ITEM NO: DATE OF MEETING: 7b_Attach_1 _ March 14, 2017 PORT OF SEATTLE 2016 FINANCIAL & PERFORMANCE REPORT AS OF DECEMBER 31, 2016 TABLE OF CONTENTS Page I. Portwide Performance Report 3-5 II. Aviation Division Report 6-14 III. Maritime Division Report 15-19 IV. Economic Development Division Report 20-24 V. Corporate Report 25-29 2 I. PORTWIDE FINANCIAL & PERFORMANCE REPORT 12/31/16 EXECUTIVE SUMMARY Financial Summary The Port's operating revenues for 2016 were $598.5M, which is $13.9M above budget and $39.5M higher than the same period in 2015. Excluding Aeronautical revenues, which are based on cost recovery, other operating revenues were $354.2M, $27.1M above budget and $21.3M over 2015 mainly due to higher revenues from Public Parking, Rental Cars, Airport Dining and Retail, Ground Transportation, Employee Parking, Maritime Operations, Cruise, Grain, and NWSA Distributable Revenue. Total operating expenses were $325.3M, $10.7M below budget mainly due to savings from payroll and outside services. Operating income before depreciation was $273.2M, $24.5M above budget and $32.1M over 2015. The Port-wide capital spending was $169.5M for the year, $112.5M below the budgeted $282.0M. Operating Summary At the Airport, the enplanement growth for 2016 was 8.0% and landed weight was 9.9%, making Sea-Tac from the 13th busiest airport in North America in 2015 to the 9th place for 2016 (based on passenger volume). The enplanements growth for domestic and international was 7.6% and 11.4%, respectively. Total cargo metric tons were 10.2% above 2015. For the Maritime division, Grain volumes and Cruise passengers were up 16.2% and 9.5%, respectively, compared to last year. For the Economic Development division, occupancy levels at Shilshole Bay Marina were at 94.6%, below 96.5% in 2015. Fishermen's Terminal was at 86.0% average occupancy, above the 84.2% in 2015. Conference and Event Center revenue exceeded budget due to strong sales and delayed construction at Pier 66 Cruise Terminal. Key Business Events The Port continued to hold events and tours to help build community awareness and support for the Port including fence-line communities and throughout King County. We completed biofuels infrastructure and feasibility study at the Airport. AirBridge Cargo from Russia initiated new cargo service in October 2016; and Eurowings announced new seasonal air service to Cologne, Germany beginning in July 2017. The Port was named the Best North American Homeport by Cruise Critic. We finalized 5 year agreements with Muckleshoot and Suquamish Tribes. We also received final, signed Stormwater Utility inter-local agreement between the Port and City of Seattle. The Port hosted the Clipper Round the World Race. The Port awarded a total of over $1 million in grants to 31 King County cities and 14 Tourism non-profits were made to support local economic development partnership initiatives in 2016. We continued the implementation of the Real Estate Strategic Plan. The Port executed contracts with PortJobs and COREPLUS (Manufacturing Industrial Council) to advance workforce development training in Port cluster. We completed an assessment of small business incubators/accelerators within the region and continued working to improve small business utilization. The Port finalized sale of a total of $249.2 million of bonds with a present value savings of $67.6 million. We implemented Paid Parental Leave policy in 2016. Major Capital Projects The Port contributed to regional transportation partner investments with the $147.7M second contribution to the State's Alaskan Way Viaduct Replacement Program; and the $2.1M second and final contribution to King County's South Park Bridge. We began construction on International Arrivals Facility. We also executed the contract amendment with North Satellite contractor for building expansion preliminary construction; and the Commission authorized construction of Phase 1 of baggage screening optimization project. We completed TNC Tracking System which includes accepting monthly and real time activity data from Uber, Lyft, and Wingz. We implemented the North Satellite Transit System Train Display and developed displays for Checkpoint Security Wait-times. We also replaced the Parking Revenue Control System and completed the Runway reconstruction ahead of schedule. We completed Terminal 5 Modernization Project test pile field installation and Statnamic tests. Finally, we started the construction of Pier 66 Tenant Improvement in September 2016. 3 I. PORTWIDE FINANCIAL & PERFORMANCE REPORT 12/31/16 PORTWIDE FINANCIAL SUMMARY $ in 000's Aeronautical Revenues SLOA III Incentive Other Operating Revenues Total Operating Revenues Total Operating Expenses NOI before Depreciation Depreciation NOI after Depreciation 2015 Actual 229,624 (3,576) 332,884 558,933 317,806 241,127 163,338 77,789 2016 Actual 247,811 (3,576) 354,232 598,467 325,285 273,182 164,336 108,846 Fav (UnFav) Incr (Decr) 2016 Budget Variance Change from 2015 Budget $ % $ % 261,019 (13,208) -5.1% 18,187 7.9% (3,576) 0.0% 0.0% 327,135 27,097 8.3% 21,348 6.4% 584,578 13,889 2.4% 39,534 7.1% 335,943 10,658 3.2% 7,479 2.4% 248,635 24,547 9.9% 32,055 13.3% 162,451 (1,884) -1.2% 997 0.6% 86,184 22,662 26.3% 31,057 39.9% MAJOR OPERATING REVENUES SUMMARY Fav (UnFav) Budget Variance % $ Incr (Decr) Change from 2015 % $ $ in 000's 2015 Actual 2016 Actual 2016 Budget Aeronautical Revenues SLOA III Incentive 229,624 (3,576) 247,811 (3,576) 261,019 (3,576) (13,208) -5.1% 0.0% 18,187 Public Parking Rental Cars - Operations Rental Cars - Operating CFC Airport Dining and Retail Employee Parking Ground Transportation Non-Airline Commercial Properties Airport Utilities Fishing & Commercial Vessels Maritime Operations Recreational Boating Cruise Grain Maritime Industrial Marina Office & Retail Central Harbor Management Conference & Event Centers NWSA Distributable Revenue Other Total Operating Revenues (w/o Aero) TOTAL 63,059 33,851 12,663 50,566 7,913 8,809 8,007 7,000 2,859 5,598 9,736 14,414 4,685 6,091 3,893 6,861 10,396 76,485 332,884 558,933 69,540 37,082 12,122 55,196 9,329 12,803 9,992 7,233 2,927 6,181 10,255 15,422 5,382 6,306 3,949 6,920 8,022 61,584 13,986 354,232 598,467 66,847 35,398 12,767 53,419 8,249 8,327 10,251 7,626 2,912 5,618 10,443 15,396 5,002 5,968 3,976 6,791 6,296 51,829 10,021 327,135 584,578 2,693 1,683 (645) 1,777 1,080 4,477 (258) (394) 15 563 (188) 26 380 339 (27) 130 1,727 9,754 3,966 27,097 13,889 4.0% 4.8% -5.1% 3.3% 13.1% 53.8% -2.5% -5.2% 0.5% 10.0% -1.8% 0.2% 7.6% 5.7% -0.7% 1.9% 27.4% 18.8% 39.6% 8.3% 2.4% 10.3% 6,482 9.5% 3,231 (542) -4.3% 9.2% 4,629 17.9% 1,416 45.3% 3,994 24.8% 1,986 3.3% 232 2.4% 68 10.4% 583 5.3% 519 7.0% 1,008 14.9% 697 3.5% 216 1.4% 56 0.9% 60 (2,374) -22.8% 0.0% 61,584 (62,498) -81.7% 6.4% 21,348 7.1% 39,534 4 7.9% 0.0% I. PORTWIDE FINANCIAL & PERFORMANCE REPORT 12/31/16 MAJOR OPERATING EXPENSES SUMMARY 2015 Actual 106,591 94,981 24,783 6,996 7,654 58,275 20,317 4,286 1,151 33,063 (40,291) 317,806 $ in 000's Salaries & Benefits Wages & Benefits Payroll to Capital Projects Equipment Expense Supplies & Stock Outside Services Utilities Travel & Other Employee Expenses Promotional Expenses Other Expenses Charges to Capital Projects TOTAL 2016 Actual 102,873 99,917 21,744 7,106 8,792 70,116 21,123 4,200 1,178 25,118 (36,880) 325,285 Fav (UnFav) Incr (Decr) 2016 Budget Variance Change from 2015 Budget $ % $ % 111,779 8,906 8.0% (3,718) -3.5% 101,652 1,735 1.7% 4,936 5.2% 27,969 6,225 22.3% (3,040) -12.3% 5,724 (1,382) -24.1% 110 1.6% 6,992 (1,799) -25.7% 1,138 14.9% 77,904 7,788 10.0% 11,842 20.3% 21,190 68 0.3% 806 4.0% 5,276 1,076 20.4% (86) -2.0% 984 (193) -19.6% 27 2.3% 23,746 (1,372) -5.8% (7,944) -24.0% (47,274) (10,393) 22.0% 3,410 -8.5% 335,943 10,658 3.2% 7,479 