Kerzner Announces Fourth Quarter Results
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Kerzner Announces Fourth Quarter Results
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Category: Worldwide
This is a press release selected by our editorial committee and published online for free on 2006-02-13
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.
Conference Call Announcement
The Company will hold a conference call at 9:00 a.m. EST today to discuss these fourth quarter results. This call can be accessed at the Company's web site at www.kerzner.com. The call will also be available on a first-come, first-serve basis by dialing 877.371.3550 (US/Canada) or 706.679.0864 (international).
Replay of the conference call will be available beginning today at 1:00 p.m. EST, ending at midnight on February 20, 2006. The replay numbers are 800.642.1687 (US/Canada) and 706.645.9291 (international) using the following PIN Number: 4925268.
About The Company
Kerzner International Limited (NYSE: KZL), through its subsidiaries, 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 - a unique property featuring three interconnected hotel towers built around a seven-acre lagoon and a 34-acre marine environment that includes the world's largest open-air marine habitat. The resort is also home to the largest casino in the Caribbean. Development of a major expansion on Paradise Island is currently underway and will include a 600-room, all-suite luxury hotel and a significant enhancement of Atlantis's water-based attractions. Certain parts of this expansion have already opened, including the Marina Village at Atlantis, with the remaining elements expected to open by the second quarter of 2007. The Company is extending its Atlantis brand globally with the development of Atlantis, The Palm, Dubai, an approximately 1,500-room, water-themed resort expected to open in late 2008, currently being constructed on The Palm, Jumeirah, a multi-billion dollar leisure and residential development in Dubai. In its gaming segment, the Company 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. The Company is also a 37.5% owner of BLB Investors, L.L.C., which owns Lincoln Park in Rhode Island and pari-mutuel racing facilities in Colorado. In the U.K., the Company is currently developing a casino in Northampton and received a Certificate of Consent from the U.K. Gaming Board in 2004. In its luxury resort hotel business, the Company manages ten 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. An additional One&Only property is currently in the planning stages in South Africa. For more information concerning the Company and its operating subsidiaries, visit www.kerzner.com.
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.
Investor inquiries regarding the Company should be directed to Omar Palacios at +1.242.363.6018. Media inquiries should be directed to Lauren Snyder at +1.242.363.6018.
Condensed Consolidated Statements of Operations, Reconciliation of Adjusted Net Income to GAAP Net Income (Loss), Reconciliation of EBITDA to U.S. GAAP Net Income, Summary Segment Data - Net Revenue, Summary Segment Data - EBITDA and Hotel Operating Performance Data are attached.
Kerzner International Limited
Condensed Consolidated Statements of Operations
(In thousands of U.S. dollars, except per share data)
For the Three Months For the Year
Ended December 31, Ended December 31,
------------------- -------------------
2005 2004 2005 2004
--------- --------- --------- ---------
(Unaudited) (Unaudited)
Revenues:
Casino and resort revenues $160,084 $129,302 $666,824 $573,251
Less: promotional
allowances (6,034) (5,749) (24,239) (23,034)
--------- --------- --------- ---------
Net casino and resort
revenues 154,050 123,553 642,585 550,217
Tour operations 14,373 11,975 54,524 47,115
Management, development and
other fees 7,294 7,104 19,355 19,894
Other 1,183 919 5,060 3,859
--------- --------- --------- ---------
176,900 143,551 721,524 621,085
--------- --------- --------- ---------
Costs and expenses:
Casino and resort expenses 88,257 73,600 345,138 299,680
Tour operations 12,469 10,429 46,003 39,994
Selling, general and
