9d 2017 Financial Performance report
Item No. 9d_attach . Meeting Date: March 13, 2018 PORT OF SEATTLE 2017 FINANCIAL & PERFORMANCE REPORT AS OF DECEMBER 31, 2017 TABLE OF CONTENTS Page I. Portwide Performance Report 3-6 II. Aviation Division Report 7-16 III. Maritime Division Report 17-21 IV. Economic Development Division Report 22-27 V. Central Services Division Report 28-32 2 I. PORTWIDE FINANCIAL & PERFORMANCE REPORT 12/31/17 EXECUTIVE SUMMARY Financial Summary The Port's operating revenues for 2017 were $630.4M, which is $10.1M above budget and $31.9M higher than the 2016 actuals. Excluding Aeronautical revenues, which are based on cost recovery, other operating revenues were $367.9M, $22.5M above budget and $13.7M higher than the 2016 actuals due mainly to higher revenues from Public Parking, Airport Dining and Retail, Ground Transportation, Non-Aero Commercial Properties, Cruise and an unanticipated lump sum payment from Des Moines Creek Business Park (DMCBP) Phase II for pre-paid frontage fees. Total operating expenses were $371.3M, $13.3M below budget from savings in payroll, mainly due to vacancies and hiring delays, and outside services due to delays in Terminal expense projects, Sustainable Airport Master Plan (SAMP) projects, Airport Community Ecology (ACE) Fund and Energy & Sustainability Fund spending. Operating income before depreciation was $259.1M, $23.5M above budget but $14.1M lower than 2016. The Port-wide capital spending for 2017 was $324.5M which is $283.2M below budget. Operating Summary At the Airport, the enplanement growth for 2017 was 2.7% and landed weight was 4.2%. The enplanement growth rates for domestic and international passengers were 2.3% and 5.9%, respectively. Total cargo metric tons were 16.2% above the 2016 actuals. For the Maritime division, Grain volumes were 17% higher than expected, and for the first time in 2017, the number of cruise passengers exceeded the million passenger mark. For the Economic Development division, the overall occupancy of buildings managed by Portfolio Management was at 98% for 2017, above the 95% target for 2017. The occupancy level at Shilshole Bay Marina was at 94.8%, slightly higher than the 2016 occupancy level of 94.6%. Fishermen's Terminal occupancy level was at 81.9%, lower than the 84.7% occupancy level recorded in 2016. Key Business Events The Port Commission approved an Energy and Sustainability motion outlining the Port's commitment to protect public health and the environment, and to reduce its carbon footprint throughout the region. In line with its environmental and sustainability goals, the Port became the first U.S. port to set a 10-year goal to transition away from fossil fuels to aviation biofuels. The Port and City of SeaTac executed a 10-year Interlocal Agreement, which establishes a mutual and cooperative system to recognize respective jurisdictional authorities. The Port also awarded new custodial contracts to increase opportunities for small and disadvantaged businesses. Aeromexico started air service to Mexico City in November. In December, the Port Commission voted to purchase the Salmon Bay Marina which supports the Century Agenda goal to double the number of jobs in the region related to fishing and maritime industry. The Port also welcomed Stephen Metruck as the new Executive Director. Major Capital Projects The Sustainable Airport Master Plan (SAMP) is progressing towards preferred alternative. The construction for the International Arrivals Facility (IAF) has begun, and 90% of the design has been completed. The overall South Satellite (SSAT) Interim Improvements project has been delayed due to scope change required by an adjacent project. The North Satellite Expansion project is underway, and phase 1 work has been finalized which includes completing underground utilities, replacing 400 Hz generators, installing rain harvest tanks, and replacing 30% of the new chilled water pipeline. Design reviews for the Terminal 5 Modernization was completed with tenant/ commercial team input on modifications to follow. The Port substantially completed or placed into closeout 27 projects, including Bag Claim Wall Panels, Central Terminal WiFi Expansion, Air Cargo 4 Fence, Variable Frequency Drive Motor Replacement. 3 I. PORTWIDE FINANCIAL & PERFORMANCE REPORT 12/31/17 PORTWIDE FINANCIAL SUMMARY Fav (UnFav) Incr (Decr) 2016 2017 2017 Budget Variance Change from 2016 $ in 000's Actual Actual Budge t $ % $ % Aeronautical Revenues 244,235 262,451 274,799 (12,348) -4.5% 18,216 7.5% Other Operating Revenues 354,232 367,917 345,446 22,471 6.5% 13,685 3.9% Total Operating Revenues 598,467 630,368 620,245 10,123 1.6% 31,901 5.3% Total Operating Expenses 325,285 371,317 384,660 13,343 3.5% 46,032 14.2% NOI before Depreciation 273,182 259,051 235,585 23,466 10.0% (14,131) -5.2% Depreciation 164,336 165,021 166,300 1,279 0.8% 685 0.4% NOI after Depreciation 108,846 94,030 69,285 24,744 35.7% (14,817) -13.6% MAJOR OPERATING REVENUES SUMMARY 2016 2017 2017 Budge t Change $ in 000's Actual Actual Budge t Variance from 2016 Aeronautical Revenues 244,235 262,451 274,799 (12,348) 18,216 Public Parking 69,540 75,106 73,568 1,538 5,566 Rental Cars - Operations 37,082 35,051 37,815 (2,764) (2,031) Rental Cars - Operating CFC 12,122 10,641 12,931 (2,290) (1,481) Airport Dining and Retail 55,196 54,611 51,348 3,264 (584) Employee Parking 9,329 9,617 8,482 1,134 288 Ground Transportation 12,803 15,684 14,417 1,267 2,881 Non-Aero Commercial Properties 9,992 18,042 12,141 5,901 8,050 Airport Utilities 7,233 7,018 7,118 (101) (215) Fishing & Commercial Vessels 2,927 2,854 3,052 (198) (73) Maritime Operations 6,181 6,443 6,069 374 262 Recreational Boating 10,255 11,086 11,081 5 831 C ruise 15,422 17,596 16,502 1,093 2,174 Grain 5,382 5,427 4,508 919 45 Maritime Industrial 6,306 6,799 6,605 193 493 Marina Office & Retail 3,949 3,988 4,012 (24) 39 Central Harbor Management 7,827 8,634 8,055 579 807 Conference & Event Centers 8,022 9,133 7,943 1,190 1,111 NWSA Distributable Revenue 61,584 54,925 46,708 8,217 (6,659) Other 13,080 15,263 13,089 2,174 2,183 Total Operating Revenues (w/o Aero) 354,232 367,917 345,446 22,471 13,685 TOTAL 598,467 630,368 620,245 10,123 31,901 4 I. PORTWIDE FINANCIAL & PERFORMANCE REPORT 12/31/17 MAJOR OPERATING EXPENSES SUMMARY Fav (UnFav) Incr (Decr) 2016 2017 2017 Budget Variance Change from 2016 $ in 000's Actual Actual Budge t $ % $ % Salaries & Benefits 102,873 112,837 125,263 12,426 9.9% 9,964 9.7% Wages & Benefits 99,917 108,041 112,647 4,606 4.1% 8,124 8.1% Payroll to Capital Projects 21,744 25,708 27,327 1,618 5.9% 3,965 18.2% Equipment Expense 7,106 11,118 7,438 (3,679) -49.5% 4,012 56.5% Supplies & Stock 8,792 10,238 8,040 (2,199) -27.3% 1,447 16.5% Outside Services 70,116 83,603 101,106 17,503 17.3% 13,487 19.2% Utilitie s 21,123 23,529 21,752 (1,777) -8.2% 2,406 11.4% Travel & Other Employee Expenses 4,200 4,767 6,203 1,436 23.1% 567 13.5% Promotional Expenses 1,178 1,408 1,997 589 29.5% 230 19.5% Other Expenses 25,118 34,818 24,419 (10,399) -42.6% 9,700 38.6% Charges to Capital Projects (36,880) (44,750) (51,532) (6,781) 13.2% (7,870) 21.3% TOTAL 325,285 371,317 384,660 13,343 3.5% 46,032 14.2% The 2017 actuals are $46.0M higher than the 2016 actuals primarily due to the following: Payroll - $18.1M higher mainly due to the addition of FTEs for Full Employee Screening, Construction Support, Maintenance, Rental Car Facility Busing, and other growing business needs and support services. Outside Services - $13.5M higher largely due to more consultant expenses, more capital and expense projects, and some capital to expense write-offs. Other Expenses - $9.7M higher due to environmental liability expenses ($3.3M), DMCBP Phase II Frontage Fees ($3.6M) and Third Party Management fee ($1.1M), the last two are more than offset by higher revenues. TOTAL OPERATING AND NON-OPERATING REVENUES AND EXPENSES Fav (UnFav) 2016 2017 2017 Budget Variance ($ in 000's) Actual Actual Budget $ % Revenues 1. Operating Revenues 598,467 630,368 620,245 10,123 1.6% 2. Tax Levy 71,678 71,702 72,000 (298) -0.4% 3. PFCs 85,570 88,389 89,087 (698) -0.8% 4. CFCs 24,715 25,790 26,300 (511) -1.9% 5. Fuel Hydrant 6,992 7,000 7,024 (24) -0.3% 6. Non-Capital Grants & Donations 6,284 7,647 8,595 (947) -11.0% 7. Capital Contributions 18,108 29,983 15,000 14,983 99.9% 8. Interest Income 8,448 12,174 10,822 1,351 12.5% Total 820,262 873,053 849,073 23,979 2.8% Expenses 1. O&M Expense 325,285 371,317 384,660 13,343 3.5% 2. Depreciation 164,336 165,021 166,300 1,279 0.8% 3. Revenue Bond Interest Expense 105,567 97,748 122,026 24,278 19.9% 4. GO Bond Interest Expense 9,765 13,891 17,714 3,823 21.6% 5. PFC Bond Interest Expense 5,251 4,931 4,985 55 1.1% 6. Public Expense 8,560 4,588 2,488 (2,100) -84.4% 7. Non-Op Environmental Expense 280 4,464 5,441 977 18.0% 8. Other Non-Op Rev/Expense 12,087 12,732 (257) (12,990) 5050.8% Total 631,131 674,693 703,357 28,665 4.1% Special Item 147,700 - - - 0.0% Increase In Net Position 41,431 198,360 145,716 52,644 36.1% Major Budget Variance Explanations: Capital Contributions: $15.0M above budget mainly due to contribution from NCL for the Pier 66 Cruise Terminal Improvement. Interest Income: $1.4M higher than budget mainly due to higher funds balance. Revenue Bond Interest Expense: $24.3M favorable to budget mainly due to savings from revenue bond re-financing. Other Non-Op Expense: $13.0M higher than budget mainly due to earlier assets retirement resulted from new project constructions at the airport. 