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FINANCE

DRAFT FOR POLICY DISCUSSION ONLY. FINANCE. August 2010 Working Group Session. DRAFT FOR POLICY DISCUSSION ONLY. AGENDA. Introduction Pre-Development BCEC Projections vs. Actual Results Convention Center Fund Analysis Recent Convention Center HQ Hotels in Other Cities

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FINANCE

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  1. DRAFT FOR POLICY DISCUSSION ONLY FINANCE August 2010 Working Group Session

  2. DRAFT FOR POLICY DISCUSSION ONLY AGENDA • Introduction • Pre-Development BCEC Projections vs. Actual Results • Convention Center Fund Analysis • Recent Convention Center HQ Hotels in Other Cities • Current Environment for HQ Hotel Financing • Next Steps

  3. DRAFT FOR POLICY DISCUSSION ONLY BCEC BOOK OF BUSINESS:COMPARISON OF JOHNSON REPORT TO ACTUALSUpdated through FY2010

  4. In March 1997, C.H. Johnson Consulting, Inc. completed a report on Market, Economic and Financial Analysis for the Boston Convention & Exhibition Center 2 Key Assumptions for Event Projections Based on 3,800 new hotel rooms proximate to the BCEC Based on an exhibit hall footprint of 600k GSF with undefined utilization factors Created demand projections for different types of events: Conventions and Tradeshows Community, Social or Other Meetings DRAFT FOR POLICY DISCUSSION ONLY INITIAL FEASIBILITY STUDY

  5. DRAFT FOR POLICY DISCUSSION ONLY COMPARISON OF EVENT PROJECTIONS • While the Johnson report projects more convention & tradeshow events, the MCCA has booked fewer events of a much higher quality. • The MCCA has already reached stabilization, which Johnson projected would take 10 years to achieve.

  6. Compares quality of the events in generating direct revenues to the MCCA Johnson lists an exhibit hall utilization based on weighted occupied GSF MCCA calculates exhibit hall utilization based on weighted occupied GSF Johnson’s maximum exhibit hall utilization is 49% (2015), which the MCCA has surpassed since 2007. DRAFT FOR POLICY DISCUSSION ONLY EXHIBIT HALL UTILIZATION COMPARISON

  7. Johnson’s report projections based on construction of new, proximate hotel rooms: Assumed a minimum of 1,200 new rooms in order to achieve results in the first year Assumed a minimum of 3,800 new rooms in order to achieve maximum results Maximum number of projected room nights is 794,000 (2015) With only 1,690 new, proximate hotel rooms, the MCCA is bumping up against the practical maximum number of rooms it can generate DRAFT FOR POLICY DISCUSSION ONLY ROOM NIGHT COMPARISON

  8. Provide $695 million to fund capital costs of the new BCEC Provide sufficient funding for marketing and promotion Cover any anticipated operating deficits and capital reserve requirements Allow for a sufficient flow of funds to allow for the eventual expansion of the BCEC DRAFT FOR POLICY DISCUSSION ONLY FINANCE OBJECTIVES

  9. DRAFT FOR POLICY DISCUSSION ONLY CONVENTION CENTER FUND REVENUES ANALYSIS

  10. Room Occupancy Taxes(3) • Estimates provided in the BCEC Marketability Study submitted by the BRA & MCCA in Nov. 1998. • (2) Actuals provided from the Certificates Regarding Revenue Sufficiency. • (3) Includes the 5.7% room occupancy tax and the 2.75% convention center finance fee. DRAFT FOR POLICY DISCUSSION ONLY PROJECTED VERSUS ACTUAL COLLECTIONS(1)(2)

  11. Vehicle/Parking Surcharge • Estimates provided in the BCEC Marketability Study submitted by the BRA & MCCA in Nov. 1998. • (2) Actuals provided from the Certificates Regarding Revenue Sufficiency. DRAFT FOR POLICY DISCUSSION ONLY PROJECTED VERSUS ACTUAL COLLECTIONS(1)(2)

  12. Sales Taxes/Sightseeing Surcharge • Estimates provided in the BCEC Marketability Study submitted by the BRA & MCCA in Nov. 1998. • (2) Actuals provided from the Certificates Regarding Revenue Sufficiency. DRAFT FOR POLICY DISCUSSION ONLY PROJECTED VERSUS ACTUAL COLLECTIONS(1)(2)

  13. Convention Center Fund Revenues • Estimates provided in the BCEC Marketability Study submitted by the BRA & MCCA in Nov. 1998. • (2) Actuals provided from the Certificates Regarding Revenue Sufficiency. DRAFT FOR POLICY DISCUSSION ONLY PROJECTED VERSUS ACTUAL COLLECTIONS(1)(2)

