Atlantis, Paradise Island Achieves Record Net Revenue, EBITDA and REVPAR
-- DILUTED EPS OF $0.94 COMPARED TO $0.78 ACHIEVED LAST YEAR
-- ADJUSTED EPS OF $0.92 COMPARED TO $0.83 ACHIEVED LAST YEAR
-- ATLANTIS, PARADISE ISLAND ACHIEVES RECORD NET REVENUE, EBITDA AND REVPAR
-- KERZNER IMPROVES BALANCE SHEET THROUGH ISSUANCE OF ORDINARY SHARES
-- KERZNER ENTERS INTO A $500 MILLION AMENDED REVOLVING CREDIT FACILITY
Kerzner International Limited (NYSE:KZL) (the "Company"), a leading international developer and operator of destination resorts, casinos and luxury hotels, today reported results for the second quarter of 2004. The Company reported net income in the quarter of $30.1 million, compared to net income of $22.8 million in the same period last year, resulting in diluted net income per share of $0.94 compared to $0.78 in the same period last year. Adjusted net income for the quarter was $29.7 million compared to $24.3 million in the same period last year. Adjusted net income per share in the quarter was $0.92 compared to $0.83 in the same period last year.
Butch Kerzner, Chief Executive Officer of the Company, commented, "I am pleased to report record second quarter levels of adjusted net income and adjusted net income per share of $29.7 million and $0.92, respectively, representing 22% and 11% increases over the same period last year. Atlantis, Paradise Island's strong performance drove these record results, as the property achieved an increase in RevPAR of 6%. Inclusive of the One&Only Ocean Club, the Paradise Island properties achieved EBITDA of $50.6 million, marking the first time the property exceeded the $50 million level in the second quarter."
Since the Company's last earnings release, the Company has announced the following:
-- The Company has secured three regional casino development projects in the United Kingdom. In the event that the British government passes gaming reform legislation, the Company will develop approximately $1.0 billion of new projects in London, Glasgow and East Manchester.
-- The scope of Atlantis, The Palm was increased from 1,000 to 2,000 rooms to capitalize on Dubai's strong tourism trends. The estimated development cost has been increased from $650 million to $1.1 billion. The Company will increase its equity commitment from $60 million to $100 million.
-- The Company will develop and manage a new $230 million destination casino in Morocco. The Company, along with local partners, negotiated an agreement with the Government of the Kingdom of Morocco granting it the exclusive rights to develop and operate the only casino within a territory that includes the cities of Casablanca and Rabat.
-- The Company agreed to sell 3.0 million Ordinary Shares at a price of $51.25 to Istithmar PJSC ("Istithmar"), the Company's joint venture partner in Dubai with respect to the development of Atlantis, The Palm. The Company expects to realize gross proceeds of $153.8 million in the third quarter of this year upon the closing of this transaction.
Destination Resorts
Atlantis, Paradise Island
Atlantis, Paradise Island reported net revenue and EBITDA in the quarter of $140.7 million and $49.6 million, respectively, as compared to $134.2 million and $42.4 million in the same period last year. Strong hotel operating trends drove these record results.
Atlantis's revenue per available room ("RevPAR") for the quarter was $243 as compared to $229, representing a 6% increase over the same period last year. In the quarter, Atlantis achieved an average occupancy of 89% and a $273 average daily room rate ("ADR"), which compared to an average occupancy of 85% and an ADR of $268 in the same period last year.
In the Atlantis Casino, the largest casino in the Caribbean market, table drop in the second quarter declined by 11% over the same period last year, as certain high end players changed the timing of their visits from the second quarter to the first. Overall, trends in the casino for the first six months of 2004 were comparatively better than last year, with table drop increasing by 7% over the same period last year. For the quarter, slot volume increased by 13% over the same period last year; however, slot win decreased by 4% as a result of a lower slot hold due to a different mix of machines.
As part of the Company's Phase III expansion, the Company commenced construction of the Marina Village, a 65,000 square foot project, which includes four new restaurants and retail space around the Atlantis Marina. This new project is expected to be an attractive destination for all visitors to Nassau and Paradise Island. The Company also commenced construction of a second phase of the timeshare development at Atlantis, a joint venture between the Company and a subsidiary of Starwood Hotels & Resorts Worldwide, Inc. The first phase of the timeshare development at Atlantis is approximately 98% sold and the second phase will add approximately 116 two-bedroom suites. These two development projects are expected to be completed by the fourth quarter of 2005.