2.4% KEY PERFORMANCE METRICS Fav (UnFav) Incr (Decr) Budget Variance Chg. % Change from 2015 Chg. % 2015 Actual 2016 Actual 2016 Budget Enplanements (in 000's) 21,109 22,796 22,214 581 2.6% 1,687 8.0% Landed Weight (lbs. in 000's) 24,757 27,202 26,126 1,075 4.1% 2,445 9.9% Passenger CPE (in $) 10.12 10.10 11.00 0.90 8.2% (0.02) -0.2% Grain Volume (metric tons in 000's) 3,778 4,389 4,000 389 9.7% 611 16.2% 898 984 960 24 2.5% 86 9.5% Shilshole Bay Marina Occupancy 96.5% 94.6% 95.8% -1.2% -1.3% -1.9% -2.0% Fishermen's Terminal Occupancy 84.2% 86.0% 83.2% 2.8% 3.3% 1.8% 2.1% Cruise Passenger (in 000's) CAPITAL SPENDING RESULTS $ in 000's 2015 Actual 2016 Actual 2016 Budget Aviation 164,931 153,887 245,241 91,354 37.3% Maritime 6,252 5,746 15,660 9,914 63.3% Economic Development 2,098 4,757 8,751 3,994 45.6% 6,539 179,820 5,097 169,487 12,396 282,048 7,299 112,561 58.9% 39.9% Corporate & Other (note 1) TOTAL Budget Variance $ % Note: (1) "Other" includes Street Vacation projects and Storm Water Utility Small Capital projects. PORTWIDE INVESTMENT PORTFOLIO During the fourth quarter of 2016, the investment portfolio earned 1.28% versus the benchmark's (the Bank of America Merrill Lynch 1-3 Year US Treasury & Agency Index) 1.19%. Over the last twelve months the portfolio and the benchmark have earned 1.17% and 0.84%, respectively. Since the Port became its own Treasurer in 2002, the life-to-date earnings of the Port's portfolio and the benchmark are 2.57% and 1.80%, respectively. 5 II. AVIATION DIVISION FINANCIAL & PERFORMANCE REPORT 12/31/16 FINANCIAL SUMMARY 2015 Actual 2016 Actual 2016 Budget Fav (UnFav) Budget Variance $ % 229,624 247,811 261,019 (13,208) -5.1% 18,187 7.9% (3,576) (3,576) (3,576) 0 0.0% 0 0.0% 196,844 221,021 208,321 12,700 6.1% 24,177 12.3% Total Operating Revenues 422,892 465,256 465,764 (508) -0.1% 42,364 10.0% Total Operating Expense 238,140 261,226 267,803 6,576 2.5% 23,086 9.7% Net Operating Income 184,752 204,030 197,962 6,069 3.1% 19,278 10.4% Capital Expenditures 164,931 153,887 245,241 91,354 37.3% (11,044) -6.7% $ in 000's Incr (Decr) Change from 2015 $ % Operating Revenues: Aeronautical Revenues SLOA III Incentive Straight Line Adj Non-Aeronautical Revenues (1) (1) Annual non-cash 5yr amortization of $17.9M lease incentive effective 2013 through 2017. Division Summary 2016 Actuals vs 2016 Budget • Net Operating Income for 2016 is $6.1M higher than budget (3.1% favorable) o Operating Revenue is $0.5M higher than budget (0.1% favorable) - primarily due to higher NonAero revenue ($12.7M) driven by increased passenger volumes with strong performance in ground transportation, public parking, rental cars, and airport dining & retail. The increase in Non-Aero revenue is more than offset by lower Aeronautical revenue ($13.2M) from lower aero costs and higher revenue sharing. o Operating Expenses are $6.6M lower than budget (2.5% favorable) - primarily due to lower charges from Corporate and other divisions ($4.8M savings) and lower than anticipated Aviation direct costs ($3.1M) despite significant unplanned expenditures for the passenger screening queue management contract and higher janitorial costs in response to increased passenger volumes, partially offset by higher than anticipated costs for Environmental Remediation Liability expense. Division Summary 2016 Actuals vs 2015 Actuals • A. • • • • • 2016 Net Operating Income is $19.3M higher than prior year (10.4% higher NOI) o 2016 Operating Revenue is $42.4M higher than prior year (10.0% higher) - due to strong growth in Aeronautical revenue ($18.2M) and higher Non-Aero revenue ($24.2M). The increase in Aero rate based revenue is primarily due to cost recovery on new assets placed in service and higher operating expenses to support increased airline activity, partially offset by higher revenue sharing in 2016. The growth in Non-Aero revenue is driven by higher passenger volumes with strong performance in ground transportation, public parking, rental cars, and airport dining & retail. o 2016 Operating Expenses are $23.1M higher than prior year (9.7% higher) - due to higher airport direct charges ($12.8M) primarily due to increased passenger volumes, and higher charges from Corporate departments and other divisions ($10.0M). BUSINESS EVENTS Passenger growth of 8.0% propelled Sea-Tac into position as the 9th busiest airport in North America for 2016 (based on passenger volume), from 13th place in 2015. Customer Service: achieved ASQ score of 4.12 for Q4. Result for full year 2016 was below target, but significant progress realized. New cargo service: AirBridge Cargo from Russia initiated new service on Oct 7, 2016. New air service: Eurowings announced new seasonal service to Cologne, Germany beginning in July 2017. Environmental: completed biofuels infrastructure and feasibility study. 6 II. AVIATION DIVISION FINANCIAL & PERFORMANCE REPORT 12/31/16 B. KEY PERFORMANCE METRICS 2015 2016 % Change Enplaned Passengers (000's) Domestic International Total 18,944 2,165 21,109 20,385 2,411 22,796 7.6% 11.4% 8.0% Operations 381,408 412,170 8.1% Landed Weight (million lbs.) Cargo All other Total 1,588 23,169 24,757 1,888 25,314 27,202 18.9% 9.3% 9.9% Cargo - metric tons Domestic freight International freight Mail Total 162,013 115,357 55,266 332,636 194,754 114,349 57,326 366,429 20.2% -0.9% 3.7% 10.2% Passengers: • 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. Key Performance Measures Fav (UnFav) Budget Variance $ % Incr (Decr) Change from 2015 $ % 2015 Actual 2016 Actual 2016 Budget Performance Metrics Cost per Enplanement (CPE) O&M Cost per Enplanement Non-Aero Revenue per Enplanement Debt per Enplanement (in $) Debt Service Coverage Days cash on hand (10 months = 304 days) Aeronautical Revenue Sharing ($ in 000's) 10.12 11.28 9.33 119 1.49 468 29,450 10.10 11.46 9.70 104 1.53 416 37,395 11.00 12.06 9.38 111 1.46 309 28,055 0.90 0.60 0.32 7 0.07 107 (9,340) 8.2% 4.9% 3.4% 6.1% 4.9% 34.5% -33.3% (0.02) 0.18 0.37 (15) 0.04 (52) 7,945 -0.2% 1.6% 4.0% -12.4% 2.9% -11.1% 27.0% Activity (in 000's) Enplanements 21,109 22,796 22,214 581 2.6% 1,687 8.0% 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. 7 II. AVIATION DIVISION FINANCIAL & PERFORMANCE REPORT 12/31/16 C. OPERATING RESULTS Division Summary 2015 Actual 2016 Actual 2016 Budget Fav (UnFav) Budget Variance $ % Incr (Decr) Change from 2015 $ % Aeronautical Revenues (1) SLOA III Incentive Straight Line Adj (2) Non-Aeronautical Revenues Total Operating Revenues 229,624 (3,576) 196,844 422,892 247,811 (3,576) 221,021 465,256 261,019 (3,576) 208,321 465,764 (13,208) 0 12,700 (508) -5.1% 0.0% 6.1% -0.1% 18,187 0 24,177 42,364 7.9% 0.0% 12.3% 10.0% Operating Expenses: Payroll Outside Services Utilities Other Airport Expenses Total Airport Direct Charges 99,327 31,801 13,682 17,457 162,267 101,879 37,863 14,690 20,655 175,087 106,659 39,915 14,686 16,911 178,171 4,781 2,052 (3) (3,745) 3,084 4.5% 5.1% 0.0% -22.1% 1.7% 2,551 6,062 1,007 3,199 12,819 2.6% 19.1% 7.4% 18.3% 7.9% 4,222 61 4,283 4,463 129 4,592 3,246 3,246 (1,217) (129) (1,346) -37.5% n/a -41.5% 241 68 309 5.7% 111.3% 7.2% Total Airport Expenses 166,551 179,679 181,417 1,738 1.0% 13,128 7.9% Corporate Police Costs Capital Development Maritime/Economic Development Total Charges from Other Divisions 44,065 15,815 7,828 3,882 71,589 50,099 18,183 9,319 3,946 81,547 52,424 18,728 11,746 3,488 86,386 2,325 544 2,427 (458) 4,838 4.4% 2.9% 20.7% -13.1% 5.6% 6,034 2,369 1,491 64 9,958 13.7% 15.0% 19.0% 1.6% 13.9% Total Operating Expense 238,140 261,226 267,803 6,576 2.5% 23,086 9.7% Net Operating Income 184,752 204,030 197,962 6,069 3.1% 19,278 10.4% (5,159) 2,690 3,576 (125,153) 60,706 (4,899) 2,148 3,576 (133,982) 70,873 (5,146) 1,099 3,576 (135,217) 62,273 (247) (1,049) 0 (1,236) (8,600) 