FINANCE

1. FINANCE July 13, 2010 Working Group Session DRAFT FOR POLICY DISCUSSION ONLY

2. DRAFT FOR POLICY DISCUSSION ONLY INTRODUCTION : Convention Partnership PROCESS 3 Steps: • Information : January – May 2010 • Analysis : June – September 2010 • Recommendations : October – December 2010

3. DRAFT FOR POLICY DISCUSSION ONLY 3 Working Groups • Finance • HQ Hotel • BCEC Expansion + Urban Context $ $ There is significant overlap between each group.

4. DRAFT FOR POLICY DISCUSSION ONLY Two-Track Process HOTEL Independent Financing • Income Producing Asset • Underwritten based on NOI and costs Public Private/Public BCEC Expansion Commonwealth Bonds (most likely) Identified Revenue Sources For Bond Debt Service

5. ? How – in detail – have other recently-developed convention center headquarter hotels been financed? ? What trends in the capital markets affect potential headquarters hotel financing? ? Are there viable financing options for a new BCEC headquarters hotel – considering development costs, projected net operating income, debt service and reserve requirements, and credit requirements/enhancements? ? Is there a preferred financing structure for a potential new hotel? ? What public credit support/credit enhancements have been required in connection with recent HQ Hotel financings that would likely apply to a new BCEC headquarters hotel financing? DRAFT FOR POLICY DISCUSSION ONLY Mission Statement: HOTEL Questions for Consideration

6. ? What is the “universe” of potential revenue sources available to help fund the BCEC expansion? ? How – in detail – have other recent convention centers been financed? ? What is the revenue generating capacity of these potential revenue sources? ? What is the capacity of the Convention Center Fund to support potential BCEC expansion? ? Considering development costs, debt service requirements, and potential sources of revenue, are there viable financing options for the BCEC expansion? DRAFT FOR POLICY DISCUSSION ONLY Mission Statement : BCEC EXPANSION Questions for Consideration

7. DRAFT FOR POLICY DISCUSSION ONLY AGENDA Introduction15 min The Convention Center Fund30 minutes Potential Funding Sources for BCEC Expansion15 minutes Hotel Financing30 minutes Discussion / Wrap Up / Next Steps30 min

8. THE CONVENTION CENTER FUND 30 minutes DRAFT FOR POLICY DISCUSSION ONLY

9. HISTORYCHAPTER 152 OF THE ACTS OF 1997 DRAFT FOR POLICY DISCUSSION ONLY • Authorized the imposition of certain taxes to fund projects in Boston, Springfield and Worcester (including BCEC) • Authorized the issuances of special obligation bonds by the Commonwealth • Established the Convention Center Fund to provide security for and payment of the special obligation bonds • The funding mechanics and sources were designed to place the tax burden on visitors rather than the citizens of the Commonwealth

10. CONVENTION CENTER FUND DRAFT FOR POLICY DISCUSSION ONLY • Pledged Receipts • 2.75% Room Occupancy Tax (Boston, Cambridge, Springfield, Worcester) • 5.7% Room Occupancy Excise Tax (Boston, Cambridge, Springfield) • Additional 4% Room Occupancy Excise Tax (Springfield) • $9/transaction Vehicular Rental Surcharge (Boston) • 5% Retail Sales Tax (Boston, Cambridge, Springfield) • 5% Sightseeing Surcharge (Boston) • $2/day Parking Surcharge

11. CONVENTION CENTER2008/09 PLEDGED RECEIPTS DRAFT FOR POLICY DISCUSSION ONLY Room Occupancy Tax 24% Springfield Local Option Tax 0% Other Income 6% Sightseeing Surcharge 2% Convention Center Finance Fee 40% Sales Taxes 15% Vehicular Rental Surcharge 13% Source: MCCA

12. CONVENTION CENTERHISTORIC & PROJECTED PLEDGED RECEIPTS DRAFT FOR POLICY DISCUSSION ONLY * 2005-09 figures provided in the Statutory Basis Financial reports for the FYE 6/30/05 through 6/30/09; figures for 2010-14 provided by Pinnacle and MCCA.

