number, including area code)
(Former name, former address and former fiscal year, if changed since last report)
 
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 S No £
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulations S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
S Yes  No £ 
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer £ Accelerated filer S Non-accelerated filer £ (Do not check if a smaller reporting company)
Smaller reporting company £ 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. £
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes £ No S
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: 66,963,566 shares outstanding as of October 25, 2017.



CAUTIONARY NOTE REGARDING FORWARD LOOKING STATEMENTS

This report contains certain “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. Such forward-looking statements relate to, among other things, the operating performance of our investments, the stability of our earnings, and our financing needs. Forward-looking statements are generally identifiable by use of forward-looking terminology such as “may,” “will,” “should,” “potential,” “intend,” “expect,” “endeavor,” “seek,” “anticipate,” “estimate,” “overestimate,” “underestimate,” “believe,” “could,” “project,” “predict,” “continue” or other similar words or expressions. Forward-looking statements are based on certain assumptions, discuss future expectations, describe future plans and strategies, contain projections of results of operations or of financial condition or state other forward-looking information. Our ability to predict results or the actual outcome of future plans or strategies is inherently uncertain. Although we believe that the expectations reflected in such forward-looking statements are based on reasonable assumptions, our actual results and performance could differ materially from those set forth in the forward-looking statements. These forward-looking statements involve risks, uncertainties and other factors that may cause our actual results in future periods to differ materially from forecasted results. Factors which could have a material adverse effect on our operations and future prospects include, but are not limited to:

the ability to retain and attract members to our golf properties;
changes in global, national and local economic conditions, including, but not limited to, changes in consumer spending patterns, a prolonged economic slowdown and a downturn in the real estate market;
effects of unusual weather patterns and extreme weather events, geographical concentrations with respect to our operations and seasonality of our business;
competition within the industries in which we operate or may pursue additional investments, including competition for sites for our Entertainment Golf venues;
material increases in our expenses, including but not limited to unanticipated labor issues or costs with respect to our workforce, and costs of goods, utilities and supplies;
our inability to sell or exit certain properties, and unforeseen changes to our ability to develop, redevelop or renovate certain properties;
our ability to further invest in our business and implement our strategies;
difficulty monetizing our real estate debt investments;
liabilities with respect to inadequate insurance coverage, accidents or injuries on our properties, adverse litigation judgments or settlements, or membership deposits;
changes to and failure to comply with relevant regulations and legislation, including in order to maintain certain licenses and permits, and environmental regulations in connection with our operations;
inability to execute on our growth and development strategy by successfully developing, opening and operating new venues;
impacts of failures of our information technology and cybersecurity systems;
the impact of any current or further legal proceedings and regulatory investigations and inquiries;
the impact of any material transactions with FIG LLC (the “Manager”) or one of its affiliates, including the impact of any actual, potential or predicted conflicts of interest;
effects of the pending merger of Fortress Investment Group LLC with affiliates of SoftBank Group Corp.; and
other risks detailed from time to time below, particularly under the heading “Risk Factors,” and in our other reports filed with or furnished to the Securities and Exchange Commission (the “SEC”).

Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, levels of activity, performance or achievements. The factors noted above could cause our actual results to differ significantly from those contained in any forward-looking statement.

Readers are cautioned not to place undue reliance on any of these forward-looking statements, which reflect our management’s views only as of the date of this report. We are under no duty to update any of the forward-looking statements after the date of this report to conform these statements to actual results.



SPECIAL NOTE REGARDING EXHIBITS
 
In reviewing the agreements included as exhibits to this Quarterly Report on Form 10-Q, please remember they are included to provide you with information regarding their terms and are not intended to provide any other factual or disclosure information about Drive Shack Inc. (the “Company”) or the other parties to the agreements.  The agreements contain representations and warranties by each of the parties to the applicable agreement.  These representations and warranties have been made solely for the benefit of the other parties to the applicable agreement and:
 
should not in all instances be treated as categorical statements of fact, but rather as a way of allocating the risk to one of the parties if those statements prove to be inaccurate;
have been qualified by disclosures that were made to the other party in connection with the negotiation of the applicable agreement, which disclosures are not necessarily reflected in the agreement;
may apply standards of materiality in a way that is different from what may be viewed as material to you or other investors; and
were made only as of the date of the applicable agreement or such other date or dates as may be specified in the agreement and are subject to more recent developments.

Accordingly, these representations and warranties may not describe the actual state of affairs as of the date they were made or at any other time.  Additional information about the Company may be found elsewhere in this Quarterly Report on Form 10-Q and the Company’s other public filings, which are available without charge through the SEC’s website at http://www.sec.gov.
 
The Company acknowledges that, notwithstanding the inclusion of the foregoing cautionary statements, it is responsible for considering whether additional specific disclosures of material information regarding material contractual provisions are required to make the statements in this report not misleading.
 





DRIVE SHACK INC.  
FORM 10-Q
 
INDEX
 
 
PAGE
PART I.   FINANCIAL INFORMATION
 
 
 
 
 
 
Item 1.   
Financial Statements
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 




 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 




DRIVE SHACK INC. AND SUBSIDIARIES
 
CONSOLIDATED BALANCE SHEETS
(dollars 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

 
See notes to Consolidated Financial Statements.

1



DRIVE SHACK INC. AND SUBSIDIARIES
 
CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)
(dollars 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



See notes to Consolidated Financial Statements.

2



DRIVE SHACK INC. AND SUBSIDIARIES
 
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) (Unaudited)
(dollars in thousands, except share data)
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
2017
 
2016
 
2017
 
2016
Net (loss) income
$
(469
)
 
$
20,495

 
$
(18,129
)
 
$
96,948

Other comprehensive income (loss):
 

 
 

 
 

 
 

Net unrealized gain on available-for-sale securities
1,257

 
894

 
2,524

 
8,696

Reclassification of net realized gain on securities into earnings
(2,345
)
 
(10,080
)
 
(2,345
)
 
(18,506
)
Reclassification of net realized gain on deconsolidation of CDO VI

 

 

 
(20,682
)
Reclassification of net realized gain on derivatives designated as cash flow hedges into earnings

 

 

 
(20
)
Other comprehensive (loss) income
(1,088
)
 
(9,186
)
 
179

 
(30,512
)
Total comprehensive (loss) income
$
(1,557
)
 
$
11,309

 
$
(17,950
)
 
$
66,436

Comprehensive (loss) income attributable to Drive Shack Inc. stockholders’ equity
$
(1,557
)
 
$
11,132

 
$
(17,950
)
 
$
66,271

Comprehensive income attributable to noncontrolling interest
$

 
$
177

 
$

 
$
165

  
See notes to Consolidated Financial Statements.

