City, SeaWorld Could Face Battle Over Rent Increase

Like many renters in San Diego, SeaWorld could be shelling out more money in the near future.

Under terms of the theme park's lease for 173 acres of city-owned land in Mission Bay Park, the San Diego City Council has reviewed a rental adjustment for the upcoming year.

William Griffith,

"I have to sit down with SeaWorld before I comment on the city's position," Griffith said.

"It wouldn't be appropriate for me to share that beforehand."

Councilwoman Donna Frye, whose 6th District includes the park, said a rent increase is in order, but wouldn't specify an amount.

"The report that is public provides sufficient information in my opinion to support a rent increase," Frye said. "When you get added value, which they did by being the only tenant who can exceed the 30-foot height limit, that adds dollar value to the property."

According to a report compiled by Griffith and Deputy City Manager Bruce Herring, SeaWorld's rent is based on a formula of varying percentages-of gross income from admissions, sales and services. They range from 1.5 percent for diesel fuel sales to 20 percent for boat-slip rentals.

SeaWorld spokesman Dave Koontz said the park wants to see its rent assessed the same way it currently is.

"Any increase in the rent percentages would be very burdensome," Koontz said.

The theme park's minimum rent is also being reviewed because it was granted an amendment in January to a rule imposing a 30-foot height limit on coastline structures. While it applies to all buildings in the park's master plan, the City Council still reserves the right to approve the structures, Frye said.

Last year, SeaWorld's rent was $7.15 million. The year before it paid $6.8 million. In 2000 it paid $6.25 million and the year before that it paid $5.8 million. Under terms of a 1998 lease, the rent will be reevaluated in 10 years.

Since 1990 the park has paid about $68 million in rent to the city. The amount has increased every by nearly $4 million each year since 1990. It is estimated to be $7.3 million in 2003 and if the rent formula remains the same, it could reach $8.7 million in 2005.

In 2002 the minimum rent was set at $5.1 million - a sum derived by calculating 80 percent of the rental average over three previous years. The minimum would have kicked in if the city's take from the attraction's gross income had fallen below the $5.1 million level.

Reint Reinders, chief executive officer of the San Diego Convention & Visitors Bureau, said he couldn't comment on what would be a fair amount of rent for Sea World. But he criticized' the city's ability to manage its general fund.

"We think SeaWorld is a quality operation that is beautifully run," Reinders said. "I wonder how much of the park's rent goes back to improving Mission Bay Park. That master plan

has been gathering dust. More certainly could be done at Fiesta Island.

"I think $7.1 million sounds like a lot of money, but maybe not when you consider the city is spending $6.1 million to buy empty seats (for Chargers games) at Qualcomm Stadium."

SeaWorld's reported gross income in 2002 was $184.6 million. Its attendance was reportedly about 4 million.

"Our economic impact to the area is about $1 billion," Koontz said. The park employs a staff of about 4,000 during the summer months and from 1,500 to 2,000 in the winter. It opened on March 21, 1964.

The city's proposal for setting a new baselevel minimum rent was determined by a property appraisal that includes SeaWorld's building height exemption as well as recent improvements such as a two-story education center and dormitory for 128 campers, classrooms, and an auditorium completed in July.

There is a 95-foot-tall, splash-down ride under construction that will include a dolphin exhibit, gift shop, and snack stand. It is expected to open in the spring.

"There has been a substantial change in entitlements, so we are looking at the minimum rent because a return on the land value looks not just at what they actually do, but what they can do," Griffith said, referring to the park's ability to generate income from current and future building improvements.

Aside from a real estate appraisal, the city hired several consultants to do market studies on the theme park industry. Those findings will not be made public, however, until lease negotiations with SeaWorld are concluded.

If negotiations fail, the two sides will go to arbitration under terms of the lease, Griffith said.

SeaWorld spokesman Dave Koontz couldn't comment on the rental rate review, pending conclusion of the negotiations.

But a recent study that was made public shows SeaWorld's lease agreement differs somewhat from other private theme parks on public property.

The 6-month-old study by Tom Moulton, director of leased properties for Pima County, Ariz., surveyed eight different attractions across the country, including Six Flags Kentucky Kingdom, a Six Flags amusement park that sits on 59 acres in Louisville, Ky.

He said rents at those parks typically were not based on the increased value of the real estate. Many included set-asides from rent payments that were put into special accounts for future building improvements.

"For example, if their lease is 10 percent (of gross income), then a certain percentage of that would go into an escrow fund, and at the end of the year, that's how they fund a capital improvement plan," Moulton said. "It seems a lot of county and city fathers are using that as an incentive for organizations to capitalize."

Even though the parks Moulton surveyed were smaller than SeaWorld, municipalities could expect to net higher rent from those doing more business. Additionally, they could expect their share of the gross income or profits to increase as parks expand and attendance increases.

"Leases can work different ways," Griffith said. "SeaWorld has a commitment to a dollar amount in its development plan. They've got, a development plan and schedule they have to comply with and minimum amounts they need to invest."

He said set-asides from lease payments apply more often to attractions that are smaller than SeaWorld, or are usually used for maintenance, not capital improvements.