13. CONVENTION CENTERPROJECTED PLEDGED RECEIPTS DRAFT FOR POLICY DISCUSSION ONLY FISCAL YEAR 2009-10 2010-11 2011-12 2012-13 2013-14 2014-15 (1) Pledged Receipt Collections : (2) 5.7% Room Occupancy Tax $18,656,312 $18,968,289 $21,102,641 $24,552,216 $30,319,262 $33,588,840 (3) 4% Springfield Local Option Tax 0 0 0 47,014 59,528 124,556 (4) 2.75% Convention Center Finance Fee 30,053,548 30,070,636 33,374,460 37,092,929 41,902,656 45,890,830 (5) Vehicular Rental Surcharge 11,500,000 11,500,000 11,500,000 11,500,000 11,500,000 11,500,000 (6) Sales Taxes 11,500,000 11,500,000 11,500,000 11,500,000 11,500,000 12,621,820 (7) Sightseeing Surcharge 1,800,000 1,800,000 1,800,000 2,000,000 2,000,000 2,003,749 Other Income 0 0 0 0 0 0 Total Pledged Receipts $73,509,860 $73,838,925 $79,277,101 $86,692,159 $97,281,446 $105,729,795 (1) Room occupancy tax, local option tax, convention center finance fee and sales tax projections provided by Pinnacle, all other projections provided by MCCA. (2) 5.7% of room revenues for (a) hotels which were first opened on or after 7/1/97 either in Boston, outside of the BCEC Finance District, or in Cambridge, and for (b) any hotel located in Boston, within the BCEC Financing District and for (c) hotels which were first opened on or after 7/1/00 within the SCCC Finance District. (3) 4% of room revenues for hotels which were first opened on or after 7/1/00 within the SCCC Finance District. (4) 2.75% of all hotel room revenues within the Boston/Cambridge area, the Greater Springfield area and the City of Worcester. (5) $9 for each vehicular rental transaction contract in Boston. (6) The 5% sales tax for (a) establishments which were first opened on or after 7/1/97 in Boston, within the BCEC Finance District, for (b) hotels which were first opened on or after 7/1/97 in Boston, outside the BCEC Finance District, for (c) hotels which were first opened on or after 7/1/97 in Cambridge, for (d) hotels which were first opened on or after 7/1/00 in Springfield, within the SCCC Finance District and for (e) establishments within the Springfield Civic and Convention Center. (7) 5% surcharge imposed on the ticket price paid for water and land-based sightseeing tours and crusies in Boston.

14. CONVENTION CENTEROUTSTANDING DEBT SERVICE &COVERAGE REQUIREMENTS DRAFT FOR POLICY DISCUSSION ONLY

15. CONVENTION CENTERPROJECTED EXPENDITURES DRAFT FOR POLICY DISCUSSION ONLY FISCAL YEAR 2009-10 2010-11 2011-12 2012-13 2013-14 2014-15 (1) Projected MCCA Expenditures : (2) Operating Expenses $15,917,210 $37,614,989 $23,400,000 $24,900,000 $23,000,000 $23,000,000 Annual Capital Expenditures 6,030,633 17,197,641 16,000,000 16,000,000 6,000,000 6,000,000 Long Term Capital Expenditures 0 35,707,224 24,500,000 24,500,000 37,017,810 7,239,046 (3) Boston Tea Party Museum Loan & Repayment 0 18,000,000 0 (1,093,500) (1,093,500) (1,093,500) (4) Disbursements from the CCF 14,927,900 5,000,000 0 0 0 0 Total Expenditures $36,875,742 $113,519,854 $63,900,000 $64,306,500 $64,924,310 $35,145,546 (1) Projections provided by MCCA. (2) Includes the net operating revenues/expenses of the MCCA which include but are not limited to the net operating revenues/expenses of the BCEC, Hynes CC, BCG, and SMMC. (3) $18 million loan to be repaid over 20 years. (4) The $65 million disbursement to the state occurred in fiscal year 2008-09.

