UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM
(Mark one)
For the quarterly period ended
Or
For the transition period from _________ to _________
Commission File Number:
| MOBILE INFRASTRUCTURE CORPORATION |
| (Exact name of registrant as specified in its charter) |
| | | |
| (State or Other Jurisdiction of | (I.R.S. Employer | |
| Incorporation or Organization) | Identification No.) |
(Address of Principal Executive Offices) (Zip Code)
Registrant’s Telephone Number, including Area Code: (
Securities registered pursuant to Section 12(b) of the Act:
| Title of each class | Trading symbols(s) | Name of each exchange on which registered |
| N/A | N/A | N/A |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Indicate by check mark whether the registrant has submitted electronically, every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
| Large accelerated filer ☐ | Accelerated filer ☐ |
| | Smaller reporting company |
| Emerging growth company |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).
Yes
As of November 16, 2022, the registrant had
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| Part I |
FINANCIAL INFORMATION |
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| Item 1. |
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| CONSOLIDATED BALANCE SHEETS AS OF SEPTEMBER 30, 2022 (UNAUDITED) AND DECEMBER 31, 2021 |
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| Item 2. |
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS |
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| Item 3. |
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| Item 4. |
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| Part II |
OTHER INFORMATION |
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| Item 1. |
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| Item 1A. |
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| Item 5 |
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| Item 6. |
ITEM 1. FINANCIAL STATEMENTS
MOBILE INFRASTRUCTURE CORPORATION
CONSOLIDATED BALANCE SHEETS
(In thousands, except per share amounts)
| As of September 30, 2022 | As of December 31, 2021 | |||||||
| (unaudited) | ||||||||
| ASSETS | ||||||||
| Investments in real estate | ||||||||
| Land and improvements | $ | $ | ||||||
| Buildings and improvements | ||||||||
| Construction in progress | ||||||||
| Intangible assets | ||||||||
| Accumulated depreciation and amortization | ( | ) | ( | ) | ||||
| Total investments in real estate, net | ||||||||
| Fixed assets, net | ||||||||
| Cash | ||||||||
| Cash – restricted | ||||||||
| Prepaid expenses | ||||||||
| Accounts receivable, net | ||||||||
| Other assets | ||||||||
| Total assets | $ | $ | ||||||
| LIABILITIES AND EQUITY | ||||||||
| Liabilities | ||||||||
| Notes payable, net | $ | $ | ||||||
| Revolving credit facility, net | ||||||||
| Accounts payable and accrued expenses | ||||||||
| Indemnification Liability | ||||||||
| Security deposits | ||||||||
| Deferred revenue | ||||||||
| Total liabilities | ||||||||
| Equity | ||||||||
| Mobile Infrastructure Corporation Stockholders’ Equity | ||||||||
| Preferred stock Series A, $ par value, shares authorized, shares issued and outstanding (stated liquidation value of $ as of September 30, 2022 and December 31, 2021) | ||||||||
| Preferred stock Series 1, $ par value, shares authorized, shares issued and outstanding (stated liquidation value of $ as of September 30, 2022 and December 31, 2021) | ||||||||
| Non-voting, non-participating convertible stock, $ par value, shares authorized, shares issued and outstanding | ||||||||
| Common stock, $ par value, shares authorized, shares issued and outstanding as of September 30, 2022 and December 31, 2021 | ||||||||
| Warrants issued and outstanding – warrants as of September 30, 2022 and December 31, 2021, respectively | ||||||||
| Additional paid-in capital | ||||||||
| Accumulated deficit | ( | ) | ( | ) | ||||
| Total Mobile Infrastructure Corporation Stockholders’ Equity | ||||||||
| Non-controlling interest | ||||||||
| Total equity | ||||||||
| Total liabilities and equity | $ | $ | ||||||
The accompanying notes are an integral part of these consolidated financial statements.
MOBILE INFRASTRUCTURE CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share amounts, unaudited)
| For the Three Months Ended September 30, |
For the Nine Months Ended September 30, |
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| 2022 |
2021 |
2022 |
2021 |
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| Revenues |
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| Base rental income |
$ | $ | $ | $ | ||||||||||||
| Management income |
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| Percentage rental income |
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| Total revenues |
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| Operating expenses |
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| Property taxes |
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| Property operating expense |
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| General and administrative |
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| Professional fees, net of reimbursement of insurance proceeds |
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| Organizational, offering and other costs |
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| Depreciation and amortization |
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| Total operating expenses |
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| Other income (expense) |
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| Interest expense |
( |
) | ( |
) | ( |
) | ( |
) | ||||||||
| Loss on sale of real estate |
( |
) | ( |
) | ||||||||||||
| PPP loan forgiveness |
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| Other income |
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| Gain on consolidation of DST |
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| Settlement of deferred management internalization |
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| Transaction expenses |
( |
) | ( |
) | ||||||||||||
| Total other income (expense) |
( |
) | ( |
) | ( |
) | ( |
) | ||||||||
| Net loss |
( |
) | ( |
) | ( |
) | ( |
) | ||||||||
| Less net loss attributable to non-controlling interest |
( |
) | ( |
) | ( |
) | ( |
) | ||||||||
| Net loss attributable to Mobile Infrastructure Corporation’s stockholders |
$ | ( |
) | $ | ( |
) | $ | ( |
) | $ | ( |
) | ||||
| Preferred stock distributions declared - Series A |
( |
) | ( |
) | ( |
) | ( |
) | ||||||||
| Preferred stock distributions declared - Series 1 |
( |
) | ( |
) | ( |
) | ( |
) | ||||||||
| Net loss attributable to Mobile Infrastructure Corporation’s common stockholders |
$ | ( |
) | $ | ( |
) | $ | ( |
) | $ | ( |
) | ||||
| Basic and diluted loss per weighted average common share: |
||||||||||||||||
| Net loss per share attributable to Mobile Infrastructure Corporation’s common stockholders - basic and diluted |
$ | ( |
) | $ | ( |
) | $ | ( |
) | $ | ( |
) | ||||
| Weighted average common shares outstanding, basic and diluted |
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The accompanying notes are an integral part of these consolidated financial statements.
