FINAL NARRATIVE APPRAISAL REPORT Toyota Field SAN ANTONIO, TEXAS SUBMITTED TO: EXISTING Mr. Michael J Sawaya City of San Antonio 200 East Market Street San Antonio, Texas, 78216 michael.sawaya@sanantonio.gov +1 (210) 373-2625 August 18, 2015 PREPARED BY: HVS Convention, Sports & Entertainment Facilities Consulting 205 West Randolph Suite 1650 Chicago, Illinois 60606 +1 (312) 587-9900 Convention, Sports & Entertainment Facilities Consulting Chicago, Illinois August 18, 2015 205 West Randolph Suite 1650 Chicago, Illinois 60606 +1 312-587-9900 Mr. Michael J Sawaya City of San Antonio 200 East Market Street San Antonio, Texas, 78216 michael.sawaya@sanantonio.gov +1 312-488-3631 FAX www.hvs.com Re: Toyota Field San Antonio, Texas Atlanta Boston Boulder Chicago Dallas Denver Las Vegas Mexico City Miami Nassau New York Newport San Francisco Toronto Vancouver Washington Athens Buenos Aires Dubai Hong Kong Lima Dear Mr. Sawaya: Attached you will find our Narrative Appraisal Report pertaining to the combined fee simple interest in Toyota Field soccer stadium and the leasehold interest in adjoining parking facilities. These facilities are located in San Antonio Texas. This appraisal is based on the following extraordinary assumptions. 1) Upon sale of the stadium and transfer of the leasehold interest in the parking facilities, a new owner would enter into a soccer user agreement with an NASL soccer team (a “User Agreement”) for use of the stadium for their home games and other team activities. Further, we assume that the soccer User Agreement would reflect provisions for the sharing of stadium and parking revenues with a tenant team that are based on industry norms. 2) The new owner would be a public entity or entities duly constituted under the laws of the State of Texas. London Madrid Mumbai New Delhi Sao Paulo Shanghai Singapore Moreover, several important general assumptions have been made that apply to this appraisal and our valuations in general. These aspects are set forth in the Assumptions and Limiting Conditions chapter of this report. We hereby certify that we have no undisclosed interest in the property, and our employment and compensation are not contingent upon our findings. This study is subject to the comments made throughout this report and to all assumptions and limiting conditions set forth herein. Convention, Sports & Entertainment Facilities Consulting Chicago, Illinois It has been a pleasure working with you. Please let us know if we can provide any additional services. Sincerely, Suzanne R. Mellen, CRE, MAI, FRICS, ISHC Managing Director HVS Consulting & Valuation Division of M&R Valuation Services, Inc. Thomas A Hazinski Managing Director HVS Convention, Sports & Entertainment Facilities Consulting Catherine Sarrett Project Manager HVS Convention, Sports & Entertainment Facilities Consulting Convention, Sports & Entertainment Facilities Consulting Chicago, Illinois Table of Contents SECTION 1. 2. 3. 4. 5. 6. 7. 8. 9. TITLE Nature of the Assignment Description of Real Estate Market Area Overview Comparable Venues Demand Analysis Financial Analysis Valuation Statement of Assumptions and Limiting Conditions Certification Convention, Sports & Entertainment Facilities Consulting Chicago, Illinois 1. Nature of the Assignment The City of San Antonio engaged HVS Convention, Sports & Entertainment Facilities Consulting (“HVS”) to conduct an appraisal of Toyota Field in San Antonio, Texas. Property Rights Appraised The property rights appraised include the combined fee simple interest in Toyota Field soccer stadium and the leasehold interests in adjoining parking facilities. The subject of the appraisal is includes the following: 1) The fee simple interest in a 7.9-acre parcel improved with a spectator sports stadium known as Toyota Field. The Toyota Field improvements comprise approximately 155,000 square feet, not including the playing surface; the stadium is the home of one professional sports team, the San Antonio Scorpions (the “Scorpions”) of the North American Soccer League (“NASL”). 2) The leasehold interest in 20 acres improved as parking lots. This parcel includes parking 2,520 spaces located west of the stadium on land owned by the North East Independent School District (“NEISD”). This parking facility is subject to a joint use agreement between the stadium owner and the school district. The original term of the agreement terminates on August 31, 2018 and is renewable for seven years by agreement of the parties. 3) The leasehold in a 0.84 acre parcel northwest of the stadium used for parking. The City of San Antonio licensed the city-owned land to the stadium owner for use as parking in a joint use agreement that expires on January 1, 2032. The fee simple interest includes ownership of the land and improvements, including the furniture, fixtures, and equipment of Toyota Field. The fee simple estate is defined as “absolute ownership unencumbered by any other interest or estate, subject only to the limitations imposed by the governmental powers of taxation, eminent domain, police power, and escheat."1 1 Appraisal Institute, The Dictionary of Real Estate Appraisal, 5th ed. (Chicago Appraisal Institute, 2010). FINAL August 18, 2015 Nature of the Assignment Narrative Appraisal Report Toyota Field – San Antonio, Texas 1-1 Convention, Sports & Entertainment Facilities Consulting Chicago, Illinois The leasehold interest includes the previously described parking facilities. Leasehold interest is defined as: “the tenant's possessory interest created by a lease."2 The property rights are appraised free and clear of any existing debt. Toyota Field is appraised as a going concern (i.e., an open and operating facility). Background Toyota Field opened in 2013, has a seating capacity of approximately 8,000 seats and a maximum attendance capacity of approximately 9,000, including standing room sections. As a part of the 8,000 seats, the property also contains 16 luxury suites with a total capacity of 292 spectators and 864 club seats. Other spectator areas include a field level Beer Garden, suite level observation terrace, VIP lounge, and bar. Other public areas include permanent and portable concessions stands, portable merchandise stands, restrooms, and box office. Back- of-house spaces include four locker rooms, two performer green rooms, press box with four commentary booths, broadcast production room, loading dock, administrative offices, storage, and all necessary physical plant and other back of house spaces. Playing surface is a FIFA regulation sized field (70 x 110 yards) with TifSport hybrid Bermuda grass and in-ground drainage and irrigations system. Approximately 3,550 parking spaces surround Toyota Field, 550 of which are currently controlled by Toyota Field ownership in a lot directly north of the stadium. The 550 space lot is subject to the terms of a sublease with the adjacent youth soccer complex. For the purposed of this appraisal we assume that this sublease would be transferred to the new owner. Toyota Field is an affiliated entity of Sports Outdoor and Recreation, Inc. (“SOAR”), a nonprofit 501(c)3 corporation. In 2007, the Gordon Hartman Family Foundation (“Hartman”) established SOAR in order to raise money for the construction of the Morgan’s Wonderland Theme Park. Opened in 2010, Morgan’s Wonderland is a theme park fully accessible to people with disabilities. As a means for generating income to support Morgan’s Wonderland, Hartman launched Soccer for a Cause as a for profit corporation. Soccer for Cause successfully acquired a franchise in the NASL. The Scorpions, owned and operated by Soccer for a Cause, began play in 2012. Also under the nonprofit SOAR, Hartman developed the Toyota Field stadium, which opened in 2013. Income generated by the operations of Soccer for a Cause and Toyota Field is in part used to support Morgan’s Wonderland. The following figure presents summary of Gordon Hartman, SOAR, and affiliated entities. Appraisal Institute, The Dictionary of Real Estate Appraisal, 5th ed. (Chicago Appraisal Institute, 2010). 2 FINAL August 18, 2015 Nature of the Assignment Narrative Appraisal Report Toyota Field – San Antonio, Texas 1-2 Convention, Sports & Entertainment Facilities Consulting Chicago, Illinois FIGURE 1-1 GORDON HARTMAN AND AFFILIATED ENTITIES Gordon V. Hartman Gordon Hartman Family Foundation Nonprofit Soccer for a Cause (Scorpions) For Profit Sports Outdoor and Recreation (SOAR) South Texas Area Regional Soccer (STAR) Morgan’s Wonderland Toyota Field Stadium Lease Net Revenue Contract Services Toyota Field generates revenue through a variety of means, each related to the sports events which use the venue. An in-house staff manages the majority of these revenue generators, including ticket sales, field rentals, luxury suite leases, sponsorship agreements, parking revenues, and box office operations. The single exception is the concessions and catering operations which are run by a third party operator, via an agreement which yield a facility fee to Toyota Field. Objective of the Appraisal The objective of the appraisal is to develop an opinion of the subject property’s current market value. The following definition of market value has been agreed upon by the agencies that regulate federal financial institutions in the United States: The most probable price which a property should bring in a competitive and open market under all conditions requisite to a fair sale, the buyer and seller each acting prudently and knowledgeably, and assuming the price is not affected by undue stimulus. Implicit in this definition is the consummation of a sale as of a specified date and the passing of title from seller to buyer under conditions whereby: FINAL August 18, 2015 Nature of the Assignment Narrative Appraisal Report Toyota Field – San Antonio, Texas 1-3 Convention, Sports & Entertainment Facilities Consulting Chicago, Illinois 1. buyer and seller are typically motivated; 2. both parties are well informed or well advised, and acting in what they consider their own best interests; 3. a reasonable time is allowed for exposure in the open market; 4. payment is made in terms of cash in dollars or in terms of financial arrangements comparable thereto; and 5. The price represents the normal consideration for the property sold unaffected by special or creative financing or sales concessions granted by anyone associated with the sale.3 Pertinent Dates The effective date of the market value conclusion is August 7, 2015. The subject property was inspected by Thomas Hazinski on July 15, 2015. Approach to the Appraisal The following facts and circumstances are relevant to our approach to this appraisal. 1) SOAR is a not profit entity under the Gordon Hartman Family Foundation that owns Toyota Field. 2) SOAR also owns the adjacent Morgan’s Wonderland (a theme park for people with disabilities) and leases land for a youth soccer complex. Morgan’s Wonderland and the youth soccer complex are not part of the proposed sale and lease transfer. 3) Soccer for a Cause, a for profit limited liability company owned by Gordon Hartman, owns and operates Toyota Field’s tenant soccer team, the Scorpions. Soccer for a Cause leases Toyota Field from SOAR under a Soccer License Agreement. 4) The current owners have operated Toyota Field and the Scorpions with the goal of supporting Morgan’s Wonderland by directing residual team and stadium revenues to it. 5) Consequently, the current financial operation does not reflect a typical team-owner relationship. For example, the Toyota Field pays an “appearance fee” to the soccer team and that fee is greater than the revenues received by the stadium. This results in a loss to the stadium, but the profit to the Scorpions accrues to SOAR. Another example of unusual 3 FINAL August 18, 2015 Federal Register, Vol. 55, No. 165, August 24, 1990: 34696. Nature of the Assignment Narrative Appraisal Report Toyota Field – San Antonio, Texas 1-4 Convention, Sports & Entertainment Facilities Consulting Chicago, Illinois practice is that some team and stadium sponsorship revenues are directed to Morgan’s Wonderland. Since the current ownership arrangements are one-of-a-kind, the current statements of historical financial operations are not entirely relevant to what one would project for the stadium after it is sold. Consequently we have restated historical financial operations and we projected future financial operations based on normal industry practices that would occur when a stadium and its major tenant or tenants are separately owned. The stadium is neither listed nor under contract for sale. But, two relevant pending transactions are currently under consideration: 1) the San Antonio Spurs organization is considering the purchase of the Scorpions and 2) the City of San Antonio and Bexar County are considering providing funding to purchase the stadium and the parking leasehold interests. One or both of these public entities would own the stadium and enter into a new soccer use agreement with the team. For purposes of this appraisal, we assume upon the purchase of the stadium and the parking leasehold interest by a public entity or entities, a new soccer use agreement would be negotiated. We assume such use agreement would in keeping with normal industry practices. We assume that upon sale the new owner(s) would employ an in-house staff to operate the venue and our pro forma statement of operations does not include a management fee as an operating expense. Most revenues of the facility are related to some form of short-term rental or lease of facilities which reflect income attributable to the real estate. The costs of management are reflected our profitloss statement consequently the business value has been deducted from estimates of net operating income. Consequently, we have not separately estimated a business value. Toyota Field is designed and constructed to allow for expansion to an 18,500-seat stadium that would meet Major League Soccer (“MLS”) standards. The site plan can accommodate expansion and certain structures have been put in place to support an upper tier of 10,500 seats covered by a roof canopy. The existing structure would also support a total of 32 luxury suites and additional concession, restroom, and merchandise outlets. While we recognize the presence of the necessary infrastructure for future expansion, we have not attributed any value to it in this appraisal. Acquisition of an MSL franchise, a prerequisite for stadium expansion, is unlikely during the tenyear projection period used in this appraisal. MLS currently has 20 teams and the league intends to expand to 24 teams. The four new expansion franchises have been selected. The entry of these new franchises into league play is pending the FINAL August 18, 2015 Nature of the Assignment Narrative Appraisal Report Toyota Field – San Antonio, Texas 1-5 Convention, Sports & Entertainment Facilities Consulting Chicago, Illinois necessary team development and stadium construction in other cities. MLS has not announced any further plans for league expansion. Given this set of facts, it is nearly impossible to assess the probability of acquiring an MLS franchise and expanding Toyota Field into a major league stadium. Therefore, for the purposes of this appraisal, we have not attributed any value to the existing infrastructure for future expansion. Intended Use of Appraisal This appraisal is being prepared for asset evaluation purposes only. This appraisal report is being prepared for internal use and is intended to be used for making general business decisions. The client for this engagement is the City of San Antonio, Texas (“City”) and Bexar County. This report is intended only for persons and entities described in this paragraph and may not be distributed to or relied upon by other persons or entities. Assignment Conditions “Hypothetical Condition” is defined in USPAP as follows: That which is contrary to what exists but is supposed for the purpose of analysis. Comment: Hypothetical conditions assume conditions contrary to known facts about physical, legal, or economic characteristics of the subject property; or about conditions external to the property, such as market conditions or trends; or about the integrity of data used in an analysis.4 We have not assumed any hypothetical conditions in our appraisal. “Extraordinary Assumption” is defined in USPAP as follows: An assumption, directly related to a specific assignment, which, if found to be false, could alter the appraiser’s opinions or conclusions. Comment: Extraordinary assumptions presume as fact otherwise uncertain information about physical, legal, or economic characteristics of the subject property; or about conclusions external to the property, such as market conditions or trends; or about the integrity of the data used in an analysis. 