7b report
ITEM NO: 7b_Attach_1 ___ DATE OF MEETING: September 12,2017 PORT OF SEATTLE 2017 FINANCIAL & PERFORMANCE REPORT AS OF JUNE 30, 2017 TABLE OF CONTENTS Page I. Portwide Performance Report 3-5 II. Aviation Division Report 6-11 III. Maritime Division Report 12-16 IV. Economic Development Division Report 17-22 V. Corporate Report 23-26 2 I. PORTWIDE FINANCIAL & PERFORMANCE REPORT 06/30/17 EXECUTIVE SUMMARY Financial Summary The Port's operating revenues for the first half of 2017 were $302.1M, which is $11.8M above budget and $22.7M higher than the same period in 2016. Excluding Aeronautical revenues, which are based on cost recovery, other operating revenues were $174.3M, $14.1M above budget and $12.7M over 2016 mainly due to higher revenues from Public Parking, Airport Dining and Retail, Ground Transportation, Cruise, Grain, the NWSA Distributable Revenue, and a $5.4M lump-sum payment for Des Moines Creek Business Park (DMCBP) Phase II. Total operating expenses were $174.1M, $17.4M below budget mainly due to savings from payroll and outside services. Operating income before depreciation was $81.9M, $789K above budget but $417K below 2016. The Port-wide capital spending was $128.8M for the first two quarters of 2017. Operating Summary At the Airport, the enplanement growth for the first half of 2017 was 3.2% and landed weight was 4.3%. The enplanements growth for domestic and international was 2.4% and 10.2%, respectively. Total cargo metric tons were 19.6% above the same period last year. For the Maritime division, Grain volumes were up 49.1% compared to the same period last year and we are anticipating another year of record cruise passengers in 2017. For the Economic Development division, the overall occupancy of buildings managed by Portfolio Management was at 97% at the end of the second quarter of 2017, above the 95% target for 2017. The occupancy levels at Shilshole Bay Marina were at 94.0%, slightly below the 94.4% in the same period last year. Fishermen's Terminal was at 83.8% average occupancy, below the 85.0% in the same period of 2016. Key Business Events The Port Commission advanced search for new Executive Director and sought input from the public, customers and employees about the qualities and experience desired in new leader. The Port recognized 10 sustainable winners of the seventh-annual Green Gateway Environmental Excellence Award and provided recipients of 18 grants to support tourism across Washington State. We implemented Express Connection at Federal Inspection Services passport control in cooperation with Customs & Border Protection (CBP) and worked with Transportation Security Administration (TSA) to reduce checkpoint wait times by improving divesting process. The Port launched a new $1 million program to fund environmental projects in communities around Sea-Tac Airport. The ASQ surveys consistently exceeded the airport customer service targets for the second quarter. Condor Airlines launched new service to Munich, Germany in June; and Aero Mexico announced new service to Mexico City beginning November. The Airport Dining and Retail program awarded lease group 3 in June. Negotiations for both airline lease agreement (SLOA) and inter-local agreement with City of SeaTac are underway and targeting completion this year. We successful launched of the new Port Valet Program for cruise passengers. Shilshole Bay Marina held Boater's Fest on June 10th with an estimated 1,000 attendees. We also defined the final scope and contracted for all relevant due diligent work on the Salmon Bay Marina acquisition. Major Capital Projects The Sustainable Airport Master Plan (SAMP) is progressing towards preferred alternative. Construction of North Satellite is well underway while construction of Concourse B Holdroom Facility is also under construction and on track for Q3 completion. The South Satellite Interim Improvements has substantially completed. Baggage optimization Phase 1 contract was awarded with Notice to Proceed issued to PCL and construction started in June. Lora Lake remediation construction is underway. The Pier 66 Norwegian Cruise Line Passenger Terminal Expansion Project was completed for the 2017 cruise season. We received approval for T-18 outfall replacement, the first project funded by the Stormwater Utility. We developed a new Engineering Document Management system to track, manage and archive architecture documentation; we also developed a new Noise Remedy system to replace a 20 year old system used by the Airport Environmental group to track remediation work. Finally, we deployed an interface between the 911 Dispatch system and the Port Emergency Notification system which improved workflow and eliminated costly manual steps during critical event. 3 I. PORTWIDE FINANCIAL & PERFORMANCE REPORT 06/30/17 PORTWIDE FINANCIAL SUMMARY Fav (UnFav) Fav (UnFav) 2016 YTD 2017 Year-to-Date Budget Variance Year-End Projection Budget Variance $ in 000's Actual Actual Budget $ % Fo recast Budget $ % Aeronautical Revenues 119,553 129,567 131,896 (2,328) -1.8% 269,531 278,375 (8,844) -3.2% SLOA III Incentive (1,788) (1,788) (1,788) - 0.0% (3,576) (3,576) - 0.0% Other Operating Revenues 161,658 174,309 160,195 14,113 8.8% 352,772 345,446 7,326 2.1% Total Operating Revenues 279,422 302,088 290,303 11,785 4.1% 618,727 620,245 (1,518) -0.2% Total Operating Expenses 147,874 174,104 191,493 17,389 9.1% 381,360 384,660 3,300 0.9% NOI before Depreciation 131,549 127,984 98,811 29,174 29.5% 237,367 235,585 1,782 0.8% Depreciation 82,277 81,860 82,649 789 1.0% 166,300 166,300 - 0.0% NOI after Depreciation 49,271 46,124 16,161 29,963 185.4% 71,067 69,285 1,782 2.6% MAJOR OPERATING REVENUES SUMMARY 2016 YTD 2017 YTD 2017 YTD Budge t Change $ in 000's Actual Actual Budge t Variance from 2016 Aeronautical Revenues 119,553 129,567 131,896 (2,328) 10,015 SLOA III Incentive (1,788) (1,788) (1,788) () () Public Parking 34,166 36,958 35,460 1,498 2,792 Rental Cars - Operations 15,271 14,514 15,176 (662) (757) Rental Cars - Operating CFC 3,872 3,284 3,689 (405) (588) Airport Dining and Retail 25,952 26,349 24,762 1,587 396 Employee Parking 4,563 4,674 4,134 540 111 Ground Transportation 5,668 7,633 7,067 566 1,965 Non-Aero Commercial Properties 4,286 10,708 5,647 5,061 6,422 Airport Utilities 3,571 3,423 3,421 2 (147) Fishing & Commercial Vessels 1,500 1,456 1,558 (103) (44) Maritime Operations 2,919 2,984 2,981 3 65 Recreational Boating 5,083 5,438 5,508 (69) 355 Cruise 5,410 6,325 6,200 124 915 Grain 2,010 3,042 2,275 767 1,032 Maritime Industrial 3,075 3,306 3,345 (39) 230 Marina Office & Retail 2,024 1,961 2,002 (40) (63) Central Harbor Management 3,803 4,161 3,834 326 357 Conference & Event Centers 4,518 3,545 3,360 185 (973) NWSA Distributable Revenue 28,990 27,283 23,354 3,929 (1,707) Other 4,975 7,265 6,423 842 2,290 Total Operating Revenues (w/o Aero) 161,658 174,309 160,195 14,113 12,651 TOTAL 279,422 302,088 290,303 11,785 22,666 4 I. PORTWIDE FINANCIAL & PERFORMANCE REPORT 06/30/17 MAJOR OPERATING EXPENSES SUMMARY Fav (UnFav) Incr (Decr) 2016 YTD 2017 Year-to-Date Budget Variance Change from 2016 $ in 000's Actual Actual Budget $ % $ % Salaries & Benefits 51,795 56,338 61,838 5,500 8.9% 4,543 8.8% Wages & Benefits 48,261 52,948 55,648 2,700 4.9% 4,687 9.7% Payroll to Capital Projects 10,040 12,873 13,533 660 4.9% 2,834 28.2% Equipment Expense 2,923 4,311 3,981 (330) -8.3% 1,388 47.5% Supplies & Stock 3,454 4,616 