Press Release: Kerzner International Limited
August 14, 2002
PARADISE ISLAND, The Bahamas -- Kerzner International Limited (NYSE:KZL; formerly known as Sun International Hotels
Limited) reported recurring income for the quarter, adjusted for non-recurring items and operating results from
its recently launched Kerzner Interactive (formerly known as SunOnline) internet gaming operations, of $21.5 million
compared to recurring earnings of $21.0 million in the same period last year. On this basis, earnings per share
for the period were $0.75, equal to the same period last year. Non-recurring items in 2002 include a $15.0 million
extraordinary loss from the early extinguishment of debt, partially offset by a $5.1 million net gain on the settlement
of a previous territorial dispute with Kersaf Investments Limited. Non-recurring items in 2001 included pre-opening
expenses and sale of real estate at the Company's Paradise Island operations.
The Company reported EBITDA for the quarter, excluding Kerzner Interactive, of $44.5 million as compared to $45.4
million in the same period last year. Butch Kerzner, President of the Company commented, "Atlantis continues
to demonstrate its resilience in a difficult overall travel market and achieved a small improvement in average
room rate over the previous year. The property is benefiting from the significant marketing efforts that have helped
establish Atlantis as a strong consumer brand within the traveling public. Further, the property has benefited
from a deliberate effort over the last few years to broaden its source markets as defined by geographic origin."
Results improved sequentially by month beginning with a somewhat slower April, which did not benefit from Easter
as it fell in March this year. The property returned to 2001 trading levels in May and was up over the prior year
in June.
The Company recorded net income, after non-recurring items, in the quarter of $9.8 million, compared to net income
of $21.8 million for the same period last year. On this basis, fully diluted earnings per share for the quarter
were $0.34 compared to $0.78 for the same period last year.
As previously announced, on February 15, 2002, the Company had agreed to sell 50% of Kerzner Interactive to Station
Casinos, Inc. ("Station"). The two companies have restructured this agreement such that Station now has
acquired an option from the Company to buy a 50% interest in its online operations. The operating loss of $1.8
million from the online operations was in line with management's expectations for the quarter and slightly lower
than such losses in the first quarter of this year.
Paradise Island
During the quarter, the Company's Paradise Island operations achieved gross revenues of $133.2 million, 78% of
which were generated by hotel and resort operations and 22% by the casino. Also during the quarter, the Company's
Paradise Island operations achieved EBITDA of $41.6 million compared to $42.5 million achieved during the same
period last year. Paul O'Neil, CEO of the Paradise Island business, commented, "We are very pleased with the
outstanding performance of the operations for this year. Against the backdrop of a challenging travel environment,
the business achieved EBITDA for the first six months of $92.8 million, which is almost level with the record EBITDA
achieved last year of $93.3 million."
Atlantis' revenue per available room ("RevPar") for the quarter was approximately $225, a 4% decline
from the same period last year. On a monthly basis, RevPar trends improved each month following an 11% decline
in April. RevPar was flat in May and up 3% in June. For the quarter, Atlantis achieved an average occupancy of
86% at a $262 average daily room rate ("ADR").
In the Atlantis casino, slot volumes were strong in the quarter and slot win increased by 10% over the same period
last year. Table volumes ("drop") decreased by 20% over the same period last year, as certain major players
delayed trips to the property.
The Company's luxury resort hotel on Paradise Island, the Ocean Club, also performed well and continued to outperform
other luxury resorts in its category. RevPar in the quarter increased by 2% to $482 in the current year from $473
in the same period last year.
Connecticut
Mohegan Sun reported slot revenues for the quarter of $182.4 million, which was 21% above the same period last
year. This increase is primarily attributable to the opening of the Casino of the Sky, which added a total of approximately
2,500 slot machines to Mohegan Sun. Slot win per unit per day was $323 for the quarter, a 31% decline from the
same period last year, which is primarily due to an increase in the number of weighted average slots to approximately
6,199 from 3,546 in the same period last year.
