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HomeMy WebLinkAbout11 - Tourism Business Improvement District (TBID) Annual Report and Fiscal Year 2022-23 BudgetQ �EwPpRT CITY OF s NEWPORT BEACH `q44:09 City Council Staff Report July 26, 2022 Agenda Item No. 11 TO: HONORABLE MAYOR AND MEMBERS OF THE CITY COUNCIL FROM: Tara Finnigan, Assistant City Manager - 949-644-3001, tinnigan@newportbeachca.gov PREPARED BY: Melanie Franceschini, Management Analyst mfranceschini@newportbeachca.gov PHONE: 949-644-3028 TITLE: Tourism Business Improvement District (TBID) Annual Report and Fiscal Year 2022-23 Budget ABSTRACT: Visit Newport Beach, Inc. (VNB), a business unit of Newport Beach & Company, serves as the administrator for the Newport Beach Tourism Business Improvement District (NB TBID). VNB has submitted the NB TBID's FY 2022-23 Annual Report and Budget for the City Council's review and approval. RECOMMENDATION: a) Determine this action is exempt from the California Environmental Quality Act (CEQA) pursuant to Sections 15060(c)(2) and 15060(c)(3) of the CEQA Guidelines because this action will not result in a physical change to the environment, directly or indirectly; b) Authorize a waiver of the timeline provided in Section 3.5 of the Tourism Business Improvement District Management Agreement; c) Review and approve the Newport Beach Tourism Business Improvement District's FY 2022-23 Annual Report; and d) Review and approve the Newport Beach Tourism Business Improvement District's FY 2022-23 Budget. DISCUSSION: Newport Beach Tourism Business Improvement District (NB TBID) The NB TBID is a business improvement district formed pursuant to the Property and Business Improvement District Law of 1994, codified in Streets and Highway Code Section 36600 et seq., which helps fund marketing and sales promotion efforts for Newport Beach tourism businesses. It was established by Resolution No. 2009-21 on April 28, 2009, and is administered by VNB. Tourism Business Improvement District (TBID) Annual Report and Fiscal Year 2022-23 Budget July 26, 2022 Page 2 The Management District Plan for the renewed NB TBID (the document that details the district's boundaries, funding and programs) was approved by the City Council on January 24, 2014, and was amended by the City Council on July 10, 2018. The NB TBID's current, 10-year term will expire on January 31, 2024. The NB TBID includes nine hotels/resorts, each consisting of 100 hotel rooms or more, located within Newport Beach: Balboa Bay Resort Fashion Island Hotel Hyatt Regency John Wayne Airport Newport Beach Hyatt Regency Newport Beach Lido House Hotel Newport Beach Marriott Bayview Newport Beach Marriott Hotel & Spa Newport Dunes Waterfront Resort & Marina Renaissance Newport Beach Hotel The Newport Beach Marriott Hotel & Spa is currently operating as VEA Newport Beach, A Marriott Resort & Spa. The Fashion Island Hotel is currently closed. The property will be renovated and reopened as the Pendry Newport Beach in 2023, under new ownership and management. At this time, it is projected that the hotel will not be operational for FY 2022-23. VNB, on behalf of the NB TBID association, has prepared the NB TBID'S FY 2022-23 annual report and budget for the City Council's review and approval (Attachments A and B). The annual report includes a summary of the NB TBID's proposed activities for the year. The report does not contain recommendations to alter the BID boundaries or the method and basis for levying assessments for the following fiscal year. The NB TBID Board of Directors met on June 24, 2022 to review and approve the TBID's FY 2022-23 annual report and budget. This year's report includes a brief discussion about the industry's economic recovery from the COVID-19 pandemic and relays optimism as to surpassing 2019 numbers within the coming years. The proposed FY 2022-23 revenue budget of $3,807,884 forecasts a 4% growth year over year. This projection accounts for continued industry recovery, as well as the new amenities offered by TBID member hotels. Expenditures for the FY 2022-23 are estimated at $4,526,445, which includes the hiring of an additional salesperson and sales coordinator. Despite bookings at 90% of pre -pandemic levels, the continued closure of the Fashion Island Hotel impacts the total revenue, requiring for the proposed FY 2022- 23 budget to utilize $718,561 of FY 2021-22 carryover cash to supplement the shortfall. 