4,161 (455) -10.9% 1,162 33.6% Outside Services 25,663 32,969 50,050 17,081 34.1% 7,306 28.5% Utilities 10,510 11,911 11,155 (755) -6.8% 1,400 13.3% Travel & Other Employee Expenses 1,879 2,338 3,308 970 29.3% 459 24.4% Promotional Expenses 362 460 1,011 551 54.5% 98 27.2% Other Expenses 8,450 16,566 12,097 (4,469) -36.9% 8,116 96.0% Charges to Capital Projects (15,463) (21,226) (25,291) (4,065) 16.1% (5,763) 37.3% TOTAL 147,874 174,104 191,493 17,389 9.1% 26,230 17.7% KEY PERFORMANCE METRICS Fav (UnFav) Incr (Decr) 2016 YTD 2017 YTD 2016 2017 2017 Budget Variance Change from 2016 Ac tual Ac tual Ac tual Forecast Budget Chg. % Chg. % Enplanements (in 000's) 10,668 11,009 22,796 23,480 23,929 (449) -1.9% 684 3.0% Landed Weight (lbs. in 000's) 12,886 13,441 27,202 27,726 27,726 - 0.0% 524 1.9% Passenger CPE (in $) n/a n/a 10.10 10.64 10.88 0.24 2.2% 0.54 5.3% Grain Volume (metric tons in 000's) 1,749 2,609 4,389 4,701 3,720 981 26.4% 312 7.1% Cruise Passenger (in 000's) 355 394 984 1,042 1,039 3 0.3% 58 5.9% Shilshole Bay Marina Occupancy 94.4% 94.0% 94.6% 95.0% 95.4% -0.4% -0.4% 0.4% 0.4% Fishermen's Terminal Occupancy 85.0% 83.8% 84.7% 84.3% 84.3% 0.0% 0.0% -0.4% -0.5% CAPITAL SPENDING RESULTS 2017 YTD 2017 2017 Budget Variance $ in 000's Actual Forecast Budget $ % Aviation 111,901 389,483 554,717 165,234 29.8% Maritime 13,484 30,458 34,518 4,060 11.8% Economic Development 1,512 5,030 6,304 1,274 20.2% Corporate & Other (note 1) 1,877 9,971 12,147 2,176 17.9% TOTAL 128,774 434,942 607,686 172,744 28.4% Note: (1) "Other" includes Street Vacation projects and Storm Water Utility (SWU) capital projects. PORTWIDE INVESTMENT PORTFOLIO During the second quarter of 2017, the investment portfolio earned 1.42% versus the benchmark's (the Bank of America Merrill Lynch 1-3 Year US Treasury & Agency Index) 1.41%. Over the last twelve months the portfolio and the benchmark have earned 1.30% and 1.17%, respectively. Since the Port became its own Treasurer in 2002, the life-to-date earnings of the Port's portfolio and the benchmark are 2.53% and 1.79%, respectively. 5 II. AVIATION DIVISION FINANCIAL & PERFORMANCE REPORT 06/30/17 FINANCIAL SUMMARY Fav (UnFav) Incr (Decr) 2016 2017 2017 Budget Variance Change from 2016 $ in 000's Actual Fore cas t Budge t $ % $ % Operating Revenues: Aeronautical Revenues 247,811 269,531 278,375 (8,844) -3.2% 21,720 8.8% SLOA III Incentive Straight Line Adj (1) (3,576) (3,576) (3,576) - 0.0% (0) 0.0% Non-Aeronautical Revenues 221,021 233,724 226,645 7,078 3.1% 12,702 5.7% Total Operating Revenues 465,256 499,678 501,444 (1,766) -0.4% 34,422 7.4% Total Operating Expense 261,226 300,162 302,711 2,549 0.8% 38,936 14.9% Net Operating Income 204,030 199,516 198,733 783 0.4% (4,514) -2.2% Capital Expenditures 153,887 389,483 554,717 165,234 29.8% 235,596 153.1% Division Summary 2017 Forecast vs 2017 Budget Net Operating Income for 2017 is forecasted to be $0.8M higher than budget (0.4% favorable) o Operating Revenue is expected to be $1.8M lower than budget (0.4% unfavorable) due to lower Aeronautical revenue from lower rate based costs including lower debt service costs and higher revenue sharing due to higher Non-Aero revenue ($7.1M) primarily driven by an unanticipated lump sum payment from DMCBP Phase II for pre-paid frontage fees ($5.4M) and continued growth in other Non-Aero lines of business from increased passenger volumes. o Operating Expenses are expected to be $2.5M lower than budget (0.8% variance) the net result of savings from AVPMG ($4.8M) primarily due to Terminal expense project delays, payroll savings due to vacancies and hiring delays ($2.8M) and timing delays in SAMP projects ($2.7M). These savings are offset by unplanned spending for additional FIS processing kiosks ($0.9M), snow removal costs ($1.4M), write-off of obsolete exit lane equipment ($2.0M), and amortization of previously paid frontage fees associated with the DMCBP Phase II lump sum payment ($3.6M). The DMCBP lump sum payment generated a net $1.9M increase to NOI. A. BUSINESS HIGHLIGHTS Enplaned passenger growth slowed in June, still up 3.2%, international passenger growth of 10.2% Customer Service: Consistently exceeding ASQ targets for Q2 New air service: o Condor launched service to Munich, Germany in June o Aero Mexico announced new service to Mexico City beginning November Airport dining and retail program awarded lease group 3 in June Sustainable Airport Master Plan progressing towards preferred alternative Key negotiations underway, targeting completion this year: o Airline lease agreement (SLOA) o Inter-local agreement with City of SeaTac 6 II. AVIATION DIVISION FINANCIAL & PERFORMANCE REPORT 06/30/17 B. KEY PERFORMANCE METRICS YTD 2016 YTD 2017 % Change Passenger Growth Alaska +0.4% Enplaned Passengers (000's) Delta +8.4% Domestic 9,548 9,775 2.4% Southwest -8.3% American -3.6% International 1,120 1,234 10.2% United +4.4% Total 10,668 11,009 3.2% 2017 Cargo metric tons: Ope rations 197,152 199,610 1.2% Strong growth in cargo volume from existing Landed Weight (million lbs.) carriers in both Domestic Cargo 843 1,025 21.6% and international services. New Domestic Freight All other 12,044 12,416 3.1% services included in YTD Total 12,886 13,441 4.3% 2017 results: Prime Air/Amazon and DHL (both Cargo - metric tons commenced in mid-2016). Domestic freight 83,079 111,136 33.8% New International Freight International freight 55,287 58,406 5.6% services included in YTD 2017 results: AeroLogic and Ma il 27,561 28,882 4.8% AirBridge (both commenced Total 165,927 198,424 19.6% in mid-2016). Key Performance Measures Fav (UnFav) Incr (Decr) 2016 2017 2017 Budget Variance Change from 2016 Actual Fore cas t Budge t $ % $ % Key Performance Metrics Cost per Enplanement (CPE) 10.10 10.64 10.88 0.24 2.2% 0.54 5.3% Non-Aeronautical NOI (in 000's) 128,727 126,299 118,521 7,778 6.6% (2,428) -1.9% Other Performance Metrics O&M Cost per Enplanement 11.46 12.78 12.65 -0.13 -1.1% 1.32 11.6% Non-Aero Revenue per Enplanement 9.70 9.95 9.47 0.48 5.1% 0.26 2.7% Debt per Enplanement (in $) 104 109 110 1 1.3% 5 4.3% Debt Service Coverage 1.53 1.54 1.50 0.05 3.1% 0.01 0.9% Days cash on hand (10 months = 304 days) 416 316 304 12 3.9% (100) -24.1% Aeronautical Revenue Sharing ($ in 000's) 37,395 38,916 33,093 (5,822) -17.6% 1,521 4.1% Activity (in 000's) Enplanements 22,796 23,480 23,929 -449 -1.9% 684 3.0% Key Performance Metrics 2017 Forecast compared to 2017 Budget: CPE favorable to budget due to lower airline rate base costs including lower debt service costs, and higher revenue sharing due to growth in Non-Aero NOI. Growth in Non-Aero NOI due to combined impact from DMCBP Phase II lump sum ($1.9M NOI), other Non- Aero revenue growth ($1.6M), and Non-Aero expense savings ($4.3M). Other Performance Metrics - favorable outlook in all other performance metrics. 