How much money is Verdant Isle going to make?
One of the concerns highlighted by those opposed to the cruise port is that a private company, Verdant Isle Port Partners, stands to make significant profits from the project. While the company can expect to make a healthy return on their investment if it is successful, the likely profits are not spectacular in the context of a 25-year investment.
To fund the construction of the cruise piers, the preferred bidder for the project receives between US$6.10 and US$8.05 per passenger, adjusted for inflation by 2.5% each year.
Based on an expected 1.8 million passengers in the first year and a 1% annual increase in that number, as assumed by the economic impact assessment, the Verdant Isle consortium would make between US$429 million and US$566 million in passenger fees over 25 years.
The slated cost of the berthing facility is CI$196.53 million (US$235.83 million). This means the consortium would receive between US$193 million and US$330 million more than construction expenditure over the life of the project. This may sound a lot but over 25 years it only equates to a compound annual growth rate of between 2.4% and 3.6%.
Moreover, the cost of financing has to be deducted.
Verdant Isle, which is funding, financing and guaranteeing the debt, has indicated that about 60% of the project costs would come from loans.
Maintenance expenses for the facility, estimated to be US$100 million, would also have to be recovered from the per-passenger fees.
In an interview with the Cayman Compass, Royal Caribbean CEO Michael Bayley said the fundamental business of the cruise industry is to offer cruise vacations. Cruise lines must be engaged in infrastructure projects such as ports, terminals and piers, he said, but added that this is neither their main business nor a profit centre for those companies.
“Our business is the cruise lines. That’s where we make our revenues and profits and that is what our shareholders are investing in,” Bayley said.
“Our objective is not a profit motivation in terms of the project in Grand Cayman. We obviously don’t want to lose money on it, so we try to carefully project out what we think the expenses, revenue will be to maintain this operation and build the cargo space.”
These factors are all built into the financing model, he added.
Based on an expected 1.8 million passengers in the first year and a 1% annual increase in that number, as assumed by the economic impact assessment, the Verdant Isle consortium would make between US$429 million and US$566 million in passenger fees over 25 years.
The slated cost of the berthing facility is CI$196.53 million (US$235.83 million). This means the consortium would receive between US$193 million and US$330 million more than construction expenditure over the life of the project. This may sound a lot but over 25 years it only equates to a compound annual growth rate of between 2.4% and 3.6%.
Moreover, the cost of financing has to be deducted.
Verdant Isle, which is funding, financing and guaranteeing the debt, has indicated that about 60% of the project costs would come from loans.
Maintenance expenses for the facility, estimated to be US$100 million, would also have to be recovered from the per-passenger fees.
In an interview with the Cayman Compass, Royal Caribbean CEO Michael Bayley said the fundamental business of the cruise industry is to offer cruise vacations. Cruise lines must be engaged in infrastructure projects such as ports, terminals and piers, he said, but added that this is neither their main business nor a profit centre for those companies.
“Our business is the cruise lines. That’s where we make our revenues and profits and that is what our shareholders are investing in,” Bayley said.
“Our objective is not a profit motivation in terms of the project in Grand Cayman. We obviously don’t want to lose money on it, so we try to carefully project out what we think the expenses, revenue will be to maintain this operation and build the cargo space.”
These factors are all built into the financing model, he added.
