Document Anaheim_doc_6d9e44c3a3

4427 W. Kennedy Boulevard ∙ Suite 200 ∙ Tampa, Florida 33609 ∙ Phone [PHONE REDACTED] ∙ Fax [PHONE REDACTED] www.crossroads-fl.com Anaheim Convention Center Expansion Market & Economic Analysis Updated Final Report – February 2014 Presented to: City of Anaheim Presented by: ---PAGE BREAK--- 4427 W. Kennedy Boulevard ∙ Suite 200 ∙ Tampa, Florida 33609 ∙ Phone [PHONE REDACTED] ∙ Fax [PHONE REDACTED] www.crossroads-fl.com February 21, 2014 Ms. Debbie Moreno Finance Director City of Anaheim 200 S. Anaheim Blvd. Anaheim, CA 92805 Dear Ms. Moreno: Crossroads Consulting Services LLC, in association with Hospitality and Gaming Solutions, has completed its market and economic analysis for the City of Anaheim associated with the proposed expansion of the Anaheim Convention Center. This report summarizes our research and analysis including an update to the fiscal impact and cost benefit analysis based on the most recent financing assumptions provided by the City on February 14, 2014. No other research or analysis was updated. The information contained in the report is based on estimates, assumptions, and information developed from market research; knowledge of the convention, sports and entertainment industries; input from existing and potential demand generators; as well as other factors including, but not limited to, data provided by the City of Anaheim as well as management at the Anaheim Convention Center and Anaheim/Orange County Visitor & Convention Bureau. We have utilized sources that are deemed to be reliable but cannot guarantee their accuracy. All information provided to us by others was not audited or verified and was assumed to be correct. Moreover, estimates and analysis regarding an expanded facility are based on trends and assumptions and, therefore, there will usually be differences between the projected and actual results because events and circumstances frequently do not occur as expected, and those differences may be material. We have no obligation, unless subsequently engaged, to update this report or revise the information contained therein to reflect events and transactions occurring after the date of this report. In accordance with the terms of our engagement letter, the accompanying report is restricted to internal use by the City of Anaheim and may not be relied upon by any third party for any purpose including financing. Notwithstanding these limitations, it is understood that this document may be subject to public information laws and as such can be made available to the public upon request. Although you have authorized reports to be sent electronically for your convenience, only the final hard copy report should be viewed as our work product. We have enjoyed our ongoing relationship with the City of Anaheim and look forward to providing you with continued services in the future. Sincerely, Crossroads Consulting Services LLC ---PAGE BREAK--- Table of Contents 1 Introduction and Executive Summary 1 2 General Market Overview 12 3 Industry Trends 20 4 Historical ACC Operations 29 5 Potential Demand Generators 41 6 Competitive Facility and Destination Analysis 44 7 Financial Analysis 57 8 Economic and Fiscal Impacts Analysis 63 9 Cost/Benefit Analysis 73 10 Appendix 76 ---PAGE BREAK--- 1. Introduction and Executive Summary 1 Introduction and Executive Summary Introduction Founded in 1857, the City of Anaheim is one of California’s most populous cities. Anaheim covers 50 square miles and supports a thriving business community with companies such as Carl Karcher Enterprises, L-3 Communications, Pacific Sunwear, and the Disneyland Resort. The Anaheim Convention Center (ACC) is the largest on the west coast and is located just off Interstate-5 in the Anaheim Resort area that includes Disneyland and Adventure Park theme parks, Downtown Disney, and Anaheim Gardenwalk. The area surrounding the ACC also offers over 7,500 hotel rooms all within one-half mile of the ACC and nearly 20,000 rooms within Anaheim. Annually, Anaheim welcomes millions of visitors to the city for tourism, business, and conventions/meetings. Anaheim first became a meetings and conventions destination in 1967 with construction of the Arena on Katella Avenue. Since its opening, the ACC has experienced five major expansion projects plus several cosmetic renovations. Each expansion added an exhibit hall and meeting space. The last major expansion completed in 2000 resulted in a complete transformation of the ACC and surrounding campus. The current facility offers a total of 813,500 square feet (SF) of exhibit space in five halls, a 38,100 square-foot ballroom, and 81,200 SF of meeting space. The convention center’s recently completed Grand Plaza is a 100,000 SF outdoor multi-use area that offers meeting planners the opportunity for large outdoor gatherings including alfresco dining, concerts, receptions, exhibitions, meetings and more. The Grand Plaza creates a pedestrian esplanade that spans from the entrance to the ACC and flows between the Hilton Anaheim and the Anaheim Marriott hotels. The Grand Plaza provides a uniquely Southern California outdoor environment that can be utilized year-round for a wide variety of events. Given this backdrop, the City retained Crossroads Consulting Services (Crossroads) to update certain aspects of the Expansion Feasibility Study for the Anaheim Convention Center dated October 2007 in order to reflect current market conditions. The proposed expansion under consideration includes re-use of the Carpark 1 parking garage (which needs to be replaced) into flex space that can be used as exhibit, ballroom, and/or meeting space. The City’s intention is to design and construct the expansion while the ACC remains fully operational, with no disruptions to events, customers, staff and surrounding stakeholders. Other features of the proposed expansion include:  200,000 square feet of climate-controlled, leasable, flexible meeting/ballroom/exhibit space;  Architecturally compatible design with existing facility;  All necessary front-of-house, back-of-house and circulation space;  Outdoor areas to maximize special event activity and existing views;  Replacement of the existing parking inventory on the project site (approximately 1,000 spaces); ---PAGE BREAK--- 1. Introduction and Executive Summary 2  Loading docks to accommodate needs of the new space;  Climate controlled connection to existing space;  Finish quality equal to, or above, that of most recently constructed existing space; and  Project to meet the intent of LEED for New Construction Certified, and preferably LEED Silver. Specific research tasks conducted for this analysis include, but are not limited to, the following:  Conducted interviews and/or work sessions with a variety of groups including, but not limited to, representatives from the City, the ACC, the Anaheim/Orange County Visitor and Convention Bureau (VCB) and area hoteliers;  Summarized trends in the convention/meetings industry;  Profiled select demographic and economic statistics;  Profiled hotel supply and demand characteristics for the City of Anaheim;  Analyzed historical event activity at the ACC;  Surveyed and/or interviewed existing users and potential users of an expanded ACC;  Analyzed attributes of competitive/comparable destinations and facilities;  Developed estimates of incremental utilization and financial operations at an expanded ACC as well as for a status quo scenario;  Estimated the incremental economic impacts in terms of spending, employment and earnings and tax revenues for an expanded ACC as well as a status quo scenario;  Conducted a sensitivity analysis;  Developed a cost/benefit analysis; and  Summarized findings into a written report. Executive Summary Since its opening the ACC has generated economic and fiscal benefits to the local and State economies. Over the last five fiscal years, the facility has hosted approximately 1,300 events and 4.95 million in total attendance. During that same period, conventions and tradeshows represented approximately 25% of total events, 48% of total usage days and 59% of total attendance annually. The City has made significant financial investments in the ACC including the recently completed Grand Plaza. The ACC generates significant, quantifiable return on investment to the City. As such, the ACC has proven to be a valuable economic generator attracting a variety of industry segments and fostering their unique markets through the exchange of business ideas and knowledge. ---PAGE BREAK--- 1. Introduction and Executive Summary 3 Convention Center Industry Trends Over the last 20 years, the U.S. convention and meetings market experienced tremendous growth in the supply of exhibit and meeting space through both new construction and expansion. This increased supply led to a more competitive marketplace where numerous facilities can accommodate meeting planners’ needs strictly in terms of the amount of space required. Industry trends suggest facilities located in destinations offering an attractive package in terms of overall appeal, hotel supply, accessibility, and cost have been better able to maintain, grow and/or diversify their business during challenging economic times. Similar to the broader economy, the convention and meetings industry has experienced a downturn in recent years. However, several sources are projecting positive economic and industry growth in key metrics. While convention/meetings industry demand trends have generally correlated to those of the broader economy, there tends to be lag of between 12 and 18 months. ACC’s Competitive Position Even with economic conditions and a finite number of potential conventions/tradeshows, the ACC has successfully competed for these event types in recent years due to the following and attributes:  Hotel supply proximate to the ACC  Accessibility via multiple major airports  Perceived price/value by customers  Campus environment of the ACC and surrounding amenities  Visitor amenities such as Disneyland  Tourism service industry  Existing base of convention/tradeshow users Despite offering one of the lowest ratios of meeting/ballroom space to exhibit space among its primary convention center competitors, a snapshot of utilization indicates that the existing ACC compared favorably in terms of convention/tradeshow attendance. Although Anaheim offers more hotel rooms at its headquarters hotel properties (2,600 vs. 1,100) relative to the average of the profiled competitive set, it offers less within walking distance (4,000 vs. 8,600) and citywide (20,000 vs. 62,100). Several of the ACC competitors either have or are planning to enhance their convention centers and/or surrounding environment in order to enhance their destination package and overall competitive position: ---PAGE BREAK--- 1. Introduction and Executive Summary 4  Henry B. Gonzalez Convention Center in San Antonio  Las Vegas Convention Center  Los Angeles Convention Center  Moscone Center in San Francisco  San Diego Convention Center Because convention centers including the ACC operate in a buyer’s market, it is important for customers to realize both real and perceived value. Market Demand for ACC Expansion Several performance measures and industry indicators suggest market demand has equaled and potentially exceeded the ACC’s current supply of space. According to lost business reports, date availability and inadequate space at the ACC accounted for 20% of lost events while inadequate hotel meeting/ballroom space and hotel date availability accounted for an additional 11% of lost events. As a result, Anaheim is losing convention/tradeshow business to its competitors. The ACC is operating at or near practical maximum occupancy in its exhibit and ballroom space. Relatively high occupancy levels sustained for an extended period of time are typically an indicator that additional space is warranted by market demand. Future bookings suggest ACC occupancy levels could be sustained for several years beyond 2012. However, if the product and destination are not continually improved, reinventing the ACC’s marketing strategy will become more critical in order to sustain similar occupancy levels. Red 7 Media is a privately-held business media company that publishes magazines and newsletters as well as produces conferences and trade shows in the Event and Media industries. The Red 7 Media Research and Consulting Practice helps leaders in the event and media industries analyze data and information to make more informed business decisions. Red 7 Media identified the market potential for events requiring various amounts of exhibit space. Excluding groups that require 100,000 SF of exhibit space or less given these events are often accommodated by hotel properties, the potential universe of events requiring 100,001 to 1.1 million SF of exhibit space and which rotate nationally or in the Western region is 2,090. Attracting 3.7% to 3.85% of these potential events annually would equate to a total of 77 to 80 conventions/tradeshows, respectively. The existing ACC is attracting an average of 63 of these events so the incremental event potential is 14 to 17 assuming an expanded ACC attracts 3.7% to 3.85% of the overall universe of event activity. According to the 2011 State & Regional Associations of the U.S. and National Trade and Professional Associations of the U.S., there are 976 associations headquartered in California which are comprised of 576 state/regional associations and 400 national associations. These account for 6% of all associations headquartered in the U.S. In addition, the ICCA reports the U.S. hosted a total of 759 international association meetings in 2011. These groups represent a target market within the State and region for annual conventions, tradeshows and smaller division meetings. ---PAGE BREAK--- 1. Introduction and Executive Summary 5 In addition to this macro level potential demand industry-wide, representatives of State, regional and national associations were surveyed in order to assess their future needs at the ACC and their reasons for choosing (or not choosing) Anaheim as a destination. Survey participants represent past users of the ACC and lost business reports from the Anaheim/Orange County VCB. This input provides a basis for evaluating the proposed expansion program and its ability to positively impact ACC usage. Findings regarding these groups’ facility-specific and destination-related requirements include the following:  Surveys with meeting planners indicated Anaheim is a highly ranked destination relative to other convention/meeting cities even with its existing venue.  Several groups surveyed mentioned they have been unable to secure dates and/or space due to the ACC availability. This is consistent with the significant portion of lost business due to date/space availability.  78% of respondents indicated they would utilize the proposed new flex space as exhibit space for their event; 90% indicated they would utilize the flex space as meeting/ballroom space. Respondents were allowed to choose more than one type of space.  All respondents indicating an interest in meeting at the ACC were asked the amount of gross exhibit space required. Overall, positive respondents required an average of 628,000 SF of exhibit space. 44% of positive respondents indicated the exhibit space required for their event does not have to be contiguous to host their event at the ACC.  Positive respondents require an average of 28 meeting rooms or 63,800 SF of meeting space in addition to 36,700 SF of ballroom space.  More than half of respondents anticipate their group’s space needs increasing in the next five years.  Positive respondents average more than three event days with an additional six move in/out days. These groups host their events in six different months indicating there is demand potential for the ACC throughout the year.  Overall groups who have previously met at the ACC are pleased with the facility, its staff, and general surroundings. The lack of space/date availability was mentioned as a hindrance to their booking the ACC in the past which could be alleviated by the proposed new flex space.  Meeting planners indicated the new flex space needs to be capable of adequately accommodating exhibits, meeting rooms, and banquet functions in order to be marketable. If the cost of setting up the space for their specific needs is significant, this could negatively impact the new space’s marketability. Consideration to making the new space as accessible and visible from the existing space would help to draw attendees from one side to the other. ---PAGE BREAK--- 1. Introduction and Executive Summary 6 Potential Impact of Remaining Status Quo Market research suggests that remaining static will likely result in a decline of event activity and attendees over time, resulting in an operating loss. The largest impact will likely occur in convention, tradeshow and meeting activity held at the ACC. This decrease in event activity is estimated to yield a decrease in spending, jobs and earnings as well as fiscal benefits to the local and State economies. The table below compares the ACC historical three-year average to the estimated status quo in key metrics. Category Historical Three-Year Average Status Quo % Change Usage/Event Activity Number of Events 219 196 -11% Event Days 438 403 Total Attendance 979,800 927,900 Total Attendee Days 2,600,600 2,468,600 High Impact Attendee Days 1,082,800 988,200 Financial Operations Operating Revenues $25,787,000 $24,034,000 Operating Expenses 24,573,000 24,573,000 0% Net Operating Gain/(Loss) $1,214,000 ($539,000) Economic Impacts Direct Spending $368,555,000 $338,022,000 Indirect/Induced Spending 241,131,000 221,048,000 Total Spending $609,686,000 $559,070,000 Total Earnings $233,726,000 $214,412,000 Total Jobs 5,000 4,600 Fiscal Impacts City of Anaheim $30,587,000 $27,919,000 Orange County 1,304,000 1,192,000 State of California 30,869,000 28,267,000 Total $62,760,000 $57,378,000 Comparison of ACC Historical Three-Year Average to Estimated Status Quo Sensitivity Analysis In order to assist the City with its ACC expansion planning efforts, sensitivity analysis was conducted that compared the cost/benefit of two alternative expansion programs: adding 160,000 SF or adding 180,000 SF of flex space. The incremental impact to utilization, financial operations, project costs, economic and fiscal impacts were estimated relative to the status quo scenario and the proposed building program under consideration with 200,000 SF of flex space. ---PAGE BREAK--- 1. Introduction and Executive Summary 7 Based on market research including, but not limited to, an analysis of market attributes, industry trends, historical ACC utilization and lost business reports as well as input from past/potential users and area stakeholders, the 200,000 SF expansion option is estimated to generate a higher net incremental gain to the City. Adding 200,000 SF of flex space is also estimated to enhance the competitive position of the ACC for a longer term than the other two scenarios, increasing the facility’s total available exhibit space to over one million square feet. Further detail regarding the sensitivity analysis can be found in Appendix B of this report. However, the remainder of this report focuses on adding 200,000 SF of flex space. ACC Expansion Program Merging an existing asset and new construction offers both opportunities and challenges. One advantage is the ability to improve the overall program to realize operational efficiencies. If expansion is pursued, it will be imperative to appropriately position program elements in a way that realizes critical synergies with the existing building and its functionality. The proposed programmatic change of adding 200,000 SF of flex space coincides with the market research conducted in this study. This proposed space should allow the ACC to accommodate larger events as well as simultaneous events requiring all three function spaces. The need for additional ballroom and flexible meeting space are supported by both the competitive analysis and input from existing/potential users. The primary objectives for an expanded ACC are to host additional shows that cannot currently be accommodated, host more events simultaneously, and improve event logistical efficiency in order to increase activity and economic/fiscal benefits. Therefore, the expansion should seek to maximize flexibility and functionality among spaces. Anaheim’s supply of hotel rooms within walking distance, occupancy levels throughout the year, strong performance during the recent recession relative to other destinations and other market- driven factors suggest a new convention quality hotel within close proximity may be warranted in the long-term. Additional proximate hotel rooms in conjunction with the proposed new flex space will further enhance the City’s marketability among its competitors and better allow the ACC to accommodate simultaneous events. Impact of ACC Expansion on Annual Event Activity and Financial Operations Based on market research, the financial and economic analysis focused on quantifying incremental new event activity, operating revenue and expenses, as well as economic and fiscal impacts that could potentially be generated by an expanded ACC. The following graphs compare the status quo scenario (estimated to reflect a decline over historical ACC activity) to the estimated range of activity for an expanded ACC. ---PAGE BREAK--- 1. Introduction and Executive Summary 8 An expanded ACC is estimated to host 35% to 40% more conventions/tradeshows compared to the status quo scenario. Comparison of Estimated Annual ACC Total Events Historical Three-Year Average vs. Status Quo vs. Expanded ACC Convention/tradeshow attendance at an expanded ACC is estimated to increase by 41 to 50% over the status quo scenario. Comparison of Estimated Annual ACC Total Attendance Historical Three-Year Average vs. Status Quo vs. Expanded ACC 63 57 77 80 156 139 190 202 0 50 100 150 200 250 300 Historical Three-Year Avg Status Quo Expanded ACC - Low Expanded ACC - High Conv/TS Other Events 562,100 513,000 725,500 767,500 417,700 414,900 494,200 521,800 0 250,000 500,000 750,000 1,000,000 1,250,000 1,500,000 