Additional elements of the Phase III expansion include 1,500 new hotel rooms, a significant increase to Atlantis's existing water-themed attractions, 100,000 square feet of additional convention and meeting facilities and an 18-hole golf course on nearby Athol Island, which lies just east of Paradise Island. Architectural and development planning for these projects has progressed, and the Company expects to commence construction later this year, with a completion date targeted for Christmas 2006 (exclusive of the third phase of the timeshare development at Atlantis). The Company has until December 31, 2004 to determine in its discretion not to proceed or to proceed only partially with the Phase III expansion. 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
In June, the Company and its joint venture partner, Istithmar, announced that they had entered into an agreement enabling the parties to increase the scope of Atlantis, The Palm. This agreement will allow the joint venture to capitalize on both Dubai's strong demand for tourism and the Government of Dubai's focus on creating tourist attractions. The revised development plan expects to utilize most of the 120-acre site that lies on The Palm, Jumeirah. Specifically, the number of hotel rooms will be increased through the addition of a second 800-room tower, which will bring the total number of rooms to 2,000. The scale of the marine and entertainment attractions will also be increased. The development costs will rise from the previously announced $650 million to an estimated $1.1 billion. In addition, the Company's equity commitment to this project will increase from $60 million to $100 million with respect to the joint venture's total equity capital of $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 over the development period.
Development planning is underway in anticipation of construction, which is projected to commence in 2005 and be completed by late 2007. This project is subject to various closing conditions, including obtaining financing and all requisite governmental consents.
Gaming
Connecticut
In the quarter, results for the Company's Gaming segment were substantially derived from Mohegan Sun, which reported record second quarter slot revenue of $208.7 million, an increase of 5% over the same period last year. Slot win per unit per day was $367 for the quarter, a 2% increase over the same period last year. In the quarter, Mohegan Sun increased its leading share of the Connecticut slots market to 52% from the 49% share it achieved in the same period last year.
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. The Company recorded income from TCA of $9.0 million in the quarter as compared to the $8.8 million earned in the same period last year.
United Kingdom
In July, the Company announced that it had entered into a binding agreement with affiliates of Anschutz Entertainment Group for the development and operation of a casino and hotel resort facility at the Millennium Dome in London. The Company also announced that it has been appointed the preferred developer with respect to the development and management of gaming, hotel and entertainment facilities in two key markets in the United Kingdom. The proposed sites for these projects are the Scottish Exhibition + Conference Centre in Glasgow and Sportcity in East Manchester. Over the course of the next several months, the Company expects to conclude binding agreements for both of these projects.
These three proposed developments, which are subject to the passage of gaming reform legislation in the U.K., are expected to meet the 'Resort' or 'Regional Casino' criteria defined by the Department of Culture, Media and Sport and the Parliamentary Joint Committee, which recently reviewed the draft Gambling Bill. The three developments are subject to certain conditions, including the receipt of applicable regulatory, municipal, regional and/or other approvals. If all of the necessary conditions are satisfied by 2005, the Company expects that these development projects will be completed during 2007. In connection with each project, the Company will be responsible for the financing, development and operation of a casino and hotel. The Company estimates the aggregate cost of developing these facilities at approximately $1 billion.
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 and race tracks in the United Kingdom, had lapsed. BLB is a joint venture with the Company and affiliates of Starwood Capital Group, L.L.C. and Waterford Group, L.L.C. that was formed for the purpose of acquiring the outstanding shares of Wembley. BLB is a 22.2% shareholder of Wembley and is committed to working with Wembley to maximize shareholder value. The Company is a 37.5% owner of BLB. In the quarter, the Company recorded an equity loss in BLB of $1.1 million and incurred $0.4 million in related expenses. The Company expects to record an additional $3.5 million equity loss related to its share of transaction costs in the third quarter.
Morocco
In July, the Company, along with two local Moroccan partners, Societe Maroc Emirates Arabs Unis de Developpement ("SOMED") and Caisse de Depot et de Gestion ("CDG"), announced an agreement with the Government of the Kingdom of Morocco for the development of a destination resort casino. As part of this agreement with the Government, the Company and its local partners have negotiated exclusive rights to conduct gaming operations within a territory that includes the cities of Casablanca and Rabat, an area with a combined population of nearly 5 million. This agreement provides for a 15-year period of exclusivity, which commences once construction of the project is complete. In addition, the Company, SOMED and CDG have entered into a binding agreement with respect to the ownership, development and management of this resort.