administrative 38,901 26,848 136,808 118,334
Corporate expenses 11,810 11,850 43,219 38,601
Depreciation and
amortization 21,047 14,550 73,292 58,948
Hurricane related expenses - - - 3,426
Pre-opening expenses 3,341 - 7,975 3,258
UK gaming write-off - - 10,529 -
Loss on damaged assets - - - 1,194
(Gain on sale) impairment
of Atlantic City land (132) - (1,433) 7,303
Impairment of notes
receivable - - 28,139 -
--------- --------- --------- ---------
175,693 137,277 689,670 570,738
--------- --------- --------- ---------
Income from operations 1,207 6,274 31,854 50,347
Relinquishment fees - equity
in earnings of TCA 9,595 9,076 37,882 35,909
Other income (expense):
Interest income 1,900 1,890 9,130 4,722
Interest expense, net of
capitalization (11,505) (10,217) (44,087) (36,814)
Equity in earnings of
associated companies 5,316 770 20,523 7,455
Loss on early
extinguishment of debt (129) (1,655) (27,912) (1,655)
Other, net 3 723 13 1,358
--------- --------- --------- ---------
Other expense, net (4,415) (8,489) (42,333) (24,934)
Income before provision for
income taxes and minority
and noncontrolling interests 6,387 6,861 27,403 61,322
Benefit (provision) for income
taxes 175 1,049 16,104 (424)
Minority and noncontrolling
interests 580 460 7,141 7,234
--------- --------- --------- ---------
Net income $7,142 $8,370 $50,648 $68,132
========= ========= ========= =========
Diluted earnings per share $0.19 $0.23 $1.34 $2.01
========= ========= ========= =========
Weighted average number of
shares outstanding - diluted 37,825 36,812 37,667 33,884
Kerzner International Limited
Reconciliation of Adjusted Net Income to U.S. GAAP Net Income
(In thousands of U.S. dollars except per share data)
(Unaudited)
For the Three Months
Ended December 31,
----------------------------------
2005 2004
------------------ ---------------
$ EPS $ EPS
-------- -------- ------- -------
Adjusted net income (1) $13,242 $ 0.35 $9,698 $ 0.26
Phase III amendment write-off (2) - - (500) (0.01)
Hurricane related expenses (3) - - - -
Pre-opening expenses (4) (5,241) (0.14) - -
UK gaming write-off (5) - - - -
Gain on sale (impairment) of
Atlantic City land (6) 132 - - -
Impairment of notes receivable (7) - - - -
BLB transaction (costs) gain (8) - - - -
Costs of amendment of credit
facility (9) (856) (0.02) - -
Share of income from remediation
at Harborside (10) - - - -
Real estate (loss) income (11) (6) - - -
Loss on early extinguishment
of debt, net of minority
interest (12) (129) - (828) (0.02)
Tax benefit related to debt
refinancing (13) - - - -
-------- ------- ------- -------
Net income $ 7,142 $ 0.19 $8,370 $ 0.23
======== ======= ======= =======
For the Year
Ended December 31,
----------------------------------
2005 2004
----------------- ----------------
$ EPS $ EPS
--------- ------- -------- -------
Adjusted net income (1) $109,982 $ 2.92 $83,565 $ 2.47
Phase III amendment write-off (2) - - (500) (0.01)
Hurricane related expenses (3) - - (4,620) (0.14)
Pre-opening expenses (4) (10,036) (0.27) (1,827) (0.06)
UK gaming write-off (5) (10,529) (0.28) - -
Gain on sale (impairment) of
Atlantic City land (6) 1,433 0.04 (7,303) (0.22)
Impairment of notes receivable (7) (28,139) (0.75) - -
BLB transaction (costs) gain (8) 888 0.02 (4,399) (0.13)
Costs of amendment of credit
facility (9) (856) (0.02) - -
Share of income from remediation
at Harborside (10) - - 4,044 0.12
Real estate (loss) income (11) 124 - - -
Loss on early extinguishment
of debt, net of minority
interest (12) (27,912) (0.74) (828) (0.02)
Tax benefit related to debt
refinancing (13) 15,693 0.42 - -
--------- ------- -------- -------
Net income $ 50,648 $ 1.34 $68,132 $ 2.01
========= ======= ======== =======
(1) Adjusted net income is defined as net income before Phase III
amendment write-off, hurricane related expenses, pre-opening
expenses, UK gaming write-off, gain on sale (impairment) of
Atlantic City land, impairment of notes receivable, BLB
transaction (costs) gain, costs of amendment of credit facility,
share of income from remediation at Harborside, real estate (loss)
income, loss on early extinguishment of debt, net of minority
interest and tax benefit related to debt refinancing.