5 HVS made the following Extraordinary Assumptions: 1) Upon sale of the stadium and transfer of the leasehold interests in the parking facilities, a new owner would enter into a soccer user agreement with an NASL soccer team (a “User Agreement”) for use of the stadium for their home games and other team activities. Further, 4 5 FINAL August 18, 2015 Ibid. Appraisal Institute, Uniform Standards of Professional Appraisal Practice, 2010 – 2011 ed. Nature of the Assignment Narrative Appraisal Report Toyota Field – San Antonio, Texas 1-6 Convention, Sports & Entertainment Facilities Consulting Chicago, Illinois we assume that the soccer User Agreement would reflect provisions for the sharing of stadium and parking revenues with a tenant team that is in keeping with industry norms. 2) The new owner would be a public entity or entities duly constituted under the laws of the State of Texas. We have not made any jurisdictional exceptions to the Uniform Standards of Professional Appraisal Practice in our analysis or report. Exposure Period Exposure period is defined as the estimated length of time that the property interest being appraised would have been offered on the market prior to the hypothetical consummation of a sale at market value on the effective date of the appraisal. The exposure period reflects a retrospective opinion based on an analysis of past events and assumes a competitive and open market. Since stadium sales are infrequent, market data on the length of marketing time and consummation of sales transactions are not available. Consequently, HVS has based an exposure period based on a reasonable time period in which an offer for sale would be made, due diligence could be conducted by the buyer, and an agreement consummating a sale could be negotiated. Given the complexity of stadium ownership and management, it is our opinion that an exposure period could range from six months to one year. Competency Our qualifications are included as an addendum to this report. These qualifications reflect that we have the competence required to complete this engagement, in accordance with the competency provision of the Uniform Standards of Professional Appraisal Practice. Our knowledge and experience is appropriate for the complexity of this assignment. Methodology HVS performed the following tasks: FINAL August 18, 2015 1. Thomas Hazinski traveled to San Antonio in the week of July 13, 2015 during which he performed a site inspection, met with Toyota Field owner, and gathered relevant data; 2. Analyzed the economics and demographics that indicate whether and the extent to which the local market area is supportive of Toyota Field; 3. Compiled data on eleven comparable NASL stadiums to inform and test the reasonableness of the building program and demand and financial forecasts; 4. Reviewed and analyzed third party contracts related to the operation of Toyota Field, including the Soccer License Agreement, Joint Use Nature of the Assignment Narrative Appraisal Report Toyota Field – San Antonio, Texas 1-7 Convention, Sports & Entertainment Facilities Consulting Chicago, Illinois Agreement, Suite License Agreements, Food and Beverage Concession and Operating Agreement, and TicketMaster User Agreement; 5. Forecast event demand and attendance for a ten-year period beginning in calendar year 2016.Forecast the financial operations of Toyota Field for the same ten-year period; 6. Developed appropriate market rate capitalization and discount rates and concluded to an opinion of value via the income approach; 7. Considered the cost and sales comparison approaches to value; and 8. Prepared a narrative appraisal report setting forth our appraisal of Toyota Field. HVS Convention, Sports & Entertainment staff collected and analyzed all information contained in this report. HVS sought out reliable sources and deemed information obtained from third parties to be accurate. Summary of Conclusions The majority of revenues generated by Toyota Field are attributed to the activities of its primary sports tenant, the San Antonio Scorpions. A new Soccer User Agreement negotiated in keeping with industry norms would require that portions of the revenues earned by Toyota Field at team events are shared with the team. These revenue sharing agreements would include 100 percent of team ticket revenues, 50% of food and beverage commissions, 50 percent of suite lease and certain sponsorship revenue. Consequently, Toyota Field generates more revenue for its tenant teams than for the owner of the stadium, and this arrangement has a material impact on the value of the stadium. For other events, including other professional soccer matches and concerts, event promoters and organizers rent Toyota Field for the right to host their events. Aside from this rental income, other major sources of revenue, including luxury suite leases, food and beverage commissions, and sponsorships, are driven by long-term contracts with service providers and sponsors, which are not attributable to the subject’s real property. To derive an opinion of the market value of Toyota Field stadium, HVS relied exclusively on the income capitalization approach. The sale of a spectator sports stadium is a rare occurrence, as such not enough comparable sales data exists in the market to successfully apply a sales comparison approach. Data regarding the original development and subsequent improvements to Toyota Field is available and is included for reference and information. However, for reasons discussed in section 7 of this report, HVS does not consider the cost approach to be a reasonable method for determining the stadium’s value. FINAL August 18, 2015 Nature of the Assignment Narrative Appraisal Report Toyota Field – San Antonio, Texas 1-8 Convention, Sports & Entertainment Facilities Consulting Chicago, Illinois Toyota Field has no existing debt related to its construction or future improvements. In the income approach, HVS developed a forecast of net operating income free and clear of any debt. The net income has been converted into an opinion of market value via a discounted cash flow analysis based on market rates of return, as set forth below. FIGURE 1-2 DISCOUNTED CASH FLOW ANALYSIS Year Net Income 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 $610,500 $625,700 $641,400 $657,700 $673,800 $690,700 $708,000 $725,500 $743,500 $17,696,638 * Discount Factor @ 7.0% Discounted Cash Flow 0.93458 0.87344 0.81630 0.76290 0.71299 0.66634 0.62275 0.58201 0.54393 0.50835 570,561 546,511 523,573 501,756 480,410 460,243 440,907 422,248 404,415 8,996,074 Estimated Market Value Prior to Deduct Capital Deduction (if applicable) Estimated Market Value After Deduct Rounded to Reversion Analysis 11th Year's Net Income Capitalization Rate Total Sales Proceeds Less Transaction Costs @1.5% Net Sales Proceeds 13,346,696 0 13,346,696 13,300,000 773,645 4.5% 17,192,120 257,882 16,934,238 * 10th year net income plus net sales proceeds. Our opinion of the market value of the fee and leasehold interests in the subject property, subject to joint use agreements as of August 3, 2015 is $13,300,000. In addition to important general assumptions that apply to this appraisal and our valuations in general, the value is subject to the extraordinary assumption and hypothetical conditions described earlier in this discussion of the nature of the assignment. FINAL August 18, 2015 Nature of the Assignment Narrative Appraisal Report Toyota Field – San Antonio, Texas 1-9 Convention, Sports & Entertainment Facilities Consulting Chicago, Illinois 2. Description of Real Estate Land The suitability of the land for the operation of a stadium is an important consideration affecting the economic viability of a property and its overall value. Factors such as size, topography, access, visibility, and the availability of utilities have a direct impact on the desirability of a particular site. The subject property is located in San Antonio, Texas near the intersection of Thousand Oaks Drive and Wurzbach Parkway. The street address of Toyota Field is 5106 David Edwards Drive, San Antonio, Texas 78233. The site is approximately two miles east of San Antonio International Airport and eleven miles northeast of downtown San Antonio. Physical Characteristics The subject site measures approximately ** acres. The stadium is surrounded by surface parking primarily used for Toyota Field events. Immediately adjacent are Morgan’s Wonderland (a theme park which is fully accessible to persons with disabilities), the South Texas Area Regional (”STAR”) Soccer Complex, and the Children’s Rehabilitation Institute of TeletonUSA. Heroes Stadium, owned by the NEISD, is located across Thousand Oaks Drive. AERIAL PHOTOGRAPH FINAL August 18, 2015 Description of Real Estate Narrative Appraisal Report Toyota Field – San Antonio, Texas 2-1 Convention, Sports & Entertainment Facilities Consulting Chicago, Illinois VIEW FROM SITE TO THE WEST VIEW FROM SITE TO THE EAST VIEW FROM SITE TO THE NORTH VIEW FROM SITE TO THE SOUTH Zoning FINAL August 18, 2015 According to the City of San Antonio Zoning Map, the subject property is zoned as follows: Entertainment District. We assume that all necessary permits and approvals have been secured (including an appropriate liquor license) and that the subject property was constructed in accordance with local zoning ordinances, building codes, and all other applicable regulations. Our zoning analysis should be verified before any financial transaction. Description of Real Estate Narrative Appraisal Report Toyota Field – San Antonio, Texas 2-2 Convention, Sports & Entertainment Facilities Consulting Chicago, Illinois ZONING MAP Source: City of San Antonio According to the San Antonio Zoning Code; this zoning designation includes “Districts which include as a primary use a theme park or destination resort that is developed as a regional tourist entertainment facility.” Improvements The quality of a spectator stadium has a direct influence on its ability to generate event demand and revenues. The design and functionality of the structure can also affect operating efficiency and overall profitability. This section investigates the subject property's physical improvements and personal property in an effort to determine how they contribute to total value. Property Overview Toyota Field opened in 2013, has a seating capacity of approximately 8,000 seats and a maximum attendance capacity of approximately 9,000, including standing room sections. As a part of the 8,000 seats, the property also contains 16 luxury suites with a total capacity of 292 spectators and 864 club seats. Other spectator areas include a field level Beer Garden, suite level observation terrace, and VIP lounge, and bar. Other public areas include permanent and portable concessions stands, portable merchandise stands, restrooms, and box office. Back of house spaces include four locker rooms, two performer green rooms, press box with four commentary booths, broadcast production room, loading dock, administrative offices, storage, and all necessary physical plant and other back of house spaces. Playing surface is a FIFA regulation sized field (70 x 110 yards) with TifSport hybrid Bermuda grass and in-ground drainage and irrigations system. FINAL August 18, 2015 Description of Real Estate Narrative Appraisal Report Toyota Field – San Antonio, Texas 2-3 Convention, Sports & Entertainment Facilities Consulting Chicago, Illinois FRONT OF STADIUM VIEW OF FIELD FROM BEER GARDEN WEST SEATING, VIP SUITES & PRESS BOX EAST SEATING FINAL August 18, 2015 Description of Real Estate Narrative Appraisal Report Toyota Field – San Antonio, Texas 2-4 Convention, Sports & Entertainment Facilities Consulting Chicago, Illinois NORTH SEATING AND SCOREBOARD WHEELCHAIR AND COMPANION SEATING MAIN CONCOURSE MAIN CONCOURSE FINAL August 18, 2015 Description of Real Estate Narrative Appraisal Report Toyota Field – San Antonio, Texas 2-5 Convention, Sports & Entertainment Facilities Consulting Chicago, Illinois SUITE SEATING SUITE INTERIOR VIP SUITE CONCOURSE VIP TERRACE FINAL August 18, 2015 Description of Real Estate Narrative Appraisal Report Toyota Field – San Antonio, Texas 2-6 Convention, Sports & Entertainment Facilities Consulting Chicago, Illinois Flood Zone According to the Federal Emergency Management Agency map illustrated below, the subject site is located in flood Zone X. Site areas appear to be outside the 0.2 percent annual chance flood plain. FLOOD MAP Source: Federal Emergency Management Agency ADA and Environmental According to information provided by management representatives, there are no environmental hazards present in the subject property's improvements and none were observed by the appraiser. The property reportedly complies with the Americans with Disabilities Act. Functional Obsolescence Due to the age of the subject property, which was constructed roughly 3 years ago, we expect minimal functional obsolescence. Upon our inspection, we found it in excellent condition. No major components or aspects of the property significantly limit its profitability or ability to compete for events. The stadium features a modern layout and design with dual concourses and premium seating options and amenities that are appropriate for the San Antonio market. There are adequate concessions points of sale with a variety of food and beverage options. The location of the venue is convenient and accessible, and parking capacity is sufficient for all events. Back of house areas, including loading dock, marshaling, FINAL August 18, 2015 Description of Real Estate Narrative Appraisal Report Toyota Field – San Antonio, Texas 2-7 Convention, Sports & Entertainment Facilities Consulting Chicago, Illinois storage, locker rooms, and other employee areas are consistent with newly constructed venues. Capital Expenditures Our analysis specifically assumes that the stadium will require ongoing renovations in order to maintain its position in the market, as forecast in this report. These costs should be adequately funded by the forecasted capital maintenance reserve. Conclusion Overall, the subject property offers a well-designed, functional layout of public areas, revenue generating points-of-sale, premium amenities, and back of house support areas. No areas of functional obsolescence were noted. FINAL August 18, 2015 Description of Real Estate Narrative Appraisal Report Toyota Field – San Antonio, Texas 2-8 Convention, Sports & Entertainment Facilities Consulting Chicago, Illinois 3. Market Area Overview This market area analysis review reviews economic and demographic data that describe the overall condition of the local economy in San Antonio, Texas. Texas The characteristics of the area economy and trends that indicate growth or decline provide indicato indicators of the performance of North American Soccer League (“NASL”) stadium. HVS analyzed the following indicators: population, income, ethnicity, age, work force characteristics, major businesses,, and employment levels. levels HVS also analyzed current trends in San Antonio’s ’s sports and entertainment industries, including competing venues and recent demand levels. Market Area Definition The market area for a sports stadium consists of the geographical region that constitutes the primary source of demand for a venue venue. For the purposes of this study, HVS defined the market area as the San Antonio metropolitan area which includes the Texas counties of Bexar, Kendall, Cornal, Guadalupe, Wilson, Atascosa, Medina, and Bandera Bandera. The following map shows the market area. MAP OF MARKET AREA FINAL August 18, 2015 Market Area Overview Narrative Appraisal Report Toyota Field – San Antonio, Texas 3-1 Convention, Sports & Entertainment Facilities Consulting Chicago, Illinois Often regarded as the Heart of Texas, San Antonio’s historic past and cosmopolitan present symbolize the rich heritage of the state. Visitors by the millions enjoy the city's meandering San Antonio River Walk, the eighteenth-century Spanish missions, and the Alamo. The coexistence of the old and the new is one reason San Antonio is an attractive place to relocate or visit. The San Antonio area is part of the greater south-central Texas economic base, which exhibited resiliency during the recent national recession. San Antonio features