2018 City of Houston Investor Conference. Kenneth Gregg, Interim Deputy Director of Finance

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1 2018 City of Houston Investor Conference Kenneth Gregg, Interim Deputy Director of Finance April 24,

2 Disclaimer This Investor Presentation is provided for your general information and convenience only, is current only as of its date and does not constitute an offer to sell or a solicitation of an offer to buy securities. The information contained herein does not constitute a sufficient basis for making a decision with respect to the purchase or sale of any security. All information regarding or relating to bonds issued or to be issued by the City of Houston (the City ), either as general obligation debt or through its enterprise funds, the Combined Utility System, the Houston Airport System or the Convention and Entertainment Department, is qualified in its entirety by the relevant Official Statement and any related supplements and continuing disclosure. Investors should review the relevant Official Statement and any related supplements and continuing disclosure before making a decision with respect to the purchase or sale of any bonds issued or to be issued by the City or any of the City s enterprise funds. In addition, before purchasing any bonds issued or to be issued by the City or any of the City s enterprise funds, please consult your legal and financial advisors for information about and analysis of the bonds risks and their suitability as an investment in your particular circumstances. With respect to each section of this Investor Presentation, such section contains information from sources believed by the City to be reliable but which information is not guaranteed as to accuracy. Each enterprise fund makes no representation regarding the reliability or accuracy of any information in the other enterprise funds sections of this Investor Presentation. The financial data and other information provided herein are given in summary form and not warranted as to completeness or accuracy and are subject to change without notice. Certain of the information set forth herein has been derived from external sources that have not been independently verified and no representation or warranty expressed or implied is made as to, and no reliance should be placed on the fairness, accuracy, completeness or correctness of, the information or opinions contained herein. None of the city officials or their respective representatives or agents, including any underwriters of bonds issued or to be issued by the City, shall have any liability whatsoever in negligence or otherwise for any loss however arising from any use of this Investor Presentation or its contents or otherwise arising in connection with this Investor Presentation or any other information or material discussed. By viewing this Investor Presentation, you agree not to duplicate, copy, download, screen capture, electronically store or record this Investor Presentation except for your own personal use, nor to produce, publish or distribute this Investor Presentation in any form whatsoever. There may have been events that occurred subsequent to the date of the Investor Presentation that would have a material adverse effect on the information presented herein. The City and/or its enterprise funds are under no obligation to update any of the information set forth herein. No dealer, broker, salesperson or any other person has been authorized to give any information or to make any representation in connection with the City or any bonds issued by the City, and if given or made, such other information or representation must not be relied upon as having been authorized by the City. This Investor Presentation includes forward-looking statements based on current beliefs and expectations about future events. Forward-looking statements include financial projections and estimates and their underlying assumptions, statements regarding plans, objectives and expectations with respect to future events. Forward-looking statements are not guarantees of future performance and are subject to inherent risks, uncertainties and assumptions, and changes in economic conditions globally or in the State of Texas and political and regulatory factors. Those events are uncertain; their outcome may differ from current expectations which may in turn significantly affect expected results. Actual results may differ materially from those projected or implied in these forward-looking statements. Any forward-looking statement contained in this Investor Presentation speaks as of the date of this Investor Presentation. 2

3 Recent accolades Bush Airport joins Hobby Airport with a 4-star rating, a notable achievement Source: Skytrax

4 The airports rebounded quickly after Hurricane Harvey Houston s airports were closed for 2-3 days while it took airlines several more for operations to return to normal 4

5 Recent transactions HAS recently closed on two transactions in the first quarter of CY 2018 Special Facility Revenue Bonds February 2018 United Airlines, Inc. Series 2018 & 2018C (AMT) ($130M) - United Technical Operations Center Project (UTOC) ($91M) - 270K sq. ft. hangar for widebody aircraft, administrative offices and support shops - United Airport Improvement Projects ($46M) - Improvement, renovation, expansion and repair of special facilities that support United s operations at IAH GARB Bonds March 2018 City of Houston Airport System Subordinate Lien Revenue and Refunding, Series 2018 A (AMT) & B Non-AMT) ($416M) - Refinancing project costs for new international terminal facilities at HOU ($116M) - CP takeout for: Satellite Utility Plant ($21M), West Parking Garage ($51M), and Roadway Relocations ($12M) - Refunding of prior bond series 2007B ($265M) - Cash funded debt service reserve fund ($13.5M) 5

