9b 2019 Financial Performance Report
Item No. 9b attach . Meeting Date: March 10, 2020 PORT OF SEATTLE 2019 FINANCIAL PERFORMANCE REPORT AS OF DECEMBER 31, 2019 TABLE OF CONTENTS PAGE I. Portwide Performance Report 3-6 II. Aviation Division Report 7-14 III. Maritime Division Report 15-18 IV. Economic Development Division Report 19-22 V. Central Services Division Report 23-27 2 I. PORTWIDE FINANCIAL & PERFORMANCE REPORT 12/31/19 EXECUTIVE SUMMARY PORTWIDE FINANCIAL SUMMARY Fav (UnFav) Incr (Decr) 2017 2018 2019 2019 Budget Variance Change from 2018 $ in 000's Actual Actual Actual Budget $ % $ % Aeronautical Revenues 264,114 291,268 357,598 365,604 (8,006) -2.2% 66,330 22.8% Airport Non-Aero Revenues 236,803 257,707 269,037 259,537 9,501 3.7% 11,331 4.4% Non-Airport Revenues 131,114 140,415 137,538 128,115 9,424 7.4% (2,876) -2.0% Total Operating Revenues 632,031 689,390 764,174 753,255 10,919 1.4% 74,784 10.8% Total Operating Expenses 372,982 397,638 443,089 454,986 11,896 2.6% 45,452 11.4% NOI before Depreciation 259,049 291,752 321,085 298,269 22,815 7.6% 29,333 10.1% Depreciation 165,021 164,362 174,971 168,676 (6,294) -3.7% 10,608 6.5% NOI after Depreciation 94,028 127,390 146,114 129,593 16,521 12.7% 18,725 14.7% 2019 Actual vs. 2019 Budget: The Port's operating results for 2019 were very strong. Total operating revenues were $10.9M higher than budget due to continued strong performance in ADR & Terminal Leased Space, Ground Transportation, Rental Cars, Clubs and lounges, Airport Commercial Properties, Conference & Event Centers, and NWSA Distributable Revenues. Total operating expenses were $11.9M below budget, largely due to a DRS Pension Plan credit of $16.5M, spending delays on Outside Services, and underspending in utilities and travel accounts which were partially offset by higher costs related to snow removal at the airport during the snowstorm in February. 2019 Actual vs. 2018 Actual: The Port's total operating revenues were $74.8M higher compared with the prior year due to higher revenues in Clubs & Lounges, Ground Transportation, ADR & Terminal Leased Space, Public Parking, and Cruise. Total expenses were $45.5M above prior year actuals due to higher spending in Outside Services, Equipment Expense, Environmental Remediation Liabilities Expense, Third Party Management Expense, higher payroll costs driven by the addition of new staff, and additional funding to support the Port's business goals and initiatives. NON-AIRPORT FINANCIAL SUMMARY Fav (UnFav) Incr (Decr) 2017 2018 2019 2019 Budget Variance Change from 2018 $ in 000's Actual Actual Actual Budget $ % $ % NWSA Distributable Revenue 54,925 55,992 47,979 43,911 4,069 9.3% (8,013) -14.3% Maritime Revenues 54,183 57,575 59,289 59,729 (440) -0.7% 1,714 3.0% EDD Revenues 17,791 20,705 21,151 19,725 1,426 7.2% 446 2.2% SWU & Other 4,214 6,143 9,119 4,749 4,370 92.0% 2,976 48.4% Total Operating Revenues 131,114 140,415 137,538 128,115 9,424 7.4% (2,876) -2.0% Total Operating Expenses 73,868 78,789 86,455 88,881 2,426 2.7% 7,666 9.7% NOI before Depreciation 57,246 61,626 51,084 39,234 11,850 30.2% (10,542) -17.1% Depreciation 40,619 40,159 38,737 37,832 (905) -2.4% (1,422) -3.5% NOI after Depreciation 16,628 21,467 12,347 1,402 10,944 780.5% (9,120) -42.5% 3 I. PORTWIDE FINANCIAL & PERFORMANCE REPORT 12/31/19 2019 Actual vs. 2019 Budget: Excluding Aeronautical revenues which are based on cost recovery and Airport Non-Aero Revenues, Total Non- Airport operating revenues were $9.4M above budget mainly due to higher revenues from Conference & Event Centers and NWSA Distributable Revenues. Total operating expenses were $2.4M lower than budget due to DRS Pension Plan True-up credit, unfilled positions, and lower Outside Services and Travel & Other Employee expenses. 2019 Actual vs. 2018 Actual: Non-airport operating revenues were $2.9M less than the prior year due to the decline in NWSA Distributable Revenues driven by lower container volumes, a lease termination and higher expenses due to increased depreciation and crane removal expenses. MAJOR OPERATING REVENUES SUMMARY Fav (UnFav) Incr (Decr) 2017 2018 2019 2019 Budget Variance Change from 2018 $ in 000's Actual Actual Actual Budget $ % $ % Aeronautical Revenues 264,114 291,268 357,598 365,604 (8,006) -2.2% 66,330 22.8% Public Parking 75,106 80,212 82,125 82,350 (226) -0.3% 1,913 2.4% Rental Cars - Operations 35,051 37,306 36,793 36,455 339 0.9% (513) -1.4% Rental Cars - Operating CFC 10,641 16,263 15,773 13,624 2,149 15.8% (490) -3.0% ADR & Terminal Leased Space 58,980 64,323 68,013 64,393 3,620 5.6% 3,690 5.7% Ground Transportation 15,684 18,772 20,765 19,734 1,031 5.2% 1,993 10.6% Employee Parking 9,617 10,269 10,438 10,134 304 3.0% 168 1.6% Airport Commercial Properties 18,042 15,434 15,773 14,219 1,554 10.9% 339 2.2% Airport Utilities 7,018 7,206 7,431 8,058 (627) -7.8% 225 3.1% Clubs and Lounges 5,041 6,802 10,274 8,520 1,753 20.6% 3,472 51.0% Cruise 17,596 18,880 22,410 22,406 4 0.0% 3,530 18.7% Recreational Boating 11,086 12,529 12,484 12,794 (311) -2.4% (45) -0.4% Fishing & Operations 9,297 9,763 10,024 9,947 77 0.8% 261 2.7% Grain 5,427 5,167 4,266 4,254 12 0.3% (901) -17.4% Maritime Portfolio Management 10,787 11,305 10,108 10,328 (220) -2.1% (1,198) -10.6% Central Harbor Management 8,634 9,018 8,898 8,895 3 0.0% (119) -1.3% Conference & Event Centers 9,133 11,703 12,239 10,795 1,444 13.4% 536 4.6% NWSA Distributable Revenue 54,925 55,992 47,979 43,911 4,069 9.3% (8,013) -14.3% Other 5,854 7,177 10,783 6,833 3,950 57.8% 3,606 50.2% Total Operating Revenues (w/o Aero) 367,917 398,122 406,576 387,651 18,924 4.9% 8,454 2.1% TOTAL 632,031 689,390 764,174 753,255 10,919 1.4% 74,784 10.8% MAJOR OPERATING EXPENSES SUMMARY Fav (UnFav) Incr (Decr) 2017 2018 2019 2019 Budget Variance Change from 2018 $ in 000's Actual Actual Actual Budget $ % $ % Salaries & Benefits 112,837 127,575 137,399 142,611 5,212 3.7% 9,824 7.7% Wages & Benefits 108,041 108,381 119,944 129,319 9,375 7.2% 11,562 10.7% Payroll to Capital Projects 25,708 28,329 27,844 33,899 6,055 17.9% (485) -1.7% Equipment Expense 11,118 10,622 11,871 8,035 (3,836) -47.7% 1,249 11.8% Supplies & Stock 10,238 10,781 11,200 8,755 (2,445) -27.9% 420 3.9% Outside Services 83,603 99,885 107,207 115,243 8,036 7.0% 7,322 7.3% Utilities 23,529 25,552 25,838 28,169 2,330 8.3% 286 1.1% Travel & Other Employee Expenses 4,767 4,848 5,467 6,936 1,468 21.2% 620 12.8% Promotional Expenses 1,408 1,956 3,022 2,650 (372) -14.0% 1,067 54.5% Other Expenses 37,134 32,789 47,931 41,912 (6,019) -14.4% 15,141 46.2% Charges to Capital Projects/Overhead Alloc (45,401) (53,081) (54,634) (62,542) (7,908) 12.6% (1,553) 2.9% TOTAL 372,982 397,638 443,089 454,986 11,896 2.6% 45,452 11.4% 4 I. PORTWIDE FINANCIAL & PERFORMANCE REPORT 12/31/19 KEY PERFORMANCE METRICS Fav (UnFav) Incr (Decr) 2018 2019 2019 Budget Variance Change from 2018 Actual Actual Budget Chg. % Chg. % Total Passengers (in 000's) 49,850 51,829 50,787 1,042 2.1% 1,979 4.0% Landed Weight (lbs. in 000's) 30,350 31,562 29,912 1,650 5.5% 1,212 4.0% Passenger CPE (in $) 10.79 12.85 13.39 (0.54) -4.0% 2.06 19.1% Grain Volume (metric tons in 000's) 4,379 3,404 3,580 (176) -4.9% (975) -22.3% Cruise Passenger (in 000's) 1,115 1,211 1,203 7 0.6% 96 8.6% Shilshole Bay Marina Occupancy 96.3% 94.7% 96.2% -1.5% -1.6% -1.6% -1.7% KEY BUSINESS EVENTS The Port adopted the Duwamish Valley Community Benefits Commitment Policy to promote community partnerships, healthy environments and communities, and economic prosperity. The Port also sponsored Green City Days in near-airport communities as part of the multi-year collaborative project to foster urban forest stewardship. Additionally, the Port announced its partnership with sustainability leaders to develop the Embodied Carbon in Construction Calculator (EC3) tool