The following should be read in conjunction with our Consolidated Financial Statements and notes thereto included in Part II, Item 8. "Financial Statements and Supplementary Data," and Part I, Item 1A. "Risk Factors."



General Overview
The Company is an owner and operator of golf-related leisure and "eatertainment"
venues focused on bringing people together through competitive socializing. Our
common stock is traded on the NYSE under the symbol "DS."
The Company conducts its business through two primary operating segments:
Entertainment Golf Business

Our Entertainment Golf business is primarily focused on competitive socializing
within the "eatertainment" industry, combining chef-inspired food and beverage
offerings, with innovative technology modernizing ways to experience golf as a
sport and form of entertainment that appeals to a broad range of audiences and
competitive appetites.

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.



During the fourth quarter of 2019, we briefly closed our first Drive Shack venue
in Orlando, Florida to retrofit with Generation 2.0 enhancements, including new
ball tracking technology (Trackman™), enhanced gaming and a redesigned outfield
to provide a more engaging guest experience.

In 2020, we intend to open one new core Drive Shack venue in New Orleans, LA and intend to continue expanding our geographic footprint on a selective and strategic basis in the following years.



In addition, in 2020, we plan to complement and diversify our experiential
offerings with a modern spin on indoor mini golf by launching our new
small-store format urban box venue. We expect to open three urban box formats in
2020, and to increase our per-year openings in subsequent years as we continue
expanding our geographic footprint. We believe this new format will allow us to
access smaller, urban spaces where our core Drive Shack venues are too large to
be accommodated by available land for sale or lease, if we are able to
successfully launch the new format.

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Traditional Golf Business
Our Traditional Golf business, American Golf, is one of the largest operators of
golf properties in the United States. As of December 31, 2019, we owned, leased
or managed 59 properties across 9 states and have more than 37,000 members.
During 2019, the Company sold 11 golf properties for an aggregate sale price of
$80.0 million. As of December 31, 2019, we have successfully sold 24 of our 26
owned golf properties for a total aggregate sales price of $169.7 million, which
was reinvested in our Entertainment Golf business as part of our overall growth
strategy to expand golf as a sport and form of entertainment, after repayment of
the Traditional Golf loan in December 2018.
During 2019, the Company entered into a total of six new management agreements,
of which five related to golf properties sold during the year, for which we were
retained as manager. In addition, the Company terminated two management
agreements on golf properties in California due to course closures.
For further information relating to our business, see "Item 1. Business."

Market Considerations
Our ability to execute our business strategy, particularly the development of
our Entertainment Golf business, depends to a degree on our ability to monetize
our remaining investments in loans and securities, optimize our Traditional Golf
business, including sales of certain owned properties, and obtain additional
capital. We have substantially monetized our historical investments in loans and
securities and have a small number of positions remaining that we could sell or
use as collateral or support in a lending transaction. We last raised capital
through the equity markets in 2014, and rising interest rates or stock market
volatility could impair our ability to raise equity capital on attractive terms.
Our ability to generate income is dependent on, among other factors, our ability
to raise capital and finance properties on favorable terms, deploy capital on a
timely basis at attractive returns, and exit properties at favorable yields.
Market conditions outside of our control, such as interest rates, inflation,
consumer discretionary spending and stock market volatility affect these
objectives in a variety of ways.
Entertainment Golf Business

Our ability to open our targeted number of Entertainment Golf related venue
formats in 2020 and beyond will depend on many factors, including our ability to
identify sites that meet our requirements and negotiate acceptable purchase or
lease terms.
There is competition within the bid process, and land development and
construction are subject to obtaining the necessary regulatory approvals. Delays
in these processes, as well as completing construction and recruiting and
training the necessary talent, could impact our business.

Trends in consumer spending, as well as climate and weather patterns, could have
an impact on the markets in which we currently or will in the future operate. In
addition, our Entertainment Golf business could be impacted on a
season-to-season basis, based upon corporate event and social gatherings during
peak and off-peak times.
Traditional Golf Business
Our Traditional Golf business is subject to trends in consumer discretionary
spending, as well as climate and weather patterns, which has a significant
impact on the markets in which we operate. Traditional Golf is generally subject
to seasonal fluctuations caused by significant reductions in golf activities due
to shorter days and colder temperatures in the first and fourth quarters of each
year.  Consequently, a significantly larger portion of our revenue from our
Traditional Golf operations is earned in the second and third quarters of our
fiscal year. In addition, severe weather patterns can also negatively impact our
results of operations.
While consumer spending in the Traditional Golf industry has not grown in recent
years, we believe improving economic conditions and improvements in local
housing markets have helped and will continue to help drive membership growth
and increase the number of golf rounds played. In addition, we believe growth in
related industries, including leisure, fitness and entertainment, may positively
impact our Traditional Golf business.

