Mobile Infrastructure Corp 10-K

ITEM 1. BUSINESS General We are a Maryland corporation focused on acquiring, owning and leasing parking facilities and related infrastructure, including parking lots, parking garages and other parking structures throughout the United States. We target both parking garage and surface lot properties primarily in top 50 U.S. Metropolitan Statistical Areas (“MSAs”), with proximity to key demand drivers, such as commerce, events and venues, government and institutions, hospitality and multifamily central business districts. As of December 31, 2023, we owned 43 parking facilities in 21 separate markets throughout the United States, with a total of approximately 15,700 parking spaces and approximately 5.4 million square feet. We also own approximately 0.2 million square feet of commercial space adjacent to our parking facilities. Merger with Fifth Wall Acquisition Corp. III On August 25, 2023 (the “Closing Date”), we consummated the transactions contemplated by the Agreement and Plan of Merger (the “Merger”), as amended by the First Amendment to the Agreement and Plan of Merger, by and among FWAC, Queen Merger Corp. I, a Maryland corporation and wholly-owned subsidiary of FWAC, and Legacy MIC. FWAC was a blank check, Cayman Islands exempted company, incorporated in February 2021 for the purpose of effecting a merger, capital stock exchange, asset acquisition, stock purchase, reorganization or similar business combination with one or more business entities. As part of the Merger, FWAC was converted to a Maryland corporation and changed its name to Mobile Infrastructure Corporation. Unless otherwise indicated, references in this Annual Report on Form 10-Q to “MIC,” “we,” “us,” “our,” and the “Company” refer to Mobile Infrastructure Corporation and its consolidated subsidiaries prior to the closing of the Merger and to Mobile Infrastructure Corporation (f/k/a Fifth Wall Acquisition Corp. III) and its consolidated subsidiaries following the closing of the Merger, as the context requires. References in this Annual Report on Form 10-Q to “Legacy MIC” refer to Mobile Infrastructure Corporation and its consolidated subsidiaries prior to the closing of the Merger. References in this Annual Report on Form 10-K to “FWAC” refer to Fifth Wall Acquisition Corp. III. Additional details of the Merger are discussed in Part II, Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operation” in this Annual Report. Objectives Over the next twelve months, we expect to be focused predominantly on the following strategic objectives: • Working with third-party operators to move towards asset management contracts that better align the performance of the assets with results; • Increase parking revenue by optimizing our mix of transient and contract parking at our parking facilities and improving Revenue per Available Stall ("RevPAS") of the overall portfolio; • Execute on ancillary revenue opportunities; and • Identify opportunities for accretive external growth, including acquisition opportunities that are deemed accretive to the company Asset Management Contracts - In January and February 2024, 26 of our 43 assets converted to management contracts in which revenues and expenses are fully the responsibility of and recognized by us and our operators are paid a set fee. We believe asset management contracts provide the opportunity for net operating income ("NOI") growth and stability through expense management, and will reduce the revenue variability associated with the timing of payments for contract parking agreements. This change is also expected to result in better revenue linearity compared to revenue recognition in our current lease agreements, in which lease payments are based on cash collections from operators. The conversion to asset management contracts also provides enhanced visibility on the underlying performance of the portfolio within our financial results. Our intent is to convert our remaining assets to asset management contracts by the end of 2027, with additional assets expected to be converted during 2024. Increase Parking Revenue - We have been implementing our proprietary technology across our portfolio, which provides real-time information on the performance of our assets. This data provides insights and allows us to create actionable asset management outcomes such as pricing optimization strategies. In addition, we are utilizing a combination of operator local insights and an internal sales team to identify opportunities to increase our monthly parking contracts and utilization. We believe the combination of leveraging technology and increasing the level of contract parking at certain assets in our portfolio will be a meaningful source of organic revenue growth, should the return to work trend remain positive. Ancillary Revenue - Our approach to active asset management will allow us to pursue ancillary revenue opportunities with tech-enabled businesses. Advances in transportation and other technology provide additional demand for our ideally-located assets. We believe continued growth in EV charging needs, solar energy, rideshare staging, fleet management, 5g and other wireless technologies, and storage are all potential sources of demand. Accretive External Growth - The Merger and listing on The NYSE American stock exchange provided us with access to capital through equity markets, and we additionally have the option to pursue acquisitions funded by equity. Our goal is to acquire assets where we can quickly identify a sufficient spread between the cost of capital and the capitalization rate or drive strong incremental yield within 24 months. We believe land scarcity in high-traffic areas where we buy causes limited supply and high barriers to entry in the locations with the most demand drivers for our asset class. When paired with smaller scale owners lacking the financial wherewithal to endure prolonged financial disruption, we see a unique opportunity to consolidate within the industry. 