11-2 Tourism Business Improvement District (TBID) Annual Report and Fiscal Year 2022-23 Budget July 26, 2022 Page 3 The report also explains how the TBID's FY 2022-23 marketing plan will concentrate on targeted messaging to luxury clients interested in bookings at higher tier hotels. VNB will employ strategies such as branding, messaging and planning integration, strengthening partnerships between VNB and meeting planners, and collecting further data intelligence to enhance sales, in order to meet the goal of booking 75,000 room nights. Waiver Request Staff is recommending a waiver of the timeline specified in Section 3.5 of the 2009 Tourism Business Improvement District Management Agreement between the City and Visit Newport Beach. The agreement set a May 31 due date for the NB TBID annual report; however, the NB TBID Board of Directors was not able to meet until June 24 to review and approve the annual report and budget. FISCAL IMPACT: Under the terms of the City -NB TBID agreement, the NB TBID assesses its member hotels 3% of gross short-term (less than 30-day stays) room rental revenue. The FY 2022- 23 assessment revenue is projected to be approximately $3,807,884. The assessments levied for the NB TBID are applied toward the activities described in the NB TBID'S Management District Plan (approved by the City Council on January 28, 2014) and summarized in its annual report. The City collects the member assessments on behalf of the NB TBID and retains 0.25% of the total assessments collected in order to reimburse the City for collection and administrative costs associated with the NB TBID. ENVIRONMENTAL REVIEW: Staff recommends the City Council find this action is not subject to the California Environmental Quality Act (CEQA) pursuant to Sections 15060(c)(2) (the activity will not result in a direct or reasonably foreseeable indirect physical change in the environment) and 15060(c)(3) (the activity is not a project as defined in Section 15378) of the CEQA Guidelines, California Code of Regulations, Title 14, Chapter 3, because it has no potential for resulting in physical change to the environment, directly or indirectly. NOTICING: The agenda item has been noticed according to the Brown Act (72 hours in advance of the meeting at which the City Council considers the item). ATTACHMENTS: Attachment A — NB TBID FY 2022-23 Annual Report Attachment B — NB TBID FY 2022-23 Budget 11-3 ATTACHMENT A NEWPORT BEACH TOURISM BUSINESS IMPROVEMENT DISTRICT ANNUAL REPORT FOR FISCAL YEAR 2022-2023 JULY 1, 2022 THROUGH JUNE 30, 2023 ORIGINATION: On April 28, 2009, Resolution 2009-21 was adopted by the Newport Beach City Council creating the Newport Beach Tourism Business Improvement District (TBID) and approving the Management District Plan. The TBID's Management District Plan was later modified with the adoptions of Resolution 2012-28, Resolution 2014-7, and Resolution 2018-54. The amendments included revised assessments from 2% to 3%, the renewal period of ten (10) years, and the addition of hotels and resorts to its membership. The TBID is a benefit assessment district proposed to help fund marketing and sales promotion efforts for Newport Beach lodging businesses. Under an agreement with the City of Newport Beach, Visit Newport Beach, Inc. (VNB) serves as TBID's Owner's Association and oversees its administration and coordinates its sales and marketing activities. This is the annual report of the Newport Beach TBID for the 2022-23 fiscal year (FY) and is filed with the City Clerk, according to the California Streets and Highways Code Sections 36650. PURPOSE: The Newport Beach TBID is responsible for representing and managing conferences, meeting, and group sales efforts in partnership with the nine TBID lodging businesses. One of the member hotels, the Fashion Island Hotel, has permanently closed. The property will be renovated and reopen as the Pendry Newport Beach in 2023, under new ownership and management. At this time, it is projected that the hotel will not be operational for FY 2022-23. Currently, TBID services are designed to benefit the remaining eight operational properties that