Kerzner (NYSE:KZL)
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Kerzner International Limited (NYSE: KZL):
-- 2005 SECOND QUARTER DILUTED EPS OF $0.28 COMPARED TO $0.94
ACHIEVED LAST YEAR
-- 2005 SECOND QUARTER ADJUSTED EPS OF $0.98 COMPARED TO $0.92
ACHIEVED LAST YEAR
-- PARADISE ISLAND ACHIEVES RECORD SECOND QUARTER EBITDA
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 2005. The Company reported net income in the quarter of
$10.5 million compared to net income of $30.1 million in the same
period last year, resulting in diluted net income per share of $0.28
compared to diluted net income per share of $0.94 in the same period
last year.
Adjusted net income in the quarter was $37.0 million compared to
$29.7 million in the same period last year. Adjusted net income per
share in the quarter was $0.98 compared to $0.92 in the same period
last year. Adjusted earnings per share primarily excludes $25.0
million, or approximately $0.67 per share, attributable to an
impairment charge against the Company's subordinated notes receivable
from the entity that owns the One&Only Maldives at Reethi Rah Island.
Adjusted net income also excludes $1.4 million of pre-opening
expenses, most of which is associated with the opening of Marina
Village at Atlantis ("Marina Village"). Adjusted net income includes a
$4.8 million, or $0.13 per share, provision that the Company has taken
to reflect a new claim from a supplier with respect to a period
covering the last five years.
Butch Kerzner, Chief Executive Officer of the Company, commented,
"I am pleased to report that EBITDA in the quarter was $56.0 million,
a 10% increase over the same period last year. This increase was
largely attributable to Atlantis, Paradise Island and our One&Only
operations. Collectively, the Paradise Island properties achieved
record second quarter EBITDA of $51.2 million in the quarter. One&Only
Resorts achieved EBITDA of $4.4 million in the quarter compared to
$1.6 million during the same period last year, with the increase
driven largely by the outstanding performance of the One&Only
Palmilla."
Mr. Kerzner further commented, "We recently introduced two
additions to Atlantis, Marina Village, a 75,000 square foot
restaurant, retail and entertainment zone surrounding our marina, and
the next phase of Harborside at Atlantis, our timeshare product.
Marina Village has been extremely well received by our customers,
adding an exciting new venue to Paradise Island. I am pleased that in
our effort to continue to look toward further development of Paradise
Island, we acquired for $23 million the Hurricane Hole Marina, which
is in close proximity to Marina Village and includes frontage on the
Nassau Harbour. We expect to upgrade this marina significantly and
bring it into our product offering, as during many times of the year,
we face capacity constraints at our marina. The acquisition also gives
us a further seven acres of land for new development. We are confident
that with all we are doing at Atlantis, our undeveloped land will
continue to appreciate in value and will provide us with many years of
future development potential."
Destination Resorts
Atlantis, Paradise Island
Atlantis, Paradise Island reported net revenue and EBITDA in the
quarter of $145.0 million and $53.2 million, respectively, as compared
to $140.7 million and $49.6 million in the same period last year.
These results represent 3% and 7% increases in net revenue and EBITDA,
respectively. As noted above, the Atlantis, Paradise Island results
include a provision of $4.8 million, or $0.13 per share, related to a
new claim from a supplier with respect to a period covering the last
five years. The Company is currently negotiating this claim with the
supplier.
Atlantis's revenue per available room ("RevPAR") for the quarter
was $256 as compared to $243, representing a 5% increase over the same
period last year. In the quarter, Atlantis achieved an average
occupancy of 87% and a $294 average daily room rate ("ADR"), which
compares to an average occupancy of 89% and an ADR of $273 in the same
period last year. Atlantis benefited from strong booking patterns and
leisure travel demand, resulting in an 8% increase in ADR. The
improved room pricing environment on Paradise Island yielded an
increase in profitability, as the EBITDA margin for the properties
(including the One&Only Ocean Club and excluding the aforementioned
$4.8 million provision) increased to 38.2% from 35.5% in the same
period last year. Despite the timing of Easter, which fell in the
first quarter of 2005, and a major group booking that did not repeat
in 2005, occupancy decreased by only 2% in the quarter.