Historical Three-Year Avg Status Quo Expanded ACC - Low Expanded ACC - High Conv/TS Other Events ---PAGE BREAK--- 1. Introduction and Executive Summary 9 Operating revenues are estimated to increase by 17% to 19% relative to the status quo whereas operating expenses are estimated to increase between 8% and 10%. Under the status quo scenario, a net operating loss of $539,000 is estimated which would require funding from the City for on-going operations. The estimated annual net operating gain at an expanded ACC is $2.0 million higher than status quo. Category Historical Three-Year Average Status Quo Operating Revenues $25,787,000 $24,034,000 $28,039,000 - $28,505,000 $4,005,000 - $4,471,000 Operating Expenses 24,573,000 24,573,000 26,524,000 - 26,964,000 1,951,000 - 2,391,000 Net Operating Gain/(Loss) $1,214,000 ($539,000) $1,515,000 - $1,541,000 $2,054,000 - $2,080,000 Operating Recovery Percentage 105% 98% 106% - 106% Note: Operating Recovery Percentage = Operating Revenues/Operating Expenses. Estimated Annual Impact to ACC Financial Operations ACC Expansion Incremental New From Status Quo The estimates for event activity and financial operations should be considered within the context of the economic and fiscal benefits to the City and State that could be generated by an expanded ACC. Impact of ACC Expansion on Annual Room Nights Consistent with attendance, room nights generated from conventions/tradeshows at an expanded ACC are estimated to increase by 41% to 50% over the status quo scenario. Comparison of Estimated Annual Room Nights Historical Three-Year Average vs. Status Quo vs. Expanded ACC More detail regarding this calculation can be found in Appendix C. 773,400 705,900 998,300 1,056,100 0 250,000 500,000 750,000 1,000,000 1,250,000 Historical Three-Year Avg Status Quo Expanded ACC - Low Expanded ACC - High ---PAGE BREAK--- 1. Introduction and Executive Summary 10 Economic and Fiscal Benefits Associated with ACC Expansion The following table summarizes the estimated incremental new economic benefits from ongoing activities of an expanded ACC as measured by spending, jobs and earnings. The total annual incremental new spending direct/indirect/induced) is estimated to range between $221.6 million and $265.6 million. This spending is estimated to support between 1,800 and 2,200 incremental new jobs annually which represents an increase of 40% to 48% from the status quo scenario. Category Historical Three-Year Average Status Quo Spending Direct Spending $368,555,000 $338,022,000 $471,833,000 - $498,355,000 $133,811,000 - $160,333,000 Indirect/Induced Spending $241,131,000 $221,048,000 $308,880,000 - $326,292,000 $87,832,000 - $105,244,000 Total Spending $609,686,000 $559,070,000 $780,713,000 - $824,647,000 $221,643,000 - $265,577,000 Total Jobs 5,000 4,600 6,400 - 6,800 1,800 - 2,200 Total Earnings $233,726,000 $214,412,000 $298,911,000 - $315,664,000 $84,499,000 - $101,252,000 Estimated Annual Impact to Economic Benefits ACC Expansion Incremental New From Status Quo At the City level, total annual incremental new fiscal impacts from an expanded ACC are estimated to range from $11.5 million to $13.8 million, an increase of between 41% and 50% compared to the estimate for status quo. Approximately 49% of the fiscal impacts are estimated to occur at the City level. Municipality/Tax Historical Three- Year Average Status Quo City of Anaheim Transient Occupancy Tax $24,688,000 $22,532,000 $31,865,000 - $33,710,000 $9,333,000 - $11,178,000 Local Sales & Use Tax 2,607,000 2,383,000 3,353,000 - 3,545,000 970,000 - 1,162,000 Tourism Improvement District Assessment - Dedicated to Marketing & Promotion (75%) 2,469,000 2,253,000 3,187,000 - 3,371,000 934,000 - 1,118,000 - Dedicated to Non-Marketing Improvement Projects (25%) 823,000 751,000 1,062,000 - 1,124,000 311,000 - 373,000 Total 30,587,000 27,919,000 39,467,000 - 41,750,000 11,548,000 - 13,831,000 Orange County Local Sales & Use Tax 1,304,000 1,192,000 1,676,000 - 1,772,000 484,000 - 580,000 State of California Sales & Use Tax 16,945,000 15,495,000 21,797,000 - 23,042,000 6,302,000 - 7,547,000 Personal Income Tax 10,985,000 10,077,000 14,049,000 - 14,836,000 3,972,000 - 4,759,000 Corporate Income Tax 2,939,000 2,695,000 3,763,000 - 3,975,000 1,068,000 - 1,280,000 Total 30,869,000 28,267,000 39,609,000 - 41,853,000 11,342,000 - 13,586,000 GRAND TOTAL $62,760,000 $57,378,000 $80,752,000 - $85,375,000 $23,374,000 - $27,997,000 Estimated Annual Impact to Tax Revenues ACC Expansion Incremental New From Status Quo Although not quantified in this analysis, construction of a development project of this scope can also provide significant economic and fiscal impacts to the region during the construction period. ---PAGE BREAK--- 1. Introduction and Executive Summary 11 Cost/Benefit Analysis for the ACC Expansion As shown in the following table, the cost/benefit analysis for an expanded ACC indicates a significant return on investment over a 30-year period. In addition, the funding mechanism that would be used for the ACC expansion would also allow funding for other public projects such as public safety, neighborhood improvements and other quality-of-life projects and services for the City. Category Range Incremental New Transient Occupancy Tax $341,449,000 - $429,225,000 Incremental New Local Sales & Use Tax $30,264,000 - $38,053,000 Incremental Operating Gain $9,030,000 - $9,810,000 Total Incremental New Revenues $380,743,000 - $477,088,000 Recapture of Lost Revenues $164,250,000 - $164,250,000 Debt Service Including Garage ($409,667,000) - ($409,667,000) Net Benefit $135,326,000 - $231,671,000 Notes: Debt service includes replacement of the parking garage. Debt service is based on estimated construction cost and financing terms as provided by the City on February 14, 2014. Incremental Transient Occupancy Tax reflects an annual increase of Incremental Local Sales and Use Tax reflects an annual increase of Recapture of Lost Revenues reflects the difference between the historical three-year average and the status quo scenario. 30-Year Cost Benefit Analysis Expanded ACC A detailed cash flow analysis is provided in Appendix A. Based on the market and economic analysis, the proposed expansion of the ACC appears warranted and could serve to increase Anaheim’s share of the convention/tradeshow industry as well as allow several existing users to grow. In doing so, the City would attract incremental new events and visitors who would positively impact the area economy. In addition, this expansion should enhance the ACC marketability and competitive position for the next 10 to 15 years. Because the information presented in the executive summary is extracted from the more detailed analysis, it is important for the reader to review the report in its entirety in order to gain a better understanding of the research, methodology and assumptions used. The remainder of this report summarizes the key findings and conclusions from our research and analysis which can serve as a tool for the City’s on-going planning decisions related to the proposed ACC expansion. ---PAGE BREAK--- 2. General Market Overview 12 General Market Overview When choosing a location, meeting planners and event producers typically view several characteristics of a destination as important to the success of their event. Key attributes may include accessibility via air and/or highway, hotel room inventory, and/or the number of restaurant/retail/entertainment establishments proximate to the event site. The importance meeting planners and event producers place on these factors differs depending on the type of event. For instance, local events may place more importance on the accessibility of the venue to both exhibitors and attendees from the surrounding communities. A consistent desire from both professional and trade associations is the number of convention quality hotel rooms proximate to the facility which allows the attendees to move freely between meetings and can decrease the cost of hosting the event if a shuttle service is not required. As such, the local market area in which the ACC operates contributes to the center’s marketability to conventions, tradeshows and meetings. Factors such as demographic/economic conditions, the vibrancy of the area immediately surrounding the convention center, and overall destination appeal to both event planners and attendees can all impact a convention center’s overall competitiveness within the broader marketplace. This section profiles select market characteristics including demographic/economic statistics, area employment, accessibility, hotel market, attractions, and travel industry. Demographic/Economic Statistics Population serves as a base from which events at the ACC can draw attendance and other forms of support. According to the U.S. Census Bureau, the City’s population has remained relatively consistent over the past decade. After declining in 2009, personal income has increased each of the last three fiscal years. Orange County’s unemployment rate decreased to 7.9% in fiscal year 2012. Fiscal Year Population Personal Income (in 000s) Per Capita Personal Income Median Age Orange County Unemployment Rate 2003 331,350 $6,878,163 $20,758 32.4 4.0% 2004 332,727 $6,943,347 $20,868 32.4 3.6% 2005 331,458 $6,892,338 $20,794 32.4 3.9% 2006 329,373 $7,351,605 $22,320 32.4 3.7% 2007 329,780 $7,416,752 $22,490 32.4 3.9% 2008 330,659 $7,467,272 $22,583 32.4 5.3% 2009 332,120 $7,198,701 $21,675 32.4 9.3% 2010 336,208 $7,333,705 $21,813 32.4 9.5% 2011 341,034 $7,519,459 $22,049 32.4 9.2% 2012 343,793 $7,807,701 $22,710 32.4 7.9% Notes: Population and median age were updated to reflect Census 2010 counts. Per capita income for fiscal year 2012 is estimated. Source: City of Anaheim. City of Anaheim Demographic & Economic Statistics ---PAGE BREAK--- 2. General Market Overview 13 Area Employment The distribution of an area’s employment by industry is a consideration when targeting various events. A large services sector is typically a positive indicator for the number of corporate events being held in the area. The services sector typically has significant financial resources to host activities such as annual conferences, seminars, banquets, receptions and other special events. In addition, employers may be members of associations and can be instrumental in attracting larger regional or national conventions/tradeshows to Anaheim. A significant leisure/hospitality sector is indicative of a large visitor market that includes convention/meeting attendees. Anaheim has a diverse economy that is currently led by trade/transportation/ utilities; professional/ business services; leisure/ hospitality; and education/ health services. Industry Total Jobs % of Total Trade, Transportation, and Utilities 259,200 18% Professional & Business Services 253,300 18% Leisure & Hospitality 181,400 13% Education & Health Services 165,600 12% Manufacturing 153,900 11% Government 144,700 10% Financial Activities 111,700 8% Mining, Logging, and Construction 70,600 5% Other Services 40,600 3% Information 24,900 2% Total 1,405,900 100% Notes: Sorted in descending order by total jobs. Total jobs are not seasonally adjusted. Source: U.S. Bureau of Labor Statistics. Non-Farm Employment by Industry - December 2012 Santa Ana-Anaheim Metro Area Walt Disney Resort is Anaheim’s largest employer with 22,200 employees representing 14% of the City’s overall employment. Other principal employers include four hospitals, a supermarket chain, three communications companies and a hotel. The presence of these companies indicates Anaheim’s established leisure/hospitality industry that accommodates visitors including convention/meeting attendees as well as businesses dedicated to the health/medical field. Employer Employees % of City Employment Walt Disney Resort 22,200 13.8% Kaiser Permanente Hospital 5,400 3.4% Kaiser Permanente Anaheim Medical Center 3,700 2.3% Northgate Gonzalez Supermarkets 1,900 1.2% Anaheim Memorial Hospital Medical Center 1,200 0.7% AT&T Inc. 1,000 0.6% Hilton Anaheim 967 0.6% L-3 Communications 950 0.5% Time Warner 800 0.5% West Anaheim Medial Center 796 0.5% Source: City of Anaheim. City of Anaheim Principal Employers ---PAGE BREAK--- 2. General Market Overview 14 Accessibility Accessibility via air and highway are important factors to event and meeting planners. In addition, the location and accessibility of a facility relative to hotels, restaurants, entertainment establishments and the general population base can impact its marketability for certain types of events such as conventions/tradeshows and sporting events. Anaheim is located in southern California, 25 miles south of Los Angeles and 95 miles north of San Diego. The City is accessible via Interstate 5 serving as the major north/south corridor for the region. Vehicular Access Air access is considered an important factor relative to attracting regional and national conventions and meetings business. Anaheim is serviced by four nearby airports: John Wayne/Orange County Airport, Long Beach Airport, Los Angeles International Airport and Ontario International Airport. In 2011, there were 38.6 million passenger enplanements at these four airports combined. The Federal Aviation Administration (FAA) defines enplanements as domestic, territorial and international passengers who board an aircraft in scheduled and non- scheduled service of aircraft. The ACC’s proximity to multiple major airports offers its attendees excellent access to U.S. and international destinations. Hotel Market The diversity, supply and proximity of hotel rooms are important factors in attracting convention/meeting business and accommodating out-of-town attendees. The Anaheim hotel market is unique in many regards. There are approximately 20,000 hotel rooms in the City of Anaheim and approximately 52,900 rooms in Orange County at various price points. These properties include chain-affiliated hotels, all-suite, boutique and independent properties. Given its location, many ACC-related out-of-town attendees stay in the resort area that offers 15,700 guest rooms. Two primary properties serve as headquarter hotels for ACC business, the Anaheim Hilton & Towers (1,572 rooms) and the Anaheim Marriott Hotel (1,033 rooms) given their level of service and proximity to the facility. Some attendees may also choose to stay near the beaches. ---PAGE BREAK--- 2. General Market Overview 15 PKF Consulting tracks the performance metrics of the Anaheim hotel market and publishes a hotel forecast report annually. PKF categorizes hotels in Anaheim by various Average Daily Rates (ADR) achieved by properties in the competitive market. The three categories include: • Tier One - Hotels achieving an ADR of over $110 • Tier Two - Hotels and motels achieving an ADR of $70-$110 • Tier Three - Hotels and motels achieving an ADR of under $70 Primary Anaheim Hotel Rooms for Convention Center Demand The following table illustrates the 14 Tier One properties in the Anaheim hotel market which offer nearly 7,400 rooms in close proximity to the ACC. Property Number of Rooms Anaheim Hilton & Towers 1,572 Anaheim Marriott Hotel 1,033 Disneyland Hotel 990 Disney's Grand Californian 955 Disney's Paradise Pier Hotel 502 Sheraton Park Hotel 490 Sheraton Anaheim 489 Embassy Suites Anaheim 222 Doubletree Guest Suites 252 Residence Inn Anaheim Main Gate 200 Best Western Park Place Inn 199 Portofino Inn & Suites 190 Courtyard Anaheim at Disneyland 153 Staybridge Suites 143 Total 7,390 Source: PKF Consulting. Tier One Convention Center Hotels - Anaheim The aggregate performance metrics for the Tier One properties are presented in the following table. Year Market Occupancy % Change ADR % Change REVPAR % Change 2006 78.4% $157.88 $123.75 2007 77.8% -0.8% $170.08 7.7% $132.34 6.9% 2008 73.8% -5.1% $180.13 5.9% $133.01 0.5% 2009 66.6% -9.8% $167.72 -6.9% $111.68 -16.0% 2010 69.9% 5.0% $164.61 -1.9% $114.99 3.0% 2011 71.7% 2.6% $175.03 6.3% $125.51 9.1% 2012 76.2% 6.3% $184.97 5.7% $140.99 12.3% Note: REVPAR denotes revenue per available room. Source: PKF Consulting. Historical Performance at Tier One Properties ---PAGE BREAK--- 2. General Market Overview 16 As shown in the previous table, the historical performance of the Tier One properties in terms of ADR has been strong. In 2012, the market rebounded to its historical peak in terms of achieved REVPAR since 2008. Several factors have affected the Anaheim hotel market from 2006 to 2012 including an increased supply of 615 rooms with the addition of the 153-room Courtyard Marriott and the 252-room Doubletree Guest Suites in 2006 and the 210-room expansion at Disney’s Grand Californian. The decrease of 16.0% in REVPAR experienced in 2009 is attributable to the national recession. This decrease was similar to other urban markets with strong ties to business and leisure travel. However, Anaheim is much more resilient than other markets nationally as REVPAR levels have rebounded back to historical levels. Most of the other hotel markets nationally with similar characteristics are not expected to rebound to historic highs until 2017. Proposed Additions to Supply A 120-room, limited-service Marriott Springhill Suites is scheduled to open in March 2014. This all-suite property will be a Tier One property. The following table summarizes hotel projects that have been approved. Property Number of Guest Rooms Status Estimated Opening Date Hyatt House 252 Approved Early 2015 Hyatt Place 178 Approved Summer 2014 Springhill Suites, Katella 172 Approved Summer 2014 Marriott Springhill Suites 120 Approved Spring 2014 Note: Sorted in descending order by number of rooms. Sources: City of Anaheim; secondary research. Proposed Hotel Additions - City of Anaheim In addition to the above four hotel properties that have been approved, several others are in various stages of the application and approval process. These and other impending new hotel developments will further enhance the ACC’s competitive position in the future. Meeting Hotels The supply of hotels offering meeting/banquet space proximate to a convention center is important to meeting planners given their need for supplemental space for meetings, food functions, and/or special events. There are several Tier One and Tier Two properties in close proximity to the ACC which offer meeting space. The following table illustrates those properties with a minimum of 10,000 SF of total meeting space. ---PAGE BREAK--- 2. General Market Overview 17 Property Number of Guest Rooms Number of Meeting Rooms Ballroom SF Total Meeting SF Disneyland Hotel 990 52 33,000 136,000 Anaheim Hilton & Towers 1,572 51 57,000 120,000 Anaheim Marriott Hotel 1,033 30 63,700 100,000 Disney's Grand Californian 955 8 14,600 20,500 Crown Plaza Anaheim Resort 384 6 17,800 19,900 Disney's Paradise Pier 502 11 7,300 19,500 Sheraton Park Hotel 490 11 8,300 18,500 Doubletree-Orange 454 5 10,000 12,700 Marriott Suites Anaheim 371 7 7,100 10,100 Note: Sorted in descending order by total meeting SF. Source: Individual hotel properties. Anaheim Meeting Hotels We interviewed representatives at the majority of the hotels with substantial amounts of meeting space. The General Managers and Directors of Marketing at the various properties were supportive of the proposed expansion of the ACC. Local hoteliers cited an expansion will complement their properties, rather than be competitive. Group focused properties believe the proposed ACC expansion is necessary to enable the ACC to be competitive in its offerings as well as for Anaheim as a convention/meeting destination. Potential Impact of ACC Expansion on Hotel Performance Prior reports indicated that the Tier One hotels could expect to achieve a rate premium subsequent to ACC expansion. In the latter part of 2012, Jones Lang LaSalle Hotels completed a research study on urban markets where convention centers have undergone a major expansion; hotel revenue experienced a premium over a five-year period. The report examined 15 urban hotel markets and found a strong correlation between convention center attendance and REVPAR.  Three years after an expansion was completed, real REVPAR increased on average 2.2% per year versus an average increase of 0.4% per year when no expansion occurred.  