COMMISSION AGENDA MEMORANDUM Item No. ACTION ITEM Date of Meeting DATE: March 17, 2025 TO: Stephen P. Metruck, Executive Director FROM: Jeff Wolf, Director, Aviation Commercial Management Khalia Moore, Assistant Director, Airport Dining and Retail Bridget Boldt, Manager, Business Development & Operations 8c April 22, 2025 SUBJECT: Airport Dining and Retail Amendments Amount of this request: $739,725 ACTION REQUESTED Request Commission authorization for the Executive Director to (1) execute Termination Agreements; (2) payout where applicable Net Book Value (NBV) associated with the Termination Agreements; (3) execute Lease and Concession Agreements and Amendments for certain Airport Dining and Retail (ADR) Tenants impacted by various capital projects and unforeseen construction-related delays. EXECUTIVE SUMMARY SEA Gateway/NMTR Project: On June 27, 2023, Commission authorized supplemental funding and work as part of Phase B of the SEA Gateway/North Main Terminal Redevelopment (NMTR) Program. Phase B work enhances the security screening checkpoint on the far north-end of the terminal and renovates the restrooms adjacent to the Hudson, NE-05 location. As a part of this project, the Hudson location will be closed for an elongated period and subsequent access to this location will be permanently blocked by passenger queueing making it a non-viable concessions location requiring a Termination Agreement and NBV buyout of this location. Airline Realignment Project: On June 25, 2024, Commission authorized supplemental funding and the execution of a construction contract amendment for the Post IAF Realignment Project. The scope of work includes the renovation of ticket counters and tenant-leased space in the central main terminal to provide ten ticketing positions, an airline breakroom and leasable space for a future tenant. The impacted area includes the Alki Bakery, SE-03 location, requiring its permanent closure and associated Termination Agreement and NBV buyout. Template revised January 10, 2019. COMMISSION AGENDA - Action Item No. 8c Meeting Date: April 22, 2025 Page 2 of 6 Concourse A Duty-Free Project: As part of the Lease and Concession Agreement dated June 22, 2016, for space CA-06, Africa Lounge, the Port is required to provide a new location should the Port reclaim the space prior to the natural termination of the agreement. On October 24, 2023, Commission authorized the execution of a new Lease and Concession Agreement for the replacement of CA-06, Africa Lounge due to the impact (displacement) due to the Concourse A Duty-Free Project. The initial approved replacement location is a portion, approximately 40%, the size of the existing Africa Lounge footprint. This request is to provide the SeaTac Bar Group tenant with a secondary inline space as an equitable square footage allocation for the term of 12 years. Terminal Seating Project: As part of the Lease and Concession Agreement dated June 22,2016, as amended on April 12, 2018, the Port is required to provide a new location should the Port reclaim a space prior to the natural termination of the agreement. Concourse Concessions was allocated a kiosk space CA-17 (f/k/a CA-16) which was replaced by a terminal seating project. The request is to provide the Concourse Concessions tenant with an equitable kiosk term of eight years applied to the current Hachi-ko location, CC-16. Concourse C Temporary Air Handling Units Project: On August 11, 2020, Commission authorized the design and construction of two (2) temporary air handling units for Concourse C necessary to support the new restrooms and three (3) additional leased ADR locations which were leased and to be constructed. Due to project delays, Host LPI SEA FB could not proceed with the design and construction of the Skillet location, CC-11, and as a result incurred additional increased design and construction costs. The request is to modify the rent structure to offset the costs incurred due to capital project delays. Additionally, the request is also to compensate Host LPI SEA FB the amount of $275,000 for specific construction costs related to unknown site conditions due to capital construction projects. Phased Construction Schedule: Post-pandemic, the Port determined to phase construction for the remaining N Concourse tenant buildouts. This resulted in the delay of the P.F. Chang's location, NSM-26 for a prolonged period resulting in increased design and construction costs. The request is to modify the rent structure to offset the additional costs incurred due to Port's phased construction. Checkpoint 1: On March 22, 2021, Commission authorized the construction relocation of Checkpoint 1 to the Gina Marie Lindsay Hall. The request is to include the new Checkpoint 1 into the premises of the contract and extend the term for Security Point Media to expire in 2032 as the provider of bins to TSA. Template revised June 27, 2019 (Diversity in Contracting). COMMISSION AGENDA - Action Item No. 8c Meeting Date: April 22, 2025 Page 3 of 6 JUSTIFICATION These amendments are necessary to maintain the long-term health and viability of the ADR program at Seattle-Tacoma International Airport (SEA or Airport). As the capital program continues to evolve to meet the ongoing demand of the Airport, these amendments align tenant contracts impacted due to the variability of construction of capital projects. These amendments cover tenants of various sizes, company structure and WMBE status. Diversity in Contracting The ADR program is governed by the Federal Aviation Administration (FAA) and will include Airport Concession Disadvantage Business Enterprise (ACDBE) aspirational goals in line with the Aviation Business Goals and Objectives. Current 2025 goals for ACDBE participation stands at 25%. DETAILS Termination Agreements 1) Termination Agreement associated with the SEA Gateway/North Main Terminal Redevelopment (NMTR) Project effective November 5, 2024:  Seattle Air Ventures JV, location NE-05 (Hudson) 2) Termination Agreement associated with Airline Realignment Project effective June 15, 2025:  Seattle Air Ventures JV, location SE-03 (Alki Bakery) NBV Amounts NBV buyout Amounts for the applicable Lease and Concession Agreements broken out by project impact are as follows: 1) SEA Gateway/NMTR Project Seattle Air Ventures JV: $ 174,725 2) Airline Realignment Seattle Air Ventures JV: $ 290,000 Total Buyout $ 464,725 New Lease and Concession Agreements and Lease and Concession Agreement Amendments: New Lease and Concession Agreements associated with capital projects: 1. Concourse Concessions, LLC, replaces impacted location CA-16. 