Kerzner International Limited (NYSE: KZL): -- 2005 THIRD QUARTER
DILUTED NET LOSS PER SHARE OF $0.14 COMPARED TO DILUTED NET LOSS
PER SHARE OF $0.33 ACHIEVED LAST YEAR -- 2005 THIRD QUARTER
ADJUSTED EPS OF $0.28 COMPARED TO $0.11 ACHIEVED LAST YEAR --
PARADISE ISLAND ACHIEVES RECORD THIRD QUARTER RESULTS -- KERZNER
REFINANCES SENIOR SUBORDINATED NOTES AND INCREASES REVOLVING CREDIT
FACILITY -- ATLANTIS, THE PALM DEVELOPMENT NEARS COMMENCEMENT;
DEVELOPMENT BUDGET FOR PHASE I INCREASED TO APPROXIMATELY $1.4
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 third quarter of 2005. The Company
reported a net loss in the quarter of $4.9 million compared to a
net loss of $11.2 million in the same period last year, resulting
in diluted net loss per share of $0.14 compared to diluted net loss
per share of $0.33 in the same period last year. Adjusted net
income in the quarter was $10.6 million compared to $3.7 million in
the same period last year. Adjusted net income per share in the
quarter was $0.28 compared to $0.11 in the same period last year.
Butch Kerzner, Chief Executive Officer of the Company, commented,
"I am pleased to report record third quarter levels of adjusted
EPS. This achievement is largely attributable to our Paradise
Island properties and the improved performance of One&Only
Palmilla. Collectively, the Paradise Island properties achieved
record third quarter EBITDA of $33.4 million. One&Only Resorts
also performed strongly, as RevPAR increased by 20%." "We have also
strengthened our balance sheet by refinancing our $400 million of
senior subordinated debt and increased the borrowing capacity on
our revolving credit facility to $650 million. When combined with
our businesses' free cash flow generation capabilities, we believe
our capital resources are well positioned to undertake future
growth initiatives, including the Phase III expansion project in
The Bahamas; Atlantis, The Palm, Dubai; our planned investment in
Morocco and other projects that may arise." Destination Resorts
Atlantis, Paradise Island Atlantis, Paradise Island reported net
revenue and EBITDA in the quarter of $129.0 million and $37.3
million, respectively, as compared to $106.5 million and $23.4
million, respectively, in the same period last year. The EBITDA
margin in the quarter was 29% as compared to 22% in the same period
last year. Results in the quarter were meaningfully higher than in
the same period last year, as 2004 was negatively affected by
Hurricane Frances and the effects of subsequent hurricanes that hit
the State of Florida, one of our principal source markets. For
comparative purposes, in the third quarter of 2003, net revenue,
EBITDA and EBITDA margin were $114.8 million, $29.9 million and
26%, respectively. Atlantis's revenue per available room ("RevPAR")
for the quarter was $198 as compared to $173 during the same period
last year. In the quarter, Atlantis achieved an average occupancy
of 81% and a $245 average daily room rate ("ADR"). Results in the
quarter benefited from strong leisure demand. At the Atlantis
Casino, slot win for the third quarter increased by 24% and 15%
over the same period in 2004 and 2003, respectively. The third
quarter of 2003 provides a better comparable period, as 2004 was
negatively affected by the aforementioned hurricanes. The resort
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 increased by 15% and decreased by 16% over the same
period in 2004 and 2003, respectively. Howard Karawan, President
and Managing Director of the Company's Destination Resorts segment,
commented, "Third quarter results rebounded sharply from the
hurricane-affected results of the third quarter of 2004. As
compared to 2003, the most recent period in which results were not
impacted by hurricane activity, all of our key operating measures
for the Paradise Island businesses saw improvement. In the quarter,
Atlantis, Paradise Island's revenue and RevPAR each increased by
12% as compared to 2003. In the quarter, EBITDA margin for
Atlantis, Paradise Island increased from 26% in 2003 to 29% in
2005." In July, the Company completed the Marina Village at
Atlantis ("Marina Village"), an approximately 75,000 square foot
restaurant, retail and entertainment zone surrounding the Marina at
Atlantis ("Atlantis Marina"), which includes five new restaurants
and additional retail space. All of the restaurants except one are
open, and the remaining location is expected to open in
mid-November. In the quarter, food and beverage revenue increased
by 22% as compared to the same period last year, driven by a
rebound in business levels from the previous year and a favorable
response to the Marina Village. The second phase of Harborside at
Atlantis, 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. Sales trends for this second phase have remained strong and
it is now 32% sold. With this phase, the total number of units at
Harborside increased to 244. Construction of the 88-unit Ocean Club
Residences & Marina project is proceeding well, with completion
