Item - 2024.EP14.8

The Chief Executive Officer, Exhibition Place recommends that the Board:

1. Receive this report for information.

Phase 1 Development

Following the completion of a successful Request for Proposal process held in 2007, the City of Toronto and the Board of Governors of Exhibition Place (the "Board"), collectively as landlord, executed a 49-year lease agreement with two options, each to renew for a 25-year term (the "Phase 1 Lease") with Princes Gate Hotel Limited Partnership (the "Phase 1 Tenant") for the development of a new hotel on the Exhibition Place grounds. The first phase of Hotel X opened for operations on March 20, 2018.s. Under the Phase 1 Lease, the Phase 1 Tenant had an option to lease certain additional lands to the west of the Phase 1 Lease lands for the development of second hotel tower. The Phase 1 Tenant exercised the option by written notice to the Board dated July 31, 2020.

The proposed second phase hotel (the “Phase 2 Hotel”) is permitted based on the approval of Council of the Phase 1 Hotel lease, which as noted above provided the Phase 1 Tenant with an option to develop a second hotel. However, as discussed below, the option under the Phase 1 Lease did not provide for the performance venue (the “Performance Venue”), now proposed by the Tenant for Phase 2.

 City Council at its meeting of December 15, 16 and 17, 2021, by its adoption of GL27.18 (the “Original Decision”) approved of a new lease between the City, as landlord, the Board, and Lakeshore Princess West Limited Partnership (the "Phase 2 Tenant"), on the terms and conditions set out in the staff report and confidential attachments submitted with that item (the “Phase 2 Lease’).

Since the Original Decision, staff from the City Real Estate Management and Exhibition Place have been working with the Tenant to finalize the Phase 2 Lease; however, due to the market pressures imposed by the COVID-19 pandemic, the Tenant’s various consultations with City Planning, minor modifications to the development plans, and the need to avoid interfering with the preparations and events for the FIFA World Cup 2026, staff and the Phase 2 tenant have negotiated certain amendments to the Phase 2 Lease. Appendix B to this report outlines the proposed revisions to the terms and conditions approved in the Original Decision. The necessary City authorization will be sought for these amendments.

The initial Term under the Original Decision was estimated to begin on August 29, 2022, run for approximately 39 years, 3 months, and end on November 30, 2061.The financials were estimated accordingly. The financial structure approved under the Original Decision provides for both a fixed minimum rent and additional percentage rent payable to the City, as landlord, increasing over the initial term. The rates for the annual minimum rents and annual percentage rent remain unchanged. The term of the lease is shortened due to a fixed end date (co-terminus with the Phase 1 Lease) and a delayed construction commencement date. With the initial Term shortened from approximately 39 years, 3 months to approximately 33 years and 9 months, the result is a lower estimated financial return over the full Term.

Under the requested Phase 2 Lease amendments, the expiry of the Term remains fixed, ending on November 30, 2061 (co-terminous with the Phase 1 Lease term expiry). Under the proposed amended Term, the estimated positive financial return of the Phase 2 Lease from both the Phase 2 Hotel and Performance Venue from rent and ancillary revenue, over its initial Term, will be $136.658 million.

The Phase 2 Hotel is expected to open in August 2032. The positive economic impact detailed below from this project and various capital expenditures of approximately $417.0 million for construction is in addition to the positive financial implications noted above.

In addition, it is estimated the Hotel and Performance Venue will pay approximately $2.456 million annually in property taxes (Municipal share is 50 percent), increasing over the term once the facility becomes operational.