2010 Vancouver Real Estate Forum2010 Vancouver Real Estate Forum

May 13, 2010

1

Larry Blain, Chief Executive Officer

Is the PPP Market Worth Playing In?

2

PPPs Around the World

3

The Challenge in B.C.

1990’s: Significant Infrastructure GAP• Governments of the day fell behind on investments • Most dramatic needs in health, education and transportation

• High profile traditional procurement problems (scope, schedule, deferred maintenance)

2000’s: Commitment To Address GAP• $6-8 billion in capital spending

• Introduction of PPP approach

4

PPPs in B.C.• Almost $10 billion invested in 30+ projects• $4 billion in private capital

5

PPP is Performance-Based InfrastructureLong term, performance-based contract • Combines design, build, operate and often finance • Government retains ownership and control • Risk transfer and innovation • Life cycle planning

Objectives• Fair, open and transparent competitive process• Delivers value for taxpayers’ dollars• Public interest served

6

Province

Concessionaire

OMR

Lenders

Private Finance

Sponsors (Equity)

Investment

Net Operating Cashflows

Concession Agreement

AvailabilityPayments

DB

Subcontractors

Typical PPP Structure – Availability

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PPP Benefit: Transferred Risks

Abbotsford Regional Hospital and Cancer Centre

Surrey Outpatient Care and Surgery Centre

Schedule and Cost

Cost and Availability of Financing

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Traditional Challenge: Retained Risks

Tunnels – Seymour Capuano Filtration Plant

Olympic Athletes’ Village

Schedule and Cost

Cost and Availability of Financing

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• Unique to PPPs

• Designer, builder and FM plan together, take long- term responsibility for facility

Cove flooring done at construction reduces problems over life (e.g., flooding)

PPP Benefit: Integration Benefits

Abbotsford Regional Hospital and Cancer Centre

10

PPP Benefit: Innovation - Port Mann Bridge

• Partner proposed single bridge design

• Eliminates need for bridge replacement at end of original bridge’s life

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Current Major Partners To-Date• Acciona S.A.• Acciona Infrastructure

Canada• ACML (Western)• Bank of Ireland• B.C. Investment

Management Corp.• Bilfinger Berger (BOT)• BioTeQ Environmental• Bird Construction• Black & MacDonald• BLJC/Johnson Controls• Bouygues Batiment

International• Buckland & Taylor • Cannon Design

Architecture Inc.• Capilano Highway

Services

• Caisse de depot et placement du Québec

• CEI Architecture Planning Interiors

• CEMI• CH2M Hill Canada Ltd.• Chernoff Thompson

Architects• DEPFA Bank plc.• Dexia Credit Local S.A.• Ecovert FM Ltd.• EPCOR• Flatiron Constructors• Giffels Design Build• Graham Construction and

Engineering Inc.• Hatch Mott MacDonald

• Health Care Projects Canada Ltd.

• Helios Group, Utilities and Facilities Management Inc.

• HMC Services Inc.• HSBC Infrastructure

Fund Management Ltd.• IBI/HPA• Innisfree Ltd.• JJM Construction Ltd.• John Laing Infrastructure• Johnson Controls LP

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• Plenary Group (Canada) Ltd.• Serco Ltd.• Silver Thomas Hanley• Stantec Consulting Ltd.• SNC-Lavalin Inc.• Sodexho• Stuart Olson Constructors Inc.• Sun Life Assurance Company of Canada• Triton Environmental Consultants• Trow Associates• Vancouver Pile Driving• Western Industrial Contractors of Prince

George

• Kasian Architecture Interior Design and Planning Ltd.

• Lark Group• Ledcor• Lockerbie Stanley• Macquarie North America Ltd.• McElhanney Consulting• Miller Paving• Musson Cattell Mackey• ND Lea Inc. (MMM Group)• NORR Ltd.• Ontario Teachers’ Pension Plan• Parsons Overseas Co. • Peter Kiewit Sons Co.• PCL Constructors Westcoast Inc.

