9b Q2 Financial Performance Report
Item No. 9b attach . Meeting Date: September 11, 2018 PORT OF SEATTLE 2018 FINANCIAL & PERFORMANCE REPORT AS OF JUNE 30, 2018 TABLE OF CONTENTS Page I. Portwide Performance Report 3-5 II. Aviation Division Report 6-19 III. Maritime Division Report 20-24 IV. Economic Development Division Report 25-30 V. Central Services Division Report 31-36 2 I. PORTWIDE FINANCIAL & PERFORMANCE REPORT 06/30/18 EXECUTIVE SUMMARY Financial Summary The Port's operating revenues for the second quarter of 2018 were $330.5M, which is $12.7M above budget and $28.4M higher than the same period in 2017. Excluding Aeronautical revenues, which are based on cost recovery, other operating revenues were $182.9M, $9.9M above budget and $8.6M higher than the 2017 actuals mainly due higher revenues from Public Parking, Rental Cars, ADR & Terminal Leased Space, Ground Transportation, Employee Parking, Recreational Boating, Maritime Portfolio Management, Central Harbor Management, and Conference & Event Centers. Total operating expenses were $191.6M, $17.3M below budget mainly due to vacancies, hiring delays, and outside services. Operating income before depreciation was $138.9M, $30.1M above budget and $10.9M higher than the 2017 actuals. The Portwide capital spending is forecasted to be $652.6M for 2018. Operating Summary At the Airport, the total enplanement growth for the second quarter of 2018 was 6.1% compared to the same period in 2017. This number is comprised of enplanement growth rate of 6.3% for domestic passengers and 5.1% for international passengers. The total landed weight for the second quarter of 2018 was 7.7% higher than the same period last year. Total cargo metric tons were 5.3% above the second quarter 2017. For the Maritime division, the occupancy rate at Shilshole Bay Marina increased to 96.3% compared to 94.0% in 2017. The number of cruise passengers is 403K for the second quarter of 2018 slightly higher compared to 394K for the same period in 2017. For the Economic Development division, building occupancy for Central Harbor and T-91 uplands are lower compared to the same period in 2017 while the building occupancy for Marina Office and Retail, T-91 Industrial and T-106 Warehouse remained the same as the second quarter of 2017. Key Business Events The Port welcomed the largest cruise ship on the West Coast this season, Norwegian Cruise Line (NCL) Bliss, in May. The U.S. Army Corps of Engineers approved the Seattle Harbor Deepening Project making it eligible for congressional authorization. The Commission authorized the Port Valet program allowing cruise passengers to obtain their airline boarding passes and check-in their luggage prior to leaving the cruise ship; this provides cruise passengers with an opportunity to spend time in Seattle before flying home. The Port finalized a license with Ecco Wireless providing a new Wi-Fi network to Shilshole Bay Marina customers. The Commission approved $200,000 in grants to fund 26 tourism-related projects across Washington State. This matching funds program, currently in its third year, will provide up to $10,000 in matching funds to local communities, destination marketing organizations, ports, chambers of commerce, tribal organizations and non-profits to promote their destinations. The Port launched the Spotlight Advertising Program application process at Sea-Tac International Airport in June and its new website with emphasis on providing infrastructure for organizational content updates and engaging customers. The Port successfully hosted the Clipper Around the World at Bell Harbor Marina in June. Major Capital Projects The Port's capital spending is expected to be $223M less than originally budgeted due to delayed spending in several projects including the International Arrivals Facility (IAF), Automated Security Lane, North Satellite (NSAT) Expansion, and restroom and paving at Shilshole Bay. Construction started at Des Moines Creek North property in SeaTac. Notice to proceed with on-site construction activities issued for the following contracts: South 160th Street Ground Transportation Building Renovation Project, Wi-Fi Enhancement Gina Marie Lindsey Hall, Baggage Claim, Bagwell and STS Stations Project, and T46 Dock Rehabilitation and Improvement Project. Construction Project Closeouts were issued for C4 UPS Systems Improvements and the SR 518 Interchange and Des Moines Memorial Drive Emergency Contract for repair of a failed slope. Physical Completion issued for Concourse A, B, D and South Satellite WiFi Enhancement, Terminal 91 Pier 91 Berth G Finder System Replacement, WiFi Enhancements Concourse C and Central Terminal and Concourse B 400Hz Gate Improvements. 3 I. PORTWIDE FINANCIAL & PERFORMANCE REPORT 06/30/18 PORTWIDE FINANCIAL SUMMARY Fav (UnFav) Incr (Decr) 2016 YTD 2017 YTD 2018 Year-to-Date Budget Variance Change from 2017 $ in 000's Actual Actual Actual Budge t $ % $ % Aeronautical Revenues 117,765 127,780 147,570 144,761 2,809 1.9% 19,791 15.5% Airport Non-Aero Revenues 100,336 112,761 118,864 113,264 5,601 4.9% 6,104 5.4% Other Port Operating Revenues 61,322 61,548 64,054 59,748 4,306 7.2% 2,506 4.1% Total Operating Revenues 279,422 302,088 330,489 317,773 12,716 4.0% 28,400 9.4% Total Operating Expenses 147,874 174,104 191,577 208,920 17,343 8.3% 17,473 10.0% NOI before Depreciation 131,549 127,984 138,912 108,853 30,059 27.6% 10,927 8.5% Depreciation 82,277 81,860 81,949 81,614 (335) -0.4% 89 0.1% NOI after Depreciation 49,271 46,124 56,963 27,238 29,724 109.1% 10,838 23.5% NON-AIRPORT FINANCIAL SUMMARY Fav (UnFav) Incr (Decr) 2016 YTD 2017 YTD 2018 Year-to-Date Budget Variance Change from 2017 $ in 000's Actual Actual Actual Budge t $ % $ % NWSA Distributable Revenue 28,990 27,283 25,844 23,323 2,521 10.8% (1,439) -5.3% Maritime Revenues 22,027 24,525 26,257 25,023 1,234 4.9% 1,732 7.1% EDD Revenues 8,338 7,727 9,765 9,242 524 5.7% 2,038 26.4% SWU & Other 1,968 2,012 2,187 2,160 27 1.3% 175 8.7% Total Operating Revenues 61,322 61,548 64,054 59,748 4,306 7.2% 2,506 4.1% Total Operating Expenses 29,057 33,783 38,141 43,868 5,727 13.1% 4,358 12.9% NOI before Depreciation 32,265 27,765 25,913 15,880 10,032 63.2% (1,852) -6.7% Depreciation 21,046 20,272 19,988 20,176 187 0.9% (283) -1.4% NOI after Depreciation 11,219 7,493 5,925 (4,295) 10,220 -237.9% (1,569) -20.9% MAJOR OPERATING REVENUES SUMMARY Fav (UnFav) Incr (Decr) 2016 YTD 2017 YTD 2018 Year-to-Date Budget Variance Change from 2017 $ in 000's Actual Actual Actual Budge t $ % $ % Aeronautical Revenues 117,765 127,780 147,570 144,761 2,809 1.9% 19,791 15.5% - - - Public Parking 34,166 36,958 39,402 38,080 1,322 3.5% 2,444 6.6% Rental Cars - Operations 15,271 14,514 14,922 14,579 343 2.4% 408 2.8% Rental Cars - Operating CFC 3,872 3,284 5,497 5,434 63 1.2% 2,213 67.4% ADR & Terminal Leased Space 26,617 28,420 30,179 28,017 2,162 7.7% 1,759 6.2% Ground Transportation 5,668 7,633 8,885 8,060 825 10.2% 1,252 16.4% Employee Parking 4,563 4,674 5,191 4,608 584 12.7% 517 11.1% Airport Commercial Properties 4,286 10,708 7,593 7,082 511 7.2% (3,115) -29.1% Airport Utilities 3,571 3,423 3,438 3,778 (340) -9.0% 14 0.4% C ruise 5,410 6,325 6,806 6,944 (139) -2.0% 481 7.6% Recreational Boating 5,083 5,438 6,125 5,839 286 4.9% 687 12.6% Fishing & Operations 4,419 4,440 4,565 4,201 364 8.7% 125 2.8% Grain 2,010 3,042 3,123 2,572 551 21.4% 81 2.7% Maritime Portfolio Management 5,100 5,267 5,628 5,459 169 3.1% 361 6.9% Central Harbor Management 3,393 4,161 4,557 4,448 109 2.4% 396 9.5% Conference & Event Centers 4,518 3,545 5,188 4,776 412 8.6% 1,644 46.4% NWSA Distributable Revenue 28,990 27,283 25,844 23,323 2,521 10.8% (1,439) -5.3% Other 4,721 5,194 5,974 13,871 (7,898) -56.9% 780 15.0% Total Operating Revenues (w/o Aero) 161,658 174,309 182,918 173,012 9,906 5.7% 8,610 4.9% TOTAL 279,422 302,088 330,489 317,773 12,716 4.0% 28,400 9.4% 4 I. PORTWIDE FINANCIAL & PERFORMANCE REPORT 06/30/18 MAJOR OPERATING EXPENSES SUMMARY Fav (UnFav) Incr (Decr) 2016 YTD 2017 YTD 2018 Year-to-Date Budget Variance Change from 2017 $ in 000's Actual Actual Actual Budge t $ % $ % Salaries & Benefits 51,795 56,338 62,772 66,506 3,734 5.6% 6,434 11.4% Wages & Benefits 48,261 52,948 60,075 60,199 124 0.2% 7,127 13.5% Payroll to Capital Projects 10,040 12,873 13,602 14,311 710 5.0% 728 5.7% Equipment Expense 2,923 4,311 3,866 4,373 507 11.6% (445) -10.3% Supplies & Stock 3,454 4,616 4,633 4,336 (297) -6.9% 17 0.4% Outside Services 25,663 32,969 38,460 53,117 14,657 27.6% 5,491 16.7% Utilitie s 10,510 11,911 13,453 12,844 (608) -4.7% 1,542 12.9% Travel & Other Employee Expenses 1,879 2,338 2,303 3,482 1,179 33.9% (35) -1.5% Promotional Expenses 362 460 964 1,198 234 19.5% 504 109.4% Other Expenses 8,450 16,566 15,361 14,831 (530) -3.6% (1,205) -7.3% Charges to Capital Projects (15,463) (21,226) (23,911) (26,278) (2,366) 9.0% (2,685) 12.7% TOTAL 147,874 174,104 191,577 208,920 17,343 8.3% 17,473 10.0% KEY PERFORMANCE METRICS Fav (UnFav) Incr (Decr) 2017 YTD2018 YTD 2017 2018 2018 Budget Variance Change from 2017 Actual Actual Actual Fore cas t Budge t Chg. % Chg. % Enplanements (in 000's) 11,008 11,688 23,416 24,654 24,654 - 0.0% 1,238 5.3% Landed Weight (lbs. in 000's) 13,441 14,475 28,431 29,203 29,203 - 0.0% 772 2.7% Passenger CPE (in $) n/a n/a 10.52 11.52 11.35 (0.17) -1.5% 1.00 9.5% Grain Volume (metric tons in 000's) 2,609 2,688 4,363 4,146 4,146 - 0.0% (217) -5.0% Cruise Passenger (in 000's) 394 403 1,072 1,084 1,081 3 0.3% 12 1.1% Shilshole Bay Marina Occupancy 94.0% 96.3% 94.9% 95.9% 95.9% 0.0% 0.0% 1.0% 1.1% Fishermen's Terminal Occupancy 87.0% 87.0% 81.9% 86.0% 86.0% 0.0% 0.0% 4.1% 5.0% CAPITAL SPENDING RESULTS 2018 YTD 2018 2018 Budget Variance $ in 000's Actual Fore cas t Budge t $ % Aviation 224,817 593,941 796,200 202,259 25.4% Maritime 21,702 32,800 46,749 13,949 29.8% Economic Development 1,363 6,028 6,149 121 2.0% Corporate & Other (note 1) 1,887 19,826 26,779 6,953 26.0% TOTAL 249,769 652,595 875,877 223,282 25.5% Note: (1) "Other" includes Street Vacation projects and Storm Water Utility Small Capital projects. PORTWIDE INVESTMENT PORTFOLIO During the second quarter of 2018, the investment portfolio earned 1.69% versus the benchmark's (the Bank of America Merrill Lynch 1-3 Year US Treasury & Agency Index) 2.53%. Over the last twelve months the portfolio and the benchmark have earned 1.56% and 2.05%, respectively. Since the Port became its own Treasurer in 2002, the life-to-date earnings of the Port's portfolio and the benchmark are 2.46% and 1.80%, respectively. 