Greater Toronto Airports Authority Chad MacLean, Treasurer BMO Capital Markets 2018 Infrastructure & Utilities Conference February 8, 2018
Greater Toronto Airports Authority Chad MacLean, Treasurer BMO Capital Markets 2018 Infrastructure & Utilities Conference February 8, 2018 Disclaimer: This presentation contains certain forward-looking information and statements which reflect the current view with respect to the GTAA s expectations regarding future growth, results of operations, performance, business prospects and opportunities. Words such as believe, expect, plan, intend, estimate, anticipate and similar expressions, as well as future or conditional verbs such as will, should, would and could often identify forward-looking information. This forward-looking information is based on a variety of assumptions and is subject to risks and uncertainties. There is significant risk that predictions, forecasts, conclusions and projections, which constitute forward-looking information, will not prove to be accurate, that the assumptions may not be correct and that actual results may vary from the forwardlooking information. The GTAA cautions recipients not to place undue reliance on the forward-looking information as a number of factors could cause actual results, conditions, actions or events to differ materially from the targets, expectations, estimates or intentions expressed in the forward-looking information. Risk factors that could cause actual results to differ materially from the results expressed or implied by forward-looking information include, among other things, continuing volatility in the economic recovery and future economic activity; high rates of unemployment and household debt; levels of aviation activity; air carrier instability; the availability of aviation liability and other insurance; the timing of recovery of receipt of insurance proceeds; construction risk; geopolitical unrest; terrorist attacks and the threat of terrorist attacks; war; health epidemics; labour disputes; capital market conditions; currency fluctuations; changes in laws; adverse amendments to the Ground Lease; the use of telecommunications and ground transportation as alternatives to air travel; the availability and cost of jet fuel; carbon emission costs and restrictions; adverse regulatory developments or proceedings; environmental issues; lawsuits; and other risks detailed from time to time in the GTAA s publicly filed disclosure documents. The forward-looking information contained in this presentation represents expectations as of today s date and is subject to change. Except as required by applicable law, the GTAA disclaims any intention or obligation to update or revise any forward-looking information whether as a result of new information or future events or for any other reason. 2
Key Highlights Fiscal Years Q3 YTD 2015 2016 Change 2016 2017 Change Total Passengers (millions) 41.0 44.3 8.0% 33.9 36.0 6.2% Seats / passenger aircraft movements 123 129 5.2% 129 135 4.3% Revenues ($billions) 1.20 1.29 7.1% 0.97 1.03 6.2% Net Income ($millions) 66.0 85.0 29.7% 81 99 22.6% Net Debt / EPAX * 282 256 (9.3)% 261 247 (5.3)% ASQ Scores rising ** 4.16 4.25 4.31 (2017) Draft 20 Year Master Plan (Provided to Transport Canada in December 2017) * Enplaned passengers (EPAX) equals half of total passengers and is based on the prior rolling 12 months activity ** Source: Airport Council International Airport Survey Quality (ASQ) 2015, 2016, 2017 3
ASQ Scores Final 2017 Results 4.05 4.06 4.16 4.25 4.31 15 ASQ scores have been steadily trending higher since 2013. 4
ASQ Scores ASQ Survey 2017 Highlights 4.31 4.33 4.38 4.18 5 5
Recent investments in the customer experience have propelled Toronto Pearson to the #1 ranking in North America s 2017 ASQ score Operating Expenses / Enplaned Passenger $26 $24 Pro-Forma Actuals $22 Focus on enhanced customer experience and safety $20 $18 $16 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 RTM* Pro-forma excludes costs of bringing in-house the deicing operations in 2015 Focus on investments in the customer experience, for example new retail, food and beverage openings, free baggage carts and digital signage; and processing flows such as CATSA and border processing * RTM is the most recent twelve months 6
7 Entering the Next Infrastructure Build Plan Last Major Build Phase Average CAPEX $720 million / year Facility Restoration Low Growth Phase Average CAPEX $126 million /year Facility Restoration & Expansion High Growth Phase Average CAPEX $192 million* / year Next Build Phase Average CAPEX spend > $300 million / year 3.4 million passenger growth 12.1 million passenger growth 5.2% 4.7% 4.4% 3.4% 6.8% 6.4% 8.0% 6.2% 2.8% Excludes property acquisitions from 2017 capex -6.1% 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 Q3 YTD * Excludes property acquisitions from 2017 capex Y/Y % Passenger Growth 15