3



DRIVE SHACK INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENT OF EQUITY (Unaudited)
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2017
(dollars in thousands, except share data)
 
Drive Shack Inc. Stockholders
 
 
Preferred Stock
 
Common Stock
 

 

 

 

 
Shares
 
Amount
 
Shares
 
Amount
 
Additional Paid-
in Capital
 
Accumulated
Deficit
 
Accumulated Other Comp.
Income (Loss)
 
Total Equity
(Deficit)
Equity (deficit) - December 31, 2016
2,463,321

 
$
61,583

 
66,824,304

 
$
668

 
$
3,172,720

 
$
(3,018,072
)
 
$
1,168

 
$
218,067

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Dividends declared

 

 

 

 

 
(4,185
)
 

 
(4,185
)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Issuance of common stock (directors)

 

 
108,440

 
1

 
375

 

 

 
376

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Comprehensive income (loss)


 


 


 


 


 


 


 


 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net loss

 

 

 

 

 
(18,129
)
 

 
(18,129
)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Other comprehensive income

 

 

 

 

 

 
179

 
179

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Total comprehensive loss
 
 
 
 
 
 
 
 
 
 
 
 
 
 
(17,950
)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Equity (deficit) - September 30, 2017
2,463,321

 
$
61,583

 
66,932,744

 
$
669

 
$
3,173,095

 
$
(3,040,386
)
 
$
1,347

 
$
196,308


See notes to Consolidated Financial Statements.

4




DRIVE SHACK INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
(dollars in thousands, except share data)
 
Nine Months Ended September 30,
 
2017
 
2016
Cash Flows From Operating Activities
 
 
 
Net (loss) income
$
(18,129
)
 
$
96,948

Adjustments to reconcile net (loss) income to net cash used in operating activities:
 

 
 

Depreciation and amortization
17,952

 
19,250

Amortization of discount and premium
(3,856
)
 
(8,156
)
Other amortization
7,889

 
7,998

Net interest income on investments accrued to principal balance
(8,458
)
 
(25,570
)
Amortization of revenue on golf membership deposit liabilities
(963
)
 
(646
)
Amortization of prepaid golf membership dues
(20,017
)
 
(20,951
)
Non-cash directors’ compensation
376

 
351

Impairment
60

 
3,564

Equity in earnings from equity method investments, net of distributions
(1,149
)
 
(1,129
)
Gain on deconsolidation

 
(82,130
)
Loss (Gain) on settlement of investments, net
5,368

 
(5,146
)
Unrealized loss on securities, intent-to-sell
558

 

Unrealized loss on non-hedge derivatives
688

 
1,702

Loss on extinguishment of debt
327

 
607

Change in:
 

 
 

Restricted cash
368

 
(2,487
)
Accounts receivable, net, other current assets and other assets - noncurrent
(1,053
)
 
(4,307
)
Accounts payable and accrued expenses, deferred revenue, other current liabilities and other liabilities - noncurrrent
5,405

 
5,405

Net cash used in operating activities
(14,634
)
 
(14,697
)
Cash Flows From Investing Activities
 

 
 

Principal repayments from investments
100,020

 
133,756

Purchase of real estate securities

 
(1,618,090
)
Proceeds from sale of securities and loans
595,850

 
1,128,906

Net payments for settlement of TBAs
(4,669
)
 
(13,675
)
Acquisition and additions of property and equipment and intangibles
(16,905
)
 
(9,147
)
Deposits paid on property and equipment
(1,486
)
 

Contributions to equity method investees
(196
)
 

Net cash provided by (used in) investing activities
672,614

 
(378,250
)
Cash Flows From Financing Activities
 
 
 
Borrowings under debt obligations
1,651

 
1,670,481

Repayments of debt obligations
(605,469
)
 
(1,158,754
)
Margin deposits under repurchase agreements and derivatives
(89,692
)
 
(41,131
)
Return of margin deposits under repurchase agreements and derivatives
87,785

 
40,442

Golf membership deposits received
2,706

 
3,117

Common stock dividends paid
(8,019
)
 
(24,006
)
Preferred stock dividends paid
(4,185
)
 
(4,185
)
Payment of deferred financing costs
(22
)
 
(3,670
)
Other financing activities
(504
)
 
(709
)
Net cash (used in) provided by financing activities
(615,749
)
 
481,585

Net Increase in Cash and Cash Equivalents
42,231

 
88,638

Cash and Cash Equivalents, Beginning of Period
140,140

 
45,651

Cash and Cash Equivalents, End of Period
$
182,371

 
$
134,289

 
 
 
 
Supplemental Schedule of Non-Cash Investing and Financing Activities
 
 
 
Preferred stock dividends declared but not paid
$
930

 
$

Financing costs accrued but not paid
$

 
$
600

Additions to capital lease assets and liabilities
$
3,601

 
$
7,018

Additions to property and equipment and accounts payable
$
4,135

 
$

See notes to Consolidated Financial Statements. 

