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Report regarding resolutions (1) authorizing the issuance of City of South San Francisco Community Facilities District No. 2021-01 (Public Facilities and Services) Special Tax Bonds (Oyster Point), Series 2022 in a principal amount not to exceed $25 million, approving certain documents including an indenture and a preliminary official statement and taking certain other actions in connection therewith; and (2) authorizing the execution and delivery of an Amended and Restated Acquisition, Construction and Funding Agreement relating to City of South San Francisco Community Facilities District No. 2021-01 (Public Facilities and Services) and a second amendment to the Development Agreement relating to Oyster Point. (Jason Wong, Acting Director of Finance and Sky Woodruff, City Attorney)
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RECOMMENDATION
Recommendation
Staff recommends that the City Council adopt the attached:
(1) Resolution approving the issuance of bonds of City of South San Francisco Community Facilities District No. 2021-01 (Public Facilities and Services) to finance infrastructure improvements at the Oyster Point (the “CFD”);
(2) Resolution approving an Amended and Restated Acquisition, Construction and Funding Agreement and a Second Amendment to the Development Agreement relating to the Oyster Point development.
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BACKGROUND/DISCUSSION
Kilroy Realty Corporation and its affiliates (collectively “Kilroy”) own approximately 44 acres of land within the City located at Oyster Point. Kilroy is in the process of developing the property as a life sciences campus consisting of research and development and office buildings. At completion, the development is planned to include approximately 2.5 million square feet of rentable area, planned to be completed within four phases. Construction of the three buildings for Phase 1 is complete and has been fully leased to two tenants.
Kilroy is the assignee of Oyster Point Ventures, LLC under a Development Agreement entered into as of March 23, 2011 (the “Development Agreement”), with the City. Pursuant to the Development Agreement, the City agreed to cooperate with Kilroy to form a CFD pursuant to the Mello-Roos Community Facilities Act of 1982 (Mello-Roos Act) to finance certain public capital facilities and services benefiting the territory within the CFD. A CFD is a defined geographic area in which the City is authorized to levy annual special taxes to be used to either finance directly the costs of specified public improvements and/or public services, or to pay debt service on bonds issued to finance the public improvements, as well as to pay costs of administering the CFD. The CFD for this development was formed in March 2021.
The first resolution presented is to authorize the issuance of the first series of the CFD’s special tax bonds (the “2022 Bonds”). Based on the amount of special taxes to be generated by Phase 1, it is estimated that the par amount of the 2022 Bonds will be approximately between $21 - 22 million, the proceeds of which will primarily be used to reimburse Kilroy for a portion of costs for certain public infrastructure. Debt service on the 2022 Bonds are secured by the special taxes levied on the property within the CFD. The 2022 Bonds have been sized and structured so that special taxes levied on the property in Phase 1 will support debt service on the 2022 Bonds. The first resolution authorizes the issuance of the 2022 Bonds in a not-to-exceed principal amount of $25 million to provide flexibility to issue more than the estimate provided above in the event that market or other factors result in special taxes levied on Phase 1 being able to support a higher amount.
The first resolution presented authorizes the issuance of the 2022 Bonds and approves the execution and delivery of the following documents in substantially the forms presented:
• Bond Indenture, between the CFD and The Bank of New York Mellon Trust Company, N.A., as trustee, which sets forth terms of the 2022 Bonds (including, among others, maturity dates, interest rates, redemption terms, events of default, remedies);
• Bond Purchase Agreement, by which the 2022 Bonds will be initially sold to Stifel, Nicolaus & Company as underwriter;
• Preliminary Official Statement, which is the offering document that discloses material facts about the 2022 Bonds and their security in accordance with federal securities laws and regulations;
• Continuing Disclosure Certificate, that sets forth the City’s requirements to make certain annual and other periodic public filings to the market.
Assuming City Council approval of the first resolution presented, it is currently anticipated that the 2022 Bonds will be sold the week of April 4 with the transaction closing the week of April 18. Subsequent to the closing, the City Council will approve the special tax rates on property within the CFD required to pay debt service on the 2022 Bonds. The term of the special tax for the bonds shall be for the earlier of the maturity of the final series of bonds issued by the CFD or Fiscal Year 2070-71. It is projected that the CFD will issue additional series of bonds in the future, with the timing of subsequent series dependent on the timing of development of the subsequent stages of the project. Any additional series of bonds will require City Council approval.