which will enable the building industry to transparently measure, compare, and reduce embodied carbon emissions from construction materials. The Racial Equity Pilot program was implemented, and several construction contracts were awarded for the new Shilshole Customer Service Facility Building. The Port also hosted 11 PortGen events in 2019 with over 300 small/WMBE businesses in attendance. The Port received several awards in 2019 which included the AAPA Award of Excellence in environmental enhancements for stormwater innovations; the Government Finance Officers Association's (GFOA) Certificate of Achievement for Excellence in Financial Reporting for the Comprehensive Annual Financial Report (CAFR) for the 14th consecutive year; and GFOA's Distinguished Budget Presentation Award for the 2019 Budget document for the 12th consecutive year. In addition, the Port's maritime parks and public access areas have once again been awarded the Salmon-Safe certification for its commitment to protect the Puget Sound water quality by enhancing the ecological environment and restoring salmon habitat. The Port also won its second Cruise Critic Award, this time for Best North American Homeport in 2019. Seattle was also named 'Cruiser's Choice' in Top 5 Destinations for 2019. The 2019 cruise season ended with a record number of passengers of over 1.2M and a successful Port Valet program with 20% overall increase in passenger participation year over year. In December, the Port set guiding principles for the public-facing use of biometric technology at Port facilities after conducting study sessions in September and October. The next step would be to translate these principles into policies that will guide decision-making regarding this topic. The Airport launched the voluntary Late-Night Noise Limitation Program to encourage air carriers to fly during less noise-sensitive hours or transition to quieter aircraft; the recently released 2019 fourth quarter report showed all airlines with late-night operations that exceeded noise thresholds during the quarter and ranked air carriers by their number of exceedances during the late-night hours. The Airport also launched several programs which included: SEA Visitor program, on-line parking prebooking /reservation system, and on-demand taxi system. 5 I. PORTWIDE FINANCIAL & PERFORMANCE REPORT 12/31/19 CAPITAL SPENDING SUMMARY 2016 2017 2018 2019 2019 Budget Variance $ in 000's Actual Actual Actual Actual Budget $ % Aviation 153,889 294,497 579,135 573,598 767,732 194,134 25.3% Maritime 5,744 20,489 25,091 7,887 17,638 9,751 55.3% Economic Development 4,731 3,739 2,066 3,121 5,713 2,592 45.4% Central Services & Other 1 5,097 5,798 11,456 12,027 25,203 13,176 52.3% TOTAL 169,461 324,523 617,748 596,633 816,286 219,653 26.9% Note: (1) "Other" includes Street Vacation projects and Storm Water Utility Small Capital projects. There has been a significant increase in capital spending in the last two years. The 2019 capital spending was $596.6M which represents 73% of the budget. Major projects include: IAF, NSAT, and Checked Baggage Recap Optimization. PORTWIDE INVESTMENT PORTFOLIO During the fourth quarter of 2019, the investment portfolio earned 2.12% versus the benchmark's (the Bank of America Merrill Lynch 1-3 Year US Treasury & Agency Index) 1.60%. Over the last twelve months the portfolio and the benchmark have earned 2.16% and 1.85%, respectively. Since the Port became its own Treasurer in 2002, the life-to-date earnings of the Port's portfolio and the benchmark are 2.44% and 1.83%, respectively. 6 II. AVIATION DIVISION FINANCIAL & PERFORMANCE REPORT 12/31/19 FINANCIAL SUMMARY Fav (UnFav) Incr (Decr) 2017 2018 2019 2019 Budget Variance Change from 2018 $ in 000's Actual Actual Actual Budget $ % $ % Operating Revenues: Aeronautical Revenues 264,114 291,268 357,598 365,604 (8,006) -2.2% 66,330 22.8% Non-Aeronautical Revenues 236,803 257,707 269,037 259,537 9,501 3.7% 11,331 4.4% Total Operating Revenues 500,916 548,975 626,636 625,140 1,495 0.2% 77,661 14.1% Total Operating Expense 299,114 318,849 356,635 366,105 9,470 2.6% 37,786 11.9% Net Operating Income 201,802 230,126 270,001 259,036 10,965 4.2% 39,875 17.3% Capital Expenditures 293,785 579,135 573,598 767,732 194,134 25.3% (5,537) -1.0% (1) Annual non-cash amortization of $17.9M lease incentive related to the 5 year SLOA III agreement which ended in 2017. 2019 Actual vs. 2019 Budget Total Net Operating Income (NOI) for 2019 is $10.9M higher than budget (4.2% favorable), driven by: o Higher Non-Aeronautical revenue (9.5M or 3.7% favorable) due to strong performance at year-end with Port Clubs and Lounges, In-Flight Meals, TNCs (Transportation Network Companies) within Ground Transportation, Airport Dining & Retail, Non-Airline Terminal Leased Space, and Rental Cars. Public Parking came in line with budget at year-end. o Operating Expenses performed favorable to budget ($9.5M or 2.6%), driven primarily the year-end pension credit adjustment which resulted in $13.4M in payroll cost savings. Additionally, there were savings of $3.0M in allocations from other divisions - largely due to spending delays of approximately $745k in Central Services, $1.7M in Capital Development, and $550K in Police. Without the pension credit savings, total operating expenses would be slightly unfavorable ($3.9M or 1.1%) to budget - mainly due to Q1 snow cleanup impact, environmental remediation expenses, and capital write-offs to expenses. 2019 Actual vs. 2018 Actual Net Operating Income for 2019 is $39.9M higher than prior year (17.3% favorable) o Higher Operating Revenue ($77.7 or 14.1%) compared to prior year due to: Higher Aeronautical revenue ($66.3M higher) due to increased rate-based costs and lower revenue sharing. Stronger Non-Aeronautical revenue performance ($11.3M higher) in Port Clubs and Lounges, Ground Transportation, Non-Arline Terminal Lease Spaces, Public Parking, Commercial Properties, and Airport Dining & Retail. o Higher Operating Expenses ($37.8M or 17.3%) compared to prior year due to: Higher direct airport payroll costs related to increased staffing of approximately $7.3M (includes pension credit) Higher Airport Expenses mostly due to snow removal expenses incurred in 2019. Higher outside services expenses of approximately $7.1M primarily due to non-recurring expenses focused on addressing strategic initiatives throughout the airport. Higher charges from other divisions of $6.9M. Environmental Liability Expense is $9.7M higher, offset by lower Capital write-offs of $4.8M. 7 II. AVIATION DIVISION FINANCIAL & PERFORMANCE REPORT 12/31/19 A. BUSINESS EVENTS Activity: o Total passengers: +4.0% o International passengers: + 5.5% o Cargo metric tons: + 4.9% Other: o Launched SEA Visitor Pass program o Launched on-line parking pre-booking/reservation system o 100% of front-line staff completed WE ARE SEA training o Launched on-demand taxi system o Completed ADR (Master Plan) tenant selection process (Lease Grp 1-5) Business Highlight Goals Safety: o Airfield composite safety score of 19 exceeds annual target of 18 o Safety evaluation score of 105% vs. objective of 90% o Individual not going home: 63 vs. 2019 goal < 52 Security: o Modified approach to Phase 2 employee screening for airfield will initiate mobile random screening team in Q1 2020. o Perimeter Intrusion Detection system delayed, but on track for 2020. o Annual TSA regulatory compliance audit completed. No significant findings. Employee Engagement: o Goal was to increase employee engagement in the Aviation Division as evidenced by a 3% increase over the 2018 survey results by Q4 2019; however, decision was made to conduct survey in 2020 rather than Q4 2019. o Each department implemented action plans to address opportunities. Innovations & Efficiencies: o Conducted three