Kerzner International Limited (NYSE: KZL): -- 2006 FIRST QUARTER
DILUTED EPS OF $1.27 COMPARED TO $1.01 ACHIEVED LAST YEAR -- 2006
FIRST QUARTER ADJUSTED EPS OF $1.33 COMPARED TO $1.32 ACHIEVED LAST
YEAR 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 first quarter of 2006. The Company
reported net income in the quarter of $48.7 million, compared to
net income of $38.0 million in the same period last year, resulting
in diluted net income per share of $1.27 compared to diluted net
income per share of $1.01 in the same period last year. Adjusted
net income for the quarter was $50.9 million compared to $49.6
million in the same period last year. Adjusted net income per share
in the quarter was $1.33 compared to $1.32 in the same period last
year. Destination Resorts Atlantis, Paradise Island Atlantis,
Paradise Island reported net revenue and EBITDA in the quarter of
$169.7 million and $61.0 million, respectively, as compared to
$157.4 million and $63.4 million, respectively, in the same period
last year. EBITDA margin for the quarter was 36% as compared to 40%
in the same period last year. The decrease in EBITDA margin from
the previous year is mainly due to a higher proportion of food and
beverage revenue, which has a lower EBITDA margin, and increased
levels of utility and sales and marketing expenses. Atlantis's
revenue per available room ("RevPAR") for the quarter was $276 as
compared to $269 during the same period last year. In the quarter,
Atlantis achieved an average occupancy of 86% as compared to 87% in
the same quarter last year. In the quarter, the Company achieved an
average daily room rate ("ADR") of $320 as compared to $310 in the
same period last year. The increase in net revenue in the quarter
was driven primarily by an increase in food and beverage revenue of
17%. The growth in food and beverage revenue is primarily
attributable to the July 2005 addition of the Marina Village at
Atlantis, an approximately 75,000 square foot restaurant, retail
and entertainment area next to the Marina at Atlantis that includes
five new restaurants, and the opening of Nobu Atlantis in January,
which is located adjacent to the Atlantis Casino. At the Atlantis
Casino, slot win increased by 4% in the quarter over the same
period last year. Table win decreased by 5% over the same period
last year. In the quarter, the Company experienced a 1% increase in
table drop and a lower table hold, thus contributing to the
decrease in table win. Construction of the $730 million Phase III
expansion ("Phase III") on Paradise Island is proceeding.
Development of the 600-room, all-suite hotel, expanded water
attractions and 100,000 square feet of additional group meeting
space is well underway. Completion of these elements of Phase III
is expected by April 2007. The second phase of Harborside at
Atlantis ("Harborside"), a timeshare joint venture between the
Company and a subsidiary of Starwood Hotels & Resorts
Worldwide, Inc., which consists of 116 two- and three-bedroom
units, was completed in August of 2005. At the end of the quarter,
this phase of Harborside was 42% sold. Including this phase of
Harborside, the total number of units at the Harborside development
is 198. In the quarter, the Company recognized $3.7 million of
equity earnings, as compared to $3.6 million in the same period
last year. Additionally, as a result of Harborside adopting a new
accounting standard, the Company recognized a one-time, non-cash
equity loss of $1.8 million, which has been excluded from adjusted
net income and adjusted net income per share. Construction of the
88-unit Ocean Club Residences & Marina condominium joint
venture project is also proceeding. The project was approximately
33% complete at the end of the quarter. The cost of this
development, which is being financed primarily from pre-sales of
units, is expected to be approximately $130 million. The joint
venture has received deposits on 83 units since the units went on
the market in May 2005. The project, which is comprised of four
22-unit buildings, is expected to be completed in stages between
January and May of 2007. The Company accounts for this joint
venture under the equity method of accounting. In the quarter, the
Company recognized $3.7 million of equity earnings, which have been
excluded from adjusted net income and adjusted net income per
share. The Company entered into a joint venture with Turnberry
Associates to develop The Residences at Atlantis, a 495-unit
condo-hotel project. Construction is expected to commence once the
joint venture secures financing for the development. The Company
has consolidated The Residences at Atlantis in its financial
statements pursuant to Financial Accounting Standards Board
("FASB") Interpretation No. 46(R) ("FIN 46R"), "Consolidation of
Variable Interest Entities." In the quarter, the Company recognized
a net loss of $0.9 million, which is attributable mainly to its
share of sales and marketing expenses and has been excluded from
adjusted net income and adjusted net income per share. Atlantis,
The Palm, Dubai The Company and Istithmar PJSC ("Istithmar") have
formed a joint venture to develop Atlantis, The Palm, Dubai
("Atlantis, The Palm"), the Company's second Atlantis-branded
resort, which will be situated at the center of the crescent of The
Palm, Jumeirah on a 125-acre site. Phase I of this project is
expected to include an approximately 1,500-room, five-star hotel, a
60-acre water park, an entertainment village and other amenities.
