What’s it worth?2015 appraisal placed resort’s value below today’s asking price
A 2015 appraisal of the Grand Lucayan resort placed the market value at $57 million in February 2015.
The projected value for February 2017 — assuming the hotel was running at stabilized operation — was projected at $63.1 million.
This pre-hurricane appraisal is interesting given that the Minnis administration and Hutchison Whampoa, which owns the property, are reportedly making arrangements for the government to buy the resort for $65 million.
The resort — which was shuttered after Hurricane Matthew in 2016 — features three brands: Memories, Breaker’s Cay and Lighthouse Pointe.
In November 2016, only the 200-room Lighthouse Pointe reopened.
The appraisal report — conducted by CBRE, Inc. valuation and advisory services out of Boca Raton, Florida — would likely raise questions about whether the government is getting the property at a fair deal.
According to the appraisal, the property includes three hotel structures, a casino, retail building, central services building and two golf courses.
At the time, only two of the hotel structures and one of the golf courses were in operation. The other building had been closed during the last few years. While the hotel contains 1,271 total units, it was effectively operating as a 542-unit resort, the 2015 report said.
“It should be noted that the golf course which is not being utilized and is grown over might have some additional value. Most likely this value would be created by a potential conversion of the site to residential land,” it said.
“However, there are currently no plans to do such a conversion and it is unknown whether the government would allow such a conversion.
“No soil sampling has been performed to determine if the chemicals/fertilizers utilized on the property as a golf course would cause a contamination issue and no estimates of the cost to convert the land to a potential residential use have been performed. As such, it is impossible for the appraiser to determine whether this could generate additional value for this site.”
The report lists the property’s strengths as its location on the beach in Grand Bahama; significant renovations it had recently undergone; the casino license and the lease of one of the non-operating hotels.
At the time, the closure of one of the structures, reduced occupancy levels and average room rates, and the closure of one of the two golf courses were viewed as weaknesses.
While average room rates and occupancy levels were projected to increase, the weakened overall economy which contributed to depressed levels of consumer spending and reduced market values were viewed as threats.
Insufficient airlift to Grand Bahama was also seen as a threat.
The 2015 report notes that Grand Bahama competes effectively among most of the Bahamian islands.
However, Grand Bahama has a competitive disadvantage when compared to New Providence/Paradise Island.
With significant capital expenditures and increased advertising, Grand Bahama is expected to gain market share when compared to the other Bahamian Islands, the appraisal said.
The report showed net operating income of -$10.7 million in 2012; -$8.6 million in 2013 and -$6.4 million in 2014.
The appraisal said, “…While the subject still has a negative [net operating income], it has been reducing the amount of its expenses while increasing the amounts of revenue. We believe this will continue now that prior management has been removed.”
Occupancy was recorded at 52.9 percent in 2012, 49.7 percent in 2013 and 56.7 percent in 2014.
The report also reveals utility costs for Grand Lucayan.
Utility expenses typically include electricity, fuel (oil, gas and coal), purchased steam and water. This category also includes any central plant and energy management systems, the report stated.
In 2012, the resort’s utility costs represented 26.3 percent of revenue; in 2013, it was 20.8 percent of revenue and in 2014, it was 17.6 percent of revenue.
While it was showing a decline over those years, when compared to Caribbean hotels in 2011, costs were substantially higher at the Freeport property.
The report provides information from PFK Trends In The Caribbean 2011, which showed average utility costs as 8.3 percent of revenue.
It is understood that some in government were not aware of the 2015 appraisal for Grand Lucayan, but the report is posted on Hutchison Whampoa’s website.