HomeMy WebLinkAboutCSD-11-110 - Spectator Facility Review - Final Report complete.~~~..~L 1~~ ~~1~~ G~~f~~~~~~ ~f L~~~ WWW.II~i~~~~~r.~~
REPORT T0: Community and Infrastructure Services Committee
DATE OF MEETING: November 7, 2011
SUBMITTED BY: Jeff Willmer, Deputy CAO Community Services, 741-2325
PREPARED BY: Spectator Arena Review Group, Keith Baulk, Chair, 741-2393
WARD(S) INVOLVED: All
DATE OF REPORT: October 31, 2011
REPORT NO.: CSD-11-110
SUBJECT: Spectator Facility Review -Final Report
RECOMMENDATION:
That the Kitchener Rangers Hockey Club (KRHC) be granted approval to proceed with an
expansion to the Kitchener Memorial Auditorium Complex as outlined in report number
CSD-11-102 and CSD-11-110 subject to them securing a loan to fund the project through
Infrastructure Ontario (10); and,
That the City of Kitchener fund the cost differential through annual payments over the
term of the loan between the rate provided by 10 to sport organizations versus the rate
provided to municipalities; and,
That subject to the KRHC successfully securing a loan from 10 that the Mayor and Clerk
be authorized to enter into a 16 year lease with a 4 year option at the sole discretion of
the KRHC subject to the satisfaction of the City solicitor; and further,
That the KRHC be considered the project owners including being authorized to engage
the project architect and general contractor.
BACKGROUND:
At the Community and Infrastructure Services Committee meeting on September 26th 2011,
staff submitted report CSD 11-102. The report provided an overview of the KRHC-proposed
expansion of The Aud which, if approved, would add 1,000 seats to the arena's capacity, as well
as:
• A third-level concourse
• A fourth-level media room and loft-style suites
Concessions
Washrooms
• Renovated team space
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An additional 1,000 seats would bring the capacity for hockey, including standing room, up from
6,600 - 6,800 to 7,600 - 7,800. The proposed expansion would enhance The Aud, one of the
city's most valued assets, while satisfying a number of community members and local hockey
fans who are currently on the waiting list for season tickets.
The KRHC would pay for the full cost of the $9.6 million expansion, including all interest costs
and has asked that the City provide funding in the form of a repayable loan, based on a 15 year
repayment schedule. City finance staff provided an overview of the City's current debt position
and expressed concern about the loan because it would increase the City's debt level beyond
what has previously been planned and forecast. The City's current debt position is trending
beyond the target thresholds for measures such as debt charges as a per cent of tax levy, debt
per household, and debt to reserve ratio.
Finance staff advised that another option available to the KRHC would be to finance the new
expansion proposal themselves through a new lending program through Infrastructure Ontario
(10) that may provide a loan to the KRHC at rates that are approximately 0.4% higher than what
the City would obtain through 10. The KRHC have been advised by 10 that they are eligible to
apply for the loan and are currently completing the application, but have no firm commitment at
this time. The KRHC indicated their business model was based on the City providing the loan
and the incremental cost of the 10 loan would need to be paid by the City.
A building audit was undertaken and it was determined that $23 million in capital replacements
would be required over the next 20 years to maintain the facility and its sophisticated operating
systems. It was made clear that regardless of whether Council approved the expansion that this
level of investment would be required. One of the areas that Council asked staff to look at
advancing was the ice delivery systems as it has become more challenging for staff to ensure
quality ice conditions over the past few years.
The KRHC suggested this expansion is intended to be a transitional solution for at least a 15
year period. Their contention is the venue would still be deficient from a seating capacity
perspective (note the requirement for 9,700 seats in the goals and needs study}. As a result, the
KRHC requested the City commence a process some time in the future to consider a new
10,000 or more seat facility to serve the community's needs.
Council directed staff to table report CSD-11-102 pending a neighbourhood meeting, public
engagement, a review of the loan options and a 3rd party review of the new Kitchener Ranger
Hockey Club business case. Council also directed staff to provide a final report on November
7t", 2011.
Finally, based on some early feedback staff felt it was important to undertake a parking impact
study to determine how 1,000 more seats would impact the adjacent street network while
acknowledging the KRHC will provide a shuttle to a downtown parking garage and the main
transit terminal.
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REPORT:
The results and outcomes of the various tasks that were undertaken since the report was tabled
are outlined below:
Community engagement
A public consultation took place from October 4 to 18, 2011, providing the community with a
variety of opportunities to learn more about the expansion proposal, as well as comment on the
proposal. Engagement opportunities included a neighbourhood meeting on October 12, 2011 at
The Aud, where attendees could fill out a hard copy of a survey related to the proposal; a web
page on the City's website with a link to the same survey, which people would fill out and submit
online; and social media postings on Facebook and Twitter, which were also used to garner
feedback and sharedlretweeted by a handful of the City's Facebook fans and Twitter followers.
More than 45 people attended the neighbourhood meeting at The Aud, which was promoted by
way of neighbourhood flyers, posters at city facilities and an ad in the October 8t", 2011 edition
of The Record. Twenty of those who attended the meeting filled out the survey. An additional
108 people visited the City's website and filled out the survey online.
74% of all the respondents favoured expanding The Aud, while 17% were opposed and 9%
were undecided. Both those supporting and opposing the expansion offered comments and
those are summarized in the detailed report attached as Appendix 1.
Loan Options
The three financing options available to the KRHC are as follows:
1) have the City issue debt on their behalf
2) apply for a loan through Infrastructure Ontario or
3) apply for a loan through traditional lending markets
Staff's preferred option is that the KRHC finance the expansion themselves via a loan from 10.
The KRHC have been deemed to be an eligible organization to apply for a loan under the 10
Sports and Recreation category and are currently completing their application. As outlined in the
previous report CSD-11-102, if the Kitchener Rangers Hockey Club were to secure a loan
through Infrastructure Ontario, their rate would be only 0.4% higher than what the City would
obtain. This difference equates to $23,078 per year over the 15 year term of the loan ($346,165
in total). The KRHC made it known they would expect the City to fund this difference which staff
believe is worth the benefits that would accrue to the City, namely:
a) the debt would most likely not be accounted as City debt for comparative benchmarking
purposes
b) the City's financial flexibility to fund unforeseen issues would not be further impaired
c) there is a possibility the City would not assume the risk if the Rangers would be unable
to make all of their payments over the course of the 15 year loan
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The chart below was provided as part of report CSD-11-102 and has been included in this
report to reiterate the potential cost differences for the various loan options.
Rate Total
Payment Difference from
City Issue Difference
Per Year
3.25% $12,205,656 $0 $0
3.65% $12, 551, 821 $346,165 $23, 078
4.25% $13, 081,248 $875, 591 $58, 373
5.25% $13,990,319 $1,784,663 $118,978
6.25% $14,931,954 $2,726,298 $181,753
While staff's preferred option is that KRHC acquire the loan through 10, the KRHC has always
taken the position that the loan be provided by the City. Staff have been advised the KRHC
position remains unchanged.
3rd Party Review of KRHC Business Case
The City engaged KPMG to conduct a review of the KRHC business case. Their review included
the following tasks and outputs:
obtained and read materials provided by the KRHC management and the City, including
the KRHC business plan for the project.
conducted discussions with key managers from both the Rangers and the City to inquire
about the major business assumptions.
determined whether the calculations in the financial model are in all material respects
internally consistent and mathematically correct;
determined whether the input data used in the financial model is consistent and links to
other models
determined whether the financial output of the financial model is consistent with the input
assumptions;
checked that the financial model allows changes in assumptions to appropriately flow
through to the results.
While KPMG did identify some minor issues, their report indicates that in virtually all cases the
calculations are correct and the assumptions properly flow through to the proposed financial
results. The assumptions are considered adequate to produce the financial results indicated in
the KRHC business plan with a debt service ratio in excess of 125% from year 7 forward. The
debt funding does not impact the current financial operations of the KRHC or the City and there
is a degree of conservatism built into the model by not including playoff game revenue, ticket
premiums and incremental in arena advertising and retail sales revenue.
A copy of the KPMG review is attached as Appendix 2.
Parking Impact Study and KRHC Shuttle
Based on the early results of public feedback staff felt it was important to engage the services of
an engineering firm to conduct a parking analysis as it relates to the impact of the extra 1,000
seats. The City engaged Paradigm Transportation Solutions to complete the study.
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A study area was established as being the area most impacted by on street parking or the
potential of on street parking resulting from an expanded venue. The area identified is south of
the Conestoga Parkway and has a radius slightly more than a kilometre from The Aud. The
study determined there are approximately 3,125 places to park in the study area comprised of
1,800 stalls in the Aud's parking lot and 1325 legal on-street spaces. A survey determined that
89% of the spectators arrive by cars that need to be parked and there is an average of 2.3
people per car. Currently on a typical game night a total of 2,260 parking spots are required
leaving a total of 866 unused on street parking spaces within the study area. The report
indicted 385 additional parking spots would be required for the 1,000 seat addition. As a result,
there is capacity in the study area for the additional 385 cars however parking would be entirely
on the road network.
The study indicated a number of strategies individually or in combination could mitigate the
impact of the additional parking requirements including the following:
shuttle service
expand parking on site
• incentives to increase shuttle usage
transportation option marketing
• free parking downtown to compliment the shuttle and/or paid parking at Aud
• further on street parking restrictions
• incentives to increase ridesharing
Another option was to do nothing and simply spread the parking zone further from the Aud
based on the fact there are typically only 34 - 50 days of at capacity parking activity.
It was indicated there are pros and cons to each of these strategies and they all need more
investigation and feasibility analysis to determine which ones, if any would lessen the impact of
the additional 385 cars.
A copy of the parking study is attached as Appendix 3.
The Kitchener Rangers have committed to operating and funding a shuttle service from the
Charles and Benton parking garage and the main transit terminal on Charles St. to the Aud. At
this time, it is thought the shuttle would operate as follows:
• 4 transit buses operating in loop -Start 1 hour and 15 minutes before game time
• 1 bus operating during game
• 4 transit buses operating for45 minutes after game
bus would stop at the BentonlCharles parking garage and main transit terminal.
Taking into consideration loading and unloading time and heavy traffic around the Aud, a
complete loop for each bus may take 20 - 30 minutes. With 4 buses, no one should wait more
than 5 - 7 minutes. The bus operating during the game would be used only if someone needed
to leave early
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Lease Agreement with KRHC
The KRHC recently exercised their option to extend the facility lease agreement with the City of
Kitchener. The extension acknowledged the parties would need to enter into a new long term
lease (regardless of whether the expansion is approved or not). If the expansion is approved,
the new lease would be structured based on the following major principles:
• 16 year term (to align with the term of the loan) with a 4 year option
there is no change to the base revenue sharing formula from the existing agreement
the KRHC will be responsible for the entire cost of the $9.6 million expansion project
including any cost overruns over the 16 year term
• with the exception of covering the cost of incremental expenses (servicing, cleaning and
utilities), the regular season revenue from the following areas will be utilized by the
KRHC to fund the expansion loan payments:
- 1000 new seats
- new loft style suites
- 2008 seat addition
• The KRHC will receive 60% of the gross revenue starting in 2018/19 season and beyond
to a preset maximum (plus annual CPI} from the current suites to fund the expansion
project
should the loan be provided to the KRHC by the City in any manner and should the
KRHC change its non profit status to a for profit status, the City at its sole discretion can
immediately request payment of the entire outstanding loan including interest due on the
loan until it is retired
ALIGNMENT WITH CITY OF KITCHENERSTRATEGIC PLAN:
This report aligns with two community priorities identified in the City of Kitchener Strategic Plan.
These are as follows:
Leadership and Community Engagement -Work with funding partners to address gaps in grant
funding for individuals and groups in the community.
Development - Maintain a balanced approach to replacing and/or expanding existing
infrastructure and building new infrastructure.
