FINANCING OF CRUISE FACILITIES

Transcription

1 FINANCING OF CRUISE FACILITIES April 2013 Luis Ajamil Bermello, Ajamil & Partners

2

3 issues

4 Financing improvements For ports, usually the most difficult hurdle to overcome The industry is full of misperceptions In many cases ports relate to use financing models that work for cargo or other development not the same Allocation of costs Allocation of risks Most ports have limited financial resources Many Caribbean and Latin American ports do not have total control of excess revenues

5 Both scenarios offer challenges Start-up ports Lack of certainty High start-up costs Low volumes Slow ramp up to profitability Legacy ports Incremental increases Rare that legacy ports have huge jumps in traffic Usually large incremental costs Fixing an old terminal could be as expensive as a new one

6 Process Customer driven Listen to cruise line needs Usually short-term Low rate structure Financially driven Available resources Financing test Both of these tend to favor short-term thinking without a strategic vision Tend to create even bigger problems down the road

7 costs

8 The evolution of the cruise terminal

9 Cost of Terminal Development costs $60 $50 $40 $30 $20 $10 $ terminal pier

10 What is driving the costs? Inflation Size Parking Equipment Security Two level operations Multiple gangways Elevators, escalators

11 income

12 Realities Lines do not want tariff increases Lines have supported increases in strategic locations Lines have relocated due to cost differential Ports have used costs as a differentiator Ports have not used visitor industry funds to support investments

13 Marine gross income per passenger (major US home ports) $25.00 $20.00 $15.00 $10.00 $5.00 $0.00

14 Metric gross expenses per passenger (US$) $16.00 $14.00 $12.00 $10.00 $8.00 $6.00 $4.00 $2.00 $0.00

15 Averages Revenues On average the total per passenger charge in the US is $14.52 This varies widely by region West coast is lowest at $9.01 North Atlantic is highest at +$19.00 Legacy ports average at $15.51 Costs Operating costs of a terminal varies highly between $3.00 per passenger to over $12.00 per passenger Ports with average operations can operate with a 50:50 ratio of costs to revenues Very sensitive to volumes and historic labor arrangements Net revenues This combination of revenue and costs create a wide disparity between ports as to their financial performance

16 Metric- average passengers per terminal 700, , , , , , ,

17 Gross revenues per terminal $16,000,000 $14,000,000 $12,000,000 $10,000,000 $8,000,000 $6,000,000 $4,000,000 $2,000,000 $

18 financing

19 HOW DO YOU FUND IT? WHO BEARS THE RISK?

20 Investments Does it make sense? Revenues support operations and return How do you mitigate risk of the investment? How do you stay competitive? How do cruise lines participate? Direct investment Underlying guarantees?

21 Back of the envelope analysis $30 m per terminal a port needs to net about $2.5 m per year To net about $2.5 m per year the port needs to gross about $5.0 m per year With 300,000 passengers / berth, the port needs to collect about $17 per passenger

22 REWARDS Development options Port Owns, Develops & Operates Joint venture 10 5 Ground lease 0 RISKS

23 Sourcing the funds Who has access to capital? Who can source the capital with the best terms? Port Cruise line Operator Private investor Who will take the risk? Cruise line guarantees Sovereign guarantees Public Bonds guarantees

24 Realities Most ports do not have the funds Most ports do not have independent access to capital markets Most ports do not have the financial strength to finance Private investors are MORE risk adverse than public entities

25 Risk Public sector Debt holders Cruise lines Private sector Public-private partnership HOW DO YOU JUSTIFY THE INVESTMENT?

26 Evolution of cruise line involvement NO AGREEMENTS VOLUME GUARANTEES DIRECT INVESTMENT VOLUME AND RATE GUARANTEES

27 Agreements (PBA s) Port perspective Used to support investment decisions Used to mitigate risk or assist with financing Used to obtain other funding Ties up the flexibility of the port Might result in discounting

28 Agreements Lines perspective Guarantee preferential berths Control or reduce tariffs Obtain a competitive edge

29 Financing schemes REVENUE BONDS THIRD PARTY FINANCE NON RECOURSE PROJECT FINANCING Marketable based on project revenues Coverage of 1.3 to 1.5 depending on credit worthiness of issuer With or without agreements More expensive money Will usually look for long term agreements (i.e. leases) Will look for ROI Hard to obtain Coverage of 1.8 to 2.0 No need for agreements

30 typical scenario

31 Gross annual revenues from cruise operations 12,000,000 Assumes 50% discount 10,000,000 8,000,000 6,000,000 4,000,000 Current rate 1 rate 2 rate 3 rate 4 2,000,000 0

32 Net annual revenues from cruise operations (without investment) 12,000,000 10,000,000 8,000,000 6,000,000 4,000,000 Current rate 1 rate 2 rate 3 rate 4 2,000, ,000,000

33 Net annual revenues from cruise operations (with investment) 8,000,000 6,000,000 4,000,000 2,000,000 0 Current rate 1 rate 2 rate 3 rate 4-2,000,000-4,000,000

34 Millions 30 year EBITAD Sensitivity to volumes and tariffs Current rate 1 rate 2 rate 3 rate 4 Low Target High

35 Competitive tariff environment cost per passenger Port-of-call competitive range current rate 1 rate 2 rate 3 rate 4 port 1 port 2 port 3 port 4 avg Port Concesionaire

36 Levels of tariff IRR risk assessment (this is for reference only) Traffic Levels of anticipated traffic Tariffs Low Target High Current NA NA NA Rate 1-6.6% -4.2% -2.3% Rate 2 1.1% 3.3% 5.3% Rate 3 3.8% 6.1% 8.3% Rate 4 6.1% 8.7% 11.1%

37 overseas models

38 Newest terminals in the newest markets Singapore Hong Kong Collectively close to US$900 million

39 Singapore

40 In Asia A different model The Tourism organizations are paying for the capital structure without an expectation of return Similar to how Convention Centres, stadiums and arenas are financed in the Americas In turn these same agencies are: Privatizing operations Measure performance KPI s Heavily weighed to passenger and cruise line satisfaction

41 In Europe Ports treat cruise terminals as they treat container terminals Ports invest in berth and harbor Third party invest in uplands Multiple parties can have concessions in the same port

42 Conclusions Understand revenue and cost structure Base your planning on sound financial underpinning Lines drive tariffs competitively Trying to build purely on rate increases is very difficult Diverting rates to non-cruise investments makes the project difficult to finance It is not whatever it costs the lines will pay Different solutions and issues Start-ups with low volumes Legacy ports with obsolete infrastructure Perform an affordability test at the start Plan for the future get it right from the on-set Flexibility

43 FINANCING OF CRUISE FACILITIES April 2013 Luis Ajamil Bermello, Ajamil & Partners