a variety of industries and employers. Some are national in scope, while others operate on a more local basis. Many are engaged in high-tech research and manufacturing, and others are active in education, health care, defense, and government. Population and Income HVS used Esri data to analyze demographics of populations in the San Antonio MSA. Esri Business Analyst Online is a well-regarded forecasting service that applies GIS technology to produce extensive demographic, consumer spending and business data analyses. ESRI employs a sophisticated location-based model to forecast economic and demographic trends. ESRI bases historical statistics on U.S. census data, the American Community Survey, and other primary research. The size of the resident population surrounding a sports venue is an important indicator of demand potential for all types of usage, including professional sports, amateur sports, concerts, and community events. Income levels affect the ability of a market to support a sports venue because attendees tend to be from households with higher levels of disposable income. A healthy and diversified economy provides not only employment and disposable income for a market’s residents, but also helps to insulate an area from economic downturns that could negatively affect facility demand. Trends in median household income indicate growth or decline in the capacity of area residents to attend sporting events. The following figure presents population and median household income statistics for the market area. Population growth rates and income levels for the State of Texas and the entire U.S. are provided for reference. FINAL August 18, 2015 Market Area Overview Narrative Appraisal Report Toyota Field – San Antonio, Texas 3-2 Convention, Sports & Entertainment Facilities Consulting Chicago, Illinois FIGURE 3-1 POPULATION DEMOGRAPHICS Population Market San Antonio Metro Texas United States Median Household Income ($) 2015 2020 Annual Growth Rate 2015 2020 Annual Growth Rate 2,318,052 26,964,627 318,536,439 2,524,054 29,078,165 330,622,575 1.72% 1.52% 0.75% 52,913 53,616 53,217 60,771 61,681 60,683 2.81% 2.84% 2.66% Source: Esri San Antonio’s population base is enjoying a strong growth rate, which is above both state and national levels. The 2.3 million people living in the San Antonio MSA have a median household income on par with that for the entire State of Texas and slightly below the national average. Age Distribution and Ethnicity FINAL August 18, 2015 The success of a sports venue lies in its ability to develop event programming that appeals to a significant portion of its population. A market’s age distribution can be a decisive factor in determining potential event demand and provide insight into the types of events and programs that the market will support. A market with strong youth and teen populations suggest a stronger demand for family-oriented programming and higher participation rates in amateur sports programs. A market with a strong young adult population indicates increased demand for spectator sporting events, concerts, and other entertainment. In general, a younger population base represents a positive sign for sports facility demand. The following figure presents the population distribution by age for the market area, the State of Texas, and the entire country. Market Area Overview Narrative Appraisal Report Toyota Field – San Antonio, Texas 3-3 Convention, Sports & Entertainment Facilities Consulting Chicago, Illinois FIGURE 3-2 POPULATION AGE DISTRIBUTION Age Range Market Percentage of Population 0-9 San Antonio Texas U.S. 14.8% 15.4% 13.1% 10-24 San Antonio Texas U.S. 22.4% 22.2% 20.8% 25-44 San Antonio Texas U.S. 27.3% 28.2% 26.6% 45-64 San Antonio Texas U.S. 24.4% 24.0% 26.4% Over 64 San Antonio Texas U.S. 11.0% 10.4% 13.0% Median Age 34.8 34.3 37.9 Source: Esri The age distribution in San Antonio is equivalent to that for the State of Texas. Compared to the entire nation, Texas and San Antonio have younger population bases with strong youth and young adult populations. Education and Employment FINAL August 18, 2015 The characteristics of an area's workforce provide an indication of the overall stability of the income levels for the resident population. Areas with higher education levels and a predominance of professional occupations in a variety of industries tend to respond to and recover from market shifts more readily than those which rely on employment from a single sector, such as manufacturing. The following figures present a comparison of educational attainment and employment by occupation for the San Antonio MSA, the State of Texas, and the U.S. Market Area Overview Narrative Appraisal Report Toyota Field – San Antonio, Texas 3-4 Convention, Sports & Entertainment Facilities Consulting Chicago, Illinois FIGURE 3-3 EDUCATIONAL ATTAINMENT San Antonio Metro Texas U.S. No HS Diploma HS Graduate 15.7% 25.5% 17.7% 25.2% 13.2% 27.7% Some College 23.7% 22.5% 21.0% Associate's Degree 7.4% 6.5% 8.2% Bachelor's Degree Graduate/Professional Degree 17.7% 10.0% 18.6% 9.5% 18.6% 11.4% Source: Esri A slightly lower percentage of San Antonio residents hold a post-secondary degree, as compared with the entire U.S. population. San Antonio residents are generally more educated than those living throughout Texas, with more residents graduating high school and pursuing higher education. FIGURE 3-4 EMPLOYMENT BY OCCUPATION White Collar Services Blue Collar Total Workforce (16+) San Antonio Metro Texas U.S. 60.6% 18.9% 20.5% 59.0% 17.8% 23.2% 60.3% 18.3% 21.4% 1,034,508 12,463,907 147,789,353 Source: Esri FINAL August 18, 2015 Market Area Overview Narrative Appraisal Report Toyota Field – San Antonio, Texas 3-5 Convention, Sports & Entertainment Facilities Consulting Chicago, Illinois FIGURE 3-5 EMPLOYMENT BY INDUSTRY San Antonio Metro Texas U.S. 1.2% 7.8% 6.3% 2.5% 12.0% 4.6% 1.8% 8.8% 49.2% 5.7% 3.5% 8.0% 9.4% 2.8% 11.5% 5.4% 1.7% 6.6% 46.7% 4.3% 2.0% 6.4% 10.6% 2.5% 11.6% 5.0% 2.0% 6.6% 48.5% 4.8% 1,034,508 12,463,907 147,789,353 Agriculture/Mining Construction Manufacturing Wholesale Trade Retail Trade Transportation/Utilities Information Finance/Insurance/Real Estate Other Services Public Administration Total Workforce (16+) San Antonio’s workforce includes an above average percentage of white-collar professions with a larger percentage of employment in the Finance, Insurance, and Real Estate industry. Major Business and Industry Providing additional context for understanding the nature of the regional economy, the following table presents a list of the major private employers in the San Antonio market area. FIGURE 3-6 MAJOR EMPLOYERS Number of Employees Firm H-E-B USAA Methodist Healthcare System Baptist Health System JP Morgan Chase Wells Fargo ATT Bill Miller BBQ Valero Energy Christus Santa Rosa Health Care Rackspace Toyota Motor Manufacturing Clear Channel Communications Boeing Southwest Research Institute 20,000 17,000 8,118 6,498 5,200 5,153 4,200 4,190 3,700 3,360 3,300 2,900 2,800 2,800 2,700 Source: San Antonio Business Journal, 2015 Book of Lists FINAL August 18, 2015 Market Area Overview Narrative Appraisal Report Toyota Field – San Antonio, Texas 3-6 Convention, Sports & Entertainment Facilities Consulting Chicago, Illinois The San Antonio economy has a diversified corporate base representing a wide breadth of industries. The 15 largest private employers include national and regional headquarters. A strong corporate presence is a positive indicator for ticket sales, premium seat sales, and corporate sponsorships. Unemployment Statistics Unemployment statistics provide a measure of the health of the local economy and comparisons to state and national trends. The following table presents historical unemployment rates for the market area. FIGURE 3-7 UNEMPLOYMENT STATISTICS 12% 10% 8% 6% 4% 2% 0% 2005 2006 2007 2008 2009 San Antonio MSA 2010 Texas 2011 2012 2013 2014 U.S. The San Antonio unemployment rate historically tracked about equal to that of the entire U.S. Like the rest of the country, the San Antonio MSA experienced a dramatic increase in unemployment in 2009 peaking at 7.2 percent in 2010, which was well below the national unemployment peak of 9.6 percent. Recent signs of employment recovery suggest local unemployment levels will return to prerecession levels faster than the rest of the country. Sports Venues and Teams FINAL August 18, 2015 San Antonio has a long history of successfully supporting sports teams and events. Since 1993, the City has hosted the annual Alamo Bowl football game, which currently pits teams from the Pacific 12 and Big 12 Conferences. In 2004 and 2008, the city hosted the NCAA Men’s Final Four Championship. Other major NCAA events include regional basketball tournaments, soccer, volleyball, and track and field championships. Market Area Overview Narrative Appraisal Report Toyota Field – San Antonio, Texas 3-7 Convention, Sports & Entertainment Facilities Consulting Chicago, Illinois A sports stadium is not a common land use in the San Antonio metropolitan area. In the San Antonio Metro area, in aaddition ddition to Toyota Field, Nelson Wolff Municipal Stadium offers 9,200 seats. This baseball stadium is not comparable to the soccer specific Toyota Field with respect to its amenities and ability to host soccer events. Competition among these two facilities is minimal as they may occasionally compete for concerts and other entertainment events. In addition to the San Antonio Scorpions of the NASL NASL, which play home matches at Toyota Field, the San Antonio market contains five professional sports franchises which ch play home games in three professional sports venues. FIGURE 3-8 SAN ANTONIO PROFESSIONAL SPORTS VENUES AT&T Center Tenants: Spurs (NBA) Silver Stars (WNBA) Rampage (AHL) Basketball Capacity: 18,580 Opened: 2002 Alamodome Tenant: Talons (AFL) Football Capacity: 65,000 Basketball Capacity: 20,660 Opened: 1993 FINAL August 18, 2015 Market Area Overview Narrative Appraisal Report Toyota Field – San Antonio, Texas 3-8 Convention, Sports & Entertainment Facilities Consulting Chicago, Illinois Nelson Wolff Municipal Stadium Tenant: Missions (AA Baseball) Baseball Capacity: 9,200 Opened: 1994 Recent attendance figures for San Antonio’s ’s professional sports teams indicate that average attendance levels range from 40 to 99 percent of venue capacity. FIGURE 3-9 SAN ANTONIO PROFESSI PROFESSIONAL SPORTS AVERAGE ATTENDANCE* ATTENDANCE Team Spurs Stars Rampage Missions Talons Scorpions League 2011 2012 2013 2014 NBA WNBA AHL AA Baseball AFL NASL 18,314 8,041 6,411 4,190 18,396 8,751 7,134 4,203 7,321 9,176 18,431 7,850 7,067 4,440 7,715 6,937 18,415 7,719 7,001 4,269 6,347 6,754 * By year in which the playing season ended. Source: Respective teams and leagues Concert Venues San Antonio benefits from its location in southern Texas and proximity to the state’s other major entertainment nment markets, making it a popular stop for touring shows. The following figure presents the primary entertainment venues in the market. FIGURE 3-10 CONCERT VENUES IN SAN ANTONIO Max. Concert Capacity Venue Alamodome AT&T Center Freeman Coliseum Whitewater Amphitheater Sunken Gardens Amphitheater 65,000 18,000 11,700 5,000 4,800 Source: Pollstar, Respective Venues FINAL August 18, 2015 Market Area Overview Narrative Appraisal Report Toyota Field – San Antonio, Texas 3-9 Convention, Sports & Entertainment Facilities Consulting Chicago, Illinois In addition to the above venues, occasional concerts and other entertainment events are hosted at Hemisfair Park and a variety of smaller theaters and clubs. Other outdoor venues, including Wolff Memorial Stadium and Alamo Stadium, do not host concerts and other entertainment events. The following figures present a summary of the historical concert demand, attendance, and average ticket prices from these five venues over the past three years. In the following figures, Sunken Gardens Amphitheatre does not report events to Pollstar, and attendance and ticket information is not available for the venue. FIGURE 3-11 NUMBER OF CONCERTS AT&T Center Freeman Coliseum Alamodome Whitewater Amphitheatre Sunken Gardens Amphitheater 50 20 12 5 22 44 10 14 8 4 2011 22 41 2012 4 5 3 2013 Source: Pollstar FINAL August 18, 2015 Market Area Overview Narrative Appraisal Report Toyota Field – San Antonio, Texas 3-10 Convention, Sports & Entertainment Facilities Consulting Chicago, Illinois FIGURE 3-12 AVERAGE CONCERT ATTENDANCE AT&T Center Freeman Coliseum Alamodome 14,334 Whitewater Amphitheatre 34,400 73,100 9,743 8,678 7,163 4,446 7,134 3,972 3,972 3,465 1,839 2012 2013 2014 Source: Pollstar FIGURE 3-13 AVERAGE CONCERT TICKET PRICE AT&T Center Freeman Coliseum Alamodome Whitewater Amphitheatre $99 $79 $59 $58 $66 $58 $45 $27 2012 $39 $29 $25 2013 $31 2014 Source: Pollstar The primary concert venue in San Antonio is the AT&T Center. Including concerts during the annual San Antonio Stock Show and Rodeo, the venue hosts between 40 and 50 shows per year. The 5,000 seat Whitewater Amphitheatre hosts over 20 shows, most of which are promoted in-house. In 2013, the Alamodome hosted a George Strait concert which attracted over 73,000 attendees. In 2014, Freeman FINAL August 18, 2015 Market Area Overview Narrative Appraisal Report Toyota Field – San Antonio, Texas 3-11 Convention, Sports & Entertainment Facilities Consulting Chicago, Illinois Coliseum hosted seven performances of Cirque du Soleil. Aside from these special events, the Alamodome, Freeman Coliseum, and Sunken Gardens Amphitheater are used sporadically, currently hosting only a handful of events each year. Conclusion San Antonio’s growing population base enjoys strong employment levels and an average income which is about equal to that found in other parts of Texas, but lower than the national average. Current income levels suggest less disposable income and a lower propensity to spend on events at the stadium. But growth projections indicate that San Antonio’s median household income will exceed the national average by 2018. Higher education levels and a young average age of the population are positive factors for potential soccer demand. The San Antonio market benefits from a well-diversified corporate base comprised of several regional and national corporate headquarters and other major employers. This corporate base not only provides employment stability, as reflected in the market’s relatively low unemployment, but is also a positive indicator for potential ticket sales and corporate sponsorship opportunities at the stadium. With six professional teams, including the NBA’s San Antonio Spurs, the market has demonstrated strong support for its sports teams. In addition, San Antonio traditionally hosts annual sporting events, including the Alamo Bowl and NCAA championship events. San Antonio’s established presence in sports and proven ability to attract major sporting events suggest that the market would continue to support quality sports competition. FINAL August 18, 2015 Market Area Overview Narrative Appraisal Report Toyota Field – San Antonio, Texas 3-12 Convention, Sports & Entertainment Facilities Consulting Chicago, Illinois 4. Comparable Venues This analysis of comparable venues and markets provides a basis for forecasts of event demand and financial operations. The analysis compares the seating capacities, premium seating amenities, and characteristics of the markets relevant to the success of the comparable venues. It concludes with an assessment of the relative strengths and weaknesses of San Antonio as a market for a North American Soccer League (“NASL”) team. Profiles of professional soccer stadiums provide a basis for assessing the necessary building program. HVS analyzed the venues which are currently used by NASL teams, many of which are owned and operated by an outside organization, such as a university. HVS analyzed the following venues. FIGURE 4-1 CURRENT NASL STADIUMS Name of Venue Location TD Place Stadium Lockhart Stadium Michael Carroll Stadium James M. Shuart Stadium Baseball Grounds of Jacksonville National Sports Center Toyota Field Al Lang Stadium WakeMed Soccer Park Atlanta Silverbacks Park Clarke Stadium Ottawa Fort Lauderdale Indianapolis New York Jacksonville Minneapolis San Antonio Tampa Raleigh Atlanta Edmonton Soccer Seating Capacity 22,500 20,500 12,100 11,900 11,000 8,500 8,300 7,227 7,130 5,000 4,000 Sources: Respective Venues Originally constructed for purposes other than soccer, many of the above venues accommodate a variety of turf sports. Like the San Antonio Scorpios, a handful