TCI: out of uncertainty a new paradigm for investment Mark A Fulford, LLB, is Managing Partner at F Chambers Attorneys at Law and Professor Gilbert NMO Morris is Chairman of Caicos Brothers Introduction Despite the travails of the last three years – the suspension of the constitution and direct rule by the British - Turks and Caicos Islands (TCI) have shown that the brand it established in the last decade, as one of the top global premium luxury destinations for well-heeled families, is both sustainable and resilient. In the midst of a global economic and financial crisis, Turks and Caicos Islands, has surmounted its difficulties – with a new government – and is on stream to see the development of another 1,200 luxury villa rooms; including a stupendous new Marriott property in Providenciales. Added to the foregoing, the attractiveness and scalability of the TCI as a destination for investment is being enhanced by new legislation, not least of which is a new Immigration Ordinance; which will result in the streamlining of the status of investors and more importantly, retirees and other long-term residents. When imagined against the backdrop of the refurbishments at the Providenciales International Airport (PLS) and the active negotiation of new airlift, TCI seems poised to re-emerge both on the proven foundation of its brand strength and quality, together with its enhanced capacities driven by policies aimed at the deliberate cultivation of its competitive advantages. From 2004-2008, TCI enjoyed one of the highest growth rates in the world at around 11%. We have the deepest internet and mobile phone penetration in the world. Our villa/resort model – under-which private villas make-up two-thirds of our hotel rooms – gives us not only one of the highest Average Daily Rates (ADR) in the world, but also means our model produces one of the fastest Returns on Investment (ROI) of any investment destination. Moreover, whilst other nations are labooring under unimaginable debts, our debt-to GDP ratio is under 35% and falling. In respect of the specific ‘opportunity-horizon’ for investment in TCI, really it is an extension of our luxury brand, supported by our financial services platform. My co-author Professor Morris has argued that: “with nearly 80 million people retiring in the United States between now and 2030, which is likely to induce a substantial intergenerational wealth transfer of historical proportions, Turks and Caicos - both competitively and comparably - is best located; best organized; with the best infrastructure and so best suited to accommodate residential and long-term stay opportunities which are set to increase exponentially in the near term”. This sets the stage for a variety of investment options, which will only serve to strengthen our economic model. Full disclosure It would be remiss if we did not, at the very least, identify the headwinds, which may in some meaningful respect impact the economic performance of the Turks and Caicos on a forward basis. In advancement of any thesis on investment destinations, what investors seek is not a rosy picture unencumbered by reality. Rather, a mature perspective is one that anticipates, acknowledges and assesses potential risks, which strengthens the proposition of any investment opportunity. The Turks and Caicos Islands has a new constitution, written by the British, promulgated and entered into force in 2012. The constitution establishes a post of Chief Financial Officer, a role better suited to corporations than the Executive branches of government. The CFO position is tied to a Sovereign Loan Guarantee provided by the British in respect of a loan to TCI, with a maturity date in 2016. This structure is relevant to any investor in TCI because it is appurtenant or connected to our tax and fiscal obligations. That is, the CFO position falls away after the retirement of the debt and so the loan guarantee, again in 2016. However, in the interim, the Turks and Caicos Government (TCIG) must act with reassuring prudence in all expenditures, to ensure the nation’s positive debt service profile remains undisturbed. As a subtext to these considerations, the TCIG, together with the opposition party (PDM), and the business community rejected a proposed VAT as the main revenue option for government income. This means that at the same time that the government must exercise unprecedented prudence in its financial decisions concerning resource allocations, it must at the same time act to foster economic growth in an effort to stabilize government’s revenues up to and beyond the loan maturity period. In this way, our bad news is our good news. This turn of events means the TCIG must balance tax policy with growth options, and where this is so, investors are co-beneficiaries for the reason that this is the optimum environment for dealmaking, in which mutually beneficial opportunities have the best chances of approval and success. The new paradigm When we set out to imagine and discuss an enterprise level luxury retirement industry, we have found the synergies, which are quickened on the one hand, and then metastasized by the presence of a global luxury resort brand, are innumerable. That is to say, Turks and Caicos has an in-built infrastructure and capacity to meet, match and facilitate the long-term residential demands of retirees. In this context, the opportunity-horizon in Turks and Caicos, can be said to be listed as, but not limited to the following: • The design and development of (single unit) retirement villas • The design and development of multi-unit retirement condos • The design and development of retirement-specific-communities • Medical services for the aged • Medical spa services • Financial services for retirees, including family offices, estate planning and captive insurance services These options for investment, aimed at facilitating retiree demand for luxury residential propositions are inherently amenable to what we have already developed in Turks and Caicos, supported by a legislative regime, with full regulatory capacity. When we thought through these options for investment, we looked at general deal-paths for an investor considering these opportunities. Thinking strategically, the demand for the Turks and Caicos as a retirement option must be read against the volume of registrations for Retiree Residency Certificates and the rate and types of real estate purchases, which are already rising. At F Chambers, we have begun to take inquires for the Retiree Residency Certificates, also at an increasing pace; even though the legislation is not yet passed into law. As an investment proposition, one must see how the options in the list above ‘systemizes’ to create a new paradigm. Professor Morris has written on this point as follows: “Retiree long-term residency demand is at one and the same time a strengthening of the existing tourism model in TCI and a diversification away from it. From the perspective of the investor the formula is the same: there is demand for construction, secured by deposits, and a date certain for delivery. The financial aspects are various and offer opportunities to cultivate numerous familiar products, such as bonds, private placement vehicles, trusts and funds. Even retirees can place surplus funds, earmarked for investment (particularly annuities), based on cash-flow models where larger scale multi-unit communities are developed and sold”. Space does not permit us to expand with the expected flourish on these methods, options and structures. But Turks and Caicos is a destination for the seasoned investor, who understands how the hospitality business transposes into real estate opportunities and extends into financial services. There are additional reasons why Turks and Caicos Islands represent a comparatively ideal investment destination. When we imagine the services platform, there is much to consider in respect of our location and our carrying capacity, again listed as, but not limited to the following: • A new immigration ordinance, likely to be passed in Parliament this summer; giving a clear and definitive status to retirees, include ease of ingress and egress into and out of Turks and Caicos Islands • Turks and Caicos is 2-hours by jet service from major hubs in Miami, Dallas/Forth-Worth, Charlotte, NC, Washington DC/Baltimore, New York, Canada, with additional services from Chicago and Philadelphia and weekly jet service from London • We have 18 major resorts, with spa facilities • We have a world-class service culture, and our food-stores and restaurants move more wine than any other Caribbean country • We have a premium private jet centre, with an additional jet centre coming on stream • We have two major class A rated hospitals managed by Interhealth Canada, served by US, UK and Canadian medical professionals, together with local physicians • Turks and Caicos has an 18 hole PGA Golf Course (owned by the Emir of Qatar), with a new Nick Faldo Golf Course coming on stream at the Amanyara Resort, major food-store brands, 54-top rated restaurants • Our landfill is managed by a family which owns the largest landfill management company in America • We have the third largest reef system on earth, and the best snorkelling and diving in the region • We have 5 major auto dealerships (with service centres) and 5 major auto rental centres with lease options • We use US currency and are capable of every transaction amenable to and expected in a global financial centre Conclusion The world is an interesting place, in which opportunities are constantly emerging. Turks and Caicos is essentially an old country (511-years from Columbus’ landing), with a new story. We are still largely unspoiled by metropolitan development, yet we are uniquely cosmopolitan. More importantly, divine forces have driven comparative advantages for us, such as location, the quality of our beaches and the size (29,800) of our native population. We have taken those comparative gifts and cultivated competitive advantages, in the form of our multi-billion dollar premium luxury resort industry. Nature has ordained another comparative advantage in that we live next door to a North American continent, in which demographic changes will lead to competitive choices by ‘baby-boomers’ about where to live out their ‘November years’. This leads to an additional competitive decision for investors: whether, in facilitating these comparative options, Turks and Caicos is sufficiently attractive; considering the need for government to engender growth through Foreign Direct Investment. When you consider – as was previously mentioned – of our nearly 3,000 hotel rooms, nearly two-thirds are privately owned villas, that is a vote of confidence no article can vouchsafe, and maintained only through previously satisfied customers. Turks and Caicos has an in-built infrastructure and capacity to meet, match and facilitate the long-term residential demands of retirees