ITEM 1. FINANCIAL STATEMENTS
DRIVE SHACK INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(dollars in thousands, except share data)
|
|
|
|
|
|
|
|
|
|
|
|
|
(unaudited)
|
|
|
|
June 30, 2020
|
|
December 31, 2019
|
Assets
|
|
|
|
Current assets
|
|
|
|
Cash and cash equivalents
|
$
|
12,638
|
|
|
$
|
28,423
|
|
Restricted cash
|
2,974
|
|
|
3,103
|
|
Accounts receivable, net of allowance of $967 and $1,082, respectively
|
3,651
|
|
|
5,249
|
|
Real estate assets, held-for-sale, net
|
16,975
|
|
|
16,948
|
|
Real estate securities, available-for-sale
|
2,985
|
|
|
3,052
|
|
Other current assets
|
13,977
|
|
|
17,521
|
|
Total current assets
|
53,200
|
|
|
74,296
|
|
Restricted cash, noncurrent
|
267
|
|
|
438
|
|
Property and equipment, net of accumulated depreciation
|
178,732
|
|
|
179,641
|
|
Operating lease right-of-use assets
|
203,359
|
|
|
215,308
|
|
Intangibles, net of accumulated amortization
|
16,039
|
|
|
17,565
|
|
Other investments
|
—
|
|
|
24,020
|
|
Other assets
|
5,476
|
|
|
4,723
|
|
Total assets
|
$
|
457,073
|
|
|
$
|
515,991
|
|
|
|
|
|
Liabilities and Equity
|
|
|
|
Current liabilities
|
|
|
|
Obligations under finance leases
|
$
|
5,860
|
|
|
$
|
6,154
|
|
Membership deposit liabilities
|
14,457
|
|
|
10,791
|
|
Accounts payable and accrued expenses
|
34,374
|
|
|
25,877
|
|
Deferred revenue
|
23,633
|
|
|
26,268
|
|
Real estate liabilities, held-for-sale
|
5
|
|
|
4
|
|
Other current liabilities
|
27,375
|
|
|
23,964
|
|
Total current liabilities
|
105,704
|
|
|
93,058
|
|
Credit facilities and obligations under finance leases - noncurrent
|
12,061
|
|
|
13,125
|
|
Operating lease liabilities - noncurrent
|
175,048
|
|
|
187,675
|
|
Junior subordinated notes payable
|
51,187
|
|
|
51,192
|
|
Membership deposit liabilities, noncurrent
|
95,913
|
|
|
95,805
|
|
Deferred revenue, noncurrent
|
6,783
|
|
|
6,283
|
|
Other liabilities
|
1,709
|
|
|
3,278
|
|
Total liabilities
|
$
|
448,405
|
|
|
$
|
450,416
|
|
|
|
|
|
Commitments and contingencies
|
|
|
|
|
|
|
|
Equity
|
|
|
|
Preferred stock, $0.01 par value, 100,000,000 shares authorized, 1,347,321 shares of 9.75% Series B Cumulative Redeemable Preferred Stock, 496,000 shares of 8.05% Series C Cumulative Redeemable Preferred Stock, and 620,000 shares of 8.375% Series D Cumulative Redeemable Preferred Stock, liquidation preference $25.00 per share, issued and outstanding as of June 30, 2020 and December 31, 2019
|
$
|
61,583
|
|
|
$
|
61,583
|
|
Common stock, $0.01 par value, 1,000,000,000 shares authorized, 67,212,362 and 67,068,751 shares issued and outstanding at June 30, 2020 and December 31, 2019, respectively
|
672
|
|
|
671
|
|
Additional paid-in capital
|
3,177,883
|
|
|
3,177,183
|
|
Accumulated deficit
|
(3,232,925)
|
|
|
(3,175,572)
|
|
Accumulated other comprehensive income
|
1,455
|
|
|
1,710
|
|
Total equity
|
$
|
8,668
|
|
|
$
|
65,575
|
|
|
|
|
|
Total liabilities and equity
|
$
|
457,073
|
|
|
$
|
515,991
|
|
See notes to Consolidated Financial Statements.
DRIVE SHACK INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS (unaudited)
(dollars in thousands, except share data)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30,
|
|
|
|
Six Months Ended June 30,
|
|
|
|
2020
|
|
2019
|
|
2020
|
|
2019
|
Revenues
|
|
|
|
|
|
|
|
Golf operations
|
$
|
29,675
|
|
|
$
|
57,386
|
|
|
$
|
78,300
|
|
|
$
|
102,092
|
|
Sales of food and beverages
|
2,425
|
|
|
14,229
|
|
|
14,935
|
|
|
23,475
|
|
Total revenues
|
32,100
|
|
|
71,615
|
|
|
93,235
|
|
|
125,567
|
|
|
|
|
|
|
|
|
|
Operating costs
|
|
|
|
|
|
|
|
Operating expenses
|
33,224
|
|
|
58,720
|
|
|
87,591
|
|
|
106,443
|
|
Cost of sales - food and beverages
|
829
|
|
|
3,904
|
|
|
4,484
|
|
|
6,601
|
|
General and administrative expense
|
6,368
|
|
|
13,607
|
|
|
16,186
|
|
|
25,226
|
|
Depreciation and amortization
|
6,682
|
|
|
5,122
|
|
|
13,476
|
|
|
10,046
|
|
Pre-opening costs
|
270
|
|
|
1,700
|
|
|
822
|
|
|
2,879
|
|
(Gain) Loss on lease terminations and impairment
|
(3,125)
|
|
|
118
|
|
|
(2,333)
|
|
|
4,206
|
|
|
|
|
|
|
|
|
|
Total operating costs
|
44,248
|
|
|
83,171
|
|
|
120,226
|
|
|
155,401
|
|
Operating loss
|
(12,148)
|
|
|
(11,556)
|
|
|
(26,991)
|
|
|
(29,834)
|
|
|
|
|
|
|
|
|
|
Other income (expenses)
|
|
|
|
|
|
|
|
Interest and investment income
|
135
|
|
|
265
|
|
|
265
|
|
|
608
|
|
Interest expense, net
|
(2,591)
|
|
|
(1,795)
|
|
|
(5,336)
|
|
|
(3,947)
|
|
Other income (loss), net
|
(24,422)
|
|
|
127
|
|
|
(24,055)
|
|
|
5,614
|
|
Total other income (expenses)
|
(26,878)
|
|
|
(1,403)
|
|
|
(29,126)
|
|
|
2,275
|
|
Loss before income tax
|
(39,026)
|
|
|
(12,959)
|
|
|
(56,117)
|
|
|
(27,559)
|
|
Income tax expense
|
500
|
|
|
—
|
|
|
771
|
|
|
—
|
|
Net Loss
|
(39,526)
|
|
|
(12,959)
|
|
|
(56,888)
|
|
|
(27,559)
|
|
Preferred dividends
|
(1,395)
|
|
|
(1,395)
|
|
|
(2,790)
|
|
|
(2,790)
|
|
Loss Applicable to Common Stockholders
|
$
|
(40,921)
|
|
|
$
|
(14,354)
|
|
|
$
|
(59,678)
|
|
|
$
|
(30,349)
|
|
|
|
|
|
|
|
|
|
Loss Applicable to Common Stock, per share
|
|
|
|
|
|
|
|
Basic
|
$
|
(0.61)
|
|
|
$
|
(0.21)
|
|
|
$
|
(0.89)
|
|
|
$
|
(0.45)
|
|
Diluted
|
$
|
(0.61)
|
|
|
$
|
(0.21)
|
|
|
$
|
(0.89)
|
|
|
$
|
(0.45)
|
|
|
|
|
|
|
|
|
|
Weighted Average Number of Shares of Common Stock Outstanding
|
|
|
|
|
|
|
|
Basic
|
67,111,843
|
|
|
67,029,610
|
|
|
67,090,805
|
|
|
67,028,364
|
|
Diluted
|
67,111,843
|
|
|
67,029,610
|
|
|
67,090,805
|
|
|
67,028,364
|
|
See notes to Consolidated Financial Statements.
DRIVE SHACK INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS (unaudited)
(dollars in thousands, except share data)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30,
|
|
|
|
Six Months Ended June 30,
|
|
|
|
2020
|
|
2019
|
|
2020
|
|
2019
|
Net loss
|
$
|
(39,526)
|
|
|
$
|
(12,959)
|
|
|
$
|
(56,888)
|
|
|
$
|
(27,559)
|
|
Other comprehensive loss:
|
|
|
|
|
|
|
|
Net unrealized loss on available-for-sale securities
|
(217)
|
|
|
—
|
|
|
(255)
|
|
|
—
|
|
Other comprehensive loss
|
(217)
|
|
|
—
|
|
|
(255)
|
|
|
—
|
|
Total comprehensive loss
|
$
|
(39,743)
|
|
|
$
|
(12,959)
|
|
|
$
|
(57,143)
|
|
|
$
|
(27,559)
|
|
Comprehensive loss attributable to Drive Shack Inc. stockholders’ equity
|
$
|
(39,743)
|
|
|
$
|
(12,959)
|
|
|
$
|
(57,143)
|
|
|
$
|
(27,559)
|
|
See notes to Consolidated Financial Statements.
DRIVE SHACK INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY (unaudited)
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2020 AND 2019
(dollars in thousands, except share data)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Drive Shack Inc. Stockholders
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Preferred Stock
|
|
|
|
Common Stock
|
|
|
|
|
|
|
|
|
|
|
|
Shares
|
|
Amount
|
|
Shares
|
|
Amount
|
|
Additional Paid-
in Capital
|
|
Accumulated
Deficit
|
|
Accumulated Other Comp.
Income
|
|
Total Equity (Deficit)
|
Equity (deficit) - December 31, 2019
|
2,463,321
|
|
|
$
|
61,583
|
|
|
67,068,751
|
|
|
$
|
671
|
|
|
$
|
3,177,183
|
|
|
$
|
(3,175,572)
|
|
|
$
|
1,710
|
|
|
$
|
65,575
|
|
Dividends declared
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(465)
|
|
|
—
|
|
|
(465)
|
|
Stock-based compensation
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
201
|
|
|
—
|
|
|
—
|
|
|
201
|
|
Shares issued from restricted stock units
|
—
|
|
|
—
|
|
|
1,762
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Comprehensive income (loss)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(17,362)
|
|
|
—
|
|
|
(17,362)
|
|
Other comprehensive loss
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(38)
|
|
|
(38)
|
|
Total comprehensive loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(17,400)
|
|
Equity (deficit) - March 31, 2020
|
2,463,321
|
|
|
$
|
61,583
|
|
|
67,070,513
|
|
|
$
|
671
|
|
|
$
|
3,177,384
|
|
|
$
|
(3,193,399)
|
|
|
$
|
1,672
|
|
|
$
|
47,911
|
|
Stock-based compensation
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
500
|
|
|
—
|
|
|
—
|
|
|
500
|
|
Shares issued from restricted stock units
|
—
|
|
|
—
|
|
|
141,849
|
|
|
1
|
|
|
(1)
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Comprehensive income (loss)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(39,526)
|
|
|
—
|
|
|
(39,526)
|
|
Other comprehensive income
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(217)
|
|
|
(217)
|
|
Total comprehensive loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
(39,743)
|
|
Equity (deficit) - June 30, 2020
|
2,463,321
|
|
|
$
|
61,583
|
|
|
67,212,362
|
|
|
$
|
672
|
|
|
$
|
3,177,883
|
|
|
$
|
(3,232,925)
|
|
|
$
|
1,455
|
|
|
$
|
8,668
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity (deficit) - December 31, 2018
|
2,463,321
|
|
|
$
|
61,583
|
|
|
67,027,104
|
|
|
$
|
670
|
|
|
$
|
3,175,843
|
|
|
$
|
(3,105,307)
|
|
|
$
|
1,878
|
|
|
$
|
134,667
|
|
Dividends declared
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(1,395)
|
|
|
—
|
|
|
(1,395)
|
|
Stock-based compensation
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
1,222
|
|
|
—
|
|
|
—
|
|
|
1,222
|
|
Adoption of ASC 842
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(9,831)
|
|
|
|
|
(9,831)
|
|
Comprehensive income (loss)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(14,600)
|
|
|
—
|
|
|
(14,600)
|
|
Other comprehensive income
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Total comprehensive loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(14,600)
|
|
Equity (deficit) - March 31, 2019
|
2,463,321
|
|
|
$
|
61,583
|
|
|
67,027,104
|
|
|
$
|
670
|
|
|
$
|
3,177,065
|
|
|
$
|
(3,131,133)
|
|
|
$
|
1,878
|
|
|
$
|
110,063
|
|
Dividends declared
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(1,395)
|
|
|
—
|
|
|
(1,395)
|
|
Stock-based compensation
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
1,384
|
|
|
—
|
|
|
—
|
|
|
1,384
|
|
Purchase of common stock (directors)
|
—
|
|
|
—
|
|
|
6,000
|
|
|
—
|
|
|
29
|
|
|
—
|
|
|
—
|
|
|
29,000
|
|
Comprehensive income (loss)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(12,959)
|
|
|
—
|
|
|
(12,959)
|
|
Other comprehensive income
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Total comprehensive loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(12,959)
|
|
Equity (deficit) - June 30, 2019
|
2,463,321
|
|
|
$
|
61,583
|
|
|
67,033,104
|
|
|
$
|
670
|
|
|
$
|
3,178,478
|
|
|
$
|
(3,145,487)
|
|
|
$
|
1,878
|
|
|
$
|
97,122
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See notes to Consolidated Financial Statements.