5

DRIVE SHACK INC. AND SUBSIDIARIES
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
SEPTEMBER 30, 2017
(dollars in tables in thousands, except share data)
 


1. ORGANIZATION
Drive Shack Inc. (and with its subsidiaries, “Drive Shack Inc.” or the “Company”) is a leading owner and operator of golf-related leisure and entertainment businesses. On December 28, 2016, the Company changed its name from Newcastle Investment Corp. to Drive Shack Inc. in connection with its transformation to a leisure and entertainment company. The Company, a Maryland corporation, was formed in 2002, and its common stock is traded on the NYSE under the symbol “DS.”
The Company conducts its business through the following segments: (i) Traditional Golf properties, (ii) Entertainment Golf venues, (iii) Debt Investments and (iv) corporate. For a further discussion of the reportable segments, see Note 3.
The Company’s Traditional Golf business is one of the largest owners and operators of golf properties in the United States. As of September 30, 2017, the Company owned, leased or managed 77 properties across 13 states. Additionally, the Company plans to open a chain of next-generation Entertainment Golf venues across the United States and internationally which combine golf, competition, dining and fun. As of September 30, 2017, the Company has substantially monetized the remaining loans and securities in its Debt Investments segment (see Notes 7 and 8).
On February 23, 2017, the Company revoked its election to be treated as a real estate investment trust (“REIT”), effective January 1, 2017. The Company operated in a manner intended to qualify as a REIT for federal income tax purposes through December 31, 2016.


2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation The accompanying Consolidated Financial Statements and related notes of the Company 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 (“GAAP”) have been condensed or omitted. In the opinion of management, all adjustments considered necessary for a fair presentation of the Company’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 the Company’s Consolidated Financial Statements for the year ended December 31, 2016 and notes thereto included in the Company’s Annual Report on Form 10-K filed with the SEC on March 2, 2017. Capitalized terms used herein, and not otherwise defined, are defined in the Company’s Consolidated Financial Statements for the year ended December 31, 2016.

Certain prior period amounts have been reclassified to conform to the current period’s presentation. In connection with the Company’s continued transformation from a financial services company to a leisure and entertainment company, including the announcement of the new management team in September 2016, the revocation of its REIT election effective January 1, 2017, as well as the monetization and planned exit of its real estate related debt positions, the Company’s Consolidated Statements of Operations were changed to reflect an operating company presentation in the fourth quarter of 2016. The Company has reclassified driving range revenue, including the monthly membership program offered at most of its public properties (“The Players Club’’) and miscellaneous revenue associated with operations from “Other revenue” to “Golf course operations.” The Company has reclassified expenses associated with the cost of merchandise sold from “Cost of sales - golf” to “Operating expenses.” The Company has added “Loan and security servicing expense” to “General and administrative expense.” The gains and losses associated with derivative instruments have been reclassified from “Other income (loss), net” to “Realized and unrealized (gain) loss on investments” to include balances as part of its operating income (loss).

As of September 30, 2017, the Company monetized and exited its significant real estate related debt positions, including the agency Fannie Mae/Freddie Mac (“FNMA/FHLMC’’) securities and received the final pay down on a corporate loan (“the resorts-related loan”). As such, the Company's Consolidated Balance Sheets have been revised to a classified balance sheet presentation, consistent with an operating company presentation, and certain prior period amounts have been reclassified to conform to the current period’s presentation. The Company has reclassified assets reasonably expected to be realized in cash during the normal operating cycle of the business as current assets and current liabilities are obligations whose liquidation is reasonably expected to require the use of existing resources properly classified as current assets. The Company has reclassified “Real estate securities, available-for-sale - pledged as collateral’’ to “Real estate securities, available-for-sale’’ given the substantial monetization of the available-for-sale

6

DRIVE SHACK INC. AND SUBSIDIARIES
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
SEPTEMBER 30, 2017
(dollars in tables in thousands, except share data)
 

securities. The Company reclassified “Real estate related and other loans, held-for-sale, net’’ and “Receivables from brokers, dealers and clearing organizations’’ to “Other current assets.” “Investments in real estate, net of accumulated depreciation” was renamed as “Property and equipment, net of accumulated depreciation” under the operating company presentation. The Company has reclassified “Dividends payable” to be included in “Other current liabilities.” The change to a classified balance sheet and the related aforementioned reclassifications have been made to simplify financial reporting as the Company has substantially exited its real estate related debt positions.

As of September 30, 2017, the Company’s significant accounting policies for these financial statements are summarized below and should be read in conjunction with the Summary of Significant Accounting Policies detailed in the Company’s Annual Report on Form 10-K for the year ended December 31, 2016.

REVENUE RECOGNITION

Golf Course Operations Revenue from green fees, cart rentals, merchandise sales and other operating activities (consisting primarily of range income, banquets and club amenities) are generally recognized at the time of sale, when services are rendered and collection is reasonably assured.

Revenue from membership dues is recognized in the month earned. Membership dues received in advance are included in deferred revenue and recognized as revenue ratably over the appropriate period, which is generally twelve months or less. The membership dues are generally structured to cover the club operating costs and membership services.
Private country club members generally pay an advance initiation fee deposit upon their acceptance as a member to the respective country club. Initiation fee deposits are refundable 30 years after the date of acceptance as a member. The difference between the initiation fee deposit paid by the member and the present value of the refund obligation is deferred and recognized into revenue in the Consolidated Statements of Operations on a straight-line basis over the expected life of an active membership, which is estimated to be seven years. The present value of the refund obligation is recorded as a membership deposit liability in the Consolidated Balance Sheets and accretes over a 30-year nonrefundable term using the effective interest method. This accretion is recorded as interest expense in the Consolidated Statements of Operations.

