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
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