DRIVE SHACK INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited)
(dollars in thousands, except share data)
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended June 30,
|
|
|
|
2020
|
|
2019
|
Cash Flows From Operating Activities
|
|
|
|
Net loss
|
$
|
(56,888)
|
|
|
$
|
(27,559)
|
|
Adjustments to reconcile net loss to net cash used in operating activities:
|
|
|
|
Depreciation and amortization
|
13,476
|
|
|
10,046
|
|
Amortization of discount and premium
|
(193)
|
|
|
(122)
|
|
Other amortization
|
3,823
|
|
|
3,556
|
|
Amortization of revenue on golf membership deposit liabilities
|
(746)
|
|
|
(874)
|
|
Amortization of prepaid golf membership dues
|
(3,451)
|
|
|
(6,855)
|
|
Non-cash operating lease expense
|
6,333
|
|
|
3,270
|
|
Stock-based compensation
|
700
|
|
|
2,606
|
|
(Gain) Loss on lease terminations and impairment
|
(2,783)
|
|
|
4,206
|
|
Equity in (earnings), net of impairment from equity method investments
|
24,020
|
|
|
(685)
|
|
Other (gains) losses, net
|
164
|
|
|
(4,551)
|
|
|
|
|
|
|
|
|
|
Change in:
|
|
|
|
Accounts receivable, net, other current assets and other assets - noncurrent
|
4,235
|
|
|
(1,579)
|
|
Accounts payable and accrued expenses, deferred revenue, other current liabilities and other liabilities - noncurrent
|
5,625
|
|
|
(5,685)
|
|
Net cash used in operating activities
|
(5,685)
|
|
|
(24,226)
|
|
Cash Flows From Investing Activities
|
|
|
|
Proceeds from sale of property and equipment
|
73
|
|
|
32,665
|
|
Acquisition and additions of property and equipment and intangibles
|
(7,702)
|
|
|
(42,569)
|
|
|
|
|
|
Net cash used in investing activities
|
(7,629)
|
|
|
(9,904)
|
|
Cash Flows From Financing Activities
|
|
|
|
Repayments of debt obligations
|
(2,068)
|
|
|
(2,691)
|
|
Golf membership deposits received
|
878
|
|
|
1,012
|
|
Preferred stock dividends paid
|
(1,395)
|
|
|
(2,790)
|
|
Other financing activities
|
(186)
|
|
|
20
|
|
Net cash used in financing activities
|
(2,771)
|
|
|
(4,449)
|
|
Net Decrease in Cash and Cash Equivalents, Restricted Cash and Restricted Cash, noncurrent
|
(16,085)
|
|
|
(38,579)
|
|
Cash and Cash Equivalents, Restricted Cash and Restricted Cash, noncurrent, Beginning of Period
|
31,964
|
|
|
82,819
|
|
Cash and Cash Equivalents, Restricted Cash and Restricted Cash, noncurrent, End of Period
|
$
|
15,879
|
|
|
$
|
44,240
|
|
|
|
|
|
Supplemental Schedule of Non-Cash Investing and Financing Activities
|
|
|
|
Preferred stock dividends declared but not paid
|
$
|
—
|
|
|
$
|
930
|
|
Additions to finance lease assets and liabilities
|
$
|
1,028
|
|
|
$
|
10,652
|
|
Increases in accounts payable and accrued expenses related to the purchase of property and equipment
|
$
|
4,192
|
|
|
$
|
2,816
|
|
See notes to Consolidated Financial Statements.
DRIVE SHACK INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
June 30, 2020
(dollars in tables in thousands, except share data)
1. ORGANIZATION
Drive Shack Inc., which is referred to, together with its subsidiaries, as Drive Shack Inc. or the Company, is an owner and operator of golf-related leisure and entertainment venues focused on bringing people together through competitive socializing. The Company, a Maryland corporation, was formed in 2002, and its common stock is traded on the NYSE under the symbol “DS.”
The Company conducts its business through the following segments: (i) Entertainment Golf venues, (ii) Traditional Golf properties and (iii) corporate. For a further discussion of the reportable segments, see Note 4.
As of June 30, 2020, the Company owned or leased four Entertainment Golf venues across three states. We opened our first Entertainment Golf venue in Orlando, Florida, in April 2018, which has largely served as our research, development and testing venue. During the second half of 2019, we opened three Generation 2.0 core Drive Shack venues in Raleigh, North Carolina; Richmond, Virginia; and West Palm Beach, Florida.
The Company’s Traditional Golf business is one of the largest operators of golf properties in the United States. As of June 30, 2020, the Company owned, leased or managed 60 traditional golf properties across nine states.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
COVID-19 — In March 2020, a global pandemic was declared by the World Health Organization related to the rapidly growing outbreak of a novel strain of coronavirus (“COVID-19”). In response to the rapid spread of COVID-19, authorities around the world have implemented numerous measures to contain the virus, such as travel bans and restrictions, quarantines, "stay-at-home" or "shelter-in-place" orders and business shutdowns. Many jurisdictions in which we operate required mandatory store closures or imposed capacity limitations and other restrictions affecting our operations. As a result, during March 2020, we temporarily closed all of our entertainment golf venues and substantially all of our traditional golf courses and furloughed a substantial majority of our employees. In response to the uncertainty caused by the pandemic, we took several actions after we suspended operations to preserve our liquidity position and prepare for multiple contingencies.
The gradual easing of restrictions has permitted us to resume operations at our entertainment golf venues, subject to locally mandated COVID-19 capacity limitations at the suite style hitting bays (varying by location), and with no bar service, and to resume operations at our traditional golf courses subject to various locally mandated COVID-19 operational restrictions, with food and beverage offerings limited and operating primarily on a patio dining and “to-go” model. Restrictions on large group gatherings have lagged the easing of other operational restrictions imposed across our portfolio, varying by location, which has resulted in the postponement or cancellation of events, banquets, and other large group gatherings. Throughout May and June, the Company reopened its three Generation 2.0 entertainment golf venues in West Palm Beach, FL; Richmond, VA; and Raleigh, North Carolina. As of June 30, 2020, all traditional golf courses were open. As of the date of this report, one entertainment golf venue in Orlando, Florida remains closed.
The COVID-19 pandemic remains a rapidly evolving situation and the extended length of the outbreak and related government response may cause prolonged periods of various operational and capacity limitations and modified operating schedules and may result in changes in customer behaviors or preferences. These may lead to increased asset recovery and valuation risks, such as impairment of long-lived and other assets. The extent to which COVID-19 ultimately impacts our business will depend on future developments, which are highly uncertain and cannot be predicted, including additional actions taken by various governmental bodies and private enterprises to contain COVID-19 or mitigate its impact, among others. The Company currently expects these developments to have a material adverse impact on its revenues, results of operations and cash flows in future periods.
Going Concern — The financial statements have been prepared on a going concern basis, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. These financial statements do not include any adjustments relating to the recovery of the recorded assets or the classification of the liabilities that might be necessary should the Company be unable to continue as a going concern.
However, as noted above, we temporarily closed all of our entertainment golf and substantially all of our traditional golf venues, eliminating substantially all of the Company's revenue sources during the closure periods (varying by location). The
DRIVE SHACK INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
June 30, 2020
(dollars in tables in thousands, except share data)
loss of revenues and uncertainty related to the COVID-19 pandemic discussed above raises substantial doubt about the Company's ability to continue as a going concern.
The ability of the Company to continue operations is dependent on the degree of success of management's plans to manage existing cash balances through the business disruptions and to obtain additional capital to fund its short-term liquidity requirements. In order to manage existing cash balances, management reduced spending broadly, including furloughing employees, pausing construction on future planned venues to reduce capital spending, suspending declaration of dividends on our preferred stock, and deferring payment of certain operating and corporate expenditures. The Company is actively seeking to sell its remaining Traditional Golf property that is held-for-sale and believes that a sale is probable and would mitigate the substantial doubt raised by the COVID-19 pandemic and satisfy the Company's estimated liquidity needs through 12 months from the issuance of the financial statements. The Company is also exploring additional debt financing, including potential financing options made available under the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”), public or private equity issuances, and additional ways to strategically monetize our remaining real estate securities and other investments. However, there is no assurance that the Company will be successful in raising additional capital or that such additional funds will be available on acceptable terms, if at all.
Basis of Presentation — The accompanying Consolidated Financial Statements and related notes of the Company have been prepared in accordance with accounting principles generally accepted in the United States for interim financial reporting and the instructions to Form 10-Q and Rule 10-01 of Regulation S-X. Accordingly, certain information and footnote disclosures normally included in financial statements prepared under U.S. generally accepted accounting principles, or GAAP, have been condensed or omitted. In the opinion of management, all adjustments considered necessary for a fair presentation of the Company’s financial position, results of operations and cash flows have been included and are of a normal and recurring nature. The operating results presented for interim periods are not necessarily indicative of the results that may be expected for any other interim period or for the entire year. These financial statements should be read in conjunction with the Company’s Consolidated Financial Statements for the year ended December 31, 2019 and notes thereto included in the Company’s Annual Report on Form 10-K filed with the SEC on March 6, 2020. Capitalized terms used herein, and not otherwise defined, are defined in the Company’s Consolidated Financial Statements for the year ended December 31, 2019. There have been no significant changes to our critical accounting policies as disclosed in our Annual Report on Form 10-K for the fiscal year ended December 31, 2019.
The Company’s significant accounting policies for these financial statements as of June 30, 2020 are summarized below and should be read in conjunction with the Summary of Significant Accounting Policies detailed in the Company’s Annual Report on Form 10-K for the year ended December 31, 2019.
Use of Estimates – Our estimates are based on information available to management at the time of preparation of the Consolidated Financial Statements, including the result of historical analysis, our understanding and experience of the Company’s operations, our knowledge of the industry and market-participant data available to us. Actual results have historically been in line with management’s estimates and judgments used in applying each of the accounting policies and management periodically re-evaluates accounting estimates and assumptions. Actual results could differ from these estimates and materially impact our Consolidated Financial Statements. However, the Company does not expect our assessments and assumptions to materially change in the future.
Real Estate, Held-for-Sale — Long-lived assets to be disposed of by sale, which meet certain criteria, are reclassified to real estate held-for-sale and measured at the lower of their carrying amount or fair value less costs to sell. The Company suspends depreciation and amortization for assets held-for-sale. Subsequent changes to the estimated fair value less costs to sell could impact the measurement of assets held-for-sale. Decreases below carrying value are recognized as an impairment loss and recorded in "Impairment and other losses" on the Consolidated Statements of Operations. To the extent the fair value increases, any previously reported impairment is reversed to the extent of the impairment taken.
On March 7, 2018, the Company announced it was actively pursuing the sale of 26 owned Traditional Golf properties in order to generate capital for reinvestment in the Entertainment Golf business. As of June 30, 2020, the Company continued to present one golf property as held-for-sale. The assets and associated liabilities are reported on the Consolidated Balance Sheets as “Real estate assets, held-for-sale, net” and “Real estate liabilities, held-for-sale,” respectively.
DRIVE SHACK INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
June 30, 2020
(dollars in tables in thousands, except share data)
The real estate assets, held-for-sale, net are reported at a carrying value of $17.0 million and include $12.6 million of land, $4.0 million of buildings and improvements, $0.2 million of furniture, fixtures and equipment, and $0.2 million of other related assets.
Leasing Arrangements — The Company evaluates at lease inception whether an arrangement is or contains a lease by providing the Company with the right to control an asset. Operating leases are accounted for on balance sheet with the Right of Use (“ROU”) assets and lease liabilities recognized in "Operating lease right-of-use assets," "Other current liabilities" and "Operating lease liabilities - noncurrent" in the Consolidated Balance Sheets. Finance lease ROU assets, current lease liabilities and noncurrent lease liabilities are recognized in "Property and equipment, net of accumulated depreciation," and "Obligations under finance leases" and "Credit facilities and obligations under finance leases - noncurrent" in the Consolidated Balance Sheets, respectively.
All lease liabilities are measured at the present value of the associated payments, discounted using the Company’s incremental borrowing rate determined using a portfolio approach based on the rate of interest that the Company would pay to borrow an amount equal to the lease payments for a similar term and in a similar economic environment on a collateralized basis. ROU assets, for both operating and finance leases, are initially measured based on the lease liability, adjusted for initial direct costs, prepaid rent, and lease incentives received. Operating leases are subsequently amortized into lease cost on a straight-line basis. Depreciation of the finance lease ROU assets is subsequently calculated using the straight-line method over the shorter of the estimated useful lives or the expected lease terms and recorded in "Depreciation and amortization" on the Consolidated Statements of Operations.
In addition to the fixed minimum payments required under the lease arrangements, certain leases require variable lease payments, which are payment of the excess of various percentages of gross revenue or net operating income over the minimum rental payments as well as payment of taxes assessed against the leased property. The leases generally also require the payment for the cost of insurance and maintenance. Variable lease payments are recognized when the associated activity occurs and contingency is resolved.
The Company has elected to combine lease and non-lease components for all lease contracts.
Other Investments — The Company owns an approximately 22% economic interest in a limited liability company which owns preferred equity in a commercial real estate project. The Company accounts for this investment as an equity method investment. The Company evaluates its equity method investment for other-than-temporary impairment whenever events or changes in circumstances indicate that the carrying amount of the investment might not be recoverable. The evaluation of recoverability is based on management’s assessment of the financial condition and near-term prospects of the commercial real estate project, the length of time and the extent to which the market value of the investment has been less than cost, availability and cost of financing, demand for space, competition for tenants, changes in market rental rates, and operating results. As these factors are difficult to predict and are subject to future events that may alter management’s assumptions, the values estimated by management in its recoverability analyses may not be realized, and actual losses or impairment may be realized in the future. As the fair value inputs utilized are unobservable, the Company determined that the significant inputs used to value this real estate investment fall within Level 3 for fair value reporting.
The operations and ongoing construction at the commercial real estate project halted due to the COVID-19 pandemic, with no known plans to resume. As a result, the ability of the commercial real estate project to obtain the financial results needed to recover any of our investment is highly uncertain. Therefore, the Company recorded an other-than-temporary impairment charge of $24.7 million during the three months ended June 30, 2020, bringing the carrying value of the investment to zero as of June 30, 2020. The other-than-temporary impairment charge is recorded in "Other income (loss), net" on the Consolidated Statements of Operations. At December 31, 2019, the carrying value of this investment was $24.0 million.
Impairment of Long-lived Assets — The Company periodically reviews the carrying amounts of its long-lived assets, including real estate held-for-use and held-for-sale, as well as finite-lived intangible assets and right-of-use assets, to determine whether current events or circumstances indicate that such carrying amounts may not be recoverable. The assessment of recoverability is based on management’s estimates by comparing the sum of the estimated undiscounted cash flows generated by the underlying asset, or other appropriate grouping of assets, to its carrying value to determine whether an impairment existed at its lowest level of identifiable cash flows. If the carrying amount is greater than the expected undiscounted cash flows, the asset is considered impaired and an impairment is recognized to the extent the carrying value of such asset exceeds its fair value. The
DRIVE SHACK INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
June 30, 2020
(dollars in tables in thousands, except share data)
Company generally measures fair value by considering sale prices for similar assets or by discounting estimated future cash flows using an appropriate discount rate.
