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

Quarterly report pursuant to Section 13 or 15(d)

SEGMENT REPORTING AND VARIABLE INTEREST ENTITIES (Tables)

SEGMENT REPORTING AND VARIABLE INTEREST ENTITIES (Tables)

3 Months Ended

Mar. 31, 2013

Segment Reporting And Variable Interest Entities Tables

Summary financial data on Newcastle’s segments is given below, together with a reconciliation to the same data for Newcastle as a whole:

	Non-Recourse CDOs (A)			Unlevered CDOs (B)		Unlevered Excess MSRs			Non-Recourse Senior Living			Non-Recourse Other (A) (C)			Recourse (D)			Unlevered Other (E)			Corporate			Inter-segment Elimination (F)			Total
Three Months Ended March 31, 2013
Interest income	$	31,589		$	239	$	10,035		$	—		$	16,307		$	7,285		$	6,706		$	72		$	(866	)	$	71,367
Interest expense		7,131			—		—			1,232			12,383			1,878			—			952			(866	)		22,710
Net interest income (expense)		24,458			239		10,035			(1,232	)		3,924			5,407			6,706			(880	)		—			48,657
Impairment (reversal)		3,183			—		—			—			848			—			(1,258	)		—			—			2,773
Other revenues		—			—		—			12,997			503			—			—			—			—			13,500
Other income (loss)		4,497			74		2,827			8			—			—			1,191			—			—			8,597
Property operating expenses		—			—		—			8,116			247			—			—			—			—			8,363
Depreciation and amortization		—			—		—			4,022			57			—			—			—			—			4,079
Other operating expenses		194			—		221			2,388			719			42			95			13,851			—			17,510
Income (loss) from continuing operations		25,578			313		12,641			(2,753	)		2,556			5,365			9,060			(14,731	)		—			38,029
Income (loss) from discontinued operations		—			—		—			—			—			—			(16	)		—			—			(16	)
Net income (loss)		25,578			313		12,641			(2,753	)		2,556			5,365			9,044			(14,731	)		—			38,013
Preferred dividends		—			—		—			—			—			—			—			(1,395	)		—			(1,395	)
Income (loss) applicable to common stockholders	$	25,578		$	313	$	12,641		$	(2,753	)	$	2,556		$	5,365		$	9,044		$	(16,126	)	$	—		$	36,618

March 31, 2013

Investments	$	1,347,691		$	5,254	$	339,143		$	177,993		$	708,998		$	1,634,243		$	470,509		$	—		$	(61,847	)	$	4,621,984
Cash and restricted cash		11,494			—		—			10,207			—			—			—			524,565			—			546,266
Derivative assets		—			—		—			176			—			—			—			—			—			176
Other assets		7,556			6		—			7,537			91			9,893			2,350			299			(155	)		27,577
Total assets		1,366,741			5,260		339,143			195,913			709,089			1,644,136			472,859			524,864			(62,002	)		5,196,003
Debt		(1,015,560	)		—		—			(120,525	)		(641,685	)		(1,473,586	)		—			(51,242	)		61,847			(3,240,751	)
Derivative liabilities		(26,612	)		—		—			—			—			—			—			—			—			(26,612	)
Other liabilities		(5,510	)		—		(280	)		(4,935	)		(1,444	)		(142	)		(854	)		(66,131	)		155			(79,141	)
Total liabilities		(1,047,682	)		—		(280	)		(125,460	)		(643,129	)		(1,473,728	)		(854	)		(117,373	)		62,002			(3,346,504	)
Preferred stock		—			—		—			—			—			—			—			(61,583	)		—			(61,583	)
GAAP book value	$	319,059		$	5,260	$	338,863		$	70,453		$	65,960		$	170,408		$	472,005		$	345,908		$	—		$	1,787,916

Investments in equity method investees at fair value	$	—		$	—	$	102,588		$	—		$	—		$	—		$	—		$	—		$	—		$	102,588
Additions to investments in real estate		—			—		—			130			129			—			—			—			—			259

	Non-Recourse CDOs (A)			Unlevered CDOs (B)		Unlevered Excess MSRs		Non-Recourse Senior Living		Non-Recourse Other (A)		Recourse		Unlevered Other			Corporate			Inter-segment Elimination (F)			Total

Three Months Ended March 31, 2012
Interest income	$	54,402		$	115	$	2,037	$	—	$	18,426	$	814	$	523		$	51		$	(1,469	)	$	74,899
Interest expense		17,636			—		—		—		12,663		268		—			954			(1,356	)		30,165
Net interest income (expense)		36,766			115		2,037		—		5,763		546		523			(903	)		(113	)		44,734
Impairment (reversal)		(8,531	)		—		—		—		1,648		—		(197	)		—			—			(7,080	)
Other revenues		—			—		—		—		509		—		—			—			—			509
Other income (loss)		29,913			92		1,216		—		—		—		(1,469	)		—			—			29,752
Property operating expenses		—			—		—		—		338		—		—			—			(113	)		225
Depreciation and amortization		—			—		—		—		2		—		—			—			—			2
Other operating expenses		241			1		123		—		844		—		13			7,138			—			8,360
Income (loss) from continuing operations		74,969			206		3,130		—		3,440		546		(762	)		(8,041	)		—			73,488
Income (loss) from discontinued operations		—			—		—		—		—		—		(17	)		—			—			(17	)
Net income (loss)		74,969			206		3,130		—		3,440		546		(779	)		(8,041	)		—			73,471
Preferred dividends		—			—		—		—		—		—		—			(1,395	)		—			(1,395	)
Income (loss) applicable to common stockholders	$	74,969		$	206	$	3,130	$	—	$	3,440	$	546	$	(779	)	$	(9,436	)		—		$	72,076

