[2011] Atlantis gets new owner

[bizaro86]

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

Brookfield's stake in General Growth Properties came after the GGP bankruptcy. Brookfield and it's principals have made similar purchases of distressed real estate assets many times (Canary Wharf in London and the World Financial Centre in NYC come to mind). They're highly skilled real estate/hard asset people. They're involvement is probably a good sign.

They certainly have the financial base that owning a resort (even one w/ 2 billion in debt) isn't a big deal. They have lots of money and the credibility to get more if they need it.

 

[maph]

Atlantis deal falls through

Looks like Brookfield's takeover of Atlantis has fallen through.

http://www.bloomberg.com/news/2012-01-17/brookfield-cancels-agreement-for-kerzner-s-atlantis-resort-in-the-bahamas.html

 

[bizaro86]

Looks like Brookfield's takeover of Atlantis has fallen through.

http://www.bloomberg.com/news/2012-01-17/brookfield-cancels-agreement-for-kerzner-s-atlantis-resort-in-the-bahamas.html

Interesting. We'll see who ends up with it now, as it's unlikely the current owners will be able to refinance. My gut feel is it'll be a consortium of debtholders swapping for equity, and Brookfield will let some of the other junior lenders in on the deal, and they'll refinance the whole thing.

 

[komosatp]

My gut feel is it'll be a consortium of debtholders swapping for equity, and Brookfield will let some of the other junior lenders in on the deal, and they'll refinance the whole thing.

I agree.

The Nassau Guardian has a few interesting stories about this matter. It's being used as a political football by some opposition leaders.

Another interesting thing I found in Google-ing after I read this was that Kerzner was offered $3.4 Billion in 2010 for Atlantis and rejected that offer. Doing the back of the envelope math, if Brookfield was getting Atlantis for $175 million plus taking on $2.5 billion in debt (or so), the certainly were getting a sweetheart deal....and the other creditors had good reason to stop the deal...half a billion or so reasons. I'm sure I'm missing a few pieces here (this would be pretty brazen if Brookfield was getting a $3.4 billion asset for $2.7 billion), but It wouldn't surprise me if Sol agreed to a low purchase price beacuse he was getting a lucrative management contract...and getting out from under some personal promises he made on this debt.

 

[komosatp]

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

Doing a little more research, I found objective confirmation that this is is not the right way to characterize the current problem.

Atlantis was able to cover its expenses and make the mortgage payments through the term of the loan (5 years). Putting it in simple terms, the 'balloon payment' on these loans came due in September, and Kerzner was unable to refinance. This is not that unusual in today's commercial real estate market. Loans that were underwritten in 2006 are not under-writable in today's environment. New money has to come in or the lender has to decide to grant new loan terms....or foreclose.

Here's some specifics about what has happened at Atlantis in the five years:

Revenue per available room (RevPAR), calculated by multiplying the average daily rate by the occupancy rate, for the trailing 12-month period ending December 2010 was $195 at the Atlantis and $719 at the One & Only Ocean Club. Although combined RevPAR for the two hotels increased 5% from the trailing 12-month period ending in December 2009, it remains 18% less than at securitization. Casino revenue, which represents 17% of total revenue, decreased 8% from 2009 and approximately 25% from securitization.

Note that even with these decreased revenue levels, Atlantis was still making its payments.

I wish things were better, but the bottom line is that Atlantis can operate healthily/profitably even with the overall economy in the state it's been for the past five years. But the whole place is worth a lot less than it was in 2006.

 

[jarta]

"My gut feel is it'll be a consortium of debtholders swapping for equity, and Brookfield will let some of the other junior lenders in on the deal, and they'll refinance the whole thing."