Other Current Assets
The following table summarizes the Company's other current assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2020
|
|
December 31, 2019
|
Managed course receivables
|
|
$
|
4,997
|
|
|
$
|
5,426
|
|
Prepaid expenses
|
|
2,253
|
|
|
3,608
|
|
Deposits
|
|
954
|
|
|
1,374
|
|
Inventory
|
|
2,529
|
|
|
2,762
|
|
Miscellaneous current assets, net
|
|
3,244
|
|
|
4,351
|
|
Other current assets
|
|
$
|
13,977
|
|
|
$
|
17,521
|
|
Other Assets
The following table summarizes the Company's other assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2020
|
|
December 31, 2019
|
Prepaid expenses
|
|
$
|
744
|
|
|
$
|
317
|
|
Deposits
|
|
2,455
|
|
|
2,123
|
|
Miscellaneous assets, net
|
|
2,277
|
|
|
2,283
|
|
Other assets
|
|
$
|
5,476
|
|
|
$
|
4,723
|
|
Other Current Liabilities
The following table summarizes the Company's other current liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2020
|
|
December 31, 2019
|
|
|
|
|
|
Operating lease liabilities
|
|
20,477
|
|
|
16,922
|
|
Accrued rent
|
|
2,366
|
|
|
2,769
|
|
Dividends payable
|
|
—
|
|
|
930
|
|
Miscellaneous current liabilities
|
|
4,532
|
|
|
3,343
|
|
Other current liabilities
|
|
$
|
27,375
|
|
|
$
|
23,964
|
|
DRIVE SHACK INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
June 30, 2020
(dollars in tables in thousands, except share data)
Other Liabilities
The following table summarized the Company's other liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2020
|
|
December 31, 2019
|
|
|
|
|
|
Service obligation intangible
|
|
—
|
|
|
1,776
|
|
|
|
|
|
|
Miscellaneous liabilities
|
|
1,709
|
|
|
1,502
|
|
Other liabilities
|
|
$
|
1,709
|
|
|
$
|
3,278
|
|
Membership Deposit Liabilities - Private country club members in our Traditional Golf business generally pay an advance initiation fee deposit upon their acceptance as a member to the respective country club. Initiation fee deposits are refundable 30 years after the date of acceptance as a member. The difference between the initiation fee deposit paid by the member and the present value of the refund obligation is deferred and recognized into Golf operations revenue in the Consolidated Statements of Operations on a straight-line basis over the expected life of an active membership, which is estimated to be seven years. The present value of the refund obligation is recorded as a membership deposit liability in the Consolidated Balance Sheets and accretes over a 30-year nonrefundable term using the effective interest method. This accretion is recorded as interest expense in the Consolidated Statements of Operations.
Other Income (Loss), Net — These items are comprised of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30,
|
|
|
|
Six Months Ended June 30,
|
|
|
|
2020
|
|
2019
|
|
2020
|
|
2019
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Collateral management fee income, net
|
66
|
|
|
129
|
|
|
138
|
|
|
256
|
|
Equity in earnings, net of impairment from equity method investments
|
(24,365)
|
|
|
344
|
|
|
(24,020)
|
|
|
685
|
|
Gain (loss) on sale of traditional golf properties
|
(102)
|
|
|
(362)
|
|
|
(54)
|
|
|
4,666
|
|
Other (loss) income
|
(21)
|
|
|
16
|
|
|
(119)
|
|
|
7
|
|
Other income (loss), net
|
$
|
(24,422)
|
|
|
$
|
127
|
|
|
$
|
(24,055)
|
|
|
$
|
5,614
|
|
Equity income (loss) - During the three and six months ended June 30, 2020, the Company recorded an other-than-temporary impairment charge of $24.7 million on the Company's equity method investment.
Gain (loss) on sale of traditional golf properties - During the three months ended June 30, 2019, the Company sold four golf properties resulting in net proceeds of $17.9 million, inclusive of transaction costs. The golf properties had a carrying value of $18.3 million and resulted in a loss on sale of $0.4 million. During the six months ended June 30, 2019, the company sold seven traditional golf courses, resulting in net proceeds of $43.4 million. The golf properties had a carrying value of $38.6 million and resulted in a gain on sale of $4.8 million.
Recent Accounting Pronouncements
In December 2019, the FASB issued ASU 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes. The standard removes certain exceptions for investments, intraperiod allocations and interim tax calculations and adds guidance to reduce complexity in accounting for income taxes. The effective date of the standard will be for annual periods beginning after December 15, 2020, with early adoption permitted. The various amendments in the standard are applied on a retrospective basis, modified retrospective basis and prospective basis, depending on the amendment. The Company is currently evaluating the new guidance to determine the impact it may have on its Consolidated Financial Statements.
DRIVE SHACK INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
June 30, 2020
(dollars in tables in thousands, except share data)
3. REVENUES
The majority of the Company’s revenue is recognized at a point in time which is at the time of sale to customers at the Company’s Entertainment Golf venues and Traditional Golf properties, including green fees, cart rentals, bay play, events and sales of food, beverages and merchandise. Revenue from membership dues is recognized in the month earned. Membership dues received in advance are included in deferred revenue and recognized as revenue ratably over the appropriate period, which is generally twelve months or less for private club members and the following month for The Players Club members.
The Company’s revenue is all generated within the Entertainment and Traditional Golf segments. The following tables disaggregate revenue by category: Entertainment golf venues, public and private golf properties (owned and leased) and managed golf properties.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30, 2020
|
|
|
|
|
|
|
|
|
|
Six Months Ended June 30, 2020
|
|
|
|
|
|
|
|
|
|
|
Ent. golf venues
|
|
Public golf properties
|
|
Private golf properties
|
|
Managed golf properties (A)
|
|
Total
|
|
Ent. golf venues
|
|
Public golf properties
|
|
Private golf properties
|
|
Managed golf properties (A)
|
|
Total
|
Golf operations
|
|
$
|
762
|
|
|
$
|
13,035
|
|
|
$
|
6,507
|
|
|
$
|
9,371
|
|
|
$
|
29,675
|
|
|
$
|
4,672
|
|
|
$
|
29,058
|
|
|
$
|
20,161
|
|
|
$
|
24,409
|
|
|
$
|
78,300
|
|
Sales of food and beverages
|
|
1,028
|
|
|
910
|
|
|
487
|
|
|
—
|
|
|
2,425
|
|
|
7,235
|
|
|
5,195
|
|
|
2,505
|
|
|
—
|
|
|
14,935
|
|
Total revenues
|
|
$
|
1,790
|
|
|
$
|
13,945
|
|
|
$
|
6,994
|
|
|
$
|
9,371
|
|
|
$
|
32,100
|
|
|
$
|
11,907
|
|
|
$
|
34,253
|
|
|
$
|
22,666
|
|
|
$
|
24,409
|
|
|
$
|
93,235
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30, 2019
|
|
|
|
|
|
|
|
|
|
Six Months Ended June 30, 2019
|
|
|
|
|
|
|
|
|
|
|
Ent. golf venues
|
|
Public golf properties
|
|
Private golf properties
|
|
Managed golf properties (A)
|
|
Total
|
|
Ent. golf venues
|
|
Public golf properties
|
|
Private golf properties
|
|
Managed golf properties (A)
|
|
Total
|
Golf operations
|
|
$
|
607
|
|
|
$
|
28,902
|
|
|
$
|
13,352
|
|
|
$
|
14,525
|
|
|
$
|
57,386
|
|
|
$
|
1,288
|
|
|
$
|
46,366
|
|
|
$
|
28,806
|
|
|
$
|
25,632
|
|
|
$
|
102,092
|
|
Sales of food and beverages
|
|
872
|
|
|
10,116
|
|
|
3,241
|
|
|
—
|
|
|
14,229
|
|
|
1,911
|
|
|
15,593
|
|
|
5,971
|
|
|
—
|
|
|
23,475
|
|
Total revenues
|
|
$
|
1,479
|
|
|
$
|
39,018
|
|
|
$
|
16,593
|
|
|
$
|
14,525
|
|
|
$
|
71,615
|
|
|
$
|
3,199
|
|
|
$
|
61,959
|
|
|
$
|
34,777
|
|
|
$
|
25,632
|
|
|
$
|
125,567
|
|
(A)Includes $8.5 million and $21.8 million for the three and six months ended June 30, 2020, respectively, and $13.0 million and $22.8 million for the three and six months ended June 30, 2019, respectively, due to management contract reimbursements reported under ASC 606.
4. SEGMENT REPORTING
The Company currently has three reportable segments: (i) Entertainment Golf venues, (ii) Traditional Golf properties and (iii) corporate. The chief operating decision maker (“CODM”) for each segment is our Chief Executive Officer and President, who reviews discrete financial information for each reportable segment to manage the Company, including resource allocation and performance assessment.
The Company opened its first Entertainment Golf venue in Orlando, Florida, in April 2018. During the second half of 2019, the Company opened three Generation 2.0 core Entertainment Golf venues in Raleigh, North Carolina; Richmond, Virginia; and West Palm Beach, Florida.
Additionally, the Company's Traditional Golf business is one of the largest operators of golf properties in the United States. As of June 30, 2020, the Company owned, leased or managed 60 Traditional Golf properties across nine states.
The corporate segment consists primarily of investments in loans and securities, interest income on short-term investments, general and administrative expenses as a public company, interest expense on the junior subordinated notes payable (Note 8) and income tax expense (Note 14).
Summary financial data on the Company’s segments is given below, together with a reconciliation to the same data for the Company as a whole:
DRIVE SHACK INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
June 30, 2020
(dollars in tables in thousands, except share data)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Entertainment Golf
|
|
Traditional Golf
|
|
Corporate
|
|
Total
|
Six Months Ended June 30, 2020
|
|
|
|
|
|
|
|
|
Revenues
|
|
|
|
|
|
|
|
|
Golf operations
|
|
$
|
4,672
|
|
|
$
|
73,628
|
|
|
$
|
—
|
|
|
$
|
78,300
|
|
Sales of food and beverages
|
|
7,235
|
|
|
7,700
|
|
|
—
|
|
|
14,935
|
|
Total revenues
|
|
11,907
|
|
|
81,328
|
|
|
—
|
|
|
93,235
|
|
Operating costs
|
|
|
|
|
|
|
|
|
Operating expenses
|
|
10,801
|
|
|
76,790
|
|
|
—
|
|
|
87,591
|
|
Cost of sales - food and beverages
|
|
1,904
|
|
|
2,580
|
|
|
—
|
|
|
4,484
|
|
General and administrative expense (A)
|
|
4,529
|
|
|
5,282
|
|
|
4,361
|
|
|
14,172
|
|
General and administrative expense - acquisition and transaction expenses (B)
|
|
865
|
|
|
155
|
|
|
994
|
|
|
2,014
|
|
Depreciation and amortization
|
|
6,021
|
|
|
7,311
|
|
|
144
|
|
|
13,476
|
|
Pre-opening costs (C)
|
|
822
|
|
|
—
|
|
|
—
|
|
|
822
|
|
(Gain) Loss on lease terminations and impairment
|
|
—
|
|
|
(2,333)
|
|
|
—
|
|
|
(2,333)
|
|
Realized and unrealized (gain) on investments
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Total operating costs
|
|
24,942
|
|
|
89,785
|
|
|
5,499
|
|
|
120,226
|
|
Operating loss
|
|
(13,035)
|
|
|
(8,457)
|
|
|
(5,499)
|
|
|
(26,991)
|
|
Other income (expenses)
|
|
|
|
|
|
|
|
|
Interest and investment income
|
|
1
|
|
|
38
|
|
|
226
|
|
|
265
|
|
Interest expense (D)
|
|
(207)
|
|
|
(4,245)
|
|
|
(962)
|
|
|
(5,414)
|
|
Capitalized interest (D)
|
|
—
|
|
|
22
|
|
|
56
|
|
|
78
|
|
Other income (loss), net
|
|
—
|
|
|
(166)
|
|
|
(23,889)
|
|
|
(24,055)
|
|
Total other income (expenses)
|
|
(206)
|
|
|
(4,351)
|
|
|
(24,569)
|
|
|
(29,126)
|
|
Income tax expense
|
|
—
|
|
|
—
|
|
|
771
|
|
|
771
|
|
Net loss
|
|
(13,241)
|
|
|
(12,808)
|
|
|
(30,839)
|
|
|
(56,888)
|
|
Preferred dividends
|
|
—
|
|
|
—
|
|
|
(2,790)
|
|
|
(2,790)
|
|
Loss applicable to common stockholders
|
|
$
|
(13,241)
|
|
|
$
|
(12,808)
|
|
|
$
|
(33,629)
|
|
|
$
|
(59,678)
|
|
|
|
|
|
|
|
|
|
|
DRIVE SHACK INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
June 30, 2020
(dollars in tables in thousands, except share data)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Entertainment Golf
|
|
Traditional Golf
|
|
Corporate
|
|
Total
|
Three Months Ended June 30, 2020
|
|
|
|
|
|
|
|
|
Revenues
|
|
|
|
|
|
|
|
|
Golf operations
|
|
$
|
762
|
|
|
$
|
28,913
|
|
|
$
|
—
|
|
|
$
|
29,675
|
|
Sales of food and beverages
|
|
1,028
|
|
|
1,397
|
|
|
—
|
|
|
2,425
|
|
Total revenues
|
|
1,790
|
|
|
30,310
|
|
|
—
|
|
|
32,100
|
|
Operating costs
|
|
|
|
|
|
|
|
|
Operating expenses
|
|
2,629
|
|
|
30,595
|
|
|
—
|
|
|
33,224
|
|
Cost of sales - food and beverages
|
|
294
|
|
|
535
|
|
|
—
|
|
|
829
|
|
General and administrative expense (A)
|
|
1,360
|
|
|
2,189
|
|
|
1,983
|
|
|
5,532
|
|
General and administrative expense - acquisition and transaction expenses (B)
|
|
831
|
|
|
33
|
|
|
(28)
|
|
|
836
|
|
Depreciation and amortization
|
|
3,001
|
|
|
3,608
|
|
|
73
|
|
|
6,682
|
|
Pre-opening costs (C)
|
|
270
|
|
|
—
|
|
|
—
|
|
|
270
|
|
(Gain) Loss on lease terminations and impairment
|
|
—
|
|
|
(3,125)
|
|
|
—
|
|
|
(3,125)
|
|
Realized and unrealized loss on investments
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Total operating costs
|
|
8,385
|
|
|
33,835
|
|
|
2,028
|
|
|
44,248
|
|
Operating loss
|
|
(6,595)
|
|
|
(3,525)
|
|
|
(2,028)
|
|
|
(12,148)
|
|
Other income (expenses)
|
|
|
|
|
|
|
|
|
Interest and investment income
|
|
—
|
|
|
23
|
|
|
112
|
|
|
135
|
|
Interest expense (D)
|
|
(102)
|
|
|
(2,098)
|
|
|
(436)
|
|
|
(2,636)
|
|
Capitalized interest (D)
|
|
—
|
|
|
13
|
|
|
32
|
|
|
45
|
|
Other income (loss), net
|
|
—
|
|
|
(120)
|
|
|
(24,302)
|
|
|
(24,422)
|
|
Total other income (expenses)
|
|
(102)
|
|
|
(2,182)
|
|
|
(24,594)
|
|
|
(26,878)
|
|
Income tax expense
|
|
—
|
|
|
—
|
|
|
500
|
|
|
500
|
|
Net loss
|
|
(6,697)
|
|
|
(5,707)
|
|
|
(27,122)
|
|
|
(39,526)
|
|
Preferred dividends
|
|
—
|
|
|
—
|
|
|
(1,395)
|
|
|
(1,395)
|
|
Loss applicable to common stockholders
|
|
$
|
(6,697)
|
|
|
$
|
(5,707)
|
|
|
$
|
(28,517)
|
|
|
$
|
(40,921)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Entertainment Golf
|
|
Traditional Golf
|
|
Corporate
|
|
Total
|
June 30, 2020
|
|
|
|
|
|
|
|
|
Total assets
|
|
158,187
|
|
|
284,874
|
|
|
14,012
|
|
|
457,073
|
|
Total liabilities
|
|
41,997
|
|
|
343,136
|
|
|
63,272
|
|
|
448,405
|
|
Preferred stock
|
|
—
|
|
|
—
|
|
|
61,583
|
|
|
61,583
|
|
Equity
|
|
$
|
116,190
|
|
|
$
|
(58,262)
|
|
|
$
|
(110,843)
|
|
|
$
|
(52,915)
|
|
|
|
|
|
|
|
|
|
|
Additions to property and equipment (including finance leases) during the six months ended June 30, 2020
|
|
$
|
4,297
|
|
|
$
|
2,982
|
|
|
$
|
423
|
|
|
$
|
7,702
|
|
DRIVE SHACK INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
June 30, 2020
(dollars in tables in thousands, except share data)
Summary segment financial data (continued).
