Minimum Annual Guarantee and Percentage Rent: The Concessions Underwriting Problem
The minimum annual guarantee is the single most important number in a concession agreement, and the one that most often surprises new operators. It is the rent floor the concessionaire owes the airport whether or not sales ever materialize, and it reshapes how a lender views the entire deal.
How MAG and Percentage Rent Work Together
A concession agreement typically sets a MAG and a percentage-rent rate, and the operator pays the greater of the two: the fixed floor, or a defined percentage of gross sales. When sales are strong, percentage rent exceeds the MAG and the airport shares in the upside. When sales are weak, the operator still owes the full MAG, no matter how far revenue falls short of expectations.
Why the MAG Is a Fixed Cost, Not a Variable One
For underwriting, the MAG behaves like fixed rent or debt service: it must be paid in good months and bad. A high MAG turns a flexible-looking percentage lease into a heavy fixed obligation. Lenders treat it accordingly, stacking the MAG alongside the proposed loan payment when they test whether a location can cover its costs.
When a MAG Is Set Too High
MAGs are often bid competitively during the RFP process, and an operator who bids aggressively to win a location can saddle it with a floor its traffic cannot support. Lenders see this and pull back, because a location paying more in guaranteed rent than its sales justify is a credit risk regardless of how attractive the concourse looks on paper.
How Lenders Size Around It
Underwriters model realistic sales against the MAG and the percentage rate, then ask whether the location covers the MAG, operating costs, and the new loan payment with room to spare. Where the MAG is steep, proceeds shrink. Knowing the MAG-to-sales relationship before applying lets an operator size the request to what the location can actually carry.
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