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Section 1: 10-Q (10-Q)

ds-20200630
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549 
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2020
or
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 or organization) (I.R.S. Employer Identification No.)
218 W. 18th Street, 3rd Floor, New York, NY
 10011
(Address of principal executive offices) (Zip Code)
(646) 585-5591
(Registrant’s telephone number, including area code)
(Former name, former address and former fiscal year, if changed since last report)
Securities registered pursuant to Section 12(b) of the Act:
Title of each classTrading Symbols(s)Name of each exchange on which registered
Common Stock, $0.01 par value per shareDS
New York Stock Exchange (NYSE)
9.75% Series B Cumulative Redeemable Preferred Stock, $0.01 par value per shareDS-PB
New York Stock Exchange (NYSE)
8.05% Series C Cumulative Redeemable Preferred Stock, $0.01 par value per shareDS-PC
New York Stock Exchange (NYSE)
8.375% Series D Cumulative Redeemable Preferred Stock, $0.01 par value per shareDS-PD
New York Stock Exchange (NYSE)
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 every Interactive Data File required to be submitted 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 such files). S Yes   £ No 
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a 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.
Large accelerated filer £ Accelerated filer S Non-accelerated filer £ 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: 67,212,362 shares outstanding as of July 31, 2020.



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, (i) the timing and conditions under which we may reopen any of our entertainment golf venues or traditional golf courses, (ii) the operation of our entertainment golf venues and traditional golf courses in light of the ongoing COVID-19 pandemic following their reopening and the opening of new venues, (iii) our ability to remain competitive within the leisure and entertainment industry during the ongoing COVID-19 pandemic (iv) the adequacy of our cash flows from operations and available cash to meet our liquidity needs, including in the event of a prolonged reclosure of our venues, (v) our ability to modify the timing of certain contractual payments owed, (vi) our ability to obtain additional financing and (vii) the potential impact of COVID-19 on our results of operations. 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,” “forecast,” “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:

our ability to reopen and/or avoid future closures of our venues;
factors impacting attendance, such as local conditions, contagious diseases, including COVID-19, or the perceived threat of contagious diseases, disturbances, natural disasters, and terrorist activities;
regulations and guidance of federal, state and local governments and health officials regarding the response to the ongoing COVID-19 pandemic, including with respect to business operations, safety protocols and public gatherings;
our financial liquidity and ability to access capital;
the ability to retain and attract members and guests to our properties;
changes in global, national and local economic conditions, including, but not limited to, increases in unemployment levels, changes in consumer spending patterns, a prolonged economic slowdown and a downturn in the real estate market, particularly due to the COVID-19 pandemic;
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, rent 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 any failures of our information technology and cybersecurity systems;
the impact of any current or further legal proceedings and regulatory investigations and inquiries; and
other risks detailed from time to time, particularly under the heading “Risk Factors” in this report, in our Annual Report on Form 10-K for the fiscal year ended December 31, 2019, in our Quarterly Report on Form 10-Q for the quarter ended March 31, 2020, and in our subsequent filings with 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 “Registrant”) 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)
(unaudited)
June 30, 2020December 31, 2019
Assets
Current assets
Cash and cash equivalents$12,638  $28,423  
Restricted cash2,974  3,103  
Accounts receivable, net of allowance of $967 and $1,082, respectively
3,651  5,249  
Real estate assets, held-for-sale, net16,975  16,948  
Real estate securities, available-for-sale2,985  3,052  
Other current assets13,977  17,521  
Total current assets53,200  74,296  
Restricted cash, noncurrent267  438  
Property and equipment, net of accumulated depreciation178,732  179,641  
Operating lease right-of-use assets203,359  215,308  
Intangibles, net of accumulated amortization16,039  17,565  
Other investments  24,020  
Other assets5,476  4,723  
Total assets$457,073  $515,991  
Liabilities and Equity
Current liabilities
Obligations under finance leases$5,860  $6,154  
Membership deposit liabilities14,457  10,791  
Accounts payable and accrued expenses34,374  25,877  
Deferred revenue23,633  26,268  
Real estate liabilities, held-for-sale5  4  
Other current liabilities27,375  23,964  
Total current liabilities105,704  93,058  
Credit facilities and obligations under finance leases - noncurrent12,061  13,125  
Operating lease liabilities - noncurrent175,048  187,675  
Junior subordinated notes payable51,187  51,192  
Membership deposit liabilities, noncurrent95,913  95,805  
Deferred revenue, noncurrent6,783  6,283  
Other liabilities1,709  3,278  
Total liabilities$448,405  $450,416  
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 June 30, 2020 and December 31, 2019
$61,583  $61,583  
Common stock, $0.01 par value, 1,000,000,000 shares authorized, 67,212,362 and 67,068,751 shares issued and outstanding at June 30, 2020 and December 31, 2019, respectively
672  671  
Additional paid-in capital3,177,883  3,177,183  
Accumulated deficit(3,232,925) (3,175,572) 
Accumulated other comprehensive income1,455  1,710  
Total equity$8,668  $65,575  
Total liabilities and equity$457,073  $515,991  