Current Major Partners To-Date (Cont’d)

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Gordon and Leslie Diamond Health Care Centre Gordon and Leslie Diamond Health Care Centre

•

First health PPP in BC•

Completed on time, 

on budget

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Fort St John Hospital and Residential Care Fort St John Hospital and Residential Care •

LEED Gold, wood•

Affordability line•

No bank debt

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Sign up for Partnerships BC newswww.partnershipsbc.ca

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Public-Private Partnerships

Greg Lewis

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Outline

• Competitive Procurement Process

• Legal and Contracting Structure

• Risk Transfer

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RFQ Stage

RFP Stage

•

Submission of Responses•

Selection of Short-List

•

Initial Draft PA•

Bilateral In-confidence Meetings•

Revised Draft PA•

Submission of Proposals•

Evaluation and Selection of Preferred Proponent

Preferred Proponent Stage

•

Negotiation •

Finalization of PA and closing documents

Closing

About the Competitive Procurement

Process

19

20

Risk TransferPrinciple Risks Transferred from Public to Private Partner

• Design and Construction• Schedule• Cost• Life Cycle Requirements• Performance of Services (i.e., hard and soft FM)

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Risk Transfer (Cont’d)

Risk Transfer Mechanisms• Private capital (debt and equity) fully at risk• No Service Payments (which include debt repayment / equity return

component) until Service Commencement• Deductions during Operating Period

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How Does PPP Finance Differ From

Traditional Real Estate Finance?

Duncan Ball,Senior Vice President

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Asset Class

Real EstateOffice

Industrial

Commercial

Retail

Hospitality

Residential

PPPsSocial:• Hospitals• Schools• Detention Centres• Court Houses• Water / Waste Water• Recreational Facilities• Housing• Etc.Transportation:• Roads• Transit• Bridges / Tunnels• Etc.

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Selection of Transactions

Social

Alberta Schools ($634M)

Kelowna Vernon Hospital ($435M)

Women’s College Hospital ($300M)

Gordon & Leslie Diamond Ambulatory Care ($95M)

Abbotsford Hospital ($355M)

Durham Court House ($334M)

Transportation

Sea to Sky Highway ($600M)

Kicking Horse Canyon ($130M)

Golden Ears Bridge ($808M)

Edmonton Ring Road I ($492M)

Edmonton Ring Road II ($1.42B)

Calgary Ring Road ($420M)

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ComparisonReal Estate

• 50-70% Debt / 50-30%Equity

• 1.35x +

• Usually in 5yr increments

• Usually 5 to 10 yrs

• Banks, lifecos, pension funds

• Goc + 150 bps (5- 10 yrs)

• Cap rates of 7%-8.5%• 9%-10.5% IRRs

• Rents adjust overtime• Residual value

PPP

• 90% Debt / 10% Equity

• 1.20x

• Usually 25 to 35 yrs

• 25 to 35 yrs

• Project Finance banks, Lifecos, Capital markets

• Goc + 250 bps (25+ yrs)

• 12%- 14% IRRs

• Typically involves construction risk

• Return on capital and return of capital

Metric

Debt to Equity

Coverage ratio

Lease term

Financing term

Debt Providers

Debt Pricing

Equity IRR

Key differences

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Real Estate

Freehold interest

Direct mortgage charge on asset

Right to foreclose

Triple net rent

Residual Value Risk

Cash flows adjust over time

PPP

License

Rights and entitlements are contained in the Project Agreement

Essential Assets. No rights to foreclose

Availability payments

No Residual value risk

Cash flows are generally fixed for the life of the concession

Comparison (Cont‘d)

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Preferred Bidder Construction Ramp-up Yield Maturity

Cash Flows

Present Value

Time

CurrentStatus

Value

Valuation Profile

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Duncan Ball, CFASenior Vice President

Bilfinger Berger Projects InvestmentsSuite #2680, Park Place

666 Burrard StreetVancouver V6C 2X8

Phone: +1 604 678 6540Mobile: +1 604 351 0165

Email: duncan.ball@pi.bilfinger.ca

Contact

2929

QUESTIONS?