US (HAWAII). DFS Group’s revised terms for its new, 32-month term in Hawaii represent a complex formula (click here for our original story).
Here are the key aspects of the new rental agreement as outlined by the State of Hawaii Department of Transportation, Airports Division:
Amounts The concessionaire shall pay to the State, without notice or demand, as and for the privilege of operating the concession at the airports and for the right to deliver to or at the airports in-bond (duty free) merchandise sold elsewhere and for rental for the use of the premises, for and during the term of this concession agreement, free from any and all claims, deductions, or set offs against the State, and at such times and in such manner as hereinafter provided:
Concession rent The total annual rent for each year of the agreement term shall be calculated by adding the minimum annual guaranteed rent proposed by the successful bidder to the applicable percentage rents as follows:
A Minimum Annual Guaranteed Rent
(1) First 8 month period: For the first 8 month period, the minimum annual guaranteed rent (hereafter the “MAG”) shall be the concession rent amount proposed by the Concessionaire in its bid proposal.
(2) Remaining term: On the first day of the first full agreement year, the MAG will be adjusted by multiplying 85% by the total rental received by DOT (consisting of rental amounts actually received and which DOT is entitled to receive) during the first eight month period plus US$13.36 million [US$3.34 million multiplied by four months]. No other MAG adjustments will be permitted during the first full agreement year or the second full agreement year.
(3) Apportionment of the MAG: For each year of the agreement term, the MAG shall be apportioned in a 20/80 ratio, with 20% of the MAG being apportioned to the on-airport store operations and 80% being apportioned to the off-airport store operations. This apportionment is based on the historical sales results of the Concession where about 80% of the concession revenues are derived from the off-airport store operations and about 20% of the concession revenues are derived from the on-airport store operations.
B Percentage Rent
The concessionaire shall pay to the State the required MAG amounts plus percentage rent based on the following schedule:
For 2003 annual sales of US$150 million+: 22.5% on-airport and 18.5% off-airport;
For 2003 annual sales of US$200 million+: 30% on-airport and 22.5% off-airport;
For 2003 (prorated for 10/1/03-5/30/04):
For sales of US$100 million+: 22.5% on-airport and 18.5% off-airport;
For sales of US$133 million+: 30% on-airport and 22.5% off-airport;
For 2004 annual sales of US$160 million+: 22.5% on-airport and 18.5% off-airport;
For 2004 annual sales of US$200 million+: 30% on-airport and 22.5% off-airport;
For 2005 annual sales of US$165 million+: 22.5% on-airport and 18.5% off-airport;
For 2005 annual sales of US$200 million+: 30% on-airport and 22.5% off-airport;
(1) First eight month period
The following percentage rent shall be added to the MAG for the first eight month period:
If the total amount of the concession gross receipts is between US$100 million and US$133 million, the following percentage rent shall be assessed by the State on that amount over US$100 million:
(a) On-airport: The on-airport percentage rent shall be 22.5% of the concessionaire’s gross receipts at or from Honolulu International airport and other on-airport locations at any other state airport that handles international flights (“on-airport gross receipts”).
(b) Off-airport: The off-airport percentage rent shall be 18.5% of the concessionaire’s gross receipts at or from all authorised store locations outside of state airport boundaries such as the stores in Waikiki and Waikoloa (“off-airport gross receipts”).
If the total amount of the concession gross receipts is above US$133 million, the following percentage rent shall be assessed by the State on that amount over US$133 million:
(a) On-airport: The on-airport percentage rent shall be 30% of the on-airport gross receipts.
(b) Off-airport: The off-airport percentage rent shall be 22.5% of the off-airport gross receipts.
(2) First full agreement year
The following percentage rent shall be added to the MAG payable during the First full agreement year:
If the total amount of the concession gross receipts for the first full agreement year is between US$160 million and US$200 million, the following percentage rent shall be assessed by the State on that amount over US$160 million:
(a) On-airport: The on-airport percentage rent shall be 22.5% of the on-airport gross receipts.
(b) Off-airport: The off-airport percentage rent shall be 18.5%of the off-airport gross receipts.
(3) Second full agreement year
The following percentage rent shall be added to the MAG payable during the Second full agreement year:
If the total amount of the concession gross receipts for the second full agreement year is between US$165 million and US$200 million, the following percentage rent shall be assessed by the State on that amount over US$165 million:
(a) On-airport. The on-airport percentage rent shall be 22.5% of the on-airport gross receipts.
(b) Off-airport. The off-airport percentage rent shall be 18.5% of the off-airport gross receipts.
(4) Annual gross receipts above US$200 million: The following percentage rent shall be added to the MAGs and other percentage rent payable during, the first full agreement year, and the second full agreement year.
If the total amount of the concession gross receipts for any of the time periods designated above shall exceed US$200 million, the following percentage rent shall be assessed by the state on that amount over US$200 million:
(a) On-airport. The on-airport percentage rent shall be 30% of the on-airport gross receipts.
(b) Off-airport. The off-airport percentage rent shall be 22.5% of the off-airport gross receipts.
C Total Rent Payable
For each of the time periods comprising the agreement term designated above, the total annual rent payable for each period shall be the sum of the following:
(1) The applicable MAG; and
(2) Percentage rent.
(a) Level One gross receipts. Applicable on-airport percentage rent (22.5%) and off-airport percentage rent (18.5%) assessed against only the total annual gross receipt amounts between US$100 million and US$133.3 million (first eight month period), between US$160 million and US$200 million (first full agreement year), and between US$165 million and US$200 million (second full agreement year); and
(b) Level Two gross receipts. Applicable on-airport percentage rent (30%) and off-airport percentage rent (22.5%) assessed against only the total annual gross receipt amounts above US$133.3 million (first eight month period) and above $200 million (first full agreement year and second full agreement year).
