The Port of Oakland has secured a long-term lease with its largest seaport operator in a move that Moody’s Investors Service says will strengthen its revenue certainty.
The lease extension – which the independent board overseeing the California port approved May 24 – was labeled a credit positive by Moody’s on Tuesday.
SSA Terminals – which handles about 70% of the maritime business at the port– will stay on through 2027, under the agreement. The lease also includes an automatic renewal through 2032 if the port removes tax-exempt debt restrictions on the property.
The parties also have an option to renew for an additional ten years through 2042 based on mutual agreement.
“SSA is a significant tenant for us and they have been a good tenant,” said Mike Zampa, a spokesman for the port.
The company operates a 284-acre terminal and a 79-acre terminal at the port.
The agreement provides for an average annual fixed rent revenue of about $72 million and annual variable rent revenue of $26 million, according to a staff report to the port board of commissioners. SSA will also expand its acreage and put into service three new cranes as part of the deal.
Under the previous lease, SSA’s agreement was set to expire in June 2022 with no option to extend.
Only two years ago, the port lost its second largest operator when the operator declared bankruptcy. Other operators, including SSA, stepped in to handle more cargo.
The company has invested in taller cranes to handle larger ships and extended gate hours to move cargo more efficiently, Zampa said.
“They’ve done everything a responsible terminal can do to improve performance and it has paid off,” he said.
The lease extension followed similar agreements with TracPac, the operator of the two other terminals at the port last year.
“All of the extended leases provide high levels of minimum or fixed revenue to the port, and their extensions align future cash flow to match the amortization of the port’s debt, which has a final maturity in 2033,” the Moody’s report stated.
The seaport - the seventh busiest in the nation -- is one of three divisions overseen by the Port of Oakland. The others are the Oakland International Airport and its commercial real estate holdings. The seatport has the most business risk of the three divisions, accounting for 80% of its debt, according to Moody’s.
By aligning its lease payments with its debts, the port has significantly reduced that risk, which should allow the the airport division to pursue capital investment and evaluate expansion options, Moody’s said.