STRATEGIC MASTER PLAN CRUISE, COMMERCIAL AND CARGO MARKET ASSESSMENTS PRESENTATION TO THE BOARD OF TRUSTEES. February 26, 2019

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1 STRATEGIC MASTER PLAN CRUISE, COMMERCIAL AND CARGO MARKET ASSESSMENTS PRESENTATION TO THE BOARD OF TRUSTEES February 26, 2019

2 BERMELLO, AJAMIL & PARTNERS (B&A) LEAD, CRUISE, FINANCIAL PLAN OUTREACH, STRATEGIC PLAN DEVELOPMENT MARTIN ASSOCIATES CARGO HDR INFRASTRUCTURE ASSESSMENT, TRAFFIC LAMBERT ADVISORY COMMERCIAL REAL ESTATE ATKINS ENVIRONMENTAL ASSESSMENT

3 Master Plan Objectives Promote the development/growth of the Port by creating a long-term vision creating land use principles, prioritizing capital investments for Port facilities / operations Adapt Port policies, operations, facilities and infrastructure to changing technology, cargo trends, regulations, natural and man-made disaster resiliency, and competition from other U.S. and foreign seaports Integrate economic, engineering, environmental and community considerations into the Port process for evaluating the impact of development projects and growth scenarios Create a roadmap for future port development that is consistent with federal, state, and city laws with the primary mission of increasing waterborne trade and commerce

4 Phased approach Phase 1- INFRASTRUCTURE ASSESSMENT Task 1 Project commencement General kick-off and data collection Task 2 Infrastructure assessment - The Master Plan begins with an infrastructure assessment to quantify the extent of the deficiencies and damage of the port marine infrastructure, develop repair concepts and methodologies, cost estimating and schedule preparation for the rehabilitation project. Wrapping structural reviews / cost estimating Phase 2 CRUISE PLAN Task 3 Cruise operations cruise market assessment over the next 20 years. Task 4 Community and non-maritime uses Community uses, real estate and community integration aspects of the port are considered.

5 Phased approach Phase 3 THE PLAN Task 5 Cargo / industrial operations Cargo market assessment. Develop strategies to identify / attract strong tenants for industrial properties that will provide for optimal use in support of long-term development goals, and in line with the Port s mission. Task 6 Financial plan this task will involve creation of a financial model to plan the ports future and its sustainability. Task 7 Community outreach and involvement plan this task is integrated throughout the development of the plan to seek input from customers, users, stakeholders, elected leaders, Board members and citizens Open House Tonight 5-9PM tonight (first such as event) Community / tenant / user group meetings Wed AM Task 8 Comprehensive Plan This phase will consolidate the work into a single cohesive master plan

6 CRUISE OPPORTUNITIES

7 Worldwide cruise passengers Passengers ('000) 30,000 25,000 20,000 15,000 10,000 5,000 0 Asia Europe North America

Worldwide deployment 2018 HAWAII 0,9% 5 ALASKA 4,0% 6 WEST COAST 3,3% PANAMA CANAL 0,4% 1 CARIBBEAN / BERMUDA 1,3% BAHAMAS 38,4% CANADA NE 1,2% 10 TRANS ATLANTIC 1,4% 9 CANARY ISLANDS 2,1%

8 Worldwide deployment 2018 HAWAII 0,9% 5 ALASKA 4,0% 6 WEST COAST 3,3% PANAMA CANAL 0,4% 1 CARIBBEAN / BERMUDA 1,3% BAHAMAS 38,4% CANADA NE 1,2% 10 TRANS ATLANTIC 1,4% 9 CANARY ISLANDS 2,1% 4 NW EUROPE 9,4% 3 MEDIT- ERRANEAN 14,2% 2 ASIA / PACIFIC 15,1% 8 SOUTH AMERICA 2,1% AFRICA 0,4% INDIAN OCEAN 1,2% 7 AUSTRALIA 4,0% ANTARCTICA 0,2% Source: Cruise Industry News Annual, 2018