5 II. AVIATION DIVISION FINANCIAL & PERFORMANCE REPORT 06/30/18 FINANCIAL SUMMARY Fav (UnFav) Incr (Decr) 2016 2017 2018 2018 Budget Variance Change from 2017 $ in 000's Actual Actual Fore cas t Budge t $ % $ % Operating Revenues: Gross Aeronautical Revenues 247,811 267,690 305,005 301,082 3,923 1.3% 37,315 13.9% SLOA III Incentive Straight Line Adj (1) (3,576) (3,576) - - - 0.0% 3,576 -100.0% Aeronautical Revenues 244,235 264,114 305,005 301,082 3,923 1.3% 40,891 15.5% Non-Aeronautical Revenues 221,021 236,803 250,728 244,786 5,942 2.4% 13,925 5.9% Total Operating Revenues 465,256 500,916 555,733 545,867 9,865 1.8% 54,816 10.9% Total Operating Expense 261,226 299,114 333,374 334,856 1,482 0.4% 34,259 11.5% Net Operating Income 204,030 201,802 222,359 211,011 11,348 5.4% 20,557 10.2% Capital Expenditures 153,887 293,785 593,941 796,200 202,259 25.4% 300,156 102.2% Debt Service (2) 133,982 131,060 138,177 136,075 (2,102) -1.5% 7,117 5% (1) Annual non-cash amortization of $17.9M lease incentive related to the 5 year SLOA III agreement which ended in 2017. (2) 2018 Budget debt service amount inadvertently understated by the $2.1M debt service exclusion adjustment which impacts Aero Rate Based Revenues only. Total 2018 Aeronautical debt service obligation is reflected in the 2018 Forecast column. Division Summary 2018 Forecast vs. 2018 Budget Net Operating Income for 2018 is forecasted to be $11.3M higher than budget (5.4% favorable) o Operating Revenue is expected to be $9.9M higher than budget (1.8% favorable) from higher Aeronautical revenue primarily due to the decrease in revenue sharing percentage (from 50% down to 40%) negotiated in the new airline lease agreement which was not known when the 2018 Budget was approved. Non-Aero revenue is currently forecasted at $5.9M higher than 2018 Budget (2.4% favorable). o Operating Expenses are expected to be $1.5M lower than budget (0.4% favorable) primarily due to lower charges from other divisions $6.6M (6.0% favorable) which includes some planned spending deferred to future years rather than actual cost savings, as well as payroll costs expected to be lower than budget due to vacancies and hiring delays. Division Summary 2018 Forecast vs. 2017 Actuals Net Operating Income for 2018 is forecasted to be $20.6M higher than prior year (10.2% favorable) o Operating Revenue is expected to be $54.8M higher than prior year (10.9% favorable) primarily due to higher Aeronautical revenue from higher rate based costs and lower revenue sharing. In addition, revenues will be higher this year due to the SLOA III incentive amortization which ended in 2017 ($3.6M). Non- Aero revenue is also expected to be $13.9M higher in 2018 from Landside business activities, which more than offset the ($5.4M) one-time lump sum frontage fee reimbursement received in Commercial Properties in 2017. o Operating Expenses are expected to be $34.3M higher than prior year (11.5% variance) due to higher payroll related to increased staffing ($16.3M), higher outside services expense ($14.0M) primarily due to non-recurring expenses focused on addressing strategic initiatives throughout the airport, and higher charges from other divisions ($15.2M). These planned 2018 increases in expenses are partially offset by the one-time amortization for prepaid frontage fees in 2017 ($3.6M) and lower expected costs in Environmental Liability Expense ($3.9M), and Capital to Expense costs ($2.5M). 6 II. AVIATION DIVISION FINANCIAL & PERFORMANCE REPORT 06/30/18 A. BUSINESS EVENTS Activity: Passenger growth through Q2 tracking slightly ahead of budget at 6.1% Customer Service: below target through Q2 - Airport Service Quality scores below 2017 in all 6 categories Business: o Airport dining and retail sales holding up better than anticipated with closure of Central Terminal due to kiosks and more "grab-and go" options. o Transportation Network Company transactions grew 36.6% in Q2, while taxis transactions declined 4.3% Capital Program: Completed Alternate Utility Facility and progressing with construction on North Satellite, International Arrivals Facility and Concourse D Hardstand Terminal. Planning for future: Sustainable Airport Master Plan initiated environmental review in July B. KEY PERFORMANCE METRICS % Change YTD 2016 YTD 2017 YTD 2018 from 2017 Total Passengers (000's) Domestic 19,249 19,666 20,897 6.3% International 2,257 2,484 2,611 5.1% Total 21,506 22,150 23,508 6.1% Ope rations 197,152 199,610 210,722 5.6% Landed Weight (In Millions of lbs.) Cargo 843 1,025 1,147 12.0% All other 12,044 12,416 13,328 7.3% Total 12,886 13,441 14,475 7.7% Cargo - Metric Tons Domestic freight 83,079 111,015 122,259 10.1% International freight 55,287 57,534 57,279 -0.4% Ma il 27,562 28,882 28,326 -1.9% Total 165,928 197,431 207,864 5.3% 7 II. AVIATION DIVISION FINANCIAL & PERFORMANCE REPORT 06/30/18 Key Performance Measures Fav (UnFav) Incr (Decr) 2016 2017 2018 2018 Budget Vairance Change from 2017 Actual Actual Fore cas t Budge t $ % $ % Key Performance Metrics Cost per Enplanement (CPE) 10.10 10.52 11.52 11.35 (0.17) -1.5% 0.99 9.4% Non-Aeronautical NOI (in 000's) 128,727 133,101 134,164 126,861 7,303 5.8% 1,063 0.8% Other Performance Metrics O&M Cost per Enplanement 11.46 12.77 13.52 13.58 0.06 0.4% 0.75 5.9% Non-Aero Revenue per Enplanement 9.70 10.11 10.17 9.93 0.24 2.4% 0.06 0.6% Debt per Enplanement (in $) 104 114 116 116 - 0.0% 2 1.3% Debt Service Coverage 1.53 1.57 1.60 1.51 0.09 5.8% 0.02 1.5% Days cash on hand (10 months = 304 days) 416 379 307 304 3 1.0% (72) -19.0% Aeronautical Revenue Sharing ($ in 000's) (37,395) (42,311) (31,908) (35,799) 3,891 10.9% 10,403 24.6% Activity (in 000's) Enplanements 22,796 23,416 24,654 24,654 - 0.0% 1,238 5.3% Key Performance Metrics 2018 Forecast compared to 2018 Budget: Cost per Enplanement (CPE) Forecast: o CPE $0.17 unfavorable to budget - 2018 Budget assumed 50% Revenue Sharing. The 2018 Forecast reflects 40% Revenue Sharing as negotiated in the SLOA IV agreement, which was not known when the 2018 Budget was approved. Note: Adjusted CPE Budget is 11.63 based on 40% Revenue Sharing per SLOA IV agreement bringing the adjusted CPE to $0.11 favorable to budget. o CPE increase of $0.99 compared to prior year due to increase in rate base costs and decrease in revenue sharing percentage under SLOA IV. Non-Aero NOI: o Non-Aero NOI 2018 Forecast expected to be $7.3M favorable to 2018 budget due to both higher revenues and deferred expenses. o Non-Aero NOI 2018 Forecast expected to be $1.1M higher than prior year due primarily to increased Ground Transportation activity, increased transactions in Public Parking, and stronger performance in Airport Dining and Retail. 8 II. AVIATION DIVISION FINANCIAL & PERFORMANCE REPORT 06/30/18 C. OPERATING RESULTS Division Summary YTD Fav (UnFav) Incr (Decr) 2016 YTD 2017 YTD 2018 Year-to-Date Budget Variance Change from 2017 $ in 000's Actual Actual Actual Budge t $ % $ % Operating Revenues: Gross Aeronautical Revenues (1) 119,553 129,567 147,570 144,761 2,809 1.9% 18,003 13.9% SLOA III Incentive Straight Line Adj (2) (1,788) (1,788) - - - N/A 1,788 100.0% Aeronautical Revenues 117,765 127,780 147,570 144,761 2,809 1.9% 19,791 15.5% Non-Aeronautical Revenues 100,336 112,761 118,864 113,264 5,601 4.9% 6,104 5.4% Total Operating Revenues 218,100 240,540 266,435 258,025 8,410 3.3% 25,894 10.8% Operating Expenses: Payroll 49,708 55,798 63,139 64,511 1,372 2.1% 7,341 13.2% Outside Services 15,736 17,203 21,015 24,978 3,963 15.9% 3,812 22.2% Utilitie s 7,358 8,389 9,589 9,072 (516) -5.7% 1,200 14.3% Other Airport Expenses 9,132 13,680 9,788 9,920 132 1.3% (3,892) -28.5% Total Airport Direct Charges 81,934 95,070 103,530 108,481 4,951 4.6% 8,460 8.9% Environmental Remediation Liability 33 2,714 4,484 2,980 (1,504) -50.5% 1,770 65.2% Capital to Expense - 24 8 - (8) N/A (16) -66.8% Total Exceptions 33 2,738 4,492 2,980 (1,512) -50.7% 1,753 64.0% Total Airport Expenses 81,968 97,809 108,021 111,461 3,439 3.1% 10,212 10.4% Police Costs 8,943 9,146 10,659 11,070 411 3.7% 1,513 16.5% Capital Development 3,358 6,486 6,072 11,422 5,351 46.8% (415) -6.4% Other Central Services 22,723 25,000 26,714 28,414 1,700 6.0% 1,714 6.9% Maritime/Economic Development 1,826 1,879 1,970 2,685 715 26.6% 91 4.8% Total Charges from Other Divisions 36,849 42,512 45,414 53,591 8,177 15.3% 2,902 6.8% Total Operating Expense 118,817 140,321 153,436 165,052 11,617 7.0% 13,115 9.3% Net Operating Income 99,283 100,219 112,999 92,972 20,026 21.5% 12,780 12.8% (1) Aero revenues are net of revenue sharing. (2) Annual non-cash amortization of $17.9M lease incentive related to the SLOA III agreement for the 5 year period from 2013-2017. Operating Expenses 2018 YTD Actuals compared to 2018 YTD Budget: Total Operating Expenses are lower than the YTD 2018 Budget by $11.6 million due to the net of the following: YTD Aviation Direct Operating Expenses are lower than budget