Annual report pursuant to Section 13 and 15(d)

REAL ESTATE SECURITIES (Tables)

v3.6.0.2
REAL ESTATE SECURITIES (Tables)
 12 Months Ended
Dec. 31, 2016
Investments, Debt and Equity Securities [Abstract]  
Schedule of real estate securities holdings
The following is a summary of Drive Shack Inc.’s real estate securities at December 31, 2016 and 2015, all of which are classified as available for sale and are, therefore, reported at fair value with changes in fair value recorded in other comprehensive income, except for securities that are other-than-temporarily impaired.
 
 
 
 
Amortized Cost Basis
 
Gross Unrealized
 
 
 
 
 
Weighted Average
Asset Type
 
Outstanding
Face Amount
 
Before
Impairment
 
Other-Than-
Temporary-
Impairment (A)
 
After
Impairment
 
Gains
 
Losses
 
Carrying Value
(B)
 
Number of
Securities
 
Rating
(C)
 
Coupon
 
Yield
 
Life
(Years)
(D)
 
Principal
Subordination
(E)
December 31, 2016
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
ABS - Non-Agency RMBS
 
$
4,000

 
$
2,303

 
$
(1,521
)
 
$
782

 
$
1,168

 
$
—

 
$
1,950

 
1

 
C
 
1.15
%
 
25.45
%
 
9.0

 
27.9
%
Debt Security Total/Average (F)
 
$
4,000

 
$
2,303

 
$
(1,521
)
 
$
782

 
$
1,168

 
$
—

 
$
1,950

 
1

 
C
 
1.15
%
 
25.45
%
 
9.0

 
 
Equity Securities
 
 
 
—

 
—

 
—

 
—

 
—

 
—

 
1

 
 
 
 
 
 
 
 
 
 
Total Securities, Available-for-Sale
 
 
 
$
2,303

 
$
(1,521
)
 
$
782

 
$
1,168

 
$
—

 
$
1,950

 
2

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
FNMA/FHLMC (A)
 
619,808

 
650,432

 
(23,128
)
 
627,304

 
—

 
—

 
627,304

 
15

 
AAA
 
3.28
%
 
2.65
%
 
8.4

 
N/A

Total Securities, Pledged as Collateral (F)
 
$
619,808

 
$
650,432

 
$
(23,128
)
 
$
627,304

 
$
—

 
$
—

 
$
627,304

 
15

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
December 31, 2015
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
CMBS
 
$
67,669

 
$
78,416

 
$
(55,372
)
 
$
23,044

 
$
16,673

 
$
(33
)
 
$
39,684

 
16

 
B
 
4.97
%
 
14.78
%
 
2.1

 
26.1
%
ABS - Non-Agency RMBS
 
16,477

 
23,403

 
(20,667
)
 
2,736

 
6,958

 
(75
)
 
9,619

 
9

 
CC
 
1.89
%
 
11.95
%
 
11.0

 
9.7
%
ABS-Small Business Loans
 
8,464

 
7,647

 
(7,647
)
 
—

 
—

 
—

 
—

 
1

 
C
 
6.69
%
 
—
%
 
—

 
—
%
CDO (F)
 
14,632

 
—

 
—

 
—

 
9,731

 
—

 
9,731

 
2

 
C
 
1.80
%
 
—
%
 
7.2

 
25.1
%
Debt Security Total/Average (F)
 
$
107,242

 
$
109,466

 
$
(83,686
)
 
$
25,780

 
$
33,362

 
$
(108
)
 
$
59,034

 
28

 
CCC+
 
4.20
%
 
14.48
%
 
4.0

 
 
Equity Securities
 
 
 
—

 
—

 
—

 
—

 
—

 
—

 
2

 
 
 
 
 
 
 
 
 
 
Total Securities, Available-for-Sale
 
 
 
$
109,466

 
$
(83,686
)
 
$
25,780

 
$
33,362

 
$
(108
)
 
$
59,034

 
30

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
FNMA/FHLMC
 
102,660

 
105,940

 
—

 
105,940

 
23

 
—

 
105,963

 
3

 
AAA
 
3.50
%
 
2.99
%
 
7.8

 
N/A

Total Securities, Pledged as Collateral (F)
 
$
102,660

 
$
105,940

 
$
—

 
$
105,940

 
$
23

 
$
—

 
$
105,963

 
3

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 

(A)
In December 2016, Drive Shack Inc. reclassified gross unrealized losses of $23.1 million from other comprehensive income into earnings on FNMA/FHLMC securities that the Company intends to sell and recorded in realized/unrealized (gain) loss on investments in the Consolidated Statements of Operations.
(B)
See Note 10 regarding the estimation of fair value, which is equal to carrying value for all securities.
(C)
Represents the weighted average of the ratings of all securities in each asset type, expressed as an S&P equivalent rating. For each security rated by multiple rating agencies, the lowest rating is used. Drive Shack Inc. used an implied AAA rating for the FNMA/FHLMC securities. Ratings provided were determined by third party rating agencies, represent the most recent credit ratings available as of the reporting date and may not be current.
(D)
The weighted average life is based on the timing of expected cash flows on the assets.
(E)
Percentage of the outstanding face amount of securities and residual interests that is subordinate to Drive Shack Inc.’s investments.
(F)
As of December 31, 2016 and 2015, the total outstanding face amount of fixed rate securities was $619.8 million and $168.5 million, respectively, and of floating rate securities were $4.0 million and $41.4 million, respectively.
(G)
Excludes eight CDO securities with zero value which had an aggregate face amount of $116.0 million as of December 31, 2015. The Company sold these securities during 2016.