7

DRIVE SHACK INC. AND SUBSIDIARIES
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
SEPTEMBER 30, 2017
(dollars in tables in thousands, except share data)
 

Realized and Unrealized (Gain) Loss on Investments and Other Income, Net These items are comprised of the following:
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
2017
 
2016
 
2017
 
2016
(Gain) on settlement of real estate securities
$
(2,345
)
 
$
(10,080
)
 
$
(2,345
)
 
$
(18,560
)
Loss on settlement of real estate securities

 

 
2,803

 

Unrealized loss on securities, intent-to-sell

 

 
558

 

(Gain) loss on settlement of loans held-for-sale

 

 
(12
)
 
47

Realized loss on settlement of TBAs, net
228

 
3,730

 
4,669

 
13,675

Unrealized loss (gain) on non-hedge derivative instruments
1,802

 
(255
)
 
688

 
1,702

Realized and unrealized (gain) loss on investments
$
(315
)
 
$
(6,605
)
 
$
6,361

 
$
(3,136
)
 
 
 
 
 
 
 
 
(Loss) gain on lease modifications and terminations
$
(1
)
 
$
2

 
$
(161
)
 
$
(75
)
Loss on extinguishment of debt, net
(145
)
 
(227
)
 
(327
)
 
(607
)
Collateral management fee income, net
92

 
119

 
341

 
481

Equity in earnings of equity method investees
387

 
384

 
1,149

 
1,129

(Loss) gain on disposal of long-lived assets
(3
)
 

 
23

 
24

Other (loss) income
(128
)
 
227

 
(653
)
 
387

Other income, net
$
202

 
$
505

 
$
372

 
$
1,339


Reclassification From Accumulated Other Comprehensive Income Into Net Income — The following table summarizes the amounts reclassified out of accumulated other comprehensive income into net income:
 
 
 
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
Accumulated Other Comprehensive Income ("AOCI") Components
 
Income Statement Location
 
2017
 
2016
 
2017
 
2016
Net realized (gain) loss on securities:
 
 
 
 
 
 
 
 
 
 
Impairment
 
Impairment
 
$

 
$

 
$

 
$
54

(Gain) on settlement of real estate securities
 
Realized and unrealized (gain) loss on investments
 
(2,345
)
 
(10,080
)
 
(2,345
)
 
(18,560
)
Realized (gain) on deconsolidation of CDO VI
 
Gain on deconsolidation
 

 

 

 
(20,682
)
 
 
 
 
$
(2,345
)
 
$
(10,080
)
 
$
(2,345
)
 
$
(39,188
)
 
 
 
 
 
 
 
 
 
 
 
Net realized (gain) on derivatives designated as cash flow hedges:
 
 
 
 
 
 
 
 
 
 
Amortization of deferred hedge (gain)
 
Interest expense, net
 
$

 
$

 
$

 
$
(20
)
 
 
 
 
$

 
$

 
$

 
$
(20
)
 
 
 
 
 
 
 
 
 
 
 
Total reclassifications
 
 
 
$
(2,345
)
 
$
(10,080
)
 
$
(2,345
)
 
$
(39,208
)


8

DRIVE SHACK INC. AND SUBSIDIARIES
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
SEPTEMBER 30, 2017
(dollars in tables in thousands, except share data)
 

EXPENSE RECOGNITION

Operating Expenses Operating expenses for Traditional Golf consist primarily of payroll, equipment and cart leases, utilities, repairs and maintenance, supplies, seed, soil and fertilizer, marketing and operating lease rent expense. Many of the Traditional Golf properties and related facilities are leased under long-term operating leases. In addition to minimum payments, certain leases require payment of the excess of various percentages of gross revenue or net operating income over the minimum rental payments. The leases generally require the payment of taxes assessed against the leased property and the cost of insurance and maintenance. The majority of lease terms range from 10 to 20 years, and typically, the leases contain renewal options. Certain leases include scheduled increases or decreases in minimum rental payments at various times during the term of the lease. These scheduled rent increases or decreases are recognized on a straight-line basis over the term of the lease. Increases result in an accrual, which is included in accounts payable and accrued expenses and other liabilities, and decreases result in a receivable, which is included in other current assets and other assets, for the amount by which the cumulative straight-line rent differs from the contractual cash rent.

Derivatives and Hedging Activities All derivatives are recognized as either assets or liabilities on the balance sheet and measured at fair value. The Company reports the fair value of derivative instruments gross of cash paid or received pursuant to credit support agreements and fair value is reflected on a net counterparty basis when the Company believes a legal right of offset exists under an enforceable netting agreement. Changes in fair value are recorded in net income. Derivative transactions are entered into by the Company solely for risk management purposes in the ordinary course of business. As of September 30, 2017, the Company has one interest rate cap with a fair value of $0.2 million which is not designated as a hedge.

The Company transacts in the To Be Announced mortgage backed securities (“TBA”) market. TBA contracts are forward contracts to purchase mortgage-backed securities that will be issued by a U.S. government sponsored enterprise in the future. The Company primarily engages in TBA transactions for purposes of managing interest rate risk and market risk associated with the Agency residential mortgage backed securities (“RMBS”) investments which have exposure to interest rate and market risk volatility. The Company accounts for its TBA transactions as non-hedge instruments, with changes in market value recorded in the Consolidated Statements of Operations. As of September 30, 2017, the Company did not hold TBA contracts following the sale of the remaining Agency RMBS (see Note 7). As of both September 30, 2017 and December 31, 2016, the Company did not post margin related to TBA contracts.

The Company’s derivative financial instruments contain credit risk to the extent that its bank counterparties may be unable to meet the terms of the agreements. The Company seeks to reduce such risk by limiting its counterparties to major financial institutions. In addition, the potential risk of loss with any one party resulting from this type of credit risk is monitored. Management does not expect any material losses as a result of default by other parties.
BALANCE SHEET MEASUREMENT
Property and Equipment, Net Real estate and related improvements are recorded at cost less accumulated depreciation. Costs that both materially add value to an asset and extend the useful life of an asset by more than a year are capitalized. With respect to golf course improvements (included in buildings and improvements), costs associated with original construction, significant replacements, permanent landscaping, sand traps, fairways, tee boxes or greens are capitalized. All other asset-related costs that do not meet these criteria, such as minor repairs and routine maintenance, are expensed as incurred.
The Company capitalizes certain costs related to properties under development. Capitalization begins when the activities related to development have begun and ceases when activities are substantially complete and the asset is available for use. Capitalized costs include development, construction-related costs and interest expense.
Long-lived assets to be disposed of by sale, which meet certain criteria, are reclassified to real estate held-for-sale and measured at the lower of their carrying amount or fair value less costs of sale. Real estate held-for-sale is recorded in other current assets on the Consolidated Balance Sheets. A disposal of a component of an entity or a group of components of an entity are reported in discontinued operations if the disposal represents a strategic shift that has or will have a major effect on the Company’s operations and financial results. Discontinued operations are retroactively reclassified to income (loss) from discontinued operations for all periods presented.