At the Atlantis Casino, slot win for the second quarter increased
by 33% over the same period last year, as the property benefited from
improved levels of play owing to the positive reception of the new
slot games and the ticket-in-ticket-out system, both of which were
introduced last year. In the quarter, table win decreased by 11% over
the same period last year due primarily to a decrease in rated play
and a lower table hold.
Howard Karawan, President of the Company's Destination Resorts
segment, commented, "These second quarter results demonstrate the
combined effect on profitability that strong leisure demand,
constrained room supply and an increase in flight options to the
destination have on our business. Hotel and casino margins were up
over the same period last year, which reflects the improved pricing
dynamic for the business and continued operating improvements."
Two significant milestones with respect to the Company's Phase III
expansion were recently achieved. In July, the Company completed
construction of Marina Village, which includes five new restaurants
and retail space around the Atlantis Marina. This achievement was
followed in August by the completion of the second phase of timeshare
development at Harborside at Atlantis. Both of these projects were
completed on time and on budget. At Marina Village, all restaurants
but one are currently in operation and the remaining location will
open in mid-September. The second phase of Harborside at Atlantis, a
joint venture between the Company and a subsidiary of Starwood Hotels
& Resorts Worldwide, Inc., includes 116 two- and three-bedroom units
that increase the number of keys at the development to 392. Sales
trends for this second phase have remained strong, as the development
is now 27% sold. The joint venture recorded net timeshare sales of
$22.5 million during the quarter. Mr. Karawan commented, "Our
timeshare development has been performing extremely well. Average
sales price per key is up approximately 40% over the first phase of
Harborside. Based on current trends, we expect to start the
preliminary designs for the next phase of timeshare development by the
end of this year."
Planning for Atlantis Phase III was recently finalized and the
Company's budget has increased to $730 million (exclusive of the
Harborside at Atlantis timeshare projects, the condo-hotel, a proposed
golf course on nearby Athol Island and Ocean Club Residences &
Marina). Construction is now underway and most aspects of the project,
including the 600-room all-suite hotel, are anticipated to open in
April 2007.
The Company has recently commenced development of the Ocean Club
Residences & Marina project, an 88-unit joint venture condominium
project at Ocean Club Estates. The project cost of approximately $130
million is being financed primarily from pre-sales of units. The
Company has executed purchase contracts and deposits for 34 of the 44
units currently available for sale. Based on the strong demand for
these residences, the Company expects to commence sales of an
additional 22 units during the third quarter.
The Company also commenced pre-sales of the condo-hotel units in
the second quarter. This development, in which the Company is joint
venturing with Turnberry Associates, will include approximately 500
units at a total development cost of approximately $250 million. Mr.
Karawan commented, "Although we have not yet begun a comprehensive
marketing effort, we have already received deposits on approximately
20% of the units, representing almost $90 million in sales. This is
very encouraging, and if we secure sufficient pre-sales, we expect to
commence construction of this development in the next few months. The
condo-hotel would add yet another product offering to Atlantis."
Atlantis, The Palm, Dubai
The Company and its partner, Istithmar PJSC ("Istithmar"), closed
in July a syndicated $700 million, twelve-year term loan facility,
which will support the joint venture's construction of Atlantis, The
Palm, an approximately 2,000-room destination resort to be located on
The Palm, Jumeirah in Dubai. The financing received strong support
from the financial community, attracting both local and international
banks. The remainder of the estimated $1.2 billion project will be
financed through equity commitments from the Company and Istithmar.
The Company's equity commitment to this project is $125 million,
representing a 25% equity interest. As part of the transaction, the
Company has entered into a long-term management agreement with the
joint venture that entitles the Company to receive a base management
fee based on the gross revenues generated by Atlantis, The Palm and an
incentive management fee based on operating income, as defined. The
Company has also entered into a development agreement with the joint
venture that entitles the Company to receive $20 million and
reimbursement of certain expenses over the development period.
Construction of Atlantis, The Palm is expected to commence by the
fourth quarter of this year, with completion scheduled for late 2008.
This project is subject to all requisite governmental consents and
construction of supporting infrastructure by the developer of The
Palm, Jumeirah.
The joint venture partners are currently considering the
development of an approximately 900-unit condominium project. The
profits from such venture would be used to redeem a portion of
Istithmar's investment in Atlantis, The Palm, resulting in an increase
in the Company's stake in Atlantis, The Palm from 25% up to a maximum
of 50%.
