Port of Seattle 2016 Financial Performance Report Commission Briefing March 14, 2017 1 ITEM NO: 7b _Supp_1 DATE OF MEETING: March 14,2017 Portwide Financial Highlights 2 Tif Post’t fioaociam pfsfosnaocf wat ttsooh io 2017 • Total Operating Revenues were $598.5 million, $13.9M above budget and $39.5M higher than 2015. • Excluding Aeronautical revenues, which are based on cost recovery, operating revenues were $ 354.2 million, $27.1M above budget and $21.3 million higher than 2015 actual. • Total Operating Expenses were $325.3 million, $10.7M or 3.2% under budget. • Net Operating Income before depreciation was $ 273.2 million, $24.5M above budget and $32.1M higher than 2015. • Both Operating Revenues and Net Operating Income were a record for the Port. Aviation Business Highlights • Record breaking volume of 22.6M enplaned passengers, 8.0 % above 2015 levels. • Sea - Tac now 9 th busiest airport in North America (based on passengers), up from 13 th busiest in 2015 • Customer Service : Achieved ASQ score of 4.12 for Q4. Result for year was • New air service in 2016 included Spirit Airlines, Xiamen Airlines, and Eurowings announced new seasonal service to Cologne, Germany beginning July 2017 • New Cargo Service: AirBridge Cargo from Russia initiated service on 10/7 • Progress on major initiatives 3 Aviation Financial Highlights • Aviation NOI - $6.1M higher than • Revenue – relatively flat to 2016 budget, $42.4M higher than 2015. Non - Aero revenue was $12.7M higher than budget with strong performance driven by higher enplanements, offset by lower Aero revenue due to higher revenue sharing & lower costs. • Expense – $6.6M favorable to 2016 budget despite significant unplanned expenses absorbed by Aviation division for queue management contract ($2.2M) and increased janitorial costs in response to higher passenger volumes. Lower charges from other divisions contributed to overall lower than budget expenses. • • Cost per Enplanement of $10.10 – lowest since 2003 (Revenue Sharing impact from Non - Aero NOI growth) 4 Lowest CPE since 2003 • Successful 2016 cruise season with 983,539 passengers, 9.5% above 2015 levels • Port of Seattle named Best North American Homeport by Cruise Critic • Finalized 5 year agreements with Tribes – Muckleshoot and Suquamish. NWSA, POS, and Tribal councils all approved • Received final, signed Stormwater Utility inter - local agreement • Lowest occupational injury rate in the history of Marine Maintenance 5 Cruise Maritime Business Highlights Maritime Financial Highlights 6 Maritime – • vacancy rates on Maritime properties are key drivers. • increased Corporate and Police allocations resulting from a change in allocation methodology following formation of the NWSA. • Stormwater Utility – • Revenue 10% higher due to change in rate methodology. • Expenses 31% favorable due to delay in provisioning camera truck. EDD Business Highlights 7 Strong Occupancy and NOI • Economic Development Partnership Programs ($1,070K to Cities & Tourism non - profits) • Real Estate Strategic Plan completed + early implementation (NERA 2&3 + Maritime acquisition + T91 evaluation). • Workforce Development executed contracts with PortJobs and COREPLUS. Started work on an Aviation career pathways project. • Small Business completed assessment of incubators/accelerators within region. Worked with CPO to improve small business utilization. • Occupancy Strong!  Portfolio Management properties at 97% occupancy at end of Q4, above target of 95%.  Conference and Event Center revenue exceeded budget due to strong sales and delayed construction at P - 66 Cruise Terminal . EDD Financial Highlights 8 P66 – Cruise terminal expansion driving financial variances EDD – • low vacancy rates. • expenses tied to Conference and Event Center revenue. Y/Y expenses up just under $2M due to increased Corporate allocations resulting from a change in NWSA. • construction at P66 Corporate Business Highlights 9 Achieved a number of accomplishments in 2016 • Executed events and tours to help build community awareness and support for the Port including fence line communities and throughout King County. • Implemented Paid Parental Leave policy. • Finalized sale of a total of $249.2 million of bonds with a present value savings of $67.6 million. • Contributed to regional transportation partner investments for Alaskan Way Viaduct Replacement Program and South Park Bridge. • Completed TNC Tracking System which includes accepting monthly and real time activity data. • Implemented the North Satellite Transit System Train Display. • Selected new vendor for Parking Revenue Control System replacement. • Implemented technology to better track visitors at T - 91 Pedestrian Gate. • Developed displays for Checkpoint Security Wait - times . Corporate Financial Highlights 10 Strong financial performance for Corporate • Total operating expenses for Corporate were $113.3M, $10.7M below budget. • Most of the favorable budget variances came from payroll and outside services.  