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LTC 487-2024 SP Credit Ratings for Parking Bonds487-2024 MIAMI BEACH OFF ICE OF TH E C ITY MA NAGE R LTC# LETTER TO COMMISSION TO : FROM: Honorable Mayor Steven Meiner and Members of the City Commission Eric Carpenter, City Manager ~ r: DATE : November 5, 2024 SUBJEC T: S&P Credit Ratings for Parking Bonds The purpose of this L TC is to advise the City Commission regarding the results of a recent credit review completed by Standard & Poor's Global Ratings on the City 's Parking revenue bonds. • S&P has affirmed the current A+ rating on the City of Miami Beach 's Parking enterprise revenue bonds with a stable outlook. S&P stated: • "The rating reflects our view of the Miami Beach local economy and its ability to generate demand for parking, despite exposure to the cyclical tourism industry. It also incorporates our view of the system's strengthened reserves , which have eliminated the need to issue additional debt to cover current capital projects ." • "An advantage of the system is its good pricing power, as its rates are generally lower than those charged by privately owned competitors." • "We note that the commissioners of the city recently blocked a rate increase that was scheduled to go into effect on Oct. 1, 2024. However, this was part of an automatic rate increase , not one that was instituted for a budget gap." Please find attached a rating agency credit scale for your information as well as a copy of the credit rating report. Should you have any inquiries regarding this information , please contact Jason D. Greene , Chief Financial Officer. Letter to Commission S&P Credit Ratings for Parking Bonds November 5, 2024 Page 2 of 2 Rating Agency Credit Scale S&P Moody's Rating Description AAA Aaa Prime AA+ Aal AA Aa2 High grade AA-Aa3 A+ Al Upper medium Investment-grade A A2 A-A3 grade BBB+ Baal Lower medium BBB Baa2 grade BBB-Baa3 BB+ Bal Non-investment BB Ba2 grade speculative BB-Ba3 B+ Bl B B2 Highly speculative B-B3 Non-investment CCC+ Caal Substantial risks grade CCC Caa2 Extremely AKA high-yield bonds speculative AKA junk bonds CCC-Caa3 Default imminent cc Ca with little prospect C for recovery C D I In default S&PGlobal Ratings RatingsDirect ® Miami Beach, Florida; Parking Primary Credit Analyst: Quinn Rees, New York +1 (212) 438 2526; quinn .rees@spglobal.com Secondary Contact: Kayla Smith, Englewood+ 1 (303) 721 4450 ; kayla.smith@spglobal.com Table Of Contents Credit Highlights Outlook Credit Opinion Enterprise Risk Profile: Strong Financial Risk Profile: Strong Related Research WWW.S TANDARDANDP0DRS .C0M/RA TI NGSD IREC T OCTOBER 28, 2024 1 Miami Beach, Florida; Parking Credit Profile Miami Beach pkg Lon g Term Ratin g Miami Beach pkg (BAM) Unenhanced Rating Ma ny iss ue s are e nhanc ed by bond in surance. Credit Highlights A+/Stable A+(SPUR)/Stable Current Current • S&P Global Ratings' long-term and underlying rating (SPUR) on Miami Beach , Fla .'s parking revenue bonds is 'A+'. • The outlook is stable. Security The bonds are secured by net revenues of all but three city-owned parking facilities . Our analysis incorporates the characteristics of the entire parking system . The bonds are additionally supported by a debt service reserve funded at maximum annual debt service (MADS). As of Oct. 1, there was approximately $57 .1 million in bonds outstanding. Additionally, there is $28 .7 million still outstanding in the 2020 loan with JPMorgan. Though this is an obligation of the city's general fund , debt service is supported by net parking revenues and the loan is reported as a liability of the parking system in the city's financial statements. Credit overview The parking system is responsible for over 17 ,000 parking spots spread across 62 surface lots and 12 garages, and approximately 5,000 on-street metered spaces. Its facilities span North, Mid , and South Beach. The rating reflects our view of the Miam i Beach local economy and its ability to generate demand for parking, despite exposure to the cyclical tourism industry. It also incorporates our view of the system's strengthened reserves, which have el iminated the need to issue additional debt to cover current capital projects. Key strengths, in our view, of the parking system include : • The extremely strong Miami Beach service area, which in recent years has seen population growth at over double the national rate; • Debt service coverage (DSC) maintained below 5x , even as debt service has stepped back up following a 2020 refinancing of debt outstanding; and • Over 900 days' cash on hand, which the city plans to use to fund upcoming parking-related capital projects. The parking system 's key credit