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Parking Monetizations December 10, 2012 Guy Wilkinson KPMG LLP
© 2011 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. 1 1 KPMG Infrastructure Advisory LBJ Freeway Managed Lanes $2.66 billion Texas Department of Transportation Interstate 95 HOT Lanes $929 million Virginia Department of Transportation North Tarrant Expressway $1.1 billion Texas Department of Transportation Presidio Parkway $362.22 million Caltrans Long Beach Courthouse $490.57 million Meridiam Knik Arm Bridge $1 billion Meridiam $1.37 billion Virginia Department of Transportation Virginia Midtown Tunnel Infrastructure Journal’s league tables rank KPMG as the leading financial advisor on US PFI/PPP deals for the first half of 2012. US Route 460 Confidential Virginia Department of Transportation PPP Project Experience KPMG has acted as Financial Advisor and/or service provider to both public and private clients within the US Experience in structuring tax-exempt public finance and Public-Private Partnerships Experience in procurement/financing of infrastructure, including: Transportation (surface, airports and seaports) Social Infrastructure (schools, healthcare, housing, parks, courts, etc.) Water and Utilities More than 50 people dedicated to North America Infrastructure Advisory practice 500 people servicing infrastructure globally 2008 Transport Deal of the Year Capital Beltway I Hot Lanes 2010 #1 Financial Advisor Transport Sector (Global) 2008 Transport Deal of the Year Capital Beltway I- Hot Lanes 2010 #1 Financial Advisor PPP (North America) 2008 Transport Deal of the Year Capital Beltway I- Hot Lanes 2011 2011 Deal of the Year for innovative financing Long Beach Courthouse THE BOND BUYER LA Metro
© 2011 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. 2 Policy Issues – Concession term – Control of rate escalation, operations and enforcement – Limitation of “excessive” concessionaire returns – Capital requirements and operating standards – Future congestion management objectives – Stakeholder buy-in Market Issues – Project valuation, market sounding and competition – Procurement process and achieving financial close – Private sector tax analysis – Business and commercial structure Legal Issues – Property development rights – Real estate lease terms – In addition, concession agreement should include provisions to address: – Exercise of certain reserved powers – Protection of operation and maintenance standards – Changes in law and adverse government action – Competing facilities built by the City – Secured lender protections in the event of default Considerations 2
© 2011 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. 3 Key Commercial Structure Considerations Balancing Value and Public Policy Public Policy ConsiderationsImpact on Upfront Value Caps on rate settingDown Compensation eventsUp Upside City revenue sharingDown City refinancing gain sharingDown Handback requirementsDown Performance requirementsDown Longer concession termUp Bid bondDown Private sector innovation: Real estate development rights Naming rights Technology Other Up
© 2011 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. 4 Ohio State University Parking Transaction Overview ■On September 20, 2012, the Ohio State University (OSU) achieved financial close on a 50-year concession agreement with operating partners QIC Global Infrastructure and LAZ Parking for an upfront payment of $483 million. ■OSU will lease its 35,920 space parking system (including hospital facility parking), with $28 million annual revenue (2011) ■OSU will still own its parking lots and be responsible for parking at special events, including athletic events, graduation, and move-in day. ■Concession is for operations and maintenance (O&M) of the OSU parking system. The operating partners will operate and make capital expenditures to maintain or expand OSU parking structures and collect associated revenues. ■OSU is the first public university in the country to privatize its parking operations using this type of transaction structure. Objectives ■OSU sought to secure a source of revenue for hiring more faculty, offering more scholarships, and supporting arts and humanities. ■Proceeds will be put into the endowment fund (assumed 9% return) and are projected to generate $3.1b in investment earnings. The expected allocation will be: $200m to faculty initiatives and research, $150m to transportation and sustainability, $83m to student scholarships, and $50m to the arts district.