8% Costa AIDA HAL Princess Seabourn P&O P&O AUS Cunard Line Carnival RCI Celebrity Azamara

9 Cruise corporations 5 CORPORATIONS WITH 21 BRANDS, 206 VESSELS 87.1% CAPACITY & 75% OF WORLDWIDE REVENUES GENTING 4.6% OTHER BRANDS, 12.9% RCCL 23.3% CARNIVAL CORP 41.8% Costa AIDA HAL Princess Seabourn P&O P&O AUS Cunard Line Carnival RCI Celebrity Azamara Pullmantur (49%) CDF (49%) TUI Cruises (50%) Silversea Cruises (Partner) MSC CRUISES 8.0% NORWEGIAN CRUISE LINE 9.4% NCL Regent Seven Seas Oceania

10 Cruise vessel deliveries and orders New build vessels vessels 112 vessels 256,000 berths 20 LNG Vessels Delivered Vessels On Order

11 Passengers Avg. passengers per ship by year of construction, ,000 4,500 4,000 3,500 3,000 2,500 2,000 1,500 1,000 1,427 2,098 1,782 1,833 1,464 2,703 2,077 2,200 3,456 3,596 3,379 3,298 3,319 2,714 2,845 2,713 3,548 3,656 3,782 4,160 4,

12 Global forecast Passengers 70,000,000 60,000,000 50,000,000 58,430,061 54,274,800 50,188,120 40,000,000 30,000,000 20,000,000 10,000,000 Low Medium High Source: B&A

13 Passengers North America cruise forecasts, ,000,000 25,000,000 20,000,000 24,365,836 22,393,677 20,474, % to 2.6% CAGR 15,000,000 14,598,708 10,000,000 5,000,000 Low Medium High Source: B&A

14 North America passenger source market Rank STATE % OF PASSENGERS 1 Florida 25% 2 California 12% 3 Texas 12% 4 Massachusetts 6% 5 Arizona 5% 6 New York 4% 7 Illinois 3% 8 New Jersey 2% 9 Washington 2% 10 Pennsylvania 2%

15 Caribbean forecast Passengers 22,500,000 Capacity driven by additional European / Asian deployments MSC as influencer 20,000,000 17,500,000 20,406,698 18,729,872 17,078,496 15,000,000 12,500,000 10,000,000 7,500,000 10,251, % - 3.5% CAGR 5,000,000 Low Medium High

Gulf and South Atlantic homeports NEW YORK / PORT LIBERTY CHARLESTON GALVESTON JACKSONVILLE MAJOR NEW ORLEANS TAMPA CANAVERAL Bahamas EVERGLADES

16 Gulf and South Atlantic homeports NEW YORK / PORT LIBERTY CHARLESTON GALVESTON JACKSONVILLE MAJOR NEW ORLEANS TAMPA CANAVERAL Bahamas EVERGLADES MIAMI REGIONAL NON US PORTS Western Caribbean HAVANA Eastern Caribbean SAN JUAN LA ROMANA BARBADOS Deep Southern Caribbean ARUBA CURACAO Southern Caribbean

17 Competitive Port Passenger Throughput, ,000,000 5,000,000 Port 10 yr. 5 yr. CAGR CAGR GAL 10% 9.9% MIA 2.5% 5.7% CAN 6.4% 3.6% PEV 1.7% 1.1% NO 13.0% 4.8% TPA 3.1% 4.8% 4,000,000 3,000,000 2,000,000 1,000,000 1,934,972 1,250,000 1,043,329 0 Galveston Port Miami Port Canaveral Port Everglades Port of New Orleans Port Tampa Bay

18 Overview Substantial growth in short period Major brands moving growth RCI, Carnival Terminal / berth expansion projects completed to expand business RCCL deal to expand business Carnival, NCL, DCL, MSC strong growth options Larger vessel capacity and increasing Competitor Houston Threat New Orleans / Mobile Tampa

