WASHINGTON CONVENTION CENTER AUTHORITY DISTRICT OF COLUMBIA $524,460,000 SENIOR LIEN DEDICATED TAX REVENUE BONDS SERIES 1998 DATED: SEPTEMBER 1, 1998 CUSIP NO. 93877M 2004/05 ANNUAL CONTINUING DISCLOSURE INFORMATION STATEMENT AS OF MARCH 29, 2006 Also available at: MuniFinancial www.muni.com
LIST OF PARTICIPANTS WASHINGTON CONVENTION CENTER AUTHORITY www.dcconvention.com Henry W. Mosley Chief Financial Officer 801 Mount Vernon Place, NW Washington, DC 20001 (202) 249-3000 DISCLOSURE CONSULTANT & DISSEMINATION AGENT MuniFinancial* Temecula, California 92590 (951) 587-3500 www.muni.com UNDERWRITER PaineWebber Incorporated BOND COUNSEL Hunton and Williams Washington, D.C. 20006 TRUSTEE Alex Chang, Assistant Vice President The Bank of New York 385 Rifle Camp Rd, 3 rd Floor West Paterson, New Jersey, 07424 (973) 247-4991 * In its role as Disclosure Consultant and Dissemination Agent, MuniFinancial has not passed upon the accuracy, completeness or fairness of the statements contained herein.
I. INTRODUCTION Pursuant to an Official Statement dated September 17, 1998, $524,460,000 Senior Lien Dedicated Tax Revenue Bonds, Series 1998 (the 1998 Bonds ) were issued by the Washington Convention Center Authority ( WCCA ). The 1998 Bonds were sold to finance a portion of the construction costs of a new convention center (the New Convention Center ) in Washington D.C. (the District ) in an area bounded by 7th and 9th Streets, Mount Vernon Place and N Street, NW. The 1998 Bonds are special obligations of WCCA. These Bonds are without recourse to, not a debt of, nor a pledge of the District. The principal and interest on the 1998 Bonds are secured by and payable solely from dedicated tax receipts (the Dedicated Taxes ) and pledged funds established under a trust agreement. The Dedicated Taxes consist of 4.45% of the 14.5% sales tax on hotel room charges and 1.0% of the 10% sales and use tax on restaurant meals, alcoholic beverages consumed on premises and rental vehicle charges. The District has entered into an agreement with Wachovia Bank, formally known as First Union National Bank of Washington, D.C., pursuant to which Wachovia Bank will serve as the Lockbox Bank and maintain a Lockbox into which the Dedicated Taxes and other sales and use taxes are deposited upon collection. The 1998 Bonds are not secured by the current convention center. This Annual Continuing Disclosure Information Statement is being provided pursuant to a covenant made by WCCA for the benefit of the holders of the Bonds and includes the information specified in a Continuing Disclosure Agreement. For further information and a more complete description of WCCA and the Bonds, reference is made to the Official Statement. The information set forth herein has been furnished by the WCCA and by sources, which are believed to be accurate and reliable but is not guaranteed as to accuracy or completeness. Statements contained in this Annual Continuing Disclosure Information Statement which involve estimates, forecasts, or other matters of opinion, whether or not expressly so described herein, are intended solely as such and are not to be construed as representations of fact. Further, the information and expressions of opinion contained herein are subject to change without notice and the delivery of this Annual Continuing Disclosure Information Statement will not, under any circumstances, create any implication that there has been no change in the affairs of the WCCA or any other parties described herein. 2004/05 Senior Lien Dedicated Tax, 1998 WCCA 1
II. BOND INFORMATION A. PRINCIPAL OUTSTANDING Bond Issue As of October 2, 2005 Senior Lien Dedicated Tax Revenue Bonds, Series 1998 $492,360,000 B. SENIOR DEBT SERVICE RESERVE ACCOUNT Account Name As of October 2, 2005 Debt Service Reserve Account N/A* Debt Service Reserve Account Requirement $36,176,550 * The balance in the Debt Service Reserve Account represents a Surety Bond with Ambac Assurance Corp. in the amount of the Debt Service Reserve Account Requirement 2004/05 Senior Lien Dedicated Tax, 1998 WCCA 2