Morocco
In the quarter, the Company entered into a joint venture agreement
with Societe Maroc Emirates Arabs Unis de Developpement and Caisse de
Depot et de Gestion and related development and long-term management
agreements for the development and operation of a destination resort
casino. Based on the current preliminary designs for the project, the
budget is now anticipated to be approximately $300 million, although a
more definitive amount will not be available until further detailed
design work has been completed.
The parties anticipate working together over the next several
months to arrange debt and equity financing to fund the project. As a
result of the budget increase, the need to arrange additional debt and
equity financing and the additional design work required for the
project, the Company expects that there will be material amendments of
the project agreements, and the Company does not intend to proceed
with the development of this project unless such amendments are
obtained. Construction is now anticipated to commence in the first
half of 2006, with an expected completion date during the second half
of 2008.
No assurances can be given at this time that either the additional
debt or equity financing will be obtained or the likely material
amendments to project documents will be agreed, both of which will be
necessary in order for this project to move forward to construction.
Gaming
Connecticut
In the quarter, results for the Company's Gaming segment were
primarily derived from Mohegan Sun, which reported second quarter slot
revenue of $220.3 million, up 6% over the same period last year. Slot
win per unit per day was $390 for the quarter, a 6% increase over the
same period last year. For the quarter, Mohegan Sun's share of the
Connecticut slots market was 51%.
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 $9.7 million in the
quarter as compared to $9.0 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. On July 18, 2005, BLB completed its
approximately $464 million acquisition of Wembley plc's ("Wembley")
U.S. operations, which include the Lincoln Park racino in Rhode Island
and three greyhound tracks and one horse racing track in Colorado.
Lincoln Park generates approximately 85% of the U.S. operations'
revenue.
BLB exchanged its 22% interest, acquired in 2004 and valued at
$116 million, in Wembley as partial consideration for the acquisition.
The balance of the acquisition price was financed on a non-recourse
basis by a consortium of banks that underwrote a $495 million senior
secured credit facility, which includes a $125 million revolving
credit facility that will be used primarily to finance a proposed
redevelopment of Lincoln Park.
BLB will operate Lincoln Park under a master video lottery
contract with the state of Rhode Island that was recently authorized
by legislation passed by the Rhode Island General Assembly. Lincoln
Park currently has 3,002 video lottery terminals ("VLTs"). Under its
contract, BLB will be entitled to increase the number of VLTs to
4,752. The contract provides for up to a 15-year term during which
Lincoln Park will be entitled to 28.85% of the net terminal income on
the existing 3,002 VLTs and 26% on the additional 1,750 VLTs.
BLB is planning to commence the redevelopment of Lincoln Park as
promptly as possible, following receipt of all local governmental
approvals to which the redevelopment is subject. BLB expects the
redevelopment to be completed in 2007 at a cost of $125 million.
In the quarter, the Company recorded a $5.3 million decrease to
its investment in BLB and a corresponding decrease to shareholders'
equity. This unrealized loss primarily 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.
The Company accounts for the results of operations from BLB under
the equity method.
One&Only Resorts
In its luxury resort segment, the Company's One&Only Resorts
operations reported net revenue of $36.1 million and EBITDA of $4.4
million in the quarter compared to net revenue of $26.5 million and
EBITDA of $1.6 million in the same period last year. On a combined
basis for the seven branded resorts, One&Only Resorts produced RevPAR
of $307 in the quarter, a 9% increase over the same period last year.
On the same basis, One&Only Resorts achieved second quarter average
occupancy and ADR of 75% and $411, respectively. The primary reason
for the significant increase in EBITDA during the quarter was the
strong performance of the One&Only Palmilla.
The One&Only Ocean Club achieved record second quarter RevPAR of
$811, a 28% increase over the same period last year, mainly driven by
the continued success of the property's three luxury villas and strong
demand for the property. The resort achieved second quarter average
occupancy and record ADR of 86% and $942, respectively, compared to
average occupancy and ADR of 81% and $782, respectively, in the same
period last year. EBITDA at the property was $4.2 million during the
quarter, an increase of 45% over the same period last year.