Exactly. All that will happen is that the debtholders left out of the deal by Brookfield and Kerzner will now have to be let in. ... eom

 

[bizaro86]

Doing the back of the envelope math, if Brookfield was getting Atlantis for $175 million plus taking on $2.5 billion in debt (or so), the certainly were getting a sweetheart deal....and the other creditors had good reason to stop the deal...half a billion or so reasons. I'm sure I'm missing a few pieces here (this would be pretty brazen if Brookfield was getting a $3.4 billion asset for $2.7 billion), but It wouldn't surprise me if Sol agreed to a low purchase price beacuse he was getting a lucrative management contract...and getting out from under some personal promises he made on this debt.

If the other creditors were going to get paid back, I'm not sure what they have to complain about. On the other hand, the fact that Brookfield is the buyer makes it a near certainty in my mind that it's a sweetheart deal. They wouldn't buy something like this under any other circumstances. So the other creditors probably just want a piece of the action, which they'll get.

 

[komosatp]

The Brookfield deal is back on.

Here's the WSJ's story:

* Updated April 27, 2012, 5:45 p.m. ET
Creditors Take Control of Atlantis Resort
Resort operator Kerzner International Holdings Ltd. completed a long-awaited restructuring on Friday that transferred its massive Atlantis resort in the Bahamas to its creditors and sold its half interest in the Atlantis in Dubai to partner Istithmar World PJSC.

The deal leaves South African casino magnate Sol Kerzner's company as mostly a manager of resorts that it doesn't own, including the one in the Bahamas and Dubai. Kerzner used its $250 million in proceeds from the sale of its Atlantis Dubai stake to pay down part of its $400 million of corporate debt.

The catalyst for the restructuring came more than a year ago, when Kerzner executives realized that they couldn't refinance $2.5 billion of debt tied to the Atlantis in the Bahamas that was approaching maturity. By the time it came due last September, Kerzner was in talks to forfeit the resort to its junior-most creditor, Brookfield Asset Management Inc. BAM +0.03% But other creditors subsequently sued for better terms, causing Brookfield to revise the deal.

The revised agreement with Brookfield includes modifications for the dissenting creditors but still puts Brookfield in control of Atlantis. Brookfield, in turn, has converted its $175 million slice of Kerzner's debt into equity.

Holders of the resort's remaining $2.3 billion of debt have agreed to push the due date to September 2014. Brookfield intends to refinance the debt by then. Meanwhile, Kerzner will continue to manage the resort under a new contract of up to six years.

The Atlantis in the Bahamas, built in 1998, is among the busiest resorts in North America, spanning 2,317 rooms, a casino, conference rooms, shops, a spa, a 40-acre water park and a dolphin habitat.

Jonathan Mayblum, a co-founder of Arcturus Group who advised the dissenting creditors, Canyon Capital and Trilogy Capital, said the negotiations were complicated because dozens of creditors hold pieces of Kerzner's debt. The new deal "allows every stakeholder to achieve its goals, despite very differing interests," he said in an interview Friday.

Meanwhile, Kerzner sold its 50% stake in the Atlantis The Palm resort in Dubai on Friday to Istithmar World, an investment arm of the Arab emirate. Istithmar already owned the other 50% stake in the 1,500-room resort. Istithmar also holds the largest stake in Kerzner itself, due to its participation in a $4 billion deal in 2006 to take Kerzner private.

"The performance of the Atlantis continues to exceed our expectations," said Sheikh Ahmed Bin Saeed Al Maktoum, chairman of Istithmar's parent company, Dubai World, in a statement released Friday.

 

[komosatp]

No real news here, but looks like there will be some movement in 2014....from today's Commercial Mortgage Alert:

Brookfield Asset Management will select a lender for its massive Atlantis Resort in the Bahamas sometime in the first quarter. The firm began shopping the $1.9 billion fixed-rate assignment this summer via Eastdil Secured and took bids in September. In the meantime, a handful of hotel-loan securitizations were well-received by bond buyers, which bodes well for a CMBS execution on Atlantis. Brookfield plans to use the proceeds to help retire $2.2 billion of debt. That obligation doesn’t mature until September, giving Brookfield plenty of time.

