Metropolitan Airports Commission Karen Racek Assistant Manager Airside

Metropolitan Airports Commission Karen Racek, Assistant Manager Airside Leasing and Tenant Relations Commercial Management & Airline Affairs AUTHORIZATION FOR AMENDMENT OF NOW BOARDING AGREEMENT 1

INTRODUCTION • Request for a Fourth Amendment to Now Boarding’s Premier Pet Boarding Facility and Concession Lease Agreement. • The proposed Amendment would remove the percent requirement of the Lease and place the Lease in the appropriate ground rent classification for the remaining term of the Agreement. • The prior three amendments have included adjustments to the original terms due to various economic factors and business challenges faced by Now Boarding since its inception in late 2008. 2

BACKGROUND • Now Boarding is a for-profit affiliate of the Animal Humane Society (AHS) that provides pet boarding, animal daycare, and related services. • Under the terms of the Lease, rent included $1. 20 per square foot ground rent (Ordinance 103, Property Classification 2 b (Commercial Land Uses with percentage rental concessionaire agreements)) plus $2. 50 per square foot facility rent ($177, 114 annually), plus 9% of gross sales. • After the first year of operation, gross sales to operate profitably had yet to materialize. Operating at a loss, in February 2010, the Commission approved a temporary waiver of percentage rent through December 2010, while ground rent plus facility rent continued. 3

BACKGROUND (CONT. ) • In 2010, sales levels remained below those projected by Now Boarding. As a result, in January 2011, the Commission approved a Second Amendment with a modification to the terms to reflect total rent as the greater of ground rent plus facility rent (essentially becoming a Minimum Annual Guarantee) or a variable percentage of annual gross sales for a three (3) year period from January 1, 2011 through December 31, 2013. • Prior to the expiration of the Second Amendment, in October 2013, the Commission approved an extension to the rent modification for an additional five (5) years through December 2018. 4

BACKGROUND (CONT. ) • In mid-2016, MAC adopted the new ground rent ordinance which lowered Now Boarding’s ground rent ($1. 20 psf to $0. 96 psf). • With the lower ground rental rate, the Third Amendment’s year-end percentage rent true-up component produced percentage rents in the amount of $89, 292. 22 that currently remain unpaid. • In February 2018, representatives of Now Boarding met with staff to review and discuss the past due percentage rent and the modification structure of the Third Amendment. • Now Boarding indicated they continue to operate at a loss and can no longer afford to operate under the existing terms. 5

BACKGROUND (CONT. ) • Staff is proposing a Fourth Amendment effective January 1, 2018 through lease expiration in 2023 as follows: 1. Permanently eliminate future percentage rent. This change would also cause a reclassification of the leased property to classification 2 b (Commercial Land Uses (without percentage rental concessionaire agreements)) under MAC Ordinance 121. The current ground rental rate of $0. 96 per square foot would stay the same, which is within the ground rental rate range of Property Classification 2 b under Ordinance 121. In addition to ground rent, Now Boarding will continue to pay facility rent with a 2. 5% annual increase. 2. Commencing September 1, 2018, Now Boarding would make twelve consecutive monthly payment for approximately $7, 440. 00 for the $89, 292. 22 of past due percentage rent. 6

BACKGROUND (CONT. ) • Under these terms, MAC would continue to receive the ground and facility rent annually (2018 = $152, 666) and would collect the percentage rent past due from the Third Amendment. • Now Boarding representatives has stated they would agree to these terms if approved. • Although Now Boarding’s original business model projected weekday business travelers seeking pet boarding services, this has never materialized. They do have a very loyal customer base comprised primarily of leisure weekend, vacation and holiday travelers, in addition to its regular customers utilizing the animal daycare services. 7

COMMITTEE ACTION REQUESTED • RECOMMEND THAT THE FULL COMMISSION TO AUTHORIZE A FOURTH AMENDMENT TO THE LEASE AGREEMENT WITH NOW BOARDING, INC. CONSISTENT WITH THIS MEMORANDUM AND AUTHORIZE THE EXECUTIVE DIRECTORCEO OR HIS DESIGNATED REPRESENTATIVE TO EXECUTE THE NECESSARY DOCUMENTS. 8

QUESTIONS? 9