Over $11M in losses at Grand Lucayan
Taxpayers have lost $11.3 million in operational costs for the Grand Lucayan resort in Freeport since the government assumed ownership of the property through its special purpose vehicle (SPV) Lucayan Resort Holdings (LRH) Ltd. last September.
Figures provided in a statement to Perspective by LRH Chairman Michael Scott in response to a list of questions we posed on expenditure at the property put the resort’s current average monthly operating loss at $1 million, though that figure is said to be trending downward.
To date, revenue has come in at $7.6 million, with operating expenses coming in at $18.9 million. The average monthly operating cost is $1.9 million versus an average monthly revenue of $900,000.
Last year, the government entered into a $65 million purchase agreement with Chinese conglomerate Hutchison Whampoa to acquire the storm-damaged property, two thirds of which had been closed for almost three years.
The Grand Lucayan consists of three hotels: Breakers Cay, the former Memories Resort and Lighthouse Pointe.
Both Breakers Cay and the former Memories hotel sustained significant water and wind damage in Hurricane Matthew back in 2016, and have been closed ever since. Lighthouse Pointe, the smallest of the three hotels, remained open.
There are currently 216 full-time employees at the Grand Lucayan assigned to the Lighthouse Pointe hotel, spa and laundry and the Grand Lucayan golf course.
Losses not unexpected
The government’s decision to purchase the Grand Lucayan was a controversial one, with critics and the opposition arguing that it could put taxpayers in an unsustainable position on damaged hotels with an uncertain timeline for a sale.
Operational losses at the property were hardly unexpected, as the resort had been operating at multimillion-dollar losses for many years. But of course, those losses were being carried by the resort’s previous owners, Hutchison Whampoa, and not the Bahamian people.
Operational expenses at the property are trending downward, the statement said, owing to reductions in payroll brought about by taxpayers footing the bill for $3.2 million in severance for 164 former Grand Lucayan employees and a $4.3 million voluntary separation package agreement for 91 of its managers.
In defense of its decision to purchase the property, the government maintained that the acquisition represented the best option for the quickest possible sale.
During debate on the resolution to finance the sale, Finance Minister Peter Turnquest said Hutchison Whampoa had “made no secret of its intentions” to shut down the property and wait for a buyer.
“That would have had a disastrous domino effect throughout the length and breadth of the island, spilling over to every sector of the local economy,” he argued. “It would have led to a further reduction of beachfront accommodations, a decrease in consumer demand for the destination, a reduction in airlift and eventually the collapse of the tourism sector in Grand Bahama.”
While a complete closure of the property was not a desirable outcome for Grand Bahama, less than favorable occupancy levels at the Grand Lucayan have been a longstanding reality.
The effect of this is most strikingly seen at the adjacent Port Lucaya Marketplace shopping district, which is often a ghost town of a venue patronized mostly by locals, though not sufficiently enough to stave off a wave of business closures there in recent months.
Store owners had consistently warned that despite their best efforts, staying in business was simply not a viable option given the low volume of tourists at the Grand Lucayan.
According to figures provided, current occupancy at the 196-room Lighthouse Pointe is 35 percent, with projected occupancies of 42 percent from August to December and 61.4 percent for 1Q 2020. Occupancy between January to June 2019 hit 46 percent, an improvement over the 36.5 percent occupancy rate posted for the same period last year.
Contracts for capital works
When the government’s SPV assumed management of the Grand Lucayan, it was charged with the responsibility to “stabilize the operation of what can best be termed a distressed hotel property, reduce costs and maintain the safety and smooth operation of the facility”.
Last December, a total of eight capital expenditure projects for the hotel were tendered, but the decision was taken to issue contracts for only two of the eight given the pending sale of the resort.
A contract was awarded to L&R Equipment for refurbishment of the Lighthouse Pointe cooling tower.
Contracts for repairs were issued to Kamala Boyz in the amount of $38,699.05 for repairs to the hotel’s rooms roof; Qualfast Construction in the amount of $23,500 for repairs to the hotel’s finance building; and Pros Plumbing Company in the amount of $73,172 for the installation of fire hydrants.
Fiber optic repair contracts were also issued to ILS in the amount of $7,422.40 and Island Wide Cabling & Consulting Services for $23,323.30.
And a recent problem with the hotel’s air conditioning unit that caused a loss of cooling to the hotel’s lobby and rooms has since been repaired. In response to Perspective’s query following a visit to the property, the statement advised that a necessary part for the unit had since been received and installed.
The way forward
According to Scott, LRH’s board of directors was mandated to execute “a predetermined exit strategy” upon assuming management of the Grand Lucayan.
Consequently, at the conclusion of a global marketing promotion, a $65 million letter of intent (LOI) was executed on March 27, 2019 between Lucayan Renewal Holdings Ltd. and the ITM Group and Royal Caribbean International for the purchase of the Grand Lucayan, he said.
The property’s anticipated sale timeline has been extended several times, much to the angst of Grand Bahamians who are anxiously awaiting a positive outcome to what has been a protracted wait for promised economic revitalization.
Tourism Minister Dionisio D’Aguilar recently told Guardian Business that a heads of agreement (HOA) might not materialize until closer to the end of 2019, pointing out that the negotiations are “complex”.
Perspective understands that part of the complexity rests with the extent of concessions desired by the prospective purchasers.