expected in early 2007. The cost of this development, which is
being financed primarily from pre-sales of units, is expected to be
approximately $130 million. The Residences at Atlantis, an
approximately 500-unit condo-hotel project, has already achieved
approximately 120 unit sale reservations, representing roughly 24%
of the units available for sale. The Company is joint venturing
with Turnberry Associates, who will provide sales and marketing
expertise, on this project and expects construction costs, which
exclude land costs, to be approximately $225 million. 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. In the quarter, the Company
acquired the Hurricane Hole Marina, which is in close proximity to
the Marina Village and includes frontage on Nassau Harbour, and
some additional buildings and facilities for approximately $28
million. The Company intends to utilize the Hurricane Hole Marina
to accommodate excess demand at the Atlantis Marina and anticipates
significantly upgrading this marina and bringing it into Atlantis's
product offering. This acquisition includes additional real estate,
which the Company plans to use for new development. In early
November, the Company agreed to acquire an additional seven and a
half acres of beachfront property at the eastern edge of Cabbage
Beach, adjoining Ocean Club Estates, for approximately $15 million.
This is one of the few remaining undeveloped beachfront parcels
left on Paradise Island. The Company intends to contribute this
land into the Ocean Club Residences & Marina joint venture and
develop the site through the joint venture. Construction of the
$730 million Phase III development at Paradise Island is
proceeding. This expansion project, which includes a 600-room
all-suite hotel and expanded water attractions, is expected to open
in the second quarter of 2007. Atlantis, The Palm, Dubai The
Company and its partner, 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. Having carefully evaluated various
aspects of the project, including cost, real estate usage and
operating efficiencies, the joint venture has revised the scope of
Atlantis, The Palm. In lieu of developing an 800-room four-star
property adjacent to the five-star Royal Towers, the joint venture
has decided to increase the number of rooms at the five-star Royal
Towers from 1,200 to approximately 1,500. This reconfiguration of
the project program will better enable the resort to meet the
growing demand for five-star accommodation in Dubai and sets aside
further developable land for future expansion. The joint venture
has decided to postpone development of a previously-announced
condominium project. In addition, Nakheel LLC ("Nakheel"), the
developer of The Palm, Jumeirah, has agreed to provide the joint
venture with a right to reclaim and develop an additional 125 acres
of land off the crescent of The Palm, Jumeirah, so as to expand the
overall Atlantis, The Palm site and permit additional phases of
development. The joint venture has also agreed with Nakheel to
acquire all of the land on which Atlantis, The Palm is situated,
including the two parcels that are intended for the condominium
project, for a $125 million payment-in-kind note. Butch Kerzner
commented, "We are pleased to have reached an agreement with
Istithmar that better positions Atlantis, The Palm for future
development that will enable the resort to leverage the significant
attractions that comprise Phase I. In addition to the 1,500-room
Royal Towers, Phase I of Atlantis, The Palm will include a 60-acre
water park, which is expected to be over twice the size of the
enhanced water park being developed in the Phase III expansion in
The Bahamas. Visitation trends in Dubai are very strong, with
occupancy at Dubai's beach resorts at 88% for the first three
quarters of this year. This agreement enables the joint venture to
control substantial real estate and will provide it with the
ability to add additional elements and room product to Atlantis,
The Palm.\" The budget for this development (exclusive of land
cost) has been increased from $1.2 billion to approximately $1.375
billion. Under the revised capital structure, the Company has
agreed to increase its equity investment from $125 million to $200
million. Istithmar is also contributing $200 million in equity. The
Company's interest in this project is 50%. The joint venture is in
the process of working with its senior lending syndicate to
reconfirm their commitment to the existing $700 million,
twelve-year term loan facility. An additional amount of
approximately $275 million of subordinated debt is expected to be
raised from members of the senior lending syndicate and
institutional investors. Istithmar has committed to provide $75
million of the subordinated debt. The Company has 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 base
management fee is likely to be subordinated to both the senior and
subordinated debt facilities. The Company also has 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 end of the year, with completion scheduled for
