Tucker’s Point was losing $1m a month
The company that owns the Rosewood Tucker's Point development was losing more than $1 million a month from the start of 2009 through the end of August last year,
The Royal Gazette can reveal.
A letter to shareholders of Bermuda Properties Ltd (BPL) from president Ed Trippe, seen by this newspaper, also sheds light on the company's efforts to restructure its mounting debts in order to halt the erosion of its net worth. BPL is at the centre of a hotly debated move to extend development at the Hamilton Parish location.
Early on Wednesday, MPs passed a Special Development Order that will allow the company to pursue its plan to build another 78 homes and 70 hotel rooms, a move the company has said is important to secure the site's future. A summary of BPL's financial performance in the letter showed that in 2008, the company posted a net profit of $580,000.
The Tucker's Point Hotel opened in April 2009, a year in which BPL made a net loss of $8.7 million.
During the first eight months of last year, BPL made a net loss of $13.3 million. During that 20-month period from the start of 2009, those results equate to a loss of more than $36,000 a day.
“The global recession and the implications for Bermuda's hospitality industry has created challenges in the initial year of operation and these challenges are expected to last into 2013,” the letter states.
The document adds that a recovery in the hospitality industry to 2007-08 levels is not expected until 2013-14.
The letter describes how Castle Harbour Ltd (CHL), an operating subsidiary of holding company BPL, took out a loan totalling $142.25 million in 2007, sourced from three different entities, as it developed the hotel and residential units.
The senior loan comprised $111.25 million from HSBC Bermuda, $20 million from the Argus Insurance Company and $11 million from another insurer, BF&M Ltd. The loans became due at the end of last year.
Mr Trippe yesterday confirmed that the loan had been extended.
He declined to discuss any further details of the company's finances, stating that BPL was a private company and that he had to respect the privacy of shareholders.
Asked whether the company was financially stable, Mr Trippe said: “Yes, generally it's stable.”
HSBC Bermuda chief executive officer Philip Butterfield said yesterday that he was not at liberty to discuss any details of a private client's loan.
BF&M's CEO John Wight also declined to discuss details. “What I can say publicly is that the repayments are up to date,” Mr Wight added.
Separately, CHL holds $25 million of debt loaned by its three shareholders, BPL, Argus and Employees' Retirement Plan of the Bermuda Telephone Company Ltd.
By the end of 2009, the principal and accrued interest on this debt which is in the form of subordinated notes totalled $88.58 million, according to the letter. The annual rate of interest payable on the notes, which mature at the end of 2015, is 12 percent.
Holding company BPL holds a 92.5 percent stake in its subsidiary CHL, while Argus holds five percent of the common shares, and the BTC pension plan holds 2.5 percent.
The letter reported that CHL had been in “extensive discussions” with the three shareholders to come to an agreement to convert the debt into CHL preference shares.
These shares would pay a 12 percent dividend, which would accrue if not declared by the board every year.
“There is no maturity date attached to the preference shares and this is the only material economic difference compared with the subordinated notes,” the letter states. “The obligation to accrue interest on the subordinated notes would cease reducing the continued erosion of CHL's net worth.”
The letter goes on to state: “While the CHL preference shares will continue to accrue as 12 percent preferred dividend, there is still no certainty of the ultimate value of BPL's holdings, and when or if dividends will be paid on CHL preference shares.”
Mr Trippe had no comment yesterday on whether the debt-to-equity conversion had taken place.
Asked about Argus's loans to and stakeholding in CHL, the insurer's CEO Alison Hill said: “Due to reasons of client confidentiality, we are unable to disclose any details further to those already disclosed in our annual report.”
Argus's 2010 annual report, covering the year through the end of March 2010, did not refer by name to BPL, CHL or Tucker's Point.
It did refer to the provision of $10 million made last year “against potentially uncollectable commercial loans”. However, it does not specify any borrower details.
The letter to shareholders reveals that BPL's real estate sales totalled $52.1 million in 2008 and $41.3 million in 2009, while real estate expenses fell from $45.7 million in 2008 to $25.8 million in 2009.
After a disappointing first eight months in 2009, when the hotel made an operating loss of $13.4 million and recorded an annual occupancy rate of 35.9 percent, things improved in 2010, with an occupancy rate which exceeded 80 percent during last summer and 56.4 percent for the first eight months of the year.
Management is expecting “a substantially stronger year in 2011”, as Bermuda begins to recover from recession and Rosewood's management and marketing enhances the hotel's performance.
The letter states that CHL has had difficulty in selling its real estate units, as “the fractional residence club market worldwide has stagnated”.
It added, however, that its Golf Villas Residence Club was 100 percent sold and its Harbour Court Residence Club was about 55 percent sold.