© 2011 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. 5 Ohio State University Parking Transaction (cont.) Other Bids ■$417 million bid by Macquarie and Central Parking Systems ■$390 million bid by IFM and Parking Solutions ■These bids reportedly were not selected based on the parking fee increase schedule each team proposed. Financial Structure ■Debt financing: QIC and LAZ will draw $285m in bank debt, split between a five-year, $265m term loan and a $20m capex facility. The banks on the deal are BBVA, BTMU, SMBC, and Wells Fargo. ■Equity financing: QIC will make almost the entire equity contribution of $250m leading to an approximately 50:50 debt to equity ratio. Rate Structure ■Year 1: No increase in rates. ■Years 2-10: Rates can increase up to 5.5% annually. ■Year 11 and beyond: Greater of 4% per year and average annual increase in CPI for 5 preceding years. ■Rate increases capped at rates in line with or below historic average increases.
© 2011 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. 6 Case Studies City of Chicago - Downtown Parking Garages Transaction Description The City of Chicago and the Chicago Park District completed a 99-year lease of its four underground parking garages (approximately 9,178 spaces) between Grant and Millennium parks to Morgan Stanley and LAZ Parking for a one-time upfront payment. Needs of the Municipality: $278 million went to pay off debt associated with the garages. $122 was earmarked for Chicago park improvements. $120 million set aside for an annuity that would pay out $5 million annually to replace lost revenues from the lease. Capital Investments: Under the contract, the concessionaire must carry out certain capital improvements, particularly the rehabilitation of the East Monroe Street garage (one of the four garages) within five years. The city’s estimate of the cost is $65 million, however, the actual cost is to be determined by the concessionaire. Bidders were asked to submit a cap-ex figure (for on-going capital improvements) along with the upfront payment in their bid. Policy Considerations: The contract for the lease did not impose any limits on the rates the concessionaire could charge for parking (this was decided based on the City’s experience with this type of asset). The City had to decide how much cap-ex they would specify in the contract. Transaction Status: Financial Close (2006) Financial Structure: Uses: $563 million upfront payment Sources: $350 million 10 yr term loan $52 million cap-ex facility $161 million in equity Source: InfraAmericas.
© 2011 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. 7 Case Studies City of Chicago – Parking Meters Transaction Description The City of Chicago and the Chicago Park District completed a 75-year lease of the operations and maintenance of the City’s approximately 36,000 parking meters to a consortium of composed of Morgan Stanley Infrastructure Partners and LAZ Parking. Needs of the Municipality: $400 million in a long-term reserve/revenue replacement fund. $325 million to help balance city budgets. $100 million human infrastructure fund to support for programs helping those most in need. $320 million to stabilize the city budget. Capital Investments: No future investments had been specified. Policy Considerations: As part of the agreement, graduated meter rate increases will be implemented over a period of five years to bring rates closer to market level. The Chicago City Council retains the right to revise the rates, change the number of meters or the hours of operation. However, if the city takes action that negatively impacts meter revenue; it will be obligated to replace that value to the private operator. Consideration of how city road maintenance, road access, and potential future congestion pricing and other considerations may effect the value of the upfront payment. Transaction Status: Financial Close (2009) Financial Structure: Uses: $1.15 billion upfront payment Sources: $600 million 10-yr fixed rate bond -144a $550 million equity financing Source: InfraAmericas.
© 2011 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. 8 Case Studies Ohio State University– Parking Meters Transaction Description Ohio State University completed a 50-year lease for 13,500 spaces in 17 parking garages, 22,230 spaces in 156 parking lots and 158 metered spaces on the Columbus campus. The parking spaces are estimated to generate roughly $30 million in annual revenue. Needs of the Municipality Support growth in priority academic programs by hiring additional faculty. Provide funds for student scholarships. Support high priority facilities investments. Enhance current transportation services and campus accessibility. Capital Investments Concessionaire may build a new facility and operate it, or OSU can require that the concessionaire build a new facility. Agreement includes guaranteed line of credit 5 years prior to hand back of assets for capital improvements. Policy Considerations Maximum annual parking rate increase of 5.5% for years 1-10. For years 11-50, maximum annual parking rate increase of the greater of 4% or inflation. Includes flexibility to increase parking supply in the future. Transaction Status: Financial Close (September 2012) Financial Structure: Uses: $483 million upfront payment Sources: $265 million 5-year term bank debt $20 million cap-ex facility $198 million equity financing Source: InfraAmericas.