  14. DRAFT FOR POLICY DISCUSSION ONLY CONVENTION CENTER FUND REVENUE DISTRIBUTION

  15. DRAFT FOR POLICY DISCUSSION ONLY CONVENTION CENTER FUND REVENUES PLEDGED RECEIPTS - CH 152 OF THE ACTS OF 1997 Room Occupancy Taxes • 2.75% Convention Center Financing Fee (Room Occupancy Tax) • All hotels in Boston, Cambridge, Springfield, and Worcester • 5.7% Room Occupancy Tax • All hotels within the BCEC Finance District • Hotels opened after July 1997 in Boston and Cambridge • Hotels opened after July 2000 in Springfield • 4% “Local Option” Room Occupancy Tax • Hotels opened after July 2000 within the Springfield Convention Center (SCC) Finance District

  16. DRAFT FOR POLICY DISCUSSION ONLY CONVENTION CENTER FUND REVENUES PLEDGED RECEIPTS - CH 152 OF THE ACTS OF 1997 Other Taxes and Fees • 5% Retail Sales Tax • Any establishment opened after July 1997 within the BCEC Finance District • Hotels opened after July 1997 in Boston and Cambridge • Hotels opened after July 2000 within the SCC Finance District • Any establishment within the MassMutual Center • 5% Sightseeing Surcharge in Boston • $2 per day Parking Surcharge in any Convention Center Parking Facility • $9 per contract Vehicular Rental Surcharge in Boston

  17. DRAFT FOR POLICY DISCUSSION ONLY Boston & Cambridge

  18. DRAFT FOR POLICY DISCUSSION ONLY BCEC - Finance District

  19. DRAFT FOR POLICY DISCUSSION ONLY Greater Springfield Area

  20. DRAFT FOR POLICY DISCUSSION ONLY Springfield Convention Center Finance District

  21. DRAFT FOR POLICY DISCUSSION ONLY Worcester

  22. DRAFT FOR POLICY DISCUSSION ONLY PINNACLE ADVISORY CCF REVENUE PROJECTIONS VS. ACTUALS

  23. DRAFT FOR POLICY DISCUSSION ONLY Fiscal Year 2008 Projections and Actual

  24. DRAFT FOR POLICY DISCUSSION ONLY Fiscal Year 2009 Projections and Actual

  25. DRAFT FOR POLICY DISCUSSION ONLY Fiscal Year 2010 Projections and Actual

  26. DRAFT FOR POLICY DISCUSSION ONLY RECENT CONVENTION CENTER HEADQUARTERS HOTELSIN OTHER CITIES

  27. DRAFT FOR POLICY DISCUSSION ONLY Convention Center Hotel Development • Historically, CCHQ Hotels have required public participation • Construction costs have continued to outpace full-service hotel economic values exacerbating the need for financial subsidies • 1997 tax code changes facilitated the growth of publicly owned CCHQ projects • No availability of 100% private financing for large-scale hotel projects • Since 2003, no CCHQ project has entered the market without some form of public financial participation

  28. DRAFT FOR POLICY DISCUSSION ONLY Recent Convention Center Hotel Developments • Eleven convention center headquarter hotels with 750 rooms or more have entered the U.S. market or began construction since 2003 • Operators • 4 Hilton Properties – Houston, Austin, Baltimore, San Diego • 2 Hyatt Properties – Denver, San Antonio • 2 Starwood Properties – Boston, Phoenix • 2 Marriott Properties – St. Louis, Los Angeles • Omni - Dallas (1) Privately owned but financed primarily with tax-exempt bonds.

  29. DRAFT FOR POLICY DISCUSSION ONLY 700+ Room Downtown Hotel Openings 2000 - 2008 (1) (13) (16)(17) (5) (5) (1) (7) (11) (4) (4) (15) (10) (14) (6) (9) (8) (2) (3) (12) Public Financing: (1) 1,100-Room Denver Hyatt (2005) (2) 800-Room Austin Hilton (2004) (3) 1,200-Room Houston Hilton (2003) (4) 1,100-Room St. Louis Renaissance(2) (2003) (5) 800-Room Chicago Hyatt (1998) (6) 1,000-Room Phoenix Sheraton (2008) (7) 757-Room Baltimore Hilton (2008) (8) 1,003-Room San Antonio Hyatt(2) (2008) Public Support: (9) 966-Room Jacksonville Hyatt (2001) (10) 700-Room Charlotte Westin (2003) (11) 750-Room Baltimore Marriott (2001) (12) 717-Room Tampa Marriott(2002) (13) 793-Room Boston Westin (2006) (14) 1,200-Room San Diego Hilton (2008) (15) 1,001-Room Los Angeles JW Marriott/Ritz-Carlton Private Financing: (16) 863-Room Westin Times Sq. (2002) (17) 802-Room NYC Hudson Hotel (2000) (1)700+ Room Hotels Opened from 2000 to 2008 excluding Gaming or Resort Hotels. Source: Smith Travel Research (2) Privately owned but financed primarily with tax-exempt bonds.