by $5.0 million due to the following: Positive Variance of $5.5M Negative Variance of $0.5M Payroll - vacancies & hiring delays $1.4M Utilitie s $0.5M Outside Services (savings & work deferred to future year) $4.0M Increased Surface Water activity 0.7M NERA 3 grant (FAA pilot program) 0.9M Lower Natural Gas activity (0.2M) AV Maintenance temporary timing issues 0.7M Capital Program Mgmt delay in key planning projects 0.7M SAMP - Environmental assessment delayed 0.8M CBP reimbursable program not yet spent 0.3M Safety Management Programs still in early stages 0.2M All other Outside Services 0.4M Other Aviation Expenses $0.1M 9 II. AVIATION DIVISION FINANCIAL & PERFORMANCE REPORT 06/30/18 Operating Expenses 2018 YTD Actuals compared to 2018 YTD Budget - continued: YTD Operating Expenses Exceptions are higher than budget by $1.5 million due to the following: Positive Variance - no material variance Negative Variance of $1.5M Environmental Remediation Liability $1.5M Soils: IAF (soils) estimate increase 1.5M Taxiway Improvement Project 0.2M Asbestos: Obligating events not expected until 2019 (2.2M) NSAT (asbestos) estimate increase 1.0M IAF- SSAT Interior Corridor 0.5M Terminal Security 0.2M Other projects 0.3M YTD Operating Expense charges from Central Services and other divisions are lower than budget by $8.1M million due to the following: Positive Variance of $8.1M Negative Variance - none Other Central Services savings $1.7M Police savings $0.4M Maritime/Economic savings $0.7M CDD savings $5.3M Aviation PMG (projects delayed/deferred) 3.0M PCS 1.6M Engineering 0.8M Other CDD (0.1M) Operating Expenses 2018 YTD Actuals compared to 2017 YTD Actuals: Total Operating Expenses are higher than YTD 2017 Actuals by $13.1 million due to the net of the following: YTD Aviation Direct Operating Expenses are higher than YTD 2017 Actuals by $8.4 million due to the following: Increase of $12.3M Decrease of $3.9M Payroll - increased staffing $7.3M Other Aviation Expenses $3.9M Outside Services $3.8M One-time amortization frontage fees $3.7M Utilitie s $1.2M All other Aviation Expenses $0.2M 10 II. AVIATION DIVISION FINANCIAL & PERFORMANCE REPORT 06/30/18 Operating Expenses 2018 YTD Actuals compared to 2017 YTD Actuals - continued: YTD Operating Expenses Exceptions are higher than 2017 YTD Actuals by $1.8 million due to the following: Increase of $1.8M Decrease - no material amount Environmental Remediation Liability $1.8M Asbestos: IAF- SSAT Interior Corridor 0.5M SSAT Structural Improvements 0.8M Other projects 0.5M YTD Operating Expense charges from Central Services and other divisions are higher than YTD 2017 Actuals by $2.9 million due to the following: Increase of $3.3M Decrease of $0.4M Other Central Services $1.8M CDD savings $0.4M Police Costs $1.5M 11 II. AVIATION DIVISION FINANCIAL & PERFORMANCE REPORT 06/30/18 Division Summary YE Forecast Fav (UnFav) Incr (Decr) 2016 2017 2018 2018 Budget Variance Change from 2017 $ in 000's Actual Actual Fore cas t Budge t $ % $ % Operating Revenues: Gross Aeronautical Revenues (1) 247,811 267,690 305,005 301,082 3,923 1.3% 37,315 13.9% SLOA III Incentive Straight Line Adj (2) (3,576) (3,576) - - - 0.0% 3,576 100.0% Aeronautical Revenues 244,235 264,114 305,005 301,082 3,923 40,891 15.5% Non-Aeronautical Revenues 221,021 236,803 250,728 244,786 5,942 2.4% 13,925 5.9% Total Operating Revenues 465,256 500,916 555,733 545,867 9,865 1.8% 54,816 10.9% Operating Expenses: Payroll 94,559 114,463 130,809 132,156 1,347 1.0% 16,346 14.3% Outside Services 31,636 41,055 55,002 52,532 (2,469) -4.7% 13,947 34.0% Utilitie s 14,667 16,374 17,927 17,320 (607) -3.5% 1,553 9.5% Other Airport Expenses 21,934 28,292 21,940 19,776 (2,165) -10.9% (6,352) -22.5% Total Airport Direct Charges 162,797 200,184 225,677 221,784 (3,893) -1.8% 25,493 12.7% Environmental Remediation Liability - 8,812 4,851 4,030 (821) -20.4% (3,961) -44.9% Capital to Expense - 2,856 367 - (367) 0.0% (2,489) -87.1% Total Exceptions - 11,668 5,218 4,030 (1,188) -29.5% (6,450) -55.3% Total Airport Expenses 162,797 211,852 230,896 225,814 (5,082) -2.3% 19,044 9.0% Police Costs 18,183 17,652 22,174 22,174 - 0.0% 4,522 25.6% Capital Development 9,319 14,701 17,936 23,092 5,156 22.3% 3,235 22.0% Other Central Services 58,617 51,004 57,032 58,265 1,233 2.1% 6,028 11.8% Maritime/Economic Development 12,310 3,904 5,336 5,511 175 3.2% 1,431 36.7% Total Charges from Other Divisions 98,429 87,262 102,478 109,042 6,564 6.0% 15,216 17.4% Total Operating Expense 261,226 299,114 333,374 334,856 1,482 0.4% 34,259 11.5% Net Operating Income 204,030 201,802 222,359 211,011 11,348 5.4% 20,557 10.2% CFC Surplus (4,899) (2,750) (6,637) (7,142) 505 7.1% (3,887) -141.4% Net Non-Operating Items in / out from ADF (3) 2,160 3,481 4,406 4,406 - 0.0% 925 26.6% SLOA III Incentive Straight Line Adj 3,576 3,576 - - - 0.0% (3,576) -100.0% Debt Service (4) (133,982) (131,060) (138,177) (136,075) (2,102) 1.5% (7,117) -5.4% Adjusted Net Cash Flow 70,885 75,050 81,951 72,200 9,751 13.5% 6,901 9.2% (1) Aero revenues are net of revenue sharing. (2) Annual non-cash amortization of $17.9M lease incentive related to the SLOA III agreement for the 5 year period from 2013-2017. (3) Per SLOA III definition of Net Revenues. (4) 2018 Budget debt service amount inadvertently understated by the $2.1M debt service exclusion adjustment which impacts Aero Rate Based Revenues only. Total 2018 Aeronautical debt service obligation is reflected in the 2018 Forecast column. 12 II. AVIATION DIVISION FINANCIAL & PERFORMANCE REPORT 06/30/18 Operating Expenses 2018 YE Forecast compared to 2018 YE Budget: Total Operating Expenses are forecasted to be lower than the 2018 Budget by $1.5 million due to the net of the following: Aviation Direct Operating Expenses are forecasted to be higher than the 2018 Budget by $3.9 million due to the following: Positive Variance of $1.3M Negative Variance of $5.2M Payroll - vacancies & hiring delays $1.3M Outside Services $2.5M Aviation Planning 1.3M Taxi Operations (SP & curbside mgmt) 0.7M Customer Service (new dept. expenses) 0.6M UPM Pest Management 0.4M All other Outside Services (0.5M) Utilitie s $0.6M IWTP overflow event 0.4M All other Utilities 0.2M Other Aviation Expenses $2.1M Increase in Envirnonmental Reserves 0.8M Charges to capital lower than expected 0.4M Construction Access Support 0.6M Fire Fighters for 2nd Care Car 0.8M Maintenance 0.5M All other Aviation Expense (1.0M) Aviation Operating Expense Exceptions are higher than budget by $1.2 million due to the following: Positive Variance - no material variance Negative Variance of $1.2M Environmental Remediation Liability $0.8M Soils: IAF (soils) estimate increase 1.5M Taxiway Improvement Project 0.2M Other soils related (.2M) Asbestos: Obligating events not expected until 2019 (2.2M) NSAT (asbestos) estimate increase 1.0M IAF- SSAT Interior Corridor 0.5M Capital to Expense - write-off Main Terminal/NSTAR $0.4M Operating Expense charges from Central Services and other divisions are forecasted to be lower than budget by $6.6M million due to the following: Positive Variance of $6.6M Negative Variance - none Other Central Services savings $1.2M Maritime/Economic savings $0.2M CDD savings $5.2M Aviation PMG (projects delayed/deferred) 4.0M PCS 0.7M Engineering 0.6M Other CDD (0.1M) 13 II. AVIATION DIVISION FINANCIAL & PERFORMANCE REPORT 06/30/18 Operating Expenses 2018 YE Forecast compared to 2017 YE Actuals: Total Operating Expenses are forecasted to be higher than 2017 Actuals by $34.25 million due to the net of the following: Aviation Direct Operating Expenses are forecasted to be higher than 2017 Actuals by $25.5 million due to the following: Increase of $31.9M Decrease of $6.4M Payroll - increased staffing $16.3M Other Aviation Expenses $6.4M Outside Services $14.0M One-time amortization frontage fees 3.6M Onsite Consultants - Airport Dining and Retail 4.0M Litigated & Non-litigated damages 1.5M Personal Services - Non-Aero Commercial Properties 2.7M All other Aviation Expenses 1.4M Personal Services - AV Facilities and Capital Program 4.0M Small Works Construction Services - Airfield Operations 1.2M Other Contracted Services - Baggage Systems 1.3M All other Outside Services increases 0.8M Utilitie s $1.6M Operating Expense Exceptions are forecasted to be lower than 2017 Actuals by $6.5M due to the following: Increase - none Decrease of $6.5M Environmental Remediation Liability $4.0M IAF soils 3.6M All other ERL expense 0.4M Capital to Expense $2.5M Obsolete exit lane equipment 1.9M SSAT - HVAC equipment 0.7M Projected Main Terminal/Nstar write off (0.4M) All other Capital to Expense items 0.3M Operating Expense charges from Central Services and other divisions are forecasted to be higher than 2017 Actuals by $15.2 million due to the following: Increase of $15.2M Decrease - no material amount Police $4.6M CDD $3.2M Other Central Services $6.0M Maritime/Economic Development divisions $1.4M 14 II. AVIATION DIVISION FINANCIAL & PERFORMANCE REPORT 06/30/18 Aeronautical Business Unit Summary YTD Fav (UnFav) Incr (Decr) 2016 YTD 2017 YTD 2018 Year-to-Date Budget Variance Change from 2017 $ in 000's Actual Actual Actual Budge t $ % $ % Revenues: Movement Area 45,551 50,849 59,656 59,421 235 0.4% 8,806 17.3% Apron Area 6,088 7,636 8,209 7,654 555 7.2% 573 7.5% Terminal Rents 75,640 78,051 83,956 84,140 (183) -0.2% 5,906 7.6% Federal Inspection Services (FIS) 5,174 6,708 6,641 6,470 171 2.6% (67) -1.0% Total Rate Base Revenues 132,453 143,243 158,462 157,684 778 0.5% 15,219 10.6% Commercial Area 4,479 4,959 5,072 4,976 97 1.9% 114 2.3% Subtotal before Revenue Sharing 136,932 148,202 163,534 162,660 874 0.5% 15,332 10.3% Revenue Sharing (17,379) (18,635) (15,964) (17,899) 1,935 10.8% 2,671 14.3% Total Aeronautical Revenues 119,553 129,567 147,570 144,761 2,809 1.9% 18,003 13.9% Total Aeronautical Expenses 76,280 91,209 100,511 106,450 5,939 5.6% 9,302 10.2% Net Operating Income 43,272 38,358 47,059 38,311 8,749 22.8% 8,701 22.7% Aeronautical Q2 2018 Actuals vs. Q2 2018 Budget Net Operating Income for Q2 2018 is $8.7M higher than budget (22.8% favorable) o Operating Revenue is $2.8M higher than budget (1.9% favorable) primarily due to the decrease in revenue sharing percentage (from 50% down to 40%) negotiated in the new airline lease agreement which was not known when the 2018 Budget was approved. o Operating Expenses are $5.9M lower than budget (5.6% favorable) primarily due to timing delays in Outside Services spending and lower charges from other divisions. Aeronautical Q2 2018 Actual vs. Q2 2017 Actual Net Operating Income for Q2 2018 is $8.7M higher than Q2 2017 (22.7% favorable) o Operating Revenue is $18.0 M higher than Q2 2017 (13.9% favorable) due to higher rate based costs to support increased airline activity and lower revenue sharing due to reduction in revenue sharing percentage under new airline agreement. o Operating Expenses are $9.3M higher than Q2 2017 (10.2% variance) due to higher airport direct operating expenses to support increased airline activity and higher charges from other divisions. 