HomeMy WebLinkAboutReview of Conference Center Financial ActivityGary W. Nystul CPA CFE
City Auditor
345 Sixth Street Suite 600
Bremerton, WA 98337-1873
360.473.5369
gary.nystul@ci.bremerton.wa.us
CITY AUDITOR
December 16, 2015
Honorable Patty Lent, Mayor
Members of the City Council
The City Auditor has completed the attached review of summary financial information of
the Kitsap Conference Center at the Bremerton Harborside. This project was scheduled
on the 2014 work plan.
The purpose of this report was to review the financial activity of that portion of the
facility managed by Columbia Hospitality. A four year schedule of monthly revenue and
operating income is included.
Please contact me if you have any questions or would like further assistance.
Sincerely,
Gary W. Nystul
cc: City Attorney
Director of Financial Services
REVIEW OF KITSAP CONFERENCE CENTER
AT BREMERTON HARBORSIDE
This is a review of the financial status of the Kitsap Conference Center at the Bremerton
Harborside which is managed for the City by Columbia Hospitality, Inc. For the last four
years it has been operating at a loss. The current year is also projected to be a loss.
The Kitsap Conference Center is a 10,000 sq. ft. facility that was opened in July 2004. In
2014 a $1.1M expansion was completed utilizing approximately 6,750 square feet of
unfinished space on the third floor which is owned by Kitsap Transit. It was anticipated
that the added space would allow additional activities to be booked at the facility which
then would generate additional revenue.
Financial History
The total revenue and operating income for the last four completed years is presented
below. The information is taken from monthly financial reports prepared by Columbia
Hospitality.
2016 2015 2014 2013 2012 2011
Budgeted Revenue 1,351,430 1,399,021 1,309,456 1,381,674 1,321,487 1,316,245
Actual Revenue 1,141,244 1,239,957 1,185,923 1,193,310
Variance to Budget
(168,211)
(141,717)
(135,564)
(122,935)
-13%
-10%
-10%
-9%
Budgeted Operating Income (loss)
(64,504) (14,863) (62,411)
(40,209)
(75,079)
(88,748)
Actual Operating Income (loss)
(124,756)
(66,057)
(118,590)
(65,175)
Variance to Budget
62,345
25,848
43,511
(23,574)
-100%
-64%
-58%
27%
The table demonstrates that the revenue projections are generally within 10%.
However, the budgeted operating income (loss) difference has ranged from 27%
to 100% of projection. Also, the actual revenue year to year has not shown
growth in the last three years.
1
All of the revenue and expense for the operation of the conference center are not
included in the financial activity reported by Columbia Hospitality. Additional
transfers in and expenses are paid by the city in a special revenue fund entitled
"Conference Center Operating."
Expansion Project
A project to expand the Conference Center space on the third floor of the building
was completed in May 2014. The cost was about $1,100,000 and added
approximately 6,750 square feet of rentable space. It was funded by a grant from
the Kitsap Public Facilities District of $441,474, a contribution from Kitsap
Transit of $205,514 and a loan from the city Equipment Rental Reserve of
$500,000.
City management "conservatively" estimated that the expansion would result in
$500,000 in increased annual revenue for the facility starting upon completion.
Actual revenue since the opening of the expanded area have not demonstrated
increases.
Columbia Hospitality estimated this addition was projected to increase revenue in
the first year by $516,360 with an additional 3% yearly increase thereafter. The
increase in revenue for the firstl2 month period after expansion of May 2014 to
April 2015 over the average of the prior 24 months was $55,243 or 10 percent of
projected.
No lease payment to Kitsap Transit is required during the first four years. Lease
payments start in year 5 at $8,437.50 per month. In addition, expenses for shared
costs of the building started in year one. The lease may run for 20 years.
ERR Loan
City council Resolution number 3194 in June 2013 authorized the $500,000 loan
from the Equipment Rental Reserve Fund. Repayments were to start in 2015 at
$100,000 per year plus accrued interest. The interest rate was based on the Local
Government Investment Pool earnings on December 31 of the year the principal
payment is due. On November 18, 2015 the repayment schedule was extended to
20 years with principal payments starting in 2017 and a fixed interest rate.
Lodging Tax Contribution
The city has annually dedicated $155,000 of Lodging Tax proceeds to support the
Conference Center.
2
Other City Expenses
In addition to the expenses incurred and paid by Columbia Hospitality, Inc., the
city incurs expenses for maintenance and repair of the building. These expenses
include allocation for insurance, overhead, telecommunications, water/sewer,
elevator and HVAC maintenance, and facilities transfer. In 2014 these expenses
totaled $132,000.
The addition of the Gold Mountain Golf Facility under Columbia Hospitality
management has created opportunities for efficiencies. Sharing items such as
staff, chairs, tables and flatware has created some cost savings.
Summary
The revenue for the conference center is dependent upon market conditions
including the economy and competition. The management of the conference
center endeavors to be proactive and seek out new clients and reduce operating
costs. However the "conservative" estimates of increased revenue of $500,000 in
the first twelve months of operating the third floor addition have not materialized.
It is unknown if they will in the foreseeable future.
Attached Schedule
Attached is a schedule of monthly revenue and expense taken from the Columbia
Hospitality monthly reports. It shows how revenues fluctuate monthly within a
year and from year to year. It also shows the amount of monthly loss or income.
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