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Entertainment Golf
|
|
Traditional Golf
|
|
Corporate
|
|
Total
|
Six Months Ended June 30, 2019
|
|
|
|
|
|
|
|
|
Revenues
|
|
|
|
|
|
|
|
|
Golf operations
|
|
$
|
1,288
|
|
|
$
|
100,804
|
|
|
$
|
—
|
|
|
$
|
102,092
|
|
Sales of food and beverages
|
|
1,911
|
|
|
21,564
|
|
|
—
|
|
|
23,475
|
|
Total revenues
|
|
3,199
|
|
|
122,368
|
|
|
—
|
|
|
125,567
|
|
Operating costs
|
|
|
|
|
|
|
|
|
Operating expenses
|
|
3,605
|
|
|
102,838
|
|
|
—
|
|
|
106,443
|
|
Cost of sales - food and beverages
|
|
501
|
|
|
6,100
|
|
|
—
|
|
|
6,601
|
|
General and administrative expense (A)
|
|
6,930
|
|
|
8,212
|
|
|
8,510
|
|
|
23,652
|
|
General and administrative expense - acquisition and transaction expenses (B)
|
|
963
|
|
|
333
|
|
|
278
|
|
|
1,574
|
|
Depreciation and amortization
|
|
1,670
|
|
|
8,335
|
|
|
41
|
|
|
10,046
|
|
Pre-opening costs (C)
|
|
2,879
|
|
|
—
|
|
|
—
|
|
|
2,879
|
|
(Gain) Loss on lease terminations and impairment
|
|
118
|
|
|
4,088
|
|
|
—
|
|
|
4,206
|
|
Realized and unrealized (gain) on investments
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Total operating costs
|
|
16,666
|
|
|
129,906
|
|
|
8,829
|
|
|
155,401
|
|
Operating (loss) income
|
|
(13,467)
|
|
|
(7,538)
|
|
|
(8,829)
|
|
|
(29,834)
|
|
Other income (expenses)
|
|
|
|
|
|
|
|
|
Interest and investment income
|
|
246
|
|
|
61
|
|
|
301
|
|
|
608
|
|
Interest expense (D)
|
|
(142)
|
|
|
(4,051)
|
|
|
(1,256)
|
|
|
(5,449)
|
|
Capitalized interest (D)
|
|
—
|
|
|
413
|
|
|
1,089
|
|
|
1,502
|
|
Other income (loss), net
|
|
(7)
|
|
|
4,688
|
|
|
933
|
|
|
5,614
|
|
Total other income (expenses)
|
|
97
|
|
|
1,111
|
|
|
1,067
|
|
|
2,275
|
|
Income tax expense
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Net loss
|
|
(13,370)
|
|
|
(6,427)
|
|
|
(7,762)
|
|
|
(27,559)
|
|
Preferred dividends
|
|
—
|
|
|
—
|
|
|
(2,790)
|
|
|
(2,790)
|
|
Loss applicable to common stockholders
|
|
$
|
(13,370)
|
|
|
$
|
(6,427)
|
|
|
$
|
(10,552)
|
|
|
$
|
(30,349)
|
|
|
|
|
|
|
|
|
|
|
DRIVE SHACK INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
June 30, 2020
(dollars in tables in thousands, except share data)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Entertainment Golf
|
|
Traditional Golf
|
|
Corporate
|
|
Total
|
Three Months Ended June 30, 2019
|
|
|
|
|
|
|
|
|
Revenues
|
|
|
|
|
|
|
|
|
Golf operations
|
|
$
|
607
|
|
|
$
|
56,779
|
|
|
$
|
—
|
|
|
$
|
57,386
|
|
Sales of food and beverages
|
|
872
|
|
|
13,357
|
|
|
—
|
|
|
14,229
|
|
Total revenues
|
|
1,479
|
|
|
70,136
|
|
|
—
|
|
|
71,615
|
|
Operating costs
|
|
|
|
|
|
|
|
|
Operating expenses
|
|
1,857
|
|
|
56,863
|
|
|
—
|
|
|
58,720
|
|
Cost of sales - food and beverages
|
|
251
|
|
|
3,653
|
|
|
—
|
|
|
3,904
|
|
General and administrative expense (A)
|
|
3,551
|
|
|
4,316
|
|
|
4,565
|
|
|
12,432
|
|
General and administrative expense - acquisition and transaction expenses (B)
|
|
806
|
|
|
179
|
|
|
190
|
|
|
1,175
|
|
Depreciation and amortization
|
|
961
|
|
|
4,118
|
|
|
43
|
|
|
5,122
|
|
Pre-opening costs (C)
|
|
1,700
|
|
|
—
|
|
|
—
|
|
|
1,700
|
|
(Gain) Loss on lease terminations and impairment
|
|
118
|
|
|
—
|
|
|
—
|
|
|
118
|
|
|
|
|
|
|
|
|
|
|
Total operating costs
|
|
9,244
|
|
|
69,129
|
|
|
4,798
|
|
|
83,171
|
|
Operating loss
|
|
(7,765)
|
|
|
1,007
|
|
|
(4,798)
|
|
|
(11,556)
|
|
Other income (expenses)
|
|
|
|
|
|
|
|
|
Interest and investment income
|
|
114
|
|
|
23
|
|
|
128
|
|
|
265
|
|
Interest expense (D)
|
|
(142)
|
|
|
(1,861)
|
|
|
(629)
|
|
|
(2,632)
|
|
Capitalized interest (D)
|
|
—
|
|
|
226
|
|
|
611
|
|
|
837
|
|
Other income (loss), net
|
|
—
|
|
|
(343)
|
|
|
470
|
|
|
127
|
|
Total other income (expenses)
|
|
(28)
|
|
|
(1,955)
|
|
|
580
|
|
|
(1,403)
|
|
Income tax expense
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Net loss
|
|
(7,793)
|
|
|
(948)
|
|
|
(4,218)
|
|
|
(12,959)
|
|
Preferred dividends
|
|
—
|
|
|
—
|
|
|
(1,395)
|
|
|
(1,395)
|
|
Loss applicable to common stockholders
|
|
$
|
(7,793)
|
|
|
$
|
(948)
|
|
|
$
|
(5,613)
|
|
|
$
|
(14,354)
|
|
(A)General and administrative expenses included no severance expense for the three months ended June 30, 2020, severance expense in the amount of $0.7 million for the six months ended June 30, 2020, and $0.7 million and $1.1 million for the three and six months ended June 30, 2019, respectively.
(B)Acquisition and transaction expenses include costs related to completed and potential acquisitions and transactions and strategic initiatives which may include advisory, legal, accounting and other professional or consulting fees.
(C)Pre-opening costs are expensed as incurred and consist primarily of site-related marketing expenses, lease expense, employee payroll, travel and related expenses, training costs, food, beverage and other operating expenses incurred prior to opening an Entertainment Golf venue.
(D)Interest expense included the accretion of membership deposit liabilities in the amount of $1.9 million and $3.8 million for the three and six months ended June 30, 2020, respectively, and $1.6 million and $3.6 million for the three and six months ended June 30, 2019, respectively. Interest expense and capitalized interest are combined in interest expense, net on the Consolidated Statements of Operations.
DRIVE SHACK INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
June 30, 2020
(dollars in tables in thousands, except share data)
5. PROPERTY AND EQUIPMENT, NET OF ACCUMULATED DEPRECIATION
The following table summarizes the Company’s property and equipment:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2020
|
|
|
|
|
|
December 31, 2019
|
|
|
|
|
|
Gross Carrying Amount
|
|
Accumulated Depreciation
|
|
Net Carrying Value
|
|
Gross Carrying Amount
|
|
Accumulated Depreciation
|
|
Net Carrying Value
|
Land
|
$
|
6,770
|
|
|
$
|
—
|
|
|
$
|
6,770
|
|
|
$
|
6,770
|
|
|
$
|
—
|
|
|
$
|
6,770
|
|
Buildings and improvements
|
150,188
|
|
|
(40,495)
|
|
|
109,693
|
|
|
147,146
|
|
|
(36,349)
|
|
|
110,797
|
|
Furniture, fixtures and equipment
|
53,746
|
|
|
(23,082)
|
|
|
30,664
|
|
|
52,327
|
|
|
(19,484)
|
|
|
32,843
|
|
Finance leases - equipment
|
32,787
|
|
|
(15,248)
|
|
|
17,539
|
|
|
36,166
|
|
|
(16,047)
|
|
|
20,119
|
|
Construction in progress
|
14,066
|
|
|
—
|
|
|
14,066
|
|
|
9,112
|
|
|
—
|
|
|
9,112
|
|
Total Property and Equipment
|
$
|
257,557
|
|
|
$
|
(78,825)
|
|
|
$
|
178,732
|
|
|
$
|
251,521
|
|
|
$
|
(71,880)
|
|
|
$
|
179,641
|
|
6. LEASES
The Company's commitments under lease arrangements are primarily ground leases for Entertainment Golf venues and Traditional Golf properties and related facilities, office leases and leases for golf carts and equipment. The majority of lease terms for our Entertainment Golf venues and Traditional Golf properties and related facilities initially range from 10 to 20 years, and include up to eight 5-year renewal options (see Note 13 for additional detail). Equipment and golf cart leases initially range between 24 to 66 months and typically contain renewal options which may be on a month-to-month basis. An option to renew a lease is included in the determination of the ROU asset and lease liability when it is reasonably certain that the renewal option will be exercised.
Lease related costs recognized in the Consolidated Statements of Operations for the three and six months ended June 30, 2020, and June 30, 2019, are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30,
|
|
|
|
Six Months Ended June 30,
|
|
|
|
|
2020
|
|
2019
|
|
2020
|
|
2019
|
Finance lease cost
|
|
|
|
|
|
|
|
|
Amortization of right-of-use assets
|
|
$
|
1,485
|
|
|
1,529
|
|
|
$
|
3,016
|
|
|
3,046
|
|
Interest on lease liabilities
|
|
246
|
|
|
373
|
|
|
587
|
|
|
619
|
|
Total finance lease cost
|
|
1,731
|
|
|
1,902
|
|
|
3,603
|
|
|
3,665
|
|
|
|
|
|
|
|
|
|
|
Operating lease cost
|
|
|
|
|
|
|
|
|
Operating lease cost
|
|
9,002
|
|
|
9,588
|
|
|
18,269
|
|
|
18,598
|
|
Short-term lease cost
|
|
421
|
|
|
711
|
|
|
848
|
|
|
1,462
|
|
Variable lease cost
|
|
1,541
|
|
|
4,401
|
|
|
4,331
|
|
|
7,173
|
|
Total operating lease cost
|
|
10,964
|
|
|
14,700
|
|
|
23,448
|
|
|
27,233
|
|
Total lease cost
|
|
$
|
12,695
|
|
|
16,602
|
|
|
$
|
27,051
|
|
|
30,898
|
|
DRIVE SHACK INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
June 30, 2020
(dollars in tables in thousands, except share data)
Other information related to leases included on the Consolidated Balance Sheet as of and for the six months ended June 30, 2020 are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating Leases
|
|
Financing Leases
|
Right-of-use assets
|
|
203,359
|
|
|
17,539
|
|
Lease liabilities
|
|
195,524
|
|
|
17,721
|
|
|
|
|
|
|
Cash paid for amounts included in the measurement of lease liabilities
|
|
|
|
|
Operating cash flows
|
|
10,937
|
|
|
587
|
|
Financing cash flows
|
|
N/A
|
|
2,066
|
|
|
|
|
|
|
Right-of-use assets obtained in exchange for lease liabilities
|
|
659
|
|
|
1,028
|
|
|
|
|
|
|
Weighted average remaining lease term
|
|
12.7 years
|
|
3.2 years
|
Weighted average discount rate
|
|
8.3
|
%
|
|
7.4
|
%
|
Future minimum lease payments under non-cancellable leases as of June 30, 2020 are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating Leases
|
|
Financing Leases
|
July 1, 2020 - December 31, 2020
|
|
19,598
|
|
|
5,308
|
|
2021
|
|
30,186
|
|
|
5,957
|
|
2022
|
|
29,102
|
|
|
4,316
|
|
2023
|
|
28,941
|
|
|
3,277
|
|
2024
|
|
22,788
|
|
|
1,134
|
|
Thereafter
|
|
197,851
|
|
|
24
|
|
Total minimum lease payments
|
|
328,466
|
|
|
20,016
|
|
Less: imputed interest
|
|
132,942
|
|
|
2,295
|
|
Total lease liabilities
|
|
$
|
195,524
|
|
|
$
|
17,721
|
|
7. INTANGIBLES, NET OF ACCUMULATED AMORTIZATION
The following table summarizes the Company’s intangible assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2020
|
|
|
|
|
|
December 31, 2019
|
|
|
|
|
|
Gross Carrying Amount
|
|
Accumulated Amortization
|
|
Net Carrying Value
|
|
Gross Carrying Amount
|
|
Accumulated Amortization
|
|
Net Carrying Value
|
Trade name
|
$
|
700
|
|
|
$
|
(152)
|
|
|
$
|
548
|
|
|
$
|
700
|
|
|
$
|
(140)
|
|
|
$
|
560
|
|
Management contracts
|
31,830
|
|
|
(17,948)
|
|
|
13,882
|
|
|
32,331
|
|
|
(17,342)
|
|
|
14,989
|
|
Internally-developed software
|
252
|
|
|
(52)
|
|
|
200
|
|
|
252
|
|
|
(27)
|
|
|
225
|
|
Membership base
|
5,236
|
|
|
(4,862)
|
|
|
374
|
|
|
5,236
|
|
|
(4,488)
|
|
|
748
|
|
Nonamortizable liquor licenses
|
1,035
|
|
|
—
|
|
|
1,035
|
|
|
1,043
|
|
|
—
|
|
|
1,043
|
|
Total Intangibles
|
$
|
39,053
|
|
|
$
|
(23,014)
|
|
|
$
|
16,039
|
|
|
$
|
39,562
|
|
|
$
|
(21,997)
|
|
|
$
|
17,565
|
|
DRIVE SHACK INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
June 30, 2020
(dollars in tables in thousands, except share data)
8. DEBT OBLIGATIONS
The following table presents certain information regarding the Company’s debt obligations at June 30, 2020 and December 31, 2019:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2020
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2019
|
|
|
Debt Obligation/Collateral
|
|
Month Issued
|
|
Outstanding
Face
Amount
|
|
Carrying
Value
|
|
Final Stated Maturity
|
|
Weighted
Average
Coupon
|
|
Weighted Average
Funding
Cost (A)
|
|
Weighted Average Life (Years)
|
|
Face Amount of
Floating Rate Debt
|
|
Outstanding Face Amount
|
|
Carrying Value
|
Credit Facilities and Finance Leases
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Vineyard II
|
|
Dec 1993
|
|
$
|
200
|
|
|
$
|
200
|
|
|
Dec 2043
|
|
3.09%
|
|
3.09
|
%
|
|
23.5
|
|
$
|
200
|
|
|
$
|
200
|
|
|
$
|
200
|
|
Finance leases (Equipment)
|
|
Jul 2014 - Jun 2020
|
|
17,721
|
|
|
17,721
|
|
|
Aug 2020 - Sep 2025
|
|
3.00% to 15.00%
|
|
7.37
|
%
|
|
3.2
|
|
—
|
|
|
19,079
|
|
|
19,079
|
|
|
|
|
|
17,921
|
|
|
17,921
|
|
|
|
|
|
|
7.32
|
%
|
|
3.4
|
|
200
|
|
|
19,279
|
|
|
19,279
|
|
Less current portion of obligations under finance leases
|
|
|
|
5,860
|
|
|
5,860
|
|
|
|
|
|
|
|
|
|
|
|
|
6,154
|
|
|
6,154
|
|
Credit facilities and obligations under finance leases - noncurrent
|
|
|
|
12,061
|
|
|
12,061
|
|
|
|
|
|
|
|
|
|
|
|
|
13,125
|
|
|
13,125
|
|
Corporate
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Junior subordinated notes payable (B)
|
|
Mar 2006
|
|
51,004
|
|
|
51,187
|
|
|
Apr 2035
|
|
LIBOR+2.25%
|
|
2.98
|
%
|
|
14.8
|
|
51,004
|
|
|
51,004
|
|
|
51,192
|
|
Total debt obligations
|
|
|
|
$
|
68,925
|
|
|
$
|
69,108
|
|
|
|
|
|
|
4.11
|
%
|
|
11.9
|
|
$
|
51,204
|
|
|
$
|
70,283
|
|
|
$
|
70,471
|
|
(A)Including the effect of deferred financing costs.