Adjusted net income is presented to assist investors in analyzing
the performance of the Company. Management considers adjusted net
income to be useful for (i) valuing companies; (ii) assessing
current results; and (iii) basing expectations of future results.
This information should not be considered as an alternative to net
income computed in accordance with accounting principles generally
accepted in the United States ("U.S. GAAP"), nor should it be
considered as an indicator of the overall financial performance of
the Company. Adjusted net income is limited by the fact that
companies may not necessarily compute it in the same manner,
thereby making this measure less useful than net income calculated
in accordance with U.S. GAAP.
(2) In December 2004, the Company amended the scope of the Phase
III expansion on Paradise Island. The Phase III amendment
write-off represents certain design and other related costs
previously incurred that will no longer be utilized in connection
with the amended plans. The Phase III amendment write-off costs
are included within casino and resort expenses in the accompanying
condensed consolidated statements of operations.
(3) Hurricane related expenses primarily consist of clean up and
repair costs and complimentary goods and services to guests
associated with Hurricane Frances at the Company's Paradise Island
properties and the write-off of assets damaged during Hurricane
Frances.
(4) Pre-opening expenses for the quarter and year ended December
31, 2005 include costs incurred relating to the Phase III
expansion on Paradise Island of $3.0 million and $7.7 million,
respectively. Pre-opening expenses for the quarter and year ended
December 31, 2005 also include $0.3 million of costs incurred, net
of minority interest relating to a November 2005 launch event at
One&Only Maldives at Reethi Rah. Also included in pre-opening
expenses for the quarter and year ended December 31, 2005 are
costs incurred relating to Atlantis, The Palm of $2.0 million and
$2.1 million, respectively, which are included as equity in
earnings of associated companies in the accompanying condensed
consolidated statements of operations. Pre-opening expenses for
the year ended December 31, 2004 represent costs incurred prior to
the June 2004 opening of the One&Only Ocean Club expansion and the
Company's 50% share of pre-opening expenses related to One&Only
Palmilla's grand reopening event in February 2004.
(5) UK gaming write-off relates to all capitalized and deferred
costs incurred for the planning and development of all of the
Company's proposed gaming projects in the United Kingdom
(excluding costs associated with the Northampton project) that
were expensed due to the passage of gaming reform legislation in
April 2005 that was less favorable than the Company had previously
anticipated.
(6) During the year ended December 31, 2005, the Company completed
the sale of a portion of its Atlantic City land, for which it had
previously recorded an impairment charge, as well as two
additional ancillary pieces of land, all of which resulted in a
total gain of $1.4 million. During the year ended December 31,
2004, the Company recorded an impairment of $7.3 million to
certain of its undeveloped real estate in Atlantic City based on
its estimated fair value less costs to sell. This amount excludes
a $2.9 million tax benefit that the Company realized during the
year as a result of this impairment charge.
(7) For the year ended December 31, 2005, the Company recorded an
impairment of its subordinated notes receivable due from Reethi
Rah, the entity which owns One&Only Maldives at Reethi Rah, after
obtaining a third party valuation firm's appraisal of the resort
in connection with the consolidation of Reethi Rah under FIN 46R.
(8) For the year ended December 31, 2005, the Company recorded
income for its share of BLB's gain associated with Wembley's
repurchase of BLB's share ownership in Wembley effective on the
date of acquisition. This amount is included within equity in
earnings of associated companies in the accompanying condensed
consolidated statements of operations. For the year ended December
31, 2004, the Company recorded $4.4 million in equity loss and
related expenses associated with its 37.5% investment in BLB.