MOBILE INFRASTRUCTURE CORPORATION
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
FOR THE THREE AND nine months ended september 30, 2022 and 2021
(In thousands, unaudited)
| Preferred stock |
Common stock |
|||||||||||||||||||||||||||||||||||
| Number of Shares |
Par Value |
Number of Shares |
Par Value |
Warrants |
Additional Paid-in Capital |
Accumulated Deficit |
Non-controlling interest |
Total |
||||||||||||||||||||||||||||
| Balance, December 31, 2021 |
$ | $ | $ | $ | $ | ( |
) | $ | $ | |||||||||||||||||||||||||||
| Declared distributions – Series A |
— | — | ( |
) | ( |
) | ||||||||||||||||||||||||||||||
| Declared distributions – Series 1 |
— | — | ( |
) | ( |
) | ||||||||||||||||||||||||||||||
| Net loss |
— | — | ( |
) | ( |
) | ( |
) | ||||||||||||||||||||||||||||
| Balance, March 31, 2022 |
$ | $ | $ | $ | $ | ( |
) | $ | $ | |||||||||||||||||||||||||||
| Equity based payments |
— | — | ||||||||||||||||||||||||||||||||||
| Declared distributions – Series A |
— | — | ( |
) | ( |
) | ||||||||||||||||||||||||||||||
| Declared distributions – Series 1 |
— | — | ( |
) | ( |
) | ||||||||||||||||||||||||||||||
| Net loss |
— | — | ( |
) | ( |
) | ( |
) | ||||||||||||||||||||||||||||
| Balance, June 30, 2022 |
$ | $ | $ | $ | $ | ( |
) | $ | $ | |||||||||||||||||||||||||||
| Equity based payments |
— | — | ||||||||||||||||||||||||||||||||||
| Declared distributions – Series A |
— | — | ( |
) | ( |
) | ||||||||||||||||||||||||||||||
| Declared distributions – Series 1 |
— | — | ( |
) | ( |
) | ||||||||||||||||||||||||||||||
| Net loss |
— | — | — | ( |
) | ( |
) | ( |
) | |||||||||||||||||||||||||||
| Balance, September 30, 2022 |
$ | $ | $ | $ | $ | ( |
) | $ | $ | |||||||||||||||||||||||||||
| Preferred stock |
Common stock |
|||||||||||||||||||||||||||||||||||
| Number of Shares |
Par Value |
Number of Shares |
Par Value |
Warrants |
Additional Paid-in Capital |
Accumulated Deficit |
Non-controlling interest |
Total |
||||||||||||||||||||||||||||
| Balance, December 31, 2020 |
$ | $ | $ | $ | $ | ( |
) | $ | $ | |||||||||||||||||||||||||||
| Stock Awards |
||||||||||||||||||||||||||||||||||||
| Declared distributions – Series A |
— | — | ( |
) | ( |
) | ||||||||||||||||||||||||||||||
| Declared distributions – Series 1 |
— | — | ( |
) | ( |
) | ||||||||||||||||||||||||||||||
| Net loss |
— | — | ( |
) | ( |
) | ||||||||||||||||||||||||||||||
| Balance, March 31, 2021 |
$ | $ | $ | $ | $ | ( |
) | $ | $ | |||||||||||||||||||||||||||
| Declared distributions – Series A |
— | — | ( |
) | ( |
) | ||||||||||||||||||||||||||||||
| Declared distributions – Series 1 |
— | — | ( |
) | ( |
) | ||||||||||||||||||||||||||||||
| Net loss |
— | — | ( |
) | ( |
) | ( |
) | ||||||||||||||||||||||||||||
| Balance, June 30, 2021 |
$ | $ | $ | $ | $ | ( |
) | $ | $ | |||||||||||||||||||||||||||
| Issuance of OP Units |
— | — | ||||||||||||||||||||||||||||||||||
| Issuance of warrants |
— | — | ||||||||||||||||||||||||||||||||||
| Consolidation of DST |
— | — | ||||||||||||||||||||||||||||||||||
| Declared distributions – Series A |
— | — | ( |
) | ( |
) | ||||||||||||||||||||||||||||||
| Declared distributions – Series 1 |
— | — | ( |
) | ( |
) | ||||||||||||||||||||||||||||||
| Net loss |
-- | — | ( |
) | ( |
) | ( |
) | ||||||||||||||||||||||||||||
| Balance, September 30, 2021 |
$ | $ | $ | $ | $ | ( |
) | $ | $ | |||||||||||||||||||||||||||
The accompanying notes are an integral part of these consolidated financial statements.