15 II. AVIATION DIVISION FINANCIAL & PERFORMANCE REPORT 06/30/18 Aeronautical Business Unit Summary YE Forecast Fav (UnFav) Incr (Decr) 2016 2017 2018 2018 Budget Variance Change from 2017 $ in 000's Actual Actual Fore cas t Budge t $ % $ % Revenues: Movement Area 94,725 108,638 125,275 125,422 (147) -0.1% 16,637 15.3% Apron Area 14,028 16,771 16,023 15,979 44 0.3% (748) -4.5% Terminal Rents 155,852 155,431 171,260 171,854 (594) -0.3% 15,830 10.2% Federal Inspection Services (FIS) 11,227 18,612 14,143 13,413 730 5.4% (4,469) -24.0% Total Rate Base Revenues 275,832 299,452 326,701 326,668 33 0.0% 27,249 9.1% Commercial Area 9,379 10,574 10,212 10,212 - 0.0% (362) -3.4% Subtotal before Revenue Sharing 285,211 310,026 336,913 336,880 33 0.0% 26,887 8.7% Revenue Sharing (37,395) (42,311) (31,908) (35,799) 3,891 10.9% 10,403 24.6% Other Prior Year Revenues (5) (26) - - - 0.0% 26 100.0% Total Aeronautical Revenues 247,811 267,690 305,005 301,082 3,923 1.3% 37,315 13.9% Total Aeronautical Expenses 168,932 195,414 216,810 216,931 121 0.1% 21,397 10.9% Net Operating Income 78,879 72,276 88,195 84,151 4,044 4.8% 15,919 22.0% Debt Service (1) (89,130) (86,564) (92,425) (90,323) (2,102) -2.3% (5,861) -6.8% Net Cash Flow (10,251) (14,288) (4,230) (6,173) 1,943 31.5% 10,058 70.4% (1) 2018 Budget debt service amount inadvertently understated by the $2.1M debt service exclusion adjustment which impacts Aero Rate Based Revenues only. Total 2018 Aeronautical debt service obligation is reflected in the 2018 Forecast column. Airline Rate Base Cost Drivers Fav (UnFav) Incr (Decr) 2016 2017 2018 2018 Budget Variance Change from 2017 $ in 000's Actual Actual Fore cas t Budge t $ % $ % O&M 165,427 192,188 210,685 210,433 252 0.1% 18,498 9.6% Debt Service Gross 118,641 113,832 120,555 120,555 - 0.0% 6,723 5.9% Debt Service PFC Offset (32,831) (33,057) (33,015) (33,015) - 0.0% 42 -0.1% Amortiza tion 28,215 29,654 32,373 32,373 - 0.0% 2,719 9.2% Space Vacancy (2,638) (2,264) (2,638) (2,650) 12 -0.4% (374) 16.5% TSA Operating Grant and Other (982) (901) (1,259) (1,028) (231) 22.4% (358) 39.8% Rate Base Revenues 275,832 299,452 326,701 326,668 33 0.0% 27,249 9.1% Commercial area 9,379 10,574 10,212 10,212 - 0.0% (362) -3.4% Total Aero Revenues 285,211 310,026 336,913 336,880 33 0.0% 26,887 8.7% Aeronautical 2018 YE Forecast vs. 2018 YE Budget Aeronautical net operating income is forecasted to be $4.0M higher than budget (4.8% favorable). o Aeronautical revenues are forecasted to be $3.9M higher than budget (1.3% favorable) primarily due to the decrease in revenue sharing percentage (from 50% down to 40%) negotiated in the new airline lease agreement which was not known when the 2018 Budget was approved. o Aeronautical operating expenses are forecasted to be closely aligned with the 2018 Budget. 16 II. AVIATION DIVISION FINANCIAL & PERFORMANCE REPORT 06/30/18 Aeronautical 2018 YE Forecast vs. 2017 YE Actuals Net Operating Income for 2018 is expected to be $15.9M higher than prior year (22.0% favorable) o Operating Revenue is expected to be $37.3M higher than prior year (13.9% favorable) due to higher rate based costs to support increased airline activity and lower revenue sharing due to reduction in revenue sharing percentage ($10.4M) under new airline agreement. o Operating Expenses are expected to be $21.4M higher than prior year (10.9% variance) due to higher airport direct operating expenses to support increased airline activity and higher charges from other divisions. Non-Aero Business Unit Summary -- YTD Fav (UnFav) Incr (Decr) 2016 YTD 2017 YTD 2018 Year-to-Date Budget Variance Change from 2017 $ in 000's Actual Actual Actual Budge t $ % $ % Non-Aero Revenues Rental Cars - Operations 15,271 14,514 14,922 14,579 343 2.4% 408 2.8% Rental Cars - Operating CFC 3,872 3,284 5,497 5,434 63 1.2% 2,213 67.4% Public Parking 34,166 36,958 39,402 38,080 1,322 3.5% 2,444 6.6% Ground Transportation 5,668 7,633 8,885 8,060 825 10.2% 1,252 16.4% Airport Dining & Retail & Leased Space 27,118 28,420 30,179 28,017 2,162 7.7% 1,759 6.2% Commercial Properties 4,286 10,708 7,593 7,082 511 7.2% (3,115) -29.1% Utilitie s 3,571 3,423 3,438 3,778 (340) -9.0% 14 0.4% Employee Parking 4,563 4,674 5,191 4,608 584 12.7% 517 11.1% Clubs and Lounges 1,378 2,173 2,773 2,694 79 2.9% 599 27.6% Other 443 973 983 932 51 5.5% 10 1.1% Total Non-Aero Revenues 100,336 112,761 118,864 113,264 5,601 4.9% 6,104 5.4% Total Non-Aero Expenses 42,537 49,111 52,925 58,602 5,677 9.7% 3,813 7.8% Net Operating Income 57,799 63,649 65,940 54,662 11,278 20.6% 2,290 3.6% Non-Aeronautical Q2 2018 Actuals vs. Q2 2018 Budget Net Operating Income for Q2 2018 is $11.3M higher than budget (20.6% favorable) o Operating Revenue is $5.6M higher than budget (4.9% favorable) primarily due to Airport Dining & Retail revenue stronger than expected in Q2 due to schedule delays in quick-serve restaurant units remaining open into Feb 2018 which were expected to close in late-2017. In addition, Employee Parking continues to experience strong demand driven growth. o Operating Expenses are $5.7M lower than budget (9.7% favorable) primarily due to slower than anticipated grant spending on NERA 3 FAA pilot program and schedule delays on ADR tenant buildout projects. Non-Aeronautical Q2 2018 Actual vs. Q2 2017 Actual Net Operating Income for Q2 2018 is $2.3M higher than Q2 2017 (3.6% favorable) o Operating Revenue is $6.1M higher than Q2 2017 (5.4% favorable) primarily due to the one-time lump sum frontage fee reimbursement ($5.4M) received in Commercial Properties in 2017, which is partially offset by higher Rental Car operating CFC revenue due to lower debt service costs, and higher Public Parking revenue due to higher rates in effect in Q1 compared to the prior year. o Operating Expenses is $3.8M higher than Q2 2017 (7.8% increase) primarily due to payroll staffing vacancies being filled and the Commissary Kitchen build payout to Ivar's within the Airport Dining and Retail areas. Also, there has been increased activity in both staffing and non-payroll costs due to the growth in revenue in Clubs and Lounges. 17 II. AVIATION DIVISION FINANCIAL & PERFORMANCE REPORT 06/30/18 Non-Aero Business Unit Summary - YE Forecast Fav (UnFav) Incr (Decr) 2016 2017 2018 2018 Budget Variance Change from 2017 $ in 000's Actual Actual Fore cas t Budge t $ % $ % Non-Aero Revenues Rental Cars - Operations 37,082 35,051 35,084 35,294 (210) -0.6% 33 0.1% Rental Cars - Operating CFC 12,122 10,641 14,653 15,563 (910) -5.8% 4,012 37.7% Public Parking 69,540 75,106 80,046 78,572 1,474 1.9% 4,940 6.6% Ground Transportation 12,803 15,684 18,401 16,884 1,517 9.0% 2,717 17.3% Airport Dining & Retail & Leased Space 58,405 58,980 61,980 59,087 2,893 4.9% 3,000 5.1% Commercial Properties 9,992 18,042 15,236 14,706 529 3.6% (2,807) -15.6% Utilitie s 7,233 7,018 7,317 7,556 (239) -3.2% 300 4.3% Employee Parking 9,329 9,617 10,214 9,457 757 8.0% 597 6.2% Clubs and Lounges 3,028 5,041 5,830 5,630 200 3.6% 790 15.7% Other 1,487 1,624 1,966 2,036 (70) -3.4% 343 21.1% Total Non-Aero Revenues 221,021 236,803 250,728 244,786 5,942 2.4% 13,925 5.9% Total Non-Aero Expenses 92,294 103,702 116,564 117,925 1,362 1.2% 12,861 12.4% Net Operating Income 128,727 133,101 134,164 126,861 7,303 5.8% 1,063 0.8% Less: CFC (Surplus) / Deficit (1) (4,899) (2,750) (6,182) (7,142) 960 13.4% (3,432) -124.8% Adjusted Non-Aero NOI 123,828 130,351 127,982 119,719 8,263 6.9% (2,369) -1.8% Debt Service (1) (43,984) (44,495) (45,752) (45,752) - 0.0% (1,257) -2.8% Net Cash Flow 79,844 85,856 82,230 73,967 8,263 11.2% (3,625) -4.2% (1) CFC excess and Debit service are forecasted/budgeted on an annual basis only. Thus, quarterly data is not available. Non-Aeronautical 2018 Forecast vs. 2018 Budget Non-Aeronautical net operating income is forecasted to be $7.3M higher than budget (5.8% favorable). o Non-Aeronautical revenues are forecasted to be $5.9M higher than budget (2.4% favorable): Airport Dining & Retail - favorable ($2.9M) forecast reflects strong performance in both Food and Beverage, Retail Sales despite transitions to new leases, and increased revenue from Advertising. Commercial Properties - favorable $0.5M due to earlier than anticipated occupancy of DMCBP Phase II building. Utilities unfavorable ($0.2M) due to reduced tenant billings while garbage program undergoes process improvement planning. o Non-Aeronautical operating expenses are forecasted to be $1.3M lower than budget (1.2% favorable) primarily due to lower than anticipated charges from other divisions due to AVPMG terminal project delays. Non-Aeronautical 2018 Forecast vs. 2017 Actuals Net Operating Income for 2018 is expected to be $1.1M higher than prior year (0.8% favorable) o Operating Revenue is expected to be $13.9M higher than prior year (5.9% favorable) primarily due to increased Landside business activity, which more than offsets the ($5.4M) one-time lump sum frontage fee reimbursement received in Commercial Properties in 2017. o Operating Expenses are expected to be $12.9M higher than prior year (12.4% variance) due to higher payroll costs related to increase in staffing, higher outside services expense primarily due to non-recurring expenses focused on addressing strategic initiatives throughout the airport, and higher charges from other divisions. 