projected port revenues from the james r. herman cruise terminal operations. >> good afternoon, deputy director of finance. today i am joined by nate cruise, one of our financial analysts, and peter daley of the maritime division and john daul. the three of them make up the team for pier 27 cruise ship terminal. so as the commission is aware, the first phase of construction of the james r. herman project is complete. and the authority is using the facility for the village. and phase 2 includes a build-out of security offices and other maritime improvements. the building is 90,000 square

feet. it has an upstairs space and downstairs space over two floors it has ground transportation area of 400 parking places. and will have 2.5 acre public park, thanks to the san francisco voters and security gate and public access tip. the reason i am here today is to present the commission an understanding of the factors that will drive revenues up and down. this is in preparation of the port commission management agreement in the summer. commissioner murphy, for your information the port staff has issued a proposal for january of this year. we will be having informational presentation from the two respondents, that is scheduled

for may 14. and port staff plans to come back with a request to negotiate the highest ranked proposal from a panel process on may 28. so four operational and security special event and cruises cannot be held at the same time. and you will see throughout this presentation that really maximizing those two uses is the key to increasing port revenues. both of these kinds of events require advanced bookings, often up to one year. starting with cruise calls of estimating the revenue. first the operator will pay the port a terminal operating fee. that is for the right of services. the operator will collect fees for service from the cruise

line. we will collect dockage and a passenger facility charge directly from the cruise line. the terminal operating fee will represent fare profit sharing between the terminal operator and the port for the earnings they receive from the cruise lines. we presented two scenarios here. a low scenario of what the facility can learn. and a high scenario. on the low scenario anticipating 66 cruise calls. on the high scenario, 80 cruise calls. in both instances 80% are at pier 27. and the 20% at piers 32 or 35. in terms of how aggressive this is, the average is 57. we had a high of 98 in fiscal

year 2005-06. we have strong bookings for next year, i would say this is a conservative, reasonable estimate but not aggressive on the high side. in terms of passenger volume we assume 209,000, and the passenger facility charge we are looking at a rate of $5 to the $12 head charge and the $6 at the high. the port terminal will determine the pfc. the cruise revenues that the lines pay the port is $3.1 million to $4 million annually. the passenger facility is per passenger charge. and they are driven by the number of passengers on the

ship. docket charges is driven by the number of ships that call. the trend of the lines, if you have larger volume of passengers on ships, directly improves port revenues. and now to special events and parking. we have long considered the new facility to have a secondary use of special events. because we have understood that the facility will not be used for the 365 days a year for cruise and cruise calls. and for anyone in the facility, it's a tremendous space for special events. to get a sense of what we would earn, we looked at 2009 ae-com, report used to analyze what could be used for special event and parking. and specialize what the rates would be. we assume 52% occupancy rate,

meaning that days it's available is booked 52% of the time. this is what ae-com used. and we looked at musckone, and their low use rate. and ae-com, reduced that. >> can you translate into number of events? >> the sure, the average event is 1.5 days, is that right? i will give you on the low scenario, special events is taking up 107 days. not rented is 100 days. we assume that all of the rental fees, the operator earns 72% of those earnings would flow directly to the port. we assume this because we learned in looking at other models that there are other ways to earn revenues from special

events, organizing the catering services, organizing other types of services. for example, at treasure island and they can profit directly from that. and then we discounted what it would cost to manage the special events, which is in the ae-com-report. what we will actually earn from special events is subject to interpretation. but we felt this was a good estimate. and we have a lot of experience with parking and estimated that the post-tax parking revenue is paid directly to the port. so on the parking and special events. on the low side we are looking to earn almost $2 million. on the high side the estimate goes down to 1.7, and you see because cruise calls go up. so the number of available days for renting the space for special events declines.