5 I. PORTWIDE FINANCIAL & PERFORMANCE REPORT 12/31/17 KEY PERFORMANCE METRICS Fav (UnFav) Incr (Decr) 2016 2017 2017 Budget Variance Change from 2016 Ac tual Ac tual Budget Chg. % Chg. % Enplanements (in 000's) 22,796 23,416 23,929 (513) -2.1% 620 2.7% Landed Weight (lbs. in 000's) 27,276 28,431 27,726 705 2.5% 1,155 4.2% Passenger CPE (in $) 10.10 10.45 10.88 0.43 4.0% 0.35 3.5% Grain Volume (metric tons in 000's) 4,389 4,363 3,720 643 17.3% (26) -0.6% Cruise Passenger (in 000's) 984 1,072 1,039 32 3.1% 88 9.0% Shilshole Bay Marina Occupancy 94.6% 94.8% 95.4% -0.6% -0.6% 0.2% 0.2% Fishermen's Terminal Occupancy 84.7% 81.9% 84.3% -2.4% -2.8% -2.8% -3.3% CAPITAL SPENDING RESULTS 2016 2017 2017 Budget Variance $ in 000's Actual Actual Budget $ % Aviation 153,889 294,497 554,717 260,220 46.9% Maritime 5,744 20,489 34,518 14,029 40.6% Economic Development 4,731 3,739 6,304 2,565 40.7% Central Services & Other (note 1) 5,097 5,798 12,147 6,349 52.3% TOTAL 169,461 324,523 607,686 283,163 46.6% Note: (1) "Other" includes Street Vacation projects and Storm Water Utility (SWU) capital projects. PORTWIDE INVESTMENT PORTFOLIO During the fourth quarter of 2017, the investment portfolio earned 1.51% versus the benchmark's (the Bank of America Merrill Lynch 1-3 Year US Treasury & Agency Index) 1.90%. Over the last twelve months the portfolio and the benchmark have earned 1.42% and 1.52%, respectively. Since the Port became its own Treasurer in 2002, the life-to-date earnings of the Port's portfolio and the benchmark are 2.50% and 1.79%, respectively. 6 II. AVIATION DIVISION FINANCIAL & PERFORMANCE REPORT 12/31/17 FINANCIAL SUMMARY Fav (UnFav) Incr (Decr) 2016 2017 2017 Budget Variance Change from 2016 $ in 000's Actual Actual Budge t $ % $ % Operating Revenues: Gross Aeronautical Revenues 247,811 266,027 278,375 (12,348) -4.4% 18,216 7.4% SLOA III Incentive Straight Line Adj (1 (3,576) (3,576) (3,576) (0) 0.0% (0) 0.0% Aeronautical Revenues 244,235 262,451 274,799 (12,348) -4.5% 18,216 7.5% Non-Aeronautical Revenues 221,021 236,803 226,645 10,157 4.5% 15,781 7.1% Total Operating Revenues 465,256 499,254 501,444 (2,191) -0.4% 33,997 7.3% Total Operating Expense 261,226 297,449 302,711 5,262 1.7% 36,223 13.9% Net Operating Income 204,030 201,804 198,733 3,071 1.5% (2,226) -1.1% Capital Expenditures 153,887 294,497 554,717 260,220 46.9% 140,610 91.4% (1) Annual non-cash amortization of $17.9M lease incentive credited in 2013. Division Summary 2017 Actuals vs 2017 Budget Net Operating Income for 2017 is $3.1M higher than budget (1.5% favorable) o Operating Revenue is $2.2M lower than budget (0.4% unfavorable) primarily due to lower Aeronautical revenue ($12.3M) due to lower aero costs and higher revenue sharing, partially offset by higher Non-Aero revenue ($10.2M) driven by strong performance in Airport Dining & Retail, Clubs & Lounges, Parking, and Ground Transportation, as well as a one-time lump sum payment of $5.4M in Commercial Properties. o Operating Expenses are $5.3M lower than budget (1.7% favorable) primarily due to lower charges from Corporate and other divisions ($13.3M savings), partially offset by higher than anticipated Airport expenses ($8.1M) due to significant unplanned expenditures for higher than anticipated snow removal costs, environmental liability expense, and capital to expense write-offs, as well as a one-time lump sum amortization expense ($3.6M) associated with the lump sum payment received in Commercial Properties this year. Division Summary 2017 Actuals vs 2016 Actuals 2017 Net Operating Income is $2.2M lower than prior year (1.1% lower NOI) o 2017 Operating Revenue is $34.0M higher than prior year (7.3% higher) due to strong growth in both Aeronautical revenue ($18.2M) and Non-Aero revenue ($15.8M). The increase in Aero rate based revenue is primarily due to cost recovery on higher operating expenses to support increased airline activity, partially offset by higher revenue sharing in 2017. The growth in Non-Aero revenue is driven by higher passenger volumes with strong performance in Parking, Airport Dining & Retail, Clubs & Lounges, and Ground Transportation, as well as a 2017 one-time lump sum payment of $5.4M in Commercial Properties. o 2017 Operating Expenses are $36.2M higher than prior year (13.9% higher) due to higher Airport expenses ($30.5M) for planned incremental spending to address operational impacts of increased passenger volumes, as well as significant unplanned expenditures in 2017 for snow removal costs, environmental liability expense, capital to expense write-offs, and a one-time lump sum amortization expense ($3.6M) associated with the lump sum payment received in Commercial Properties this year. In addition, charges from Corporate departments and other divisions were ($5.7M) higher in 2017. 7 II. AVIATION DIVISION FINANCIAL & PERFORMANCE REPORT 12/31/17 A. BUSINESS EVENTS Passenger growth slowed in 2017, still up 2.7% over the prior year. International passenger volumes grew by 5.9% in 2017. New air service: o Aeromexico started service to Mexico City in November 2017 o Air France announced new service to Paris, France beginning March 25, 2018 Cargo metric tons up 16% in 2017, compared to prior year. Customer Service: achieved Airport Service Quality (ASQ) targets for 2017 Airport dining and retail program awarded lease group 3 in June 2017 and awarded lease group 4 in February 2018. Sustainable Airport Master Plan - progressing towards preferred alternative. Capital program: proceeding with construction on major projects: IAF, NSAT, Baggage Optimization, Concourse D Hardstand Terminal and Alternative Utility Facility. Inter-local agreement executed with City of SeaTac. Airline lease agreement (SLOA) negotiations continued into early 2018, with agreement on key terms reached in February 2018. B. KEY PERFORMANCE METRICS 2016 2017 % Change Passenger Activity Enplaned Passengers (000's) Change Marke t Domestic 20,385 20,862 2.3% Airline 2016-17 Share International 2,411 2,554 5.9% Ala ska +Virgin -0.1% 49.6% Total 22,796 23,416 2.7% De lta 10.3% 22.2% Southwest -9.5% 6.7% Ope rations 412,170 416,124 1.0% Unite d 5.4% 6.4% Landed Weight (In Millions of lbs.) American -0.8% 5.9% Cargo 1,888 2,323 23.0% 2017 Cargo Metric Tons: All other 25,387 26,107 2.8% Strong growth in cargo volume from Total 27,276 28,431 4.2% existing domestic and international carriers. Cargo - Metric Tons 2017 reflects first full year of activity for Domestic freight 194,754 242,470 24.5% new air services that commenced mid- 2016: International freight 114,350 123,735 8.2% o New Domestic Freight services - Ma il 57,326 59,651 4.1% Prime Air/Amazon and DHL Total 366,430 425,856 16.2% o New International Freight services - AeroLogic and AirBridge. 8 II. AVIATION DIVISION FINANCIAL & PERFORMANCE REPORT 12/31/17 Key Performance Measures Fav (UnFav) Incr (Decr) 2016 2017 2017 Budget Vairance Change from 2016 Actual Actual Budge t $ % $ % Key Performance Metrics Cost per Enplanement (CPE) 10.10 10.45 10.88 0.43 4.0% 0.35 3.4% Non-Aeronautical NOI (in 000's) 128,833 133,108 118,521 14,587 12.3% 4,275 3.3% Other Performance Metrics O&M Cost per Enplanement 11.46 12.70 12.65 (0.05) -0.4% 1.24 10.9% Non-Aero Revenue per Enplanement 9.70 10.11 9.47 0.64 6.8% 0.42 4.3% Debt per Enplanement (in $) 104 114 110 (4) -3.5% 10 9.4% Debt Service Coverage (After Rev Sharing) 1.53 1.57 1.50 0.08 5.1% 0.04 2.9% Days cash on hand (10 months = 304 days) 416 381 304 77 25.4% (35) -8.4% Aeronautical Revenue Sharing ($ in 000's) (37,395) (42,313) (33,093) (9,219) -27.9% 4,917 13.2% Activity (in 000's) Enplanements 22,796 23,416 23,929 (513) -2.1% 619 2.7% Notes: Reduction in CPE reflects lower airline costs due to higher revenue sharing (driven by increased non- airline revenues), and increased enplaned passengers. Improved debt service coverage compared to budget reflects increased cash flow from growth in enplanements. 