Drive Shack Inc. (NYSE:DS; the “Company”) today reported the
following information for the quarter and full year ended December
31, 2016.
FULL YEAR 2016 FINANCIAL
HIGHLIGHTS
- GAAP Income of $71 million, or $1.07
per basic share*
- Depreciation and amortization of $37
million, or $0.55 per basic share*
- Core Earnings of $47 million, or $0.71
per basic share**
- AFFO of $108 million, or $1.62 per
basic share**
FOURTH QUARTER 2016 FINANCIAL
HIGHLIGHTS
- GAAP Loss of $(21) million, or $(0.32)
per basic share*
- Depreciation and amortization of $10
million, or $0.15 per basic share*
- Core Earnings of $7 million, or $0.10
per basic share**
- Adjusted Funds from Operations (“AFFO”)
of $(11) million, or $(0.17) per basic share**
FULL YEAR 2016 BUSINESS
HIGHLIGHTS
- American Golf – As of December
31, 2016, the Company owned, leased and managed 78 golf properties
across 13 states, over 75% of which were located in the top 20
Metropolitan Statistical Areas (MSAs).
- On a same store basis, excluding
managed courses, the golf business ended the year with 8,545 full
golf private members, an increase of 34 members over the prior
year, and over 36,000 Players Club members for public properties,
an increase of approximately 17,000 members over the prior
year.
- Drive Shack – The Company began
developing its inaugural site in Orlando, Florida, which is
targeted to open in 9 to 12 months. The Company also continued to
advance development of additional Drive Shack venues, and is
actively working through a pipeline of sites across the U.S. and
abroad.
- Real Estate Debt Portfolio –
During the year, the Company monetized $139 million of principal
recovery of non-agency assets, including $110 million in repayment
of a resort-related loan, $10 million from the sale of NCT CDO V
bonds, $10 million from the sale of CDO VI Class IMM-2, $8 million
from the sale of a real estate mezzanine loan and $1 million from
the sale of other assets.
FIRST QUARTER 2017
DIVIDENDS
Drive Shack Inc.’s Board of Directors declared dividends on the
Company's preferred stock for the period beginning February 1, 2017
and ending April 30, 2017. The dividends are payable on April 28,
2017 to shareholders of record on March 10, 2017. The Company will
pay 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.
The Board of Directors elected not to pay a common stock
dividend in the first quarter of 2017 to retain capital for growth.
All future dividend distributions will be made at the discretion of
our Board of Directors and will depend upon, among other things,
our earnings, investment strategy, financial condition and
liquidity, and such other factors as the Board of Directors deems
relevant.
4Q 2016 Full Year
2016 Summary Operating Results: GAAP Income (Loss)*
$(21) million $71 million GAAP Income (Loss) per WA Basic Share*
$(0.32) $1.07
Non-GAAP Results: Core Earnings** $7
million $47 million Core Earnings per WA Basic Share** $0.10 $0.71
AFFO** $(11) million $108 million AFFO per WA Basic Share**
$(0.17) $1.62
WA: Weighted Average
*GAAP Income (Loss) for 4Q 2016 includes: (i) $7.2 million of
depreciation and amortization, (ii) $1.1 million of amortization of
favorable or unfavorable leasehold intangibles and (iii) $1.5
million of accretion on the golf membership deposit liability. GAAP
Income for Full Year 2016 includes: (i) $26.5 million of
depreciation and amortization, (ii) $4.5 million of amortization of
favorable or unfavorable leasehold intangibles and (iii) $5.8
million of accretion on the golf membership deposit liability.
**For reconciliations of GAAP Income to Core Earnings and AFFO,
please refer to the Reconciliations of Core Earnings and AFFO
below.
ADDITIONAL INFORMATION
For additional information that management believes to be useful
for investors, please refer to the presentation posted on the
Investor Relations section of the Company’s website,
www.driveshack.com. For consolidated investment portfolio
information, please refer to the Company’s most recent Quarterly
Report on Form 10-Q and Annual Report on Form 10-K, which
are available on the Company’s website, www.driveshack.com.