7 II. AVIATION DIVISION FINANCIAL & PERFORMANCE REPORT 06/30/17 C. OPERATING RESULTS Division Summary Fav (UnFav) Fav (UnFav) 2016 YTD 2017 Year-to-Date Budget Variance Year-End Projection Budget Variance $ in 000's Actual Actual Budge t $ % Fore cas t Budge t $ % Operating Revenues: Aeronautical Revenues (1) 119,553 129,567 131,896 (2,328) -1.8% 269,531 278,375 (8,844) -3.2% SLOA III Incentive Straight Line Adj (2) (1,788) (1,788) (1,788) (0) 0.0% (3,576) (3,576) - 0.0% Non-Aeronautical Revenues 100,336 112,761 103,664 9,097 8.8% 233,724 226,645 7,078 3.1% Total Operating Revenues 218,100 240,540 233,772 6,769 2.9% 499,678 501,444 (1,766) -0.4% Operating Expenses: Payroll 49,708 55,798 58,727 2,929 5.0% 117,070 119,886 2,816 2.3% Outside Services 15,736 17,203 22,023 4,820 21.9% 43,513 45,279 1,766 3.9% Utilitie s 7,358 8,389 7,886 (503) -6.4% 15,368 15,187 (181) -1.2% Other Airport Expenses 9,132 13,680 8,765 (4,915) -56.1% 23,721 18,004 (5,717) -31.8% Total Airport Direct Charges 81,934 95,070 97,401 2,331 2.4% 199,671 198,355 (1,316) -0.7% Environmental Remediation Liability 33 2,714 2,443 (271) -11.1% 3,527 3,775 248 6.6% Capital to Expense - 24 - (24) n/a 1,985 - (1,985) 0.0% Total Exceptions 33 2,738 2,443 (295) -12.1% 5,512 3,775 (1,737) -46.0% Total Airport Expenses 81,968 97,809 99,844 2,035 2.0% 205,183 202,130 (3,052) -1.5% Corporate 22,723 25,000 26,763 1,762 6.6% 54,028 54,673 645 1.2% Police Costs 8,943 9,146 9,525 379 4.0% 19,016 19,173 157 0.8% Capital Development 3,358 6,486 12,864 6,377 49.6% 17,579 22,378 4,799 21.4% Maritime/Economic Development 1,826 1,879 2,025 145 7.2% 4,356 4,356 - 0.0% Total Charges from Other Divisions 36,849 42,512 51,176 8,664 16.9% 94,979 100,581 5,602 5.6% Total Operating Expense 118,817 140,321 151,020 10,700 7.1% 300,162 302,711 2,549 0.8% Net Operating Income 99,283 100,219 82,751 17,468 21.1% 199,516 198,733 783 0.4% CFC Surplus (3,020) (5,561) 2,542 45.7% Net Non-Operating Items in / out from ADF (3) 4,648 3,691 957 25.9% SLOA III Incentive Straight Line Adj 3,576 3,576 - 0.0% Debt Service (132,644) (133,876) 1,233 -0.9% Adjusted Net Cash Flow 72,077 66,562 5,514 8.3% (1) Aero revenues are net of revenue sharing. (2) Annual non-cash amortization of $17.9M lease incentive credited in 2013. (3) Per SLOA III definition of Net Revenues. 8 II. AVIATION DIVISION FINANCIAL & PERFORMANCE REPORT 06/30/17 Aeronautical Business Unit Summary Fav (UnFav) Fav (UnFav) 2016 YTD 2017 Year-to-Date Budget Variance Year-End Projection Budget Variance $ in 000's Actual Actual Budge t $ % Fore cas t Budge t $ % Revenues: Movement Area 45,551 50,946 51,414 (468) -0.9% 108,994 109,845 (851) -0.8% Apron Area 6,088 7,554 7,427 127 1.7% 16,338 15,957 381 2.4% Terminal Rents 75,640 78,259 79,109 (850) -1.1% 159,827 163,565 (3,738) -2.3% Federal Inspection Services (FIS) 5,174 6,456 5,885 571 9.7% 13,246 12,437 809 6.5% Total Rate Base Revenues 132,453 143,215 143,835 (621) -0.4% 298,404 301,803 (3,399) -1.1% Commercial Area 4,479 4,959 4,607 352 7.6% 10,042 9,665 376 3.9% Subtotal before Revenue Sharing 136,932 148,174 148,442 (269) -0.2% 308,446 311,468 (3,022) -1.0% Revenue Sharing (17,379) (18,606) (16,547) (2,059) -12.4% (38,916) (33,093) (5,822) -17.6% Total Aeronautical Revenues 119,553 129,567 131,896 (2,328) -1.8% 269,531 278,375 (8,844) -3.2% Total Airport Direct Charges 58,133 67,559 71,128 3,569 5.0% 139,330 139,742 412 0.3% Total Exceptions - 2,185 - (2,185) 0.0% 3,726 2,426 (1,300) -53.6% Total Charges from Other Divisions 17,911 21,465 24,833 3,369 13.6% 49,681 52,420 2,738 5.2% Total Aeronautical Expenses 76,044 91,209 95,962 4,752 5.0% 192,738 194,587 1,850 1.0% Net Operating Income 43,509 38,358 35,934 2,424 6.7% 76,793 83,788 (6,995) -8.3% Debt Service (1) (87,722) (88,740) 1,018 1.1% Net Cash Flow (10,930) (4,952) (5,977) 120.7% NOTE: (1) Debt service is forecasted/budgeted on an annual basis only. Thus, quarterly data is not available. Airline Rate Base Cost Drivers Fav (Unfav) Incr (Decr) 2016 2017 2017 Budget Variance Change from 2016 $ in 000's Actual Fore cas t Budge t $ % $ % O&M (1) 165,427 189,052 190,645 (1,594) -0.8% 23,625 14.3% Debt Service Gross 118,641 116,311 117,336 (1,025) -0.9% (2,330) -2.0% Debt Service PFC Offset (32,831) (33,086) (33,099) 12 0.0% (256) -0.8% Amortiza tion 28,215 29,636 29,637 (1) 0.0% 1,421 5.0% Space Vacancy (2,638) (2,217) (1,486) (731) 49.2% 421 -16.0% TSA Operating Grant and Other (982) (1,291) (1,230) (61) 4.9% (309) 31.5% Rate Base Revenues 275,832 298,404 301,803 (3,399) -1.1% 22,572 8.2% Commercial area 9,379 10,042 9,665 376 3.9% 663 7.1% Total Aero Revenues 285,211 308,446 311,468 (3,022) -1.0% 23,235 8.1% O&M, Debt Service Gross, and Amortization do not include commercial area costs or the international incentive expenses Aeronautical 2017 Forecast compared to 2017 Budget Aeronautical net operating income is forecasted to be $7.0M lower than budget. o Aeronautical revenues are forecasted to be $8.8M lower than budget Rate based revenue are forecasted to be $3.4M lower due to lower operating expenses from Payroll savings, lower debt service costs, delayed spending on SAMP-related projects, lower charges from Aviation Project Management primarily due to delays on Terminal projects Commercial Area Revenue $0.4M higher due to increased RON activity Revenue sharing $5.8M higher due to Non-Aero NOI growth o Aeronautical operating expenses are forecasted to be $1.8M lower than budget: AVPMG terminal projects delayed ($3.1M Aero share) Payroll savings due to vacancies & hiring delays SAMP related spending delayed Partially offset by unplanned cost of additional kiosks for FIS processing, snow removal, and write-off of obsolete exit late equipment 9 II. AVIATION DIVISION FINANCIAL & PERFORMANCE REPORT 06/30/17 Non-Aero Business Unit Summary Fav (UnFav) Fav (UnFav) 2016 YTD 2017 Year-to-Date Budget Variance Year-End Projection Budget Variance $ in 000's Actual Actual Budge t $ % Fore cas t Budge t $ % Non-Aero Revenues Rental Cars - Operations 15,271 14,514 15,176 (662) -4.4% 34,474 37,815 (3,341) -8.8% Rental Cars - Operating CFC 3,872 3,284 3,689 (405) -11.0% 10,533 12,931 (2,398) -18.5% Public Parking 34,166 36,958 35,460 1,498 4.2% 74,443 73,568 875 1.2% Ground Transportation 5,668 7,633 7,067 566 8.0% 15,024 14,417 607 4.2% Airport Dining & Retail & Leased Space 27,118 28,976 27,374 1,602 5.9% 55,281 52,450 2,831 5.4% Commercial Properties 4,286 10,708 5,647 5,061 89.6% 17,384 12,141 5,243 43.2% Utilitie s 3,571 3,423 3,421 2 0.1% 7,118 7,118 - 0.0% Employee Parking 4,563 4,674 4,134 540 13.1% 9,482 8,482 1,000 11.8% Clubs and Lounges 1,378 2,173 1,335 838 62.8% 4,979 2,729 2,250 82.4% Other 443 417 361 56 15.6% 5,004 4,993 11 0.2% Total Non-Aero Revenues 100,336 112,761 103,664 9,097 8.8% 233,724 226,645 7,078 3.1% Non-Aero Expenses Total Airport Direct Charges 23,801 27,511 26,273 (1,238) -4.7% 60,341 58,614 (1,727) -2.9% Total Exceptions 4 553 558 4 0.8% 1,785 1,349 (436) -32.3% Total Charges from Other Divisions 18,939 21,047 26,343 5,296 20.1% 45,298 48,161 2,863 5.9% Total Non-Aero Expenses 42,743 49,111 53,173 4,062 7.6% 107,424 108,124 700 0.6% Net Operating Income 57,592 63,649 50,491 13,159 26.1% 126,299 118,521 7,778 6.6% Less: CFC (Surplus) / Deficit (1) (3,020) (5,561) 2,542 45.7% Adjusted Non-Aero NOI 123,280 112,960 10,320 9.1% Debt Service (1) (44,921) (45,136) 215 0.5% Net Cash Flow 78,358 67,824 10,535 15.5% Note: (1) CFC excess and Debt service are forecasted/budgeted on an annual basis only. Thus, quarterly data is not available. Non-Aeronautical 2017 Forecast compared to 2017 Budget Non-Aeronautical net operating income is forecasted to be $7.8M higher than budget. o Non-Aeronautical revenues are forecasted to be $7.1M higher than budget: DMCBP Phase II ($5.4M) lump sum payment for prepaid frontage fees was expected in Q4 2016. Parking - strong performance partially offset by City of SeaTac parking tax increase on March 1st. Parking tariff rate increase was increased six weeks later on April 14th. Strong