9 II. AVIATION DIVISION FINANCIAL & PERFORMANCE REPORT 12/31/17 C. OPERATING RESULTS Division Summary Fav (UnFav) Incr (Decr) 2016 2017 2017 Budget Variance Change from 2016 $ in 000's Actual Actual Budge t $ % $ % Operating Revenues: Gross Aeronautical Revenues (1) 247,811 266,027 278,375 (12,348) -4.4% 18,216 7.4% SLOA III Incentive Straight Line Adj (2) (3,576) (3,576) (3,576) (0) 0.0% (0) 0.0% Aeronautical Revenues (1) 244,235 262,451 274,799 (12,348) -4.5% 18,216 7.5% Non-Aeronautical Revenues 221,021 236,803 226,645 10,157 4.5% 15,781 7.1% Total Operating Revenues 465,256 499,254 501,444 (2,191) -0.4% 33,997 7.3% Operating Expenses: Payroll 101,879 114,463 119,886 5,423 4.5% 12,585 12.4% Outside Services 37,863 41,055 45,279 4,224 9.3% 3,192 8.4% Utilitie s 14,690 16,374 15,187 (1,187) -7.8% 1,684 11.5% Other Airport Expenses 20,655 28,292 18,004 (10,289) -57.1% 7,637 37.0% Total Airport Direct Charges 175,087 200,184 198,355 (1,829) -0.9% 25,098 14.3% Environmental Remediation Liability 4,463 7,147 3,775 (3,372) -89.3% 2,684 60.1% Capital to Expense 129 2,856 - (2,856) N/A 2,727 2114.7% Total Exceptions 4,592 10,003 3,775 (6,228) -165.0% 5,411 117.8% Total Airport Expenses 179,679 210,187 202,130 (8,056) -4.0% 30,508 17.0% Police Costs 18,183 17,652 19,173 1,521 7.9% (531) -2.9% Capital Development 9,319 14,701 22,378 7,677 34.3% 5,382 57.8% Other Central Services 50,099 51,004 54,673 3,669 6.7% 905 1.8% Maritime/Economic Development 3,946 3,904 4,356 452 10.4% (41) -1.1% Total Charges from Other Divisions 81,547 87,262 100,581 13,318 13.2% 5,715 7.0% Total Operating Expense 261,226 297,449 302,711 5,262 1.7% 36,223 13.9% Net Operating Income 204,030 201,804 198,733 3,071 1.5% (2,226) -1.1% CFC Surplus (4,899) (2,750) (5,561) 2,812 50.6% 2,149 43.9% Net Non-Operating Items in / out from ADF (3) 2,160 3,481 3,691 210 5.7% 1,321 61.2% SLOA III Incentive Straight Line Adj 3,576 3,576 3,576 (0) 0.0% 0 0.0% Debt Service (133,982) (131,060) (133,876) 2,817 2.1% 2,922 2.2% Adjusted Net Cash Flow 70,885 75,052 66,562 8,489 12.8% 4,167 5.9% (1) Aero revenues are net of revenue sharing. (2) For Accounting purposes, the 2013 reduction in the airline revenue requirement of $17.9 million was treated as a lease incentive and is being amortized over five years. (3) Per SLOA III definition of Net Revenues. 10 II. AVIATION DIVISION FINANCIAL & PERFORMANCE REPORT 12/31/17 Operating Expenses 2017 Actuals compared to 2017 Budget: Total Operating Expenses are lower than the 2017 Budget by $5.3 million due to the net of the following: Aviation Direct Operating Expenses are higher than budget by $1.8 million due to the following: Positive Variance of $9.6M Negative Variance of $11.5M Payroll $5.4M Utilitie s $1.2M Vacancies & hiring delays 4.1M Other Aviation Expenses $10.3M New labor agreement impacts (0.8M) DMCBP Phase II pre-paid frontage exp 3.6M Snow-related incremental labor costs (0.3M) Litigated & Non-litigated Damages 1.5M YE pension adjustment 2.4M Clubs & Lounges op exp (revenue growth) 0.4M Outside Services (savings & work deferred to future year) $4.2M Snow removal - supplies expense 0.6M SAMP related projects - slower spending 3.9M Furniture & Equipment acquisition 2.3M Airport Signage Master Plan 0.5M Worker's Comp 1.1M Contracted Snow Removal costs (0.5M) All other Aviation Expenses 0.8M Electric cart service (light rail shuttle) (0.3M) Curbside Assistance (Rental Car) (0.2M) All other Outside Services 0.8M Operating Expenses Exceptions are higher than budget by $6.2 million due to the following: Positive Variance - none Negative Variance of $6.2M Environmental Remediation Liability $3.4M IAF soils 3.1M NSAT soils 0.9M NSAT asbestos 0.7M RMM projects deferred to future years (1.3M) Capital to Expense $2.9M Obsolete exit lane equipment 1.9M SSAT - HVAC equipment 0.7M Cellphone lot - temporary traffic signal 0.1M All other Capital to Expense items 0.2M Operating Expense charges from Central Services and other divisions are lower than budget by $13.3 million due to the following: Positive Variance of $13.3M Negative Variance - none Police savings $1.5M Capital Development savings $7.7M Aviation PMG (projects delayed/deferred) 6.1M PCS 0.5M Engineering 1.1M Other Central Services savings $3.7M Human Resources 0.8M Accounting & Financial Reporting 0.7M ICT 0.6M Executive 0.5M Office of Strategic Initiatives 0.5M All other Central Services departments 0.6M Maritime & EDD Divisions $0.5M 11 II. AVIATION DIVISION FINANCIAL & PERFORMANCE REPORT 12/31/17 Operating Expenses 2017 Actuals compared to 2016 Actuals: Total Operating Expenses increased in 2017 by $36.2 million due to the net of the following: Aviation Direct Operating Expenses increased in 2017 by $25.1 million due to the following: Increase of $25.1M Decrease - no material amount Payroll - incremental staff (growth driven) $12.6M Outside Services $3.2M SAMP related spending 1.1M NERA grant spending (FAA pilot program) 0.6M Airport Signage Master Plan 0.4M All other Outside Services 1.1M Utilitie s $1.7M Other Aviation expenses $7.6M DMCBP Phase II pre-paid frontage fee exp 3.6M Furniture & Equipment acquisition 2.3M Worker's Comp 1.2M All other Aviation expenses 0.5M Operating Expense Exceptions increased in 2017 by $5.4 million due to the following: Increase of $5.4M Decrease - no material amount Environmental Remediation Liability $2.7M IAF soils 3.5M NSAT soils 1.9M NSAT asbestos 1.3M Lora Lake (lake parcel) increase in 2016 (4.1M) All other RMM adjustments 0.1M Capital to Expense $2.7M Obsolete exit lane equipment 1.9M SSAT - HVAC equipment 0.7M All other Capital to Expense items 0.1M Operating Expense charges from Corporate and other divisions increased by $5.7 million in 2017 due to the following: Increase of $6.3M Decrease of $0.5M Capital Development $5.4M P olic e $0.5M Aviation PMG 4.1M PCS 0.5M Engineering 0.7M All other CDD 0.1M Other Central Services $0.9M 12 II. AVIATION DIVISION FINANCIAL & PERFORMANCE REPORT 12/31/17 Aeronautical Business Unit Summary Fav (UnFav) Incr (Decr) 2016 2017 2017 Budget Variance Change from 2016 $ in 000's Actual Actual Budge t $ % $ % Revenues: Movement Area 94,725 108,638 109,845 (1,206) -1.1% 13,913 14.7% Apron Area 14,028 16,771 15,957 814 5.1% 2,743 19.6% Terminal Rents 155,852 155,431 163,565 (8,134) -5.0% (421) -0.3% Federal Inspection Services (FIS) 11,227 16,951 12,437 4,514 36.3% 5,724 51.0% Total Rate Base Revenues 275,832 297,791 301,803 (4,012) -1.3% 21,958 8.0% Commercial Area 9,379 10,574 9,665 909 9.4% 1,195 12.7% Subtotal before Revenue Sharing 285,211 308,365 311,468 (3,103) -1.0% 23,154 8.1% Revenue Sharing (37,395) (42,313) (33,093) (9,219) -27.9% (4,917) 13.2% Other Prior Year Revenues (5) (26) - (26) N/A (20) 384.0% Gross Aeronautical Revenues 247,811 266,027 278,375 (12,348) -4.4% 18,216 7.4% Total Airport Direct Charges 122,573 138,964 139,445 481 0.3% 16,391 13.4% Total Exceptions 4,315 8,193 2,519 (5,674) -225.3% 3,878 89.9% Total Charges from Other Divisions 42,149 46,597 52,421 5,824 11.1% 4,448 10.6% Total Aeronautical Expenses 169,037 193,755 194,385 630 0.3% 24,717 14.6% Net Operating Income 78,774 72,272 83,990 (11,718) -14.0% (6,501) -8.3% Debt Service (1) (89,997) (86,564) (88,740) 2,176 2.5% 3,433 3.8% Net Cash Flow (11,224) (14,292) (4,750) (9,542) -200.9% (3,068) -27.3% NOTE: (1) Debt service is forecasted/budgeted on an annual basis only. Thus, quarterly data is not available. Airline Rate Base Cost Drivers Fav (UnFav) Incr (Decr) 2016 2017 2017 Budget Variance 'Change from 2016 $ in 000's Actual Actual Budge t $ % $ % O&M (1) 165,427 190,523 190,645 (123) -0.1% 25,096 15.2% Debt Service Gross 118,641 113,832 117,336 (3,504) -3.0% (4,809) -4.1% Debt Service PFC Offset (32,831) (33,057) (33,099) 42 -0.1% (226) 0.7% Amortiza tion 28,215 29,654 29,637 18 0.1% 1,439 5.1% Space Vacancy (2,638) (2,264) (1,486) (778) 52.4% 374 -14.2% TSA Operating Grant and Other (982) (897) (1,230) 