EARNINGS CONFERENCE CALL
The Company’s management will host a conference call on Tuesday,
February 28, 2017 at 8:00 A.M. Eastern Time. A copy of the earnings
release will be posted to the Investor Relations section of Drive
Shack Inc.’s website, www.driveshack.com.
All interested parties are welcome to participate on the live
call. The conference call may be accessed by dialing 1-866-393-1506
(from within the U.S.) or 1-706-634-0623 (from outside of the U.S.)
ten minutes prior to the scheduled start of the call; please
reference “Drive Shack Fourth Quarter and Full Year 2016 Earnings
Call.”
A simultaneous webcast of the conference call will be available
to the public on a listen-only basis at www.driveshack.com. Please
allow extra time prior to the call to visit the website and
download any necessary software required to listen to the internet
broadcast.
A telephonic replay of the conference call will also be
available two hours following the call’s completion through 11:59
P.M. Eastern Time on Tuesday, March 14, 2017 by dialing
1-855-859-2056 (from within the U.S.) or 1-404-537-3406 (from
outside of the U.S.); please reference access code “73274066.”
Three Months Ended December
31, Year Ended December 31, 2016
2015 2016 2015 Revenues Golf
course operations $ 51,537 $ 51,917 $ 226,255 $ 224,419 Sales of
food and beverages 17,539 17,446 72,625
71,437 Total revenues 69,076 69,363 298,880
295,856
Operating costs Operating expenses 58,683
59,065 254,353 254,553 Cost of sales - food and beverages 4,454
5,675 21,593 22,549 General and administrative expense 3,494 2,706
13,842 12,037 Management fee to affiliate 2,677 2,675 10,704 10,692
Depreciation and amortization 7,246 7,651 26,496 28,634 Impairment
6,817 1,857 10,381 11,896 Realized/unrealized (gain) loss on
investments 3,821 2,270 685 (22,264)
Total operating costs 87,192 81,899 338,054
318,097
Operating (loss) (18,116) (12,536) (39,174)
(22,241)
Other income (expenses) Interest and investment
income 17,521 21,538 91,291 95,891 Interest expense (13,779)
(13,737) (52,868) (62,129) Gain (loss) on extinguishment of debt
(173) (61) (780) 15,306 Gain on deconsolidation — — 82,130 — Other
(loss), net (5,020) (29) (3,074)
(5,574) Total other income (expenses) (1,451) 7,711
116,699 43,494 Income from continuing operations
before income tax (19,567) (4,825) 77,525 21,253 Income tax expense
(benefit) 45 (985) 189 345 Income from
continuing operations (19,612) (3,840) 77,336 20,908 Income from
discontinued operations, net of tax — — —
646 Net Income (Loss) (19,612) (3,840) 77,336 21,554
Preferred dividends (1,395) (1,395) (5,580) (5,580) Net (income)
loss attributable to noncontrolling interest (92) 76
(257) 293 Income (loss) Applicable to Common
Stockholders $ (21,099) $ (5,159) $ 71,499 $ 16,267
Income (loss) Applicable to Common Stock, per share Basic $
(0.32) $ (0.08) $ 1.07 $ 0.24 Diluted $ (0.32) $ (0.08) $ 1.04 $
0.24
Income (loss) from Continuing
Operations per share of Common Stock, after preferred
dividends and noncontrolling interest
Basic $ (0.32) $ (0.08) $ 1.07 $ 0.23 Diluted $ (0.32) $ (0.08) $
1.04 $ 0.23
Income (loss) from Discontinued Operations
per share of Common Stock Basic $ — $ — $ — $ 0.01 Diluted $ —
$ — $ — $ 0.01
Weighted Average Number of Shares of
Common Stock Outstanding Basic 66,772,360
66,579,072 66,709,925 66,479,321 Diluted
66,772,360 66,579,072 68,788,440 68,647,915
Consolidated Balance Sheets
($ in thousands, except share data)
December 31, 2016 2015
Assets Real estate securities, available-for-sale $ 1,950 $
59,034 Real estate securities, available-for-sale, pledged as
collateral 627,304 105,963 Real estate related and other loans,
held-for-sale, net 55,612 149,198 Subprime mortgage loans subject
to call option — 380,806 Investments in real estate, net of
accumulated depreciation 217,611 227,907 Intangibles, net of
