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Kerzner Announces Fourth Quarter Results |
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The Company reported net income in the quarter of $7.1 million, compared to net income of $8.4 million in the same period last year, resulting in diluted net income per share of $0.19 compared to diluted net income per share of $0.23 in the same period last year. |
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Kerzner International Limited (NYSE: KZL):
-- 2005 FOURTH QUARTER DILUTED EPS OF $0.19 COMPARED TO $0.23 ACHIEVED LAST YEAR
-- 2005 FULL YEAR DILUTED EPS OF $1.34 COMPARED TO $2.01 ACHIEVED LAST YEAR
-- 2005 FOURTH QUARTER ADJUSTED EPS OF $0.35 COMPARED TO $0.26 ACHIEVED LAST YEAR
-- 2005 FULL YEAR ADJUSTED EPS OF $2.92 COMPARED TO $2.47 ACHIEVED LAST YEAR
-- KERZNER REPORTS RECORD FULL YEAR ADJUSTED NET INCOME, REVENUE AND EBITDA
-- ATLANTIS, THE PALM DEVELOPMENT COMMENCED; DEVELOPMENT BUDGET FOR PHASE I INCREASED TO APPROXIMATELY $1.5 BILLION
Kerzner International Limited (NYSE: KZL) (the "Company"), through its subsidiaries a leading international developer and operator of destination resorts, casinos and luxury hotels, today reported results for the fourth quarter of 2005. The Company reported net income in the quarter of $7.1 million, compared to net income of $8.4 million in the same period last year, resulting in diluted net income per share of $0.19 compared to diluted net income per share of $0.23 in the same period last year. Adjusted net income for the quarter was $13.2 million compared to $9.7 million in the same period last year. Adjusted net income per share in the quarter was $0.35 compared to $0.26 in the same period last year.
Butch Kerzner, Chief Executive Officer of the Company, commented, "In 2005, we achieved financial performance records for adjusted net income, revenue and EBITDA, which were driven by the strong performance of our Paradise Island operations. These record results, combined with the continued strong levels of demand for Atlantis and our solid balance sheet, serve as a powerful foundation for our next wave of growth on Paradise Island, the Phase III expansion. Phase III is expected to be completed in stages, with the 600-room, all-suite hotel and the expanded water attractions open by April 2007. In addition, construction of our second Atlantis-branded destination resort, Atlantis, The Palm, has commenced in Dubai, United Arab Emirates and is expected to be completed by the end of 2008."
Destination Resorts
Atlantis, Paradise Island
Atlantis, Paradise Island reported net revenue and EBITDA in the quarter of $124.9 million and $29.8 million, respectively, as compared to $108.0 million and $25.1 million, respectively, in the same period last year.
Atlantis's revenue per available room ("RevPAR") for the quarter was $163 as compared to $162 during the same period last year. In the quarter, Atlantis achieved an average occupancy of 71% as compared to 72% in the same quarter last year. In the quarter, the Company achieved a record fourth quarter average daily room rate ("ADR") of $229 as compared to $224 in the same period last year. Visitation to the property in the quarter rebounded well after a slow start in October due to Hurricane Wilma, which affected customer visits from southern Florida.
The increase in net revenue in the quarter was driven primarily by increases in food and beverage revenue and casino revenue of 23% and 22%, respectively. The growth in food and beverage revenue is primarily attributable to the July 2005 addition of the Marina Village at Atlantis, an approximately 75,000 square foot restaurant, retail and entertainment area next to the Marina at Atlantis that includes five new restaurants.
At the Atlantis Casino, slot win increased by 11% in the quarter over the same period last year. Table win increased by 26% over the same period last year. The Company experienced a lower table drop, which was more than offset by a higher table hold percentage, as compared to the same period last year.
Howard Karawan, President of the Company's Destination Resorts segment, commented, "We reported record results on Paradise Island in 2005. On a combined basis, Atlantis, Paradise Island and One&Only Ocean Club exceeded the $600 million gross revenue threshold for the first time, increasing 10% over last year."
Construction of the $730 million Phase III expansion ("Phase III") on Paradise Island is proceeding. Development of the 600-room, all-suite hotel, expanded water attractions and 100,000 square feet of additional group meeting space is well underway. Completion of these elements of Phase III is expected by April 2007.
