Drive Shack Inc. Annual report pursuant to Section 13 and 15(d)

Annual report pursuant to Section 13 and 15(d)

DEBT OBLIGATIONS

DEBT OBLIGATIONS

12 Months Ended

Dec. 31, 2016

The following table presents certain information regarding Drive Shack Inc.'s debt obligations and related hedges:



	December 31, 2016												December 31, 2015

Debt Obligation/Collateral	Month Issued	Outstanding Face Amount		Carrying Value		Final Stated Maturity	Weighted Average Coupon (A)	Weighted Average Funding Cost (B)		Weighted Average Life (Years)	Face Amount of Floating Rate Debt		Outstanding Face Amount		Carrying Value
CDO Bonds Payable
CDO VI	Apr 2005	$	—	$	—	—	—%	—	%	0.0	$	—	$	92,933	$	92,933
		—		—				—	%	0.0	—		92,933		92,933
Other Bonds & Notes Payable
NCT 2013-VI IMM-1	Nov 2013	—		—		—	—%	—	%	0.0	—		4,984		4,672
Mezzanine Note Payable	Oct 2015	—		—		—	—%	—	%	0.0	—		11,660		11,490
		—		—				—	%	0.0	—		16,644		16,162
Repurchase Agreements (C)
FNMA/FHLMC securities	Dec 2016	600,964		600,964		Jan 2017	1.03%	1.03	%	0.1	—		348,625		348,625
Golf Loans	Aug 2015	—		—		—	—%	—	%	0.0	—		70,000		69,833
		600,964		600,964				—	%	0.0	—		418,625		418,458
Golf Credit Facilities
Golf Term Loan (D)(E)	Jun 2016	102,000		98,680		Jul 2019	LIBOR + 4.70%	7.92	%	2.5	102,000		—		—
Vineyard II	Dec 1993	200		200		Dec 2043	2.20%	2.20	%	26.9	200		200		200
Capital Leases (Equipment)	May 2014 - Dec 2016	16,404		16,404		Sep 2018 - Jul 2022	3.00% to 16.16%	6.56	%	4.1	—		11,058		11,058
		118,604		115,284				7.72	%	2.8	102,200		11,258		11,258
Corporate
Junior subordinated notes payable	Mar 2006	51,004		51,217		Apr 2035	LIBOR + 2.25%	3.11	%	18.3	51,004		51,004		51,225
		51,004		51,217				3.11	%	18.3	51,004		51,004		51,225
Subtotal debt obligation		770,572		767,465				2.17	%	1.7	$	153,204	590,464		590,036
Financing on subprime mortgage loans subject to call option	(F)	—		—									380,806		380,806
Total debt obligation		$	770,572	$	767,465								$	971,270	$	970,842

See notes on next page.


(A)	Weighted average, including floating and fixed rate classes.


(B)	Including the effect of deferred financing cost.

(C)

These repurchase agreements had $0.3 million accrued interest payable at December 31, 2016. The counterparties on these repurchase agreements are Citi ($242.0 million) and Jeffries ($359.0 million). Drive Shack Inc. has margin exposure on $601.0 million of repurchase agreements related to the financing of FNMA/FHLMC securities. The underlying collateral of the repurchase agreements are fixed rate FNMA/FHLMC securities with the following value at December 31, 2016: $619.8 million outstanding face amount, $627.3 million amortized cost basis, $627.3 million carrying value and a weighted average life of 8.4 years. To the extent that the value of the collateral underlying these repurchase agreements declines, Drive Shack Inc. may be required to post margin, which could significantly impact its liquidity.


(D)	The golf term loan is collateralized by 22 Traditional Golf properties. The carrying amount of the golf term loan is reported net of deferred financing costs of $3.3 million as of December 31, 2016.


(E)	Interest rate based on 30 day LIBOR plus 4.70% with a LIBOR floor of 1.80%. At the time of closing, Drive Shack Inc. purchased a co-terminus LIBOR interest rate cap of 1.80%.


(F)	See Note 6 regarding the securitizations of Subprime Portfolios I and II.

CDO, Other Bonds and Notes Payable

During the second quarter of 2015, approximately $60.3 million of CDO VIII notes were repaid primarily due to the sale of securities and loans. See Notes 5 and 6. As a result of the repayment of the CDO VIII notes, Drive Shack Inc. also repaid $13.3 million of repurchase agreements associated with CDO VIII.