Payroll savings due to delayed hiring, vacant positions, and project delays .  Outside Services savings mainly came from advanced planning for SAMP, environmental review for SAMP, and other CDD project delays . o Environment & Sustainability was $4.7M below budget. o Capital Development was $2.6M below budget. Appendix 2016 Financial Performance Report Commission Briefing March 14, 2017 Portwide Financial Summary 12 Record Operating Revenues and Net Operating Income for the Port • Excluding Aeronautical revenues, other operating revenues were $ 354.2M , $ 27.1M higher than $21.3M higher than 2015 actual. • Total Operating Revenues were $$ 598.5M , $ 13.9M $39.5M above 2015 actual. • Total Operating Expenses were $ 325.3M , $10.7M or 3.2% . Comprehensive Financial Summary 13 14 Capital Spending by Division 15 Total capital spending was $ 169.5M or 60.1% of the Aviation Division 2016 Financial Performance Report Commission Briefing March 14, 2017 Airport Activity Passenger Growth • Alaska + 5 % • Delta +11% • Southwest +6% • American +7% • United flat 2016 Load Factor down 1.7 points from last year 2016 International Freight tons trailing prior year due to peak volume in 2015 during Port shutdown Increase in enplanements driven by Delta and Alaska 17 Aviation Expense Summary 2016 total expenses favorable by $5.5M 18 Non - Aeronautical Business Revenue growth driven by increased enplanements Change from 2015 Revenue - $24.3M increase • Strong performance in Parking, GT, and ADR • RCF includes $1.85M Firefly termination pymt • DMCBP – Phase I bldg occupied, Phase II & III under construction Expenses - $8.0M increase • Payroll • Terminal - Non - Aero share • B&O tax - higher rev ($0.5M) • NERA 3 FAA pilot ($1.1M) • ADR legal expense ($0.5M) • Landside legal exp ($0.3M ) 19 $24.3M YOY revenue growth driven by increased enplanements Aeronautical Business 20 Revenue - $12.2M lower • Rate based revenue $2.9M lower – primarily due to lower debt service costs • Revenue sharing $9.4M higher due to Non - Aero revenue growth Expenses – • Payroll savings – due to vacancies & GASB 68 adj • SAMP related spending delayed • Queue management cost unplanned ($2.2M) • Increased janitorial scope ($0.8M) • Increased CISS cost due to Prop 1 impact ($0.4M) Aero Cost Drivers Aero rate base revenues based on cost recovery formulas (1) to savings from CDD and Corporate divisions, SAMP NEPA/SEPA Enviromental Review & Advanced Planning IDIQ delays , Airport Obstruction Removal project, payroll savings in AV division and lower environmental reserve are largely , security Checkpoint Queue Management, Increased Janitorial costs and Full Employee Screening expenses. (2) Lower Debt Service due to savings of $1.3M due to lower variable rates on the 2008 bonds and $500K in more debt service 21 Aviation Financial Summary 2016 NOI $19.3M higher than 2015 22 Key Performance Measures • 2016 enplaned passengers up 8 .0% above 2015, which reflects new scheduled flights, primarily by Delta and Alaska. • Reduction in CPE lower airline costs due to higher revenue sharing (driven by increased non - airline revenues), and increased enplaned passengers. • increased cash flow from growth in enplanements. Enplanement growth drives improved performance 23 2016 Capital Expenditures 24 (1) Early work packages delayed 3 months. (2) Delays resulting from scope and design changes. Purchase of PLBs delayed due to procurement strategies and phasing constraints. (3) Program delays, technical issues with chargers, and coordination among project team resulted in spending delays. (4) Milestone - based contract deferred payments to later in the development cycle. Budget was developed before a vendor had been selected. (5) Delays in spending on the design service directive. 