4.8% -95.5% 0.0% 0.9% -13.8% 260 (542) (0) (8,829) 10,167 -5.0% -20.2% 0.0% 7.1% 16.7% $ in 000's Operating Revenues: Environmental Remediation Liability Capital to Expense Total Exceptions CFC Surplus Net Non-Operating Items in / out from ADF SLOA III Incentive Straight Line Adj Debt Service Adjusted Net Cash Flow (3) 8 II. AVIATION DIVISION FINANCIAL & PERFORMANCE REPORT 12/31/16 Operating Expenses - 2016 Actuals compared to 2016 Budget: Total Operating Expenses are lower than the 2016 budget by $6.6 million due to the net of the following: • • Aviation Direct Operating Expenses are lower than budget by $3.1 million due to the following: Positive Variance of $6.9M Negative Variance of $3.7M Payroll - vacancies & hiring delays $4.8M Vacancies & hiring delays 3.1M GASB 68 adjustment 1.2M YE benefits adjustment 0.5M Outside Services (savings & work deferred to future year) $2.1M Advance Planning IDIQ for Master Plan 2.0M Environmental Review for Master Plan 1.8M Security Checkpoint Queue Mgmt contract (2.2M) Janitorial (passenger volume/scope increase) (1.0M) NERA 3 grant (FAA pilot program) 0.4M Airport Obstruction Removal - delayed 0.6M CISS - Prop 1 wage impact (0.4M) Rental Cars - curbside assistance not utilized 0.4M Cargo building mgmt - performed internally 0.3M All other Outside Services 0.2M Other Aviation Expenses Litigated & Non-litigated Damages Lower charges to Capital Projects Maintenance Materials (passenger volume) Aviation Contingency (budget only) All other Aviation Expenses Operating Expenses Exceptions are higher than budget by $1.3 million due to the following: Positive Variance - no material variance Negative Variance of $2.1M Environmental Remediation Liability Lora Lake (lake parcel) estimate increase RMM projects not anticipated in 2016 Budget RMM projects deferred to future years Budget savings - projects accelerated to 2015 New RMM projects favorable to budget RMM adjustments to active projects Capital to Expense • $3.7M 1.7M 1.5M 1.5M (1.5M) 0.5M $1.2M 4.1M 0.4M (1.7M) (0.5M) (0.4M) (0.7M) $0.1M Operating Expense charges from Corporate and other divisions are lower than budget by $4.8 million due to the following: Positive Variance of $5.3M Corporate savings ICT Office of Strategic Initiatives AFR All other Corporate Police savings CDD savings Aviation PMG Engineering All other CDD Negative Variance of $0.5M $2.0M Maritime Division Economic Development Division 0.9M 0.7M 0.7M (0.3M) $0.5M $2.7M 2.0M 0.9M (0.2M) 9 $0.6M ($0.1M) II. AVIATION DIVISION FINANCIAL & PERFORMANCE REPORT 12/31/16 Operating Expenses - 2016 Actuals compared to 2015 Actuals: Total Operating Expenses increased in 2016 by $23.1 million due to the net of the following: • Aviation Direct Operating Expenses increased in 2016 by $12.8 million due to the following: Increase of $12.8M Decrease - no material amount Payroll Vacancies & hiring delays 2.9M GASB 68 adjustment (0.4M) Benefits adjustment (Represented FTE's) 0.1M Outside Services Checkpoint queue mgmt contract 2.2M Janitorial (due to higher enplanements) 2.5M NERA 3 grant (FAA pilot program) 1.1M CISS increase includes Prop 1 wage impact 0.5M SAMP (0.6M) All other Outside Services 0.4M Utilities Other Aviation expenses Litigated & Non-litigated Damages 0.8M Maintenance Materials (passenger volume) 0.8M B&O tax (on higher revenue) 0.5M All other Aviation expenses 1.1M • $2.6M $6.1M $1.0M $3.2M Operating Expense Exceptions increased in 2016 by $0.3 million due to the following: Increase of $0.3M Environmental Remediation Liability Lora Lake (lake parcel) increase in 2016 Delta build-out in 2015 All other RMM adjustments Capital to Expense • Decrease - no material amount $0.2M 2.3M (1.5M) (0.6M) $0.1M Operating Expense charges from Corporate and other divisions increased by $10.0 million in 2016 due to the following: Increase of $10.0M Corporate departments CPO ICT Business Intelligence (new in 2016) Office of Strategic Initiatives All other Corporate Police GASB 68 adjustment (Police) All other Police expense CDD Aviation PMG All other CDD Maritime & Economic Dev Division Decrease - no material amount $6.3M 3.7M (0.5M) 0.9M 0.7M 1.5M $2.4M 1.1M 1.3M $1.2M 0.9M 0.3M $0.1M 10 II. AVIATION DIVISION FINANCIAL & PERFORMANCE REPORT 12/31/16 Aeronautical Business Unit Summary Fav (UnFav) Budget Variance 2015 2016 2016 $ in 000's Actual Actual Budget $ Revenues: Movement Area Apron Area Terminal Rents Federal Inspection Services (FIS) Total Rate Base Revenues 78,326 10,840 150,449 9,979 249,594 94,725 14,028 155,852 11,227 275,832 95,220 14,144 159,569 10,836 279,768 (495) (116) (3,717) 392 (3,936) Commercial Area Subtotal before Revenue Sharing 9,519 259,113 9,379 285,211 9,306 289,074 Revenue Sharing Other Prior Year Revenues Total Aeronautical Revenues (29,453) (35) 229,624 (37,395) (5) 247,811 Total Airport Direct Charges 114,262 Total Exceptions % Incr (Decr) Change from 2015 $ % -0.5% -0.8% -2.3% 3.6% -1.4% 16,399 3,188 5,403 1,249 26,239 20.9% 29.4% 3.6% 12.5% 10.5% 73 (3,863) 0.8% -1.3% -1.5% 10.1% (28,055) 261,019 (9,340) (5) (13,208) -33.3% 0.0% -5.1% (140) 26,099 (7,942) 30 18,187 27.0% -85.1% 7.9% 122,573 123,506 934 0.8% 8,311 7.3% 3,642 4,315 2,681 (1,634) -61.0% 673 18.5% Total Charges from Other Divisions Total Aeronautical Expenses 36,011 153,914 42,149 169,037 44,163 170,350 2,013 1,313 4.6% 0.8% 6,139 15,123 17.0% 9.8% Net Operating Income 75,710 78,774 90,669 (11,895) -13.1% 3,064 4.0% Debt Service (82,341) (89,997) (91,723) (1,726) 1.9% (7,657) 9.3% Net Cash Flow (6,631) (11,224) (1,054) 10,169 -964.5% (4,593) 69.3% Airline Rate Base Cost Drivers $ in 000's O&M (1) Debt Service Gross Debt Service PFC Offset Amortization Space Vacancy TSA Operating Grant and Other Rate Base Revenues Commercial area Total Aero Revenues 2015 2016 2016 Fav (UnFav) Budget Variance Incr (Decr) 'Change from 2015 Actual 150,286 111,477 (32,454) 24,853 (3,469) (1,099) 249,594 9,519 259,113 Actual 165,427 118,641 (32,831) 28,215 (2,638) (982) 275,832 9,379 285,211 Budget 166,776 120,668 (32,583) 28,338 (2,431) (1,000) 279,768 9,306 289,074 $ (1,349) (2,027) (248) (123) (207) 19 (3,936) 73 (3,863) $ 15,141 7,164 (377) 3,362 831 117 26,239 (140) 26,099 % -0.8% -1.7% 0.8% -0.4% 8.5% -1.9% -1.4% 0.8% -1.3% % 10.1% 6.4% 1.2% 13.5% -24.0% -10.7% 10.5% -1.5% 10.1% Aeronautical - Budget Variance • Aeronautical net operating income is $11.9M lower than budget. o Aeronautical revenue is $13.2M lower than budget:  Lower than budgeted rate base revenue ($3.9M) due to lower debt service payments due to variable rates, and additional Cap-I projects identified for use with 2015A bonds.  Higher revenue sharing ($9.3M) due to strong non-aero businesses performance and lower debt service payments. 11 II. AVIATION DIVISION FINANCIAL & PERFORMANCE REPORT 12/31/16 o Aeronautical operating expenses are $1.3M lower than budget:  Airport Direct Charges - $0.9M lower than budget despite significant unplanned expenditures for the passenger screening queue management contract and higher janitorial costs in response to increased passenger volumes.  Exceptions - $1.6M higher than budget primarily due to ERL reserve increase for Lora Lake (Lake parcel) project.  Charges from other divisions - $2.0M lower than budget charges from Corporate departments. Aeronautical - Year over Year Changes • Aeronautical net operating income is $3.1M higher than 2015. o Aeronautical revenues are $18.2 higher year over year - higher rate based revenues are offset by higher revenue sharing:  Higher rate based revenue ($26.2M) primarily due to cost recovery on new assets placed in service and higher operating expenses to support increased airline activity.  