of NASL teams play in recently constructed soccer specific stadiums and many of the league’s teams are currently pursuing a move to a new soccer specific venue. The following figure provides an overview of age, size, field composition, and ownership of the current stadiums in the NASL. FINAL August 18, 2015 Comparable Venues Narrative Appraisal Report Toyota Field – San Antonio, Texas 4-1 Convention, Sports & Entertainment Facilities Consulting Chicago, Illinois FIGURE 4-2 OVERVIEW OF CURRENT NASL STADIUMS Ottawa 25,000 Fort Lauderdale Lockhart Stadium 20,500 Soccer Seating Capacity 20,000 15,000 10,000 New York Indianapolis James M. Shuart Stadium 11,900 Michael Carroll Stadium 12,100 Jacksonville Al Lang Stadium 7,227 5,000 0 1950 TD Place Stadium 22,500 Minneapolis National Sports Center 8,500 Baseball Grounds of Jacksonville 11,000 Raleigh WakeMed Soccer Park 7,130 Clarke Stadium 4,000 Tampa San Antonio Toyota Field 8,300 Silverbacks Park 5,000 Atlanta Edmonton 1960 1970 1980 1990 2000 Year Opened or Major Renovation Public Ownership Artificial Turf Private Ownership Natural Grass 2010 2020 Team pursuing move to soccer specific stadium Sources: Respective Venues FINAL August 18, 2015 Comparable Venues Narrative Appraisal Report Toyota Field – San Antonio, Texas 4-2 Convention, Sports & Entertainment Facilities Consulting Chicago, Illinois Some of the newest stadiums in the league, including Toyota Field in San Antonio, Silverbacks Park in Atlanta, and WakeMed Park in Cary, North Carolina are soccer specific venues. Other venues, including Lockhart Stadium in Fort Lauderdale and Al Lang Stadium in Tampa have undergone major renovations to prepare them for soccer use. Several NASL teams currently using older public stadiums are pursuing a move to a soccer specific venue. The New York Cosmos, currently playing at Hofstra University, have development plans for a 25,000-seat stadium in Queens and Nassau Counties. The Indy Eleven, currently playing at Indiana UniversityPurdue University Indianapolis, had a financing plan for a new stadium rejected by Indiana lawmakers in favor of a less costly renovation of their existing venue, Carroll Stadium. The renovation plan received approval earlier in 2015. The newest NASL team, the Jacksonville Armada, is currently playing its games at a minor league baseball stadium while it pursues development of a soccer specific venue. The NASL will also welcome Miami FC and Puerto Rico FC during the summer in 2016. Miami FC will play at an existing Miami stadium that has yet not been selected. Puerto Rico FC plans to play at Juan Ramón Loubriel Stadium, a 22,000 seat stadium about ten miles away from San Juan. Comparable Market Assessment Local area population data can provide evidence of a community’s overall economic size and ability to support professional sports. Population size can help determine the potential demand for the variety of events possible at Toyota Field. Population and income data can also provide a basis for understanding a community’s ability to support and sustain a stadium, the surrounding neighborhood, and market. The following figures present metropolitan population and median household income data for the metropolitan markets surrounding NASL stadiums. FIGURE 4-3 METRO POPULATIONS (MILLIONS) New York 20.0 Fort Lauderdale 5.8 Atlanta 5.5 Minneapolis 3.5 Tampa 2.9 San Antonio 2.3 Indianapolis 2.0 Jacksonville 1.4 Edmonton 1.3 Ottawa 1.3 Raleigh 1.2 Sources: Esri, Statistics Canada FINAL August 18, 2015 Comparable Venues Narrative Appraisal Report Toyota Field – San Antonio, Texas Sources: Esri, Sta 4-3 Convention, Sports & Entertainment Facilities Consulting Chicago, Illinois FIGURE 4-4 MEDIAN HOUSEHOLD INCOME ($) Edmonton Minneapolis New York Ottawa Raleigh Atlanta San Antonio Jacksonville Indianapolis Fort Lauderdale Tampa 74,845 67,890 65,898 65,436 60,746 56,889 52,913 52,099 51,452 49,033 46,755 Sources: Esri, Statistics Canada Source: Esri, S The NASL currently contains teams in market with a wide range of incomes and populations. San Antonio’s population size and median household income are below average for the set of NASL markets, but well within the bounds of existing markets in the league. Other market demographics may have an impact on demand potential for professional soccer. The following figures present a comparison of the composition of populations in the comparable markets. For certain data contained in this analysis, HVS only considered stadiums in U.S. markets. FIGURE 4-5 PERCENT HISPANIC POPULATION San Antonio Fort Lauderdale New York Tampa Atlanta Raleigh Jacksonville Indianapolis Minneapolis Ottawa Edmonton 56.1% 43.9% 24.3% 18.3% 10.7% 10.6% 6.9% 6.6% 5.8% na na Source: Esri As the most popular sport in the world, professional soccer has a strong following from many ethnic groups in the U.S., including Hispanics. San Antonio’s population has a relatively high percent of Hispanic residents, suggesting greater interest in the sport. As evidence to this, the San Antonio Scorpions have enjoyed one of the highest average attendance levels in the league during their first three seasons. FINAL August 18, 2015 Comparable Venues Narrative Appraisal Report Toyota Field – San Antonio, Texas 4-4 Convention, Sports & Entertainment Facilities Consulting Chicago, Illinois FIGURE 4-6 PERCENT WITH COLLEGE DEGREE Raleigh Minneapolis New York Atlanta Fort Lauderdale Indianapolis Jacksonville Tampa San Antonio Edmonton Ottawa 52.8% 49.8% 44.6% 43.3% 39.8% 39.5% 39.3% 37.7% 35.1% na na Source: Esri Sources: Esri, Statistic FIGURE 4-7 MEDIAN AGE San Antonio Raleigh Atlanta Edmonton Indianapolis Minneapolis Jacksonville New York Ottawa Fort Lauderdale Tampa 34.8 35.8 35.9 36.5 36.7 37.0 38.3 38.4 39.2 40.8 42.4 Source: Esri, Statistics Canada Sources: R FIGURE 4-8 ENTERTAINMENT/RECREATION SPENDING New York Minneapolis Raleigh Atlanta Fort Lauderdale San Antonio Indianapolis Jacksonville Tampa Ottawa Edmonton 137 124 116 108 98 96 96 93 86 na na Source: Esri A spending index of 100 is the average for the entire U.S. FINAL August 18, 2015 Comparable Venues Narrative Appraisal Report Toyota Field – San Antonio, Texas 4-5 Convention, Sports & Entertainment Facilities Consulting Chicago, Illinois The San Antonio market has a relatively low percentage of residents with a college degree and a relatively young population base. Esri data indicates that San Antonio’s actual per capita spending on entertainment and recreation is just below the national average. Spending in the market is well below that of several larger, more affluent population bases in the NASL, but on par with similarly sized markets. The density and breadth of a city’s corporate base indicates demand for potential ticket sales and corporate sponsorships. The following figure compares San Antonio’s corporate base to that in the comparable NASL markets. FIGURE 4-9 NUMBER OF BUSINESS ESTABLISHMENTS New York 867,472 Fort Lauderdale 298,907 Atlanta 249,625 Minneapolis 139,856 Tampa 117,984 San Antonio 77,860 Indianapolis 70,181 Jacksonville 60,087 Raleigh 48,647 Edmonton 35,561 Ottawa 26,814 Source: Esri, Statistics Canada Sou While San Antonio has a relatively large number of large corporations and corporate headquarters, the overall number of business establishments is about average. NASL Attendance The NASL schedule consists of a split season format which consists of a ten game spring season and an 18 game fall season. This format amounts to 14 regular season home games per year. Teams often schedule exhibition matches with one another, an international team, or other professional teams. A number of factors contribute to attendance figures for professional sports, including those presented in the above analysis. Intangible factors also play a role, including competition from other professional and collegiate sports opportunities in the market, stadium location and relative ease of access, and the quality of the competition. Overall, average attendance at NASL games has been climbing steadily since the league began play in the spring of 2011. As new teams enter the league, they often experience a novelty effect during the first few seasons. The Indy Eleven, a 2014 entrant into the NASL has enjoyed home attendance levels well above 10,000 FINAL August 18, 2015 Comparable Venues Narrative Appraisal Report Toyota Field – San Antonio, Texas 4-6 Convention, Sports & Entertainment Facilities Consulting Chicago, Illinois spectators. The Jacksonville Armada averaged over 9,700 attendees during its inaugural season in the spring of 2015. The following figure presents the average attendance figures for each of the NASL team participating in the 2014 and 2015 seasons. FIGURE 4-10 AVERAGE NASL TEAM ATTENDANCE Spring 2014 Fall 2014 Spring 2015 12,000 10,000 8,000 6,000 4,000 2,000 0 NASL average attendance levels vary by market and is often dictated by stadium capacity. Overall, in the most recent season, NASL games drew an average of around 6,500 attendees. The San Antonio Scorpions are on par with the league’s average attendance level. Premium Seating Assessment FINAL August 18, 2015 Only a few NASL teams have premium seating programs, which include season leases for luxury suites and club seating. These programs are typically present in newer stadiums. The following figure provides an overview of current premium seating programs in the NASL. Comparable Venues Narrative Appraisal Report Toyota Field – San Antonio, Texas 4-7 Convention, Sports & Entertainment Facilities Consulting Chicago, Illinois FIGURE 4-11 NASL PREMIUM SEATING Team Atlanta Silverbacks Carolina RailHawks Ft. Lauderdale Strikers Indy Eleven Jacksonville Armada San Antonio Scorpions Tampa Bay Rowdies Number of Suites Capacity Pricing Club Seats 0 6 8 12 12 16 1 na 25 to 30 24 (open air) 20 20 14 to 24 30 na $20,000-30,000 $350 per season ticket $30,000-50,000 $25,000 $22,000-32,000 $50 per game 232 1500 na na 188 864 60 Sources: Respective Teams The San Antonio Scorpions offer a variety of premium seating options with luxury suites and club seats available for a season lease. Other newer entrants in the league, including the Indy Eleven and Jacksonville Armada also offers several suites ranging in price from $22,000 to $50,000 per season. Depending on availability, other teams offer various premium seating options on a per game or per season ticket basis. As an alternative, several teams sell terrace or “beer garden” seats at tables overlooking the pitch on a per game or season basis. To assess San Antonio’s premium seating potential, HVS expanded its comparable research to include several comparably sized cities which have a variety of professional and major collegiate sports teams. The following figure compares the total number of suites available in all sports venues for each market. FINAL August 18, 2015 Comparable Venues Narrative Appraisal Report Toyota Field – San Antonio, Texas 4-8 Convention, Sports & Entertainment Facilities Consulting Chicago, Illinois FIGURE 4-12 NUMBER OF MARKET-WIDE LUXURY SUITES FOR ALL SPORTS 310 248 255 166 123 80 123 132 137 137 82 The above figure demonstrates that San Antonio has an average number of suites when compared to the ten comparable markets. Its suite inventory is on par with Salt Lake City and Jacksonville. Other markets which have an NFL franchise, Kansas City and Indianapolis, both have a significantly greater number of suites than that of San Antonio. Luxury suite sales can depend on both population size and corporate presence. The following figures present the number of suites in each market as compared to total metro population and to the total number of business establishments in the metro area. FINAL August 18, 2015 Comparable Venues Narrative Appraisal Report Toyota Field – San Antonio, Texas 4-9 Convention, Sports & Entertainment Facilities Consulting Chicago, Illinois FIGURE 4-13 LUXURY SUITES PER POPULATION SIZE Number of Suites per 10,000 in Population 1.80 1.60 1.40 1.20 1.00 0.80 Louisville Columbus Kansas City Raleigh Indianapolis Salt Lake City Milwaukee San Antonio Jacksonville 0.60 Okahoma City 0.40 0.20 San Jose 0.00 FIGURE 4-14 LUXURY SUITES PER NUMBER OF BUSINESSES Number of Suites per 1,000 Businesses 3.50 Louisville 3.00 Kansas City 2.50 Raleigh 2.00 Milwaukee 1.50 ​ Indianapolis Salt Lake City San Antonio Jacksonville 1.00 0.50 Okahoma City San Jose 0.00 Sources: Respective venues and Esri The above figures demonstrate that, based on population and corporate presence, San Antonio has a relatively low number of luxury suites for its size. The Scorpions have current lease agreements for 12 of their 16 suites. Concert Assessment FINAL August 18, 2015 Large seating capacities and other attendee amenities make sports arenas and stadiums ideal venues for touring concerts and other entertainment. While some shows are booked months in advance, many have much shorter lead times with promoters looking for certain dates based on other performances and locations. In Comparable Venues Narrative Appraisal Report Toyota Field – San Antonio, Texas 4-10 Convention, Sports & Entertainment Facilities Consulting Chicago, Illinois order to book concerts, sports venues must work around the established schedules of their primary tenants, including definite events and held dates for potential post season play. Outdoor grass venues, such as soccer stadiums, must also consider time and cost required to prepare the field prior to the event and to make any necessary field repairs after the event. No current NASL venue hosted a concert in 2014. Market factors play a role; however, some NASL stadium operators, including the current owner of Toyota Field, report that they have opted to not pursue concerts despite the market potential. HVS expanded its analysis to include MLS venues. The following figure presents a summary of the soccer markets which hosted concerts in 2014. FIGURE 4-15 SOCCER STADIUM CONCERTS / FESTIVALS IN 2014 7 Boston Denver 4 Columbus 4 3 Dallas Chicago 2 Kansas City 2 Seattle 1 Salt Lake City 1 Los Angeles 1 Source: Pollstar The above performances represent a mix of touring and locally promoted shows, as well as multiple-day, music and food festivals. Average attendance for these events is approximately 15,000. At 7 performances, Gillette Stadium in Boston hosted the greatest number of concerts in 2014. Other markets range from one to four concerts per year. While Toyota Field has not hosted concerts in the past, it could host approximately 8,000 concert attendees. The venue would be the largest outdoor venue in the market and could be a popular location for both music and food festivals. Conclusions and Implications for San Antonio FINAL August 18, 2015 The comparable analyses and market parameters presented in this section suggest that San Antonio is positioned in the mid-range of the economic and demographic parameters of current NASL markets. San Antonio’s overall market size and demographics reflect a mid-sized market with a size and composition suitable to Comparable Venues Narrative Appraisal Report Toyota Field – San Antonio, Texas 4-11 Convention, Sports & Entertainment Facilities Consulting Chicago, Illinois successfully support a professional soccer franchise and other events at Toyota Field. FINAL August 18, 2015 Comparable Venues Narrative Appraisal Report Toyota Field – San Antonio, Texas 4-12 Convention, Sports & Entertainment Facilities Consulting Chicago, Illinois 5. Demand Analysis HVS forecast the event demand for Toyota Field for a 10-year period, assuming that no major changes to the facility, tenant team, and league take place during the projection period. These demand projections are based on the event history of Toyota Field and research on the national comparable venues presented in the previous section of this report. Demand projections also assume that upon sale, new Toyota Field ownership would employ an in-house management team to manage and operate the venue. Historical Demand Toyota Field provided HVS with a list of events that occurred at the facility since its opening in 2013 through year to date events in 2015. Toyota Field has the capability to host concerts and music festivals; however, current ownership has not pursued these events. The single non-NASL event held at Toyota Field was a 2014 NCAA regional soccer tournament. Toyota Field ownership was unable to provide attendance information for this event. The figure below summarizes the event and attendance history at Toyota Field. FIGURE 5-1 TOYOTA FIELD EVENT AND ATTENDANCE HISTORY Year-to-date 2013 Events NASL Matches