FINANCIAL IMPLICATIONS:
Scenario 1: City Debt Issue for the Expansion
Ideally, a debt issue by the City on behalf of the KRHC would have no impact on the tax base,
but it would still increase the City's overall debt load. The City's debt graphs have been updated
with up to date figures and included as Appendix 4.
If the City were to issue debt on behalf of KRHC, the City would receive a payment from the
KRHC, which would then be used to pay the carrying costs (principal and interest) of this debt.
By acting as an intermediary and issuing debt on behalf of the KRHC, the City would be
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assuming risk that the KRHC would default on the payment of that debt. If this were to happen,
the tax base would be required to fund the carrying costs of the debt.
Scenario 2: Rangers Finance the Expansion
The KRHC business case assumes an interest rate equal to the City's debt issue rate. If the
KRHC were to finance the project through either traditional lending markets or Infrastructure
Ontario, the rate they receive would be higher than the City's debt issue rate. The KRHC would
be looking to the City to pay for this cost differential, which would be an impact to the tax base.
In the case of the Infrastructure Ontario loan, the cost differential is $23,078 per year over the
15 year term of the loan ($346,165 in total). For traditional lending markets, the cost differential
would likely be significantly higher.
Potential Revenue Increases to Offset the Differential
Regardless of which financing option is chosen for the expansion, additional revenues are likely
to accrue to the City. These include revenues related to increased food and beverage sales
from the additional 1000 people in attendance. The current per person spending on food and
beverage is approximately $6 net of HST resulting in a gross revenue increase of approximately
$200,000 per year. It would be reasonable to assume the City's share of between 15% - 20% of
the gross revenue would produce a minimum of $30,000 in additional annual revenues to the
City which is enough to fund the cost differential associated with the 10 loan. This would
eliminate any concern about the project having an impact on the tax base. In addition the City
would receive its share of any playoff revenues on the new seats but we are not counting on this
revenue as it can't be guaranteed.
Alternate Recommendation
The report recommendation does not provide for the City to issue the loan in any circumstance.
There are potential concerns including the following:
the project is still in limbo as it takes 10 a minimum of 6 - 8 weeks or longer to render a
decision
the is no guarantee 10 will approve the loan and if they do they may require the City to
be a guarantor which will mean the loan will impact the City's debt position by the full
amount
should the KRHC not be willing to continue to invest in the project without a firm
commitment it puts a spring 2012 start date in jeopardy and may cause the project to be
delayed by a year
the KRHC could withdraw their offer entirely without a firm commitment
the KRHC favours an arrangement where the City is providing the loan
Staff have considered an alternative that would allow council to provide the KRHC with a
guarantee that the project will be supported by the City even if 10 does not approve the loan.
This alternative is not recommended, primarily because it would negatively affect the City's debt
load which is already a matter of serious concern. The primary advantage of the alternative is
that it would allow the KRHC the ability to continue to move forward and complete the project for
the 2012-2013 season. The alternative recommendation could be as follows:
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1
Staff Report
Krr~.~-~~,i~iER CommunityServicesDepartment www.kitthenerta
"That the Kitchener Rangers Hockey Club (KRHC} be granted approval to proceed with an
expansion to the Kitchener Memorial Auditorium Complex as outlined in report number CSD-11-
102 and CSD-11-110; and,
That the KRHC be directed to pursue funding for the project as an eligible organization through
10; and,
That should the KRHC be successful in receiving a loan from 10 to fund the project, that the City
of Kitchener will fund the cost differential through annual payments over the term of the loan
between the rate provided by 10 to sport organizations versus the rate provided to
municipalities; and,
That the City provide construction financing until 10 renders their decision; and,
That should the KRHC be unsuccessful in their 10 loan application, that the City of Kitchener
provide a loan through a municipal debenture repayable with principal and interest over a 15
year period; and,
That following confirmation of the loan option, the Mayor and Clerk be authorized to enter into a
16 year lease with a 4 year option at the sole discretion of the KRHC, subject to the satisfaction
of the City solicitor; and further,
That the KRHC be considered the project owners including being authorized to engage the
project architect and general contractor. "
COMMUNITY ENGAGEMENT:
Please see above under Report section.
CONCLUSION:
Approval of the recommendation is required to allow KRHC to continue to proceed on the work
required to undertake an expansion of the Dom Cardillo Arena at the Kitchener Memorial
Auditorium Complex. Should council not approve the recommendation, all work shall cease and
no further action will be undertaken.
ACKNOWLEDGED BY: Jeff Willmer, Deputy CAO, Community Services Department
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Appendix 1
Detailed Summary of Community Engagement
Kitchener Ranger Proposed Expansion of the Aud
Friday October 21St, 2011
Total surveys submitted:130
• Online surveys: 108
• Hard copies submitted at neighbourhood meeting: 20
• Email: 2
Summary of survey feedback
1. Do you attend Kitchener Rangers games on a regular basis?
• 76% -yes
• 24% - no
2. Do you live near the Aud?
• 51 % -yes
• 49% - no
3. Do you support or oppose the Kitchener Rangers' proposal to expand The Aud?
• Support expansion: 74%
• Oppose expansion: 17%
• Undecidedlneutral:9%
Reasons for support:
• Proposal addresses lengthy waiting list for season tickets.
• The history, character and tradition of The Aud should be preserved.
• Cost-effective proposal
• More seating may attract larger musical acts to venue.
• Helps to better promote Kitchener Rangers.
• Greater revenues can be generated with more seats.
• Help Kitchener stay competitive in the Ontario Hockey League.
However, a significant amount of support is conditional on whetherthe city addresses
some or all of the following concernslfeedback:
• Parking on neighbourhood streets during Kitchener Rangers' games is
challenging now; adding more seats will serve to worsen the situation.
• More bylaw enforcement around on-street parking is needed during hockey
games.
• Only one-way parking should be permitted on narrow city streets, given safety
issues associated with emergency access.
• A sidewalk is needed along Sherbourne to EastAvenue for safety reasons.
• A shuttle bus from the downtown must be introduced.
Reasons for opposition:
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• Lack of parking at The Aud; on-street parking in neighbourhoods near The Aud
will increase.
• Adding 1,000 seats to The Aud is not enough to address the seating issues; this
expansion would be a waste of time and money.
• Given current economic climate, it's not the right time to expand.
• Efforts should be directed toward building a new arena instead.
• Games are already overcrowded; adding more seats will further the problem.
• Expansion will do nothing to attract more touring shows/concerts.
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+~~na
Kitchener Rangers Hockey Club Loan
Project 2012 Business Plan and Financial Due Diligence
October 26, 2011
Contents
Purpose and Restrictions of this Report ............................................................................ l
Background ....................................................................................................................... 4
Scope of Review ................................................................................................. 6
2 Summary of Observations ................................................................................... 7
3 Analysis of Project Revenue ............................................................................... 9
3.1 Overview of Revenue Projections ...................................................... 9
3.2 Ticket Revenue Regular Season ........................................................ 9
3.3 New Suites ....................................................................................... 10
3.4 2008 Seat Addition ........................................................................... 11
3.5 Existing Suites .................................................................................. 11
3.6 Interest on Reserve Account ............................................................ 12
3.7 Excess Financing Costs .................................................................... 12
3.8 Commissions .................................................................................... 13
3.9 Projected Revenue not Directly Attributable to the Project ............. l4
3.10 Further Revenue not Included in the Projections ............................. 14
4 Analysis of Incremental Operating Costs ......................................................... 17
4.1 Construction Interest ........................................................................ 17
4.2 Depreciation ..................................................................................... 18
4.3 Incremental Rent Costs .................................................................... 18
4.4 Credit Card Fees ............................................................................... 20
4.5 Selling Commissions ........................................................................ 20
4.6 Further Costs not Considered ........................................................... 20
5 Analysis of Loan Payback ................................................................................ 21
5.1 Loan ................................................................................................. 21
5.2 Loan amortization method ............................................................... 21
5.3 Covenants ......................................................................................... 22
6 Other Risks to the Projections ........................................................................... 23
6.1 Interest Rate is not Locked In .......................................................... 23
6.2 Other Hockey Franchises ................................................................. 23
6.3 Construction Delays Beyond Five Days .......................................... 23
6.4 Season Ticket Renewals ................................................................... 23
6.5 Refurbishment of Existing City of Kitchener Suites ....................... 23
Appendix A -Financial Projections ............................................................................... 24
Appendix B - VVorkplan .................................................................................................. 25
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Kitchener Rangers Hockey Club Loan
Project 2012 Business Plan and Financial Due Diligence
October 27, 2011
Purpose and Restrictions of this Report
This report (the "Report") is provided to the City of Kitchener pursuant to our engagement letter, October 11,
2011 and is subject in all respects to the terms and conditions of that engagement letter, including restrictions on
disclosure of this Report to third parties.
We understand that our Report is intended to assist the City of Kitchener in understanding the risks associated
with the Transaction. We understand it will be provided to City of Kitchener Council in respect of the indicated
purpose only and we consent to that use. It is not to be used in whole or in part by anyone other than the City of
Kitchener for any purpose.
If this Report is received by anyone other than our client, the recipient is placed on notice that the attached
Report has been prepared solely for our client for its own internal use and this Report and its contents may not
be shared with or disclosed to anyone by the recipient without the express written consent of the City of
Kitchener and KPMG LLP. KPMG LLP shall have no liability, and shall pursue all available legal and
equitable remedies against recipient, for the unauthorized use or distribution of this Report.
We have completed our engagement to assist the City of Kitchener in performing lender due diligence in
connection with your prospective investment (the "Transaction") in the Kitchener Rangers Hockey Club (the
"Rangers", the "Club" or "KRHC") in accordance with the terms of our engagement letter, the Transaction
being described in more detail later in this Report.
Objective
The objective of our engagement was to assist you with your assessment of the risks of entering into the
Transaction. Our work was primarily conducted through review of information prepared by the Rangers
management team (the "Management") and the review of their model. The primary scope of our engagement
was to make inquiries and perform analyses based on information made available to us concerning the
incremental revenues and expenses, directed toward those business activities and related financial data of
interest to you.
Basis of Information
The engagement letter describes the procedures we were to perform during the engagement (See Appendix B).
Those procedures were selected by you and were limited in nature and extent to those that you determined best
fit your needs. We make no representation regarding the sufficiency for your purposes of the procedures
selected, and those procedures will not necessarily disclose all significant matters about the Rangers or reveal
errors in the underlying information, instances of fraud, or illegal acts, if any. This Report was prepared by us
on the basis that you and the Rangers provided us with all relevant information you received concerning the
Rangers.
The procedures we performed do not constitute an audit, examination or review in accordance with standards
established by the Canadian Institute of Chartered Accountants ("CICA"), and we have not otherwise verified
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Kitchener Rangers Hockey Club Loan
Project 2012 Business Plan and Financial Due Diligence
October 27, 2011
the information we obtained or presented in this Report. We express no opinion or any other form of assurance
on the Rangers internal control over financial reporting or on the information presented in our Report, and make
no representations concerning its accuracy or completeness.
We have not compiled, examined, or applied other procedures in accordance with Statements on Standards for
Attestation Engagements issued by the CICA to prospective information contained in this document and,
accordingly, express no opinion or any other form of assurance or representations concerning the accuracy,
completeness or presentation format of such prospective information. There will usually be differences between
projected and actual results, because events and circumstances frequently do not occur as expected, and those
differences may be material.
The data included in this Report was obtained from you and the Rangers from October 11, 2011 to October 19,
2011, inclusive.
Because of its special nature, this Report is not suited for any purpose other than to assist the City of Kitchener
in its evaluation of its loan to the Rangers, and, as such and as agreed in the engagement letter, is restricted for
your internal use (and that of council) only. Accordingly, KPMG does not accept any liability or responsibility
to any third party who may use or place reliance on our Report.
The financial estimates presented in this Report are based on assumptions developed with, and agreed upon by
the Rangers for the purposes of completing the financial analysis. The assumptions used in this analysis are
subject to change as the Rangers make final decisions concerning the specifics of the expansion Project and new
seats. Should the final decisions vary from the assumptions included in this Report, the revenue projections and
financial estimates presented will require modification.