18 II. AVIATION DIVISION FINANCIAL & PERFORMANCE REPORT 06/30/18 D. CAPITAL RESULTS Capital Variance $ in 000's 2018 2018 2018 Budget Variance Descr iption YTD Actual Forecast Budget $ % International Arrivals Facility (1) 75,176 215,298 324,221 108,923 33.6% ASL Conversion at Checkpoints (2) 725 1,175 16,800 15,625 93.0% NS NSAT Renov NSTS Lobbies (3) 58,656 131,716 140,738 9,022 6.4% N. Terminals Utilities Upgrade (4) 213 413 8,200 7,787 95.0% Add'l Baggage Makeup Space IAF (5) 1,234 10,520 15,998 5,478 34.2% Terminal Security Enhancements (6) 189 2,189 5,925 3,736 63.1% SSAT Infrastructure HVAC (7) 128 1,218 4,910 3,692 75.2% 2018 Taxiway Improvement Proj 8,988 37,378 36,250 (1,128) -3.1% Concourse D Hardstand Holdroom 15,159 28,433 27,986 (447) -1.6% Alternate Utility Facility 17,169 18,263 18,350 87 0.5% Checked Bag Recap/Optimization 16,009 38,009 38,000 (9) 0.0% All Other 31,171 109,330 158,822 49,492 31.2% Total Spending 224,817 593,941 796,200 202,259 25.4% (1) Delays in design-build progress, consultant billings/purchases for construction and project/construction management services. (2) $8.7M of capital budget deemed to be public expense as the equipment will be transferred to TSA. 1 of 3 lanes has been installed; remaining lanes pushed out to Q4 2018 - Q2 2019. (3) Actual projected billings as provided by contractor have been less than anticipated. (4) Early works construction cancelled and combined with main construction phase due to better coordination with adjacent projects. (5) Delays in construction due to changes in sequencing of work by contractor. (6) Favorable bids for Phase I (shatter proof windows) will result in less spending in 2018. (7) Bid bust has resulted in one year delay of project. Project was re-scoped and design is currently in progress. 19 III. MARITIME DIVISION FINANCIAL & PERFORMANCE REPORT 06/30/18 FINANCIAL SUMMARY Fav (UnFav) Incr (Decr) 2016 2017 2018 2018 Budget Variance Change from 2017 $ in 000's Actual Actual Forecast B udg e t $ % $ % Revenues: Operating Revenue 50,810 54,183 55,293 55,053 240 0% 1,109 2% Total Revenues 50,810 54,183 55,293 55,053 240 0% 1,109 2% Total Operating Expenses 40,283 42,164 48,510 49,578 1,068 2% 6,347 15% Net Operating Income 10,526 12,020 6,783 5,475 1,308 -24% (5,237) 44% Capital Expenditures 5,746 20,489 32,800 46,749 13,949 30% 12,311 60% Division Summary 2018 Forecast vs. 2018 Budget Operating Revenues are forecasted to be $240K above budget due to favorable moorage revenue, offset by earlier termination of lease at T106. Operating Expenses are forecasted to be $1,068K below budget primarily due to movement of tenant improvements at the Maritime Industrial Center to capital, underspend in Cruise consulting, and Central Services payroll. Net Operating Income forecasted to be $1,308K above budget. At the end of the second quarter, capital spending for full year 2018 is forecasted to be $32.8 million or 70% of the approved budget of $47.7 million. Division Summary 2018 Forecast vs. 2017 Actuals Operating Revenues are expected to be $1,109K above 2017 primarily due to higher tariff rates. Operating Expenses are expected to be $6,347K greater than 2017 primarily increased wage rates, Cruise Port Valet, and acquisition of Salmon Bay Marina. Net Operating Income is forecasted to be $5,237K less than 2017. Net Operating Income before Depreciation by Business Fav (UnFav) Incr (Decr) 2016 YTD 2017 YTD 2018 Year-to-Date Budget Variance Change from 2017 $ in 000's Actual Actual Actual B udg e t $ % $ % Fishing & Operations (1,563) (910) (1,139) (1,643) 504 31% (230) -25% Recreational Boating 748 799 987 34 953 2840% 187 23% Cruis e 2,223 2,697 2,093 956 1,137 119% (604) -22% Bulk 1,442 2,388 2,249 1,672 577 35% (139) -6% Maritime Portfolio 450 121 391 (314) 705 224% 270 223% All Other (48) (478) (39) (308) 269 87% 438 92% Total Maritime 3,252 4,618 4,541 396 4,145 1046% (77) -2% 20 III. MARITIME DIVISION FINANCIAL & PERFORMANCE REPORT 06/30/18 A. BUSINESS EVENTS Cruise Commissioners, Executive, Cruise, and Public Affairs staff participated in the successful inaugural event and first turnaround call of the Norwegian Bliss, May 30-June 02. The event garnered significant media attention. Recreational Boating Successfully hosted the Clipper Around the World at Bell Harbor Marina in June. Fishing and Commercial Operations Transitioned management of Salmon Bay Marina in June. Maritime Portfolio Management Finalized a license with Ecco Wireless that will bring a new Wi-Fi network to Shilshole Bay Marina with faster speeds and better coverage over the whole site for all customers. Stormwater Utility Obtained permit from US Army Corp of Engineers to proceed with T18 Outfall Renewal and Replacement project. Tracking to exceed the 75% assessment target. B. KEY PERFORMANCE METRICS Grain Volume Metric Tons in 000's 700 600 500 2017 Actuals 400 300 2018 Budget 200 2018 Actuals 100 0 Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Cruise Passengers in 000's 300 250 200 2017 Actuals 150 2018 Budget 100 2018 Actuals 50 0 Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec 21 III. MARITIME DIVISION FINANCIAL & PERFORMANCE REPORT 06/30/18 C. OPERATING RESULTS Fav (UnFav) Incr (Decr) 2016 YTD 2017 YTD 2018 Year-to-Date Budget Variance Change from 2017 $ in 000's Actual Actual Actual B udg e t $ % $ % Fishing & Operations 4,419 4,440 4,565 4,201 364 9% 125 3% Recreational Boating 5,083 5,438 6,125 5,839 286 5% 687 13% Cruis e 5,410 6,325 6,806 6,944 (139) -2% 481 8% Bulk 2,010 3,042 3,123 2,572 551 21% 81 3% Maritime Portfolio Management 5,100 5,267 5,628 5,459 169 3% 361 7% Other 5 14 11 9 2 28% (3) -23% Total Revenue 22,027 24,525 26,257 25,023 1,234 5% 1,732 7% Expenses Fishing & Operations 2,206 2,305 2,461 2,399 (63) -3% 156 7% Rec Boating 1,524 1,852 1,989 2,285 297 13% 137 7% Cruis e 954 558 1,135 1,987 851 43% 577 103% Other Maritime 373 585 266 655 388 59% (318) -54% Maintenance Expenses 4,716 4,740 5,576 5,642 66 1% 836 18% Portfolio Management 1,679 1,770 2,031 2,191 160 7% 261 15% Other ED Expenses 166 353 320 460 141 31% (33) -9% Total Maritime & EDD expenses 11,617 12,162 13,778 15,618 1,840 12% 1,616 13% Enviromental & Sustainability 303 598 519 998 479 48% (79) -13% CDD Expenses 522 419 437 630 193 31% 18 4% Police Expenses 1,925 1,889 2,169 2,101 (68) -3% 280 15% Other Central Services 4,294 4,401 4,842 5,219 377 7% 441 10% Aviation Division 66 67 70 61 (9) -15% 2 3% Total Central Services & Aviation 7,109 7,374 8,037 9,009 972 11% 662 9% Envir Remed Liability 48 371 (99) 0 99 NA (469) -127% Total Expense 18,774 19,907 21,716 24,627 2,911 12% 1,809 9% NOI Before Depreciation 3,252 4,618 4,541 396 4,145 1046% (77) -2% Depreciation 8,655 8,442 8,823 8,868 45 1% 381 5% NOI After Depreciation (5,403) (3,824) (4,281) (8,471) 4,190 -49% (458) 12% 2018 YTD Actuals vs. Budget Operating Revenues were $1,234K higher than budget from favorable occupancy rates in Recreational Boating and Fishing & Operations along with higher than expected grain volumes. Operating Expenses were $2,911K lower than budget: o Cruise $851K lower than budget due to timing and savings of Port Valet and consulting invoices. o Rec Boating $297K lower than budget due to open positions. o Other Maritime $388K lower than budget from Marketing open FTEs and Habitat expenses applied to non-operations and capital. o Portfolio Management $160K below budget from tenant improvements at Maritime Industrial Center. o Environment & Sustainability $479K lower than budget due to vacant positions and capital/expense mix. o Capital Development (CDD) $193K below budget due to fewer contractors than expected. o Other Central Services $377K lower than budget primarily due to lower charges from Public Affairs $123K, Human Resources $94K, and Exec $66K. o All other expenses net to $166K lower than budget. Net Operating Income was $4,145 above budget. 