Financial Model Update Board of Directors Meeting June 7, 2016

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Rosalind Atkinson
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1 Financial Model Update Board of Directors Meeting June 7, 2016

2 FINANCIAL MODEL OVERVIEW: 2

3 OPERATING EXPENSES UPDATE: Operating budget Updated Phase-in schedule Update growth projection due to new park visitation Expenses Capital Maint. Reserve No Change Maritime Repair Reserve No Change 1 1. Previously, reactive maritime maintenance estimates were based on a price of $1,100/LF. Recent proposals received by BBP have indicated that these prices have increased to $1400/LF. However for the purposes of this estimate, we are still assuming $1,100/LF. 3

4 OPERATING EXPENSES UPDATE: Revised M&O Expense Projection $60 Projected build-out 2 Projected ann. opex ($M, nominal 5 ) $50 $40 $30 $20 $10 FY2012 FY2016 FY2020 FY2024 FY2028 FY2032 FY2036 FY2040 FY2044 FY2048 FY2052 FY2056 FY2060 FY2064 FY15 Projection Current Projection NOTE: FY12 to FY16 derived from approved BBP budgets, FY17 from proposed budget, and FY18 to FY65 from projections 1. Expense growth prior to projected build out based on (i) addition of new parkland, (ii) increased visitation at existing parkland, and (iii) projected inflation 2. Park construction projected to be completed during FY20 3. Expense growth during after projected build out projected to be 3% annually, the historical average rate of inflation in the US 4. Nominal values include inflation 4

5 REVENUES UPDATE: Upfront Rent No Change One-Time Expenses Revenue PILOMRT PILOST No Change Reduced from $12.1M to $9M 1 Participation No Change 1. Based on actual construction costs at John St, Empire Stores and Pierhouse development near the end of construction. 5

6 REVENUES UPDATE: Ground Rent No Change Recurring Expenses Revenue PILOT Transfer Fees Market Value/SF Prev FY16 Projection Current Projection Residential 2 $127/SF $134/SF Hotel 3 $221,000/Room $243,000/Room Commercial 3 $197/SF $257/SF No Change Other Revenue 1 No Change 1. Other Revenue includes Concessions, License Fees, Permit Fees, and Events Fees 2. Residential Properties include 1 John St, Pierhouse and One Brooklyn Bridge Park. Impact of the change from One BBP is limited due to J-51 exemption and abatement 3. Impact of changes to hotel and commercial PILOT levels is limited due to expected ICAP exemption on both properties 6

7 REVENUES UPDATE: Market Value/SF for Comparable Residential Properties $350 Manhattan Condo Projects $300 Brooklyn Heights/ DUMBO Condo Projects FY16 Market Value/SF 1 $250 $200 $150 $100 $ Water St Front St BBP Montague Projection Street Water Furman St St 20 Henry Street 15 Union Square West Rosin Projection 106 Central Park South (Trump Parc) 15 Central Park West 1. FY16 Market Value/SF from DOF Cooperative/Condominium Comparable Rental Income Archives 7

8 REVENUES UPDATE: Market Value/Room for Comparable Hotel Properties $300,000 $250,000 FY16 Market Value/SF 1 $200,000 $150,000 $100,000 $50,000 Aloft Brooklyn Sheraton Brooklyn Marriott Brooklyn Bridge Rosin Projection 2 BBB Projection 1. FY16 Market Value/SF from January 15, 2016 DOF Notice of Property Value 2. The Rosin report combines the residential and hotel components of Pier 1 into 1 market value. BBP has calculated Rosin s hotel MV by assuming that Rosin was applying the John Street projections to the residential component of Pier 1 and then subtracting it from the total. 8

9 REVENUES UPDATE: Market Value/SF for Comparable Office Properties $450 $400 Manhattan Office Buildings FY16 Market Value/SF 1 $350 $300 $250 $200 $150 $100 $50 DUMBO Office Buildings Downtown Brooklyn Office Buildings 20 Jay St 55 Washington St 45 Main St 1 Metrotech 1 Pierrepont Plaza 16 Court St BBP Projection Empire Stores Empire State Building 7 World Trade Center RosinProjection 4 Times Square Empire Stores 1. FY16 Market Value/SF from January 15, 2016 DOF Notice of Property Value 9