Traditional Golf leases certain golf carts and other equipment that are classified as capital leases. The value of capital leases is recorded as an asset on the balance sheet, along with a liability related to the associated payments. Depreciation of capital lease

9

DRIVE SHACK INC. AND SUBSIDIARIES
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
SEPTEMBER 30, 2017
(dollars in tables in thousands, except share data)
 

assets is calculated using the straight-line method over the shorter of the estimated useful lives and the expected lease terms. The cost of equipment under capital leases is included in property and equipment in the Consolidated Balance Sheets. Payments under the leases are treated as reductions of the liability, with a portion being recorded as interest expense under the effective interest method.
Depreciation is calculated using the straight-line method based on the following estimated useful lives:
Buildings and improvements
10-30 years
Capital leases - equipment
3-7 years
Furniture, fixtures and equipment
3-7 years
Intangibles, Net Intangible assets and liabilities relating to Traditional Golf consist primarily of leasehold advantages (disadvantages), management contracts and membership base. A leasehold advantage (disadvantage) exists to the Company when it pays a contracted rent that is below (above) market rents at the date of the transaction. The value of a leasehold advantage (disadvantage) is calculated based on the differential between market and contracted rent, which is tax effected and discounted to present value based on an after-tax discount rate corresponding to each golf property and is amortized over the term of the underlying lease agreement. The management contract intangible represents the Company’s golf course management contracts for both leased and managed properties. The management contract intangible for leased and managed properties is valued utilizing a discounted cash flow methodology under the income approach and is amortized over the term of the underlying lease or management agreements, respectively. The membership base intangible represents the Company’s relationship with its private country club members. The membership base intangible is valued using the multi-period excess earnings method under the income approach, and is amortized over the expected life of an active membership.

Amortization of leasehold intangible assets and liabilities is included within operating expenses and amortization of all other intangible assets is included within depreciation and amortization in the Consolidated Statements of Operations. Amortization of all intangible assets is calculated using the straight-line method based on the following estimated useful lives:
Trade name
30 years
Leasehold intangibles
1-26 years
Management contracts
1-26 years
Internally-developed software
5 years
Membership base
7 years
Membership Deposit Liabilities Private country club members generally pay an advance initiation fee deposit upon their acceptance as a member to the respective country club. Initiation fee deposits are refundable 30 years after the date of acceptance as a member. The difference between the initiation fee deposit paid by the member and the present value of the refund obligation is deferred and recognized into Golf course operations revenue in the Consolidated Statements of Operations on a straight-line basis over the expected life of an active membership, which is estimated to be seven years. The present value of the refund obligation is recorded as a membership deposit liability in the Consolidated Balance Sheets and accretes over a 30-year nonrefundable term using the effective interest method. This accretion is recorded as interest expense in the Consolidated Statements of Operations.

Other Investments The Company owns an approximately 22% economic interest in a limited liability company which owns preferred equity secured by a commercial real estate project. The Company accounts for this investment as an equity method investment. As of September 30, 2017 and December 31, 2016, the carrying value of this investment was $20.6 million and $19.3 million, respectively. The Company evaluates its equity method investment for other-than-temporary impairment whenever events or changes in circumstances indicate that the carrying amount of the investment might not be recoverable. The evaluation of recoverability is based on management’s assessment of the financial condition and near term prospects of the commercial real estate project, the length of time and the extent to which the market value of the investment has been less than cost, availability and cost of financing, demand for space, competition for tenants, changes in market rental rates, and operating costs.  As these factors are difficult to predict and are subject to future events that may alter management’s assumptions, the values estimated by management in its recoverability analyses may not be realized, and actual losses or impairment may be realized in the future.

Impairment of Real Estate and Finite-lived Intangible Assets The Company periodically reviews the carrying amounts of its long-lived assets, including real estate and finite-lived intangible assets, to determine whether current events or circumstances

10

DRIVE SHACK INC. AND SUBSIDIARIES
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
SEPTEMBER 30, 2017
(dollars in tables in thousands, except share data)
 

indicate that such carrying amounts may not be recoverable. The assessment of recoverability is based on management’s estimates by comparing the sum of the estimated undiscounted cash flows generated by the underlying asset, or other appropriate grouping of assets, to its carrying value to determine whether an impairment existed at its lowest level of identifiable cash flows. If the carrying amount of the asset is greater than the expected undiscounted cash flows to be generated by such asset, an impairment is recognized to the extent the carrying value of such asset exceeds its fair value. The Company generally measures fair value by considering sale prices for similar assets or by discounting estimated future cash flows using an appropriate discount rate. Assets to be disposed of are carried at the lower of their financial statement carrying amount or fair value less costs to sell.
Investments in CDO Servicing Rights In February 2011, the Company, through one of its subsidiaries, purchased the management rights with respect to certain C-BASS Investment Management LLC (“C-BASS”) Collateralized Debt Obligations (“CDOs”) pursuant to a bankruptcy proceeding. The Company initially recorded the cost of acquiring the collateral management rights as a servicing asset and subsequently amortizes this asset in proportion to, and over the period of, estimated net servicing income.

Variable Interest Entities (“VIEs”) - There are no assets or liabilities of consolidated VIEs included in the Consolidated Balance Sheets as of September 30, 2017 and December 31, 2016. The Company sold its remaining variable interests in Newcastle CDO V and Newcastle CDO VI during 2016 but continues to receive servicing fees as collateral manager, which are not considered variable interests.

Other Current Assets

The following table summarizes the Company's other current assets:
 
 
September 30, 2017
 
December 31, 2016
Real estate related and other loans, held-for-sale, net
 
$
147

 
$
55,612

Prepaid expenses
 
3,428

 
3,580

Interest receivable
 

 
1,697

Deposits
 
3,002

 
1,314

Inventory
 
5,003

 
4,496

Derivative assets
 

 
371

Residential mortgage loans, held-for-sale, net
 

 
231

Receivables from brokers, dealers and clearing organizations
 

 
552

Miscellaneous assets, net (A)
 
10,960

 
10,834

 
 
$
22,540

 
$
78,687

(A)
Includes one owned property in Annandale, New Jersey in the Traditional Golf segment classified as held-for-sale. The Company expects to close on this property within the next 12 months.