These losses are related to the Company's share of transaction
costs incurred in connection with BLB's intended acquisition of
Wembley in 2004. Additionally, these amounts include $0.4 million
in related foreign currency exchange losses for year ended
December 31, 2004. The foreign currency exchange losses are
included within corporate expenses in the accompanying condensed
consolidated statements of operations.
(9) During the quarter ended December 31, 2005, the Company
amended its revolving credit facility and wrote off $0.9 million
of debt issuance costs associated with its previous credit
facility. This amount is included within interest expense, net of
capitalization in the accompanying condensed consolidated
statements of operations.
(10) The Company recorded income for its share of remediation
related to Harborside at Atlantis, the Company's 50%-owned
timeshare property at Atlantis, Paradise Island, arising
primarily from Hurricane Michelle related damages incurred in
November 2001. In the second quarter of 2004, the Company
recorded its share of an insurance recovery realized by
Harborside related to a partial settlement of the Harborside
remediation claim, which was recorded net of remediation costs
incurred. These amounts are included in equity in earnings of
associated companies in the accompanying condensed consolidated
statements of operations.
(11) For the year ended December 31, 2005, real estate (loss)
income includes a loss of $1.7 million, net of minority interest,
associated with The Residences at Atlantis and equity in earnings
of $1.8 million associated with the Ocean Club Residences &
Marina, two of the Company's joint venture real estate-related
projects on Paradise Island.
(12) For the year ended December 31, 2005, loss on early
extinguishment of debt represents costs associated with the
September 2005 tender for the Company's 8 7/8% Senior
Subordinated Notes. For the year ended December 31, 2004, loss on
early extinguishment of debt, net of minority interest represents
the Company's 50% share of the write-off of debt issuance costs
related to One&Only Palmilla's senior credit facility, which was
refinanced in December 2004.
(13) For the year ended December 31, 2005, the Company realized a
tax benefit of $15.7 million related to the refinancing of its 8
7/8% Senior Subordinated Notes.
Kerzner International Limited
Reconciliation of EBITDA to U.S. GAAP Net Income
(In thousands of U.S. dollars)
(Unaudited)
For the Three Months For the Year
Ended December 31, Ended December 31,
------------------- -------------------
2005 2004 2005 2004
--------- --------- --------- ---------
EBITDA (1) $ 43,285 $ 31,170 $211,559 $168,695
Phase III amendment write-off - (500) - (500)
Depreciation and amortization (21,047) (14,550) (73,292) (58,948)
Hurricane related expenses - - - (3,426)
Pre-opening expenses (5,298) - (10,093) (3,258)
UK gaming write-off - - (10,529) -
Loss on damaged assets - - - (1,194)
Gain on sale (impairment) of
Atlantic City land 132 - 1,433 (7,303)
Impairment of notes receivable - - (28,139) -
Other expense, net (4,415) (8,489) (42,333) (24,934)
Equity in earnings of
associated companies (5,316) (770) (20,523) (7,455)
BLB transaction (costs) gain - - 888 (4,399)
Share of income from
remediation at Harborside - - - 4,044
Real estate income (954) - (1,568) -
Benefit (provision) for income
taxes 175 1,049 16,104 (424)
Minority and noncontrolling
interests 580 460 7,141 7,234
--------- --------- --------- ---------
Net income $ 7,142 $ 8,370 $ 50,648 $ 68,132
========= ========= ========= =========
(1) EBITDA is defined as net income before Phase III amendment
write-off, depreciation and amortization, hurricane related
expenses, pre-opening expenses, UK gaming write-off, loss on
damaged assets, gain on sale (impairment) of Atlantic City land,
impairment of notes receivable, other expense, net (excluding
equity in earnings of associated companies before BLB transaction
(costs) gain, share of income from remediation at Harborside,
equity in earnings of Ocean Club Residences & Marina and the
Company's share of Atlantis, The Palm, One&Only Palmilla and
One&Only Maldives at Reethi Rah pre-opening expenses), real estate
income, benefit (provision) for income taxes and minority and
noncontrolling interests.