334 -27.1% 85 -8.7% Rate Base Revenues 275,832 297,791 301,803 (4,012) -1.3% 21,958 8.0% Commercial area 9,379 10,574 9,665 909 9.4% 1,195 12.7% Total Aero Revenues 285,211 308,365 311,468 (3,103) -1.0% 23,154 8.1% O&M, Debt Service Gross, and Amortization do not include commercial area costs or the international incentive expenses 13 II. AVIATION DIVISION FINANCIAL & PERFORMANCE REPORT 12/31/17 Aeronautical Budget Variance Aeronautical net operating income is $11.7M lower than budget. o Aeronautical revenue is $12.3M lower than budget: Lower than budgeted rate base revenue ($4.0M) due to lower debt service payments due to increased application of capitalized interest, savings from variable rate bond interest, and higher debt service exclusions. Higher revenue sharing ($9.2M) due to strong non-aero businesses performance and lower debt service payments. o Aeronautical operating expenses are $0.6M lower than budget: Airport Direct Charges - $0.5M lower than budget despite significant unplanned expenditures for snow removal costs, installation of additional kiosks for FIS processing, partially offset by savings due to SAMP costs deferred to future years and payroll savings due to vacancies & hiring delays. Exceptions: Capital to Expense - $2.1M higher than budget primarily due to Aero share of expense charge from obsolete exit lane equipment ($1.5M) and SSAT HVAC ($0.5M), Environmental Remediation Expense - $3.6M higher than budget primarily due to higher than expected soil contaminants related to IAF ($3.0M) project. Charges from other divisions - $5.8M lower than budget primarily due to delays in planned terminal building projects. Aeronautical Year over Year Changes Aeronautical net operating income is $6.5M lower than 2016. o Aeronautical revenues are $18.2 higher year over year higher rate based revenues are offset by higher revenue sharing: Higher rate based revenue ($22.0M) primarily due to higher operating expenses to support increased airline activity. Higher revenue sharing ($4.9M) due to increase in non-aero revenues driven by higher passenger volumes. o Aeronautical operating expenses in 2017 are $24.7M higher than 2016: Airport Direct Charges - $16.4M higher than prior year primarily due to targeted spending to support increased airline activity and operational impacts of capital projects. Exceptions - $3.9M higher than prior year primarily due to remediation of regulated materials for the IAF and NSAT projects ($6.7M), partially offset by the prior year increase in ERL reserve for Lora Lake (Lake parcel - $4.1M). Charges from other divisions - $4.4M higher than 2016. 14 II. AVIATION DIVISION FINANCIAL & PERFORMANCE REPORT 12/31/17 Non-Aero Business Unit Summary Fav (UnFav) Incr (Decr) 2016 2017 2017 Budget Variance Change from 2016 $ in 000's Actual Actual Budge t $ % $ % Non-Aero Revenues Rental Cars - Operations 37,082 35,051 37,815 (2,764) -7.3% (2,031) -5.5% Rental Cars - Operating CFC 12,122 10,641 12,931 (2,290) -17.7% (1,481) -12.2% Public Parking 69,540 75,106 73,568 1,538 2.1% 5,566 8.0% Ground Transportation 12,803 15,684 14,417 1,267 8.8% 2,881 22.5% Airport Dining & Retail & Leased Space 56,348 58,980 55,635 3,345 6.0% 2,633 4.7% Commercial Properties 9,992 18,042 12,141 5,901 48.6% 8,050 80.6% Utilitie s 7,233 7,018 7,118 (101) -1.4% (215) -3.0% Employee Parking 9,329 9,617 8,482 1,134 13.4% 288 3.1% Clubs and Lounges 3,028 5,041 2,729 2,311 84.7% 2,013 66.5% Other 3,545 1,624 1,807 (184) -10.2% (1,921) -54.2% Total Non-Aero Revenues 221,021 236,803 226,645 10,157 4.5% 15,781 7.1% Total Non-Aero Expenses 92,189 103,695 108,124 4,429 4.1% 11,506 12.5% Net Operating Income 128,833 133,108 118,521 14,587 12.3% 4,275 3.3% Less: CFC (Surplus) / Deficit (1) (4,899) (2,750) (5,561) 2,812 50.6% 2,149 43.9% Adjusted Non-Aero NOI 123,934 130,358 112,960 17,398 15.4% 6,425 5.2% Debt Service (1) (43,984) (44,495) (45,136) 641 1.4% (511) -1.2% Net Cash Flow 79,949 85,863 67,824 18,039 26.6% 5,914 7.4% Note: (1) CFC excess and Debt service are forecasted/budgeted on an annual basis only. Thus, quarterly data is not available. Non-Aero Budget Variance Non-Aeronautical net operating income is $14.6M higher than budget. o Non-Aeronautical revenues are $10.2M higher than budget: Commercial Properties revenue favorable ($5.9M) primarily due to one-time lump sum payment of $5.4M for prepaid frontage fee reimbursement. Strong performance continues in Airport Dining and Retail ($3.3M), Clubs & Lounges ($2.3M), Public Parking ($1.5M), and Ground Transportation ($1.3M). Rental Car continues to be challenged by other transportation alternatives. o Non-Aeronautical operating expenses are $4.4M lower than budget: Airport Direct Charges - $2.3M higher than budget primarily due to amortization of prepaid frontage fees associated with one-time lump sum payment received in 2017 from DMCBP Phase II ($3.6M). Other unplanned spending incurred includes higher operating expenses associated with expanded hours for airport Clubs & Lounges, electric cart shuttle service to airport light rail station, rental car curbside service reinstated this year, and increased honey buckets deployed throughout Landside locations to increase customer service. This unplanned spending was partially offset by savings in Payroll and Outside Services which includes delayed spending on SAMP-related projects. Exceptions - $0.5M higher than budget due to Non-Aero share of Terminal Building Capital to Expense write-offs, partially offset by savings in Environmental Remediation Liability expense due to planned RMM projects deferred to future years. Charges from other divisions - $7.5M in savings from Shared Services departments. 15 II. AVIATION DIVISION FINANCIAL & PERFORMANCE REPORT 12/31/17 Non-Aero Year over Year Changes Non-Aeronautical net operating income is $4.3M higher than 2016. o Non-Aeronautical revenues in 2017 are $15.8M higher than 2016 Commercial Properties revenue increased $8.0M primarily due to one-time lump sum payment ($5.4M) received in 2017 for prepaid frontage fee reimbursement. Remainder of revenue growth came from newly developed properties ($1.3M), In-flight Kitchen revenue ($0.8M), and NERA 3 grant reimbursement for FAA pilot program ($0.5M). Public Parking revenue $5.6M higher than prior year primarily due to tariff rate increase in April 2017, partially offset by City of SeaTac parking tax increase in same year. Strong performance in 2017 drove incremental revenue from Airport Dining & Retail ($2.6M), Clubs & Lounges ($2.0M), and Ground Transportation ($2.9M). Rental Car continues to be challenged by other transportation alternatives. o Non-Aeronautical operating expenses in 2017 are $11.5M higher than 2016: Airport Direct Charges - $8.7M higher than prior year due to 2017 amortization of prepaid frontage fees associated with one-time lump sum payment received from DMCBP Phase II ($3.6M). Other increases due to higher payroll costs, NERA 3 grant spending (FAA pilot program), and other expenses related to increased passenger volumes. Exceptions - $0.8M higher ERL costs and $0.7M higher Capital to Expense charges in 2017 due to Non-Aero share of Terminal Building Capital to Expense write-offs. Charges from other divisions - $1.3M higher than 2016. D. CAPITAL RESULTS $ in 000's 2017 2017 Budget Variance Description Actual Budget $ % (1) International Arrivals Fac-IAF 100,198 202,598 102,400 50.5% (2) Concourse D Hardstand Holdroom 7,149 22,163 15,014 67.7% (3) Add'l Baggage Makeup Space IAF 1,938 13,475 11,537 85.6% (4) Checked Bag Recap/Optimization 14,444 24,256 9,812 40.5% (5) Alternate Utility Facility 14,635 23,998 9,364 39.0% (6) NS NSAT Renov NSTS Lobbies 57,149 64,285 7,136 11.1% (7) N. Terminals Utilities Upgrade 1,218 7,996 6,779 84.8% (8) Additional STS Cars - 6,525 6,525 100.0% (9) GSE Electrical Chrg Stations 635 5,390 4,755 88.2% (10) Service Tunnel Renewal/Replace 3,359 8,000 4,641 58.0% (11) Concourse B Roof Replacement 1,716 5,995 4,279 71.4% (12) Fuel System Modifications 7,456 11,600 4,144 35.7% (13) SSAT Infrastructure HVAC 613 4,748 4,134 87.1% (14) Concessions Infrastructure 2,183 4,800 2,617 54.5% (15) Concourse B Gate Reconfigure 7,215 9,819 2,604 26.5% All Other 74,589 139,069 64,480 46.4% Total Spending 294,497 554,717 260,220 46.9% (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 project was delayed due to contract execution issues with CPO. 16 III. MARITIME DIVISION FINANCIAL & PERFORMANCE REPORT 12/31/17 