Higher revenue sharing ($7.9M) - due to increase in non-aero revenues driven by higher passenger volumes. o Aeronautical operating expenses in 2016 are $15.1M higher than 2015:  Airport Direct Charges - $8.3M higher than prior year primarily due to targeted spending to support increased passenger volumes including security checkpoint queue management contractor costs (2.2M), and increased janitorial services ($2.5M).  Exceptions - $0.7M higher than prior year primarily due to 2016 increase in ERL reserve for Lora Lake (Lake parcel - $2.3M) project, partially offset by 2015 ERL expense for Delta build-out ($1.5M).  Charges from other divisions - $6.1M higher than 2015. 12 II. AVIATION DIVISION FINANCIAL & PERFORMANCE REPORT 12/31/16 Non-Aero Business Unit Summary $ in 000's 2015 Actual 2016 Actual 2016 Budget Fav (UnFav) Budget Variance $ % Non-Aero Revenues Rental Cars - Operations Rental Cars - Operating CFC Public Parking Ground Transportation Airport Dining & Retail/Terminal Leased Space Commercial Properties Utilities Employee Parking Clubs and Lounges Other Total Non-Aero Revenues 33,851 12,663 63,059 8,809 52,391 8,007 7,000 7,913 2,392 759 196,844 37,082 12,122 69,540 12,803 58,405 9,992 7,233 9,329 3,028 1,487 221,021 35,398 12,767 66,847 8,327 55,554 10,251 7,626 8,249 2,578 723 208,321 1,683 (645) 2,693 4,477 2,851 (258) (394) 1,080 449 764 12,700 4.8% -5.1% 4.0% 53.8% 5.1% -2.5% -5.2% 13.1% 17.4% 105.7% 6.1% 3,231 (542) 6,482 3,994 6,014 1,986 232 1,416 636 728 24,177 - 9.5% -4.3% 10.3% 45.3% 11.5% 24.8% 3.3% 17.9% 26.6% 96.0% 12.3% 52,514 277 39,398 92,189 54,664 565 42,223 97,452 2,151 288 2,825 3.9% 51.0% 6.7% 4,508 (364) 3,819 9.4% -56.8% 10.7% Total Non-Aero Expenses 48,006 642 35,578 84,226 5,264 5.4% 7,963 - 9.5% Net Operating Income Less: CFC (Surplus) / Deficit Adjusted Non-Aero NOI 112,618 (5,159) 107,459 128,833 (4,899) 123,934 110,869 (5,146) 105,723 17,964 247 18,211 16.2% 4.8% 17.2% 16,215 260 16,474 14.4% -5.0% 15.3% Debt Service Net Cash Flow (42,812) 64,647 (43,984) 79,949 (43,494) 62,229 490 (17,721) -1.1% -28.5% (1,172) 15,302 2.7% 23.7% Non-Aero Expenses Total Airport Direct Charges Total Exceptions Total Charges from Other Divisions Incr (Decr) Change from 2015 $ % Non-Aero - Budget Variance • Non-Aeronautical net operating income is $18.0M higher than budget. o Non-Aeronautical revenues are $12.7M higher than budget:  Strong performance in Ground Transportation ($4.5M), Public Parking ($2.7M), and Airport Dining and Retail ($2.9M). o Non-Aeronautical operating expenses are $5.3M lower than budget:  Airport Direct Charges - $2.2M lower than budget due to savings in Payroll and Outside Services which includes delayed spending on the Advance Planning IDIQ/Environmental review of the Master Plan and the NERA 3 FAA pilot program, partially offset by higher than anticipated charges for litigated and non-litigated damages.  Exceptions - $0.3M lower than budget due to planned ERL projects deferred to next year.  Charges from other divisions - $2.8M in savings from Corporate departments. Non-Aero Year over Year Changes • Non-Aeronautical net operating income is $16.2M higher than 2015. o Non-Aeronautical revenues in 2016 are $24.2M higher than 2015 - due to strong performance in Public Parking ($6.5M), Airport Dining & Retail and other terminal leased space ($6.0M), Ground Transportation ($4.0M), Rental Cars ($2.7M), and Commercial Properties ($2.0M). o Non-Aeronautical operating expenses in 2016 are $8.0M higher than 2015:  Airport Direct Charges - $4.5M higher than prior year due to higher payroll costs, NERA 3 grant (FAA pilot program) spending, and other expenses related to increased passenger volumes, partially offset by charges for litigated and non-litigated damages. 13 II. AVIATION DIVISION FINANCIAL & PERFORMANCE REPORT 12/31/16   D. Exceptions - $0.4M lower ERL costs in 2016 primarily due to ERL costs for Delta build out in prior year. Charges from other divisions - $3.8M higher than 2015. CAPITAL RESULTS 2016 Actual 40,488 $ in 000's Description International Arrivals Fac-IAF (1) NS NSAT Renov NSTS Lobbies GSE Electrical Chrg Stations (2) (3) (4) 2016 Budget Variance Budget $ % 57,612 17,124 29.7% 27,310 43,200 15,890 36.8% 1,769 5,100 3,331 65.3% 605 3,900 3,295 84.5% (5) 5,231 8,257 3,026 36.6% (6) 765 3,775 3,010 79.7% (7) 7,140 10,000 2,860 28.6% B2 Expansion for DL Club 11,083 9,000 (2,083) -23.1% Construction Logistics Expansn 5,527 6,865 1,338 19.5% RW16C-34C Design and Reconst 11,042 11,755 713 6.1% All Other Total Spending 42,927 85,777 42,850 50.0% 245,241 91,354 37.3% Parking System Replacement Checked Bag Recap/Optimization 2015-2016 C Conc Roof Replace Interim Baggage System Program 153,887 (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. 14 III. MARITIME DIVISION FINANCIAL & PERFORMANCE REPORT 12/31/16 FINANCIAL SUMMARY Fav (UnFav) Budget Variance $ % Incr (Decr) Change from 2015 $ % $ in 000's 2015 Actual 2016 Actual 2016 Budget Revenues: Operating Revenue Security Grants Total Revenues 47,268 0 47,268 50,810 0 50,810 49,314 0 49,314 1,496 0 1,496 3% NA 3% 3,542 0 3,542 7% NA 7% Total Operating Expenses 33,443 40,268 42,469 2,201 5% 6,825 20% Net Operating Income 13,825 10,542 6,845 3,697 54% (3,283) -24% Capital Expenditures 6,252 5,746 15,660 9,914 63% (506) -8% • • • • Total Maritime Revenues were $1,496K favorable to budget in 2016. A $578K favorable variance in Fishing & Operations primarily from improved utilization of Dockage, Berthage, and Moorage; a $311K favorable variance in Maritime Portfolio Management; and a $380K favorable Grain variance due to high summer volumes being slightly offset by ($188K) unfavorable variance in Recreational Boating, due to lower occupancy than budgeted. Total Operating Expenses were $2,201K favorable to budget in 2016 primarily due to lower maintenance and corporate allocated expenses than budgeted as well as timing of Maritime expenditures (including a $500K credit to expense budgeted as revenue). Net Operating Income before Depreciation was $3,697K favorable to budget. Capital Expenses in 2016 at $5.7M, $9.9M below budget driven by project delays. Net Operating Income before Depreciation by Business $ in 000's Fishing & Operations Recreational Boating Cruise Bulk Maritime Portfolio All Other Total Maritime A. • • • • • • • • • • 2015 Actual (4,204) 1,049 7,737 4,111 5,245 (114) 13,825 2016 Actual (3,149) 1,016 8,326 4,215 249 (115) 10,542 2016 Budget (4,238) 684 7,681 3,674 (754) (202) 6,845 Fav (UnFav) 2016 Bud Var $ % 1,089 -26% 332 49% 645 8% 541 -15% 1,004 133% 87 NA 3,697 54% Incr (Decr) Change from 2015 $ % 1,055 -25% (33) -3% 589 8% 103 3% (4,996) 95% (1) -1% (3,283) -24% BUSINESS EVENTS Successful 2016 cruise season with 983,539 passengers, 9.5% above 2015 levels. Port of Seattle named Best North American Homeport by Cruise Critic. P66 Tenant Improvement - demolition and construction on schedule. Finalized 5 year agreements with Tribes - Muckleshoot and Suquamish. NWSA, POS, and Tribal councils all approved. Fishing & Operations revenue growth of 8% driven by expanded utilization of Port Assets. Christening of F/V Blue North at Fishermen's Terminal. Received final, signed Stormwater Utility inter-local agreement between Port and City of Seattle. Granted more than $4M in insurance payments on remediation sites through the Orion Settlement. Bell Harbor Marina hosted the Clipper Round the World Race. Lowest occupational injury rate in the history of Marine Maintenance. 