Virginia Port Authority discloses CenterPoint lease proposal(3)

The first-of-its kind bid to lease an entire port’s operations for a $500m upfront cash payment and ongoing capital commitments has triggered a 120-day period during which the authority will accept competing proposals. Interest from competing bidders is said to be strong.

The Virginia Ports Authority (VPA) would gain $500 million in an upfront cash payment, an ongoing profit share of up to $1.3 billion and greater traffic flow to freight distribution centers in Chicago if it accepts a long-term lease proposal for its assets from industrial real estate manager CenterPoint Properties.

Those are some of the details of CenterPoint’s unsolicited proposal to lease the US East Coast’s third-busiest port. A full copy of the proposal has been posted on the VPA’s website, touching off a 120-day period during which the authority will consider competing proposals.

“We know that there is a lot of interest out there and we encourage other proposers. I don’t know whether others will decide to do it but there certainly is a lot of conversation about it,” John Milliken, chairman of the VPA Board of Commissioners, told InfrastructureInvestor.

CenterPoint believes this profit sharing contrasts sharply with the 'monetisation' scheme typically seen in a public-private partnership.

CenterPoint

The proposal is a first of its kind in the US, where ports have traditionally been operated by the public sector with only short-term concession and lease agreements for specific port assets such as container terminals. 

CenterPoint claims the Commonwealth of Virginia would gain $8.9 billion in economic benefit if the VPA accepts its offer to lease its marine port facilities in Norfolk, Portsmouth, Newport News and inland port terminal in Front Royal for 60 years.

Nearly half of that amount, or an estimated $4 billion, would come from money the commonwealth will save by not subsidising the port’s operations over the life of the concession. CenterPoint has said that it will not accept the port’s 4.2 percent claim on the commonwealth’s transportation trust fund, which in 2008 amounted to $36 million.

VPA: now leasing

CenterPoint does not specify how it will make-up the capital it would receive from the trust fund, but its business plan calls for increasing freight traffic from the VPA’s ports to CenterPoint’s “home market” of Chicago, where it owns and operates several freight distribution centers.

A further $500 million would go to the commonwealth in the form of an upfront cash concession payment, which reflects the discounted value of the operating earnings from the VPA’s facilities. CenterPoint will fund the fee with 39 percent equity from its balance sheet and 61 percent debt, inclusive of transaction fees, a reserve fund and other upfront cash commitments totalling $111.4 million.

The $500 million fee, about 11 times the VPA’s most recent earnings before interest, tax, depreciation and amortisation, would make Virginia International Terminals, the commonwealth-owned port operator, a subsidiary of CenterPoint and give it the exclusive right to operate and collect revenues from the VPA’s assets. CenterPoint said this valuation metric is “aggressively pricing” the concession.

CenterPoint Proposal: lot of money on the table
Source: CenterPoint

The VPA would continue to get a total of $987 million in annual payments from CenterPoint and would be entitled to a profit sharing scheme that could entitle it to anywhere between $440 million to $1.3 billion over the life of the concession.

“CenterPoint believes this profit sharing contrasts sharply with the ‘monetisation’ scheme typically seen in a public-private partnership, and it demonstrates a good faith effort to establish a true partnership,” CenterPoint said in an executive summary of its proposal.

CenterPoint would pay $615 million to communities in Newport News, Portsmouth and Norfolk that originally owned the VPA’s facilities before the commonwealth assumed ownership in 1971. It would assume about $1 billion in capital expenditures across all of VPA’s facilities over the life of the concession.

CenterPoint also asks for a first right to develop additional port facilities at Craney Island if Virginia and the US government fund the project’s pre-development costs and “when market demand for the facility makes it appropriate”. It estimates that it would commit $1.3 billion for the project, which has already been in development for about 10 years. 

Mayer Brown and Kaufman and Canoles are CenterPoint’s legal counsel on the transaction. Management consultancy AT Kearney is CenterPoint’s strategic consultant on the project.  Investment bank JPMorgan is acting as a financial advisor.

Infrastructure Capital Advisory is also advising CenterPoint, according to a person familiar with the matter.

The VPA has yet to choose its advisors, Milliken said.