late 2008. Commencement of this project is subject to the receipt
of all requisite governmental consents and construction of
supporting infrastructure by Nakheel. Morocco Earlier in the year,
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. Based on the current preliminary designs
for the project, the budget is 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
previously announced budget increase (from $230 million to $300
million), 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 until 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 the additional
debt or equity financing will be obtained or that 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, Mohegan Sun
reported third quarter slot revenue of $231.4 million, up 4% over
the same period last year. Slot win per unit per day was $405 for
the quarter, a 5% 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 $10.2
million in the quarter as compared to $9.8 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 include 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 $83.6 million, up 5% over the same period last year. Lincoln
Park achieved net terminal win per unit per day in the quarter of
$303. In the quarter, Lincoln Park recorded VLT revenue of $24.2
million, which represents Lincoln Park's approximate 28.9% share of
net 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 September 30, 2005, Lincoln Park had 3,002 VLTs in
operation; however, BLB completed Phase I-A of its planned
redevelopment of Lincoln Park on November 4, 2005, which increased
the number of VLTs at the facility to 3,602. BLB had previously
announced that the anticipated redevelopment of Lincoln Park would
have a total cost of approximately $125 million. Based on the most
recent available information, BLB now believes the total cost will
be in excess of this amount. BLB is planning to commence the
remaining phases of the redevelopment of Lincoln Park as promptly
as possible, following receipt of all local governmental approvals
to which the redevelopment is subject. In the quarter, the Company
reported $1.6 million of equity earnings associated with its
investment in BLB, which includes the Company's share of BLB's gain
of $0.9 million associated with Wembley's repurchase of BLB's
ownership in Wembley, effective on the date of acquisition. The
gain is not included in the Company's adjusted earnings per share.
One&Only Resorts The Company's luxury resort segment,
One&Only Resorts, reported net revenue of $30.1 million and
EBITDA of $0.3 million in the quarter compared to net revenue of
$19.9 million and an EBITDA loss of $2.9 million in the same period
last year. On a combined basis for the branded resorts,
One&Only Resorts produced RevPAR of $239 in the quarter, a 20%
increase over the same period last year. On the same basis,
One&Only Resorts achieved third quarter average occupancy and
ADR of 74% and $324, respectively. The primary contributor to the
increase in EBITDA during the quarter was the strong performance of
One&Only Palmilla. The third quarter is traditionally
One&Only Resorts' weakest period of the year. Results in the
quarter exclude One&Only Kanuhura, which was closed in June and
reopened in mid-October. One&Only Ocean Club achieved record
third quarter RevPAR of $525, representing a 16% increase over the
same period last year. In the quarter, the resort achieved average
occupancy and record third quarter ADR of 75% and $697,
respectively, compared to average occupancy and ADR of 71% and
$636, respectively, in the same period last year. EBITDA at the
property was $1.0 million during the quarter as compared to $0.7
million in the same period last year. One&Only Palmilla had a
strong third quarter, with RevPAR of $372, which was an 84%
increase over the same period last year. The resort achieved third
quarter average occupancy and ADR of 85% and $437, respectively,
compared to average occupancy and ADR of 52% and $388,
respectively, in the same period last year. EBITDA during the
quarter was $1.0 million compared to an EBITDA loss of $2.5 million
in the same period last year. Although the third quarter is
traditionally a low occupancy period for this market, demand for
the resort was strong, and the business outperformed the Company's
expectations. Recently, and for the second year in a row,
One&Only Ocean Club and One&Only Palmilla were named the
number one resorts in the Atlantic and Latin American regions,
respectively, in Conde Nast Traveler magazine's Readers' Choice
Awards. JT Kuhlman, the Company's President and Managing Director
of the One&Only Resorts segment, commented, "We were thrilled
to receive these prestigious awards in 2004. To receive them again
in 2005 is an honor, especially since the recipients are selected
by the readers of Conde Nast Traveler. One&Only Ocean Club and
One&Only Palmilla winning top honors two years in a row is a
true mark of distinction for the One&Only brand and a testament
to the talent of our dedicated teams." One&Only Maldives at
