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, 2015

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)												Discontinued
	CDOs			Other Debt (B)			Golf			Corporate			Operations		Eliminations			Total
Three Months Ended March 31, 2015
Interest income	$	15,922		$	12,595		$	35		$	4		$	—	$	(1,478	)	$	27,078
Interest expense	(2,583		)	(9,579		)	(5,097		)	(946		)	—		1,478			(16,727		)
Inter-segment elimination	(1,478		)	—			1,478			—			—		—			—
Net interest income (expense)	11,861			3,016			(3,584		)	(942		)	—		—			10,351
Impairment (reversal)	337			68			—			—			—		—			405
Operating revenues	—			—			60,826			—			—		—			60,826
Other income, net	530			(37		)	8			—			—		—			501
Loan and security servicing expense	96			—			—			—			—		—			96
Operating expenses - golf (C)	—			—			52,971			—			—		—			52,971
Repairs and maintenance expenses - golf	—			—			1,966			—			—		—			1,966
Cost of sales - golf	—			—			6,053			—			—		—			6,053
General and administrative expense	—			—			249			1,428			—		—			1,677
Acquisition and transaction expenses (D)	—			—			36			—			—		—			36
Management fee to affiliate	—			—			—			2,668			—		—			2,668
Depreciation and amortization	—			—			6,753			—			—		—			6,753
Income tax expense	—			—			46			—			—		—			46
Income (loss) from continuing operations	11,958			2,911			(10,824		)	(5,038		)	—		—			(993		)
Income from discontinued operations, net of tax	—			—			—			—			115		—			115
Net income (loss)	11,958			2,911			(10,824		)	(5,038		)	115		—			(878		)
Preferred dividends	—			—			—			(1,395		)	—		—			(1,395		)
Net loss attributable to noncontrolling interests	—			—			181			—			—		—			181
Income (loss) applicable to common stockholders	$	11,958		$	2,911		$	(10,643	)	$	(6,433	)	$	115	$	—		$	(2,092	)



	Debt Investments (A)										Discontinued
	CDOs		Other Debt (B)		Golf			Corporate			Operations		Total
March 31, 2015
Investments, net (E)	$	440,436	$	834,633	$	316,049		$	—		$	—	$	1,591,118
Cash and restricted cash	14,149		3,778		11,933			48,016			—		77,876
Other assets	1,575		2,100		33,637			136			—		37,448
Assets of discontinued operations	—		—		—			—			6,883		6,883
Total assets	456,160		840,511		361,619			48,152			6,883		1,713,325
Debt, net (E)	277,464		792,337		162,806			51,230			—		1,283,837
Other liabilities	1,386		6,352		158,406			16,246			—		182,390
Liabilities of discontinued operations	—		—		—			—			502		502
Total liabilities	278,850		798,689		321,212			67,476			502		1,466,729
Preferred stock	—		—		—			61,583			—		61,583
Noncontrolling interests	—		—		(145		)	—			—		(145		)
Equity attributable to common stockholders	$	177,310	$	41,822	$	40,552		$	(80,907	)	$	6,381	$	185,158

Additions to investments in real estate excluding intangibles and other liabilities, net of other assets acquired	$	—	$	—	$	385		$	—		$	—	$	385



	Debt Investments (A)												Discontinued
	CDOs			Other Debt (B)			Golf			Corporate			Operations			Eliminations			Total
Three Months Ended March 31, 2014
Interest income	$	30,722		$	16,952		$	41		$	11		$	—		$	(1,274	)	$	46,452
Interest expense	(6,128		)	(12,663		)	(3,698		)	(955		)	—			1,274			(22,170		)
Inter-segment elimination	(1,274		)	1,274			—			—			—			—			—
Net interest income (expense)	23,320			5,563			(3,657		)	(944		)	—			—			24,282
Impairment (reversal)	432			814			—			—			—			—			1,246
Operating revenues	—			—			62,632			—			—			—			62,632
Other income, net	13,610			2,198			—			—			—			—			15,808
Loan and security servicing expense	156			701			—			—			—			—			857
Operating expenses - golf (C)	—			—			57,129			—			—			—			57,129
Repairs and maintenance expenses - golf	—			—			2,518			—			—			—			2,518
Cost of sales - golf	—			—			5,956			—			—			—			5,956
General and administrative expense	—			—			307			2,095			—			—			2,402
Acquisition and transaction expenses (D)	—			—			775			387			—			—			1,162
Management fee to affiliate	—			—			—			5,893			—			—			5,893
Depreciation and amortization	—			—			5,826			37			—			—			5,863
Income tax expense	—			—			140			—			—			—			140
Income (loss) from continuing operations	36,342			6,246			(13,676		)	(9,356		)	—			—			19,556
Income from discontinued operations	—			—			—			—			(15,299		)	—			(15,299		)
Net income (loss)	36,342			6,246			(13,676		)	(9,356		)	(15,299		)	—			4,257
Preferred dividends	—			—			—			(1,395		)	—			—			(1,395		)
Net loss attributable to non-controlling interests	—			—			139			$	—		522			—			661
Income (loss) applicable to common stockholders	$	36,342		$	6,246		$	(13,537	)	$	(10,751	)	$	(14,777	)	$	—		$	3,523

(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:



	March 31, 2015
	Investments				Debt
Non-Recourse	Outstanding Face Amount		Carrying Value		Outstanding Face Amount		Carrying Value
Subprime mortgage loans subject to call options	$	406,217	$	406,217	$	406,217	$	406,217
Other
Unlevered real estate securities (F)	52,327		12,252		—		—
Levered real estate securities	389,056		409,037		386,120		386,120
Other investments	N/A		6,555		—		—
Residential mortgage loans	931		572		—		—
	$	848,531	$	834,633	$	792,337	$	792,337


(C)	Operating expenses-golf includes rental expenses recorded under operating leases for carts and equipment in the amount of $1.1 million and $1.4 million for the three months ended March 31, 2015 and 2014, respectively.