(A)

Assets held within CDOs and other non-recourse structures are not available to satisfy obligations outside of such financings, except to the extent Newcastle receives net cash flow distributions from such structures. Furthermore, creditors or beneficial interest holders of these structures have no recourse to the general credit of Newcastle. Therefore, Newcastle’s exposure to the economic losses from such structures is limited to its invested equity in them and economically their book value cannot be less than zero. Therefore, impairment recorded in excess of Newcastle’s investment, which results in negative GAAP book value for a given non-recourse financing structure, cannot economically be incurred and will eventually be reversed through amortization, sales at gains, or as gains at the deconsolidation or termination of such non-recourse financing structure.

(B)	Represents unlevered investments in CDO securities issued by Newcastle. These CDOs have been deconsolidated as Newcastle does not have the power to direct the relevant activities of the CDOs.

(C)	The following table summarizes the investments and debt in the other non-recourse segment:

	March 31, 2013
	Investments				Debt
	Outstanding		Carrying		Outstanding		Carrying
	Face Amount		Value		Face Amount*		Value*
Manufactured housing loan portfolio I	$	114,355	$	96,752	$	86,490	$	78,102
Manufactured housing loan portfolio II		146,865		144,274		112,046		111,447
Subprime mortgage loans subject to call options		406,217		406,115		406,217		406,115
Real estate securities		62,633		55,117		43,989		40,021
Other commercial real estate		N/A		6,740		6,000		6,000
	$	730,070	$	708,998	$	654,742	$	641,685

*	An aggregate face amount of $70.5 million (carrying value of $61.8 million) of debt represents financing provided by the CDO segment (and included as investments in the CDO segment), which is eliminated upon consolidation.

(D)

The $1.5 billion of recourse debt is comprised of (i) a $1.3 billion repurchase agreement secured by $1.4 billion carrying value of FNMA/FHLMC securities and (ii) a $158.0 million repurchase agreement secured by $233.8 million carrying value of non-agency residential mortgage backed securities (“RMBS”).

(E)	The following table summarizes the investments in the unlevered other segment:

	March 31, 2013
	Outstanding Face Amount		Carrying Value		Number of Investments
Real estate securities	$	592,450	$	292,337		63
Real estate related loans		265,209		96,612		2
Residential mortgage loans		112,716		75,536		646
Other investments		N/A		6,024		1
	$	970,375	$	470,509		712

(F)	Represents the elimination of investments and financings and their related income and expenses between the CDO segment and other non-recourse segment as the corresponding inter-segment investments and financings are presented on a gross basis within each of these segments.

Schedule of Segment Other Non-Recourse Investments and Debt

The following table summarizes the investments and debt in the other non-recourse segment:

	March 31, 2013
	Investments				Debt
	Outstanding		Carrying		Outstanding		Carrying
	Face Amount		Value		Face Amount*		Value*
Manufactured housing loan portfolio I	$	114,355	$	96,752	$	86,490	$	78,102
Manufactured housing loan portfolio II		146,865		144,274		112,046		111,447
Subprime mortgage loans subject to call options		406,217		406,115		406,217		406,115
Real estate securities		62,633		55,117		43,989		40,021
Other commercial real estate		N/A		6,740		6,000		6,000
	$	730,070	$	708,998	$	654,742	$	641,685

Schedule of Segment Reporting Investments in Unlevered Other Segment

The following table summarizes the investments in the unlevered other segment:

	March 31, 2013
	Outstanding Face Amount		Carrying Value		Number of Investments
Real estate securities	$	592,450	$	292,337		63
Real estate related loans		265,209		96,612		2
Residential mortgage loans		112,716		75,536		646
Other investments		N/A		6,024		1
	$	970,375	$	470,509		712

Schedule of Holdings in Variable Interest Entities

Newcastle had variable interests in the following unconsolidated VIE at March 31, 2013, in addition to the subprime securitizations which are described in Note 4:

Entity		Gross Assets (A)				Debt (A) (B)				Carrying Value of Newcastle’s Investment (C)
Newcastle CDO V		$	225,628			$	241,263			$	5,254

(A)	Face amount.

(B)	Includes $42.2 million face amount of debt owned by Newcastle with a carrying value of $5.3 million at March 31, 2013.

(C)	This amount represents Newcastle’s maximum exposure to loss from this entity, which was the fair value at March 31, 2013, related to $17.8 million face amount of CDO V Class I, III, and IV-FL notes.

- Definition

Tabular disclosure of the profit or loss and total assets for each reportable segment. An entity discloses certain information on each reportable segment if the amounts (a) are included in the measure of segment profit or loss reviewed by the chief operating decision maker or (b) are otherwise regularly provided to the chief operating decision maker, even if not included in that measure of segment profit or loss.

+ References + Details