Shark Tank innovation forums in 2019 o Implement two efficiencies or innovations in each department completed 18 vs. target of 22 Asset Management: o Completed inventories of 50% of airport assets (on plan) o Completed parking garage structural assessment by Q4 (on plan) Social Responsibility: o Airport Concessions Disadvantaged Business Enterprise (ACDBE) share of sales = 26.8% vs. goal of 22% o Disadvantaged Business Enterprise (DBE) share of FAA grant contract spending of 11.08% vs. goal of 8% o Women and Minority Business Enterprise share of spending on personal services contracts =14.9% vs. goal of 12% Customer Service: o Exceeded five-year average for 3 of 6 key ASQ measures (goal was 2): Exceeded: Waiting time at Security Check Points; Internet Access/Wi-Fi; Airport staff courtesy/helpfulness Missed: Washroom cleanliness; Ease of wayfinding; Comfort of waiting/gate areas Environment and Sustainability: o Substantial progress on renewable natural gas contract o Noise: substantial progress on sound insulation bid package for first condominium; insulated 17 single family homes o Stormwater: Received King County approval on plan to meet effluent limits Financial Performance: o Achieved both 2019 goals: Non-aeronautical NOI of $150.8M vs. budget of $136.6M 8 II. AVIATION DIVISION FINANCIAL & PERFORMANCE REPORT 12/31/19 Airline costs (CPE) of $12.85 vs. budget of $13.39 Major Capital Projects: o North Satellite: Completed Phase 1 Started construction on Phase 2 o International Arrivals Facility: Erection of center span and transport delayed (completed in January 2020) Pod C on track o Baggage Optimization: Phase 1 90% complete Phase 2 design complete Phase 2 bids exceeded engineers estimate likely delay Sustainable Airport Master Plan (SAMP) o Finalized NEPA scope of work; submitted updated forecast; progress on purpose and need, alternatives, existing conditions B. KEY PERFORMANCE METRICS % Change 2017 2018 2019 from 2018 Total Passengers (000's) Domestic 41,804 44,422 46,101 3.8% International 5,130 5,428 5,728 5.5% Total 46,935 49,850 51,829 4.0% Operations 416,124 438,391 450,487 2.8% Landed Weight (In Millions of lbs.) Cargo 2,323 2,471 2,485 0.6% All other 26,107 27,879 29,078 4.3% Total 28,431 30,350 31,562 4.0% Cargo - Metric Tons Domestic freight 242,271 241,397 252,671 4.7% International freight 123,934 133,274 143,647 7.8% Mail 59,651 57,644 57,231 -0.7% Total 425,856 432,315 453,549 4.9% 9 II. AVIATION DIVISION FINANCIAL & PERFORMANCE REPORT 12/31/19 Key Performance Measures Fav (UnFav) Incr (Decr) 2017 2018 2019 2019 Budget Vairance Change from 2018 Actual Actual Actual Budget $ % $ % Key Performance Metrics Cost per Enplanement (CPE) 10.52 10.79 12.85 13.39 0.53 4.0% 2.07 19.1% Non-Aeronautical NOI (in 000's) 133,101 149,959 150,752 136,534 14,218 10.4% 793 0.5% Other Performance Metrics O&M Cost per Enplanement 12.77 12.81 13.78 14.42 0.63 4.4% 0.98 7.6% Non-Aero Revenue per Enplanement 10.11 10.35 10.40 10.22 0.18 1.7% 0.05 0.4% Debt per Enplanement (in $) 114 133 133 123 (9) -7.7% (0) -0.3% Debt Service Coverage 1.57 1.66 1.68 1.65 0.03 2.1% 0.02 1.4% Days cash on hand (10 months = 304 days) 379 235 314 278 36 13.0% 79 33.5% Aeronautical Revenue Sharing ($ in 000's) (42,311) (36,863) (17,146) (15,682) (1,464) -9.3% 19,717 53.5% Activity (in 000's) Enplanements 23,416 24,894 25,874 25,394 480 1.9% 980 3.9% Key Performance Metrics 2019 Actual vs. 2019 Budget: Cost per Enplanement (CPE): o CPE is ($0.53, or 4.0%) favorable to 2019 budget driven primarily by lower allocations from other divisions driven by payroll savings due to pension credit and spending delays in projects and program spending. o Non-Aero NOI is ($14.2M or 10.4%) favorable to budget due to both higher revenues, payroll savings due to pension credit, and deferred project expense spending. 2019 Actual vs. to 2018 Actual: Non-Aero NOI: o CPE is $2.07 higher compared to prior year due to increase in rate-based costs and decrease in revenue sharing (from 40% to 20%) percentage under SLOA IV. o Non-Aero NOI is flat to prior year due to higher expenses incurred in 2019 compared to the rate of growth in revenue. The increases are primarily from new FTEs added for 2019 and non-recurring expenses focused on addressing strategic initiatives throughout the airport. 10 II. AVIATION DIVISION FINANCIAL & PERFORMANCE REPORT 12/31/19 C. OPERATING RESULTS Division Summary YE Actual Fav (UnFav) Incr (Decr) 2017 2018 2019 2019 Budget Variance Change from 2018 $ in 000's Actual Actual Actual Budget $ % $ % Operating Revenues: Gross Aeronautical Revenues (1) 267,690 291,268 357,598 365,604 (8,006) -2.2% 66,330 22.8% SLOA III Incentive Straight Line Adj (2) (3,576) - - - - 0.0% - N/A Aeronautical Revenues 264,114 291,268 357,598 365,604 (8,006) -2.2% 66,330 22.8% Non-Aeronautical Revenues 236,803 257,707 269,037 259,537 9,501 3.7% 11,331 4.4% Total Operating Revenues 500,916 548,975 626,636 625,140 1,495 0.2% 77,661 14.1% Operating Expenses: Payroll 114,463 125,341 132,688 135,611 2,923 2.2% 7,347 5.9% Outside Services 41,055 47,638 54,774 60,950 6,175 10.1% 7,137 15.0% Utilities 16,374 18,237 18,115 20,235 2,120 10.5% (122) -0.7% Other Airport Expenses 28,292 25,125 36,804 28,397 (8,407) -29.6% 11,680 46.5% Total Airport Direct Charges 200,184 216,341 242,382 245,192 2,810 1.1% 26,041 12.0% Environmental Remediation Liability 8,812 6,233 15,900 14,259 (1,641) -11.5% 9,667 155.1% Capital to Expense 2,856 6,891 2,089 - (2,089) 0.0% (4,802) -69.7% Total Exceptions 11,668 13,124 17,989 14,259 (3,730) -26.2% 4,865 37.1% Total Airport Expenses 211,852 229,465 260,371 259,451 (920) -0.4% 30,906 13.5% Police Costs 17,652 19,231 22,290 25,137 2,848 11.3% 3,059 15.9% Capital Development 14,701 12,607 12,906 16,242 3,336 20.5% 299 2.4% Other Central Services 51,004 53,121 56,135 60,129 3,994 6.6% 3,014 5.7% Maritime/Economic Development 3,904 4,425 4,933 5,145 212 4.1% 509 11.5% Total Charges from Other Divisions 87,262 89,384 96,264 106,654 10,389 9.7% 6,880 7.7% Total Operating Expense 299,114 318,849 356,635 366,105 9,470 2.6% 37,786 11.9% Net Operating Income 201,802 230,126 270,000 259,036 10,965 4.2% 39,875 17.3% CFC Surplus (2,750) (7,724) (6,889) (3,993) (2,896) -72.5% 834 10.8% Net Non-Operating Items in / out from ADF (3) 3,481 3,167 6,272 6,069 202 3.3% 3,105 98.0% SLOA III Incentive Straight Line Adj 3,576 - - - - 0.0% - n/a Debt Service (131,060) (136,218) (160,243) (158,696) (1,548) 1.0% (24,025) -17.6% Adjusted Net Cash Flow 75,050 89,351 109,140 102,416 6,723 6.6% 19,789 22.1% Operating Expenses 2019 Actual vs. 2019 Budget ($9.5M or 2.6% favorable): Total Operating Expenses is $9.5M favorable driven primarily by: o Year-end pension credit adjustment of $13.4M resulting in payroll cost savings. Without the pension credit adjustment, total operating expenses would have been approximately $3.9M over budget. This still would have been closely in-line within budget, within 1.1%. o Savings from spending delays (approximately $3M): Central Services ($745K favorable), Capital Development ($1.7M favorable), Police ($550K favorable) o The two categories of savings above helped to offset the following Direct Airport Expense that would have been over by $6.9M: Snow removal impact from Q1 2019 impacted both payroll and non-payroll costs by approx. $3.2M Environmental Remediation Liability (ERL) higher by $1.6M Capital to Expense charges higher by $2.1M 11 II. AVIATION DIVISION FINANCIAL & PERFORMANCE REPORT 12/31/19 Aeronautical Business Unit Summary YE Actual Fav (UnFav) Incr (Decr) 2017 2018 2019 2019 Budget Variance Change from 2018 $ in 000's Actual Actual Actual Budget $ % $ % Revenues: Movement Area 108,638 116,703 123,436 130,873 (7,437) -5.7% 6,733 5.8% Apron Area 16,771 15,627 22,016 19,714 2,302 11.7% 6,389 40.9% Terminal Rents 