The second phase ("Harborside Phase I-B") of Harborside at Atlantis ("Harborside"), a timeshare joint venture between the Company and a subsidiary of Starwood Hotels & Resorts Worldwide, Inc., which consists of 116 two- and three-bedroom units, was completed in August of 2005. Sales trends for Harborside Phase I-B have remained strong, and the project is now 37% sold. Including Harborside Phase I-B, the total number of keys at Harborside is 392. In 2005, the Company recorded $19.8 million in income from Harborside, which includes fee income and equity earnings of $3.7 million and $16.1 million, respectively.
Construction of the 88-unit Ocean Club Residences & Marina condominium joint venture project is proceeding well. The project was approximately 20% complete at the end of the quarter. The cost of this development, which is being financed primarily from pre-sales of units, is expected to be approximately $130 million. Demand for the units has been strong, with deposits on 59 units received by the joint venture since the units went on the market in May 2005. The project, which is comprised of four 22-unit buildings, is expected to be completed in stages between January and May of 2007. The Company accounts for this joint venture under the equity method of accounting.
The Company entered into a joint venture with Turnberry Associates to develop The Residences at Atlantis, a 495-unit condo-hotel project. Construction is expected to commence once the joint venture has received a sufficient level of reservations and financing for the development has been secured by the joint venture. The Company has consolidated The Residences at Atlantis in its financial statements pursuant to FASB Interpretation No. 46(R) ("FIN 46R"), "Consolidation of Variable Interest Entities." In the quarter, the Company recognized a net loss of $0.9 million, which is attributable mainly to its share of sales and marketing expenses and has been excluded from adjusted net income and adjusted net income per share.
Atlantis, The Palm, Dubai
The Company and Istithmar PJSC ("Istithmar") have formed a joint venture to develop Atlantis, The Palm, Dubai ("Atlantis, The Palm"), the Company's second Atlantis-branded resort, which will be situated at the center of the crescent of The Palm, Jumeirah on a 125-acre site. Phase I of this project is expected to include a 1,500-room five-star hotel, a 60-acre water park (over twice the size of the enhanced water park being developed in Phase III on Paradise Island), an entertainment village and other amenities. Once complete, this property is expected to be positioned as a leading attraction for Dubai and the anchor resort for The Palm, Jumeirah, a multi-billion dollar land reclamation project.
The development costs for Atlantis, The Palm are expected to be approximately $1.5 billion, including the cost of the 125-acre site, which the joint venture recently agreed to acquire. Construction of Atlantis, The Palm has recently commenced, with completion scheduled for late 2008. The joint venture anticipates it will utilize approximately 86 acres in Phase I, leaving approximately 39 acres available for future development. Additionally, the joint venture has secured the right to reclaim an additional 125 acres of adjacent land should it be required for future phases of development.
This joint venture's capital structure includes an equity investment of $200 million by each partner. The remaining project financing will comprise the existing $700 million senior first lien term loan facility, which is subject to various conditions, and an additional $275 million of second lien debt. Istithmar has committed to provide $75 million of the second lien debt. The joint venture has received a commitment, subject to various conditions, from third party underwriters for the remaining $200 million. The joint venture expects to enter into binding definitive documentation for this second lien financing by the end of the first quarter of this year.
The joint venture also expects to purchase the 125-acre site on which the property will be located from the developer of The Palm, Jumeirah in exchange for a $125 million payment-in-kind note that will be subordinated to the first and second lien debt.
The Company has a long-term management agreement with the joint venture and is acting as the development manager for the project. This management agreement entitles the Company to receive a base management fee based on the gross revenue generated by Atlantis, The Palm and an incentive management fee based on operating income. The base management fee is subordinated to the senior debt facilities.
The Company's investment in Atlantis, The Palm is accounted for under the equity method of accounting. In the quarter, the Company recorded an equity loss of $2.0 million, which is excluded from adjusted net income and adjusted net income per share. These losses are comprised primarily of the Company's share of pre-opening expenses for this project.
Morocco
In 2005, the Company entered into a joint venture agreement with Societe Maroc Emirates Arabs Unis de Developpement and Caisse de Depot et de Gestion, and into related development and long-term management agreements for the development and operation of a destination resort casino in Morocco, near Casablanca. Based on the current preliminary designs for the project, the budget is anticipated to be approximately $300 million.