performance in ADR, GT, and Clubs & Lounges continues. Employee Parking increased utilization continues from prior year. Rental Car revenue growth continues to be challenged by the increasing options in transportation alternatives (light rail, TNC's, car-sharing). o Non-Aeronautical operating expenses are forecasted to be $0.7M lower than budget: Favorable variance due to lower charges from other divisions including Non-Aero share of AVPMG savings for Terminal project delays ($1.7M) and savings in other AV division expenses. Partially offset by: DMCBP Phase II ($3.6M) pre-paid frontage fee expense. Light rail electric cart service not anticipated in the budget ($202K) RCF curbside assistance reinstated for peak periods ($310K) 10 II. AVIATION DIVISION FINANCIAL & PERFORMANCE REPORT 06/30/17 D. CAPITAL SPENDING Capital Variance $ in 000's 2017 2017 2017 Budget Variance Description YTD Actual Forecast Budget $ % International Arrivals Fac-IAF (1) 35,875 119,159 202,598 83,439 41.2% Concourse D Hardstand Holdroom (2) 426 6,926 22,163 15,237 68.7% Additional STS Cars (3) - - 6,525 6,525 100.0% Checked Bag Recap/Optimization (4) 2,992 17,992 24,256 6,264 25.8% NS NSAT Renov NSTS Lobbies (5) 21,752 58,835 64,285 5,450 8.5% N. Terminals Utilities Upgrade (6) 575 2,575 7,996 5,421 67.8% Fuel System Modifications (7) 4,740 8,708 11,600 2,892 24.9% Alternate Utility Facility (8) 2,116 21,616 23,998 2,382 9.9% Add'l Baggage Makeup Space IAF 949 12,699 13,475 776 5.8% Service Tunnel Renewal/Replace 643 7,793 8,000 207 2.6% Concourse B Gate Reconfigure 203 9,770 9,819 50 0.5% All Other 41,630 123,410 160,002 36,591 22.9% Total Spending 111,901 389,483 554,717 165,234 29.8% (1) Delays in payment cycle and construction ramp up. (2) Delays in enabling work and main building design efforts. (3) Spending deferred to 2018 to evaluate the impact of passenger growth and capacity loads on existing STS trains. (4) Delays in contracting efforts and issuance of notice to proceed (NTP). (5) Delays with negotiating maximum allowable construction cost (MACC) pushed out construction timeline. (6) Half of the Early Works portion of the project was cancelled due to operational concerns from airlines. Delay in starting construction for the remaining Early Works portion. (7) Future fuel system work will be covered under C800772 (Fuel Hydrant Pit Program). Additional savings of $1.7M attributable to 2016 project work planned in 2017. (8) Major contractor submitting invoices slower than anticipated. 11 III. MARITIME DIVISION FINANCIAL & PERFORMANCE REPORT 06/30/17 FINANCIAL SUMMARY Fav (UnFav) Incr (Decr) 2016 2017 2017 Budget Variance Change from 2015 $ in 000's Actual Forecast B udg e t $ % $ % Revenues: Operating Revenue 50,810 51,682 51,830 (148) 0% 872 2% Security Grants 0 0 0 0 NA 0 NA Total Revenues 50,810 51,682 51,830 (148) 0% 872 2% Total Operating Expenses 40,268 47,502 46,502 (1,000) -2% 7,235 18% Net Operating Income 10,542 4,179 5,327 (1,148) -22% (6,363) -60% Capital Expenditures 5,746 30,458 34,518 4,060 12% 24,712 430% Total Maritime Revenues were $657K favorable to budget through Q2 2017 driven by $766K favorable variance from higher than budgeted grain volumes offset by smaller variances across the remaining business lines. Total Revenues are forecast $148K below budget in 2017 from net shed rental at FT and moorage revenue at SBM. Total Operating Expenses were $3,732K favorable to budget through Q2 2017 primarily due to lower maintenance, Maritime outside services, EDD tenant improvement, and corporate allocated. Expenses are forecasted to come in $1,000K over budget due to the $1,200K unbudgeted cruise baggage program offset by cruise initiative expenses moving to 2018. Net Operating Income before Depreciation was $4,390K favorable to budget YTD, and forecast to be ($1,148) below budget for the year. Capital Expenses forecast in 2017 at $30.5M, 88% of the approved annual budget amount of $34.5M. Net Operating Income before Depreciation by Business Fav (UnFav) Incr (Decr) 2016 YTD 2017 YTD 2017 YTD 2017 Bud Var Change from 2016 $ in 000's Actual Actual B udg e t $ % $ % Fishing & Operations (1,563) (910) (1,163) 253 22% 653 42% Recreational Boating 748 799 87 712 NA 51 7% Cruis e 2,223 2,697 753 1,944 -258% 474 -21% Bulk 1,442 2,388 1,501 888 59% 946 66% Maritime Portfolio 450 121 (721) 842 NA (329) NA All Other (48) (478) (229) (249) NA (430) NA Total Maritime 3,252 4,618 228 4,390 -1922% 1,366 -42% 12 III. MARITIME DIVISION FINANCIAL & PERFORMANCE REPORT 06/30/17 A. BUSINESS EVENTS P-66 Norwegian Cruise Line Passenger Terminal Expansion Project complete to start 2017 Cruise Season. Grand Re-Opening event was successful. Successful launch of the new Port Valet Program for cruise passengers - On board issuance of airline boarding pass and courtesy transfer of luggage. Year to date grain volumes 39% higher than budget. Iceland's Minister of Industry and Commerce discussed with staff future plans at FT for incubator space to encourage small business growth. Successful summer moorage program at FT with 52 recreational boats filling vacant space from fishing boats at sea. Barge moorage at North End of Harbor Island, T-25 South, T-108, and T-107 Kellogg Island continue to be fully utilized. Crowley has discontinued barge berthing at Pier 28 due to downsized drilling operations in AK. Glacier Fish Co. held a kickoff party for Seafood Summit 2017 at P-90. The decennial event was well attended and a success. Completed multiple drafts of the new live aboard authorization document and are incorporating Shishole Livaboard Association feedback into final document. Shilshole Bay Marina held Boater's Fest on June 10th with an estimated 1000 attendees. Marine Maintenance is leading the organization in small business utilization: 44.2% of goods, services, and small works conducted by small businesses. Completed activities for Fishermen's Terminal Visitor Marketing Plan. Received approval for T-18 outfall replacement, the first project funded by the Stormwater Utility. B. KEY INDICATORS Grain Volume Metric Tons in 000's 700 600 500 2016 Actuals 400 300 2017 Budget 200 2017 Actuals 100 0 Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Cruise Passengers in 000's 300 250 200 2016 Actuals 150 2017 Budget 100 2017 Actuals 50 0 Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec 13 III. MARITIME DIVISION FINANCIAL & PERFORMANCE REPORT 06/30/17 C. OPERATING RESULTS Fav (UnFav) Fav (UnFav) 2016 YTD 2017 Year-to-Date Budget Variance Year End Projections Budget Variance $ in 000's Actual Actual Budget $ % Forecast Budget $ % Operating Revenue 22,027 24,525 23,868 657 3% 51,682 51,830 (148) 0% Security Grants 0 0 0 0 NA 0 0 0 NA Total Revenues 22,027 24,525 23,868 657 3% 51,682 51,830 (148) 0% Maritime Expenses (excl Maint) 4,993 4,929 6,523 1,595 24% 13,791 12,791 (1,000) -8% Maintenance Expenses 4,716 4,740 6,028 1,287 21% 11,439 11,439 0 0% P69 Facilities Expenses 134 141 189 48 25% 343 343 0 0% Other ED Expenses 1,710 1,982 2,228 246 11% 4,262 4,262 0 0% Environmental & Sustainability 303 598 805 207 26% 1,701 1,701 0 0% CDD Expenses 522 419 589 170 29% 1,177 1,177 0 0% Police Expenses 1,925 1,889 1,921 32 2% 3,867 3,867 0 0% Corporate Expenses 4,423 4,839 5,356 517 10% 10,924 10,924 0 0% Envir Remed Liability 48 371 0 (371) NA 0 0 0 NA Total Expenses 18,775 19,907 23,640 3,732 16% 47,502 46,502 (1,000) -2% NOI Before Depreciation 3,252 4,618 228 