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 June 30,Six Months Ended June 30,
 2020201920202019
Revenues    
Golf operations$29,675  $57,386  $78,300  $102,092  
Sales of food and beverages2,425  14,229  14,935  23,475  
Total revenues32,100  71,615  93,235  125,567  
Operating costs
Operating expenses33,224  58,720  87,591  106,443  
Cost of sales - food and beverages829  3,904  4,484  6,601  
General and administrative expense6,368  13,607  16,186  25,226  
Depreciation and amortization6,682  5,122  13,476  10,046  
Pre-opening costs270  1,700  822  2,879  
(Gain) Loss on lease terminations and impairment(3,125) 118  (2,333) 4,206  
Total operating costs44,248  83,171  120,226  155,401  
Operating loss(12,148) (11,556) (26,991) (29,834) 
Other income (expenses)
Interest and investment income135  265  265  608  
Interest expense, net(2,591) (1,795) (5,336) (3,947) 
Other income (loss), net(24,422) 127  (24,055) 5,614  
Total other income (expenses)(26,878) (1,403) (29,126) 2,275  
Loss before income tax(39,026) (12,959) (56,117) (27,559) 
Income tax expense 500    771    
Net Loss(39,526) (12,959) (56,888) (27,559) 
Preferred dividends(1,395) (1,395) (2,790) (2,790) 
Loss Applicable to Common Stockholders$(40,921) $(14,354) $(59,678) $(30,349) 
Loss Applicable to Common Stock, per share    
Basic$(0.61) $(0.21) $(0.89) $(0.45) 
Diluted$(0.61) $(0.21) $(0.89) $(0.45) 
Weighted Average Number of Shares of Common Stock Outstanding    
Basic67,111,843  67,029,610  67,090,805  67,028,364  
Diluted67,111,843  67,029,610  67,090,805  67,028,364  

See notes to Consolidated Financial Statements.
2


DRIVE SHACK INC. AND SUBSIDIARIES
 
CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS (unaudited)
(dollars in thousands, except share data)
 Three Months Ended June 30,Six Months Ended June 30,
 2020201920202019
Net loss$(39,526) $(12,959) $(56,888) $(27,559) 
Other comprehensive loss:    
Net unrealized loss on available-for-sale securities(217)   (255)   
Other comprehensive loss(217)   (255)   
Total comprehensive loss $(39,743) $(12,959) $(57,143) $(27,559) 
Comprehensive loss attributable to Drive Shack Inc. stockholders’ equity$(39,743) $(12,959) $(57,143) $(27,559) 
  