on the low side as a proportion of what is cruise and special events, 42% is cruises, and 58% is special events. and then the high side numbers. because of the plan per passenger charge and the volume of passengers into san francisco. cruise earns more in net marginal revenue than the special events and parking. the average cruise call with a three-day turn earns about 19,000 per day. the average special event earns 15,000 per day. so the report says as the plan for this to function as primary cruise terminal. if you make an economic decision you first maximize cruise calls for the facility and then

maximize the number of days for special events and parking. here is the whole estimate. it not only looks at total revenue but net revenue to the port. the difference between the low scenario and the high scenario, the high increases the number of cruise calls, and increases the passenger facility charge. and increases the terminal operating fee that will be paid at the port for the exclusive rights. and increases security costs. because security costs, there is a marginal cost associated with ship calls. and there a reduction in maintenance costs and reduction in parking and special event revenues. to walk through and looking at all revenues, minus the new maintenance obligation. operator is anticipate to pay the port between 1.2 million and 1.5 million.

the cruise line is anticipated to pay the port 3.1 million to 4 million, for total revenues for 4.3 to 5.4 million. we have debt service associated with the new facility. totaling 3.5 million. which doesn't change regardless of the share of cruise calls to the special events. we have dredging that is fixed in terms of what we use the facility for. and security costs. so we are looking at on the low side of a subsidy of 611,000. and on the high side of a profit of $528,000 annually. we have been talking about utilization of the facility. and in the low scenario as in the high scenario, more than 50% of the days are not actively used. so you see not rented is 27% of

days and special events is 29%. and cruise calls at 14%, and that assumes a 3-day turn. getting more active days in the facility is critical to changing, increasing port revenues. the report looks at different options. one is decreasing the term time from 3 to 2.5 days. and increasing the special event occupancy from 62% to 65%. and you see the low scenario goes from a subsidy to a profit if both are increased. the high scenario goes to a profit of 1.2 million if both

improvements are achieved. the reason for this is as the turn days go down and occupancy goes up, there are more special events in the facility under both scenarios. and this chart shows moving from 41 to 62%, and 49 to 70 in the high scenario. so the positive impacts to port revenue above and beyond what is assumed here, shorter turn-around times. strategic plan for utilizing secondary berths. higher utilization rates on nonvessel and turn days. expanded special events and parking areas. and efficiencies that reduce costs. for modeling purposes we looked at renting out the building for one event at a time. not two events.

we did not look at renting out the gta or provisioning area. we have a conservative look at what is possible. any expansions in space or multiple events will increase revenues to the port. on the negative side, any reduction of consumption of cruise passengers, we earn a lot from the per head fee. would have a negative impact. and any restriction on parking would reduce port revenue. and maintenance costs and utilization less than 52% would negatively impact port revenue. so in preparation for contract negotiations port staff is looking at reviewing, we are now reviewing the structure of terminal operation agreements at other ports. and looking to maximize fees to

san francisco. and looking at the site, building and repair costs. and looking to report requirements for ongoing profit sharing between the operator and the port. and appropriate incentives for the business lines. with that i, and nate are here to answer any questions. >> thank you, any public comment? hearing none. i want to also acknowledge and thank commissioner brandon and adams that had a lot of interest in understanding how we proceed with this rfp and that built the calendar in our understanding as we go into the negotiations and selection process for the operator. i think we all wanted to get a better

this exciting opportunity. i want to acknowledge the contributions and elaine has provided us with these. so we can be in a better position, both staff and commission, to decide how we proceed forward for the benefit of the public and the port. okay, i have some. go ahead, leslie. >> we touched just on the operator being able to manage the turn-around time. what would that entail? any added costs to expediting the turn-around time, we had three day to 2.5? >> i will ask peter to take that question. >> great question. the idea is how fast can we get