accumulated amortization 65,112 74,472 Other investments 19,256
20,595 Cash and cash equivalents 140,140 45,651 Restricted cash
6,404 4,469 Receivables from brokers, dealers and clearing
organizations 552 361,341 Receivables and other assets
38,017 38,546
Total Assets $ 1,171,958 $ 1,467,982
Liabilities and Equity
Liabilities CDO bonds payable $ — $ 92,933 Other bonds and
notes payable — 16,162 Repurchase agreements 600,964 418,458 Credit
facilities and obligations under capital leases 115,284 11,258
Financing of subprime mortgage loans subject to call option —
380,806 Junior subordinated notes payable 51,217 51,225 Dividends
payable 8,949 8,929 Membership deposit liabilities 89,040 83,210
Payables to brokers, dealers and clearing organizations — 105,940
Accounts payable, accrued expenses and other liabilities
88,437 88,939
Total Liabilities $ 953,891 $ 1,257,860
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, 496,000shares of 8.05%
Series C Cumulative Redeemable Preferred Stock, and 620,000shares
of 8.375% Series D Cumulative Redeemable Preferred Stock,
liquidationpreference $25.00 per share, issued and outstanding as
of December 31, 2016 and2015
$ 61,583 $ 61,583
Common stock, $0.01 par value,
1,000,000,000 shares authorized, 66,824,304 and66,654,598 shares
issued and outstanding at December 31, 2016 and
2015,respectively
668 667 Additional paid-in capital 3,172,720 3,172,370 Accumulated
deficit (3,018,072) (3,057,538) Accumulated other comprehensive
income 1,168 33,297 Total Drive Shack Stockholders’
Equity 218,067 210,379 Noncontrolling interest —
(257)
Total Equity $ 218,067 $ 210,122
Total
Liabilities and Equity $ 1,171,958 $ 1,467,982
Reconciliation of Core Earnings
($ in thousands)
Three Months Ended December 31, Year Ended
December 31, 2016 2015 2016
2015 Income (loss) applicable to common stockholders $
(21,099) $ (5,159) $ 71,499 $ 16,267 Add (deduct): Impairment
(reversal) 6,817 1,857 10,381 11,896 Realized/unrealized (gain)
loss on investments 3,821 2,270 685 (22,264) Other (income) loss
(A) 5,579 (624) (76,760) (8,274)
Impairment (reversal), other (income)loss
and other adjustments fromdiscontinued operations (B)
— (1) — (307) Depreciation and amortization (C) 9,796 10,316 36,749
39,416 Acquisition, restructuring and spin-off related expenses (D)
1,932 (111) 4,762 1,391
Core
earnings $ 6,846 $ 8,548 $ 47,316 $ 38,125
(A) Other (income) loss
reconciliation
Three Months Ended December 31, Year Ended
December 31, 2016 2015 2016
2015 Total other income (loss) $ (1,451) $ 7,711 $ 116,699 $
43,494 Add (deduct): Equity in earnings from equity method
investees (E) (386) (335) (1,516) (1,311) Interest and investment
income (17,521) (21,538) (91,291) (95,891) Interest expense 13,779
13,737 52,868 62,129 Provision for income tax relating to gain on
extinguishment of debt — 1,049 — (147)
Other income (loss) $ (5,579) $ 624 $ 76,760 $ 8,274 (B)
Includes gain on settlement of assets of $0.3 million during
the year ended December 31, 2015. Includes depreciation and
amortization of less than $0.1 million during the year ended
December 31, 2015. (C) Includes accretion of membership deposit
liabilities of $5.8 million and $5.8 million, and amortization of
favorable and unfavorable leasehold intangibles of $4.5 million and
$4.9 million during the years ended December 31, 2016 and 2015,
respectively. Includes accretion of membership deposit liabilities
of $1.5 million and $1.4 million, and amortization of favorable and
unfavorable leasehold intangibles of $1.1 million and $1.2 million
during the three months ended December 31, 2016 and 2015,
respectively. The accretion of membership deposit liabilities was
recorded to interest expense and the amortization of favorable and
unfavorable leasehold intangibles was recorded to operating
expenses. (D) Includes acquisition and transaction expenses of $4.4
