Estimated Values Of Selected U.S. State and Local Infrastructure Assets
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Commentary

Estimated Values Of Selected U.S. State and Local Infrastructure Assets

There are numerous opportunities for asset recycling by U.S. cities, counties and states.

This is an excerpt of the study, Asset Recycling to Rebuild America’s Infrastructure, which examines asset recycling’s potential for U.S. infrastructure. 

There are numerous opportunities for asset recycling by U.S. cities, counties and states. The most attractive assets to investors are those with an established use profile with existing user fees or other dedicated revenue streams. That’s not to say that less-mature assets aren’t attractive, but since they have less revenue history, they will come with a higher risk premium and may not generate comparable valuations.

Indicative Valuation Methodology

Globally, governments have been using long-term P3 concessions for all types of infrastructure assets. Their experience gives us a general idea of what existing facilities might be worth. Investors estimate the value of an infrastructure enterprise in terms of its earnings before interest expense, taxes, depreciation and amortization (EBITDA). In the case of assets owned by governments, taxes are zero, and the other figures are readily available in their financial statements. Investors typically pay some multiple of EBITDA, either for outright ownership or a lease term long enough to have many of the attributes of ownership (e.g., 40 to 75 years).

The indicative valuation methodology used here is intended only to suggest the possible magnitude of the value of several infrastructure categories. The actual value of any specific facility will depend on many factors specific to that facility, so estimates such as those given below should be used with caution, as simply illustrative of potential magnitudes.

Airports

Macquarie Capital has assembled figures that cover 30 commercial airport transactions for years 2008 through 2013. While the EBITDA multiples ranged from a low of 10 times EBITDA to a high of 35X, the average was 16.3X. The EBITDA multiple for the recent sale of London City Airport for $3.05 billion was 28X. To be conservative, the estimates that follow use 17X for baseline airport valuations, with a high value of 20X and a low-end value of 15X.

Toll Roads

Another Macquarie data set tracks 10 major toll facility concessions from 2008 through 2015. These range from 18.3X to 35.5X EBITDA, with an average of 26.2X. The EBITDA multiple for the recent A-25 toll road lease in Montreal was 26X. To be conservative, the estimates that follow use 25X for baseline toll road valuations, with a high value of 30X and a low-end value of 20X.

Seaports

Although there have been some long-term port leases (and some sales), data on EBITDA multiples are harder to obtain. Recent Australian port deals, according to Infrastructure Investor, were in the 25X to 27X range. Because most U.S. landlord ports already have long-term leases with terminal operators, the high end of the EBITDA range is not realistic. To be conservative, the estimates that follow use 14X for baseline port valuation, with a high value of 17X and a low-end value of 12X. Port values are significantly affected by the port’s location in the flow of commerce, so applying any average to a specific port does not take that factor into account.

Water/Wastewater

There are few U.S. examples of long-term leases of water or wastewater systems. However, there are a number of privately owned water utilities that often trade in the market. Another Macquarie data set established an average value of 12X EBITDA for water utilities. To be conservative, the estimates that follow use 12X for baseline valuation, with a high value of 13X and a low-end value of 11X. Many U.S. water and wastewater systems have extensive deferred maintenance, which may reduce net proceeds to lower levels than suggested by these average evaluation metrics (based on well-run water utilities), since the P3 concession companies will have to make large-scale investments in refurbishing such leased systems.

University Parking

Another Macquarie data set tracked the five most-recent parking P3 concessions. These range from 15X to 30X EBITDA, with an average of 22X. However, the sole on-campus transaction had an EBITDA of 25.5X so the estimates use that as a baseline valuation, with a high value of 30X and low-end value of 20X. As the advent of autonomous vehicles grows nearer, the risk inherent in long-term ownership of parking facilities may increase, so recent valuations may be higher than those of future transactions.

Net Value Estimation

Airports

Existing state and local government-owned airports are very attractive globally, with more than 450 commercial airports already having been privatized, in whole or in part worldwide, mostly via long-term P3 lease concessions. Thus far, only one U.S. airport has been successfully leased in this manner (San Juan International), though Chicago has tried to lease Midway Airport, and similar deals are under consideration for St. Louis’ Lambert International and Westchester County, New York’s airport. Using the methodology summarized in footnote #74, an estimated $250 billion to $360 billion of net economic value could be generated from P3 leases of airports with enplaned passengers greater than two million—which represents 61 airports. An additional estimated $100 billion of capital improvements over five years would be undertaken by the private partners, bringing the total private-sector investment value to between $350 billion and $460 billion.

Airports Example #1:
Baltimore/Washington (BWI)Gross proceeds:

  • Low: $2.2 billion
  • Medium: $2.5 billion
  • High: $2.9 billion

Net proceeds before any incentive payment:

  • Low: $1.6 billion
  • Medium: $1.9 billion
  • High: $2.3 billion
Airports Example #2:
Louisville (SDF)Gross proceeds:

  • Low: $640 million
  • Medium: $726 million
  • High: $854 million

Net proceeds before any incentive payment:

  • Low: $452 million
  • Medium: $538 million
  • High: $666 million

Tolled Roads and Bridges

Existing government-owned toll roads and bridges are also very attractive to investors globally, and count for three examples of full or partial U.S. asset recycling initiatives thus far (Chicago, Indiana, and Puerto Rico). Values were estimated by reviewing recent operating revenue and expenses of 42 of the largest toll systems, which represent 89% of U.S. toll revenue; net proceeds were grossed up to capture the full U.S. market potential. This produced an estimate that between $175 billion and $230 billion of net economic value could be generated from P3 leases of existing toll roads around the country. An additional estimated $10 billion of capital improvements over five years would be undertaken by the private partner, bringing the total private-sector investment value to between $185 billion and $240 billion.

