of $11.2 million Due to Hurrican Frances, Year
Earlier Posted Net Income of $6.5 million
Hotel Operating Performance
|PARADISE ISLAND, The Bahamas - Nov. 9, 2004 -- Kerzner International
Limited (NYSE: KZL):
Results in the quarter were adversely affected by Hurricane Frances, which passed just to the north of Paradise Island. This hurricane, as well as the effects of the subsequent hurricanes and tropical storms that hit the state of Florida, negatively impacted business in the week preceding Labor Day and in the weeks thereafter, resulting in lower overall business levels in September. The month of September is traditionally the Company's slowest month of the year. Atlantis, Paradise Island remained open throughout the storms.
In the quarter, costs associated with Hurricane Frances were $4.6 million, which primarily consisted of clean up and repair costs and complimentary goods and services to guests of $3.4 million and a loss on damaged assets of $1.2 million. These expenses, which amount to $0.13 per share, are included as adjusting items in the accompanying Reconciliation of Adjusted Net Income to GAAP Net Income. In addition, the Company estimates that the short-term business interruption associated with hurricanes resulted in lower net income of $6.8 million, or $0.20 per share, in the quarter. While the Company has an all-risk insurance policy that covers these types of losses, the total amount of loss was less than the deductible under the policy.
Butch Kerzner, Chief Executive Officer of the Company commented, "We experienced strong business levels at Atlantis, Paradise Island in July and August as the property achieved an average occupancy of 92%. September was affected by the unusual hurricane activity; however our booking activity and call volumes have come back strongly in the month of October and operating trends have been very positive."
Atlantis, Paradise Island
Atlantis, Paradise Island reported net revenue and EBITDA in the quarter of $106.5 million and $23.4 million, respectively, as compared to $114.8 million and $29.9 million in the same period last year.
Atlantis's revenue per available room ("RevPAR") for the quarter was $173 as compared to $177, representing a 2% decrease over the same period last year. In the quarter, Atlantis achieved an average occupancy of 77% and a $225 average daily room rate ("ADR"), which compared to an average occupancy of 79% and an ADR of $225 in the same period last year.
Call volume and the level of bookings have steadily improved since the start of October. As compared to the prior year, September calls handled by our reservation center and net bookings decreased by 16% and 44%, respectively, primarily as a result of the storms that affected The Bahamas and Florida. For the month of October, calls handled and net bookings increased by 28% and 34%, respectively, over the prior year.
In the Atlantis Casino, the largest casino in the Caribbean market, table drop in the third quarter declined by 14% over the same period last year. For the quarter, slot volume increased by 2% over the same period last year; however, slot win decreased by 8% as a result of a lower slot hold due to a different mix of machines.
As part of the Phase III expansion, the Company has continued construction of Marina Village, a 65,000 square foot project, which includes four new restaurants and retail space around the Atlantis Marina. The Company has also continued construction of the 116 two- and three-bedroom units to be developed in the second phase of the timeshare development at Harborside at Atlantis, a joint venture between the Company and a subsidiary of Starwood Hotels & Resorts Worldwide, Inc. ("Starwood"). These two elements of the expansion are expected to be completed by the third quarter of 2005. The Phase III project scope continues to include a third timeshare phase, consisting of approximately 200 units. The Company plans to develop this third phase in collaboration with Starwood and expects to commence development once the joint venture has sold 75% of the second phase.
Planning with respect to the other parts of the Phase III expansion continues. The Company has until December 31, 2004 to determine in its discretion whether to proceed with the remaining elements of the Phase III expansion that it has not commenced. The Company's determination will depend on the assessment of many factors, including global economic and political conditions, the regional competitive environment, financing and the Government of The Bahamas' proceeding with its commitments under the Heads of Agreement.
Atlantis, The Palm, Dubai
The Company, along with its partner, Istithmar PJSC ("Istithmar"), are in the process of obtaining financing from a syndicate of banks for a $700 million term loan facility that will enable the joint venture to commence construction of Atlantis, The Palm, a 2,000-room destination resort to be located on The Palm, Jumeirah. The development cost of the project is estimated at $1.1 billion. The Company's equity commitment to this project is $100 million, with the joint venture's total equity capital commitment equaling $400 million.
The Company has entered into (1) a long-term management agreement with the joint venture that entitles it to receive a fixed percentage of the revenue and gross operating profit generated by Atlantis, The Palm and (2) a development agreement that entitles it to receive $20 million and reimbursement of certain expenses over the development period.
Development planning is underway in anticipation of construction, which is expected to commence in the first quarter of 2005 and be completed towards the end of 2007. This project is subject to various closing conditions, completion of the term loan facility and all requisite governmental consents.