  30. DRAFT FOR POLICY DISCUSSION ONLY Convention Center Hotel Performance • 2009 – Worst performing hotel market since 1932 • RevPar decline of 19.5% nationally • Bond rating downgrades due to downgrade of AAA bond insurers, not underlying project performance • Austin, Denver, Baltimore and Phoenix were originally issued with AAA rated bond insurance • Projects that reached stabilized operating levels prior to 2009 have performed well, relatively, during the market downturn • Generally speaking, publicly owned hotel projects have weathered the current downturn better than most hotels due to: • Lower cost of capital and subsequent debt service burden • Substantial reserve funds available to offset reduced operating performance levels

  31. DRAFT FOR POLICY DISCUSSION ONLY Convention Center Hotel Performance

  32. Simplified Organization Chart: Hotel Operator Public Entity Fin. Support Private Owner CVB Room Block Lenders Equity Investors DRAFT FOR POLICY DISCUSSION ONLY Public/Private Transaction –Simplified Organization Chart

  33. DRAFT FOR POLICY DISCUSSION ONLY Public/Private Transaction –Simplified Financing Structure Typical Capital Structure Simplified Flow of Funds: First Mortgage Secured Debt Hotel NOI Public Support (if applicable) Mezzanine Debt Public Subsidy Investor Equity Senior Debt Service Mezzanine Debt Service Distribution to Equity

  34. Simplified Organization Chart: Hotel Operator Public Sponsor Non-Profit Owner CVB Room Block Bond Holders DRAFT FOR POLICY DISCUSSION ONLY Public Transaction – Simplified Organization Chart

  35. DRAFT FOR POLICY DISCUSSION ONLY Public Transaction – Simplified Financing Structure Typical Capital Structure Simplified Flow of Funds: Senior Hotel Revenue Bonds Hotel NOI Other Income (if applicable) Public Support Subordinate Revenue Bonds Senior Debt Service Cash Flow Notes (if applicable) FF&E Subordinate Bond Debt Service Subordinate Mgmt. & FF&E Exp. Additional Reserves Distribution To Govt.

  36. PRIVATE OWNERSHIP PUBLICLY OWNED - TAX-EXEMPT SINGLE TIER STRUCTURE 2-TIERED STRUCTURE 2-TIERED STRUCTURE CONVENTIONAL PUBLIC/PRIVATE SENIOR LIEN BONDS Senior Lien Project Revenues + Credit Support on all or portion of debt service Investment Grade SENIOR LIEN BONDS Senior Lien Project Revenues only Low Investment Grade FIRST MORTGAGE FIRST MORTGAGE SENIOR LIEN BONDS Senior Lien Project Revenues + tax increment + Credit Enhancement on all or a portion of debt service Investment Grade PRIVATE EQUITY / MEZZANINE DEBT JUNIOR LIEN BONDS Backed by high grade Revenue source or credit backstop PRIVATE EQUITY / MEZZANINE DEBT PUBLIC INVESTMENT JUNIOR LIEN BONDS Market takes risk Non-rated CASH FLOW NOTES CASH FLOW NOTES CASH FLOW NOTES DRAFT FOR POLICY DISCUSSION ONLY Convention Center Hotel Financing Basic Options

  37. DRAFT FOR POLICY DISCUSSION ONLY CURRENT ENVIRONMENT FOR HEADQUARTERS HOTEL FINANCING

  38. Capitalization Rates (1) • Significant decline in hotel values nationwide • Scarcity of new construction lending • Equity investors- primary focus on acquiring distressed properties • Decreasing LTC ratios • Increased level of public subsidy required LTC Ratios (1) (1) Source: PKF Hospitality Research DRAFT FOR POLICY DISCUSSION ONLY Current Environment – Private Financing

  39. DRAFT FOR POLICY DISCUSSION ONLY Current Environment – Public Financing • Historically low interest rates for high grade debt • Limited demand for project revenue debt • Increased credit spreads • Limited availability of credit enhancement • Increasing levels of municipal support required for publicly owned projects • Potential interest cost savings with Build America Bonds

  40. DRAFT FOR POLICY DISCUSSION ONLY Financing Considerations – Public Ownership • Strength of local hospitality market • Construction cost • Ratings and underwriting criteria • Proper allocation of risk among parties • Capital market conditions • Ability to provide credit support • Risk profile – Sensitivity analysis • Economic impact

  41. DRAFT FOR POLICY DISCUSSION ONLY Public Ownership – Typical Forms of Municipal Support • Contribution of site specific tax increment • Contribution of dedicated revenue stream from additional source(s) • Pledge of broader base revenue source • Sales or occupancy taxes • Surcharges or other special taxes • Contingent debt service guarantee • Funding of infrastructure or other development costs (i.e. parking) • Land contribution • Economic development payments • Tax increment contribution (Local or State taxes) • Multi-agency / Inter-governmental participation • Stand by guarantee of senior or subordinate series of bonds (multi-tiered financing)

  42. DRAFT FOR POLICY DISCUSSION ONLY NEXT STEPS

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