Other Assets

The following table summarizes the Company's other assets:
 
 
September 30, 2017
 
December 31, 2016
Prepaid expenses
 
$
28

 
$
74

Deposits
 
2,353

 
2,791

Derivative assets
 
167

 
485

Miscellaneous assets, net
 
5,885

 
4,097

 
 
$
8,433

 
$
7,447



11

DRIVE SHACK INC. AND SUBSIDIARIES
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
SEPTEMBER 30, 2017
(dollars in tables in thousands, except share data)
 

Other Current Liabilities

The following table summarizes the Company's other current liabilities:
 
 
September 30, 2017
 
December 31, 2016
Security deposits payable
 
$
7,939

 
$
5,978

Accrued rent
 
2,289

 
1,930

Due to affiliates
 
893

 
892

Dividends payable
 
930

 
8,949

Miscellaneous liabilities
 
9,702

 
11,219

 
 
$
21,753

 
$
28,968


Other Liabilities

The following table summarizes the Company's other liabilities:
 
 
September 30, 2017
 
December 31, 2016
Security deposits payable
 
$
196

 
$
95

Unfavorable leasehold interests
 
3,587

 
4,225

Accrued rent
 
1,004

 
683

Miscellaneous liabilities
 
937

 
1,059

 
 
$
5,724

 
$
6,062


Recent Accounting Pronouncements

In May 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2014-09 Revenue from Contracts with Customers (Topic 606). The standard’s core principle is that a company will recognize revenue when it transfers promised goods or services to customers in an amount that reflects the consideration to which the company expects to be entitled in exchange for those goods or services. In doing so, companies will need to use more judgment and make more estimates than under today’s guidance. These may include identifying performance obligations in the contract, estimating the amount of variable consideration to include in the transaction price and allocating the transaction price to each separate performance obligation. In August 2015, the FASB issued ASU 2015-14 Revenue from Contracts with Customers (Topic 606): Deferral of the Effective Date, which defers the effective date by one year. The standard will be effective for annual and interim periods beginning after December 15, 2017; however, all entities are allowed to adopt the standard as early as the original effective date (annual periods beginning after December 15, 2016). Entities have the option of using either a full retrospective or a modified approach to adopt the guidance. In March 2016, the FASB issued ASU 2016-08 Revenue from Contracts with Customers (Topic 606): Principal versus Agent Considerations which clarifies how an entity should identify the unit of accounting for the principal versus agent evaluation and how to apply the control principle to certain types of arrangements. In April 2016, the FASB issued ASU 2016-10 Revenue from Contracts with Customers (Topic 606): Identifying Performance Obligations and Licensing, which clarifies when a promised good or service is separately identifiable. In May 2016, the FASB issued ASU 2016-12 Revenue from Contracts with Customers (Topic 606): Narrow-Scope Improvements and Practical Expedients which amends the new revenue recognition guidance on transition, collectibility, noncash consideration and the presentation of sales and other similar taxes. In December 2016, the FASB issued ASU 2016-20 Technical Corrections and Improvements to Topic 606, Revenue from Contracts with Customers which amends the new revenue recognition guidance on performance obligations and 12 additional technical corrections and improvements. The Company is continuing to evaluate the potential impact of adopting this standard, and is in the process of reviewing customer contracts and revenue streams, identifying contractual provisions that may result in a change in the timing or the amount of revenue recognized.  There are also certain considerations related to internal control over financial reporting that are associated with implementing the new guidance under Topic 606. The Company is currently evaluating its control framework for revenue recognition and identifying any changes that may need to be made in response to the new guidance. The Company expects to adopt the requirements of the new standard in the first quarter of 2018, and anticipates using the modified retrospective transition method.


12

DRIVE SHACK INC. AND SUBSIDIARIES
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
SEPTEMBER 30, 2017
(dollars in tables in thousands, except share data)
 

In January 2016, the FASB issued ASU 2016-01 Financial Instruments - Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities. The standard addresses certain aspects of recognition, measurement, presentation and disclosure of financial instruments. The effective date of the standard will be for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2017. The Company is currently evaluating the new guidance to determine the impact it may have on its Consolidated Financial Statements.

In February 2016, the FASB issued ASU 2016-02 Leases (Topic 842). The standard requires lessees to recognize most leases on the balance sheet and addresses certain aspects of lessor accounting. The effective date of the standard will be for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018 and early adoption is permitted. Entities are required to use a modified retrospective approach for leases that exist or are entered into after the beginning of the earliest comparative period in the financial statements, with an option to use certain relief. The Company is evaluating potential impacts of adopting the standard. Upon initial qualitative evaluation, a key change upon adoption will be the balance sheet recognition of all leased assets and liabilities. The Company leases certain of its golf properties and equipment through operating leases which are not recognized on the balance sheet. The Company anticipates a right to use asset and a related lease liability will be recognized for these leases.

In June 2016, the FASB issued ASU 2016-13 Financial Instruments - Credit Losses (Topic 326), Measurement of Credit Losses on Financial Instruments. The standard changes how entities will measure credit losses for most financial assets and certain other instruments that are not measured at fair value through net income. For available-for-sale debt securities, entities will be required to record allowances rather than reduce the carrying amount under the other-than-temporary impairment model. The effective date of the standard will be for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019 and early adoption is permitted for annual periods beginning after December 15, 2018. Entities will apply the standard's provisions as a cumulative-effect adjustment to retained earnings as of the beginning of the first reporting period in which the guidance is effective. The Company is currently evaluating the new guidance to determine the impact it may have on its Consolidated Financial Statements.

In August 2016, the FASB issued ASU 2016-15 Statement of Cash Flows (Topic 230), Classification of Certain Cash Receipts and Cash Payments. The standard provides specific guidance over eight identified cash flow issues in order to reduce diversity in practice over the presentation and classification of certain types of cash receipts and cash payments. The effective date of the standard will be for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2017 and early adoption is permitted. Entities should apply the standard using a retrospective transition method to each period presented. The Company does not anticipate that the adoption of this standard will result in a material impact to the presentation of the Consolidated Statements of Cash Flows.