C. DEBT SERVICE Debt Service Requirements for the 1998 Bonds* For Period Ending October 1, Principal Interest Debt Service 2006 $11,720,000 $24,452,300 $36,172,300 2007 12,310,000 23,866,300 36,176,300 2008 12,925,000 23,250,800 36,175,800 2009 13,600,000 22,572,238 36,172,238 2010 14,315,000 21,858,238 36,173,238 2011 15,070,000 21,106,700 36,176,700 2012 15,860,000 20,315,525 36,175,525 2013 16,690,000 19,482,875 36,172,875 2014 17,565,000 18,606,650 36,171,650 2015 18,490,000 17,684,488 36,174,488 2016 19,460,000 16,713,763 36,173,763 2017 20,435,000 15,740,763 36,175,763 2018 21,505,000 14,667,925 36,172,925 2019 22,580,000 13,592,675 36,172,675 2020 23,710,000 12,463,675 36,173,675 2021 24,895,000 11,278,175 36,173,175 2022 26,140,000 10,033,425 36,173,425 2023 27,380,000 8,791,755 36,171,755 2024 28,685,000 7,491,225 36,176,225 2025 30,045,000 6,128,688 36,173,688 2026 31,475,000 4,701,550 36,176,550 2027 32,970,000 3,206,488 36,176,488 2028 34,535,000 1,640,413 36,175,413 Total $492,360,000 * The schedule does not reflect potential reductions in interest costs as a result of any unscheduled redemptions or other early extinguishment of the 1998 Bonds. III. FINANCIAL INFORMATION The audited financial statements for the WCCA for the Fiscal Year Ended September 30, 2005 will be filed separately with the Nationally Recognized Municipal Information Repositories and are hereby incorporated by reference into this Annual Information Statement. 2004/05 Senior Lien Dedicated Tax, 1998 WCCA 3
A. SCHEDULE OF ASSETS, LIABILITIES AND NET ASSETS (in thousands) As of September 30, ASSETS 2002 2003 2004 2005 Current Assets: Cash $11,005 $4,715 $5,037 $2,970 Due from District of Columbia 4,536 5,506 5,735 6,536 Accounts receivable, net of allowance for un-collectible accounts 878 932 979 890 Prepaid Expenses and Other Assets - - - 917 Accrued Interest Receivable 551 186 299 392 Total current assets $16,970 $11,339 $12,050 $11,705 Noncurrent Assets: Capital assets, net of accumulated depreciation $624,835 $811,099 $761,709 $735,149 Unamortized Bond Issue Costs 9,257 8,901 8,545 8,189 Investments 7,323 4,503 5,176 17,598 Restricted Investments 257,194 78,549 62,319 61,563 Total Noncurrent Assets $898,609 $903,052 $837,749 $822,499 Total Assets $915,579 $914,391 $849,799 $834,204 LIABILITIES Current liabilities: Accounts Payable $45,857 $36,647 $6,206 $5,767 Compensation Liabilities 1,298 1,060 632 523 Deferred Revenue 11,591 11,939 7,004 1,993 Accrued Interest Payable 12,976 12,976 12,746 12,492 Financing Arrangement Payable - 1,050 719 719 Bonds Payable - 10,225 10,685 11,190 Total Current Liabilities $71,722 $73,897 $37,992 $32,684 Noncurrent Liabilities: Compensation Liabilities - - $596 $557 Notes Payable - - 1,050 8,552 Bonds Payable, net discount 518,396-497,952 486,995 Other Financing Arrangement - 12,419 12,158 11,527 Total Noncurrent Liabilities $590,118 $86,316 $511,756 $507,631 Total Liabilities $661,840 $160,213 $549,748 $540,315 NET ASSETS Invested in Capital Assets, net of related debt $115,696 $243,026 $243,036 $224,717 Restricted Net Assets: Debt Service 15,769 25,211 27,202 23,682 Capital Renewal 155,535 16,822 15,000 15,000 Operating and Marketing Fund 20,000 20,000 20,000 20,000 Marketing Fund - - 1,987 2,059 Unrestricted Net Assets 2,275 8,271 (7,174) 8,431 Total Net Assets $309,275 $313,330 $300,051 $293,889 2004/05 Senior Lien Dedicated Tax, 1998 WCCA 4