Mohegan Sun continues to increase its market share. While the Connecticut slots market grew by 10% over the same
period last year, the property increased its market share to 47% in the quarter, up from 43% in the same period
last year. The highlight of the quarter was the grand opening of the 34-story Mohegan Sun hotel, which took place
from June 21 to June 23. The star-studded event was highly publicized in the media and included performances by
Cher, The Blues Brothers, Rosie O'Donnell, Aretha Franklin and Ray Charles.
Trading Cove Associates, an entity 50%-owned by the Company, receives payments from the Mohegan Tribal Gaming Authority
of 5% of gross operating revenues of the expanded Mohegan Sun operation.
In terms of the Company's agreements with Trading Cove Associates, the Company recorded income of $6.8 million
in the quarter, compared to $6.2 million in the same period last year. In addition, the Company also recognized
$2.7 million in development fees earned as a result of the Mohegan Sun expansion.
Luxury Resort Operations
In addition to its interests in the mega-resorts of Atlantis and Mohegan Sun, the Company manages eight other resort
hotels in The Bahamas, Mauritius, Dubai and the Maldives. Included in these resort operations are five properties
that the Company considers "luxury resorts", namely "The Ocean Club" in The Bahamas; "Le
Saint Geran" and "Le Touessrok" in Mauritius; "The Royal Mirage" in Dubai; and "The
Kanuhura" in the Maldives. Each one of these properties is unique and positioned at the high-end of its competitive
set. These properties are either new or are undergoing extensive renovations in order to ensure that the architectural
and interior elements of these hotels remain at the leading edge of the resort industry. For example, during 1999
the Company substantially demolished and redeveloped its leading 165-room hotel in Mauritius, "Le Saint Geran",
and the "Ocean Club" in The Bahamas was expanded and remodeled during 2000. During this year, the 200-room
Le Touessrok, which is located on one of the most unique beach sites in the world, is also being substantially
rebuilt with a new contemporary design.
As stated previously, the Company intends to aggressively grow its luxury resort operations. The Company made significant
progress in moving this strategy forward during the quarter. The Company will enter the Mexican market through
a definitive agreement to acquire a 50% ownership stake in the 115-room Palmilla Resort for a purchase price of
$38.75 million. The Palmilla Resort is a deluxe five star property located near Cabo San Lucas in Baja, Mexico
that also owns and operates a 27-hole Jack Nicklaus-designed golf course. Butch Kerzner commented, "The Los
Cabos market has positioned itself at the high-end of the resort market for western North America and several properties
are achieving excellent room rates. The Palmilla Resort is one of the Mexican tourism industry's original "Grand
Dames" and we believe that with some creative redevelopment it has enormous future potential." The property
is located on an outstanding site with the most extensive beach frontage of any of the leading hotels in the destination.
The property was first developed in 1956 and has gone through numerous renovations and expansions, the most recent
having taken place in 1996. The Company has executed this agreement with the existing ownership group led by Goldman
Sachs Emerging Markets Real Estate Fund LP and has also entered into a long-term management contract. The transaction
is expected to close by the fourth quarter of 2002.
In addition to the Palmilla transaction, the Company has entered into a management and development agreement for
a 100-room resort in the Maldives that is expected to open by the end of 2003. This will become the Company's second
operation in the Maldives. This property enjoys an excellent location on Medhufinolhu Island within easy access
of the Male International Airport. Most of the atolls within easy access of the airport are difficult to obtain
for new development as they were originally built upon in the first phase of tourism development in the country
over 20 years ago. The Medhufinolhu Island, which is located in the North Male Atoll, currently has a small resort
known as Reethi Rah, which will be demolished and redeveloped by the Company into a luxury all-suite resort.
The Company also entered into an amendment of its management contract with the Royal Mirage hotel in Dubai in order
to expand the terms of the contract to include the 225-room expansion presently under development at the hotel.
The 225-room expansion to the Royal Mirage includes two new developments - the 175-room "Arabian Court"
and "The Residence & Spa", the latter being an ultra-luxurious, boutique hotel development. These
new developments are scheduled to open during December of this year. The Royal Mirage has continued to post outstanding
results and, for the second quarter, achieved the highest RevPar in the destination. Customer demand for the property
continues to be extremely strong and the prospects for the new developments are very encouraging.
