Drive Shack Inc. Quarterly report pursuant to Section 13 or 15(d)

Quarterly report pursuant to Section 13 or 15(d)

EQUITY AND EARNINGS PER SHARE

EQUITY AND EARNINGS PER SHARE

3 Months Ended

Mar. 31, 2019

Stockholders' Equity Note [Abstract]

A. Stock Options

The following is a summary of the changes in the Company’s outstanding options for the three months ended March 31, 2019:



	Number of Options	Weighted Average Strike Price		Weighted Average Life Remaining (in years)
Balance at December 31, 2018	8,436,931	$	3.72
Balance at March 31, 2019	8,436,931	$	3.72	7.47

Exercisable at March 31, 2019	2,705,586	$	2.64	4.39

As of March 31, 2019, the Company’s outstanding options were summarized as follows:



	Number of Options
Held by the former Manager	2,705,253
Issued to the former Manager and subsequently transferred to certain of the Manager’s employees (A)	2,304,990
Issued to the independent directors	333
Issued to Drive Shack employees (B)	3,426,355
Total	8,436,931
Weighted average strike price	$	3.72

(A)

The Company and the former Manager agreed that options held by certain employees formerly employed by the Manager would not terminate or be forfeited as a result of the Termination and Cooperation Agreement, and the vesting of such options relate to the relevant holder’s employment with the Company and its affiliates following January 1, 2018. In both February 2017 and April 2018, the former Manager issued 1,152,495 options to certain employees formerly employed by the Manager as part of their compensation. The options fully vest and are exercisable one year prior to the option expiration date, beginning March 2020 through January 2024.


(B)	In November 2018, the Company issued options to certain employees as provided in their employment agreements. The options fully vest and are exercisable as follows: 3,351,355 options vest in equal annual installments on each of the first three anniversaries of the grant date; and 75,000 options fully vest on the third anniversary of the grant date.

The valuation of the employee options has been determined using the Black-Scholes option valuation model. The Black-Scholes option valuation model uses assumptions of expected volatility, expected dividend yield of the Company’s stock, expected term of the awards and the risk-free interest rate.

Stock-based compensation expense is recognized on a straight-line basis through the vesting date of the options. Stock-based compensation expense related to the employee options was $1.2 million and $0.3 million during the three months ended March 31, 2019 and 2018, respectively, and was recorded in general and administrative expense on the Consolidated Statements of Operations. The unrecognized stock-based compensation expense related to the unvested options was $12.0 million as of March 31, 2019 and will be expensed over a weighted average of 2.1 years.

B. Restricted Stock Units ("RSUs")

The following is a summary of the changes in the Company’s RSUs for the three months ended March 31, 2019.



	Number of RSUs	Weighted Average Grant Date Fair Value (per unit)
Balance at December 31, 2018	54,641	$	5.02
Balance at March 31, 2019	54,641	$	5.02

The Company granted RSUs to the non-employee directors as part of their 2018 annual compensation. The RSUs are subject to a one year vesting period and begin to vest in August 2019. Stock-based compensation expense is recognized on a straight-line basis through the vesting date of the RSUs. Stock-based compensation expense related to the RSUs was less than $0.1 million and zero during the three months ended March 31, 2019 and 2018, respectively and was recorded in general and administrative expense on the Consolidated Statements of Operations. The unrecognized stock-based compensation expense related to the unvested RSUs was $0.1 million as of March 31, 2019 and will be expensed over a weighted average of 0.5 years.

C. Dividends

On March 13, 2019, the Company declared dividends of $0.609375, $0.503125 and $0.523438 per share on the 9.750% Series B, 8.050% Series C and 8.375% Series D preferred stock, respectively, for the period beginning February 1, 2019 and ending April 30, 2019. Dividends totaling $1.4 million were paid on April 29, 2019.

D. Earnings Per Share

The following table shows the Company's basic and diluted earnings per share (“EPS”):



	Three Months Ended March 31,
	2019			2018
Numerator for basic and diluted earnings per share:
Loss from continuing operations after preferred dividends and noncontrolling interests	$	(15,995	)	$	(17,690	)
Loss Applicable to Common Stockholders	$	(15,995	)	$	(17,690	)

Denominator:
Denominator for basic earnings per share - weighted average shares	67,027,104			66,977,104
Effect of dilutive securities
Options	—			—
RSUs	—			—
Denominator for diluted earnings per share - adjusted weighted average shares	67,027,104			66,977,104

Basic earnings per share:
Loss from continuing operations per share of common stock, after preferred dividends and noncontrolling interests	$	(0.24	)	$	(0.26	)

Loss Applicable to Common Stock, per share	$	(0.24	)	$	(0.26	)

Diluted earnings per share:
Loss from continuing operations per share of common stock, after preferred dividends and noncontrolling interests	$	(0.24	)	$	(0.26	)

Loss Applicable to Common Stock, per share	$	(0.24	)	$	(0.26	)

The Company’s dilutive securities are its outstanding stock options and RSUs. During the three months ended March 31, 2019 and 2018, the Company had 706,694 and zero antidilutive options, respectively. During the three months ended March 31, 2019 and 2018 based on the treasury stock method, the Company had 2,233,692 and 2,509,765 potentially dilutive securities, respectively, which were excluded due to the Company's loss position.