Five years after an expansion was completed, real REVPAR increased on average 1.6% per year compared to an average increase of 0.4% per year when no expansion occurred. The report also discussed the positive effects construction or development of convention centers had on those markets. According to the report, long-term convention center attendance growth rates averaged 4.2% per year in comparable markets like Dallas, San Diego, Atlanta and Phoenix, whose REVPAR is highly correlated to convention center attendance. The decrease in the number of conventions at the ACC has refocused many of the Tier One hoteliers to increase their marketing efforts to accommodate more in-house groups in recent years. Despite previous studies in Anaheim and nationally, our interviews indicate that achieving a premium in ADR in Anaheim may be challenging, particularly over the long-term. ---PAGE BREAK--- 2. General Market Overview 18 Most hoteliers believe that Anaheim’s relative hotel affordability is a competitive advantage when competing for group business. Transient Occupancy Tax The City of Anaheim currently imposes a 15% transient occupancy tax on hotel stays. Overall, these collections have averaged approximately $82.9 million over the last three fiscal years. After declines in annual collections in both FY 2009 and FY 2010, collections increased by 6% and 9% in FY 2011 and FY 2012, respectively. Historical Anaheim Transient Occupancy Tax Collections (in thousands) Sources: PKF Consulting; City of Anaheim. The following graph illustrates the distribution of Anaheim’s transient occupancy tax collections by month using the most recent three-year average. Although collections peaked in August and April, they are fairly consistent indicating the City’s appeal as a year-round destination. Historical Anaheim Transient Occupancy Tax Collections by Month – Three-Year Average (FY 2010 - FY 2012) Source: City of Anaheim. $56,331 $62,632 $66,323 $76,036 $82,597 $87,193 $80,732 $77,322 $81,843 $89,465 $0 $25,000 $50,000 $75,000 $100,000 FY 2003 FY 2004 FY 2005 FY 2006 FY 2007 FY 2008 FY 2009 FY 2010 FY 2011 FY 2012 9% 10% 9% 6% 9% 7% 9% 7% 7% 10% 9% 8% 0% 5% 10% 15% Jul Aug Sep Oct Nov Dec Jan Feb Mar Apr May Jun ---PAGE BREAK--- 2. General Market Overview 19 Area Attractions Convention/meeting planners often weigh a destination’s appeal to delegates when considering whether to host their event at a particular facility. The ACC is located among the Disneyland resort area which includes Disney California Adventure Park, the original Disneyland Park, and Knott’s Berry Farm® Theme Park. In 2012, the Walt Disney Company completed its $4 billion acquisition of Lucasfilm - the creators and owners of the "Indiana Jones" and "Star Wars" franchises. The entertainment giant also announced "Star Wars: Episode VII" for 2015, with Episodes VIII and IX waiting in the wings. The future plans on how these acquisitions may impact Disneyland Anaheim have not been announced at this time. In addition to Disneyland, the surrounding area offers several other attractions including, but not limited to, the following:  Aquarium of the Pacific  Area Beaches  Bowers Museum  Discovery Science Center  Flightdeck Air Combat Center  K1 Speed  Pretend City Children’s Museum  Richard Nixon Presidential Library & Museum Travel Industry Anaheim/Orange County's visitor industry plays an influential role in the local economy. As shown in the adjacent table, the area attracted more than 43.8 million domestic and international travelers leisure visitors, convention attendees and business travelers) that were estimated to spend approximately $8.7 billion on accommodations, dining, entertainment, recreation, shopping, sporting events and transportation in 2012. This robust visitor industry supports approximately 160,000 jobs in the Anaheim/Orange County area according to the Anaheim/Orange County VCB. The ACC is a significant feature of the area’s visitor industry serving to support area hotels and businesses by attracting non-leisure visitors and diversifying its visitor markets. Year Annual Visitors % Change 2003 42,700,000 2004 43,500,000 1.9% 2005 44,700,000 2.8% 2006 44,900,000 0.4% 2007 44,300,000 -1.3% 2008 43,100,000 -2.7% 2009 42,700,000 -0.9% 2010 42,700,000 0.0% 2011 42,900,000 0.5% 2012 43,800,000 2.1% Average 43,530,000 2.6% Source: CIC Research, Inc. Estimated Orange County Visitors ---PAGE BREAK--- 3. Industry Trends 20 Industry Trends The ACC’s success is somewhat dependent on the attributes of the industry as a whole. In order to assess potential market demand for an expanded ACC, this section summarizes historical and projected industry trends relative to the supply and demand for convention center space in the U.S. as well as site selection criteria that meeting planners consider when selecting a facility and a destination. General Overview of U.S. Convention & Meetings Market Over the last 20 years, the U.S. convention and meetings market experienced tremendous growth in the supply of exhibit and meeting space through both new construction and expansion. This increased supply led to a more competitive marketplace where numerous facilities can accommodate meeting planners’ needs strictly in terms of the amount of space required. The increase in supply combined with broader economic conditions such as higher unemployment, increased costs associated with travel and lower corporate returns has resulted in a downward trend in overall demand for convention and meeting space in recent years. However, the current environment provides an edge to those facilities located in destinations offering an attractive amenities package and proximate to a broad industry base of conventions and meetings hosted for a variety of geographic segments State, regional, national or international). Anaheim’s overall appeal, hotel supply, accessibility, regional corporate and association base combined with the ACC’s proximity to restaurants and entertainment options have allowed it to maintain a relatively steady flow of convention, tradeshow and meeting business during challenging economic times. As a point of reference, the following table illustrates the destination and venue selection criteria that meeting planners considered most important and their relative ranking. Overall cost, space requirements, location and overall value rank highly in terms of both the site and venue selection. Factor % Factor % Overall cost 42% Meeting space requirements 45% Available venues which meet space requirements 42% Overall cost 41% Ease of access/travel 39% Location 38% Overall value 33% Condition and quality of venue 37% Attractive location to attendees 32% Overall value 31% Proximity to members/delegates 29% Flexible contracts 26% Travel cost to destination 29% Attractive location to attendees 24% Area hotel rates 22% Customer service 24% Distance between airport and venue 20% Meeting room rates 19% Public perception 14% Flexible and dedicated staff 16% Attractions and activities 11% Incentives and concessions 15% Availability of airlift 11% Amenities and services offered 11% Source: MPI 2012 Business Barometer. Most Important Decision Factors When Choosing a Destination Most Important Decision Factors When Choosing a Venue ---PAGE BREAK--- 3. Industry Trends 21 There is no one source that measures the strength and performance of the convention and meetings industry. The breadth of facility types and geographic locations coupled with the variety of event types and sizes makes the ability to account for the entire industry’s current or future position difficult. However, this section of the report presents data that represents the leading and most comprehensive sources available including Center for Exhibition Industry Research (CEIR), Meeting Professionals International (MPI), International Congress and Convention Association (ICCA), Red 7 Media Research and Consulting, and Standard & Poor’s Supply Trends As shown in the following graph, the convention center building boom peaked in 2002 and 2003 with gross SF annual growth exceeding 6.5% each year. Supply of Convention Center Space - Millions of Gross SF Source: Tradeshow Week. While supply growth has slowed significantly, new space has recently been developed and/or is under construction; much of which were underway prior to the economic downturn. For instance, the San Diego Convention Center and Moscone Center are both contemplating expansion. The new convention center in Nashville opened this month and features 515,000 SF of function space. There has been a similar supply boom in hotel meeting and exhibit space. As shown in the following graph, hotel function space in the U.S. has more than doubled from approximately 11.2 million in 1998 to 25.5 million in 2009. This development primarily took place in Las Vegas and other resort-type, all-inclusive properties such as those operated by Gaylord Hotels. Consequently, a growing number of hotels are able to directly compete with exhibition/ convention facilities. 63.2 64.2 64.2 63.4 65.6 67.6 72.4 77.2 80.5 82.3 85.1 85.9 88.5 90.0 94.4 0.0 10.0 20.0 30.0 40.0 50.0 60.0 70.0 80.0 90.0 100.0 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2012+ ---PAGE BREAK--- 3. Industry Trends 22 Supply of Hotel Space - Millions of Gross SF Source: Tradeshow Week. Perhaps more importantly, hotels with exhibit space can have an advantage over convention centers because they control all major components of an event function space, lodging and food/beverage) under one roof. Since the hotel is the primary beneficiary of all revenue streams, it can negotiate packages as it sees fit in any or all areas to attract business. For instance, a hotel can offer meeting and/or exhibit space for free or at a deeply discounted rate because it would still receive revenue from the rooms and food service which is often more profitable. In addition, some privately operated hotels offer entertainment a headliner act for a banquet) as part of their overall package to entice meeting planners. Many of these properties are situated in suburban locations, remote from other businesses that might attract some of the attendee spending away from the hotel’s internal revenue generators. Four of the 15 largest U.S. hotel/convention facilities comprise the large convention hotel brand of Marriott International: Gaylord Texan Resort & Convention Center in Grapevine, Texas; Gaylord Palms in Kissimmee (outside of Orlando); Gaylord Opryland in Nashville; and Gaylord National Resort & Convention Center in National Harbor, Maryland. These all-inclusive developments are important for several reasons. First, private sector development suggests market demand for convention space adjacent to hotel rooms since the private sector is typically more cautious about making large financial investments without expecting a relatively high return on investment. Secondly, now that the brand has multiple properties, Gaylord Hotels is in a strong competitive position to geographically route groups for several years within their own hotel/convention properties. 5.7 5.3 5.9 6.0 6.9 8.3 8.6 9.2 9.8 10.6 11.4 12.1 13.4 5.5 5.6 5.9 6.1 6.3 6.9 7.3 8.4 9.6 10.5 12.1 13.4 13.7 0.0 5.0 10.0 15.0 20.0 25.0 30.0 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2012+ Exhibit Space Meeting Space ---PAGE BREAK--- 3. Industry Trends 23 Demand Trends While the supply of exhibition and meeting space has experienced significant growth over the past decade, demand has been less aggressive. In fact, overall economic conditions have led to a larger gap between the supply of and demand for space. The result has been a buyer’s market in recent years with larger convention centers vying for more moderately sized events and hotels aggressively marketing their function space to small and mid-sized events. As a result, convention centers such as the ACC have had to compete on the overall package price. Meeting planners are comparing destinations on their facility rental, hotel room rates as well as other financial concessions to attract their business. The following table summarizes industry data provided by CEIR which tracks annual changes in several industry metrics: net SF used for exhibitions, total number of exhibitors and attendees and industry revenues. As shown, the industry has undergone two seasons of negative growth at the start of the decade as well as between 2008 and 2010. Several national economic events led to periods of slower growth or retraction in the convention/exhibition industry since 2001. The events of September 11, 2001, had a direct impact on the recession in the early part of the decade while various national and global events impacted the convention/exhibition industry during 2008 to 2010. According to data provided by CEIR, the industry rebounded to pre-recession levels approximately three years after the recession in 2001 - 2002. CEIR noted moderate growth in all metrics in 2011, a first since 2007, and projects similar growth through 2014. Metric 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012p 2013p 2014p CAGR, 2000-2011 Net SF 1.2 -3.3 0.0 3.8 2.2 1.4 3.6 -1.4 -10.9 -2.1 2.7 3.0 3.3 3.3 -0.3 Exhibitors -2.5 -3.2 2.0 2.6 2.2 -1.8 2.2 -2.0 -10.7 -1.1 2.3 2.7 2.9 3.1 -1.0 Attendees -2.7 -4.2 3.0 2.4 -0.5 0.7 3.9 -3.2 -7.5 2.4 3.4 3.1 3.3 3.5 -0.3 Real Revenues1 3.8 -5.6 -2.1 3.9 5.7 0.6 4.8 -3.6 -9.6 -8.4 2.3 2.7 3.3 3.6 -0.9 Total -0.1 -4.1 0.7 3.2 2.4 0.2 3.6 -2.6 -9.7 -2.4 2.7 2.9 3.2 3.4 -0.6 1Inflation adjusted revenues, adjusted for CPI for all urban consumers. p = projected Source: CEIR Year-On-Year Percent Change of the Metrics and CEIR Index The following graph illustrates annual changes of key convention industry measures alongside the S&P 500 earnings-per-share (EPS) in order to further illustrate the relationship between the convention industry and overall economic conditions. ---PAGE BREAK--- 3. Industry Trends 24 Annual Changes to Convention Demand and S&P 500 EPS Note: p = projected Sources: CEIR, Standard & Poors, 2013. The correlation between overall U.S. economic trends and that of the convention industry is highlighted in the graph. Negative S&P earnings per share data precedes periods of convention industry retraction similar to periods of positive economic and industry growth. S&P earnings began to experience growth in 2009 whereas the convention and meetings industry tends to lag 12 to 18 months behind the broader economy. According to S&P and CEIR, overall economic and convention industry conditions are projected to increase throughout 2012 and 2013. This is further substantiated by event planner projections discussed later in this section. CEIR also tracks the exhibition industry by segment. As shown in the following table, the medical and healthcare industry represents the most exhibition events which, despite the overall economic conditions, managed to sustain a minor average annual growth rate during the past decade. Other sectors also experiencing slight average annual growth over the past 11 years include the government sector; machinery and finished business outputs; medical and healthcare; sporting goods, travel and amusement; as well as raw materials and science. -50% -40% -30% -20% -10% 0% 10% 20% 30% 40% 50% 60% -12% -10% 0% 2% 4% 6% 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012p 2013p S&P 500 EPS CEIR Index S&P 500 EPS Net SF Exhibitors Attendees ---PAGE BREAK--- 3. Industry Trends 25 Industry % of Exhibitions 2011 Growth Rate CAGR 2000- 2011 Government 3.9% 7.0% 3.9% Machinery and Finished Business Outputs 4.9% 11.2% 3.2% Medical and Healthcare 17.3% 0.2% 0.5% Sporting Goods, Travel and Amusement 5.5% -0.8% 0.5% Raw Materials and Science 10.4% 3.3% 0.2% Discretionary Consumer Services 5.3% 2.3% -0.8% Communications and Information Technology 8.7% 8.1% -1.0% Building, Construction, Home & Repair 4.3% -5.3% -1.3% Transportation 4.6% 5.7% -1.3% Financial, Legal, Real Estate 7.3% 3.6% -1.8% Consumer Good/Retail 7.2% 2.6% -2.0% Education 7.5% 1.0% -2.2% Food 3.1% 1.4% -2.2% Business Services 10.0% 1.5% -3.0% Overall Exhibition Industry 100.0% 2.7% -0.6% Notes: Sorted in descending order by CAGR 2000-2011 growth. Source: CEIR. Industry Wide Growth by Segment CEIR also tracks exhibition industry data by segment and projects future changes given broader economic and segment-specific factors which is illustrated in the following table. As shown, machinery and finished business outputs, communications and information technology, as well as financial, legal and real estate are projected to experience the greatest growth over the next several years. Segment 2012p 2013p 2014p Machinery and Finished Business Outputs 8.0% 6.7% 5.9% Communications and Information Technology 7.9% 8.0% 7.5% Financial, Legal & Real Estate 5.0% 5.7% 6.0% Transportation 3.5% 3.6% 4.2% Overall Exhibition Industry 2.9% 3.2% 3.4% Raw Materials and Science 2.9% 3.2% 3.3% Professional Business Services 2.6% 2.9% 3.1% Food 2.5% 2.4% 2.5% Government 2.5% 2.8% 2.9% Discretionary Consumer Services 2.3% 2.5% 3.1% Consumer Goods & Retail Trade 1.6% 2.5% 2.1% Sporting Goods, Travel and Amusement 1.3% 1.5% 2.0% Education 1.1% 1.2% 1.1% Building, Construction, Home & Repair 0.8% 2.0% 2.2% Medical and Healthcare 0.8% 1.4% 2.2% Source: CEIR CEIR Index Projections by Segment ---PAGE BREAK--- 3. Industry Trends 26 CEIR predicts the current positive momentum and releases of pent-up consumer and business demand should sustain continued recovery in consumer expenditures and business investment through 2014. Projected growth in construction, automotive, equipment, and other manufacturing sectors should sustain relatively strong growth in the machinery and finished business outputs sector. Personal consumption of electronics and communications services are expected to increase more rapidly than overall consumption spending, with purchases of wireless telecommunications equipment and services leading the way. According to CEIR, the education sector is likely to be negatively impacted in the next several years by substantial constraints in state and local government spending with resulting projected declines in the segment’s CEIR index. Exhibitions in the government sector outperformed the overall exhibition industry during the past decade. Increases in the number of government programs and level of expenditures, particularly for security related activities, helped fuel this growth. Increasing federal deficits are resulting in declining federal aid to state and local governments which is anticipated to lead to slower growth in the CEIR government sector index during 2012 through 2014. MPI conducts an annual survey (Business Barometer) to gather key facts and comment on meeting industry trends. The following table illustrates that Canadian, European, and U.S. meeting planners project growth in attendance, planner budgets, and the number of meetings in 2013. Category Canada Europe U.S. Overall Number of Meetings 3.3% 3.2% 2.8% 2.9% Meeting Budget 0.1% 0.7% 1.0% 0.9% Attendance 1.4% 2.0% 1.9% 1.9% Source: MPI 2012 Business Barometer % Change Meeting Planner Predictions - 2013 Other trends noted by survey respondents include the following:  The flood of new technological capabilities into the market has meeting planners facing difficult decisions on which solutions are best for their events.  Meeting professionals are designing meeting spaces and agendas to accommodate attendees who network electronically as well as those who prefer to network face-to-face.  Globally, meeting professionals see significantly shorter lead times.  Venues continue to charge premiums for network availability in contrast to meeting professionals’ expectations that Internet access be treated as standard.  Contract negotiations are becoming more complex as suppliers seek to minimize unallocated resources and planners seek to minimize wasted dollars. ---PAGE BREAK--- 3. Industry Trends 27 MPI’s Business Barometer also reports that many event managers in the U.S. and Canada will evaluate 20% more locations per meeting in 2013 in order to increase competition, hoping to lower prices or create more favorable contract terms. The same survey reports an increasing number of meeting professionals are attempting to lower risk by negotiating bulk agreements in which audio/visual, guest nights, food/beverage and technology are simultaneously purchased for more than one meeting or event in more than one location. The ICCA represents over 900 member companies and organizations in 87 countries representing the leading players in the international meetings field. According to the ICCA there are approximately 21,000 different association meetings organized on a regular basis. The ICCA database has collected information on approximately 80% of them. The Statistics Report is based on this database and covers meetings that rotate between a minimum of three countries. As shown in the following graph, the population of rotating international association meetings experienced steady growth through 2010 with a small decline in 2011. Number of Rotating International Association Meetings Source: ICCA. According to the ICCA report, the U.S. ranked highest in terms of the number of international meetings in 2011. The estimated total number of participants at all 2011 meetings is over 5.5 million, a 3% increase over 2010. Country Number of Meetings United States 759 Germany 577 Spain 463 United Kingdom 434 France 428 Italy 363 Brazil 304 China 302 Netherlands 291 Austria 267 Source: ICCA. 2011 Worldwide Rankings by Country 6,155 6,405 7,645 8,121 8,745 9,536 10,149 10,346 10,406 10,070 0 2,000 4,000 6,000 8,000 10,000 12,000 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 ---PAGE BREAK--- 3. Industry Trends 28 The most popular U.S. cities in terms of the number of 2011 international association meetings hosted are summarized in the adjacent table. As shown, both San Francisco and San Diego ranked among the top five destinations. Las Vegas and Seattle are also popular western U.S. destinations. Total attendance at all U.S. international meetings in 2011 was estimated to be 563,800. City Number of Meetings Washington, D.C. 51 Boston, MA 44 New York, NY 32 San Francisco, CA 32 San Diego, CA 31 Chicago, IL 28 Las Vegas, NV 24 Miami, FL 22 Seattle, WA 20 Orlando, FL 19 Source: ICCA. 2011 Worldwide Rankings by City The average number of participants per meeting reached its lowest point of the past decade in 2011 with 535 participants per international meeting which is a drop of 6% from 2010 figures. North America has been the region with the largest average numbers of participants per meeting over the same time period, with an average of 732 in 2011. Over the last decade, the usage of hotel meeting facilities has gradually increased at the expense of conference/exhibition centers. Hotels originally took first place as the most popular venue for international meetings in 2005 and have retained this position with nearly 45.4% of the market share in 2011. Despite a decline over the past ten years, conference/exhibition centers remain the second most popular venue type. The most common subject areas at international meetings have consistently been medical science and technology. ---PAGE BREAK--- 4. Historical ACC Operations 29 Historical ACC Operations Understanding historical utilization at the ACC is one factor in assessing the potential need for expansion. In order to gain an understanding of the types of events that the ACC has held as well as general event attributes, the facility’s event activity was analyzed for FY 2008 through FY 2012. This section of the report includes an analysis of event activity by type, seasonality, occupancy levels, as well as the amount of exhibit space utilized. Lost business reports are also analyzed. Understanding the reasons for lost business, particularly as they relate to space limitations and/or date conflicts, is helpful to assist the City in assessing the potential demand for an expanded ACC. ACC Utilization Trends The following graph illustrates the number of events and total attendance at the ACC for the last five fiscal years. ACC event activity declined each year through FY 2011 but increased in both total events and total attendance in FY 2012. The increase in the number of FY 2012 events was driven primarily by seven additional conventions whereas the increase in attendance was distributed among a number of event types including consumer shows (+86,500), tradeshows (+48,000), other events (+40,000), and entertainment (+33,300). ACC Historical Events & Attendance - FY 2008 – FY 2012 Note: ACC event activity shown above differs from that shown in the City’s CAFR. Source: Facility management. As shown in the table that follows, conventions and tradeshows have consistently accounted for the highest portion of total attendance at the ACC over the last five fiscal years. These events typically attract a higher percentage of overnight attendees and thus generate significant economic impact. Average attendance for conventions has been fairly consistent over the time period shown attracting approximately 6,200 attendees per event. Average tradeshow attendance has fluctuated over the same time period ranging from 20,200 to 35,700. 