weaknesses, in our opinion, include : WWW.STANDARDANDPDORS COM/RATINGSDIRECT O CTO BE R 28, 2 0 24 2 Miami Beach, Florida; Parking • A 24 .9% increase in operating expenses from fiscal 2022 to 2023, as demand growth has required additional labor to support operations ; • Political interference in rate changes; and • Significant exposure to the volatile tourism industry in a region that faces above-average storm risk. Environmental, social, and governance We assessed the impact of environmental, social, and governance (ESG) factors on risks and opportunities for the parking system's credit. Miami Beach faces elevated environmental risks from its location in southeast Florida, which faces above-average hurricane exposure. We note that the city is investing in the hardening of its physical assets to mitigate some of these risks. We consider the impact of social and governance factors to be neutral. Outlook The stable outlook reflects our expectation that financial metrics will be maintained at current levels, even as the city expects to draw down reserves to fund its five-year capital plan. Downside scenario We could lower the rating if the parking system issues additional debt that raises debt-to-net revenues above 5x, or if it draws down reserves and liquidity to a range we consider 'strong' as a side-effect of cash-funding capital projects. Upside scenario Though unlikely, in our view, we could raise the rating if, all else equal, the parking system's financial performance or market position improves to levels commensurate with a higher credit rating. Credit Opinion Enterprise Risk Profile: Strong Moderate competition in high-demand Miami Beach market The parking system's market share varies across the different parts of Miami Beach, with the strongest in South Beach and the weakest in Mid Beach . That said, we consider competition moderate. An advantage of the system is its good pricing power, as its rates are generally lower than those charged by privately owned competitors. Utilization rates are at 86%, which trails the pre-pandemic rate of 90 %, but revenues have surpassed fiscal 2019 levels. Miami Beach rebounded quickly from the pandemic downturn. Like much of the Sun Belt, the city has benefited from migratory trends since 2020 . The influx of new residents, supplemented by the return of year-round tourism, has driven demand for parking throughout the city. WWWSTANDARDANDPDDRS COM/RATINGSDIRECT OCTOBER 28, 2024 3 Miami Beach, Florida; Parking Prudent management, with capacity to absorb blocked rate increase We consider the parking system's management team very strong. It updates its five-year capital plan annually and invests in asset hardening on both the cyber security and environmental risk fronts . The parking system also partners with regional organizations to manage exposure to sea-level rise , which is a potential risk given the city's location on a barrier island on the eastern side of Biscayne Bay. We note that the commissioners of the city recently blocked a rate increase that was scheduled to go into effect on Oct. 1, 2024 . However, this was part of an automatic rate increase, not one that was instituted for a budget gap. Management expects a $5 million hit to revenues in fiscal 2025 relative to budget, but still anticipates a surplus of approximately $7 million . Financial Risk Profile: Strong Strengthened reserves to fund upcoming capital projects Prior to the pandemic, the parking system made regular transfers out to the city's general fund. In 2020, these transfers were stopped to stabilize the parking system's finances in the middle of the downturn. They have not resumed, which has allowed the system to build up reserves , with fiscal 2023 days' cash on hand approaching 950 days. Management does not expect that these transfers will be reimplemented, which we view positively. The system has benefited from this change, as it now has ample cash reserves to fund capital projects such as the 72nd Street Community Complex. No additional debt plans, with growth in liquidity Management has explicitly cited that they have no plans to issue additional debt in the coming years , given the recent improvement in the parking system's liquidity. Current projections show that the system should be able to cover its five-year capital program with reserves alone . Transfers to the city general fund prior to the pandemic had limited days' cash to the 400-day range, but since their moratorium, liquidity has grown by approximately 500 days. We are not currently aware of any plans to restart the transfers out of the parking system fund , but there could be a negative impact on the system's liquidity score if they resume . 