Estimates and analyses presented in this Report were based on economic trends and market assumptions
regarding future events, which are subject to variation and change between 2011 and 2026. Therefore, actual
results will vary from the information presented and the variations may be material. Accordingly, KPMG
expresses no opinion as to whether these projections will be achieved.
This Report and the comments and conclusions expressed herein are valid only in the context of this Project.
Selected comments or conclusions should not be examined outside of the context of the Report in its entirety.
This Report is not intended for general circulation or publication, and is not to be reproduced or used for any
purpose other than that indicated above without our prior written permission. KPMG will not assume any
responsibility or liability for damages or losses incurred by the City of Kitchener or any other parties as a result
of the circulation, publication, reproduction, use of or reliance on this Report.
z
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Kitchener Rangers Hockey Club Loan
Project 2012 Business Plan and Financial Due Diligence
October 27, 2011
The following table provides a list of abbreviations used throughout this report.
~~~-
The City City of Kitchener
The Rangers /The Club
The Project /Project 2012
The Aud /The Auditorium
IO
Kitchener Memorial Auditorium Complex
Infrastructure Ontario
115 King Street South
2nd Floor
Waterloo, ON N2J 5A3
519-747-8800
Kitchener Rangers Hockey Club
Expansion of the Kitchener Auditorium of a further 1,000 seats
Douglas Dawdy Don Mc~Gnnon Chris Shalhoub
Partner Senior Manager Associate
3
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Kitchener Rangers Hockey Club Loan
Project 2012 Business Plan and Financial Due Diligence
October 27, 2011
Background
The Kitchener Rangers Hockey Club is a successful Major Junior A hockey franchise operating in the Ontario
Hockey League. The Club has been "community" owned since 1967 and operates out of the Kitchener
Auditorium (the "Auditorium"), owned by the City of Kitchener (the "City"). The team has been both
successful on and off the ice, with two Memorial Cup appearances in the past 10 years as well as eight
consecutive years of standing room only crowds. The Rangers are recognized as a premier franchise in the
entire Canadian Hockey League. The Club has been able to donate significant sums to local minor hockey in
recent years due to its excellent financial management and profitable operations. The purpose of the Rangers is
to:
• establish, maintain and conduct a hockey club and to promote interest in hockey, recreation and sports in
general
• maintain a Junior A team and such other teams as may be necessary for the promotion of Junior A hockey in
the City of Kitchener
• promote hockey games and conduct other such sporting events as may be necessary for the promotion of
hockey
• employ such persons as may be necessary for the promotion of hockey
• take an active interest in the promotion of athletics
• unite members in the bonds of friendship, good fellowship and mutual understanding
Auditorium Expansion
The Rangers have proposed an expansion of the Auditorium to the City of Kitchener and this expansion is
supported by a report compiled by Deloitte in July 201 1. The purpose of the Deloitte report was to examine the
market support for expanding the Auditorium beyond its current capacity. The Deloitte report concluded that
market penetration potential for the Rangers, irrespective of arena size, would currently support in excess of
8,200 fans per game. In addition, future market penetration potential exists to increase this to support a 9,700
seat facility. The Deloitte report is further corroborated by the Rangers having a season ticket waiting list in
excess of 1,300 seats as at the beginning of the 2011-12 season.
In preparing the expansion Project (the "Project" or "Project 2012"), the Rangers established six foundation
goals:
• Increase seating capacity - to meet the community's demand for tickets to Rangers games
• Improve team facilities -expand dressing room, training and medical facilities and office space
• Improve fan comfort and services -additional washrooms, concessions, expanded concourse space and
wider, more comfortable seating options
• The Club to provide the majority, if not all, funding including interest costs
• The business plan, developed by the Rangers, would draw upon new revenue sources and sources that were
not currently considered operating revenues of the Rangers
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Kitchener Rangers Hockey Club Loan
Project 2012 Business Plan and Financial Due Diligence
October 27, 2011
• A lease would be established with the City of Kitchener that would provide no reduction in current rents paid
but would not provide for any new revenue sharing for the City of Kitchener
We understand that after a strategic review of the Auditorium, lengthy discussions with the City of Kitchener,
and an assessment of other alternatives including a brand new arena and a significantly larger $60,000,000
renovation, the City of Kitchener and the Rangers are now proposing and have a broad agreement on a
$9,600,000 expansion and renovation plans.
This Project will include:
• An additional 1,000 seats to the Auditorium main spectator arena. Of the 1,000 seats, 920 seats will be
made available to the general public and 80 seats have been allocated to the additional eight suites.
• Additional 3rd level concourse concessions, washrooms, Rangers store, storage and exiting. This will
increase concourse space by approximately 35%.
• Renovated team space including dressing rooms, player services offices, office space and improved
accessibility
• A 4th level media suite
• Loft suites
It is proposed that the City of Kitchener borrow the required funds and lend these funds to the Club. The
interest bearing loan to the Club will include terms which reflect principal repayments to the City of Kitchener
over a 15 year time frame.
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Kitchener Rangers Hockey Club Loan
Project 2012 Business Plan and Financial Due Diligence
October 27, 2011
1 Scope of Review
Purpose:
We were requested to prepare a report to assist the City of Kitchener with its review of a loan to the Rangers.
The engagement letter describes the procedures we were to perform during the engagement (See Appendix B).
During our engagement:
• We obtained and read Project 2012 Expansion Statements of Revenues & Expenditures & Cash Flows,
consisting of a report and financial model to show the Project 2012 projections, as prepared by the Rangers
(the "projections")
• We obtained and read other supporting documentation as prepared and supplied by the Rangers
We obtained and read a report entitled :Kitchener Memorial Auditorium Complex Goals and Needs
Feasibility Review (prepared by Deloitte)
We had discussions with Steve Bienkowski, Chief Operating Officer of the Rangers, and Keith Baulk,
Director of Enterprise for the City of Kitchener
Scope exclusions:
We were specifically instructed to consider the Project on a stand-alone basis, and not assess the Rangers
organization or its financial capacity or performance as a whole.
We were specifically instructed not to review the construction costs estimates and to assume that the
$9,600,000 loan requirement based on these estimates is reasonable.
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Kitchener Rangers Hockey Club Loan
Project 2012 Business Plan and Financial Due Diligence
October 27, 2011
2 Summary of Observations
We have been asked by the City of Kitchener to prepare this report on the basis of the incremental revenues and
expenses associated with Project 2012 as described herein.
1 2 5 10 16 Total
2012-13 2013-14 2016-17 2021-2022 2027-28
Revenues (see Section 3) $ 515,667 931,092 996,595 1,481,522 1,748,228 20,876,007
Expenses (see Section 4) $ 243,535 1,082,059 1,033,415 932,371 781,664 14,432,250
Project income $ 272,132 (150,967) (36,820) 549,151 966,564 ~ 6,443,756
Add back: depreciation (see Section 4.2) - 640,000 640,000 640,000 640,000 9,600,000
Add back: interest on long term debt - 355,475 298,038 186,869 23,119 ~ 3,039,210
Project operating cash flow $ 272,132 844,508 901,218 1,376,020 1,629,683 19,082,966
Principal and i nterest p ayment - 842,614 842,614 842,614 842,614 12,639,210
Debt service ratio 100% 107% 163% 193% 151%
Note: As prepared by the Rangers. Debt service ratio calculated by KPMG. Only selected years shown. See Appendix for details.
• The Rangers have incorporated any and all significant incremental revenues and expenses that are related to
the expansion of 1,000 seats. We are not aware of any significant expense that the Rangers have excluded.
• The debt service ratio for Project 2012 as presented is in excess of 125% from year seven and onward. The
inclusion of additional revenue sources would result in all years in excess of 125%. See Section 3.10.
• The projections, as prepared by the Rangers, do not draw upon any cash flows currently available for the
operations of the Club.
The projections include revenue sources that we understand to be separate and distinct from Project 2012,
defined as the 1,000 seat expansion and 8 new loft suites. Included in these projections are future
anticipated cash flows and minor expenses from other projects, such as the existing suites and 2008 seat
expansion. We understand that these cash flow items are currently unavailable to the Club but are
determinable and will become available to be allocated to the Project. See Section 3.9.
• The first semi-annual payment of $421,307 is to be made July 3, 2013. This is one month into the second
fiscal year of the Project. This payment is in excess of the cash flows projected in the first fiscal year and
therefore will require a short advance from their current operations for year two revenues.
• The loan repayments are currently projected to be made as blended payments. To reduce risk, the payment
options also include "serial" or "straight-line" amortization. See Section 5.2. This change in amortization
method would decrease cash flow projections by approximately $150,000 in the first year and reducing
thereafter. While blended payments are an option with Infrastructure Ontario, straight-line is more common
in commercial loans.
• A significant potential risk to the Project's cash flows is the interest rate risk associated with the 15 year
loan. The interest rate modelled is currently not "locked in". See Section 6.1.
~ According to the Project 2012 Expansion Statements of Revenues & Expenditures & Cash Flows report, as
prepared by the Rangers, a proposed updated long term leasing agreement with the City of Kitchener has
been summarized. The terms are as follows:
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Kitchener Rangers Hockey Club Loan
Project 2012 Business Plan and Financial Due Diligence
October 27, 2011
• Structured in same format as existing lease -all terms and conditions remain unchanged including
revenue sharing percentages
• Term: 16 years
• Renewal Option: Rangers option - 4 year renewal
• 100% revenue from Project 2012 new seats and new suites remain with the Rangers (no capital reserve
fund charges or 19% revenue sharing)
• 100% of 2008 seat revenue remain with the Rangers (no capital reserve fund charges or 19% revenue
sharing)
• 10% commission on beer sales (net of tax) from new concessions and suites to the Rangers
• Existing suites lease revenues -split starting in 2017-28 season. The Rangers are to receive the first
$338,000 in revenues adjusted for CPI increase applied by the City of Kitchener annually until expiry of
lease term, including renewal period
• Playoff seat revenue will be shared on the same basis as current lease
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Kitchener Rangers Hockey Club Loan
Project 2012 Business Plan and Financial Due Diligence
October 27, 2011
3 Analysis of Project Revenue
3.1 Overview of Revenue Projections
1 2 5 10 16 Total
Revenues 2012-13 2013-14 2016-17 2021-2022 2027-28
Ticket revenue regular season $ 440,131 526,677 558,298 610,849 677,089' 9,454,040
New suites 38, 788 55, 488 82, 254 93, 050 104, 789 1, 361, 348
2008 seat addition - 300,000 300,000 300,000 300,000 4,500,000
Existing suites - - - 358,476 403,702 3,698,816
Interest on reserve account - 4,592 14,238 87,367 249,787 1,343,037
Excess financing costs 32,000 38,045 33,182 22,277 2,981 379,112
Commissons 4,749 6,290 8,622 9,503 9,880 139,654
$ 515,667 931,092 996,595 1,481,522 1,748,228 20,876,007
Note: Schedule as prepared by the Rangers and only s elected yea rs are displayed
3.2 Ticket Revenue Regular Season
Regular season revenue is calculated using the following assumptions:
~ Season ticket prices of $603.67 for adults, or $534.21 net of HST; an increase of 2% from the 2011-12
season
Season ticket prices of $463.81 for children, or $410.46 net of HST; an increase of 2% from the 2011-
12season
Sales mix of 85% adults and 15% children
Occupancy of 1,000 new seats, effectively 100%
• Annual price increase due to inflation of 2.0% on adult tickets and 2.6% on children tickets in Year 1,
adjusting downwards towards 1.60% on adult tickets and 2.20% on children tickets through Year 16.
The season ticket prices for adults are projected to increase from a gross cost of $591.83 to $785.01 by
2027-28. The season ticket prices for children are projected to increase from a gross cost of $454.72 to
$652.34 by 2027-28.
• Due to anticipated construction completion date of October 2012, the Rangers have estimated that the
expansion will be open for 29 home games in the 2012-13 season, a loss of 5 home games from the
annual 34. No loss of games for rest of the arena are forecasted as the area under constructed is not
expected to interfere with the rest of the seats.