Application of Critical Accounting Policies
Management's discussion and analysis of financial condition and results of
operations is based upon our Consolidated Financial Statements, which have been
prepared in accordance with U.S. generally accepted accounting principles or
GAAP. The preparation of financial statements in conformity with GAAP requires
the use of estimates and assumptions that could affect the reported amounts of
assets and liabilities, the disclosure of contingent assets and liabilities and
the reported amounts of revenue and expenses.

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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 described below 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 below to materially change in the future.
A summary of our significant accounting policies is presented in Note 2 to our
Consolidated Financial Statements, which appear in Part II, Item 8. "Financial
Statements and Supplementary Data." The following is a summary of our accounting
policies that are most affected by judgments, estimates and assumptions.

Impairment of Property and Equipment and Intangible Assets



Long-lived property, equipment and definite-lived intangible assets are tested
for potential impairment when changes in circumstances indicate the carrying
amount of the assets, or other appropriate grouping of assets, may not be fully
recoverable. Indicators of impairment include material adverse changes in the
projected revenues and expenses, significant underperformance relative to
historical or projected future operating results, and significant negative
industry or economic trends. An impairment is determined to have occurred if the
future net undiscounted cash flows expected to be generated is less than the
carrying value of an asset. The impairment is measured as the difference between
the carrying value and the fair value. Significant judgment is required both in
determining impairment and in estimating the fair value. We may use assumptions
and estimates derived from a review of our operating results, business
projections, expected growth rates, discount rates, and tax rates. We also make
certain assumptions about future economic conditions, interest rates, and other
market data. Many of the factors used in these assumptions and estimates are
outside the control of management, and can change in future periods.

Membership Deposit Liabilities



In our Traditional Golf business, private country club members generally pay an
advance initiation fee deposit upon their acceptance as a member to the their
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 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 determination of the estimated average expected
life of an active membership is based on company-specific historical data and
involves judgment and estimation. 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, net in the Consolidated
Statements of Operations.
Valuation of Securities

Fair value of securities is based on an internal model and involves significant
judgment. The inputs to our model includes discount rates, prepayment speeds,
default rates and severity assumptions.
See Note 10 to our Consolidated Financial Statements in Part II, Item 8.
"Financial Statements and Supplementary Data" for information regarding the fair
value of our investments, and respective estimation methodologies, as of
December 31, 2019.
Impairment of Securities and Other Investments

Temporary declines in value generally result from changes in market factors,
such as market interest rates and credit spreads, or from certain macroeconomic
events, including market disruptions and supply changes, which do not directly
impact our ability to collect amounts contractually due. We continually evaluate
the credit status of each of our securities and the collateral supporting our
securities. These factors are also analyzed in relation to the amount of the
unrealized loss and the period elapsed since it was incurred. The result of this
evaluation is considered when determining management's estimate of cash flows,
particularly with respect to developing the necessary inputs and assumptions.
Unrealized losses that are considered other-than-temporary are recognized in
earnings. Significant judgment is required in this analysis.

We evaluate our other investments for impairment whenever events or changes in
circumstances indicate that the carrying amount 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 costs. As these factors are difficult to predict and are subject to
future events that may alter management's

                                       30
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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.

Stock-based Compensation



We account for stock-based compensation for options in accordance with the fair
value recognition provisions, under which we use the Black-Scholes option
valuation model, which requires the input of subjective assumptions. These
assumptions include expected volatility, expected dividend yield of our stock,
expected term of the awards and the risk-free interest rate.

Recent Accounting Pronouncements

See Note 2 in Part II, Item 8. "Financial Statements and Supplementary Data" for information about recent accounting pronouncements.