Once complete, this property is expected to be positioned as a
leading attraction for Dubai and the anchor resort for The Palm,
Jumeirah, a multi-billion dollar land reclamation project. The
development costs for Atlantis, The Palm are expected to be
approximately $1.5 billion, including the cost of the 125-acre site
on which the property will be located. Construction of Atlantis,
The Palm has recently commenced, with completion scheduled for late
2008. The joint venture anticipates it will utilize approximately
86 acres in Phase I, leaving approximately 39 acres available for
future development. Additionally, the joint venture has secured the
right to reclaim an additional 125 acres of adjacent land should it
be required for future phases of development. This joint venture's
capital structure includes an equity investment of $200 million by
each partner. The remaining project financing will be comprised of
the existing $700 million senior first lien term loan facility,
which is subject to various conditions, and an additional $275
million of second lien debt. Istithmar has committed to provide $75
million of the second lien debt. The joint venture has received a
commitment, subject to various conditions, from third party
underwriters for the remaining $200 million. The joint venture
expects to enter into binding definitive documentation for this
financing by the end of the second quarter of this year. The joint
venture also expects to purchase the 125-acre site on which the
property will be located from the developer of The Palm, Jumeirah
in exchange for a $125 million payment-in-kind note that will be
subordinated to the first and second lien debt. The Company has a
long-term management agreement with the joint venture and is acting
as the development manager for the project. This management
agreement entitles the Company to receive a base management fee
based on the gross revenue generated by Atlantis, The Palm and an
incentive management fee based on operating income. The base
management fee is subordinated to the senior debt facilities. The
Company's investment in Atlantis, The Palm is accounted for under
the equity method of accounting. During the quarter, the Company
recorded equity earnings of $3.8 million, which included $4.1
million related to an increase in the fair value of interest rate
swap agreements and $0.3 million of pre-opening expenses. These
amounts have been excluded from adjusted net income and adjusted
net income per share. Morocco In 2005, the Company entered into a
joint venture agreement with Societe Maroc Emirates Arabs Unis de
Developpement and Caisse de Depot et de Gestion, and into related
development and long-term management agreements for the development
and operation of a destination resort casino in Morocco, near
Casablanca. Based on the recently updated preliminary designs for
the project, the budget is anticipated to be increased from
approximately $300 million to $325 million. As a result of a
previously announced budget increase, the parties have worked
together for several months to arrange debt and equity financing to
fund the project. The Company expects to enter into amended binding
project agreements with its Moroccan partners and proceed with the
project, subject to obtaining third party debt financing. Under the
proposed new project agreements, the Company's equity share in this
project would be reduced from the originally-contemplated 50% to
25%, with Nakheel Hotels & Resorts LLC assuming a 25% share.
Gaming Connecticut For the first quarter, Mohegan Sun reported slot
revenue of $216.7 million, up 8% over the same period last year.