4,390 1922% 4,179 5,327 (1,148) -22% Dep reciation 8,655 8,442 8,343 (98) -1% 16,672 16,672 0 0% NOI After Depreciation (5,404) (3,824) (8,115) 4,291 -53% (12,493) (11,345) (1,148) -10% Maritime Division Revenues were $657K favorable to budget. Key variances are as follows: Fishing & Operations unfavorable ($100K) Maritime Ops - favorable $3K. Fishing & Commercial - unfavorable ($103K) with Commercial Fish Ops under budget ($125K) offset by FT Rec Boating $22K over budget. Cruise Operations favorable $124K Dockage - favorable $32K from unplanned dockage at Bell Street Cruise Terminal. Sale of Utilities is favorable $43K. Misc. Revenue is favorable $31K from billed maintenance work. Recreational Boating unfavorable ($69K) Shilshole Bay Marina ($96K) unfavorable due to utility revenues ($18K), parking revenue ($23K), and berthage & moorage ($69K). Bell Harbor Marina $26 favorable with higher guest moorage than budgeted. Bulk favorable $767K Unusually high volume resulted in year to date metric tons of 2,608,865 which is 39% higher than budget of 1,880,000 metric tons. Maritime Portfolio Management unfavorable ($79K) FT Office & Retail - $12K favorable to budget with $4K from higher food and beverage revenue and $7K from utility sales revenues. MIC Office & Retail ($52K) unfavorable to budget due to loss of C-3 Worldwide revenue. SBM Office & Retail - $1K favorable to budget. Maritime Industrial ($39K) unfavorable to budget due to timing of concession rent at T91. Total Maritime Division Expenses were $3,732K favorable to budget. Key variances are as follows: Maritime Expenses (excluding Maintenance) were $1,595K favorable to budget. Major variances were as follows: o Salaries & Benefits were $178K favorable due to open positions in Fishing & Operations and Cruise. o General Expenses were $241K favorable primarily due to timing of P-66 mitigation and advertising expense in Cruise business. 14 III. MARITIME DIVISION FINANCIAL & PERFORMANCE REPORT 06/30/17 o Travel & Other Employee Expenses $13K favorable deferred Cruise travel, partially offset by AAPA dues applied in Q1, but should have been expensed in 2016. Outside Services were $675K favorable driven by timing Smith Cove Cruise Terminal baggage claim resurface and outside security expense. Equipment Expense was $336K favorable driven by delays in cruise "Best in Class" initiatives and CTA allowance. Promotional were $184K favorable driven by timing of Destination Awareness and Best in Class promotional spending. Maintenance Expenses were $1,287K favorable to budget. Shilshole Bay Marina was $392K favorable from projects needing further scope, $425K favorable to at Fishermen's Terminal primarily related to timing of Wharves and Piers small works along with deferred work at the Downie Building, and $146K favorable in work at T-91. Environment & Sustainability Expenses were $207K favorable to budget. Corporate Expenses were $517K favorable to budget due primarily to open FTEs. Other Economic Development Expenses $246K favorable, primarily due to not spending budgeted broker fees and TIs at FT and MIC properties. 2017 Full Year Forecast Net Operating Income (NOI) forecast at ($1,148) below budget. Operating Revenues forecast ($148K) below budget from net shed rental at Fishermen's Terminal and slightly lower than budgeted first half recreational boating revenue at Shilshole Bay Marina. Operating Expenses forecast ($1,000K) above budget with unbudgeted Cruise Baggage Handling initiative ($1,200K) offset by $200K in Cruise marketing initiatives moving to 2018. Change from 2016 YTD Actual Net Operating Income (NOI) before Depreciation for 2017 increased by $1,366K Revenue grew 11.3% in the first half while expenses grew 6%. Revenues increased by $2,499K - Revenue from the Grain terminal increased $1,032K reflecting higher volume. Cruise increased $886K primarily from 7 additional sailings, Recreational Boating increased $354K from rate increases, and Maritime Portfolio Management increased $202K from yard leases at T-115 & T-108 along with extension of WDOT lease at T-106. Expenses, direct and allocated, increased by $1,132K - Variance driven by increases in Corporate expenses increased $416K and Economic Development increased $271K, resulting in part from change in methodology with the creation of the NWSA. Environmental expenses increased $617K from lower than expected capitalized labor and T-5 pile removal. Maritime (including Maintenance) expenses fell $40K over prior year. 15 III. MARITIME DIVISION FINANCIAL & PERFORMANCE REPORT 06/30/17 D. CAPITAL SPENDING Budget Variance 2017 YTD 2017 2017 Actual Fore cas t Budge t $ % $ in 000's Cruise Terminal Tenant Improv 11,819 14,356 15,228 872 6% P91 South End Fender 35 3,272 3,347 75 2% FT Net Shed 3,4,5 &6 Roof Rpl 323 2,177 2,837 660 23% Small Projects 572 2,531 2,685 154 6% Contingency Renewal & Replace. 0 1,825 2,000 175 9% SBM Restrms/Service Bldgs Rep 173 1,184 1,694 510 30% Maritime Fleet Replacement 36 1,023 1,586 563 35% T91 Building C-173 Roof Overl 112 1,219 1,321 102 8% T91 P91W Slope Stabilization 65 115 650 535 0% FT Strategic Plan 193 993 580 (413) 41% T91 Camel Replacements 4 174 0 (174) 100% All Other 152 1,589 2,590 1,001 39% Total Maritime 13,484 30,458 34,518 4,060 12% Comments on Key Projects Through Q2 2017, Maritime spent 39% of the annual approved budget. Full year estimate is expected to be 88% of the annual approved budget. Projects with significant changes in spending were: Cruise Tenant Improvement: Favorable due to permit delays and main construction postponed to Oct 2017. Shilshole Bay Marina Restroom and Services Building Replacement: Overall schedule delayed due to 2nd floor decision by sponsor. 16 IV. ECONOMIC DEVELOPMENT DIVISION FINANCIAL & PERFORMANCE REPORT 06/30/17 FINANCIAL SUMMARY Fav (UnFav) Incr (Decr) 2016 2017 2017 Budget Variance Change from 2016 $ in 000's Actual Forecast B udg e t $ % $ % Revenues: Operating Revenue 15,903 16,427 16,030 396 2% 523 3% Total Revenues 15,903 16,427 16,030 396 2% 523 3% Total Operating Expenses 21,135 28,163 29,069 906 3% 7,028 33% Net Operating Income (5,232) (11,736) (13,039) 1,303 10% (6,504) -124% Capital Expenditures 4,757 5,030 6,304 1,274 20% 273 6% Total Economic Development Division (EDD) revenues were $517K or about 7% favorable to budget through the second quarter primarily due to higher occupancy at T-102 Harbor Marina Corporate Center and T-91 Uplands, and greater than expected activity at the Bell Harbor Conference Center and Bell Street Garage. For the full year, revenue is expected to be $396K favorable to budget also primarily due to higher than expected occupancy at Bell Street Garage, T-102 Corporate Center, T-91 Uplands, and World Trade Center West. Additionally, to a lesser degree, higher than expected activity at the Bell Harbor Conference Center is expected in the second half of the year. Total Operating Expenses were $2,102K or 15% favorable through the second quarter due to lower spending than budgeted across all groups except for EDD Grants. For the full year, EDD is forecasting Operating Expenses to be $906K favorable to budget due to lower than expected spending for tenant improvement & broker fee expenses, delayed hiring of staff budgeted for P-69 Facilities, Central Harbor Management, Real Estate Development, and EDD Administration. Net Operating Income year-to-date for 2017 was $2,619K favorable to budget and $2,718K below 2016 Actual. For the full year, EDD is forecasting Net Operating Income of $1,303K favorable to budget. At the end of the second quarter, capital spending for full year 2017 is forecasted to be $5 million or 80% of the approved budget of $6.3 million. 