million and $1.1 million and restructuring expenses of $0.4 million
and $0.3 million during the years ended December 31, 2016 and 2015,
respectively. Includes acquisition and transaction expenses of $1.9
million and ($0.2) million and restructuring expenses of $0.0
million and $0.1 million during the three months ended December 31,
2016 and 2015, respectively. The acquisition and transaction
expenses were recorded to general and administrative expense and
restructuring expenses were recorded to operating expenses. (E)
Equity in earnings from equity method investees excludes impairment
of $2.9 million and $7.5 million during the years ended December
31, 2016 and 2015, respectively. Equity in earnings from equity
method investees excludes impairment of $2.9 million and $0.0
million during the three months ended December 31, 2016 and 2015,
respectively.
CORE EARNINGS
The following primary variables impact our operating
performance: (i) the current yield earned on our investments that
are not included in non-recourse financing structures (i.e.,
unlevered investments, including investments in equity method
investees and investments subject to recourse debt), (ii) the net
yield we earn from our non-recourse financing structures, (iii) the
interest expense and dividends incurred under our recourse debt and
preferred stock, (iv) the net operating income on our real estate
and golf investments, (v) our operating expenses and (vi) our
realized and unrealized gains or losses, net of related provision
for income taxes, including any impairment, on our investments,
derivatives and debt obligations. Core earnings is a non-GAAP
measure of our operating performance excluding the sixth variable
listed above. Core earnings also excludes depreciation and
amortization charges, including the accretion of membership deposit
liabilities and the impact of the application of acquisition
accounting, acquisition and spin-off related expenses and
restructuring expenses. Core earnings is used by management to
evaluate our performance without taking into account gains and
losses, net of related provision for income taxes, which, although
they represent a part of our recurring operations, are subject to
significant variability and are only a potential indicator of
future performance. These adjustments to our income (loss)
applicable to common stockholders are not indicative of the
performance of the assets that form the core of our activity.
Management utilizes core earnings as a measure in its
decision-making process relating to the underlying fundamental
operations of our investments, as well as the allocation of
resources between those investments, and management also relies on
core earnings as an indicator of the results of such decisions. As
such, core earnings is not intended to reflect all of our activity
and should be considered as only one of the factors in assessing
our performance, along with GAAP net income (loss), which is
inclusive of all of our activities. Management also believes that
the exclusion from core earnings of the items specified above
allows investors and analysts to readily identify and track the
operating performance of the assets that form the core of our
activity, assists in comparing the core operating results between
periods, and enables investors to evaluate our current core
performance using the same measure that management uses to operate
the business.
Core earnings does not represent an alternative to net income
(loss) as an indicator of our operating performance or as an
alternative to cash flows from operating activities as a measure of
our liquidity, and is not indicative of cash available to fund cash
needs. Our calculation of core earnings may be different from the
calculation used by other companies and, therefore, comparability
may be limited.
