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

Quarterly report pursuant to Section 13 or 15(d)

SEGMENT REPORTING (Tables)

SEGMENT REPORTING (Tables)

6 Months Ended

Jun. 30, 2016

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



	Debt Investments (A)
	CDOs			Other Debt (B)			Golf			Corporate			Total
Six Months Ended June 30, 2016
Interest income	$	1,097		$	40,278		$	77		$	8		$	41,460
Interest expense	(491		)	(18,586		)	(5,363		)	(1,511		)	(25,951		)
Net interest income (expense)	606			21,692			(5,286		)	(1,503		)	15,509
Total impairment	110			2,843			—			—			2,953
Total operating revenues	—			—			146,642			—			146,642
Total other income (loss), net	82,130			(2,343		)	(292		)	—			79,495
Loan and security servicing expense	30			8			—			—			38
Operating expenses - golf (C)	—			—			117,818			—			117,818
Operating expenses - golf, repairs and maintenance expenses	—			—			4,286			—			4,286
Cost of sales - golf	—			—			15,428			—			15,428
General and administrative expense	—			—			1,546			3,666			5,212
General and administrative expense - acquisition and transaction expenses (D)	—			—			1,239			171			1,410
Management fee to affiliate	—			—			—			5,351			5,351
Depreciation and amortization	—			—			12,515			—			12,515
Income tax expense	—			—			182			—			182
Income (loss) from continuing operations	82,596			16,498			(11,950		)	(10,691		)	76,453
Net income (loss)	82,596			16,498			(11,950		)	(10,691		)	76,453
Preferred dividends	—			—			—			(2,790		)	(2,790		)
Net loss attributable to noncontrolling interests	—			—			12			—			12
Income (loss) applicable to common stockholders	$	82,596		$	16,498		$	(11,938	)	$	(13,481	)	$	73,675

Summary segment financial data (continued).



	Debt Investments (A)
	CDOs		Other Debt (B)			Golf			Corporate			Total
Three Months Ended June 30, 2016
Interest income	$	—	$	20,382		$	36		$	3		$	20,421
Interest expense	—		(9,153		)	(2,698		)	(566		)	(12,417		)
Net interest income (expense)	—		11,229			(2,662		)	(563		)	8,004
Total impairment	—		645			—			—			645
Total operating revenues	—		—			84,484			—			84,484
Total other income (loss), net	—		(940		)	(8		)	—			(948		)
Loan and security servicing expense	—		1			—			—			1
Operating expenses - golf (C)	—		—			63,105			—			63,105
Operating expenses - golf, repairs and maintenance expenses	—		—			2,394			—			2,394
Cost of sales - golf	—		—			9,217			—			9,217
General and administrative expense	—		—			706			1,782			2,488
General and administrative expense - acquisition and transaction expenses (D)	—		—			1,100			134			1,234
Management fee to affiliate	—		—			—			2,676			2,676
Depreciation and amortization	—		—			6,484			—			6,484
Income tax expense	—		—			138			—			138
Income (loss) from continuing operations	—		9,643			(1,330		)	(5,155		)	3,158
Net income (loss)	—		9,643			(1,330		)	(5,155		)	3,158
Preferred dividends	—		—			—			(1,395		)	(1,395		)
Net income attributable to noncontrolling interests	—		—			(112		)	—			(112		)
Income (loss) applicable to common stockholders	$	—	$	9,643		$	(1,442	)	$	(6,550	)	$	1,651

Summary segment financial data (continued).



	Debt Investments (A)
	CDOs		Other Debt (B)		Golf			Corporate			Total
June 30, 2016
Investments	$	—	$	994,041	$	298,103		$	—		$	1,292,144
Cash and restricted cash	—		665		10,718			46,742			58,125
Other assets	—		379,119		38,184			82			417,385
Total assets	—		1,373,825		347,005			46,824			1,767,654
Debt, net	—		724,016		112,843			51,221			888,080
Other liabilities	—		456,694		164,100			3,141			623,935
Total liabilities	—		1,180,710		276,943			54,362			1,512,015
Preferred stock	—		—		—			61,583			61,583
Noncontrolling interests	—		—		(269		)	—			(269		)
Equity (deficit) attributable to common stockholders	$	—	$	193,115	$	70,331		$	(69,121	)	$	194,325

Additions to investments in real estate during the six months ended June 30, 2016	$	—	$	—	$	10,822		$	—		$	10,822

Summary segment financial data (continued).



	Debt Investments (A)												Discontinued
	CDOs			Other Debt			Golf			Corporate			Operations		Eliminations			Total
Six Months Ended June 30, 2015
Interest income	$	29,607		$	24,660		$	72		$	9		$	—	$	(3,005	)	$	51,343
Interest expense	(5,313		)	(19,173		)	(10,305		)	(1,891		)	—		3,005			(33,677		)
Inter-segment elimination	(3,005		)	—			3,005			—			—		—			—
Net interest income (expense)	21,289			5,487			(7,228		)	(1,882		)	—		—			17,666
Total impairment	12,206			1,878			—			—			—		—			14,084
Total operating revenues	—			—			143,629			—			—		—			143,629
Total other income (loss), net	30,271			(177		)	(228		)	8			—		—			29,874
Loan and security servicing expense	214			—			—			—			—		—			214
Operating expenses - golf (C)	—			—			115,988			—			—		—			115,988
Operating expenses - golf, repairs and maintenance expenses	—			—			4,387			—			—		—			4,387
Cost of sales - golf	—			—			15,161			—			—		—			15,161
General and administrative expense	—			—			1,041			3,821			—		—			4,862
General and administrative expense - acquisition and transaction expenses (D)	—			—			321			17			—		—			338
Management fee to affiliate	—			—			—			5,342			—		—			5,342
Depreciation and amortization	—			—			13,872			—			—		—			13,872
Income tax expense	—			—			73			—			—		—			73
Income (loss) from continuing operations	39,140			3,432			(14,670		)	(11,054		)	—		—			16,848
Income from discontinued operations	—			—			—			—			639		—			639
Net income (loss)	39,140			3,432			(14,670		)	(11,054		)	639		—			17,487
Preferred dividends	—			—			—			(2,790		)	—		—			(2,790		)
Net loss attributable to non-controlling interests	—			—			230			—			—		—			230
Income (loss) applicable to common stockholders	$	39,140		$	3,432		$	(14,440	)	$	(13,844	)	$	639	$	—		$	14,927

Summary segment financial data (continued).