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Results of Operations
The following tables summarize the changes in our consolidated results of
operations from year-to-year (dollars in thousands):
Comparison of Results of Operations for the years ended December 31, 2019 and 2018

                                        Year Ended December 31,           Increase (Decrease)
                                          2019             2018          Amount            %
Revenues
Golf operations (A)                  $    216,497      $  244,646     $   (28,149 )       (11.5 )%
Sales of food and beverages                55,567          69,723         (14,156 )       (20.3 )%
Total revenues                            272,064         314,369         (42,305 )       (13.5 )%

Operating costs
Operating expenses (A)                    229,306         251,794         (22,488 )        (8.9 )%
Cost of sales - food and beverages         15,217          20,153          (4,936 )       (24.5 )%
General and administrative expense         47,976          38,560           9,416          24.4  %
Depreciation and amortization              22,396          19,704           2,692          13.7  %
Pre-opening costs                           9,040           2,483           6,557         264.1  %
Impairment and other losses                15,413           8,240           7,173          87.1  %
Realized and unrealized (gain) loss
on investments                                  -            (131 )           131        (100.0 )%
Total operating costs                     339,348         340,803          (1,455 )        (0.4 )%
Operating loss                            (67,284 )       (26,434 )        40,850         154.5  %

Other income (expenses)
Interest and investment income                955           1,794            (839 )       (46.8 )%
Interest expense, net                      (8,760 )       (16,639 )        (7,879 )       (47.4 )%
Other income, net                          20,876           2,880          17,996          N.M.
Total other income (expenses)              13,071         (11,965 )        25,036         209.2  %

Loss before income tax               $    (54,213 )    $  (38,399 )   $    15,814          41.2  %

N.M. - Not meaningful (A) Includes $52.4 million and $22.1 million for the years ended December 31,

2019 and 2018, respectively, due to management contract reimbursements

reported under the new revenue standard.




Revenues from Golf Operations
Revenues from golf operations decreased by $28.1 million during the year ended
December 31, 2019 compared to the year ended December 31, 2018 primarily due to
decreases of: (i) $66.6 million related to fewer Traditional Golf properties
owned or operated in 2019, (ii) $3.1 million of greens fees and cart rental fees
for Traditional Golf properties operating in both periods, primarily related to
unfavorable weather conditions in early 2019, and (iii) $0.5 million driven by
fewer events at our Traditional Golf properties, partially offset by an increase
of (iv) $33.4 million in revenues from management contracts including $30.3
million of reimbursed expenses, (v) $1.6 million related to increases in The
Players' Club memberships, (vi) $1.6 million related to increases in dues at
private golf properties, and (vii) $5.6 million in our Entertainment Golf
business due to three new venues that opened in 2019.

Sales of Food and Beverages



Sales of food and beverages decreased by $14.2 million during the year ended
December 31, 2019 compared to the year ended December 31, 2018 primarily due to
decreases of: (i) $21.1 million due to fewer Traditional Golf properties owned
or operated in 2019 and (ii) $2.3 million driven by fewer events at our
Traditional Golf properties, partially offset by an increase of (iii) $9.2
million in our Entertainment Golf business due to three new venues that opened
in 2019.

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Operating Expenses



Operating expenses decreased by $22.5 million during the year ended December 31,
2019 compared to the year ended December 31, 2018 primarily due to decreases of:
(i) $64.7 million due to fewer Traditional Golf properties owned or operated in
2019, (ii) $1.4 million due to decreased utility and water usage, partially
offset by increases of: (iii) $30.3 million of reimbursed expenses from
management contracts, (iv) $2.0 million in Traditional Golf repairs and
maintenance expenses due to the benefit of insurance proceeds recorded in 2018,
(v) $0.5 million in payroll expense primarily due to an increase in California
minimum wage, and (vi) $11.0 million in our Entertainment Golf business due to
three new venues that opened in 2019.

Cost of Sales - Food and Beverages



Cost of sales - food and beverages decreased by $4.9 million during the year
ended December 31, 2019 compared to the year ended December 31, 2018 primarily
due to decreases of: (i) $7.0 million due to fewer Traditional Golf properties
owned or operated in 2019 and (ii) $0.2 million due to lower sales volumes for
Traditional Golf properties operating in both periods, partially offset by (iii)
an increase of $2.3 million in our Entertainment Golf Business due to three new
venues that opened in 2019.
General and Administrative Expense (including Acquisition and Transaction
Expense)

General and administrative expense increased by $9.4 million during the year
ended December 31, 2019 compared to the year ended December 31, 2018 due to
increases of: (i) $5.2 million of higher payroll and payroll related expenses
primarily related to the hiring of employees in our Entertainment Golf segment,
(ii) $1.3 million of higher travel and other related expenses as part of the
development of the Entertainment Golf business, (iii) $0.6 million of expenses
associated with Entertainment Golf sites that we are no longer pursuing, (iv)
$0.5 million of higher rent and related office expenses associated with our
corporate offices in New York and Dallas, (v) $1.0 million of higher marketing
expenses primarily related to the re-branding of our Entertainment Golf business
in 2019, and (vi) $0.7 million of higher costs primarily related to the
negotiation and development of potential Entertainment Golf venue locations.