15 III. MARITIME DIVISION FINANCIAL & PERFORMANCE REPORT 12/31/16 B. KEY INDICATORS Grain Volume - Metric Tons in 000's 5,000 4,000 2015 Actuals 3,000 2016 Budget 2,000 2016 Actuals 1,000 0 Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Cruise Passengers in 000's 1200 1000 2015 Actuals 800 600 2016 Budget 400 2016 Actuals 200 0 Jan Feb Mar Apr May Jun Jul Aug 16 Sep Oct Nov Dec III. MARITIME DIVISION FINANCIAL & PERFORMANCE REPORT 12/31/16 C. OPERATING RESULTS Incr (Decr) Fav (UnFav) Budget Variance Change from 2015 $ % $ % 1,496 3% 3,542 7% 0 NA 0 NA 1,496 3% 3,542 7% 2015 Actual 47,268 0 47,268 2016 Actual 50,810 0 50,810 2016 Budget 49,314 0 49,314 M aritime Expenses (excl M aint) M aintenance Expenses P69 Facilities Expenses Other ED Expenses Environmental & Sustainability CDD Expenses Police Expenses Corporate Expenses Envir Remed Liability 9,564 9,031 157 3,186 1,278 1,544 2,611 5,958 114 10,722 9,900 299 3,488 1,358 1,010 3,921 9,454 115 11,382 10,576 294 3,819 1,430 1,029 4,023 9,713 202 660 676 (5) 331 72 19 103 259 87 6% 6% -2% 9% 5% 2% 3% 3% 43% 1,158 869 142 302 80 (534) 1,310 3,496 1 10% 8% 48% 8% 6% -52% 33% 36% 1% Total Expenses 33,443 40,268 42,469 2,201 5% 6,825 16% NOI Before Depreciation Depreciation 13,825 16,935 10,542 17,351 6,845 17,139 3,697 (212) 54% -1% (3,283) 416 -48% 2% NOI After Depreciation (3,110) (6,809) (10,294) 3,485 -34% (3,699) -36% $ in 000's Operating Revenue Security Grants Total Revenues Maritime Division Revenues were $1,496K favorable to budget. Key variances are as follows: Fishing & Operations - favorable $578K • $562K favorable to budget for Maritime Ops, largely from Dockage, Berthage & Moorage of $323K, due to greater occupancy, $105K for Space Rental, $65K favorable for Security Service, and $30K Utility revenue mainly due to sale of electricity. • $15K favorable to budget for Fishermen's Terminal and MIC, with Rec Boating favorability offsetting fishing vessel moorage. Cruise Operations - favorable $26K • Port Directed Cruise Fees - favorable $502K or 3.5%, the result of higher passenger counts than budgeted. • Other Revenue is unfavorable ($500K) due to payment received from NCLH for ½ of CTA termination payment was booked as an expense reduction rather than revenue, as budgeted. Recreational Boating - unfavorable ($188K) • Shilshole Bay Marina ($181K) unfavorable due to shortfall in moorage and utility revenues. • Bell Harbor Marina ($2K) unfavorable with lower guest moorage than budgeted. • Harbor Island Marina ($9K) unfavorable with lower guest moorage than budgeted. Bulk - favorable $381K • Unusually high second half volume resulted in year to date metric tons of 4,389,089 which is 10% higher than budget of 4,000,000 metric tons. Maritime Portfolio Management - favorable $311K • FT Office & Retail - $12K favorable to budget. • MIC Office & Retail - ($40K) unfavorable to budget due to loss of C-3 Worldwide revenue. • SBM Office & Retail - $1K favorable to budget. • Maritime Industrial - $339K or 6% favorable to budget. 17 III. MARITIME DIVISION FINANCIAL & PERFORMANCE REPORT 12/31/16 Total Maritime Division Expenses were $2,201K favorable to budget. Key variances are as follows: • Maritime Expenses (excluding Maintenance) were $660K favorable to budget. Major variances were as follows: • Salaries & Benefits were $338K favorable due to open positions for much of the year in Fishing & Operations. • General Expenses were $525K favorable primarily due to $500K expense credit in Cruise business for Norwegian Cruise Lines contribution for ½ of Cruise Terminals of America lease buyout that was part of the agreement with NCLH to upgrade P66. This was originally budgeted as revenue. • Travel & Other Employee Expenses $98K favorable across all departments. • Utilities were ($273K) unfavorable due to update in stormwater rates. • Maintenance Expenses were $676K favorable to budget from unfilled positions and under-spending on wages and benefits. • Environment & Sustainability Expenses were $72K favorable to budget. • Corporate Expenses were $259K favorable to budget. • Other Economic Development Expenses $331K favorable primarily due to not spending budgeted broker fees and TI's at FT and MIC properties and lower than budget Utility costs for electricity. Change from 2015 Net Operating Income (NOI) before Depreciation for 2016 decreased by ($3,283K) - Higher revenue offset by higher expenses, primarily allocations. Revenues increased by $3,542K - Revenue from the Grain terminal increased $675K reflecting higher volume. Fishing & Operations revenue increased $753K from better moorage utilization and rate increases. Cruise revenue increased $584K, a result of more sailings with higher passenger numbers. Recreational Boating increased $408K from rate increases. Maritime Portfolio Management increased $217K from rent and utilities at T106, T91, and FT. Expenses, direct and allocated, increased by $6,825K - Variance driven by increases in Police and Corporate allocations of $1,310K and $3,496K respectively, resulting from change in methodology with the creation of the NWSA. Maritime expenses increased $1,158K over prior year from increased utility (particularly surface water), litigation, and mitigation costs tied to the P66 cruise terminal expansion. 18 III. D. MARITIME DIVISION FINANCIAL & PERFORMANCE REPORT 12/31/16 CAPITAL SPENDING RESULTS $ in 000's Small Projects Contingency Renewal & Replace. T91 Substation Upgrades Cruise Terminal Tenant Improv Maritime Fleet Replacement SBM Restrms/Service Bldgs Rep C15 Building Tunnel Improvmnt P91 South End Fender Maint N Office Site Improvemnt Marina Mgt Sys Replacement All Other Total Maritime 2016 Actual 2016 Budget 1,279 0 1,291 92 1,170 401 0 54 0 12 1,447 5,746 3,772 2,000 1,381 1,350 1,623 1,017 700 655 500 450 2,212 15,660 Budget Variance $ % 2,493 2,000 90 1,258 453 616 700 601 500 438 765 9,914 66% 100% 7% 93% 28% 61% 100% 92% 100% 97% 35% 63% Comments on Key Projects For 2016, Maritime spent 37% of the annual approved budget. Projects with significant changes in spending were: • Small Projects: multiple project spending moves to next year such as T91 Portable Paint & Oil Containment Units, T91 Sewer Lift Station #7 replacement, and C15 2nd Flr N Face Window replacement. • Shilshole Bay Marina Restroom and Services Building Replacement: scope and design are under review and delay in spending. • C15 Building Tunnel Improvement: project delayed until next year. • Cruise Tenant Improvement: unfavorable due to timing of the payments. • Pier 91 South End Fender: project is delayed in design although construction is expected to be on schedule in 2017. • Maintenance North Office Site Improvement: project delayed to 2017 • All Other: - P66 Fall project delayed. 19 IV. ECONOMIC DEVELOPMENT DIVISION FINANCIAL & PERFORMANCE REPORT 12/31/16 FINANCIAL SUMMARY $ in 000's 2015 Actual 2016 Actual 2016 Budget Fav (UnFav) Budget Variance $ % Incr (Decr) Change from 2015 $ % Revenues: Operating Revenue 18,164 15,903 13,745 2,159 16% (2,260) -12% Total Revenues 18,164 15,903 13,745 2,159 16% (2,260) -12% Total Operating Expenses 19,206 21,135 23,447 2,312 10% 1,929 10% Net Operating Income (1,043) (5,232) (9,702) 4,470 46% (4,189) -402% Capital Expenditures 2,098 4,757 8,751 3,994 46% 2,659 127% • • • • A. • • • • • • Total Economic Development Division (EDD) revenues were $2,159K or about 16% favorable to budget for 2016 primarily due to stronger sales activities at Conference and Event Centers than budgeted. Total Operating Expenses were $2,312K or 10% favorable for 2016 due to lower spending than budgeted across all groups except for the Conference and Event Center. Net Operating Income for 2016 was $4,470K favorable to budget and $4,189K below 2015 primarily due to lower revenues from the Conference and Event Centers and higher divisional and corporate allocations. Capital spending for full year 2016 was $4.8 million or 54% of the approved budget of $8.8 million. BUSINESS EVENTS A total of $1,070K in grants to 31 King County cities and 14 Tourism non-profits were made in 2016 to support local economic development partnership initiatives. Continued implementation of Real Estate Strategic Plan, including completion of NERA 2/3 RFP, property acquisition due diligence, and ongoing planning for FT/T-91 Redevelopment. Portfolio Management exceeded its year-end occupancy goal of 95% with 97% occupancy while maintaining market rental rates. Occupancy is above the average of 95% for the comparable office markets and near the average of 98% for comparable industrial markets.1 Conference and Event Center activity exceeded the 2016 budget due to delayed construction schedule of the P-66 Cruise Terminal and from a strong regional economy. Workforce Development executed contracts with PortJobs and COREPLUS (Manufacturing Industrial Council) to advance training in Port Cluster. Staff also started work on an aviation career pathways project. Small Business completed an assessment of incubators/accelerators within the region and worked with CPO to improve small business utilization. 