	Debt Investments (A)												Discontinued
	CDOs			Other Debt			Golf			Corporate			Operations		Eliminations			Total
Three Months Ended June 30, 2015
Interest income	$	13,685		$	12,065		$	36		$	5		$	—	$	(1,526	)	$	24,265
Interest expense	(2,730		)	(9,594		)	(5,207		)	(945		)	—		1,526			(16,950		)
Inter-segment elimination	(1,526		)	—			1,526			—			—		—			—
Net interest income (expense)	9,429			2,471			(3,645		)	(940		)	—		—			7,315
Total impairment (reversal)	11,869			1,810			—			—			—		—			13,679
Total operating revenues	—			—			82,803			—			—		—			82,803
Total other income (loss), net	29,740			(140		)	(235		)	8			—		—			29,373
Loan and security servicing expense	118			—			—			—			—		—			118
Operating expenses - golf (C)	—			—			63,017			—			—		—			63,017
Operating expenses - golf, repairs and maintenance expenses	—			—			2,421			—			—		—			2,421
Cost of sales - golf	—			—			9,108			—			—		—			9,108
General and administrative expense	—			—			793			2,392			—		—			3,185
General and administrative expense - acquisition and transaction expenses (D)	—			—			285			17			—		—			302
Management fee to affiliate	—			—			—			2,674			—		—			2,674
Depreciation and amortization	—			—			7,119			—			—		—			7,119
Income tax expense	—			—			27			—			—		—			27
Income (loss) from continuing operations	27,182			521			(3,847		)	(6,015		)	—		—			17,841
Income from discontinued operations	—			—			—			—			524		—			524
Net income (loss)	27,182			521			(3,847		)	(6,015		)	524		—			18,365
Preferred dividends	—			—			—			(1,395		)	—		—			(1,395		)
Net loss attributable to non-controlling interests	—			—			49			—			—		—			49
Income (loss) applicable to common stockholders	$	27,182		$	521		$	(3,798	)	$	(7,410	)	$	524	$	—		$	17,019

(A)

Assets held within non-recourse structures, including all of the assets in the CDO segment, are not available to satisfy obligations outside of such financings, except to the extent net cash flow distributions are received from such structures. Furthermore, creditors or beneficial interest holders of these structures generally have no recourse to the general credit of Newcastle. Therefore, the exposure to the economic losses from such structures generally is limited to 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)	The following table summarizes the investments and debt in the Other Debt segment:



	June 30, 2016
	Investments				Debt
Non-Recourse	Outstanding Face Amount		Carrying Value		Outstanding Face Amount		Carrying Value
Subprime mortgage loans subject to call options	$	362,931	$	362,931	$	362,931	$	362,931
Other
Unlevered real estate securities (E)	37,540		12,988		—		—
Levered real estate securities (F)	428,881		452,815		361,085		361,085
Real estate related and other loans	235,612		143,526		—		—
Other investments	N/A		21,339		—		—
Residential mortgage loans	777		442		—		—
	$	1,065,741	$	994,041	$	724,016	$	724,016


(C)	Operating expenses - golf includes rental expenses recorded under operating leases for carts and equipment in the amount of $1.0 million and $1.9 million for the three and six months ended June 30, 2016, respectively, and $1.2 million and $2.3 million for the three and six months ended June 30, 2015, respectively.


(D)	Includes all transaction related expenses.


(E)	Excludes 12 securities with zero value, which had an aggregate face amount of $183.5 million.


(F)	These investments represent purchases that were traded on June 30, 2016 but settled on July 14, 2016. These represent repurchase agreements collateralized by sold investments that were traded on June 30, 2016 and settled on July 14, 2016.

Schedule of other debt segment investments and debt

The following table summarizes the investments and debt in the Other Debt segment:



	June 30, 2016
	Investments				Debt
Non-Recourse	Outstanding Face Amount		Carrying Value		Outstanding Face Amount		Carrying Value
Subprime mortgage loans subject to call options	$	362,931	$	362,931	$	362,931	$	362,931
Other
Unlevered real estate securities (E)	37,540		12,988		—		—
Levered real estate securities (F)	428,881		452,815		361,085		361,085
Real estate related and other loans	235,612		143,526		—		—
Other investments	N/A		21,339		—		—
Residential mortgage loans	777		442		—		—
	$	1,065,741	$	994,041	$	724,016	$	724,016


(C)	Operating expenses - golf includes rental expenses recorded under operating leases for carts and equipment in the amount of $1.0 million and $1.9 million for the three and six months ended June 30, 2016, respectively, and $1.2 million and $2.3 million for the three and six months ended June 30, 2015, respectively.


(D)	Includes all transaction related expenses.


(E)	Excludes 12 securities with zero value, which had an aggregate face amount of $183.5 million.


(F)	These investments represent purchases that were traded on June 30, 2016 but settled on July 14, 2016. These represent repurchase agreements collateralized by sold investments that were traded on June 30, 2016 and settled on July 14, 2016.