Slot win per unit per day was $388 for the quarter, a 9% increase
over the same period last year. For the quarter, Mohegan Sun's
share of the Connecticut slots market was 53%. Under a
relinquishment agreement between Trading Cove Associates ("TCA")
and the Mohegan Tribe, TCA, an entity 50%-owned by the Company,
receives payments from the Mohegan Tribal Gaming Authority of 5% of
the gross operating revenues of Mohegan Sun. The Company recorded
relinquishment and other fees from TCA of $9.7 million in the
quarter as compared to $8.9 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 $470 million acquisition of the U.S.
operations of Wembley plc, which included the Lincoln Park racino
in Rhode Island and three greyhound tracks and one horse racing
track in Colorado. BLB's revenue and net income are driven
primarily by Lincoln Park. In the quarter, Lincoln Park reported
net video lottery terminal (VLT) win of $88.1 million, an increase
of 12% over the same period last year. Lincoln Park achieved net
terminal win per unit per day in the quarter of $275. In the
quarter, Lincoln Park recorded VLT revenue of $25.1 million, which
represented Lincoln Park's approximate 28% share of VLT win, as the
balance of the gaming win is paid primarily to the state of Rhode
Island in accordance with the terms of the long-term licensing
agreement. 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 March 31, 2005, Lincoln Park had 3,602 VLTs in
operation, which included 600 VLTs that were added to the facility
in November 2005 as part of BLB's planned redevelopment of Lincoln
Park. The balance of the expansion project includes the
redevelopment of the existing grandstand area and the construction
of a new facility that is expected to house at least 1,750 VLTs.
The new facility will be located adjacent to the current facility
and will contain new restaurant and entertainment areas and VLTs,
some of which will be repositioned from the current facility. Upon
completion of the redevelopment, Lincoln Park is expected to have
4,752 VLTs in operation. Completion of the redevelopment project is
expected in early 2007. Based on the most recent cost estimates,
which indicate a significant rise in the total development costs of
this project, the Company expects to make an additional equity
investment in BLB of $15 million to $20 million to finance the
Company's pro rata share of these additional costs. In the quarter,
the Company reported $1.1 million of equity earnings associated
with its investment in BLB. UK Gaming Although the future of gaming
in the United Kingdom is unclear as a result of the passage of
legislation in April 2005, the Company continues to pursue
potential opportunities on a selective basis. One such opportunity
is a proposed regional casino at The O2 (formerly the Millennium
Dome) in London. The Company is committed to making a contribution
of not more than GBP 10 million towards the construction of the
raft and shell infrastructure to house the proposed regional casino
at The O2. During the quarter, the Company accrued $2.8 million in
costs associated with this project, which were included in
corporate expenses in the accompanying condensed consolidated
statements of operations. One&Only Resorts The Company's luxury
resort segment, One&Only Resorts, reported net revenue of $61.9
million and EBITDA of $25.1 million in the quarter compared to net
revenue of $42.3 million and EBITDA of $16.6 million in the same
period last year. On a combined basis for the branded resorts,
One&Only Resorts produced RevPAR of $532 in the quarter, a 20%
increase over the same period last year. On the same basis,
One&Only Resorts achieved first quarter average occupancy and
ADR of 90% and $589, respectively, as compared to occupancy and ADR
of 84% and $533, respectively, in the same period last year. The
primary contributors to the increases in net revenue and EBITDA
during the quarter were the strong performance of One&Only
Palmilla and the inclusion of the results of One&Only Maldives
at Reethi Rah. In the quarter, One&Only Palmilla achieved
RevPAR of $749, a 17% increase over the same period last year. The
resort achieved first quarter average occupancy and ADR of 93% and
$803, respectively, compared to average occupancy and ADR of 88%
and $724, respectively, in the same period last year. EBITDA during
the quarter was $9.6 million compared to $8.8 million in the same
period last year. During the quarter, the 130-room One&Only
Maldives at Reethi Rah achieved EBITDA of $6.5 million. RevPAR in
the quarter was $774. The resort achieved first quarter average
occupancy and ADR of 87% and $888, respectively. Historically, the
first quarter is the strongest quarter of the year in the Maldives.