19 Cruise Calls Monthly calls, Caribbean Seasonality OCT NOV DEC JAN FEB MAR APR MAY 0JUN JUL AUG SEP AVG.

Calls Daily call distribution, 2012-2018 110 100 90 80 70 60 50 40 30 20

20 Calls Daily call distribution, SUN MON TUE WED THU FRI SAT AVG.

21 Opportunities and Challenges Strengths Weaknesses Infrastructure (berths / uplands) Proximity to International waters Quality port and shoreside services Highway and airport access Key Texas, Midwest linkages (drive / air chain) Destination marketing to cruise visitors Hotel capacity use Speed & distance issues with longer patterns Strong drive in market Growth of European / Asia cruise brands Resolution of pilot, channel issues (fog, etc.) Access and growth of consumer markets (NA, Intl.) Deployment of more and larger vessels RCCL deal, CCL XL, DCL added; NCL need; MSC new Weekend congestion Channel closures Mexico perception by NA passengers Downstream port requirements (need more options) Opportunities Threats

22 Passengers Composite passenger projections, ,000,000 8,000,000 7,000,000 6,000,000 5,000,000 4,000,000 3,000,000 8,169,021 6,542,957 4,938, calls 3,772,162 2,000,000 1,000,000 1,934,972 0 Historical Market Comp A B Likely Path

23 Conclusions Deployments by major brands likely over 2 5 years to drive growth Large vessel deployments major NEW classes for key NA brands - ICON, XL Push to compete for Midwest market will drive 4 7 day sailings Major new brands to Galveston include MSC, NCL Demand for 4 berths into the long-term Weekend demand drives berth use rates > 900,000 per terminal High scenario would produce 5-6 berths over 20-years

24 Critical Success Factors Short to mid-term strategy Large cruise brand development Interaction with key NA brands to develop and re-vitalize infrastructure Focus on operations / cost control as well Mid- to long-term strategy PPP development Downstream port partnerships Overall / long-term strategy Two year windows of opportunity for terminal development Accommodate LARGE design vessel 1,400 LOA; 8,000-plus passengers; 250,000 T

25 Destination Development Create new destination experiences Look to attract longer term stays (weekend for 2 days, etc. in 5,5,4-day packages) Provide unique experience for cruise brands Identify unique proposition for Galveston Interaction with city, community, business, air, hotel, etc. Variety of venues to meet the varying demographics Increase experience(s) and revenue potential Assist venues / operators in creating new product Not necessarily via investment information, cruise line access, outreach to operators

26 COMMERCIAL OPPORTUNITIES

27 Port of Galveston Areas of Influence The cruiseport area of influence as it relates to commercial activity comprises a boundary that is generally represented by 10 minute drive time and therefore a high proportion of the developed areas of the City

28 Port of Galveston Areas of Influence Galveston has many more people coming into the City each day for work than the number that leaves. ~ 29.4% of people working in the 10 minute area of influence, live in the area of influence

29 Cruise Passenger Projections & Implications for Retail & Hotel Expenditure Cruise passengers to grow from million in 2018 (.967 million unique) to million by 2030 (1.89 million unique) 1.85 million additional (923,000 unique) passengers over the next 11 years. Based upon most recent survey data 40% of embarking passengers spend one or more nights in the port in which they embark Passengers spend on average $137 (2018 $) in the embarkation port Crew, which represent approximately 1/3 of cruise passenger numbers, or about 624,000 additional crew members by 2030 adds another $54 (2018 $)

Cruise Passenger Projections & Implications, New Retail & Hotel Demand by 2030 Passengers Crew Average Passenger and Crew Expenditure Embarkation Port (2018 $) $ 137.00 $ 54.