Capital Expenditure Programs and Draft 20 Year Master Plan The GTAA submitted its draft 20 year Master Plan to Transport Canada in December 2017; this included the GTAA s expected land use plan over the 2017 2037 timeframe Passenger forecasts: 60-100 million range by 2037; most likely scenario - 85 million Key projects as discussed in the draft Master Plan include: Short-tomedium term Terminal 1: expand concourse G Terminal 3: add gate capacity and develop areas west of Satellite Pier A Link Terminal 1 and Terminal 3; Add a new north deicing facility Construction of a centralized passenger processing facility Enhance existing and new technologies (continue to explore and embrace technological enhancements that improve Airport operational flow and efficiencies) Mediumto-long term Expand passenger terminal capacity where current groundside access is (after central processing is in place) Construct a Regional Transit Centre 33 8
Toronto Pearson in 2037 44 million passengers 450,000 tonnes of cargo 2016 456,000 total aircraft movements 106 passengers / passenger aircraft movements 2037 85 million passengers 632,000 total aircraft movements 140 passengers / passenger aircraft movements 950,000 tonnes of cargo 9
hectares The Toronto Pearson footprint is relatively small compared to other top tier global hub airports. This requires us to be very efficient with our land use 8,000 7,000 6,000 5,000 4,000 3,000 2,000 1,000 0 64 67 70 69 79 88 68 62 65 60 73 # of Passengers Most recent 12 months activity (in millions) New DFW PVG CDG ORD DXB AMS SIN* FRA JFK HKG* YYZ LHR* LAX IST IST * 46 78 85 64 * * New IST: under construction and will replace existing IST airport 10
11 Land Use Plan to 2037 Minimal changes from prior Land Use Plan 1. Addition of ~30 ha of Boeing Lands at Derry and Airport Roads 2. Regional Transit Centre and processor 3. North and midfield terminal expansion options protected 4. Phased terminal expansion including additional gates, more baggage capacity, with eventual single contiguous terminal 5. Plan still protects for sixth runway but GTAA does not anticipate a new runway is needed to accommodate capacity
Capital Expenditure Programs in the midterm as per Draft Master Plan 11 12
Toronto Pearson is North America s 2nd busiest airport for international passengers In 2016, Toronto Pearson experienced its largest annual increase in passenger growth in terms of the total number of annual passengers and percentage of passengers for both the domestic and international sectors in the last 10 years Fiscal Years CAGR since Q3 YTD 2015 2016 Change 2010 2016 2017 Change Passenger Activity (in millions) Domestic 15.8 16.9 6.9% 4.8% 12.9 13.3 3.4% International 25.2 27.4 8.8% 6.1% 21.0 22.7 8.0% Total Passengers 41.0 44.3 8.0% 5.6% 33.9 36.0 6.2% Flight Activity (1) Aircraft movements (2) ('000s) 444.0 456.4 2.8% 1.5% 345.8 351.0 1.5% MTOW (tonnes) 32.0 34.4 7.9% 4.6% 26.0 27.5 5.8% Seats (millions) 50.0 54.2 8.3% 4.8% 41.1 43.4 5.6% Arrived Seats / arrived passenger aircraft 122.8 129.2 5.2% 4.5% 129.4 135.0 4.3% Load Factor 82.0% 81.8% (0.2)pp N/A 82.4% 82.8% 0.4pp (1) Flight activity measures above reflect both arriving and departing (2) Aircraft movements includes both passenger and non-passenger aircraft 13
Shift from one-till to two-till model and lower financing costs driving net income up in recent years Financial Highlights Fiscal Years Ended December 31 Q3 YTD (in millions) 2012 2013 2014 2015 2016 CAGR 2017 Change Aeronautical Revenues 547 484 481 476 489 (2.8)% 377 2.2% Airport Improvement Fees, Net 304 314 332 354 384 5.1% 319 9.7% Commercial Revenues 286 320 340 371 413 8.6% 333 7.6% Revenues 1,137 1,118 1,153 1,201 1,286 2.5% 1,029 6.2% Ground Rent & PILT 158 158 163 160 183 2.9% 145 5.9% Operating Expenses 335 338 342 382 428 5.5% 342 10.3% EBITDA 644 622 648 659 675 0.7% 541 3.8% Amortization 217 224 226 235 249 3.4% 197 6.5% EBIT 427 398 422 424 426 (0.7)% 345 2.3% Interest & Financing Costs, net 414 391 379 358 341 (4.5)% 246 (4.0)% Premium on Early Retirement of Debt - - 102 - - Net Income (Loss) 13 7 (59) 66 85 99 22.6% Add: non-cash & other items 238 194 245 229 269 190 Less: Capital Expenditures (2) 96 110 122 228 227 354 Free Cash Flow (1) 155 91 64 67 127 (66) (1) Free Cash Flow is a non-gaap financial measure (2) 2017 Capital expeditures includes property acquisitions of $159.3 million 14