Schedule of real estate securities holdings in an unrealized loss position
The following table summarizes Drive Shack Inc.’s securities in an unrealized loss position as of December 31, 2016.
 
 
 
Amortized Cost Basis
 
Gross Unrealized
 
 
 
 
 
Weighted Average
Securities in
an Unrealized
Loss Position
Outstanding
Face
Amount
 
Before
Impairment
 
Other-than-
Temporary
Impairment (A)
 
After
Impairment
 
Gains
 
Losses
 
Carrying
Value
 
Number
of
Securities
 
Rating
 
Coupon
 
Yield
 
Life
(Years)
Less Than    
   Twelve        
      Months
$
619,808

 
$
650,432

 
$
(23,128
)
 
$
627,304

 
$
—

 
$
—

 
$
627,304

 
15

 
AAA
 
3.28
%
 
2.65
%
 
8.4

Twelve or     
   More        
      Months
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—
 
—
 
—
 
—

Total
$
619,808

 
$
650,432

 
$
(23,128
)
 
$
627,304

 
$
—

 
$
—

 
$
627,304

 
15

 
AAA
 
3.28
%
 
2.65
%
 
8.4

Drive Shack Inc. performed an assessment of all of its debt securities that are in an unrealized loss position (unrealized loss position exists when a security’s amortized cost basis, excluding the effect of OTTI, exceeds its fair value) and determined the following:
 
December 31, 2016
 
 
 
Amortized Cost Basis
 
Unrealized Losses
 
Fair Value
 
After Impairment
 
Credit (C)
 
Non-Credit (D)
Securities Drive Shack Inc.intends to sell (A)
$
627,304

 
$
627,304

 
$
—

 
N/A

Securities Drive Shack Inc. is more likely than not to be required to sell (B)
—

 
—

 
—

 
N/A

Securities Drive Shack Inc. has no intent to sell and is not more likely than not to be required to sell:
 
 
 
 
 
 
 
Credit impaired securities
—

 
—

 
—

 
—

Non-credit impaired securities
—

 
—

 
—

 
—

Total debt securities in an unrealized loss position
$
627,304

 
$
627,304

 
$
—

 
$
—

 
(A)
In December 2016, Drive Shack Inc. reclassified gross unrealized losses of $23.1 million from other comprehensive income into earnings on FNMA/FHLMC securities that the Company intends to sell and recorded in realized/unrealized (gain) loss on investments in the Consolidated Statements of Operations.
(B)
Drive Shack Inc. may, at times, be more likely than not to be required to sell certain securities for liquidity purposes. While the amount of the securities to be sold may be an estimate, and the securities to be sold have not yet been identified, Drive Shack Inc. must make its best estimate, which is subject to significant judgment regarding future events, and may differ materially from actual future sales.
(C)
This amount is required to be recorded as other-than-temporary impairment through earnings. In measuring the portion of credit losses, Drive Shack Inc.’s management estimates the expected cash flow for each of the securities. This evaluation includes a review of the credit status and the performance of the collateral supporting those securities, including the credit of the issuer, key terms of the securities and the effect of local, industry and broader economic trends. Significant inputs in estimating the cash flows include management’s expectations of prepayment speeds, default rates and loss severities. Credit losses are measured as the decline in the present value of the expected future cash flows discounted at the investment’s effective interest rate.
(D)
This amount represents unrealized losses on securities that are due to non-credit factors and is required to be recorded through other comprehensive income.

Schedule of credit losses on debt securities
The following table summarizes the activity related to credit losses on debt securities:
 
2016
 
2015
Beginning balance of credit losses on debt securities for which a portion of an OTTI was recognized in other comprehensive income
$
(3,010
)
 
$
(4,174
)
 
 
 
 
Additions for credit losses on securities for which an OTTI was not previously recognized
—

 
(1,567
)
 
 
 
 
Additions to credit losses on securities for which an OTTI was previously recognized and a portion of an OTTI was recognized in other comprehensive income
(110
)
 
—

 
 
 
 
Additions for credit losses on securities for which an OTTI was previously recognized without any portion of OTTI recognized in other comprehensive income
—

 
(1,443
)
 
 
 