(D)	Includes all transaction related and spin-off related expenses.


(E)	Net of $36.6 million of inter-segment eliminations.


(F)	Excludes eight securities with a zero value, which had an aggregate face amount of $113.8 million.

Schedule of other debt segment investments and debt

(B)	The following table summarizes the investments and debt in the other debt segment:



	March 31, 2015
	Investments				Debt
Non-Recourse	Outstanding Face Amount		Carrying Value		Outstanding Face Amount		Carrying Value
Subprime mortgage loans subject to call options	$	406,217	$	406,217	$	406,217	$	406,217
Other
Unlevered real estate securities (F)	52,327		12,252		—		—
Levered real estate securities	389,056		409,037		386,120		386,120
Other investments	N/A		6,555		—		—
Residential mortgage loans	931		572		—		—
	$	848,531	$	834,633	$	792,337	$	792,337

Schedule of certain assets and liabilities of Variable Interest Entities

The following table presents certain assets of VIEs, which are included in the Consolidated Balance Sheets. The assets in the table below include those assets that can only be used to settle obligations of consolidated VIEs, and are in excess of those obligations. Additionally, the assets in the table below exclude intercompany balances that eliminate in consolidation.



	March 31, 2015
	(Unaudited)		December 31, 2014
Assets of consolidated VIEs that can only be used to settle obligations of consolidated VIEs
Real estate securities, available-for-sale	$	219,475	$	219,490
Real estate related and other loans, held-for-sale, net	197,251		230,200
Residential mortgage loans, held-for-sale, net	3,164		3,211
Subprime mortgage loans subject to call option	406,217		406,217
Other investments	20,546		20,308
Restricted cash	14,149		11,790
Receivables and other assets	1,575		1,927
Assets of discontinued operations	6,883		6,803
Total assets of consolidated VIEs that can only be used to settle obligations of consolidated VIEs	$	869,260	$	899,946

The following table presents certain liabilities of consolidated VIEs, which are included in the Consolidated Balance Sheets above. The liabilities in the table below include liabilities of consolidated VIEs due to third parties only, and exclude intercompany balances that eliminate in consolidation. The liabilities also exclude amounts where creditors or beneficial interest holders have recourse to the general credit of Newcastle.



	March 31, 2015
	(Unaudited)		December 31, 2014
Liabilities of consolidated VIEs for which creditors or beneficial interest holders do not have recourse to the general credit of Newcastle
CDO bonds payable	$	216,464	$	227,673
Other bonds and notes payable	25,317		27,069
Financing of subprime mortgage loans subject to call option	406,217		406,217
Accounts payable, accrued expenses and other liabilities	1,386		2,391
Liabilities of discontinued operations	502		447
Total liabilities of consolidated VIEs for which creditors or beneficial interest holders do not have recourse to the general credit of Newcastle	$	649,886	$	663,797

Schedule of holdings in variable interest entities

Newcastle had variable interests in the following unconsolidated VIEs at March 31, 2015, in addition to the subprime securitizations which are described in Note 6:



Entity	Gross Assets (A)		Debt (A) (B)		Carrying Value of Newcastle's Investment (C)
Newcastle CDO V	$	115,835	$	143,480	$	8,538


(A)	Face amount.


(B)	Newcastle CDO V includes $42.4 million face amount of debt owned by Newcastle with a carrying value of $8.5 million at March 31, 2015.


(C)	This amount represents Newcastle’s maximum exposure to loss from this entity.

- 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

- Definition

Tabular disclosure of the significant judgments and assumptions made in determining whether a variable interest (as defined) held by the entity requires the variable interest entity (VIE) (as defined) to be consolidated and (or) disclose information about its involvement with the VIE, individually or in aggregate (as applicable); the nature of restrictions, if any, on the consolidated VIE's assets and on the settlement of its liabilities reported by an entity in its statement of financial position, including the carrying amounts of such assets and liabilities; the nature of, and changes in, the risks associated with involvement in the VIE; how involvement with the VIE affects the entity's financial position, financial performance, and cash flows; the lack of recourse if creditors (or beneficial interest holders) of the consolidated VIE have no recourse to the general credit of the primary beneficiary (if applicable); the terms of arrangements, giving consideration to both explicit arrangements and implicit variable interests, if any, that could require the entity to provide financial support to the VIE, including events or circumstances that could expose the entity to a loss; the methodology used by the entity for determining whether or not it is the primary beneficiary of the variable interest entity; the significant factors considered and judgments made in determining that the power to direct the activities of a VIE that most significantly impact the VIE's economic performance are shared (as defined); the carrying amounts and classification of assets and liabilities of the VIE included in the statement of financial position; the entity's maximum exposure to loss, if any, as a result of its involvement with the VIE, including how the maximum exposure is determined and significant sources of the entity's exposure to the VIE; a comparison of the carrying amounts of the assets and liabilities and the entity's maximum exposure to loss; information about any liquidity arrangements, guarantees, and (or) other commitments by third parties that may affect the fair value or risk of the entity's variable interest in the VIE; whether or not the entity has provided financial support or other support (explicitly or implicitly) to the VIE that it was not previously contractually required to provide or whether the entity intends to provide that support, including the type and amount of the support and the primary reasons for providing the support; and supplemental information the entity determines necessary to provide.

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