Valuation of Airport Concessions
Business valuation is a process and a set of procedures used to estimate the economic value of an owner’s interest in a business. Valuation is used by financial market participants to determine the price they are willing to pay or receive to perfect a sale of a business. In addition to estimating the selling price of a business, the same valuation tools are often used by business appraisers to resolve disputes related to estate and gift taxation, divorce litigation, allocate business purchase price among business assets, establish a formula for estimating the value of partners' ownership interest for buy-sell agreements, and many other business and legal purposes. All airport concession leases decline in value monthly. This is due to the fact that each firm which acquires an existing concession must be able to recover its investment (acquisition and build out cost) and generate an acceptable ROI during the remaining term of the existing lease. In fact, most existing concessions with less than 12 months before they expires have limited value; if no renewal or extension is secured. The economic value of each concession is
determined by the following issues:
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Lease expiration date;
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Percentage Rent;
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Concession Concept;
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MBE, DBE, or WBE status;
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Net Cash Flow; and
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Minimum Monthly Rent.
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Sample Concession Valuation
Analysis
Financial Analysis
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Concession Concept
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News
Stand
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Fast
Food
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Game
Room
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Gift/Novelty
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Bar/Rest.
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Revenues Annually
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$489,763
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100.0%
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$356,777
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100.0%
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$219,361
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100.0%
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$272,341
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100.0%
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$1,833,056
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100.0%
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Concession Rent (%)
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$58,772
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12.0%
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$49,949
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14.0%
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$21,936
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10.0%
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$34,043
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12.5%
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$302,454
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16.5%
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Net Operating Profit
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$73,464
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15.0%
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$50,306
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14.1%
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$29,394
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13.4%
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$23,421
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8.6%
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$339,115
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18.5%
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Net Cash Flow
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$122,284
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25.0%
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$76,404
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21.4%
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$83,322
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38.0%
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$57,838
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21.2%
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$384,638
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21.0%
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Revenues PSF Annually
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$550
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$813
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$146
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$287
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$937
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Capital Investment Analysis
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Concession Concept
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News
Stand
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Fast
Food
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Game
Room
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Gift/Novelty
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Bar/Rest.
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Orig. Capital Invested
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$244,098
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$234,890
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$215,711
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$275,333
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$455,222
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Square Feet Leased
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890
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439
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1500
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950
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1956
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Cost PSF
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$274
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$535
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$144
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$290
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$233
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Orig. Term of Lease
(Years)
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5.0
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9.0
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4.0
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8.0
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10.0
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Scenario #1
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Inv. Recovery Period*
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4.5
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7.8
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3.1
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5.9
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8.7
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Est. Market Value**
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$385,195
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$417,168
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$180,809
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$238,871
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$2,342,443
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Scenario #2
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Inv. Recovery Period*
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3.4
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5.3
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2
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3.1
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4.2
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Est. Market Value**
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$291,036
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$283,460
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$116,651
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$125,508
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$1,130,834
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Scenario #3
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Inv. Recovery Period*
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2.5
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3.8
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1.2
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2.4
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2.8
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Est. Market Value**
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$213,997
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$203,236
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$69,991
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$97,168
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$753,890
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* The investment recovery period is the years
remaining on the original lease.
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** The
estimated market value assumes the concession is an "ongoing
business concern" and the concept will not change.
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Clearly,
the number of months remaining on a concession
lease is a critical factor in determining
value.
Each month you delay the process of
marketing your
concession could cost you between $5,000 to
$12,000 in value.
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A review of our
sample engagement agreement will
provide details about the scope of services offered.
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