The One&Only Palmilla had a very good second quarter, with RevPAR
of $523, a 70% increase over the prior year period. The resort
achieved second quarter average occupancy and ADR of 87% and $604,
respectively, compared to average occupancy and ADR of 60% and $508,
respectively, in the same period last year. EBITDA during the quarter
was $5.2 million compared to $1.0 million last year. Although the
third quarter is traditionally a low occupancy period for this market,
demand for the resort has continued to be robust, and the business is
performing well ahead of the Company's expectations.
The One&Only Maldives at Reethi Rah Island, the Company's newest
One&Only-managed property in the Maldives, opened on May 1, 2005. This
new 130-key all-villa resort, located on a private island in the
Indian Ocean, compliments the Company's other managed resort in the
region, the One&Only Maldives at Kanuhura Island. The development of
this property resulted in the reclamation of a substantial portion of
the island, increasing its size from approximately 20 acres to over
100 acres. Along with the 130 villas, the resort features 40 swimming
pools, 37 of which are private villa pools with carved lava stone aqua
beds overlooking the sea, a world-class spa, an orchid farm and
several fine dining options. Unfortunately, due to the effects of the
tsunami in December 2004, construction was delayed and the property
opened during the low season. Consequently, results of operations are
expected to remain soft until the high season begins in October.
Although the Company does not have any equity ownership interest
in Reethi Rah Resort Pvt Ltd ("Reethi Rah"), the entity that owns and
operates the One&Only Maldives at Reethi Rah Island, the Company has
determined that Reethi Rah is a variable interest entity that is
subject to consolidation in accordance with the provisions of FASB
Interpretation No. 46(R) ("FIN 46R"), "Consolidation of Variable
Interest Entities." 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 consolidation of
Reethi Rah's financial statements in the consolidated financial
statements of the Company.
Reethi Rah incurred net losses totaling $8.2 million for the
period from May 1, 2005 to June 30, 2005. Of this amount, $5.0 million
exhausted the owners' equity capital (as estimated by the Company as
of May 1, 2005) and is included in minority and noncontrolling
interests in the accompanying condensed consolidated statements of
operations for the three months ended June 30, 2005. The balance of
$3.2 million is reflected as a reduction to the Company's consolidated
net income for this period. In the near term, the Company anticipates
that Reethi Rah will incur additional net losses. In the absence of
any increase to the owners' equity capital in future periods, 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 of the losses previously absorbed by the
Company on behalf of Reethi Rah as required under FIN 46R.
In connection with the consolidation of Reethi Rah, the Company
recently obtained an appraisal of the resort by a third party
valuation firm that led the Company to conclude that its subordinated
notes receivable from Reethi Rah were impaired by approximately $25
million, which has been written off in the quarter.
In June 2005, the One&Only Maldives at Kanuhura Island closed for
an extensive, four-month renovation, which will include the
redevelopment of the resort's 18 water villas and two grand water
villas and enhancements to its existing beach villas, bars,
restaurants, public areas and spa. The resort is expected to re-open
in mid-October 2005.
Liquidity
At the end of the quarter, the Company held $378.6 million in cash
and cash equivalents, short-term investments and restricted cash. This
amount consisted of $243.0 million in cash and cash equivalents,
$119.4 million in short-term investments and $16.2 million in
restricted cash. Restricted cash includes $12.5 million of deposits
related to the Ocean Club Residences & Marina condominium project.
Total interest-bearing debt at the end of the quarter was $819.9
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, $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 $78.9 million of debt associated with Reethi Rah. The
non-affiliated debt associated with the One&Only Palmilla and Reethi
Rah is consolidated under FIN 46R and there is recourse to the Company
only to the extent of $29 million with regard to the Reethi Rah debt.
At the end of the quarter, the Company's Revolving Credit Facility
was undrawn. The Company currently has approximately $500 million in
availability under this 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 Reethi Rah and the 50%-owned
One&Only Palmilla are excluded.
In the quarter, the Company incurred $31.3 million in capital
expenditures, related primarily to Paradise Island. Total capital
expenditures included capitalized interest of $2.6 million. In the
third quarter of 2005, the Company expects to spend between $95
million and $100 million on Paradise Island capital expenditures and
the acquisition of the Hurricane Hole Marina assets and related real
estate ("Hurricane Hole"). In August, the Company completed the
approximately $23 million acquisition of Hurricane Hole.