• The capital reserve fund charges assessed by both the Rangers and the City of Kitchener on each ticket
for these 1,000 seats will be allocated 100% to the loan paydown. Currently, capital reserve fund
charges of approximately $2 per game per ticket are accumulated by the City and the Rangers for
future capital expenditures.
• The projections assume that all seats are sold as season tickets as opposed to walk-up, single game
ticket sales. Walk-up, single game ticket sales generate a higher amount of revenue.
KPMG Observations
• The increase in season ticket prices is attributable to inflation for the upcoming 16 years. According to
Rangers management, ticket price increases have come sporadically over the previous ten years but at
9
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Kitchener Rangers Hockey Club Loan
Project 2012 Business Plan and Financial Due Diligence
October 27, 2011
an average of greater than two percent per year. An increase in season ticket prices will increase cash
flows specific to Project 2012 and to the current operations of the Rangers. With the on and off ice
success of the Rangers over the past ten years, higher than average ticket price increases were
expected. Going forward, inflationary increases have been considered.
• KPMG did not obtain data to confirm the sales mix of 85% adults and 15% children, but per
conversation with the Rangers, this is their current mix, and we see no evidence contrary to this
assumption.
• Based on the current waiting list of over 1,300 seats and with the support of Deloitte's conclusions in
their report, we see no evidence to the contrary in relation to the assumption for the projected
occupancy of the additional 1,000 seats of 100%. KPMG obtained the attendance per game for each
season between 1999-00 and 2010-ll, noting that average capacity on an annual basis has ranged from
a low of 82.33% in 1999-00 to a high of 103.52% in 2005-06. Capacity has been equal to or greater
than 100% from 2003-04 onward. Risks pertaining to attendance assumptions will increase in the later
years of the projections due to general assumptions of predicting events far in the future. Although
assuming 100% occupancy is not a conservative assumption, it is well supported.
~ According to the construction timing map provided by the Rangers, Project 2012 is anticipated to be
completed after the hockey season has started, five home games are typically scheduled at this time.
Significant risk surrounds any construction delays and the postponement of opening the new
expansion. If construction delays ensue, the estimated loss per home game included in the Rangers
assumptions for the 2012-13 season is a loss of revenue of approximately $15,122 per game.
~ Consistent with previous construction projects completed by organizations in the Ontario Hockey
League and other special events, teams have the ability to adjust their schedule to accommodate facility
usage for non-hockey events. If the Rangers are able to begin league play for the 2012-13 season on
the road, there may be a reduction of less than five home games.
• The Rangers have included the assumption that the capital reserve charges on each ticket on the new
seats that are currently being collected by the Rangers and the City of Kitchener will be allocated
towards the Project. We have recalculated the amounts included and agree with the Rangers
calculations, $35,000 in the first year for each of the Ranger's and the City of Kitchener's capital
reserve.
3.3 New Suites
Based on the current Project 2012 building design, there will be an additional eight suites constructed and
available for lease. The suites will not have a view of the playing surface and will be used for hospitality
purposes. The suites are constructed to hold a maximum of ten customers. Seats, identified as VIP seating, will
be located in the new expansion for those who purchase suites. The revenue stream generated from the new
suites is calculated as follows:
For the 2012-13 and 2013-14 season, a total of three suites will be leased on an annual basis at a cost of
$10,200 per suite. This will generate revenue of $30,600. The number of suites leased on an annual
basis will increase to a maximum of six by 2018-19. All ticket sales are charged in addition to the
rental fee for the suite, as described in Section 3.2
• The remaining suites that are not leased on an annual basis are assumed to be rented out on a per game
basis. The occupancy rate, on a per game basis, ranges from 25% in 2012-13 to a maximum of 70% by
2016-17.
• The rental suites are assumed to be rented for $350 per game. The price for rental suites is assumed to
be increased based on an annual inflation rate of 2%.
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Kitchener Rangers Hockey Club Loan
Project 2012 Business Plan and Financial Due Diligence
October 27, 2011
• The calculation of new suite revenue for year one has been adjusted to reflect that 29 games are
estimated to be played at the Auditorium.
KPMG Observations
~ The existing suites are currently rented at approximately $600 per game based on the pricing the City
of Kitchener has charged. The Rangers projection of $350 per game represents a 42% discount off of
current suites, considering the suites are more hospitality in nature. The City of Kitchener currently
has 23 of 25 suites leased out for the year. The remaining two suites are rented on a game by game
basis.
• The Rangers have assumed a multiyear ramp up in the occupancy of these suites.
3.4 2008 Seat Addition
The 2008 seat addition was an undertaking that added an additional 447 seats to the Auditorium. The current
annual payment relating to this addition is $292,000 due in November 2011, and the remaining and final
payment of $305,000 is due in November 2012. The Rangers have made the assumption that the revenue that is
currently being generated from the 2008 seat addition, $300,000, will now be allocated as revenue supporting
Project 2012.
KPMG Observations
• The revenue contribution of the 2008 seat addition of $300,000 is not adjusted for inflation or an
increase in ticket prices, a conservative approach relative to the balance of the model.
• The $300,000 amount is calculated as the approximate cost of principal and interest that the Rangers
currently pay to the City of Kitchener for the original financing provided for the 2008 seat addition.
With the final payment due next year, this stream of revenue that is not currently available to the
operations of the Club will be available for reallocation.
• The revenue contribution assumes that the occupancy of the 447 seats added in 2008 will remain at its
current occupancy of 100%. The Rangers have indicated to us that these seats have been 100%
occupied since construction.
• The revenue associated with the 2008 seat addition is not related to the construction or alterations
associated with Project 2012. The allocation of this projected revenue is somewhat arbitrary. The
revenue is currently unavailable to both the City and the Rangers as it is being used to retire the capital
loan outstanding relating to the 2008 seat addition. With the loan fully retired next year, the stream of
revenue is available to be allocated to this Project. As this revenue is not incremental to the Project,
and should accrue to the Club regardless of the Project, we have reflected this revenue as an adjustment
in our calculations in Section 3.9.
3.5 Existing Suites
Existing suites are defined as suites built in 2002 and already in use at the Auditorium. For the seasons 2012-13
through 2017-18, there is no revenue from existing suites included in the Statement of Revenues &
Expenditures for Project 2012. Currently, suite revenue is retained by the City of Kitchener until the end of the
2017-18 season based on current leasing arrangements to reimburse the City of Kitchener for costs to construct
the suites. The Rangers have included a portion of this revenue in the Project revenues beginning in year seven
of the Project. The total revenue included in Project 2012 relating to existing suites ranges from a low of
$337,800 in 2018-19 to a high of $403,702 in 2027-28. The revenue for existing suites is calculated based on
the following:
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Kitchener Rangers Hockey Club Loan
Project 2012 Business Plan and Financial Due Diligence
October 27, 2011
• A total of $300,000 per season, today's total, representing approximately 60% of existing suite
revenue.
• Adjusted for inflation of 2% on an annual basis
KPMG Observations
• The amount of revenue that the Rangers are allocating in the proposed new lease towards Project 2012
represents approximately 60% of existing suites revenue. Revenue in excess of $300,000 is proposed
to be kept by the City of Kitchener.
• The revenue associated with these suites is not related to the construction or alterations related to
Project 2012. The allocation of this projected revenue is somewhat arbitrary. This revenue is currently
unavailable to both the City of Kitchener and the Rangers as it is being used to retire the costs of
constructing the suites. As this revenue is not incremental to the Project and could accrue to the Club
in any new lease regardless of the Project, we have adjusted the revenue in our calculations in Section
3.9.
3.6 Interest on Reserve Account
Projected revenue relating to interest on the reserve account is included in the projection. The interest is
calculated on the projected cash flows associated with Project 2012. The total interest revenue estimated to be
generated from the cash flows is $1,343,037 over the 16 year duration of the Project. The interest is calculated
as follows:
• The interest is calculated based on estimated surplus annual cash flows retained by the Project.
~ Deposit interest rates are estimated between 1.5% in 2012-13 to 4.0% in 2027-28.
KPMG Observations
• The current Bank of Canada interest rate on a five year GIC is 1.53% per annum. There is significant
interest rate uncertainty in both the short and longer term. If interest rates remain at current levels,
cumulative interest revenue on the reserve account will decrease by approximately $870,000 over the
16 year period.
• If the free cash flows generated from Project 2012 are required for any other purpose, such as working
capital, leasehold improvements or unforeseen circumstances, the amount of interest revenue generated
will be decreased. In order for this revenue stream to be realized, the Project cash flows need to be
consistently and permanently segregated, as opposed to being notionally included in the Club's general
accounts and investments. This may be difficult to accomplish over a 16 year time horizon.
• Based on our recalculations of the estimated cash flows and excluding the revenues not directly
associated with the Project, the reserve account would actually incur interest expenses, not revenue.
Therefore we have eliminated this revenue source in our calculations in Section 3.9
3.7 Excess Financing Costs
The excess financing cost source of revenue is included to reflect any incremental interest rate incurred by the
Rangers as a result of direct financing. The current difference between the non-profit sports organization rate
and the municipality rate per Infrastructure Ontario is 0.4%. The Rangers require the City of Kitchener will
reimburse them for any additional financing costs they incur over and above the municipal rate. When
calculated on the total financed amount of $9,600,000 for 16 years, the difference between the rates as
calculated by the Rangers is approximately $3 79,112.
iz
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Kitchener Rangers Hockey Club Loan
Project 2012 Business Plan and Financial Due Diligence
October 27, 2011
~ As per Infrastructure Ontario, for sports and recreation organizations interest rates during construction
are 1.95% and interest rates on a 15 year blended loan are 3.75%
~ As per Infrastructure Ontario, for municipalities interest rates during construction are 1.55% and
interest rates on a 15 year blended loan are 3.35%
• The excess financing costs projected by the Rangers represents the annual difference between the two
rates.
KPMG Observations
• The Rangers require that any excess financing costs incurred by the Club to be reimbursed by the City
of Kitchener.
We have recalculated their amounts and agree with their calculations.
• For purposes of our report to the City of Kitchener:
~ Our assumption in preparing this report is that the City of Kitchener is lending the Rangers
$9,600,000 that it has received from I0. If the City of Kitchener borrows the $9,600,000 from IO
and lends it to the Rangers, the rate will be 3.35% and not 3.75% assumed in the Rangers
projections.
• Therefore, this excess financing cost brings the net expense down to the City of Kitchener rate, and
no adjustment is required for either this revenue or the interest expense (i.e. in effect they offset
each other).
3.8 Commissions
Commissions revenue relates to a commission fee that is applied to beer and liquor sales in the proposed
concourse area, as well as food and beverage sales in the proposed new suites. The commissions are projected
to generate revenues of a minimum $5,568 in 2012-13, to a maximum of $9,880 in 2027-28. The total impact
of the commissions over the Project is estimated to be $140,473. The projected commission revenue is
calculated as follows:
~ Food and beverage sales are estimated to be $150 per suite per game in 2012-13, increasing to a
maximum of $190 per suite per game in 2027-28. The increase in the revenue has been applied by the
Rangers based on historical concession sales information received from the City of Kitchener. The
commissions on food and beverage sales are estimated to be 10% on gross sales. The commission
percentage is consistent with current leasing arrangements with the City of Kitchener.
Suite sales are calculated in the same manner as noted in Section 3.3.
Beer and liquor sales are estimated to be $1,000 per game in 2012-13, increasing to a maximum of
$1,500 per game in 2027-28. The increase in the revenue has been applied by the Rangers based on
historical concession sales information received from the City of Kitchener. The commissions on beer
and liquor sales are estimated to be 10% on gross sales. The commission percentage is consistent with
current leasing arrangements with the City of Kitchener.
KPMG Observations
Under the current leasing arrangements, the City of Kitchener collects all revenues from beer, liquor,
food and beverage sales and allocates 10% of beer sales to the Rangers.