(B)Interest rate based on 3 month LIBOR plus 2.25%. Collateral for this obligation is the Company's general credit.
9. REAL ESTATE SECURITIES
The following is a summary of the Company’s real estate securities at June 30, 2020, 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.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
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|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
|
June 30, 2020
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortized Cost Basis
|
|
|
|
|
|
Gross Unrealized
|
|
|
|
|
|
|
|
Weighted Average
|
|
|
|
|
|
|
|
|
Asset Type
|
|
Outstanding Face Amount
|
|
Before Impairment
|
|
Other-Than- Temporary Impairment
|
|
After Impairment
|
|
Gains
|
|
Losses
|
|
Carrying
Value (A)
|
|
Number of Securities
|
|
Rating (B)
|
|
Coupon
|
|
Yield
|
|
Life
(Years) (C)
|
|
Principal Subordination (D)
|
ABS - Non-Agency RMBS
|
|
$
|
4,000
|
|
|
$
|
3,051
|
|
|
$
|
(1,521)
|
|
|
$
|
1,530
|
|
|
$
|
1,455
|
|
|
$
|
—
|
|
|
$
|
2,985
|
|
|
1
|
|
|
CCC
|
|
0.77
|
%
|
|
29.05
|
%
|
|
3.5
|
|
48.1
|
%
|
Total Securities, Available for Sale (E)
|
|
$
|
4,000
|
|
|
$
|
3,051
|
|
|
$
|
(1,521)
|
|
|
$
|
1,530
|
|
|
$
|
1,455
|
|
|
$
|
—
|
|
|
$
|
2,985
|
|
|
1
|
|
|
|
|
|
|
|
|
|
|
|
(A)See Note 10 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. Ratings provided were determined by third-party rating agencies, represent the most recent credit ratings available as of the reporting date and may not be current.
(C)The weighted average life is based on the timing of expected cash flows on the assets.
(D)Percentage of the outstanding face amount of securities and residual interests that is subordinate to the Company’s investments.
(E)The total outstanding face amount was $4.0 million for floating rate securities. The collateral securing the ABS - Non-Agency RMBS is located in various geographical regions in the U.S. The Company does not have significant investments in any geographic region.
The Company had no securities in an unrealized loss position as of June 30, 2020.
DRIVE SHACK INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
June 30, 2020
(dollars in tables in thousands, except share data)
10. FAIR VALUE OF FINANCIAL INSTRUMENTS
Fair Value Summary Table
The following table summarizes the carrying values and estimated fair values of the Company’s financial instruments at June 30, 2020:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Carrying Value
|
|
Estimated Fair Value
|
|
Fair Value Method (A)
|
Assets
|
|
|
|
|
|
Real estate securities, available-for-sale
|
$
|
2,985
|
|
|
$
|
2,985
|
|
|
Pricing models - Level 3
|
Cash and cash equivalents
|
12,638
|
|
|
12,638
|
|
|
|
Restricted cash, current and noncurrent
|
3,241
|
|
|
3,241
|
|
|
|
Liabilities
|
|
|
|
|
|
Junior subordinated notes payable
|
51,187
|
|
|
13,328
|
|
|
Pricing models - Level 3
|
(A)Pricing models are used for (i) real estate securities that are not traded in an active market, and, therefore, have little or no price transparency, and for which significant unobservable inputs must be used in estimating fair value, or (ii) debt obligations which are private and untraded.
Fair Value Measurements
Valuation Hierarchy
The fair value of financial instruments is categorized based on the priority of the inputs to the valuation technique and categorized into a three-level fair value hierarchy. The fair value hierarchy gives the highest priority to quoted prices in active markets for identical assets or liabilities (Level 1) and the lowest priority to unobservable inputs (Level 3). The Company follows this hierarchy for its financial instruments measured at fair value.
Level 1 - Quoted prices in active markets for identical instruments.
Level 2 - Valuations based principally on observable market parameters, including
•quoted prices for similar assets or liabilities in active markets,
•inputs other than quoted prices that are observable for the asset or liability (such as interest rates and yield curves observable at commonly quoted intervals, implied volatilities and credit spreads), and
•market corroborated inputs (derived principally from or corroborated by observable market data).
Level 3 - Valuations determined using unobservable inputs that are supported by little or no market activity, and that are significant to the overall fair value measurement.
The Company’s real estate securities and debt obligations are currently not traded in active markets and therefore have little or no price transparency. As a result, the Company has estimated the fair value of these illiquid instruments based on internal pricing models subject to the Company’s controls described below.
The Company has various processes and controls in place to ensure that fair value measurements are reasonably estimated. With respect to broker and pricing service quotations, and in order to ensure these quotes represent a reasonable estimate of fair value, the Company’s quarterly procedures include a comparison of such quotations to quotations from different sources, outputs generated from its internal pricing models and transactions completed, as well as on its knowledge and experience of these markets. With respect to fair value estimates generated based on the Company’s internal pricing models, the Company’s management validates the inputs and outputs of the internal pricing models by comparing them to available independent third-party market parameters and models, where available, for reasonableness. The Company believes its valuation methods and the assumptions used are appropriate and consistent with other market participants.
Fair value measurements categorized within Level 3 are sensitive to changes in the assumptions or methodologies used to determine fair value and such changes could result in a significant increase or decrease in the fair value. For the Company’s investments in real estate securities categorized within Level 3 of the fair value hierarchy, the significant unobservable inputs include the discount rates, assumptions relating to prepayments, default rates and loss severities.
DRIVE SHACK INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
June 30, 2020
(dollars in tables in thousands, except share data)
Significant Unobservable Inputs
The following table provides quantitative information regarding the significant unobservable inputs used by the Company for assets and liabilities measured at fair value on a recurring basis as of June 30, 2020:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted Average Significant Input
|
|
|
|
|
|
|
Asset Type
|
|
Amortized Cost Basis
|
|
Fair Value
|
|
Discount
Rate
|
|
Prepayment
Speed
|
|
Cumulative Default Rate
|
|
Loss
Severity
|
ABS - Non-Agency RMBS
|
|
$
|
1,530
|
|
|
$
|
2,985
|
|
|
10.0
|
%
|
|
8.0
|
%
|
|
2.6
|
%
|
|
70.0
|
%
|
All of the inputs used have some degree of market observability, based on the Company’s knowledge of the market, relationships with market participants, and use of common market data sources. Collateral prepayment, default and loss severity projections are in the form of “curves” or “vectors” that vary for each monthly collateral cash flow projection. Methods used to develop these projections vary by asset class but conform to industry conventions. The Company uses assumptions that generate its best estimate of future cash flows of each respective security.
Real estate securities measured at fair value on a recurring basis using Level 3 inputs changed during the six months ended June 30, 2020 as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
ABS - Non-Agency RMBS
|
|
|
Balance at December 31, 2019
|
|
$
|
3,052
|
|
|
|
Total gains (losses) (A)
|
|
|
|
|
Included in other comprehensive income (loss)
|
|
(255)
|
|
|
|
Amortization included in interest income
|
|
221
|
|
|
|
Purchases, sales and repayments (A)
|
|
|
|
|
Proceeds
|
|
(33)
|
|
|
|
Balance at June 30, 2020
|
|
$
|
2,985
|
|
|
|
(A)None of the gains (losses) recorded in earnings during the period are attributable to the change in unrealized gains (losses) relating to Level 3 assets still held at the reporting dates. There were no purchases or sales during the six months ended June 30, 2020. There were no transfers into or out of Level 3 during the six months ended June 30, 2020.
Liabilities for Which Fair Value is Only Disclosed
The following table summarizes the level of the fair value hierarchy, valuation techniques and inputs used for estimating each class of liabilities not measured at fair value in the statement of financial position but for which fair value is disclosed:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Type of Liabilities Not Measured At Fair Value for Which Fair Value Is Disclosed
|
|
Fair Value Hierarchy
|
|
|
Valuation Techniques and Significant Inputs
|
Junior subordinated notes payable
|
|
Level 3
|
|
Valuation technique is based on discounted cash flows. Significant inputs include:
|
|
|
|
|
|
l
|
Amount and timing of expected future cash flows
|
|
|
|
|
l
|
Interest rates
|
|
|
|
|
l
|
Market yields and the credit spread of the Company
|
DRIVE SHACK INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
June 30, 2020
(dollars in tables in thousands, except share data)
11. EQUITY AND EARNINGS PER SHARE
A. Stock Options
The following is a summary of the changes in the Company’s outstanding options for the six months ended June 30, 2020:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of Options
|
|
Weighted Average Strike Price
|
|
Weighted Average Life Remaining (in years)
|
Balance at December 31, 2019
|
|
6,898,346
|
|
|
$
|
3.26
|
|
|
|
Expired
|
|
(1,117,118)
|
|
|
5.44
|
|
|
|
Forfeited
|
|
(770,652)
|
|
|
4.74
|
|
|
|
Balance at June 30, 2020
|
|
5,010,576
|
|
|
$
|
2.55
|
|
|
2.67
|
Exercisable at June 30, 2020
|
|
3,702,422
|
|
|
$
|
2.56
|
|
|
2.69
|
As of June 30, 2020, the Company’s outstanding options were summarized as follows:
|
|
|
|
|
|
|
|
|
|
|
Number of Options
|
Held by the former Manager
|
|
3,627,245
|
|
Issued to the former Manager and subsequently transferred to certain of the Manager’s employees (A)
|
|
1,382,998
|
|
Issued to the independent directors
|
|
333
|
|
Issued to Drive Shack employees
|
|
—
|
|
Total
|
|
5,010,576
|
|
Weighted average strike price
|
|
$
|
2.55
|
|
(A)The Company and the former Manager agreed that options held by certain employees formerly employed by the Manager would not terminate or be forfeited as a result of the Termination and Cooperation Agreement, and the vesting of such options relate to the relevant holder’s employment with the Company and its affiliates following January 1, 2018. In both February 2017 and April 2018, the former Manager issued 1,152,495 options to certain employees formerly employed by the Manager as part of their compensation. The options fully vest and are exercisable one year prior to the option expiration date, beginning March 2020 through January 2024. In July 2019, a certain employee was terminated by the Company and 921,992 options reverted back to the former Manager.
Stock-based compensation expense is recognized on a straight-line basis through the vesting date of the options. Stock-based compensation expense related to the employee options was $0.3 million and $0.2 million during the three and six months ended June 30, 2020, respectively, and $1.2 million and $2.4 million during the three and six months ended June 30, 2019, respectively, and was recorded in general and administrative expense on the Consolidated Statements of Operations. The unrecognized stock-based compensation expense related to the unvested options was $1.7 million as of June 30, 2020 and will be expensed over a weighted average of 2.0 years.
B. Restricted Stock Units ("RSUs")
The following is a summary of the changes in the Company’s RSUs for the six months ended June 30, 2020.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of RSUs
|
|
Weighted Average Grant Date Fair Value (per unit)
|
Balance at December 31, 2019
|
|
520,618
|
|
|
$
|
4.66
|
|
|
|
|
|
|
|
|
|
|
|
Released
|
|
(143,611)
|
|
|
$
|
4.70
|
|
Forfeited
|
|
(120,042)
|
|
|
$
|
4.64
|
|
Balance at June 30, 2020
|
|
256,965
|
|
|
$
|
4.64
|
|
DRIVE SHACK INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
June 30, 2020
(dollars in tables in thousands, except share data)
The Company grants RSUs to the non-employee directors as part of their annual compensation. The RSUs are subject to a one year vesting period. During the six months ended June 30, 2020, the Company granted no RSUs to non-employee directors and no RSUs granted to non-employee directors vested. The Company also grants RSUs to employees as part of their annual compensation. The RSUs vest in equal annual installments on each of the first three anniversaries of the grant date. During the six months ended June 30, 2020, the Company granted no RSUs to employees and 145,366 RSUs granted to employees vested. Stock-based compensation expense is recognized on a straight-line basis through the vesting date of the RSUs. Stock-based compensation expense related to RSUs was $0.2 million and $0.5 million during the three and six months ended June 30, 2020, respectively, and $0.1 million and $0.2 million for the three and six months ended June 30, 2019, respectively. Stock-based compensation expense was recorded in general and administrative expense on the Consolidated Statements of Operations. The unrecognized stock-based compensation expense related to the unvested RSUs was $0.9 million as of June 30, 2020 and will be expensed over a weighted average of 1.8 years.