In the quarter, the Company advanced $28.0 million in the form of
mezzanine financing related to Reethi Rah, resulting in total
advances, net of repayments, as of June 30, 2005 of $97.5 million.
This total does not reflect the previously discussed $25.0 million
impairment charge. The Company expects to fund approximately $7
million of additional subordinated debt financing related to operating
loans in 2005.
In the quarter, the Company invested $16.4 million in Atlantis,
The Palm. The Company has already funded approximately $7 million in
the third quarter of 2005 and does not currently anticipate any
further investments this year as the project begins to use its
recently-arranged credit facilities.
As of June 30, 2005, shareholders' equity was $1,178.2 million and
the Company had approximately 36.3 million Ordinary Shares
outstanding.
Conference Call Announcement
The Company will hold a conference call at 9:00 a.m. EST today to
discuss these second 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
12:00 p.m. EST, ending at midnight on August 16, 2005. The replay
numbers are 800.642.1687 (US/Canada) and 706.645.9291 (international)
using the following PIN Number: 8402981.
About The Company
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 - a unique
property 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. The resort is also home to
the largest casino in the Caribbean. The Company recently commenced
development of a major expansion that includes a 600-room all-suite
luxury hotel and a significant enhancement of Atlantis water-based
attractions. Certain parts of this expansion have already opened,
including Marina Village at Atlantis, with the remaining elements
expected to open by early 2007. The Company is extending its Atlantis
brand globally with the development of Atlantis, The Palm, Dubai, an
approximately 2,000-room, water-themed resort expected to open in
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, Reconciliation of EBITDA to
U.S. 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.
-0-
*T
Kerzner International Limited
Condensed Consolidated Statements of Operations
(In thousands of U.S. dollars, except per share data)
For the Three Months For the Six Months
Ended June 30, Ended June 30,
-------------------- -------------------
2005 2004 (a) 2005 2004
---------- --------- --------- ---------
(Unaudited) (Unaudited)
Revenues:
Casino and resort revenues $170,082 $157,961 $358,786 $327,148
Less: promotional
allowances (5,392) (5,468) (13,162) (12,879)
---------- --------- --------- ---------
Net casino and resort
revenues 164,690 152,493 345,624 314,269
Tour operations 13,267 11,235 26,260 24,072
Management, development
and other fees 3,270 3,658 9,456 9,073
Other 1,055 934 2,680 2,019
---------- --------- --------- ---------
182,282 168,320 384,020 349,433
---------- --------- --------- ---------
Costs and expenses:
Casino and resort expenses 86,399 78,474 171,134 157,535
Tour operations 11,100 8,961 22,169 19,902
Selling, general and
administrative 32,531 30,312 64,699 61,954
Corporate expenses 11,257 10,458 20,847 19,215
Depreciation and
amortization 17,492 14,631 33,176 29,587
Pre-opening expenses 1,256 396 1,748 3,258
UK gaming write-off - - 10,529 -
Impairment of notes
receivable 25,043 - 25,043 -
---------- --------- --------- ---------
185,078 143,232 349,345 291,451
---------- --------- --------- ---------
Income (loss) from operations (2,796) 25,088 34,675 57,982
Relinquishment fees - equity
in earnings of TCA 9,688 9,045 18,366 17,767
Other income (expense):
Interest income 2,568 779 4,789 1,390
Interest expense, net of
capitalization (10,777) (8,929) (21,159) (17,093)
Equity in earnings of
associated companies 5,120 2,466 9,285 7,166
Other, net 6 509 12 427
---------- --------- --------- ---------
Other expense, net (3,083) (5,175) (7,073) (8,110)
Income before provision for
income taxes and minority
and noncontrolling
interests 3,809 28,958 45,968 67,639
Benefit (provision) for
income taxes 1,814 (295) 110 (481)
Minority and noncontrolling
interests 4,878 1,479 2,373 3,802
---------- --------- --------- ---------
Net income $ 10,501 $ 30,142 $ 48,451 $ 70,960
========== ========= ========= =========
Diluted earnings per share $ 0.28 $ 0.94 $ 1.29 $ 2.21
========== ========= ========= =========
Weighted average number of
shares outstanding - diluted 37,537 32,232 37,583 32,130
(a) Certain amounts have been reclassified to conform to the current
period's presentation.
