Drive Shack Inc.
Q1 2018 Earnings Call Transcript

Published: 6 May 2018

[Operator:]

Good morning. My name is Brandy, and I'll be your conference operator today. At this time, I would like to welcome everyone to the Drive Shack's First Quarter 2018 Earnings Conference Call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question-and-answer session. [Operator Instructions] Thank you. Mr. Nick Foley, you may begin your conference.

[Nick Foley:]

Thank you, Brandy, and good morning, everyone. I'd like to welcome you today to Drive Shack's First Quarter 2018 Earnings Call. Joining me here today are Sarah Watterson, our President and Chief Executive Officer; Sara Yakin, our Chief Operating Officer; and Larry Goodfield, our Chief Financial Officer and Chief Accounting Officer. We have posted an investor presentation on our website, which we encourage you to download if you have not already done so. I would like to point out that certain statements made today will be forward-looking statements. These statements, by their nature, are uncertain and may differ materially from actual results. In addition, we will be discussing some non-GAAP financial measures, and the reconciliations of those measures to the most directly comparable GAAP measures can be found in our investor presentation. We encourage you to review the disclaimers in our press release and investor presentation and to review the risk factors contained in our annual and quarterly reports filed with the SEC. And now, I would like to turn the call over to Sarah.

[Sarah Watterson:]

Good morning, everyone. Thanks for joining us this morning. I'm going to be referring to the presentation that Nick mentioned we posted to our website. And as we just opened our first Drive Shack venue in Orlando, I really want to take the time this morning to reintroduce everyone to the exciting market we're entering, the business we're building and our plans to grow. So turning to page 2, the rapidly developing eatertainment market combines dining, entertainment and sports to address consumer demand for social and active experiences. The staggering trillion dollar plus market is led by the interests of the 80 million person millennial segment of consumers, between the ages of 18 and 35. In fact, I think, one of my favorite facts is that 80% of millennials in a recent study said they would choose to spend money on experience versus buying something more materialistic. Turning the page 3, not only is the eatertainment space huge in dollars, but there are many different businesses successfully growing within this space. Looking just within the US, there are 6,000 movie theaters supporting nearly 250 million annual visitors and 450 amusement park supporting 140 million annual visitors. This truly highlights the opportunity for a very [indiscernible] venues open today, we believe there's a tremendous opportunity for Drive Shack to aggressively pursue these venues, both in the US and abroad. Now turning to page 4, for those of you who are new to our venue, Drive Shack is an all-in-one eatertainment destination, combining food, fun, drinks and games from morning till night. The focal point of our venue is a 200-plus yard driving range with illuminated targets that's surrounded by three stories of hitting bays. Each of our hitting bays serves groups of up to 6 people and feature retailer made golf club, comfy furniture and multiple TVs. While in the hitting bay guests of every skill level can enjoy playing addictively fun swing based games, where you try and build a hand of 21 in Shaq Jack or play the Back Nine on one of our golf courses. Lastly, our full Drive Shack experience wouldn't be complete without enjoying our delicious food and wide variety of adult beverages. Our food and beverages can be enjoyed whether you're partaking in the hitting bays fun, watching a game in our restaurant, hanging out by the fireplace on a rooftop terrace or hosting a meeting in one of our different event spaces. You'll see on page 4 that all the pictures here are actually from Orlando venue of guests actually enjoying Orlando sites. And with that, on page 5, again, we opened our first site in Orlando in early April. We're located in the fast growing Lake Nona region of Orlando on a site that has over 1 million residents and 1 million employees within a 30-minute drive time. We look forward to reporting on operations of this first site as we ramp, but we've been very pleased by the positive reviews of visitors to our site. Beyond Orlando, we have five additional sites in stages of development in Marietta, New Orleans, Raleigh, Richmond and West Palm, all of which we expect to open throughout 2019. We hope to update you on other plan sites in the coming months as well. We aim to build sites that cost about $25 million to construct and can on average generate 5 million of site level EBITDA. Our open and planned sites are adjacent to major roads with 150,000 daily average traffic count and have an average of over 1 million residents and more than 1 million employees within a thirty minute drive time. These among many other metrics are what we carefully evaluate to make sure we're selecting and executing solid deals on prime pieces of real estate. Turning to page 6, Drive Shack is poised for growth in many strategic ways right now. First and foremost is building new sites. We're pursuing sites in over 50 different markets and as we ramp, we hope to open five to ten venues per year. We will work to maximize the profitability of those sites as we open and continually enhance our high quality customer experience, keeping patrons coming back for more unique experiences. Lastly, as we grow and expand the number of dedicated visitors and venues we have, we believe there's a number of ancillary revenue opportunities such as sponsorship that can offer upside to our site level estimate. Turning to our traditional business on page 7, American Golf consists of 74 leased, managed and owned properties. We continue to believe the strength of this business and its longstanding reputation of excellent management with our courses is extremely valuable, especially as we build out Drive Shack venues. Our goals for this business include largely monetizing the owned properties, optimizing the leased properties and growing our management business. So in conclusion, our plan for the company remains unchanged from our fourth quarter call. We continue to work to monetize our own courses and remaining legacy debt, operate and grow our leased and managed portfolio and then we'll utilize our cash on hand sale proceeds and ideally other self-funded avenues, which we hope to elaborate on in the future to build and successfully operate our golf entertainment Drive Shack venues. So with that, I'm happy to take any questions.

[Operator:]

[Operator Instructions]

[Sarah Watterson:]

If there are no questions, we look forward to updating you guys on the future and please reach out to us with any questions that you might have in the meantime. Thank you so much.

[Operator:]

Thank you. That does conclude today's conference. You may now disconnect.