Other Pro/Collegiate Soccer Concerts & Festivals Total 2014 16 2015 16 23 11 11 Average Attendance NASL Matches Other Pro/Collegiate Soccer Concerts & Festivals 6,450 - 6,460 na - 5,810 - Total Attendance NASL Matches Other Pro/Collegiate Soccer Concerts & Festivals Total 103,250 103,250 142,210 na 142,210 63,880 63,880 - 22 1 Average attendance at San Antonio Scorpions matches was stable during its first two seasons at Toyota Field and has dropped off slightly in 2015. Total Attendance FINAL August 18, 2015 Demand Analysis Narrative Appraisal Report Toyota Field – San Antonio, Texas 5-1 Convention, Sports & Entertainment Facilities Consulting Chicago, Illinois at tenant sporting events reflects the success of the team during a particular season and the amount of post-season play. Demand Projections Based on historical Toyota Field demand, industry trends, and an analysis of comparable venues, HVS developed the following demand projections for the tenyear period beginning January 1, 2016 and ending December 31, 2025. Event demand is often cyclical, based on rotation patterns and market conditions. Therefore, HVS recommends interpreting the demand projections as a mid-point of a range of possible outcomes and over a multi-year period rather than relying on projections for any one specific year. Actual demand in a given year may move above or below this average. For tenant sports, this fluctuation is typically due to the success of the team and the extent to which the team takes part in post-season play. For concerts and other entertainment, historical demand data demonstrates that a year of high event demand may be immediately followed by a dip in demand due to the fact that touring shows have already performed in a city and may not return to repeat the performance. Attendance can also be affected by unpredictable local and national economic factors. The following figure presents the average annual demand projected for the ongoing Toyota Field operation. A brief description of event types and demand assumptions follows. FIGURE 5-2 TOYOTA FIELD DEMAND PROJECTIONS Average Annual Demand FINAL August 18, 2015 Events NASL Matches Other Pro/Collegiate Soccer Concerts & Festivals Total 19 2 2 23 Average Attendance NASL Matches Other Pro/Collegiate Soccer Concerts & Festivals 6,400 7,200 5,000 Total Attendance NASL Matches Other Pro/Collegiate Soccer Concerts & Festivals 121,600 14,400 10,000 Total 146,000 Demand Analysis Narrative Appraisal Report Toyota Field – San Antonio, Texas 5-2 Convention, Sports & Entertainment Facilities Consulting Chicago, Illinois NASL Matches—HVS assumes that the San Antonio Scorpions would continue play in the NASL. The NASL’s regular season schedule currently includes 14 matches. HVS conservatively estimates that the season would also include five additional matches, including pre-season exhibitions and post season play. HVS based average attendance on historical San Antonio Scorpion attendance data. Other Pro/Collegiate Soccer—Other pro/collegiate soccer matches may include matches between international clubs and off-season MLS competitions. NCAA and other collegiate tournaments would also be in this category Average attendance projections reflect that some matches would sell out the venue while others would draw lower attendance. Concerts & Festivals—Toyota field could host a variety of touring concerts and locally promoted outdoor music festivals. HVS projects these events based on the experience of other comparable stadiums which pursue these events. Conclusion FINAL August 18, 2015 Demand at Toyota Field is primarily driven by the operations of its tenant team. Event and attendance figures are highly dependent upon the success of the team and the quality of play. In a typical year, HVS projects that 23 stadium events would attract 146,000 attendees. Demand Analysis Narrative Appraisal Report Toyota Field – San Antonio, Texas 5-3 Convention, Sports & Entertainment Facilities Consulting Chicago, Illinois 6. Financial Analysis HVS uses a proprietary financial operating model to estimate revenues and expenses at stadiums other spectator venues. This model quantifies the key variables and operating ratios that determine revenue potential and expenses levels. All revenue and expense assumptions are expressed in 2015 dollars. Unless otherwise indicated, the model assumes an annual inflation rate of 2.5% applies to both operating revenues and expenses. For the purposes of this analysis, HVS assumes that Toyota Field will operate as an independent, publicly-owned entity. All third party contracts with the tenant teams, food service providers, and corporate sponsors will continue in effect through their maturity. Assumptions regarding contract renewal terms are presented individually in the appropriate discussion in this section. HVS further assumes that a qualified in-house management team will manage day-to-day operations of Toyota Field. Projections reflect all direct event revenues and expenses for the events described in Section 5. Projections also include all nonevent related revenues and non-operating expenses for activities that occur within the footprint of the venue as well as revenues generated from the operation of the surface parking lots adjacent to the venue and in lots surrounding Heroes Stadium. Projections also include expenses related to the long-term maintenance of the facility. Historical Financial Operations FINAL August 18, 2015 HVS obtained data on actual historical operations at Toyota Field for calendar years 2013 and 2014 and a projection through the end of 2015. Toyota Field operates under SOAR, a nonprofit corporation under the Gordon Hartman Family Foundation. The tenant team is a for profit company owned by Gordon Hartman. Food and beverage service is provided by a third party operator, Wonderland Concessions. Because of the relationship between entities, revenues and expenses have not always been accounted for consistently, and year to year distribution of revenues and shared expenses has varied. SOAR attempted to reconcile these discrepancies in the financial documents provided to HVS. SOAR currently distributes ticket sales revenue to the Scorpions via a flat appearance fee. HVS further noted that certain expenses, such as ticket sales fees and TV broadcast expenses, attributed to the operation of Toyota Field would normally be incurred by the tenant team. HVS restated revenues and expenses into line items organized into four categories: 1) event revenues, 2) operating expenses, 3) team share of revenues and expenses, and 4) indirect expenses. The following figure presents this restated financial data. This categorization of revenue and expense will be used consistently in the following financial projections to follow. Financial Analysis Narrative Appraisal Report Toyota Field – San Antonio, Texas 6-1 Convention, Sports & Entertainment Facilities Consulting Chicago, Illinois FIGURE 6-1 HISTORICAL FINANCIAL OPERATIONS Actual 2013 $ OPERATING REVENUE Ticket Sales Facility Rental Concessions (Net) Parking (Gross) Premium Seating Fees Advertising & Sponsorships Total OPERATING EXPENSES Salaries & Benefits Administrative & General Repair & Maintenance Contractual Services Utilities Insurance Other Expense Total OPERATING INCOME (LOSS) TEAM SHARE Ticket Sales * Operating Expenses * Other Team Expenses Total TOTAL NET INCOME (LOSS) Actual 2014 % of Total $ % of Total Budgeted 2015 $ % of Total $1,738,521 $3,250 $77,574 37,541 178,420 400,000 71.4% 0.1% 3.2% 1.5% 7.3% 16.4% $1,664,299 $39,726 $193,043 55,680 208,447 320,000 67.1% 1.6% 7.8% 2.2% 8.4% 12.9% $1,519,480 $4,040 $110,603 66,149 195,320 420,000 65.6% 0.2% 4.8% 2.9% 8.4% 18.1% $2,435,306 100.0% $2,481,195 100.0% $2,315,592 100.0% $193,090 160,584 74,774 268,978 109,760 6,300 210 7.9% 6.6% 3.1% 11.0% 4.5% 0.3% 0.0% $115,851 304,532 111,205 171,448 118,443 116,554 1,617 4.7% 12.3% 4.5% 6.9% 4.8% 4.7% 0.1% $155,668 35,676 76,502 166,647 117,653 153,299 1,925 6.7% 1.5% 3.3% 7.2% 5.1% 6.6% 0.1% $813,696 33.4% $939,650 37.9% $707,370 30.5% $1,621,610 66.6% $1,541,545 62.1% $1,608,222 69.5% ($1,440,000) -59.1% ($1,800,000) -72.5% ($1,805,000) -77.9% (101,415) -4.2% (18,888) -0.8% (24,899) -1.1% (171,633) -7.0% (198,610) -8.0% (219,937) -9.5% ($1,713,048) -70.3% ($2,017,498) -81.3% ($2,049,836) -88.5% ($91,438) -3.8% ($475,954) -19.2% ($441,614) -19.1% * Expenses that would normally be the responsibility of the tenant team. In 2014, Toyota Field generated a $476,000 loss with a similar deficit projected for 2015. This loss is due to the following factors. FINAL August 18, 2015  In 2014 and 2015, the team share of ticket sales paid via the flat appearance fee was higher than actual collections from ticket sales. Under a traditional stadium/tenant relationship, the tenant team would maintain 100% of ticket sales and pay rent for the use of the venue.  The tenant team would also be responsible for all costs associated with ticket sales, including marketing, printing, and postage. The above financial reflect that Toyota Field has been covering these costs for the team.  The net concessions revenue does not reflect a typical agreement with a third party food and beverage operator. Based on historical gross food and beverage Financial Analysis Narrative Appraisal Report Toyota Field – San Antonio, Texas 6-2 Convention, Sports & Entertainment Facilities Consulting Chicago, Illinois sales, a market based agreement would earn the facility a greater amount of net revenue. Operating Projections Several stadium revenues and expenses are split between a venue owner and its primary tenant. The distribution of venue revenues and expenses depends on several factors, including each party’s initial capital contribution towards the development and construction of the venue. For the purpose of this analysis, HVS assumes that the new owner covers all costs associated with the purchase of Toyota Field and enters into a long term Soccer User Agreement with the San Antonio Scorpions as the primary tenant. Event Revenues Event revenue line items include ticket sales, facility rental, food and beverage and merchandise commissions, ticket premiums and fees, parking fees, and advertising and sponsorships. HVS based its operating model on a series of revenue assumptions based on historical attendance, third party contracts, and other historical operating data. To formulate the revenue assumptions, HVS relied on historical revenue information provided by Toyota Field, knowledge of the performance of comparable venues, and information on price levels from local area sources. We adjusted the assumptions for inflation and other anticipated trends in price levels. The figure below summarizes revenue parameters by type of event. A brief description of each event revenue line item and corresponding assumptions follows. FIGURE 6-2 REVENUE ASSUMPTIONS Type NASL Matches Other Pro/Collegiate Soccer Concerts & Festivals per Attendee Facility Rental per Event Facility Rebates per Attendee Concessions (Net) per Attendee Catering (Net) per Event Merchandise (Net) per Attendee Parking (Gross) per Attendee Premium Seating Fees per Event $16.84 13.47 35.00 $0.00 8,000 8,000 $1.00 2.00 2.00 $1.18 1.18 1.73 $654.26 1,314.00 654.26 $0.31 1.50 8.00 $4.00 4.00 4.00 $11,772 10,335 10,335 Ticket Sales Ticket Sales—HVS assumes that ticket prices for NASL matches reflect historical ticket revenues per attendee. Ticket sales revenue from other events reflects local and industry averages for gross ticket prices. Prices do not include any service fees imposed by third-party ticketing services or sales taxes. FINAL August 18, 2015 Financial Analysis Narrative Appraisal Report Toyota Field – San Antonio, Texas 6-3 Convention, Sports & Entertainment Facilities Consulting Chicago, Illinois Facility Rental—Facility rental revenue includes the flat rent Toyota Field receives from event promoters and organizers that reserve the facility to host an event. Facility Rebates—Facility rebates are per ticket charges collected by the venue on top of the ticket price. The rebate charged varies by event type. Concessions (Net)—Net concession spending reflects the venue’s share of per capita spending by event attendees. HVS forecasts that, for all events, the venue would receive a commission of 30% of gross sales from an independent thirdparty food and beverage operator. HVS based gross per capita spending forecasts on historical data provided by the San Antonio Scorpions and its current provider, Wonderland Concessions, and industry averages. FIGURE 6-3 GROSS PER CAPITA CONCESSIONS SPENDING NASL Matches Other Pro/Collegiate Soccer Concerts & Festivals Concessions per capita Spending $3.92 3.92 5.75 Catering (Net)—Net catering revenues reflect the venue’s share of catering sales in luxury suites. HVS forecasts that, for all catering sales, the venue would receive a commission of 25 percent of gross sales from a third-party food and beverage operator. Event catering per capita spending only applies to suite patrons present at an event. The following figure provides the forecasts for this gross per capita spending and the number of catering attendees by event type. FIGURE 6-4 GROSS SPENDING PER SUITE GUEST ON CATERING NASL Matches Other Pro/Collegiate Soccer Concerts & Festivals Catering per capita Spending $11.95 20.00 11.95 Catering Attendees 219 263 219 Merchandise (Net)—Net spending on merchandise reflects the venue’s share of per capita spending by event attendees. For all events, merchandise sales would have a profit margin of 25%. We further forecast that event promoters for non- FINAL August 18, 2015 Financial Analysis Narrative Appraisal Report Toyota Field – San Antonio, Texas 6-4 Convention, Sports & Entertainment Facilities Consulting Chicago, Illinois team events would maintain 80% of merchandise income at their events. The figure below provides the forecasts for gross merchandise spending by event type. FIGURE 6-5 GROSS PER CAPITA SPENDING ON MERCHANDISE NASL Matches Other Pro/Collegiate Soccer Concerts & Festivals Merchandise per capita Spending $1.25 2.50 3.00 Parking (Gross)—Parking revenue represents the self-parking charges collected by the stadium at events. HVS forecasts that the stadium operator would charge a fee for event parking in all lots surrounding the stadium, including those surrounding Heroes Stadium on the NEISD land. Per the agreement, the stadium operator would operate parking in-house. If the operator charges a parking fee, the NEISD is entitled to 20% of total parking revenue collected not to exceed $500 per event. For those events which charge for parking, HVS forecasts a $10 per car parking fee and an average of 2.5 attendees per car. Premium Seating—Premium seating lease revenues reflect the long-term leases and use of 16 luxury suites at Toyota Field. Suite seat counts vary by suite with an average of 18 seats per suites. HVS forecasts that suite leases fees would include the cost of the ticket to NASL matches. For all other events at the stadium, suite leaseholders would have the option to occupy their suite for an additional fee collected by the stadium. In addition, any unused suites could be sold by the stadium on a per event basis. Premium seating revenue reflects the revenue collected over and above the cost of a game ticket. Toyota Field currently has lease agreements for 11 of its 16 suites. HVS forecasts that, on average, 12 of the suites would be occupied during Scorpion matches. The following figure provides other assumptions regarding suite utilization and per event fees. FIGURE 6-6 SUITE USE RATES AND COST Utilization Rate NASL Matches Other Pro/Collegiate Soccer Concerts & Festivals 75% 90% 75% Annual Fee $24,450 Suite Fee Per Event $1,391 1,500 1,500 In addition to the above revenues, the proposed stadium, in conjunction with the NASL team, would enter into advertising and sponsorship agreements with local FINAL August 18, 2015 Financial Analysis Narrative Appraisal Report Toyota Field – San Antonio, Texas 6-5 Convention, Sports & Entertainment Facilities Consulting Chicago, Illinois corporations and other groups. Advertising revenue includes revenues from the sale of fixed advertising signage throughout the venues. Revenue from naming rights and other facility sponsorship deals is also included in this line item. The advertising and sponsorship fee that a venue is able to charge depends upon the estimated number of events, the total attendance, and media exposure. The current sponsorship agreement with Toyota expires in 2022. HVS assumes that this agreement would