30 Cruise Passenger Projections & Implications, New Retail & Hotel Demand by 2030 Passengers Crew Average Passenger and Crew Expenditure Embarkation Port (2018 $) $ $ Accommodations 31% 20% Food and Beverage 33% 44% Retail 36% 36% 100% 100% Calculated Expenditure by Type: Accommodations $ $ Food and Beverage $ $ Retail $ $ Total $ $ Additional Unique Passengers/Total Crew between 2018 and , ,000 Total Additional Annual Expenditure by Type of Expenditure 2030 Accommodations $ 39,199,810 $ 6,739,200 Food and Beverage $ 41,728,830 $ 14,826,240 Retail $ 45,522,360 $ 12,130,560 Total $ 126,451,000 $ 33,696,000 Average Daily Hotel Rate (2018 $) $ $ Annual Average Sales per Square Foot Food & Beverage Businesses (2018 $) $ $ Annual Average Sales per Square Foot Retail Businesses (2018 $) $ $ Additional Hotel Rooms Demanded by stabilized occupancy 1, Additional Square Feet of Restaurants and Bars by ,731 32,947 Additional Square Feet of Retail by ,064 34,659

31 Rental Market According to industry representatives rental housing market relatively stable though rates have seen limited growth past months Market overall has a notable amount of smaller 1 & 2 bedroom units 3 new developments built in the past 3-4 years Avg. less than 100 units per complex 2 of 3 are affordable housing (income restricted) Based upon modest population growth trends, market-based opportunity add from rental units during next 3 to 4 years Land cost is major variable to economic viability

32 Retail Market Local retail overall at 90% occupancy (not including projects currently in lease-up) Only 90,000+ sq. ft. built in the past 20 years Cruise passengers and visitors will be the main drivers of future growth Retail surrounding the port will be one of the principal beneficiaries of any growth Opportunity to better tie and link the retail and restaurants along Avenue B and beyond to the cruise terminals as long as there are improvements to both sides of Harborside Drive

33 Office Market Regional office market below stabilized levels Very limited demand for new construction of office unless Industry or user specific which may include agents, cruise line staff, and others related to the cruise industry Under any circumstances office space should be delivered to the market in bite size pieces 20,000 to 30,000 square feet at a time Regional Office Market Snapshot (NASA/Clearlake/Galveston) Total Inventory (sq.ft.) Occ. Under-construction Avg. Asking Rate (Gross) 5,000, % 0 $20.50

34 Commercial Conclusions Limited commercial opportunity in the office market - port specific users Hotel opportunity at the port is viable over the longer term Rental housing continues to be a bright spot in the market where maritime activity is unlikely rental housing development should be considered Developing retail and restaurants along Harborside Drive / surrounding core areas of the port would enhance connectivity to existing commercial core Pedestrian linkage between the cruise port and historic commercial district of the City needs to be strengthened Natural and seamless commercial pedestrian oriented connection As passenger traffic grows, the opportunity to better tie the historic commercial avenues with the port will be enhanced

35 CARGO OPPORTUNITIES

36 Total tonnage has Decreased Attributed primarily to fluctuations/decreases in grain and liquid bulk 9,000,000 8,000,000 7,000,000 CAGR % 6,000,000 5,000,000 4,000,000 3,000,000 2,000,000 1,000, Liquid Bulk Grain Fertilizer RORO Containerized Fruit General Cargo Autos Misc Source: Port of Galveston Statistics 36

37 Auto/RORO Market Peaked in 2012, has been sporadic and trended upward since 2016 Short Tons Three separate operators: WWL (Displaced with new cruise terminal) WWS/BMW Ports America Pier Operators indicate land constraints New auto/roro accounts require additional rail-served land Ports America does not have a dedicated land lease, shares acreage with Metro (wind energy) and creates terminal inefficiencies Competing ports have land availability and investing in rail Pelican Island is not a near-term solution New terminal area will need to have rail 600, , , , , , Auto/Ro-Ro Tons Source: Port of Galveston 37

38 Units Auto/Ro-Ro Market Outlook & Projection (Units) New Opportunities Convert new OEM auto accounts Convert mining equipment Import OEM auto account 160, ,000 units - Potential for increased rail operations Forecast: High: new accounts by 2023; auto imports continue to grow at population/gdp Low: No new auto or ro-ro account is secured over the next five years Forecast is unconstrained will need land Fill slip Low High 38