~ Assuming food and beverage sales of $150 per suite per game, with capacity often customers per suite,
the average food and beverage spend per customer is $15.
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Kitchener Rangers Hockey Club Loan
Project 2012 Business Plan and Financial Due Diligence
October 27, 2011
~ Assuming an alcoholic beverage sells for approximately $5.00 per drink, the Rangers estimate selling
anywhere from 200 to 300 drinks per game. With an increase in 1,000 seats, this represents a
penetration of 20% to 30%.
We have recalculated the amounts and have no issue with the assumptions.
3.9 Projected Revenue not Directly Attributable to the Project
As indicated in Sections 3.4, 3.5 and 3.6, the projections include certain revenues that are not directly
attributable to the Project but are currently unavailable to the operations of the Rangers. Without the allocation
of these revenue streams, the Project's debt service is in excess of its expected operating cash flows over the 16
year time frame (i.e. debt service ratio less than 100%) and the Project would require funding from the Rangers
operations.
A summary of the impact is shown below:
Revenues (see Section 3)
Expenses (see Section 4)
Project income per the Rangers
Existing revenues (not incremental)
Existing suites (See Section 3.5)
2008 Project - 447 seat revenue (see Section 3.4)
Project income before adjustments
Adjustments
Interest on reserve account per Rangers (note 1)
Interest accrual adjustment (note 2)
Incremental income
Add back: depreciation (see Section 4.2)
Add back: interest on long term debt
Incremental Project operating cash flow
1
2012-13
$ 515,667
243,535
272,132 2
2013-14
931,092
1,082,059
(150,967) 5
2016-17
996,595
1,033,415
(36,820) 10
2021-2022
1,481,522
932,371
549,151 16
2027-28
1,748,228
781,664
966,564 Total
20,876,007
14,432,250
6,443,756
-
-
-
(358,476) N
(403,702)
(3,698,816)
- (300,000) (300,000) (300,000) (300,000) (4,500,000)
272,132 (450,967) (336,820) (109,325) 262,862 (1,755,059)
- (4,592) (14,238) (87,367) (249,787) (1,343,037)
(180,000) 9,133 10,210 12,294 15,365 -
92,132 (446,426) (340,848) (184,398) 28,441 (3,098,096)
180,000
$ 272,132
640,000 640,000 640,000 640,000
346,342 287,828 174,575 7,754
9,600,000
3,039,214
9,541,118
539,916 586,980 630,177 676,195
Principal and i nterest p ayment $ - 842,614 842,614 842,614 842,614 12,639,210
Debt servi ce rati o 64% 70% 75 % 80% 75
Note: Adjustments made by KPMG. Only selected years shown, only significant adjustments have been made. See Appendix for details.
1. The interest on reserve account per the Rangers would be eliminated with our adjustments to their
projections.
2. Interest should be accrued on an annual basis starting in year one to determine Project income. See Section
5.1. This is an accounting issue and does not affect cash flow.
3.10 Further Revenue not Included in the Projections
Various revenue sources that were determined to be uncertain and contingent were not included in the
projections by the Rangers as management have attempted to be conservative in their projections.
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Kitchener Rangers Hockey Club Loan
Project 2012 Business Plan and Financial Due Diligence
October 27, 2011
Sources of revenue
Playoff game revenue
Ticket price premium
Advertising and sponsorship revenue
Retail revenue
Total additional revenue
Note: As prepared by the Rangers.
Playoff Game Revenue
1 2 5 10 16 Total
2012-13 2013-14 2016-17 2021-2022 2027-28
$ 47,777 48,657 51,395 56,308 62,832 879,712
58,000 58,000 58,000 58,000 58,000 928,000
60, 000 60, 000 60, 000 60, 000 60, 000 960, 000
22,950 22,950 22,950 22,950 22,950 367,200
$ 188,727 189,607 192,345 197,258 203,782 3,134,912
• Any revenue generated from ticket and suite sales from playoff games throughout the duration of the
Project have been excluded as they are contingent on the Rangers success. Revenue from playoff
games is also variable based on the number of home playoff games in a particular season.
• The Rangers have averaged over 5.5 annual home playoff games for the last five seasons and 5.1
annual home playoff games over the last ten seasons.
• In addition, historically the occupancy rates can fluctuate dramatically throughout the playoffs.
Occupancy rates tend to increase as the playoff series advance forward.
• The Rangers have estimated the amount of playoff revenue that can be generated on an annual basis in
similar fashion to season ticket revenue using the following assumptions:
• Ticket prices do not increase for the playoffs
• Ticket prices increase on an average of 1.78% per season for adults and 2.28% per season for
children, consistent with ticket price increases for season tickets.
• The mix between adults and children remains at 85% and 15% respectively
• An occupancy rate of 75% of the newly expanded 1,000 seats
• Four home playoff games per season
• The Rangers net share of playoff revenue, as per the lease with the City of Kitchener, remains at
85% and the City of Kitchener shares the remaining 15% of playoff revenue
• Based on the assumptions noted above, playoff revenue collected by the Rangers is in the range of
$47,777 in 2012-13 to $62,832 in 2027-28 for these 1,000 seats, assuming four home playoff games
~ No additional expenses relating to playoff games for the 1,000 seats were included in the projection.
No additional playoff revenue generated from the new suites has been calculated.
KPMG Observations
• Based on data provided by the Rangers, there is a likelihood of playoff revenue on an annual basis.
Based on current Ontario Hockey League playoff format, 80% of the teams in each conference make
the playoffs, further supporting the inclusion of playoff revenue.
• Any playoff revenue will have a positive impact on cash flows, thus increasing the ability for the
Rangers to pay the financing costs related to the Project. The inclusion of playoff revenue should
offset concerns over any occupancy issues.
Season Ticket Pricing Adjustment
• All projections included in the Project are based on the current season ticket pricing structure.
15
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Kitchener Rangers Hockey Club Loan
Project 2012 Business Plan and Financial Due Diligence
October 27, 2011
• With the exception of upward adjustment due to inflation, there are no other pricing adjustments
related to the tickets included.
• Based on information provided by the Rangers, current season ticket prices are in the top quarter of the
Ontario Hockey League.
• According to the Rangers projections, by charging a premium of approximately $2 per game for the
new expansion seats, an additional $58,000 of annual revenue can be generated.
KPMG Observations
• Any increase in ticket prices are very advantageous to the incremental cash flows relating to the
Project, as there are minimal corresponding expense increases.
• Given the premium nature of the seats, it is reasonable that a premium could be charged.
Increase in Advertising and Sponsorship Revenue
• The Rangers have not included any increase in revenue related to advertising and sponsorship as a
result of the expansion.
• Per discussion with Steve Bienkowski, he believes that advertising revenue generated relating to the
on-ice boards and arena signs can be increased due to the increase in attendance.
• Assuming 100% of the additional seats are occupied throughout a season, attendance increases
approximately 16%. Based on current advertising revenue of approximately $600,000 per annum, an
increase of 16% translates to an additional annual $96,000 increase in revenue. Amore conservative
increase of 10% represents an increase of $60,000.
• Any increase in advertising revenue would have a positive impact on cash flows and further enhance
debt servicing costs.
Increase in Retail Revenue
• The Rangers have not included any increase in revenue related to retail and merchandise sales as a
result of the expansion.
• The Rangers currently estimate that gross revenues of approximately $1.50 per game per person are
earned at the retail stores located within the Auditorium
• The margin on these items is approximately 45%.
• Based on 34 home games per year, the additional cash flow relating to merchandise sales is
approximately $23,000.
Government Grant
• The Rangers applied to the federal government for P3 funding in June, 2011. Per the Rangers, the
application was for a grant of 25% of Project 2012's costs, or approximately $2,400,000. This funding
has not been included in the Ranger's financial projections nor KPMG's adjustments. As at the date of
the report, the Rangers had not been made aware of their application status.
• We suggest you request 100% of any grant money received to be used to reduce the loan, or segregated
to be used for future payments
~6
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Kitchener Rangers Hockey Club Loan
Project 2012 Business Plan and Financial Due Diligence
October 27, 2011
4 Analysis of Incremental Operating Costs
1 2 5 10 16 Total
Expenses 2012-13 2013-14 2016-17 2021-2022 2027-28I
Construction Interest $ 156,000 - - - - 156,000
Depreciation - 640,000 640,000 640,000 640,000 9,600,000
Incremental Rent I Costs 68,614 64,886 68,858 76,025 85,616 1,190,719
Credit Card Fees 13,103 13, 375 14,181 15, 520 17, 211 242,119
Selling Commissions 5,818 8,323 12,338 13,957 15,718 204,202
Interest on long term debt (see Section 5} - 355,475 298,038 186,869 23,119 3,039,210
$ 243,535 1,082,059 1,033,415 932,371 781,664 ,14,432,250
Note: Schedule as prepared by the Rangers and only selected years are displayed
Information pertaining to each of these line items is outlined below:
4.1 Construction Interest
According to the Rangers policy, construction interest rates are treated as operating costs as opposed to
capitalized and recorded in the cost of the leasehold improvements and amortized over the life of the
improvement. Based on construction estimates, Project 2012 will take approximately ten months to complete.
The following assumptions were made by the Rangers when projecting the construction interest costs:
• A $9,600,000 construction loan will be advanced March 2012
• The loan will have a floating rate of interest of 1.95%, as per Infrastructure Ontario's sports and
recreation rate, during the period of construction.
• Interest will be charged on the entire outstanding loan amount, regardless of when amounts are drawn
• When calculated over a ten month borrowing period, the total construction interest paid will be
$156,000.
KPMG Observations
• In practice, the loan will be drawn upon on a periodic basis to finance the Project. As a result, the
interest cost will be considerably lower for the first few months.
• The Infrastructure Ontario sports and recreation interest rate of 1.95% is included in the projection. If
the City of Kitchener obtains the financing on behalf of the Rangers, this amount is decreased to
1.55%. Based on the projections as completed by the Rangers, this would result in a one time savings
of $32,000 in 2012-13. This would decrease cash outflows and increase Project income.
Loan amount
Interest rate (floating)
Construction period (10 months)
Estim ated cost of construction financing
Sports and
Recreation Municipal
rate rate Difference
$ 9,600,000 9,600,000
1.95% 1.55% 0.40%
0.83 0.83
$ 156,000 124,000 32,000
Note: Information provided by the Rangers, calculations performed by KPMG.
• Infrastructure Ontario indicates that for construction loans the interest rate floats throughout the term of
the loan until they are replaced by a debenture. This poses the risk that interest rates may fluctuate
throughout the construction period of ten months.
i~
4 - 29
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Kitchener Rangers Hockey Club Loan
Project 2012 Business Plan and Financial Due Diligence
October 27, 2011
4.2 Depreciation
Depreciation on the leasehold improvements is calculated using the straight-line method. The cost implied for
the asset is the total amount of financing requested, $9,600,000. The leasehold improvements are to be
amortized over a 15 year period which is estimated to be the useful life of the expansion. Based on these
assumptions, the annual depreciation expense is estimated to be $640,000.
KPMG Observations
• This is a non cash item and is required to be added back to projected net income when calculating cash
flow.
We re-performed the calculation, and agree with their calculations, except:
• Depreciation should begin in year one, the year in which the seats are substantially complete and in
use as a revenue generating asset, and end in year 16, the end of the expected use of the asset. This
results in 16 years of $600,000 in depreciation expense, a reduction of $40,000 per year. As
depreciation does not impact cash flows we have not made this adjustment in our calculations.