FINANCIAL SUMMARY Fav (UnFav) Incr (Decr) 2016 2017 2017 Budget Variance Change from 2016 $ in 000's Actual Actual B udg e t $ % $ % Revenues: Operating Revenue 50,810 54,183 51,830 2,354 5% 3,374 7% Security Grants 0 0 0 0 NA 0 NA Total Revenues 50,810 54,183 51,830 2,354 5% 3,374 7% Total Operating Expenses 40,268 42,164 46,502 4,339 9% 1,896 5% Net Operating Income 10,542 12,020 5,327 6,692 126% 1,477 14% Capital Expenditures 5,746 20,489 34,518 14,029 41% 14,743 257% Total Maritime Revenues were $2,354K favorable to budget driven by $919K at the Grain terminal from higher than budgeted volumes and $1,093K in Cruise from 32K more passengers than expected. Increase from 2016 driven by Cruise, Recreational Boating, and Portfolio Management. Total Operating Expenses were $4,339K favorable to budget primarily due to lower maintenance, timing of cruise related outside services, EDD tenant improvements, and allocated central services. Expenses increased $1,896K from 2016. Net Operating Income before Depreciation was $6,692K favorable to budget and $1,477K higher than 2016. Capital Expense ended 2017 at $20.5M, 59% of the $34.5M approved annual budget. Net Operating Income before Depreciation by Business Fav (UnFav) Incr (Decr) 2016 2017 2017 2017 Bud Var Change from 2016 $ in 000's Actual Actual B udg e t $ % $ % Fishing & Operations (3,149) (1,451) (2,334) 883 38% 1,698 54% Recreational Boating 1,016 1,305 642 663 103% 289 28% Cruis e 8,326 8,599 5,718 2,881 50% 273 3% Bulk 4,215 4,030 2,934 1,095 37% (185) -4% Maritime Portfolio 249 167 (1,150) 1,317 NA (83) -33% All Other (115) (630) (483) (147) NA (515) NA Total Maritime 10,542 12,020 5,327 6,692 126% 1,477 14% A. BUSINESS EVENTS Cruise Broke the million passenger mark for the first time in 2017. Grand reopening of Pier 66 Cruise Terminal with NCL. Successful launch of Port Valet Service. Grain Volumes 17% higher than expected. Fishing & Commercial Operations - Continued to advance work on FT redevelopment. USCGC Munro held its commissioning Ceremony at T91. Event was well attended by high ranking officers and senators. Recreational Boating - New liveaboard authorization agreement finalized with Shilshole Liveaboard Association. Vessel Management System selected and contract signed. MD Portfolio Management: Negotiated long-term ground lease for Duke's restaurant at Shilshole Bay Marina. Maintained 97% occupancy. Marine Maintenance - Leading the organization in small business utilization with 38.92% of goods, services, and small works conducted by small businesses. Storm Water Utility Exceeded assessment goal by 11% and achieved 88% of rehabilitation goal. 17 III. MARITIME DIVISION FINANCIAL & PERFORMANCE REPORT 12/31/17 B. KEY INDICATORS Grain Volume Metric Tons in 000's 700 600 500 2016 Actuals 400 300 2017 Budget 200 2017 Actuals 100 0 Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Cruise Passengers in 000's 300 250 200 2016 Actuals 150 2017 Budget 100 2017 Actuals 50 0 Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec 18 III. MARITIME DIVISION FINANCIAL & PERFORMANCE REPORT 12/31/17 C. OPERATING RESULTS Fav (UnFav) Incr (Decr) 2016 2017 2017 Budget Variance Change from 2016 $ in 000's Actual Actual Budget $ % $ % Operating Revenue 50,810 54,183 51,830 2,354 5% 3,374 7% Security Grants 0 0 0 0 NA 0 NA Total Revenues 50,810 54,183 51,830 2,354 5% 3,374 7% Maritime Expenses (excl Maint) 10,722 11,548 12,791 1,243 10% 825 8% Maintenance Expenses 9,900 10,420 11,439 1,019 9% 520 5% P69 Facilities Expenses 299 301 343 42 12% 2 1% Other ED Expenses 3,488 3,871 4,262 391 9% 383 11% Environmental & Sustainability 1,358 1,125 1,701 576 34% (233) -17% Police Expenses 3,921 3,756 3,867 111 3% (165) -4% Captial Development Expenses 1,010 748 1,177 429 36% (263) -26% Other Central Service Expenses 9,454 10,007 10,924 917 8% 553 6% Envir Remed Liability 115 389 0 (389) NA 273 237% Total Expenses 40,268 42,164 46,502 4,339 9% 1,896 5% NOI Before Depreciation 10,542 12,020 5,327 6,692 126% 1,478 14% Dep reciation 17,351 17,410 16,672 (737) -4% 59 0% NOI After Depreciation (6,809) (5,390) (11,345) 5,955 52% 1,419 21% Maritime Division Revenues were $2,354 K favorable to budget. Key variances are as follows: Fishing & Operations favorable $176K o Maritime Ops - favorable $374K. o Fishing & Commercial - unfavorable ($198K) driven by fishing vessels at FT. Cruise Operations favorable $1,094K o Dockage - favorable $228K from 32K more passengers than budget. o Space Rental is favorable $632K from 32K more passengers than budget. o Utility Revenue is favorable $108K. Recreational Boating favorable $5K o Shilshole Bay Marina ($73K) unfavorable due to berthage & moorage ($125K) and parking revenue ($15K), offset by utility revenues $32K and guest moorage $53K. o Bell Harbor Marina $73K favorable with higher guest moorage than budgeted. o Harbor Island Marina $5K favorable. Bulk favorable $919K o Grain terminal loaded 4,362,603 metric tons in 2017 which is 17% higher than budget of 3,720,000. Maritime Portfolio Management favorable $169K o FT Office & Retail - $96K favorable to budget with $43K in higher space rental, $22K from higher food & beverage revenue, and $11K from utility sales revenues. o MIC Office & Retail ($128K) unfavorable to budget due to loss of C-3 Worldwide revenue. o SBM Office & Retail - $7K favorable to budget. o Maritime Industrial $193K favorable to budget due to higher revenue from WA DOT lease at T-106 and new yard leases at T-115 & T-108 Uplands. 19 III. MARITIME DIVISION FINANCIAL & PERFORMANCE REPORT 12/31/17 Total Maritime Division Expenses were $4,339K favorable to budget. Key variances are as follows: Maritime Expenses (excluding Maintenance and including Environmental Remediation Liability) were $855K favorable to budget. Major variances were as follows: o Salaries & Benefits were $292K favorable due to open positions in Fishing & Operations and Cruise, partially offset by Recreational Boating. o General Expenses were ($230K) unfavorable primarily from $371K of environmental booked in general expenses and budgeted in remediation liability. o Travel & Other Employee Expenses ($9K) unfavorable. o Outside Services were $349K favorable driven by timing of Smith Cove Cruise Terminal baggage claim resurface. o Equipment Expense was $351K favorable driven by delays in cruise "Best in Class" initiatives and CTA allowance. o Promotional were $227K favorable due to timing of Destination Awareness and Best in Class promotional spending. Maintenance Expenses were $1,019K favorable to budget from project delays and timing of billings. Other Economic Development Expenses were $391K favorable to budget. Environment & Sustainability Expenses were $576K favorable to budget. Capital Development Expenses were $429K favorable to budget. Other Central Service Expenses were $917K favorable to budget due primarily to open FTEs. Change from 2016 YTD Actual Net Operating Income (NOI) before Depreciation for 2017 increased by $1,478K - Revenue grew 7% while expenses grew 5%. Revenues increased by $3,374K - Revenue from Cruise increased $2,174K primarily from additional customers and higher tariff rates, Recreational Boating increased $840K from rate increases, and Maritime Portfolio Management increased $531K from yard leases at T-115 & T-108 along with extension of WDOT lease at T-106. Expenses, direct and allocated, increased by $1,896K - Variance driven by growth in Maritime related expenses of $825K primarily from the Cruise Port Valet program, $602K in increased maintenance costs with a mix of more work and higher rates, along with increases in Other Central services such as Public Affairs, Accounting, HR, IT, and Accounting. Finance, Central Procurement, and Environmental & Sustainability decreased from job vacancies along with Police & Capital Development which decreased due to changes in capital and allocation mix. 20 III. MARITIME DIVISION FINANCIAL & PERFORMANCE REPORT 12/31/17 D. CAPITAL SPENDING RESULTS Budget Variance 2017 2017 Actual Budge t $ % $ in 000's Cruise Terminal Tenant Improv 13,545 15,228 1,683 11% P91 South End Fender 153 3,347 3,194 95% FT Net Shed 3,4,5 &6 Roof Rpl 1,711 2,837 1,126 40% Small Projects 1,392 2,685 1,293 48% Contingency Renewal & Replace. 