155,431 169,318 205,283 203,319 1,965 1.0% 35,965 21.2% Federal Inspection Services (FIS) 18,612 16,226 12,321 14,521 (2,199) -15.1% (3,905) -24.1% Total Rate Base Revenues 299,452 317,874 363,057 368,426 (5,370) -1.5% 45,183 14.2% Commercial Area 10,574 10,257 11,687 12,859 (1,172) -9.1% 1,430 13.9% Subtotal before Revenue Sharing 310,026 328,131 374,744 381,286 (6,542) -1.7% 46,613 14.2% Revenue Sharing (42,311) (36,863) (17,146) (15,682) (1,464) -9.3% 19,717 53.5% Other Prior Year Revenues (26) - - - - 0.0% - Total Aeronautical Revenues 267,690 291,268 357,598 365,604 (8,006) -2.2% 66,330 22.8% Total Aeronautical Expenses 195,414 211,101 238,349 243,102 4,753 2.0% 27,248 12.9% Net Operating Income 72,276 80,167 119,249 122,502 (3,253) -2.7% 39,083 48.8% Debt Service (1) (86,564) (91,673) (110,945) (109,343) (1,601) -1.5% (19,272) -21.0% Net Cash Flow (14,288) (11,506) 8,305 13,159 (4,854) 36.9% 19,811 172.2% Airline Rate Base Cost Drivers Fav (UnFav) Incr (Decr) 2017 2018 2019 2019 Budget Variance Change from 2018 $ in 000's Actual Actual Actual Budget $ % $ % O&M 192,188 206,076 231,927 237,387 (5,460) -2.3% 25,851 12.5% Debt Service Gross 113,832 115,419 135,902 136,513 (611) -0.4% 20,483 17.7% Debt Service PFC Offset (33,057) (32,987) (33,036) (33,045) 10 0.0% (48) 0.1% Amortization 29,654 32,371 30,599 30,121 478 1.6% (1,772) -5.5% Space Vacancy (2,264) (2,132) (1,516) (1,521) 5 -0.4% 616 -28.9% TSA Operating Grant and Other (901) (873) (820) (1,028) 208 -20.3% 53 -6.1% Rate Base Revenues 299,452 317,874 363,057 368,426 (5,370) -1.5% 45,183 14.2% Commercial area 10,574 10,257 11,687 12,859 (1,172) -9.1% 1,430 13.9% Total Aero Revenues 310,026 328,131 374,744 381,286 (6,542) -1.7% 46,613 14.2% Aeronautical 2019 Actual vs. 2019 Budget Aeronautical net operating income is ($3.3M or 2.7%) unfavorable to budget, due to: o Lower Aeronautical Revenues ($8M or 2.2%) driven primarily by savings in payroll due to the year-end pension credit adjustment approximately $2.1M adjustment to the Aero Rate Base, delayed spending in capital development and related capital project expenses, and higher revenue sharing to airlines due to stronger performance in the Non-Aeronautical businesses. Aeronautical 2019 Actual vs. 2018 Actual Net Operating Income for 2019 is $39M higher than prior year (48.8 % favorable) o $66.3M higher revenue from rate-based costs to recover increased airline activity, and due to lower revenue sharing to the Airlines per SLOA IV airline. 12 II. AVIATION DIVISION FINANCIAL & PERFORMANCE REPORT 12/31/19 o $27.2M higher expenses due to increased airport direct operating expenses to support increased airline activity and higher charges from other divisions. Non-Aero Business Unit Summary YE Actuals Fav (UnFav) Incr (Decr) 2017 2018 2019 2019 Budget Variance Change from 2018 $ in 000's Actual Actual Actual Budget $ % $ % Non-Aero Revenues Rental Cars - Operations 35,051 37,306 36,793 36,455 339 0.9% (513) -1.4% Rental Cars - Operating CFC 10,641 16,263 15,773 13,624 2,149 15.8% (490) -3.0% Public Parking 75,106 80,212 82,125 82,350 (226) -0.3% 1,913 2.4% Ground Transportation 15,684 18,772 20,765 19,734 1,031 5.2% 1,993 10.6% Airport Dining & Retail 54,611 59,021 61,615 59,484 2,131 3.6% 2,593 4.4% Non-Airline Terminal Leased Space 4,369 5,302 6,398 4,909 1,489 30.3% 1,096 20.7% Commercial Properties 18,042 15,434 15,773 14,219 1,554 10.9% 339 2.2% Utilities 7,018 7,206 7,431 8,058 (627) -7.8% 225 3.1% Employee Parking 9,617 10,269 10,438 10,134 304 3.0% 168 1.6% Clubs and Lounges 5,041 6,802 10,274 8,520 1,753 20.6% 3,472 51.0% Other 1,624 1,119 1,653 2,049 (395) -19.3% 534 47.7% Total Non-Aero Revenues 236,803 257,707 269,037 259,537 9,501 3.7% 11,331 4.4% Total Non-Aero Expenses 103,702 107,748 118,286 123,003 4,717 3.8% 10,538 9.8% Net Operating Income 133,101 149,959 150,752 136,534 14,218 10.4% 793 0.5% Less: CFC (Surplus) / Deficit (1) (2,750) (7,724) (6,889) (3,993) (2,896) -72.5% 834 10.8% Adjusted Non-Aero NOI 130,351 142,235 143,862 132,540 11,322 8.5% 1,627 1.1% Debt Service (1) (44,495) (44,545) (49,299) (49,352) 54 0.1% (4,753) -10.7% Net Cash Flow 85,856 97,690 94,564 83,188 11,376 13.7% (3,126) -3.2% (1) CFC excess and Debit service are forecasted/budgeted on an annual basis only. Thus, quarterly data is not available. Non-Aeronautical 2019 Actual vs. 2019 Budget Non-Aeronautical net operating income is $14.2M higher than budget (10.4% favorable). o Higher projected revenues ($9.5M or 3.7% higher) due to continued favorable performance in Port Clubs and Lounges, and in Ground Transportation - driven by strong demand. Non-Airline Terminal Leased Space, Rental Cars, and Airport Dining & Retail also ended favorably at year-end. Public Parking performed to Budget. o Lower expenses ($4.7M or 3.8% lower) due largely to savings from the pension credit adjustment and delayed spending from other divisions which helped to absorb the impact of snow removal costs to Landside in Q1. Non-Aeronautical 2019 Actual vs. 2018 Actual Non-Aeronautical Net Operating Income for 2019 is relatively flat compared to prior year (only $793k or 0.5% higher) despite stronger non-aeronautical revenues ($11.3M or 4.4% higher) in Clubs and Lounges, Airport Dining & Retail, Ground Transportation, and Public Parking. Expenses are ($10.5M or 9.8%) higher compared to prior year due to increased staffing, higher outside services expense primarily due to nonrecurring expenses focused on addressing strategic initiatives throughout the airport, and higher charges from other divisions. 13 II. AVIATION DIVISION FINANCIAL & PERFORMANCE REPORT 12/31/19 D. CAPITAL RESULTS Capital Variance $ in 000's 2019 2019 Budget Variance Description YTD Actual Budget $ % International Arrivals Fac-IAF (1) 311,613 376,548 64,935 17.2% NS NSAT Renov NSTS Lobbies (2) 133,219 141,054 7,835 5.6% SD Pond Bird Deterrent Improv (3) 3,489 9,620 6,131 63.7% AFLD Pvmnt Program 2016-2020 (4) 4,593 10,350 5,757 55.6% Terminal Security Enhancements (5) 1,796 6,700 4,904 73.2% RCF Pavement Remediation (6) 810 5,200 4,390 84.4% Checked Bag Recap/Optimization (7) 21,973 25,865 3,892 15.0% Arc Flash Mitigation (8) 80 3,636 3,556 97.8% Service Tunnel Renewal/Replace (9) 11,694 15,000 3,306 22.0% Highline School Insulation (10) 6 3,300 3,295 99.8% Parking Garage Elevators Modernization (11) 483 3,590 3,107 86.6% Fire Station - Westside (12) 949 4,000 3,051 76.3% SSAT Infrastructure HVAC (13) 9,072 6,250 (2,822) -45.1% All Other 73,822 156,618 82,796 52.9% Total Spending 573,598 767,732 194,134 25.3% 1. Steel fabrication and trade staffing challenges have caused significant delays to the project. 2. Delay with mechanical air handling equipment purchase, construction labor leveling efforts both contributed to annual cashflow variance. 3. Originally, the construction was to be done in one year, but construction timing has now shifted into year two. 4. WP U00495 (2019AIP) had bid much lower than engineer's estimate. WP U00503 (2020 AIP) scope originally was to be in four key locations on the Airfield. AVOPs indicated that the original scope locations were too disruptive. The 2020 project scope was adjusted to align with operations request. 5. 2019 Baseline cashflow prepared prior to scope revision (sidewalk surfacing). Scope revision contributed to a four-month construction delay. Subsequently, bids were cancelled, and construction did not start in 2019. 6. 2019 Baseline cashflow prepared prior to scope revision (security fencing). Scope revision delayed construction by two months. Subsequent to scope revision, construction delayed by an additional month due to a bid protest. 7. Contractor is six months behind schedule, spending is behind original estimate. 8. Design delays have postponed the start of construction until 2020. 9. 