2. SeaTac Bar Group, LLC, replaces impacted location CA-04. Template revised June 27, 2019 (Diversity in Contracting). COMMISSION AGENDA - Action Item No. 8c Meeting Date: April 22, 2025 Page 4 of 6 Lease and Concession Agreement Amendments associated with capital projects and unforeseen construction-related delays: 1. Host LPI SEA FB, LLC, CC-11 (Skillet) modified rent structure due to the construction delays and compensation of $275,000 for specific construction costs related to unknown site conditions. 2. CI Grove Bay SEA, LLC, NSM-26 (P.F. Chang's) modified rent structure related to Port construction phasing. 3. SecurityPoint Media, LLC (TSA security lanes and bins) modify the Premises to include the new Checkpoint 1 and extend the term for an additional five (5) years. ALTERNATIVES AND IMPLICATIONS CONSIDERED Alternative 1 - Do not payout tenants Net Book Values. Cost Implications: Unknown. Pros: (1) Cons: (1) No immediate dollars required. Required to be paid out per the lease when space is taken back for operational need and failure to do so would potentially open the Port up to litigation. This is not the recommended alternative. Alternative 2 - Not provide replacement space to affected tenants. Cost Implications: Unknown. Pros: (1) Cons: (1) Provide new opportunities for those spaces to new small businesses to the airport. Replacement space is required by lease when space is taken back for operational need and failure to do so would potentially open the Port up to litigation This is not the recommended alternative. Alternative 3 - Not provide the affected tenants with modified rent structures due to Port caused impacts. Cost Implications: Unknown. Pros: (1) Would maintain current rent structures as currently leased. Template revised June 27, 2019 (Diversity in Contracting). COMMISSION AGENDA - Action Item No. 8c Meeting Date: April 22, 2025 Page 5 of 6 Cons: (1) Unduly impacts tenant and joint venture ACDBE and Small Business partners impacted by capital projects and Port construction phasing who have been financially burdened during the design and construction process for grossly elongated periods. This is not the recommended alternative. Alternative 4 - Move forward with all proposed lease buyouts, amendments and new agreements. Cost Implications: $739,725 plus reduced future rent with modified rent structures for certain tenants. Pros: (1) Cons: (1) (2) Equitable approach addresses the negative circumstances faced by each individual concessionaire as described above. Decrease in customer offerings on the Ticketing level. Decrease in estimated revenues to the Port in rent. This is the recommended alternative. FINANCIAL IMPLICATIONS As noted above, two locations- NE-05 Hudson and SE-03 Alki Bakery, include NBV buyouts to the tenants in the total amount of $464,725 for both locations. In addition, this request includes a payment in the amount of $275,000 to CC-11 Skillet. The total of these amounts is $739,725 and will reduce Non-Aeronautical NOI. Two locations, Skillet and P.F. Chang's, include proposed lease rate (percentage fees paid to the Port) reductions, lowering future revenues to the Port. Skillet Given the rent reduction for Skillet, Port revenue would be decreased by an estimated $1.3 million in the first five years based on current sales projections for the location. Since the rent tiers go back up to the original rates in 2030, all relief is realized in the first five years. Template revised June 27, 2019 (Diversity in Contracting). COMMISSION AGENDA - Action Item No. 8c Meeting Date: April 22, 2025 Page 6 of 6 P.F. Chang's Given the rent reduction for P.F. Chang's, Port revenue would be decreased by an estimated $1.8 million in the first eight years based on current sales projections. Since the rent tiers progressively increase, anticipated relief is realized by 2032. PF Chang's Revenue to Port Difference to Rent Structure (Present Value) Original Original (12%) $7,810,000 $Scenario 1: (7%) $4,550,000 ($3,260,000) Scenario 2: (7%, 9%) $5,170,000 ($2,640,000) Proposed for Approval (7%, 9%, 12%) $6,000,000 ($1,810,000) - Analysis period 2025-2036 - For relief scenarios, timing is as follows: Scenario 1: 7% until end of term Scenario 2:Two Phase: 7% 2025-2030, 9% 2031-end of term Proposed for Approval: 7% 2025-2028, 9% 2029-2032, 12% 2033-end of term - Discount rate of 6% per Port risk scoring matrix ATTACHMENTS TO THIS REQUEST (1) Presentation PREVIOUS COMMISSION ACTIONS OR BRIEFINGS June 25, 2024 - The Commission authorized supplemental funding and the execution of a construction contract amendment for the Post IAF Realignment Project October 24, 2023 - The Commission authorized Termination Agreements for tenants impacted by the Concourse A Duty-Free Expansion. June 27, 2023 - The Commission authorized supplemental funding and work as part of Phase B of the SEA Gateway/North Main Terminal Redevelopment (NMTR) Program. March 8, 2022 - The Commission approved the revised recommendations provided by staff in response to Order 2021-15 for the SEA Tenant Build-Out Analysis. August 11, 2020, and subsequently revised on April 12, 2022, Commission authorized the design and construction of two (2) temporary air handling units for Concourse C necessary to support the new restrooms and three (3) additional leased ADR locations which were leased and to be constructed. Template revised June 27, 2019 (Diversity in Contracting).