6 Houston Airport System Three-airport system managed and operated by the City s Department of Aviation (HAS) serving the nation s fifth-largest metropolitan area Bush IAH international gateway hub United s 2 nd largest hub Enplaned passengers (M) IAH HOU TOTAL Hobby international low- cost service Southwest s 7 th busiest airport Ellington NASA, general aviation, military and spaceport Share domestic 75% 93% 79% Originating percentage Average daily departures 55% 71% 59% Number of gates Source: Houston Airports Statistics CY

7 IAH is still United s 2 nd largest hub IAH maintained position as United s second largest hub with just under 19 million scheduled seats during calendar year 2017 Source: Innovata database, accessed April

8 Investing in George Bush Intercontinental (IAH) HAS is designing a new international terminal for IAH C19 C17 Text C20 C21 C22 Pier D - West C16 Sterile Corridor C24 D1 D3 HS1 D4 D5 HS2 D6 Available w/ Wide-Body on D9 D8 D9 D10 D7 D11 Pier D - East C23 D2 Concourse Old -C D2 X North C-D Connector Terminal D New New Arrivals and Single Level Departure Ticketing Curb Hall D Garage FIS Modifications International Terminal Phase I Conceptual Design International Terminal Phase I - Re-life what will be known as the D-West Pier and construct new D-East Pier - Yielding 11 wide-body gates - Renovate existing Terminal D - Associated enabling projects (roadways, utilities, etc.) - Budget >$500M 8

9 Investing in George Bush Intercontinental (IAH) New international facilities will also include a new centralized international check-in hall Text International Processor Conceptual Design New centralized International Processor Hall where all Foreign Flag airlines and United s international passengers will check-in - Expand and improve efficiency of existing FIS by consolidating two checkpoints into one and adding three additional claim devices - Adding a new domestic baggage claim area - Associated enabling projects (utilities, etc.) - Budget - $370M 9

10 Investing in George Bush Intercontinental (IAH) United has broken ground on a new Technical Operations Center Text United Airlines Technical Operations Center (UTOC) New United Airlines Technical Operations Center (UTOC) on approximately 40 acres - Approximately 270K sq. ft. building for up to two-wide body aircraft with engine build-up space, as well as administrative and engineering support space - Associated enabling projects (roadway realignment, storm water drainage/retention, relocation of existing facilities, etc.) - Expansion and substantial improvements to existing maintenance facilities - Budget >$160M - United - $137M and City - $22.5M - Timeline estimated completion summer

11 HOU is Southwest s 7 th busiest airport Southwest continues to grow at HOU surpassing 8 million scheduled seats in 2017 Source: Innovata database, accessed April

12 Investing in William P. Hobby (HOU) Southwest is currently erecting a new hangar complex at Hobby Text Southwest Airlines New Hangar Rendering New Southwest Airlines maintenance facility on nearly 45 acres - Nearly 245K sq. ft. of hangars, shops, administrative, and support space - More than 460K sq. ft. of apron space to park up to eight B737 aircraft - Associated enabling projects (storm water retention pond, relocation of existing facilities, etc.) - Budget >$74M - Southwest - $60M and City - $14M - Timeline estimated opening late

13 Originating traffic remains strong HAS Originating traffic has surpassed 15 million since fiscal year 2016 Source: HAS records. 13

14 International traffic has remained positive in recent years In each fiscal year since 2015 HAS has recorded over 5 million international enplaned passengers Source: HAS records. 14

15 IAH has nonstop service to 5 continents More than 38% of IAH s international enplaned passengers are bound for destinations other than Latin America. Asia 4 destinations Canada 5 destinations Europe 7 destinations U.S. 115 destinations Mexico 25 destinations Caribbean 9 destinations Middle East 2 destinations Central America 10 destinations South Pacific 1 destination South America 8 destinations 15