2019 Baseline cashflow assumed traffic management change order was implemented, ultimately, this did not occur. Furthermore, reduced spending on work in the main garage also contributed to the variance. 10. Awaiting grant issuance for project to commence. 11. Work project U00434 - elevator shafts and vestibules are being delayed until 2020 construction season due to design delays and weather windows. 12. A change in delivery method (from two major works contracts to one contract) has resulted in a delay in the construction start date until Q2 2020. 13. Adjusted the work areas to allow the contractor more efficiencies with larger spaces to complete the work, accelerating spending this year. 14 III. MARITIME DIVISION FINANCIAL & PERFORMANCE REPORT 12/31/19 FINANCIAL SUMMARY Fav (UnFav) Incr (Decr) 2017 2018 2019 2019 Budget Variance Change from 2018 $ in 000's Actual Actual Forecast Budget $ % $ % Total Revenues 54,183 57,575 59,289 59,729 (441) -1% 1,714 3% Total Operating Expenses 42,164 43,252 48,644 50,822 2,177 4% 5,392 12% Net Operating Income 12,020 14,323 10,644 8,908 1,737 19% (3,678) -26% Capital Expenditures 5,746 20,489 7,887 17,838 9,951 56% (12,602) -62% 2019 Actual vs. 2019 Budget Operating Revenues are $441K below budget. Operating Expenses are $2.2M below budget due to $1.9M pension adjustment. Net Operating Income $1.7M above budget. Capital spending for full year 2019 was $7.9 million or 44% of the approved budget of $17.8 million. 2019 Actual vs. 2018 Actual Operating Revenues are $1.7M above 2018 due to higher tariff rates and increased Cruise Passengers. These are offset by WSDOT leaving T46 and T106. Operating Expenses are $5.4M greater than 2018 primarily from increased wage rates, change in maintenance allocation, capital to expense, environmental remediation, and central services. Net Operating Income is $3.7M less than 2018. Net Operating Income before Depreciation by Business Fav (UnFav) Incr (Decr) 2017 2018 2019 Budget Variance Change from 2018 $ in 000's Actual Actual Actual Budget $ % $ % Ship Canal Fishing & Operations (2,411) (2,073) (2,512) (2,298) (213) -9% (438) -21% Elliott Bay Fishing & Commercial Operations 959 624 629 (269) 898 334% 5 NA Recreational Boating 1,305 2,125 1,325 1,045 280 27% (799) -38% Cruise 8,599 9,029 10,514 10,388 126 1% 1,484 16% Bulk 4,030 3,430 2,566 2,444 122 5% (863) -25% Maritime Portfolio 167 1,098 (1,338) (1,654) 316 19% (2,436) -222% All Other (630) 90 (540) (748) 208 28% (630) 698% Total Maritime 12,020 14,323 10,644 8,908 1,737 19% (3,678) -26% 15 III. MARITIME DIVISION FINANCIAL & PERFORMANCE REPORT 12/31/19 A. BUSINESS EVENTS Cruise Ended the 2019 cruise season with record number of passengers. RFP issued July 26, 2019 for solicitation of investment partner for new cruise terminal. Successful Port Valet program for 2019 cruise season with 20% overall increase in passenger participation year over year. Completed negotiations with CTA lease extension at T91. Completed preferential berth agreement with Carnival Cruise Lines guaranteeing 500,000 customers over the next three seasons. Fishing and Commercial Marinas The 680' Ocean Phoenix finished her last season of Pollock. This capacity currently has been absorbed by the 367' MV Excellence and the 276' Phoenix (formerly named Pacific Glacier). Additional new vessels of this class will be delivered in coming years. Design funding at Terminal 91 for the NW Fender and Berths 6 & 8 have been approved to meet this coming demand. Recreational Boating Implemented Racial Equity Pilot Program and awarded the construction contract for the new Shilshole Customer Service Facility Building scheduled to be delivered by May 2020. Environmental & Sustainability Completed Air Sparging system construction at T30. Signed Credits agreement with NOAA, enabling the Port to build and Sell Habitat. Recovered nearly $6M from energy grants/rebates, insurance, agreements, and derelict vessel earmark. Stormwater Utility Received the AAPA Award of Excellence in environmental enhancements for stormwater innovations. B. KEY PERFORMANCE METRICS Grain Volume Metric Tons in 000's Cruise Passengers in 000's 16 III. MARITIME DIVISION FINANCIAL & PERFORMANCE REPORT 12/31/19 C. OPERATING RESULTS Fav (UnFav) Incr (Decr) 2017 2018 2019 Budget Variance Change from 2018 $ in 000's Actual Actual Actual Budget $ % $ % Ship Canal Fishing & Operations 2,854 3,502 3,929 4,021 (92) -2% 427 12% Elliott Bay Fishing & Commercial Operations 6,443 6,755 6,095 5,927 169 3% (659) -10% Recreational Boating 11,086 12,035 12,484 12,794 (311) -2% 449 4% Cruise 17,596 18,880 22,410 22,406 4 0% 3,530 19% Grain 5,427 5,167 4,266 4,254 12 0% (901) -17% Maritime Portfolio Management 10,787 11,305 10,108 10,328 (220) -2% (1,198) -11% Other (9) (69) (3) 0 (3) NA 66 -96% Total Revenue 54,183 57,575 59,289 59,729 (441) -1% 1,714 3% Expenses Maritime (Excl. Maint) 11,937 11,326 13,364 13,957 592 4% 2,039 18% Economic Development 4,172 4,347 4,987 4,996 9 0% 640 15% Total Direct 16,109 15,673 18,352 18,953 601 3% 2,679 17% Maintenance Expenses 10,420 11,416 12,186 11,980 (206) -2% 770 7% Envir Services & Planning 1,078 1,553 2,250 2,559 309 12% 697 45% Seaport Project Management 240 295 175 222 48 21% (120) -41% Total Support Services 11,739 13,265 14,611 14,761 151 1% 1,346 10% IT 2,711 2,558 2,685 2,788 103 4% 127 5% Police Expenses 3,756 4,041 4,086 4,473 387 9% 45 1% External Relations 1,346 1,379 1,564 1,646 82 5% 185 13% Other Central Services 6,302 6,117 7,069 7,995 925 12% 952 16% Aviation Division / Other 202 220 278 206 (72) -35% 58 26% Total Central Services / Other 14,316 14,315 15,682 17,108 1,425 8% 1,367 10% Total Expense 42,164 43,252 48,644 50,822 2,177 4% 5,392 12% NOI Before Depreciation 12,020 14,323 10,644 8,908 1,737 19% (3,678) -26% Depreciation 17,410 18,022 17,627 17,613 (14) 0% (395) -2% NOI After Depreciation (5,390) (3,699) (6,982) (8,705) 1,723 20% (3,283) -89% 2019 Actual vs. 2019 Budget Operating Revenues were $441K lower than budget driven by lower than budgeted occupancy at the marinas. Operating Expenses were $2,177K lower than budget: 1) Direct Expenses were $601K below budget (Includes $374K favorable pension adjustment). Cruise $737K lower than budget due to cancellation of consulting work. Rec Boating $279K lower than budget due to open positions. Ship Canal Fishing & Operations $282K favorable primarily due to open positions budgeted for Salmon Bay Marina. Elliott Bay Fishing & Commercial Operations $55K higher than budget from security expense. Portfolio Management $221K favorable from tenant improvements. Marketing was $241K favorable to budget. There was $1,059K unfavorable to budget related to capital projects moved to expense at Fishermen's Terminal and P66 Cruise. Environmental Remediation Liability was $400K unfavorable to budget due to an asset retirement obligation at Fishermen's terminal. All other Direct Expenses add to $355K under budget. 2) Total Support Services were $151K favorable to budget ($526K favorable pension adjustment). Maintenance $206K unfavorable due to project spend. Environmental Services and Planning were $309K lower than budget. 3) Total Central Services / Other were $1,425K favorable to budget ($1,021K favorable pension adjustment). Net Operating Income was $1,737 favorable to budget. 17 III. MARITIME DIVISION FINANCIAL & PERFORMANCE REPORT 12/31/19 2019 Actual vs. 2018 Actual Operating Revenues were $1.7M higher than 2018 due to growth in Cruise and Fishing/Commercial/Recreational Marinas resulting from increased rates. This growth is offset by WSDOT lease expiration at T106 & T46 and reductions in volumes at the Grain terminal resulting from soybean tariffs. Operating Expenses were $5.4M higher than 2018 actual driven by: 1. One Time expenses such as Capital to Expense (up $1.1M) and Environmental Remediation (up $.9M). 