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

Quarterly report pursuant to Section 13 or 15(d)

REAL ESTATE SECURITIES (Tables)

REAL ESTATE SECURITIES (Tables)

3 Months Ended

Mar. 31, 2013

Schedule of Real Estate Securities Holdings

The following is a summary of Newcastle’s real estate securities at March 31, 2013, 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
					Other-Than-												Number									Maturity		Principal
Asset Type	Outstanding Face Amount		Before Impairment		Temporary Impairment			After Impairment		Gains		Losses			Carrying Value (A)		of Securities		Rating (B)	Coupon			Yield			(Years) (C)		Subordination (D)
CMBS-Conduit	$	338,056	$	314,424	$	(99,020	)	$	215,404	$	54,263	$	(6,752	)	$	262,915		52	B+		5.54	%		10.33	%		3.2		9.5	%
CMBS- Single Borrower		124,709		123,409		(12,364	)		111,045		5,818		(1,609	)		115,254		22	BB		4.89	%		5.93	%		2.5		9.5	%
CMBS-Large Loan		5,819		5,643		—			5,643		205		—			5,848		1	BBB-		6.08	%		12.16	%		0.7		2.0	%
REIT Debt		50,700		50,055		—			50,055		4,064		—			54,119		8	BBB-		5.75	%		6.10	%		1.8		N/A
Non-Agency RMBS (E)		904,784		604,616		(68,708	)		535,908		49,218		(1,226	)		583,900		93	CC		0.75	%		6.55	%		7.3		10.0	%
ABS-Franchise		10,036		9,329		(7,839	)		1,490		219		(325	)		1,384		3	CCC-		5.95	%		3.47	%		4.7		2.7	%
FNMA/FHLMC		1,309,855		1,396,400		—			1,396,400		6,130		(2,102	)		1,400,428		83	AAA		3.23	%		1.42	%		4.1		N/A
CDO (F)		202,232		81,608		(14,861	)		66,747		4,878		—			71,625		13	CCC+		2.86	%		8.12	%		1.4		21.4	%
Total / Average (G)	$	2,946,191	$	2,585,484	$	(202,792	)	$	2,382,692	$	124,795	$	(12,014	)	$	2,495,473		275	BBB-		2.84	%		3.92	%		4.7

(A)	See Note 9 regarding the estimation of fair value, which is equal to carrying value for all securities.

(B)

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. Newcastle used an implied AAA rating for the FNMA/FHLMC securities. Ratings provided were determined by third party rating agencies as of a particular date, may not be current and are subject to change at any time.

(C)	The weighted average maturity is based on the timing of expected principal reduction on the assets.

(D)	Percentage of the outstanding face amount of securities and residual interests that is subordinate to Newcastle’s investments.

(E)

Includes (i) the retained bond with a face amount of $4.0 million and a carrying value of $1.4 million from Securitization Trust 2006 (Note 4) and (ii) 53 non-agency RMBS purchased since April 2012 with an aggregate face amount of $784.3 million and a carrying value of $518.6 million as of March 31, 2013, of which an aggregate face amount of $644.7 million and a carrying value of $440.1 million is serviced by Nationstar. The total UPB of the loans underlying these Nationstar serviced non-Agency RMBS was approximately $8.3 billion as of March 31, 2013.

(F)

Includes two CDO bonds issued by a third party with a carrying value of $62.5 million, four CDO bonds issued by CDO V (which has been deconsolidated) and held as investments by Newcastle with a carrying value of $5.3 million and seven CDO bonds issued by C-BASS with a carrying value of $3.9 million.

(G)	The total outstanding face amount of fixed rate securities was $0.5 billion, and of floating rate securities was $2.4 billion.

Schedule of Real Estate Securities Holdings in an Unrealized Loss Position

The following table summarizes Newcastle’s securities in an unrealized loss position as of March 31, 2013.