B. REVENUES, EXPENSES AND CHANGES IN RETAINED EARNINGS As of September 30, 2005 (in thousands) Operating Revenues: Operating Account Building Account Marketing Fund Demolition Account Capital Fund Total Building rental $8,668 $- $- $- $- $8,668 Electrical 1,859 - - - - 1,859 Telecommunications 1,011 - - - - 1,011 Audio-visual 316 - - - - 316 Food services 4,105 - - - - 4,105 Miscellaneous 390 - - - - 390 Total operating revenues $16,349 $- $- $- $- $16,349 Operating expenses: Personal services $12,315 $- $- $- $- $12,315 Contractual services 10,912 - - 8,888-19,800 Depreciation & amortization 27,795 - - - - 27,795 Occupancy 5,721 - - - - 5,721 Supplies 514 - - - - 514 Miscellaneous 773 - - - - 773 Total operating expenses $58,030 $- $- $8,888 $0 $66,918 Operating loss ($41,681) - - ($8,888) - ($50,569) Nonoperating revenue and expenses: Interest income $1,825 $- $17 $1 $- $1,843 Dedicated taxes 68,142-9,348 - - 77,490 Interest Expense (25,849) - - - - (25,849) Bond Issuance Costs (356) - - - - (356) Transfer to tourism responsibility centers - - (8,705) - - (8,705) Loss on sale of Fixed Assets (16) - - - - (16) Inter-fund transfers to/from 293,036 (294,597) 937-624 - Total nonoperating revenues $336,782 ($294,597) $1,597 $1 $624 $44,407 - Increase (Decrease) in Net Assets 295,101 (294,597) 1,597 (8,887) 624 (6,162) Net assets, beginning of year, restated 5,468 295,163 462 (1,042) 0 300,051 Net assets, end of year $300,569 $566 $2,059 ($9,929) $624 $293,889 2004/05 Senior Lien Dedicated Tax, 1998 WCCA 5
IV. OPERATING INFORMATION A. RECEIPTS FROM DEDICATED TAXES Receipts from Dedicated Taxes (1) for Fiscal Year 1997 through 2005 (dollars in thousands) Fiscal Year Hotel Sales Tax % Change Restaurant/ Vehicle Sales Tax % Change Total Receipts % Change 1997 $31,154 $13,467 $44,621 -- 1998 33,039 6.05% 14,284 6.07% 47,323 6.06% 1999 35,571 7.66% 15,574 9.03% 51,145 8.08% 2000 37,734 6.08% 16,666 7.07% 54,400 6.36% 2001 38,787 2.79% 17,788 6.76% 56,575 4.00% 2002 34,664 (10.63)% 18,709 5.18% 53,373 (5.66)% 2003 39,295 13.36% 18,640 (0.37)% 57,935 (2) 8.55% 2004 42,041 6.99% 19,930 6.92% 61,971 (2) 6.97% 2005 53,722 27.79% 23,768 19.25% 77,490 25.04% (1) 1997 through 1999 estimated based upon information provided by the D.C. Office of Tax and Revenue (2) Receipts before accruals. B. DEBT SERVICE COVERAGE Fiscal Year Ending Dedicated Taxes Debt Service Debt Service Coverage 2004/05 $77,490,081 $36,171,387 2.14 C. OPERATING INFORMATION/COLLECTION OF REVENUES UPDATE In addition to the pledge of dedicated taxes, the District has pledged not to limit or alter any rights vested in the WCCA to fulfill agreements made with holders of the 1998 Bonds, or impair rights and remedies of bondholders until the 1998 Bonds and the interest thereon are paid in full. In connection to the projected pledge of revenues to meet the operating and debt service expenditures, if the projected revenues are insufficient, the WCCA Act requires the Mayor to impose surtax in an amount sufficient to meet the projected deficiency. The District s Auditor determined that the projected dedicated taxes for fiscal year 2005 are expected to be sufficient to meet the projected expenditures and reserve requirements. Therefore, the Mayor imposed no surtax. 2004/05 Senior Lien Dedicated Tax, 1998 WCCA 6
D. HOTEL AND TRAVEL TREND UPDATE The following information has been gathered by the Washington DC Convention & Tourism Corporation (WCTC). 1. HOTEL SALES TAXPAYERS The 25 largest hotels in the District account for 14,380 guestrooms and suites (54% of all hotel rooms in the District). The average hotel occupancy in the District through June 2005 was 76.4%, according to the Washington Convention & Tourism Corporation and 72.6% for fiscal year 2004. 2. HOSPITALITY INDUSTRY IN THE DISTRICT Washington, DC hosted 17.7 million domestic visitors in 2004, an increase of 8.3%. Washington, DC moved up from the 5 th to 4 th top destination for U.S. travelers. Domestic Visitors are leisure visitors, including those whose travel purpose is to visit friends and relatives, entertainment, outdoor recreation or personal reasons. Leisure visitors using hotels also increased by 9.8%. Twenty-five percent of all visitors came from Washington, DC s top four markets: New York (12%), Philadelphia (5%), Atlanta (4%) and Los Angeles (4%). Combined, these top four markets accounted for 30% of all leisure hotel stays; New York led the leisure category with 17% of all overnight hotel stays. 2004/05 Senior Lien Dedicated Tax, 1998 WCCA 7