the ship out of there to get the special event in there. and special event usage at a cruise terminal is a relatively new occurrence in north america. we hear examples of ships sailed in the afternoon and events that evening. it's our goal, and elaine said we had very conservative estimates and assumptions in our modeling. as we get in there operating we will try to maximize the turn-around as we can. we would like to have that, after the ship sails at 4 p.m. and work like heck and get it turned around and make more revenue. >> my back of the napkin calculation, it looks like we will make more revenue from the events than the capacity security charge. >> my own goal is to have as

many ships as we can. and to be open at 365. >> along that line, how far in the advance do the cruise lines notify us they are coming? that's a problem for event planners. >> the good news is that we have 90% of the calls booked at least a year in advance. we are getting our calls for 2014. and those bookings look strong, near record-levels for passengers. and there are changes due to weather or whatever. but generally speaking we know well in advance to plan around when ships are coming into san francisco. >> and it's my understanding from the executive director moror, that the folks around the world have become aware of our terminal, i am not sure how much marketing we having doing.

>> ironically the port is hosting this room tomorrow the port authorities biannual cruise conference, executives from around the world and cruises from north america will be here it take a tour. we are aggressively marketing worldwide with goes success. >> thank you. >> i would like to know, what kind of events are going to have there when there is no ships there? >> we could have a variety of special events. from weddings to parties to convention-type events. so the facility as -- i don't know if you have been in the building, commissioner murphy, but the facility is absolutely beautiful for parties and celebratory events. and could be used for more educational or conferences, etc. and there is flexible spaces. the upstairs is a very different and likely be priced differently

than the downstairs area. i can see lots of different types of events. there could be concerts if allowable. and outside and indoor space for celebratory events. >> yeah, i would like to see it some time soon. >> who does submit their bid, they will be managing the events. we will not be doing that directly. it's part of the proposal of who is selected as terminal operator. it will be important for us to understand what they partner and in-house capabilities to manage the events in addition to being a terminal operator. i guess i wanted to mention. i think it's great that we looked at the low side and the high side. just personally and elaine knows this. i think it's important for us to aim for the fact that we want to have the ability to create a break-even or better. in fact we need the surplus.

there will be ongoing maintenance and capital maintenance just for this facility. as well as the fact that the port needs the bottom line to support all the piers in the portfolio for us to generate capital. that's a very important objective and it should in line as those you have pointed out. we understand from the utilization and how the event pricing is done, and how the facility charges are worked. and it's a balance in dynamic. what is presented here is not the end all and be all of the operator that is chosen to look at this. it's not cast in stone, but giving us good guidance on what are the drivers. and how to balance those drivers to achieve the objective. which i think we want to make this a positive, in terms of a positive bottom line for the port for multiple reasons i

mentioned. a couple of things in terms of peeling the onion and understanding. and planning is critical. and it's good to know that the cruise ships plan well in advance. what day ever the week they will be here, and while we consumed the occupancy of the special events. and if that has a crash of when the events want to be in the building. that's peeling theonion -- the onion and something we want to understand. and if we don't find out there is what we thought is a great opportunity. and what happens if they clash and they want the facility on the same day. our assumptions will be off. and the other part that we discussed a little bit. if you are departing, it's a lot simpler to turn the ship around

-- well, not totally because they have provision. but it's more complicated if you are the embarkation point, it takes more time to get the passengers off, etc. whether we are the interim stop or the arrival or departure will make a differences in terms of how that will work. for a cruise ship stop-over. and i think it would be interesting if we can manage to have multiple events at the same time. what we want to make sure, that we understand and i am sure that your panel will evaluate this carefully. the special events marketing and how they reach out. just the corporate sector or the consumer market for weddings. the way that it is designed, that stanley gatti, a premier

planner for the city. it's open space and you can do anything inside. that's the kind of stuff they love. they can bring in their own decorations and etc., etc. that would be a great facility for a lot of different things. i can see that as a great venue, particularly with the views of the bay. i think we really appreciate as the first step for us all to understand how this cruise ship can be an asset for the port. and what the drivers are, and we are all on the same page. so you evaluate who will provide us the operator. and the operator understands these drivers that we are sensitive to and how they respond to the negotiations in addition to the qualifications going forward. and i guess to address the questions that commissioner adams and brandon have brought up. i think we will have an adequate process to address and understanding all the things that we are interested in going forward before the final