39 Short Tons Fruit Import Market 500, , , , , , , , ,000 50, Melons And Papayas, Fresh Dates, Figs, Pineapples, Avocados Etc, Fr Or Dried Bananas, Including Plantains, Fresh Or Dried Source: U.S. Bureau of Census, USA Trade Online Del Monte - Cellular vessels in 3 years Future needs: acres Options: Reconfigure current acreage for the short-term Westport property appears not feasible Pelican Island Current bridge is a dealbreaker Relocate to another port 39

40 Tons Fruit Market Outlook & Projection Fruit imports tied to population and consumption Market share looks to remain constant Port and Del Monte need to agree on plan for accommodating containerized traffic 20-year projections High assumes 2% CAGR Low Assumes loss of all fruit business 900, , , , , , , , ,000 0 Historical Low High 40

41 Short Tons Grain Export Market Has sporadically trended downward Past 5 years avg. 1.8 million tons/yr. 2017: 10-year low >> 735,000 tons Lost vessels due to water depth issue 25% tariff erodes U.S. competitiveness to serve China Tax on sorghum/beans has dried up the export market Configuration does not allow for truck discharge at Port Truck loading capability would boost volumes Compete against Corpus Christi in key agricultural counties 4,500,000 4,000,000 3,500,000 3,000,000 2,500,000 2,000,000 1,500,000 1,000, , Corn (maize) Soybeans, Whether Or Not Broken Grain Sorghum Source: U.S. Bureau of Census, USA Trade Online Wheat And Meslin 41

42 Tons Grain Market Outlook & Projection Tariffs are key in near-term Foreign competition: Argentina and Brazil >> soybean With channel depth issue fixed, it is expected that Port will resume to pre-2017 levels Truck loading capability - boost volumes Forecast: High scenario assumes a return to 5- year average and 2% annual growth and the capture of local trucksourced tonnage Low scenario projection assumes a rebound to the previous 5-year average, growing at a modest 1% 4,500,000 4,000,000 3,500,000 3,000,000 2,500,000 2,000,000 1,500,000 1,000, ,000 0 Historical Low High 42

43 Short Tons Fertilizer Market Urea, mirrors declines in total Gulf market Urea - 500, ,000 tons annually B35/36 is dedicated but vessels at B34 congestion issues arise Draft issue (2017) - Discharged urea in New Orleans Terminal constraint Space needed to grow other lines of business First right of refusal on POG property south of B36 Domestic capacity will erode import market 800, , , , , , , ,

44 Tons Fertilizer Market Outlook & Projection Import market will see increased competition from domestic capacity Despite potential declines in urea imports, CHS looking to expand terminal $15 million investment (3 years) Ability to handle additional product lines Forecast: High: Return to the recent 5-year average and completion of the terminal expansion by 2021 Low: No new product lines, the recent 5- year average volume grows at 2% annually over the next 5 years and subsequently declines due to increased domestic capacity 1,600,000 1,400,000 1,200,000 1,000, , , , ,000 0 Historical Low High 44

45 Short Tons General Cargo Market increased due to growth of wind energy Pier 34: 14 acres up to 20 Does not have leased terminal area >> Competes with Pots America for space >600 LOA not feasible with other vessels at adjacent berths POG leased 17 acres to DSV for windmill storage Draft (2017) In recent years lost berth depth Despite recent growth, historically unstable market Customers expect 2 more strong years, similar to , ,000 80,000 60,000 40,000 20, General Cargo 45

46 Tons Project Cargo Outlook & Projection Historically unstable, however more installations are planned Long-term future is dependent on Federal tax credits and tariffs Long-term uncertainty Forecast: High assumes that the current level of imports is maintained 250,000 tons are maintained throughout the forecast period Low scenario, the 5-year average is anticipated for the near-term and imports decline due to the expiration of wind energy tax credits 120, ,000 80,000 60,000 40,000 20,000 0 Historical Low High 46

