[2011] Atlantis gets new owner

[Debbie118]

Kerzner International announced yesterday that the company has transferred ownership of Atlantis and the One&Only Ocean Club to Brookfield Asset Management. I just read this in The Nassau Guardian.

 

[JeffW]

http://www.thenassauguardian.com/index.php?option=com_content&view=article&id=17854&Itemid=27

- ownership change looks to be in exchange for relieving $175M od debt
- Kerzner still has management contracts for 4 years at Atlantis, 15 years at One&Only.

Big question (not addressed) for Starwood owners is, how if any does this affect Harborside Phase III plans?

Jeff

 

[komosatp]

Big question (not addressed) for Starwood owners is, how if any does this affect Harborside Phase III plans?

I think it pushes it out at least two years.

From the Wall Street Journal article:

Brookfield will inherit more than $2 billion of Kerzner debt that has been past due since September and must be refinanced.

Brookfield intends to seek a two-year extension of the debt's due date from its fellow lenders to allow it time to refinance the debt, according to Brookfield executives.

 

[clsmit]

Brookfield is a large Canadian holding company that owns a ton of real estate assets, including the US mall company General Growth Properties. Taking over Atlantis will be a new venture for them.

 

[yumdrey]

Brookfield is a large Canadian holding company that owns a ton of real estate assets, including the US mall company General Growth Properties. Taking over Atlantis will be a new venture for them.

General Growth Properties filed bankruptcy 2-3 years ago.
Hope Brookfield has strong financial base and this (transfer ownership) doesn't affect Harborside owners.

 

[jarta]

Essentially, Kerzner gave Brookfield a deed in lieu of foreclosure, told Brookfield to work out the details with the other lenders and walked away from Atlantis.

The question is not how this affects Phase III at Harborside. The question is how this will affect Phases I and II. ... eom

 

[mariawolf]

Any tuggers going to be there for the annual meeting?? Here is article:
http://www.thenational.ae/business/travel-tourism/kerzner-sells-flagship-atlantis-in-bahamas

 

[tomandrobin]

Great....something else to worry about!

Can't wait to see the minutes and discussion from the owners meeting.

 

[komosatp]

Essentially, Kerzner gave Brookfield a deed in lieu of foreclosure, told Brookfield to work out the details with the other lenders and walked away from Atlantis.

Kerzner is going to manage it for at least two years so it's not quite walking away from the property. This is very common the hotel industry: a real estate company owns the building and a hotel company does all the management.

The deal is probably only for 4 years to give Brookfield more flexibility in finding new owners or financing. Kerzner could be there for many more years, but it's better to have the property less encumbered by long term contracts.

 

[jarta]

komosatp, ... "Kerzner is going to manage it for at least two years so it's not quite walking away from the property."

Perhaps you feel Kerzner giving title to Atlantis to Brookfield (the main lender) because Kerzner was in default on the Atlantis mortgages with Kerzner getting a management contract is good news for Harborside. I do not.

The inability of the revenue at Atlantis to cover the mortgage and expenses is not good news for Harborside, IMO. Harborside is so tied to Atlantis. Harborside needs a strong, healthy Atlantis to thrive. ... eom

 

[GregT]

komosatp, ... "Kerzner is going to manage it for at least two years so it's not quite walking away from the property."

Perhaps you feel Kerzner giving title to Atlantis to Brookfield (the main lender) because Kerzner was in default on the Atlantis mortgages with Kerzner getting a management contract is good news for Harborside. I do not.

The inability of the revenue at Atlantis to cover the mortgage and expenses is not good news for Harborside, IMO. Harborside is so tied to Atlantis. Harborside needs a strong, healthy Atlantis to thrive. ... eom

Jarta,

I agree -- nothing good from this uncertainty. However, managing Harborside (and its rights to Atlantis) may be profitable at some reasonable level, however Kerzner may have overpaid (?) for those rights? Perhaps Kerzner has a debt load (unrelated to the management of Atlantis?) that was not serviceable leading to the change?

I'm not close to the situation, so not sure if there is a different relationship, but thinking it may not be so bad?

Best,

Greg

 

[komosatp]

Perhaps you feel Kerzner giving title to Atlantis to Brookfield (the main lender) because Kerzner was in default on the Atlantis mortgages with Kerzner getting a management contract is good news for Harborside. I do not.

We don't know if it will be good or bad yet. We could end up with a better property owner or manager at the end of this all. Yes, change can be scary, but sometimes you come out better after change.

I don't really see this changing Atlantis very much in the short-term. The same people will be managing the place with the same financial pressure they had last week. Or maybe even slightly less pressure because the debt things is closer to resolved.

The inability of the revenue at Atlantis to cover the mortgage and expenses is not good news for Harborside, IMO.

Perhaps Kerzner has a debt load (unrelated to the management of Atlantis?) that was not serviceable leading to the change?

Bingo Greg!!!!!

This sale/debt load was not related to "The inability of the revenue at Atlantis to cover the mortgage and expenses"....it is related to Kerzner's leveraged buy-out several years ago.

Sol bought the company back at the height of the market...with borrowed money. He paid inflated prices for the present value of all future profits at Atlantis to get the company's stock back from the public. Now those future profits will likely be much smaller since we've entered an age of less-conspicuous consumption. And Sol also missed out on years of big expected profits because of the prolonged length of the Great Recession.

The bottom line is that Atlantis might make a nice operating profit (it did while it was an un-leveraged public company)...including being able to service debt related to further developing the resort. But being able to service a debt load that is tied to the golden-age of super-occupancy and high nightly hotel-room prices never ending is not in the cards. The world changed. Sol made a big bet and he sevened-out. He lost control of Atlantis in the process.