1,098,007 911,351 945,658 932,473 1,061,203 989,738 341 309 231 200 222 261 0 200,000 400,000 600,000 800,000 1,000,000 1,200,000 0 50 100 150 200 250 300 350 FY 2008 FY 2009 FY 2010 FY 2011 FY 2012 Average Attendance Events ---PAGE BREAK--- 4. Historical ACC Operations 30 Event Type Events Event Days Move- In/Out Days Total Usage Days Event Length Total Use Length Average Attendance Total Attendance Event Type Events Event Days Move in/out Days Total Usage Days Event Length Total Use Length Average Attendance Total Attendance Conventions 68 177 203 380 2.6 5.6 6,000 408,699 Conventions 53 150 157 307 2.8 5.8 6,300 336,148 Tradeshows 13 30 59 89 2.3 6.8 20,200 263,136 Tradeshows 11 29 58 87 2.6 7.9 22,700 249,930 Entertainment 29 39 14 53 1.3 1.8 2,600 75,590 Entertainment 20 29 2 31 1.5 1.6 2,100 42,941 Sporting 42 67 18 85 1.6 2.0 2,400 102,310 Sporting 39 74 22 96 1.9 2.5 2,300 90,199 Consumer 17 47 52 99 2.8 5.8 7,400 126,386 Consumer 15 34 39 73 2.3 4.9 6,500 97,920 Other 47 83 47 130 1.8 2.8 1,400 64,931 Other 39 70 20 90 1.8 2.3 800 30,986 Social 31 32 4 36 1.0 1.2 400 12,770 Social 20 23 3 26 1.2 1.3 400 8,263 Meeting 94 125 24 149 1.3 1.6 500 44,185 Meeting 112 143 25 168 1.3 1.5 500 54,964 Total 341 600 421 1,021 1,098,007 Total 309 552 326 878 911,351 Event Type Events Event Days Move- In/Out Days Total Usage Days Event Length Total Use Length Average Attendance Total Attendance Event Type Events Event Days Move in/out Days Total Usage Days Event Length Total Use Length Average Attendance Total Attendance Conventions 56 172 181 294 3.1 5.3 6,800 378,194 Conventions 51 150 166 316 2.9 6.2 5,800 296,371 Tradeshows 10 29 69 98 2.9 9.8 26,200 261,752 Tradeshows 5 13 32 45 2.6 9.0 35,700 178,527 Entertainment 10 13 4 17 1.3 1.7 3,000 29,803 Entertainment 8 12 1 13 1.5 1.6 3,000 23,800 Sporting 13 38 24 62 2.9 4.8 6,700 86,684 Sporting 18 58 41 99 3.2 5.5 14,600 263,454 Consumer 9 24 34 58 2.7 6.4 15,800 141,942 Consumer 15 36 35 71 2.4 4.7 7,300 108,913 Other 25 42 9 51 1.7 2.0 600 14,210 Other 30 49 13 62 1.6 2.1 800 24,053 Social 20 20 1 21 1.0 1.1 300 5,955 Social 12 12 4 16 1.0 1.3 300 3,858 Meeting 88 133 21 213 1.5 2.4 300 27,118 Meeting 61 77 26 103 1.3 1.7 500 33,497 Total 231 471 343 814 945,658 Total 200 407 318 725 932,473 Event Type Events Event Days Move in/out Days Total Usage Days Event Length Total Use Length Average Attendance Total Attendance Event Type Events Event Days Move in/out Days Total Usage Days Event Length Total Use Length Average Attendance Total Attendance Conventions 57 138 189 327 2.4 5.7 6,000 344,846 Conventions 57 157 179 337 2.8 5.9 6,190 352,852 Tradeshows 8 23 48 71 2.9 8.9 28,300 226,567 Tradeshows 9 25 53 78 2.8 8.7 26,220 235,982 Entertainment 11 20 8 28 1.8 2.5 5,200 57,122 Entertainment 16 23 6 28 1.4 1.8 2,870 45,851 Sporting 22 59 57 116 2.7 5.3 6,600 145,529 Sporting 27 59 32 92 2.2 3.4 5,100 137,635 Consumer 17 45 56 101 2.6 5.9 11,500 195,456 Consumer 15 37 43 80 2.5 5.3 8,940 134,123 Other 35 66 30 96 1.9 2.7 1,800 63,994 Other 35 62 24 86 1.8 2.5 1,130 39,635 Social 16 16 4 20 1.0 1.3 300 4,655 Social 20 21 3 24 1.1 1.2 360 7,100 Meeting 56 69 22 91 1.2 1.6 400 23,034 Meeting 82 109 24 133 1.3 1.6 450 36,560 Total 222 436 414 850 1,061,203 Total 261 493 364 858 989,738 Summary of ACC Event Activity - FY 2008 Summary of ACC Event Activity - FY 2009 Summary of ACC Event Activity - FY 2010 Summary of ACC Event Activity - FY 2011 Summary of ACC Event Activity - FY 2012 Summary of ACC Event Activity - Five Year Average Source: Facility management. Until FY 2012, meetings represented the largest number of ACC events but these tend to be among the smallest in terms of average attendance. Social functions consistently attract the smallest groups in terms of average attendance over the past three fiscal years. Consumer shows, which typically attract local residents, can be beneficial in terms of occupying a building during non-peak seasons for other events generating overnight stays. Consumer shows also serve the local community by bringing many dealers/providers of a particular product or service to one location for buyers’ convenience. Other events include talent competitions, college fairs, and class reunions. ---PAGE BREAK--- 4. Historical ACC Operations 31 Sporting events, which include competitions such as volleyball, dance, cheerleading, and the martial arts, are likely to attract family and/or friends who join the competitor as part of the overnight visitors. In addition, sporting competitions are also likely to have attendees who extend their stay to enjoy the host destination’s amenities. Over the last five fiscal years, conventions and tradeshows have represented approximately 25% of total events, 48% of total usage days and 59% of total attendance annually. Distribution of Event Activity - Historical Five-Year Average Source: Facility management. The following graphs illustrate the seasonality of ACC event activity by the number of events and attendance. As shown, conventions/tradeshows and other events peak in spring, early summer and fall. Other event activity occurs more frequently in April/May and October/November. Seasonality of Event Activity by Month – Historical Five-Year Average Source: Facility management. 25% 48% 59% 75% 52% 41% Events Usage Days Attendance 0% 20% 40% 60% 80% 100% Conventions/Tradeshows All Other Events 0 5 10 15 20 25 30 Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Number of Events Conv/TS All Other Events ---PAGE BREAK--- 4. Historical ACC Operations 32 Convention/tradeshow attendance peaks in January and March due primarily to the NAMM convention which draws 85,000 to 95,000 attendees in January and the Natural Products West Expo which draws 54,000 to 60,000 attendees in March. All other events draw peak attendance in February through April and July through October. Seasonality of Attendance by Month – Historical Five-Year Average Source: Facility management. It is useful to analyze the long-term trend of Anaheim/Orange County VCB bookings at the ACC in order to understand the facility’s usage over time. The following table presents the historical number of bookings, attendance and total room nights generated by those attendees. As shown, the number of bookings peaked in 2004 and has fluctuated since. Bookings in 2012 were the highest since 2007. Attendance and room nights peaked in 2004; these statistics experienced a 59% and 43% increase, respectively, in 2012 compared to the prior year. Year 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 Number of Bookings 88 104 73 64 84 68 66 59 58 80 % Change 18% -30% -12% 31% -19% -11% 38% Attendance 898,430 1,209,835 594,990 757,900 372,335 769,180 631,575 544,865 538,170 858,035 % Change 35% -51% 27% -51% 107% -18% -14% 59% Total Room Nights 612,687 780,481 650,022 465,965 421,480 511,561 344,194 349,283 382,433 546,786 % Change 27% -17% -28% -10% 21% -33% 1% 9% 43% Source: Anaheim/Orange County VCB. ACC Historical Convention Booking Trend by VCB There are several methods of calculating convention center occupancy. Some facilities utilize a measurement of total days used divided by the days available, others account for only event days. For purposes of this analysis, occupancy is calculated based on the total usage days divided by the total days available which accounts for the amount of space used by each event. It is generally considered that function space with occupancy levels of 60% to 70% is operating at its practical maximum given that events utilizing these types of facilities often require move in/out days which can hinder its ability to immediately accommodate another incoming event. Furthermore, occupancy is impacted by the number of days that are required for building maintenance and upkeep, etc. when the center cannot be sold as well as the amount of space. 0 25,000 50,000 75,000 100,000 125,000 150,000 175,000 200,000 Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Attendance Conv/TS All Other Events ---PAGE BREAK--- 4. Historical ACC Operations 33 The following table summarizes ACC historical occupancy for the last three years for which data was available. FY 2009 FY 2010 FY 2011 Nunber of Exhibit Hall Events Conventions/Tradeshows 58 47 56 Consumer Shows 26 23 37 Total 84 70 93 Exhibit Hall Event Attendance Conventions/Tradeshows 584,978 638,000 477,000 Consumer Shows 239,063 258,000 392,000 Total 824,041 896,000 869,000 Attendance per Exhibit Hall Event Conventions/Tradeshows 10,086 13,574 8,518 Consumer Shows 9,195 11,217 10,595 Exhibit Hall Occupancy Conventions/Tradeshows 39% 49% 37% Consumer Shows 10% 11% 14% Total 49% 60% 51% Ballroom Occupancy 39% 60% 61% Source: Facility management. ACC - Summary of the Historical Occupancy ACC exhibit hall occupancy fluctuated between FY 2009 through FY 2011 (FY 2012 data was not available at the time of this report). Ballroom occupancy experienced a significant increase in FY 2010 and remained above 60% in FY 2011. As shown in the following graph, ACC exhibit and ballroom space are approaching practical maximum occupancy. ACC Exhibit Hall & Ballroom Occupancy Source: Facility management. 49% 39% 60% 60% 51% 61% 0% 10% 20% 30% 40% 50% 60% 70% 80% Exhibit Space Ballroom Space FY 2009 FY 2010 FY 2011 Practical Maximum Occupancy } ---PAGE BREAK--- 4. Historical ACC Operations 34 Hall E consistently realizes the lowest occupancy which is primarily due to its location on a separate level from the other halls and its number of columns. ACC Exhibit Hall Occupancy by Hall - Historical Three-Year Average Source: Facility management. Exhibit hall occupancy is reported by ACC management in two event categories: conventions/ tradeshows (including corporate conventions) and consumer shows. The following graph illustrates that conventions/tradeshows have consistently accounted for the highest percentage of exhibit hall usage days over the last three fiscal years. The percentage of exhibit hall usage for consumer shows has fluctuated during the profiled period. This is consistent with sound booking policies which allow management to book these types of events within a shorter timeframe as space is available. % of Exhibit Hall Total Use Days by Event Type – Historical Three-Year Average Source: Facility management. 49% 58% 59% 53% 23% 63% 69% 66% 69% 30% 58% 58% 57% 53% 28% 0% 10% 20% 30% 40% 50% 60% 70% 80% Hall A Hall B Hall C Hall D Hall E FY 2009 FY 2010 FY 2011 80% 81% 73% 20% 19% 27% 0% 20% 40% 60% 80% 100% FY 2009 FY 2010 FY 2011 Conventions/Tradeshows Consumer Shows Practical Maximum Occupancy } ---PAGE BREAK--- 4. Historical ACC Operations 35 Each of the five ballroom sections has fairly consistent annual occupancy, as illustrated in the following graph. As mentioned previously, FY 2010 and FY 2011 experienced a significant increase in ballroom occupancy relative to FY 2009. ACC Ballroom Occupancy by Section Source: Facility management. As illustrated in the following table, conventions use an average of 191,700 SF of exhibit space whereas tradeshows use an average of 539,000 SF based on ACC usage data provided for FY 2010 through FY 2012. Conventions and tradeshows require an average of 46% (54,300 SF) and 62% (74,200 SF), respectively, of the ACC’s existing meeting/ballroom space. This relatively high usage percentage of meeting/ballroom space to exhibit space makes it difficult for the facility to host simultaneous events given its current supply of space. Event Type Exhibit Ballroom Meeting Total Conventions 191,700 18,900 35,400 246,000 Tradeshows 539,000 21,100 53,100 613,200 Entertainment 73,600 700 800 75,200 Sports 112,900 2,000 2,300 117,200 Consumer Shows 239,200 7,500 12,700 259,400 Other 45,500 4,900 3,700 54,100 Banquets 3,000 8,800 2,900 14,700 Meetings 0 4,400 6,700 11,100 Source: Facility management. Historical Three-Year Average Space Used by Event Type 38% 41% 40% 39% 39% 61% 62% 61% 57% 60% 58% 59% 62% 62% 62% 0% 10% 20% 30% 40% 50% 60% 70% 80% Ballroom A Ballroom B Ballroom C Ballroom D Ballroom E FY 2009 FY 2010 FY 2011 Practical Maximum Occupancy } ---PAGE BREAK--- 4. Historical ACC Operations 36 It is also useful to analyze the number of exhibit halls used by each event type. The average existing ACC exhibit hall offers 162,700 SF. As shown in the following graph, the majority of conventions and consumer shows held in the past three fiscal years utilized one exhibit hall. By contrast, 50% of tradeshows required all five exhibit halls or 813,500 SF. Number of Exhibit Halls Used by Event Type - Historical Three-Year Average Source: Facility management. Over the past three fiscal years, an average of 42% of conventions has used the entire ballroom. Similarly, 57% of tradeshows have required the entire ballroom. Number of Ballroom Sections Used by Event Type - Historical Three-Year Average Source: Facility management. 29% 0% 25% 41% 25% 56% 18% 0% 6% 6% 13% 6% 4% 13% 0% 2% 50% 6% 0% 10% 20% 30% 40% 50% 60% 70% Conventions Tradeshows Consumer Shows 0 1 2 3 4 5 43% 43% 65% 2% 0% 6% 6% 0% 0% 6% 0% 6% 2% 0% 6% 42% 57% 18% 0% 10% 20% 30% 40% 50% 60% 70% 80% Conventions Tradeshows Consumer Shows 0 1 2 3 4 5 ---PAGE BREAK--- 4. Historical ACC Operations 37 Over the past three fiscal years, 36% of conventions and 71% of tradeshows have used more than 50,000 SF of meeting space, on average. Conventions and tradeshows required an average of 19 and 28 meeting rooms, respectively, over the past three fiscal years. Approximately two-thirds of consumer shows do not use any meeting space. Meeting Room SF Used – Historical Three-Year Average Source: Facility management. While conventions utilize limited exhibit space relative to the total amount available, these events often utilize a significant portion of the existing ACC’s meeting/ballroom space. This in turn limits management’s ability to book other events that require supporting meeting/ballroom space. Based on historical space usage, the proposed new flex space could serve to allow for more simultaneous conventions requiring one exhibit hall and supporting meeting/ballroom space as well as allowing some of the ACC’s largest tradeshows the opportunity to expand their exhibitions. ACC Lost Business The Anaheim/Orange County VCB maintains statistics from meeting planners that considered Anaheim for their event but ultimately decided not to bring their business to the City. For purposes of this analysis, only events that were viable candidates to be hosted at the ACC were analyzed. As shown in the following table, group decision factors such as Board decision, meeting canceled, geographic rotation, no client decision/response, and political decision represent the largest number of total hotel rooms lost during the period analyzed. Inadequate space reasons including the desire for one building, insufficient exhibit or meeting space at the ACC, preferred date and/or space unavailability rank second. 27% 0% 64% 22% 29% 21% 15% 0% 0% 36% 71% 14% 0% 10% 20% 30% 40% 50% 60% 70% 80% Conventions Tradeshows Consumer Shows 0 SF 1-25,000 SF 25,001-50,000 SF More Than 50,000 SF ---PAGE BREAK--- 4. Historical ACC Operations 38 Reason Number % Number % Number % Group Decision 134 34% 328,959 41% 892,760 44% Space/Date Availability 120 31% 218,218 27% 533,425 26% Facility and/or Destination Pricing 59 15% 107,344 13% 280,940 14% Other 23 6% 65,052 8% 130,678 6% City/Area Image 31 8% 62,394 8% 127,575 6% ACC Booking Policy/Negotiations 25 6% 28,226 3% 61,650 3% Total 392 100% 810,193 100% 2,027,028 100% Source: Anaheim/Orange County VCB. Summary of ACC Lost Business Reports (Tracked 2008 through 2012) Events Peak Hotel Rooms Attendance Lost business reports tracked between 2008 and 2012 and provided by the VCB indicate that the ACC has lost 447 events, 2.3 million in total attendance and 940,371 peak hotel rooms. These totals differ from the summary table above due to the fact that some groups did not provide any reason. Combined, inadequate ACC space accounted for 27% of peak room nights lost. As previously mentioned, ACC exhibit hall and ballroom occupancy are approaching practical maximum in recent years; this trend is contributing to the space availability issues for additional groups. Space and date availability are considered controllable factors in the sense that they can be changed by facility ownership/management. Group decision factors, however, are considered uncontrollable in a direct sense by facility management. In aggregate, facility and/or destination pricing accounted for 13% (or 107,344) of lost peak room nights. Maintaining competitive ACC rental rates and hotel ADRs will be important for the ACC’s long-term competitive position. Other reasons include accessibility, hotels declined, and economy. ACC booking policy/ negotiations reasons include dates too far in advance to reserve required space. This is consistent with industry wide practices to not allow groups with smaller peak room night needs to book outside 18 months without pairing them up with other groups. Other lost business in this category may include groups that require significant meeting space relative to their use of exhibit space and/or peak room nights. The ACC and Anaheim/Orange County VCB have requirements that preclude them from booking the facility too far in advance in these types of situations. Some customers are not flexible on their dates and, as such, cannot be accommodated within their desired timeframe, allowing the Anaheim/Orange County VCB and ACC staff greater flexibility for larger, citywide events. In general, these reasons appear to be consistent with the facility’s booking policy and sound business decisions routinely employed in the industry. ACC lost business is also tracked by the amount of exhibit space required. As shown in the following table, 83% of events require up to 200,000 square feet of exhibit space suggesting that the majority of lost business is not due to the amount of space but rather the lack of available space or dates at the facility. Adding the proposed new space could potentially alleviate some of these booking conflicts and allow stand-alone events to utilize the new flex space. ---PAGE BREAK--- 4. Historical ACC Operations 39 Exhibit Space SF Requirement Number % Number % Number % 100,000 253 57% 416,445 44% 884,990 38% 100,001-200,000 117 26% 234,698 25% 514,590 22% 200,001-300,000 36 8% 105,981 11% 274,700 12% 300,001-400,000 12 3% 43,747 5% 137,000 6% 400,001-500,000 8 2% 40,300 4% 152,000 6% 500,001-600,000 2 0% 18,500 2% 54,000 2% 600,001-700,000 4 1% 17,000 2% 81,000 3% 700,001-800,000 4 1% 20,900 2% 90,000 4% 800,001-900,000 6 1% 22,750 2% 39,138 2% 900,001-1,000,000 5 1% 20,050 2% 118,000 5% Total 447 100% 940,371 100% 2,345,418 100% Note: Totals will not match previous "Reason Lost" table because some groups did not provide a reason. Source: Anaheim/Orange County VCB. ACC Lost Business by Gross Exhibit Space Required (Tracked 2008 through 2012) Events Total Hotel Rooms Attendance Historical ACC Financial Operations As shown in the following table, the ACC has averaged operating income of $577,000 over the last five fiscal years excluding non-operating revenues and expenses. Room rental revenue averaged 40% of total operating revenue during the profiled period. Salaries, wages and benefits averaged 65% of total operating expenses over the past five fiscal years. Both operating revenues and operating expenses have fluctuated during the profiled period. Category FY 2008 FY 2009 FY 2010 FY 2011 FY 2012 Five-Year Average Operating Revenues Room Rental $10,805,000 $9,525,000 $10,733,000 $9,599,000 $10,302,000 $10,193,000 Event Services 6,343,000 5,570,000 6,952,000 6,230,000 6,541,000 6,327,000 Parking 5,142,000 4,807,000 5,081,000 5,532,000 6,170,000 5,346,000 Food/Beverage 3,040,000 1,660,000 3,258,000 2,614,000 2,137,000 2,542,000 Other Revenue 957,000 771,000 705,000 715,000 791,000 788,000 Total 26,287,000 22,333,000 26,729,000 24,690,000 25,941,000 25,196,000 Operating Expenses Salaries, Wages, Benefits $16,506,000 $15,813,000 $16,411,000 $15,471,000 $16,079,000 $16,056,000 Utilities 3,192,000 3,078,000 3,205,000 3,174,000 3,554,000 3,241,000 Repairs and Maintenance 1,773,000 1,973,000 1,972,000 1,687,000 1,917,000 1,864,000 General/Administrative 1,660,000 1,412,000 1,778,000 1,799,000 1,425,000 1,615,000 Contract Services 763,000 685,000 586,000 447,000 464,000 589,000 Insurance 563,000 398,000 563,000 563,000 563,000 530,000 Materials and Supplies 562,000 434,000 376,000 308,000 338,000 404,000 Other Charges 317,000 246,000 305,000 286,000 447,000 320,000 Total 25,336,000 24,039,000 25,196,000 23,735,000 24,787,000 24,619,000 Operating Income/(Loss) $951,000 ($1,706,000) $1,533,000 $955,000 $1,154,000 $577,000 Summary of Historical ACC Financial Operations ---PAGE BREAK--- 4. Historical ACC Operations 40 ACC financial operations were analyzed for a five-year period in order to recognize any impacts of the national recession. FY 2009 experienced the lowest operating revenues during the time period which is consistent with overall industry trends impacted by the national recession. Since that time, the ACC has experienced increased operating revenues. For purposes of the financial and economic analysis shown later in this report, the historical three-year average is utilized in order to reflect