In addition to the resolution relating to the 2022 Bonds described above, presented at this meeting is a second resolution to approve a second amendment to the Development Agreement for Oyster Point and an Amended and Restated Acquisition Agreement to update the name of the Kilroy entity that is a party thereto. The amendment to the Development Agreement is to ensure that all properties in the CFD have appropriate access to parking and for ingress and egress as the development continues and parcels within the CFD are further subdivided.
FISCAL IMPACT
Staff estimates that, during the first Fiscal Year in which the special taxes will be levied (Fiscal Year 2022-23), the CFD will generate approximately $1.1 million in special tax revenues to support debt service on the 2022 Bonds. Pursuant to the rate and method of apportionment of special taxes for the CFD, the special tax rate will increase by two percent annually. Any bonds issued by the CFD will be secured solely by the special taxes levied for the authorized facilities on taxable property in the CFD and will not be secured by any pledge of or obligation on City funds.
RELATIONSHIP TO STRATEGIC PLAN
Approval and adoption of the resolutions presented meets the City’s strategic planning goals of improving our residents, employees, and community’s quality of life by ensuring maintenance and availability of open space at Kilroy Oyster Point.
CONCLUSION
The CFD was needed to finance the cost of new public facilities that are being constructed at Oyster Point, to pay for certain services and to satisfy certain conditions set forth in the Development Agreement. The bond issue is consistent with prior actions taken by the City.
Attachments:
1. Good Faith Estimates regarding the 2022 Bonds
2. Resolution authorizing the issuance of the 2022 Bonds
3. Resolution approving Amended and Restated Acquisition, Construction and Funding Agreement and Second Amendment to the Development Agreement
4. Amended and Restated Acquisition, Construction and Funding Agreement
5. Second Amendment to the Development Agreement
6. Bond Indenture
7. Continuing Disclosure Certificate
8. Bond Purchase Agreement
9. Preliminary Official Statement
10. Appraisal Report and update to Appraisal Report
ATTACHMENT 1
GOOD FAITH ESTIMATE
The following information was obtained from KNN Public Finance, LLC, the municipal advisor (“Municipal Advisor”) with respect to the Bonds described in the Resolution, and is provided in compliance with Government Code Section 5852.1:
1. True Interest Cost of the Bonds. Assuming an aggregate principal amount of $21,325,000 of the Bonds are sold (which together with $914,127 premium would generate $20,410,873 in proceeds) and based on market interest rates prevailing at the time of preparation of this information, a good faith estimate of the true interest cost of the Bonds, which means the rate necessary to discount the amounts payable on the respective principal and interest payment dates to the purchase price received for the Bonds, is 4.39%.
2. Finance Charge of the Bonds. Assuming an aggregate principal amount of $21,325,000 of the Bonds are sold and based on market interest rates prevailing at the time of preparation of this information, a good faith estimate of the finance charge of the Bonds, which means the sum of all fees and charges paid to third parties (or costs associated with the Bonds), is $557,016.
3. Amount of Proceeds to be Received. Assuming an aggregate principal amount of $21,325,000 of the Bonds are sold and based on market interest rates prevailing at the time of preparation of this information, a good faith estimate of the amount of proceeds expected to be received by the City for sale of the Bonds less the finance charge of the Bonds described in paragraph 2 above and the reserves and capitalized interest paid or funded with proceeds of the Bonds, is $17,917,186.
4. Total Payment Amount. Assuming an aggregate principal amount of $21,325,000 of the Bonds are sold and based on market interest rates prevailing at the time of preparation of this information, a good faith estimate of the total payment amount, which means the sum total of all payments the City will make to pay debt service on the Bonds plus the finance charge of the Bonds described in paragraph 2 above not paid with the proceeds of the Bonds, calculated to the final maturity of the Bonds, is $39,193,600.
Attention is directed to the fact that the foregoing information constitutes good faith estimates only. The actual interest cost, finance charges, amount of proceeds and total payment amount may vary from the estimates above due to variations from these estimates in the timing of the sale of the Bonds, the amount of Bonds sold, the amortization of the Bonds sold and market interest rates at the time of the sale. The actual interest rates at which the Bonds will be sold will depend on the bond market at the time of the sale. The actual amortization of the Bonds will also depend, in part, on market interest rates at the time of sale. Market interest rates are affected by economic and other factors beyond the City’s control.