15 Jun Up for a ride with Drive Shack?
Drive Shack, Inc. (NYSE: DS), formerly known as Newcastle Investment Corp, is a golf-related leisure and entertainment company, which owns, leases, and manages 55 courses over nine states as of March 31, 2022. The Company is reinterpreting conventional driveways by combining three experiences: Entertainment, Sports, and Food and Beverage. The Company calls this “Competitive Socializing,” where customers can interact, play and eat at the same place.
The Company’s portfolio consists of American Golf, Drive Shack, and Puttery. Drive Shack aims to become the country’s largest venue-based competitive socializing and entertainment platform. The Company has achieved a transformational shift from its traditional golf roots to a comprehensive entertainment golf entity. The Company’s conventional golf entity, American Golf, owns leases and manages 55 courses. Most of the Company’s owned course portfolio is used to fund the development of its 4-entertainment golf Drive Shack venues. The Company continues to lease and manage courses and can enjoy reliable earnings and cash flow.
Drive Shack, Inc. (NYSE: DS)
Market Cap: $136.73M; Current Share Price: 1.48 USD
Data by YCharts
Opportunity
According to a report by IBIS World, the market for Golf Driving Ranges & Family Fun Centers in the U.S is estimated to be $14.9 billion in terms of revenue and is likely to grow by 11.2% in 2022. The annualized growth rate for 2017-2022 is expected to be 0.9%. The increasing popularity of golf drives its growth as a recreational sport. Golf is now a part of the sporting options offered by premium resorts and hotels, with miniature golf courses mushrooming everywhere.
A National Golf Foundation (NGF) participation report shows that overall golf participation increased by 600,000 to 37.5 million in 2021, with the number evenly split between on- and off-course. 2021 witnessed over 3.2 million beginners who played on the golf course for the first time. This demonstrates the growing number of golf enthusiasts, even among young millennials, who are now patrons of the newer formats of the game, which cater to the young crowd and aim to address the elitist reputation of golf as a sport for the rich and aged.
Image Source: ngf. org
Some of the negative factors affecting the industry are low barriers to entry and the number of adults aged 20 to 64 years. Moreover, the rising competition from the video games industry could hamper the market’s growth. The onset of the COVID-19 pandemic and the consequent lockdowns resulted in a demand for in-house entertainment options. This impacted outdoor entertainment options such as Golf. However, the abating cases and the economy opening up are leading to the normalization of guest traffic to golf courses and entertainment centers. This augurs well for the industry’s growth as more and more people seek outdoor entertainment options.
Company
Drive Shack opened its first site in Orlando in April 2018 and followed it up with three more Gen 2.0 venues across 2H 2019 at Raleigh, Richmond, and West Palm Beach. The Company has plans to open additional locations in Manhattan/Randall’s Island in 2023.
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The Company aims to redefine the entertainment golf space through its – indoor, tech-forward putting, which seeks to deliver an immersive experience. The initiative has some robust economics with lower capital spending and the potential for higher returns and operating cash flows. The first puttery location was opened in September 2021 at The Colony, TX, followed by another location at Charlotte, NC, in December 2021. The Company plans to open another 50 venues by the end of 2024.
The Company has sold a major portion of its owned courses and is now focused on leasing and managing courses. The first Drive Shack was opened in Orlando in April 2018, which served as the testing site, which led to the launch of three new sites in the second half of 2019 at Raleigh, Richmond, and West Palm Beach, which exceeded performance expectations and beat revenue plans by 14 percent.
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The Company owns and operates American Golf Corp, one of the largest golf operators in the U.S, which has 54 traditional courses, of which it owns one course, and has leased 32 courses and manages 22 more. Eighty-five percent of these properties are leased from municipalities, and the Company is leveraging these strong partnerships to build further venues. DriveShack is building a robust pipeline targeting over 60 markets for opening new venues in 2023-2024.
DriveShack continues to enjoy high demand for its traditional golf services as evidenced by a 46 percent increase in its revenue from the green and cart fees in Q1,2021 compared to Q1,2020 in its public courses. The Company also reported a 33 percent increase in Daily fee rounds for the same period. The private courses registered a 30 percent increase in member sales in Q1,2021, while total rounds grew by 29 percent. Moreover, the total revenue for Q2,2022 was $69 million, an increase of $8 million compared to Q1,2022, while the adjusted EBITDA was $1.0 million and on track to achieving the company’s goal of $18 million. DriveShack expects additional growth in 2022 with seven more new Puttery venues opening.
The Company continues to experience growth momentum for its Puttery venues, with The Colony and Charlotte locations attracting positive responses from guests. The colony is attracting 61% of walk-in guests who make online reservations and plan their visits in advance, spending an average of 32 minutes playing a 9-hole course. They also spend 82% on alcohol/liquor of the total F&B revenue. Similarly, the Charlotte location has 60% walk-in guests who plan their visit in advance through online reservations and spend an average of 34 minutes playing a 9-hole course. Furthermore, they spend 78% on alcohol/liquor of the total F&B revenue.
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DriveShack venues delivered EBITDA margins of 27% in Q1,2022, with the location at Raleigh exceeding revenue and venue EBITDA expectations. The quarter witnessed a 19.5% increase in total revenue owing to higher event sales. Guest traffic has normalized, and there is a strong demand across all venues, especially in Raleigh.
The Company is currently discussing with landlords on multiple sites and is aggressively pursuing new leases to achieve its opening targets for 2023. The Company has ten total lease-committed venues, of which two are currently open in The Colony and Charlotte. DriveShack is planning to open seven additional locations in 2022 in DC, Houston, Chicago, Philadelphia, Pittsburgh, Miami, and Kansas City and intends to open 1 of 16 planned venues in Manhattan in 2023.
The aim is to build 50 puttery venues by the end of 2024, with each location expected to generate $2 to $3 million of EBITDA per venue. DriveShack plans to complete its Randall’s Island location in Manhattan by the end of 2023, which is expected to generate $4 to $6 million of EBITDA per typical venue.
Key Takeaways
Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
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References
https://www.ngf.org/participation-and-engagement-rise-again/
https://www.grandviewresearch.com/industry-analysis/golf-club-market
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