PORT OF SEATTLE 
MEMORANDUM 
COMMISSION AGENDA             Item No.      6i 
ACTION ITEM               Date of Meeting  September 11, 2012 

DATE:    September 4, 2012 
TO:     Tay Yoshitani, Chief Executive Officer 
FROM:    Michael McLaughlin, Director, Cruise and Maritime Operations 
SUBJECT:  Second Amendment to the Cruise Facility Lease Agreement 

ACTION REQUESTED: 
Request Commission authorization for the Chief Executive Officer to execute the Second
Amendment to the Cruise Facility Lease Agreement between the Port of Seattle (Port) and
Cruise Terminals of America (CTA) to exercise the "Extension Period" set forth in Article 3. 
SYNOPSIS: 
The Port and CTA have negotiated an amendment to the Cruise Facility Lease Agreement to
exercise provisions set forth in "Article 3: Term" extending the term an additional seven (7)
years and adjusting rental amounts set forth in "Article 4: Rent". The extension would 
commence on January 1, 2013, and terminate on December 31, 2019. 
Following receipt of notification from CTA of its interest in extending the agreement, the Port
indicated its interest in extending. However, as allowed by the terms of Section 3.2, the Port also
indicated its intention to "renegotiate the rental amounts set forth in ARTICLE 4." The Port and
CTA have now agreed on a revised rental structure for the Extension Period. In addition to the
new financial terms which provide for an average incremental increase of 4% to 6% in net
proceeds to the Port compared to the current lease and a much simplified, straightforward, and
easy to verify method for calculating rent, the new amendment includes a (proposed) new
Allowance to deal with costs of repair and/or improvements of the cruise facilities. 
This new allowance, defined as the "Per Passenger Allowance" (PPA), will replace the
Improvement Allowance that was available to CTA only during "the initial term of [the]
Agreement." The PPA is a variable amount dependent on the number of annual cruise
passengers processed throughout the term of the extension period. The PPA provides a reserve
fund based on pennies per passenger which grows over time. By projecting future business
volumes, the PPA is estimated to total around $500,000 over the term of the extension. The value
of the PPA will be calculated based on the number of cruise passengers over the Extension
Period. The PPA will accrue at a rate of Eight Cents ($0.08) per passenger up to (and including)

COMMISSION AGENDA 
Tay Yoshitani, Chief Executive Officer 
September 4, 2012 
Page 2 of 5 
five million (5,000,000) passengers and at a rate of Five Cents ($0.05) per passenger for each
passenger above five million. 
The PPA will be earned and available to the tenant only in arrears and shall not be available in
advance or otherwise in expectation of future passengers. Either party may perform work under
the new allowance. The parties shall consult with one another regarding potential projects
towards which the PPA will be applied, and the final decisions regarding how the allowance will
be applied and who will undertake the work will be made by the Port.
These changes are fully described in proposed Second Amendment to the Cruise Facility Lease
Agreement. A draft copy is attached. 
BACKGROUND AND JUSTIFICATION: 
The current lease agreement with CTA, which commenced in 2006, includes the Pier 66 Bell
Street Pier Cruise Terminal and Smith Cove Cruise Terminal located at Terminal 91. CTA
manages the day-to-day operations of the Port's cruise terminals. 
The Port has contracted with CTA to manage cruise operations since May 2000 when the Port
began its homeport cruise business. CTA has been an essential partner in the Port's success in
the cruise business over the years. Consistently over the initial seven years of the current
agreement, the Port has retained a strong market share serving the cruise industry as a homeport
for several brands offering Alaska cruise itineraries. In 2000, the Port accommodated 36 cruise
vessels and 120,000 passengers. Our record performance year was 2010 with 223 vessel calls
and 931,000 passengers processed through Port cruise facilities. On average, the Port has served
over 200 cruise vessel calls annually during this period with between 750,000 to 930,000 cruise
passengers being processed through Port facilities each season. The 2012 season looks to be
another very strong year with 202 vessels and potential total passenger counts exceeding record
levels. 
The increase in annual cruise business has been dramatic and sustained, and the popularity of
Alaska as a cruise destination remains high. With the Port's cruise business achieving maturity
over the last decade, the predictability in expenses is better understood today than it was when
this lease began. At the start of this lease in 2006, the extension-option was understood to be a
future opportunity for the Port to continue with CTA operating the Port's cruise facilities and to
adjust the revenue-sharing model as appropriate based on increased market share as a homeport
serving the cruise industry. 
The new PPA allowance provides a mechanism to deal with unexpected costs of facility repairs,
improvements at both terminals to meet changing customer needs, and replacement of essential
equipment. It also allows the Port to increase the rent percentage paid to the Port, with CTA
accepting greater risk associated with the coverage of operating expenses.
Much of the Port's continued success in serving the cruise industry comes down to the
performance of our facilities and the CTA team which manages operations at the cruise