0 2,000 2,000 100% SBM Restrms/Service Bldgs Rep 663 1,694 1,031 61% Maritime Fleet Replacement 584 1,586 1,002 63% T91 Building C-173 Roof Overl 969 1,321 352 27% T91 P91W Slope Stabilization 152 650 498 78% FT Re Development Phase I 640 580 (60) 90% T91 Camel Replacements 30 0 (30) 100% All Other 650 2,590 1,940 75% Total Maritime 20,489 34,518 14,029 41% Comments on Key Projects For 2017, Maritime spent 59% of the annual approved budget. Projects with significant changes in spending were: Cruise Terminal Tenant Improvement: Gangway design and fabrication delayed until 2018. P91 South End Fender: Work to begin in Jan 2018 due to advertisement delay and permitting issues. Small Projects: Several projects started in 2017 have the bulk of their spending in 2018. Shilshole Bay Marina Restroom and Services Building Replacement: Construction start date delayed to summer 2018. Maritime Fleet Replacement: Variance due to timing of vehicle orders and deliveries. 21 IV. ECONOMIC DEVELOPMENT DIVISION FINANCIAL & PERFORMANCE REPORT 12/31/17 FINANCIAL SUMMARY Fav (UnFav) Incr (Decr) 2016 2017 2017 Budget Variance Change from 2016 $ in 000's Actual Actual B udg e t $ % $ % Revenues: Operating Revenue 15,903 17,791 16,030 1,761 11% 1,888 12% Total Revenues 15,903 17,791 16,030 1,761 11% 1,888 12% Total Operating Expenses 21,135 25,397 29,069 3,672 13% 4,262 20% Net Operating Income (5,232) (7,606) (13,039) 5,433 42% (2,374) -45% Capital Expenditures 4,757 3,739 6,304 2,565 41% (1,018) -21% Total Economic Development Division (EDD) revenues were $1,761K or about 11% favorable to budget primarily due to higher occupancy at T-102 Harbor Marina Corporate Center and T-91 Uplands, and greater than expected activity at the Bell Harbor International Conference Center and Bell Street Garage. Total Operating Expenses were $3,672K or 13% favorable to budget due to lower spending than budgeted across all groups except for Maintenance. Net Operating Income for 2017 was $5,433K favorable to budget and $2,374K below 2016 Actual. Capital spending for full year 2017 was $3.7 million or 59% of the approved budget of $6.3 million. A. BUSINESS EVENTS Portfolio Management Overall occupancy of buildings managed by Portfolio Management was at 98% at the end of 2017, above the 95% target for 2017. Portfolio Management's occupancy is above the average of 96% for the comparable office markets and near the average of 99% for comparable industrial markets.1 Developing Pier 66 interior modernization investment plan. Worked with Victoria Clipper to evaluate space needs related to their plans to bring larger vessel to Seattle. Tourism Designed a stunning booth for the World Trade Market held in London. Instigated, designed, and operated Two Nation Vacation familiarization tours. Initiated the Airport Tourism "Spotlight" program. Conducted a London Sales mission to discuss UK co-op marketing programs. Pier 69 Facilities: P69 Solar Project was approved by Commission. 45% of spending was directed to small business enterprises. Real Estate Development Completed Salmon Bay Marina acquisition. Began design work for the Fishermen's Terminal redevelopment. 1 Market averages are calculated based on Costar building occupancies reported for: Office: Class B & C office space in Ballard/U District, Queen Anne/Magnolia, Belltown/Denny Regrade, Pioneer Square/Waterfront, and South Seattle. Industrial: Georgetown/Duwamish North, SoDo, and West Seattle 22 IV. ECONOMIC DEVELOPMENT DIVISION FINANCIAL & PERFORMANCE REPORT 12/31/17 Finalized long-term ground lease with Trammell Crow at Des Moines Creek North development. Development at NERA 2 and 3 sites is underway by Panattoni. Finalized lease with City of Seattle for Tent City 5 at Tsubota property. Small Business Facilitated community engagement, best practice assessment and policy development which resulted in the first reading of a new Diversity in Contracting policy, for Commission consideration. (passed 1/9/18). Lead public sector partners to form the "Center for Public Sector Contracting" business and contracting resource initiative. Worked with consultants and industry stakeholders to complete the Food Manufacturing (incubator) needs assessment and initiate the strategic business plan for the Maritime Innovation Center. 29 approved applications in 2017/2018 EDD Partnership Grants. Workforce Development Co-convened two community engagement sessions in partnership with King County Executive's Race and Equity team. Attended the Duwamish Valley Community Workshop convened by Environmental & Public Affairs and participated in roundtable discussions on workforce development. Participated in Food Service and Hospitality convening to identify possible opportunities to connect social enterprises. 23 IV. ECONOMIC DEVELOPMENT DIVISION FINANCIAL & PERFORMANCE REPORT 12/31/17 B. KEY INDICATORS Building Occupancy by Location: 100% 95% Central Harbor T-91 Uplands 90% Marina Office & Retail T-91 Industrial 85% T-106 Warehouse 80% Q4 2016 Q1 2017 Q2 2017 Q3 2017 Q4 2017 Net Operating Income before Depreciation by Business Fav (UnFav) Incr (Decr) 2016 2017 2017 2017 Bud Var Change from 2016 $ in 000's Actual Actual Budget $ % $ % Portfolio Management (3,925) (5,236) (7,551) 2,316 31% (1,310) -33% Conference & Event Centers 538 762 (848) 1,609 190% 224 -42% Tourism (1,117) (1,265) (1,312) 47 4% (148) -13% Workforce Development (517) (1,113) (2,269) 1,156 51% (596) -115% Small Business (2) (2) (100) 98 98% 1 NA EDD Grants (20) (751) (960) 209 22% (731) NA Env Grants/Remed Liab/ERC (188) (1) 0 (1) 187 -99% Total Econ Dev (5,232) (7,606) (13,039) 5,433 42% (2,374) -45% 24 IV. ECONOMIC DEVELOPMENT DIVISION FINANCIAL & PERFORMANCE REPORT 12/31/17 C. OPERATING RESULTS Fav (UnFav) Incr (Decr) 2016 2017 2017 Budget Variance Change from 2016 $ in 000's Actual Actual Budget $ % $ % Central Harbor Properties 7,881 8,658 8,088 571 7% 777 10% Conf & Events Centers 8,022 9,133 7,943 1,190 15% 1,111 14% Total Revenue 15,903 17,791 16,030 1,761 11% 1,888 N 12% Central Harbor Properties 3,526 3,879 4,220 341 8% 353 10% Conf & Event Centers 6,932 7,639 7,935 296 4% 707 10% P69 Facilities Expenses 180 206 234 29 12% 26 14% Small Business 21 64 161 96 60% 43 204% Workforce Development 522 850 1,999 1,148 57% 329 63% Tourism 1,093 1,234 1,285 51 4% 141 13% RE Dev & Planning 595 214 303 89 29% (381) -64% EDD Grants 20 751 960 209 22% 731 3703% EconDev Expenses Other 628 773 1,354 581 43% 145 23% Maintenance Expenses 2,787 3,666 3,592 (74) -2% 879 32% Maritime Expenses (Excl Maint) 31 52 64 11 18% 21 66% Environmental & Sustainability 62 260 451 191 42% 198 323% CDD Expenses 250 387 439 52 12% 137 55% Police Expenses 157 51 173 122 70% (106) -67% Central Services 4,331 5,370 5,899 529 9% 1,039 24% Envir Remed Liability 0 0 0 (0) NA 0 NA Total Expense 21,135 25,397 29,069 3,672 13% 4,262 20% NOI Before Depreciation (5,232) (7,606) (13,039) 5,433 42% (2,374) 45% Dep reciation 3,682 3,863 3,854 (9) 0% 181 5% NOI After Depreciation (8,914) (11,469) (16,893) 5,424 32% (2,555) 29% Total Economic Development Division Revenue was $1,761K favorable to budget. Key variances: Central Harbor Properties were $571K favorable mainly due to higher than anticipated parking revenue at the Bell Street Garage $64K, and higher occupancy at T-102 Marina Corporate Center $183K, Terminal 91 Uplands $168K, Tsubota $75K, and WTC West $18K. Conference & Event Centers were $1,190K favorable due to higher event activity at Bell Harbor International Conference Center (BHICC), with an especially strong December, despite the ongoing construction of the P-66 Cruise Terminal expansion project and Alaskan Way street construction. Total Economic Development Expenses were $3,672K favorable to budget. Key variances: Portfolio Management - was $341K favorable mainly due to lower than anticipated spending for tenant improvements and broker fees at T-102 & WTC West and lower staff charges for property managers. Conference & Event Centers - were $296K favorable mainly due to timing of expenditures for WTC Seattle Interior Refresh project. Workforce Development - was $1,148K favorable mainly due to lower than planned spending for Workforce Development programs. EDD Grants - were $209K favorable primarily due to grant funds either underspent or unspent by the recipients. Economic Development Other - was favorable $581K mainly due to lower than budgeted spending of EDD Opportunity Funds. Environmental - expenses were $191K favorable due to lower spending than planned on outside services $158K. Police - expenses were $122K favorable. 