Although EBITDA is not a measure of performance under U.S. GAAP,
the information is presented because management believes it
provides useful information for (i) valuing companies; (ii)
assessing current results; and (iii) basing expectations of future
results. This information should not be considered as an
alternative to any measure of performance as promulgated under
U.S. GAAP, nor should it be considered as an indicator of the
overall financial performance of the Company. The Company's method
of calculating EBITDA may be different from the calculation used
by other companies, therefore comparability may be limited.
Kerzner International Limited
Summary Segment Data - Net Revenue
(In thousands of U.S. dollars)
(Unaudited)
For the Three Months For the Year
Ended December 31, Ended December 31,
------------------- ------------------
2005 2004 2005 2004
--------- -------- -------- --------
Destination Resorts (1):
Atlantis, Paradise Island
Rooms $ 34,406 $ 34,168 $185,268 $174,093
Casino 37,294 31,347 146,010 130,879
Food and beverage 33,654 27,307 141,890 127,633
Other 17,508 14,911 68,669 65,040
-------- -------- -------- --------
122,862 107,733 541,837 497,645
Promotional allowances (6,034) (5,749) (24,239) (23,034)
-------- -------- -------- --------
116,828 101,984 517,598 474,611
Tour operations 7,421 5,251 35,025 26,564
Harborside fees 612 725 3,655 2,826
-------- -------- -------- --------
124,861 107,960 556,278 504,001
Atlantis, The Palm
development fees 161 165 496 380
-------- -------- -------- --------
125,022 108,125 556,774 504,381
-------- -------- -------- --------
Gaming:
Connecticut fees 460 233 926 935
-------- -------- -------- --------
One&Only Resorts:
One&Only Ocean Club 9,574 9,660 43,237 37,731
One&Only Palmilla 17,218 11,909 63,565 37,875
One&Only Maldives at
Reethi Rah 10,430 - 18,185 -
Other resorts (2) 6,061 5,981 14,278 15,753
Tour operations 6,952 6,724 19,499 20,551
-------- -------- -------- --------
50,235 34,274 158,764 111,910
-------- -------- -------- --------
Other (3) 1,183 919 5,060 3,859
-------- -------- -------- --------
$176,900 $143,551 $721,524 $621,085
======== ======== ======== ========
(1) Includes revenue from Atlantis, Paradise Island, Ocean Club
Golf Course, the Company's wholly-owned tour operator, PIV, Inc.,
marketing and development fee income from Harborside and
development fee income from Atlantis, The Palm.
(2) Includes management, marketing and development fees from the
Company's One&Only Resorts properties located in Mauritius, Dubai
and the Maldives.
(3) Includes revenue not directly attributable to Destination
Resorts, Gaming or One&Only Resorts. Relinquishment fees - equity
in earnings of TCA related to our Gaming segment are included as a
separate component outside of income from operations in the
accompanying condensed consolidated statements of operations.