Although the Company does not have any equity ownership interest in
Reethi Rah Resort Pvt Ltd ("Reethi Rah"), the entity that owns and
operates One&Only Maldives at Reethi Rah, the Company has
determined that Reethi Rah is a variable interest entity that is
subject to consolidation in accordance with the provisions of FIN
46R. The Company has agreements with Reethi Rah that provide for
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 net income related to Reethi Rah of
$2.0 million, which was after charging depreciation and interest
expense of $2.7 million and $1.9 million, respectively. If Reethi
Rah realizes additional net income in the future, the Company will
continue to be credited up to $14.5 million, which includes $3.6
million of previously-absorbed losses and $10.9 million of
interest, management and other fees due from Reethi Rah to the
Company. One&Only Ocean Club achieved first quarter RevPAR of
$953, representing a 7% increase over the same period last year. In
the quarter, the resort achieved average occupancy and first
quarter ADR of 86% and $1,107, respectively, compared to average
occupancy and ADR of 87% and $1,023, respectively, in the same
period last year. EBITDA at the property was $4.9 million during
the quarter as compared to $5.2 million in the same period last
year. The decrease in EBITDA is primarily due to the closure of one
of the hotel's restaurants in the third quarter of 2005. In April
2006, the Company entered into development and management
agreements for a proposed 132-room hotel, One&Only Cape Town, a
joint venture with South African partners, which is expected to be
positioned at the highest end of the market in Cape Town, South
Africa, on the Victoria & Alfred Waterfront. As currently
contemplated, approximately ten of the rooms will be
individually-owned condominium units that may be used in the
hotel's guest room rental pool. The proposed hotel would be
developed through a joint venture that includes the Company and
local partners in South Africa. The development budget for this
project is approximately $110 million. The Company has agreed to
provide financing assistance in the form of equity, loans and
guarantees, which, in the aggregate, total approximately $42
million, which should enable the project to secure financing for
the proposed project. The joint venture holds a 50-year land lease
with Victoria & Alfred Waterfront (Pty) Limited for the hotel
site. The Company owns 20% of the joint venture. The Company is
currently evaluating whether the joint venture should be
consolidated beginning in the second quarter of 2006 in accordance
with the provisions of FIN 46R. The Company expects to proceed with
the project subject to obtaining financing and customary approvals.
Liquidity At March 31, 2005, the Company held $156.4 million in
cash and cash equivalents and restricted cash. This amount
consisted of $93.7 million in cash and cash equivalents and $62.6
million in current and long-term restricted cash. Current
restricted cash included $14.6 million of deposits held in escrow
related to The Residences at Atlantis. Long-term restricted cash
consisted of $44.5 million of escrowed funds for the Company's
equity investment in the joint venture developing Atlantis, The
Palm. Total interest-bearing debt at the end of the quarter was
$800.4 million, comprised primarily of the Company's
recently-issued $400 million of 6 3/4% Notes due 2015, $230 million
of 2.375% Convertible Senior Subordinated Notes due 2024, as well
as $110 million of financing related to the One&Only Palmilla
and approximately $55.0 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 $650 million Revolving
Credit Facility was undrawn. As of April 30, 2006, the Company had
$20 million drawn 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 and The Residences at Atlantis are
excluded. In the quarter, the Company incurred $104.9 million in
capital expenditures, related primarily to Paradise Island,
including capitalized interest of $3.2 million. In the second
quarter of 2006, the Company expects to spend between $130 million
and $140 million on Paradise Island capital expenditures. In the
quarter, the Company invested $13.1 million of equity in Atlantis,
The Palm. The Company expects to invest approximately $35 million
of equity in the project in the second quarter of 2006. This
investment will be sourced from the remaining escrowed funds, which
are currently classified as restricted cash on the Company's
consolidated balance sheet. As of March 31, 2006, shareholders'
equity was $1,219.0 million and the Company had approximately 36.7
million Ordinary Shares outstanding. During the quarter, the
Company did not repurchase any Ordinary Shares under its share
repurchase program, which was authorized in the third quarter of
2005. The Company currently has approximately 1.4 million shares
remaining under this program. Income Taxes In the quarter, the
Company recorded a net income tax benefit of $1.9 million, which
represents a U.S. federal tax benefit and state and foreign income
tax expenses. In the quarter, the Company paid cash taxes of
approximately $1.4 million. Share-Based Compensation The Company
adopted FASB Interpretation No. 123R "Share-Based Payment" on
January 1, 2006 and recorded $3.3 million of share-based
compensation expense during the quarter, $3.1 million of which was
included in corporate expense in the accompanying condensed
consolidated statements of operations. The majority of the
remaining balance was included in selling, general and
administrative expense in the accompanying condensed consolidated
statements of operations. The Company did not recognize any
share-based compensation expense in the first quarter of 2005. In
addition, the Company recorded $1.6 million and $0.9 million of
compensation expense associated with restricted stock grants during
the three months ended March 31, 2006 and 2005, respectively.