Reethi Rah, the Company's newest One&Only-managed property,
opened on May 1, 2005. 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 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 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 $2.2 million. This loss is after
the exhaustion of the remaining $1.8 million owners' equity capital
balance, which is included in minority and noncontrolling interests
in the accompanying condensed consolidated statements of
operations. In the near term, the Company anticipates Reethi Rah
will continue to incur 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 losses were previously absorbed by the Company on behalf
of Reethi Rah. In the quarter, the Company completed its analysis
of the fair value of the assets and liabilities of Reethi Rah and
accordingly completed its impairment calculation of the Company's
notes receivable from Reethi Rah, which resulted in the Company
recording an additional $3.1 million impairment. This $3.1 million
impairment has been excluded from the Company's adjusted earnings
per share. The Company reopened One&Only Kanuhura on October
15, 2005, which had previously been closed for an extensive,
four-month renovation that included 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. Liquidity The Company has recently executed
the following financing initiatives: -- Completed an offering in
the quarter of $400 million of 6 3/4% Senior Subordinated Notes due
2015 (the "6 3/4% Notes"). In conjunction with this offering, the
Company tendered for all of its $400 million of 8 7/8% Senior
Subordinated Notes due 2011 (the "8 7/8% Notes"). As of September
30, 2005, $3.1 million of the 8 7/8% Notes remained outstanding. An
additional $1.5 million of the 8 7/8% Notes were tendered for in
the fourth quarter, bringing the remaining balance of 8 7/8% Notes
on the Company's balance sheet to $1.6 million. The Company has
recorded a loss on early extinguishment of debt of $27.8 million,
or $0.74 per share, which has been excluded from adjusted earnings
per share. -- Terminated $150 million of fixed-to-variable rate
swap agreements, which results in an increase in fixed rate debt,
in advance of planned variable rate borrowings for growth
initiatives under the Company's Revolving Credit Facility. The
termination of these swap agreements resulted in the realization of
$4.8 million, which reduced the loss on early extinguishment of the
8 7/8% Notes. -- Amended and restated the Company's Revolving
Credit Facility on October 31, 2005, increasing the availability
under the facility from $500 million to $650 million and amending
certain pricing and financial covenants. -- Announced that its
Board of Directors had approved a share repurchase program
authorizing the repurchase of up to two million of the Company's
ordinary shares. The Company subsequently commenced this program
and repurchased 612,500 shares in the quarter for $35.7 million. At
September 30, 2005, the Company held $244.3 million in cash and
cash equivalents, short-term investments and restricted cash. This
amount consisted of $113.0 million in cash and cash equivalents,
$59.8 million in short-term investments and $71.5 million in
restricted cash. Restricted cash includes $68.0 million of escrowed
funds for the Company's investment in the joint venture developing
Atlantis, The Palm, which is expected to increase an additional $75
million upon completion of the subordinated debt financing
discussed above to reflect the Company's increased equity
commitment to the project. Total interest-bearing debt at the end
of the quarter was $801.9 million, comprised primarily of the
Company's newly-issued $400 million of 6 3/4% Notes, $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 $58.3 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.
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 are excluded. In the quarter, the Company incurred $70.6
million in capital expenditures, related primarily to Paradise
Island. Total capital expenditures included capitalized interest of
$2.2 million. In the fourth quarter of 2005, the Company expects to
spend between $90 million and $100 million on Paradise Island
capital expenditures. In the quarter, the Company invested $13.2
million in Atlantis, The Palm. The Company expects to invest
between $30 million and $35 million in the project in the fourth
quarter of 2005. This investment will be sourced from escrowed
funds, which are classified as restricted cash on the Company's
balance sheet. As of September 30, 2005, shareholders' equity was
$1,147.7 million and the Company had approximately 36.4 million
Ordinary Shares outstanding. Other Matters In the quarter, the
Company recorded a net income tax benefit of $15.8 million, which
represents a U.S. federal tax benefit and state and foreign income
tax expenses. Included therein is a benefit of $15.7 million
related to the refinancing of its 8 7/8% Notes, which is not
included in the Company's adjusted earnings per share. In the
quarter, the Company paid cash taxes of approximately $0.4 million.