will be assessed within the City of Newport Beach, as well as generate additional revenue to grow the Newport Beach hotel and tourism industry. The current participating lodging businesses are as follows: • Newport Beach Marriott Resort and Spa (now known as VEA Newport Beach, A Marriott Resort and Spa) • Renaissance Newport Beach Hotel • Hyatt Regency John Wayne Airport Newport Beach • Newport Beach Marriott Bayview • Hyatt Regency Newport Beach • The Balboa Bay Club and Resort • Newport Beach Dunes Waterfront Resort and Marina • Lido House Hotel 11-4 FY 2022-23 SITUATIONAL ANALYSIS After a pandemic that crippled the meetings industry, FY 2021-22 saw great strides in recovery. The sales team booked about 50% of the highest actual definite room night number in FY 2021-22. The number of RFPs (Request for Proposal) from January 2022 through June 1, 2022, was at 89% of where it was pre -pandemic. Although this is an optimistic data trend, VNB needs to further analyze the suitability of those RFPs for the new hotel amenities and rate expectations. The ideal group for the portfolio is evolving to look different than what it was in FY 2018-19 and FY 2019-20. The peak room block has been reduced by up to 25-30% leaving more inventory for leisure rooms. The group rates being quoted are 50-200% higher, depending on the property and program details. This is a result of post pandemic demand, as well as substantial reinvestment in amenities. The member hotels understandably want higher rated bookings with solid food and beverage contributions and desirable day patterns. Looking toward FY 2022-23, the VNB sales team is aware of ideal group parameters and is pursuing programs that are the ideal fit for the hotel members. Given that some prior clients are have opted for different destinations, the sales team is replacing those clients with other group bookings and programs that better fit the member hotels' amenities and offerings. This may mean less group room nights but more revenue in the group segment. COST BASIS Annual assessment rates are 3% of gross short term (less than 30 days) room rental revenue on the participating lodging businesses within the City of Newport Beach. Lodging business stays of longer than 30 consecutive days will not be assessed. Based on the benefit received, stays by airline personnel and government employees on government business will not be assessed. Additionally, stays at time shares will not be assessed. The renewal year for the current TBID agreement is 2024. BUDGETED REVENUE FOR FY 2022-23: The TBID is still in recovery from the COVID-19 pandemic that created a serious economic crisis in the hotel industry. The budgeted TBID revenue for FY 2022 - 23 is $3,807,884. The proposed budget for FY 2022-23 is based on the following assumptions: • VEA Newport Beach, A Marriott Resort & Spa, has undergone a major renovation during 2021 and 2022 and will be fully reopening beginning July 2022. • Fashion Island Hotel has closed but will be renovated and reopened under new owners in 2023. • Meetings and business travel are recovering, but are not yet up to pre -pandemic levels. • TBID hotels are forecasting a 4% growth over FY 2021-22 revenue. This amount was applied to VNB's FY 2021-22 actual revenue to obtain the budgeted TBID revenue for FY 2022-23. FY 2022-23 TBID ROLL UP BUDGET FY 2022-23 Proposed Budget Total Revenue $3,807,884 Total Expenses $4,526,445 11-5 Operating Expenses $2,174,245 Promotional Expenses $485,000 Community Relations Expenses $148,200 Digital Marketing Expenses $190,800 Trade Show Expenses $354,400 Sponsorships Expenses $286,700 Sales Initiatives Expenses $429,100 Customized Destination Support Expenses $458,000 The shortfall for the proposed FY 2022-23 budget will be supplemented by FY 2021-22 carry over of $718,561. TBID Sales Staffing in FY 2022-23 The VNB sales staff is currently operating with a vice president of sales and 3 full-time sales managers. Pre -pandemic, VNB had 5 full-time sales managers. With the business meetings bookings close to 90% of pre -pandemic levels and the substantial repositioning of available amenities, VNB plans on hiring an additional salesperson by January 2023. Additionally, VNB intends to fill the sales coordinator position, which has remained vacant