C. Dividends
On November 11, 2019, the Company declared dividends of $0.609375, $0.503125 and $0.523438 per share on the 9.750% Series B, 8.050% Series C and 8.375% Series D preferred stock, respectively, for the period beginning November 1, 2019 and ending January 31, 2020. Dividends totaling $1.4 million were paid on January 31, 2020. No dividends were declared during the six months ended June 30, 2020.
D. Earnings Per Share
The following table shows the Company's basic and diluted earnings per share (“EPS”):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30,
|
|
|
|
Six Months Ended June 30,
|
|
|
|
2020
|
|
2019
|
|
2020
|
|
2019
|
Numerator for basic and diluted earnings per share:
|
|
|
|
|
|
|
|
Loss from continuing operations after preferred dividends and noncontrolling interests
|
$
|
(40,921)
|
|
|
$
|
(14,354)
|
|
|
$
|
(59,678)
|
|
|
$
|
(30,349)
|
|
Loss Applicable to Common Stockholders
|
$
|
(40,921)
|
|
|
$
|
(14,354)
|
|
|
$
|
(59,678)
|
|
|
$
|
(30,349)
|
|
Denominator:
|
|
|
|
|
|
|
|
Denominator for basic earnings per share - weighted average shares
|
67,111,843
|
|
|
67,029,610
|
|
|
67,090,805
|
|
|
67,028,364
|
|
Effect of dilutive securities
|
|
|
|
|
|
|
|
Options
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
RSUs
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Denominator for diluted earnings per share - adjusted weighted average shares
|
67,111,843
|
|
|
67,029,610
|
|
|
67,090,805
|
|
|
67,028,364
|
|
Basic earnings per share:
|
|
|
|
|
|
|
|
Loss from continuing operations per share of common stock, after preferred dividends and noncontrolling interests
|
$
|
(0.61)
|
|
|
$
|
(0.21)
|
|
|
$
|
(0.89)
|
|
|
$
|
(0.45)
|
|
Loss Applicable to Common Stock, per share
|
$
|
(0.61)
|
|
|
$
|
(0.21)
|
|
|
$
|
(0.89)
|
|
|
$
|
(0.45)
|
|
Diluted earnings per share:
|
|
|
|
|
|
|
|
Loss from continuing operations per share of common stock, after preferred dividends and noncontrolling interests
|
$
|
(0.61)
|
|
|
$
|
(0.21)
|
|
|
$
|
(0.89)
|
|
|
$
|
(0.45)
|
|
Loss Applicable to Common Stock, per share
|
$
|
(0.61)
|
|
|
$
|
(0.21)
|
|
|
$
|
(0.89)
|
|
|
$
|
(0.45)
|
|
The Company’s dilutive securities are outstanding stock options and RSUs. During the three and six months ended June 30, 2020, based on the treasury stock method, the Company had 488,981 and 725,345 potentially dilutive securities, respectively, which were excluded due to the Company's loss position. During the three and six months ended June 30, 2019, based on the treasury stock method, the Company had 2,840,284 and 2,538,663 potentially dilutive securities, respectively.
DRIVE SHACK INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
June 30, 2020
(dollars in tables in thousands, except share data)
12. TRANSACTIONS WITH AFFILIATES AND AFFILIATED ENTITIES
Other Affiliated Entities
The Company incurred expenses for services of Ms. Khouri prior to execution of an employment agreement, which will be reimbursed to an affiliate of a member of the Board of Directors, subject to Board approval. The Company accrued $0.2 million in compensation expense for the year ended December 31, 2019, and an additional $0.1 million for the six months ended June 30, 2020.
13. COMMITMENTS AND CONTINGENCIES
Legal Contingencies - The Company is and may become, from time to time, involved in legal actions in the ordinary course of business, including governmental and administrative investigations, inquiries and proceedings concerning employment, labor, environmental, personal injury and other claims. Although management is unable to predict with certainty the eventual outcome of any legal action, management believes the ultimate liability arising from such actions, individually and in the aggregate, which existed at June 30, 2020, will not materially affect the Company’s consolidated results of operations, financial position or cash flow. Given the inherent unpredictability of these types of proceedings, however, it is possible that future adverse outcomes could have a material effect on our financial results.
Commitments - As of June 30, 2020, the Company had future payments for additional operating leases that had not yet commenced of $66.6 million. The leases are expected to commence over the next 12 - 24 months with lease terms of approximately 10 - 20 years. These leases are primarily real estate leases for future Entertainment Golf venues and the commencement of these leases is contingent on completion of due diligence and satisfaction of certain contingencies which generally occurs prior to construction.
Preferred Dividends in Arrears - As of June 30, 2020, $2.3 million of dividends on the Company's cumulative preferred stock were unpaid and in arrears.
14. INCOME TAXES
The Company's income tax provision (benefit) for interim periods is determined using an estimate of the Company's annual effective tax rate, adjusted for discrete items, if any, that are taken into account in the relevant period.
The Company's income tax provision was $0.5 million and $0.8 million for the three and six months ended June 30, 2020, respectively. There was no income tax provision for the three and six months ended June 30, 2019. The increase in the income tax provision is primarily due to tax on excess inclusion income.
In assessing the realizability of deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which temporary differences become deductible.
The Company recorded a valuation allowance against its deferred tax assets as of June 30, 2020 as management does not believe that it is more likely than not that the deferred tax assets will be realized.
The Company and its subsidiaries file U.S. federal and state income tax returns in various jurisdictions. Generally, the Company is no longer subject to tax examinations by tax authorities for years prior to 2016.
At December 31, 2019 and June 30, 2020, the Company reported a total liability for unrecognized tax benefits of $1.2 million. The Company does not anticipate any significant increases or decreases to the balance of unrecognized tax benefits during the next 12 months.
On March 27, 2020, as part of the business stimulus package in response to the COVID-19 pandemic, the U.S. government enacted the CARES Act. The CARES Act established new tax provisions including, but not limited to: (1) five-year carryback of NOLs generated in 2018, 2019 and 2020, and a temporary suspension of certain other limitations on the use of NOLs; (2) accelerated refund of AMT credit carryforwards; and (3) retroactive changes to allow accelerated depreciation for certain depreciable property. The legislation does not have a material impact on the Company’s tax positions due to the lack of taxable
DRIVE SHACK INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
June 30, 2020
(dollars in tables in thousands, except share data)
income in the carryback periods and the fact the Company was already expecting to receive a cash benefit for the remaining AMT credits in 2020. During the second quarter of 2020, the Company filed a claim to accelerate its refund of remaining AMT credit carryforwards.
15. (GAIN) LOSS ON LEASE TERMINATIONS AND IMPAIRMENT
The following table summarizes the amounts the Company recorded in the Consolidated Statements of Operations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30,
|
|
|
|
Six Months Ended June 30,
|
|
|
|
|
2020
|
|
2019
|
|
2020
|
|
2019
|
Gain on lease terminations
|
|
$
|
(3,125)
|
|
|
$
|
—
|
|
|
$
|
(3,125)
|
|
|
$
|
—
|
|
Impairment on traditional golf properties (held-for-sale)
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
952
|
|
Impairment on traditional golf properties (held-for-use)
|
|
—
|
|
|
—
|
|
|
792
|
|
|
3,136
|
|
|
|
|
|
|
|
|
|
|
Other losses
|
|
—
|
|
|
118
|
|
|
—
|
|
|
118
|
|
Total (gain) loss on lease terminations and impairment
|
|
$
|
(3,125)
|
|
|
$
|
118
|
|
|
$
|
(2,333)
|
|
|
$
|
4,206
|
|
Gain on lease terminations - During the three and six months ended June 30, 2020, the Company recorded a gain of $3.1 million on the termination of two traditional golf course leases. The gain primarily related to the derecognition of long-lived asset, intangible, and ROU asset and liability balances.
Held-for-Sale Impairment: For the six months ended June 30, 2019, the Company recognized impairment losses and recorded accumulated impairment totaling approximately $1.0 million on two golf properties. The fair value measurements were based on expected selling prices, less costs to sell. The significant inputs used to value these real estate investments fall within Level 3 for fair value reporting.
Held-for-Use Impairment: For the six months ended June 30, 2020, the Company recorded impairment charges totaling $0.8 million for one property. For the six months ended June 30, 2019, the Company recorded impairment charges totaling $3.1 million for one golf property. The Company evaluated the recoverability of the carrying value of these assets using the income approach based on future assumptions of cash flows. As the fair value inputs utilized are unobservable, the Company determined that the significant inputs used to value these properties fall within Level 3 for fair value reporting.
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Management’s discussion and analysis of financial condition and results of operations is intended to help the reader understand the results of operations and financial condition of Drive Shack Inc., which is referred to, together with its subsidiaries as Drive Shack Inc. or the Company. The following should be read in conjunction with the unaudited Consolidated Financial Statements and notes thereto and with Part II, Item 1A. “Risk Factors” of this report, Part I, Item 1A of our Annual Report on Form 10-K for the fiscal year ended December 31, 2019, and Part II, Item 1A. of our Quarterly Report on Form 10-Q for the quarter ended March 31, 2020.
GENERAL
Business Overview
Drive Shack Inc. is an owner and operator of golf-related leisure and entertainment venues, with an integrated portfolio spanning three platforms, focused on bringing people together through competitive socializing by combining sports and entertainment with elevated food and beverage offerings. Drive Shack, which launched in 2018, owns and operates four entertainment golf venues, which feature tech-enabled hitting bays with in-bay dining, full-service restaurants, bars, and event spaces. American Golf owns, operates, and manages 60 traditional golf courses throughout the United States and is the longest-running business in our portfolio. Finally, we are in development of our newest competitive socializing and entertainment platform, The Puttery, which we intend to launch in 2021. The Puttery will feature indoor tech-enabled putting with multiple bars, lounges, miniature golf courses and VIP spaces.
The Company, a Maryland corporation, was formed in 2002 and its common stock is traded on the NYSE under the symbol “DS.”
Operating Segments
•Entertainment Golf | Drive Shack
Drive Shack is a golf-related leisure and entertainment company that offers sports and social entertainment with gaming and premier golf technology, a chef-inspired menu, and craft cocktails. Each core Drive Shack venue features expansive, climate-controlled, suite style bays with lounge seating; augmented-reality golf games and virtual course play; a restaurant and multiple bars; an outdoor patio with lawn games; and arcade games.
We operate Drive Shack venues in Raleigh, North Carolina; Richmond, Virginia; West Palm Beach, Florida; and Orlando, FL.
•Traditional Golf | American Golf
American Golf, acquired by the Company in December 2013, is one of the largest operators of golf properties in the United States. As an owner, lessee, and manager of golf courses and country clubs for over 45 years, we believe American Golf is one of the most experienced operators in the traditional golf industry. As of June 30, 2020, we owned, leased or managed 60 properties across nine states and have approximately 33,000 members. American Golf is focused on delivering lasting experiences for our guests, who played over 850,000 rounds at our properties during the six months ended June 30, 2020.
Our traditional golf operations are organized into three principal revenue-generating categories: (1) public properties (leased and owned), (2) private properties (leased and owned) and (3) managed properties (public and private). We organize our operations in this manner due to the nature of the revenue streams generated by these properties.
Public Properties. Our 31 leased or owned public properties generate revenues principally through daily green fees, golf cart rentals and food, beverage and merchandise sales. Amenities at these properties generally include practice facilities, pro shops and food and beverage facilities. In some cases, our public properties have larger clubhouses with extensive banquet facilities. In addition, The Players Club is a monthly membership program offered at most of our public properties, with membership benefits ranging from daily range access and off-peak course access to the ability to participate in golf clinics, in return for a monthly membership fee.
Private Properties. Our five leased or owned private properties are open to members and their guests and generate revenues principally through initiation fees, membership dues, food, beverage and merchandise sales, and guest fees.
Amenities at these courses typically include practice facilities, full-service clubhouses with a pro shop, locker room facilities and multiple food and beverage outlets, including grills, restaurants and banquet facilities.
Managed Properties. Our 24 managed properties are managed by American Golf pursuant to management agreements with the owners of each property. We recognize revenue from each of these properties in an amount equal to a management fee and the reimbursements of certain operating costs.
New Venue Innovation and Development
The Company strives to revolutionize the next generation competitive socializing experience by combining sports, entertainment, and elevated food and beverage offerings. In 2021, the Company intends to launch its newest competitive socializing and entertainment platform with a new small-store venue format called "The Puttery".
This new format would expand our business by diversifying our experiential offerings with a modern spin on indoor mini golf through auto-scoring technology that presents digital scores to guests in real-time. Each location will feature a series of tech enabled miniature golf courses anchored by bars and other social spaces that will serve to create engaging and fun experiences for our guests.
The Puttery is designed for dense urban markets where a core entertainment golf venue would not fit. The new small-store venue format expands store potential by hundreds of markets due to the vast availability of real estate, shorter development timelines, less capital risk and higher development yields.
The Company formally announced the locations of its first two venues in Dallas, Texas and Charlotte, North Carolina that are expected to open in 2021.
Notable Operational Results
During the second quarter of 2020, we focused on adapting our business to account for the impacts of COVID-19. We focused on the core operational fundamentals of the business, seeking opportunities to drive operational efficiencies and continuous improvement, while providing an outstanding guest experience. We also resumed substantially all of our business operations, subject to capacity limitations, enhanced sanitization, social distancing and additional preventative measures to help minimize the spread of COVID-19. In addition, restrictions on large gatherings remain in effect in the jurisdictions we operate, resulting in the postponement or cancellation of the substantial majority of events, banquets and other large gatherings.
With golf emerging as one of the top outdoor activities naturally conducive to social distancing practices, the Company experienced a surge in guest traffic and demand throughout the quarter, with the most compelling impact in June, our first full month of operations since various locally mandated closures were imposed.
During the second quarter, our three Generation 2.0 core Drive Shack venues generated total revenue of $1.8 million, of which $1.4 million was generated in June, while operating under COVID-19 capacity limitations at our hitting bays and with no bar service. Our traditional golf courses generated revenue of $21.8 million, exclusive of management contract reimbursements of $8.5 million, of which $12.0 million was generated in June, while subject to various COVID-19 operational restrictions.
Recent Developments Regarding COVID-19
In March 2020, a global pandemic was declared by the World Health Organization related to the rapidly growing outbreak of a novel strain of coronavirus (“COVID-19”). In response to the pandemic, many states and localities in which we operate have issued “stay at home” or “shelter in place” orders and other social distancing measures, in addition to mandatory store closures, capacity limitations and other restrictions affecting our operations. As a result, during March 2020, we temporarily closed all of our entertainment golf venues and substantially all of our traditional golf courses.
The gradual easing of restrictions has permitted us to resume operations at our entertainment golf venues, subject to locally mandated COVID-19 capacity limitations at the suite style hitting bays (varying by location), and with no bar service. Throughout May and June, the Company reopened its three Generation 2.0 core Drive Shack venues in West Palm Beach, FL; Richmond, VA; and Raleigh, North Carolina. As of the date of this report, our entertainment golf venue in Orlando, FL remains closed.