10 REVENUES UPDATE: Revised Recurring Revenue Projection $100 $90 $80 $70 $60 $50 $40 $30 $20 $10 FY2016 FY2018 FY2020 Projected annual revenue ($M nominal) FY2022 FY2024 FY2026 FY2028 FY2030 FY2032 FY2034 FY2036 FY2038 FY2040 FY2042 FY2044 FY2046 FY2048 FY2050 FY2052 FY2054 FY2056 FY2058 FY2060 FY2062 FY2064 FY 15 Projected Recurring Revenue Current Projection 1. Growth driven by commencement of ground rent and by PILOT values increasing as buildings are constructed and occupied 2. Assumes 3% inflation of PILOT, defined escalation terms on ground leases 10

11 CASHFLOW PROJECTION: Assuming no Pier 6 1 (reactive maritime approach) Park Cash Reserves ($M nominal) ) $100 ($100) ($200) ($300) ($400) ($500) BBP projected to run out of money in FY2025 FY2016 FY2020 FY2024 FY2028 FY2032 FY2036 FY2040 FY2044 FY2048 FY2052 FY2056 FY2060 FY2064 Reserve balance and results in $450M of deferred maintenance 1. Cashflow projection assumes no revenues from Pier 6 development sites 2. Includes all projected expenses (opex, maritime, and capital maint.) and all projected revenues (one-time, recurring, and rev from abatement expirations) 3. Reserve balance is aggregate beginning balance of operating, capital maintenance, and maritime maintenance reserve funds in any given year NOTE: Cost of borrowing during negative Reserve fund balance years not included 11

12 CASHFLOW PROJECTION: Assuming no Pier 6 1 (preventative maritime approach) Park Cash Reserves ($M nominal) $400 $300 $200 $100 ($100) ($200) ($300) ($400) Not Feasible due to lack of upfront funds to pay for initial costs of preventative maintenance FY2016 FY2020 FY2024 FY2028 FY2032 FY2036 FY2040 FY2044 FY2048 FY2052 FY2056 FY2060 FY2064 Reserve balance Cashflow projection assumes no revenues from Pier 6 development sites 2. Includes all projected expenses (opex, maritime, and capital maint.) and all projected revenues (one-time, recurring, and rev from abatement expirations) 3. Reserve balance is aggregate beginning balance of operating, capital maintenance, and maritime maintenance reserve funds in any given year NOTE: Cost of borrowing during negative Reserve fund balance years not included 12

CASHFLOW PROJECTION: Pier 6 development site financial offer Subject to approval by BBP Board One-time revenue Recurring revenue Upfront rent $104M PILOST 1 $4M PILOMRT 1 $7M TOTAL 2 $115M Ground

13 CASHFLOW PROJECTION: Pier 6 development site financial offer Subject to approval by BBP Board One-time revenue Recurring revenue Upfront rent $104M PILOST 1 $4M PILOMRT 1 $7M TOTAL 2 $115M Ground rent 3 PILOT 1 Park Transfer Fee 4 TOTAL.6M/yr $1.8M/yr.3M/yr $2.7M/yr 1. Projected values based on current DOF valuation of comparable buildings 2. Although the proposal includes an offer of participation rent offer at 15% of all revenues over an average net per square foot sales price of $2,200, given current market conditions, BBP is not projecting any revenue from this offer 3. Growth rate is 7.5% every 5 years 4. Beginning ten years after Substantial Completion, BBP receives Park Transfer Fee of 0.75% of the sale price of each sold unit 13

14 CASHFLOW PROJECTION: With Pier 6 (preventative approach) $400 Park Cash Reserves ($M nominal) $300 $200 $100 ($100) ($200) ($300) FY2016 FY2018 FY2020 FY2022 FY2024 FY2026 FY2028 FY2030 FY2032 FY2034 FY2036 FY2038 FY2040 FY2042 FY2044 FY2046 FY2048 FY2050 FY2052 FY2054 FY2056 FY2058 FY2060 FY2062 FY2064 ($400) Reserve balance Reserve Balance (with City Sweep) Reserve balance is aggregate beginning balance of operating, capital maintenance, and maritime maintenance reserve funds in any given year NOTE: Figures include annual 1% return on invested capital (i.e., the reserve balance) 2. Assumes City sweep of excess PILOT revenue starting in FY2047 equivalent to $3.5M in FY2016$ 14

15 Conclusion Model has long history and has been publicly vetted over 10+ years Updates include FY2016 PILOT numbers, more accurate PILOST projections, and refined park construction schedule Without revenues from Pier 6 development sites BBP cannot fulfil its mandate to be financially self-sufficient The recommended Pier 6 RFP proposal provides an appropriate level of revenues to ensure the park remains financially solvent 15

Financial Model Update Public Presentation July 9, 2015

Financial Model Update Public Presentation July 9, 2015 BBP financial model developed/refined over 10+ years Public updates Executing on the model First model created as part of initial park planning: