Business Wire | Aug 4, 2020 08:56PM EDT

Drive Shack Announces Second Quarter 2020 Results

Aug. 05, 2020

NEW YORK--(BUSINESS WIRE)--Aug. 05, 2020--Drive Shack Inc. (the "Company") (NYSE: DS) today reported its financial results for the second quarter ended June 30, 2020. The Company also provided an update on the impact of the COVID-19 pandemic on its business, together with measures the Company has taken to reduce cash expenditures.

"Despite the challenging environment, the Company experienced quite a bit of positive momentum in the second quarter. We reopened all of our golf courses and our Gen 2.0 Drive Shack venues in West Palm Beach, Richmond and Raleigh," said Hana Khouri, Chief Executive Officer. "Our operators have done a remarkable job navigating the public health crisis. Due to COVID, we have implemented additional safety measures across all of our venues and courses to ensure that we are providing our guests with experiences that prioritize their health and safety."

Khouri continued, "We have seen strong demand since reopening our traditional and entertainment golf businesses. Our courses and venues have proven to be the ideal setting for guests to socialize and make memories with friends while social distancing. The key differentiator is our outdoor, open-air format, with defined suite-style bays partitioned by protective dividers at our Drive Shack venues, and naturally limited on-course guest overlap at American Golf courses. We believe that these factors will ultimately set us up to emerge from the COVID-19 environment as a leader in the leisure space."

Business Update

The Company began the second quarter with operations suspended across all of its entertainment golf venues and substantially all of its owned, leased and managed traditional golf courses. By the end of June, all of its traditional golf courses, and all but one of its entertainment golf venues, resumed operations. Across the traditional golf courses open for the full month of June, which excludes the courses located in New York and Texas, private course Membership Sales increased 32% and Member Rounds increased 20% compared to June 2019. During the same period, public course Green Fee & Cart Fee Revenue increased 10% compared to June 2019, despite available tee times decreasing 32% due to locally mandated restrictions. During the second quarter, our traditional golf business generated total revenue of $30 million. This comes to $22 million after adjusting for managed course expense reimbursements, of which $12 million was generated in June.

The Company's entertainment golf business reopened its locations in West Palm Beach, Richmond and Raleigh on May 15, May 29, and June 26, respectively. Across 85 collective days of operations, the three entertainment golf venues generated total revenue of approximately $2 million and took less than 21 days on average to breakeven following their reopening.

The Company's reopening strategy included a focus on safeguarding the health of its employees, guests and communities, with supplies and protocols intended to keep guests and employees safe and comfortable, including transparent bay partitioning, enhanced distancing, temperature checks, complimentary personal protective equipment, and complying with local safety mandates.

Financial Liquidity Update

As of July 31, 2020, the Company had approximately $12 million of unrestricted cash on hand compared to approximately $14 million as of April 30, 2020. As the Company resumed its traditional and entertainment golf operations in the second quarter, it reopened its venues and courses with a re-positioned labor model designed to improve operational and financial performance. As resumed operations made headway, we were able to quickly generate sufficient cash flows to meet current venue and course level operating expenses, with cash flows from both businesses turning positive shortly thereafter.

As part of its cash preservation strategy initiated at the onset of the closure periods, the Company has deferred or reduced a portion of its rent payments and entered into payment plans with a number of vendors. In addition, the Company has continued to defer payment of the 2019 annual employee bonuses, suspend quarterly cash dividends on its preferred stock, and construction on its entertainment golf venues and traditional golf courses remains paused.

Second Quarter Results (unaudited)

Three Months and Six Months Ended June 30, 2020 compared to the Three Months and Six Months Ended June 30, 2019($ in thousands, except for per share data):

Three Months Ended Six Months Ended

June 30, June 30, June 30, June 30, 2020 2019 2020 2019

Total revenues $ 32,100 $ 71,615 $ 93,235 $ 125,567

Loss applicable to common $ (40,921 ) $ (14,354 ) $ (59,678 ) $ (30,349 )stockholders

Loss applicable to commonstock, per share

Basic $ (0.61 ) $ (0.21 ) $ (0.89 ) $ (0.45 )

Diluted $ (0.61 ) $ (0.21 ) $ (0.89 ) $ (0.45 )

For the three months ended June 30, 2020, the Company reported a loss of $41 million, or ($0.61) per share, compared to a loss of $14 million, or ($0.21) per share, in the corresponding period of the prior year.

For the six months ended June 30, 2020, the Company reported a loss of $60 million, or ($0.89) per share, compared to a loss of $30 million, or ($0.45) per share, in the corresponding period of the prior year.

Conference Call Wednesday, August 5, 2020

Management will hold a conference call to discuss these results Wednesday, August 5th at 9:00 a.m. Eastern Time. The conference call can be accessed over the phone by dialing 1-866-913-6930 (from within the U.S.) or 1-409-983-9881 (from outside of the U.S.) ten minutes prior to the scheduled start of the call; please reference conference ID "6638268."

