Drive Shack Inc.
Q3 2018 Earnings Call Transcript

Published: 8 Nov 2018

[Operator:]

Good morning. My name is Maria, and I'll be your conference operator today. At this time, I would like to welcome everyone to the Drive Shack's Third Quarter 2018 Earnings Conference Call. All lines have been placed on mute to prevent any background noise. Thank you. Mr. Foley, you may now begin your conference.

[Nick Foley:]

Thank you, Maria, and good morning, everyone. I would like to welcome you today to Drive Shack's third quarter 2018 earnings call. Joining me here today are Sarah Watterson, our Chief Executive Officer; Larry Goodfield, our Chief Financial Officer and Chief Accounting Officer; and Sara Yakin, our Chief Operating 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. We encourage you to review the disclaimers in our press release and investor presentation and 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. We've made a ton of exciting announcements this morning. And as Nick mentioned, I'll be referring to a brief presentation we posted on our website. Mostly though, I just want to summarize all the activities going on here at Drive Shack that are going to help propel our next leg of growth. So, really turning to page 3 where I'll speak to, we're really excited to announce the addition of two new management members, Ken May and David Hammarley. Ken will be joining as the CEO was most recently Topgolf CEO where he oversaw nearly 25 new opening and a quadrupling of the team there. David is joining us as CFO. He brings over 20 years of financial experience from the hospitality industry, including the leadership positions he held at SBE and Starwood. Larry will remain on as CAO and Sara will continue as COO and I'll be staying with the Drive Shack's family through my appointment to the board. Both Ken and David will officially start with us Monday, November 12. And I believe the added tire power of this leadership with the direct experience building out Drive Shack's venues will be so positive for the progress and pace we're growing here at Drive Shack. On the entertainment golf side, we're very excited to announce that we've been awarded the highly coveted opportunity to build Drive Shark New York City here in Manhattan on Randall's Island. We plan to operate the existing driving range under American Golf beginning this April until we break ground on the flagship Drive Shack's venue, which we think will happen by 2020. The process to win this deal was incredibly competitive and highlights the benefit of Drive Shack's plus American Golf's integration. With over 2,500 municipal courses in U.S., we believe there is a tremendous opportunity to reposition these courses as well as other municipal assets into Drive Shack's plus American Golf's venues. So, with our first Drive Shack site now opened for about six months, we're fine-tuning our opening playbook to both drive sales and efficiently open our next three sites in Richmond, Raleigh and West Palm, all three of which are on track to open in the first half of 2019. We also announced about what lessons we've learned from our first site and one example was within our events business. Ahead of opening Orlando, we're just selling renderings and concepts, so pre-open sales weren't as effective. However, after just one quarter, our team has tripled daily bookings to $14,000 per day. We'll not only continue to improve at Orlando, but pre-booking is happening sooner at our next site and we can leverage the great program we've created at Orlando. With one site opened and six sites in different phases of development, we remain excited about the prospects of continuing to grow the entertainment golf business. To fund this growth, in early 2018, we set out to begin the process of right sizing our traditional golf portfolio by monetizing owned courses, restructuring or terminating leases and adding high margin management agreement. Over the past few months, we've made considerable progress with our owned course sales, selling one property in July and have 15 properties in contract and two under LOI. We expect to generate about a $175 million of gross proceeds by the end of the first quarter. And in total, we expect the 26 owned properties to have a value of $220 million to $260 million. We are also expanding the footprint of American Golf with new management contracts. We aim to add 10 new management contracts by year end and 5 to 10 per year thereafter. This will create a new multi-million dollar revenue stream for the company that I think can have a 50% or so margin. All-in-all, with the initiatives we're undertaking at American Golf, we expect this business to earn $10 million plus of cash flow on a run rate basis in 2019. So, in summary with the new leadership transformation, the exciting growth at Drive Shack and the capital infusion from core sales, the company is so well positioned for ongoing success. With that, thank you very much for the time this morning and please feel free to reach out to our team with any questions.

[Operator:]

Thank you. That concludes Drive Shack's third quarter conference call. You may now disconnect.