Conference Call Announcement The Company will hold a conference
call at 10:00 a.m. EST today to discuss these third 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
November 14, 2005. The replay numbers are 800.642.1687 (US/Canada)
and 706.645.9291 (international) using the following PIN Number:
2081462. 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. The Company recently
commenced development of a major expansion that includes 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 in 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 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, 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 Nine
Months Ended September 30, Ended September 30,
--------------------- --------------------- 2005 2004 2005 2004
---------- ---------- ---------- ---------- (Unaudited) (Unaudited)
Revenues: Casino and resort revenues $ 147,954 $ 116,801 $ 506,740
$ 443,949 Less: promotional allowances (5,043) (4,406) (18,205)
(17,285) ---------- ---------- ---------- ---------- Net casino and
resort revenues 142,911 112,395 488,535 426,664 Tour operations
13,891 11,068 40,151 35,140 Management, development and other fees
2,605 3,717 12,061 12,790 Other 1,197 921 3,877 2,940 ----------
---------- ---------- ---------- 160,604 128,101 544,624 477,534
---------- ---------- ---------- ---------- Costs and expenses:
Casino and resort expenses 85,747 68,545 256,881 226,080 Tour
operations 11,365 9,663 33,534 29,565 Selling, general and
administrative 33,208 29,532 97,907 91,486 Corporate expenses
10,562 7,536 31,409 26,751 Depreciation and amortization 19,069
14,811 52,245 44,398 Hurricane related expenses - 3,426 - 3,426
Pre-opening expenses 2,886 - 4,634 3,258 UK gaming write-off - -
10,529 - Loss on damaged assets - 1,194 - 1,194 Impairment (gain on
sale) of Atlantic City land (1,301) 7,303 (1,301) 7,303 Impairment
of notes receivable 3,096 - 28,139 - ---------- ----------
---------- ---------- 164,632 142,010 513,977 433,461 ----------
---------- ---------- ---------- Income (loss) from operations
(4,028) (13,909) 30,647 44,073 Relinquishment fees - equity in
earnings of TCA 9,921 9,066 28,287 26,833 Other income (expense):
Interest income 2,441 1,442 7,230 2,832 Interest expense, net of
capitalization (11,423) (9,504) (32,582) (26,597) Equity in
earnings (losses) of associated companies 5,922 (481) 15,207 6,685
Loss on early extinguishment of debt (27,783) - (27,783) - Other,
net (2) 208 10 635 ---------- ---------- ---------- ----------
Other expense, net (30,845) (8,335) (37,918) (16,445) Income (loss)
before provision for income taxes and minority and noncontrolling
interests (24,952) (13,178) 21,016 54,461 Benefit (provision) for
income taxes 15,819 (992) 15,929 (1,473) Minority and
noncontrolling interests 4,188 2,972 6,561 6,774 ----------
---------- ---------- ---------- Net income (loss) $ (4,945) $
(11,198) $ 43,506 $ 59,762 ========== ========== ==========
========== Basic earnings (loss) per share $ (0.14) $ (0.33) $ 1.23
$ 1.89 ========== ========== ========== ========== Weighted average
number of shares outstanding - basic 35,649 33,591 35,445 31,621
Diluted earnings (loss) per share $ (0.14) $ (0.33) $ 1.17 $ 1.81
========== ========== ========== ========== Weighted average number
of shares outstanding - diluted 35,649 33,591 37,193 32,942 Kerzner
International Limited Reconciliation of Adjusted Net Income to U.S.