COMMISSION AGENDA 
Tay Yoshitani, Chief Executive Officer 
September 4, 2012 
Page 3 of 5 
terminals. As a gauge of the return on the significant investments the Port has made in its cruise
facilities, the value of this industry to our local economy continues to grow with over 4,000 jobs,
annual state and local taxes in excess of $18 million, and an estimated infusion of $2,000,000 to
the region each time a cruise ship docks in Seattle. 
As the Port's cruise terminal operator, CTA has done an excellent job making sure the cruise
ship schedules are met consistently, passengers are processed in a safe and secure manner and
the Port's facilities are properly maintained in compliance with the lease, the USCG Facility
Security Plan, the Department of Homeland Security Customs and Border Protection procedures,
our customer's expectations and the high standards of the cruise industry. 
In light of these demonstrated results, our continued commitment to serving this industry as a
homeport, the strong business relationship that has developed with CTA and the Port's focus on
growing this business  staff recommends exercising the extension period. 
Budget Status and Source of Funds: 
The proposed 2013 Operating Budget (currently in process) is based on the increased cruise
revenue expected from the revised rent calculation in the CTA lease extension based on the 2013
passenger projections. The new "Per Passenger Allowance" will be included in the 2013 Plan of
Finance. The Per Passenger Allowance will be more than offset by the increased revenues
resulting from the change in the rent calculation in the lease extension.
The source of funds for the Per Passenger Allowance when it is spent will be the General Fund 
since the PPA is deposited in the General Fund when it is collected. 
Financial Analysis and Summary: 
CIP Category    N/A 
Project Type    N/A 
Risk adjusted   N/A 
discount rate 
Key risk factors   All provisions in the current lease remain in effect except for the change in
the rent formula (article 4 in the current lease) and the creation of the new
"Per Passenger Allowance". The combined impact of these changes results
in higher net proceeds to the Port of 4% to 6% each year as compared to the
current lease. 


COMMISSION AGENDA 
Tay Yoshitani, Chief Executive Officer 
September 4, 2012 
Page 4 of 5 
Key risk       Under the proposed lease extension, CTA assumes more of the risk (for all
factors, cont.       operating expenses, and some components of revenue) than under the
current lease. This provision could motivate the tenant to defer repairs and
needed improvements to the building. This risk is partially mitigated by the
creation of the new "Per Passenger Allowance" which accrues based on the
number of cruise passengers through the cruise facilities during the lease
extension term. The Per Passenger Allowance is available to supplement
the acquisition or replacement of essential equipment for cruise terminal
operations during the term of the lease extension, based on advance
approval by the Port. 
Under the proposed lease extension, the Port will no longer have visibility
to expenses incurred by CTA to run the business and hence less ability to
monitor the profitability of the business. This risk to the Port is partially
mitigated by maturity of the cruise business in Seattle and the
understanding the Port has gained over the past 10 years regarding the cost
to operate the terminals. 
Project cost for  N/A 
analysis 
Business Unit   Seaport Cruise Services
(BU) 
Effect on      The proposed terms of the CTA lease extension provide an average incremental
business       increase of 4%-6% in net proceeds to the Port compared to the current lease.
performance    The simplifying rent formula facilitates more effective management oversight
and a straight forward rent calculation based primarily on verified cruise
passenger volumes and Port-directed cruise fees.
Incremental benefit - compared to current lease provisions: 
NOI (in $000's)         2013   2014   2015   2016   2017   2018   2019  TOTAL
Incremental Revenue      659      668      678      689      699      711      758      4,862 
less: New Allowance      (65)   (65)   (65)   (65)   (65)   (65)   (44)   (436)
NOI After Depreciation   $593   $603   $613   $623   $634   $645   $714  $4,425
Forecasted revenue is based on future annual performance comparable to the expected
passenger volumes at 100% standard occupancy of confirmed vessel calls for the 2013 cruise
season. Forecasted funding of the new Per Passenger Allowance is based on passenger
volumes of approximately 820,000 per year. Actual results will vary dependent on the specific
mix of vessels and corresponding passenger volume each cruise season.
IRR/NPV     N/A 
ALTERNATIVES CONSIDERED AND THEIR IMPLICATIONS: 
1. Do Nothing: The current lease with CTA will expire at the end of 2012. This would require
the Port to seek out a new terminal operator for the 2013 cruise season and beyond, negotiate a
new agreement or manage the cruise terminal operations in-house which would require a
significant increase in staff resources. In either scenario, the Port could face a significant risk of
declining customer-satisfaction and level-of-service provided to the cruise industry

COMMISSION AGENDA 
Tay Yoshitani, Chief Executive Officer 
September 4, 2012 
Page 5 of 5 
2. Approve the Second Amendment to Cruise Facility Lease Agreement: Approval of the
Second Amendment, as envisioned by the current agreement, includes an increase in the
proposed rental amount; the creation of a new allowance to fund future maintenance, repair and
improvements of the cruise terminal facilities, and the simplification of lease language. It will
eliminate problems previously experienced in managing the agreement and will ensure continued
smooth operation of the cruise terminals protecting our market share as a homeport serving the
cruise industry. This is the recommended alternative.
OTHER DOCUMENTS ASSOCIATED WITH THIS REQUEST: 
Second Amendment of Cruise Facility Lease Agreement  Final Draft 
PREVIOUS COMMISSION ACTIONS OR BRIEFINGS: 
December 11, 2005  The Commission approved the Cruise Facility Lease Agreement. 
April 11, 2006  The Commission approved the First Amendment of Cruise Facility Lease
Agreement.