The cost of the project is estimated at $230 million and is expected to consist of a 600-room hotel, an 18-hole golf course, convention space, restaurants and a casino. The Company will own a 50% interest in this project, requiring the Company to commit up to $47 million. SOMED and CDG will provide the majority of the remaining equity requirement. While the Company has the right to reduce its initial equity interest in the project, it has undertaken to hold at least a 34% equity interest in the project. The balance of the required financing is expected to be raised in the local Moroccan debt markets. The Company expects to commence construction in 2005 and complete the project during 2007. The development of this project is subject to obtaining financing as well as certain other conditions, including the receipt of all applicable regulatory, municipal, regional and other approvals.
One&Only Resorts
In its One&Only Resorts segment, the Company reported net revenue and EBITDA of $26.5 million and $2.1 million, respectively, in the quarter compared to $14.3 million and $1.5 million in the same period last year. Results in the quarter include $9.9 million and $0.7 million of net revenue and EBITDA, 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, the property that is the largest contributor to the One&Only Resorts segment, continued to show growth. The resort achieved an average occupancy of 81% and an ADR of $782 in the quarter compared to an average occupancy of 81% and an ADR of $764, and posted its ninth consecutive quarter of record RevPAR, in each case compared to the same prior year quarter. Future results are expected to benefit from the addition of three new luxury villas, which opened at the end of June 2004. In the quarter, the Company recorded $0.4 million in pre-opening expenses related to this expansion at the Ocean Club.
Income Taxes
In the quarter, the Company recognized income tax expense of $0.3 million, which represents federal, state and foreign income tax expense, net of the release of a portion of the valuation allowance on deferred tax assets. In the quarter, the Company paid cash taxes of approximately $1.7 million, most of which represents payments of Connecticut state income taxes.
Liquidity
The Company executed the following financing initiatives to strengthen its capital structure:
-- An agreement to sell 3.0 million Ordinary Shares at a price of $51.25 per share to Istithmar. The Company expects to realize gross proceeds of $153.8 million upon the closing of this transaction in the third quarter. As a part of Istithmar's overall proposed investment in the Company, Istithmar also entered into agreements with two of the Company's shareholders to purchase an aggregate of 1.5 million Ordinary Shares at $47.50 per share. These secondary sales would close simultaneously with Istithmar's proposed purchase of primary shares from the Company. Accordingly, the average price per share to be paid by Istithmar for its proposed aggregate acquisition of 4.5 million Ordinary Shares is $50.
-- An offering in The Bahamas of approximately 0.4 million Ordinary Shares that resulted in net proceeds of approximately $19.1 million.
-- An increase in the capacity of the Company's Revolving Credit Facility from $253.5 million to $500.0 million.
-- An issuance of $230 million of 2.375% Convertible Senior Subordinated Notes due 2024.
At the end of the quarter, the Company held $260.8 million in cash and cash equivalents, short-term investments and restricted cash. This amount consisted of $180.6 million in cash and cash equivalents, $74.7 million in short-term investments and $5.5 million in restricted cash. Total interest-bearing debt at the end of the quarter was $717.3 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 amounts include cash and cash equivalents of $8.0 million, including $4.0 million of restricted cash, and total debt of $86.2 million associated with the One&Only Palmilla. Interest expense in the quarter also includes $1.2 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 is excluded.
In the quarter, the Company incurred $26.8 million in capital expenditures, comprised mainly of Paradise Island-related expenditures and $3.1 million from the One&Only Palmilla. Total capital expenditures included capitalized interest of $2.1 million. In the third quarter of 2004, the Company anticipates it will spend between $30 million and $35 million in capital expenditures, mainly on Paradise Island.
During the quarter, the Company invested $34.2 million in BLB-related entities, which was used in part by BLB to complete the acquisition of its 22.2% equity interest in Wembley and also to increase the Company's investment in BLB from 25% to 37.5%. At the end of the quarter, the Company's total investment in BLB was $47.2 million.
In the quarter, the Company advanced $19.0 million in the form of mezzanine financing related to the development of the One&Only Reethi Rah, the Company's second luxury resort in the Maldives.
As of June 30, 2004, shareholders' equity was $939.5 million and the Company had approximately 31.7 million Ordinary Shares outstanding.
Logos, product and company names mentioned are the property of their respective owners.