be assigned to the new owner for the duration of the term. Beyond this date, HVS assumes that a new sponsorship agreement would produce revenue at 90% of the existing agreement with Toyota. Operating Expenses Operating expense line items include salaries and benefits as well as the other expenses necessary for the operation and maintenance of Toyota Field. Also included are the expenses associated with the various revenue sharing agreements with the tenant teams and other third party contracts. HVS used both historical Toyota Field expense data as well as industry knowledge of other venues to formulate expense projections. Certain expenses included in the historical operating data provided by Toyota Field do not reflect activities directly related to the ongoing operation of Toyota Field. For the purposes of this analysis, these expenses are not included in the HVS model. HVS estimated the operating expenses as a combination of fixed and variable components. Variable expenses are calculated as a percentage of certain operating revenues. The figure below summarizes the expense assumptions for Toyota Field. A brief description of each operating expense line item and corresponding assumptions follows. FINAL August 18, 2015 Financial Analysis Narrative Appraisal Report Toyota Field – San Antonio, Texas 6-6 Convention, Sports & Entertainment Facilities Consulting Chicago, Illinois FIGURE 6-7 OPERATING EXPENSE ASSUMPTIONS Expenditure Variable Expense OPERATING EXPENSES Salaries & Benefits Event Expenses Promoter Costs Parking Costs Administrative & General Repair & Maintenance Contractual Services Utilities Insurance Other Expense $0.00 $1.50 $0.00 $0.00 $0.00 $0.00 $0.00 $5.25 $0.50 $0.00 INDIRECT EXPENSE Capital Maintenance $0.00 ### $0 ### per ### ### ### ### ### per per ### $0 Attendance $0 $0 $0 $0 $0 None Attendance $0 Percentage Revenue 0.0% 0.0% 90.0% 15.0% 1.0% 1.3% 2.8% 1.0% 0.0% 0.0% Fixed Expense $0 $0 Ticket Sales Parking (Gross) Total Operating Rev Total Operating Rev Total Operating Rev Total Operating Rev $0 $0 $287,500 0 0 0 0 0 0 30,000 0 10,000 4.0% of Total Operating Rev $0 ### ### of of of of of of ### ### Salaries & Benefits—Salaries and benefits include all full and part-time employees dedicated to administration, marketing, building operations, and other functions. This category does not include wages for part time food & beverage staff which are included in the third party vendor costs. It also excludes part-time event staff and cleaning crews which are covered in Event Expenses. The following figure provides the staffing schedule used to develop this expense. FIGURE 6-8 STADIUM PERMANENT STAFF Position Number General Manager Office Manager/Ass't to GM Accountant/Box Office Manager Ticket Sales Personnel (part time) Operation Manager/Tech Total 1 1 1 2 1 6 Benefits TOTAL SALARY & BENEFITS Salary Total Salary $70,000 30,000 40,000 15,000 60,000 $70,000 30,000 40,000 30,000 60,000 230,000 25% 57,500 $287,500 Event Expenses—Event expenses include temporary event staff, cleaning crews, security, police, and other materials and services required to host an event. HVS based the per attendee cost on historical San Antonio Scorpion costs and industry averages. FINAL August 18, 2015 Financial Analysis Narrative Appraisal Report Toyota Field – San Antonio, Texas 6-7 Convention, Sports & Entertainment Facilities Consulting Chicago, Illinois Promoter Costs—Estimated as a percentage of gross ticket revenue, promoter costs include talent fees and promoter share of the gross box office receipts from non-tenant events. Parking Costs—Parking costs are the costs incurred by the venue to manage and operate event parking which typically consist of temporary staffing and equipment. Administrative & General—Office and administrative operations incur day-today facility expenses. Such expenses typically include travel, telephone, printing, permits, and professional and legal services. Repair & Maintenance—This category includes both routine and one-time facility maintenance expenses that are primarily the responsibility of in-house facility operations personnel. These activities include electrical work, carpentry, and mechanical maintenance. Contractual Services—Contractual services include any outsourced operations and maintenance services, such as system maintenance, landscaping, cleaning, and trash removal. Utilities—Utilities, including electricity, gas, water, and other charges often represent one of the largest expenses incurred by facility operators. Insurance—Insurance costs include property insurance and other liability insurance required for facility operations. Other—Other operating expenses may include collection costs, credit losses, bank fees, and other small miscellaneous expenses. Capital Maintenance—A capital maintenance reserve would cover long-term maintenance and repair projects as the facility ages. Operating Pro Forma Prior to Distribution FINAL August 18, 2015 The following figure presents the total stadium revenues and expenses for a stabilized year of demand in 2015 dollars. All operating revenue and expense figures are prior to distribution with the tenant team. Financial Analysis Narrative Appraisal Report Toyota Field – San Antonio, Texas 6-8 Convention, Sports & Entertainment Facilities Consulting Chicago, Illinois FIGURE 6-9 OPERATING PRO FORMA IN A STABILIZED YEAR - 2015 Stabilized Year OPERATING REVENUE Ticket Sales Facility Rental Facility Rebates Concessions (Net) Catering (Net) Merchandise (Net) Parking (Gross) Premium Seating Fees Advertising & Sponsorships $2,591,741 32,000 170,400 177,186 16,368 139,600 584,000 238,511 420,000 Total $4,369,805 OPERATING EXPENSES Salaries & Benefits Event Expenses Promoter Costs Parking Costs Administrative & General Repair & Maintenance Contractual Services Utilities Insurance Other Expense Distribution with Tenant Team FINAL August 18, 2015 $287,500 219,000 489,597 87,600 43,698 54,623 120,170 73,698 73,000 10,000 Total $1,458,885 NET INCOME BEFORE TEAM SPLIT $3,009,200 HVS assumed that the tenant team would have no capital investment into the purchase of Toyota Field or in its ongoing maintenance. The distribution of the above stadium revenues and expenses between the City and the tenant team, as set forth in the following chart, reflect that of a traditional tenant agreement with a non-equity professional sports franchise. Financial Analysis Narrative Appraisal Report Toyota Field – San Antonio, Texas 6-9 Convention, Sports & Entertainment Facilities Consulting Chicago, Illinois FIGURE 6-10 DISTRIBUTION OF REVENUES AND EXPENSES City Share Team Share STADIUM REVENUES Team ticket sales Other event ticket sales NASL game concession sales Other event concession sales NASL game catering sales Other event catering sales NASL game merchandise sales Other event merchandise sales NASL game parking Other event parking Premium seat annual leases Other event premium seating Advertising & sponsorships STADIUM EXPENSES NASL game event expenses Other event event expenses Other operating expenses Capital Maintenance TEAM ANNUAL RENT NASL Team 0% 100% 50% 100% 50% 100% 0% 100% 100% 100% 50% 100% 50% 100% 0% 50% 0% 50% 0% 100% 0% 0% 0% 50% 0% 50% 0% 100% 100% 100% 100% 0% 0% 0% $150,000 In addition to the distribution of stadium revenues and expenses, HVS assumes tenant rent at $150,000 per year which is consistent with comparable professional sports teams. Operating Pro Forma After Distribution Between City and Team FINAL August 18, 2015 The figure below presents a ten-year financial projection for Toyota Field after the distribution between the City and Team. The projections are in inflated dollars beginning January 1, 2016. An annual inflation rate of 2.5% applies to both revenues and expenses Financial Analysis Narrative Appraisal Report Toyota Field – San Antonio, Texas 6-10 Convention, Sports & Entertainment Facilities Consulting Chicago, Illinois FIGURE 6-11 TEN-YEAR FINANCIAL OPERATIONS 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 OPERATING REVENUE Ticket Sales Facility Rental Facility Rebates Concessions (Net) Catering (Net) Merchandise (Net) Parking (Gross) Premium Seating Fees Advertising & Sponsorships $2,656,500 32,800 174,700 181,600 16,800 143,100 598,600 271,600 430,500 $2,722,900 33,600 179,000 186,200 17,200 146,700 613,600 278,400 441,300 $2,791,000 34,500 183,500 190,800 17,600 150,300 628,900 285,400 452,300 $2,860,800 35,300 188,100 195,600 18,100 154,100 644,600 292,500 463,600 $2,932,300 36,200 192,800 200,500 18,500 157,900 660,700 299,800 475,200 $3,005,600 37,100 197,600 205,500 19,000 161,900 677,300 307,300 487,100 $3,080,800 38,000 202,600 210,600 19,500 165,900 694,200 315,000 499,200 $3,157,800 39,000 207,600 215,900 19,900 170,100 711,500 322,900 511,700 $3,236,700 40,000 212,800 221,300 20,400 174,300 729,300 331,000 524,500 $3,317,600 41,000 218,100 226,800 21,000 178,700 747,600 339,200 537,600 Total $4,506,200 $4,618,900 $4,734,300 $4,852,700 $4,973,900 $5,098,400 $5,225,800 $5,356,400 $5,490,300 $5,627,600 $294,700 224,500 501,800 89,800 45,100 56,300 123,900 75,800 74,800 10,300 $302,100 230,100 514,400 92,000 46,200 57,700 127,000 77,700 76,700 10,500 $309,600 235,800 527,200 94,300 47,300 59,200 130,200 79,700 78,600 10,800 $317,300 241,700 540,400 96,700 48,500 60,700 133,400 81,600 80,600 11,000 $325,300 247,800 553,900 99,100 49,700 62,200 136,800 83,700 82,600 11,300 $333,400 254,000 567,800 101,600 51,000 63,700 140,200 85,800 84,700 11,600 $341,700 260,300 582,000 104,100 52,300 65,300 143,700 87,900 86,800 11,900 $350,300 266,800 596,500 106,700 53,600 67,000 147,300 90,100 88,900 12,200 $359,000 273,500 611,400 109,400 54,900 68,600 151,000 92,400 91,200 12,500 $368,000 280,300 626,700 112,100 56,300 70,300 154,800 94,700 93,400 12,800 Total $1,497,000 $1,534,400 $1,572,700 $1,611,900 $1,652,400 $1,693,800 $1,736,000 $1,779,400 $1,823,900 $1,869,400 OPERATING INCOME (LOSS) $3,009,200 $3,084,500 $3,161,600 $3,240,800 $3,321,500 $3,404,600 $3,489,800 $3,577,000 $3,666,400 $3,758,200 OPERATING EXPENSES Salaries & Benefits Event Expenses Promoter Costs Parking Costs Administrative & General Repair & Maintenance Contractual Services Utilities Insurance Other Expense TEAM SHARE Ticket Sales Premium Seating Food & Beverage Sales Merchandise Sales Advertising & Sponsorships Operating Expenses Tenant Rent Total ($2,098,900) ($2,151,400) ($2,205,200) ($2,260,300) ($2,316,800) ($2,374,800) ($2,434,100) ($2,495,000) ($2,557,400) ($2,621,300) (114,600) (117,500) (120,400) (123,400) (126,500) (129,700) (132,900) (136,300) (139,700) (143,200) (79,700) (81,700) (83,700) (85,800) (87,900) (90,100) (92,400) (94,700) (97,100) (99,500) (39,000) (39,900) (40,900) (41,900) (43,000) (44,100) (45,200) (46,300) (47,500) (48,600) (215,300) (220,600) (226,100) (231,800) (237,600) (243,500) (249,600) (255,900) (262,300) (268,800) 187,000 191,600 196,400 201,300 206,400 211,500 216,800 222,200 227,800 233,500 153,800 157,600 161,500 165,600 169,700 174,000 178,300 182,800 187,300 192,000 ($2,206,700) ($2,261,900) ($2,318,400) ($2,376,300) ($2,435,700) ($2,496,700) ($2,559,100) ($2,623,200) ($2,688,900) ($2,755,900) INDIRECT EXPENSE Capital Maintenance $180,200 $184,800 $189,400 $194,100 $199,000 $203,900 $209,000 $214,300 $219,600 $225,100 Total TOTAL NET INCOME (LOSS) $180,200 $622,300 $184,800 $637,800 $189,400 $653,800 $194,100 $670,400 $199,000 $686,800 $203,900 $704,000 $209,000 $721,700 $214,300 $739,500 $219,600 $757,900 $225,100 $777,200 FINAL August 18, 2015 Financial Analysis Narrative Appraisal Report Toyota Field – San Antonio, Texas 6-11 Convention, Sports & Entertainment Facilities Consulting Chicago, Illinois HVS financial projections are intended to show the expected levels of revenues and expenses over a ten-year period. Projections show smooth growth over time. However, event demand and booking cycles are not always smooth. Business can be affected by unpredictable local and national economic factors. Event demand is often cyclical, based on rotation patterns and market conditions. Therefore, HVS recommends interpreting the financial projections as a mid-point of a range of possible outcomes and over a multi-year period rather than relying on projections for any one specific year. FINAL August 18, 2015 Financial Analysis Narrative Appraisal Report Toyota Field –San Antonio, Texas 6-12 12 7. Valuation Approaches to Valuation In appraising real estate for market value, three approaches to value are considered: income capitalization, sales comparison, and cost. Basic summaries of each approach are provided as follows.  The income capitalization approach analyzes a property's ability to generate financial returns as an investment. This method uses estimates of a property's operating cash flow, and the result is used in a capitalization technique and a discounted cash flow analysis. The income capitalization approach is often selected as the preferred valuation method for operating properties because it most closely reflects the investment rationale of knowledgeable buyers.  The sales comparison approach estimates the value of a property by comparing it to similar properties sold on the open market. To obtain a supportable estimate of value, the sales price of a comparable property must be adjusted to reflect any dissimilarity between it and the property being appraised. The sales comparison approach is most useful in the case of simple forms of real estate such as vacant land and single-family homes, where the properties are homogeneous and the adjustments are few and relatively simple to compute. In the case of complex investments such as stadiums, where the adjustments are numerous and sales are rare, the sales comparison approach would not be reliable.  The cost approach estimates market value by computing the cost of replacing the property and subtracting any depreciation resulting from physical deterioration, functional obsolescence, and external (or economic) obsolescence. The value of the land, as if vacant and available, is then added to the depreciated value of the improvements for a total value estimate. The cost approach is most reliable for estimating the value of new properties; however, as the improvements deteriorate and market conditions change, the resultant loss in value becomes increasingly difficult to quantify accurately. Moreover, our experience with real estate investors shows they rely upon the methods of the income approach (as well as a review of sales data) when making decisions; the cost approach generally does not play a significant role. The final step in the valuation process is the reconciliation and correlation of the value indications. Factors that are considered in assessing the reliability of each FINAL August 18, 2015 Valuation Self-Contained Appraisal Report Toyota Field – San Antonio, Texas 7-1 approach include the purpose of the appraisal, the nature of the subject property, and the reliability of the data used. In the reconciliation, the applicability and supportability of each approach are considered and the range of value indications is examined. The most significant weight is given to the approach that produces the most reliable solution and most closely reflects the criteria used by typical investors.1 The Dictionary of Real Estate Appraisal, 5th ed. (Chicago: Appraisal Institute, 2010), defines a sports stadium as “[a] large-scale venue designed to stage athletic competitions before large audiences.” The value of Toyota Field is highly dependent on its ability to retain a professional soccer franchise and on the variety of other amenities that generate income. HIGHEST AND BEST USE The concept of highest and best use is a fundamental element in the determination of value of real property, either as if vacant or as improved. USPAP requires that a property’s highest and best use be analyzed. Only if the current improvements do not reflect the highest and best use of the property does the highest and best use of the site “as if” vacant need to be considered. Highest and best use is defined as follows: The reasonably probable and legal use of vacant land or an improved property that is physically possible, appropriately supported, financially feasible, and that results in the highest value. The four criteria the highest and best use must meet are legal permissibility, physical possibility, financial feasibility, and maximum productivity. Alternatively, the probable use of land or improved property—specific with respect to the user and timing of the use—that is adequately supported and results in the highest present value.2 A thorough discussion of the application of appraisal methods and standards to an stadium land use can be found in Palace Sports & Entertainment, Inc v. City of Auburn Hills, MTT Docket No. 300519, Opinion and Judgment – August 26, 2009. This case involves appraisal of a comparable major league stadium for the purposes of determining the appropriate property tax assessment. The Court rendered a judgment that states: “…the income stream generated by the subject property [the Palace at Auburn Hills] is deemed to be the most accurate for determining the property’s true cash value.” 