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)

6 Months Ended

Jun. 30, 2013

Segment Reporting And Variable Interest Entities Tables

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

	Non-Recourse Senior			Non-Recourse			Unlevered		Non-Recourse						Unlevered						Excess MSRs and Consumer		Inter-segment
	Living			CDOs (A)			CDOs (B)		Other (A) (C)			Recourse (D)			Other (E)			Corporate			Loans		Elimination (F)			Total
Six Months Ended June 30, 2013
Interest income	$	—		$	68,227		$	326	$	32,774		$	13,565		$	11,093		$	102		$	—	$	(1,931	)	$	124,156
Interest expense		2,478			13,950			—		24,858			3,447			—			1,906			—		(1,931	)		44,708
Net interest income (expense)		(2,478	)		54,277			326		7,916			10,118			11,093			(1,804	)		—		—			79,448

Impairment (reversal)		—			11,986			—		(573	)		3,028			(9,177	)		—			—		—			5,974
Other revenues		26,510			—			—		1,003			—			—			—			—		—			27,513
Other income (loss)		120			11,675			145		—			25			1,895			—			—		—			13,860
Property operating expenses		16,285			—			—		487			—			—			—			—		—			16,772
Depreciation and amortization		8,039			—			—		110			—			—			—			—		—			8,149
Other operating expenses		5,074			384			—		1,410			47			238			26,766			—		—			33,919
Income (loss) from continuing operations		(5,246	)		53,582			471		7,485			6,358			21,927			(28,570	)		—		—			56,007
Income (loss) from discontinued operations		—			—			—		—			—			(29	)		—			35,758		—			35,729
Net income (loss)		(5,246	)		53,582			471		7,485			6,358			21,898			(28,570	)		35,758		—			91,736
Preferred dividends		—			—			—		—			—			—			(2,790	)		—		—			(2,790	)
Income (loss) applicable to common stockholders	$	(5,246	)	$	53,582		$	471	$	7,485		$	6,358		$	21,898		$	(31,360	)	$	35,758	$	—		$	88,946

Three Months Ended June 30, 2013
Interest income	$	—		$	36,638		$	87	$	16,467		$	6,280		$	4,387		$	30		$	—	$	(1,065	)	$	62,824
Interest expense		1,246			6,819			—		12,475			1,569			—			954			—		(1,065	)		21,998
Net interest income (expense)		(1,246	)		29,819			87		3,992			4,711			4,387			(924	)		—		—			40,826

Impairment (reversal)		—			8,803			—		(1,421	)		3,738			(7,919	)		—			—		—			3,201
Other revenues		13,513			—			—		500			—			—			—			—		—			14,013
Other income (loss)		112			7,178			71		—			25			704			—			—		—			8,090
Property operating expenses		8,169			—			—		240			—			—			—			—		—			8,409
Depreciation and amortization		4,017			—			—		53			—			—			—			—		—			4,070
Other operating expenses		2,686			190			—		691			5			143			15,392			—		—			19,107
Income (loss) from continuing operations		(2,493	)		28,004			158		4,929			993			12,867			(16,316	)		—		—			28,142
Income (loss) from discontinued operations		—			—			—		—			—			(13	)		—			25,594		—			25,581
Net income (loss)		(2,493	)		28,004			158		4,929			993			12,854			(16,316	)		25,594		—			53,723
Preferred dividends		—			—			—		—			—			—			(1,395	)		—		—		$	(1,395	)
Income (loss) applicable to common stockholders	$	(2,493	)	$	28,004		$	158	$	4,929		$	993		$	12,854		$	(17,711	)	$	25,594	$	—		$	52,328

June 30, 2013
Investments	$	174,541		$	1,118,367		$	5,440	$	699,660		$	335,815		$	229,665		$	—		$	—	$	(61,010	)	$	2,502,478
Cash and restricted cash		11,302			7,173			—		—			—			—			259,750			—		—			278,225
Derivative assets		298			—			—		—			43,172			—			—			—		—			43,470
Other assets		9,020			4,794			5		117			2,408			2,375			2,596			—		(154	)		21,161
Total assets		195,161			1,130,334			5,445		699,777			381,395			232,040			262,346			—		(61,164	)		2,845,334
Debt		(120,525	)		(844,484	)		—		(630,945	)		(311,276	)		—			(51,240	)		—		61,010			(1,897,460	)
Derivative liabilities		—			(20,197	)		—		—			—			—			—			—		—			(20,197	)
Other liabilities		(5,983	)		(5,715	)		—		(1,378	)		(34	)		(776	)		(50,319	)		—		154			(64,051	)
Total liabilities		(126,508	)		(870,396	)		—		(632,323	)		(311,310	)		(776	)		(101,559	)		—		61,164			(1,981,708	)
Preferred stock		—			—			—		—			—			—			(61,583	)		—		—			(61,583	)
GAAP book value	$	68,653		$	259,938		$	5,445	$	67,454		$	70,085		$	231,264		$	99,204		$	—	$	—		$	802,043

Additions to investments in real estate	$	705		$	—		$	—	$	129		$	—		$	—		$	—		$	—	$	—		$	834

