Cruise lines’ port projects are a sound investment

Cruise lines are increasingly funding their own ports rather than waiting for the countries and destinations to take on the projects, as two recent examples demonstrate.

In the Dominican Republic, Carnival Corp. is getting ready to open an $85 million port on the country’s north coast, where it will shoulder the cost of construction along with a local partner.

And closer to home, Royal Caribbean Cruises Ltd. is negotiating to build a terminal at PortMiami in which it will invest in excess of $100 million, according to a Miami-Dade County document.

Among the factors driving the change is the improved financial capability of the cruise lines and the diminished or continued incapacity of local jurisdictions to fund such projects.

The Dominican Republic, like much of the Caribbean, has more financial needs than resources. Its government is in the midst of a national campaign to raise education from 2% of the national budget to 4%.

To get a new Dominican port built, Carnival stepped in and basically created it. Amber Cove will be the most expensive private port project to date in the region.

PortMiami, as noted in the county document, has taken on several large financings in the past two years in the range of $585 million.

“While it may have been possible to undertake port-backed financing for this cruise terminal, PortMiami is heavily leveraged and prefers to take on a private partner for this project,” the document said.

Royal Caribbean will bear the full construction cost for the terminal, parking garage, ancillary facilities and any bulkhead work. The port will pay for environmental testing and remediation, if needed, provision of utilities and channel dredging.

Royal can bring in partners to help with financing. The county will require it to maintain a 20% ownership stake, however.

As the owner, Royal will pay rent to the county and gets to control the terminal. Although use of the terminal by non-RCCL cruise lines is at the county’s discretion, Royal has preferential berthing rights.

Of course, the cruise lines are financing projects that are going to be around for their benefit for a long time. Amber Cove will be heavily used by Carnival for decades, barring an act of God or revolution.

And Royal’s understanding with the port calls for a 20-year lease with four optional 10-year extensions. After that, 60 years from now, the project reverts to the county.