Depreciation and Amortization



Depreciation and amortization increased by $2.7 million during the year ended
December 31, 2019 compared to the year ended December 31, 2018 due to increases
of: (i) $2.9 million in depreciation on assets placed into service in our
Entertainment Golf business for our Orlando, Florida venue in April 2018 and for
our three venues in Raleigh, North Carolina; Richmond, Virginia; and West Palm
Beach, Florida in August, September and October 2019, respectively, (ii) $1.1
million due to amortization on additional finance leases for equipment, and
(iii) depreciation on additional assets placed in service at Traditional Golf
properties, partially offset by (iv) a $1.8 million reduction in depreciation
due to Traditional Golf properties that were exited in 2018 and 2019.

Pre-Opening Costs



Pre-opening costs increased by $6.6 million during the year ended December 31,
2019 compared to the year ended December 31, 2018 primarily due to costs
associated with the opening of three new Entertainment Golf venues in 2019
compared to one venue opened in 2018. Pre-opening costs can fluctuate based on
timing of venue openings and geographic locations.
Impairment and Other Losses
During the year ended December 31, 2019, impairment consisted of: (i) $1.2
million on three Traditional Golf properties that were classified as
held-for-sale and subsequently sold, (ii) $3.8 million on two leased Traditional
Golf properties, (iii) $10.2 million of losses on asset retirements of certain
software and equipment as a result of the decision to discontinue use at our
Entertainment Golf venues, and (iv) $0.2 million of losses on asset retirements
in our Traditional Golf business. During the year ended December 31, 2018,
impairment consisted primarily of $7.0 million due to impairment on five
Traditional Golf properties that were classified as held-for-sale and $0.9
million on three leased Traditional Golf properties.
Realized and Unrealized (Gain) Loss on Investments

During the year ended December 31, 2018, we recorded a net realized gain on the mark-to-market value of a derivative, which was unwound in December 2018.


                                       33
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Interest and Investment Income



Interest and investment income decreased by $0.8 million during the year ended
December 31, 2019 compared to the year ended December 31, 2018 primarily due to
lower balances in interest bearing cash accounts.
Interest Expense, net

Interest expense, net decreased by $7.9 million during the year ended
December 31, 2019 compared to the year ended December 31, 2018 primarily due to
a decrease of $8.0 million related to the Traditional Golf loan payoff in
December 2018, partially offset by an increase of interest expense capitalized
into construction in progress balances associated with the opening of three
Entertainment Golf venues in 2019.
Other Income, Net

Other income, net increased by $18.0 million during the year ended December 31,
2019 compared to the year ended December 31, 2018 primarily due to: (i) $10.6
million in higher gains from sale of Traditional Golf properties, (ii) $0.9
million of losses recognized during the year ended December 31, 2018 related to
Traditional Golf lease modifications and terminations, (iii) $5.3 million of
losses recognized during the year ended December 31, 2018 primarily due to a
$4.9 million settlement of a legal dispute related to the exit of a Traditional
Golf leased course, and (iv) $1.3 million in lower losses on the extinguishment
of debt primarily due to the payoff of a Traditional Golf loan in December 2018.