During the second quarter of 2015, approximately $51.4 million of CDO IX notes were repaid primarily due to the sales and pay down of securities and loans. See Notes 5 and 6. As a result of the repayment of the CDO IX notes, Drive Shack Inc. also repaid $22.3 million of repurchase agreements associated with CDO IX.

In June 2015, Drive Shack Inc. repurchased $11.5 million face amount of CDO bonds payable issued by CDO VIII at a price of 95.50% of par for total proceeds of $11.0 million. As a result, Drive Shack Inc. extinguished $11.5 million face amount of CDO bonds payable and recorded a gain on extinguishment of debt of $0.5 million.

In October 2015, Drive Shack Inc. financed an unencumbered real estate related loan with a face amount of $19.4 million with a mezzanine note payable for $11.7 million. This note payable bears interest at one month LIBOR + 3.00%, matures in October 2016 and is subject to customary margin provisions.

In March 2016, Drive Shack Inc. deconsolidated CDO and other bonds payable, see Variable Interest Entities in Note 2 for additional details.

In April 2016, Drive Shack Inc. sold a mezzanine loan with a face amount of $19.4 million at par. Drive Shack Inc. subsequently repaid $11.7 million of notes payable that were collateralized by the loan. See Note 6.

Repurchase Agreements

See Note 5 for information about the FNMA/FHLMC repurchase agreement activity for the years ended December 31, 2016 and 2015.

Golf Credit Facilities and Repurchase Agreement

In December 2013, Traditional Golf entered into two loan agreements (“First Lien Loan” and “Second Lien Loan”) with General Electric Capital Corporation (“GECC”). In August 2015, Drive Shack Inc. acquired from GECC $51.4 million outstanding face amount of the First Lien Loan at a price of 90.0% of par, or $46.3 million, and $105.6 million outstanding face amount of the Second Lien Loan at a price of 90.0% of par, or $95.0 million. The purchases were funded with $71.3 million cash and a $70.0 million repurchase agreement. Drive Shack Inc. recorded a gain on extinguishment of debt of $15.4 million.

In February 2016, Drive Shack Inc. extended the repurchase agreement on the golf loans to mature on May 31, 2016, with an option to extend to June 30, 2016. The repurchase agreement bears interest at LIBOR + 4.00%.

In May 2016, the option on the repurchase agreement on the golf loans was exercised to extend the maturity to June 30, 2016.

In June 2016, Drive Shack Inc. obtained third-party financing on 22 traditional golf properties for a total of $102.0 million at a floating rate of the greater of: (i) 30-day LIBOR + 4.70% or (ii) 6.50%. At the time of closing, Drive Shack Inc. purchased a co-terminus LIBOR interest rate cap of 1.80%. The financing is for a term of three years with the option for two one-year extensions. Drive Shack Inc. used $64.9 million of the proceeds to repay the outstanding balance on the golf loans repurchase agreement.

Traditional Golf is obligated under a $0.2 million loan with the City of Escondido, California (“Vineyard II”). The principal amount of the loan is payable in five equal installments upon reaching the "Achievement Date”, which is the date on which the previous 36-month period equals or exceeds 240,000 rounds of golf played on the property. As of December 31, 2016, 240,000 rounds of golf have not been achieved within an applicable 36-month period. The interest rate is adjusted annually and is equal to 1% plus a short-term investment return, as defined in the loan agreement. As of December 31, 2016, the interest rate is 2.20%.

Capital Leases - Equipment

Traditional Golf leases certain golf carts and other equipment under capital lease agreements. The agreements typically provide for minimum rentals plus executory costs. Lease terms range from 36-66 months. Certain leases include bargain purchase options at lease expiration.

The future minimum lease payments required under the capital leases and the present value of the net minimum lease payments as of December 31, 2016 are as follows:



2017	$	4,666
2018	4,662
2019	4,511
2020	3,203
2021	1,626
Thereafter	157
Total minimum lease payments	18,825
Less: imputed interest	2,421
Present value of net minimum lease payments	$	16,404

Maturity Table

Drive Shack Inc.’s debt obligations (gross of $3.1 million of discounts at December 31, 2016) have contractual maturities as follows:



	Nonrecourse		Recourse		Total
2017	$	3,699	$	600,964	$	604,663
2018	3,945		—		3,945
2019	4,058		—		4,058
2020	104,984		—		104,984
2021	1,564		—		1,564
Thereafter	354		51,004		51,358
Total	$	118,604	$	651,968	$	770,572

Debt Covenants

Drive Shack Inc.’s golf credit facilities contain various customary loan covenants, including certain coverage ratios. Drive Shack Inc. was in compliance with all of these covenants as of December 31, 2016.