22 III. MARITIME DIVISION FINANCIAL & PERFORMANCE REPORT 06/30/18 2018 YTD Actuals vs. 2017 YTD Actuals Operating Revenues were $1,732K higher than 2017 actual due to increased moorage rates, improved occupancy at Shilshole Bay Marina, and longer than anticipated occupancy by fishing vessels at Terminal 91. Operating Expenses were $1,809K higher than 2017 actual: o Cruise $577K greater than 2017 due to property rental at P66 and Consulting. o Marine Maintenance $836K greater than 2017 due to increased wages and mix of Maritime projects. o Portfolio Management $261K greater than 2017 due to higher utility expense. o Central Services $662K increase from 2017 related to Police allocation and general increases. o Environmental Remediation $469K below 2017. o All other Expenses net to $68K above 2017. Net Operating Income was $77K below 2017 actual. Fav (UnFav) Incr (Decr) 2016 2017 2018 2018 Budget Variance Change from 2017 $ in 000's Actual Actual Forecast B udg e t $ % $ % Fishing & Operations 9,108 9,297 8,748 8,388 360 4% (550) -6% Recreational Boating 10,255 11,086 12,446 12,166 280 2% 1,361 12% Cruis e 15,422 17,596 18,150 18,150 0 0% 554 3% Bulk 5,382 5,427 5,163 5,163 0 0% (263) -5% Maritime Portfolio Management 10,255 10,787 10,769 11,169 (400) -4% (18) 0% Other 388 (9) 17 17 0 0% 26 -297% Total Revenue 50,810 54,183 55,293 55,053 240 0% 1,109 2% Expenses Fishing & Operations 4,308 4,599 4,641 4,641 0 0% 42 1% Rec Boating 3,164 3,813 4,595 4,595 0 0% 782 20% Cruis e 2,600 2,674 4,448 4,748 300 6% 1,774 66% Other Maritime 666 462 1,399 1,399 0 0% 937 203% Maintenance Expenses 9,900 10,420 11,261 11,261 0 0% 840 8% Portfolio Management 3,367 3,507 3,550 3,750 200 5% 43 1% Other ED Expenses 420 665 833 833 0 0% 168 25% Total Maritime & EDD expenses 24,425 26,140 30,726 31,226 500 2% 4,586 18% Enviromental & Sustainability 1,358 1,125 1,994 2,168 173 8% 869 77% CDD Expenses 1,010 748 1,030 1,212 182 15% 282 38% Police Expenses 3,921 3,756 4,209 4,209 0 0% 453 12% Other Central Services 9,315 9,869 10,428 10,641 213 2% 559 6% Aviation Division 139 138 123 123 0 0% (15) -11% Total Central Services & Aviation 15,743 15,635 17,784 18,352 568 3% 2,149 14% Envir Remed Liability 115 389 0 0 0 NA (389) -100% Total Expense 40,283 42,164 48,510 49,578 1,068 2% 6,347 15% NOI Before Depreciation 10,526 12,020 6,783 5,475 1,308 24% (5,237) -44% Depreciation 17,351 17,410 17,868 17,868 0 0% 459 3% NOI After Depreciation (6,824) (5,390) (11,086) (12,394) 1,308 -11% (5,696) 106% 2018 Forecast vs. 2018 Budget Operating Revenues are forecasted to be $240K higher than budget: o Favorable revenue in Fishing and Rec. Boating, offset by earlier than expected termination of WSDOT lease at Terminal 106. Operating Expenses are forecasted to be $1,068K lower than budget: o Tenant improvements at the Maritime Industrial Center capitalized rather than expensed. 23 III. MARITIME DIVISION FINANCIAL & PERFORMANCE REPORT 06/30/18 o Delay in hiring and consulting cost in Cruise. o Favorable payroll savings from Central Services. Net Operating Income is forecasted to be $1.3M above budget. 2018 Forecast vs. 2017 Actuals Operating Revenues are forecasted to be $1.1M higher than 2017 actual: o Increased rates were offset by loss of net shed revenue. Operating Expenses are forecasted to be $6.3M higher than 2017 actual with increases seen in: o Cruise $1.8M due to Port Valet service and consulting. o Maintenance $.8M from increase of projects and higher wage rates. o Other Maritime $.9M from Habitat Initiatives. o Rec Boating $.8M due to new headcount in 2018 and open headcount in 2017. o Central Services $2.1M driven by increased projects and FTE in Environment & Sustainability along with Police. Net Operating Income is forecasted to be $5.2M below 2017 actual. D. CAPITAL RESULTS Budget Variance 2018 YTD 2018 2018 Actual Fore cas t Budge t $ % $ in 000's Salmon Bay Marina ACQ 15,703 15,728 15,804 76 0% SBM Restrms/Service Bldgs Rep 131 1,553 7,162 5,609 78% FT Re Development Phase I 813 1,363 2,700 1,337 50% P91 South End Fender 1,981 2,055 2,202 147 7% Maritime Fleet Replacement 238 2,158 2,158 0 0% Contingency Renewal & Replace. 0 1,150 2,000 850 43% SBM Paving 83 399 1,673 1,274 76% Cruise Terminal Tenant Improv 323 1,531 1,531 0 0% Salmon Bay Marina Uplands 13 13 1,505 1,492 99% FT Docs 3,4,5 Fixed Pie 74 274 1,424 1,150 81% Restoration 56 66 1,140 1,074 94% All Other Projects 2,287 6,510 7,450 940 13% Total Maritime 21,702 32,800 46,749 13,949 30% Comments on Key Projects: Through the 2nd quarter of 2018, Maritime spent 46% of the annual approved capital budget. Full year spending is estimated to be 70% of budget. Projects with significant changes in spending were: SBM Restrms/Service Bldgs Rep Construction Delay. Work schedule to begin Q3 2018. FT Re Development Phase I Project Delay. Contingency Renewal & Replace - $850k used for Portwide Radio System Upgrade. SBM Paving Construction Delay. Moved to Q2 2019. FT Docs 3,4,5 Fixed Pie Design phase extended to Q3 2018. Restoration Project delayed until 2020. 24 IV. ECONOMIC DEVELOPMENT DIVISION FINANCIAL & PERFORMANCE REPORT 06/30/18 FINANCIAL SUMMARY Fav (UnFav) Incr (Decr) 2016 2017 2018 2018 Budget Variance Change from 2017 $ in 000's Actual Actual Forecast B udg e t $ % $ % Revenues: Operating Revenue 15,903 17,791 19,046 18,522 524 3% 1,255 7% Total Revenues 15,903 17,791 19,046 18,522 524 3% 1,255 7% Total Operating Expenses 21,135 25,397 28,055 28,751 697 2% 2,657 10% Net Operating Income (5,232) (7,606) (9,008) (10,229) 1,221 12% (1,402) -18% Capital Expenditures 4,757 3,739 6,028 6,149 121 2% 2,289 61% Division Summary 2018 Forecast vs. 2018 Budget Operating Revenues are forecasted to be $524K above budget primarily due to higher than expected Conference and Event Center activity. Operating Expenses are forecasted to be $697K below budget primarily due to EDD Initiative programs. Net Operating Income forecasted to be $1,221K above budget. At the end of the second quarter, capital spending for full year 2018 is forecasted to be $6M or 98% of the approved budget of $6.1M. Division Summary 2018 Forecast vs. 2017 Actuals Operating Revenues are expected to be $1,255K above 2017 primarily due to stronger sales at Bell Harbor Conference Center. Operating Expenses are expected to be $2,657K greater than 2017 primarily due to increased volumes at Conference and Event Centers $827K, EDD Initiatives $952K, Other Central Services $443K, and Economic Development Expenses other $442K. Net Operating Income is expected to be $1,402K less than 2017. A. BUSINESS EVENTS Portfolio Management Elevator modernization project for two passenger elevators and the service elevator at Pier 66 completed May 3, which was 3.5 weeks ahead of schedule Collaborating with NWSA on potential new Seattle facility for Customs and Border Protection. They would co-locate their two groups who currently are at T-102 and T-106. Preliminary estimates have been created and discussions about how to share the costs are underway between NWSA and POS. Tourism Port Commissioners authorized the Executive Director to execute all related contract agreements for the 26 awardees of the 2018 Tourism Marketing Support Program. Launched the Spotlight Advertising Program application process at Sea-Tac Int'l Airport in June. 25 IV. ECONOMIC DEVELOPMENT DIVISION FINANCIAL & PERFORMANCE REPORT 06/30/18 Real Estate Development In April Trammell Crow started construction at Des Moines Creek North property in SeaTac. Salmon Bay Marina acquisition closed in June. Design work at FT suspended pending final CIP resolution. Small Business Presented the Diversity in Contracting implementation plan to Commission on June 12th to address port wide goal setting, outreach, contracting, tracking, evaluation, and accountability. Workforce Development Airport Career Pathways Convening - Discussion co-facilitated with airport employers convened by Airport Director Lance Lyttle to identify potential opportunities for developing career pathways training to drive opportunities for low-wage workers to increase skills and wages. 26 IV. ECONOMIC DEVELOPMENT DIVISION FINANCIAL & PERFORMANCE REPORT 06/30/18 B. KEY PERFORMANCE METRICS 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 2017 Q3 2017 Q4 2017 Q1 2018 Q2 2018 Net Operating Income before Depreciation by Business Fav (UnFav) Incr (Decr) 2016 YTD 2017 YTD 2018 Year-to-Date 2018 Bud Var Change from 2017 $ in 000's Actual Actual Actual B udg e t $ % $ % Portfolio Management (1,514) (2,539) (2,062) (2,144) 82 4% 477 19% Conference & Event Centers 643 (483) (17) (608) 591 97% 466 96% Tourism (432) (528) (640) (762) 122 16% (112) -21% Workforce Development (143) (353) (368) (1,072) 705 66% (14) -4% EDD Grants (1) (427) (28) (480) 452 399 NA Env Grants/Remed Liab/ERC (33) (1) 0 0 0 1 -100% Total Econ Dev (1,479) (4,331) (3,115) (5,067) 1,951 39% 1,216 28% 27 IV. ECONOMIC DEVELOPMENT DIVISION FINANCIAL & PERFORMANCE REPORT 06/30/18 C. OPERATING RESULTS Fav (UnFav) Incr (Decr) 2016 YTD 2017 YTD 2018 Year-to-Date Budget Variance Change from 2017 $ in 000's Actual Actual Actual B udg e t $ % $ % Revenue 3,818 4,182 4,577 4,465 112 3% 395 9% Conf & Event Centers 4,518 3,545 5,188 4,776 412 9% 1,644 46% Total Revenue 8,337 7,727 9,765 9,242 524 6% 2,039 26% Expenses Portfolio Management 1,536 2,050 1,952 1,901 (51) -3% (98) -5% Conf & Event Centers 3,665 3,660 4,306 4,258 (48) -1% 646 18% P69 Facilities Expenses 81 96 114 171 57 33% 18 19% RE Dev & Planning 211 120 74 107 32 30% (46) -38% EconDev Expenses Other 321 383 473 584 111 19% 90 23% Maintenance Expenses 1,248 1,483 1,996 1,528 (468) -31% 513 35% Maritime Expenses (Excl Maint) 14 25 76 161 85 53% 52 210% Total EDD & Maritime Expenses 7,076 7,817 8,992 8,710 (282) -3% 1,175 15% Small Business 9 26 37 74 37 50% 10 39% Workforce Development 150 228 228 941 713 76% (1) 0% Tourism 420 514 620 750 130 17% 106 21% EDD Grants 0 427 28 480 452 94% (399) -93% Total EDD Initiatives 579 1,195 912 2,244 1,332 59% (283) -24% Environmental & Sustainability 9 130 121 188 67 36% (8) -7% CDD Expenses 113 200 139 172 33 19% (61) -31% Police Expenses 81 85 81 79 (2) -3% (3) -4% Other Central Services 1,907 2,576 2,576 2,852 276 10% (0) 0% Aviation Division 51 56 59 63 4 7% 3 6% Total Central Services & Aviation 2,161 3,046 2,976 3,354 378 11% (70) -2% Envir Remed Liability 0 0 0 0 0 NA 0 NA Total Expense 9,816 12,058 12,880 14,308 1,428 10% 823 7% NOI Before Depreciation (1,479) (4,331) (3,115) (5,067) 1,951 -39% 1,216 28% Depreciation 1,881 1,860 1,999 2,084 84 4% 139 7% NOI After Depreciation (3,360) (6,191) (5,114) (7,150) 2,036 -28% 1,077 17% 2018 YTD Actuals vs. Budget Operating Revenues were $524K higher than budget due to unplanned leases at T91 and higher volumes at the conference and event center. Operating Expenses were $1,428K lower than budget: o Workforce Development $713K lower than budget due to timing of spending for Construction Trades - Regional Partnership, K-12 Career Connected Learning, Maritime Initiative, and Airport Career Pathways implementation. o EconDev Other $111K lower than budget due to unspent Opportunity Fund. o EDD Grants $452K and Tourism $130K favorable to budget due to timing of invoices. o Maintenance cost unfavorable to budget by ($468K) due to unbudgeted HVAC repairs at Bell Street common areas and T91 work that should have been charged to Maritime. o Other Central Services $276K lower than budget primarily due to lower charges from Public Affairs $115K and Human Resources $50K. o All other expenses net to $214K lower than budget. Net Operating Income was $1,951K above budget. 