25 IV. ECONOMIC DEVELOPMENT DIVISION FINANCIAL & PERFORMANCE REPORT 12/31/17 Central Services - costs, direct and allocated, were favorable $529K primarily due to lower than anticipated direct charges and allocations from Public Affairs $130K, Finance $111K, Information Technologies $106K, Accounting $76K, Office of Strategic Initiatives $40K, and Human Resources $34K. All other variances net to a favorable variance of $255K. NOI before Depreciation was $5,433K favorable to budget. Depreciation was ($9K) or 0% unfavorable to budget. NOI after Depreciation was $5,424K favorable to budget. Change from 2016 YTD Actual Net Operating Income before Depreciation decreased by ($2,374K) between 2017 and 2016 as a result of higher revenue $1,888K and higher expenses ($4,262K). Revenues increased by $1,888K due to higher revenue from Conference & Events Center $1,111K and higher revenue for Portfolio Management $777K. Expenses increased by $4,262K primarily due to increases of $707K from Conference & Events Center mainly because of greater revenue. EDD Grants increased $731K. Maintenance expenses increased $879K. Central Services expenses increased $1,039K. CONTRIBUTIONS TO OTHER DIVISIONS Fav (UnFav) Incr (Decr) 2016 2017 Budget Variance Change from 2016 $ in 000's Actual Actual B udg e t $ % $ % Revenues: Maritime Industrial 6,306 6,799 6,605 193 3% 493 8% Marina Office & Retail 3,949 3,988 4,012 (24) -1% 39 1% Total Revenues to Other Divisions 10,255 10,787 10,618 169 2% 531 5% Expenses to Other Divisions Maritime Portfolio Mgmt 10,006 10,620 11,768 1,148 10% 614 6% NOI Before Depreciation 249 167 (1,150) (1,317) 115% (82) -33% 26 IV. ECONOMIC DEVELOPMENT DIVISION FINANCIAL & PERFORMANCE REPORT 12/31/17 D. CAPITAL SPENDING RESULTS Budget Variance 2017 2017 Actual Budge t $ % $ in 000's T102 Bldg Roof HVAC Replacemt 1,598 1,610 12 1% Small Projects 220 909 689 76% P66 Elevator 2,3,4 Upgrades 396 705 309 44% BHICC Interior Modernization 134 580 446 77% BHICC Fit & Finish Improvement 443 500 57 11% P69 Solar Panel System 13 300 287 96% P69 Lobby 3 215 212 99% All Others 932 1,485 553 37% Total Economic Development 3,739 6,304 2,565 41% Comments on Key Projects: For 2017, Economic Development spent 59% of the annual approved capital budget. Projects with significant changes in spending were: P69 Solar Panel System Overall project cost reduced from $1,370K to $515K. BHICC Interior Modernization Start of design is later and process is taking longer than anticipated. P69 Lobby On hold pending further direction from Economic Development Division. P66 Elevator 2, 3, 4 Upgrades Construction slow to start due to tenant considerations. 27 V. CENTRAL SERVICES FINANCIAL & PERFORMANCE REPORT 12/31/17 A. BUSINESS EVENTS The Port appointed Stephen Metruck as Executive Director. The Port Commission took action on Climate Change and Sustainability. The Port became the first U.S. port with 10-year goal to transition to sustainable aviation fuels. The Port and City of SeaTac approved Interlocal Agreement as partnership for mutual success. The Port welcomed Air France announcement of nonstop service to Paris. The Port continued working with TSA on Enhanced Accessible Screening Program (EAPS) to improve passenger throughput, as well as the threat created by long public dwell times in the airports unsecured common areas. The Port awarded unique custodial contracts to increase performance and small business opportunities at Sea- Tac Airport. Executed events and tours to help build community awareness and support for the Port including near-Port communities and throughout King County. Conducted outreach and signage program to support Alaskan Way/Pier 66 transportation construction project. The Port awarded more than $85,000 to Airport Communities for Environmental Projects. Continued working with stakeholders on Fishing Fleet Modernization priority and tourism. Prepared, negotiated and implemented collective bargaining agreements and provided consultation on administration of collective bargaining agreements to Port divisions and oversight committees. Received the "Certificate of Achievement for Excellence in Financial Reporting" from the Government Finance Officers Association (GFOA) of the United States and Canada for the twelfth consecutive year. Received the 2017 Distinguished Budget Presentation Award from the Government Finance Officers Association (GFOA) of the United States and Canada for the tenth consecutive year. Filed the Port's Statutory Budget with King County Council and Assessor as required by law; and released the final 2018 Budget document to the public. The Port Commission authorized the issuance and sale of intermediate lien revenue and refunding bonds in one or more series in the aggregate principal amount of not to exceed $800 million. Issued General Obligation Bonds of $127,345,000 to reimburse the Port's 2016 contribution to the Alaskan Way Viaduct Replacement Project. Discussed comprehensive data analytics strategy for WMBE program focusing on division level goal setting and tracking, department spending reports, and roles and responsibilities going forward. Increased the telecommunications capacity for Airport Operations and Tenants. Supported implementation of new revenue control system at the Airport to minimize revenue loss. Upgraded the Human Capital Management (HCM) system. Baggage Optimization Phase 1 construction continues. 20% completion by end of 2017 goal achieved. Began construction of the Service Tunnel at the south end and on the 3rd floor of parking garage installing reinforcing dowels and widening the gap between the tunnel and the garage. Terminal Security Enhancements Phase I Windows 90% design complete. North Satellite Construction well underway - completed Phase 1 basement & foundations, underground utilities including the Temporary Chiller, FAA approved Crane 7460, mobilized crane and began setting steel, replaced 400 Hz generators etc. Completed several infrastructure upgrades to improve security and performance. The Port substantially completed or placed into closeout 27 projects, including Bag Claim Wall Panels, Central Terminal WiFi Expansion, Air Cargo 4 Fence, Variable Frequency Drive Motor Replacement. 28 V. CENTRAL SERVICES FINANCIAL & PERFORMANCE REPORT 12/31/17 B. KEY PERFORMANCE METRICS Key Performance Indicators/Measures YTD 2017 YTD 2016/Notes A. Century Agenda Strategies 1. Small Business Participation Annual / Small Works (portwide ) 76.9% 72.7% 2. Small Business Participation Annual / Major Construction (port-wide) including Mega projects 29.9% 17.25% 3. Small Business Participation Annual / Goods & Services (port-wide) 24.6% 23.7% 4. Small Business Participation Service Agreements (port-wide) - Annual (including Legal department Service Agreements) 49.3% 42.1% B. High Performance Organization - Customer Satisfaction 1. Respond to Public Disclosure Requests 519 438, increased by 81 2. Information and Communication Technology System 99.8% 99.8% Availability 3. Service Desk % First Call Resolution 39% 40% 4. Customer Survey for Police Service Excellent or Very Good 83% 92% 5. Oversee Implementation and Administration of CBAs 147 113 agreements 590 408, increased by 6. Number of Jobs Openings 182 7. Percent of annual audit work plan completed each year 82% 74% 8. Request of information and guidelines for integrity & business 263 252 conduct C. High Performance Organization - Talent Development & Safety 24 classes, 166 16 classes, 115 1. MIS and Clarity Training attendees attendees 7,084 388, increased by 6,696 due to 3 2. Employee Development Class Attendees/Structured Learning new classes in 2017 3. Required Safety Training 95% 91% 4. Occupational Injury Rate 4.26 3.61 5. Total Lost work day case rate 1.60 1.22 D. Financial Performance 1. Corporate costs as a % of Total Operating Expenses 31.6% 34.2% 2. Clean independent CPA audits involving AFR yes yes 3. Timely process disbursement payment requests 4 days 3 days 4. Keep receivables collections 85% current (within 30 days) 95% 96% 5. Investment Portfolio Yield 1.51% 1.28% 6. Litigation and Claim Reserves (in $ thousand) $928 $1,895 29 V. CENTRAL SERVICES FINANCIAL & PERFORMANCE REPORT 12/31/17 C. OPERATING RESULTS Fav (UnFav) Incr (Decr) 2016 2017 2017 Budget Variance Change from 2016 $ in 000's Notes Actual Actual Budge t $ % $ % Total Revenues 1,186 68 367 (299) -81.4% (1,118) -94.2% Executive 2,185 1,287 1,944 657 33.8% (898) -41.1% C ommission 1,569 1,685 1,830 145 7.9% 116 7.4% Legal 3,365 3,741 3,288 (453) -13.8% 376 11.2% Public