In November 2016, the FASB issued ASU 2016-18 Statement of Cash Flows (Topic 230), Restricted Cash. The standard requires entities to show the changes in the total of cash, cash equivalents and restricted cash in the statement of cash flows and provide a reconciliation to the related line items in the balance sheet. The effective date of the standard will be for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2017 and early adoption is permitted. Entities will be required to apply the guidance retrospectively when adopted and provide the relevant disclosures in ASC 250 in the first interim and annual periods in which the guidance is adopted. The Company is currently evaluating the new guidance to determine the impact it may have on its Consolidated Financial Statements.

In January 2017, the FASB issued ASU 2017-01 Business Combinations (Topic 805), Clarifying the Definition of a Business. The standard clarifies the definition of a business with the objective of adding guidance to assist entities with evaluating whether transactions should be accounted for as acquisitions (or disposals) of assets of businesses. The effective date of the standard will be for interim and annual periods beginning after December 15, 2017 and early adoption is permitted. Entities will be required to apply the guidance on a prospective basis. The Company is currently evaluating the impact that this update will have on its Consolidated Financial Statements and related disclosures.

The FASB has recently issued or discussed a number of proposed standards on topics such as financial statement presentation and financial instruments. Some of the proposed changes are significant and could have a material impact on the Company’s reporting. The Company has not yet fully evaluated the potential impact of these proposals, but will make such an evaluation as the standards are finalized.


13

DRIVE SHACK INC. AND SUBSIDIARIES
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
SEPTEMBER 30, 2017
(dollars in tables in thousands, except share data)
 

3. SEGMENT REPORTING
 
The Company currently has four reportable segments: (i) Traditional Golf properties, (ii) Entertainment Golf venues, (iii) Debt Investments, and (iv) corporate. The Company's Traditional Golf business is one of the largest owners and operators of golf properties in the United States. As of September 30, 2017, the Company owned, leased or managed 77 Traditional Golf properties across 13 states.  Additionally, the Company plans to open a chain of next-generation Entertainment Golf venues across the United States and internationally, which combine golf, competition, dining and fun. 

The Debt Investment segment consists primarily of loans and securities which the Company has substantially monetized as part of its transformation to a leisure and entertainment company. The corporate segment consists primarily of interest income on short-term investments, general and administrative expenses, interest expense on the junior subordinated notes payable (Note 6), management fees pursuant to the Management Agreement (Note 12) and income tax expense (Note 14). Segment information for previously reported periods has been reclassified to conform to the change to the reportable segments in the fourth quarter of 2016.
 
Summary financial data on the Company’s segments is given below, together with a reconciliation to the same data for the Company as a whole:
 
Traditional Golf
 
Entertainment Golf
 
Debt Investments
 
Corporate
 
Total
Nine Months Ended September 30, 2017
 
 
 
 
 
 
 
 
 
Revenues
 
 
 
 
 
 
 
 
 
Golf course operations
$
168,969

 
$

 
$

 
$

 
$
168,969

Sales of food and beverages
53,223

 

 

 

 
53,223

Total revenues
222,192

 

 

 

 
222,192

Operating costs
 
 
 
 
 
 
 
 
 
Operating expenses (A)
187,539

 
191

 

 

 
187,730

Cost of sales - food and beverages
15,762

 

 

 

 
15,762

General and administrative expense
2,152

 
203

 
10

 
3,899

 
6,264

General and administrative expense - acquisition and transaction expenses (B)
558

 
4,122

 

 
171

 
4,851

Management fee to affiliate

 

 

 
8,032

 
8,032

Depreciation and amortization
17,936

 
16

 

 

 
17,952

Impairment

 

 
60

 

 
60

Realized and unrealized loss on investments
317

 

 
6,044

 

 
6,361

Total operating costs
224,264

 
4,532

 
6,114

 
12,102

 
247,012

Operating loss
(2,072
)
 
(4,532
)
 
(6,114
)
 
(12,102
)
 
(24,820
)
Other income (expenses)
 
 
 
 
 
 
 
 
 
Interest and investment income
114

 

 
22,137

 
450

 
22,701

Interest expense, net (C)
(11,500
)
 

 
(2,532
)
 
(1,303
)
 
(15,335
)
Other (loss) income, net
(1,044
)
 

 
1,416

 

 
372

Total other income (expenses)
(12,430
)
 

 
21,021

 
(853
)
 
7,738

Income tax expense (D)

 

 

 
1,047

 
1,047

Net (loss) income
(14,502
)
 
(4,532
)
 
14,907

 
(14,002
)
 
(18,129
)
Preferred dividends

 

 

 
(4,185
)
 
(4,185
)
(Loss) income applicable to common stockholders
$
(14,502
)
 
$
(4,532
)
 
$
14,907

 
$
(18,187
)
 
$
(22,314
)


14

DRIVE SHACK INC. AND SUBSIDIARIES
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
SEPTEMBER 30, 2017
(dollars in tables in thousands, except share data)
 

Summary segment financial data (continued).
 