since March 2020. FY 2022-23 Direct Sales Initiatives/Goals OBJECTIVE 1: Grow Luxury Meeting Bookings Implement seamless integration of branding, messaging, planning support, and online/offline touchpoints for the sales leads, producing an inspired and informed planner experience. Efforts will increase booked meetings and events, which will positively impact the TBID member hotels retail and restaurant establishments, and the overall destination as a group experience destination. STRATEGY 1: Content generation, sales support materials, and targeted promotions. STRATEGY 2: Reinforce and expand in -person and virtual tradeshow and industry partner engagements, expanding awareness and building relationships. STRATEGY 3: Highly desirable sales lead engagement and TBID member support. OBJECTIVE 2: Reinforce Partnerships between Visit Newport Beach and Meeting Planners Further establish and reinforce the partnerships between VNB and the meeting planners. Engagement with the meeting planning community advances the consideration and bookings at TBID member hotels. STRATEGY 1: Position Visit Newport Beach as a valuable resource to meeting planners, from the beginning to end of the booking experience. STRETEGY 2: Connect with meeting planners in advance to educate, inspire and motivate bookings in Newport Beach. OBJECTIVE 3: Understand and Elevate Meeting Planner Guidance through Data Intelligence 11-6 Leverage qualitative and quantitative data gained through digital engagement to deliver effective marketing and provide meeting planners with the information necessary to close sales. STRATEGY 1: Incorporate data from industry partnerships, studies, and platforms to enhance sale strategies. STRATEGY 2: Translate learnings from digital marketing platforms to deliver effective messaging and marketing. FY 2022-23 GOALS/PRODUCTION For FY 2022-23, the VNB sales team is proposing a definite room night goal of 75,000. If achieved, this number will get the TBID back to approximately 75% of its highest goal to date and paves the way for a 100,000 room night goal for FY 2023-24. Goals and production numbers from the last 5 years: Fiscal Year Definite Room Night Goal Actual Definite Room Night Sales 2017-18 83,000 90,318 2018-19 93,000 111,501 2019-20 100,000 75,300 2020-21 N/A 1,954 2021-22 38,000 49,500 2022-23 75,000 N/A As the TBID regains its momentum in the meetings market, the challenge is to find the right business for a higher tier hotel portfolio. The largest member hotel has reduced its room count by 20%, yet has a rate expectation increase of approximately 50%. Other TBID member hotels have also raised group rates, repositioning VNB staff to cater to new group clientele. The TBID member hotels have observed the VNB sales team consistently exceed goals; however, the TBID member hotels will reconvene in January 2023 to discuss any necessary adjustment as the hospitality industry continues to recover. ASSESSMENT AND BOUNDARIES: The TBID Agreement was renewed in January 2014 extending the renewal period for ten (10) years. ESTIMATE OF NON -ALLOCATED FUNDS CARRIED OVER FROM FY 2022: $718,561—These funds will be used to meet the expected revenue shortfall in FY 2022-23. AMOUNT OF ANY CONTRIBUTIONS OTHER THAN ASSESSMENTS LEVIED IN FY 2022-23: $0 11-7 ATTACHMENT B 0 VISIT L I'PORT BEACH H CALIFORNIA Visit Newport Beach, Inc. Group Sales (TBID) FY2023 Budget FY 2023 6/30/2023 Proposed Budget Operating Revenue Revenue 41000 - TOT/TBID Income $ 3,806,384.00 Total Revenue $ 3,806,384.00 Other Income 46001 - Interest Income $ 1,500.00 Total Other Income $ 1,500.00 Total Operating Revenue $ 3,807,884.00 Expenses Salary and Wages 61010 - Salaries and Wages $ 1,012,000.00 61015 - Bonuses and Commissions $ 186,000.00 61020 - Auto Allowance $ 16,700.00 61030 - Payroll Tax Expenses $ 93,500.00 61040 - Accrued PTO Expense $ 15,000.00 Total Salary and Wages $ 1,323,200.00 Benefits 61110 - Medical Insurance $ 95,000.00 61115 - Benefit Administrative Fees $ 360.00 61120 - Dental Insurance $ 6,400.00 61125 - Vision Insurance $ 1,090.00 61130 - Life and Disability $ 16,700.00 61140 - Retirement Plan (401k) $ 97,500.00 61150 - Flexible Spending Plan $ 1,580.00 61160 - Employee Engagement Benefit $ 12,000.00 Total Benefits $ 230,630.00 General and Administrative