© 2011 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. 9 Case Studies City of Indianapolis – Parking Meters Transaction Description The City of Indianapolis completed a 50-year concession to manage and operate 3,456 parking meters and management agreements for more than 20,000 garage and lot spaces. The concessionaire will pay the city an up front fee followed by 20% of revenues per year, rising to 50% later in the contract's lifetime. Needs of the Municipality Street and sidewalk improvements. More convenient and modern parking options. Capital Investments Agreement includes implementation of a more efficient multi-space parking meter technology. Policy Considerations For the first and second years of the agreement, parking meter rates increased according to a schedule determined in agreement. For the third year forward, concessionaire may annually increase rates up to a maximum of CPI inflation. Termination clause was included in the contract that can be activated every 10 th anniversary of the contract. The termination clause requires a termination fee of approximately $19.8 million, eventually lowering to $8 million. Revenue share agreed upon, which is estimated to give the City approximately $620 million over life of lease. Transaction Status: Financial Close (2009) Financial Structure: Uses: $20 million upfront payment Sources: N/A Source: InfraAmericas.
© 2011 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. 10 Case Studies City of Los Angeles – Parking Meters and Garages Transaction Description The City of Los Angeles attempted to pursue a 50-year concession of approximately 8,231 parking spaces located in nine city garages. Needs of the Municipality Proposed to fund the city budget deficit of approximately $208 million. Lease would have generated $53 million to the city’s general fund (help pay services such as policing and parks). Capital Investments No future investments had been specified. Policy Considerations Presumed meter rate increases would have been involved, but no details had been reached. Winning bidder would have had option to add three additional parking garages to the deal. Reasons for Transaction Cancellation After the release of the RFP, city business leaders persuaded the city council to alter the concession agreement and include such arrangements as parking rate restrictions and discounted parking rates at garages retained by the city. These changes effectively diminished the potential value of the transaction and deterred interest from potential bidders. Transaction Status: Cancelled (2011) Financial Structure: Uses: $200-300 million Upfront payment Sources: N/A Source: InfraAmericas.
© 2011 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. 11 Case Studies City of Pittsburgh – Parking Meters and Garages Transaction Description City of Pittsburg attempted to complete a 50-year concession for 8,987 spaces in 11 garages and one attended lot, 6,991 on-street meter places, and 1,776 off-street meter spaces in 33 surface lots with JP Morgan and LAZ Parking. Needs of the Municipality $220 million in unfunded pension obligations needed to be funded in order to maintain compliance with State law. $100 million to erase parking authority debt. Capital Investments Installation of 922 new parking meters at specified locations. $50 million investment into renovation of three parking garages and improvements in meter technology. Policy Considerations Agreement allowed for potential fare increases in the future. Reasons for Transaction Cancellation Pittsburgh City Council struck down agreement reached between Pittsburgh Parking Authority and consortium including JP Morgan and LAZ parking, citing concerns over: – Length of concession agreement (preferred agreement 30 years or less in length) – Loss of control over meter rate increases – Union jobs, and overall fear of loss of jobs – Undervaluation, fear that the City was not being compensated enough for the revenues in the system. Transaction Status: Cancelled (2010) Financial Structure: Uses: $452 million upfront payment $50 million Future cap ex commitment Sources: (1) $200-250 million debt financing $250-300 million equity financing Source: InfraAmericas. (1) Sources estimated from knowledge of approximately 40-50% debt included in transaction structure.
© 2012 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. NDPPS 121625 The KPMG name, logo and “cutting through complexity” are registered trademarks or trademarks of KPMG International.
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