Traditional Golf
 
Entertainment Golf
 
Debt Investments
 
Corporate
 
Total
Three Months Ended September 30, 2017
 
 
 
 
 
 
 
 
 
Revenues
 
 
 
 
 
 
 
 
 
Golf course operations
$
62,034

 
$

 
$

 
$

 
$
62,034

Sales of food and beverages
19,657

 

 

 

 
19,657

Total revenues
81,691

 

 

 

 
81,691

Operating costs
 
 
 
 
 
 
 
 
 
Operating expenses (A)
67,244

 
141

 

 

 
67,385

Cost of sales - food and beverages
5,721

 

 

 

 
5,721

General and administrative expense
708

 
60

 
10

 
1,619

 
2,397

General and administrative expense - acquisition and transaction expenses (B)
72

 
1,804

 

 
55

 
1,931

Management fee to affiliate

 

 

 
2,678

 
2,678

Depreciation and amortization
6,171

 
16

 

 

 
6,187

Impairment

 

 
28

 

 
28

Realized and unrealized loss (gain) on investments
32

 

 
(347
)
 

 
(315
)
Total operating costs
79,948

 
2,021

 
(309
)
 
4,352

 
86,012

Operating income (loss)
1,743

 
(2,021
)
 
309

 
(4,352
)
 
(4,321
)
Other income (expenses)
 
 
 
 
 
 
 
 
 
Interest and investment income
42

 

 
8,085

 
291

 
8,418

Interest expense, net (C)
(3,830
)
 

 
(482
)
 
(458
)
 
(4,770
)
Other (loss) income, net
(211
)
 

 
413

 

 
202

Total other income (expenses)
(3,999
)
 

 
8,016

 
(167
)
 
3,850

Income tax benefit (D)

 

 

 
(2
)
 
(2
)
Net (loss) income
(2,256
)
 
(2,021
)
 
8,325

 
(4,517
)
 
(469
)
Preferred dividends

 

 

 
(1,395
)
 
(1,395
)
(Loss) Income applicable to common stockholders
$
(2,256
)
 
$
(2,021
)
 
$
8,325

 
$
(5,912
)
 
$
(1,864
)
 
Traditional Golf
 
Entertainment Golf
 
Debt Investments (E)
 
Corporate
 
Total
September 30, 2017
 
 
 
 
 
 
 
 
 
Total assets
319,356

 
19,882

 
23,514

 
173,363

 
536,115

Total liabilities
278,352

 
5,384

 
170

 
55,901

 
339,807

Preferred stock

 

 

 
61,583

 
61,583

Equity attributable to common stockholders
$
41,004

 
$
14,498

 
$
23,344

 
$
55,879

 
$
134,725

 
 
 
 
 
 
 
 
 
 
Additions to property and equipment (including capital leases) during the nine months ended September 30, 2017
$
15,178

 
$
8,647

 
$

 
$

 
$
23,825


15

DRIVE SHACK INC. AND SUBSIDIARIES
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
SEPTEMBER 30, 2017
(dollars in tables in thousands, except share data)
 

Summary segment financial data (continued).
 
Traditional Golf
 
Entertainment Golf
 
Debt Investments
 
Corporate
 
Total
Nine Months Ended September 30, 2016
 
 
 
 
 
 
 
 
 
Revenues
 
 
 
 
 
 
 
 
 
Golf course operations
$
174,718

 
$

 
$

 
$

 
$
174,718

Sales of food and beverages
55,086

 

 

 

 
55,086

Total revenues
229,804

 

 

 

 
229,804

Operating costs
 
 
 
 
 
 
 
 
 
Operating expenses (A)
195,670

 

 

 

 
195,670

Cost of sales - food and beverages
17,139

 

 

 

 
17,139

General and administrative expense
2,207

 
5

 
70

 
5,602

 
7,884

General and administrative expense - acquisition and transaction expenses (B)
1,182

 
911

 

 
371

 
2,464

Management fee to affiliate

 

 

 
8,027

 
8,027

Depreciation and amortization
19,250

 

 

 

 
19,250

Impairment

 

 
3,564

 

 
3,564

Realized and unrealized loss (gain) on investments
35

 

 
(3,171
)
 

 
(3,136
)
Total operating costs
235,483

 
916

 
463

 
14,000

 
250,862

Operating loss
(5,679
)
 
(916
)
 
(463
)
 
(14,000
)
 
(21,058
)
Other income (expenses)
 
 
 
 
 
 
 
 
 
Interest and investment income
94

 

 
73,661

 
15

 
73,770

Interest expense, net (C)
(8,703
)
 

 
(28,482
)
 
(1,904
)
 
(39,089
)
Gain on deconsolidation

 

 
82,130

 

 
82,130

Other (loss) income, net
(272
)
 

 
1,611

 

 
1,339

Total other income (expenses)
(8,881
)
 

 
128,920

 
(1,889
)
 
118,150

Income tax expense
144

 

 

 

 
144

Net (loss) income
(14,704
)
 
(916
)
 
128,457

 
(15,889
)
 
96,948

Preferred dividends

 

 

 
(4,185
)
 
(4,185
)
Net income attributable to noncontrolling interest
(165
)
 

 

 

 
(165
)
(Loss) income applicable to common stockholders
$
(14,869
)
 
$
(916
)
 
$
128,457

 
$
(20,074
)
 
$
92,598





16

DRIVE SHACK INC. AND SUBSIDIARIES
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
SEPTEMBER 30, 2017
(dollars in tables in thousands, except share data)
 

Summary segment financial data (continued).
 
Traditional Golf
 
Entertainment Golf
 
Debt Investments
 
Corporate
 
Total
Three Months Ended September 30, 2016
 
 
 
 
 
 
 
 
 
Revenues
 
 
 
 
 
 
 
 
 
Golf course operations
$
63,249

 
$

 
$

 
$

 
$
63,249

Sales of food and beverages
19,913

 

 

 

 
19,913

Total revenues
83,162

 

 

 

 
83,162

Operating costs
 
 
 
 
 
 
 
 
 
Operating expenses (A)
69,251

 

 

 

 
69,251

Cost of sales - food and beverages
6,026

 

 

 

 
6,026

General and administrative expense
662

 
3

 
32

 
1,936

 
2,633

General and administrative expense - acquisition and transaction expenses (B)
173

 
682

 

 
200

 
1,055

Management fee to affiliate

 

 

 
2,676

 
2,676

Depreciation and amortization
6,735

 

 

 

 
6,735

Impairment

 

 
611

 

 
611

Realized and unrealized loss (gain) on investments
15

 

 
(6,620
)
 

 
(6,605
)
Total operating costs
82,862

 
685

 
(5,977
)
 
4,812

 
82,382

Operating income (loss)
300

 
(685
)
 
5,977

 
(4,812
)
 
780

Other income (expenses)
 
 
 
 
 
 
 
 
 
Interest and investment income
17