more stabilized operations. ---PAGE BREAK--- 5. Potential Demand Generators 41 Potential Demand Generators In order to assess the potential demand for an expanded ACC, it is important to understand the macro level population of events as well as gather input directly from potential users to gauge how the ACC and Anaheim are viewed in terms of attracting their event(s). Several sources were used to assess potential demand including primary and secondary research. It is important to note that there is not one single industry source that can provide a measure of the universe of demand. As such, several sources are presented to show the order-of-magnitude demand that exists in the broader market place as well as the ACC’s potential to grow its current share. The various sources do not represent mutually exclusive demand potential. Red 7 Media identified the market potential for events requiring various amounts of exhibit space. Excluding groups that require 100,000 SF of exhibit space or less given that these events are often accommodated by hotel properties, the potential universe of events requiring 100,001 to 1.1 million SF of exhibit space and which rotate nationally or in the Western region is 2,090. Attracting 3.7% to 3.85% of these potential events annually would equate to a total of 77 to 80 conventions/tradeshows, respectively. The existing ACC has attracted an average of 63 of these events so the incremental event potential is 14 to 17 assuming Anaheim attracts 3.7% to 3.85% of the overall universe of event activity. Exhibit Space Gross SF Share Number of Events Total Number 3,121 Require up to 100,000 SF 33.0% 1,031 Require 100,001 to 200,000 SF 18.3% 571 Require 200,001 SF to 800,000 SF 48.2% 1505 Require 800,001 to 1,100,000 SF 0.4% 14 Incremental Universe of Possible Events 67.0% 2,090 Sources: Red 7 Media, Tradeshow Week, Tradeshow News Network. Gross SF Used by Convention & Exhibit Market - Rotate Nationally or in Western Region In addition, the Anaheim/Orange County VCB lost business reports for the past five years identify 120 lost events that were either too large to be accommodated by the current ACC or have been lost because of space/date availability issues; the vast majority of lost business required 200,000 SF of space or less. These groups average 1,800 peak room nights and attract 4,500 attendees. According to the 2011 State & Regional Associations of the U.S. and National Trade and Professional Associations of the U.S., there are 976 associations headquartered in California which are comprised of 576 state/regional associations and 400 national associations. These account for 6% of all associations headquartered in the U.S. As mentioned previously, the ICCA reports the U.S. hosted a total of 759 international association meetings in 2011. These groups represent a target market within the State and region for annual conventions, tradeshows and smaller division meetings. ---PAGE BREAK--- 5. Potential Demand Generators 42 In addition to this macro level potential demand industry-wide, representatives of State, regional and national associations were surveyed in order to assess their future needs at the ACC and their reasons for choosing (or not choosing) Anaheim as a destination. Survey participants represent past users of the ACC and lost business reports from the Anaheim/Orange County VCB. This input provides a basis for evaluating the proposed expansion program and its ability to positively impact ACC usage. Telephone interviews or web-based surveys were completed with meeting planners responsible for planning conventions or tradeshows for the following organizations:  Aircraft Owners & Pilots Association  American Association of Animal Lab Science  American College of Cardiology  American Heart Association  American Society of Landscape Architects  American Trucking Association  Helicopter Association International  International Music Products Association  Medical Design & Manufacturing  Natural Products Expo West  Produce Marketing Association  Solar Energy Industries Association  Specialty Tools & Fasteners Distributors Association The survey process sought to gauge how the existing ACC is positioned to meet the long-term needs of the groups from the meeting planners’ perspective. Because these types of projects can take several years to develop from conception to construction, it is important to obtain input on meeting planners’ anticipated long-term needs rather than just their current short-term needs. Questions focused on event-related information scope, seasonality of event, attendance, event length, and location where group has met in the past), convention space requirements amount and type of space requirements), hotel requirements required peak room night block, total room nights) as well as other factors influencing their decision to meet in Anaheim as well as their interest level in meeting at the ACC with and without expansion. This section of the report presents a summary of the findings from this analysis including facility-specific and destination-related requirements.  Meeting planners were asked to rank Anaheim among other meeting/convention destinations with its current convention center/amenities package as well as with the proposed expansion/ development. Surveys with meeting planners indicated that Anaheim is a highly ranked destination relative to other convention/meeting cities even with its existing venue.  Other cities where respondents have held their events include, but are not limited to: Atlanta, Boston, Chicago, Dallas, Denver, Las Vegas, Los Angeles, Minneapolis, New Orleans, Orlando, Phoenix, San Antonio, San Diego, San Francisco, and Washington D.C.  Meeting planners were asked if they would consider meeting at the ACC given the existing program and with the proposed expansion. Only two groups responded “Definitely Yes” given the existing program whereas nine groups did so given the proposed expansion. ---PAGE BREAK--- 5. Potential Demand Generators 43  Several groups surveyed mentioned that they have been unable to secure dates and/or space due to the ACC availability which is consistent with the tracked lost business reports.  Overall positive respondents report an average total attendance of approximately 32,800 including delegates, exhibitors and spouses/guests. Excluding NAMM (with 94,000 attendees), the average attendance is 25,100. Three-quarters of respondents indicated they anticipate their attendance increasing over the next five years.  Meeting planners that responded favorably to hosting their event at an expanded ACC responded that Anaheim’s were campus environment of the facility and surroundings, location/accessibility, hotel supply/location, access to membership, and climate.  By contrast, those that responded unfavorably to hosting their event at the ACC cited the City’s attractions as a potential distraction to their convention/tradeshow delegates.  78% of respondents indicated they would utilize the proposed new flex space as exhibit space for their event; 90% indicated they would utilize the flex space as meeting/ballroom space. Respondents were allowed to choose more than one type of space.  All respondents indicating an interest in meeting at the ACC were asked the amount of gross exhibit space required. Overall, positive respondents required an average of 628,000 SF of exhibit space. 44% of positive respondents indicated that the exhibit space required for their event does not have to be contiguous to host their event at the ACC.  Positive respondents require an average of 28 meeting rooms or 63,800 SF of meeting space in addition to 36,700 SF of ballroom space.  More than half of respondents anticipate their group’s space needs increasing in the next five years.  Positive respondents average more than three event days with an additional six move in/out days. These groups host their events in six different months indicating there is demand potential for the ACC throughout the year.  Overall groups who have previously met at the ACC are pleased with the facility, its staff, and general surroundings. The lack of space/date availability was mentioned as a hindrance to their booking the ACC in the past which could be alleviated by the proposed new flex space.  Meeting planners indicated that the new flex space needs to be capable of adequately accommodating exhibits, meeting rooms, and banquet functions in order to be marketable. If the cost of setting up the space for their specific needs is significant, this could negatively impact the new space’s marketability. Consideration to making the new space as accessible and visible from the existing space would help to draw attendees from one side to the other. ---PAGE BREAK--- 6. Competitive Facility and Destination Analysis 44 Competitive Facility and Destination Analysis In order to gain an understanding of the market within which an expanded ACC would operate, competitive/comparable facilities and destinations are analyzed and compared to the ACC and Anaheim’s characteristics. For purposes of this analysis, profiled facilities used in this analysis were chosen based on one or more of the following: the amount of exhibit and meeting/ ballroom space; information in lost business reports; input from past and potential users; as well as input from ACC management and the VCB. Based on this criterion, the following convention centers are profiled:  Colorado Convention Center in Denver  Dallas Convention Center in Texas  Ernest N. Morial Convention Center in New Orleans  Georgia World Congress Center in Atlanta  Henry B. Gonzalez Convention Center in San Antonio  Las Vegas Convention Center in Nevada  Los Angeles Convention Center  Moscone Center in San Francisco  Orange County Convention Center in Florida  Phoenix Convention Center in Arizona  San Diego Convention Center  Walter E. Washington Convention Center in Washington D.C. Crossroads obtained and analyzed programming information, destination attributes and operating data from the profiled set based on detailed interviews with management, industry resources, published reports and our internal database. The data shown in this report is based on available information for each of the profiled facilities. ---PAGE BREAK--- 6. Competitive Facility and Destination Analysis 45 Building Programs The table below summarizes the building programs for the profiled competitive/comparable facilities. On average, these centers offer a comparable amount of contiguous exhibit space to the existing ACC but significantly more ballroom and meeting space. Facility Location Maximum Contiguous Exhibit SF Exhibit Hall SF Ballroom SF Meeting Room SF Total Function SF Ratio of Ballroom/ Meeting SF to Exhibit SF Divisible Meeting Rooms Average SF / Meeting Room Plans for Expansion? Orange County Convention Center Orlando, FL 1,103,500 2,053,800 62,200 479,200 2,595,200 26% 235 2,039 no Las Vegas Convention Center Las Vegas, NV 908,500 1,940,600 0 251,000 2,191,600 13% 140 1,793 yes Georgia World Congress Center Atlanta, GA 607,500 1,366,000 58,700 282,700 1,707,400 25% 110 2,570 no Ernest N. Morial Convention Center New Orleans, LA 1,026,300 1,026,300 41,100 227,900 1,295,300 26% 131 1,740 no Existing Anaheim Convention Center Anaheim, CA 670,100 813,500 38,100 81,200 932,800 15% 43 1,888 yes Walter E. Washington Convention Center Washington, D.C. 473,000 703,000 52,000 116,300 871,300 24% 68 1,710 no Phoenix Convention Center Phoenix, AZ 312,500 584,500 118,800 167,200 870,500 49% 106 1,577 no Los Angeles Convention Center Los Angeles, CA 346,900 720,000 47,900 101,600 869,500 21% 60 1,693 no Moscone Center San Francisco, CA 260,600 538,700 67,500 251,400 857,600 59% 87 2,890 yes Dallas Convention Center Dallas, TX 724,500 724,500 46,100 70,600 841,200 16% 68 1,038 no San Diego Convention Center San Diego, CA 525,700 615,700 81,700 118,700 816,100 33% 63 1,884 yes Colorado Convention Center Denver, CO 579,000 579,000 82,200 100,000 761,200 31% 63 1,587 no Henry B. Gonzalez Convention Center San Antonio, TX 438,500 438,500 89,100 102,200 629,800 44% 58 1,762 yes Average (Excluding ACC) 608,900 940,900 62,300 189,100 1,192,200 31% 100 1,900 Median (Excluding ACC) 552,400 711,500 60,500 143,000 870,000 26% 80 1,800 Notes: Sorted in descending order by total function space. Prefunction, concourses and lobby spaces are excluded from all centers. Sources: Management at individual facilities; secondary research. Competitive/Comparable Facility Building Program Characteristics ---PAGE BREAK--- 6. Competitive Facility and Destination Analysis 46 The following profiled centers are contemplating expansion: Henry B. Gonzalez Convention Center - Expansion of the Convention Center was approved in 2012 and is envisioned to increase exhibit space to more than 500,000 square feet in addition to more meeting space on the facility’s east end. The expansion will be followed by demolition of the facility's west wing, which will free up a 12-acre parcel for the HemisFair Park master plan. Completion is anticipated to be in 2016. Las Vegas Convention Center – In mid 2012 an adjacent land parcel was acquired to improve access to the convention center’s south hall annex. Efforts are underway to understand what users’ future needs are prior to any expansion planning. Los Angeles Convention Center – The City is seeking a new governance authority and related operational and policy matters to better position Los Angeles as a destination and the LACC to attract more citywide conventions. In addition, the City hired a private management company to oversee operations of the center. Until the NFL’s announcement that no NFL team would file for relocation to Los Angeles for the 2013 season, the City had been in on-going negotiations with the private sector with regard to expansion of the LACC in conjunction with the potential development of an adjacent NFL stadium which would be privately owned and operated. Moscone Center – The Board of Supervisors recently approved the creation of the Moscone Expansion District along with other pieces of legislation that will eventually provide two-thirds of the funds needed for the approximately $500 million project. Initial plans call for an additional 140,000 square feet of exhibit space, 28,000 square feet of meeting space, 87,000 square feet of multipurpose space and 178,000 square feet of support space. Construction is scheduled to begin in November 2014. San Diego Convention Center – Plans are underway for a Phase III expansion of the convention center. Initial plans include 225,000 square feet of exhibit space, 101,000 square feet of meeting space, and a 80,000 square-foot ballroom. In addition, the project would include a five-acre rooftop park/plaza, 45,000 square feet of visitor-serving retail space and a 500-room expansion of the Hilton San Diego Bayfront Hotel, located just south of the Convention Center. As shown in the following graph, the existing ACC offers the fifth highest amount of total function space relative to the profiled competitive/comparable facilities. ---PAGE BREAK--- 6. Competitive Facility and Destination Analysis 47 Competitive/Comparable Facilities – Total Function Space Sources: Management at individual facilities; other research. The ACC offers the largest amount of contiguous and total exhibit space among California convention centers. Expansion plans for centers in San Diego and San Francisco could make these destinations more competitive for larger exhibit-oriented events in the future. Competitive/Comparable Facilities – Exhibit Space Sources: Management at individual facilities; other research. 0 400,000 800,000 1,200,000 1,600,000 2,000,000 2,400,000 2,800,000 Henry B. Gonzalez Convention Center Colorado Convention Center San Diego Convention Center Dallas Convention Center Moscone Center Los Angeles Convention Center Phoenix Convention Center Walter E. Washington Convention Center Existing Anaheim Convention Center Average (Excluding ACC) Ernest N. Morial Convention Center Georgia World Congress Center Las Vegas Convention Center Orange County Convention Center Exhibit SF Ballroom SF Meeting Room SF 0 400,000 800,000 1,200,000 1,600,000 2,000,000 2,400,000 Henry B. Gonzalez Convention Center Moscone Center Colorado Convention Center Phoenix Convention Center San Diego Convention Center Walter E. Washington Convention Center Los Angeles Convention Center Dallas Convention Center Existing Anaheim Convention Center Average (Excluding ACC) Ernest N. Morial Convention Center Georgia World Congress Center Las Vegas Convention Center Orange County Convention Center Contiguous Space Total Exhibit Space ---PAGE BREAK--- 6. Competitive Facility and Destination Analysis 48 The ACC currently offers the smallest amount of ballroom space other than the Las Vegas Convention Center which has none. Primary competitors in San Diego and San Francisco offer significantly more ballroom space than the ACC. Competitive/Comparable Facilities – Ballroom Space Sources: Management at individual facilities; other research. 0 38,100 41,100 46,100 47,900 52,000 58,700 62,200 62,300 67,500 81,700 82,200 89,100 118,800 0 20,000 40,000 60,000 80,000 100,000 120,000 140,000 Las Vegas Convention Center Existing Anaheim Convention Center Ernest N. Morial Convention Center Dallas Convention Center Los Angeles Convention Center Walter E. Washington Convention Center Georgia World Congress Center Orange County Convention Center Average (Excluding ACC) Moscone Center San Diego Convention Center Colorado Convention Center Henry B. Gonzalez Convention Center Phoenix Convention Center ---PAGE BREAK--- 6. Competitive Facility and Destination Analysis 49 As with ballroom space, the ACC ranks in the bottom two in terms of the amount of total meeting room space. Competitive/Comparable Facilities – Meeting Room Space Sources: Management at individual facilities; other research. The ACC’s ratio of meeting/ballroom space to exhibit space is significantly lower than many of its competitors including Moscone Center and the San Diego Convention Center which each offer more than double the ratio. This is an important feature for many meeting-intensive groups and can positively impact a center’s financial operations given these higher-end spaces often yield higher rental rates. Competitive/Comparable Facilities – Ratio of Meeting/Ballroom Space to Exhibit Space Sources: Management at individual facilities; other research. 70,600 81,200 100,000 101,600 102,200 116,300 118,700 167,200 189,100 227,900 251,000 251,400 282,700 479,200 0 100,000 200,000 300,000 400,000 500,000 600,000 Dallas Convention Center Existing Anaheim Convention Center Colorado Convention Center Los Angeles Convention Center Henry B. Gonzalez Convention Center Walter E. Washington Convention Center San Diego Convention Center Phoenix Convention Center Average (Excluding ACC) Ernest N. Morial Convention Center Las Vegas Convention Center Moscone Center Georgia World Congress Center Orange County Convention Center 13% 15% 16% 21% 24% 25% 26% 26% 31% 31% 33% 44% 49% 59% 0% 10% 20% 30% 40% 50% 60% 70% Las Vegas Convention Center Existing Anaheim Convention Center Dallas Convention Center Los Angeles Convention Center Walter E. Washington Convention Center Georgia World Congress Center Orange County Convention Center Ernest N. Morial Convention Center Average (Excluding ACC) Colorado Convention Center San Diego Convention Center Henry B. Gonzalez Convention Center Phoenix Convention Center Moscone Center ---PAGE BREAK--- 6. Competitive Facility and Destination Analysis 50 Convention/Tradeshow Activity The ACC hosted 16% more convention/tradeshow attendees than the average of the profiled peer facilities. Competitive/Comparable Facilities – Convention/Tradeshow Activity Sources: Management at individual facilities; other research. Destination Characteristics As mentioned previously, convention and meeting planners consider destination characteristics in their site selection process. Particularly as the exhibition/meeting industry has undergone a supply boom and a demand slump in recent years, planners are increasingly booking venues with better overall destination packages proximate hotel rooms, nearby entertainment/ restaurants, safe/secure surroundings, etc.) to support their facility. In addition, the resulting buyer’s market has planners considering the overall price of hosting their event in a particular city including facility, lodging, food and transportation costs. The table that follows outlines various metrics used by meeting planners to gauge the relative competitiveness of cities under consideration.  Hotel Supply and Proximity  Average Daily Rates  Occupancy  Corporate Travel  Total Tax on Hotel Rooms 996,200 748,800 571,400 539,700 493,300 473,000 416,500 326,600 255,700 190,100 89 95 65 49 73 113 69 36 73 59 0 250,000 500,000 750,000 1,000,000 0 25 50 75 100 125 150 Facility 1 Facility 2 ACC Facility 3 Peer Average Facility 4 Facility 5 Facility 6 Facility 7 Facility 8 Conv/TS Attendance Conv/TS Events ---PAGE BREAK--- 6. Competitive Facility and Destination Analysis 51 Most of the profiled destinations offer one or more headquarter hotel(s) or are constructing one. Anaheim offers more (2,600) headquarter hotel rooms than the competitive set average (1,800) but well below the average hotel supply within walking distance of the ACC. On average, competitive cities offer about three times more citywide hotel rooms than Anaheim. Profiled Destinations - Hotel Supply Sources: Individual facilities; destination marketing organizations; secondary research. 