A copy of the earnings release will be posted to the Investor Relations section of Drive Shack Inc.'s website, http://ir.driveshack.com.

A simultaneous webcast of the conference call will be available to the public on a listen-only basis at http://ir.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 11:30 P.M. Eastern Time on Wednesday, August 19, 2020 by dialing 1-800-585-8367 (from within the U.S.) or 1-404-537-3406 (from outside of the U.S.); please reference conference ID "6638268."

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, http://ir.driveshack.com. For consolidated information, please refer to the Company's most recent Quarterly Report on Form 10-Q or Annual Report on Form 10-K, which are available on the Company's website, http://ir.driveshack.com.

About Drive Shack

Drive Shack Inc. is a leading owner and operator of golf-related leisure and entertainment businesses.

Forward-Looking Statements The Company cautions that this release contains forward-looking statements, including, without limitation, statements relating to our expected results of operations and the impact on our business and operations of the COVID-19 pandemic. Forward-looking statements involve risks and uncertainties. Accordingly, actual results may differ materially from the forward-looking statements, and the Company therefore cautions you against relying on such forward-looking statements. Future factors that could cause actual results or other expectations or intentions to differ from those included in forward-looking statements include, without limitation, the uncertain and unprecedented impact of the COVID-19 pandemic on our business and operations and the related impact on our liquidity needs; our ability to continue as a going concern; our ability to access other funding sources; the potential imposition of government-mandated and voluntary shutdowns relating to the COVID-19 pandemic; the level of customer demand during the onset and continuance of the COVID-19 pandemic and thereafter; the economic impact of the COVID-19 pandemic and related disruptions on the communities we serve; our overall level of indebtedness and leverage; general business and economic conditions; the impact of competition; the seasonality of the Company's business; adverse weather conditions; guest and employee complaints and litigation; labor costs and availability; changes in consumer and corporate spending; changes in demographic trends; changes in governmental regulations; unfavorable publicity, our ability to open new venues, and acts of God. The Company intends these forward-looking statements to speak only as of the time of this release and does not undertake to update or revise them as more appropriate information becomes available, except as required by law.

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 3,651 5,249 and $1,082, respectively

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 178,732 179,641 depreciation

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 12,061 13,125 leases - noncurrent

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, 100,000,000shares authorized,1,347,321 shares of 9.75% Series B CumulativeRedeemable Preferred Stock, 496,000shares of 8.05% Series C Cumulative RedeemablePreferred Stock, and 620,000 61,583 61,583 shares of 8.375% Series D Cumulative RedeemablePreferred Stock, liquidationpreference $25.00 per share, issued andoutstanding as of June 30, 2020 and December 31,2019

Common stock, $0.01 par value, 1,000,000,000shares authorized, 67,212,362 and67,068,751 shares issued and outstanding at June 672 671 30, 2020 and December 31, 2019,respectively

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

Consolidated Statements of Operations (unaudited)

(dollars inthousands,except sharedata)

Three Months Ended Six Months Ended June 30, June 30,

2020 2019 2020 2019

Revenues

Golf $ 29,675 $ 57,386 $ 78,300 $ 102,092 operations

Sales of food 2,425 14,229 14,935 23,475 and beverages

Total revenues 32,100 71,615 93,235 125,567

Operating costs

Operating 33,224 58,720 87,591 106,443 expenses

Cost of sales- food and 829 3,904 4,484 6,601 beverages

General andadministrative 6,368 13,607 16,186 25,226 expense

Depreciationand 6,682 5,122 13,476 10,046 amortization

Pre-opening 270 1,700 822 2,879 costs

(Gain) loss onlease (3,125 ) 118 (2,333 ) 4,206 terminationsand impairment

Totaloperating 44,248 83,171 120,226 155,401 costs

Operating loss (12,148 ) (11,556 ) (26,991 ) (29,834 )



Other income (expenses)

Interest andinvestment 135 265 265 608 income

Interest (2,591 ) (1,795 ) (5,336 ) (3,947 ) expense, net

Other income (24,422 ) 127 (24,055 ) 5,614 (loss), net

Total otherincome (26,878 ) (1,403 ) (29,126 ) 2,275 (expenses)

Loss before (39,026 ) (12,959 ) (56,117 ) (27,559 ) income tax

Income tax 500 - 771 - expense

Net Loss (39,526 ) (12,959 ) (56,888 ) (27,559 )

Preferred (1,395 ) (1,395 ) (2,790 ) (2,790 ) dividends

LossApplicable to $ (40,921 ) $ (14,354 ) $ (59,678 ) $ (30,349 ) CommonStockholders



LossApplicable to Common Stock,per share

Basic $ (0.61 ) $ (0.21 ) $ (0.89 ) $ (0.45 )

Diluted $ (0.61 ) $ (0.21 ) $ (0.89 ) $ (0.45 )

WeightedAverage Numberof Shares of Common StockOutstanding

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



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CONTACT: For Investor Relations Inquiries: Austin Pruitt Head of Investor Relations 646-585-5591 IR@driveshack.com