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A.B. Won Pat International Airport Authority, Guam

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Airport Signs Specialty Retail Concession Agreement With Lotte Duty Free Guam. Minimum Annual Guarantee Increases From $4.5 Million To $15.4 Million

Monday, May 20, 2013

The A.B. Won Pat International Airport Authority (the “Airport”) announced today that it has entered into a specialty retail concession agreement with Lotte Duty Free Guam, LLC for the operation of the duty free retail concession at the Main Terminal of the Airport (the “Agreement”).

The signing of the Agreement follows a competitive process for the first time in over 30 years. The recent RFP resulted in proposals from four (4) international duty free retailers. The Airport evaluation committee charged with reviewing and recommending the most qualified proposer unanimously ranked Lotte Duty Free number one. On April 12, 2013 the Airport Board of Directors unanimously approved the valuation committee’s recommendation and Lotte was selected as the best proposer. Shortly thereafter, the Airport began the negotiation process with Lotte Duty Free, Guam.

On April 23, 2013, DFS Guam L.P., which had held the lucrative Airport duty free concession exclusively for over 30 years, protested the Airport’s selection of Lotte. Upon receipt of the protest, the Airport decided to delay the negotiations with Lotte while the protest was being addressed. On May 17, after a thorough investigation, the Airport denied DFS’s protest.

After the Airport denied the DFS protest, the Airport resumed negotiating the terms of the new concession Agreement with Lotte. Airport Executive Manager Chuck Ada explained that it was very important for the Airport to finalize its negotiations and consummate the Agreement as soon as possible. Ada stated that “the delay in entering into the new Agreement was preventing the Airport from receiving over $900,000 a month in additional minimum annual guarantee revenue. So it was in the best interest of the Airport and its stakeholders to expedite negotiations and execute the duty free contract, and that’s what we did.”

The Agreement is for an exclusive term of five years with an additional five-year term on a non-exclusive basis. The Agreement increases the Airport’s specialty retail concession guaranteed rental revenues from $4.5 million under the DFS contract to $15.4 million in minimum annual guaranteed rent to be paid by Lotte. The Agreement with Lotte represents a 242% increase in minimum annual guaranteed rent with the potential for further increased revenues based on percentage rent, which the Airport expects to be
substantial. Moreover, the Airportwas able to negotiate additional revenue of 1% of all non-Airport sales made by Lotte on Guam.

Airport Executive Manager Chuck Ada stated, “This is an exciting time for the Airport and we are eager to move forward with our agreement with Lotte. The Airport will realize tremendous additional value from this contract with Lotte which will undoubtedly contribute to significant increased revenues for the Airport.”

Lotte has committed to making substantial improvements to the Airport’s retail concession space. The Agreement requires Lotte to invest no less than $23 million in capital improvements. Ada went on to say, “These changes at the Airport will not only allow the travelling public to enjoy world-class shopping at the Airport, to improve their overall Airport experience and increase the Airport’s revenues from retail sales.” Ada further indicated that under the Agreement, Lotte also committed to make additional renovations to the Airport food court and restroom facilities at no additional cost to the Airport.

Over the last few months the Guam Airport has seen record-breaking passenger traffic and is working hard with its public and private partners to continue that upward trend. According to Executive Manager Ada, “In recent years retail sales at the Airport have not kept pace with the increased enplanement numbers. This is a trend we would like to change and the Lotte Agreement is a big step in that direction.”

Lotte has committed to provide the People of Guam with world-class products and customer service at the Airport. The Guam Airport is excited to begin this new partnership and is confident that the travelling public and People of Guam will benefit tremendously from the Airport – Lotte Agreement.