16. CONVENTION CENTERPROJECTED FUND BALANCE DRAFT FOR POLICY DISCUSSION ONLY

17. POTENTIAL FUNDING SOURCES FOR BCEC EXPANSION 30 minutes DRAFT FOR POLICY DISCUSSION ONLY

18. BCEC FINANCING Commonwealth and City debt issuance for BCEC and projects in Springfield and Worcester. Revenues supporting issuance include the following: 4.0 percent City hotel tax pledged to City issued bonds 2.75 percent hotel tax in Boston 5.7 percent hotel tax on “new” hotels in Boston, Cambridge and Springfield $10.00 surcharge on Boston car rentals ($1 City, $9 Commonwealth) 5.0 percent tax on sight-seeing tours, entertainment cruises, tourist venues and tours located within or originating within the City of Boston 5.0 percent sales tax collected at “new” hotels $2.00 per day surcharge on parking structures built in coordination with Center projects DRAFT FOR POLICY DISCUSSION ONLY

19. CONVENTION CENTER FUNDING SOURCES DRAFT FOR POLICY DISCUSSION ONLY • Hotel Occupancy Taxes: • Broad based tax – • Boston, Philadelphia, DC, others • Tax on new hotels - Boston, Tucson • Graduated tax based on proximity to CC - • San Francisco • Flat fee on rooms - New Orleans, Nashville • Food and Beverage Taxes: • Broad based tax - Washington DC, Denver • Tax within a specific district - • Chicago, Minneapolis • Tax on establishments serving mixed drinks - • Minneapolis • Additional Tourist Specific Taxes: • Percentage tax on sightseeing tours, etc. - • Boston, New Orleans • Rental car surcharge - Chicago, Boston, Denver • Ticket tax on sporting events, performing arts • Other: • Direct municipal support - • Phoenix, San Diego • Broad base sales tax - Cleveland • Tax increment financing - • Washington DC (CC hotel project) • Convention center vendor tax - New Orleans

20. EXAMPLE – ROOM OCCUPANCY TAX INCREASE A 1% increase in Room Occupancy Tax in the Cities of Boston and Cambridge generates approximately $10.8 million annually The increased annual revenue of generates an estimated $137 million in additional bonding capacity The following table compares Boston’s total hotel taxes to other cities: DRAFT FOR POLICY DISCUSSION ONLY • Includes certain fixed dollar charges. Total tax rate based on 2009 market ADR. 20

21. HOTEL FINANCING 30 minutes DRAFT FOR POLICY DISCUSSION ONLY

22. HOTEL FINANCING CASE STUDIES Financing comparison of convention center hotel projects in certain cities with significant convention activity Comparison of three public/private hotel projects and three publicly owned hotel projects PUBLIC/PRIVATEPUBLICLY OWNED San Diego Denver San Antonio Baltimore Washington DC Dallas DRAFT FOR POLICY DISCUSSION ONLY

23. SAN ANTONIO HOTEL - PRIVATE Project Description 1,000-room full service hotel managed by Hyatt Opening date: Spring 2008 Full-service restaurant and lounge Immediately adjacent to the convention center 81,268 square feet of meeting space 1,000 car parking garage Capital Structure – Privately Owned $77.3 million in equity $129.9 million of tax-exempt empowerment zone bonds $78.3 million in taxable bonds Municipal Contribution 10 years of State and City occupancy and sales tax rebates Subordinate pledge of city-wide hotel occupancy taxes on a contingent basis to fund debt service shortfalls on the tax-exempt and taxable bonds DRAFT FOR POLICY DISCUSSION ONLY

24. Project Description 1,200-room full service hotel managed by Hilton Opening date: December 2008 Full-service restaurant and lounge Adjacent to the convention center 165,000 gross square feet of meeting space Capital Structure $243.6 million Senior Loan funded by San Diego National Bank $104 million in equity provided by ING and Hilton Port of San Diego Participation Site work Environmental Remediation ($35 million) 890 Parking Stalls from the Port of San Diego’s Parking Garage at an agreed rate ($11.6 million in cost) Ground lease abatements during construction (years 1-3) Reduced ground lease rate (60% of final lease rate structure) in years 3-10 Total ground rent savings of $46 million SAN DIEGO HOTEL – PRIVATE DRAFT FOR POLICY DISCUSSION ONLY