2. Maintenance Allocation and Environmental Expenses 3. Higher Central Services Expenses Net Operating Income was $3,678K below 2018 actual. III. MARITIME DIVISION FINANCIAL & PERFORMANCE REPORT 12/31/1 D. CAPITAL RESULTS 2019 2019 Budget Variance $ in 000's Actual Budget $ % Small Projects 1,469 3,954 2,485 63% SBM Restrms/Service Bldgs Rep 1,957 2,920 963 33% Contingency Renewal & Replace. 0 2,000 2,000 100% MD Fleet 2019 655 1,818 1,163 64% Cruise Terminal Tenant Improv 1,189 1,370 181 13% T117 Restoration 316 1,040 724 70% FT Docs 3,4,5 Fixed Pier 986 600 (386) -64% New Cruise Terminal 1,107 600 (507) -85% SBM Paving 67 596 529 89% Maritime Technology Projects 59 450 391 87% Marina Mgt Sys Replacement (113) 426 539 127% All Other Projects 195 2,064 1,869 91% Total Maritime 7,887 17,838 9,951 56% Comments on Key Projects: Maritime spent 44% of the annual approved capital budget. Projects with significant changes in spending were: Small Projects Numerous projects within CIP are under feasibility discussions to either cancel or defer spending into 2020. T117 Restoration Schedule delayed due to delayed in Trustee negotiation. New Cruise Terminal - A site for the new cruise terminal became available sooner than expected. Design development proceeding earlier than anticipated. SBM Paving Construction delayed due to re-evaluation of project scope after bids received 33% over Engineer's estimate. Marina Management System Project on hold as vendor unable to meet security requirements. 18 III. ECONOMIC DEVELOPMENT FINANCIAL & PERFORMANCE REPORT 12/31/19 V. ECONOMIC DEVELOPMENT DIVISION FINANCIAL & PERFORMANCE REPORT 12/31/19 FINANCIAL SUMMARY Fav (UnFav) Incr (Decr) 2017 2018 2019 2019 Budget Variance Change from 2018 $ in 000's Actual Actual Actual Budget $ % $ % Total Revenues 17,791 20,705 21,151 19,725 1,426 7% 446 2% Total Operating Expenses 25,397 27,651 27,663 31,114 3,451 11% 12 0% Net Operating Income (7,606) (6,946) (6,512) (11,389) 4,877 43% 434 6% Capital Expenditures 3,739 2,066 3,121 5,713 2,592 45% 1,055 51% 2019 Actual vs. 2019 Budget Operating Revenues are $1,4M above budget primarily due to higher than expected Conference and Event Center Activity. Operating Expenses are $3.5M below budget primarily due to unfilled positions, pension adjustment, Maintenance allocation changes, Workforce Development contract deferral, and underspend in other program costs. Net Operating Income $4.9M above budget. Capital spending was $3.1M or 55% of the approved 2019 budget. 2019 Actual vs. 2018 Actual Operating Revenues are $446K above 2018 primarily due to unbudgeted revenue at Smith Cove. Operating Expenses are $12K greater than 2018. Net Operating Income is expected to be $435K greater than 2018. 19 IV. ECONOMIC DEVELOPMENT DIVISION FINANCIAL & PERFORMANCE REPORT 12/31/19 A. BUSINESS EVENTS Diversity in Contracting Held 11 PortGen events during 2019 with 341 small/WMBE businesses in attendance to learn how to do business with the Port. This is a 54% increase to the number of firms that participated in PortGen events in 2018. Real Estate Closed sale of small property on Harbor Avenue. Contractor started Bell Harbor International Conference Center renovation. IAC Commerce center building on Port property in SeaTac completed and leased. Innovation Signed contract with Maritime Blue to advance maritime accelerator program and made field trip to Iceland to see and learn about their Ocean Cluster maritime innovation center. P69 Facilities Fund authorization for lobby renovation. Waterfront Shuttle funding discontinued due to excessive cost per trip expense. Tourism Port co-sponsored opening event of the 2019 US China Tourism Summit. As of Q3, tourism marketing representation in UK/Ireland, Mainland Europe, and Australia/New Zealand has generated over $1.2M in editorial coverage about Washington and cruising from Seattle to Alaska. Workforce Development Awarded contract to sustain Youth Maritime Collaborative career connected learning initiatives to Maritime Blue and Goodwill Industries. B. KEY PERFORMANCE METRICS Building Occupancy by Location: 20 IV. ECONOMIC DEVELOPMENT DIVISION FINANCIAL & PERFORMANCE REPORT 12/31/19 C. OPERATING RESULTS Fav (UnFav) Incr (Decr) 2017 2018 2019 Budget Variance Change from 2018 $ in 000's Actual Actual Actual Budget $ % $ % Revenue 8,658 9,002 8,912 8,930 (18) 0% (90) -1% Conf & Event Centers 9,133 11,703 12,239 10,795 1,444 13% 536 5% Total Revenue 17,791 20,705 21,151 19,725 1,426 7% 446 2% Expenses Portfolio Management 3,875 3,571 3,732 4,128 396 10% 161 4% Conf & Event Centers 7,639 9,889 10,218 9,374 (845) -9% 329 3% P69 Facilities Expenses 206 235 215 225 9 4% (20) -8% RE Dev & Planning 214 149 136 216 80 37% (13) -9% EconDev Expenses Other 776 785 930 1,262 332 26% 145 19% Maintenance Expenses 3,666 3,915 3,146 4,071 924 23% (769) -20% Maritime Expenses (Excl Maint) 52 166 54 0 (54) NA (112) -68% Total EDD & Maritime Expenses 16,427 18,711 18,432 19,275 843 4% (279) -1% Diversity in Contracting 64 132 152 199 47 24% 20 15% Workforce Development 850 702 952 2,010 1,058 53% 250 36% Tourism 1,234 1,408 1,337 1,521 183 12% (71) -5% EDD Grants 751 838 785 1,160 375 32% (53) -6% Total EDD Initiatives 2,900 3,080 3,226 4,890 1,663 34% 146 5% Environmental & Sustainability 260 281 344 395 51 13% 64 23% CDD Expenses 387 283 234 235 1 0% (49) -17% Police Expenses 51 (76) 61 228 168 73% 137 -180% Other Central Services 5,257 5,259 5,251 5,936 685 12% (8) 0% Aviation Division 113 113 114 155 41 26% 1 1% Total Central Services & Aviation 6,068 5,860 6,005 6,950 945 14% 145 2% Envir Remed Liability 0 0 0 0 0 NA 0 NA Total Expense 25,396 27,651 27,663 31,114 3,451 11% 12 0% NOI Before Depreciation (7,605) (6,946) (6,512) (11,389) 4,877 43% 434 6% Depreciation 3,863 3,992 3,698 3,819 121 3% (295) -7% NOI After Depreciation (11,469) (10,938) (10,210) (15,208) 4,998 33% 729 7% 2019 Actual vs. 2019 Budget Operating Revenues were $1,426K favorable to budget due to higher than anticipated volumes at the conference and event centers. Operating Expenses were $3,451K favorable to budget: 1) Portfolio Management $396K lower than budget due to timing of broker fees and tenant improvements. 2) Conference and Event Center costs $845K unfavorable due to higher than budgeted payrolls and sales volumes. 3) Economic Development Other $332K lower than budget due to unspent Opportunity Fund and delayed hiring. 4) Maintenance Expenses $924K favorable from new allocation methodology at P66. 5) Workforce Development $1,058K lower than budget due to timing of spending for K-12 Career Connected Learning, Construction Trades - Regional Partnership, Airport Career Pathways Implementation, and Maritime Initiative. 6) Tourism $183K favorable to budget due to lower than budgeted initiatives and promotional expenses. 7) EDD Grants $375K favorable to budget due to timing of invoices from program participants. 8) Other Central Services $685K below budget with savings from open headcount. 9) All other expenses net to $343K below budget. Net Operating Income was $4,877K above budget. 21 IV. ECONOMIC DEVELOPMENT DIVISION FINANCIAL & PERFORMANCE REPORT 12/31/19 2019 Actual vs. 2018 Actual Operating Revenues were $446K higher than 2018 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 and event centers. Operating Expenses were flat compared to 2018 actual: 1) Conference and Event Centers $329K greater than 2018 due to higher sales activity at Bell Harbor International Conference Center. 2) Portfolio Management $161K greater than 2018 due to higher broker fees and tenant improvements. 3) Maintenance Expenses $769K less than 2018 due to allocation methodology change at P66. 4) EDD Grants $53K lower, EconDev Other $145K higher, Workforce Development $250K higher, and Tourism $71K less expenses related to initiatives in 2019. 