Seaports Magazine - Winter 2015 - (Page 33)

» GUEST VIEWPOINT Keys to Success for Port Capital and Financial Planning By David Miller Public Financial Management, Inc. A n observation I have long made with respect to ports is that they often engage in thorough facilities and master plans, but not in corresponding financial planning. Similarly, if they engage in long-term demand and revenue forecasting, the forecast is often theoretical and unhinged from the facilities needed to service the demand and the financing to afford such facilities. The funding strategy is a primary consideration of any capital investment decision and a key factor when defining the various port objectives, strategies and timelines for pursuing selected forms of infrastructure investment and delivery. While every port capital investment project is different, and each facilities plan has unique attributes, ports should generally evaluate and approach capital investment opportunities using an approach grounded in prudent due diligence and fundamental credit/investment evaluation. Ports function as intermodal facilities for goods and passengers, and, as a result, the range of financial needs and solutions for public ports is very broad. In order to make the best use of available funding sources, it is important for ports to understand the full range of potential capital needs and financial solutions. Thorough planning and due diligence will lead to sound investment decisions and implementation of the best and most viable financing alternative. The port industry is very fragmented from a financial markets perspective. Larger ports tend to have expansive projects and capital improvement plans, along with sophisticated capital structures; whereas smaller ports may rely more on governmental and operating funding sources for ongoing capital improvement. Regardless of size and sophistication, the following port investment considerations need to be fully vetted for any financing alternative to be successful. The first step is to review or develop, as applicable, all port master plans, strategic plans and legal parameters to develop a framework understanding of any given project and how capital investment might further the port's strategic goals. The application of any funding strategy must be in congruence with a port's underlying mission, generally to create positive economic impact through the development and utilization of a port's marine terminal infrastructure. Further the port must complete adequate due diligence depending upon the type and size of project/port. Large cargo terminal development projects should focus on projected cargo and revenue data and engineering studies given the financing requirements for a new project while a port financing capital improvement projects for existing facilities might easily use historical audited operating and financial results. Therefore, an initial step in project due diligence is to understand the nature of the project and how it fits into the overall port system financing scheme. Any capital investment valuation must incorporate a thorough understanding of the underlying business economics. The components of such due diligence should incorporate risk analysis to quantify a range of economic outcomes. Key inputs to the development of the financing options will be the results of the demand and revenue forecasts, operations and maintenance costing effort, project construction schedules and annual costs and renewal and replacement needs. A further aspect of project due diligence is an analysis of outstanding debt and how existing capital structures might impact future investment decisions. Thorough planning and due diligence will go a long way toward determining creditworthiness. Creditworthiness, and thus financial viability, underpins all capital investment decisions, and so ports must develop a thorough understanding of their creditworthiness, which influences PORT INVESTMENT CONSIDERATIONS Physical Facilities Port Operating Models Master Plan/Strategic Plan Port Business/Financial Models Existing Tenant Lease & Use Agreements Outstanding Debt Cargo Volumes & Revenue Pro Forma Cash Flow Analysis Trade Lanes Data Financing Capacity Market Cargo & Revenue Forecasts Creditworthiness Port Financial Market Environment Investor & Capital Market Outreach WINTER 2015 * WWW.AAPASEAPORTS.COM 33 http://WWW.AAPASEAPORTS.COM

Table of Contents for the Digital Edition of Seaports Magazine - Winter 2015

AAPA Headquarters
From the President’s Desk
Expanding Capacity, Increasing Budgets
Navigating Cities, Counties and States
104th AAPA Annual Convention
Strategically Planning for Success
Stick to the Plan
AAPA XXIV Latin American Congress of Ports
Guarding Our Nation’s Ports Against Potential Threats
Keys to Success for Port Capital and Financial Planning
Port Game an Educational Tool – and Fun for All Ages
Port Planning and Investment Toolkit a Go-To Resource
Index of Advertisers

Seaports Magazine - Winter 2015