Kerzner International Limited
Summary Segment Data - EBITDA
(In thousands of U.S. dollars)
(Unaudited)
For the Three Months For the Year
Ended December 31, Ended December 31,
------------------- -------------------
2005 2004(3) 2005 2004(3)
--------- --------- --------- ---------
Destination Resorts:
Atlantis, Paradise
Island $ 24,947 $ 25,037 $156,937 $140,175
Tour operations 1,021 980 7,064 5,921
Harborside fees 612 725 3,655 2,826
Harborside equity
earnings 3,219 (1,617) 16,106 2,607
-------- -------- -------- --------
29,799 25,125 183,762 151,529
Atlantis, The Palm 146 149 452 346
-------- -------- -------- --------
29,945 25,274 184,214 151,875
-------- -------- -------- --------
Gaming:
Connecticut 10,054 9,308 38,808 36,843
United Kingdom (1,148) (1,296) (4,810) (2,559)
BLB 363 (34) 1,085 989
Other equity losses (207) (303) (983) (947)
-------- -------- -------- --------
9,062 7,675 34,100 34,326
-------- -------- -------- --------
One&Only Resorts:
One&Only Ocean Club 1,969 2,196 12,341 9,894
One&Only Palmilla 5,110 1,865 20,126 1,566
One&Only Maldives at
Reethi Rah 3,304 - (791) -
Other resorts (1) 6,061 5,981 14,278 15,753
Tour operations 768 575 1,305 1,155
Direct expenses (4,303) (4,763) (14,009) (16,499)
Other equity earnings 2,969 2,728 3,813 4,737
-------- -------- -------- --------
15,878 8,582 37,063 16,606
-------- -------- -------- --------
Corporate and other (2) (11,600) (10,361) (43,818) (34,112)
-------- -------- -------- --------
$ 43,285 $ 31,170 $211,559 $168,695
======== ======== ======== ========
See definition and management's disclosure regarding EBITDA in the
accompanying reconciliation of EBITDA to U.S. GAAP net income.
(1) Consists of management, marketing, development and other fees
for operations located in Mauritius, Dubai and the Maldives.
(2) Corporate and other represents corporate expenses not directly
attributable to Destination Resorts, Gaming or One&Only Resorts.
(3) Certain amounts for the 2004 periods have been reclassified to
conform to the current periods' presentation.
Kerzner International Limited
Hotel Operating Performance Data
(Unaudited)
For the Three Months For the Year
Ended December 31, Ended December 31,
--------------------- ---------------------
2005 2004 2005 2004
--------- ---------- -------- -----------
Atlantis, Paradise
Island:
Occupancy 71% 72% 81% 80%
ADR (1) $229 $224 $272 $257
RevPAR (2) $163 $162 $221 $207
One&Only Resorts (3):
Occupancy 79% 78% 78% 77%
ADR (1) $560 $500 $462 $403
RevPAR (2) $445 $391 $359 $311
One&Only Ocean Club:
Occupancy 79% 80% 82% 79%
ADR (1) $786 $702 $869 $762
RevPAR (2) $623 $563 $712 $600
One&Only Palmilla:
Occupancy 85% 69% 86% 61%
ADR (1) $658 $582 $606 $500
RevPAR (2) $560 $399 $523 $304
One&Only Maldives at
Reethi Rah (4):
Occupancy 83% - 72% -
ADR (1) $610 - $436 -
RevPAR (2) $508 - $313 -
Management believes that the results of operations in the destination
resort and luxury hotel industry are best explained by three key
performance measures; occupancy, average daily rate ("ADR") and
revenue per available room ("RevPAR"). These measures are influenced
by a variety of factors including national, regional and local
economic conditions, changes in travel patterns and the degree of
competition with other destination resorts, luxury hotels and product
offerings within the travel and leisure industry. The demand for
accommodations at our resorts may also be affected by normal recurring
seasonal patterns.
(1) ADR represents room revenue divided by the total number of
room nights occupied.
(2) RevPAR represents room revenue divided by the total number of
room nights available.
(3) One&Only Resorts represents the consolidated results of the
seven properties that the Company markets under its One&Only
brand: One&Only Ocean Club, One&Only Palmilla, One&Only Le Saint
Geran, One&Only Le Touessrok, One&Only Kanuhura, One&Only Maldives
at Reethi Rah and One&Only Royal Mirage.
(4) Hotel operating performance data for One&Only Maldives at
Reethi Rah for the year ended December 31, 2005 represents the
period from May 1, 2005 (date of opening) through December 31,
2005.
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