5) All other Expenses net to $20K above 2018. Net Operating Income was $434K above 2018 actual. D. CAPITAL RESULTS Budget Variance 2019 2019 Actual Budget $ % $ in 000's Tenant Improvements -Capital 0 1,012 1,012 100% RE: Contingency Renew.&Replace 0 1,000 1,000 100% Small Projects 157 750 593 79% BHICC Interior Modernization 1,930 750 (1,180) -157% P66 HVAC Systems Upgrade 277 690 413 60% T91 Upland PreDevelopment 176 625 449 72% P69 Commission Chamber Refresh 298 301 3 1% P69 Solar Panel System 266 300 34 11% EDD Technology Projects 0 250 250 100% Fleet Replacement 0 30 30 100% Other Projects 17 5 (12)0 -240%NA Total Economic Development 3,121 5,713 2,592 45% Comments on Key Projects: Economic Development spent 55% of the annual approved capital budget. Projects with significant changes in spending were: Tenant Improvements - Capital Vacancies and delays in leasing/approval process have impacted cash flow timeline Small Projects Upland Garage EV Charging Station project was cancelled by project sponsor for 2019. Project feasibility for 2020 under discussion T91 Upland Pre-Development Spending less in 2019 with more spending to occur in 2020 and 2021. 22 V. CENTRAL SERVICES FINANCIAL & PERFORMANCE REPORT 12/31/19 FINANCIAL SUMMARY Fav (UnFav) Incr (Decr) 2017 2018 2019 2019 Budget Variance Change from 2018 $ in 000's Actual Actual Actual Budget $ % $ % Total Operating Revenues 68 (500) 1,282 185 1,097 592.9% 1,782 -356.1% Core Central Support Services 71,071 73,576 77,387 82,710 5,322 6.4% 3,811 5.2% Police 22,095 23,908 27,793 30,778 2,985 9.7% 3,885 16.3% Capital Development 17,370 15,501 15,244 18,628 3,384 18.2% (257) -1.7% Environment & Sustainability 6,975 8,770 10,748 13,224 2,476 18.7% 1,978 22.6% Other - - 117 - (117) 0.0% 117 0.0% Total Operating Expenses 117,511 121,755 131,290 145,339 14,049 9.7% 9,535 7.8% 2019 Actual vs. 2019 Budget Operating Revenues favorable due primarily to Police forfeiture seizures. Operating Expenses $14M favorable to budget mainly due to a $9.9M DRS Pension True-ups credit, staffing vacancies, projects spending delays, and delayed Outside Services costs. Capital spending $12.5M or 53.5% lower than the budget. 2019 Actual vs. 2018 Actual Operating Revenues $1.8M above 2018 mainly due to higher Police forfeiture seizures in 2019 of $1.2M and ($863K) special funding LEOFF 2 received from the Washington State Department of Retirement Systems (DRS) in 2018. Operating Expenses $9.5M higher than 2018 mainly due to higher payroll and Outside Services. A. BUSINESS EVENTS Completed ICT projects in 2019 include: Project Delivery system, Automated Checkpoint Wait Time, Sea- Tac Visitor Pass, and Taxi System. Sponsored Green City Days in near-airport communities as part of the multi-year collaborative project to foster urban forest stewardship. Announced collective partnership with sustainability leaders to develop the Embodied Carbon in Construction Calculator (EC3) tool. Hosted Safety and Preparedness Fairs to increase employee readiness with topics ranging from worksite safety to being vigilant against email spam and phishing attempts. Hosted 200 guests on the Port's first-ever multilingual boat tour of Elliott Bay and the Duwamish River. Adopted the Duwamish Valley Community Benefits Commitment Policy. Hosted several EDI workshops: Equity 101, Islamophobia 101, Transgender Inclusion 101. CPI team assisted the AVM field crew garage clean team improve their garbage transportation process; AVM field crew garage clean team received the Q3 Innovation Award for their process improvement effort. Police Marine Patrol Unit provided a waterside tour to our Federal partners participating in a Maritime Security class. The tour highlighted security vulnerabilities impacting a seaport. Hosted Career Awareness events in Mt. Rainier High School, Foster High School, and Highline High School. Supported the Environmental Challenge with Raisbeck Aviation High attended by 110 sophomore students. 23 V. CENTRAL SERVICES FINANCIAL & PERFORMANCE REPORT 12/31/19 B. KEY PERFORMANCE METRICS Key Performance Indicators/Measures 2017 2018 2019 A. Century Agenda Strategies 1. Prepare and negotiate the agreements for the Port's 24 bargaining units. 128 293 411 2. Oversee Implementation/Administration of CBAs agreements 99 122 122 B. High Performance Organization - Customer Satisfaction 1. Respond to Public Disclosure Requests 519 657 608 2. Information Communication Technology Network Availability 99.9% 100% 99.9% 3. Customer Survey for Police Service Excellent or Above Average 89% 90% 83% 4. Number of Job Openings Created 590 535 578 5. Percent of annual audit work plan completed each year N/A 100% 100% C. High Performance Organization - Talent Development & Safety 1. MIS and Clarity Training Classes 21 14 14 2. MIS and Clarity Training Attendees 151 128 139 3. Employee Development Class Attendees/Structured Learning 627 337 894 4. Occupational Injury Rate 4.68 4.87 5.01 5. Days Away Severity Rate N/A 61.44 28.81 D. Financial Performance 1. Corporate costs as a % of Total Operating Expenses 30.8% 30.0% 29.1% 2. Clean independent CPA audits involving AFR Yes Yes Yes 3. Timely process disbursement payment requests 4 days 4 days 3 days 4. Keep receivables collections current (within 30 days) 96% 87% 78% 5. Investment Portfolio Yield 1.51% 2.13% 2.12% 6. Litigation and Claim Reserves $0.9M $1.6M $2.9M 24 V. CENTRAL SERVICES FINANCIAL & PERFORMANCE REPORT 12/31/19 C. OPERATING RESULTS Financial Summary (Year-End Actuals) Fav (UnFav) Incr (Decr) 2017 2018 2019 2019 Budget Variance Change from 2018 $ in 000's Notes Actual Actual Actual Budget $ % $ % Total Revenues 68 (500) 1,282 185 1,097 592.9% 1,782 -356.1% Executive 1,287 2,136 2,018 1,995 (23) -1.2% (118) -5.5% Commission 1,685 1,848 2,022 2,153 131 6.1% 174 9.4% Legal 3,741 3,948 4,987 3,568 (1,420) -39.8% 1,039 26.3% External Relations 1) 7,112 7,362 7,760 8,367 607 7.3% 398 5.4% Equity Diversity and Inclusion 2) - - 565 351 (214) -61.1% 565 0.0% Human Resources 8,418 8,430 9,187 10,250 1,063 10.4% 757 9.0% Labor Relations 1,678 1,079 1,230 1,330 99 7.5% 152 14.0% Internal Audit 1,603 1,521 1,450 1,916 465 24.3% (70) -4.6% Accounting & Financial Reporting Services 6,751 6,842 7,341 8,500 1,159 13.6% 499 7.3% Information & Communication Technology 21,633 21,961 23,014 23,966 952 4.0% 1,053 4.8% Information Security 3) 726 934 1,203 1,774 570 32.2% 269 28.8% Finance & Budget 4,998 5,593 6,230 6,371 141 2.2% 636 11.4% Maritime Finance 1,229 1,445 1,605 1,623 18 1.1% 160 11.1% Finance & Budget 1,871 1,843 2,037 2,132 95 4.4% 194 10.5% Aviation Finance & Budget 1,897 2,305 2,587 2,616 29 1.1% 282 12.2% Business Intelligence 1,211 1,323 1,302 2,139 837 39.1% (20) -1.5% Risk Services 3,077 3,095 3,137 3,328 190 5.7% 42 1.4% Office of Strategic Initiatives 1,882 1,596 1,448 1,776 327 18.4% (148) -9.3% Central Procurement Office 3,861 4,630 4,453 4,678 226 4.8% (178) -3.8% Security and Preparedness 4) 1,029 1,093 - - - 0.0% (1,093) -100.0% Contingency 381 185 39 250 211 84.3% (146) -78.8% Core Central Support Services 71,071 73,576 77,387 82,710 5,322 6.4% 3,811 5.2% Police 22,095 23,908 27,793 30,778 2,985 9.7% 3,885 16.3% Total Before Cap Dev & Environment 93,166 97,484 105,181 113,487 8,307 7.3% 7,696 7.9% Capital Development Engineering 5,284 5,477 5,631 7,530 1,899 25.2% 154 2.8% Port Construction Services 3,709 3,522 4,341 2,739 (1,602) -58.5% 820 23.3% Aviation PMG 6,942 4,876 3,948 6,794 2,846 41.9% (928) -19.0% Seaport PMG 1,007 1,052 940 1,096 156 14.2% (112) -10.6% Capital Development Facilities - 1 66 (66) n/a 65 11569.3% Capital Development Admin 428 574 319 470 151 32.2% (256) -44.5% Sub-Total 17,370 15,501 15,244 18,628 3,384 18.2% (257) -1.7% Environment & Sustainability Aviation Environmental 3,779 5,006 5,680 6,510 830 12.8% 673 13.4% Maritime Environmental & Planning 2,157 2,418 3,275 3,447 172 5.0% 857 35.5% Noise Programs 670 722 817 811 (6) -0.8% 95 13.2% Environment & Sustainability 368 624 976 2,456 1,480 60.3% 352 56.5% Sub-Total 6,975 8,770 10,748 13,224 2,476 18.7% 1,978 22.6% Industrial Development Corporation - - 1 - (1) 0.0% 1 0.0% Capital to Expense - - 117 - (117) 0.0% 117 0.0% Total Expenses 117,511 121,755 131,290 145,339 14,049 9.7% 9,535 7.8% Notes: 1) Previously known as "Public Affairs" 2) A new department created in 2019 3) Became a separate department in 2019. Used to be a part of Security and Preparedness. 