17 IV. ECONOMIC DEVELOPMENT DIVISION FINANCIAL & PERFORMANCE REPORT 06/30/17 A. BUSINESS EVENTS Portfolio Management Overall occupancy of buildings managed by Portfolio Management was at 97% at the end of the second quarter of 2017, above the 95% target for 2017. Portfolio Management's occupancy is above the average of 94% for the comparable office markets and near the average of 98% for comparable industrial markets.1 Tourism Coordinated 15 tour and media familiarization visits. Pier 69 Facilities Completed initial concept design work related to Pier 69 lobby and external building improvements. Real Estate Development Selected Miller Hull to complete A/E design services at Fishermen's Terminal for development of 2 new light industrial buildings and the renovation of the Seattle Ship Supply Building, all located at Fishermen's Terminal. Defined final scope and contracted for all relevant due diligent work on the Salmon Bay Marina acquisition. This work is complex and ongoing and includes environmental, finance, tax, physical, and permitting analysis and will conclude in early 2Q. Completed a detailed design development and appraisal process for the L-Shape property in order to determine practical implementation of Port-developed future air cargo facilities. Small Business Coordinated and conducted two (2) PortGen training workshops with 56 business attendees. Worked with Airport Dining and Retail to deliver a series of five (5) Airport Concessions Disadvantaged Business Enterprise (AC/DBE) PortGen trainings, with 166 business attendees. Facilitated 1:1 interviews, focus groups and networking event to support consultant research and development of a food incubator needs assessment. Workforce Development Workforce Contracts Executed: o Seattle Maritime Academy to support maritime youth development and internships o Seattle Goodwill to support summer high school internship program o Educurious to develop a career connected learning initiative for junior high school students 1 Market averages are calculated based on Costar building occupancies reported for: Office: Class B & C office space in Ballard/U District, Queen Anne/Magnolia, Belltown/Denny Regrade, Pioneer Square/Waterfront, and South Seattle. Industrial: Georgetown/Duwamish North, SoDo, and West Seattle 18 IV. ECONOMIC DEVELOPMENT DIVISION FINANCIAL & PERFORMANCE REPORT 06/30/17 B. KEY INDICATORS Building Occupancy by Location: 100% 98% 96% 94% Central Harbor 92% T-91 Uplands 90% Marina Office & Retail 88% T-91 Industrial 86% T-106 Warehouse 84% 82% 80% Q2 2016 Q3 2016 Q4 2016 Q1 2017 Q2 2017 Net Operating Income before Depreciation by Business Fav (UnFav) Incr (Decr) 2016 YTD 2017 YTD 2017 YTD 2017 Bud Var Change from 2016 $ in 000's Actual Actual Budget $ % $ % Portfolio Management (1,514) (2,539) (4,085) 1,546 38% (1,025) -68% Conference & Event Centers 643 (483) (973) 490 50% (1,126) 175% Tourism (432) (528) (650) 122 19% (96) -22% Workforce Development (176) (354) (926) 572 62% (178) -101% Small Business (1) 0 (69) 69 100% 1 NA EDD Grants 0 (427) (250) (177) -71% (427) NA Env Grants/Remed Liab/ERC (135) (2) 0 (2) 133 -99% Total Econ Dev (1,615) (4,333) (6,953) 2,620 38% (2,718) -168% 19 IV. ECONOMIC DEVELOPMENT DIVISION FINANCIAL & PERFORMANCE REPORT 06/30/17 C. OPERATING RESULTS Fav (UnFav) Fav (UnFav) 2016 YTD 2017 Year-to-Date Budget Variance Year End Projections Budget Variance $ in 000's Actual Actual Budget $ % Forecast Budget $ % Central Harbor Properties 3,819 4,182 3,850 332 9% 8,344 8,088 256 3% Conf & Events Centers 4,518 3,545 3,360 185 6% 8,083 7,943 140 2% Total Revenue 8,338 7,727 7,210 517 7% 16,427 16,030 396 2% Central Harbor Properties 1,618 2,053 2,277 224 10% 3,971 4,220 249 6% Conf & Event Centers 3,665 3,660 3,914 254 6% 7,905 7,935 30 0% P69 Facilities Expenses 81 96 129 33 26% 194 234 40 17% Small Business 9 26 100 73 73% 161 161 (0) 0% Workforce Development 150 228 804 576 72% 1,999 1,999 (0) 0% Tourism 420 514 638 124 19% 1,285 1,285 0 0% RE Dev & Planning 211 120 143 23 16% 223 303 80 26% EDD Grants 0 427 250 (177) -71% 940 960 20 2% EconDev Expenses Other 330 383 659 276 42% 1,204 1,354 150 11% Maintenance Expenses 1,253 1,483 1,802 319 18% 3,410 3,592 182 5% Maritime Expenses (Excl Maint) 14 25 28 4 13% 64 64 (0) -1% Environmental & Sustainability 9 130 218 88 40% 361 451 90 20% CDD Expenses 153 200 220 20 9% 435 439 4 1% Police Expenses 81 85 86 2 2% 172 173 1 1% Corporate Expenses 1,959 2,632 2,895 263 9% 5,840 5,899 59 1% Envir Remed Liability 0 0 0 (0) NA 0 0 0 NA Total Expense 9,952 12,061 14,162 2,102 15% 28,163 29,069 906 3% NOI Before Depreciation (1,615) (4,333) (6,952) 2,619 38% (11,736) (13,039) 1,303 10% Dep reciation 1,881 1,860 1,922 62 3% 3,461 3,461 0 0% NOI After Depreciation (3,496) (6,194) (8,875) 2,681 30% (15,198) (16,500) 1,303 8% Total Economic Development Division Revenue was $517K favorable to budget. Key variances: Central Harbor Properties were $332K favorable mainly due to higher than anticipated parking revenue at the Bell Street Garage $99K, and higher occupancy at T-102 Marina Corporate Center $75K and Terminal 91 Uplands $70K. Conference & Event Centers were $185K favorable due to higher event activity at Bell Harbor International Conference Center (BHICC) despite the ongoing construction of the P-66 Cruise Terminal expansion project. Total Economic Development Expenses were $2,102K favorable to budget. Key variances: Portfolio Management was $224K favorable due to timing of leasing expenses (tenant improvements & broker fees) at T-102 Corporate Center. Conference & Event Centers were $254K favorable mainly due to timing of expenditures for WTC Seattle Interior Refresh project. Workforce Development was $576K favorable mainly due to timing of spending for Workforce Development programs. Tourism was $124K favorable primarily due to pending invoices from Tourism Development contracts and Tourism Marketing Support Programs (Tourism Grants). The entire budget is expected to be utilized by year end. EDD Grants were $177K unfavorable primarily due to mistiming of payment requests from recipients for work completed. All payments for the 2016 Grant Program are expected to be completed by the end of Q3. Economic Development Other was favorable $276K mainly due to lower than budgeted spending of EDD Opportunity Funds. Maintenance expenses were $319K favorable due to timing of projects and lower costs. Expect to end year $182K favorable to budget. 20 IV. ECONOMIC DEVELOPMENT DIVISION FINANCIAL & PERFORMANCE REPORT 06/30/17 Corporate costs, direct and allocated, were favorable $263K primarily due to lower than anticipated direct charges and allocations from Public Affairs $95K, Finance $67K, Accounting $34K, Office of Strategic Initiatives $27K, and Human Resources $25K which are offset by greater than anticipated charges from Executive. All other variances net to a favorable variance of $243K. NOI before Depreciation was $2,619K favorable to budget. Depreciation was $62K or 3% favorable to budget. NOI after Depreciation was $2,681K favorable to budget. 