See notes to Consolidated Financial Statements.
3


DRIVE SHACK INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY (unaudited)
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2020 AND 2019
(dollars in thousands, except share data)
Drive Shack Inc. Stockholders
 Preferred StockCommon Stock
 SharesAmountSharesAmountAdditional Paid-
in Capital
Accumulated
Deficit
Accumulated Other Comp.
Income
Total Equity (Deficit)
Equity (deficit) - December 31, 20192,463,321  $61,583  67,068,751  $671  $3,177,183  $(3,175,572) $1,710  $65,575  
Dividends declared—  —  —  —  —  (465) —  (465) 
Stock-based compensation—  —  —  —  201  —  —  201  
Shares issued from restricted stock units—  —  1,762  —  —  —  —    
Comprehensive income (loss)
Net loss—  —  —  —  —  (17,362) —  (17,362) 
Other comprehensive loss—  —  —  —  —  —  (38) (38) 
Total comprehensive loss(17,400) 
Equity (deficit) - March 31, 20202,463,321  $61,583  67,070,513  $671  $3,177,384  $(3,193,399) $1,672  $47,911  
Stock-based compensation—  —  —  —  500  —  —  500  
Shares issued from restricted stock units—  —  141,849  1  (1) —  —    
Comprehensive income (loss)
Net loss—  —  —  —  —  (39,526) —  (39,526) 
Other comprehensive income—  —  —  —  —  —  (217) (217) 
Total comprehensive loss$(39,743) 
Equity (deficit) - June 30, 20202,463,321  $61,583  67,212,362  $672  $3,177,883  $(3,232,925) $1,455  $8,668  
Equity (deficit) - December 31, 20182,463,321  $61,583  67,027,104  $670  $3,175,843  $(3,105,307) $1,878  $134,667  
Dividends declared—  —  —  —  —  (1,395) —  (1,395) 
Stock-based compensation—  —  —  —  1,222  —  —  1,222  
Adoption of ASC 842
—  —  —  —  —  (9,831) (9,831) 
Comprehensive income (loss)
Net loss—  —  —  —  —  (14,600) —  (14,600) 
Other comprehensive income—  —  —  —  —  —  —    
Total comprehensive loss(14,600) 
Equity (deficit) - March 31, 20192,463,321  $61,583  67,027,104  $670  $3,177,065  $(3,131,133) $1,878  $110,063  
Dividends declared—  —  —  —  —  (1,395) —  (1,395) 
Stock-based compensation—  —  —  —  1,384  —  —  1,384  
Purchase of common stock (directors)—  —  6,000  —  29  —  —  29,000  
Comprehensive income (loss)
Net loss—  —  —  —  —  (12,959) —  (12,959) 
Other comprehensive income—  —  —  —  —  —  —    
Total comprehensive loss(12,959) 
Equity (deficit) - June 30, 20192,463,321  $61,583  67,033,104  $670  $3,178,478  $(3,145,487) $1,878  $97,122  


See notes to Consolidated Financial Statements.
4



DRIVE SHACK INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited)
(dollars in thousands, except share data)
 Six Months Ended June 30,
 20202019
Cash Flows From Operating Activities  
Net loss$(56,888) $(27,559) 
Adjustments to reconcile net loss to net cash used in operating activities:  
Depreciation and amortization13,476  10,046  
Amortization of discount and premium(193) (122) 
Other amortization3,823  3,556  
Amortization of revenue on golf membership deposit liabilities(746) (874) 
Amortization of prepaid golf membership dues(3,451) (6,855) 
Non-cash operating lease expense6,333  3,270  
Stock-based compensation700  2,606  
(Gain) Loss on lease terminations and impairment(2,783) 4,206  
Equity in (earnings), net of impairment from equity method investments24,020  (685) 
Other (gains) losses, net164  (4,551) 
Change in:   
Accounts receivable, net, other current assets and other assets - noncurrent4,235  (1,579) 
Accounts payable and accrued expenses, deferred revenue, other current liabilities and other liabilities - noncurrent5,625  (5,685) 
Net cash used in operating activities(5,685) (24,226) 
Cash Flows From Investing Activities  
Proceeds from sale of property and equipment73  32,665  
Acquisition and additions of property and equipment and intangibles(7,702) (42,569) 
Net cash used in investing activities(7,629) (9,904) 
Cash Flows From Financing Activities
Repayments of debt obligations(2,068) (2,691) 
Golf membership deposits received878  1,012  
Preferred stock dividends paid(1,395) (2,790) 
Other financing activities(186) 20  
Net cash used in financing activities(2,771) (4,449) 
Net Decrease in Cash and Cash Equivalents, Restricted Cash and Restricted Cash, noncurrent(16,085) (38,579) 
Cash and Cash Equivalents, Restricted Cash and Restricted Cash, noncurrent, Beginning of Period31,964  82,819  
Cash and Cash Equivalents, Restricted Cash and Restricted Cash, noncurrent, End of Period$15,879  $44,240  
Supplemental Schedule of Non-Cash Investing and Financing Activities
Preferred stock dividends declared but not paid$  $930  
Additions to finance lease assets and liabilities$1,028  $10,652  
Increases in accounts payable and accrued expenses related to the purchase of property and equipment$4,192  $2,816  

See notes to Consolidated Financial Statements.
5

DRIVE SHACK INC. AND SUBSIDIARIES
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
June 30, 2020
(dollars in tables in thousands, except share data)