Comparison of Results of Operations for the years ended December 31, 2018 and 2017

                                        Year Ended December 31,           Increase (Decrease)
                                          2018             2017          Amount            %
Revenues
Golf operations (A)                  $    244,646      $  221,737     $    22,909          10.3  %
Sales of food and beverages                69,723          70,857          (1,134 )        (1.6 )%
Total revenues                            314,369         292,594          21,775           7.4  %

Operating costs
Operating expenses (A)                    251,794         232,796          18,998           8.2  %

Cost of sales - food and beverages 20,153 20,959 

  (806 )        (3.8 )%
General and administrative expense         38,560          31,413           7,147          22.8  %
Management fee and termination
payment to affiliate                            -          21,410         (21,410 )      (100.0 )%
Depreciation and amortization              19,704          24,304          (4,600 )       (18.9 )%
Pre-opening costs                           2,483             320           2,163          N.M.
Impairment and other losses                 8,240              60           8,180          N.M.
Realized and unrealized (loss) gain
on investments                               (131 )         6,243          (6,374 )      (102.1 )%
Total operating costs                     340,803         337,505           3,298           1.0  %
Operating loss                            (26,434 )       (44,911 )       (18,477 )       (41.1 )%

Other income (expenses)
Interest and investment income              1,794          23,162         (21,368 )       (92.3 )%
Interest expense, net                     (16,639 )       (19,581 )        (2,942 )       (15.0 )%
Other income, net                           2,880              94           2,786          N.M.
Total other income (expenses)             (11,965 )         3,675         (15,640 )      (425.6 )%

Loss before income tax               $    (38,399 )    $  (41,236 )   $     2,837           6.9  %

N.M. - Not meaningful (A) Includes $22.1 million for the year ended December 31, 2018 due to management


    contract reimbursements reported under the new revenue standard adopted on
    January 1, 2018.




                                       34

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Revenues from Golf Operations
Revenues from golf operations decreased by $22.9 million during the year ended
December 31, 2018 compared to the year ended December 31, 2017 primarily due to
increases of: (i) $22.1 million due to management contract reimbursements
reported on a gross basis under the new revenue standard adopted prospectively
on January 1, 2018, (ii) $6.6 million of improvements in the Traditional Golf
business for properties in operation at both December 31, 2018 and December 31,
2017 including growth in members and in rounds played, and (iii) $2.2 million
related to our Entertainment Golf venue opened in Orlando, Florida in 2018,
partially offset by a decrease of $7.9 million as a result of fewer Traditional
Golf properties owned or operated in 2018.

Sales of Food and Beverages



Sales of food and beverages decreased by $1.1 million during the year ended
December 31, 2018 compared to the year ended December 31, 2017 primarily due to
a decrease of $4.1 million as a result of fewer Traditional Golf properties
owned or operated in 2018, partially offset by an increase of $2.7 million
related to our Entertainment Golf venue opened in Orlando, Florida in 2018 and a
$0.3 million increase in the Traditional Golf business for properties in
operation at both December 31, 2018 and December 31, 2017
Operating Expenses
Operating expenses decreased by $19.0 million during the year ended December 31,
2018 compared to the year ended December 31, 2017 primarily due to increases of:
(i) $22.1 million in management contract expenses reported under the new revenue
standard adopted on January 1, 2018, (ii) $5.4 million related to our
Entertainment Golf venue opened in Orlando, Florida in 2018, partially offset by
(iii) a decrease of $8.5 million due to fewer Traditional Golf properties owned
or operated in 2018.

Cost of Sales - Food and Beverages



Cost of sales - food and beverages decreased by $0.8 million during the year
ended December 31, 2018 compared to the year ended December 31, 2017 primarily
due to a $1.4 million decrease in the Traditional Golf business for properties
no longer owned or operated as of December 31, 2018, partially offset by $0.6
million of food and beverage costs incurred at our Entertainment Golf venue
opened in Orlando, Florida in 2018.
General and Administrative Expense (including Acquisition and Transaction
Expense)
General and administrative expense increased by $7.1 million during the year
ended December 31, 2018 compared to the year ended December 31, 2017 primarily
due to payroll-related expenses in our Entertainment Golf and corporate segments
as a result of the Internalization effective January 1, 2018.
Management Fee and Termination Payment to Affiliate

Management fee and termination payment to affiliate increased $21.4 million
during the year ended December 31, 2018 compared to the year ended December 31,
2017 due to the Internalization effective January 1, 2018.
Depreciation and Amortization
Depreciation and amortization expense decreased by $4.6 million during the year
ended December 31, 2018 compared to the year ended December 31, 2017 primarily
due to discontinuation of depreciation on the Traditional Golf real estate
assets classified as held-for-sale in March 2018, partially offset by
depreciation on assets placed into service at our Entertainment Golf venue in
Orlando, Florida.

