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Miami
Herald, 8 Nov 04
Atlantis
takes its marine theme on the road
Atlantis resort plans for worldwide boom
By Douglas Hanks
III
NASSAU, BAHAMAS - Howard ''Butch'' Kerzner presides over a
sprawling tropical resort centered around a gargantuan castle and
a world of make-believe. So it's no surprise he's fond of Walt Disney
references.
Atlantis -- the 34-acre compound of waterslides, underground aquariums,
shark tanks, a 2,300-room hotel and casino, and lots of underwater
mythology -- has become the signature landmark of the Bahamas in the
way a certain theme park came to define Orlando.
''Disney has the Magic Kingdom,'' Kerzner explained. ``For us, our
iconic architecture is the Royal Towers.'' Magic Kingdom parallels
may be the envy of most resort developers, but there's a Mickey Mouse
metaphor Kerzner International wants absolutely nothing to do with:
Euro Disney. Disney bombed famously when it opened a theme park in
Paris that has skirted bankruptcy, symbolizing the perils of trying
to export success overseas.
Still, Kerzner plans a similar strategy with Atlantis, hoping to expand
the mythical sunken-city theme to the Middle East, Asia and beyond.
DUBAI PROJECT
A planned Atlantis in Dubai -- to be built on 120 acres on a man-made
island shaped like a palm tree -- is at the center of a four-year
expansion plan that would nearly double Kerzner's $1.9 billion balance
sheet and add roughly $3 billion in new resorts to its portfolio.
''The biggest question from a management standpoint is can we manage
this explosive growth?'' Butch Kerzner, 41, said during a recent interview
in an Atlantis conference room. Plans for a $1 billion expansion of
the Bahamian resort -- complete with an 1,500-room Mayan pyramid hotel
and a swim-with-the-dolphins park -- hung on easels before him. ''I'm
not naive about it,'' said Kerzner, who is not yet a year into taking
over as CEO from his 69-year-old father, Sol, who remains chairman.
``It's not easy.''
Analysts so far have been bullish on Kerzner International's growth
strategy -- particularly its plan to have government partners fund
much of the expansion while paying Kerzner to run the new properties.
That approach, along with the lenient tax laws of Kerzner's official
home base in the Bahamas, has let the company keep its debt at about
3.5 times its yearly pre-tax earnings -- a more conservative borrowing
approach than found at six of the other 10 leading publicly-traded
casino companies, according to a Bloomberg analysis. ''The fact is,
they're not spending their own money,'' said Lawrence Klatzkin, a
gambling industry analyst who tracks Kerzner for Jeffries & Co. in
New York. ``There's a lot of bang for the buck.''
CAUTIONARY WORDS
Still, the expansion plans haven't gone without words of caution,
too. ''[We] remain concerned that senior management may be stretched
thin as the company continues to pursue aggressive growth opportunities
around the world,'' read an otherwise favorable August Bear Stearns
research report on Kerzner.
Industry experts agree that if Kerzner can reproduce its Nassau performance
elsewhere, Wall Street will have much to celebrate. Both Donald Trump
and Merv Griffin had tried to turn Paradise Island -- a wide stretch
of beach off Nassau -- into a tropical Atlantic City during the 1980s
and '90s. But the resort that would become Atlantis filed for bankruptcy
under Griffin, and Sol Kerzner's Sun International Hotels bought it
from him in 1994 for $125 million.
Kerzner, a South African hotel magnate, had created mammoth resorts
in his native country, wrapping a safari theme park, casino and a
mega-hotel into a self-contained property with a theme: The Lost City.
(It sits in the midst of Sun City, which was the target of the 1985
anti-apartheid rock song I Ain't Gonna Play Sun City. Sol Kerzner
has since sold the South African resort.) Sun International, which
became Kerzner International in 2002, spent $1 billion creating Atlantis,
which opened in 1998. The 24-story Royal Towers is the centerpiece
of the resort, a pink castle with marlin-topped spires. Two main buildings
are joined by a 5,000-square-foot luxury room known as the ``Bridge
Suite.'' But along with the Vegas-style architecture, Kerzner wrapped
the resort in a fictional story-line. Much of the resort's theme revolves
around The Dig: tunnels that run through an 11-million-gallon aquarium,
their walls lined with hieroglyphics. As tour groups ogle ghostly
manta rays drifting by, straight-faced guides point out where Atlantis
residents harvested crystals and stored treasure.