Throughout April and May, the Company reopened its traditional golf courses with all courses open as of June 30, subject to various locally mandated COVID-19 operational restrictions to comply with social distancing measures. The food and beverage
offerings at our traditional golf courses are limited and operating primarily on a patio dining and “to-go” model, due to local restrictions on dining services.
Restrictions on large group gatherings have lagged the easing of other operational restrictions imposed across our portfolio, varying by location, which has resulted in the postponement or cancellation of events, banquets, and other large group gatherings.
With the health and safety of employees and guests as its top priority, the Company has implemented various new and enhanced safety protocols including frequent cleaning and disinfecting measures, increased handwashing procedures, as well as providing masks, gloves, hand sanitizers and other protective equipment necessary to ensure the safety of our employees and guests. For additional protective measures, the Company has installed new protective dividers in between the suite style hitting bays at its core entertainment golf venues. The Company adheres to and enforces all local laws, varying by location.
While the various government-imposed orders and other social distancing measures intended to stem the spread of COVID-19 have kept Americans indoors for extended periods of time, top health officials and governmental authorities have described outdoor activities while maintaining social distancing as providing numerous physical and mental benefits necessary to stay healthy during the pandemic. As government lockdown orders have eased, we believe many Americans have been eagerly seeking a return to a sense of normalcy, and craving activities and socialization that can be enjoyed safely. Golf has emerged as one of the top activities that meet these criteria and that can offer valuable physical and mental respite during these unprecedented times. This has been evident by the surge in demand for tee times in June at our traditional golf courses, with utilization of tee time inventory up dramatically over the prior year. Engagement in golf has been strong across an expanded base of participants ranging from the core golfers, to the lapsed golfers making their return, and families and new participants of all ages.
The Company provides two different avenues for our guests to get outdoors and safely engage in the sport of golf with our entertainment golf venues and traditional golf courses. The outdoor open-air layout of our entertainment golf venues, with defined suite style hitting bays (partitioned by new protective dividers), and the outdoor wide-open nature of our traditional golf courses provide the ideal setting for guests to connect with friends while enjoying physical activity and maintaining social distancing. Both offerings naturally limit guest overlap and, combined with enhanced safety protocols, provide a safe and comfortable setting for guests to socialize. We believe these factors to be key differentiators that will provide the Company with a competitive advantage within the leisure and entertainment industry through the COVID-19 environment. While an array of entertainment concepts were popular before COVID-19, we believe growth will be closely tied to the shift in consumer preference for outdoor activities that require limited overlap with other guests.
Given the dynamic nature and fluidity of the pandemic, we cannot reasonably estimate the impacts of COVID-19 on our financial condition, results of operations or cash flows in the future. However, we expect COVID-19 to continue to have a material adverse impact on our revenues, results of operations and cash flows in future periods. The extent of the ultimate impact will depend on the future developments that are uncertain and unpredictable, including the spread of COVID-19 and actions to contain or mitigate its impact, the timing of economic recovery, and consumer behaviors, preferences and discretionary spending, among others.
CARES Act
On March 27, 2020, Congress enacted the CARES Act to provide certain relief in response to the COVID-19 pandemic. The CARES Act includes numerous tax provisions and other stimulus measures. Among the various provisions in the CARES Act, the Company is utilizing the payroll tax deferrals offered as it continues to evaluate the applicability of other benefits. See Note 14 in Part I, Item 1 “Financial Statements” for additional information.
In April 2020, four of our subsidiaries entered into notes payable with J.P. Morgan pursuant to the Paycheck Protection Program Loan under the CARES Act, in an aggregate principal amount equal to $5,276,742. While the Company was eligible for the Loans, in light of comments issued by the Treasury Secretary, the Company determined it was in the best interests of the Company to abide by the Treasury Secretary’s preference that publicly traded companies return their loan borrowings. On May 1, 2020, we repaid the entire outstanding balance, inclusive of interest.
RESULTS OF OPERATIONS
The following tables summarize our results of operations for the three and six months ended June 30, 2020 and 2019:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30,
|
|
|
|
Increase (Decrease)
|
|
|
(dollar amounts in thousands)
|
2020
|
|
2019
|
|
Amount
|
|
%
|
Revenues
|
|
|
|
|
|
|
|
Golf operations (A)
|
$
|
29,675
|
|
|
$
|
57,386
|
|
|
$
|
(27,711)
|
|
|
(48.3)
|
%
|
Sales of food and beverages
|
2,425
|
|
|
14,229
|
|
|
(11,804)
|
|
|
(83.0)
|
%
|
Total revenues
|
32,100
|
|
|
71,615
|
|
|
(39,515)
|
|
|
(55.2)
|
%
|
Operating costs
|
|
|
|
|
|
|
|
Operating expenses (A)
|
33,224
|
|
|
58,720
|
|
|
(25,496)
|
|
|
(43.4)
|
%
|
Cost of sales - food and beverages
|
829
|
|
|
3,904
|
|
|
(3,075)
|
|
|
(78.8)
|
%
|
General and administrative expense
|
6,368
|
|
|
13,607
|
|
|
(7,239)
|
|
|
(53.2)
|
%
|
Depreciation and amortization
|
6,682
|
|
|
5,122
|
|
|
1,560
|
|
|
30.5
|
%
|
Pre-opening costs
|
270
|
|
|
1,700
|
|
|
(1,430)
|
|
|
(84.1)
|
|
(Gain) Loss on lease terminations and impairment
|
(3,125)
|
|
|
118
|
|
|
(3,243)
|
|
|
(2,748.3)
|
%
|
Realized and unrealized loss on investments
|
—
|
|
|
—
|
|
|
—
|
|
|
|
Total operating costs
|
44,248
|
|
|
83,171
|
|
|
(38,923)
|
|
|
(46.8)
|
%
|
Operating loss
|
(12,148)
|
|
|
(11,556)
|
|
|
592
|
|
|
5.1
|
%
|
Other income (expenses)
|
|
|
|
|
|
|
|
Interest and investment income
|
135
|
|
|
265
|
|
|
(130)
|
|
|
(49.1)
|
%
|
Interest expense, net
|
(2,591)
|
|
|
(1,795)
|
|
|
796
|
|
|
44.3
|
%
|
Other income (loss), net
|
(24,422)
|
|
|
127
|
|
|
(24,549)
|
|
|
19,329.9
|
%
|
Total other income (expenses)
|
(26,878)
|
|
|
(1,403)
|
|
|
(25,475)
|
|
|
(1,815.8)
|
%
|
Loss before income tax
|
$
|
(39,026)
|
|
|
$
|
(12,959)
|
|
|
$
|
26,067
|
|
|
201.1
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended June 30,
|
|
|
|
Increase (Decrease)
|
|
|
|
2020
|
|
2019
|
|
Amount
|
|
%
|
Revenues
|
|
|
|
|
|
|
|
Golf operations (A)
|
$
|
78,300
|
|
|
$
|
102,092
|
|
|
$
|
(23,792)
|
|
|
(23.3)
|
%
|
Sales of food and beverages
|
14,935
|
|
|
23,475
|
|
|
(8,540)
|
|
|
(36.4)
|
%
|
Total revenues
|
93,235
|
|
|
125,567
|
|
|
(32,332)
|
|
|
(25.7)
|
%
|
Operating costs
|
|
|
|
|
|
|
|
Operating expenses (A)
|
87,591
|
|
|
106,443
|
|
|
(18,852)
|
|
|
(17.7)
|
%
|
Cost of sales - food and beverages
|
4,484
|
|
|
6,601
|
|
|
(2,117)
|
|
|
(32.1)
|
%
|
General and administrative expense
|
16,186
|
|
|
25,226
|
|
|
(9,040)
|
|
|
(35.8)
|
%
|
Depreciation and amortization
|
13,476
|
|
|
10,046
|
|
|
3,430
|
|
|
34.1
|
%
|
Pre-opening costs
|
822
|
|
|
2,879
|
|
|
(2,057)
|
|
|
(71.4)
|
%
|
(Gain) Loss on lease terminations and impairment
|
(2,333)
|
|
|
4,206
|
|
|
(6,539)
|
|
|
(155.5)
|
%
|
|
|
|
|
|
|
|
|
Total operating costs
|
120,226
|
|
|
155,401
|
|
|
(35,175)
|
|
|
(22.6)
|
%
|
Operating loss
|
(26,991)
|
|
|
(29,834)
|
|
|
(2,843)
|
|
|
(9.5)
|
%
|
Other income (expenses)
|
|
|
|
|
|
|
|
Interest and investment income
|
265
|
|
|
608
|
|
|
(343)
|
|
|
(56.4)
|
%
|
Interest expense, net
|
(5,336)
|
|
|
(3,947)
|
|
|
1,389
|
|
|
35.2
|
%
|
Other income (loss), net
|
(24,055)
|
|
|
5,614
|
|
|
(29,669)
|
|
|
528.5
|
%
|
Total other income (expenses)
|
(29,126)
|
|
|
2,275
|
|
|
(31,401)
|
|
|
1,380.3
|
%
|
Loss before income tax
|
$
|
(56,117)
|
|
|
$
|
(27,559)
|
|
|
$
|
28,558
|
|
|
103.6
|
%
|
(A)Includes $8.5 million and $21.8 million for the three and six months ended June 30, 2020, respectively, and $13.0 million and $22.8 million for the three and six months ended June 30, 2019, respectively, due to management contract reimbursements reported under ASC 606.
Revenues from Golf Operations
Revenues from Golf Operations comprise principally: (1) daily green fees,golf cart rentals, and The Player's Club membership dues at American Golf’s public properties, (2) initiation fees, membership dues and guest fees at American Golf’s private properties, (3) management fees and reimbursed operating expenses at American Golf’s managed courses and (4) bay play at Drive Shack locations.
Given the discretionary nature of our products, trends in consumer spending will impact our revenue from Golf Operations on a quarter-by-quarter basis and, particularly in traditional golf as an outdoor activity, and weather patterns have a significant impact.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
Increase (Decrease)
|
|
|
(dollar amounts in thousands)
|
June 30,
2020
|
|
June 30,
2019
|
|
Amount
|
|
%
|
Golf operations (A)
|
$
|
29,675
|
|
|
$
|
57,386
|
|
|
$
|
(27,711)
|
|
|
(48.3)
|
%
|
Percentage of total revenue
|
92.4
|
%
|
|
80.1
|
%
|
|
|
|
|
Revenues from golf operations decreased by $27.7 million primarily due to traditional golf course closures in response to the COVID-19 pandemic and also included a $4.2 million decrease due to fewer leased and owned traditional golf courses and a $5.1 million decrease in revenues from managed courses, primarily due to a $4.5 million decrease in reimbursed expenses.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended
|
|
|
|
Increase (Decrease)
|
|
|
(dollar amounts in thousands)
|
June 30,
2020
|
|
June 30,
2019
|
|
Amount
|
|
%
|
Golf operations (A)
|
78,300
|
|
|
102,092
|
|
|
(23,792)
|
|
|
(23.3)
|
%
|
Percentage of total revenue
|
84.0
|
%
|
|
81.3
|
%
|
|
|
|
|
Revenues from golf operations decreased by $23.8 million primarily due to traditional golf course closures in response to the COVID-19 pandemic, as well as $7.9 million decrease due to fewer leased and owned traditional courses in 2020 and $1.0 million decrease in revenues from managed course revenues, primarily due to a decrease in reimbursed expenses. Entertainment golf venues increased $3.4 million due to more venues open in 2020.
Sales of Food and Beverages
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
Increase (Decrease)
|
|
|
(dollar amounts in thousands)
|
June 30,
2020
|
|
June 30,
2019
|
|
Amount
|
|
%
|
Sales of food and beverages
|
$
|
2,425
|
|
|
$
|
14,229
|
|
|
$
|
(11,804)
|
|
|
(83.0)
|
%
|
Percentage of total revenue
|
7.6
|
%
|
|
19.9
|
%
|
|
|
|
|
Sales of food and beverages decreased by $11.8 million primarily due to traditional golf course closures in response to the COVID-19 pandemic.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended
|
|
|
|
Increase (Decrease)
|
|
|
(dollar amounts in thousands)
|
June 30,
2020
|
|
June 30,
2019
|
|
Amount
|
|
%
|
Sales of food and beverages
|
$
|
14,935
|
|
|
$
|
23,475
|
|
|
$
|
(8,540)
|
|
|
(36.4)
|
%
|
Percentage of total revenue
|
16.0
|
%
|
|
18.7
|
%
|
|
|
|
|
Sales of food and beverages decreased by $8.5 million primarily due to the traditional golf course closures in response to the COVID-19 pandemic, and included a $1.7 million decrease due to fewer leased and owned traditional courses in 2020. Entertainment golf venues increased $5.3 million due to more venues open in 2020.
Operating Expenses
Operating expenses consist of venue-level payroll and payroll-related (including hourly and salary wages, bonuses and commissions, health benefits, and payroll taxes), occupancy (including rent, property tax, and common area maintenance), and other venue-level operating expenses (including utilities, repair and maintenance, and marketing), excluding pre-opening costs, which are recorded separately. Operating expenses also include venue-level operating costs for managed courses, for which we are reimbursed.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
Increase (Decrease)
|
|
|
(dollar amounts in thousands)
|
June 30,
2020
|
|
June 30,
2019
|
|
Amount
|
|
%
|
Operating expenses
|
$
|
33,224
|
|
|
$
|
58,720
|
|
|
$
|
(25,496)
|
|
|
(43.4)
|
%
|
Percentage of total revenue
|
103.5
|
%
|
|
82.0
|
%
|
|
|
|
|
Operating expenses decreased by $25.5 million primarily due to payroll and payroll-related cost reductions resulting from the furlough of the substantial majority of our employees during the temporary venue closures and also included a $4.3 million decrease due to fewer leased and owned traditional golf courses and a $4.5 million decrease in reimbursed expenses for our managed courses.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended
|
|
|
|
Increase (Decrease)
|
|
|
(dollar amounts in thousands)
|
June 30,
2020
|
|
June 30,
2019
|
|
Amount
|
|
%
|
Operating expenses
|
$
|
87,591
|
|
|
$
|
106,443
|
|
|
$
|
(18,852)
|
|
|
(17.7)
|
%
|
Percentage of total revenue
|
93.9
|
%
|
|
84.8
|
%
|
|
|
|
|
Operating expenses decreased by $18.9 million primarily due to payroll and payroll-related cost reductions resulting from the furlough of the substantial majority of our employees during the temporary venue closures and also included a $9.0 million decrease due to fewer leased and owned traditional golf courses and a $1.0 million decrease in reimbursed expenses for our managed courses. Entertainment golf venues increased $7.2 million due to more venues open in 2020.
