Ceres Terminals Inc. intends to acquire JaxPort operator TraPac Jacksonville LLC from Mitsui O.S.K Lines Ltd. and enter a 20-year, $60 million agreement to lease and modernize the container facility at Dames Point Marine Terminal.
Port officials said Feb. 14 that the deal with Ceres would have $31.49 million more base revenue than the existing lease with Mitsui.
The Jacksonville Port Authority Board voted unanimously to execute the lease deal with Ceres. Port officials said it includes a $15 million capital investment at the 158-acre terminal facility.
“Our significant investment in Dames Point Terminal provides an excellent gateway for South Atlantic-based distribution centers, well into the future,” Ceres Terminals CEO Craig Mygatt said in a news release.
Ceres did not release its purchase price for TraPac, the terminal’s existing leaseholder.
Nashville, Tennessee-based Ceres plans to begin operating the TraPac facility March 1, pending the sale closing.
Mitsui signed a 30-year operating and lease agreement with JaxPort in 2005 that includes development of 158 acres at Dames Point.
According to board documents, Mitsui assigned its rights to TraPac while retaining exclusive ownership.
TraPac is JaxPort’s largest single-tenant operating container facility by acreage with two 1,200-foot berths and six post-Panamax container cranes.
Post-Panamax ships are vessels designed to navigate the expanded Panama Canal, which opened in 2016.
The terminal is used for Asian and South American cargo services and recently accommodated Hapag-Lloyd’s AL3 European container service for nine weeks in that carrier’s effort to avoid congestion at some U.S. ports.
A presentation Feb. 14 by JaxPort officials said Ceres’ base rent for the lease at Dames Point will be $45.8 million. With the infrastructure investment, the port expects the new lease contract to be valued at $60.81 million.
“An investment of this magnitude speaks volumes about the opportunity that exists in Jacksonville,” JaxPort Board Chair Wendy Hamilton said in the release.
Ceres has operated the JaxPort intermodal yard at Dames Point and adjacent to the TraPac terminal since 2016.
Mygatt said that of Ceres’ 20 North American terminals, the Dames Point facility will be its largest by volume.
He said Ceres’ target customer will be trans-Atlantic, Mediterranean subcontinent and South American ship traffic.
Mygatt said Ceres considers the facility underused and plans to offer it as an alternative for container ships and automobile distributors looking for a port with the capacity to move product quickly.
“If you go up to Savannah, or you go to Charleston, or you go to even Norfolk, (Virgina), there’s a lot of ships at anchor waiting to be worked. You don’t see that outside of Jacksonville,” he said.
“So there’s an opportunity there to provide a quick distribution of products through the gateway.”
Mygatt said the increased volume would lead to more jobs and distribution warehouses in Jacksonville.
He said Ceres isn’t planning immediate upgrades to the port terminal but plans to replace equipment, trucks and reconstruct cranes as needed will be part of the $15 million investment.
Board documents show Ceres will pay $700,000 in rent for the first two years and $1.4 million in year three.
In year four the terminal operator will pay $2 million in rent plus 10% of earnings adjusted for interest, taxes, depreciation and amortization.
In the fifth year of the lease, Ceres’ rent will increase to a cap of $2.2 million, still paying the added 10% of the earnings adjusted for fees.
In years 6-10, Ceres' earnings payment will increase to an adjusted 20% then to 25% for the final 10 years of the lease.
According to the company’s website, Ceres was founded in 1958 by Chris Kritikos handling grain ships in Chicago on the Great Lakes. It now operates in many of the largest ports in North America, according to JaxPort.
Nippon Yusen Kaisha bought Ceres in 2002 and the company began servicing cruise ships in ports that include Vancouver, Canada, and Port Canaveral.
In 2015, Macquarie Infrastructure Partners Inc. took a partnership stake in Nippon and then purchased Ceres in 2019.
Australia-based Macquarie Group operates an office in Downtown Jacksonville in Riverplace Tower.
Hedge fees
As Ceres completes the TraPac acquisition, Mitsui/TraPac plans to redeem $100 million in special purpose bonds issued in 2007 to build out the TraPac terminal at Dames Point.
JaxPort Chief Financial Officer Beth McCague told the board the move will cost the port $4.5 million in the short term to terminate the hedge, but will likely save about $3.6 million in the long term.
Mitsui/TraPac entered a hedge agreement to limit the interest payments on the bond debt to 3.9%.
At the time, JaxPort amended its lease agreement with the terminal operator which provided the company additional financial protection by paying Mitsui/TraPac $1.2 million to $2.4 million annually to ensure it never paid more than 2% in interest, according to board documents.
The contract requires JaxPort to pay 50% of the termination payment that port officials say will be $4.1 million to $4.5 million.
McCague said the port’s financial adviser expects JaxPort’s hedge payments could cap out at $8.1 million if bonds remain outstanding until maturity in 2032.
The board voted unanimously Feb. 14 to terminate the hedge and make the $4.5 million available.
According to McCague, the hedge will terminate Feb. 28, about a month before the Ceres purchase of Mitsui/TraPac Jacksonville is final.