During the quarter, which is traditionally the low season for these operations, the Company earned management fees
of $1.2 million from these operations, compared to $1.6 million in the comparable quarter last year. The decrease
in management fees was due primarily to the temporary closure of Le Touessrok in Mauritius, which is closed for
refurbishment and is expected to re-open at the end of 2002.
Liquidity
The Company closed the quarter with strong liquidity. At the end of the quarter, the Company held $67.8 million
in cash and cash equivalents, including $4.7 million in restricted cash. During the quarter, the Company repurchased
$15.2 million of its 8.625% Senior Subordinated Notes due 2007 through transactions in the open market.
In June 2002, the Company completed a tender offer of its $200 million 9% Senior Subordinated Notes due 2007. These
notes were replaced by a $200 million add-on offering of its 8.875% Senior Subordinated Notes due 2011 issued at
a premium of 3% above par.
These transactions improve the debt maturity profile of the Company by lengthening the terms of its credit obligations
and benefit the Company by lowering future interest expense.
The Company's Revolving Credit Facility was paid down in full during the second quarter and currently remains undrawn.
During the quarter, the Company increased its Revolving Credit Facility from $200 million to $300 million.
About the Company
Kerzner International Limited is a leading developer and operator of premier casinos, resorts and luxury hotels.
The Company's flagship destination is Atlantis, a 2,317-room, ocean-themed resort located on Paradise Island, The
Bahamas. Atlantis is a unique destination casino resort 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
Company also developed and receives certain revenues from Mohegan Sun in Uncasville, Connecticut. Following the
completion of a $1 billion expansion, the Native American-themed Mohegan Sun has become one of the premier casino
resort destinations in the United States. In the luxury resort hotel business, the Company operates eight luxury
resorts in The Bahamas, Mauritius, Dubai, and the Maldives. For more information concerning the Company and its
operating subsidiaries visit http://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 Securities Exchange Commission.
Inquiries should be directed to John Allison, Executive Vice President - Chief Financial Officer of Kerzner International
Limited at +1.242.363.6016.
Kerzner International Limited
Consolidated Statements of Operations
(In Thousands of Dollars Except Per Share Data)
For the Three Months For the Six Months
Ended June 30, Ended June 30,
---------------------- ---------------------
2002 2001 2002 2001
----------- ---------- ---------- ----------
(Unaudited) (Unaudited)
Revenues:
Casino and resort
revenues $ 133,400 $ 136,153 $ 277,324 $ 287,946
Less: promotional
allowances (5,543) (5,663) (12,544) (14,464)
----------- ---------- ---------- ----------
127,857 130,490 264,780 273,482
Tour operations 10,047 10,085 20,100 20,711
Management and other fees 11,216 8,207 20,116 18,323
Real estate related - 2,893 - 7,757
Insurance recovery 1,100 - 1,100 -
Other 1,094 993 2,188 1,764
----------- ---------- ---------- ----------
151,314 152,668 308,284 322,037
----------- ---------- ---------- ----------
Expenses:
Casino and resort expenses 69,248 68,643 136,207 140,579
Tour operations 8,998 8,643 17,534 18,041
Selling, general and
administrative 21,243 20,901 43,818 42,628
Real estate related - 1,045 - 2,311
Corporate expenses 9,060 6,221 15,852 12,213
Depreciation and
amortization 13,385 12,611 27,039 24,116
Pre-opening expenses - 1,098 - 4,355
----------- ---------- ---------- ----------