4) Deactivated in 2019 25 V. CENTRAL SERVICES FINANCIAL & PERFORMANCE REPORT 12/31/19 2019 Actual vs. 2019 Budget Operating Expenses for 2019 are $14M under budget due primarily to: o All Depts favorable variance of $9.9M from DRS Pension True-ups. Each department below has a portion of the $9.9M DRS Pension True-up. o Executive unfavorable variance of $23K mainly due to unplanned Outside Services offset by lower than expected Travel and Equipment. o Commission favorable variance of $131K is mainly due to lower Outside Services offset by higher than expected Promotional Hosting. o Legal unfavorable variance of $1.4M is primarily due to unpredictable Legal Expenses. o External Relations favorable variance of $607K is due to $363K from DRS Pension True-up, lower Outside Services of $602K, Travel $71K, and Advertising Expenses $83K offset by less Capital Labor of $127K and budget transfer of $300K to Equity, Diversity and Inclusion Dept. o Equity, Diversity and Inclusion unfavorable variance of $214K is primarily due to vacant positions and budget transfer of $300Kwith External Relations. o Human Resources favorable variance of $1.1M is due to $477K from DRS Pension True-up, vacant positions, delayed Outside Services, and lower Travel. o Labor Relations favorable variance of $99K due to $93K from DRs Pension True-up, lower Travel and Promotional Hosting. o Internal Audit favorable variance of $465K is due to $97K from DRS Pension True-up, two vacant positions, delays in hiring, and lower Outside Services from one audit that came in below budget. o Accounting and Financial Reporting Services favorable variance of $1.2M primarily from $526K from DRS pension True-up, 2 vacant positions, delays in hiring, lower Travel Expenses due to Peoplesoft Financials upgrade of $84K, lower Outside Services, unbudgeted credit card rebates of $291K, and charges to Capital Labor for Peoplesoft Financials upgrade of $100K. o Information & Communication Technology favorable variance of $952K primarily due to lower charges to Capital Labor and higher than expected PC refresh. o Information Security favorable variance of $570K is primarily due to vacant positions of $161K and delayed Outside Services of $312K. o Finance & Budget favorable variance of $141K primarily due to higher payroll costs associated with job evaluation refresh, unplanned OT for non-exempt staff, unplanned Outside Services costs to cover 2 FTEs on FMLA, and lower than expected Capital Labor. o Business Intelligence favorable variance of $837K is primarily due to $65K from DRS Pension True-up, vacant positions of $377K and delayed Outside Services of $333K due to vacant positions. o Risk Services favorable variance of $190K is due to $57K from DRS Pension True-up, delay in hiring vacant positions and property insurance renewal and broker fees being lower. o Office of Strategic Initiative favorable variance of $327K is due to $63K from DRS Pension True-ups, two vacant positions. o Central Procurement Office favorable variance of $226K due to $385K DRS Pension True-up and higher than expected equipment Rental and lower than expected Capital Labor offset by lower Office Supplies. o Contingency favorable variance of $211K is due to less spending than anticipated. o Police $3M favorable variance primarily due to $2.8M of DRS Pension True-up, vacant positions of $1.4M offset by $600K of retro pay, $143K unbudgeted Equipment, $247K unbudgeted Supplies, $345K Forfeiture expense, higher jail costs of $200K and workers compensation reserves of $200K. o Capital Development favorable variance of $3.4M is primarily due to $2.3M of DRS Pension True-up, vacant positions, lower Outside Services costs, and lower than planned charges to Capital Projects. o Environment & Sustainability favorable variance of $2.5M due to $500K from DRS pension True-up, the delay in Sustainable Airport Master Plan (SAMP) implementation earlier in the year of $800K, deferral of the Sustainable Aviation Fuel & Air Emissions Program, savings in the Environmental Leadership program, and lower spending in Commission-directed COE contracts. o Corporate Capital to Expense unfavorable variance of $117K due to changes to the Vessel Moorage System project. 26 V. CENTRAL SERVICES FINANCIAL & PERFORMANCE REPORT 12/31/19 2019 Actual vs. 2018 Actual Operating Expenses for 2019 are $9.5M higher than 2018 actuals mainly due to: o Core Central Support Services $3.8M higher than 2018 primarily due to higher payroll due to 2019 new hires, annual pay increases and full year salaries of people hired in 2018, higher than expected Legal Outside Services of $900K increased PC refresh of over $500K o Police $3.9M above 2018 due to the following: Added 8 Traffic Support Specialist and 2 Drug Interdiction Officers during 2018 (2019 reflects the full-year costs). Added 4 FTEs, a Police Sergeant and 3 Explosive Airborne Scent Canine Officers which were requested by the airlines in 2019. Wages increase for the officers and sergeants in 2019. o Environment & Sustainability $2.0M over 2018 due to the following: Environmental and Sustainability - $352K higher than 2018 due to higher Salaries & Benefits, Travel, and more spending on Community programs: ACE/Forterra and Energy and Sustainability Fund. Maritime Environment and Planning - $857K higher than 2018 due to the addition of new staff, increased utility costs due to Derelict Vessels disposal, unanticipated travel to Iceland, and Outside Services spending in support of environmental projects (i.e. Environmental Compliance Support, Environmental Permitting, Bankline Stabilization Programmatic Permit, PORTfolio Planning Services, Smith Cove Blue Carbon Project, Air Quality & GHG Reduction, etc.). Aviation Environmental Expense - $673K higher due to Salaries & Benefits increase of $199K attributed to less turn-over, retirement/promotion of senior manager, and standard PREP increases, Outside services $504K increase due to SAMP environmental assessment picking up speed after delays in spending $410K more than the prior year and PFAS Evaluations - Soil & Groundwater completed costing approximate $135K. D. CAPITAL RESULTS 2018 2019 2019 Budget Variance $ in 000's Actual Actual Budget $ % Infrastructure - Small Cap 786 1,156 1,500 344 22.9% Services Tech - Small Cap 225 631 1,000 369 36.9% Enterprise GIS - Small Cap 34 215 250 35 14.0% Project Cost Management S 430 321 350 29 8.3% Supplier Database System 349 408 410 2 0.5% PeopleSoft Financials Upgrade 2,025 1,407 1,575 168 10.7% Radio System Upgrade 3,866 5,447 9,140 3,693 40.4% Police Records Mgmt System 0 0 800 800 100.0% New Budget System 0 17 600 583 97.2% Office Wi-Fi Refresh 0 0 500 500 100.0% Maximo Upgrade 0 38 500 462 92.4% Fiber Channel 0 0 600 600 100.0% Phone System Upgrade 0 0 1,400 1,400 100.0% STIA Network Redundancy 0 0 900 900 100.0% CDD Fleet Replacement 768 317 1,439 1,122 78.0% CDD Small Cap 252 202 351 149 42.5% Corporate Fleet Replacement 726 397 1,328 931 70.1% Other 1 246 299 725 426 58.8% TOTAL 9,707 10,855 23,368 12,513 53.5% Note: (1) "Other" includes remaining ICT projects and small capital projects/acquisitions. 27
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