Recent Announcements On May 1, 2006, the Company announced that an
investor group led by the Company's Chairman, Sol Kerzner, and its
Chief Executive Officer, Butch Kerzner, had amended the definitive
agreement under which the investor group proposed to acquire the
Company to increase the cash purchase price per ordinary share from
$76.00 to $81.00 (the "Transaction"). As a result, the Company
terminated the solicitation of superior proposals announced on
March 20, 2006. The Company has agreed that the Transaction cannot
be terminated prior to a stockholder vote without the consent of
the investor group. In the event of the consummation of this
Transaction, the Company would become a private company and its
shares would cease trading on the public markets. The investor
group also includes Istithmar, which is a significant shareholder
of the Company, Whitehall Street Global Real Estate Limited
Partnership 2005, Colony Capital LLC, Providence Equity Partners,
Inc. and The Related Companies, L.P., which is affiliated with one
of the Company's Directors. The Board of Directors of the Company,
upon the unanimous recommendation of a Special Committee of
Directors formed to evaluate the terms of the Transaction, approved
the revised terms of the merger agreement. The Special Committee of
Directors, which includes representatives of two significant
shareholders that are not affiliated with the investor group,
negotiated the price and other terms of the revised merger
agreement with the assistance of its financial and legal advisors.
The Transaction also requires approval of the merger agreement by
the Company's shareholders. The Kerzners and Istithmar, which
together own approximately 24% of the Company's ordinary shares,
have agreed to vote in favor of the Transaction. The Company will
schedule a special meeting of its shareholders for the purpose of
obtaining shareholder approval. In the event the merger agreement
is terminated under specified circumstances, the investor group
will receive a break-up fee of 3% of the equity value of the
Transaction (approximately $95 million). The Company noted that it
remains fully committed to all of its current development and
expansion plans as scheduled, including its Phase III expansion on
Paradise Island and its joint venture developments in Dubai and
Morocco. Furthermore, the Company remains focused on and committed
to developing an outstanding proposal in connection with one of the
two casino licenses to be issued by the Government of Singapore.
The Transaction is expected to close in the third quarter of 2006
and is subject to certain terms and conditions customary for
transactions of this type, including the receipt of financing and
regulatory approvals. Deutsche Bank Securities Inc. and Goldman
Sachs Credit Partners have provided commitments to the investor
group for the debt financing of the Transaction. During the
quarter, in connection with the Transaction, the Company incurred
$5.8 million in transaction costs related primarily to financial
and legal advisors of the Special Committee of Directors. About The
Company Kerzner International Limited (NYSE: KZL), through its
subsidiaries, is a leading international developer and operator of
destination resorts, casinos and luxury hotels. The Company's
flagship brand is Atlantis, which includes Atlantis, Paradise
Island, a 2,317-room, ocean-themed destination resort located on
Paradise Island, The Bahamas - a unique property featuring three
interconnected hotel towers built around a seven-acre lagoon and a
34-acre marine environment that includes the world's largest
open-air marine habitat. The resort is also home to the largest
casino in the Caribbean. Development of a major expansion on
Paradise Island is currently underway and will include a 600-room,
all-suite luxury hotel and a significant enhancement of Atlantis's
water-based attractions. Certain parts of this expansion have
already opened, including the Marina Village at Atlantis, with the
remaining elements expected to open by the second quarter of 2007.
The Company is extending its Atlantis brand globally with the
development of Atlantis, The Palm, Dubai, an approximately
1,500-room, water-themed resort expected to open in late 2008,
currently being constructed on The Palm, Jumeirah, a multi-billion
dollar leisure and residential development in Dubai. In its gaming
segment, the Company developed and receives certain income derived
from Mohegan Sun in Uncasville, Connecticut, which has become one
of the premier casino destinations in the United States. The
Company is also a 37.5% owner of BLB Investors, L.L.C., which owns
Lincoln Park in Rhode Island and pari-mutuel racing facilities in
Colorado. In the U.K., the Company is currently developing a casino
in Northampton and received a Certificate of Consent from the U.K.