MOBILE INFRASTRUCTURE CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands, unaudited)
| For the Nine Months Ended September 30, |
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| 2022 |
2021 |
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| Cash flows from operating activities: |
||||||||
| Net Loss |
$ | ( |
) | $ | ( |
) | ||
| Adjustments to reconcile net loss to net cash provided by (used in) operating activities: |
||||||||
| Depreciation and amortization expense |
||||||||
| Amortization of loan costs |
||||||||
| PPP loan forgiveness |
( |
) | ( |
) | ||||
| Loss on sale of real estate |
||||||||
| Amortization of right of use lease asset |
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| Equity based payments |
||||||||
| Income from or gain on consolidation of DST |
( |
) | ||||||
| Settlement of deferred management internalization |
( |
) | ||||||
| Changes in operating assets and liabilities |
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| Due to/from related parties |
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| Accounts payable |
( |
) | ||||||
| Indemnification liability |
( |
) | ||||||
| Right of use lease liability |
( |
) | ||||||
| Security deposits |
( |
) | ||||||
| Other assets |
( |
) | ||||||
| Deferred revenue |
( |
) | ||||||
| Accounts receivable |
( |
) | ||||||
| Prepaid expenses |
( |
) | ||||||
| Net cash provided by (used in) operating activities |
( |
) | ||||||
| Cash flows from investing activities: |
||||||||
| Building improvements |
( |
) | ( |
) | ||||
| Capitalized technology |
( |
) | ||||||
| Purchase of investment in real estate |
( |
) | ( |
) | ||||
| Proceeds from sale of investment in real estate |
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| Net cash used in investing activities |
( |
) | ( |
) | ||||
| Cash flows from financing activities: |
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| Proceeds from revolving credit facility |
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| Proceeds from notes payable |
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| Payments on notes payable |
( |
) | ( |
) | ||||
| Issuance of OP Units |
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| Loan fees |
( |
) | ( |
) | ||||
| Net cash provided by financing activities |
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| Net change in cash and cash equivalents and restricted cash |
( |
) | ||||||
| Initial consolidation of VIE |
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| Cash and cash equivalents and restricted cash, beginning of period |
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| Cash and cash equivalents and restricted cash, end of period |
$ | $ | ||||||
| Reconciliation of Cash and Cash Equivalents and Restricted Cash: |
||||||||
| Cash and cash equivalents at beginning of period |
$ | $ | ||||||
| Restricted cash at beginning of period |
||||||||
| Cash and cash equivalents and restricted cash at beginning of period |
$ | $ | ||||||
| Cash and cash equivalents at end of period |
$ | $ | ||||||
| Restricted cash at end of period |
||||||||
| Cash and cash equivalents and restricted cash at end of period |
$ | $ | ||||||
| Supplemental disclosures of cash flow information: |
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| Interest Paid |
$ | $ | ||||||
| Non-cash investing and financing activities: |
||||||||
| Dividends declared not yet paid |
$ | $ | ||||||
| Consolidation of variable interest entities, net |
$ | $ | ||||||
| Assumption of debt through acquisition |
$ | $ | ||||||
| Acquisition of properties through OP units and warrants |
$ | $ | ||||||
The accompanying notes are an integral part of these consolidated financial statements
MOBILE INFRASTRUCTURE CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2022
(UNAUDITED)
Note A — Organization and Business Operations
Mobile Infrastructure Corporation (formerly known as The Parking REIT, Inc.) (the “Company,” “we,” “us” or “our”), is a Maryland corporation formed on May 4, 2015. The Company focuses on acquiring, owning and leasing parking facilities and related infrastructure, including parking lots, parking garages and other parking structures throughout the United States. The Company targets 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 airports, transportation hubs, educational facilities, government buildings and courthouses, sports and entertainment venues, hospital and health centers, hotels, office complexes and residences.
As of September 30, 2022, the Company owned
The Company is the sole general partner of Mobile Infra Operating Partnership, L.P., formerly known as MVP REIT II Operating Partnership, LP, a Maryland limited partnership (the “Operating Partnership”). The Company owns substantially all of its assets and conducts substantially all of its operations through the Operating Partnership, is the sole general partner of the Operating Partnership and owns approximately
The Company previously elected to be taxed as a real estate investment trust (“REIT”) for U.S. federal income tax purposes and operated in a manner that allowed the Company to qualify as a REIT through December 31, 2019. As a consequence of lease modifications entered into during the COVID-19 pandemic, the Company earned income from a number of tenants that did not constitute qualifying REIT income for purposes of the annual REIT gross income tests, and, as a result, the Company was not in compliance with the annual REIT income tests for its taxable year ended December 31, 2020. Accordingly, the Company did not qualify for taxation as a REIT in 2020 and continues to be taxed as a C corporation. As a C corporation, the Company is not required to distribute any amounts to its stockholders.
2021 Recapitalization
On January 8, 2021, the Company entered into an equity purchase and contribution agreement (the “Purchase Agreement”) by and among the Company, the Operating Partnership, Vestin Realty Mortgage I, Inc., (“VRMI”) Vestin Realty Mortgage II, Inc. (“VRMII”) and Michael V. Shustek (“Mr. Shustek” and together with VRMI and VRMII, the “Former Advisor”) and Color Up (the “Purchaser”). The transactions contemplated by the Purchase Agreement are referred to herein collectively as the “Transaction.”
