Urban Revitalization And EV Charging Will Drive Long Term Demand For Parking Assets

Catalysts

About Mobile Infrastructure

Mobile Infrastructure owns and operates parking facilities in urban markets, focusing on contract based, higher margin monthly parking and value additive asset management.

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

• Reopening and expansion of key downtown convention, entertainment and mixed use districts in markets such as Cincinnati, Denver, Nashville, Fort Worth, Detroit and Oklahoma City should restore and then grow transient and event volumes, supporting a rebound in revenue and an eventual lift in earnings power above current depressed levels.
• Residential densification around core garages and continued conversion of office space to apartments are driving rapid growth in higher value monthly contracts, which is likely to increase recurring revenue visibility and gradually expand net margins as utilization approaches stabilized levels.
• Strategic asset rotation enabled by the new ABS structure, including sales of low yielding noncore properties and redeployment into higher RevPAS assets or debt reduction, should improve portfolio level returns and translate into higher NOI and cash earnings per share over time.
• Urban revitalization projects and large scale redevelopments, including the Renaissance Center and metropolitan area initiatives in Oklahoma City, are expected to boost long term demand for centrally located structured parking, creating pricing power that can support RevPAS growth and margin expansion as disruption fades.
• Measured investment in EV charging at high utilization locations positions garages to participate in the monetization of vehicle electrification, transforming a prior cost center into an incremental contributor to NOI and supporting earnings growth as adoption and turnover improve.

Assumptions

How have these above catalysts been quantified?

• Analysts are assuming Mobile Infrastructure's revenue will grow by 8.5% annually over the next 3 years.
• 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 $3.1 million (and earnings per share of $0.07) by about January 2029, up from $-16.0 million today.
• In order for the above numbers to justify the price target of the analysts, the company would need to trade at a PE ratio of 110.4x on those 2029 earnings, up from -6.7x today. This future PE is greater than the current PE for the US Commercial Services industry at 24.2x.
• 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 10.22%, as per the Simply Wall St company report.

Risks

What could happen that would invalidate this narrative?

• Persistent weakness in transient demand, due to slower than expected recovery in hotel occupancy, event activity and convention business in key markets such as Houston, Fort Worth, Nashville and Cincinnati, could cap RevPAS growth and limit overall revenue expansion.
• Extended construction and redevelopment timelines in core urban districts, including Detroit's Renaissance Center, downtown Cincinnati and other central business districts, may prolong access disruptions and keep utilization and pricing below potential, pressuring net operating income and earnings.
• High leverage, with total debt of $213 million despite modest revenue of $9.1 million and declining adjusted EBITDA, introduces balance sheet risk if interest rates remain elevated or macro conditions soften. This could constrain capital allocation flexibility and weigh on net margins and earnings.
• Slower than anticipated lease up of converted residential properties, which management already notes is taking longer than expected, may delay the shift toward higher value recurring monthly contracts. This could limit visibility and slow improvements in recurring revenue and net margins.

Valuation

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

• The analysts have a consensus price target of $6.17 for Mobile Infrastructure based on their expectations of its future earnings growth, profit margins and other risk factors.
  
• 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 analysts, you'd need to believe that by 2029, revenues will be $45.3 million, earnings will come to $3.1 million, and it would be trading on a PE ratio of 110.4x, assuming you use a discount rate of 10.2%.
  
• Given the current share price of $2.54, the analyst price target of $6.17 is 58.8% 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.