As a result of the previously announced budget increase, the parties have worked together for several months to arrange debt and equity financing to fund the project. Although no assurances can be given at this time, the Company expects to reach agreement with its Moroccan partners on amended project documents and proceed with the project, subject to obtaining third party debt financing.
Gaming
Connecticut
For the fourth quarter, Mohegan Sun reported slot revenue of $216.2 million, up 4% over the same period last year. Slot win per unit per day was $379 for the quarter, a 4% increase over the same period last year. For the quarter, Mohegan Sun's share of the Connecticut slots market was 53%.
Under a relinquishment agreement between Trading Cove Associates ("TCA") and the Mohegan Tribe, 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. The Company recorded relinquishment and other fees from TCA of $10.1 million in the quarter as compared to $9.3 million in the same period last year.
BLB Investors, L.L.C.
The Company owns a 37.5% interest in BLB Investors, L.L.C. ("BLB"), a joint venture with Starwood Capital Group Global, L.L.C. and Waterford Group, L.L.C., and accounts for its investment in BLB under the equity method of accounting. On July 18, 2005, BLB completed a $464 million acquisition of the U.S. operations of Wembley plc ("Wembley"), which included the Lincoln Park racino in Rhode Island and three greyhound tracks and one horse racing track in Colorado. BLB's revenue and net income are driven primarily by Lincoln Park.
In the quarter, Lincoln Park reported net video lottery terminal (VLT) win of $84.2 million, an increase of 12% over the same period last year. Lincoln Park achieved net terminal win per unit per day in the quarter of $269. In the quarter, Lincoln Park recorded VLT revenue of $24.1 million, which represented Lincoln Park's approximate 29% share of VLT win.
BLB operates Lincoln Park under a master video lottery contract with the state of Rhode Island that was authorized by legislation passed by the Rhode Island General Assembly. This contract allows BLB to increase the number of VLTs at Lincoln Park to 4,752. As of December 31, 2005, Lincoln Park had 3,602 VLTs in operation, which included 600 VLTs that were added to the facility in the quarter as part of BLB's planned redevelopment of Lincoln Park.
The balance of the expansion project includes the redevelopment of the existing grandstand area and the construction of a new facility that is expected to house at least 1,750 VLTs. The new facility will be located adjacent to the current facility and will contain new restaurant and entertainment areas and VLTs, some of which will be repositioned from the current facility. Upon completion of the redevelopment, Lincoln Park is expected to have 4,752 VLT in operation.
Completion of the redevelopment project is expected in early 2007. Based on the most recent cost estimates, which indicate a significant rise in the total development costs of this project, the Company expects to make an additional equity investment in BLB of $10 million to $15 million to finance the Company's pro rata share of these additional costs.
In the quarter, the Company reported $0.4 million of equity earnings associated with its investment in BLB.
One&Only Resorts
The Company's luxury resort segment, One&Only Resorts, reported net revenue of $50.2 million and EBITDA of $15.9 million in the quarter compared to net revenue of $34.3 million and EBITDA of $8.6 million in the same period last year. On a combined basis for the branded resorts, One&Only Resorts produced RevPAR of $445 in the quarter, a 14% increase over the same period last year. On the same basis, One&Only Resorts achieved fourth quarter average occupancy and ADR of 79% and $560, respectively, as compared to occupancy and ADR of 78% and $500, respectively, in the same period last year. The primary contributors to the increases in net revenue and EBITDA during the quarter were the strong performance of One&Only Palmilla and the inclusion of the results of One&Only Maldives at Reethi Rah.
One&Only Palmilla had a strong fourth quarter, with RevPAR of $560, a 40% increase over the same period last year. The resort achieved fourth quarter average occupancy and ADR of 85% and $658, respectively, compared to average occupancy and ADR of 69% and $582, respectively, in the same period last year. EBITDA during the quarter was $5.1 million compared to $1.9 million in the same period last year.
In its second full quarter of operation, the 130-room One&Only Maldives at Reethi Rah performed well, with EBITDA of $3.3 million. RevPAR in the quarter was $508. The resort achieved fourth quarter average occupancy and ADR of 83% and $610, respectively.