Cost of Sales - Food and Beverages
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
Increase (Decrease)
|
|
|
(dollar amounts in thousands)
|
June 30,
2020
|
|
June 30,
2019
|
|
Amount
|
|
%
|
Cost of sales - food and beverages
|
$
|
829
|
|
|
$
|
3,904
|
|
|
$
|
(3,075)
|
|
|
(78.8)
|
%
|
Percentage of total revenue
|
2.6
|
%
|
|
5.5
|
%
|
|
|
|
|
Cost of sales - food and beverages decreased by $3.1 million primarily due to traditional golf course closures in response to the COVID-19 pandemic, as well as $0.3 million decrease due to fewer leased and owned traditional courses in 2020.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended
|
|
|
|
Increase (Decrease)
|
|
|
(dollar amounts in thousands)
|
June 30,
2020
|
|
June 30,
2019
|
|
Amount
|
|
%
|
Cost of sales - food and beverages
|
$
|
4,484
|
|
|
$
|
6,601
|
|
|
$
|
(2,117)
|
|
|
(32.1)
|
%
|
Percentage of total revenue
|
4.8
|
%
|
|
5.3
|
%
|
|
|
|
|
Cost of sales - food and beverages decreased by $2.1 million primarily due to traditional golf course closures in response to the COVID-19 pandemic, as well as $0.6 million decrease due to fewer leased and owned traditional courses in 2020. Entertainment golf venues increased $1.4 million due to more venues open in 2020.
General and Administrative Expense (including Acquisition and Transaction Expense)
General and administrative expense consists of costs associated with our Venue Support and administrative functions that support development and operations and includes stock-based compensation.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
Increase (Decrease)
|
|
|
(dollar amounts in thousands)
|
June 30,
2020
|
|
June 30,
2019
|
|
Amount
|
|
%
|
General and administrative expense
|
6,368
|
|
|
13,607
|
|
|
(7,239)
|
|
|
(53.2)
|
%
|
Percentage of total revenue
|
19.8
|
%
|
|
19.0
|
%
|
|
|
|
|
General and administrative expense decreased by $7.2 million primarily due to payroll and payroll-related cost reductions resulting from the furlough of the substantial majority of our employees during the temporary venue closures, and included a $1.8 million decrease in bonus expenses while the Company re-evaluates incentive compensation structures in light of the COVID-19 pandemic. Additionally, stock-based compensation decreased $1.0 million due to departures of executive officers between the two periods.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended
|
|
|
|
Increase (Decrease)
|
|
|
(dollar amounts in thousands)
|
June 30,
2020
|
|
June 30,
2019
|
|
Amount
|
|
%
|
General and administrative expense
|
16,186
|
|
|
25,226
|
|
|
(9,040)
|
|
|
(35.8)
|
%
|
Percentage of total revenue
|
17.4
|
%
|
|
20.1
|
%
|
|
|
|
|
General and administrative expense decreased by $9.0 million primarily due to payroll and payroll-related cost reductions resulting from the furlough of the substantial majority of our employees during the temporary venue closures, and included a $2.7 million decrease in bonus expenses while the Company re-evaluates incentive compensation structures in light of the COVID-19 pandemic. Additionally, stock-based compensation decreased $2.0 million due to departures of executive officers between the two periods.
Depreciation and Amortization
Depreciation and amortization consists of depreciation on property and equipment and financing lease assets, as well as amortization of intangible assets.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
Increase (Decrease)
|
|
|
(dollar amounts in thousands)
|
June 30,
2020
|
|
June 30,
2019
|
|
Amount
|
|
%
|
Depreciation and amortization
|
6,682
|
|
|
5,122
|
|
|
1,560
|
|
|
30.5
|
%
|
Percentage of total revenue
|
20.8
|
%
|
|
7.2
|
%
|
|
|
|
|
Depreciation and amortization increased by $1.6 million primarily due to depreciation on assets placed into service in our Entertainment Golf business for three venues opened in 2019, respectively, and on assets placed in service for the renovation of our Orlando, Florida venue in November 2019.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended
|
|
|
|
Increase (Decrease)
|
|
|
(dollar amounts in thousands)
|
June 30,
2020
|
|
June 30,
2019
|
|
Amount
|
|
%
|
Depreciation and amortization
|
13,476
|
|
|
10,046
|
|
|
3,430
|
|
|
34.1
|
%
|
Percentage of total revenue
|
14.5
|
%
|
|
8.0
|
%
|
|
|
|
|
Depreciation and amortization increased by $3.4 million primarily due to depreciation on assets placed into service in our Entertainment Golf business for three venues opened in 2019, and on assets placed in service for the renovation of our Orlando, Florida venue in November 2019, partially offset by a reduction in depreciation in our Traditional Golf business primarily due to properties that were sold and exited in 2019.
Pre-Opening Costs
Pre-opening costs consist primarily of site-related lease expenses, employee payroll, marketing expenses, travel and related expenses, training costs, food, beverage and other operating expenses incurred prior to opening an Entertainment Golf venue.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
Increase (Decrease)
|
|
|
(dollar amounts in thousands)
|
June 30,
2020
|
|
June 30,
2019
|
|
Amount
|
|
%
|
Pre-opening costs
|
270
|
|
|
1,700
|
|
|
(1,430)
|
|
|
(84.1)
|
%
|
Percentage of total revenue
|
0.8
|
%
|
|
2.4
|
%
|
|
|
|
|
Pre-opening expenses decreased by $1.4 million primarily due to costs associated with the opening of three new 2.0 Entertainment Golf venues in 2019. Pre-opening costs in 2020 consist primarily of pre-open lease costs.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended
|
|
|
|
Increase (Decrease)
|
|
|
(dollar amounts in thousands)
|
June 30,
2020
|
|
June 30,
2019
|
|
Amount
|
|
%
|
Pre-opening costs
|
822
|
|
|
2,879
|
|
|
(2,057)
|
|
|
(71.4)
|
%
|
Percentage of total revenue
|
0.9
|
%
|
|
2.3
|
%
|
|
|
|
|
Pre-opening expenses decreased by $2.1 million primarily due to costs associated with the opening of three new 2.0 Entertainment Golf venues in 2019.
(Gain) Loss on Lease Terminations and Impairment
Impairment and other losses consists of impairment charges on long-lived assets, including property and equipment, intangibles, and operating lease assets, as well as the net book value of assets retired in the normal course of business.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
Increase (Decrease)
|
|
|
(dollar amounts in thousands)
|
June 30,
2020
|
|
June 30,
2019
|
|
Amount
|
|
%
|
(Gain) Loss on lease terminations and impairment
|
(3,125)
|
|
|
118
|
|
|
(3,243)
|
|
|
(2,748.3)
|
%
|
Percentage of total revenue
|
(9.7)
|
%
|
|
0.2
|
%
|
|
|
|
|
During the three months ended June 30, 2020, the Company recorded a gain of $3.1 million on the termination of two traditional golf course leases. The gain primarily related to the derecognition of long-lived asset, intangible, and ROU asset and liability balances. The Company entered into a management agreement for one of the two courses. There was no significant activity during the three months ended June 30, 2019.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended
|
|
|
|
Increase (Decrease)
|
|
|
(dollar amounts in thousands)
|
June 30,
2020
|
|
June 30,
2019
|
|
Amount
|
|
%
|
(Gain) Loss on lease terminations and impairment
|
(2,333)
|
|
|
4,206
|
|
|
(6,539)
|
|
|
(155.5)
|
%
|
Percentage of total revenue
|
(2.5)
|
%
|
|
3.3
|
%
|
|
|
|
|
During the six months ended June 30, 2020, the Company recorded a gain of $3.1 million on the termination of two traditional golf course leases, partially offset by $0.8 million impairment on one Traditional Golf property. The gain on lease terminations was primarily related to the derecognition of long-lived asset, intangible, and ROU asset and liability balances. During the six months ended June 30, 2019, we recorded $4.2 million impairment on three Traditional Golf properties.
Interest and Investment Income
Interest and investment income consists primarily of interest earned on cash balances and a real estate security.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
Increase (Decrease)
|
|
|
(dollar amounts in thousands)
|
June 30,
2020
|
|
June 30,
2019
|
|
Amount
|
|
%
|
Interest and investment income
|
135
|
|
|
265
|
|
|
(130)
|
|
|
(49.1)
|
%
|
Percentage of total revenue
|
0.4
|
%
|
|
0.4
|
%
|
|
|
|
|
Interest and investment income decreased by $0.1 million primarily due to lower balances in interest bearing cash accounts.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended
|
|
|
|
Increase (Decrease)
|
|
|
(dollar amounts in thousands)
|
June 30,
2020
|
|
June 30,
2019
|
|
Amount
|
|
%
|
Interest and investment income
|
265
|
|
|
608
|
|
|
(343)
|
|
|
(56.4)
|
%
|
Percentage of total revenue
|
0.3
|
%
|
|
0.5
|
%
|
|
|
|
|
Interest and investment income decreased by $0.3 million primarily due to lower balances in interest bearing cash accounts.
Interest Expense, Net
Interest expense, net, consists primarily of interest expense on the accretion of membership deposit liabilities, on the company's junior subordinated notes payable, and on financing lease obligations, offset by amounts capitalized into construction in progress during the construction and development of new venues.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
Increase (Decrease)
|
|
|
(dollar amounts in thousands)
|
June 30,
2020
|
|
June 30,
2019
|
|
Amount
|
|
%
|
Interest expense, net
|
(2,591)
|
|
|
(1,795)
|
|
|
796
|
|
|
44.3
|
%
|
Percentage of total revenue
|
(8.1)
|
%
|
|
(2.5)
|
%
|
|
|
|
|
Interest expense, net increased by $0.8 million primarily due to a decrease of interest expense capitalized into construction in progress balances associated with the opening of three 2.0 Entertainment Golf venues in 2019 compared to one Entertainment Golf venue with significant construction activities in 2020.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended
|
|
|
|
Increase (Decrease)
|
|
|
(dollar amounts in thousands)
|
June 30,
2020
|
|
June 30,
2019
|
|
Amount
|
|
%
|
Interest expense, net
|
(5,336)
|
|
|
(3,947)
|
|
|
1,389
|
|
|
35.2
|
%
|
Percentage of total revenue
|
(5.7)
|
%
|
|
(3.1)
|
%
|
|
|
|
|
Interest expense, net increased by $1.4 million primarily due to a decrease of interest expense capitalized into construction in progress balances associated with the opening of three 2.0 Entertainment Golf venues in 2019 compared to one Entertainment Golf venue with significant construction activities in 2020.
Other Income (Loss), Net
Other income (loss), net, consists of gains on the sale of traditional golf courses, earnings on and impairments of our equity method investment, and any gains or losses due to lease terminations, inclusive of lease termination costs and related legal fees as well as the write-off of the net book value of property and equipment, intangible assets, ROU assets and liabilities, and remaining working capital items.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
Increase (Decrease)
|
|
|
(dollar amounts in thousands)
|
June 30,
2020
|
|
June 30,
2019
|
|
Amount
|
|
%
|
Other income (loss), net
|
(24,422)
|
|
|
127
|
|
|
(24,549)
|
|
|
19,329.9
|
%
|
Percentage of total revenue
|
(76.1)
|
%
|
|
0.2
|
%
|
|
|
|
|
Other income (loss), net decreased by $24.5 million primarily due to an other-than-temporary impairment charge of $24.7 million on the Company's equity method investment.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended
|
|
|
|
Increase (Decrease)
|
|
|
|
(dollar amounts in thousands)
|
June 30,
2020
|
|
June 30,
2019
|
|
Amount
|
|
%
|
|
Other income (loss), net
|
(24,055)
|
|
|
5,614
|
|
|
(29,669)
|
|
|
528.5
|
%
|
|
Percentage of total revenue
|
(25.8)
|
%
|
|
4.5
|
%
|
|
|
|
|
|
Other income (loss), net decreased by $29.7 million primarily due to an other-than-temporary impairment charge of $24.7 million on the Company's equity method investment and a decrease of $4.8 million in gains on the sale of Traditional Golf properties, as seven courses were sold in 2019 compared to no courses sold in 2020.
LIQUIDITY AND CAPITAL RESOURCES
Sources and Uses of Capital
Our primary sources of liquidity are our current balances of cash and cash equivalents. As of June 30, 2020, we had $12.6 million of available cash. We also generated capital through completing the sales of 24 of our 26 owned Traditional Golf properties, which were completed by December 31, 2019. The proceeds generated by these transactions were reinvested in our Entertainment Golf business and used to pay overhead expenses.
Our primary cash needs are for capital expenditures related to developing, constructing, and opening new core Drive Shack and new The Puttery venues, remodeling and maintaining existing facilities, funding working capital, operating and finance lease obligations, servicing our debt obligations, paying dividends on our preferred stock, and for general corporate purposes.
The Company’s growth strategy is capital intensive and our ability to execute is dependent upon many factors, including the current and future operating performance of our Entertainment Golf venues and Traditional Golf properties, the pace of expansion, real estate markets, site locations, our ability to raise financing and the nature of the arrangements negotiated with landlords.
In March 2020, in response to the COVID-19 pandemic, we temporarily closed all of our entertainment golf venues and substantially all of our traditional golf courses, eliminating substantially all of the Company's revenue sources during the closure period. Throughout May and June, the Company reopened its three Generation 2.0 entertainment golf venues, and as of June 30, 2020, all of its traditional golf courses were open, subject to locally mandated COVID-19 health and safety requirements, and other social distancing measures, including capacity limitations and various other operational restrictions. The Company currently expects the temporary suspension of business operations and current restrictions and limitations to have a material adverse impact on its revenues, results of operations and cash flows and to raise substantial doubt about its ability to continue as a going concern.
The ability of the Company to continue operations is dependent on the degree of success of management's plans to manage existing cash balances during the COVID-19 related disruptions to business operations, including government-mandated limitations and restrictions, and to obtain additional financing to fund its short-term liquidity requirements. In order to manage existing cash balances, management reduced spending broadly, including furloughing a substantial majority of our employees, pausing construction on future planned venues to reduce capital spending, suspending the declaration of dividends on our preferred stock, and deferring payment of certain operating and corporate expenditures. The Company is actively seeking to sell its remaining Traditional Golf property that is held-for-sale and believes a sale is probable and would mitigate the substantial doubt raised by the COVID-19 pandemic about the Company's ability to continue as a going concern and satisfy the Company's estimated liquidity needs through 12 months from the issuance of the financial statements in this report. The Company is also exploring additional debt financing, including potential financing options made available under the CARES Act, public or private equity issuances, and additional ways to strategically monetize our remaining real estate securities and other investments. However, there is no assurance that the Company will be successful in raising additional capital or that such additional funds will be available on acceptable terms, if at all.
We continually monitor market conditions for these financing and capital opportunities and, at any given time, may enter into or pursue one or more of the transactions described above. However, we cannot ensure that capital will be available on reasonable terms, if at all.
If our assumptions about our liquidity prove to be incorrect, we could be subject to a shortfall in liquidity in the future, and this shortfall may occur rapidly and with little or no notice, which would limit our ability to address the shortfall on a timely basis.
The Company has paid preferred dividends of $1.4 million in fiscal year 2020, which were declared in 2019. In order to preserve liquidity, our board of directors has not declared preferred or common stock dividends to date in 2020.