THOUSANDS OF FISH
All 50,000 fish are real, but the rest is fake -- from Atlantean language
to the faux relics. Just as Walt Disney created a fantasy world in
the middle of Central Florida, Kerzner's use of the mythical Atlantis
let him position the resort as separate from its island-town surroundings.
''They kind of created Disneyland on the beach,'' said Gregory Rumpel,
senior vice president at Jones Lang LaSalle Hotels. ``It certainly
hasn't picked up on the Caribbean theme. It's a fantasy theme.''
Atlantis brings in roughly 80 percent of Kerzner's gross profits --
$144 million out of $179 million last year, not counting corporate
expenses -- far exceeding the dollars coming in from the company's
Mohegan Sun casino in Connecticut and its luxury One & Only resort
chain. Kerzner's global expansion plans are aimed at ending the company's
reliance on a single property.
Kerzner tried to break into Atlantic City and Las Vegas in the late
1990s when it bought into a pair of casinos, but ended up abandoning
both deals for an approximately $210 million loss. ''I think they
are more comfortable investing dollars where they don't have competition,''
said Anthony Gerstein, an author of the Bear Stearns report on Kerzner.
In July Kerzner announced a joint venture with the Moroccan government
to build a $230 million resort there. The deal bars other casinos
from operating in Casablanca and Rabat for 15 years. The United Kingdom
has taken preliminary steps to legalize gambling, and Kerzner is poised
to open three of the first casinos there.
In Dubai, the sheikdom signed Kerzner to build the main tourist draw
on the fronded island the government is creating: a massive waterpark
and a 2,000-room resort to be called Atlantis, The Palm. It will also
feature the massive acquariums of the Bahamas resort, but there will
be no casino there since gambling is illegal.
STRING OF RESORTS
Kerzner executives see the Dubai project as the first in a string
of Atlantis resorts, and the company is currently exploring an
Atlantis project in Singapore. Both the Moroccan and the Dubai
deals require little of Kerzner's money. The company plans to invest
about $100 million in the $1.1 billion Dubai project, in exchange
for 25 percent of revenue and a $20 million development fee, according
to the Bear Stearns report. Kerzner also agreed to sell a 13 percent
stake in the company to a government entity in Dubai, an arrangement
that has heightened corporate-governance concerns at the company.
Kerzner directors, including Sol Kerzner himself, preside over entities
that control roughly half of the company shares, according to recent
filings. In the United Kingdom, Kerzner plans a much larger investment
than in Dubai -- $1 billion of company funds to build casinos in London,
Manchester and Glasgow. Kerzner, Harrah's Entertainment, and other
casino operators are ready to build there, pending approval from Parliament.
The $1 billion U.K. outlay roughly matches what Kerzner plans on spending
to expand Atlantis in Nassau. The planned growth comes at a time when
an investment group hopes to square off against Atlantis for the first
time with an upscale casino and luxury resort on nearby Cable Beach.
GAMBLING RESTRICTED
Kerzner's agreement with the Bahamas, which it recently renewed for
20 years, restricts casino gambling to two places in Nassau: Atlantis
and the Wyndham Nassau. Investors last month signed an option to buy
the Wyndham and are negotiating with the government to purchase a
nearby hotel, giving them 400 beachfront acres. The proposed Baha
Mar resort would have 2,500 rooms -- slightly more than Atlantis has
now -- and well-known casino and hotel companies will be operating
it, said developer Robert Heller.
He described the strategy as a tweak of the Atlantis business model:
the same kind of mega-resort, but one with a familiar brand and more
emphasis on the casino. It would have an island feel rather than offer
a fantasy escape. Gambling accounted for about 26 percent of the $521
million in revenue Atlantis generated last year, which is well below
the 50 percent split usually found on the Vegas strip.
Kerzner executives say gambling is such a secondary focus at Atlantis
that they designed the casinos with bay windows to let in light, a
no-no in Vegas where dawn is supposed to arrive unnoticed. Surveys
of Atlantis guests show only 10 percent of them come there to gamble
-- though 90 percent ultimately do -- and Heller sees an opportunity
to draw more gamblers to Nassau.
DIFFERENT FOCUS
''He's more Orlando-like,'' Heller said. ``We'll be more Vegas-like.''
Kerzner executives have raised concerns about the Baha Mar project
with government officials, warning Nassau might have trouble supporting
a second resort offering hundreds of high-priced rooms. But they also
reject the notion that Baha Mar could offer Atlantis competition,
contending the name and the property have combined into something
not easily duplicated. ''Paradise Island has a magic to it,'' Butch
Kerzner said. ``We've created a great brand.''
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