 
Reduction for credit losses on securities for which no OTTI was recognized in other comprehensive income at the current measurement date
—

 
4,174

 
 
 
 
Reduction for securities deconsolidated during the period
3,120

 
—

 
 
 
 
Reduction for securities sold/written off during the period
—

 
—

 
 
 
 
Reduction for increases in cash flows expected to be collected that are recognized over the remaining life of the security
—

 
—

 
 
 
 
Ending balance of credit losses on debt securities for which a portion of an OTTI was recognized in other comprehensive income
$
—

 
$
(3,010
)
Schedule of geographic distribution of collateral securing Newcastle's CMBS and ABS
The table below summarizes the geographic distribution of the collateral securing the ABS at December 31, 2016:
 
 
ABS - Non-Agency RMBS
Geographic Location
 
Outstanding Face Amount
 
Percentage
Northeastern U.S.
 
$
623

 
15.6
%
Southeastern U.S.
 
1,056

 
26.4
%
Midwestern U.S.
 
426

 
10.7
%
Western U.S.
 
1,297

 
32.4
%
Southwestern U.S.
 
598

 
14.9
%
 
 
$
4,000

 
100.0
%
Schedule of FNMA/FHLMC activity
The table below summarizes the FNMA/FHLMC activity for the years ended December 31, 2016 and 2015 (dollars in millions):

Settlement Date
 
Activity
 
Face Amount of FNMA/FHLMC Purchased (Sold)
 
Average Price % of Par
 
Total Proceeds (Payment)
 
Gain (Loss)
 
Repurchase Agreement Financed (Repaid)
March 2015 (A)
 
Sale
 
$
(380.4
)
 
104.7
%
 
$
398.4

 
$
5.9

 
$
(385.6
)
March 2015
 
Purchase
 
$
389.1

 
104.8
%
 
$
(407.6
)
 
N/A

 
$
386.1

July 2015 (B)
 
Sale
 
$
(380.4
)
 
103.1
%
 
$
392.3

 
$
(5.9
)
 
$
(375.7
)
July 2015
 
Purchase
 
$
403.9

 
102.9
%
 
$
(415.6
)
 
 N/A

 
$
393.8

July 2015
 
Purchase
 
$
201.9

 
102.9
%
 
$
(207.7
)
 
 N/A

 
$
196.7

September 2015 (A)
 
Sale
 
$
(250.4
)
 
103.8
%
 
$
260.0

 
$
2.5

 
$
(250.1
)
October 2015 (B)
 
Sale
 
$
(348.9
)
 
104.3
%
 
$
364.0

 
$
5.1

 
$
(345.9
)
October 2015
 
Purchase
 
$
354.8

 
104.4
%
 
$
(370.5
)
 
 N/A

 
$
352.6

January 2016 (B)
 
Sale
 
$
(350.3
)
 
103.2
%
 
$
361.3

 
$
(3.9
)
 
$
(348.6
)
January 2016
 
Purchase
 
$
102.7

 
103.2
%
 
$
(105.9
)
 
 N/A

 
$
102.2

January 2016
 
Purchase
 
$
250.1

 
103.2
%
 
$
(258.1
)
 
 N/A

 
$
249.1

April 2016 (B)
 
Sale
 
$
(347.5
)
 
104.9
%
 
$
364.3

 
$
5.9

 
$
(352.0
)
April 2016
 
Purchase
 
$
363.1

 
105.0
%
 
$
(381.1
)
 
 N/A

 
$
366.4

July 2016 (B)
 
Sale
 
$
(353.6
)
 
105.5
%
 
$
373.1

 
$
1.8

 
$
(361.1
)
July 2016
 
Purchase
 
$
428.9

 
105.7
%
 
$
(453.1
)
 
 N/A

 
$
434.9

August 2016
 
Purchase
 
$
249.6

 
103.9
%
 
$
(259.3
)
 
 N/A

 
$
248.7

August 2016
 
Purchase
 
$
116.8

 
105.7
%
 
$
(123.5
)
 
 N/A

 
$
118.6

September 2016
 
Purchase
 
$
35.6

 
103.8
%
 
$
(37.0
)
 
 N/A

 
$
35.4

October 2016
 
Purchase
 
$
776.9

 
103.6
%
 
$
(805.1
)
 
N/A

 
$
769.6

October 2016
 
Purchase
 
$
632.2

 
104.9
%
 
$
(663.5
)
 
N/A

 
$
628.2

October 2016 (B)
 
Sale
 
$
(817.2
)
 
105.0
%
 
$
858.2

 
$
0.1

 
$
(831.7
)
November 2016 (A)
 
Sale
 
$
(779.0
)
 
101.5
%
 
$
790.7

 
$
(16.2
)
 
$
(773.7
)
(A)
The gain (loss) on these sales was recorded on the trade date.
(B)
The gain (loss) on these sales was recorded on the trade date which occurred in the month prior to the settlement date.