4.3 Incremental Rent Costs
Operating Cost
Ushers
Ticket License Fee
Scanner Equipment
Shuttle Service
1 2
2012-13 2013-14
$ 19,074 19,455
7,140 7,283
5, 000 -
37,400 38,148
$ 68,614 64,886
5 10 16 Total
2016-17 2021-2022 2027-28
20,646 22,795 25,671 355,526
7, 729 8, 533 9, 609 133, 084
- - - 5, 000
40,483 44,696 50,335 697,109
68,858 76,025 85,616 1,190,719
Note: Schedule as prepared by the Rangers and only selected years of 16 are displayed
Incremental rent costs are to be reimbursed to the City of Kitchener and are broken down as follows:
Ushers
• Per an assessment performed by Kitchener Rangers staff and Steve Bienkowski, eight additional ushers
are estimated to be required on a per game basis to compliment the additional seats. The ushers have
defined coverage areas within the newly expanded portion of the arena including the elevator lobby,
elevator suite level, suite level stairs, seat entrance for suites, and new seat/concourse level.
• The hourly rate paid to ushers of $12.75 was included in the projection for 2012-13 and adjusted based
on an estimated 2% inflation rate through 2027-28. Per historic information, ushers are paid for 5.5
hours per game Total incremental usher expense is calculated for all 34 games
~ Total costs relating to ushers is $19,074 in 2012-13 and increases to $25,671 in 2027-28.
KPMG Observations
• Based on data provided by the Rangers, the incremental number of ushers to be hired appears
reasonable pending no change in legislation.
~ For the 2012-13 season, the projection estimates ushers will be required for 34 games yet only 29 will
be played at home. This decreases the operating cost of ushers in the 2012-13 season by approximately
$3,366.
We have recalculated the amount and have no issue with the assumptions.
IS
4-30
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Kitchener Rangers Hockey Club Loan
Project 2012 Business Plan and Financial Due Diligence
October 27, 2011
Ticket License Fee
• The ticket license fee is a licensing fee paid for all tickets issued, regardless of whether they are
included as a season ticket package or an individual game ticket purchased at the box office. The City
of Kitchener operates the box office at the Auditorium and the Centre in the Square, where the Rangers
tickets are sold. The license fee is projected at $0.21 per ticket per game, the current fee paid to the
City of Kitchener.
• Included in the projection is an annual increase due to inflation of 2%. The ticket license fee is
calculated over the additional 1,000 tickets that are to be issued and sold.
• Total costs relating to ticket license fees is $7,140 in 2012-13, and increases to $9,609 in 2027-28.
KPMG Observations
• As the Rangers do not have control over the fee, there is potential for the City of Kitchener to increase
the aggregate fee charged or move to a variable fee calculation such as a percentage of total ticket
price.
• For the 2012-13 season, the projection estimates fees will be paid for 34 games yet only 29 will be
played at home. By adjusting the operating fees by the decrease in six games, the cost in the 2012-13
season decreases by approximately $1,050.
• We have recalculated the amount and have no issue with the assumptions.
Scanner Equipment
• The onetime expense of $5,000 relates to the anticipated move towards ticket scanning technology at
entrance gates to the Auditorium.
KPMG Observations
• The costs associated with this equipment are reasonable.
Shuttle Service
• The complimentary bus service is proposed to be offered from downtown, beginning approximately 75
minutes before each game and ending 45 minutes subsequent to the game.
• The Rangers indicate that the Downtown BIA is supportive of the proposal. The cost of the shuttle
service is projected based on an average hourly rate of $110 per hour, which is the current rate the
Rangers pay Grand River Transit to use transit shuttles. The cost of the shuttle service is adjusted for
an annual inflation increase of 2%.
• The shuttles are expected to run for approximately 75 minutes before the game, 180 minutes during the
game and 45 minutes after the game for a total of 300 minutes per shuttle. The shuttles are anticipated
to run for 34 games per season.
• Total costs relating to the shuttle service are $37,400 in 2012-13, and increasing to $50,335 in 2027-28.
KPMG Observations
• For the 2012-13 season, the projection estimates that the shuttle service will be provided for 34 games
yet only 29 will be played at home. By adjusting the shuttle service by the decrease in six games, the
cost in the 2012-13 season decreases by approximately $5,500.
• We have recalculated the amount and have no issue with the assumptions.
19
4-31
Kitchener Rangers Hockey Club Loan
Project 2012 Business Plan and Financial Due Diligence
October 27, 2011
4.4 Credit Card Fees
Credit card fees are projected based on the gross revenue from ticket sales, effectively calculating the credit card
fee on the net amount of the ticket as well as HST. The credit card fees expense is broken down as follows:
Credit card fees are estimated at 2.50% of gross ticket prices, which is based on current credit card
rates. Gross revenues are projected based on calculations in Section 3.2.
100% of ticket sales relating to Project 2012 are assumed to be paid for via credit card
~ The total cost relating to credit card fees increases from $13,103 in 2012-13 to $17,211 in 2027-28.
The increase is mainly attributable to the increase in ticket prices as a result of inflation.
KPMG Observations
• It is conservative to assume that 100% of all new ticket sales will be paid via credit card. This results
in the maximum amount of credit card fees being included in the projection. For every customer that
does not pay via credit card and uses some other form of payment, such as a cheque, this operating
expense will decrease by an estimated $13.10 per ticket.
We have recalculated the amount and have no issue with the assumptions.
4.5 Selling Commissions
Selling commissions are charged relating to the sale of new suites. The Rangers have projected commissions at
a rate of 15% of total new suite sales generated on an annual basis. Per information provided, the Rangers
currently pay 6% sales commission on the existing suites it sub-leases or rents. The selling commissions are
detailed as follows:
Selling commissions are calculated as 15% of net new suite revenue, as calculated in Section 3.3.
~ The total cost relating to selling commissions is $5,818 in 2012-13 to increases to $15,718 in 2027-28.
The increase is attributable to an increase in the sale of new suites as well as inflation.
KPMG Observations
• The increase in sales commission percentage to 15% from the existing rate of 6% is related to an
estimated increase to further promote the sale of suites.
We have recalculated the amount and have no issue with the assumptions.
4.6 Further Costs not Considered
As a result of the expansion of 1,000 seats and additional hospitality suites, as well as washrooms, concession
stands, we have determined that there may be additional operating costs relating to the expanded areas that may
be incurred by the Rangers and/or the City of Kitchener. The costs, listed below, are indeterminate but
considered insignificant to the Project as a whole.
Cleaning related expenditures
~ Repairs and maintenance to new areas
~ HVAC system maintenance and ongoing operational fees
~ Increase in utilities
zo
4-32
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Kitchener Rangers Hockey Club Loan
Project 2012 Business Plan and Financial Due Diligence
October 27, 2011
5 Analysis of Loan Payback
5.1 Loan
The Rangers projections include principal and interest payments semi-annually of $421,307. This is consistent
with the amortization of a $9,600,000 loan, at 3.75% interest rate for 15 years with blended payments. As noted
in Section 3.7, we have found two completely offsetting issues with this payment amount.
5.2 Loan amortization method
• There are several amortization methods which can be used, each of which results in a different principal
repayment pattern for a loan.
• In this report we have considered a comparison of the blended payment method used by the Rangers and the
straight-line method
• Straight-line - $9,600,000 / 15 = $640,000 in principal payments per annum, plus a reducing amount of
interest per year as the principal is repaid.
• Blended - a constant total principal and interest payment is maintained, with the principal portion of
each payment increasing as the interest costs decline.
• Table 5.2 outlines the differences
• Lenders will alter the amortization terms selected for a loan based on various risk factors, including debt
covenants, current and anticipated asset values in a market place, future renovation costs and nature of the
asset (i.e. single or multipurpose asset)
• Table 5.2 outlines the two methods, the straight-line method results in significantly more principal being
repaid in the earlier years, but also results in an additional $152,323 cash flow required in year one. This
change would significantly impact Project cash flows, especially in early years, but has not been adjusted
for in our calculations.
2013-14 $ 842,614 994,937 152,323
2014-15 842,614 969,951 127,336
2015-16 842,614 947,595 104,980
2016-17 842,614 921,129 78,515
2017-18 842,614 897,984 55,369
2018-19 842,614 873,984 31,369
2019-20 842,614 849,951 7,336
2020-21 842,614 825,951 (16,664)
2021-22 842,614 802,838 (39,776)
2022-23 842,614 777,984 (64,631)
2023-24 842,614 753,655 (88,959)
2024-25 842,614 729,984 (112,631)
2025-26 842,614 706,148 (136,466)
2026-27 842,614 682,148 (160,466)
2027-28 842,614 657,852 (184,762)
$ 12,639,214 12,392,088 (247,126)
Note: Information obtained from Infrastructure Ontario loan
amortization schedules. Schedule prepared by KPMG. The
total difference of $247,126 relates to lower interest charges
due to faster amortization of the principal.
z~
4-33
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Kitchener Rangers Hockey Club Loan
Project 2012 Business Plan and Financial Due Diligence
October 27, 2011
• There is a significant increase in the cash flow projected beginning in 2018-19 of $337,800 relating to the
existing suites revenue. It may be advantageous to consider having this revenue source applied to accelerate
the principal reductions, if possible
5.3 Covenants
• Typically, commercial loans contain financial and non-financial covenants of the borrower to reduce the
risk to lender. The City of Kitchener may include these standard covenants in the loan agreement.
• A financial covenant restricting discretionary cash flows, such as community donations and capital
expenditures, if certain financial performance metrics are not met, such as debt service ratio, leverage ratio,
etc., could be included in the loan agreement.
zz
4-34
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Kitchener Rangers Hockey Club Loan
Project 2012 Business Plan and Financial Due Diligence
October 27, 2011
6 Other Risks to the Projections
6.1 Interest Rate is not Locked In
The interest rate used in the loan is effectively 3.35%, as publicized by I0. This rate changes periodically
based on market conditions. The projections currently assume the take out financing for the construction
loan will be drawn on or about January 1, 2013, approximately 15 months from now. Long term interest
rates could be higher by this time. In terms of impact, every 1 % increase in rates would have a $100,000
impact in year one, and decreasing thereafter. The total impact of a 1 % increase in interest rates would be
$720,000 over 15 years. It is not possible for the Rangers to lock in this interest rate today, but it maybe
possible for the City of Kitchener to do so with various other financing sources.
6.2 Other Hockey Franchises
• Recently, discussions of an expansion Ontario Hockey League franchise in the City of Waterloo have
arisen. It is likely that any Waterloo franchise would significantly impact the Rangers financial success and
increase the risk to the City of Kitchener of debt repayment.
• Over the past few years, media speculation and discussions have occurred regarding the relocation of an
NHL franchise to Waterloo Region. Potentially, an NHL franchise would significantly impact the Rangers
financial success and increase the risk to the City of Kitchener of debt repayment.
6.3 Construction Delays Beyond Five Days
• The Rangers have developed contingency plans for any construction delays, including construction
hoarding off the area, and the possibility of playing at the Waterloo Memorial Recreation Complex. All
options will increase costs and may result in lost revenue to the Rangers. The construction agreement could
include compensation for such issues should construction timelines not be met. If fewer delays are
experienced, a further benefit maybe realized.
6.4 Season Ticket Renewals
• The Rangers have experienced strong season ticket renewals on an annual basis, with an average of greater
than 98% renewal rate dating to the 2007-08 season. Going forward if the renewal rate decreases, the
season ticket waiting list demand will be filled and it is uncertain as to the demand for additional season
ticket holders. This risk is mitigated by the Deloitte report.
6.5 Refurbishment of Existing City of Kitchener Suites
• The existing suites were built in 2002. In 2017, when a portion of the revenue stream is anticipated to
transfer to the Rangers, the suites will be 15 years old and may require capital expenditures to remodel
and/or update the suites to then current standards.
23
4-35
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Kitchener Rangers Hockey Club Loan
Project 2012 Business Plan and Financial Due Diligence
October 26, 2011
Appendix B - Workplan
1. Perform diligence on the expansion business case:
• Obtain and read materials provided by the Rangers' management and the Client, including all
assumptions and supporting analyses underlying the Target's final model. Materials may include
business plan documents, budgets, the Rangers' financial model, major analyses performed by the
Rangers, and listings of relevant information resources.
• Conduct discussions with key managers from both the Rangers' and the Client's organizations, to
inquire about the major business assumptions that require further validation and other specific
information needs. As an example, issues and assumptions could include the following: market size,
pricing strength and business risks.