selection and negotiations take place and the guidance we can give from the commission side. >> yeah, following up, in this rfp process and selecting the terminal operator. how many is it? would they appear in front of this commission? and if we got questions and public comment and things like that, is that how it would take place? >> no, this procurement is under chapter 21. so the way that chapter 21 works, once you go out for a public procurement. it's a fair and competitive process. and the decision is left to a group of empanelled experts that are free of conflict. so the panelists who have experienced special events and cruise operations and financial expertise. will review the respondents. and do written interviews and

oral interviews. the way that we staged the process for the selection. both respondents, we have two proposers, and they come before the port commission to hear their opportunities and business plan. the panel will make a recommendation to port staff t who is the preferred respondent, following this fair and competitive selection process. port staff will come to the commission, and say, the panel recommends firm x. do we have approval to negotiate with firm x at that point. and we may discuss business tern terms and you give us direction. we will come back with a proposed contract and management agreement with the highest ranked respondent. and the commission with approve or reject the terminal

management agreement, did that answer your question? >> i wanted to know, you said that it would come to the commission. but there is no public comment? >> the public is welcome to come. >> i know the staff but the commission doesn't have a lot of say until it gets here. i would like to see a hands on process and we should be involved and know all the steps. we did the same thing to have more and know about what will go on and work. you may make a recommendation that we may not agree with. >> this is the particular contract under the seas procurement process you as a commission get to vote yes or no. we have taken the liberty of asking the bidders to come on the may 14 meeting. so you can see who they are. every item that comes before the port commission public section will he

taken back to the panelists to affect their scoring. that will happen independently. and then it will come back to you at several different times. they will make the presentation may 14. and we will come and tell you what the panel recommended, and you can vote yes or no after public comment. if you vote yes and give us the authority to negotiate, and then we come back with a public contract and you can vote yes or no. at any time you can vote no and we start the process again. >> the purpose of the presentation is to inform us the key factors in terms of operating a cruise ship terminal. the questions that the panel may ask, even though we are not asking the questions, but can be driven by the drivers in this presentation. that's the way that we are providing guidance to the panel. >> thank you. >> you are welcome, for the

benefit of the public, there are two processes that are codified in the city's administrator code. and the one that we talked about the contracts. and there is a different type that affects the real estate projects, and in those the commission gets more hands on. and as we bring you items, we need to be more clear. and this is under the professional services and you goat -- and you get to vote yes or no. >> and i think that he's asking to be a part of the process and have more informational presentation or doing what we need to do to get the same information that the panel has to understand the decisions made to be based on. >> we would be happy to do that. there isn't anything privileged, is there? >> when you finally come to us to ask for approval.

in that presentation you would go through in more depth of how the panel scored. >> absolutely, and as is our standard practice, when we come for contract approval, and you have been very good because you remind us. we show the average scores of the panelists so you can see the relative strengths and weaknesses by the criteria outlined in that rfp. we summarize the panel notes, what they felt was the key strengths. you have that information to make your determination. and you will have the benefit of that informational presentation from both respondents. so you have an opportunity to see them first hand. in many ways you will see very much what the panel saw. the difference is that you have a summary of their responses to the questions they are asking both sets in the oral

interviews. >> one question in terms of respondents. it seems two very different roles. one managing cruises and one handling events. admittedly i probably know more about event management. but they are very different roles. are the respondents doing joint venturing with the entities? >> if it would be okay, i would prefer to leave that to the presentation on may 14. because i am not pervy to the panel and i should not respond to that particular question. i did want to comment about what you are saying, president woo ho, regarding port revenues. we set this as an estimate of highs and lows and we will work to maximize our