6 Table of Contents Our Portfolio Our management team has a long experience in the parking industry; we often receive off-market calls for parking facilities that we believe are not yet being marketed for sale, and have early notices on properties just getting ready to be marketed. As such, we have a pipeline of acquisitions that is both bespoke and actionable that we believe are largely unavailable to our competitors. We intend to continue to consolidate the industry through acquisitions, partnering with both owners and tenants, to create a meaningful pipeline and scale. Our investment strategy has historically focused primarily on acquiring, owning and leasing parking facilities, including parking lots, parking garages and other parking structures throughout the United States. We have historically focused primarily on investing in income-producing parking lots and garages with air rights in top MSAs. In expanding our portfolio, we will seek investments that address multiple key demand drivers and demonstrate consistent consumer use which we believe will generate cash flows and provide greater predictability during periods of economic uncertainty. Such targeted investments include, but are not limited to, parking facilities near one or more of the following key demand drivers: • Commerce; • Events and venues; • Government and institutions; • Hospitality; and • Multifamily central business districts We generally target parking facilities that are near multiple key demand drivers so as not to be solely reliant on a single source of demand. Parking garages in downtown cores constitute a large portion of our parking facilities as they serve multiple key demand drivers. We are focused on acquiring properties that are expected to generate cash flow, located in populated MSAs and expected to produce income within 12 months of the properties’ acquisition. We intend to acquire under-managed parking facilities and collaborate with our operators to implement a tailored, value-add approach that includes fostering the implementation of identified value levers and mitigating risk exposure, while fostering local business relationships to derive market knowledge and connectivity. In the event of a future acquisition of properties, we would expect the foregoing criteria to serve as guidelines; however, management and the board of directors of the Company (the "Board") may vary from these guidelines to acquire properties which they believe represent value or growth opportunities. Industry Overview The parking industry is comprised of property owners and operators who provide off-street, paid parking and valet services on an hourly, daily or monthly basis. Parking facilities are typically built in proximity to and serve commercial operations, transit hubs, hospitality, civic, medical and entertainment venues. Parking garage operations are typically run by local, regional or national parking operators subject to lease or management agreements. In addition to space for parking, many parking facilities offer consumers additional services such as cleaning, basic repairs and valet, typically for an additional charge. Parking facilities possess several attractive characteristics that are not found in most commercial real estate investments, including: • a customer base that tends to have a strong local component, providing for repeat users; • inflationary hedge given no long-term leases and real time adjustments to parking rates; • negligible leasing commissions; • negligible tenant improvement requirements; and • minimal capital expenditure requirements, given that tenant improvements are not typically required when renewing leases or entering into new leases with tenants, which drives attractive net operating income, or NOI, to cash flow conversion. Concentration We had fourteen and fifteen parking operators during the years ended December 31, 2023 and 2022, respectively. One tenant/operator, SP + Corporation (Nasdaq: SP) (“SP+”), represented 61.3% and 60.5% of our revenue, excluding commercial revenue, for the years ended December 31, 2023 and 2022, respectively. See “Risk Factors— The operations of a large number of our properties in our portfolio are currently concentrated with one tenant operator. ” Premier Parking Service, LLC represented 12.1% and 12.4% of our revenue, excluding commercial revenue, for the years ended December 31, 2023 and 2022, respectively. In addition, we had concentrations in Cincinnati (19.4% and 19.2%), Detroit (10.3% and 12.5%), and Chicago (9.1% and 8.7%) based on gross book value of real estate as of December 31, 2023 and 2022, respectively. As of December 31, 2023 and 2022, 60.1% and 59.2% of our outstanding accounts receivable balance, respectively, was with SP+. Competition We have significant competition with respect to the acquisition of real property. Competitors include REITs, owners and operators of parking facilities, private investment funds, hedge funds and other investors, many of which have significantly greater resources. In addition, the number of entities and the amount of funds competing for suitable investments may