Luxury resort company

Kerzner International

(KZL)

has rejiggered expansion plans for its flagship Atlantis resort in the Bahamas.

The company breaks ground Wednesday on the third phase of the ocean-themed resort. Instead of an originally planned 1,500-room hotel tower, however, the expansion will include a 600-unit all-suite luxury hotel and a 400-room condominium-hotel. Kerzner said it has received government permission for the change in plans.

In a conference call, Butch Kerzner, the company's chief executive, said the all-suite hotel is aimed at customers who have expressed interest in larger rooms than are currently available at Atlantis. "We see a gaping hole in the market that we have not been able to cater to," he said.

Kerzner will develop the 400-room condominium-hotel as a joint venture with U.S. real estate developer Turnberry Associates. Condominium owners will be able to use the units up to three months a year. The rest of the time, the units will be part of a rental pool managed by Kerzner in exchange for a 50% to 60% revenue cut.

Other, previously announced pieces of the Atlantis expansion are unchanged, including beefing up the resort's convention space, casino and water-park attractions, Kerzner said.

The company expects to spend $650 million on the all-suite hotel and other resort improvements, less than the $800 million forecast under the previous plan. The joint venture's total cost for the condominium-hotel will be about $200 million, although it will be financed at least in part through condominium presales.

Kerzner executives said the all-suite hotel will likely generate about $100 million in annual EBITDA (earnings before interest, taxes, depreciation and amortization). That's less than the $110 million to $120 million forecast for the originally planned hotel tower, but the new forecast doesn't include contributions from the condominium-hotel, the executives said.

The company expects to complete the all-suite hotel by December 2006 and the condominium-hotel during 2007.

Kerzner shares were off 10 cents, or 0.2%, at $56.74.