1. ORGANIZATION
Drive Shack Inc., which is referred to, together with its subsidiaries, as Drive Shack Inc. or the Company, is an owner and operator of golf-related leisure and entertainment venues focused on bringing people together through competitive socializing. 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) Entertainment Golf venues, (ii) Traditional Golf properties and (iii) corporate. For a further discussion of the reportable segments, see Note 4.
As of June 30, 2020, the Company owned or leased four Entertainment Golf venues across three states. We opened our first Entertainment Golf venue in Orlando, Florida, in April 2018, which has largely served as our research, development and testing venue. During the second half of 2019, we opened three Generation 2.0 core Drive Shack venues in Raleigh, North Carolina; Richmond, Virginia; and West Palm Beach, Florida.
The Company’s Traditional Golf business is one of the largest operators of golf properties in the United States. As of June 30, 2020, the Company owned, leased or managed 60 traditional golf properties across nine states.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

COVID-19 In March 2020, a global pandemic was declared by the World Health Organization related to the rapidly growing outbreak of a novel strain of coronavirus (“COVID-19”). In response to the rapid spread of COVID-19, authorities around the world have implemented numerous measures to contain the virus, such as travel bans and restrictions, quarantines, "stay-at-home" or "shelter-in-place" orders and business shutdowns. Many jurisdictions in which we operate required mandatory store closures or imposed capacity limitations and other restrictions affecting our operations. As a result, during March 2020, we temporarily closed all of our entertainment golf venues and substantially all of our traditional golf courses and furloughed a substantial majority of our employees. In response to the uncertainty caused by the pandemic, we took several actions after we suspended operations to preserve our liquidity position and prepare for multiple contingencies.

The gradual easing of restrictions has permitted us to resume operations at our entertainment golf venues, subject to locally mandated COVID-19 capacity limitations at the suite style hitting bays (varying by location), and with no bar service, and to resume operations at our traditional golf courses subject to various locally mandated COVID-19 operational restrictions, with food and beverage offerings limited and operating primarily on a patio dining and “to-go” model. Restrictions on large group gatherings have lagged the easing of other operational restrictions imposed across our portfolio, varying by location, which has resulted in the postponement or cancellation of events, banquets, and other large group gatherings. Throughout May and June, the Company reopened its three Generation 2.0 entertainment golf venues in West Palm Beach, FL; Richmond, VA; and Raleigh, North Carolina. As of June 30, 2020, all traditional golf courses were open. As of the date of this report, one entertainment golf venue in Orlando, Florida remains closed.

The COVID-19 pandemic remains a rapidly evolving situation and the extended length of the outbreak and related government response may cause prolonged periods of various operational and capacity limitations and modified operating schedules and may result in changes in customer behaviors or preferences. These may lead to increased asset recovery and valuation risks, such as impairment of long-lived and other assets. The extent to which COVID-19 ultimately impacts our business will depend on future developments, which are highly uncertain and cannot be predicted, including additional actions taken by various governmental bodies and private enterprises to contain COVID-19 or mitigate its impact, among others. The Company currently expects these developments to have a material adverse impact on its revenues, results of operations and cash flows in future periods.

Going Concern The financial statements have been prepared on a going concern basis, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. These financial statements do not include any adjustments relating to the recovery of the recorded assets or the classification of the liabilities that might be necessary should the Company be unable to continue as a going concern.

However, as noted above, we temporarily closed all of our entertainment golf and substantially all of our traditional golf venues, eliminating substantially all of the Company's revenue sources during the closure periods (varying by location). The
6

DRIVE SHACK INC. AND SUBSIDIARIES
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
June 30, 2020
(dollars in tables in thousands, except share data)
loss of revenues and uncertainty related to the COVID-19 pandemic discussed above raises substantial doubt about the Company's ability to continue as a going concern.

The ability of the Company to continue operations is dependent on the degree of success of management's plans to manage existing cash balances through the business disruptions and to obtain additional capital to fund its short-term liquidity requirements. In order to manage existing cash balances, management reduced spending broadly, including furloughing employees, pausing construction on future planned venues to reduce capital spending, suspending declaration of dividends on our preferred stock, and deferring payment of certain operating and corporate expenditures. The Company is actively seeking to sell its remaining Traditional Golf property that is held-for-sale and believes that a sale is probable and would mitigate the substantial doubt raised by the COVID-19 pandemic and satisfy the Company's estimated liquidity needs through 12 months from the issuance of the financial statements. The Company is also exploring additional debt financing, including potential financing options made available under the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”), public or private equity issuances, and additional ways to strategically monetize our remaining real estate securities and other investments. However, there is no assurance that the Company will be successful in raising additional capital or that such additional funds will be available on acceptable terms, if at all.