Pre-Opening Costs

Pre-opening costs were $2.5 million during the year ended December 31, 2018
compared to $0.3 million during the year ended December 31, 2017. Pre-opening
costs in 2018 were primarily due to: (i) payroll-related expenses incurred in
connection with the opening of our Entertainment Golf venue in Orlando, Florida
in April 2018 and (ii) pre-opening rent expense for three additional
Entertainment Golf venues under construction as of December 31. 2018.
Impairment and Other Losses
Impairment and other losses increased by $8.2 million during the year ended
December 31, 2018 compared to a loss during the year ended December 31, 2017.
Impairment in 2018 consisted primarily of $7.0 million due to impairment on five
Traditional Golf properties that were held-for-sale in March 2018 and on three
under-performing Traditional Golf properties.

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Realized and Unrealized (Gain) Loss on Investments
The realized and unrealized (gain) loss on investments increased by $6.4 million
during the year ended December 31, 2018 compared to the year ended December 31,
2017. During the year ended December 31, 2018, we recorded a net realized gain
on the mark-to-market value of derivatives. During the year ended December 31,
2017, we recorded a net realized loss of $0.4 million on the sale of agency
RMBS, an unrealized loss of $0.6 million on the mark-to-market of agency RMBS, a
realized loss of $4.7 million on the sale of derivatives and an unrealized loss
of $0.7 million on the mark-to-market on the value of derivatives.

Interest and Investment Income
Interest and investment income decreased by $21.4 million during the year ended
December 31, 2018 compared to the year ended December 31, 2017 primarily due to
decreases of: (i) $8.0 million in interest income earned from agency RMBS which
were sold in August 2017, (ii) $5.5 million on the accretion of discount
recognized on a resorts-related loan, (iii) $8.5 million of paid-in-kind
interest earned on a resorts-related loan due to the full repayment in August
2017, partially offset by (iii) $0.6 million in interest earned on overnight
cash deposits.
Interest Expense, Net
Interest expense, net decreased by $2.9 million during the year ended
December 31, 2018 compared to the year ended December 31, 2017 primarily due to
a decrease in interest expense related to repurchase agreements on agency RMBS
which were repaid in August 2017.
Other Income, Net
Other income, net increased by $2.8 million during the year ended December 31,
2018 compared to the year ended December 31, 2017 primarily due to: (i) a $9.0
million increase primarily due to gain on sales of long-lived assets and
intangibles partially offset by (ii) $0.8 million in higher losses on
Traditional Golf lease modifications and terminations, (iii) $1.2 million in
higher losses on debt extinguishment and (iii) $4.3 million of higher losses
primarily due to the settlement of a legal dispute and related discharge of
liabilities assumed by the counterparty to the settlement.





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Liquidity and Capital Resources

Overview



Our primary sources of liquidity are our current balances of cash and cash
equivalents. We also generated capital through the completion of the sales of 24
of our 26 owned Traditional Golf properties which was completed by December 31,
2019, as well as strategically optimizing the monetization of substantially all
our debt investments in loans and securities, which was completed by December
31, 2017. The proceeds generated by these transactions were reinvested in our
Entertainment Golf business and used to pay overhead expenses.

As of December 31, 2019, we had $28.4 million of available cash, including $10.5 million of cash from the Traditional Golf business.



Our primary cash needs are capital expenditures for developing and opening new
core Drive Shack and new small-store urban box 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. Based
upon current levels of operations and anticipated growth, we expect that cash
flows from operations, combined with other financing alternatives in place or
available, and further combined with the asset sales, as discussed below, will
be sufficient to meet our working capital and capital expenditure requirements
for the foreseeable future.

As of December 31, 2019, we are actively exploring additional debt financing to
meet our short and long-term liquidity requirements to fund our planned growth,
including new venue development and construction, product innovation, and
general corporate needs. Our financial objectives include diversifying our
financing sources, optimizing the mix and maturity of new debt financings,
public or private equity issuances, strategically monetizing our remaining real
estate securities and other investments, and the sales of our remaining owned
Traditional Golf properties. 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.

For a further discussion of risks that could affect our liquidity, access to capital resources and our capital obligations, see Part I, Item 1A. "Risk Factors" above.