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 20 IV. ECONOMIC DEVELOPMENT DIVISION FINANCIAL & PERFORMANCE REPORT 12/31/16 B. KEY PERFORMANCE INDICATORS Building Occupancy by Location: 100% 98% 96% 94% Central Harbor 92% T-91 Uplands 90% Marina Office & Retail 88% T-91 Industrial 86% T-106 Warehouse 84% 82% 80% Q4 2015 Q1 2016 Q2 2016 Q3 2016 Q4 2016 Net Operating Income before Depreciation by Business $ in 000's Central Harbor M anagement Conference & Event Centers Eastside Rail RE Dev & Planning Tourism Workforce Dev Env Grants/Remed Liab/FTZ Total Econ Dev 2015 Actual (1,078) 1,107 877 (701) (937) (310) (0) (1,043) 2016 Actual (2,230) 538 (151) (1,712) (1,117) (576) 16 (5,232) 2016 Budget (2,854) (823) (237) (2,973) (1,192) (1,640) 17 (9,702) 21 Fav (UnFav) Incr (Decr) 2016 Bud Var Change from 2015 $ % $ % 624 22% (1,151) -107% 1,361 165% (569) 51% 86 36% (1,029) 117% 1,261 42% (1,011) -144% 75 6% (180) -19% 1,064 65% (266) -86% (1) -3% 16 -10206% 4,470 46% (4,189) -402% IV. ECONOMIC DEVELOPMENT DIVISION FINANCIAL & PERFORMANCE REPORT 12/31/16 C. OPERATING RESULTS Incr (Decr) Fav (UnFav) Budget Variance Change from 2015 $ % $ % 432 6% 114 1% 1,727 27% (2,374) -23% 2,159 16% (2,260) -12% 2015 Actual 7,767 10,396 18,164 2016 Actual 7,881 8,022 15,903 2016 Budget 7,449 6,296 13,745 Central Harbor Conf & Event Centers Eastside Rail Corridor P69 Facilities Expenses Small Business Workforce Development Tourism EconDev Expenses Other M aintenance Expenses M aritime Expenses (Excl M aint) Environmental & Sustainability CDD Expenses Police Expenses Corporate Expenses Envir Remed Liability 2,602 8,541 (1,263) 40 330 0 919 1,426 3,332 8 243 374 413 2,242 0 2,587 6,931 8 180 21 522 1,093 2,175 2,787 31 62 250 157 4,331 0 2,746 6,439 144 177 120 1,558 1,174 2,800 3,153 28 126 248 169 4,565 0 160 (492) 136 (3) 98 1,037 81 625 366 (3) 64 (3) 11 234 (0) 6% -8% 95% -2% 82% 67% 7% 22% 12% -12% 51% -1% 7% 5% NA Total Expense 19,206 21,135 23,447 2,312 10% 1,929 10% NOI Before Depreciation Depreciation NOI After Depreciation (1,043) 3,420 (4,462) (5,232) 3,682 (8,914) (9,702) 3,461 (13,163) 4,470 (221) 4,249 46% -6% 32% (4,189) 263 (4,452) 402% 8% 100% $ in 000's Revenue Conf & Event Ctr Revenue Total Revenue (15) (1,610) 1,271 140 (309) 522 174 749 (545) 24 (181) (123) (256) 2,089 0 -1% -19% -101% 349% -94% NA 19% 53% -16% 300% -75% -33% -62% 93% NA Total Economic Development Division Revenue was $2,159K favorable to budget. Key variances: • • Conference & Event Centers were $1,727K favorable due to strong sales at Bell Harbor International Conference Center (BHICC) and greater utilization of space prior to initiation of P-66 Cruise Terminal expansion construction, high sponsorship sales at World Trade Center Seattle (WTC-S), and higher than budgeted revenues from events at the Smith Cove Cruise Terminal. Portfolio Management revenues were $432K higher than budget due to higher than anticipated occupancy at T-102 Marina Corporate Center, T-91 Uplands, and above budget revenues from the former Tsubota Steel Site & Bell Street Garage. The favorable variance was offset by a loss of revenue for Bell Street Retail leases due to vacancies associated with upcoming Cruise Terminal construction. Total Economic Development Expenses were $2,312K favorable to budget. Key variances: • • • • • • • • Central Harbor expenses were $160K favorable due to lower than budgeted salaries & benefits of $50K and lower utility expenses of $116K. Conference & Event Centers were ($492K) unfavorable due to higher operating expenses and management fee related to the higher than anticipated sales activities. Eastside Rail Corridor expenses were $136K favorable to budget due to unspent funds budgeted for appraisal and property management services. Workforce Development was $1,037K favorable mainly due to timing of spending for Workforce Development programs. Economic Development Other was favorable $625Kprimarily due to $650K of budgeted Opportunity Fund & business development expenses (offset by Tourism Grants, ED Partnership Grants, and sponsorship spending), and lower than anticipated spending for consulting services of $116K. Maintenance expenses were $366K favorable due to later start than expected on planned maintenance work and cancellation of Bell Street Garage Power Wash $117K. Corporate costs, direct and allocated, were favorable $234K primarily due to lower than anticipated direct charges and allocations from Accounting & Financial Reporting $93K , Public Affairs $72K, ICT $46K, and HR $43K which are partially offset by greater than anticipated charges from Executive ($48K). All other variances net to a favorable variance of $245K. 22 IV. ECONOMIC DEVELOPMENT DIVISION FINANCIAL & PERFORMANCE REPORT 12/31/16 NOI before Depreciation was $4,470K favorable to budget. • Depreciation was ($221K) or 6% unfavorable to budget. NOI after Depreciation was $4,249K favorable to budget. Change from 2015 Actual Net Operating Income before Depreciation decreased by $4,189K between 2016 and 2015 as a result of lower revenue ($2,260K) and higher expenses ($1,929K). Revenues decreased by ($2,260K) due to lower revenue from Conference & Events. Expenses increased by $1,929K primarily due to: • Conference and Event Centers lower sales activity resulted in a decrease of $1,610K in operational expenses. • EconDev Expenses Other increase of $749K: o RE Development & Planning: increase of $325K for consulting services for the Real Estate Strategic Plan and property appraisals/evaluations. o EDD Admin: increase of $331K due to allocations to Business Groups which were in Real Estate Division in 2015 and are now in Maritime in 2016. • Maintenance Expenses decreased by $545K due to less work charged to BHICC and WTC/Seattle. • Corporate expenses increased $2,089K mainly due to higher percentage of Corporate Costs being charged to Economic Development Division since the creation of Northwest Seaport Alliance. CONTRIBUTIONS TO OTHER DIVISIONS $ in 000's 2015 Actual 2016 Actual 2016 Budget Fav (UnFav) Budget Variance $ % Incr (Decr) Change from 2015 $ % Revenues: Airport Dining & Retail Airport Properties Business Development Business Development & Mgmt 50,566 8,795 3,780 63,142 55,196 12,167 4,587 71,950 53,419 11,376 3,936 68,731 1,777 792 650 3,219 3% 7% 17% 5% 4,629 3,372 806 8,808 9% 38% 21% 14% Maritime Industrial Marina Office & Retail Maritime Portfolio Management 6,091 3,893 9,983 6,306 3,949 10,255 5,968 3,976 9,944 339 (27) 311 6% -1% 3% 216 56 272 4% 1% 3% Total Revenues to Other Divisions 73,126 82,206 78,675 3,530 4% 9,080 12% Expenses to Other Divisions Business Development & Mgmt Maritime Portfolio Mgmt Total Expenses to Other Divisions 7,508 2,446 9,954 8,482 2,817 11,299 10,503 3,299 13,803 2,021 482 2,504 19% 15% 18% 974 371 1,346 13% 15% 14% 23 IV. ECONOMIC DEVELOPMENT DIVISION FINANCIAL & PERFORMANCE REPORT 12/31/16 D. CAPITAL SPENDING RESULTS $ in 000's T102 Bldg Roof HVAC Replacemt P66 Elevator 2,3,4 Upgrades Tenant Improvements -Capital P69 Roof Beam Rehabilitation RE: Contingency Renew.