 

[JeffW]

Semi-related: any change in ownership or management of Atlantis Dubai?

Jeff

 

[komosatp]

Semi-related: any change in ownership or management of Atlantis Dubai?

Jeff

In August, Kerzner put a 50% stake of it up for sale. Haven't seen any updates since then. I expect a similar resolution, as Sol said in his statement that he is changing Kerzner's strategy to be one of a management company.

 

[ocdb8r]

komosatp, ... "Kerzner is going to manage it for at least two years so it's not quite walking away from the property."

Perhaps you feel Kerzner giving title to Atlantis to Brookfield (the main lender) because Kerzner was in default on the Atlantis mortgages with Kerzner getting a management contract is good news for Harborside. I do not.

The inability of the revenue at Atlantis to cover the mortgage and expenses is not good news for Harborside, IMO. Harborside is so tied to Atlantis. Harborside needs a strong, healthy Atlantis to thrive. ... eom

Jarta, totally agree with your sentiments. It's never a good sign when an asset can't seem to service its debt.

However, I'm hopeful some of the problem is as a result of over-aggressive financing at a time when the economy was going gangbusters. I don't know the facts, but I think Atlantis is still turning over substantial revenue. Hopefully a bit of a reorganization of debt along with some uptick in the economy can save it. While Harborside is certainly at risk, it also reaped the benefits of the enormous investments made into Atlantis. To me, the resort has always been a sort of "live and die by the sword" location as without Atlantis, it really isn't much.

 

[komosatp]

Just did a little Googleing.

Sol and company bought Atlantis for $3.2 BN in 2006 in the LBO. There were competing offers and Sol's group had to increase their initial offer from $76 to $81 a share.

At the time of the LBO in 2006, Atlantis had $599 million in debt. Brookfield assumed $2 BN in debt in this deed-in-lieu transaction. The difference between those two number is almost entirely due to borrowing money for the LBO, not putting money into development.

 

[clsmit]

Brookfield is a well-managed real estate company. One knowledgeable person I know noted they are the "Warren Buffet" of real estate. While I personally would not go that far, I am comfortable they knew what they were getting into when they offerred the debt so they know what they have now.

When they bought their share of General Growth (GGP) they also knew what they were doing. GGP has a ton of great malls that Brookfield now owns a portion of. Based on that experience I expect them to ensure that Atlantis is run well so they can recoup their investment.

 

[HenryT]

Brookfield is a well-managed real estate company. One knowledgeable person I know noted they are the "Warren Buffet" of real estate. While I personally would not go that far, I am comfortable they knew what they were getting into when they offerred the debt so they know what they have now.

When they bought their share of General Growth (GGP) they also knew what they were doing. GGP has a ton of great malls that Brookfield now owns a portion of. Based on that experience I expect them to ensure that Atlantis is run well so they can recoup their investment.

I guess my question is will this aquisition result in even higher maintenance fees at Harborside so Brookfield can recoup their investment sooner vs later.

 

[komosatp]

I guess my question is will this aquisition result in even higher maintenance fees at Harborside so Brookfield can recoup their investment sooner vs later.

The Atlantis access fee is based on the Bahamian CPI....Kerzner/Starwood/Brookfield can't adjust it to suit their needs.

 

[PamMo]

We'll have to wait to see what our 2012 MF bills are.

 

[Dave H]

if you look at last year Phase 1 had the huge increase and Phase 2 did a minor increase, this year, Phase 2 played catch up and Phase 1 had a minor increase....

 

[komosatp]

Something is odd. Per csudell's post in the MF thread, here are the Atlantis access fees over the last few years for a 1BR Phase II unit:

Historic Atlantis Facilities Fee Assessment
--------------------------------------------------------------------------------
2009 - 100.55
2010 - 104.91
2011 - 107.40
2012 Proposed - 202.66
​

The proposed 2012 fee is a LOT higher than 2011's. This proposed hike sure isn't tied to an increase of almost 90% in the Bahamian CPI for 2011. Something else is going on.

The Atlantis access fee for 2011 (for a standard 1 BR in Phase II) was $198.96.

The 'Total Fee' from the 2006 amended access deed was $175...see below.
Not sure where those other numbers came from. Maybe the Phase I access deed has a different fee structure?

In any case, the access fee for HRA Phase II is pretty unequivocal. Go to your ownership documents, find Exhibit B.3 to the Harborside Resort Condominium II Public Offer Statement and the FIRST AMENDMENT TO USE AND ACCESS DEED, section 4.1. These exhibits start around page 202 in my version of the documents.

 

[PamMo]

Thank you, komosatp. I deleted my reference to csudell's post, thinking it best to have a long-time owner sort and verify the numbers for us. Csudell's history of access fees is very different from what you just posted.

I am a new owner at Harborside, and in looking at last year's MF's for a Phase I 2BR-LO, I see "other" charges listed. Is "Other" the Atlantis access fee?

 

[komosatp]

Thank you, komosatp. I deleted my reference to csudell's post, thinking it best to have a long-time owner sort and verify the numbers for us. Csudell's history of access fees is very different from what you just posted.

I am a new owner at Harborside, and in looking at last year's MF's for a Phase I 2BR-LO, I see "other" charges listed. Is "Other" the Atlantis access fee?

I'm in Phase II. Its the very last line above the total on my statements/notice. It's listed as "Atlantis Facilities Assessment".

 

[mariawolf]

Article in WAll Street Journal today:
http://online.wsj.com/article/SB10001424052970204083204577082722801194202.html