Toll Roads Example #1:
Bay Area Toll Authority (BATA)Gross proceeds:

  • Low: $11.3 billion
  • Medium: $14.2 billion
  • High: $17 billion

Net proceeds before any incentive payment:

  • Low: $2 billion
  • Medium: $4.9 billion
  • High: $7.7 billion
Toll Roads Example #2:
George Washington BridgeGross proceeds:

  • Low: $13.5 billion
  • Medium: $16.9 billion
  • High: $20.3 billion

Net proceeds before any incentive payment:

  • Low: $10.2 billion
  • Medium: $13.6 billion
  • High: $17 billion
Toll Roads Example #3:
Illinois Tollway SystemGross proceeds:

  • Low: $17.5 billion
  • Medium: $21.9 billion
  • High: $26.3 billion

Net proceeds before any incentive payment:

  • Low: $11.5 billion
  • Medium: $15.8 billion
  • High: $20.3 billion

Seaports

Valuation began with the most recent year’s operating revenue and expenses for a sample of eight U.S. ports. To extrapolate to the full U.S. market, total U.S. port cargo volume was compared to the cargo volume in the data set, which represented 26% of total volume. Net proceeds were grossed up, but at a discount, since smaller ports would not be as attractive to private investors. The sample set of eight produced an estimated net economic value of $20 billion, and the remaining volume produced an estimated net economic value of $30

billion for a total net seaport value of $50 billion that could be generated from port asset recycling initiatives around the country. An additional estimated $9 billion of capital improvements over five years would be undertaken by the private partners, bringing the total private sector investment value to around $59 billion.

Seaports Example #1:
Port of Tampa BayGross proceeds:

  • Low: $261 million
  • Medium: $304 million
  • High: $369 million

Net proceeds before any incentive payment:

  • Low: $164 million
  • Medium: $227 million
  • High: $272 million
Seaports Example #2:
Port of HoustonGross proceeds:

  • Low: $1.66 billion
  • Medium: $1.94 billion
  • High: $2.4 billion

Net proceeds before any incentive payment:

  • Low: $985 million
  • Medium: $1.26 billion
  • High: $1.68 billion

Water/wastewater

Existing local water systems hold significant value that can be unlocked, but many urban systems are also in need of significant investment because of years of deferred maintenance. Asset recycling can address both by generating capital for other investments as well as providing immediate capital for the system itself. Recycling has the added benefit of transferring long-term investment risk to the private sector, likely preventing the systems from falling into similar conditions in the future.

The estimated value is based on gathered data on the rate base, customers served, and projected capital expenditure for eight investor-owned U.S. water utilities. A weighted-average rate base per customer and weighted-average capital expenditure (capex) per customer was calculated. An estimate of the total customers under publicly owned utilities was found, and the rate base/capital expenditure metrics applied with a rate base multiple of 1.7X to calculate gross proceeds of a P3 lease. Debt was deducted based on average leverage level for public utilities to arrive at net proceeds. This yielded an estimate of around $110 billion of net economic value that could be generated from water/wastewater asset recycling initiatives around the country. An additional estimated $60 billion of capital improvements over five years would be undertaken by the private partner, bringing the total private sector investment value to around $170 billion.

Water Example #1:
Las Vegas Valley Water DistrictGross proceeds:

  • Low: $1.32 billion
  • Medium: $1.44 billion
  • High: $1.56 billion

Net proceeds before any incentive payment:

  • Low: $489 million
  • Medium: $609 million
  • High: $729 million
Water Example #2:
Mobile Area Water and Sewer SystemGross proceeds:

  • Low: $476 million
  • Medium: $520 million
  • High: $563 million

Net proceeds before any incentive payment:

  • Low: $241 million
  • Medium: $285 million
  • High: $328 million

State University Parking

There is significant private sector interest in parking infrastructure at state university systems. In addition to the economic value, there is an added benefit of transferring long-term revenue risk to investors, as changes in mobility (such as a possible shift from individual vehicle ownership to “mobility as a service”) emerge in coming years. Airports are already starting to see reduced growth in revenues from parking and rental car operations.

University Parking Example #1:
Mississippi Board of RegentsMississippi State University:

  • Low: $120 million
  • Medium: $150 million
  • High: $180 million

University of Mississippi:

  • Low: $128 million
  • Medium: $160 million
  • High: $192 million

University of Southern Mississippi:

  • Low: $72 million
  • Medium: $90 million
  • High: $108 million
University Parking Example #2:
Georgia Board of RegentsUniversity of Georgia:

  • Low: $184 million
  • Medium: $230 million
  • High: $276 million

Georgia Institute of Technology:

  • Low: $148 million
  • Medium: $185 million
  • High: $222 million

It is estimated that around $60 billion of net economic value could be generated from state university parking recycling initiatives around the country. The value was derived from estimated student enrollment at all U.S. public universities. Based on the average students per parking space for a sample of schools, the number of parking spaces at public universities was calculated, assuming an acquisition price of $13,800 per parking spot based on the OSU parking transaction metrics, with 30% assumed to be needed to pay off existing parking-related debt. That yielded net proceeds from P3 parking leases of $60 billion.

An additional estimated $2 billion of capital improvements over five years would be undertaken by the private partner, bringing the total private-sector investment value to around $62 billion.

It is worth noting that proceeds would likely support the core higher education mission rather than be reinvested into infrastructure. However, if universities followed the Ohio State model, they can offset the long-term decline of public financial support for higher education.

Full Study: Asset Recycling to Rebuild America’s Infrastructure

Robert Poole is director of transportation policy and Searle Freedom Trust Transportation Fellow at Reason Foundation.