0 20,000 40,000 60,000 80,000 100,000 120,000 140,000 San Diego Anaheim New Orleans Washington D.C. San Francisco Denver San Antonio Phoenix Average (Excluding Anaheim) Dallas Atlanta Los Angeles Orlando Las Vegas Citywide Walking Distance ---PAGE BREAK--- 6. Competitive Facility and Destination Analysis 52 Anaheim ranks sixth highest for average daily rates at $120 which is the lowest among California competitive convention destinations. This can be an advantage since many meeting planners consider hotel pricing a critical factor when choosing locations for their events. Profiled Destinations – Hotel Average Daily Rate Source: Smith Travel Research. $86 $86 $95 $97 $101 $106 $108 $120 $120 $130 $132 $133 $144 $172 $0 $20 $40 $60 $80 $100 $120 $140 $160 $180 $200 Dallas Atlanta San Antonio Orlando Denver Phoenix Las Vegas Average (Excluding Anaheim) Anaheim Los Angeles San Diego New Orleans Washington D.C. San Francisco ---PAGE BREAK--- 6. Competitive Facility and Destination Analysis 53 Anaheim ranks fourth among profiled destinations in terms of CY 2012 hotel occupancy. The City’s broad base of leisure, corporate and convention/meeting business helps to mitigate dependency on one market segment. Despite its relatively high occupancy among peers, there is still availability at area hotels to support additional ACC business. Profiled Destinations – Hotel Occupancy Source: Smith Travel Research. 58% 61% 61% 64% 67% 68% 68% 69% 69% 71% 73% 75% 80% 84% 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% Phoenix Dallas Atlanta San Antonio Denver Washington D.C. New Orleans Orlando Average (Excluding Anaheim) San Diego Anaheim Los Angeles San Francisco Las Vegas ---PAGE BREAK--- 6. Competitive Facility and Destination Analysis 54 Business Travel News publishes an annual corporate travel index ranking 100 U.S. cities in terms of various travel related costs including lodging, car rental and food. According to the 2012 index, Anaheim ranks lowest among competitive California convention destinations in terms of corporate travel costs with a total for the three categories of $298. The following graph compares Anaheim’s corporate travel index ranking among the profiled set. Profiled Destinations - Corporate Travel Costs Source: Business Travel News. $266 $275 $297 $297 $298 $300 $301 $302 $306 $313 $324 $359 $409 $463 $0 $50 $100 $150 $200 $250 $300 $350 $400 $450 $500 San Antonio Orlando New Orleans Atlanta Anaheim Phoenix Las Vegas San Diego Dallas Denver Average (Excluding Anaheim) Los Angeles San Francisco Washington D.C. ---PAGE BREAK--- 6. Competitive Facility and Destination Analysis 55 Anaheim has the second highest perceived total tax on hotel rooms - 17% which consists of the 15% Transient Occupancy Tax plus the 2% Anaheim Tourism Improvement District (ATID) Assessment. This cost factor could potentially impact Anaheim’s competitive position, particularly in a buyer’s market, and is consistent with lost business reports which citied pricing (related to the ACC itself and other destination-related costs such as lodging) as the third most popular reason. Profiled Destinations – Total Tax on Hotel Rooms Sources: Individual facilities; destination marketing organizations; secondary research. Expansion Lessons Learned In order to assist the City with various development planning decisions associated with the proposed ACC expansion, Crossroads interviewed management at select competitive/comparable facilities and conducted secondary research to compile input on lessons learned. Each of the communities faced unique funding, site and/or operational challenges that can provide useful insights for the City as it continues to evaluate the merits of the proposed ACC expansion. Some of the observations provided by representatives of these communities/facilities include, but are not limited to, the following:  Minimizing disruption/facility closure during construction/expansion is imperative.  Additional convention function space alone does not ensure that a destination will increase its market share. 12.50% 12.50% 13.00% 13.27% 14.50% 14.85% 14.96% 15.00% 15.50% 15.50% 16.00% 16.75% 17.00% 20.10% 0.00% 5.00% 10.00% 15.00% 20.00% 25.00% San Diego Orlando New Orleans Phoenix Washington D.C. Denver Average (Excluding Anaheim) Dallas San Francisco Los Angeles Atlanta San Antonio Anaheim Las Vegas ---PAGE BREAK--- 6. Competitive Facility and Destination Analysis 56  The appropriate balance of exhibit and flexible meeting/ballroom space may vary based on target market segments some are more meeting room intensive).  Maximizing contiguous, column-free exhibit space augments a facility’s marketability, flexibility, and overall competitiveness.  Proximity to hotels and other supporting elements such as restaurants, retail and entertainment outlets enhances a convention center’s marketability.  Offering a headquarter hotel(s) is crucial to a convention center’s long-term success.  Accessibility for pedestrians and auto traffic is important in terms of attracting high attendance events and for perceived safety/appeal.  Fostering an environment that promotes both public and private investment in the overall destination package, rather than viewing the convention center as a stand-alone asset, helps facilities to compete more effectively in the convention/meeting industry. ---PAGE BREAK--- 7. Financial Analysis 57 Financial Analysis With respect to financial performance, it is important to understand that many similar convention centers realize an operating deficit or operate near break-even. However, one of the primary reasons for developing these types of facilities is the economic activity that they can generate in terms of spending, employment, earnings, as well as tax revenues to local and state governments. These facilities typically attract events that draw patrons from outside the immediate market area who spend money on hotels, restaurants and other related services. In many instances, these net new benefits can outweigh the operating costs. Consequently, when evaluating the merits of these types of projects, it is important to consider all aspects of the costs and benefits including operating requirements, debt service and economic/fiscal benefits. An order-of-magnitude estimate of the economic/fiscal benefits and debt service payments associated with an expanded ACC is provided later in this report. Crossroads assisted the City in developing a hypothetical, order-of-magnitude estimate of operating revenues and expenses before taxes, depreciation and debt service for the proposed expansion of the ACC for a stabilized year of operations. This analysis is also based on certain assumptions pertaining to operations of the facility, usage levels and other related financial assumptions agreed to by the City. The accompanying analysis was prepared for internal use by the City for its consideration of plans for the proposed expansion and should not be used or relied upon for any other purpose including financing of the project. The analysis performed was limited in nature and, as such, Crossroads does not express an opinion or any other form of assurance on the information presented in this report. As with all estimates of this type, we cannot guarantee the results nor is any warranty intended that they can be achieved. The estimates of revenues and expenses are based on the anticipated size, quality and efficiency of the expanded ACC. Since these estimates and assumptions are based on circumstances that have not yet transpired, they are subject to variation. Further, there will usually be differences between estimated and actual results because events and circumstances frequently do not occur as expected, and those differences may be material. The financial operations of an expanded ACC will be impacted by several factors including, but not limited to, its larger size in terms of gross square footage as well as its anticipated increase in event activity. For these and other reasons, it is difficult to make direct comparisons between historical facility operations and those estimated for an expanded ACC. Discussions were conducted with facility management to consider the impact that expansion would have on individual line items. In addition, historical revenue generated per event was analyzed for FY 2010 through FY 2012. These discussions and historical analysis were the basis for various assumptions regarding the operations of an expanded ACC. ---PAGE BREAK--- 7. Financial Analysis 58 General Assumptions Based on input from the client group, the following assumptions were used to develop estimates of event activity, financial operations and economic/fiscal impacts for the proposed expanded ACC.  The recommended building program outlined earlier is developed.  The facility continues to be managed by professional, experienced staff.  An aggressive marketing approach is taken by the Anaheim/Orange County VCB and management at ACC, particularly in attracting convention/tradeshow business.  A high level of quality customer service continues to be provided.  Tax rates continue at their current rates.  Amounts are presented in current dollars and reflect a stabilized year of operations. It should be noted these assumptions are preliminary in nature and will continue to be refined as decisions related to the building program, broader development plan and other operating characteristics continue to evolve. Potential Impact of Remaining Status Quo Market research suggests that remaining static will likely result in a decline of event activity and attendees over time as competitive facilities continue to improve their physical product and destination attributes, resulting in an operating loss. The largest impact will likely occur in convention, tradeshow and meeting activity held at the ACC. This decrease in event activity will yield a decrease in spending, jobs and earnings as well as fiscal benefits to the local and State economies. The adjacent table compares the ACC historical three-year average to the estimated status quo in key operating metrics. Category Historical Three-Year Average Status Quo % Change Usage/Event Activity Number of Events 219 196 -11% Event Days 438 403 Total Attendance 979,800 927,900 Total Attendee Days 2,600,600 2,468,600 High Impact Attendee Days 1,082,800 988,200 Financial Operations Operating Revenues $25,787,000 $24,034,000 Operating Expenses 24,573,000 24,573,000 0% Net Operating Gain/(Loss) $1,214,000 ($539,000) Economic Impacts Direct Spending $368,555,000 $338,022,000 Indirect/Induced Spending 241,131,000 221,048,000 Total Spending $609,686,000 $559,070,000 Total Earnings $233,726,000 $214,412,000 Total Jobs 5,000 4,600 Fiscal Impacts City of Anaheim $30,587,000 $27,919,000 Orange County 1,304,000 1,192,000 State of California 30,869,000 28,267,000 Total $62,760,000 $57,378,000 Comparison of ACC Historical Three-Year Average to Estimated Status Quo ---PAGE BREAK--- 7. Financial Analysis 59 Proposed Expansion Impact to Usage/Event Activity The financial and economic/fiscal impact analyses are based on several factors including an estimate of usage/event activity that was developed based on historical utilization at the ACC, research previously summarized in the market analysis including input from the client group, market characteristics, industry trends, input from potential demand generators, information on competitive/comparable facilities as well as other research. Many of the events will likely occur over multiple days and include event days (when an event occurs at the facility) as well as move-in/move-out days. Likewise, attendees often attend each event day. An attendee day is defined as total attendance multiplied by the event length. For example, a three-day convention with 200 attendees equates to 600 attendee days which reflects that the same attendees return to the event each of the three days. Event activity at expanded facilities typically experiences a “ramp up” period to a stabilized level of activity which occurs for several reasons. For instance, some groups that book their event years in advance may not want to risk that a facility’s construction is delayed and not completed in time for their event. In addition, some groups may choose to let management “fine tune” its operations before meeting in the expanded facility. However, it is important to recognize that the overall utilization at any facility is typically dependent on a number of factors and is rarely consistent. As such, the estimated range of utilization shown in the table below compares an expanded ACC to the status quo scenario for a stabilized year of operations. Category Historical Three- Year Average Status Quo Events Conventions 55 50 67 - 69 17 - 19 Tradeshows 8 7 10 - 11 3 - 4 Entertainment 10 10 10 - 10 0 - 0 Sporting 18 18 18 - 18 0 - 0 Consumer 14 14 18 - 20 4 - 6 Other 30 25 36 - 38 11 - 13 Social 16 12 28 - 32 16 - 20 Meeting 68 60 80 - 84 20 - 24 Total 219 196 267 - 282 71 - 86 Incremental Impact 36% - 44% Total Attendance Conventions 339,800 310,000 435,500 - 448,500 125,500 - 138,500 Tradeshows 222,300 203,000 290,000 - 319,000 87,000 - 116,000 Entertainment 36,900 38,000 38,000 - 38,000 0 - 0 Sporting 165,200 169,200 169,200 - 169,200 0 - 0 Consumer 148,800 152,600 196,200 - 218,000 43,600 - 65,400 Other 34,100 27,500 39,600 - 41,800 12,100 - 14,300 Social 4,800 3,600 11,200 - 12,800 7,600 - 9,200 Meeting 27,900 24,000 40,000 - 42,000 16,000 - 18,000 Total 979,800 927,900 1,219,700 - 1,289,300 291,800 - 361,400 Incremental Impact 31% - 39% Estimated Impact to ACC Event Activity ACC Expansion Incremental New from Status Quo ---PAGE BREAK--- 7. Financial Analysis 60 Impact to Financial Operations The following table compares the estimated operating revenues and operating expenses for an expanded ACC in a stabilized year of operations to the status quo scenario. Operating revenues are estimated to increase by 17% to 19% relative to the status quo whereas operating expenses are estimated to increase between 8% and 10%. Under the status quo scenario, a net operating loss is estimated which would require the City to fund on-going operations. Category Historical Three-Year Average Status Quo Operating Revenues $25,787,000 $24,034,000 $28,039,000 - $28,505,000 $4,005,000 - $4,471,000 Operating Expenses 24,573,000 24,573,000 26,524,000 - 26,964,000 1,951,000 - 2,391,000 Net Operating Gain/(Loss) $1,214,000 ($539,000) $1,515,000 - $1,541,000 $2,054,000 - $2,080,000 Operating Recovery Percentage 105% 98% 106% - 106% Note: Operating Recovery Percentage = Operating Revenues/Operating Expenses. Estimated Annual Impact to ACC Financial Operations ACC Expansion Incremental New From Status Quo While the tables in this section compare the status quo scenario to the estimate of ACC financial operations with expansion, the description and related assumptions for each line item only relate to the estimate for expanded ACC operations. This analysis focuses on operating revenues and operating expenses and excludes non-operating revenues such as interest income, land leases, loan proceeds, and transfers. Non-operating expenses such as bond payments, loan payments, resort area maintenance and capital outlay are also excluded. Operating Revenues The following table shows the estimated operating revenues for an expanded ACC in a stabilized year of operations compared to the status quo scenario: Revenue Category Historical Three- Year Average Status Quo Room Rental $10,211,000 $9,700,000 $10,722,000 - $10,824,000 $1,022,000 - $1,124,000 Event Services 6,574,000 5,917,000 7,363,000 - 7,494,000 1,446,000 - 1,577,000 Parking 5,594,000 5,314,000 5,734,000 - 5,762,000 420,000 - 448,000 Food/Beverage 2,670,000 2,403,000 3,471,000 - 3,658,000 1,068,000 - 1,255,000 Other Revenue 737,000 700,000 749,000 - 767,000 49,000 - 67,000 Total $25,787,000 $24,034,000 $28,039,000 - $28,505,000 $4,005,000 - $4,471,000 Incremental Impact to Operating Revenues 17% - 19% Expansion Range Incremental New from Status Quo Estimated Annual ACC Operating Revenues The following provides a description of each operating revenue line item. Room Rental includes revenue from the rental of function space at the facility. Typically, convention centers charge different rate structures for various types of events such as conventions, tradeshows, consumer shows, and other events depending on the type of space utilized exhibit halls and meeting rooms). Although ACC has published rental rates for various areas of the facility, effective rates realized are typically lower than published rates due to several factors including: some rates may be negotiated to attract quality, high-impact events; ---PAGE BREAK--- 7. Financial Analysis 61 meeting rooms or other space may be complimentary in conjunction with rented space or food functions; move-in/move-out days are often priced at one-half the normal rate; and/or some facilities offer reduced rental rates to special groups such as local, non-profit, and charitable organizations. For purposes of this analysis, rental rate discounts similar to those used in existing ACC operations and commonly employed in the industry are assumed. Event Services include income received from event personnel, services/equipment, electrical, plumbing, phone and audio/visual services provided to exhibitors and event organizers. Parking includes parking passes purchased by the event organizer as well as associated event parking revenues. While the expansion plan currently under consideration would include using an existing parking garage for the new space, for purposes of this analysis it is assumed that this parking would be replaced and similar charges would be maintained by the ACC. Food & Beverage includes sales from catering, concessions and vending. Currently, the ACC contracts with ARAMARK for food and beverage services. According to management, ACC retains 25% of net food/beverage revenues. As such, a similar percentage is assumed for an expanded ACC for purposes of this analysis. Other Revenue includes event related fixed/digital displays and printing/copying charges. Operating Expenses The following table shows the estimated operating expenses for an expanded ACC in a stabilized year of operations compared to the status quo scenario: Expense Category Historical Three- Year Average Status Quo Salaries, Wages, Benefits $15,987,000 $15,987,000 $16,626,000 - $16,626,000 $639,000 - $639,000 Utilities 3,311,000 3,311,000 4,039,000 - 4,139,000 728,000 - 828,000 Repairs and Maintenance 1,859,000 1,859,000 2,082,000 - 2,194,000 223,000 - 335,000 General/Administrative 1,667,000 1,667,000 1,750,000 - 1,834,000 83,000 - 167,000 Contract Services 499,000 499,000 574,000 - 609,000 75,000 - 110,000 Insurance 563,000 563,000 681,000 - 732,000 118,000 - 169,000 Materials and Supplies 341,000 341,000 384,000 - 412,000 43,000 - 71,000 Other Charges 346,000 346,000 388,000 - 418,000 42,000 - 72,000 Total $24,573,000 $24,573,000 $26,524,000 - $26,964,000 $1,951,000 - $2,391,000 Incremental Impact to Operating Expenses 8% - 10% Estimated Annual ACC Operating Expenses Expansion Range Incremental New from Status Quo Salaries, Wages and Benefits can represent a significant expense and vary based on permanent full-time staffing plans and other factors. One factor relates to the management philosophy of maintaining event-related personnel as full-time or part-time staff. Another factor relates to the management and physical relationship the facility might have to other facilities. For example, the staffing plan for a stand-alone facility is different than for an entire complex that can share administrative costs among several venues. In addition, the extent that contracted services are used also impacts staffing at a facility. This line item includes costs associated with personnel including health and retirement benefits as well as worker’s compensation. ---PAGE BREAK--- 7. Financial Analysis 62 Utilities generally represent one of the highest expense items for convention centers and can vary depending upon the level of utilization, age of the building, shared spaces with other facilities and climate. For purposes of this analysis, it is assumed that the operating entity passes through to the user, to the extent possible, utility costs related to a particular event. In many facilities, these costs are handled as an expense that is fully or partially reimbursed by the event at a later date or, for civic uses, a utilities charge is assessed. The utility cost shown in this analysis represents the total non-reimbursable costs. It should be noted that actual utility expenses will depend on facility design and decisions concerning physical design/layout, energy systems and management. Repairs and Maintenance includes various expenses incurred related to building, equipment and grounds maintenance landscaping, waste removal, HVAC, etc.) and generally varies based on utilization. Expense allocations for repairs and maintenance are also highly dependent upon the owner/management philosophy relative to upkeep of the facility. General Administrative includes general expenses used in the day-to-day management of the facility such as travel, communications, technology, postage and membership dues. Contract Services represent a variety of professional services which may include legal and/or accounting contracts, life safety systems, physical plant related, landscaping as well as other services that are not reimbursable and are borne by the facility. Insurance includes property and liability coverage for the facility. Materials and Supplies includes various materials/supplies necessary for the operation of the proposed expanded facility such as electrical equipment, office and janitorial/building maintenance supplies. Other Charges include miscellaneous expenses not accounted for in the above line items. Taxes, Debt Service and Depreciation expenses are not included in this analysis. ---PAGE BREAK--- 8. Economic and Fiscal Impact Analysis 63 Economic and Fiscal Impact Analysis One of the primary objectives of this study is to estimate the incremental new economic and fiscal impacts associated with expansion of the ACC to the local economy. The City, County and State would continue to benefit from the ACC’s operations in a number of ways, including such tangible and intangible benefits as:  Enhancing the area’s image as a business, meetings and tourist destination  Receiving increased State and regional exposure through destination marketing and visitation  Providing a first-class venue for area residents and out-of-town visitors  Increasing the overall quality of life and livability of the area  Providing a catalyst for further development initiatives including private sector investment  Maintaining and generating additional economic activity  Maintaining and generating additional fiscal revenues for local and State governments Each of these benefits is important in assessing