Summary of Cash Flows

The following table and discussion summarize our key cash flows from operating, investing and financing activities:


                                                    Year ended December 31,
                                           2019               2018

2017


Net cash (used in) provided by:
Operating activities                 $      (28,118 )   $       (7,202 )   $      (12,375 )
Investing activities                        (11,993 )           25,929            656,566
Financing activities                        (10,744 )         (109,596 )         (617,047 )
Net (Decrease) Increase in Cash
and Cash Equivalents, Restricted
Cash and Restricted Cash,
noncurrent                           $      (50,855 )   $      (90,869 )   $       27,144


Operating Activities
Cash flows used in operating activities consist primarily of net losses adjusted
for certain items including depreciation and amortization of assets,
amortization of prepaid golf member dues, impairment losses, other gains and
losses from the sale of assets, stock-based compensation expense, and the effect
of changes in operating assets and liabilities.

Net cash flow used in operating activities changed from $7.2 million for the
year ended December 31, 2018 to $28.1 million for the year ended December 31,
2019. It changed from $12.4 million for the year ended December 31, 2017 to $7.2
million for the year ended December 31, 2018. These changes resulted primarily
from the factors described below:


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2019 compared to 2018

• Operating cash flows decreased by:




•            $9.9 million of general and administrative expenses due to

increased


             headcount and professional fees primarily due to the

development of


             the Entertainment Golf business; and


•            $10.1 million due to decreased revenue from the Traditional Golf
             business due to the sale of properties during 2019; and


•            $4.4 million of pre-open costs primarily due to the opening of three
             Entertainment Golf venues in 2019 compared to one venue opened in
             2018.

• Operating cash flows increased by:




•            $1.8 million due to management fees paid in 2018 that were incurred
             in 2017 when the Company was externally managed; and


•            $1.7 million in operating cash flows primarily due to the opening of
             Entertainment Golf venues in Raleigh, North Carolina, Richmond,
             Virginia and West Palm Beach, Florida.

2018 compared to 2017

• Operating cash flows increased by:




•            $18.7 million due to lower management fees paid in 2018 as a result
             of the Internalization;

• $4.1 million due to lower general and professional fees paid in 2018 ;

• $1.7 million due to lower income taxes paid in 2018; and

• $0.6 million due to higher interest earned on overnight cash deposits.

• Operating cash flows decreased by:




•            $5.0 million in lower operating cash flows from Traditional Golf,
             primarily related to the legal dispute settled in July 2018;


•            $7.5 million of payroll costs primarily due to the

Internalization


             and increased employee hiring associated with the

Entertainment Golf


             business;


•            $0.1 million due to cash flows from operations from the first
             Entertainment Golf venue in Orlando; and


•            $7.9 million in lower net interest proceeds primarily due to the
             sale of agency RMBS in August 2017.

Investing Activities



Cash flows generated from investing activities primarily relate to proceeds from
the dispositions of Traditional Golf properties, sales of and repayments from
investments in securities and loans, and were primarily used for capital
expenditures related to the development of the Entertainment Golf venues,
renovations of existing facilities and payments for settlement of derivatives.

Cash used in investing activities decreased by $37.9 million in 2019 compared to
2018. Cash provided by investing activities decreased by $630.6 million in 2018
compared to 2017.

Capital Expenditures. Our total capital expenditures for 2019, 2018, and 2017 was $74.9 million, $62.4 million, and $34.3 million, respectively.



We expect our capital expenditures over the next 12 months to range between $70
and $80 million, which includes developing new core Drive Shack and small-store
format urban box venues and remodeling and maintaining existing facilities.

Traditional Golf property dispositions. As of December 31, 2019, we have
successfully sold 24 of our 26 owned golf properties for a total aggregate sales
price of $169.7 million, of which $62.9 million and $88.3 million was received,
net of transaction costs, in 2019 and 2018, respectively. We continue to own two
Traditional Golf properties, of which one is classified as held-for-sale and one
is classified as held-for-use. We continue to pursue the monetization of our
owned golf property to generate capital for reinvestment in the Entertainment
Golf business.

Other Investments. In connection with the transformation of the Company to a
leisure and "eatertainment" company, the Company monetized its debt investments
in loans and securities through repayments and sales, and settlement of
derivatives, which was substantially completed by December 31, 2017.

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Financing Activities



Cash flows used in or provided by financing activities consist primarily of cash
from the borrowing or repayment of debt obligations, deposits made on, or the
return of, margin calls related to our repurchase agreements and derivatives,
deposits received on golf memberships, and the payment of common and preferred
dividends.