In the quarter, results for the Company's Gaming segment were primarily derived from Mohegan Sun, which reported record third quarter slot revenue of $222.1 million, an increase of 4% over the same period last year. Slot win per unit per day was $386 for the quarter, a 1% increase over the same period last year. In the quarter, Mohegan Sun's share of the Connecticut slots market was 50%.
Trading Cove Associates ("TCA"), an entity 50%-owned by the Company, receives payments from the Mohegan Tribal Gaming Authority of 5% of the gross operating revenues of Mohegan Sun under a relinquishment agreement between TCA and the Mohegan Tribe. The Company recorded income from TCA of $9.8 million in the quarter as compared to the $9.5 million earned in the same period last year.
BLB Investors, L.L.C.
The Company announced in July that BLB Investors, L.L.C.'s ("BLB") previous offer to acquire Wembley plc ("Wembley"), a London Stock Exchange-listed company that owns gaming and racetrack operations in the United States as well as race tracks in the United Kingdom, had lapsed. BLB, a joint venture comprised of the Company and affiliates of Starwood Capital Group, L.L.C. and Waterford Group, L.L.C., was formed for the purpose of acquiring the outstanding shares of Wembley. BLB owns a 22.2% stake in Wembley and is committed to working with Wembley to maximize shareholder value. The Company owns 37.5% of BLB.
In the quarter, the Company recorded an equity loss in BLB of $1.9 million, which consisted of $1.0 million in dividend income less $2.9 million of transaction costs incurred in connection with the joint venture's intended acquisition of Wembley. In addition, the Company recorded a $7.3 million reduction to its investment and a corresponding reduction to shareholders' equity. This unrealized loss reflects the change in fair value of the Company's share of Wembley's stock held by BLB and is classified as other comprehensive loss, a separate component of shareholders' equity.
In its One&Only Resorts segment, the Company reported net revenue of $19.9 million and an EBITDA loss of $2.9 million in the quarter compared to net revenue of $8.9 million and an EBITDA loss of $2.3 million in the same period last year. Results in the quarter included $6.5 million and $2.5 million of net revenue and EBITDA loss, respectively, from the One&Only Palmilla, whose results have been consolidated pursuant to the Company's adoption of Financial Accounting Standards Board Interpretation No. 46R, "Consolidation of Variable Interest Entities" ("FIN 46R") beginning January 1, 2004.
The One&Only Ocean Club posted a 13% increase in ADR mainly driven by the successful introduction of its three luxury villas launched at the end of the second quarter. However, the property experienced lower occupancy in the quarter as a result of Hurricane Frances. The resort achieved an average occupancy of 71% and ADR of $636 in the quarter compared to an average occupancy of 82% and ADR of $563 in the same period last year. As a result of Hurricane Frances, the property closed for eleven days before reopening on a fully operational basis.
At the end of the quarter, The One&Only Palmilla, which is owned by a 50/50 joint venture between the Company and Goldman Sachs Emerging Markets Real Estate Fund, had outstanding debt that included $85.9 million owed primarily to a syndicate of banks. The Company had also advanced on a subordinated basis to the joint venture $14.5 million with respect to completion loans related to the redevelopment of the property. The joint venture is currently negotiating a $110 million refinancing of the entirety of the bank and subordinated debt. This new facility is expected to close by the end of this year. Upon closing, the Company's guarantee of $46.5 million related to the existing facility will be terminated. Closing is subject to the completion of binding documentation and other customary conditions.
In the quarter, the Company recognized income tax expense of $1.0 million, which represents U.S. federal, state and foreign income tax expense. In the quarter, the Company paid cash taxes of approximately $0.6 million.
In the quarter, the Company executed the following financing initiatives
to strengthen its capital structure:
At the end of the quarter, the Company held $362.9 million in cash and cash equivalents, short-term investments and restricted cash. This amount consisted of $156.4 million in cash and cash equivalents, $204.1 million in short-term investments and $2.3 million in restricted cash. Total interest-bearing debt at the end of the quarter was $717.0 million, comprised primarily of $400 million of 8 7/8% Senior Subordinated Notes due 2011, of which $150 million is currently swapped from fixed to variable interest rates, and $230 million of 2.375% Convertible Senior Subordinated Notes due 2024.
Pursuant to FIN 46R, total cash and cash equivalents and debt included cash and cash equivalents of $3.3 million, including $1.9 million of restricted cash, and total debt of $85.9 million associated with the One&Only Palmilla. Interest expense in the quarter also included $1.5 million related to the One&Only Palmilla.