121,934 119,162 240,450 244,243
----------- ---------- ---------- ----------
Operating income 29,380 33,506 67,834 77,794
Other income and expenses:
Interest income 535 1,521 1,443 4,270
Interest expense, net of
capitalization (10,260) (12,626) (20,914) (26,836)
Equity in earnings of
associated companies,
net 565 981 1,828 2,804
Gain on settlement of
territorial dispute 5,069 - 5,069 -
Other, net (13) (60) (82) (60)
----------- ---------- ---------- ----------
Income before income
taxes and extraordinary
item 25,276 23,322 55,178 57,972
Income tax provision (498) (1,527) (790) (2,954)
----------- ---------- ---------- ----------
Income before
extraordinary item 24,778 21,795 54,388 55,018
Extraordinary loss on early
extinguishment of debt, net
of benefit for income
taxes (15,006) - (15,006) -
----------- ---------- ---------- ----------
Net income $ 9,772 $ 21,795 $ 39,382 $ 55,018
=========== ========== ========== ==========
Diluted net income per share:
Income before
extraordinary item $ 0.86 $ 0.78 $ 1.91 $ 1.99
Extraordinary loss on
early extinguishment
of debt $ (0.52) $ - $ (0.53) $ -
----------- ---------- ---------- ----------
Net income per share $ 0.34 $ 0.78 $ 1.38 $ 1.99
Weighted average number
of shares outstanding -
diluted 28,799 27,931 28,454 27,685
Kerzner International Limited
Summary Segment Data
(In Millions)
(Unaudited)
For the For the
Three Months Six Months
Ended June 30, Ended June 30,
---------------------------------
2002 2001 2002 2001
---------------------------------
Paradise Island:
Gross revenues (1) $ 133.2 $ 136.1 $ 277.0 $ 287.9
Casino 28.8 31.4 65.8 73.8
Hotel (2) 104.4 104.7 211.2 214.1
EBITDA (3) $ 41.6 $ 42.5 $ 92.8 $ 93.3
Atlantis
Occupancy rate 86% 89% 85% 90%
ADR $ 262 $ 261 $ 273 $ 273
RevPar $ 225 $ 233 $ 232 $ 244
Ocean Club
Occupancy rate 65% 75% 68% 74%
ADR $ 744 $ 632 $ 806 $ 685
RevPar $ 482 $ 473 $ 546 $ 508
Online Gaming:
EBITDA loss (4) $ (1.7) $ - $ (3.9) $ -
(1) The three month period presented for 2002 and 2001 excludes
revenues from Ocean Club Estates lot sales of $-0- and $2.9 million
and $1.1 million and $-0- for insurance recovery, respectively. The
six month period presented for 2002 and 2001 excludes revenues from
Ocean Club Estates lot sales of $-0- and $7.8 million and $1.1 million
and $-0- of insurance recovery, respectively.
(2) Excludes results of the Company's wholly owned tour operator.
(3) The three month period presented for 2002 and 2001 excludes a
gain from Ocean Club Estates lot sales of $-0- million and $1.8
million, respectively. The six month period of 2002 and 2001 excludes
a gain from Ocean Club Estates lot sales of $-0- million and $5.4
million, respectively and excludes pre-opening expenses of $-0-
million and $1.6 million, respectively.
(4) Costs related to Online Gaming for the three month and six
month period of 2001 was comprised of pre-opening expenses of $1.1
million and $2.8 million, respectively.
WORKSHEET FOR SUMMARY SEGMENT DATA - PRESS RELEASE
3 Mos 3 Mos 6 Mos 6 Mos
Ended Ended Ended Ended
6/30/02 6/30/01 6/30/02 6/30/01
----------------------------------
Paradise Island Operations
Gross revenues 133,212 136,153 277,008 287,946
Casino 28,768 31,445 65,804 73,819
Hotel (Rooms, FB, Oth C/H) 104,444 104,708 211,204 214,127
Red card elimination - - - -
EBITDA 41,638 42,513 92,882 93,338
Operating earnings 25,342 27,919 58,264 64,979
Depreciation add-back 12,956 12,227 26,177 23,354
Depreciation Adjustment - - - -
Amortization ab 8 8 16 16
Management fee ab 3,412 4,208 8,566 8,887
Red card elimination - - - -
Pre-opening - - - 1,548
Less O.C Estates (80) (1,849) (141) (5,446)
-------------------------------------------------
Contact:
Kerzner International Limited, Paradise Island
John Allison, +1.242.363.6016