Urban Parking Headwinds From Construction And Monthly Contracts Will Eventually Support A Stronger Outlook

Catalysts

About Mobile Infrastructure

Mobile Infrastructure owns and manages parking facilities in urban markets, with a focus on contract based and transient parking revenue.

What are the underlying business or industry changes driving this perspective?

• Residential monthly contracts are up about 75% year over year and now help underpin roughly 35% of trailing 12 month management agreement revenue. However, leasing at converted downtown apartments is slower than expected, which may delay the benefit to revenue growth and limit near term margin expansion.
• Urban revitalization projects in markets such as Cincinnati, Denver, Nashville and Detroit are expected to increase hotel, event and transient traffic around these garages. Prolonged construction timelines and access issues, however, can continue to pressure RevPAS and NOI before any improvement flows through to earnings.
• The shift toward more contract based parking creates a more recurring revenue mix and potential long term pricing power. At the same time, the current buyer's market for monthly rates and competitive pricing can cap near term rate improvement and keep net margins under pressure.
• The successful ABS refinancing to 2030 and the plan to sell about US$30 million of noncore assets provide more flexibility to optimize the portfolio. Disposing of sub 3 cap assets and absorbing around US$1 million of NOI drag, however, could slow overall earnings growth if reinvestment or debt paydown does not offset the lost income.
• EV charging is moving from a pure amenity to a service that can contribute to net operating income. The need to retrain consumers and rely on vehicle turnover means returns from new EV investments may take time to scale, which can create a lag between capital spending and any visible lift in NOI and EBITDA.

Assumptions

This narrative explores a more pessimistic perspective on Mobile Infrastructure compared to the consensus, based on a Fair Value that aligns with the bearish cohort of analysts. How have these above catalysts been quantified?

• The bearish analysts are assuming Mobile Infrastructure's revenue will grow by 2.6% annually over the next 3 years.
• The bearish analysts are not forecasting that Mobile Infrastructure will become profitable in next 3 years. To represent the Analyst Price Target as a Future PE Valuation we will estimate Mobile Infrastructure's profit margin will increase from -45.1% to the average US Commercial Services industry of 6.8% in 3 years.
• If Mobile Infrastructure's profit margin were to converge on the industry average, you could expect earnings to reach $2.6 million (and earnings per share of $0.06) by about January 2029, up from $-16.0 million today.
• In order for the above numbers to justify the price target of the more bearish analyst cohort, the company would need to trade at a PE ratio of 105.6x on those 2029 earnings, up from -6.9x today. This future PE is greater than the current PE for the US Commercial Services industry at 26.0x.
• The bearish analysts expect the number of shares outstanding to decline by 0.7% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 10.2%, as per the Simply Wall St company report.

Risks

What could happen that would invalidate this narrative?

• Prolonged construction and redevelopment around key garages in markets such as Detroit, Fort Worth, Cincinnati, Denver and Nashville could last longer than management expects. This would keep access constrained, suppress transient traffic tied to hotels and events, and weigh on revenue and net operating income over an extended period.
• Ongoing softness in hotel occupancy and event activity in several core markets, including Houston, Denver, Cincinnati and Nashville, may reflect a longer term shift in travel and entertainment patterns rather than a temporary dip. This would limit recovery in transient volumes and keep RevPAS and earnings under pressure.
• The move toward a higher mix of residential monthly contracts, while stabilizing, depends on downtown apartment leasing that is already ramping more slowly than expected. If leasing continues to lag or work from home trends persist, monthly rate growth and overall net margins could remain muted.
• The company’s plan to sell about US$30 million of noncore assets at sub 3 cap rates, with an expected NOI drag of under US$1 million, reduces income from the existing base. If reinvestment opportunities or debt reduction do not sufficiently offset this, earnings and cash flow could remain weak even as the portfolio is reshaped.

Valuation

How have all the factors above been brought together to estimate a fair value?

• The assumed bearish price target for Mobile Infrastructure is $5.0, which represents up to two standard deviations below the consensus price target of $6.17. This valuation is based on what can be assumed as the expectations of Mobile Infrastructure's future earnings growth, profit margins and other risk factors from analysts on the more bearish end of the spectrum.
  
• However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $7.0, and the most bearish reporting a price target of just $5.0.
  
• In order for you to agree with the more bearish analyst cohort, you'd need to believe that by 2029, revenues will be $38.4 million, earnings will come to $2.6 million, and it would be trading on a PE ratio of 105.6x, assuming you use a discount rate of 10.2%.
  
• Given the current share price of $2.63, the analyst price target of $5.0 is 47.4% higher.
  
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.