16 IAH and HOU have competitive airline costs Houston remains an attractive hub for major carriers that desire to add or expand service IAH HOU Source: HAS records. Amounts are payments to HAS only (excludes special facility bond debt service payments and building maintenance expenses paid directly by United). 16

17 Debt service coverage remains strong HAS has managed to its DSCR targets consistently over the past several years F 2 CAGR, Revenues Airline $248.7 $263.9 $274.9 $280.9 $ % Nonairline and all other % Total $460.8 $489.8 $495.8 $510.5 $ % O&M expenses $268.7 $283.6 $314.7 $314.5 $ % Net revenues $192.0 $206.3 $181.1 $196.1 $ % Debt service $156.4 $163.3 $163.9 $175.0 $ % Less: PFCs (35.6) (38.1) (42.3) (54.7) (51.7) 9.8% Less: Grant revenues (22.9) (16.4) (13.9) Net debt service $97.9 $108.9 $107.7 $120.4 $ % Debt service coverage Note: Amounts in millions except percentages and coverage ratio. Numbers may not total exactly due to rounding. 1 Estimated DSCR net of effects following pension reform changes in Unofficial FY 2018 forecast as of 2/28/2018 MFOR. 17

18 HAS Senior & Subordinate Lien Debt Overview HAS has approximately $2.1 billion in outstanding bonds or about $77 per enplaned passenger 1 Series Tax status Coupon type Outstanding par Senior Lien Series 2009A Non-AMT Fixed $420,420, ,420,000 Subordinate Lien Series 2000B Non-AMT Fixed $44,515,000 Series 2000P-1 AMT Auction rate 34,100,000 Series 2000P-2 AMT Auction rate 33,875,000 Series 2002A AMT Fixed 20,005,000 Series 2002B Non-AMT Fixed 27,450,000 Series 2002C AMT Auction rate 76,875,000 Series 2002D-1 AMT Auction rate 55,800,000 Series 2002D-2 AMT Auction rate 53,825,000 Series 2007B Non-AMT Fixed 8,715,000 Series 2010 Non-AMT Variable rate 92,505,000 Series 2011A AMT Fixed 245,200,000 Series 2011B Non-AMT Fixed 72,650,000 Series 2012A AMT Fixed 280,355,000 Series 2012B Non-AMT Fixed 217,135,000 Series 2018A AMT Fixed 130,550,000 Series 2018B Non-AMT Fixed 285,220,000 $1,678,775,000 Total $2,099,195,000 1 Outstanding debt as of 4/1/2018 and last twelve months enplanements ended 2/28/

19 HAS Senior & Subordinate Lien Debt Service Conservative strategies have allowed HAS to effectively manage debt at all lien levels Note: Debt Service for the Variable Rate Series has been computed at the certified rate of 5.85% for Series 2000P-1 and 2000P-2, the certified rate of 5.30% for Series 2002C, 2002D-1, 2002D-2, and the certified rate of 5.34% for Series Does not include planned debt issuances. 19

20 HAS Senior & Subordinate Lien Debt Service Profile HAS maintains a conservative approach managing the various modes of its debt portfolio 20

21 HAS ratings and credit strengths Credit ratings remain strong and stable Monopoly position in a strong, diversified region with above average population growth Key hubs for United and Southwest with significant airline commitments Management track record of well-managed financial operations, planning and executing large-scale capital projects Moody s S&P Fitch Senior Lien Aa3 Stable AA- Stable NR -- Subordinate Lien A1 Stable A+ Stable A Stable 21

22 Conservative approach towards debt management HAS expects to be back in the market at least one more time in 2018 Management debt objectives for Monitor opportunities to capitalize on savings during lower interest rate environments - Preserve capacity on the senior lien - Manage our variable rate exposure - Fund required levels of debt service reserves through cash and existing surety policies 22

23 Questions? April 24,