25. WASHINGTON DC HOTEL – PRIVATE Project Description 1,167-room full service hotel managed by Marriott (Marriott Marquis) Projected opening date: Estimated 2013 100,000 square feet of meeting space 400 car parking structure Capital Structure (Private Portion)– Privately Owned (Preliminary) $256 million in senior debt $75 million of investor equity Public Contribution (Preliminary) Purchase of land (execute 99 year ground lease with development team) - $100 million (Est.) District Tax Increment Financing $105 million Tax-Exempt Recovery Zone Facilities Bonds $90 million Taxable Recovery Zone Economic Development Bonds $22 million taxable “Build America Bonds” $47 million contribution from WCCA DRAFT FOR POLICY DISCUSSION ONLY

26. COMPARISON – PUBLIC/PRIVATE HOTEL PROJECTS DRAFT FOR POLICY DISCUSSION ONLY

27. DENVER HOTEL - PUBLIC Project Description 1,100-room full service, first class hotel managed by the Hyatt Hotel Corporation Opening date: December 2005 Adjacent to the convention center 300-seat full-service restaurant and lobby lounge 60,000 net square feet of meeting space 600 space parking garage below the hotel Capital Structure $354.8 million in “AAA” insured senior lien bonds $10.0 million Letter of Credit from the hotel operator City Contribution The City’s contingent appropriation pledge was equal to 45% of debt service on the bonds DRAFT FOR POLICY DISCUSSION ONLY

28. BALTIMORE HOTEL - PUBLIC Project Description 756-room full service hotel managed by Hilton Opening date: August 2008 Street level retail and outdoor parking Enclosed pedestrian bridge connecting to the convention center 62,000 square feet of meeting space Capital Structure $247.5 million Senior Lien Revenue Bonds insured by XL Capital Assurance and further secured by a $25 million letter of credit provided by the Hotel Operator. $53.44 million Subordinate Revenue Bonds City Contribution An annual pledge (subject to appropriation) of the Hotel’s property taxes (TIF payment), the prior year’s site specific HOT, and a debt service guarantee from city-wide HOT (up to $7 million annually). DRAFT FOR POLICY DISCUSSION ONLY

29. DALLAS HOTEL - PUBLIC Project Description 1,016-room full service hotel managed by Omni Projected opening date: January 1, 2012 Full-service restaurant and lounge Immediately adjacent to the convention center 80,000 square feet of meeting space 720 car parking structure Capital Structure – Publicly Owned $74.4 million in tax-exempt hotel revenue bonds $388.1 million of taxable hotel revenue “Build America Bonds” $17.2 million in taxable bonds Public Contribution 10 years of State and City occupancy and sales tax rebates City backstop (subject to appropriation) for 100% of the total debt service DRAFT FOR POLICY DISCUSSION ONLY

30. COMPARISON – PUBLICLY OWNED HOTEL PROJECTS DRAFT FOR POLICY DISCUSSION ONLY

31. CONVENTION CENTER HOTEL PERFORMANCE 2009 – Worst performing hotel market since 1932 RevPar decline of 19.5% nationally Bond rating downgrades due to downgrade of AAA bond insurers, not underlying project performance Austin, Denver, Baltimore and Phoenix were originally issued with AAA rated bond insurance Projects that reached stabilized operating levels prior to 2009 have performed well, relatively, during the market downturn Generally speaking, publicly owned hotel projects have weathered the current downturn better than most hotels due to: Lower cost of capital and subsequent debt service burden Substantial reserve funds available to offset reduced operating performance levels DRAFT FOR POLICY DISCUSSION ONLY

32. CONVENTIONCENTER HOTEL PERFORMANCE DRAFT FOR POLICY DISCUSSION ONLY

33. DISCUSSION / WRAP UP / NEXT STEPS 30 minutes DRAFT FOR POLICY DISCUSSION ONLY

34. DRAFT FOR POLICY DISCUSSION ONLY Looking Ahead : August Meeting of Finance Working Group Preliminary AGENDA 1. Costs of Expansion – Preliminary Costs • Hotel • BCEC Expansion 2. BCEC Expansion – • Revenue Generating Capacity of Potential Funding Sources 3. Criteria for Evaluation of Potential Funding Sources 4. Hotel Financing • NOI, Debt Supporting Capacity, Capital Cost Participation