Gaming Board in 2004. In its luxury resort hotel business, the
Company manages ten resort hotels primarily under the One&Only
brand. The resorts, featuring some of the top-rated properties in
the world, are located in The Bahamas, Mexico, Mauritius, the
Maldives and Dubai. An additional One&Only property is
currently in the planning stages in South Africa. For more
information concerning the Company and its operating subsidiaries,
visit www.kerzner.com. This press release contains forward-looking
statements, which are made pursuant to the safe harbor provisions
of the Private Securities Litigation Reform Act of 1995. These
forward-looking statements involve risks and uncertainties which
are described in the Company's public filings with the U.S.
Securities and Exchange Commission. Investor inquiries regarding
the Company should be directed to Omar Palacios at +1.242.363.6018.
Media inquiries should be directed to Lauren Snyder at
+1.242.363.6018. Condensed Consolidated Statements of Operations,
Reconciliation of Adjusted Net Income to U.S. GAAP Net Income,
Reconciliation of EBITDA to U.S. GAAP Net Income, Summary Segment
Data - Net Revenue, Summary Segment Data - EBITDA and Hotel
Operating Performance Data are attached. -0- *T Kerzner
International Limited Condensed Consolidated Statements of
Operations (In thousands of U.S. dollars, except per share data)
For the Three Months Ended March 31, ------------------- 2006 2005
(1) -------- -------- (Unaudited) Revenues: Casino and resort
revenues $215,692 $188,704 Less: promotional allowances (8,096)
(7,770) -------- -------- Net casino and resort revenues 207,596
180,934 Tour operations 17,692 12,993 Management, development and
other fees 6,808 6,186 Other 2,747 1,625 -------- -------- 234,843
201,738 -------- -------- Costs and expenses: Casino and resort
expenses 98,686 84,735 Tour operations 14,930 11,069 Selling,
general and administrative 41,423 32,168 Corporate expenses 15,790
8,940 Depreciation and amortization 20,460 15,684 Pre-opening
expenses 2,507 492 Transaction costs 5,819 - UK gaming write-off -
11,179 -------- -------- 199,615 164,267 -------- -------- Income
from operations 35,228 37,471 Relinquishment fees - equity in
earnings of TCA 9,479 8,678 Other income (expense): Interest income
1,827 2,221 Interest expense, net of capitalization (9,849)
(10,382) Equity in earnings of associated companies 12,417 4,165
Other, net 6 6 -------- -------- Other income (expense), net 4,401
(3,990) Income before provision for income taxes and minority and
noncontrolling interests 49,108 42,159 Benefit (provision) for
income taxes 1,884 (1,704) Minority and noncontrolling interests
(2,319) (2,505) -------- -------- Net income $ 48,673 $ 37,950
======== ======== Diluted earnings per share $ 1.27 $ 1.01 ========
======== Weighted average number of shares outstanding - diluted
38,376 37,654 (1) The Company has reclassified $0.7 million from
corporate expenses to UK Gaming write-off to conform to the
Company's financial statements presented in its 2005 Form 20-F.
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 March 31,
------------------------------------ 2006 2005 ------------------
----------------- $ EPS $ EPS --------- ------ --------- ------
Adjusted net income (1) $ 50,913 $ 1.33 $ 49,621 $ 1.32 Pre-opening
expenses (2) (2,838) (0.07) (492) (0.01) Transaction costs (3)
(5,819) (0.15) - - UK gaming write-off (4) - - (11,179) (0.30) Real
estate income (5) 4,047 0.10 - - Harborside cumulative effect of
change in accounting principle (6) (1,755) (0.05) - - Share of
income from Atlantis, The Palm interest rate swaps (7) 4,125 0.11 -
- --------- ------ --------- ------ Net income $ 48,673 $ 1.27 $
37,950 $ 1.01 ========= ====== ========= ====== (1) Adjusted net
income is defined as net income before pre-opening expenses,
Transaction costs, UK gaming write-off, real estate income,
Harborside cumulative effect of change in accounting principle and
share of income from Atlantis, The Palm interest rate swaps.