2017 Full Year Forecast As of the end of the 2nd Quarter 2017, the Economic Development Division anticipates ending the year $1.3M favorable to budget for Net Operating Income (NOI) Before Depreciation. The variance reflects above budget revenue of $396K and favorable expense variance of $906K. Revenue is expected to be $396K favorable to budget also primarily due to higher than expected occupancy at Bell Street Garage, T-102 Corporate Center, T-91 Uplands and, World Trade Center West. And, to a lesser degree, higher than expected activity at the Bell Harbor Conference Center is expected in the second half of the year. The favorable expense variance of $906K favorable due to lower than expected spending for tenant improvement & broker fee expenses, maintenance, real estate consulting services, and savings from budgeted staff positions not yet filled. Change from 2016 YTD Actual Net Operating Income before Depreciation decreased by $2,718K between 2017 and 2016 as a result of lower revenue ($610K) and higher expenses ($2,108K). Revenues decreased by ($610K) due to lower revenue from Conference & Events Center ($973K), which was offset by higher revenue for Portfolio Management $363K. Expenses increased by $2,108K primarily due to increases of $433K from Portfolio Management properties mainly for elevator modernization at Bell Street Parking Garage. EDD Grants increased $427K. Maintenance expenses increased $230K. Corporate expenses increased $672K. CONTRIBUTIONS TO OTHER DIVISIONS Fav (UnFav) Incr (Decr) 2016 YTD 2017 YTD Budget Variance Change from 2016 $ in 000's Actual Actual B udg e t $ % $ % Revenues: Maritime Industrial 3,075 3,306 3,345 (39) -1% 230 7% Marina Office & Retail 2,024 1,961 2,002 (40) -2% (63) -3% Total Revenues to Other Divisions 5,100 5,267 5,346 (79) -1% 167 3% Expenses to Other Divisions Maritime Portfolio Mgmt 4,650 5,146 6,067 921 15% 496 11% NOI Before Depreciation 450 121 (721) (842) 117% (329) -73% 21 IV. ECONOMIC DEVELOPMENT DIVISION FINANCIAL & PERFORMANCE REPORT 06/30/17 D. CAPITAL SPENDING Budget Variance 2017 YTD 2017 2017 Actual Fore cas t Budge t $ % $ in 000's T102 Bldg Roof HVAC Replacemt 806 1,609 1,610 1 0% Small Projects 220 612 909 297 33% P66 Elevator 2,3,4 Upgrades 37 652 705 53 8% BHICC Interior Modernization 39 289 580 291 50% BHICC Fit & Finish Improvement 374 500 500 0 0% P69 Solar Panel System 0 0 300 300 100% P69 Lobby 3 11 215 204 95% All Others 33 1,357 1,485 128 9% Total Economic Development 1,512 5,030 6,304 1,274 20% Comments on Key Projects: Through the 2nd quarter of 2017, Economic Development spent 24% of the annual approved capital budget. Full year spending is estimated to be 80% of budget. Projects with significant changes in spending were: P69 Solar Panel System Still researching feasibility. Received state grant so project might move forward in 2017. Small Projects P69 Sewer Main Replacement moved to expense. BHICC Interior Modernization Start of design is later and process is taking longer than anticipated. P69 Lobby On hold until scope of work clearly established. 22 V. CORPORATE FINANCIAL & PERFORMANCE REPORT 06/30/17 A. BUSINESS EVENTS The Port of Seattle Commission advance search for new Executive Director and sought input from the public, customers and employees about the qualities and experience desired in new leader. The Port recognized 10 sustainable winners of the seventh-annual Green Gateway Environmental Excellence Award. Provided recipients of 18 grants to support tourism across Washington State, for the second year in a row. The grants will fund $150,000 in projects, from websites and advertising to booths at travel trade shows. Launched a new $1 million program to fund environmental projects in communities around Sea-Tac Airport. The Port welcomed the following new airlines services: Norwegian nonstop service to London; Aeromexico nonstop service to Mexico City and Condor Airlines' new nonstop seasonal service to Munich, Germany with the inaugural flight from Seattle-Tacoma International Airport. The Port of Seattle, the City of Burien, and Panattoni Development broke ground on a 26.2 acre site which will house two Class "A" industrial warehouses, totaling 458,500 square feet. The Port kicked off its biggest cruise season yet with over one million revenue passengers on 218 vessels, making Seattle the biggest cruise port on the West Coast. Implemented Express Connection at Federal Inspection Services passport control in cooperation with Customs & Border Protection (CBP). Continued working with Transportation Security Administration (TSA) to reduce increasing screening checkpoint times as well as the threat created by long public dwell times in the airports unsecured common areas. Implemented online workers compensation claim and safety reporting. Promoted a variety of Port initiatives through Spirit & Wellness platform including Portwide Pride, Earth Day and Virtual Take Your Pet to Work. Provided airport-related tax revenues analysis for the cities of SeaTac, Burien, and Des Moines. Updated the Cruise economic impacts based on the 2017 cruise schedule. Issued General Obligation Bonds of $127,345,000 to reimburse the Port's 2016 contribution to the Alaskan Way Viaduct Replacement Project. Work included conducting Rating Agency meetings and due diligence meeting and competitive sale. Conducted Rating Agency meetings in connection with the 2017 Intermediate Lien Revenue and Refunding Bonds; presented the First Reading of Resolution 3735; conducted the TEFRA hearing. Prepared a series of updates on the new DUIE (Driving Under Influence of Electronics) to include brown bags, LMS training, Compass Announcements, and posters to inform Port employees of the change in the wireless communication laws (i.e. texting) while operating a motor vehicle. Construction of North Satellite well underway and expansion on track for Q4. The South Satellite Interim Improvements has substantially completed. Baggage optimization Phase 1 contract was awarded with Notice to Proceed issued to PCL and construction started in June. Lora Lake remediation construction is underway. Construction of Concourse B holdroom facility well under construction and on track for Q3 completion. Concourse B gates with Passenger Loading Bridges and fuel pits are in use. New main employee screening location at Baggage Claim 9 operational in June. Completed Pier 66 Cruise Terminal work for Norwegian Cruise Line and received certificate of Occupancy. Pier 66 Conference Center designer selected; rate negotiations completed and contract executed. Developed a new Engineering Document Management system to track, manage and archive architecture documentation from current and past Port projects going back to the early 1900s. Developed a new Noise Remedy system to replace a 20 year old system used by the Airport Environmental group to track remediation work completed on property surrounding the airport. Deployed an interface between the 911 Dispatch system and the Port Emergency Notification system which improved workflow and eliminated costly manual steps during critical event. 