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 June 30,
----------------------------------------
2005 2004
------------------- -------------------
$ EPS $ EPS
--------- -------- --------- --------
Adjusted net income(a) $ 36,952 $ 0.98 $ 29,728 $ 0.92
Pre-opening expenses (b) (1,408) (0.03) (396) (0.01)
UK gaming write-off (c) - - - -
Impairment of notes
receivable (d) (25,043) (0.67) - -
BLB equity loss and related
expenses (e) - - (1,458) (0.04)
Share of income from
remediation at Harborside
(f) - - 2,268 0.07
--------- -------- --------- --------
Net income $ 10,501 $ 0.28 $ 30,142 $ 0.94
========= ======== ========= ========
For the Six Months
Ended June 30,
----------------------------------------
2005 2004
------------------- -------------------
$ EPS $ EPS
--------- -------- --------- --------
Adjusted net income(a) $ 85,923 $ 2.29 $ 70,201 $ 2.18
Pre-opening expenses (b) (1,900) (0.05) (1,827) (0.06)
UK gaming write-off (c) (10,529) (0.28) - -
Impairment of notes
receivable (d) (25,043) (0.67) - -
BLB equity loss and related
expenses (e) - - (1,458) (0.04)
Share of income from
remediation at Harborside
(f) - - 4,044 0.13
--------- -------- --------- --------
Net income $ 48,451 $ 1.29 $ 70,960 $ 2.21
========= ======== ========= ========
(a) Adjusted net income is defined as net income before
pre-opening expenses, UK gaming write-off, impairment of notes
receivable, BLB equity loss and related expenses and share of income
from remediation at Harborside.
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 income from
continuing operations 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 income from continuing
operations calculated in accordance with U.S. GAAP.
(b) Pre-opening expenses for the quarter ended June 30, 2005
include costs incurred relating to Marina Village at Atlantis, costs
incurred relating to the Phase III expansion at Atlantis, Paradise
Island and costs incurred relating to Atlantis, The Palm, which are
included within equity in earnings of associated companies in the
accompanying Condensed Consolidated Statements of Operations.
Pre-opening expenses for the quarter ended June 30, 2004 represent
costs incurred prior to the June 2004 opening of the One&Only Ocean
Club expansion. Pre-opening expenses incurred during the six months
ended June 30, 2004 also include the Company's 50% share of
pre-opening expenses related to the One&Only Palmilla's grand
reopening event in February 2004.
(c) 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.
(d) For the three months ended June 30, 2005, the Company recorded
an impairment of its subordinated notes receivable due from Reethi Rah
Resort Pvt Ltd ("Reethi Rah"), the entity which owns the One&Only
Maldives at Reethi Rah Island, after obtaining a third party valuation
firm's appraisal of the resort in connection with the consolidation of
Reethi Rah under FIN 46R.
(e) For the three months ended June 30, 2004, the Company recorded
$1.5 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 the three
months ended June 30, 2004. The foreign currency exchange losses are
included within corporate expenses in the accompanying Condensed
Consolidated Statements of Operations.
(f) The Company recorded income for its share of remediation
related to Harborside at Atlantis ("Harborside"), 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.
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 Six Months
Ended June 30, Ended June 30,
-------------------- --------------------
2005 2004 2005 2004
--------- --------- --------- ---------
EBITDA (a) $ 55,955 $ 50,816 $132,974 $113,174
Depreciation and
amortization (17,492) (14,631) (33,176) (29,587)
Pre-opening expenses (1,408) (396) (1,900) (3,258)
UK gaming write-off - - (10,529 ) -
Impairment of notes
receivable (25,043) - (25,043) -
Other expense, net (3,083) (5,175) (7,073) (8,110)
Equity in earnings of
associated
companies (5,120) (2,466) (9,285) (7,166)
BLB equity loss and related
expenses - (1,458) - (1,458)
Share of income from
remediation at Harborside - 2,268 - 4,044
Benefit (provision) for
income taxes 1,814 (295) 110 (481)
Minority and noncontrolling
interests 4,878 1,479 2,373 3,802
--------- --------- --------- ---------
Net income $ 10,501 $ 30,142 $ 48,451 $ 70,960
========= ========= ========= =========
(a) EBITDA is defined as net income before depreciation and
amortization, pre-opening expenses, UK gaming write-off, impairment of
notes receivable, other expense, net (excluding equity earnings before
BLB equity loss and related expenses, share of income from remediation
at Harborside, the Company's share of Atlantis, The Palm and the
One&Only Palmilla pre-opening expenses), 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. Certain amounts for the three months ended June 30,
2004 have been reclassified to conform to the current period's
presentation.