Cash used in financing activities decreased by $98.9 million in 2019 compared to 2018. Cash used in financing activities decreased by $507.5 million in 2018 compared to 2017.



Dividends. The Company has paid dividends to its preferred shareholders in the
amount of $5.6 million in 2019, 2018, and 2017, respectively. The Company has an
ongoing obligation to satisfy the distribution requirements of the preferred
shares, in accordance with the terms of the issuance. Effective January 1, 2017,
the Company revoked its election to be treated as a REIT for federal income tax
purposes. As a result, we are no longer subject to the distribution requirements
applicable to REITs, and the timing and amount of distributions are in the sole
discretion of our board of directors, which has elected not to declare common
stock dividends for 2017 through 2019 to retain capital for growth. A common
stock dividend of $8.0 million was declared in 2016 and paid in 2017.

Debt Obligations and Derivatives. The Company made contractual payments on its
finance leases in 2019, 2018 and 2017. In 2018, the Company repaid the
Traditional Golf loan using proceeds from the sale of Traditional Golf
properties. In connection with the transformation of the Company to a leisure
and "eatertainment" company, the Company monetized its debt investments in loans
and securities and repaid associated debt obligations and terminated associated
derivatives in 2017.

Golf Membership Deposits. Private country club members generally pay an advance
initiation fee deposit upon their acceptance as a member to the respective
country club, which are refundable 30 years after the date of acceptance as a
member.
Debt Instruments
See Note 8 in Part II, Item 8. "Financial Statements and Supplementary Data" for
further information related to our debt obligations and contractual maturities
as of December 31, 2019.
Off-Balance Sheet Arrangements
As of December 31, 2019, we had the following material off-balance sheet
arrangements. We believe that these off-balance sheet structures presented the
most efficient and least expensive form of financing for these assets at the
time they were entered, and represented the most common market-accepted method
for financing such assets.
•      In April 2006, we securitized Subprime Portfolio I. The loans were sold to
       a securitization trust, of which 80% were treated as a sale, which is an
       off-balance sheet financing.

• In July 2007, we securitized Subprime Portfolio II. The loans were sold to


       a securitization trust, of which 90% were treated as a sale, which is an
       off-balance sheet financing.


We have no obligation to repurchase any loans from either of our subprime
securitizations. Therefore, it is expected that our exposure to loss is limited
to the carrying amount of our retained interests in the securitization entities,
in the amount of $3.1 million as of December 31, 2019. A subsidiary of ours gave
limited representations and warranties with respect to the second
securitization; however, it has no assets and does not have recourse to the
general credit of the Company.

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Contractual Obligations
The following table summarizes our contractual arrangements as of December 31,
2019, and the timing and effect that such commitments are expected to have on
our liquidity and capital requirements in future periods:
                                                  Fixed and Determinable Payments Due by Period
Contract                               2020           2021-2022       2023-2024       Thereafter        Total

Finance lease obligations -
Equipment (A)                          7,222             10,171           4,302               33        21,728
Junior subordinated notes
payable (A)                            2,182              4,364           4,364           73,372        84,282
Operating lease obligations (B)       33,151             63,648          55,826          205,108       357,733
Membership deposit liabilities
(C)                                   10,869              7,229           9,406          218,512       246,016
Credit facilities, Traditional
Golf (A)                                   6                 11              11              306           334
Total                             $   53,430        $    85,423     $    73,909     $    497,331     $ 710,093

(A) Includes interest based on rates existing at December 31, 2019 and assumes no

prepayments. Obligations that are repayable prior to maturity at our option

are reflected at their contractual maturity dates. See Note 8 to our

Consolidated Financial Statements for further discussions.

(B) Includes leases of golf courses and related facilities, carts and equipment.

Excludes escalation charges which per our lease agreements are not fixed and

determinable payments. Also excludes four month-to-month property leases

which are cancellable by the parties with 30 days written notice and various

month-to-month operating leases for carts and equipment. The aggregate

monthly expense of these leases was $0.2 million. See Notes 2 and 6 to our

Consolidated Financial Statements for further discussions.

(C) Amounts represent gross initiation fee deposits refundable 30 years after the

date of acceptance of a member. See Notes 2 and 13 to our Consolidated

Financial Statements for further discussion.

(D) Includes primarily ground leases for Entertainment Golf venues. See Notes 2


    and 6 to our Consolidated Financial Statements for further discussions.





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