28 IV. ECONOMIC DEVELOPMENT DIVISION FINANCIAL & PERFORMANCE REPORT 06/30/18 2018 YTD Actuals vs. 2017 YTD Actuals Operating Revenues were $2,039K higher than 2017 actual due to stronger sales resulting from the completion of the Pier 66 Cruise Terminal Expansion Project that disrupted the availability of space for conference events. Operating Expenses were $823K higher than 2017 actual: o Conference and Event Center $646K greater than 2017 due to higher sales activity at Bell Harbor International Conference Center. o Maintenance Expenses $513K greater than 2017 due to Maintenance at P66 Common Area and Terminal 91 Uplands. o EDD Grants ($399K) lower than 2017 due to timing of payments. o All other Expenses net to $63K above 2017 Net Operating Income was $1,216K above 2017 actual. Fav (UnFav) Incr (Decr) 2016 2017 2018 2018 Budget Variance Change from 2017 $ in 000's Actual Actual Forecast B udg e t $ % $ % Revenue 7,881 8,658 9,097 8,985 112 1% 439 5% Conf & Event Centers 8,022 9,133 9,949 9,537 412 4% 816 9% Total Revenue 15,903 17,791 19,046 18,522 524 3% 1,255 7% Expenses Portfolio Management 3,084 3,879 3,778 3,778 0 0% (101) -3% Conf & Event Centers 6,932 7,639 8,465 8,465 0 0% 827 11% P69 Facilities Expenses 180 206 289 289 0 0% 84 41% RE Dev & Planning 1,037 214 211 211 0 0% (3) -1% EconDev Expenses Other 628 773 1,227 1,227 0 0% 454 59% Maintenance Expenses 2,787 3,666 3,276 3,055 (221) -7% (390) -11% Maritime Expenses (Excl Maint) 31 52 344 344 0 0% 292 557% Total EDD & Maritime Expenses 14,679 16,429 17,591 17,370 (221) -1% 1,163 7% Small Business 21 64 140 140 0 0% 76 118% Workforce Development 522 850 1,292 1,992 700 35% 442 52% Tourism 1,093 1,234 1,460 1,460 0 0% 225 18% EDD Grants 20 751 960 960 0 0% 209 28% Total EDD Initiatives 1,656 2,900 3,852 4,552 700 15% 952 33% Environmental & Sustainability 62 260 363 398 35 9% 103 40% CDD Expenses 250 387 264 329 65 20% (123) -32% Police Expenses 157 51 156 158 2 1% 105 205% Other Central Services 4,223 5,257 5,700 5,816 116 2% 443 8% Aviation Division 107 113 127 127 0 0% 15 13% Total Central Services & Aviation 4,800 6,068 6,611 6,829 218 3% 542 9% Envir Remed Liability 0 0 0 0 0 NA 0 NA Total Expense 21,135 25,397 28,055 28,751 697 2% 2,657 10% NOI Before Depreciation (5,232) (7,606) (9,008) (10,229) 1,221 -12% (1,402) 18% Depreciation 3,682 3,863 4,156 4,156 0 0% 293 8% NOI After Depreciation (8,914) (11,469) (13,164) (14,385) 1,221 -8% (1,695) 15% 2018 Forecast vs. 2018 Budget Operating Revenues are forecasted to be $524K higher than budget: o Higher than expected occupancy at Terminal 102 Corporate Center and Terminal 91 Uplands. o Higher conference sales activity at Bell Harbor International Conference Center. Operating Expenses are forecasted to be $697K lower than budget: 29 IV. ECONOMIC DEVELOPMENT DIVISION FINANCIAL & PERFORMANCE REPORT 06/30/18 o Under-spent in Workforce Development Initiatives ($700K). o Unbudgeted HVAC repair at P66. Net Operating Income is forecasted to be $1,221K above budget. 2018 Forecast vs. 2017 Actuals Operating Revenues are forecasted to be $1.3 M higher than 2017 actual: o High occupancy at most properties, annual increases for existing leases, and higher lease rates for new leases. o Stronger sales activity at Bell Harbor Conference Center due to the completion of the P66 Cruise Terminal expansion project. Operating Expenses are forecasted to be $2.7M higher than 2017 actual: o Economic Development Initiatives $952K. o Conference & Events Centers: higher sales activity resulting in higher expense $827K. o Other Central Services $443K. Net Operating Income is forecasted to be $1.4M below 2017 actual. D. CAPITAL RESULTS Budget Variance 2018 YTD 2018 2018 Actual Fore cas t Budge t $ % $ in 000's P66 Elevator 2,3,4 Upgrades 956 1,229 1,175 (54) -5% RE: Contingency Renew.&Replace 0 1,000 1,000 0 0% BHICC Interior Modernization 100 900 710 (190) -27% Small Projects 59 525 516 (9) -2% Tenant Improvements -Capital 23 897 532 (365) -69% P69 Solar Panel System 39 482 502 20 4% T-102 Outdoor Lighting 19 209 437 228 52% T91 Upland PreDevelopment 11 150 425 275 65% CW Elevator Modernization 0 100 325 225 69% All Other projects 156 536 527 (9)0 -2%N Total Economic Development 1,363 6,028 6,149 121 2% Comments on Key Projects: Through the 2nd quarter of 2018, Economic Development spent 22% of the annual approved capital budget. Full year spending is estimated to be 98% of budget. Projects with significant changes in spending were: Tenant Improvements Capital Additional $365K Tenant Improvements originally budgeted as expense. T-102 Outdoor Lighting Project cost refinement based on final design. Central Waterfront Elevator Modernization Scope reduction and shift of work to 2019/2020. 30 V. CENTRAL SERVICES FINANCIAL & PERFORMANCE REPORT 06/30/18 FINANCIAL SUMMARY Fav (UnFav) Incr (Decr) 2016 2017 2018 2018 Budget Variance Change from 2017 $ in 000's Actual Actual Fore cas t Budge t $ % $ % Total Operating Revenues 1,330 68 182 182 - 0.0% 113 166.0% Core Central Support Services 69,196 71,071 78,720 80,367 1,647 2.0% 7,648 10.8% Police 23,045 22,095 26,955 27,065 110 0.4% 4,860 22.0% Capital Development 12,218 17,370 21,058 26,289 5,231 19.9% 3,688 21.2% Environment & Sustainability 8,824 6,975 10,486 11,504 1,019 8.9% 3,511 50.3% Total Operating Expenses 113,284 117,511 137,218 145,225 8,008 5.5% 19,707 16.8% Division Summary 2018 Forecast vs. 2018 Budget Operating Revenues are forecasted to be $182K, on par with the budget for 2018. Operating Expenses are forecasted to be $8.0M favorable to budget mainly due to vacant positions, projects spending delay and lower Outside Services Costs. Capital spending is forecasted to be $17.7M, 72.6% of the 2018 budget. Division Summary 2018 Forecast vs. 2017 Actuals Operating Revenues are expected to be $113K above 2017 mainly due to higher reimbursed revenue for Police. Operating Expenses are forecasted to be $19.7M higher than 2017 mainly due to higher payroll expenses and more expense projects. A. BUSINESS EVENTS The Port Commission approved $200,000 in grants for 26 tourism-related projects across the state of Washington. Port of Seattle, City of SeaTac, and IAC Properties Brook Ground on an Industrial Site to create a 460,000 square foot industrial facility that will employ approximately 400 full time workers. The Port welcomed the inaugural flight of Thomas Cook Airlines nonstop service to Manchester. The Port Commission has appointed a panel of four experts to independently review costs and schedules associated with the new International Arrivals Facility (IAF) now under construction at Seattle-Tacoma International Airport. The Port welcomed the Norwegian Bliss, the newest ship in the Norwegian Cruise Line fleet. At over 168,000 gross tons and a capacity of 4,004, double occupancy, which is the largest cruise vessel on the west coast and was built especially for the Alaska cruise market. The Norwegian Bliss marked a major milestone for the Port of Seattle, which over the last 18 years has transformed into the largest and fastest growing cruise business on the west coast, while earning a reputation for progressive environmental protections. Seattle Harbor Deepening Project Received U.S. Army Corps of Engineers Leadership Approval. Sponsored the First Annual Safety Stand Down, which included 8 sessions and an online version for employees who could not attend. Issued Intermediate Lien Revenue Bonds of $555,564,000 to finance or refinance capital improvements to aviation facilities. Work included conducting Rating Agency meetings and due diligence meeting and negotiated sale. Replaced the Port of Seattle Website. The new site reflects the current organizational structure, focuses on engaging our customers, and provides infrastructure for organizational content updates. Added new functionality to the Sea-Tac Hardstand Equipment Management System, which is tightly integrated to the flight information system allowing for proactive updates as flight data is provided by airlines. 