the overall impact of an expanded ACC to the City. While the value of most of these benefits is difficult to measure, the estimated economic activity generated can be quantified. This analysis quantifies the direct, indirect and induced benefits associated with operations of an expanded ACC including the associated tax revenues. Although some of the estimated event activity is occurring at the existing ACC, an expanded facility will likely maintain and grow existing business as well as attract incremental new events that cannot currently be accommodated. General Methodology Overview An assessment of the economic benefits that occur in the City and the State as a result of the operations of an expanded ACC can be approached in several ways. The approach used in this analysis considers expenditures generated from facility operations from items such as salaries, wages and benefits; utilities; repairs and maintenance; general administrative; contract services; insurance; materials and supplies; and other expenses as well as spending by attendees, sponsoring organizations/event producers and exhibitors outside the facility on items such as lodging, restaurants, retail, entertainment and transportation as an initial measure of economic activity in the marketplace. Once the amount for direct spending is estimated, a calculated multiplier is applied to generate the indirect and induced effects. The sum of direct, indirect and induced effects equals total economic impact which is expressed in terms of spending (output), employment (jobs), and personal earnings. ---PAGE BREAK--- 8. Economic and Fiscal Impact Analysis 64 This analysis also estimates the fiscal impacts generated from ongoing operations of an expanded ACC. The governmental entities considered in this fiscal analysis are the City, County and the State. The number of events and attendance, event mix, origin of attendees, facility financial operations, industry trends, economic conditions, direct spending categories used, per person spending amounts, distribution of spending, multipliers, and specific taxes quantified are all variables that influence the economic and fiscal impact estimates. All amounts are presented in current dollars and rounded to the nearest thousand. Methodology – Economic Impact Analysis Regional input-output models are typically used by economists as a tool to understand the flow of goods and services among regions and measure the complex interactions among them given an initial spending estimate. Direct Spending Estimating direct spending is the first step in calculating economic impact. Direct spending represents the initial change in spending that occurs as a direct result of operations of an expanded ACC. This spending occurs both inside and outside of the facility. Direct spending related to ACC operations is generated from attendees, exhibitors, and event organizers outside the facility as well as from facility expenditures. Spending related to these categories was adjusted to reflect leakage (spending which occurs outside of the local economy) and displacement (spending which would have occurred elsewhere in the economy without the presence of an expanded ACC). Economic and Fiscal Impacts Associated with Proposed Expansion of the ACC Spending (Output) Total direct, indirect, induced spending effects generated by expansion Employment (Jobs) Number of full and part-time jobs supported by expansion Personal Earnings Wages and salaries earned by employees of businesses associated with or impacted by expansion Tax Revenues (Fiscal) Sales and use tax Personal income tax Corporate income tax Transient occupancy tax Tourism improvement district assessment ---PAGE BREAK--- 8. Economic and Fiscal Impact Analysis 65 Indirect and Induced Impacts The economic activity generated by operations of an expanded ACC affects more than just the facility itself. In preparation for new spending in the economy, several other economic sectors are impacted and jobs are created. Indirect effects reflect the re-spending of the initial or direct expenditures or the business-to-business transactions required to satisfy the direct effect. Induced effects reflect changes in local spending on goods and services that result from income changes in the directly and indirectly affected industry sectors. The model generates estimates of these impacts through a series of relationships using local-level average wages, prices and transportation data, taking into account commute patterns and the relative interdependence of the economy on outside regions for goods and services. Multiplier Effect In an effort to quantify the inputs needed to produce the total output, economists have developed multiplier models. The estimation of multipliers relies on input-output models, a technique for quantifying interactions between firms, industries and social institutions within a local economy. This analysis uses IMPLAN software and databases which are developed under exclusive rights by the Minnesota IMPLAN Group, Inc. IMPLAN, which stands for Impact Analysis for Planning, is a computer software package that consists of procedures for estimating local input- output models and associated databases. The IMPLAN software package allows the estimation of the multiplier effects of changes in final demand for one industry on all other industries within a defined economic area. Its proprietary methodology includes a matrix of production and distribution data among all counties in the U.S. As such, the advantages of this model are that it is sensitive to both location and type of spending and has the ability to provide indirect/induced spending, employment and earnings information by specific industry category while taking into account the leakages associated with the purchase of certain goods and services outside the economy under consideration. Sources of Direct Spending Facility Operating Expenses Salaries, Wages, Benefits Utilities Repairs & Maintenance General & Administrative Materials & Supplies Contract Services Insurance Attendee Spending Outside the Facility Hotels/Lodging Restaurants Retail Transportation Entertainment ---PAGE BREAK--- 8. Economic and Fiscal Impact Analysis 66 Once the direct spending amounts are assigned to a logical category, the IMPLAN model estimates the economic multiplier effects for each type of direct new spending attracted to or retained in the local area and the State resulting from operations of an expanded ACC. For purposes of this analysis, the following industry multipliers were used: Category Spending Employment* Earnings Hotels 1.6870 13.0 0.6018 Eating & Drinking Places 1.6256 20.2 0.6347 Retail Trade 1.6166 16.8 0.7639 Entertainment/Recreation 1.6374 17.6 0.5862 Transportation 1.7270 11.7 0.6841 Utilities 1.4478 3.50 0.3065 Business Services 1.6198 9.20 0.6520 Note: *indicated the number of jobs per $1 million in spending. Source: IMPLAN. Summary of Orange County Multipliers These multipliers reflect IMPLAN’s latest available economic data reflecting 2011 transactions and the complex interactions among regions. Total Economic Impact The calculated multiplier effect is then added to the direct impact to quantify the total economic impact in terms of spending, employment and earnings which are defined as follows:  Spending (output) represents the total direct, indirect and induced spending effects generated by expanded ACC operations. This calculation measures the total dollar change in spending (output) that occurs in the local economy for each dollar of output delivered to final demand.  Employment (jobs) represents the number of full and part-time jobs supported by expanded ACC operations. The employment multiplier measures the total change in the number of jobs supported in the local economy for each additional $1.0 million of output delivered to final demand.  Personal Earnings represent the wages and salaries earned by employees of businesses associated with or impacted by expanded ACC operations. In other words, the multiplier measures the total dollar change in earnings of households employed by the affected industries for each additional dollar of output delivered to final demand. ---PAGE BREAK--- 8. Economic and Fiscal Impact Analysis 67 The following graphic illustrates the multiplier effects for calculating total economic impact. Methodology - Fiscal Impact Analysis The estimated spending generated by ongoing operations of an expanded ACC creates tax revenues for the City, County and the State. Experience in other markets suggests that while a significant portion of the direct spending likely occurs near the facility, additional spending occurs in other areas within the State, particularly spending on items such as business services and everyday living expenses of residents. Major tax sources impacted by facility operations were identified and taxable amounts to apply to each respective tax rate were estimated. Although other taxes, such as property taxes, may also be positively impacted by ongoing operations of an expanded ACC, this analysis estimates revenues generated from local sales and use taxes, transient occupancy tax and ATID assessment at the local level as well as corporate income tax, personal income tax and sales and use tax at the State level. Summary of Estimated Annual Economic Benefits The following table compares the estimated economic benefits from ongoing activities of an expanded ACC as measured by spending, jobs and earnings to the status quo scenario. Total Economic Impact Spending (Output) Employment (Jobs) Personal Earnings Induced Spending – changes in local spending on goods/services resulting from income changes Household Spending Business Services Government Spending Other Economic Sectors Indirect Spending – re-spending of the initial or direct expenditures Wholesalers Manufacturers Distributors Transporters Retailer Other Industries Direct Spending – initial change in spending Facility Operating Expenses & Spending Outside of the ACC ---PAGE BREAK--- 8. Economic and Fiscal Impact Analysis 68 Category Historical Three-Year Average Status Quo Spending Direct Spending $368,555,000 $338,022,000 $471,833,000 - $498,355,000 $133,811,000 - $160,333,000 Indirect/Induced Spending $241,131,000 $221,048,000 $308,880,000 - $326,292,000 $87,832,000 - $105,244,000 Total Spending $609,686,000 $559,070,000 $780,713,000 - $824,647,000 $221,643,000 - $265,577,000 Total Jobs 5,000 4,600 6,400 - 6,800 1,800 - 2,200 Total Earnings $233,726,000 $214,412,000 $298,911,000 - $315,664,000 $84,499,000 - $101,252,000 Estimated Annual Impact to Economic Benefits ACC Expansion Incremental New From Status Quo The following section provides a detailed description of the assumptions used in this analysis. Direct Spending As mentioned previously, the first step in calculating economic impact is estimating the direct spending. The economic benefits generated by ACC operations result from the impact of incremental new direct spending both by attendees and activities that support events held at an expanded ACC. The primary types of spending quantified in this analysis include attendee spending outside the facility; sponsoring organization/event producer spending outside the facility; exhibitor spending outside the facility; and budgetary spending by the ACC. The spending amounts for each of these categories were based on data provided by several secondary sources including ACC management, Anaheim/Orange County VCB and the 2012 Summary Analysis of ACC Primary Business Event Visitors prepared by CIC Research, Inc. The CIC Research study included a survey of convention, conference and trade show event attendees in Anaheim. This first-hand research provided estimates of visitor spending, event organizer/exhibitor spending, average length of stay and the percent of attendees staying in hotels. Attendee Spending Outside the Facility Estimated utilization at an expanded ACC was used to calculate attendee spending. Daily spending amounts were assigned to high impact attendees who stay overnight in a hotel. For purposes of this analysis, no spending was attributable to low impact attendees who likely originate from the area or only travel for the day. In addition, no spending associated with non- registered attendees, spouses or significant others is estimated as part of this analysis. Data provided by the CIC Research report was used to calculate the average length of stay by event type for attendees staying in hotels. Based on information from Anaheim/Orange County VCB as well as the CIC Research report, average daily spending amounts were estimated for high impact attendees staying overnight in a hotel. For purposes of this analysis, 86% of attendees are assumed to be non-local. Of these non-local attendees, 80% are assumed to stay in hotels in the City of Anaheim reflecting that some may choose to stay in surrounding communities or area beaches. ---PAGE BREAK--- 8. Economic and Fiscal Impact Analysis 69 Sponsoring Organization/Event Producer & Exhibitor Spending Outside the Facility Sponsoring organizations/event producers have substantial investments in the events that they host. These organizations purchase goods and services from either the ACC or from outside sources. In addition, exhibitors often spend money outside of the facility to entertain existing and potential clients. Items such as exhibit space and equipment rental are typically provided by the facility, which are reflected as revenues for the provider. Since this spending is reflected in the budgetary spending by an expanded ACC, these amounts are excluded from sponsoring organization/event producer and exhibitor spending to avoid double-counting. For purposes of this analysis and based on the CIC Research report, an average spending amount was applied to attendees at conventions/trade shows to reflect sponsoring organization/event producer and exhibitor spending. Budgetary Spending for the ACC Budgetary spending refers to operating expenses generated by an expanded ACC. Regardless of the source or magnitude of the revenues the building takes in, this analysis focuses on the operating expenses occurring in the local and State economies. Operating expenses from an expanded ACC for items such as salaries, wages and benefits; utilities; repairs and maintenance; general administrative; contract services; insurance; materials and supplies; and other expenses were estimated. Estimates were also made regarding the percentage of these expenditures that occur in the local economy. For example, the local electric company typically provides utility services and the city or county provide water/sewer services, etc. In contrast, the percentage of living expenses for employees, which is spent in the area, may be relatively moderate. For example, after taking into account taxes and savings (an estimate of 30% to 40% might be reasonable), amounts which may leak outside of the area include home mortgage payments, car loan payments, insurance, travel spending, spending on higher education, mail-order purchases and other significant amounts. Summary of Direct Spending Inputs Based on this information, the direct spending related to attendees, sponsoring organizations/ event producers, and exhibitors outside the facility and budgetary spending at an expanded ACC is estimated to generate the following: Category Historical Three-Year Average Status Quo Direct Spending $368,555,000 $338,022,000 $471,833,000 - $498,355,000 $133,811,000 - $160,333,000 ACC Expansion Incremental New From Status Quo These direct spending estimates were applied to the multipliers previously shown in order to calculate estimates for total spending, total jobs and total earnings. ---PAGE BREAK--- 8. Economic and Fiscal Impact Analysis 70 Indirect and Induced Impacts The IMPLAN model is used to generate the indirect and induced impacts spawned from the estimated economic activities within the local economy. The indirect impacts represent inter- industry trade from business to business. Likewise, the induced impacts represent the economic activity spurred by the household trade that occurs when employees make consumer purchases with their incomes. According to the IMPLAN model, direct spending spurred by ongoing operations of an expanded ACC is estimated to generate the following indirect/induced impacts: Category Historical Three-Year Average Status Quo Indirect/Induced Spending $241,131,000 $221,048,000 $308,880,000 - $326,292,000 $87,832,000 - $105,244,000 Incremental New From Status Quo ACC Expansion Total Spending Outputs from the IMPLAN model indicate that total direct, indirect and induced) spending from activity at an expanded ACC is estimated generate the following: Category Historical Three-Year Average Status Quo Total Spending $609,686,000 $559,070,000 $780,713,000 - $824,647,000 $221,643,000 - $265,577,000 Incremental New From Status Quo ACC Expansion Total Jobs Based on the IMPLAN model, which calculates the number of jobs per $1.0 million in direct spending, the economic activity associated with the ongoing operations of an expanded ACC is estimated to generate the following number of total jobs: Category Historical Three-Year Average Status Quo Total Jobs 5,000 4,600 6,400 - 6,800 1,800 - 2,200 ACC Expansion Incremental New From Status Quo Total Earnings Outputs from the IMPLAN model indicate that an expanded ACC is estimated to generate the following total earnings: Category Historical Three-Year Average Status Quo Total Earnings $233,726,000 $214,412,000 $298,911,000 - $315,664,000 $84,499,000 - $101,252,000 Incremental New From Status Quo ACC Expansion ---PAGE BREAK--- 8. Economic and Fiscal Impact Analysis 71 Summary of Estimated Annual Fiscal Impacts (Tax Revenues) As shown in the table that follows, the annual tax revenues related to ongoing operations of an expanded ACC are estimated to range from $39.5 million to $41.8 million at the City level and $39.6 million to $41.9 million at the State level. Approximately 49% of tax revenues are estimated to occur at the City level primarily driven by the transient occupancy tax. Municipality/Tax Historical Three- Year Average Status Quo City of Anaheim Transient Occupancy Tax $24,688,000 $22,532,000 $31,865,000 - $33,710,000 $9,333,000 - $11,178,000 Local Sales & Use Tax 2,607,000 2,383,000 3,353,000 - 3,545,000 970,000 - 1,162,000 Tourism Improvement District Assessment - Dedicated to Marketing & Promotion (75%) 2,469,000 2,253,000 3,187,000 - 3,371,000 934,000 - 1,118,000 - Dedicated to Non-Marketing Improvement Projects (25%) 823,000 751,000 1,062,000 - 1,124,000 311,000 - 373,000 Total 30,587,000 27,919,000 39,467,000 - 41,750,000 11,548,000 - 13,831,000 Orange County Local Sales & Use Tax 1,304,000 1,192,000 1,676,000 - 1,772,000 484,000 - 580,000 State of California Sales & Use Tax 16,945,000 15,495,000 21,797,000 - 23,042,000 6,302,000 - 7,547,000 Personal Income Tax 10,985,000 10,077,000 14,049,000 - 14,836,000 3,972,000 - 4,759,000 Corporate Income Tax 2,939,000 2,695,000 3,763,000 - 3,975,000 1,068,000 - 1,280,000 Total 30,869,000 28,267,000 39,609,000 - 41,853,000 11,342,000 - 13,586,000 GRAND TOTAL $62,760,000 $57,378,000 $80,752,000 - $85,375,000 $23,374,000 - $27,997,000 Estimated Annual Impact to Tax Revenues ACC Expansion Incremental New From Status Quo The following outlines significant assumptions utilized in this analysis. City of Anaheim Taxes Transient Occupancy Tax – The City of Anaheim imposes a 15% tax on the rent charged by a hotel operator for any property in the City. For purposes of this analysis, this tax rate is applied to direct hotel spending estimated to be generated by expanded ACC operations. Currently, 30% of revenues from the transient occupancy tax are dedicated to debt service for other projects. A more detailed analysis related to this assumption including the estimated room nights and room rates can be found in Appendix C. Local Sales and Use Tax – The State of California remits one point of its Statewide sales and use tax collections to the jurisdiction within which the tax is collected. Collections within the City of Anaheim from one point of the State tax is remitted to City operations. For purposes of this analysis, the one point was applied to estimated taxable direct and indirect/induced spending from expanded ACC operations. Tourism Improvement District Assessment – In 2010, the City of Anaheim established the ATID as a means of providing necessary resources to enhance tourism activity and increase hotel room stays. The ATID assesses 2% of the room rent for all hotels located within the ATID boundaries. Monies collected from this assessment are used to cover the costs of activities, improvements, services and programs that will benefit the assessed hotels and the tourism/convention industry in the City. The 2% rate is applied to direct hotel spending estimated to be generated by expanded ACC operations. As shown above, 75% of funds are dedicated to marketing and promotion; the remaining 25% of funds are directed to the City for transportation improvements. ---PAGE BREAK--- 8. Economic and Fiscal Impact Analysis 72 Orange County Taxes Local Sales and Use Tax – Orange County collects a 0.5% sales and use tax from sales of tangible personal property and some services throughout the County. This tax source is dedicated to the Orange County Local Transportation Authority. The local tax is governed by the State of California’s code which is described below. For purposes of this analysis, the 0.5% tax rate was applied to estimated taxable direct and indirect/induced spending from expanded ACC operations. State of California Taxes Sales and Use Tax – The State of California collects a sales and use tax from sales of tangible personal property and some services throughout the State. Sales and use tax is uniform throughout the State at 7.5%. This tax source is the State’s second largest source of general fund revenue. Exempt items include hotel room stays and unprepared food; the sales and use tax rate for the sale of motor vehicle fuel is 2.25%. For purposes of this analysis, a 6.5% tax rate was applied to estimated taxable direct and indirect/induced spending generated from expanded ACC operations given that collections from one point of the tax is allocated to the City shown under its benefits. Personal Income Tax – The State of California imposes a personal income tax assessed against personal income earned in the State. The State income tax is a graduated rate ranging from 1.1% to 14.63% of taxable income. Non-residents are subject to the tax for income derived within California. This tax source is the State’s largest single source of general fund revenue. For purposes of this analysis and based on information provided by the State Controller’s Office, an effective tax rate of 4.7% was calculated based on the federal adjusted gross income and the total personal income tax paid to the State in 2010 (the most recent year for which data was available). This effective tax rate was applied to total earnings estimated to be generated by expanded ACC operations. Corporate Income Tax – A corporate income tax ranging from 1.5% to 10.84% of corporate federal taxable income adjusted by State modifications is also levied by the State of California on corporations. The applicable rate is dependent on the type of corporation. For purposes of this analysis and based on information provided by the State Controller’s Office, an effective tax rate of 0.48% was calculated based on the Gross State Product and the total corporate income tax paid to the State in 2011. This effective tax rate was applied to total spending estimated to be generated by expanded ACC operations. ---PAGE BREAK--- 9. Cost/Benefit Analysis 73 Cost/Benefit Analysis The project team of Crossroads and Hospitality & Gaming Solutions was retained to assess the proposed development of approximately 200,000 SF of flex space adjacent to the existing ACC. The proposed expansion under consideration includes re-use of the Carpark 1 parking garage (which needs to be replaced) into function space that can be used as exhibit, ballroom, and/or meeting space. It is our understanding that the driving forces of the proposed expansion are to attract incremental new group business to the ACC as well as accommodate the growth needs of several of its largest conventions/tradeshows. Given the significant number of visitors and associated spending that ACC events bring to Anaheim, this project is one of the few that allow the local government to positively impact the economy through its investment. Research conducted as part of the market analysis resulted in several key findings that support the proposed development concept. These include, but are not limited to, the following:  Anaheim’s established leisure/hospitality industry to support convention/meeting attendees.  