At the end of the quarter, the Company's Revolving Credit Facility was undrawn. The Company currently has approximately $500 million in availability under the amended Revolving Credit Facility. In determining the credit statistics used to measure compliance with the Company's financial covenants under this facility, the incremental debt and interest expense associated with the consolidation of the 50%-owned One&Only Palmilla are excluded.
In the quarter, the Company incurred $32.7 million in capital expenditures, comprised mainly of Paradise Island related expenditures and $2.1 million from the One&Only Palmilla. Total capital expenditures included capitalized interest of $1.2 million. In the fourth quarter of 2004, the Company anticipates it will spend between $40 million and $45 million in capital expenditures, mainly on Paradise Island.
In the quarter, the Company advanced an additional $21.0 million in the form of mezzanine financing related to the development of the One&Only Reethi Rah, the Company's second managed resort in the Maldives, which is expected to be completed by the second quarter of 2005. The Company expects to fund approximately $10 million in the fourth quarter of 2004 related to this development.
In the quarter, the Company invested $6.7 million in the joint venture for Atlantis, The Palm. The Company expects to fund this joint venture with approximately $10 million in the fourth quarter of 2004.
As of September 30, 2004, shareholders' equity was $1,098.0 million and the Company had approximately 35.4 million Ordinary Shares outstanding.
During the quarter, the Company recognized a $7.3 million impairment loss on undeveloped real estate in Atlantic City as these assets were written down to fair value less estimated costs to sell. This amount is included in the accompanying Reconciliation of Adjusted Net Income to GAAP Net Income.
Investors should note that this earnings release conforms to the presentation of segment information adopted in the consolidated financial statements that were filed as part of the Company's 2003 Form 20-F. This earnings release reflects the three distinct business segments that management uses to measure the operating performance of the Company. These three business segments are: Destination Resorts, Gaming and One&Only Resorts. The Company's most significant contributor to its profitability is its Destination Resorts segment, which is driven primarily by Atlantis, Paradise Island, the Company's flagship property. In order to facilitate comparability to 2003 earnings releases, a reconciliation of the combined Paradise Island operations, titled Paradise Island Summary Segment Data Reconciliation, is attached.
Effective January 1, 2004, the Company adopted FIN 46R, which requires variable interest entities to be consolidated if certain criteria are met. Under FIN 46R, the Company has determined that the One&Only Palmilla, a previously unconsolidated 50%-owned equity method investment, should be consolidated. The implementation of FIN 46R resulted in an increase in revenue and expenses in 2004; however, it had no impact on consolidated net income or net income per share.
Condensed Consolidated Statements of Operations, Reconciliation of Adjusted
Net Income to GAAP Net Income, Reconciliation of EBITDA to GAAP Net Income,
Summary Segment Data - Net Revenue, Summary Segment Data - EBITDA, Paradise
Island Summary Segment Data Reconciliation and Hotel Operating Performance
Data are attached.
Kerzner International Limited (NYSE: KZL) is a leading international developer and operator of destination resorts, casinos and luxury hotels. The Company's flagship brand is Atlantis, which includes Atlantis, Paradise Island, a 2,317-room, ocean-themed destination resort located on Paradise Island, The Bahamas. Atlantis, Paradise Island is a unique destination resort featuring three interconnected hotel towers built around a 7-acre lagoon and a 34-acre marine environment that includes the world's largest open-air marine habitat and is the home to the largest casino in the Caribbean. The Company also developed and receives certain income derived from Mohegan Sun in Uncasville, Connecticut, which has become one of the premier casino destinations in the United States. In the United Kingdom, Kerzner is currently developing a casino in Northampton and received its Certificate of Consent from the U.K. Gaming Board on March 30, 2004. In its luxury resort hotel business, the Company manages nine resort hotels primarily under the One&Only brand. The resorts, featuring some of the top-rated properties in the world, are located in The Bahamas, Mexico, Mauritius, the Maldives and Dubai. Additional One&Only properties are either underway or in the planning stages in the Maldives and South Africa.
This press release contains forward-looking statements, which are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. These forward-looking statements involve risks and uncertainties which are described in the Company's public filings with the U.S. Securities and Exchange Commission.
Kerzner International Limited
Omar Palacios, 242-363-6018
|Also See:||Kerzner Estimating Hurricane Frances Costs of Up to $12 million at The 2,317 room Atlantis on Paradise Island / September 2004|
|Government of the Kingdom of Morocco Selects Kerzner Joint Venture as a Developer/Operator for Proposed $230 million Resort Casino along Morocco's Atlantic Coast / July 2004|
|Kerzner Poised to Develop Resort Casinos in Three Leading Markets in the United Kingdom / July 2004|