Kerzner International Limited
Summary Segment Data - Net Revenue
(In thousands of U.S. dollars)
(Unaudited)
For the Three Months For the Six Months
Ended June 30, Ended June 30,
-------------------- --------------------
2005 2004(d) 2005 2004(d)
-------- -------- -------- --------
Destination Resorts(a):
Atlantis, Paradise
Island
Rooms $ 53,399 $ 50,767 $109,109 $103,317
Casino 32,760 31,488 77,832 73,406
Food and beverage 36,372 37,332 74,552 72,689
Other 16,847 18,277 34,749 37,045
-------- -------- -------- --------
139,378 137,864 296,242 286,457
Promotional allowances (5,392) (5,468) (13,162) (12,879)
-------- -------- -------- --------
133,986 132,396 283,080 273,578
Tour operations 9,923 7,615 17,229 14,659
Harborside fees 1,099 690 2,110 1,309
-------- -------- -------- --------
145,008 140,701 302,419 289,546
Atlantis, The Palm
development fees 95 179 296 179
-------- -------- -------- --------
145,103 140,880 302,715 289,725
-------- -------- -------- --------
Gaming:
Connecticut fees 6 - 229 -
-------- -------- -------- --------
One&Only Resorts:
One&Only Ocean Club 12,452 10,151 25,724 21,243
One&Only Palmilla 16,317 9,946 34,885 19,448
One&Only Maldives,
Reethi Rah 1,935 - 1,935 -
Other resorts(b) 2,070 2,789 6,821 7,585
Tour operations 3,344 3,620 9,031 9,413
-------- -------- -------- --------
36,118 26,506 78,396 57,689
-------- -------- -------- --------
Other (c) 1,055 934 2,680 2,019
-------- -------- -------- --------
$182,282 $168,320 $384,020 $349,433
======== ======== ======== ========
(a) Includes revenue from Atlantis, Paradise Island, the Ocean
Club Golf Course, the Company's wholly owned tour operator, PIV, Inc.,
marketing and development fee income from our 50%-owned timeshare
development at Atlantis, Paradise Island and development fee income
from Atlantis, The Palm.
(b) Includes management, marketing and development fees from the
Company's One&Only Resorts properties located in Mauritius, Dubai and
the Maldives.
(c) 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.
(d) Certain amounts for the 2004 periods have been reclassified to
conform to the current periods' presentation.
Kerzner International Limited
Summary Segment Data - EBITDA
(In thousands of U.S. dollars)
(Unaudited)
For the Three
Months For the Six Months
Ended June 30, Ended June 30,
------------------ --------------------
2005 2004(d) 2005 2004(d)
-------- -------- --------- ---------
Destination Resorts:
Atlantis, Paradise Island $44,906 $45,575 $101,864 $ 95,342
Tour operations 2,080 2,132 3,774 3,658
Harborside 1,099 690 2,110 1,309
Other (a) 5,130 1,211 8,683 2,679
------- ------- -------- --------
53,215 49,608 116,431 102,988
Atlantis, The Palm 89 170 277 170
------- ------- -------- --------
53,304 49,778 116,708 103,158
------- ------- -------- --------
Gaming:
Connecticut 9,694 9,045 18,595 17,767
United Kingdom (2,118) (691) (2,640) (1,018)
Other (a) 468 (256) (484) (403)
------- ------- -------- --------
8,044 8,098 15,471 16,346
------- ------- -------- --------
One&Only Resorts:
One&Only Ocean Club 4,192 2,885 9,360 7,037
One&Only Palmilla 5,198 995 14,043 2,241
One&Only Maldives, Reethi
Rah (4,037) - (4,037) -
Other resorts (b) 2,070 2,789 6,821 7,585
Tour operations 69 126 291 471
Direct expenses (b) (2,871) (5,470) (6,874) (8,270)
Other (a) (250) 262 1,314 1,867
------- ------- -------- --------
4,371 1,587 20,918 10,931
------- ------- -------- --------
Corporate and other (c) (9,764) (8,647) (20,123) (17,261)
------- ------- -------- --------
$55,955 $50,816 $132,974 $113,174
======= ======= ======== ========
See definition and management's disclosure regarding EBITDA in the
Reconciliation of EBITDA to U.S. GAAP Net Income.