&Replace Small Projects RE BHICC Roof Fall Protection Bell St Gar AI Elevtr Upgrade All Others Total Economic Development 2016 Actual 2016 Budget Budget Variance $ % 2,803 145 80 1,038 0 546 0 0 145 2,850 1,440 1,178 950 500 585 409 350 489 47 1,295 1,098 (88) 500 39 409 350 344 2% 90% 93% -9% 100% 7% 100% 100% 70% 4,757 8,751 3,994 46% Comments on Key Projects: For 2016, Economic Development spent 54% of the annual approved capital budget. Projects with significant changes in spending were: • • • • P66 Elevator 2, 3, 4 Upgrades: budget variance due to modernizations for elevators 3 and 4 have been postponed until the NCL cruise terminal work is completed. Tenant Improvements - Capital: reimbursement of $797K to Anthony's for Boiler system was recorded in Non-Ops. (It was originally recorded as a Donated Asset in 2014). RE BHICC Roof Fall Protection: project is delayed due to P66 current activities. Bell St Gar AI Elevtr Upgrade: project spending comes out as operating expense because we don't own the asset. 24 V. CORPORATE FINANCIAL & PERFORMANCE REPORT 12/31/16 A. BUSINESS EVENTS • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • Executed events and tours to help build community awareness and support for the Port including fenceline communities and throughout King County. Head of the Shanghai Municipal Transportation Commission and his team visited Port of Seattle. Coordinated Norwegian Bliss deployment announcement in partnership with Norwegian Cruise Line executives. Conducted tour for Chinese Ports and US EPA officials. Designed and executed Commission's community open house and public hearing on the Flight Corridor Safety Program in City of SeaTac. Implemented Paid Parental Leave policy. Launched PerformanceLink and posted interim goals setting form for managers and employees to use and map 2016 goals. Continued to provide ongoing support and proactively work through accounting/financial reporting set-up and scenarios for the Northwest Seaport Alliance (NWSA). Prepared, negotiated and implemented collective bargaining agreements and provided consultation on administration of collective bargaining agreements to Port divisions and oversight committees. Continued to provide strong financial management while delivering new technology solutions that fulfill business needs and enhance business processes, efficiently and effectively. Continued to implement standards and best practices for network, systems, and information security. The Port achieved a clean, unqualified independent Certified Public Accountant (CPA) audit opinion on the Port's 2015 financial statements from the Certified Public Accounting (CPA) firm, Moss Adams. Received the "Certificate of Achievement for Excellence in Financial Reporting" from the Government Finance Officers Association (GFOA) of the United States and Canada for 11 consecutive years. Received the 2016 Distinguished Budget Presentation Award from the Government Finance Officers Association (GFOA) of the United States and Canada for 9 consecutive years. Completed the Cat III competitive selection process for a finance team to provide on-going information for the Port's debt management program and to participate in individual debt transactions through a negotiated sale process. The Port selected six firms for the senior manager pool and five firms for the small business pool. Finalized sale of a total of $249.2 million of bonds with a present value savings of $67.6 million. Completed all the financial reporting changes for the Phase II Re-org. Filed the Port's Statutory Budget with King County Council and Assessor as required by law. Used Origami to create, track and refine metrics for new events, claims and rolling open claims. Completed and approval of the Long Range Plan by the commission. Completed a four day Lean event with a goal to reduce security checkpoint queue wait times from greater than 60 minutes to an average of 20 minutes or less. Continued working with TSA and other Port of Seattle partners to reduce increasing screening checkpoint times as well as the threat created by long public dwell times in the airports unsecured common areas. Contributed to regional transportation partner investments with 2nd contribution to the State's Alaskan Way Viaduct Replacement Program, 2nd and final contribution to King County's South Park Bridge. Completed TNC Tracking System which includes accepting monthly and real time activity data from Uber, Lyft, and Wingz and a mobile application that facilitates the manual capture of activity by ground transportation staff to use for validation. Implemented the North Satellite Transit System Train Display. Replaced the Parking Revenue Control System. Completed Runway reconstruction ahead of schedule. Completed Delta Skyclub project on Concourse B and opened for business. Developed displays for Checkpoint Security Wait-times. Completed Terminal 5 Modernization Project test pile field installation and Statnamic tests. Implemented technology to better track visitors at T-91 Pedestrian Gate. 25 V. CORPORATE FINANCIAL & PERFORMANCE REPORT 12/31/16 B. KEY PERFORMANCE METRICS Key Performance Indicators/Measures YTD 2016 A. Implement Century Agenda Strategies 1. Small Business Participation - Annual / Small Works (port-wide) 72.7% 2. Small Business Participation - Annual / Major Construction (portwide) including Mega projects 17.25% 3. Small Business Participation - Annual / Goods & Services (portwide) 23.7% 4. Small Business Participation - Service Agreements (port-wide) Annual (including Legal department Service Agreements) 42.1% B. Consistently Live by Our Values Through Our Actions and Priorities 17 classes, 1. MIS and Clarity Training 136 attendees 388 2. Employee Development Class Attendees/Structured Learning 4. Request of information and guidelines for integrity & business conduct 5. Occupational Injury Rate 6. Total Lost work days C. Manage Our Finances Responsibly 1. Corporate costs as a % of Total Operating Expenses 2. Clean independent CPA audits involving AFR 3. Timely process disbursement payment requests 4. Keep receivables collections 85% current (within 30 days) 5. Investment Portfolio Yield 6. Litigation and Claim Reserves (in $ thousand) D. Exceed Customer Expectations 1. Respond to Public Disclosure Requests 26 39% 24% 23% 3.61 774 34.8% yes 4 days 94% 1.28% $1.9 33.0% yes 3 days 96% 1.10% $1.3 438 486, decreased by 48 99.8% 100.0% 42% 88% 252 2. Information and Communication Technology System Availability 99.8% 3. IT Network Availability 100.0% 4. Service Desk % First Call Resolution 40% 5. Customer Survey for Police Service Excellent or Very Good 92% E. Support Port Mission with Implementation of Port Divisions' Business Plan 1. Oversee Implementation and Administration of CBAs agreements 113 408 2. Number of Jobs Openings 3. Percent of annual audit work plan completed each year 90% 16 classes, 117 attendees 1486, decreased by 1098 96%, decreased by 5% 259, decreased by 7 5.11 1058 91% 3. Required Safety Training YTD 2015/Notes 74% 162 294, increased by 114 74% V. CORPORATE FINANCIAL & PERFORMANCE REPORT 12/31/16 C. OPERATING RESULTS $ in 000's Total Revenues Operating Expenses Executive Commission Legal Public Affairs Human Resources & Development Labor Relations Internal Audit Office of Strategic Initiatives Police Security and Preparedness Contingency Finance Accounting & Financial Reporting Services Information & Communication Technology Finance & Budget Finance & Budget Aviation Finance & Budget Maritime Finance & Budget Business Intelligence Risk Services Sub-Total Total Before