2017 budget developed in early stages of the project. (6) Major construction contract was cancelled as a result of roof site conditions. (7 ) Clear Bag Reconciliation project was cancelled; TSA Search Room was delayed due to irregular bid; and Security Zone Tracking Enhancements was delayed due to contract execution issues with CPO. Rental Car Performance 25 Rental Car revenue growth slower due to transportation alternatives • $1.85M Firefly lease termination payment reflected in 2016 Actuals • Rental Car revenue continues to grow, but not keeping pace with enplanement growth - due to increasing options in transportation alternatives (light rail , TNCs, car - sharing) Ground Transportation 26 2016 Trip Activity up 20% over 2015 ADR revenue by category vary significantly 27 • Food & Beverage increased at more than twice the rate of enplanement program implementation in 2016 • showed moderate growth in spite of long wait times in passenger security checkpoint during Q1 • Duty Fee significantly impacted by international gate assignments to Concourse A with smaller Duty Free store, and new China regulation limiting duty free merchandise value to $750/person (effective April 2016). Commercial Properties DMCBP – all acreage under ground lease 28 DMCBP Phase I • Construction phase DMCBP Phase II • Lump sum payment of in - lieu fees expected in 2016 not received DMCBP Phase III • Early activation of Phase III ground lease Other Projects • NERA 3 Grant project slower than planned SAMP Overview SAMP implementation timing 29 • Advance Planning and Environmental Review in support of Master Plan • Delayed start will increase budget requirement in future years. Aero Revenue Sharing Increased revenue sharing drives reduction in CPE 30 Maritime Division 2016 Financial Performance Report Commission Briefing March 14, 2017 Maritime 2016 Financial Summary 32 Higher revenue, lower expenses than planned • Cruise, Grain, and Fishing & Operations driving favorable to • driven by lower Maintenance, Tenant Improvements, and a $500K as revenue. Variance from 2015 • Revenue growth seen in Grain (15%), Fishing & Operations (8%), Cruise (7%), Rec Boating (5%), and Maritime Portfolio Mgmt (3%). • Corporate and Police driving expense growth with both higher cost and larger allocation to Maritime in lieu of the NWSA. 33 Maritime Capital 2016 $ in 000's 2016 2016 Actual $ % Maritime 5,746 15,660 9,914 63% Maritime Capital $9.9M under budget due to delays in the following: • Small Projects $2,493K (66%) • C15 Building Tunnel Improvement $700K (100%) • Shilshole Bay Restrooms/Service Building $616K (61%) • P91 South Fender $601K (92%) • P66 Cruise Terminal Tenant Improvement $1,258K (93%) driven by timing of billing • Renewal and Replace contingency $2,000K (100%) • Revenue: $434K favorable • Variance from new rates based on the charter more accurately measured areas through the GIS system instead of the historical tax parcels. • Expenses: $784K favorable • Marine Maintenance $486K favorable mainly due delay in getting the Camera Inspection truck which guides work on the pipes. • NH Alliance, Maritime, & EDD SWU is $163K favorable mainly due to less city utilities taxes and B&O taxes. Stormwater Utility 2016 Financial Summary 34 Note: 2015 Expenses include one time payment to City of Seattle Economic Development Division 2016 Financial Performance Report Commission Briefing March 14, 2017 EDD 2016 Financial Summary 36 Conference & Event Center Revenue 27% Contribution to Other Divisions 37 EDD making significant contribution to other divisions EDD Capital 2016 38 Spent 54% of EDD Capital Significant Variances:  P66 Elevator 2, 3, 4 Upgrades: variance due to modernizations for elevators 3 and 4 have been postponed until the NCL cruise terminal work is .  Tenant Improvements : reimbursement of $797K to Anthony’s for Boiler system was recorded in Non - . Corporate 2016 Financial Performance Report 39 Commission Briefing March 14, 2017 Corporate Expense by Category 40 • Payroll savings due to delay hiring, vacant positions, and project delays. • Outside Services saving mainly came from project delays, advanced planning IDIQ for SAMP and environmental review for SAMP. Corporate Dept. Financial Summary 41 Strong positive financial performance results in 2016 Corporate Dept. Financial Summary – Coo’t 42 Operating Expenses $10.7M