GAAP Net Income (Loss) (In thousands of U.S. dollars except per
share data) (Unaudited) For the Three Months Ended September 30,
------------------------------------------- 2005 2004
--------------------- --------------------- $ EPS $ EPS ----------
---------- ---------- ---------- Adjusted net income (1) $ 10,575 $
0.28 $ 3,666 $ 0.11 Hurricane related expenses (2) - - (3,426)
(0.10) Pre-opening expenses (3) (2,895) (0.08) - - UK gaming
write-off (4) - - - - Loss on damaged assets (2) - - (1,194) (0.03)
Gain on sale (impairment) of Atlantic City land (5) 1,301 0.03
(7,303) (0.21) Impairment of notes receivable (6) (3,096) (0.08) -
- BLB transaction (costs) gain (7) 888 0.02 (2,941) (0.09) Share of
income from remediation at Harborside (8) - - - - Real estate
income (9) 372 0.01 - - Loss on early extinguishment of debt (10)
(27,783) (0.74) - - Tax benefit related to debt refinancing (11)
15,693 0.42 - - Effect of dilutive shares - - - (0.01) ----------
---------- ---------- ---------- Net income (loss) $ (4,945) $
(0.14) $ (11,198) $ (0.33) ========== ========== ==========
========== For the Nine Months Ended September 30,
------------------------------------------- 2005 2004
--------------------- --------------------- $ EPS $ EPS ----------
---------- ---------- ---------- Adjusted net income (1) $ 96,740 $
2.60 $ 73,867 $ 2.24 Hurricane related expenses (2) - - (3,426)
(0.10) Pre-opening expenses (3) (4,795) (0.13) (1,827) (0.06) UK
gaming write-off (4) (10,529) (0.28) - - Loss on damaged assets (2)
- - (1,194) (0.04) Gain on sale (impairment) of Atlantic City land
(5) 1,301 0.04 (7,303) (0.22) Impairment of notes receivable (6)
(28,139) (0.75) - - BLB transaction (costs) gain (7) 888 0.02
(4,399) (0.13) Share of income from remediation at Harborside (8) -
- 4,044 0.12 Real estate income (9) 130 - - - Loss on early
extinguishment of debt (10) (27,783) (0.75) - - Tax benefit related
to debt refinancing (11) 15,693 0.42 - - Effect of dilutive shares
- - - - ---------- ---------- ---------- ---------- Net income
(loss) $ 43,506 $ 1.17 $ 59,762 $ 1.81 ========== ==========
========== ========== (1) Adjusted net income is defined as net
income before 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, BLB
transaction (costs) gain, share of income from remediation at
Harborside, real estate income, loss on early extinguishment of
debt 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
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
net income calculated in accordance with U.S. GAAP. (2) 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. Loss
on damaged assets represents the write-off of assets damaged during
Hurricane Frances. (3) Pre-opening expenses for the quarter ended
September 30, 2005 include costs incurred relating to the Marina
Village at Atlantis and the Phase III expansion at Atlantis,
Paradise Island. Also included in pre-opening expenses are the
costs incurred relating to Atlantis, The Palm, which costs are
included as equity in earnings of associated companies in the
accompanying condensed consolidated statements of operations.
Pre-opening expenses for the nine months ended September 30, 2004
represent costs incurred prior to the June 2004 opening of the
One&Only Ocean Club expansion. Pre-opening expenses incurred
during the nine months ended September 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. (4)
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. (5)
During the three months ended September 30, 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
an additional ancillary piece of land, both of which resulted in a
total gain of $1.3 million. For the three months ended September
30, 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
quarter as a result of this impairment charge. (6) For the three
months ended June 30, 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. During the
three months ended September 30, 2005, the Company completed the
analysis of the fair value of the assets and liabilities of Reethi
Rah and accordingly completed its impairment calculation of the
Company's notes receivable from Reethi Rah which resulted in the
Company recording an additional $3.1 million impairment. This $3.1
million additional impairment of its notes receivable has been