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

Six Months Ended June 30, 2012
Interest income	$	—	$	110,440		$	230	$	36,463	$	1,768	$	4,851		$	103		$	—	$	(3,037	)	$	150,818
Interest expense		—		34,640			—		25,334		561		—			1,903			—		(2,811	)		59,627
Net interest income (expense)		—		75,800			230		11,129		1,207		4,851			(1,800	)		—		(226	)		91,191
Impairment (reversal)		—		(789	)		—		2,703		—		(495	)		—			—		—			1,419
Other revenues		—		—			—		1,024		—		—			—			—		—			1,024
Other income (loss)		—		24,533			176		—		—		(1,055	)		—			—		—			23,654
Property operating expenses		—		—			—		457		—		—			—			—		—			457
Depreciation and amortization		—		—			—		4		—		—			—			—		—			4
Other operating expenses		—		483			1		1,926		—		25			17,603			—		(226	)		19,812
Income (loss) from continuing operations		—		100,639			405		7,063		1,207		4,266			(19,403	)		—		—			94,177
Income (loss) from discontinued operations		—		—			—		—		—		(31	)		—			9,764		—			9,733
Net income (loss)		—		100,639			405		7,063		1,207		4,235			(19,403	)		9,764		—			103,910
Preferred dividends		—		—			—		—		—		—			(2,790	)		—		—			(2,790	)
Income (loss) applicable to common stockholders	$	—	$	100,639		$	405	$	7,063	$	1,207	$	4,235		$	(22,193	)	$	9,764		—		$	101,120

Three Months Ended June 30, 2012
Interest income		—		56,038		$	115		18,037	$	954	$	4,328		$	52		$	—		(1,568	)	$	77,956
Interest expense		—		17,004			—		12,671		293		—			949			—		(1,455	)		29,462
Net interest income (expense)		—		39,034			115		5,366		661		4,328			(897	)		—		(113	)		48,494
Impairment (reversal)		—		7,742			—		1,055		—		(298	)		—			—		—			8,499
Other revenues		—		—			—		515		—					—			—		—			515
Other income (loss)		—		(5,380	)		84		—		—		414			—			—		—			(4,882	)
Property operating expenses		—		—			—		231		—					—			—		—			231
Depreciation and amortization		—		—			—		2		—					—			—		—			2
Other operating expenses		—		242			—		970		—		12			10,465			—		(113	)		11,576
Income (loss) from continuing operations		—		25,670			199		3,623		661		5,028			(11,362	)		—		—			23,819
Income (loss) from discontinued operations		—		—			—		—		—		(14	)		—			6,634		—			6,620
Net income (loss)		—		25,670			199		3,623		661		5,014			(11,362	)		6,634		—			30,439
Preferred dividends		—		—			—		—		—		—			(1,395	)		—		—			(1,395	)
Income (loss) applicable to common stockholders	$	—	$	25,670		$	199	$	3,623	$	661	$	5,014		$	(12,757	)	$	6,634	$	—		$	29,044

(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. This CDO has been deconsolidated as Newcastle does not have the power to direct the relevant activities of the CDO.

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

	June 30, 2013
	Investments				Debt
	Outstanding		Carrying		Outstanding		Carrying
	Face Amount		Value		Face Amount*		Value*
Manufactured housing loan portfolio I	$	110,589	$	94,909	$	82,177	$	73,989
Manufactured housing loan portfolio II		140,828		138,895		106,124		105,619
Subprime mortgage loans subject to call option		406,217		406,217		406,217		406,217
Real estate securities		61,217		52,953		42,989		39,120
Other commercial real estate		N/A		6,686		6,000		6,000
	$	718,851	$	699,660	$	643,507	$	630,945

*	An aggregate face amount of $69.5 million (carrying value of $61.0 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 $311.3 million of recourse debt represents repurchase agreements secured by $335.8 million carrying value of FNMA/FHLMC securities.

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

	June 30, 2013
	Outstanding		Carrying		Number of
	Face Amount		Value		Investments
Real estate securities	$	137,805	$	8,029		21
Real estate related and other loans		459,850		177,362		2
Residential mortgage loans		51,456		38,250		303
Other investments		N/A		6,024		1
	$	649,111	$	229,665		327

(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:

	June 30, 2013
	Investments				Debt
	Outstanding		Carrying		Outstanding		Carrying
	Face Amount		Value		Face Amount*		Value*
Manufactured housing loan portfolio I	$	110,589	$	94,909	$	82,177	$	73,989
Manufactured housing loan portfolio II		140,828		138,895		106,124		105,619
Subprime mortgage loans subject to call option		406,217		406,217		406,217		406,217
Real estate securities		61,217		52,953		42,989		39,120
Other commercial real estate		N/A		6,686		6,000		6,000
	$	718,851	$	699,660	$	643,507	$	630,945

Schedule of Segment Reporting Investments in Unlevered Other Segment

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

	June 30, 2013
	Outstanding		Carrying		Number of
	Face Amount		Value		Investments
Real estate securities	$	137,805	$	8,029		21
Real estate related and other loans		459,850		177,362		2
Residential mortgage loans		51,456		38,250		303
Other investments		N/A		6,024		1
	$	649,111	$	229,665		327

Schedule of Holdings in Variable Interest Entities

Newcastle had variable interests in the following unconsolidated VIE at June 30, 2013, in addition to the subprime securitizations which are described in Note 5:

Entity	Gross Assets (A)	Debt (A) (B)	Carrying Value of Newcastle's Investment (C)
Newcastle CDO V	$ 223,280	$ 239,362	$ 5,440

CDO VIII Repack (D)	$ 292,015	$ 292,015	$ 103,140

(A)	Face amount.
(B)	Newcastle CDO V includes $42.6 million face amount of debt owned by Newcastle with a carrying value of $5.4 million at June 30, 2013. CDO VIII Repack includes $116.8 million face amount of debt owned by Newcastle with a carrying value of $103.1 million at June 30, 2013.
(C)	This amount represents Newcastle’s maximum exposure to loss from this entity.
(D)	See Notes 8 and 9 for information about the securitization that is collateralized by certain Newcastle CDO VIII Class I 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