23 V. CORPORATE FINANCIAL & PERFORMANCE REPORT 06/30/17 B. KEY PERFORMANCE METRICS Key Performance Indicators/Measures YTD 2017 YTD 2016/Notes A. Century Agenda Strategies 1. Small Business Participation Annual / Small Works (portwide ) 79.2% 72.7% 2. Small Business Participation Annual / Major Construction (port-wide) including Mega projects 20.27% 17.25% 3. Small Business Participation Annual / Goods & Services (port-wide) 18.4% 23.7% 4. Small Business Participation Service Agreements (port-wide) - Annual (including Legal department Service Agreements) 50.4% 42.1% B. High Performance Organization - Customer Satisfaction 1. Respond to Public Disclosure Requests 264 225, increased by 39 2. Information and Communication Technology System 99.7% 99.7% Availability 3. IT Network Availability 99.9% 100.0% 4. Service Desk % First Call Resolution 40% 40.2% 5. Customer Survey for Police Service Excellent or Very Good 78% 92% 6. Oversee Implementation and Administration of CBAs 99 48 agreements 443 214, increased by 7. Number of Jobs Openings 229 8. Percent of annual audit work plan completed each year 26% 39% 9. Request of information and guidelines for integrity & business 113 114 conduct C. High Performance Organization - Talent Development & Safety 14 classes, 104 9 classes, 63 1. MIS and Clarity Training attendees attendees 1878 129, increased by 2. Employee Development Class Attendees/Structured Learning 1749 3. Required Safety Training 64% 46% 4. Occupational Injury Rate 4.94 5.05 5. Total Lost work days 300 305 D. Financial Performance 1. Corporate costs as a % of Total Operating Expenses 32.8% 33.7% 2. Clean independent CPA audits involving AFR yes yes 3. Timely process disbursement payment requests 4 days 3 days 4. Keep receivables collections 85% current (within 30 days) 96% 93% 5. Investment Portfolio Yield 1.42% 1.14% 6. Litigation and Claim Reserves (in $ thousand) $1,531 $1,900 24 V. CORPORATE FINANCIAL & PERFORMANCE REPORT 06/30/17 C. OPERATING RESULTS Fav (UnFav) Fav (UnFav) 2016 YTD 2017 Year-to-Date Budget Variance Year-End Projections Budget Variance $ in 000's Actual Actual Budge t $ % Forecast Budget $ % Total Revenues 75 82 151 (69) -45.7% 367 367 - 0.0% Executive 1,019 623 958 335 35.0% 1,764 1,944 181 9.3% Commission 723 867 949 82 8.6% 1,748 1,830 82 4.5% Legal 1,510 1,877 1,642 (234) -14.3% 3,504 3,288 (216) -6.6% Public Affairs 2,795 3,426 3,985 558 14.0% 7,683 7,847 164 2.1% Human Resources 3,294 3,829 4,449 621 13.9% 8,825 9,035 210 2.3% Labor Relations 568 1,389 669 (720) -107.6% 2,048 1,313 (735) -56.0% Internal Audit 673 612 891 279 31.3% 1,713 1,770 56 3.2% Office of Strategic Initiatives 2,235 2,719 3,192 474 14.8% 5,964 6,264 300 4.8% Police 11,312 11,378 11,866 488 4.1% 23,689 23,884 196 0.8% Security and Preparedness 647 732 855 122 14.3% 1,984 2,065 81 3.9% Contingency 126 12 125 113 90.2% 250 250 - 0.0% Finance Accounting & Financial Reporting Services 3,364 3,439 3,893 454 11.7% 7,435 7,763 328 4.2% Information & Communication Technology 10,228 10,693 10,543 (150) -1.4% 22,345 22,420 75 0.3% Finance & Budget 2,378 2,254 2,781 527 19.0% 5,499 5,873 374 6.4% Finance & Budget 835 844 1,034 190 18.4% 1,967 2,181 213 9.8% Aviation Finance & Budget 947 845 1,006 162 16.1% 2,023 2,184 161 7.4% Maritime Finance & Budget 597 565 741 175 23.7% 1,508 1,508 - 0.0% Business Intelligence 416 633 714 81 11.3% 1,423 1,458 35 2.4% Risk Services 1,619 1,588 1,737 149 8.6% 3,293 3,470 177 5.1% Sub-Total 18,006 18,606 19,667 1,061 5.4% 39,996 40,985 989 2.4% Total Before CDD and Environmental 42,907 46,070 49,249 3,179 6.5% 99,167 100,475 1,308 1.3% Capital Development Engineering 2,227 2,646 3,420 774 22.6% 7,081 7,092 11 0.2% Port Construction Services 1,182 1,116 2,033 917 45.1% 3,949 4,079 130 3.2% Aviation PMG 560 3,151 8,315 5,164 62.1% 8,737 13,005 4,268 32.8% Seaport PMG 566 627 459 (168) -36.6% 947 912 (35) -3.8% Capital Development Admin 212 222 220 (2) -0.9% 450 447 (3) -0.6% Sub-Total 4,747 7,763 14,448 6,684 46.3% 21,164 25,535 4,371 17.1% Environment & Sustainability Aviation Environmental 1,407 1,623 2,833 1,211 42.7% 4,915 6,301 1,386 22.0% Maritime Environmental & Planning 484 1,231 1,126 (105) -9.3% 2,392 2,385 (8) -0.3% Noise Programs 348 347 330 (17) -5.1% 738 723 (15) -2.1% Environment & Sustainability 1 146 1,293 1,146 88.7% 1,523 2,523 1,000 39.6% Sub-Total 2,239 3,347 5,582 2,236 40.0% 9,569 11,932 2,363 19.8% Total Expenses 49,893 57,181 69,279 12,099 17.5% 129,900 137,942 8,042 5.8% Corporate revenues were $69K unfavorable compared to budget due to lower operating grant revenues. Corporate expenses for the first six months of 2017 were $57.2M, $12.1M or 17.5% favorable compared to budget and $7.3M or 14.6% higher than the same period a year ago. The $12.1M favorable variance is due to vacant positions, delayed hiring, delayed projects and timing of spending. All corporate departments have a favorable variance except for: Legal unfavorable variance of $234K is due to Legal Expenses. Labor Relations unfavorable variance of $720K is due to Legal Expenses. Information & Communication Technology unfavorable variance of $150K is due to timing of spending which would be resolved by the end of the year. 25 V. CORPORATE FINANCIAL & PERFORMANCE REPORT 06/30/17 Year-end spending is projected to be $8.0M under budget due primarily to: Executive favorable variance is due to a vacant position and Travel & Other Employee Expenses. Commission favorable variance is due to vacant positions, which are now filled. Legal unfavorable variance is due to Legal Expenses. Public Affairs favorable variance is due to savings primarily in Outside Services, Travel & Other Employee Expenses, Promotional Hosting and General Expenses. Human Resources and Development favorable variance is due to savings in vacant positions. Labor Relations unfavorable variance is due to Legal Expenses. Internal Audit favorable variance is due to two vacant positions. Office of Strategic Initiative favorable variance is due to vacant positions. Police favorable variance is due primarily to vacant positions. Contingency plans on being on budget. Capital Development favorable variance primarily in Outside Services due to project delays. Accounting and Financial Reporting Services favorable variance is due to vacant positions, Outside Services, Travel & Other Employee Expenses and General Expenses. Information & Communication Technology favorable variance is due to some savings in vacant positions. Finance & Budget favorable variance is due to vacant positions and savings in Outside Services for the Economic Impact Study due to changes in the scope of work and savings in Travel & Other Employee Expenses. Business Intelligence favorable variance is due to a vacant position. Risk Services favorable variance is due to a vacant position recently filled and lower property insurance renewal. Security and Preparedness favorable variance is due to a vacant position. Environment & Sustainability favorable variance in Outside Services primarily due to delayed spending on SAMP NEPA/SEPA Environmental Review. D. CAPITAL SPENDING 2017 2017 2017 Budget Variance $ in 000's YTD Actual Forecast Budget $ % Infrastructure - Small Cap 438 1,581 1,581 0 0.0% Services Tech - Small Cap 277 1,000 1,150 150 13.0% Enterprise GIS - Small Cap 0 200 400 200 50.0% Constr Doc Mgmt Sys Repl. 207 427 427 0 0.0% Project Cost Mgmt System 110 419 900 481 53.4% POS Website Redevelopment 207 679 796 117 14.7% Supplier Database System 0 250 700 450 64.3% Corporate Firewall 0 1,300 800 (500) -62.5% CDD Fleet Replacement 21 589 589 0 0.0% Cap Dev Small Cap 0 340 340 0 0.0% Other (note 1) 314 1,370 1,640 270 16.5% TOTAL 1,574 8,155 9,323 1,168 12.5% Note: (1) "Other" includes remaining ICT projects, Corporate fleet replacement and small capital acquisition. 26
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