31 V. CENTRAL SERVICES FINANCIAL & PERFORMANCE REPORT 06/30/18 B. KEY PERFORMANCE METRICS Key Performance Indicators/Measures YTD 2018 YTD 2017/Notes A. Century Agenda Strategies 1. Small Business Participation Annual / Small Works (portwide ) 68.3% 76.9% 2. Small Business Participation Annual / Major Construction (port-wide) including Mega projects 12.44% 29.9% 3. Small Business Participation Annual / Goods & Services (port-wide) 25.9% 24.6% 4. Small Business Participation Service Agreements (port-wide) - Annual (including Legal department Service Agreements) 50.1% 49.3% 5. Minority/Women-Owned Business Participation in Capital Development Contracts 4.5% N/A B. High Performance Organization - Customer Satisfaction 1. Respond to Public Disclosure Requests 305 264, increased by 41 2. Information and Communication Technology System 99.2% 99.7% Availability 3. Customer Survey for Police Service Excellent or Very Good 88% 83% 4. Oversee Implementation and Administration of CBAs 79 99 agreements 195 443, decreased by 5. Number of Jobs Openings 248 6. Percent of annual audit work plan completed each year 100% 39% 7. Request of information and guidelines for integrity & business 136 113 conduct C. High Performance Organization - Talent Development & Safety 8 classes, 76 14 classes, 104 1. MIS and Clarity Training attendees attendees 772 1878, decreased 2. Employee Development Class Attendees/Structured Learning by 1106 3. Required Safety Training N/A 64% 4. Occupational Injury Rate 5.50 4.94 5. Days Away Severity Rate 32.02 N/A D. Financial Performance 1. Corporate costs as a % of Total Operating Expenses 31.6% 32.8% 2. Construction Soft Costs - Total Soft Costs (36 months avg.) 24% 28% 3. Clean independent CPA audits involving AFR yes yes 4. Timely process disbursement payment requests 4 days 3 days 5. Keep receivables collections 85% current (within 30 days) 88% 95% 6. Investment Portfolio Yield 1.69% 1.42% 7. Litigation and Claim Reserves (in $ thousand) $348 $1,531 32 V. CENTRAL SERVICES FINANCIAL & PERFORMANCE REPORT 06/30/18 C. OPERATING RESULTS Financial Summary (YTD) Fav (UnFav) Incr (Decr) 2016 YTD 2017 YTD 2018 Year-to-Date Budget Variance Change from 2017 $ in 000's Actual Actual Actual Budge t $ % $ % Total Operating Revenues 75 82 81 56 25 45.0% (1) -1.2% Core Central Support Services 31,594 34,692 36,661 39,178 2,517 6.4% 1,969 5.7% Police 11,312 11,378 13,188 13,511 323 2.4% 1,810 15.9% Capital Development 4,747 7,763 7,733 13,075 5,342 40.9% (30) -0.4% Environment & Sustainability 3,303 3,347 2,954 4,676 1,722 36.8% (393) -11.8% Total Operating Expenses 50,956 57,181 60,536 70,441 9,904 14.1% 3,356 5.9% 2018 YTD Actuals vs. Budget Operating Revenues were $25K favorable to budget due to higher miscellaneous revenues. Operating Expenses were $9.9M favorable to budget due primarily to vacant positions, hiring delays, and lower Outside Services Costs. 2018 YTD Actuals vs. 2017 YTD Actuals Operating Revenues were basically on par with 2017 level. Operating Expenses were $3.4M higher than last year primarily due to higher Payroll and Outside Services Costs. 33 V. CENTRAL SERVICES FINANCIAL & PERFORMANCE REPORT 06/30/18 Financial Summary (Year-End Forecast) Fav (UnFav) Incr (Decr) 2016 2017 2018 2018 Budget Variance Change from 2017 $ in 000's Notes Actual Actual Forecast Budge t $ % $ % Total Revenues 1,330 68 182 182 - 0.0% 113 166.0% Executive 2,185 1,287 1,877 2,001 124 6.2% 590 45.8% C ommission 1,569 1,685 1,954 1,984 30 1.5% 269 16.0% Legal 3,365 3,741 3,706 3,617 (89) -2.5% (35) -0.9% Public Affairs 6,033 7,112 7,993 8,308 315 3.8% 881 12.4% Human Resources 7,001 8,418 9,566 9,689 123 1.3% 1,149 13.6% Labor Relations 1,268 1,678 1,222 1,371 149 10.9% (456) -27.2% Internal Audit 1,455 1,603 1,750 1,828 78 4.3% 147 9.2% Accounting & Financial Reporting Services 6,550 6,751 7,929 8,148 218 2.7% 1,179 17.5% Information & Communication Technology 20,158 21,633 23,483 23,308 (175) -0.8% 1,850 8.5% Finance & Budget 4,810 4,998 5,793 5,828 36 0.6% 795 15.9% Maritime Finance 1,212 1,229 1,478 1,478 - 0.0% 249 20.2% Seaport Finance 811 737 878 878 - 0.0% 142 19.2% Environmental Finance 401 492 600 600 - 0.0% 107 21.8% Finance & Budget 1,647 1,871 1,953 1,955 1 0.1% 82 4.4% Aviation Finance & Budget 1,950 1,897 2,361 2,395 34 1.4% 464 24.5% Business Intelligence 1,004 1,211 1,485 1,543 58 3.7% 274 22.7% Risk Services 3,202 3,077 3,289 3,322 33 1.0% 212 6.9% Office of Strategic Initiatives 1,393 1,882 1,981 2,265 284 12.5% 99 5.3% Central Procurement Office 6,963 3,861 4,261 4,511 250 5.5% 401 10.4% Security and Preparedness 1,420 1,754 2,329 2,394 65 2.7% 574 32.7% Contingency 369 381 100 250 150 60.0% (281) -73.7% Core Central Support Services 69,196 71,071 78,720 80,367 1,647 2.0% 7,648 10.8% Police 23,045 22,095 26,955 27,065 110 0.4% 4,860 22.0% Total Before Cap Dev & Environment 92,241 93,166 105,674 107,432 1,757 1.6% 12,508 13.4% Capital Development Engineering 4,493 5,284 7,248 7,841 592 7.6% 1,964 37.2% Port Construction Services 3,488 3,709 4,981 5,685 705 12.4% 1,271 34.3% Aviation PMG 2,823 6,942 6,933 10,977 4,044 36.8% (9) -0.1% Seaport PMG 999 1,007 1,288 1,178 (110) -9.3% 281 27.9% Capital Development Admin 416 428 607 607 - 0.0% 180 41.9% Sub-Total 12,218 17,370 21,058 26,289 5,231 19.9% 3,688 21.2% Environment & Sustainability Aviation Environmental 5,857 3,779 5,793 6,503 710 10.9% 2,014 53.3% Maritime Environmental & Planning 2,098 2,157 2,796 3,046 250 8.2% 639 29.6% Noise Programs 722 670 800 742 (58) -7.8% 130 19.4% Environment & Sustainability 148 368 1,096 1,214 118 9.7% 728 197.5% Sub-Total 8,824 6,975 10,486 11,504 1,019 8.9% 3,511 50.3% Total Expenses 113,284 117,511 137,218 145,225 8,008 5.5% 19,707 16.8% 2018 Forecast vs. 2018 Budget Operating Expenses are forecasted to be $8.0M under budget due primarily to: o Executive favorable variance is due to the Executive Director's position being vacant for a month and a part time position remains unfilled; less travel and downgrading of a membership. o Commission favorable variance is due to a vacant position which has been filled. 34 V. CENTRAL SERVICES FINANCIAL & PERFORMANCE REPORT 06/30/18 o Legal unfavorable variance is due to Legal Expenses. o Public Affairs favorable variance is due to three vacant positions, lower Outside Services, Promotional Hosting and General Expenses. o Human Resources favorable variance is due to several vacant positions which will be somewhat offset by unbudgeted recruiting expenses for the Sr. Director position. o Labor Relations favorable variance is due to two vacant positions which one has been filled and credit received for a litigation reserve. o Internal Audit favorable variance is due to a vacant position which has been filled. o Accounting and Financial Reporting Services favorable variance is due to 3 vacant positions and credit card rebates. The savings in Salaries and Benefits have been used to cover retro-active pay for positions recently converted to Non-Exempt and to backfilled a vacant position with a temporary employee. o Information & Communication Technology unfavorable variance is due to unbudgeted pay increases associated with the recent job refresh. o Finance & Budget favorable variance is due to vacant positions. o Business Intelligence favorable variance is due to a vacant position. o Risk Services anticipates property insurance renewal and broker fees being lower. o Office of Strategic Initiative favorable variance is due to two vacant positions. o Central Procurement Office favorable variance is due to vacant positions. o Security and Preparedness favorable variance is due to a vacant position. o Contingency plans on spending less than what was anticipated at budget. o Police favorable variance is due to vacant positions and savings in Travel and Other Related Expenses. o Capital Development favorable variance in Outside Services is due to hiring fewer contractors than budgeted, delayed projects and change in design and scope of the South Satellite project. o Environment & Sustainability favorable variance is due to vacant positions and savings in Outside Services due to delayed in SAMP, Energy & Sustainability fund and Forterra Assessment Plan. 2018 Forecast vs. 2017 Actuals Operating Expenses are forecasted to be $19.7M higher than 2017 actuals mainly due to: o Capital Development forecast $3.7M above 2017 mainly due to the following: More project-related expense to support the operating divisions. Office-moving expense/office rent in 2018. o Police forecast $4.9M above 2017 due to the following: Added 3 K-9 Handlers in mid-2017 (and the 2018 number reflects the full-year costs). Lower payroll costs resulted from a number of vacant positions in 2017, including the vacant Police Chief/Deputy Chief positions for several months. Adding 12 Police Officers requested by the airlines in 2018. More overtime in the first quarter of 2018. o Environment & Sustainability forecast $3.5M over 2017 due to the following: SAMP Environmental Review expense is $1.7M for 2018 compared only $169K spent in 2017 (even though we budgeted for $2.3M for 2017). ACE fund, Energy & Sustainability fund, and Forterra Assessment Plan total to be $600K for 2018 while we spent very little last year. Added 3 new FTEs in the 2018 Environment & Sustainability budget. Added $175K for Aviation Biofuel Partnership Fund Development Project in the 2018 budget. Added $140K for terminals/facilities waste audits and reports for Maritime ENV in the 2018 budget. Included $110K for emission inventory update and three ports Salish Sea water initiative in the 2018 budget. 35 V. CENTRAL SERVICES FINANCIAL & PERFORMANCE REPORT 06/30/18 D. CAPITAL RESULTS 2018 YTD 2018 2018 Budget Variance $ in 000's Actual Fo recast Budget $ % Infrastructure - Small Cap 210 1,500 1,500 0 0.0% Services Tech - Small Cap 110 1,150 1,150 0 0.0% Project Cost Mgmt System 221 600 600 0 0.0% Supplier Database System 137 487 450 (37) -8.2% Corporate Firewall 26 922 922 0 0.0% PeopleSoft Financials Upgrade 566 1,866 3,100 1,234 39.8% Radio System Upgrade 7 7,800 12,000 4,200 35.0% Police Records Mgmt System 0 200 700 500 71.4% CDD Fleet Replacement 172 1,040 1,210 170 14.0% Corporate Fleet Replacement 45 1,180 1,180 0 0.0% Other (note 1) 129 929 1,526 597 39.1% TOTAL 1,623 17,674 24,338 6,664 27.4% Note: (1) "Other" includes remaining ICT projects and small capital projects/acquistions. 36
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