Miami-Dade, Royal Caribbean float $2.8B PortMiami deal

Miami-Dade Commissioners on Tuesday will decide whether to OK a massive development and lease agreement with Royal Caribbean Cruises that is projected to net the county $2.8 billion over half a century.

The arrangement includes construction of a new Terminal G for exclusive use by Royal Caribbean and its subsidiary companies, including Celebrity Cruises, and its lease there for at least 36 years.

It also involves the continued redevelopment of Royal Caribbean’s global headquarters campus at the seaport that began before the pandemic and an extension to its lease through at least 2072.

The terminal lease includes three seven-year renewal options, while the campus lease has two five-year options to renew, according to a memo from Miami-Dade Chief Operations Officer Jimmy Morales.

The deal, sponsored by Commissioner Rebeca Sosa, also provides for Royal Caribbean’s shared use of a PortMiami terminal set for completion in October 2028 called Berth 10 with MSC Cruises.

If approved, the deal will replace the company’s existing pact with Miami-Dade set to expire 11 years from now and is expected to generate an additional $2.8 billion in net county revenues — $2.5 billion from Terminal G usage and $260 million from the campus lease — after all related costs, including debt service, incentives and credits.

It’ll also result in the creation of 12,000 permanent direct, indirect and induced jobs related to the cruise industry, roughly 1,000 additional Royal Caribbean positions — a 50% increase over its current staff count there.

Royal Caribbean said the jobs will pay average salaries of more than $100,000. It also anticipates needing 9,634 construction jobs for the project.

The project entails demolishing PortMiami’s administrative complex, which rose in 1963, to make room for the new terminal, and the completion of Royal Caribbean’s upgraded headquarters.

During construction, Royal Caribbean will allow PortMiami staff to use space within the company’s two other office towers at the seaport or in its buildings downtown.

While talks around the new Terminal G deal began around a year ago in anticipation of massive Royal Caribbean ships now being built, the headquarters redevelopment portion is an update to an earlier arrangement between the company and county.

By May 2020, Royal Caribbean had already spent $70 million to upgrade its PortMiami headquarters, Morales wrote, but halted construction to mitigate financial impacts from the COVID-19 pandemic.

In January, the company successfully sought an extension to the project deadline from Miami-Dade. The new deal Commissioners will weigh Tuesday would amend Royal Caribbean’s existing development and lease agreements while transferring the burden of the remaining upfront costs to the county.

Under the proposed arrangement, Miami-Dade would finance the completion of the company headquarters and Terminal G’s construction. To do so, the county would issue new bonds and employ “the strategic use of (Seaport Department) funds, commercial paper and other short-term financial instruments,” Morales wrote.

The new Terminal G would be built in accordance with Miami-Dade’s “Sustainable Building Ordinance” and include solar panels, a multi-level shared parking garage with a ground-level intermodal facility, connecting roadways and a provisioning building necessary to accommodate Royal Caribbean’s “newer, state-of-the-art” Icon-class vessels capable of accommodating up to 7,000 passengers.

“In contrast, the existing (Terminal G) is capable of accommodating vessels with capacities of approximately 4,000 passengers,” Morales wrote.

As is the case with its current terminal deal with the cruise line, Miami-Dade will continue to provide Royal Caribbean with parking revenues starting at $1.4 million and ending at $4.9 million yearly and an annual marketing incentive starting at $2.9 million and ending at $6.4 million.

Royal Caribbean, in turn, would agree to a minimum annual guarantee (MAG) ranging from 600,000 passenger movements per year during the reconstruction of Terminal G to 1.5 million passenger movements yearly once it reaches “substantial completion,” estimated to be in 2027.

From Year 11 of the deal to Year 36, Royal Caribbean has committed to a MAG of 2.1 million annual passenger movements. That rate — which will go unchanged unless renegotiated — plus the company’s 1.55 million annual passenger movements at PortMiami’s Terminal A will result in a 22% increase in total passenger movements over the port’s record in pre-pandemic 2019.

Royal Caribbean would also repay Miami-Dade the cost of finishing development of its headquarters through an increased lease and pay the county back up to 53% of the cost — $172.25 million — of redeveloping Terminal G and Berth 10. That doesn’t include another $2 million the company agreed to pay for U.S. Customs and Border Protection security equipment needed at Terminal G, plus an estimated $77,000 yearly for upgrades.

For the first five years of the deal, Royal Caribbean has agreed the proposed arrangement with PortMiami will be the largest revenue deal it has with any port in the Caribbean Basin.

The company also agreed to use shore power — hooking up to the port’s electricity rather than using fuel while idling while docked — and to reimburse the county for all related expenses.

The second-largest cruise operator worldwide with a 24% market share and a fleet of 64 ships and counting, Royal Caribbean has homeported in Miami-Dade for more than 50 years, over which it expanded its cruise presence to become one of the county’s top 15 employers.

“The cruise terminal usage agreement will represent (Royal Caribbean’s) largest annual minimum passenger commitment between any cruise line and any port worldwide,” Morales wrote. During the term of the deal, he added, Royal Caribbean’s total annual passenger guarantees “will reach a level that surpasses any other cruise line’s … at PortMiami by 62%.”

Shortly after the pandemic struck in March 2020, PortMiami scrambled to redraw agreements with several of its cruise partners worth billions. It included throwing the companies a monumental lifeline — an up to $285.5 million bailout in which the port agreed to waive roughly $7 million per month in otherwise guaranteed cruise revenues for up to two years or until full sailings recommenced.

That has since happened, Morales said, and the consensus among industry experts is that passenger numbers will surpass pre-pandemic levels by the end of next year. Royal Caribbean reported in a Nov. 3 earnings call that its vessel occupancy for the Caribbean Basin is at 105%.

“(In) 2019, PortMiami’s record-breaking year, PortMiami welcomed approximately 6.8 million passengers,” Morales wrote. “Upon approval of (Royal Caribbean’s terminal use agreement), by 2031, PortMiami’s partner cruise lines will collectively guarantee 10.2 million passengers.”

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