			Amortized Cost Basis							Gross Unrealized									Weighted Average
Securities in	Outstanding				Other-than-												Number
an Unrealized	Face		Before		Temporary			After							Carrying		of									Maturity
Loss Position	Amount		Impairment		Impairment			Impairment		Gains		Losses			Value		Securities		Rating	Coupon			Yield			(Years)
Less Than Twelve Months	$	562,897	$	509,420	$	(5,236	)	$	504,184	$	—	$	(3,230	)	$	500,954		34	BBB		2.44	%		2.15	%		5.9
Twelve or More Months		119,054		118,953		(236	)		118,717		—		(8,784	)		109,933		24	BB-		4.44	%		4.63	%		1.5
Total	$	681,951	$	628,373	$	(5,472	)	$	622,901	$	—	$	(12,014	)	$	610,887		58	BBB		2.79	%		2.62	%		5.1

Newcastle 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:

	March 31, 2013
			Amortized
			Cost Basis		Unrealized Losses
	Fair Value		After Impairment		Credit (B)			Non-Credit (C)
Securities Newcastle intends to sell	$	—	$	—	$	—			N/A
Securities Newcastle is more likely than not to be required to sell (A)		—		—		—			N/A
Securities Newcastle has no intent to sell and is not more likely than not to be required to sell:
Credit impaired securities		1,155		1,274		(5,355	)		(119	)
Non credit impaired securities		609,732		621,627		—			(11,895	)
Total debt securities in an unrealized loss position	$	610,887	$	622,901	$	(5,355	)	$	(12,014	)

(A)

Newcastle 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, Newcastle must make its best estimate, which is subject to significant judgment regarding future events, and may differ materially from actual future sales.

(B)

This amount is required to be recorded as other-than-temporary impairment through earnings. In measuring the portion of credit losses, Newcastle’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.

(C)	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 for the three months ended March 31, 2013:

Beginning balance of credit losses on debt securities for which a portion of an OTTI was recognized in other comprehensive income	$	(4,770	)

Additions for credit losses on securities for which an OTTI was not previously recognized		—

Increases to credit losses on securities for which an OTTI was previously recognized and a portion of an OTTI was recognized in other comprehensive income		(594	)

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

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

Reduction for securities sold during the period		—

Reduction for securities deconsolidated during the period		—

Reduction for increases in cash flows expected to be collected that are recognized over the remaining life of the security		9

Ending balance of credit losses on debt securities for which a portion of an OTTI was recognized in other comprehensive income	$	(5,355	)

Schedule of Geographic Distribution of Collateral Securing Newcastle's CMBS and ABS

The table below summarizes the geographic distribution of the collateral securing Newcastle’s CMBS and ABS at March 31, 2013 (in thousands):

	CMBS					ABS
Geographic Location	Outstanding Face Amount		Percentage			Outstanding Face Amount		Percentage
Western U.S.	$	114,446		24.4	%	$	331,852		36.3	%
Northeastern U.S.		96,067		20.5	%		206,507		22.6	%
Southeastern U.S.		86,896		18.5	%		192,309		21.0	%
Midwestern U.S.		63,588		13.6	%		104,717		11.4	%
Southwestern U.S.		72,915		15.6	%		73,155		8.0	%
Other		14,730		3.1	%		6,280		0.7	%
Foreign		19,942		4.3	%		—		0.0	%
	$	468,584		100.0	%	$	914,820		100.0	%

Schedule of Real Estate Securities with a deteriorated credit quality rating

The following is the outstanding face amount and carrying value for such securities in which,as of the acquisition date it was determined probable that Newcastle would be unable to collect all contractually required payments, at December 31, 2012 and March 31, 2013.

	Outstanding Face Amount		Carrying Value
December 31, 2012	$	342,013	$	212,129
March 31, 2013	$	692,140	$	436,458

Schedule of accretable yield of real estate securities

The following is a summary of the changes in accretable yield (a portion of the discount) for these securities during the three months ended March 31, 2013.

	For the three months ended March 31, 2013
Balance at December 31, 2012	$	89,636
Additions		57,568
Accretion		(4,248	)
Reclassifications from nonaccretable difference		49,553
Disposals		—
Balance at March 31, 2013	$	192,509

- Definition

Tabular disclosure of marketable securities. This may consist of investments in certain debt and equity securities, short-term investments and other assets.

+ References + Details