Affairs 6,033 7,112 7,847 735 9.4% 1,079 17.9% Human Resources 7,001 8,418 9,035 618 6.8% 1,417 20.2% Labor Relations 1,268 1,678 1,313 (365) -27.8% 410 32.3% Internal Audit 1,455 1,603 1,770 167 9.4% 148 10.2% Office of Strategic Initiatives 8,356 5,743 6,264 521 8.3% (2,614) -31.3% Security and Preparedness 1,420 1,754 2,065 310 15.0% 335 23.6% Contingency 369 381 250 (131) -52.4% 12 3.3% Finance Accounting & Financial Reporting Services 6,550 6,751 7,763 1,013 13.0% 201 3.1% Information & Communication Technology 20,158 21,633 22,420 787 3.5% 1,475 7.3% Finance & Budget 4,810 4,998 5,873 875 14.9% 188 3.9% Finance & Budget 1,647 1,871 2,181 309 14.2% 224 13.6% Aviation Finance & Budget 1,950 1,897 2,184 287 13.1% (53) -2.7% Maritime Finance & Budget 1,212 1,229 1,508 279 18.5% 17 1.4% Business Intelligence 1,004 1,211 1,458 247 17.0% 207 20.6% Risk Services 3,202 3,077 3,470 393 11.3% (125) -3.9% Sub-Total 35,725 37,670 40,985 3,315 8.1% 1,945 5.4% Core Support Services 68,745 71,071 76,591 5,519 7.2% 2,326 3.4% Police 23,045 22,095 23,884 1,789 7.5% (950) -4.1% Total Before Cap Dev & Environment 91,790 93,166 100,475 7,309 7.3% 1,376 1.5% Capital Development Engineering 4,493 5,284 7,092 1,808 25.5% 791 17.6% Port Construction Services 3,488 3,709 4,079 370 9.1% 221 6.3% Aviation PMG 2,823 6,942 13,005 6,063 46.6% 4,119 145.9% Seaport PMG 999 1,007 912 (95) -10.4% 9 0.9% Capital Development Admin 416 428 447 19 4.3% 12 2.9% Sub-Total 12,218 17,370 25,535 8,165 32.0% 5,152 42.2% Environment & Sustainability Aviation Environmental Program Group 3,745 3,779 6,301 2,522 40.0% 34 0.9% Maritime Environmental & Planning 2,098 2,157 2,385 228 9.6% 59 2.8% Noise Programs 722 670 723 53 7.4% (52) -7.2% Environment & Sustainability Admin 148 368 2,523 2,154 85.4% 221 149.7% Sub-Total 6,712 6,975 11,932 4,958 41.5% 262 3.9% Total Expenses 111,172 117,511 137,942 20,431 14.8% 6,339 5.7% Central Services revenues were $299K unfavorable compared to budget due to lower revenues. Central Services expenses for the year-ended 2017 were $117.5M, $20.4M or 14.8% favorable compared to budget and $6.3M or 5.7% higher than the same period a year ago. The $20.4M favorable variance is due to vacant positions throughout the year, delayed hiring, delayed projects and cost savings realized in most departments. The $6.3M increase from prior year is primarily due to higher Payroll and Outside Services Costs. All Central Services departments had a favorable variance except for: Legal unfavorable variance of $453K is due to unanticipated Legal Expenses. Labor Relations unfavorable variance of $365K is due to unanticipated Legal Expenses. 30 V. CENTRAL SERVICES FINANCIAL & PERFORMANCE REPORT 12/31/17 Contingency unfavorable variance of $131K is due to unbudgeted funds for the Radio Systems Consultant Services contract. All other departments with a favorable variance are: Executive favorable variance of $657K is due to savings in Payroll due to a vacant position throughout the year and savings in Travel & Other Employee Expenses. Commission favorable variance of $145K is due to savings in Payroll due to vacant positions throughout the year, which are now filled. Public Affairs favorable variance of 735K is due to savings in Payroll due to vacant positions throughout the year and savings primarily in Outside Services, Travel & Other Employee Expenses and General Expenses. Human Resources favorable variance of $618K is due to savings in Payroll due to vacant positions throughout the year. Internal Audit favorable variance of 167K is due to savings in Payroll due to two vacant positions and savings in Outside Services due to utilizing in house staff in lieu of consultants. Office of Strategic Initiatives favorable variance of $521K is due primarily to savings in Payroll due to vacant positions throughout the year and other savings in Outside Services and Travel & Other Employee Expenses. Security and Preparedness favorable variance of $310K is due to savings in Payroll due to a vacant position and savings in Outside Services and Travel & Other Employee Expenses. Accounting and Financial Reporting favorable variance of $1.0M is due to savings in Payroll due to several vacant positions throughout the year and savings in Travel & Other Employee Expenses and in General Expenses due to Credit Card Rebates. Information & Communication Technology favorable variance of $787K is due to savings in Payroll due to vacant positions throughout the year. Finance & Budget favorable variance of $875K is due to savings in Payroll due to vacant positions and savings in Outside Services for the Economic Impact Study due to changes in the scope of work. Business Intelligence favorable variance of $247K is due to savings in Payroll due to vacant positions and savings in Travel & Other Employee Expenses. Risk Services favorable variance of $393K is due to savings in Payroll due to vacant positions which are now filled and lower property insurance renewal. Police favorable variance of $1.8M is due to savings in Payroll due to vacant positions throughout the year and reallocating benefit costs based on employer contributions for DRS-eligible employees. Capital Development favorable variance of $8.2M is due to savings in Payroll due to vacant positions throughout the year and savings in Outside Services due to delayed projects. Environment & Sustainability favorable variance of $5.0M is primarily due to delayed spending on SAMP NEPA/SEPA Environmental Review, as well as ACE and Energy & Sustainability-funded programs. 2017 Actuals compared to Prior Year: Executive decrease of $898K is due to lower Payroll Costs, Travel Expenses and Property Rentals. Commission increase of $116K is due to higher Payroll Costs including two additional staff. Legal increase of $376K is due to higher Payroll Costs and Legal Expenses. Public Affairs increase of $1.1M is due to higher Payroll Costs including additional staff transferred into the department, and additional savings in Outside Services, and General Expenses. Human Resources increase of $1.4M is due to higher Payroll Costs including additional staff, the Internship Program Manager and the full time equivalent of 16.4 High School Interns during the summer, and increase in Outside Services and Equipment Expenses. Labor Relations increase of $410K is due to higher Payroll Costs and Legal Expenses. Internal Audit increase of $148K is due to higher Payroll Costs and Outside Services. Office of Strategic Initiatives - decrease of $2.6M is due to lower Outside Services Costs due to delayed projects. Security and Preparedness increase of $335K is primarily due to higher Payroll Costs including additional staff, Supplies & Stock and Outside Services. 31 V. CENTRAL SERVICES FINANCIAL & PERFORMANCE REPORT 12/31/17 Contingency increase of $12K is due to higher Outside Services Costs. Accounting and Financial Reporting increase of $201K is due to higher Payroll Costs. Information & Communication Technology increase of $1.5M is due to higher Payroll Costs including additional staff, Equipment Expense and Outside Services. Finance & Budget increase of $188K is due to higher Payroll Costs, Outside Services, Travel Expenses and General Expenses. Business Intelligence increase of $207K is due to higher Payroll Costs, Equipment Expense and Outside Services. Risk Services decrease of $125K is due to lower Insurance Costs. Police decrease of $950K is due to lower Payroll Costs and General Expenses. Capital Development increase of $5.2M is due to higher Payroll Costs and Outside Services Costs. Environment & Sustainability increase of $262K is due to higher Payroll Costs. D. CAPITAL RESULTS 2017 2017 Budget Variance $ in 000's Actual Budget $ % Infrastructure - Small Cap 966 1,581 615 38.9% Services Tech - Small Cap 577 1,150 573 49.8% Enterprise GIS - Small Cap 32 400 368 92.0% Constr Doc Mgmt Sys Repl. 403 427 24 5.6% Maximo Upgrade 186 371 185 49.9% Project Cost Mgmt System 220 900 680 75.6% Remote Data Business Continuity 171 480 309 64.4% POS Website Redevelopment 717 796 79 9.9% Supplier Database System 41 700 659 94.1% Corporate Firewall 578 800 222 27.8% Cap Dev Fleet Replacement 282 589 307 52.1% Cap Dev Small Cap 168 340 172 50.6% Other (note 1) 447 789 342 43.3% TOTAL 4,788 9,323 4,535 48.6% Note: (1) "Other" includes remaining ICT projects, Central Services fleet replacement and small capital acquistion. 32
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