3. VISITORS PRIMARY PURPOSE OF TRIP FOR 2004 Increased use of hotels sparked a slight increase in average household spending. In 2004, the average trip expenditure was $485, up 6.6%. Business travelers staying in hotels spent the most per trip and saw the sharpest increase, averaging $805 per trip, a 17% increase over 2003 spending; while leisure hotel visitors spending rose to $661 per trip (a 10% increase from 2003). Fifteen percent of all visitors spend more than $1,000, including 12% of all leisure travelers staying in hotels. Washington, D.C. Visitors Primary Purpose of Trip (Percent of person-trips) Business 13% Business/ Pl easure 4% Convention/ Seminar 16% Leisure 67% Source: WCTC 2004 Visitor Statistics 4. DOMESTIC VISITOR VOLUME TRENDS According to Smith Travel Research, with more hotel rooms added to the marketplace, hotel occupancy in Washington, DC for 2004 settled at 72.6%, representing a 5.4% increase above 2003 levels; average daily rate increase 7.5%, ending the year at $158. 2004/05 Senior Lien Dedicated Tax, 1998 WCCA 8
Washington DC Domestic Visitor Volume Trends 1997-2004 (in millions of visitors) 20 19 18 17.8 17.7 17 16 16.3 16.4 16.5 16.4 15 15.7 15.9 14 1997 1998 1999 2000 2001 2002 2003 2004 Source: WCTC DC Update Newsletter September/October 2005 and Smith Travel Research. 5. HOTEL SUPPLY CHANGES IN WASHINGTON, DC Property Rooms Open Mandarin 347 March 2004 Residence Inn 233 January 2005 Hampton Inn 228 January 2005 Courtyard 204 Unknown Embassy Suite 383 First Q 2005 Marriott HQ 1,200 1,500 2007/2008 V. RECENT EVENTS Future Impacts The new convention center was substantially completed in 2003 and became operational in March 2003. In Fiscal Year 2004, the Authority incurred additional $8.2M in construction costs to complete the activity that remained from the prior fiscal year. The Costs were financed by the remaining proceeds of the serial lien dedicated tax revenue bonds and dedicated tax revenues. In Fiscal Year 2005, the Authority started construction of leased retail space outlets. There are twelve retail lease locations at the Convention Center. Several tenants spaces are either in construction or nearing construction start. The planned opening date is June 2006. A copy of the convention center expansion and hotel feasibility study can be obtained through the Authority s website at www.dcconvention.com. 2004/05 Senior Lien Dedicated Tax, 1998 WCCA 9
VI. REPORTING OF SIGNIFICANT EVENTS The Continuing Disclosure Covenants outline the Significant Events that must be reported if they are deemed material. None of the items below has occurred or has been previously reported during the fiscal year ended June 30, 2005. 1. Principal and interest payment delinquencies on the Bonds. 2. Non-payment related defaults. 3. Unscheduled draws on debt service reserves reflecting financial difficulties. 4. Unscheduled draws on credit enhancements reflecting financial difficulties. 5. Substitution of credit or liquidity providers, or their failure to perform. 6. Adverse tax opinions or events affecting the tax-exempt status of the security. 7. Modifications to rights of security holders. 8. Contingent or unscheduled bond calls. 9. Defeasances. 10. Release, substitution, or sale of property securing repayments of the securities. VII. NOTICE OF SIGNIFICANT EVENT Rating Changes WCCA hereby provides notice of the event related to the outstanding 1998 Bonds. On November 18, 2005 Fitch Ratings upgraded the rating assigned to the 1998 Bonds to A- from BBB+. 2004/05 Senior Lien Dedicated Tax, 1998 WCCA 10