Adjusted net income is presented to assist investors in analyzing
the performance of the Company. Management considers adjusted net
income to be useful for (i) valuing companies; (ii) assessing
current results; and (iii) basing expectations of future results.
This information should not be considered as an alternative to net
income computed in accordance with accounting principles generally
accepted in the United States ("U.S. GAAP"), nor should it be
considered as an indicator of the overall financial performance of
the Company. Adjusted net income is limited by the fact that
companies may not necessarily compute it in the same manner,
thereby making this measure less useful than net income calculated
in accordance with U.S. GAAP. (2) Pre-opening expenses for the
quarter ended March 31, 2006 include costs incurred relating to the
Phase III expansion on Paradise Island of $2.5 million. Pre-opening
expenses also include costs incurred relating to Atlantis, The Palm
of $0.3 million, which are included as equity in earnings of
associated companies in the accompanying condensed consolidated
statements of operations. Pre-opening expenses for the quarter
ended March 31, 2005 represent costs incurred relating to the
Marina Village at Atlantis, which opened in the third quarter of
2005. (3) Transaction costs include legal costs and other
professional fees incurred during the quarter ended March 31, 2006
relating to the Special Committee to the Company's Board of
Directors consideration and subsequent acceptance of an offer to be
acquired by an investor group led by the Company's Chairman and
Chief Executive Officer. (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. The Company has reclassified $0.7
million from corporate expenses to UK Gaming write-off to conform
to the Company's financial statements presented in its 2005 Form
20-F. (5) For the quarter ended March 31, 2006, real estate income
includes equity in earnings of $3.7 million associated with Ocean
Club Residences & Marina and a loss of $0.9 million, net of
minority interest, associated with The Residences at Atlantis, two
of the Company's joint venture real estate-related projects on
Paradise Island. Real estate income also includes a $1.2 million
gain resulting from the sale of real estate at Ocean Club Estates
during the quarter ended March 31, 2006. (6) Effective January 1,
2006, Harborside adopted Statement of Financial Accounting
Standards No. 152, "Accounting for Real Estate Time-Sharing
Transactions," which changed the timing for recognizing timeshare
revenues, selling and product costs and maintenance fees for unsold
timeshare inventory, as well as the recording of bad debts. As a
result of adopting this new standard, Harborside recorded a
one-time charge of $3.5 million during the quarter ended March 31,
2006, which resulted in a $1.8 million one-time non-cash equity
loss for the Company. (7) During the quarter ended March 31, 2006,
the Company recognized $4.1 million of equity earnings relating to
its 50% share of income from the change in fair market value of
interest rate swap agreements entered into by the joint venture
developing Atlantis, The Palm. It is expected that the joint
venture will terminate these swap agreements in the second quarter
of 2006. Kerzner International Limited Reconciliation of EBITDA to
U.S. GAAP Net Income (In thousands of U.S. dollars) (Unaudited) For
the Three Months Ended March 31, ------------------ 2006 2005
-------- -------- EBITDA (1) $ 85,655 $ 78,552 Share-based and
restricted stock grant compensation expense (4,903) (883)
Depreciation and amortization (20,460) (15,684) Pre-opening
expenses (2,838) (492) Transaction costs (5,819) - UK gaming
write-off - (11,179) Real estate income 3,119 - Other income
(expense), net 4,401 (3,990) Equity in earnings of associated
companies (12,417) (4,165) Harborside cumulative effect of change
in accounting principle (1,755) - Share of income from Atlantis,
The Palm interest rate swaps 4,125 - Benefit (provision) for income
taxes 1,884 (1,704) Minority and noncontrolling interests (2,319)
(2,505) -------- -------- Net income $ 48,673 $ 37,950 ========
======== (1) EBITDA is defined as net income before share-based and