Expenses Operating Expenses 64100 - Office Supplies $ 12,000.00 64101 - Kitchen Supplies $ 4,800.00 64110 - Office Equipment Leases $ 5,700.00 64115 - Office Equipment (non-deprec) $ 5,000.00 64120 - Equipment Repairs & Maintenance $ 24,480.00 64125 - Computer Software (non-deprec) $ 8,610.00 64130 - Voice and Data - Office $ 8,700.00 64135 - Telephone - Mobile $ 12,600.00 64140 - Postage $ 1,200.00 11-8 0 VISIT L I{POf T BEACH H CALIFORNIA Visit Newport Beach, Inc. Group Sales (TBID) FY2023 Budget 64145 - Shipping Charges 64150 - Bank Fees 64160 - Membership Dues 64165 - Subscriptions 64170 - Team Meetings 64175 - Governance Meeting Expenses 64180 - Education 64190 - Business Licensing and Fees 64300 - Depreciation Expense 64600 - Business Meals/Entertainment Total Operating Expenses Office Lease and Expenses 62100 - Office Lease 62110 - Office Repairs and Maintenance 62120 - Offsite Storage Total Office Lease and Expenses Insurance 63100 - General Liability Insurance 63200 - Workers Compensation Insurance 63300 - Board of Directors Insurance Total Insurance Professional Fees 64203 - Recruiting Fees 64205 - Payroll Processing Service 64206 - Independent Contractors 67004 - Marketing NBCo Fees 64201 - Audit Fees 64202 - Tax Preparation Fees Total Professional Fees Travel Expenses 65100 - Airfare 65200 - Accommodations 65300 - Meals 65400 - Transportation Costs 65405 - Mileage ($0.58/mile 2019) 65500 - Other Travel Costs Total Travel Expenses Total General and Administrative FY 2023 6/30/2023 Proposed Budget $ 2,750.00 $ 100.00 $ 45,400.00 $ 1,200.00 $ 16,600.00 $ 10,000.00 $ 28,675.00 $ 1,000.00 $ 57,000.00 $ 7,500.00 $ 253,315.00 $ 145,000.00 $ 5,650.00 $ 7,000.00 $ 157,650.00 $ 1,400.00 $ 3,750.00 $ 2,200.00 $ 7,350.00 $ 1,200.00 $ 4,800.00 $ 16,000.00 $ 108,000.00 $ 15,000.00 $ 3,600.00 $ 148,600.00 $ 17,500.00 $ 22,500.00 $ 3,000.00 $ 3,200.00 $ 300.00 $ 1,000.00 $ 47,500.00 $ 614,415.00 11-9 0 VISIT L I{POf T BEACH H CALIFORNIA Visit Newport Beach, Inc. Group Sales (TBID) FY2023 Budget FY 2023 6/30/2023 Proposed Budget Advertising Expenses 66101 - Advertising - Purchased $ 100,000.00 66121 - Promotional Gift Cards $ 54,000.00 66123 - Promotional Client Gifts $ 40,000.00 66203 - Creative Design/Development $ 32,000.00 Total Advertising Expenses $ 226,000.00 Marketing Expenses Community Relations 67104 - Annual Marketing Outlook Event $ 75,000.00 67108 - Company -Sponsored Events $ 35,000.00 Total Community Relations $ 110,000.00 Marketing Collateral 67308 - Annual Report $ 6,000.00 67309 - Marketing Plan $ 2,500.00 67311 - Collateral Production Expenses $ 10,000.00 Total Marketing Collateral $ 18,500.00 Digital Marketing 67502 - Website Maintenance $ 16,000.00 67503 - Online Search Advertising $ 41,000.00 67508 - Website Redesign Expenses $ 100,000.00 66211 - CRM Maintenance $ 33,800.00 Total Digital Marketing $ 190,800.00 Communications/Public Relations 67605 - Media Special Programs $ 18,000.00 Total Communications/Public Relations $ 18,000.00 Total Marketing Expenses $ 337,300.00 Direct Sales Initiatives Trade Show Expense 66221 - Trade Show Travel Expenses $ 65,000.00 66222 - Trade Show Registration $ 210,000.00 66223 - Trade Show Booth Expenses $ 78,400.00 Total Trade Show Expense $ 353,400.00 Sponsorships 66231 - Sales Group Enhancement Credit $ 290,000.00 66232 - Hosted Industry Events $ 99,000.00 66233 - Industry Partnerships $ 132,500.00 66234 - Industry Sponsorships $ 154,200.00 Total Sponsorships $ 675,700.00 11-10 0 VISIT L I{POf T BEACH H CALIFORNIA Visit Newport Beach, Inc. Group Sales (TBID) FY2023 Budget FY 2023 6/30/2023 Proposed Budget Sales Initiatives 66207 - Site Inspections $ 38,200.00 66208 - Client Events $ 123,500.00 66210 - Conference Services $ 1,000.00 66209 - Database/Prospecting $ 139,100.00 Total Sales Initiatives $ 301,800.00 Total Direct Sales Initiatives $ 1,330,900.00 Customized Destination Support 66243 - Hotel Partner Booking Incentives $ 300,000.00 66247 - Partner Engagement Expenses $ 18,000.00 66248 - Group Marketing Initiatives $ 140,000.00 Total Customized Destination Support $ 458,000.00 Other Expenses 64510 - Moving Expenses $ 6,000.00 Total Moving Expenses $ 6,000.00 Total Expenses $ 4,526,445.00 Utilization of Carryover Cash (not reserve funds) $ 718,561.00 Net Income