Accessibility to four major airports is a competitive advantage for drawing regional, national and international group business to the City.  Supply of proximate hotel rooms.  Area hoteliers envision the proposed expansion as augmenting the destination and drawing incremental new visitation to the area.  Reputation as a family-friendly, safe travel destination.  Growth projected for exhibition industry.  Significant base of existing convention/tradeshow business.  Exhibit and ballroom space is approaching practical maximum occupancy.  Historically, conventions have utilized relatively limited exhibit space and a disproportionately high percentage of existing meeting/ballroom space suggesting the new flex space could help the ACC attract more simultaneous events.  In contrast, a high percentage of tradeshows have historically utilized all the existing exhibit space suggesting the new flex space could allow these groups to expand their exhibitions.  Lost business reports indicate date and/or space availability was a factor influencing the decision for 120 groups choosing not to meet in Anaheim in the past five calendar years. These groups represent more than 218,200 peak room nights and 533,400 attendees. Date/space availability for some groups could be mitigated by the new flex space.  Competitive and comparable facilities offer a higher ratio of meeting/ballroom space to exhibit space than the ACC.  A large population of potential events that could be accommodated by the ACC suggests that attracting only a small portion of these groups could make a significant impact to financial operations and economic/fiscal benefits. ---PAGE BREAK--- 9. Cost/Benefit Analysis 74 The following table summarizes key elements of the cost/benefit analysis of the proposed ACC expansion in terms of its impact to the facility’s utilization, financial operation and economic/ fiscal benefits. Category Historical Three-Year Average Status Quo Usage/Event Activity Number of Events 219 196 267 - 282 71 - 86 Event Days 438 403 532 - 559 129 - 156 Total Attendance 979,800 927,900 1,219,700 - 1,289,300 291,800 - 361,400 Total Attendee Days 2,600,600 2,468,600 3,227,500 - 3,409,900 758,900 - 941,300 High Impact Attendee Days 1,082,800 988,200 1,397,600 - 1,478,500 409,400 - 490,300 Financial Operations - Operating Revenues $25,787,000 $24,034,000 $28,039,000 - $28,505,000 $4,005,000 - $4,471,000 Operating Expenses 24,573,000 24,573,000 26,524,000 - 26,964,000 1,951,000 - 2,391,000 Net Operating Gain/(Loss) $1,214,000 ($539,000) $1,515,000 - $1,541,000 $2,054,000 - $2,080,000 Economic Impacts Direct Spending $368,555,000 $338,022,000 $471,833,000 - $498,355,000 $133,811,000 - $160,333,000 Indirect/Induced Spending 241,131,000 221,048,000 308,880,000 - 326,292,000 87,832,000 - 105,244,000 Total Spending $609,686,000 $559,070,000 $780,713,000 - $824,647,000 $221,643,000 - $265,577,000 Total Earnings $233,726,000 $214,412,000 $298,911,000 - $315,664,000 $84,499,000 - $101,252,000 Total Jobs 5,000 4,600 6,400 - 6,800 1,800 - 2,200 Fiscal Impacts City of Anaheim $30,587,000 $27,919,000 $39,467,000 - $41,750,000 $11,548,000 - $13,831,000 Orange County 1,304,000 1,192,000 1,676,000 - 1,772,000 484,000 - 580,000 State of California 30,869,000 28,267,000 39,609,000 - 41,853,000 11,342,000 - 13,586,000 Total $62,760,000 $57,378,000 $80,752,000 - $85,375,000 $23,374,000 - $27,997,000 Overall Summary of the ACC Expansion Analysis Expansion Range Incremental Impact From Status Quo As shown in the following table, the cost/benefit analysis for an expanded ACC indicates a significant return on investment over a 30-year period. In addition, the funding mechanism that would be used for the ACC expansion would also allow funding for other public projects such as public safety, neighborhood improvements and other quality of life projects and services for the City. Category Range Incremental New Transient Occupancy Tax $341,449,000 - $429,225,000 Incremental New Local Sales & Use Tax $30,264,000 - $38,053,000 Incremental Operating Gain $9,030,000 - $9,810,000 Total Incremental New Revenues $380,743,000 - $477,088,000 Recapture of Lost Revenues $164,250,000 - $164,250,000 Debt Service Including Garage ($409,667,000) - ($409,667,000) Net Benefit $135,326,000 - $231,671,000 Notes: Debt service includes replacement of the parking garage. Debt service is based on estimated construction cost and financing terms as provided by the City on February 14, 2014. Incremental Transient Occupancy Tax reflects an annual increase of Incremental Local Sales and Use Tax reflects an annual increase of Recapture of Lost Revenues reflects the difference between the historical three-year average and the status quo scenario. 30-Year Cost Benefit Analysis Expanded ACC ---PAGE BREAK--- 9. Cost/Benefit Analysis 75 Based on the market and economic analysis, the proposed expansion of the ACC appears warranted and could serve to increase Anaheim’s share of the convention/tradeshow industry as well as allow several existing users to grow. In doing so, the City would attract incremental new events and visitors who would positively impact the area economy. In addition, this expansion should enhance the ACC marketability and competitive position for the next 10 to 15 years. ---PAGE BREAK--- 10. Appendix 76 Appendix A – Cash Flow Analysis for an Expanded ACC Year Incremental TOT1 Incremental Local Sales & Use Tax2 Incremental Operating Gain Total Incremental Revenues Recapture of Lost Revenues Total Incremental Revenues and Recaptured Lost Revenues Debt Service Including Garage Net Benefit / (Cost) 2017 $7,177,000 $746,000 $301,000 $8,224,000 $4,133,000 $12,357,000 ($5,081,765) $7,275,235 2018 7,392,310 760,920 301,000 8,454,230 4,202,160 12,656,390 (10,163,532) 2,492,858 2019 7,614,079 776,138 301,000 8,691,217 4,273,351 12,964,568 (10,163,532) 2,801,036 2020 7,842,501 791,661 301,000 8,935,162 4,346,631 13,281,793 (10,163,532) 3,118,261 2021 8,077,776 807,494 301,000 9,186,270 4,422,063 13,608,333 (10,163,532) 3,444,801 2022 8,320,109 823,644 301,000 9,444,753 4,499,710 13,944,463 (10,591,032) 3,353,431 2023 8,569,712 840,117 301,000 9,710,829 4,579,638 14,290,467 (10,614,657) 3,675,810 2024 8,826,803 856,919 301,000 9,984,722 4,661,916 14,646,638 (14,902,032) (255,394) 2025 9,091,607 874,057 301,000 10,266,664 4,746,611 15,013,275 (14,901,357) 111,918 2026 9,364,355 891,538 301,000 10,556,893 4,833,795 15,390,688 (14,902,257) 488,431 2027 9,645,286 909,369 301,000 10,855,655 4,923,541 15,779,196 (14,899,557) 879,639 2028 9,934,645 927,556 301,000 11,163,201 5,015,927 16,179,128 (14,901,807) 1,277,321 2029 10,232,684 946,107 301,000 11,479,791 5,111,030 16,590,821 (14,899,107) 1,691,714 2030 10,539,665 965,029 301,000 11,805,694 5,208,930 17,014,624 (14,902,752) 2,111,872 2031 10,855,855 984,330 301,000 12,141,185 5,309,710 17,450,895 (14,902,887) 2,548,008 2032 11,181,531 1,004,017 301,000 12,486,548 5,413,455 17,900,003 (14,898,803) 3,001,200 2033 11,516,977 1,024,097 301,000 12,842,074 5,520,254 18,362,328 (14,903,292) 3,459,036 2034 11,862,486 1,044,579 301,000 13,208,065 5,630,197 18,838,262 (14,901,435) 3,936,827 2035 12,218,361 1,065,471 301,000 13,584,832 5,743,376 19,328,208 (14,901,525) 4,426,683 2036 12,584,912 1,086,780 301,000 13,972,692 5,859,888 19,832,580 (14,900,625) 4,931,955 2037 12,962,459 1,108,516 301,000 14,371,975 5,979,831 20,351,806 (14,901,525) 5,450,281 2038 13,351,333 1,130,686 301,000 14,783,019 6,103,307 20,886,326 (14,903,100) 5,983,226 2039 13,751,873 1,153,300 301,000 15,206,173 6,230,421 21,436,594 (14,899,725) 6,536,869 2040 14,164,429 1,176,366 301,000 15,641,795 6,361,281 22,003,076 (14,899,500) 7,103,576 2041 14,589,362 1,199,893 301,000 16,090,255 6,495,997 22,586,252 (14,901,075) 7,685,177 2042 15,027,043 1,223,891 301,000 16,551,934 6,634,684 23,186,618 (14,903,100) 8,283,518 2043 15,477,854 1,248,369 301,000 17,027,223 6,777,460 23,804,683 (14,899,725) 8,904,958 2044 15,942,190 1,273,336 301,000 17,516,526 6,924,445 24,440,971 (14,898,825) 9,542,146 2045 16,420,456 1,298,803 301,000 18,020,259 7,075,765 25,096,024 (14,898,825) 10,197,199 2046 16,913,070 1,324,779 301,000 18,538,849 7,231,548 25,770,397 (14,902,650) 10,867,747 $341,448,723 $30,263,762 $9,030,000 $380,742,485 $164,249,922 $544,992,407 ($409,667,068) $135,325,339 Notes: 1 Assumes an annual increase of 2 Assumes an annual increase of Cost / Benefit Analysis - Expanded ACC vs. Historical Operations (Low End of Range) ---PAGE BREAK--- 10. Appendix 77 Appendix A – Cash Flow Analysis for an Expanded ACC (cont’d) Year Incremental TOT1 Incremental Local Sales & Use Tax2 Incremental Operating Gain Total Incremental Revenues Recapture of Lost Revenues Total Incremental Revenues and Recaptured Lost Revenues Debt Service Including Garage Net Benefit / (Cost) 2017 $9,022,000 $938,000 $327,000 $10,287,000 $4,133,000 $14,420,000 ($5,081,765) $9,338,235 2018 9,292,660 956,760 327,000 10,576,420 $4,202,160 14,778,580 (10,163,532) 4,615,048 2019 9,571,440 975,895 327,000 10,874,335 $4,273,350 15,147,685 (10,163,532) 4,984,153 2020 9,858,583 995,413 327,000 11,180,996 $4,346,630 15,527,626 (10,163,532) 5,364,094 2021 10,154,340 1,015,321 327,000 11,496,661 $4,422,062 15,918,723 (10,163,532) 5,755,191 2022 10,458,970 1,035,627 327,000 11,821,597 $4,499,710 16,321,307 (10,591,032) 5,730,275 2023 10,772,739 1,056,340 327,000 12,156,079 $4,579,638 16,735,717 (10,614,657) 6,121,060 2024 11,095,921 1,077,467 327,000 12,500,388 $4,661,914 17,162,302 (14,902,032) 2,260,270 2025 11,428,799 1,099,016 327,000 12,854,815 $4,746,608 17,601,423 (14,901,357) 2,700,066 2026 11,771,663 1,120,996 327,000 13,219,659 $4,833,792 18,053,451 (14,902,257) 3,151,194 2027 12,124,813 1,143,416 327,000 13,595,229 $4,923,539 18,518,768 (14,899,557) 3,619,211 2028 12,488,557 1,166,284 327,000 13,981,841 $5,015,925 18,997,766 (14,901,807) 4,095,959 2029 12,863,214 1,189,610 327,000 14,379,824 $5,111,027 19,490,851 (14,899,107) 4,591,744 2030 13,249,110 1,213,402 327,000 14,789,512 $5,208,928 19,998,440 (14,902,752) 5,095,688 2031 13,646,583 1,237,670 327,000 15,211,253 $5,309,708 20,520,961 (14,902,887) 5,618,074 2032 14,055,980 1,262,423 327,000 15,645,403 $5,413,455 21,058,858 (14,898,803) 6,160,055 2033 14,477,659 1,287,671 327,000 16,092,330 $5,520,255 21,612,585 (14,903,292) 6,709,293 2034 14,911,989 1,313,424 327,000 16,552,413 $5,630,198 22,182,611 (14,901,435) 7,281,176 2035 15,359,349 1,339,692 327,000 17,026,041 $5,743,378 22,769,419 (14,901,525) 7,867,894 2036 15,820,129 1,366,486 327,000 17,513,615 $5,859,890 23,373,505 (14,900,625) 8,472,880 2037 16,294,733 1,393,816 327,000 18,015,549 $5,979,833 23,995,382 (14,901,525) 9,093,857 2038 16,783,575 1,421,692 327,000 18,532,267 $6,103,309 24,635,576 (14,903,100) 9,732,476 2039 17,287,082 1,450,126 327,000 19,064,208 $6,230,423 25,294,631 (14,899,725) 10,394,906 2040 17,805,694 1,479,129 327,000 19,611,823 $6,361,283 25,973,106 (14,899,500) 11,073,606 2041 18,339,865 1,508,712 327,000 20,175,577 $6,495,999 26,671,576 (14,901,075) 11,770,501 2042 18,890,061 1,538,886 327,000 20,755,947 $6,634,686 27,390,633 (14,903,100) 12,487,533 2043 19,456,763 1,569,664 327,000 21,353,427 $6,777,462 28,130,889 (14,899,725) 13,231,164 2044 20,040,466 1,601,057 327,000 21,968,523 $6,924,447 28,892,970 (14,898,825) 13,994,145 2045 20,641,680 1,633,078 327,000 22,601,758 $7,075,767 29,677,525 (14,898,825) 14,778,700 2046 21,260,930 1,665,740 327,000 23,253,670 $7,231,550 30,485,220 (14,902,650) 15,582,570 $429,225,347 $38,052,813 $9,810,000 $477,088,160 $164,249,926 $641,338,086 ($409,667,068) $231,671,018 Notes: 1 Assumes an annual increase of 2 Assumes an annual increase of Cost / Benefit Analysis - Expanded ACC vs. Historical Operations (High End of Range) ---PAGE BREAK--- 10. Appendix 78 Appendix B – Sensitivity Analysis In order to assist the City with its ACC expansion planning efforts, sensitivity analysis was conducted that compared the cost/benefit of two alternative expansion programs: adding 160,000 SF or adding 180,000 SF of flex space. Based on market research including, but not limited to, an analysis of market attributes, industry trends, historical ACC utilization and lost business reports as well as input from past/potential users and area stakeholders, the 200,000 SF expansion option is estimated to generate a significantly higher net incremental gain to the City. Category 160,000 SF Scenario 180,000 SF Scenario Incremental Transient Occupancy Tax $113,515,000 $200,007,000 $341,449,000 - $429,225,000 Incremental Local Sales & Use Tax $10,223,000 $17,850,000 $30,264,000 $38,053,000 Incremental Operating Gain ($6,090,000) $2,220,000 $9,030,000 - $9,810,000 Total Incremental Revenues $117,648,000 $220,077,000 $380,743,000 - $477,088,000 Recapture of Lost Revenues $164,250,000 $164,250,000 $164,250,000 - $164,250,000 Total Incremental Revenues and Recaptured Lost Revenues $281,898,000 $384,327,000 $544,993,000 - $641,338,000 Debt Service Including Garage ($360,735,000) ($385,770,000) ($409,667,000) - ($409,667,000) Net Benefit/(Cost) ($78,837,000) ($1,443,000) $135,326,000 - $231,671,000 Notes: Debt service includes replacement of the parking garage. Debt service is based on estimated construction cost and financing terms as provided by the City on February 14, 2014. Incremental Transient Occupancy Tax reflects an annual increase of Incremental Local Sales and Use Tax reflects an annual increase of Recapture of Lost Revenues reflects the difference between the historical three-year average and the status quo scenario. Slight differences to the amounts shown in Appendix A due to rounding. 30-Year Cost Benefit Analysis for an Expanded ACC - Sensitivity Analysis 200,000 SF (Range) Adding 200,000 SF of flex space is also estimated to enhance the competitive position of the ACC for a longer term than the other two scenarios, increasing the facility’s total available exhibit space to over one million square feet. As a point of reference, the table on the following page compares the estimated incremental impact to utilization, financial operations, project costs, economic and fiscal impacts for the three expansion scenarios relative to the status quo scenario. ---PAGE BREAK--- 10. Appendix 79 Appendix B – Sensitivity Analysis (cont’d) Category Status Quo 160,000 SF 180,000 SF Usage/Event Activity Number of Events 196 258 262 62 66 267 - 282 71 - 86 Event Days 403 507 517 104 114 532 - 559 129 - 156 Total Attendance 927,900 1,088,800 1,141,100 160,900 213,200 1,219,700 - 1,289,300 291,800 - 361,400 Total Attendee Days 2,468,590 2,865,360 3,009,620 396,770 541,030 3,227,500 - 3,409,900 758,910 - 941,310 High Impact Attendee Days 988,243 1,187,433 1,267,185 199,190 278,942 1,397,600 - 1,478,500 409,357 - 490,257 Financial Operations Operating Revenues $24,034,000 $27,217,000 $27,666,000 $3,183,000 $3,632,000 $28,039,000 - $28,505,000 $4,005,000 - $4,471,000 Operating Expenses 24,573,000 26,206,000 26,378,000 1,633,000 1,805,000 26,524,000 - 26,964,000 1,951,000 - 2,391,000 Net Operating Gain/(Loss) ($539,000) $1,011,000 $1,288,000 $1,550,000 $1,827,000 $1,515,000 - $1,541,000 $2,054,000 - $2,080,000 Fiscal Impacts - City of Anaheim Transient Occupancy Tax $22,532,000 $27,074,000 $28,892,000 $4,542,000 $6,360,000 $31,865,000 - $33,710,000 $9,333,000 - $11,178,000 Local Sales & Use Tax 2,383,000 2,859,000 3,047,000 476,000 664,000 3,353,000 - 3,545,000 970,000 - 1,162,000 Tourism Improvement District Assessment 3,004,000 3,610,000 3,852,000 606,000 848,000 4,249,000 - 4,495,000 1,245,000 - 1,491,000 Total $27,919,000 $33,543,000 $35,791,000 $5,624,000 $7,872,000 $39,467,000 - $41,750,000 $11,548,000 - $13,831,000 Fiscal Impacts - Orange County 1,192,000 1,429,000 1,524,000 237,000 332,000 1,676,000 - 1,772,000 484,000 - 580,000 Fiscal Impacts - State of California 28,267,000 33,825,000 36,022,000 5,558,000 7,755,000 39,609,000 - 41,853,000 11,342,000 - 13,586,000 Total Fiscal Impacts $57,378,000 $68,797,000 $73,337,000 $11,419,000 $15,959,000 $80,752,000 - $85,375,000 $23,374,000 - $27,997,000 Economic Impacts Direct Spending $338,022,000 $403,682,000 $429,590,000 $65,660,000 $91,568,000 $471,833,000 - $498,355,000 $133,811,000 - $160,333,000 Indirect/Induced Spending 221,048,000 264,089,000 281,113,000 43,041,000 60,065,000 308,880,000 - 326,292,000 87,832,000 - 105,244,000 Total Spending $559,070,000 $667,771,000 $710,703,000 $108,701,000 $151,633,000 $780,713,000 - $824,647,000 $221,643,000 - $265,577,000 Total Earnings $214,412,000 $255,837,000 $272,205,000 $41,425,000 $57,793,000 $298,911,000 - $315,664,000 $84,499,000 - $101,252,000 Total Jobs 4,600 5,500 5,800 900 1,200 6,400 - 6,800 1,800 - 2,200 Expansion Project Costs $158,500,000 $169,500,000 $180,000,000 Estimated Annual Debt Service $12,024,000 $12,859,000 $13,656,000 Note: Project costs and estimated debt service were provided by the City. Incremental Impact From Status Quo 200,000 SF (Range) Incremental Impact From Status Quo ACC Expansion Sensitivity Analysis ---PAGE BREAK--- 10. Appendix 80 Appendix C – Comparison of Estimated Room Nights and Transient Occupancy Tax Category Three-Year Average (FY 2010 - FY 2012) Status Quo Status Quo & Historical Conventions (CV) Number of Events 55 50 67 - 69 12 - 14 17 - 19 Average Attendees 6,200 6,200 6,500 - 6,500 0 300 - 300 300 - 300 Total Attendees 339,800 310,000 435,500 - 448,500 (29,800) 95,700 - 108,700 125,500 - 138,500 Average Length of Stay 2.8 2.8 2.8 2.8 0 Total Attendee Days 951,440 868,000 1,219,400 - 1,255,800 (83,440) 267,960 - 304,360 351,400 - 387,800 Tradeshows (TS) Number of Events 8 7 10 - 11 2 - 3 3 - 4 Average Attendees 29,000 29,000 29,000 - 29,000 0 0 - 0 0 - 0 Total Attendees 222,282 203,000 290,000 - 319,000 (19,282) 67,718 - 96,718 87,000 - 116,000 Average Length of Stay 2.8 2.8 2.8 2.8 0 Total Attendee Days 622,390 568,400 812,000 - 893,200 (53,990) 189,610 - 270,810 243,600 - 324,800 CV/TS Combined Number of Events 63 57 77 - 80 14 - 17 20 - 23 Average Attendees 8,900 9,000 9,400 - 9,600 100 500 - 700 400 - 600 Total Attendees 562,082 513,000 725,500 - 767,500 (49,082) 163,418 - 205,418 212,500 - 254,500 Average Length of Stay 2.8 2.8 2.8 2.8 0 Total Attendee Days 1,573,830 1,436,400 2,031,400 - 2,149,000 (137,430) 457,570 - 575,170 595,000 - 712,600 Percentage Staying Overnight 86% 86% 86% 86% Overnight Attendee Days 1,353,493 1,235,304 1,747,004 - 1,848,140 (118,189) 393,511 - 494,647 511,700 - 612,836 Percentage Staying In Anaheim 80% 80% 80% 80% Overnight Attendee Days in Anaheim 1,082,800 988,200 1,397,600 - 1,478,500 (94,600) 314,800 - 395,700 409,400 - 490,300 Number of People Per Room 1.4 1.4 1.4 1.4 Room Nights in Anaheim 773,429 705,857 998,286 - 1,056,071 (67,571) 224,857 - 282,643 292,429 - 350,214 Average Room Rate $212.80 $212.80 $212.80 $212.80 Room Revenue $164,586,000 $150,206,000 $212,435,000 - $224,732,000 ($14,380,000) $47,849,000 - $60,146,000 $62,229,000 - $74,526,000 Transient Occupancy Rate 15% 15% 15% 15% Total Transient Occupancy Tax $24,688,000 $22,532,000 $31,865,000 - $33,710,000 ($2,156,000) $7,177,000 - $9,022,000 $9,333,000 - $11,178,000 Discretionary % 70% 70% 70% 70% Discretionary Transient Occupancy Tax $17,282,000 $15,772,000 $22,306,000 - $23,597,000 ($1,510,000) $5,024,000 - $6,315,000 $6,534,000 - $7,825,000 Notes: Discretionary % refers to the 70% of the transient occupancy tax that is not currently dedicated to debt service for other projects. Slight differences from full report due to rounding. ACC Expansion Range ACC Expansion Range & Historical Three-Year Average ACC Expansion Range & Status Quo Summary of Estimated Room Nights and Transient Occupancy Tax Difference Between