Cap Dev and Environmental Capital Development Engineering Port Construction Services Aviation PMG Seaport PMG Capital Development Admin Sub-Total Environment & Sustainability Aviation Environmental & Planning Maritime Environmental & Planning Noise Programs Environment & Sustainability Sub-Total Total Expenses Fav (UnFav) Budget Variance $ % Incr (Decr) Change from 2015 $ % 2015 Actual 2016 Actual 2016 Budget 730 1,330 570 760 133.4% 599 82.1% 2,198 1,270 3,501 4,429 6,720 1,191 1,280 3,487 20,990 1,367 653 2,185 1,569 3,365 6,033 7,001 1,268 1,455 8,356 23,045 1,420 369 1,569 1,635 3,219 6,447 7,634 1,126 1,620 9,059 23,587 1,448 500 (616) 66 (146) 414 633 (142) 164 702 542 28 131 -39.3% 4.1% -4.5% 6.4% 8.3% -12.6% 10.1% 7.8% 2.3% 2.0% 26.3% (13) 299 (137) 1,605 281 77 175 4,870 2,055 53 (284) -0.6% 23.6% -3.9% 36.2% 4.2% 6.5% 13.7% 139.7% 9.8% 3.9% -43.5% 6,780 20,998 4,805 1,692 1,955 1,158 3,217 35,799 6,550 20,158 4,810 1,647 1,950 1,212 1,004 3,202 35,725 7,570 21,160 4,933 1,802 1,932 1,199 917 3,449 38,027 1,020 1,001 123 155 (19) (13) (88) 246 2,303 13.5% 4.7% 2.5% 8.6% -1.0% -1.1% -9.6% 7.1% 6.1% (230) (839) 5 (44) (5) 54 1,004 (15) (75) -3.4% -4.0% 0.1% -2.6% -0.2% 4.7% 0.0% -0.5% -0.2% 82,884 91,790 95,871 4,081 4.3% 8,906 10.7% 4,300 3,565 1,610 1,019 428 10,923 4,493 3,488 2,823 999 416 12,218 5,913 2,862 4,543 789 430 14,538 1,420 (626) 1,721 (210) 14 2,319 24.0% -21.9% 37.9% -26.6% 3.3% 16.0% 193 (77) 1,212 (20) (12) 1,295 4.5% -2.2% 75.3% -2.0% -2.9% 11.9% 7,148 3,345 677 11,170 5,857 2,098 722 148 8,824 10,064 2,587 891 13,542 4,207 490 169 (148) 4,718 41.8% 18.9% 19.0% 0.0% 34.8% (1,291) (1,247) 45 148 (2,346) -18.1% -37.3% 6.6% 0.0% -21.0% 104,952 113,284 123,951 10,667 8.6% 8,332 7.9% Corporate revenues were $760K favorable compared to budget due to higher miscellaneous revenues. • Corporate expenses for the year-ended 2016 were $113.3M, $10.7M or 8.6% favorable compared to budget and $8.3M or 7.9% higher than the same period a year ago. The $10.7M favorable variance is due to vacant positions during the year, delayed hiring, and cost savings realized in most departments. The $8.3M increase from prior year is due to higher Outside Services and charging less to capital projects than originally anticipated due to delayed projects. 27 V. CORPORATE FINANCIAL & PERFORMANCE REPORT 12/31/16 All corporate departments have a favorable variance except for: • • • • Executive - unfavorable variance of $616K is due to the contribution to the pension plan for the retirement of the International Business Protocol Liaison, the unbudgeted Chief Operating Officer position and for the room rental for the Leadership conference. Legal - unfavorable variance of $146K is due to unanticipated outside legal and litigation costs primarily for the FAA Audit, Occidental Street Vacation and Other Land Use Advice. Labor Relations - unfavorable variance of $142K is due to a temporary Labor Relations Manager position, Litigated Expenses and remodel of office space. Business Intelligence - unfavorable variance of $88K is due to 2 new unbudgeted Business Intelligence Analyst positions. All other departments with a favorable variance are: • • • • • • • • • • • • • • Commission - favorable variance of $66K is due to savings in Payroll due to vacant positions during the year. Public Affairs - favorable variance of $414K is due to savings in Payroll due to vacant positions, Outside Services and Travel Expenses. Human Resources and Development - favorable variance of $633K is due to savings in Payroll due to vacant positions throughout the year, less tuition reimbursement than anticipated, lower Advertising and Metro/Ferry Passes Expenses. Internal Audit - favorable variance of $164K is due to savings in Payroll due to several vacant positions during the year, Equipment Expenses for software acquisition no longer needed and Travel Expenses. Office of Strategic Initiatives - favorable variance of $702K is due to savings in Payroll, Travel Expenses and Outside Services for consulting services for Honsha - LEAN. Police - favorable of $542K is due to savings in Payroll. Contingency - used fewer funds than anticipated. Accounting and Financial Reporting Services - favorable of $1.0M is due to savings in Payroll due to several vacant positions throughout the year, Outside Services, Travel Expenses and Credit Card Rebates. Information & Communication Technology - favorable variance of $1.0M is due to savings in Payroll due to vacant positions and Outside Services. Finance & Budget - favorable variance of $123K is due to savings in Payroll due to a vacant position during the year and lower Travel Expenses. Risk Services - favorable variance of $246K is due to savings in Insurance and Broker Fees. Security and Preparedness - favorable variance of $28K is due to savings in Outside Services and Travel Expenses. Capital Development - favorable variance of $2.3M is due to savings in Payroll due to vacant positions and Outside Services. Environment & Sustainability - favorable variance of $4.7M is due to savings in Outside Services primarily due to delays in SAMP. 2016 Actuals compared to Prior Year: • • • • • • Executive - decrease is due to lower Outside Services and Travel Expenses. Commission - increase is due to higher Payroll Costs, Outside Services and Travel Expenses. Legal - decrease is due to lower Payroll and Outside Legal Costs. Public Affairs - increase is due to higher Payroll Costs, Outside Services, Travel, Promotional and General Expenses. Human Resources and Development - increase is due to higher Payroll Costs, Outside Services and Travel Expenses. Labor Relations - increase is due to higher Payroll Costs for a temporary Labor Relations Manager and higher Litigated Expenses. 28 V. • • CORPORATE FINANCIAL & PERFORMANCE REPORT 12/31/16 Internal Audit - increase is due to higher Outside Services and Trade Business & Community Expenses. Office of Strategic Initiatives - increase is due to higher Outside Services for consulting services for Honsha - LEAN. Police - increase is due to higher Payroll Costs, Uniform and Protective Equipment, costs associated with King County Jail, Worker's Compensation and Litigated Expenses. Contingency - decrease is due to using fewer funds than anticipated. Accounting and Financial Reporting Services - decrease is due to lower Payroll Costs for several vacant positions throughout the year and Outside Services. Information & Communication Technology - decrease is due to lower Payroll Costs, Equipment and Travel Expenses. Finance & Budget - increase is due higher Outside Services Costs. Business Intelligence - increase is due to the unbudgeted costs for this new department. Risk Services - decrease is due to lower Payroll Costs. Security and Preparedness - increase is primarily due to higher Payroll Costs. Capital Development - increase is due to higher Outside Services Costs. Environment & Sustainability - decrease is due to lower Payroll, Outside Services and General Expenses. • • • • • • • • • • D. CAPITAL SPENDING RESULTS $ in 000's Infrastructure - Small Cap Service Tech - Small Cap Remote Data Ctr Bus Continuity Maximo Upgrade Constr Doc Mgmt Sys Repl. Enterprise GIS - Small Cap Project Cost Mgmt System Repl. PeopleSoft BU Configuration Contractor Data System Upgrade Employee Performance Mgmt Capital Dev Fleet Replacement All Other (note 1) TOTAL 2016 Actual 1,755 222 899 620 111 91 0 0 294 208 556 103 4,859 2016 Budget 1,836 1,500 1,200 991 538 432 500 1,400 311 293 815 1,910 11,726 Budget Variance $ % 81 4.4% 1,278 85.2% 301 25.1% 371 37.4% 427 79.4% 341 78.9% 500 100.0% 1,400 100.0% 17 5.5% 85 29.0% 259 31.8% 1,807 94.6% 6,867 58.6% Note: (1) "All Other" includes remaining ICT projects, other Corporate fleet replacement, and small cap. 29