The Tribune

Sarkis Izmirlian would so far have “lost more than $3bn” in potential profits alone if the Baha Mar resort from which he was ousted hit his financial projections, an analyst’s report has calculated.

David Bones, the HKA partner and co-lead of its commercial damages practice, in an analysis filed with the New York State Supreme Court on Saturday revealed that he used more “conservative” indicators to calculate the loss of profits and damages suffered by the Cable Beach mega resort’s developer after he was removed from the project in late 2015.

Determining the impact dating back from year-end 2022 to April 1, 2015, which was just days after Baha Mar’s calamitous missed opening, he calculated Mr Izmirlian’s profit loss at $1.311bn while damages and “out-of-pocket costs” were pegged at $1.435bn. The latter relates to the loss of the developer’s $845m equity investment, including cash, land and other assets, plus pre-judgment through to year-end 2022.

The combined $2.746bn financial blow was described as “massive” by Mr Izmirlian and his Baha Mar Properties vehicle in December 17, 2022, legal filings related to the latest round of their $2.25bn fraud and breach of contract claim against China Construction America (CCA), Baha Mar’s contractor. They cited it as evidence of just how much their removal from a project they conceived has cost them.

However, the Chinese state-owned contractor has also produced analysis asserting that it has suffered a collective $357m loss on its preference share investment in Baha Mar when the project was placed into Chapter 11 bankruptcy protection in Delaware, and subsequently joint provisional liquidation and receivership before the Bahamian Supreme Court.

Its own financial forensics analyst, Rodney Sowards of SOCOTEC Advisory, in an August 1, 2022, report submitted to the New York State Supreme Court calculated that besides the loss of its initial $150m investment the Chinese contractor has also lost out on a cumulative $207m in preference share dividend payments dating back more than a decade to when it made that investment in 2011.

The competing damages and loss of profit claims will have to be meticulously unpicked by Judge Andrew Borrock in the New York State Supreme Court when the two parties’ bitter dispute eventually reaches a full trial on the merits of the case. Recent filings by both sides show the court is having to deal with a rapidly expanding volume of paperwork, coupled with accusations and counter-accusations, in the run-up to the main hearing.

Taking their cue from Mr Bones’ assessment, Mr Izmirlian and his Baha Mar Properties vehicle blasted: “CCA profited enormously from its wrongdoing, including receiving a remobilisation fee ($700m), with catastrophic results for Baha Mar Properties. Baha Mar Properties damages are massive. As explained in the expert report, Baha Mar Properties’ out-of- pocket costs including pre-judgment interest are $1.435bn. Baha Mar Properties’ lost profits are $1.311bn.”

The HKA partner indicated that the latter figure may well have been more had Mr Izmirlian’s projections for Baha Mar’s financial performance through year-end 2022 come true. “Baha Mar Properties’ 2015 projections reflected net operating income (NOI) ranging from $118.8m in 2015 to $315.3m in 2019,” Mr Bones concluded.

“Had I relied on those NOI projections, and grown 2019 NOI at a compound annual growth rate of 3 percent through 2024, I would have calculated lost profits of $3.051bn discounted to December 31, 2022. In other words, I relied upon available, real-world data and independent research, which served to reduce lost profits by more than $1.7bn.

“This is another indication of the conservative nature of many of the inputs I ultimately selected for my analysis. However, if Baha Mar Properties did generate financial results consistent with its projections, lost profits would be more than $3bn.”

As it was, the HKA partner added: “Baha Mar Properties’ damages related to out-of-pocket costs are $845m, plus $589.646m in pre- judgment interest through December 31, 2022, an approximate date of trial, for a total of $1.435bn. Baha Mar’s damages related to lost profits are $1.311bn, discounted to December 31, 2022, as an approximation for the date of trial.”

The report explained that the “out-of-pocket” damages suffered by Mr Izmirlian as a result of control being wrested away from him included the loss of real estate parcels, cash “and other tangible and intangible assets” he assembled to form and finance Baha Mar. The latter assets included leased facilities, improvements, personal property, contracts, approvals, hotel assets, intellectual property, intangible personal property, and casino operations and related licenses.

“I understand that as a result of the CCA impacts, Baha Mar Properties lost the value of its contributed assets. Therefore, I have estimated economic damages to Baha Mar Properties in terms of the out-of-pocket losses related to the contributed assets,” Mr Bones wrote.

“The value of the Baha Mar Properties contribution, exclusive of $85m in cash, was agreed to be $745m. Including the cash contribution, Baha Mar Properties contributed a total of $830m at closing on January 31, 2011.” A further $15m in cash was contributed after the mega resort’s construction suffered an equity shortfall when the March 27, 2015, opening date was missed, thus taking the investment by Mr Izmirlian and his vehicle to $845m.

“As a result of the CCA impacts, including the subsequent bankruptcy and receivership, I understand that the Baha Mar resort did not open as planned on March 27, 2015 and that Baha Mar Properties lost its $845m investment,” Mr Bones assessed.

“I calculated the current value of Baha Mar Properties’ lost investment. Using a pre-judgment interest rate of 9 percent, I calculated out-of-pocket damages of $1.435bn inclusive of the $845m in lost investment and $589.646m in interest accrued from April 1, 2015 through December 31, 2022, an approximation for the date of trial.”

As for calculating Mr Izmirlian’s economic damages, as measured by lost profits, Mr Bones said he employed Atlantis’ financial performance as well as data from Smith’s Travel Research in the calculations rather than just rely on the original developer’s forecasts. Outstanding debt, cumulative deficits and proceeds from the sale of Baha Mar’s 284 residential units were taken into account.

However, CCA has countered with estimates of its own financial losses. “Had Baha Mar Properties not caused CSCEC Bahamas (China State Construction, CCA’s parent) to lose its investment, and had CSCEC Bahamas been able to redeem the preferred stock, as of the date of this Report, CSCEC Bahamas would be owed its original investment of $150m plus accrued dividends of $207m totaling $357m for its investment in the preferred stock,” its hired analyst wrote.

“After the date of this report, dividends will continue to accrue at a rate of $1.5m per month or $50,000 per day.”