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, or 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, 2019 and notes thereto included in the Company’s Annual Report on Form 10-K filed with the SEC on March 6, 2020. Capitalized terms used herein, and not otherwise defined, are defined in the Company’s Consolidated Financial Statements for the year ended December 31, 2019. There have been no significant changes to our critical accounting policies as disclosed in our Annual Report on Form 10-K for the fiscal year ended December 31, 2019.

The Company’s significant accounting policies for these financial statements as of June 30, 2020 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, 2019.

Use of Estimates – Our estimates are based on information available to management at the time of preparation of the Consolidated Financial Statements, including the result of historical analysis, our understanding and experience of the Company’s operations, our knowledge of the industry and market-participant data available to us. Actual results have historically been in line with management’s estimates and judgments used in applying each of the accounting policies and management periodically re-evaluates accounting estimates and assumptions. Actual results could differ from these estimates and materially impact our Consolidated Financial Statements. However, the Company does not expect our assessments and assumptions to materially change in the future.

Real Estate, Held-for-Sale 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 to sell. The Company suspends depreciation and amortization for assets held-for-sale. Subsequent changes to the estimated fair value less costs to sell could impact the measurement of assets held-for-sale. Decreases below carrying value are recognized as an impairment loss and recorded in "Impairment and other losses" on the Consolidated Statements of Operations. To the extent the fair value increases, any previously reported impairment is reversed to the extent of the impairment taken.
On March 7, 2018, the Company announced it was actively pursuing the sale of 26 owned Traditional Golf properties in order to generate capital for reinvestment in the Entertainment Golf business. As of June 30, 2020, the Company continued to present one golf property as held-for-sale. The assets and associated liabilities are reported on the Consolidated Balance Sheets as “Real estate assets, held-for-sale, net” and “Real estate liabilities, held-for-sale,” respectively.
 
7

DRIVE SHACK INC. AND SUBSIDIARIES
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
June 30, 2020
(dollars in tables in thousands, except share data)
The real estate assets, held-for-sale, net are reported at a carrying value of $17.0 million and include $12.6 million of land, $4.0 million of buildings and improvements, $0.2 million of furniture, fixtures and equipment, and $0.2 million of other related assets.

Leasing Arrangements The Company evaluates at lease inception whether an arrangement is or contains a lease by providing the Company with the right to control an asset. Operating leases are accounted for on balance sheet with the Right of Use (“ROU”) assets and lease liabilities recognized in "Operating lease right-of-use assets," "Other current liabilities" and "Operating lease liabilities - noncurrent" in the Consolidated Balance Sheets. Finance lease ROU assets, current lease liabilities and noncurrent lease liabilities are recognized in "Property and equipment, net of accumulated depreciation," and "Obligations under finance leases" and "Credit facilities and obligations under finance leases - noncurrent" in the Consolidated Balance Sheets, respectively.

All lease liabilities are measured at the present value of the associated payments, discounted using the Company’s incremental borrowing rate determined using a portfolio approach based on the rate of interest that the Company would pay to borrow an amount equal to the lease payments for a similar term and in a similar economic environment on a collateralized basis. ROU assets, for both operating and finance leases, are initially measured based on the lease liability, adjusted for initial direct costs, prepaid rent, and lease incentives received. Operating leases are subsequently amortized into lease cost on a straight-line basis. Depreciation of the finance lease ROU assets is subsequently calculated using the straight-line method over the shorter of the estimated useful lives or the expected lease terms and recorded in "Depreciation and amortization" on the Consolidated Statements of Operations.

In addition to the fixed minimum payments required under the lease arrangements, certain leases require variable lease payments, which are payment of the excess of various percentages of gross revenue or net operating income over the minimum rental payments as well as payment of taxes assessed against the leased property. The leases generally also require the payment for the cost of insurance and maintenance. Variable lease payments are recognized when the associated activity occurs and contingency is resolved.

The Company has elected to combine lease and non-lease components for all lease contracts.

Other Investments The Company owns an approximately