excluded from adjusted earnings per share. (7) For the three months
ended September 30, 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 (losses) in the
accompanying condensed consolidated statements of operations. For
the three and nine months ended September 30, 2004, the Company
recorded $2.9 million and $4.4 million, respectively, 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 nine months
ended September 30, 2004. The foreign currency exchange losses are
included within corporate expenses in the accompanying condensed
consolidated statements of operations. (8) 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. (9) Represents income
associated with The Residences at Atlantis and the Ocean Club
Residences & Marina projects, two of the Company's joint
venture real estate-related projects on Paradise Island. (10)Loss
on early extinguishment of debt represents costs associated with
the September 2005 tender for the Company's 8 7/8% Senior
Subordinated Notes. (11)For the three months ended September 30,
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 (Loss) (In thousands of U.S. dollars) (Unaudited) For the
Three Months For the Nine Months Ended September 30, Ended
September 30, --------------------- --------------------- 2005 2004
2005 2004 ---------- ---------- ---------- ---------- EBITDA (1) $
35,058 $ 24,351 $ 168,274 $ 137,525 Depreciation and amortization
(19,069) (14,811) (52,245) (44,398) Hurricane related expenses -
(3,426) - (3,426) Pre-opening expenses (2,895) - (4,795) (3,258) UK
gaming write-off - - (10,529) - Loss on damaged assets - (1,194) -
(1,194) Gain on sale (impairment) of Atlantic City land 1,301
(7,303) 1,301 (7,303) Impairment of notes receivable (3,096) -
(28,139) - Other expense, net (30,845) (8,335) (37,918) (16,445)
Equity in (earnings) losses of associated companies (5,922) 481
(15,207) (6,685) BLB transaction (costs) gain 888 (2,941) 888
(4,399) Share of income from remediation at Harborside - - - 4,044
Real estate income (372) - (614) - Benefit (provision) for income
taxes 15,819 (992) 15,929 (1,473) Minority and noncontrolling
interests 4,188 2,972 6,561 6,774 ---------- ---------- ----------
---------- Net income (loss) $ (4,945) $ (11,198) $ 43,506 $ 59,762
========== ========== ========== ========== (1) EBITDA is defined
as net income (loss) before 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 (losses) of associated companies
before BLB transaction (costs) gain, share of income from
remediation at Harborside, the Company's share of Atlantis, The
Palm and One&Only Palmilla 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 Nine Months Ended September 30, Ended September 30,
--------------------- --------------------- 2005 2004(4) 2005
2004(4) ---------- ---------- ---------- ---------- Destination
Resorts(1): Atlantis, Paradise Island Rooms $ 41,753 $ 36,607 $
150,862 $ 139,924 Casino 30,884 25,457 108,716 98,863 Food and
beverage 33,684 27,637 108,236 100,326 Other 16,412 13,753 51,161
50,798 ---------- ---------- ---------- ---------- 122,733 103,454
418,975 389,911 Promotional allowances (5,043) (4,406) (18,205)
(17,285) ---------- ---------- ---------- ---------- 117,690 99,048
400,770 372,626 Tour operations 10,375 6,654 27,604 21,313
Harborside fees 933 792 3,043 2,101 ---------- ----------
---------- ---------- 128,998 106,494 431,417 396,040 Atlantis, The
Palm development fees 39 36 335 215 ---------- ----------
---------- ---------- 129,037 106,530 431,752 396,255 ----------
---------- ---------- ---------- Gaming: Connecticut fees 237 702
466 702 ---------- ---------- ---------- ---------- One&Only
Resorts: One&Only Ocean Club 7,939 6,828 33,663 28,071
One&Only Palmilla 11,462 6,519 46,347 25,967 One&Only
Maldives, Reethi Rah 5,820 - 7,755 - Other resorts(2) 1,396 2,187
8,217 9,772 Tour operations 3,516 4,414 12,547 13,827 ----------
---------- ---------- ---------- 30,133 19,948 108,529 77,637
---------- ---------- ---------- ---------- Other(3) 1,197 921
3,877 2,940 ---------- ---------- ---------- ---------- $ 160,604 $
128,101 $ 544,624 $ 477,534 ========== ========== ==========
========== (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. (4) 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
Nine Months Ended September 30, Ended September 30,
--------------------- --------------------- 2005 2004(4) 2005