Reconciliation of AFFO
($ in thousands)
Three Months Ended December
31,
Year Ended
December 31,
2016 2015 2016 2015
Income (loss) applicable to common stockholders $ (21,099) $
(5,159) $ 71,499 $ 16,267 Add (deduct): Depreciation and
amortization (A) 9,796 10,316 36,749
39,416
AFFO $ (11,303) $ 5,157 $ 108,248 $ 55,683 (A)
Depreciation and amortization charges for the three months ended
December 31, 2016 includes (i) $7.2 million of depreciation and
amortization, (ii) $1.1 million of amortization of favorable or
unfavorable leasehold intangibles and (iii) $1.5 million of
accretion on the golf membership deposit liability. Depreciation
and amortization charges for the three months ended December 31,
2015 includes (i) $7.7 million of depreciation and amortization,
(ii) $1.2 million of amortization of favorable or unfavorable
leasehold intangibles and (iii) $1.4 million of accretion on the
golf membership deposit liability. Depreciation and amortization
charges for the year ended December 31, 2016 includes $26.5 million
of depreciation and amortization, $4.5 million of amortization of
favorable or unfavorable leasehold intangibles, and $5.8 million of
accretion on the golf membership deposit liability. Depreciation
and amortization charges for the year ended December 31, 2015
includes (i) $28.6 million of depreciation and amortization, (ii)
$4.9 million of amortization of favorable or unfavorable leasehold
intangibles and (iii) $5.8 million of accretion on the golf
membership deposit liability.
ADJUSTED FUNDS FROM OPERATIONS
The Company defines Adjusted Funds from Operations as net income
(loss) available for common stockholders plus depreciation and
amortization including the accretion of the membership liability
and the amortization of favorable or unfavorable leasehold
intangibles. The Company believes AFFO provides useful information
to investors regarding the performance of the Company, because it
provides a measure of operating performance without regard to
depreciation and amortization, which reduce the value of real
estate assets over time even though actual real estate values may
fluctuate with market conditions, accretion of membership deposit
liabilities and amortization of favorable and unfavorable leasehold
intangibles. AFFO does not represent cash generated from operating
activities in accordance with GAAP and therefore should not be
considered an alternative to net income (loss) as an indicator of
our operating performance or as an alternative to cash flow as a
measure of our liquidity, and it is not necessarily indicative of
cash available to fund cash needs. Our calculation of AFFO may be
different from the calculation used by other companies and,
therefore, comparability may be limited. The Company’s definition
of AFFO differs from the definition of FFO established by the
National Association of Real Estate Investment Trusts (“NAREIT”),
which defines FFO as net income (or loss) (computed in accordance
with GAAP) excluding losses or gains from sales of depreciable
property, impairment of depreciable real estate, real
estate‐related depreciation and amortization and the portion of
such items related to unconsolidated affiliates.
ABOUT DRIVE SHACK INC.
Drive Shack Inc. is a leading owner and operator of golf-related
leisure and entertainment businesses. Drive Shack Inc. is managed
by an affiliate of Fortress Investment Group LLC, a global
investment management firm.
FORWARD-LOOKING STATEMENTS
Certain items in this press release may constitute
forward-looking statements within the meaning of the Private
Securities Litigation Reform Act of 1995, including statements
regarding the Company’s targets and expectations regarding Drive
Shack’s site in Orlando, Florida and other sites in the pipeline
across the U.S. and abroad. These statements are based on
management's current expectations and beliefs and are subject to a
number of trends and uncertainties that could cause actual results
to differ materially from those described in the forward-looking
statements, many of which are beyond Drive Shack’s control. The
Company can give no assurance that its expectations will be
attained. Accordingly, you should not place undue reliance on any
forward-looking statements contained in this press release. For a
discussion of some of the risks and important factors that could
cause actual results to differ from such forward-looking
statements, see the sections entitled “Risk Factors” and
“Management’s Discussion and Analysis of Financial Condition and
Results of Operations” in the Company’s most recent Annual Report
on Form 10-K and Quarterly Report on Form 10-Q. Furthermore, new
risks and uncertainties emerge from time to time, and it is not
possible for the Company to predict or assess the impact of every
factor that may cause its actual results to differ from those
contained in any forward-looking statements. Such forward-looking
statements speak only as of the date of this press release. The
Company expressly disclaims any obligation to release publicly any
updates or revisions to any forward-looking statements contained
herein to reflect any change in the Company's expectations with
regard thereto or change in events, conditions or circumstances on
which any statement is based.
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