2 Appraisal Institute, the Dictionary of Real Estate Appraisal, 5th ed. (Chicago: Appraisal Institute, 2010). 1 FINAL August 18, 2015 Valuation Self-Contained Appraisal Report Toyota Field – San Antonio, Texas 7-2 As If Vacant The subject site enjoys a favorable location approximately eleven miles northeast of downtown San Antonio with good road access and adequate parking. While the subject site is of an appropriate size to support any number of residential, commercial, hospitality, and mixed-use projects, it is currently zoned as an Entertainment District. Given the site’s current use as an entertainment facility and its adjacency to other entertainment land uses, development of alternative uses on this site is not considered feasible at this time. As Improved Toyota Field is a viable enterprise generating a positive net operating income and supporting the presence of a sports franchise in San Antonio. The property has the proven ability to generate a level of net income sufficient to support its current use as a stadium. The venue does not suffer from functional obsolescence. It is our opinion that the highest and best use of the subject property is its continued use as a stadium. SALES COMPARISON APPROACH In the case of Toyota Field, valuation based on analysis of comparable sales is highly problematic because the sales of spectator sports stadiums are rare and when professional sports stadiums sales occur, they are typically a component of a larger sale of the sports franchise that uses the facility. As examples: the Columbus Crew of Major League Soccer (“MLS”) and the privately developed and owned Crew Stadium were sold in 2013 for a total purchase price of $68 million. In 2012, a Utah entrepreneur purchased the Real Salt Lake MLS franchise, the club’s sports properties, including Rio Tinto Stadium, and a sports talk radio station for an undisclosed amount. In 2009, the Chicago Cubs and all related assets, including Wrigley Field, were sold for an estimated $900 million. Separating the stadium value within these sales would depend on the revenue and expense sharing arrangements with the teams and in some cases their sponsoring municipality. Since different agreements have been brokered among team owners and venues, a comparison across venues would not necessarily bear any relationship to the value of Toyota Field. HVS was unable to identify any comparable transactions involving the sale of professional sports venues and/or related leasehold interests. Therefore, we do not rely on a sales comparison approach to reach a value of Toyota Field. COST APPROACH FINAL August 18, 2015 The cost approach is limited as a means of estimating the value of Toyota Field. Market participants tend to take into consideration the cost to develop new real estate with optimal physical and functional utility when forming their purchase decisions regarding existing properties. The principle of substitution, which is basic to the cost approach, affirms that no prudent investor would pay more for a property than the cost to acquire the site and construct comparable improvements without undue delay. However, the return on the original capital investment in stadium venues flows to team owners as well as to the stadium owner. Absent Valuation Self-Contained Appraisal Report Toyota Field – San Antonio, Texas 7-3 unitary ownership of the team and the stadium, a prudent investor in the stadium would not pay a price based on the replacement cost of the asset. Replacement cost could be estimated using adjusted historical data on comparable venues. Consequently, the appraiser would have to allocate data on stadium costs between the venue and the resident sports teams. This allocation would depend on the revenue and expense sharing deals brokered among the investing parties. These agreements are not uniform across professional sports stadiums and would therefore provide no useful comparisons with Toyota Field. An additional complication of using the costs of comparable venues to value Toyota Field is that the size of the built areas and amenities within stadiums (e.g. luxury suites, restaurants, retail, etc.) vary greatly among venues. The number, type, and quality of amenities have evolved considerably over the past two decades. Attempts to normalize costs, such as calculating them on a per seat basis, are unlikely to produce useful comparisons. Development and Renovations Costs FINAL August 18, 2015 Data on the original development costs and subsequent investment in Toyota Field are included in this report for reference only. Since the cost approach to valuation is not useful for this land use, we have made no attempt to estimate depreciation or land values or to estimate insurable value. The cost method uses actual construction and development spending to determine value. SOAR ownership provided HVS with cost data on the original construction of Toyota Field as shown in the figure below. Valuation Self-Contained Appraisal Report Toyota Field – San Antonio, Texas 7-4 FIGURE 7-1 ACTUAL CONSTRUCTION COST Item Cost Soft Costs Design Fees Testing, Fees & Permits Construction Management FF&E Total Soft Costs $1,371,000 343,700 655,000 522,000 $2,891,700 Hard Costs Site Work & Infrastructure Building Structure Playing Field & Seating Interiors Signage & Equipment General Conditions Total Hard Costs $1,777,545 10,989,561 3,399,690 286,955 1,876,582 177,235 $18,507,568 Total Hard & Soft Costs $21,399,268 Estimated Value of In Kind Serivces General Conditions General Contractor State Tax Exemptions Sub-total $1,110,454 925,378 635,000 $2,670,832 Estimate Land Costs $3,980,000 Total Costs $28,050,100 Source: SOAR INCOME CAPITALIZATION APPROACH The income approach allows us to take into account the unique stream of income and expenses anticipated for Toyota Field. It is the approach that a financial investor or probable buyer would most likely use in considering acquisition. The income capitalization approach is based on the principle that the value of a property is indicated by its net return, or what is known as the present worth of future benefits. The future benefits of income-producing properties, such as stadiums, are net income before debt service and depreciation (as estimated by a forecast of income and expense) and any anticipated reversionary proceeds from a sale. These future benefits can be converted into an indication of market value through a capitalization process and discounted cash flow analysis. This valuation uses a discounted cash flow analysis that takes into account the projected ten-year income stream (presented in Section 6 of this report) and Toyota Field’s residual value after the tenth year of operation. FINAL August 18, 2015 Valuation Self-Contained Appraisal Report Toyota Field – San Antonio, Texas 7-5 The process of converting the projected income stream into an estimate of value via the discounted cash flow method is described as follows. 1. An appropriate discount rate is selected to apply to the projected net income before debt service. This rate reflects the "free and clear" internal rate of return to an all-cash purchaser or a blended rate of debt and equity return requirements. The discount rate takes into consideration the degree of perceived risk, anticipated inflation, market attitudes, rates of return on alternative investment, and availability and cost of financing. The discount rate is chosen by reviewing market trends in yields on various types of investments and assessing risk similarities with the projected cash flows of a spectator sports stadium. 2. A reversionary value reflecting the sales price of the property at the end of the ten-year holding period is calculated by capitalizing the eleventh-year net income by the terminal capitalization rate. 3. Each year's forecasted net income before debt service and depreciation and the reversionary value at the end of the ten-year holding period are converted to a present value by multiplying the cash flow by the chosen discount rate for that year in the forecast. The sum of the discounted cash flows equates to the value of the subject property. Discounted Cash Flow Analysis Discount rates reflect the rates on return on alternative investments and expectations of market performance. Given the assumption that the Toyota Field would be acquired by a public entity, HVS relied on information on municipal bonds yields to determine an appropriate discount rate. Bond yields indicate the public sector cost of capital and reflect tax-exemption on interest earnings that lower investor yield requirements. The S&P Municipal Bond Index tracks fixed-rate tax-free bonds and bonds subject to the alternative minimum tax. The index includes bonds of all quality from AAA to non-rated, including defaulted bonds and from all sectors of the municipal bond market. It provides a comprehensive benchmark index suitable for performance measurement. This index is calculated daily and indexed data begins in on April 2, 2012. The S&P Municipal Bond Index offers separate indices on four classes of municipal debt that reflect various levels of risk.  FINAL August 18, 2015 A Rating Band Index, which includes all bonds in the S&P Municipal Bond Index that have a Standard & Poor’s rating of between ‘A+’ and ‘A-‘, a Valuation Self-Contained Appraisal Report Toyota Field – San Antonio, Texas 7-6 Moody’s rating of between ‘A1’ and ‘A3’, and a Fitch rating of between ‘A+’ and ‘A-‘. Where there are multiple ratings, the lowest rating is used.  BBB Rating Band Index, which includes all bonds in the S&P Municipal Bond Index that have a Standard & Poor’s rating of between ‘BBB+’ and ‘BBB-‘, a Moody’s rating of between ‘Baa1’ and ‘Baa3’, and a Fitch rating of between ‘BBB+’ and ‘BBB-‘. Where there are multiple ratings, the lowest rating is used.  Non-Rated Index measures municipal bonds that are not rated by Standard & Poor’s Ratings Services, Moody’s or Fitch, excluding bonds that are prerefunded or escrowed to maturity.  High Yield Index measures municipal bonds that are not rated (as described above) and bonds that are rated below investment grade. The figure below shows the daily yields on each class of debt from March 1 2012 through August 6, 2015. FIGURE 7-2 S&P DOWN JONES BAND MUNICIPAL BOND RATING INDICES MARCH 2012 THORUGH AUGUTS 6, 2015 12% 10% A Rating BBB Rating Non-rated High Yield 8% 6% 4% 2% 0% Source: S&P Dow Jones Indices FINAL August 18, 2015 Valuation Self-Contained Appraisal Report Toyota Field – San Antonio, Texas 7-7 The following figure summarizes the average, minimum and maximum yields. It also shows yields as of August 6, 2015, the most recent available figure as of this writing. FIGURE 7-3 SUMMARY OF S&P DOWN JONES INDICES A Rating BBB Rating Non-rated High Yield On August 6, 2015 2.41% 4.15% 5.70% 6.91% Average Maximum Minimum Std Deviation 2.66% 3.75% 1.92% 0.43% 4.37% 5.22% 3.95% 0.33% 6.21% 6.94% 5.62% 0.36% 6.48% 9.67% 5.70% 0.36% The returns on high yield debt (often called junk bonds) provide the best indicator of appropriate discount rates for the public investment in Toyota Field. The difference between yields on A-rated debt, which is the most secure form of public investment and high-yield debt indicate how the market assesses the risk of unsecured debt. The spread between A-rated bonds and high-yield bonds is currently 450 basis points. Toyota Field performance will be influenced by many of the same demographic and economic conditions that affect other types of real estate such as availability of disposable income, population growth, price levels, and obsolescence. However, stadiums face other risks that are unique to this land use. The major additional risks include: 1) termination of contractually obligated revenues streams, 2) renewal of team agreements, and 3) league risks. Consequently, we view the risks associated with stadium investment as similar to the risks of high-yield municipal bond investments. Discussion of these specific risks follows below. Risks Associated with Termination of Contractually Obligated Revenue Streams A large share of stadium earnings are generated by contractually obligated revenue streams such as naming rights, sponsorships and suite sales. Naming right deals and sponsorship deals may range from 5 to 15 years. Once these agreements are consummated, they provide some security and stability to revenue streams, thus mitigating the investment risk. The sources of contractually obligated revenue in Toyota Field are discussed in detail in Section 6 of this report. However, within the forecast period, all naming rights, sponsorship and suite leases will be subject to renewal at Toyota Field. Consistent with industry trends, the HVS estimate of cash flows assumes renewal of these agreements with lower revenues than provided in the original agreement. While the lower anticipated revenues have been factored into the HVS cash flows estimates, the prospect of FINAL August 18, 2015 Valuation Self-Contained Appraisal Report Toyota Field – San Antonio, Texas 7-8 non-renewal remains a significant risk that needs to be factored into the discount and terminal cap rates. In the case of Toyota Field, contractual revenue streams have two sources.  Luxury suite leases are multi-year agreements with local businesses and other organizations for the right to use a suite during events at Toyota Field. While amenities and privileges are consistent among suite holders, independent negotiation of each yields various annual lease rates, lease terms, renewal options, and escalation parameters. Various suite lease terms, ranging from two to four years, result in staggered lease expirations. Lease renewals are highly dependent upon a number of factors including corporate profits, overall economic climate, tenant team performance, and competition from other luxury suite options available in the San Antonio market. Failure to renew suite leases may result in increased sales and marketing costs associated with locating and closing a lease deals with a new clients.  