(a) Represents the Company's share of net income (loss) from
unconsolidated affiliates (excluding share of income from remediation
at Harborside and BLB equity loss and related expenses) for its
investments in Harborside, Sun Resorts Limited, the One&Only Maldives
at Kanuhura Island, Ocean Club Residences & Marina, BLB and Trading
Cove New York.
(b) Consists of management, marketing, development and other fees
and direct expenses related to the Company's One&Only Resorts segment
for its operations located in Mauritius, Dubai and the Maldives.
(c) Corporate and other represents corporate expenses not directly
attributable to Destination Resorts, Gaming or One&Only Resorts.
(d) Certain amounts for the 2004 period have been reclassified to
conform to the current periods' presentation.
Kerzner International Limited
Paradise Island Summary Segment Data Reconciliation (a)
(In thousands of U.S. dollars)
(Unaudited)
For the Three Months For the Six Months
Ended June 30, Ended June 30,
-------------------- --------------------
2005 2004 2005 2004
--------- --------- --------- ---------
Paradise Island Revenue:
Atlantis, Paradise Island $139,378 $137,864 $296,242 $286,457
One&Only Ocean Club 12,452 10,151 25,724 21,243
-------- -------- -------- --------
151,830 148,015 321,966 307,700
Promotional allowances (5,392) (5,468) (13,162) (12,879)
-------- -------- -------- --------
$146,438 $142,547 $308,804 $294,821
======== ======== ======== ========
Paradise Island EBITDA(b):
Atlantis, Paradise Island $ 44,906 $ 45,575 $101,864 $ 95,342
Tour operations 2,080 2,132 3,774 3,658
One&Only Ocean Club 4,192 2,885 9,360 7,037
-------- -------- -------- --------
$ 51,178 $ 50,592 $114,998 $106,037
======== ======== ======== ========
EBITDA Margin(c) 34.9% 35.5% 37.2% 36.0%
(a) This schedule is included to assist investors by presenting
the summary segment data for the Paradise Island operations on a
comparable basis with the methodology used in earnings releases prior
to 2004.
(b) See definition and management's disclosure regarding EBITDA in
the Reconciliation of EBITDA to U.S. GAAP Net Income.
(c) EBITDA margin for the three and six months ended June 30,
2005, includes the effect of a $4.8 million provison for a new claim
from a supplier with respect to a period covering the last five years.
Excluding this provision, the EBITDA margin for the three and six
months ended June 30, 2005 would have been 38.2% and 38.8%,
respectively.
Kerzner International Limited
Hotel Operating Performance Data
(Unaudited)
For the Three Months For the Six Months
Ended June 30, Ended June 30,
--------------------- ---------------------
2005 2004 2005 2004
--------- ---------- -------- -----------
Atlantis, Paradise
Island:
Occupancy 87% 89% 87% 87%
ADR (a) $294 $273 $302 $285
RevPAR (b) $256 $243 $262 $247
One&Only Resorts(c):
Occupancy 75% 78% 79% 80%
ADR (a) $411 $361 $473 $409
RevPAR (b) $307 $281 $374 $327
One&Only Ocean Club:
Occupancy 86% 81% 87% 81%
ADR (a) $942 $782 $982 $844
RevPAR (b) $811 $632 $851 $686
One&Only Palmilla:
Occupancy 87% 60% 87% 61%
ADR (a) $604 $508 $664 $502
RevPAR (b) $523 $307 $580 $307
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.
(a) ADR represents room revenue divided by the total number of
room nights occupied.
(b) RevPAR represents room revenue divided by the total room
nights available.
(c) 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 Maldives at Kanuhura Island, One&Only
Maldives at Reethi Rah Island and One&Only Royal Mirage.
*T