restricted stock grant compensation expense, depreciation and
amortization, pre-opening expenses, Transaction costs, UK gaming
write-off, real estate income, other income (expense), net
(excluding equity in earnings of associated companies before equity
in earnings of Ocean Club Residences & Marina, Harborside
cumulative effect of change in accounting principle, the Company's
share of income from Atlantis, the Palm interest rate swaps and the
Company's share of Atlantis, The Palm 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. Kerzner International Limited Summary Segment Data - Net
Revenue (In thousands of U.S. dollars) (Unaudited) For the Three
Months Ended March 31, --------------------- 2006 2005 (5)
--------- --------- Destination Resorts (1): Atlantis, Paradise
Island Rooms $ 56,032 $ 55,710 Casino 44,003 45,072 Food and
beverage 44,660 38,180 Other 22,086 17,902 --------- ---------
166,781 156,864 Promotional allowances (8,096) (7,770) ---------
--------- 158,685 149,094 Tour operations 10,080 7,306 Harborside
fees 939 1,011 --------- --------- 169,704 157,411 Atlantis, The
Palm development fees 300 201 --------- --------- 170,004 157,612
--------- --------- Gaming: Connecticut fees 236 223 ---------
--------- One&Only Resorts: One&Only Ocean Club 12,953
13,272 One&Only Palmilla 21,711 18,568 One&Only Maldives at
Reethi Rah (2) 14,247 - Other resorts (3) 5,333 4,751 Tour
operations 7,612 5,687 --------- --------- 61,856 42,278 ---------
--------- Other (4) 2,747 1,625 --------- --------- $ 234,843 $
201,738 ========= ========= (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)
One&Only Maldives at Reethi Rah commenced operations on May 1,
2005. (3) Includes management, marketing and development fees from
the Company's One&Only Resorts properties located in Mauritius,
Dubai and the Maldives. (4) 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. (5) Certain amounts for the 2005 period
have been reclassified to conform to the current period's
presentation. Kerzner International Limited Summary Segment Data -
EBITDA (In thousands of U.S. dollars) (Unaudited) For the Three
Months Ended March 31, -------------------- 2006 2005 (3) ---------
--------- Destination Resorts: Atlantis, Paradise Island $ 53,929 $
57,165 Tour operations 2,466 1,694 Harborside fees 939 1,011
Harborside equity earnings 3,692 3,553 --------- --------- 61,026
63,423 Atlantis, The Palm 280 173 --------- --------- 61,306 63,596
--------- --------- Gaming: Connecticut 9,479 8,901 United Kingdom
(3,194) (490) BLB 1,121 (695) Other equity losses (166) (257)
--------- --------- 7,240 7,459 --------- --------- One&Only
Resorts: One&Only Ocean Club 4,911 5,168 One&Only Palmilla
9,570 8,845 One&Only Maldives at Reethi Rah 6,542 - Other
resorts (1) 5,333 4,751 Tour operations 289 222 Direct expenses
(3,510) (3,960) Other equity earnings 1,988 1,564 ---------
--------- 25,123 16,590 --------- --------- Corporate and other (2)
(8,014) (9,093) --------- --------- $ 85,655 $ 78,552 =========
========= See definition and management's disclosure regarding
EBITDA in the accompanying reconciliation of EBITDA to U.S. GAAP
net income. (1) Consists of management, marketing, development and
other fees for operations located in Mauritius, Dubai and the
Maldives. (2) Corporate and other represents corporate expenses not
directly attributable to Destination Resorts, Gaming or
One&Only Resorts. (3) Certain amounts for the 2005 period have
been reclassified to conform to the current period's presentation.
Kerzner International Limited Hotel Operating Performance Data
(Unaudited) For the Three Months Ended March 31,
-------------------- 2006 2005 --------- --------- Atlantis,
Paradise Island: Occupancy 86% 87% ADR (1) $ 320 $ 310 RevPAR (2) $
276 $ 269 One&Only Resorts (3): Occupancy 90% 84% ADR (1) $ 589
$ 533 RevPAR (2) $ 532 $ 445 One&Only Ocean Club: Occupancy 86%
87% ADR (1) $ 1,107 $ 1,023 RevPAR (2) $ 953 $ 891 One&Only
Palmilla: Occupancy 93% 88% ADR (1) $ 803 $ 724 RevPAR (2) $ 749 $
638 One&Only Maldives at Reethi Rah: Occupancy 87% - ADR (1) $
888 - RevPAR (2) $ 774 - 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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