Continued progress towards long-term objective to generate 40% of total revenues through commercial revenue streams REVENUE TYPE AS % OF TOTAL REVENUE 54% 53% 49% 50% 46% 43% 42% 40% 38% 37% 22% 24% 27% 26% 27% 28% 29% 29% 30% 31% 25% 24% 24% 24% 27% 28% 29% 31% 32% 32% 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 Commercial AIF Aeronautical R T M* Commercial Revenues $millions 3Q 2017 RTM 2012 100 28 96 45 130 57% 76% 45% 44% 28% Growth 64 16 66 31 102 Property & Airside Rentals Retail Parking Advertising Sponsorships Car Rentals & Ground Transportation * RTM is the most recent twelve months 15
Continued Emphasis on Debt Reduction revenue streams ($millions) 8,500 8,000 7,500 7,000 6,500 6,000 5,500 5,000 Outstanding Debt and Debt / Enplaned Passenger $420 $400 $380 $360 $340 $320 $300 $280 $260 $240 $220 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 RTM * Gross Debt (left-hand side) Net Debt (left-hand side) Net Debt/EPAX (right-hand side) * RTM is the most recent twelve months Net debt per enplaned passenger, one of the airport industry s key financial metrics and a non- GAAP financial measure, has been on a downward trajectory from $417 in 2009 to $247 in the recent 12 months as at September 30, 2017. 16
Infrastructure related capital expenditures starting to increase following period of four years of sustained growth ($millions) Capital Expenditures 1,200 1,000 1,026 986 800 600 656 607 400 200 406 239 213 155 71 95 96 121 122 227 227 263 0 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 RTM* * Excludes property acquisition from 2017 capex Total CAPEX Rolling Average CAPEX * RTM is the most recent twelve months Low capex spend in recent years was the result of continuing to focus on operational efficiencies and debt reduction Strong passenger growth has driven more operational efficiencies from existing infrastructure 17
2017 Key Capital Projects Terminal 3 Improvement Projects Node B, the Gates H24 to H26 area and the International Arrivals Hall revitalization; Upgrades to systems and digital technology for an enhanced passenger experience; and Upgrades to the Domestic and International East check-in and improved security screening points for increased passenger flow. Terminal 1 Gate 193 expansion Upgrading and expanding its capacity of Gate 193 in Terminal 1 to accommodate Code C aircraft operations in response to increased passenger traffic at the Airport. Phase one of the building expansion was opened in June 2017 and phase two, consisting of the remaining 40,000 square foot expansion, was opened in October 2017. The planning and designs for a new apron and boarding bridges was commenced in the third quarter of 2017 and the work associated therewith is expected to be completed in 2018. Airside Pavement Restoration 2017 Completed in May 2017 the restoration of the Airside pavement on runway 05/23 (north) and the associated taxiways as part of the approved 2015-2019 Airside Pavement Restoration program. 35 18
Credit Facilities and Liquidity Q3-2017 Credit Facilities and Cash: Source Currency Expiry Size Drawn LoCs Available Revolving Operating facility CAD 22-May-20 $900 $0 $0 $900.0 * Letter of Credit facility CAD 22-May-18 $100 $0 $81.3 $18.7 Hedge facility CAD Per contract $150 $0 $0 $150.0 $1,150 $0 $81.3 $1,068.7 Cash & Cash Equivalents $97.3 * $500 million of the revolving operating facility fully back-stops the Commercial Paper program Establishment of Commercial Paper program provides a cost effective and flexible financing instrument for cash management between bond financings. 19
2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 2031 2032 2033 2034 2035 2036 2037 2038 2039 2040 2041 millions Debt maturities profile $1,200 $1,000 Revolver Operating Facility $800 $600 $400 $200 $- Expecting to refinance significant portions of the upcoming maturities over next 5 years through commercial paper, floating and/or fixed rate bond issuances 20
About the GTAA Manages and operates Toronto Pearson International Airport pursuant to the terms of the December 1996 ground lease with the federal government, which has an initial term of 60 years, with one renewal term of 20 years Toronto Pearson is a key infrastructure asset which provides service to residents primarily in the Greater Toronto Area (GTA) and more broadly in Southern Ontario Has the ability to set aeronautical and passenger fees without government approval Strong and upward-trending credit ratings (2016 upgrades from Moody s and S&P): Moody s Corporation: Aa3 (stable; senior debt rating only) Standard & Poor s: A+ (stable; issuer credit and senior debt rating) DBRS: R-1 (low) A (high) (short-term debt and issuer rating) A non-share and not-for-profit corporation 21