Naming rights sponsorship is a long-term agreement with Toyota, which includes stadium naming rights, advertising signage, a suite lease, and other sponsorship agreements with the tenant soccer team. The ten-year agreement with Toyota expires in 2022. Risk of Renewal of Team Agreements We assume that the current or future owner of the NASL tenant team will agree to terms of a soccer Use Agreement that are consistent with those found in the professional soccer industry. While this is a reasonable assumption, we can provide no assurances that these agreements will be established or renewed in subsequent years. Failure to secure or renew an agreement would drastically reduce the value of Toyota Field. If the team disbands or relocates to another city, finding a replacement team may take years and some cities have suffered a permanent loss of professional sports teams. League Risks Unlike many professional sports leagues, the team franchises in the NASL operate with a great deal of autonomy. Without a formal draft for players, teams are required to locate and hire players using their own resources. The league places no salary limits on teams and players are not organized into a players union. The risk of suspending play from a players’ work stoppage is minimal. The NASL began play in 2011. While the league is currently successfully attracting a growing spectator base and is actively expanding into new markets, the risk of the NASL contracting or folding in the future still exists. Teams in the NASL must compete for players with Major League Soccer (“MLS”) and other soccer leagues throughout the world. The success of a soccer league is ultimately dependent upon FINAL August 18, 2015 Valuation Self-Contained Appraisal Report Toyota Field – San Antonio, Texas 7-9 the quality of competition it can present. Many professional sports leagues have enjoyed early success, suffered declines in attendance after several years of operation, and ultimately ceased operations. HVS has no reason to conclude that this would be the fate of the NASL but we cannot ignore this risk. Discount rate Assumptions For the purposes of this appraisal we assume a discount rate to 7.0%, which is the approximate cost of high yield municipal debt. Terminal Cap Rate Assumptions Terminal cap rates measure the anticipated rate of return on investment and reflect investors’ expectations about future property and market performance. Terminal cap rates are applied to last year of income. They can be calculated by subtracting the annual future growth rate from the as the discount rate as shown in the following formula. Where: ܸ= ‫ܫ‬ (݀ − ݃) V = the terminal Value I = the income stream at the time of reversion d = discount rate g = annual future growth rate Assets with anticipated income growth will have lower terminal cap rates and assets with anticipated income declines will have higher terminal cap rates. For purposes of this analysis, assume a long term income growth rate of 2.5%. Consequently our assumed terminal capitalization rate is 7.0% less 2.5%, which equals 4.5%. Discounted Cash Flow Analysis FINAL August 18, 2015 Utilizing the discount rate set forth, the discounted cash flow procedure is applied to the net income generated by the stadium and is summarized as follows. We did not apply a capital deduction at the time of sales as shown below. Valuation Self-Contained Appraisal Report Toyota Field – San Antonio, Texas 7-10 FIGURE 7-4 DISCOUNTED CASH FLOW ANALYSIS Year Net Income 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 $610,500 $625,700 $641,400 $657,700 $673,800 $690,700 $708,000 $725,500 $743,500 $17,696,638 * Discount Factor @ 7.0% Discounted Cash Flow 0.93458 0.87344 0.81630 0.76290 0.71299 0.66634 0.62275 0.58201 0.54393 0.50835 570,561 546,511 523,573 501,756 480,410 460,243 440,907 422,248 404,415 8,996,074 Estimated Market Value Prior to Deduct Capital Deduction (if applicable) Estimated Market Value After Deduct Rounded to Reversion Analysis 11th Year's Net Income Capitalization Rate Total Sales Proceeds Less Transaction Costs @1.5% Net Sales Proceeds 13,346,696 0 13,346,696 13,300,000 773,645 4.5% 17,192,120 257,882 16,934,238 * 10th year net income plus net sales proceeds. Business Component of Value The objective of this appraisal is to estimate the market value of the real and personal property components of the asset, exclusive of any intangible business value. Most revenues of the facility are related to some form of short-term rental or lease of facilities, we assume that they are attributable to the real estate. RECONCILIATION The reconciliation, which is the last step in the appraisal process, involves summarizing and correlating the data and procedures employed throughout the analysis. The final value conclusion is arrived at after reviewing the estimates indicated by the income capitalization and sales comparison approaches. The relative significance, applicability, and defensibility of each indicated value are considered, and the greatest weight is given to that approach deemed most appropriate for the property being appraised. Income Capitalization Approach - To estimate the subject property's value via the income capitalization approach, we have analyzed the local market for stadium events, examined the competitive environment, analyzed historical operations, FINAL August 18, 2015 Valuation Self-Contained Appraisal Report Toyota Field – San Antonio, Texas 7-11 projected events and attendance, and developed a forecast of income and expense that reflects anticipated income trends and cost components through a stabilized year of operation. Through a discounted cash flow and income capitalization procedure, HVS calculated the value of the property. Our nationwide experience indicates that the procedures used in estimating market value by the income capitalization approach are comparable to those employed by the investors. For this reason, we believe that the income capitalization approach produces the only supportable value estimate, and it is given the full weight in our final estimate of the subject property's market value. Sales Comparison Approach – as discussed earlier, HVS searched for comparable sales and we did not identify any. Although we investigated a number of sales that involved the joint sales of teams and venues in an attempt to develop a range of value indications, several adjustments are necessary to render these sales prices applicable to the subject property. The adjustments, which tend to be subjective, diminish the reliability of the sales comparison approach. Furthermore, typical investors employ a sales comparison procedure only to establish broad value parameters. HVS found no supporting evidence of value in using the sales comparison approach. Cost Approach - As discussed in this section, due to the preponderance of benefit that would be gained from Toyota Field by its sports teams, the cost approach was not employed in arriving at an “as is” market value estimate. We are not valuing the entire bundle of rights associated with the property, thus the costs approach is not considered applicable. Value Conclusions Since the sales and costs methods of valuation are not applicable to a stadium asset such as Toyota Field, HVS relied on the value indicated by the income capitalization approach. Our opinion of market value as of August 6, 2015 is: Fee simple and leasehold interests free and clear of debt service and subject to User Agreements equals $13.3 million. In addition to important general assumptions that apply to this appraisal and our valuations in general, the values are subject to the extraordinary assumption and hypothetical condition described detailed below. FINAL August 18, 2015 Valuation Self-Contained Appraisal Report Toyota Field – San Antonio, Texas 7-12 Convention, Sports & Entertainment Facilities Consulting Chicago, Illinois 8. Statement of Assumptions and Limiting Conditions FINAL August 18, 2015 1. This report is to be used in whole and not in part. 2. No responsibility is assumed for matters of a legal nature, nor do we render any opinion as to title, which is assumed marketable and free of any deed restrictions and easements. The property is valued as though free and clear unless otherwise stated. 3. We assume that there are no hidden or unapparent conditions of the subsoil or structures, such as underground storage tanks, that would render the property more or less valuable. No responsibility is assumed for these conditions or for any engineering that may be required to discover them. 4. We have not considered the presence of potentially hazardous materials such as asbestos, urea-formaldehyde foam insulation, any form of toxic waste, polychlorinated biphenyls (PCBs), pesticides, mold, or lead-based paints. We are not qualified to detect hazardous substances and urge the client to retain an expert in this field if desired. 5. The Americans with Disabilities Act (ADA) became effective on January 26, 1992. We have conducted no specific compliance survey to determine whether the subject property has been designed in accordance with the various detailed requirements of the ADA. It is possible that the design does not conform to the requirements of the act, and this could have an unfavorable effect on value. Because we have no direct evidence regarding this issue, our estimate of value does not consider possible non-compliance with the ADA. 6. We have made no survey of the property, and we assume no responsibility in connection with such matters. Sketches, photographs, maps, and other exhibits are included to assist the reader in visualizing the property. It is assumed that the use of the described real estate is within the boundaries of the property described, and that there is no encroachment or trespass unless noted. 7. All information, financial operating statements, estimates, and opinions obtained from parties not employed by HVS Convention Sports & Statement of Assumptions and Limiting Conditions Narrative Appraisal Report Toyota Field – San Antonio, Texas 8-1 Convention, Sports & Entertainment Facilities Consulting Chicago, Illinois Entertainment Facilities Consulting are assumed true and correct. We can assume no liability resulting from misinformation. FINAL August 18, 2015 8. Unless noted, we assume that there are no encroachments, zoning violations, or building violations encumbering the subject property. 9. The property is assumed to be in full compliance with all applicable federal, state, local, and private codes, laws, consents, licenses, and regulations (including the appropriate liquor license if applicable), and that all licenses, permits, certificates, franchises, and so forth can be freely renewed or transferred to a purchaser. 10. All mortgages, liens, encumbrances, leases, and servitudes have been disregarded unless specified otherwise. 11. None of this material may be reproduced in any form without our written permission, and the report cannot be disseminated to the public through advertising, public relations, news, sales, or other media. 12. We are not required to give testimony or attendance in court because of this analysis without previous arrangements, and shall do so only when our standard per-diem fees and travel costs have been paid prior to the appearance. 13. If the reader is making a fiduciary or individual investment decision and has any questions concerning the material presented in this report, it is recommended that the reader contact us. 14. We take no responsibility for any events or circumstances that take place subsequent to either the date of value or the date of our field inspection, whichever occurs first. 15. The quality of a lodging facility's onsite management has a direct effect on a property's economic viability and value. The financial forecasts presented in this analysis assume responsible ownership and competent management. Any departure from this assumption may have a significant impact on the projected operating results and the value estimate. 16. The financial analysis presented in this report is based upon assumptions, estimates, and evaluations of the market conditions in the local and national economy, which may be subject to sharp rises and declines. Over the projection period considered in our analysis, wages and other operating expenses may increase or decrease because of market volatility and economic forces outside the control of property management. We assume that the price of tickets, food, beverages, and other sources of revenue to the stadium will be adjusted to offset any increases or decreases in related costs. We do not warrant that our estimates will be attained, but they have been developed based upon information obtained Statement of Assumptions and Limiting Conditions Narrative Appraisal Report Toyota Field – San Antonio, Texas 8-2 Convention, Sports & Entertainment Facilities Consulting Chicago, Illinois during the course of our market research and are intended to reflect the expectations of a typical buyer as of the stated date(s) of valuation. FINAL August 18, 2015 17. This analysis assumes continuation of all Internal Revenue Service tax code provisions as stated or interpreted on either the date of value or the date of our field inspection, whichever occurs first. 18. Many of the figures presented in this report were generated using sophisticated computer models that make calculations based on numbers carried out to three or more decimal places. In the interest of simplicity, most numbers have been rounded to the nearest tenth of a percent. Thus, these figures may be subject to small rounding errors. 19. It is agreed that our liability to the client is limited to the amount of the fee paid as liquidated damages. Our responsibility is limited to the client, and use of this report by third parties shall be solely at the risk of the client and/or third parties. The use of this report is also subject to the terms and conditions set forth in our engagement letter with the client. 20. Although this analysis employs various mathematical calculations to provide value indications, the final estimate is subjective and may be influenced by our experience and other factors not specifically set forth in this report. 21. Any distribution of the total value between the land and improvements or between partial ownership interests applies only under the stated use. Moreover, separate allocations between components are not valid if this report is used in conjunction with any other analysis. 22. Our report has been prepared in accordance with, and is subject to, the requirements of the Financial Institutions Reform, Recovery, and Enforcement Act (FIRREA) and the Uniform Standards of Professional Practice (USPAP), as provided by the Appraisal Foundation. 23. This study was prepared by HVS Convention Sports & Entertainment Facilities Consulting. All opinions, recommendations, and conclusions expressed during the course of this assignment are rendered by the staff of HVS Convention Sports & Entertainment Facilities Consulting as employees, rather than as individuals. Statement of Assumptions and Limiting Conditions Narrative Appraisal Report Toyota Field – San Antonio, Texas 8-3 Convention, Sports & Entertainment Facilities Consulting Chicago, Illinois 9. Certification The undersigned hereby certify that, to the best of our knowledge and belief: FINAL August 18, 2015 1. the statements of fact presented in this report are true and correct; 2. the reported analyses, opinions, and conclusions are limited only by the reported assumptions and limiting conditions, and are our personal, impartial, and unbiased professional analyses, opinions, and conclusions; 3. we have no present or prospective interest in the property that is the subject of this report and no personal interest with respect to the parties involved; 4. we have no bias with respect to the property that is the subject of this report or to the parties involved with this assignment; 5. our engagement in this assignment was not contingent upon developing or reporting predetermined results; 6. our compensation for completing this assignment is not contingent upon the development or reporting of a predetermined value or direction in value that favors the cause of the client, the amount of the value opinion, the attainment of a stipulated result, or the occurrence of a subsequent event directly related to the intended use of this appraisal; 7. our analyses, opinions, and conclusions were developed, and this report has been prepared, in conformity with the Uniform Standards of Professional Appraisal Practice; 8. Thomas Hazinski personally inspected the property described in this report; Catherine Sarrett participated in the analysis and reviewed the findings, but did not personally inspect the property; 9. Suzanne Mellen provided significant real property appraisal assistance to Thomas Hazinski and Catherine Sarrett, and that no one other than those listed above and the undersigned prepared the analyses, conclusions, and opinions concerning the real estate that are set forth in this appraisal report; 10. Thomas Hazinski has performed consulting work on this property within the past three years; 11. the reported analyses, opinions, and conclusions were developed, and this report has been prepared, in conformity with the requirements of the Code Description of Real Estate Narrative Appraisal Report Toyota Field – San Antonio, Texas 9-1 Convention, Sports & Entertainment Facilities Consulting Chicago, Illinois of Professional Ethics and the Standards of Professional Appraisal Practice of the Appraisal Institute; 12. the use of this report is subject to the requirements of the Appraisal Institute relating to review by its duly authorized representatives; and 13. as of the date of this report, Thomas Hazinski and Catherine Sarrett have not completed the Standards and Ethics Education Requirements for Candidates/Practicing Affiliates of the Appraisal Institute; and as of the date of this report, Suzanne Mellen has completed the continuing education program for Designated Members of the Appraisal Institute. Suzanne R. Mellen, CRE, MAI, FRICS, ISHC Managing Director HVS Consulting & Valuation Division of M&R Valuation Services, Inc. Thomas Hazinski Managing Director HVS Convention, Sports & Entertainment Facilities Consulting Catherine Sarrett Project Manager HVS Convention, Sports & Entertainment Facilities Consulting FINAL August 18, 2015 Description of Real Estate Narrative Appraisal Report Toyota Field – San Antonio, Texas 9-2