 

[komosatp]

Another 'no real news here' from today's Commercial Mortgage Alert:

Brookfield Cuts Atlantis Loan Request
Brookfield Asset Management has lowered the amount of debt it’s seeking on the massive Atlantis Resort in the Bahamas.

The Toronto investment manager, which originally sought $1.9 billion, has asked securitization lenders to re-submit bids, this time for a $1.65 billion debt package. Brookfield will make up the difference with equity, according to people familiar with the matter.

The package is expected to be structured as roughly $1 billion of senior debt and $650 million of mezzanine debt. Brookfield will consider proposals for a five-year floater or a seven-year fixed-rate loan. Brookfield is being advised by Eastdil Secured, which began shopping the assignment in July.

Bids are due today. Commercial MBS lenders are thought to have a lock on the assignment, because it is too big for banks or insurance companies to take down.

The Atlantis has 2,917 hotel rooms scattered across four beachfront towers on Paradise Island. The property includes 500,000 square feet of meeting and banquet space, 85,000 sf of restaurants and stores, a 60,000-sf casino and a water park.

Brookfield will use the loan proceeds to help retire the $2.2 billion outstanding balance of a $2.8 billion debt package that Credit Suisse and Deutsche Bank arranged in 2006. It’s unclear if Brookfield will put up all of the required equity or if it will bring in a partner.

As to why they have to cut the amount they were asking for? Could be some combination of a) they didn't like the interest rates offered for the amount they were originally requesting or b) they believe the value of Atlantis is higher than 'the market' perceives it to be, so they had to bring the loan amount down in order to get financing.

 

[komosatp]

And yet another 'no news' from CMA. A few interesting tidbits about Atlantis' operation, which I've highlighted.

Deutsche in Line to Lead Huge Atlantis Loan

Deutsche Bank appears to have the inside track to lead a $1.65 billion debt package for Brookfield Asset Management on the Atlantis Resort on Paradise Island in the Bahamas.

The buzz is that Brookfield could tap as many as three banks for the giant assignment. Other lenders still in the mix include Citigroup and Credit Suisse. One finalist, J.P. Morgan, is evidently out of the picture.

The new debt package will have fixed- and floating-rate components. About half — $850 million to $900 million — will be structured as senior debt and securitized in a stand-alone commercial MBS deal. The rest will be mezzanine debt, which will be placed with private investors.

Toronto-based Brookfield, which is being advised by Eastdil Secured, will use the proceeds to help retire the $2.2 billion outstanding balance on a $2.8 billion loan that Credit Suisse and Deutsche provided in 2006. Brookfield will make up the $550 million difference by pumping in new equity — either by itself or with a partner.

The site formerly housed the Resorts International Bahamas hotel. Developer Sol Kerzner bought that struggling property from talk-show host Merv Griffin in 1994 and redeveloped the site, opening the Atlantis in 1998. In 2006, his company, Kerzner International of the Bahamas, was acquired for $4.9 billion by a blue-chip list of investors: Goldman Sachs’ Whitehall Street Real Estate fund operation, Colony Capital of Santa Monica, Calif., Dubai investment firm Istithmar, Related Cos. of New York and Baron Funds of New York.

Kerzner then embarked on a $1 billion expansion of the property, financing it in part with the floating-rate debt package from Credit Suisse and Deutsche. The banks securitized the $1.43 billion senior portion in two pooled offerings (CSMC 2006-TF2A and COMM 2006-FL12). The $1.35 billion junior portion was placed with high-yield investors.

Kerzner was unable to refinance the debt package when it matured in October 2011. The following year, ownership of the 2,917-room property shifted to Brookfield, which held the controlling $174 million slice of mezzanine debt. Brookfield converted the mezzanine debt into equity and negotiated an extension of the loan maturity until this September.

According to marketing materials for the loan proposal, the Atlantis withstood the downturn well, with revenues dropping less than 15% from the peak in 2008 to the market bottom in 2009. The occupancy rate has increased each year since 2009. The net operating income grew by 11% in the 12 months ending in May, but was still 23% below peak level.