47 Tons Liquid Bulk Market & Projection Transshipment of bulk liquid products Supplies bunker and diesel fuel Deep-draft vessels, ocean-going barges, and intra-costal barges Despite peaking at 2.75 million tons in 2010, overall since 2009, tonnage has declined at -4.8% annually Overall decline in the regional market and competing capacity at regional ports Forecast: High: market stabilizes at the historical 5- year average and remains flat Low: assumes current volumes remain flat 3,000,000 2,500,000 2,000,000 1,500,000 1,000, ,000 0 Historical Low High 47

48 Container Market Outlook Houston has been growing since 2003, outpacing U.S. average Import: Houston 4%; U.S. 3% Export: Houston 5.8%; U.S. 5.4% Key regional consumption markets: Houston, Dallas and San Antonio Galveston is at a time and cost disadvantage to serve key consumption points Regional development Freeport Velasco In order to compete: Logistics cost from Galveston would need to be extremely competitive Compensatory lease or P3 to satisfy debt of terminal development Truck Transit Time DFW Region Austin Region San Antonio Region Houston Region Houston Ship Channel Beltway 8 4h, 55m 4h, 14m 4h, 23m 36m Galveston/Pelican Island 5h 53m 4h, 32m 4h, 57m 1h, 29m Freeport 5h, 58m 3h, 40m 3h, 49m 1h, 39m 48

49 Key Strategic Market Issues New cruise terminal will displace WWL 25 acres plus 4 overflow acres and covered storage in FTZ No leasehold terminal space for Ports America or Metro PA shares with Metro s project cargo and wind energy If slip is filled, approximately total acres available for split In order to accommodate near-term cargo displacement and needs, terminal leases with Ports America, WWL, and Metro are recommended allows individual tenants to maximize financial operations and to market to new customers Potential auto account would require about 100 rail-served acres 49

50 Key Strategic Market Issues Pelican Island has long been an identified area for expanded cargo No rail access, no truck bridge access Terminal, equipment, berths, channel, rail, bridge issues Will revenue generation of cargo operations be able to carry development costs?? Unclear if traditional cargo operations can support terminal development and bridge/ rail construction Time horizon of development 5-10 years Other industry, not displaced cargo or containers, will likely be required to financially justify development costs at Pelican Island Private sector investment in such LOBs as methanol, ethane crackers, fertilizer production, LNG/LPG, pipe manufacturing, etc. 50

51 MOVING FORWARD

52 Approach Define cruise and cargo markets Capital plan Develop cruise alternatives Separate Planning Process for RCI / Port Preferred plan Define cargo infrastructure Test options Integrate cruise and cargo plan Define other real estate Generate holistic alternatives

53 Whole Port Approach COMMUNITY NEEDS ECONOMIC IMPACTS MARKET FORCES PORT FINANCES

55 39 Acres 203 Acres 92 Acres 21.5 Acres Acres 24.5 Acres 19.5 Acres 85 Acres 10.5 Acres 4 Acres 1.5 Acres 10.5 Acres 0.5 Acres 1.5 Acres Ac. 51 Ac Ac. 334 Ac Ac.

57 Next steps Stakeholder outreach Open House User / Staff interaction Local key parties Market assessment Commercial survey for cruise visitors Infrastructure assessment Finalizing evaluation and cost estimates on berths, buildings, roadways, etc. Financial modeling Data collection completed Modeling Planning and analyses Port and stakeholder workshopping process Traffic analysis reviewing for need

58 STRATEGIC MASTER PLAN CRUISE, COMMERCIAL AND CARGO MARKET ASSESSMENTS PRESENTATION TO THE BOARD OF TRUSTEES February 26, 2019

Panama Canal Stakeholder Working Group Meeting

Panama Canal Stakeholder Working Group Meeting POHA, Bayport Container Terminal, Houston, Texas August 27, 2012 TOTAL ECONOMIC IMPACT 9,749 Texas jobs are in some way related to the Port Of the 9,749