2. Consider the financial model and comment on the following:
• Determine whether the calculations in the financial model are in all material respects internally
consistent and mathematically correct;
• Determine whether the input data used in the financial model is consistent and links to other models;
• Determine whether the financial output of the financial model is consistent with the input
assumptions;
• Check that the financial model allows changes in assumptions to appropriately flow through to the
results;
zs
4-37
Kitchener Auditorium
Parking Study
Prepared for:
City of Kitchener.
October 2011
Paradigm Transportation Solutions Limited
43 Forest Road
Cambridge ON
N1S 3B4
® pgrubb~ptsl.com
~1.519.E9 .31
Fax: 1. S 6 6.7 .5'I
PROJECT SUMMARY
PROJECT NAME :.......................................................... KITCHENER AUDITORIUM
PARKING STUDY
CLIENT: ........................................................................................ COMMUNITY SERVICES
CITY OF KITCHENER
CITY HALL, P.O. BOx 118
KITCHENER, ONTARIO
NAG 4G7
CLIENT PROJECT MANAGER :.................................................................................... KEITH BAULK
CONSULTANT:. .................................... PARADIGM TRANSPORTATION SOLUTIONS LIMITED
43 FOREST ROAD
CAMBRIDGE ON N1S 3B4
TELEPHONE: 905 381 2~~9
CONSULTANT PROJECT TEAM .................................................................................... PHIL GRUBB
REPORT DATE :.......................................................................... OCTOBER 2011
PROJECT NUMBER :........................................................................... 111510
4-39
~~~
Kitchener Auditorium Parking Study I October 2011 1111510 ~
EXECUTIVE SUMMARY
Content
The City of Kitchener owns and operates the Kitchener Auditorium, located at 400 East Avenue in
Kitchener, Region of Waterloo. The development site is a recreational facility with three ice pads, a
teaching theatre, a fitness centre, viewing lounges, change rooms, banquet facilities, a stadium, a ball park
and meeting rooms. It is home to the Ontario Hockey League team, the Kitchener Rangers. The facility
largely serves the local community with recreational activities, trade shows, concerts and meeting facilities
as well as Rangers home games. Certain areas are additionally used as banquet halls several times
throughout the year. The Rangers home games are the biggest regular generator of trips to the Auditorium
and parking meets site plan requirements but is undersupplied in terms of real demand. The City of
Kitchener would like to expand the Dom Cardillo arena by 1000 seats which would generate additional
traffic and parking demand at the site.
Paradigm Transportation Solutions Ltd (Paradigm) was retained to carry out a study to address the
increase in traffic and parking demand requirements related to the proposed expansion. The study
assesses the parking impacts of the expansion and provides some alternative strategies to meet the future
needs and mitigate the traffic and parking impacts on the site and surrounding area.
Summary
The report documents the following:
1. The current parking supply at the Auditorium is about 1800 stalls within the lot and on-street
parking of approximately 1326 parking spaces within the study area. Most frequently, a Ranger's
game occurs at 7:30pm on Friday nights.
2. On a typical Friday night Ranger's game, there are in the order of 6000 people in attendance and
the Auditorium lots are observed to be at capacity.
3. A parking accumulation survey was performed at 5:OOpm, 8:OOpm, and 11:30pm within the
Auditorium Complex and the surrounding street system. This survey found that about ~~50 parked
vehicles in the study area are generated by a Ranger's game.
4. A parking interview was conducted from 6:OOpm to 8:OOpm at entrances to the Auditorium. These
interviews found that 89% of people arrive at the game via car and require parking. Additionally,
these interviews determined that average vehicle occupancy for those who drive to a Ranger's
game is 2.3 persons per vehicle.
5. The proposed 1000 seat expansion of the arena will require an addition of 385 parking stalls based
on the survey results and will generate up to 545 additional vehicles trips including drop-off traffic.
6. The study area has a total parking capacity of 316 including stalls at the Auditorium and legal on-
street spaces. There is currently a requirement for ~~60 spaces leaving a balance of 866 spaces
in the study area which is enough to meet the additional requirement of 385 spaces, albeit these
would all be on street parking.
7. Several strategies individually or in combination could mitigate the impact of the additional parking
and traffic demand including: a shuttle service, providing additional parking on site, providing
incentives to increase car occupancy along with supporting incentives and disincentives. These
strategies individually or in combination have pros and cons and hence need more investigation and
feasibility analysis to determine a preferred strategy, if any.
Paradigm Transportation Solutions Limited Page i
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CONTENTS
1.0 INTRODUCTION ....................................................................................................... 1
2.0 LOCAL AREA CONDITIONS ......................................................................................... 3
2.1 LOCAL TRANSPORTATION SYSTEM ....................................................................................... 3
2.2 OFF-SITE PARKING ......................................................................................................... 5
3.0 SURVEY METHOD ................................................................................................... 7
3.1 PARKING ACCUMULATION ................................................................................................ 7
3.2 PARKING INTERVIEW ...................................................................................................... 7
4.0 SURVEY RESULTS ................................................................................................... 8
4.1 PARKING ACCUMULATION RESULTS ..................................................................................... 8
4,1,1 PRE-GAME ACCUMULATION OBSERVATIONS ,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,, S
4,1,2 MID-GAME ACCUMULATION OBSERVATIONS ,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,, S
4,1,3 POST-GAME ACCUMULATION OBSERVATIONS ,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,, S
4.2 PARKING INTERVIEW RESULTS ......................................................................................... 10
4.3 FUTURE PARKING TRAFFIC AND PARKING DEMAND ................................................................. 10
4.4 POSSIBLE PARKING AND TRAFFIC MANAGEMENT MEASURES ...................................................... 10
APPENDICES
APPENDIX A -PARKING INTERVIEW FORM
Fi~uRes
FIGURE 1.1: STUDY AREA .............................................................................................. 2
FIGURE 2.1: EXISTING TRANSIT ROUTE 8 ............................................................................ 4
FIGURE 2. Z: EXISTING ON-STREET PARKING ........................................................................ 6
FIGURE 4.1: PARKING ACCUMULATION RESULTS ................................................................... 9
TABLES
TABLE 4.1: PARKING INTERVIEW RESULTS ........................................................................ 10
Paradigm Transportation Solutions Limited
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Kitchener Auditorium Parking Study I October 2011 1111510 ~
~I .O INTRODUCTION
The City of Kitchener owns and operates the Kitchener Auditorium, located at 400 East Avenue in
Kitchener, Region of Waterloo. The development site is a recreational facility with three ice pads, a
teaching theatre, a fitness centre, viewing lounges, change rooms, banquet facilities, a stadium, a ball park
and meeting rooms. It is home to the Ontario Hockey League team, the Kitchener Rangers. The facility
largely serves the local community with recreational activities and meeting facilities and Rangers home
games. Certain areas are additionally used as banquet halls several times throughout the year. The
Rangers home games are the biggest regular generator of trips to the Auditorium and parking is currently
undersupplied. The City of Kitchener would like to expand the Dom Cardillo arena by 1000 seats which
would generate additional traffic and parking demand at the site.
Paradigm Transportation Solutions Ltd (Paradigm) was retained to carry out a study to address the
increase in traffic and parking demand requirements related to a proposed expansion of the facility. The
study assesses the parking impacts of the expansion and provides some alternative strategies to meet the
future needs and mitigate the traffic and parking impacts on the site and surrounding area.
The subject development is located on the east side of East Avenue, bordered by Ottawa Street to the
south, Stirling Avenue to the north and the Conestoga Expressway to the east. Access to the facility is
provided off of East Avenue, Stirling Avenue, and Ottawa Street. The study area is primarily residential. The
general location of this development relative to major roadways and the surrounding areas as well as the
study area is shown in Figure 1.1 below.
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~~~
Kitchener Auditorium Parking Study ~ October 2011 ~ 111510 ~
...
Study Area Development North
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Figure 1.1
~ •
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~~ www. ptsl . com
Paradigm Transportation Solutions Limited Page 2
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Kitchener Auditorium Parking Study I October 2011 1111510
~~~
2.O LOCAL AREA CONDITIONS
2.1 Local Transportation System
The development site provides vehicular access via the following driveways:
East Auenue: there are five driveways to the complex off East Avenue that provide access to the site
accommodating left and right turn movements to and from the complex. Two of these driveways provide
access to a drop-off location at the main entrance to the building. The other three driveways provide
access to the major parking lots.
Stirling Auenue: there is one driveway off Stirling Avenue. This driveway provides access to two major
parking lots on the north side of the complex.
Ottawa Street: there is one driveway off Ottawa Street. This driveway provides access to the major lot
to the south of the complex.
Sherbourne Auenue -there are two entrances to parking lots to the south-east of the complex
including the drop-off loop in front of the Ottawa St entrance to the facility.
The conditions of the roadways immediately surrounding the site are summarized as follows:
East Auenue is anorth-south collector street with a four lane cross-section within the study area.
Limited intermittent on-street parking is permitted on both sides of the roadway from Stirling Avenue to
Krug Street but no on-street parking is permitted south of Stirling Avenue adjacent to the complex.
There are residential developments on the west side of the street and the Auditorium to the east,
within the study area. The intersections of East Avenue and Weber Street/Ottawa Street, and East
Avenue and Cameron Street are signalized. All other intersections are stop-controlled. The speed limit
on East Avenue is 50 kilometres per hour.
Stirling Auenue is an east-west local street with atwo-lane cross-section within the study area. On-
street parking is permitted on both sides of the roadway from Dumfries Avenue to East Avenue. West
of East Avenue, on-street parking is available in some street sections. The existing developments along
Stirling Avenue include residential to the north and the Auditorium directly to the south within the study
area. All intersections along Stirling Avenue within the study area are unsignalized. The speed limit on
Stirling Avenue is 50 kilometres per hour.
Ottawa Street is an east-west arterial road with four travel lanes within the study area. On-Street
parking is not permitted on both sides of the roadway in the vicinity of the development. Ottawa Street
provides access to commercial developments to the east and west and access to the Conestoga
Parkway to the east of the development. The intersection of Ottawa Street and Weber Street is
signalized. All other intersections on Ottawa Street within the study area are unsignalized. The speed
limit on Ottawa Street is 60 kilometres per hour within the study area.
This location is well served by public transit Route 8 operated by the Region of Waterloo, Grand River
Transit. Route 8 operates regular bus service along East Avenue and Ottawa Street on evenings and
weekends within the study area. In addition, Route 1 (Krug Street) and Route 7 on King Street are within
walking distance of the site (5-6 blocks). During Rangers games Route 8 provides the following service:
30 minute service prior to game time and 45 minute service until midnight after the game .
The bus routes within the study area are further illustrated in Figure 2.1.
Paradigm Transportation Solutions Limited Page 3
4-44
Kitchener Auditorium Parking Study ~ October 2011 ~ 111510
~~~
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Kitchener Auditorium Parking Figure 2. 7
~~ Paradigm Existing Transit Route 8
~~` www.ptsl.com
Paradigm Transportation Solutions Limited Page 4
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Kitchener Auditorium Parking Study I October 2011 1111510
~~~
2.2 Off-Site Parking
On-street parking supply is summarized in Figure 2.2 showing where parking is restricted, where parking
on one side of the street is allowed, and where parking on both sides are allowed. The locations of the
churches and the school are also shown.
As discussed in Section 2.1, on-street parking is provided in several locations throughout the study
area. In addition to the on-street parking permissions and restrictions shown in Figure 2.2, there are
further restrictions on two streets noted below:
Dumfries Auenue: Parking is available along the west side of Dumfries Avenue but is prohibited from
January 1St to March 31St
McKenzie Auenue: Parking is available along the west side of McKenzie Avenue from the Auditorium
to Ottawa Street and from Ottawa Street to Sheldon Avenue. The block from the Auditorium to
Ottawa Street is restricted to one hour parking and is strictly enforced during Ranger's games.