increase. If we pay higher prices for investments, the returns will be lower and the value of assets may not increase or may decrease significantly below the amount paid for such assets. Our parking facilities face, and any parking facilities acquired or invested in, will face, intense competition, which may adversely affect parking and rental income. The relatively low cost of entry has led to a strongly competitive, fragmented market consisting of competitors ranging from single facility operators to large regional and national multi-facility operators, including several public companies. In addition, our parking facilities compete with building owners that provide on-site paid parking. Moreover, some of the competitors will have greater capital resources, greater cash reserves and a greater ability to borrow funds. Competition for investments may reduce the number of suitable investment opportunities available, may increase acquisition costs and may reduce demand for parking facilities, all of which may adversely affect operating results. We will compete with numerous other persons or entities seeking to attract tenants to parking facilities we acquire. These persons or entities may have greater experience and financial strength. There is no assurance that we will be able to attract tenants on favorable terms, if at all. For example, our competitors may be willing to offer space at rental rates below our rates, causing the Company to lose existing or potential tenants and pressuring us to reduce our rental rates to retain existing tenants or convince new tenants to lease space at our properties. Each of these factors could adversely affect results of operations, financial condition, value of our investments and ability to pay distributions. 7 Table of Contents Government Regulations Our investments are subject to various federal, state, local and foreign laws, ordinances and regulations, including, among other things, zoning regulations, land use controls, environmental controls relating to air and water quality, noise pollution and indirect environmental impacts such as increased motor vehicle activity. We intend to obtain all permits and approvals necessary under current law to operate our investments. Human Capital We had 18 employees as of December 31, 2023. Employee levels are managed to align with the pace of business and management believes it has sufficient human capital to operate its business successfully. Our key human capital management objectives are to attract, recruit, hire, develop and promote a deep and diverse bench of talent that translates into a strong and successful workforce. Environmental, Social and Governance We consider environmental, social and governance, or ESG, issues to be important considerations that influence our business and investment returns over time. We believe that by incorporating ESG attributes into our investment analysis, we have a more complete assessment of the risks associated with each investment. We expect our asset management team to consider ESG factors such as climate change, natural resource sustainability, pollution and waste, human capital, product safety, social opportunity, corporate governance and ethics, along with a range of other potential factors, to assess the expected performance risk of our investments over time. We have implemented several ESG-related initiatives that we believe will improve the long-term performance of our business. These may include, but are not limited to: • A responsible use of energy, including renewable sources or LED-lighting; • Supporting the adoption of electrified vehicles; • Promoting the long-lived nature of our assets through weather protection and maintenance; • Responsible use of environmentally-friendly products to maintain the appearance of our assets • Ensuring that the members of our Board and management team, including our asset management team, are made up of individuals with diverse backgrounds and experiences. As of the date of this prospectus, the members of our Board will be comprised of approximately 43% underrepresented minorities, 29% women and 14% LGBTQ+; and • Alignment of long-term performance-based compensation for our executives with our investors. To ensure that the material risk considerations are incorporated into our strategy, we regularly review our performance against ESG best practices. Corporate Information Our principal executive officers are located at 30 W. 4 th Street, Cincinnati, Ohio 45202, and our telephone number is (513) 834-5110. Our website is www.mobileit.com. The information found on, or that can be accessed from or that is hyperlinked to, our website, is not part of this Annual Report. Available Information We are subject to the reporting and information requirements of the Securities Exchange Act of 1934, as amended (the “Exchange Act”) for Smaller Reporting Companies, and, as a result, file annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, proxy statements and other information with the SEC from time to time. The SEC maintains a website (http://www.sec.gov) that contains our annual, quarterly and current reports, proxy and information statements and other information we file electronically with the SEC from time to time. Access to these filings is free of charge and can be accessed on our website, www.mobileit.com. The information on, or accessible through, our website is not incorporated into and does not constitute a part of this Annual Report or any other report or document we file with or furnishes to the SEC from time to time.