2004(4) ---------- ---------- ---------- ---------- Destination
Resorts: Atlantis, Paradise Island $ 30,126 $ 19,796 $ 131,990 $
115,138 Tour operations 2,269 1,283 6,043 4,941 Harborside 933 792
3,043 2,101 Other (1) 3,962 1,545 12,887 4,224 ----------
---------- ---------- ---------- 37,290 23,416 153,963 126,404
Atlantis, The Palm 29 27 306 197 ---------- ---------- ----------
---------- 37,319 23,443 154,269 126,601 ---------- ----------
---------- ---------- Gaming: Connecticut 10,159 9,768 28,754
27,535 United Kingdom (1,022) (245) (3,662) (1,263) BLB 665 1,023
722 1,023 Other (1) (235) (241) (776) (644) ---------- ----------
---------- ---------- 9,567 10,305 25,038 26,651 ----------
---------- ---------- ---------- One&Only Resorts: One&Only
Ocean Club 1,012 661 10,372 7,698 One&Only Palmilla 973 (2,540)
15,016 (299) One&Only Maldives, Reethi Rah (58) - (4,095) -
Other resorts (2) 1,396 2,187 8,217 9,772 Tour operations 246 109
537 580 Direct expenses (2) (2,832) (3,466) (9,706) (11,736) Other
(1) (470) 142 844 2,009 ---------- ---------- ---------- ----------
267 (2,907) 21,185 8,024 ---------- ---------- ----------
---------- Corporate and other (3) (12,095) (6,490) (32,218)
(23,751) ---------- ---------- ---------- ---------- $ 35,058 $
24,351 $ 168,274 $ 137,525 ========== ========== ==========
========== See definition and management's disclosure regarding
EBITDA in the Reconciliation of EBITDA to U.S. GAAP Net Income
(Loss). (1) Represents the Company's share of net income (loss)
from unconsolidated affiliates (excluding share of income from
remediation at Harborside) for its investments in Harborside, Sun
Resorts Limited, One&Only Kanuhura and Trading Cove New York.
(2) 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. (3) Corporate and other represents corporate expenses not
directly attributable to Destination Resorts, Gaming or
One&Only Resorts. (4) Certain amounts for the 2004 periods have
been reclassified to conform to the current periods' presentation.
Kerzner International Limited Paradise Island Summary Segment Data
Reconciliation(1) (In thousands of U.S. dollars) (Unaudited) For
the Three Months For the Nine Months Ended September 30, Ended
September 30, --------------------- --------------------- 2005 2004
2005 2004 ---------- ---------- ---------- ---------- Paradise
Island Revenue: Atlantis, Paradise Island $ 122,733 $ 103,454 $
418,975 $ 389,911 One&Only Ocean Club 7,939 6,828 33,663 28,071
---------- ---------- ---------- ---------- 130,672 110,282 452,638
417,982 Promotional allowances (5,043) (4,406) (18,205) (17,285)
---------- ---------- ---------- ---------- $ 125,629 $ 105,876 $
434,433 $ 400,697 ========== ========== ========== ==========
Paradise Island EBITDA(2): Atlantis, Paradise Island $ 30,126 $
19,796 $ 131,990 $ 115,138 Tour operations 2,269 1,283 6,043 4,941
One&Only Ocean Club 1,012 661 10,372 7,698 ----------
---------- ---------- ---------- $ 33,407 $ 21,740 $ 148,405 $
127,777 ========== ========== ========== ========== EBITDA
Margin(3) 26.6% 20.5% 34.2% 31.9% (1) 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. (2) See
definition and management's disclosure regarding EBITDA in the
Reconciliation of EBITDA to U.S. GAAP Net Income. (3) EBITDA margin
for the nine months ended September 30, 2005 includes the effect of
a $4.4 provision 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 nine months ended September 30, 2005 would
have been 35.2%. Kerzner International Limited Hotel Operating
Performance Data (Unaudited) For the Three Months For the Nine
Months Ended September 30, Ended September 30,
------------------------------------------- 2005 2004 2005 2004
---------- ---------- ---------- ---------- Atlantis, Paradise
Island: Occupancy 81% 77% 85% 83% ADR (1) $ 245 $ 225 $ 284 $ 267
RevPAR (2) $ 198 $ 173 $ 241 $ 222 One&Only Resorts(3):
Occupancy 74% 71% 77% 77% ADR (1) $ 324 $ 281 $ 425 $ 369 RevPAR
(2) $ 239 $ 199 $ 328 $ 284 One&Only Ocean Club: Occupancy 75%
71% 83% 78% ADR (1) $ 697 $ 636 $ 895 $ 785 RevPAR (2) $ 525 $ 453
$ 741 $ 613 One&Only Palmilla: Occupancy 85% 52% 87% 58% ADR
(1) $ 437 $ 388 $ 589 $ 468 RevPAR (2) $ 372 $ 202 $ 510 $ 272
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. *T
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