72nd Street Community Complex project in design phase Per management, the 72nd Street Community Complex is well into its design stage and will be up for review soon. Over the coming months, conversations between parking system leadership and the city commissioners will establish next steps. The complex will be located in North Beach and is planned to replace what is currently a 300-space surface lot with a 500-space garage and community center. Planned amenities include a competition-sized pool , a fitness center, and retail space, among others. As planned, the project will draw activity toward city-owned parking facilities in the area and potentially increase parking demand . WWW.STANDARDANDPOORS COM/RATINGSDIRECT OCTOBER 28, 2024 4 Miam i Beach , Florida ; Parking Miam i Beach , Florida--Financial and operating data Medi ans for 'A' --P ro c at egory rated parking forma----Fiscal year ended Sept. 30--systems 20 24 budget 2023 2022 202 1 2020 20 19 2023 Financial performance Total operating revenue ($000s) 47 ,264 49,641 46,301 37,467 31,761 49 ,013 16,197 Plus: interest income ($000s) 1,434 2,754 1,319 501 1,216 1,606 MNR Plus: other committed recurring revenue 4,295 4,198 3,637 2,750 2,662 2,421 MNR sources ($000s) Less : total O&M expenses and like 36,222 33,461 25 ,916 25,738 29,288 40,013 8,911 transfers out, if any, net of noncash expenses Numerator for S&P Global Ratings' 16 ,771 23,132 25 ,341 14,980 6,351 13,027 MNR coverage calculation ($000s) Total debt service ($000s) 6,048 6,004 6,004 3,607 4,743 6,253 2,923 Denominator for S&P Gl obal Ratings' 6,048 6,004 6,004 3,607 4,743 8 ,756 MNR coverage calculation ($000s) S&P Global Ratings-calculated coverage 2.77 3.85 4.22 4.15 1.34 1.49 1.85 (x) Debt and li abilities Debt ($000s) 83,219 85,888 88 ,361 90,856 90 ,941 90.150 33 ,448 EBIDA ($000s) 11 ,042 16 ,180 20 ,385 11,729 2,473 9,000 MNR S&P Global Ratings-calculated net revenue 16 ,771 23 ,132 25,341 14 ,980 6,351 13,027 6 ,569 ($000s) Debt to net revenue (x) 5.0 3.7 3.5 6.1 14.3 6.9 3.9 Debt to EBIDA (x) 7.5 5.3 4.3 7.7 36.8 10 .0 4.6 Liquidity and financial flexibility Unrestricted cash and investments ($000s) 74,647 86 ,988 73,662 58 ,668 52,154 51 ,310 4,257 Available liquidity, net of contingent 74,647 86,988 73 ,662 58,668 52,154 51,310 MNR liabilities ($000s) Unrestricted days' cash on hand 752.2 948 .9 1,037 .5 832.0 650.0 468.1 MNR Available liquidity to debt (%) 89 .7 101.3 83.4 64.6 57 .3 56.9 MNR Unrestricted days' cash on hand (excluding 752 .2 948.9 1,037.5 832.0 650 .0 468.1 248 .0 credit facilities) Available liquidity to de bt(%) (excl uding 89.7 101.3 83.4 64.6 57.3 56.9 31.0 credit facilities) Operating metrics -parking Parking revenue ($000s) 39,406 52,816 51,256 37,467 31 ,761 49 ,013 MNR Metered or on-street spaces 5,048 5,048 5,048 5,048 5,048 5,048 MNR Garaged or off-street spaces 11,996 11 ,996 11,961 11 ,961 12 ,033 10,718 MNR Total spaces 17 ,044 17,044 17 ,009 17,009 17,081 15,766 MNR WWWS TANDARDANDPDDRS COM/RA TI NGS DI RECT OCTOBER 28, 2024 5 Miami Beach, Florida--Financial and operating data (cont.) Garages or off-street facilities --Pro forma-- 2024 budget 74 2023 74 --Fiscal year ended Sept. 30-- 2022 2021 2020 74 71 10 Miami Beach, Florida; Parking 2019 10 Medians for 'A' category rated parking systems 2023 MNR O&M--Operations and maintenance. EBIDA = Total operating revenue -total O&M expenses excl. noncash expenses. EPAX--Enplanement s. PFC--Passenger facility charge. CFC--Customer facility charge. MADS--Maximum annual debt service. S&P Global Ratings-calculated net revenue= (total operating revenue+ other recurring nonoperating revenue committed to debt service) -total O&M expenses excl. noncash expenses. Available liquidity = unrestricted cash and investments + total contingent liquidity resources -contingent liabilities. Examples of total contingent liquidity resources include working capital line of credit and other available cash reserves not already included in unrestricted cash and investments. See "Global Not-For-Profit Transportation Infrastructure Enterprises: Methodologies And Assumptions" criteria for more S&P Global Ratings definitions and calculations. MNR--Median not reported. Related Research • Through The ESG Lens 3.0 : The Intersection Of ESG Credit Factors And U.S . Public Finance Credit Factors, March 2,2022 • U.S. Transportation Infrastructure 2024 Activity Estimates Indicate A Return To Pre-Pandemic Levels And Growth , With Transit Ridership Still Recovering, March 21 , 2024 WWW.STAND ARDANDPOORS COM/RA TI NGSD IREC T OCTOBER 28, 2024 6 Copyright© 2024 by Standard & Poor 's Financial Services LLC. All rights reserved . 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