Although the Company does not have any equity ownership interest in Reethi Rah Resort Pvt Ltd ("Reethi Rah"), the entity that owns and operates One&Only Maldives at Reethi Rah, the Company has determined that Reethi Rah is a variable interest entity that is subject to consolidation in accordance with the provisions of FIN 46R. The Company has agreements with Reethi Rah that provide for construction financing and operating loans, as well as management and development agreements. As of May 1, 2005, when the resort commenced operations, the Company became the primary beneficiary of Reethi Rah under FIN 46R, resulting in the consolidation of Reethi Rah's financial statements into the consolidated financial statements of the Company.
In the quarter, the Company recorded a net loss related to Reethi Rah of $1.4 million, which includes depreciation and interest expense of $2.9 million and $1.8 million, respectively. In the near term, the Company anticipates Reethi Rah will continue to incur net losses, and such losses will be reflected in the Company's results of operations. If Reethi Rah realizes net income in the future, the Company will be credited to the extent losses were previously absorbed by the Company on behalf of Reethi Rah.
One&Only Ocean Club achieved record fourth quarter RevPAR of $623, representing an 11% increase over the same period last year. In the quarter, the resort achieved average occupancy and record fourth quarter ADR of 79% and $786, respectively, compared to average occupancy and ADR of 80% and $702, respectively, in the same period last year. EBITDA at the property was $2.0 million during the quarter as compared to $2.2 million in the same period last year. The decrease in EBITDA is primarily due to the closure of one of the hotel's restaurants in the third quarter of 2005.
Liquidity
At December 31, 2005, the Company held $198.1 million in cash and cash equivalents, short-term investments and restricted cash. This amount consisted of $115.9 million in cash and cash equivalents, $20.0 million in short-term investments and $62.3 million in restricted cash. Restricted cash included $57.2 million of escrowed funds for the Company's equity investment in the joint venture developing Atlantis, The Palm.
Total interest-bearing debt at the end of the quarter was $797.2 million, comprised primarily of the Company's recently-issued $400 million of 6 3/4% Notes due 2015, $230 million of 2.375% Convertible Senior Subordinated Notes due 2024, as well as $110 million of financing related to the One&Only Palmilla and approximately $55.2 million of non-affiliated debt associated with Reethi Rah. The non-affiliated debt associated with One&Only Palmilla and Reethi Rah is consolidated under FIN 46R.
In the quarter, the Company amended its Revolving Credit Facility, increasing the availability under the facility from $500 million to $650 million and amending certain pricing and financial covenants. At the end of the quarter, the Company's Revolving Credit Facility was undrawn. 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 Reethi Rah and the 50%-owned One&Only Palmilla and The Residences at Atlantis are excluded.
In the quarter, the Company incurred $78.0 million in capital expenditures, related primarily to Paradise Island, including capitalized interest of $2.7 million. In the first quarter of 2006, the Company expects to spend between $90 million and $100 million on Paradise Island capital expenditures.
In the quarter, the Company invested $10.6 million in Atlantis, The Palm. The Company expects to invest approximately $15 million in the project in the first quarter of 2006. This investment will be sourced from the remaining escrowed funds, which are currently classified as restricted cash on the Company's consolidated balance sheet.
In the quarter, the Company closed on the acquisition of an additional seven and a half acres of beachfront property located at the eastern edge of Cabbage Beach adjoining Ocean Club Estates. The Company contributed this land into the Ocean Club Residences & Marina joint venture and will develop the site through the joint venture. The Company's share of the acquisition costs was $7.9 million.
As of December 31, 2005, shareholders' equity was $1,159.4 million and the Company had approximately 36.5 million Ordinary Shares outstanding. During the quarter, the Company did not repurchase any Ordinary Shares under its share repurchase program, which was authorized in the third quarter of 2005. The Company currently has approximately 1.4 million shares remaining under this program.
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Contact Information:
Kerzner International Resorts, Inc.
1000 South Pine Island Road
Plantation, FL 33324
Phone (954) 809-2000
Fax (954) 809-2337
Click for Website
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Kerzner International Limited is a leading developer and operator of premier casinos, resorts and luxury hotels. The Company's flagship destination is Atlantis, a 2,317-room, ocean-themed resort located on Paradise Island, The Bahamas. Atlantis is a unique destination casino 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. |
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