Additional off-site parking also occurs as follows:
Church Parking Lots: there are two churches within the study area, one on Pandora Street and one
on Stirling Avenue. These lots were fully occupied during the Ranger's game.
School Parking Lot: there is a school on Weber Street, north of Borden Avenue that was observed
to be fully utilized during the Ranger's game.
Paradigm Transportation Solutions Limited Page 5
4-46
./.
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~~
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School ^
Parking on both sides
Parking on one side
Kitchener auditorium Parking
~ •
~.~ Paradigm
~~` www. ptsl , com
Figure 2.2
Existing On-Street Parking
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~~~
Kitchener Auditorium Parking Study I October 2011 1111510 ~
3.O SURVEY METHOD
3.1 Parking Accumulation
A review of the fall and winter 2011 regular season schedule of the Kitchener Rangers Home games
indicated the following:
1. Friday games- ~2- 7:30 PM start time
~. Sunday games- 6- x:00 PM or 7:00 PM start time
3. Monday games-1-1:00 PM start time
4. Tuesday games- 5- 7:00 PM start time
Clearly, more games occur on Friday and the expected higher attendance at games on this day will result in
the greatest traffic and parking impact. Accordingly, a parking accumulation survey was performed on
Friday, October 1St. A Ranger's game was scheduled to begin at 7:30pm and run for approximately ~
hours and 30 minutes. There were no other events occurring at the complex during this day and time. The
survey was delayed to October ~1, X011 to avoid other special events that were occurring at the complex.
Activities (i.e. Oktoberfest).
Parking accumulation was recorded at 5:OOpm to collect apre-game baseline condition, at 8:OOpm to
collect amid-game condition, and finally at 11:30pm to collect apost-game baseline condition. Surveyors
collected the number of vehicles parked on each block within the study area, in the church and school lots,
and in the lots provided by the Auditorium.
3.2 Parking Interview
Surveyors were stationed at the three general entrances to the Auditorium: the Stirling Avenue entrance,
the Ottawa Street Entrance, and the East Avenue entrance (also known as the Main Entrance). Surveyors
were stationed from 6:OOpm to 8:OOpm to best collect a variety of attendees to the game. Surveyors
approached guests as they entered the building and asked them the following question:
1. What mode of transportation did you use to arrive at the Auditorium?
2. How many people were in the vehicle?
3. Where did you park?
The survey form used can be found in Appendix A.
From surveyor comments, it was noted that the flow of guests into the building was steady from 6:OOpm to
7:OOpm and quite busy from 7:OOpm to 7:30pm (just before the game was scheduled to begin). The flow of
guests into the building decreased significantly after 7:30pm. A total of 478 surveys were collected which
represented parking characteristics of 1100 guests based on occupancy.
When asking the third question surveyors attempted to note where the guest parked and if it was
specifically within the lots provided by the Auditorium or if it was on a specific side street.
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~~~
Kitchener Auditorium Parking Study I October 2011 1111510 ~
4.O SURVEY RESULTS
The purpose of the data collection was to determine the potential increase in parking and traffic demand
caused by the proposed 1000 seat expansion for the Rangers games.
4.1 Parking Accumulation Results
The Parking accumulation was performed as described in Section 3.1. The accumulation was split into
two components: on-street parking and Auditorium lot parking. Based on the data collected, it was
determined that a standard Friday night Ranger's game produces approximately ~~00-300 vehicles
parked within the Auditorium lots and on-street within 1 kilometre of the site.
4.1.1 Pre-game Accumulation Observations
During the pre-game accumulation survey, it was found that the lots provided by the auditorium were
largely empty with the exception of the lot direction on the south side of the building which had 183 vehicles
parked at 5:OOpm. This is like likely due to staff and volunteer arrivals and player parking. The surrounding
street networkwas also largely empty with no street fully occupied. During this survey, 3~2 parked vehicles
were observed within the study area.
4.1.2 Mid-game Accumulation Observations
During the mid-game accumulation survey (8:OOpm), it was found that the lots provided on the Auditorium
site exceeded capacity with vehicles parking wherever space was available, including between parking lanes
and on the edges of the driveway. Additionally, streets within 500 metres of the Auditorium were at
capacity including: Stirling Avenue, East Avenue, Dumfries Avenue, Borden Avenue, McKenzie Avenue, and
parts of Pandora Avenue. During this survey, X416 parked vehicles were observed within the study area.
4.1.3 Post-Game Accumulation Observations
During the post-game accumulation (11:30pm) parking in the Auditorium lots and on-street parking within
the study area had largely cleared out. During this survey,148 parked vehicles were observed within the
study area.
The results of each accumulation survey are shown in Figure 4.1. This figure shows that approximately
X000 vehicles arrived and parked within the study area between 6:OOpm and 8:OOpm. These vehicles can
be attributed to the Ranger's game. The total impact of parking in the study area during the Rangers game
including staff and volunteer parking is determined by the mid-game observation minus the post-game
observation of about 270 vehicles.
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Kitchener Auditorium Parking Study ~ October 2011 ~ 111510
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Kitchener Auditorium Parking Study I October 2011 1111510 ~
4.2 Parking Interview Results
Surveys were collected from 6:OOpm to 8:OOpm as described in Section 3.2. Based on the 468 surveys
collected, it was found that 89% of people arrived by car, 5% of people were dropped-off and the remainder
arrived by taxi, bus, or walking. Additionally, the vehicle occupancy was determined based on the average of
all car trips surveyed. It was determined that average vehicle occupancy for those travelling to a Ranger's
game by car is 2.3 persons per vehicle. This information is shown in Table 4.1.
TABLE 4.1: PARKING INTERVIEW RESULTS
R
lt
S Mode
urvey
esu
s
Car
Drop-off
Walk
Bus
Taxi
Total
Total Occupancy (people) 983 56 24 29 8 1100
Average Occupancy (people) 2.3 2.1 2.4 5.8 2.7
Mo d e Sh a re 89% 5% 2% 3% 1 % 100%
4.3 Future Parking Traffic and Parking Demand
Attendance data was received from the City of Kitchener for the evening of the survey. The City reports that
an estimated 5850 people were in attendance at the game on October 21, X011 based on ticket sales and
about 600 no shows (typical number). Based on the mode share determined from the Parking Interview,
500 (89%) people arrive by car as either driver or passenger. Based on an average of 2.3 people per car,
a parking demand of ~~60 would be generated. This is very close to the number of vehicles observed in the
study area (i.e. ~~70). The survey has therefore captured almost all of the parking demand generated by
the Rangers game.
With an addition of 1000 new seats, 890 people will arrive by passenger vehicle generating a parking
demand of about 385 vehicles based on a vehicle occupancy of 2.3. As 6% of the patrons arrive by drop-off
or taxi with occupancies of ~.1 and ~.7, additional traffic of 545 vehicles will be generated before and after
the game due to the 1000 seat expansion.
4.4 Possible Parking and Traffic Management Measures
The City could consider a number of alternatives to addressing the increased parking and traffic demand as
follows:
Do-Nothing
The City could choose to take no action to address the additional traffic and parking demand. The additional
parking would be required to take place on-street spreading the parking impact further away from the
Auditorium. Regular season ticket holders would gauge their arrival time and parking location based on
observations of previous game parking availability. There will be additional park search traffic on the
adjacent local street system. This option would not address existing and future increases in the traffic and
parking concerns in the area.
However, these conditions occur on only 34 days of the year (excluding play-offs) assuming attendance
levels that occurred during the survey. As the regular season and playoff represent only 10%-12% of the
days annually, traffic and parking issues could be tolerated.
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Kitchener Auditorium Parking Study I October 2011 1111510 ~
Shuttle Service
The Kitchener Rangers have been considering a shuttle service that would operate from a downtown parking
garage (Benton/Charles Parking Garage) and the downtown transit terminal. The preliminary suggestion is
to utilize buses operating in ~0 to 30 minute loops starting 1 hour and 15 before game time, 1 bus
operating during the game (~ bus hours) and buses operating after the game for 45 minutes.
Although more details on the feasibility (cost and potential ridership) of this service needs to be addressed,
if 890 people could be attracted by the shuttle service, there would be no impact on traffic and parking
activity in the area with the expansion. Assuming an average bus load of 40 people per bus, over ~~ bus
loads would be required to accommodate 890 people. If one bus can accommodate three trips per hour,
the number of people served by the bus at full load would be 1~0 persons. In order to accommodate 890
people under this scenario 8 buses would be required before and after the game. If all persons arrive by car
to the off-site parking facility, 385 vehicles would need to be accommodated.
Consideration should be given to the following strategies to provide a successful shuttle service that will
mitigate the traffic and parking impacts of the expansion of 1000 seats:
1. Identify the operating cost of alternative service concepts
~. Undertake a stated preference survey of existing season ticket holders to determine the potential
market for a shuttle service (how many choose it under various concepts and service strategies).
3. Consider operating the service from shopping centres (Fairview, Conestoga) as well as downtown
so that some patrons do not have to travel out of the way to a downtown facility.
4. Incentives should be offered such as reduced ticket prices, free drinks, draws for prizes, free
parking and free bus service etc.
5. Regular marketing of the service on tickets and the web site outlining the advantages such as
avoiding long walking distances in cold weather, frustration associated with park search activity,
free, avoiding congestion and delays leaving the area, comparison of travel times using the shuttle
vs. a car).
6. Encourage use of public transit to the site by providing route maps during ticket sales on the web
site with reduced ticket price incentives to subsidize the cost of the transit service.
7. Charge a fee for parking on the Auditorium site (although this may result in more cars parking on
the streets) .
8. Place parking restrictions (with resident permits) on the adjacent local street system in the study
area during the times of the Rangers games to increase walking distances from on-street parking
areas (although it is clear that on-street parking is required to meet the needs of the Auditorium
use).
A combination of the strategies could be considered.
Add Parking
Uacant areas are available to add additional surface parking in the north east and south east areas of the
site. It is expected that these areas could accommodate an additional parking supply of 300-350 stalls that
Paradigm Transportation Solutions Limited Page 1 1
4-52
~~~
Kitchener Auditorium Parking Study I October 2011 1111510 ~
would address 80-90% of the increased parking demand caused by the expansion. At a preliminary cost of
$3000 per stall, the cost would be in the order of 900,000 to $1,000,000. A parking structure or deck
structure on the site would be considerably more expensive. The cost of the additional parking may be less
expensive than that of the shuttle service amortized over several years. A joint venture with the adjacent
DND parking lots could be considered to add additional parking capacity.
The disadvantage of this strategy will be increased congestion and delays at the site access driveways
particularly after the game.
Ridesharing
The City could encourage ridesharing to the site increasing the vehicle occupancy and thereby reduce the
parking needs. The number of persons per vehicle would need to increase about ~.7 persons per vehicle for
the expansion to have a neutral impact on traffic and parking in the area. After expansion with the current
travel characteristics the total number of people arriving by passenger vehicle would be 6100 (average
attendance of 6850 x 0.89 by parked vehicle).
If 35% of the patrons were to arrive with 4 people in a vehicle and the remaining 65% were to arrive at the
observed vehicle occupancy of ~.3, the average vehicle occupancy would increase to ~.7.
To implement this strategy the City could:
1. Provide preferential parking area of about 500 stalls for persons arriving with 4 or more people in a
vehicle by patrolling a separate parking area close to the entrance to the Auditorium and with the
advantage of reducing delays upon exiting.
~. Provide additional incentives to encourage ridesharing through subsidized ticket sales or draws for
prizes.
3. Charge for parking in all areas but the preferential parking lot.
4. Place parking restrictions (with resident permits) on the adjacent local street system in the study
area during the times of the Rangers games to increase walking distances from on-street parking
areas.
The foregoing measures individually or in combination represent steps that could be taken to alleviate the
increase in traffic and parking demand. Most of these steps also help to reduce automobile travel generally
and will encourage the use of alternate modes of transportation.
Paradigm Transportation Solutions Limited Page 12
4-53
Appendix A
Parking Interview Form
4-54
Kitchener Auditorium Parking Study -Friday October 21, 2011
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