On August 25, 2021, the closing of the Transaction occurred (the “Closing”). As a result of the Transaction, the Company acquired three multi-level parking garages consisting of approximately
Management assessed the potential accounting treatment for the Transaction by applying Accounting Standards Codification (“ASC”) 805, Business Combinations and determined the Transaction did not result in a change of control. As a result, the three real estate assets and the technology platform acquired, described above, were accounted for by the Company as asset acquisitions in the financial statements, which required the recognition of assets and liabilities at acquired cost and reflect the capitalization of any transaction costs directly attributable to the asset acquisitions.
The following schedule sets forth how the consideration exchanged in the Transaction was allocated among the various assets acquired and liabilities assumed (dollars in thousands).
| Investment in real estate | $ | |||
| Intangibles - technology | ||||
| Cash | ||||
| Long-term debt | ( | ) | ||
| Indemnification liability | ( | ) | ||
| Total assets acquired and liabilities assumed | $ | |||
| OP Units (1) | ||||
| Warrants | ||||
| Total consideration | $ |
(1) Represents the value of the
Pending Merger
On May 27, 2022, the Company entered into an Agreement and Plan of Merger by and between the Company and Mobile Infrastructure Trust, a Maryland real estate investment trust (“MIT”), which is
Prior to the Merger, MIT expects to undertake an initial public offering (the “MIT IPO”) of its common shares of beneficial interest, $
The MIT IPO and the Merger will be accounted for as a reverse recapitalization of the Company contemporaneous with the initial public offering of the MIT Common Shares. Under this method of accounting, MIT will be treated as the “acquiree” and the Company is treated as the acquirer for financial statement reporting purposes under principles generally accepted in the United States (“GAAP”). Accordingly, for accounting purposes, the Merger will be treated as the equivalent of the Company issuing stock for the net assets of MIT, accompanied by a recapitalization with a contemporaneous initial public offering of the MIT Common Shares. The net assets of the Company will be stated at historical cost, with no incremental goodwill or other intangible assets recorded.
Note B — Summary of Significant Accounting Policies
Basis of Accounting
The accompanying consolidated financial statements of the Company are prepared in accordance with GAAP for interim financial information as contained in the Financial Accounting Standards Board (“FASB”) ASC, and in conjunction with rules and regulations of the SEC. Certain information and footnote disclosures required for annual financial statements have been condensed or excluded pursuant to SEC rules and regulations. Accordingly, the consolidated financial statements do not include all of the information and footnotes required by GAAP for complete financial statements. The consolidated financial statements include accounts and related adjustments, which are, in the opinion of management, of a normal recurring nature and necessary for a fair presentation of the Company’s financial position, results of operations and cash flows for the interim period. Operating results for the three and nine months ended September 30, 2022, are not necessarily indicative of the results that may be expected for the year ending December 31, 2022. There were no significant changes to our significant accounting policies during the nine months ended September 30, 2022. For a full summary of our accounting policies, refer to our 2021 Annual Report on Form 10-K as originally filed with the SEC on March 30, 2022.
Going Concern
The accompanying consolidated financial statements are prepared in accordance with generally accepted accounting principles applicable to a going concern, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business.
The Company has incurred net losses since its inception and anticipates net losses for the near future. As of September 30, 2022, the Company was in compliance with all applicable covenants in agreements governing its debt. However, based on the Company’s projected financial performance for the twelve-month period subsequent to the date of the filing of this Quarterly Report on Form 10-Q, the Company currently projects that it will not be in compliance with a financial covenant under the Company’s Revolving Credit Facility, as defined in Note F, Revolving Credit Facility, prior to the maturity date, which would result in an event of default. Such a default would allow the lender under the Revolving Credit Facility to accelerate the maturity of the debt, which carries a balance of $
In response to these conditions, management’s plans include the following:
| 1. | Capitalizing on recent business development initiatives that we anticipate will improve total revenues through increased utilization of our parking assets and in many cases at higher average ticket rates. |
| 2. | Management is budgeting reduced overhead costs in 2023 through the reduction or elimination of certain controllable expenses. |
| 3. | The Company is pursuing further amendments and/or extensions with respect to the Revolving Credit Facility, including waivers of noncompliance with covenants. |
| 4. | The Company is pursuing certain potential capital raise or liquidity events, including the Merger as described above. |
However, there can be no assurance that the Company will be successful in completing any of these options. As a result, management’s plans cannot be considered probable and thus does not alleviate substantial doubt about the Company’s ability to continue as a going concern.
The consolidated financial statements do not include any adjustments relating to the recoverability and classification of recorded asset amounts or the amounts of liabilities that might result from the outcome of this uncertainty.
Consolidation
The consolidated financial statements include the accounts of the Company, the Operating Partnership, each of their wholly owned subsidiaries, and all other entities in which the Company has a controlling financial interest. For entities that meet the definition of a variable interest entity (“VIE”), the Company consolidates those entities when the Company is the primary beneficiary of the entity. The Company is determined to be the primary beneficiary when it possesses both the power to direct activities that most significantly impact the economic performance of the VIE and the obligation to absorb losses or the right to receive benefits that could potentially be significant to the VIE. The Company continually evaluates whether it qualifies as the primary beneficiary and reconsiders its determination of whether an entity is a VIE upon reconsideration events. All intercompany activity is eliminated in consolidation.
Equity investments in which the Company exercises significant influence but does not control and is not the primary beneficiary are accounted for using the equity method. The Company's share of its equity method investees' earnings or losses is included in other income in the accompanying consolidated statements of operations.
Use of Estimates
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Management makes significant estimates regarding asset impairment and purchase price allocations to record investments in real estate, as applicable.
Concentration
The Company had
In addition, the Company had concentrations in Cincinnati (
As of September 30, 2022 and December 31, 2021,
Acquisitions
All assets acquired and liabilities assumed in an acquisition of real estate accounted for as a business combination are measured at their acquisition date fair values. For acquisitions of real estate accounted for as an asset acquisition, the fair value of consideration transferred by the Company (including transaction costs) is allocated to all assets acquired and liabilities assumed on a relative fair value basis.
In making estimates of fair values for purposes of allocating purchase price, the Company will utilize several sources, including independent appraisals that may be obtained in connection with the acquisition or financing of the respective property and other market data. The Company will also consider information obtained about each property as a result of the Company's pre-acquisition due diligence, as well as subsequent marketing and leasing activities, in estimating the fair value of the tangible and intangible assets acquired and intangible liabilities assumed.
The Company allocates the purchase price of acquired properties to tangible and identifiable intangible assets acquired based on their relative fair values. Tangible assets include land, land improvements, buildings, fixtures and tenant improvements on an as-if vacant basis. The Company utilizes various estimates, processes and information to determine the as-if vacant property value. Estimates of value are made using customary methods, including data from appraisals, comparable sales, discounted cash flow analysis and other methods. Amounts allocated to land, land improvements, buildings and fixtures are based on valuations performed by independent third parties or on the Company's analysis of comparable properties in the Company's portfolio. Identifiable intangible assets include amounts allocated to acquire leases for above- and below-market lease rates, the value of in-place leases, and the value of customer relationships, as applicable. The aggregate value of intangible assets related to in-place leases is primarily the difference between the property valued with existing in-place leases adjusted to market rental rates and the property valued as if vacant. Factors considered by the Company in its analysis of the in-place lease intangibles include an estimate of carrying costs during the expected lease-up period for each property, considering current market conditions and costs to execute similar leases. In estimating carrying costs, the Company will include real estate taxes, insurance and other operating expenses and estimates of lost rentals at market rates during the expected lease-up period. Estimates of costs to execute similar leases including leasing commissions, legal and other related expenses are also utilized.
The value of lease intangibles is amortized to depreciation and amortization expense over the remaining term of the respective lease. If a tenant terminates its lease with us, the unamortized portion of the in-place lease intangibles is recognized over the shortened lease term.
Impairment of Long-Lived Assets
When circumstances indicate the carrying value of a property may not be recoverable, the Company reviews the assets for impairment. This review is based on an estimate of the future undiscounted cash flows, excluding interest charges, expected to result from the property’s use and eventual disposition. These estimates consider factors such as expected future operating income, market and other applicable trends and residual value, as well as the effects of leasing demand, competition and other factors. If impairment exists, due to the inability to recover the carrying value of a property through future undiscounted cash flows, we recognize an impairment loss to the extent that the carrying value exceeds the estimated fair value of the property. When we determine that a property should be classified as held for sale, we recognize an impairment loss to the extent the property's carrying value exceeds its fair value less estimated cost to dispose of the asset.
Immaterial Correction
The Company determined that reimbursable property tax related to certain of its leases should have been recorded on a gross basis in the consolidated statement of operations for the three and nine months ended September 30, 2021 in accordance with ASC 842, Leases. As a result, property taxes and base rental income were both increased by $
Reportable Segments
Our principal business is the ownership and operation of parking facilities. We do not distinguish our principal business, or group our operations, by geography or size for purposes of measuring performance. Accordingly, we have presented our results as a single reportable segment.
Stock-based Compensation
Stock-based compensation for equity awards is based on the grant date fair value of the equity awards and is recognized over the requisite service or performance period. Forfeitures are recognized as incurred. Certain equity awards are subject to vesting based upon the satisfaction of various service, market, or performance conditions.
Note C – Acquisitions and Dispositions of Investments in Real Estate
2022
The following table is a summary of the parking asset acquisitions during the nine months ended September 30, 2022 (dollars in thousands).
| Property | Location | Date Acquired | Property Type | # Spaces | Size / Acreage | Retail Sq. Ft. | Purchase Price | ||||||||||||
| 222 Sheridan Bricktown Garage LLC | Oklahoma City, OK | 6/7/2022 | Garage | $ | |||||||||||||||
The following table is a summary of the allocated acquisition value of the property acquired by the Company during the nine months ended September 30, 2022 (dollars in thousands).
| Land and Improvements | Building and improvements | In-Place Lease Value | Total assets acquired | |||||||||||||
| 222 Sheridan Bricktown Garage LLC (a) | $ | $ | $ | $ | ||||||||||||
| (a) | The in-place lease value has a life of |
On September 1, 2022, the Company sold a parking lot located in Canton, Ohio for $
2021
The following table is a summary of the parking asset acquisitions for the year ended December 31, 2021 (dollars in thousands).
| Property | Location | Date Acquired | Property Type | # Spaces | Size / Acreage | Retail Sq. Ft. | Purchase Price | ||||||||||||
| 1W7 Carpark, LLC | Cincinnati, OH | 8/25/2021 | Garage | $ | |||||||||||||||
| 222W7, LLC | Cincinnati, OH | 8/25/2021 | Garage | — | $ | ||||||||||||||
| 322 Streeter, LLC | Chicago, IL | 8/25/2021 | Garage | — | $ | ||||||||||||||
| 2nd Street, LLC | Miami, FL | 9/9/2021 | Contract | N/A | — | $ | |||||||||||||
| Denver 1725 Champa Street Garage | Denver, CO | 11/3/2021 | Garage | — | $ | ||||||||||||||
The following table is a summary of the allocated acquisition value of all properties acquired by the Company for the year ended December 31, 2021 (dollars in thousands)
| Land and Improvements | Building and improvements | In-Place Lease Value | Contract Value | Total assets acquired | ||||||||||||||||
| 1W7 Carpark (a) | $ | $ | $ | $ | — | $ | ||||||||||||||
| 222W7 | — | — | ||||||||||||||||||
| 322 Streeter | — | — | ||||||||||||||||||
| 2nd Street (a) | — | — | ||||||||||||||||||
| Denver 1725 Champa Street Garage | — | — | ||||||||||||||||||
| $ | $ | $ | $ | $ | ||||||||||||||||
| (a) | The value of in-place lease assets and the 2nd Street contract value are included in intangible assets on the consolidated balance sheets. The useful life of the in-place lease value at 1W7 is |
There were no dispositions of real estate for the year ended December 31, 2021.
Note D - Intangible Assets
| As of September 30, 2022 | As of December 31, 2021 | |||||||||||||||
| Gross carrying amount | Accumulated amortization | Gross carrying amount | Accumulated amortization | |||||||||||||
| In-place lease value | $ | $ | $ | $ | ||||||||||||
| Lease commissions | ||||||||||||||||
| Indefinite lived contract | — | — | ||||||||||||||
| Acquired technology | ||||||||||||||||
| Total intangible assets | $ | $ | $ | $ | ||||||||||||
Amortization of the in-place lease value, lease commissions and acquired technology are included in depreciation and amortization in the accompanying consolidated statements of operations. Amortization expense associated with intangible assets totaled approximately $
A schedule of future amortization of acquired intangible assets for the nine months ended September 30, 2022 and thereafter is as follows (dollars in thousands):
| In-place lease value | Lease commissions | Acquired technology | ||||||||||
| 2022 (Remainder) | $ | $ | $ | |||||||||
| 2023 | ||||||||||||
| 2024 | ||||||||||||
| 2025 | ||||||||||||
| 2026 | ||||||||||||
| Thereafter | ||||||||||||
| $ | $ | $ | ||||||||||
Note E — Notes Payable
As of September 30, 2022, the principal balances on notes payable are as follows (dollars in thousands):
| Loan | Original Debt Amount | Monthly Payment | Balance as of 9/30/22 | Lender | Interest Rate | Loan Maturity | ||||||||||||||
| MVP Clarksburg Lot | $ | I/O | $ | Vestin Realty Mortgage II | % | 8/25/2023 | ||||||||||||||
| MVP Milwaukee Old World | $ | I/O | $ | Vestin Realty Mortgage II | % | 8/25/2023 | ||||||||||||||
| MVP Milwaukee Clybourn | $ | I/O | $ | Vestin Realty Mortgage II | % | 8/25/2023 | ||||||||||||||
| MVP Wildwood NJ Lot, LLC | $ | I/O | $ | Vestin Realty Mortgage II | % | 8/25/2023 | ||||||||||||||
| MVP Cincinnati Race Street, LLC | $ | I/O | $ | Vestin Realty Mortgage II | % | 8/25/2023 | ||||||||||||||
| Minneapolis Venture | $ | I/O | $ | Vestin Realty Mortgage II | % | 8/25/2023 | ||||||||||||||
| MVP Memphis Poplar (3) | $ | I/O | $ | LoanCore | % | 3/6/2024 | ||||||||||||||
| MVP St. Louis (3) | $ | I/O | $ | LoanCore | % | 3/6/2024 | ||||||||||||||
| Mabley Place Garage, LLC | $ | $ | $ | Barclays | % | 12/6/2024 | ||||||||||||||
| 322 Streeter Holdco LLC | $ | $ | 130 | $ | American National Insurance Co. | % | 3/1/2025 | |||||||||||||
| MVP Houston Saks Garage, LLC | $ | $ | $ | Barclays Bank PLC | % | 8/6/2025 | ||||||||||||||
| Minneapolis City Parking, LLC | $ | $ | $ | American National Insurance, of NY | % | 5/1/2026 | ||||||||||||||
| MVP Bridgeport Fairfield Garage, LLC | $ | $ | $ | FBL Financial Group, Inc. | % | 8/1/2026 | ||||||||||||||
| West 9th Properties II, LLC | $ | $ | $ | American National Insurance Co. | % | 11/1/2026 | ||||||||||||||
| MVP Fort Worth Taylor, LLC | $ | $ | $ | American National Insurance, of NY | % | 12/1/2026 | ||||||||||||||
| MVP Detroit Center Garage, LLC | $ | $ | $ | Bank of America | % | 2/1/2027 | ||||||||||||||
| MVP St. Louis Washington, LLC (1) | $ | $ | $ | KeyBank | * | % | 5/1/2027 | |||||||||||||
| St. Paul Holiday Garage, LLC (1) | $ | $ | $ | KeyBank | * | % | 5/1/2027 | |||||||||||||
| Cleveland Lincoln Garage, LLC (1) | $ | $ | $ | KeyBank | * | % | 5/1/2027 | |||||||||||||
| MVP Denver Sherman, LLC (1) | $ | $ | $ | KeyBank | * | % | 5/1/2027 | |||||||||||||
| MVP Milwaukee Arena Lot, LLC (1) | $ | $ | $ | KeyBank | * | % | 5/1/2027 | |||||||||||||
| MVP Denver 1935 Sherman, LLC (1) | $ | $ | $ | KeyBank | * | % | 5/1/2027 | |||||||||||||
| MVP Louisville Broadway Station, LLC (2) | $ | I/O | $ | Cantor Commercial Real Estate | ** | % | 5/6/2027 | |||||||||||||
| MVP Whitefront Garage, LLC (2) | $ | I/O | $ | Cantor Commercial Real Estate | ** | % | 5/6/2027 | |||||||||||||
| MVP Houston Preston Lot, LLC (2) | $ | I/O | $ | Cantor Commercial Real Estate | ** | % | 5/6/2027 | |||||||||||||
| MVP Houston San Jacinto Lot, LLC (2) | $ | I/O | $ | Cantor Commercial Real Estate | ** | % | 5/6/2027 | |||||||||||||
| St. Louis Broadway, LLC (2) | $ | I/O | $ | Cantor Commercial Real Estate | ** | % | 5/6/2027 | |||||||||||||
| St. Louis Seventh & Cerre, LLC (2) | $ | I/O | $ | Cantor Commercial Real Estate | ** | % | 5/6/2027 | |||||||||||||
| MVP Indianapolis Meridian Lot, LLC (2) | $ | I/O | $ | Cantor Commercial Real Estate | ** | % | 5/6/2027 | |||||||||||||
| St Louis Cardinal Lot DST, LLC | $ | I/O | $ | Cantor Commercial Real Estate | ** | % | 5/31/2027 | |||||||||||||
| MVP Preferred Parking, LLC | $ | $ | 66 | $ | Key Bank | ** | % | 8/1/2027 | ||||||||||||
| Less unamortized loan issuance costs | $ | ( | ) | |||||||||||||||||
| $ | ||||||||||||||||||||
| (1) | The Company issued a promissory note to KeyBank for $ |
| (2) | The Company issued a promissory note to Cantor Commercial Real Estate Lending, L.P. (“CCRE”) for $ |
| (3) | The loan is secured by a Mortgage, Assignment of Leases and Rents, Security Agreement and Fixture Filing on each of the properties owned by MVP St. Louis 2013 and MVP Memphis Poplar. |
* 2 Year Interest Only
** 10 Year Interest Only
I/O - Interest Only
During April 2022, the Company received notification from the Small Business Administration stating that the round two paycheck protection program loan was forgiven in full in the amount of $
During 2021, VRMI and VRMII acquired $
Reserve funds are generally required for repairs and replacements, real estate taxes, and insurance premiums. Some notes contain various terms and conditions including debt service coverage ratios and debt yield limits. As of September 30, 2022 and December 31, 2021, borrowers for six of the Company’s loans totaling $
As of September 30, 2022, future principal payments on notes payable are as follows (dollars in thousands):
| 2022 (remainder) | $ | |||
| 2023 | ||||
| 2024 | ||||
| 2025 | ||||
| 2026 | ||||
| Thereafter | ||||
| Total | $ |
Note F - Revolving Credit Facility
On March 29, 2022, the Company entered into a Credit Agreement (the “Credit Agreement”) with KeyBanc Capital Markets, as lead arranger, and KeyBank, National Association, as administrative agent. The Credit Agreement refinanced the Company’s then current loan agreements for certain properties. The Credit Agreement provides for, among other things, a $
On April 15, 2022, the Company drew on the Revolving Credit Facility to pay a loan in full with LoanCore in the amount of $
On November 17, 2022, the Company executed an amendment to the Credit Agreement which extends the maturity of the Revolving Credit Facility to April 1, 2024, amends certain financial covenants through the new term, and adds a requirement for the Company to use diligent efforts to pursue an equity raise or liquidity event by March 31, 2023. In connection with this extension, the Company will owe an extension fee of $
Note G - Equity
Series A Preferred Stock
On November 1, 2016, the Company commenced an offering of up to $
The holders of the Series A Preferred Stock are entitled to receive, when and as authorized by the Board of Directors and declared by the Company out of funds legally available for the payment of dividends, cash dividends at the rate of
On March 24, 2020, the Company’s Board of Directors unanimously authorized the suspension of the payment of distributions on the Series A Preferred Stock; however, such distributions will continue to accrue in accordance with the terms of the Series A Preferred Stock. Since initial issuance, the Company had declared distributions of approximately $
Series 1 Preferred Stock
On March 29, 2017, the Company filed with the State Department of Assessments and Taxation of Maryland Articles Supplementary to the charter of the Company classifying and designating
The holders of the Series 1 Preferred Stock are entitled to receive, when and as authorized by the Company’s Board of Directors and declared by us out of legally available funds, cumulative, cash dividends on each share at an annual rate of
Each investor in the Series 1 offering received, for every $
On March 24, 2020, the Company’s Board of Directors unanimously authorized the suspension of the payment of distributions on the Series 1 Preferred Stock, however, such distributions will continue to accrue in accordance with the terms of the Series 1 Preferred Stock. Since initial issuance, the Company had declared distributions of approximately $
Warrants
On August 25, 2021, in connection with the Closing, the Company entered into a warrant agreement (the “Warrant Agreement”) pursuant to which it issued to Color Up warrants to purchase up to
The Company assesses its warrants as either equity or a liability based upon the characteristics and provisions of each instrument. Warrants classified as equity are recorded at fair value as of the date of issuance on the Company’s balance sheet and no further adjustments to their valuation are made. Management estimates the fair value of these warrants using option pricing models and assumptions that are based on the individual characteristics of the warrants or other instruments on the valuation date, as well as assumptions for future financings, expected volatility, expected life, yield and risk-free interest rate.
As of September 30, 2022, all outstanding warrants issued by the Company were classified as equity.
Tender Offer
On October 5, 2021, Color Up initiated a Tender Offer (the “Offer”) to purchase up to
Effective November 8, 2021, Color Up executed a subscription agreement with the Company pursuant to which Color Up acquired the remaining
Securities Purchase Agreement
On November 2, 2021, the Company, entered into a securities purchase agreement (the “ Securities Purchase Agreement”) by and among the Company, the Operating Partnership, and HS3, pursuant to which the Operating Partnership issued and sold to HS3 (a)
Convertible Noncontrolling Interests
As of September 30, 2022, the Operating Partnership had approximately
Dividend Reinvestment Plan
The Dividend Reinvestment Plan (“DRIP”) allows stockholders to invest distributions in additional shares of our Common Stock, subject to certain limits. Stockholders who elect to participate in the DRIP may choose to invest all or a portion of their cash distributions in shares of our Common Stock at a price equal to our most recent estimated value per share. On March 22, 2018, the Company suspended payment of distributions and as such there are currently no distributions to invest in the DRIP.
Share Repurchase Program
On May 29, 2018, the Company’s Board of Directors suspended the Share Repurchase Program, other than for hardship repurchases in connection with a shareholder’s death. Repurchase requests made in connection with the death of a stockholder were repurchased at a price per share equal to 100% of the amount the stockholder paid for each share, or once the Company had established an estimated NAV per share, 100% of such amount as determined by the Company’s Board of Directors, subject to any special distributions previously made to the Company’s stockholders. On March 24, 2020, the Board of Directors suspended all repurchases, even in the case of a stockholder’s death.
Note H — Stock-Based Compensation
On May 27, 2022, the Operating Partnership issued long-term incentive equity awards in the form of Director LTIP units of the Operating Partnership (“Director LTIP Units”) to the Company's five independent directors in consideration for their accrued but unpaid director compensation fees. The Director LTIP Units will vest ratably in equal installments on each of the next three anniversaries of the grant date, subject to the director's continued employment, contractual or other service relationship with the Company or an affiliate of the Company on the vesting date. The grant date fair value was determined to be $
On May 27, 2022, the Operating Partnership granted an aggregate of
PUs are subject to restrictions on transfer and may be subject to a risk of forfeiture if the executive ceases to be an employee of the Company, the Operating Partnership or an affiliate prior to vesting of the award. Each vested PU is entitled to receive a dividend equivalent payment equal to the dividend paid on the number of shares of OP Units issued. Each unvested PU is entitled to receive
On August 23, 2022, the Board granted
The following table sets forth a roll forward of all incentive equity awards for the nine months ended September 30, 2022:
| As of September 30, 2022 | ||||||||
| Number of Incentive Equity Awards | Weighted Avg Grant FV Per Share | |||||||
| Balance - January 1, 2022 | $ | |||||||
| Granted | ||||||||
| Vested | ||||||||
| Forfeited | ||||||||
| Total unvested units | $ | |||||||
Note I - Earnings Per Share
Basic and diluted loss per weighted average common share (“EPS”) is calculated by dividing net income (loss) attributable to the Company’s common stockholders, including any participating securities, by the weighted average number of shares outstanding for the period. The Company includes the effect of participating securities in basic and diluted earnings per share computations using the two-class method of allocating distributed and undistributed earnings when the two-class method is more dilutive than the treasury stock method. Outstanding warrants were antidilutive as a result of the net loss for the three and nine months ended September 30, 2022 and therefore were excluded from the dilutive calculation. The Company includes unvested PUs as contingently issuable shares in the computation of diluted EPS once the market criteria is met, assuming that the end of the reporting period is the end of the contingency period. The Company had
| For the three months ended | For the nine months ended | |||||||||||||||
| September 30, 2022 | September 30, 2021 | September 30, 2022 | September 30, 2021 | |||||||||||||
| Numerator: | ||||||||||||||||
| Net loss attributable to MIC | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
| Net loss attributable to participating securities | ||||||||||||||||
| Net loss attributable to MIC common stock | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
| Denominator: | ||||||||||||||||
| Basic and dilutive weighted average shares of Common Stock outstanding | ||||||||||||||||
| Basic and diluted loss per weighted average common share: | ||||||||||||||||
| Basic and dilutive | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
Note J – Variable Interest Entities
The Company, through a wholly owned subsidiary of its Operating Partnership, owns a
At the time of its initial investment, the Company concluded that MVP St. Louis was a VIE. Further, it was determined that the power to direct the activities that most significantly impact the economic performance of MVP St. Louis was held by MVP Parking DST, LLC (the “Manager”) and certain subsidiaries of the Manager. As a result, the investment in MVP St. Louis was accounted for using the equity method of accounting through August 25, 2021.
In connection with the Closing, the former advisor of the Company, MVP Realty Advisors, LLC (“MVPRA”) transferred ownership of the Manager to Mr. Chavez. This change in structure was deemed a reconsideration event and the Company concluded that it was the primary beneficiary of the MVP St. Louis. As a result, the Company began consolidating its investment in MVP St. Louis and MVP St. Louis Cardinal Lot Master Tenant, LLC, which had total assets of approximately $
Note K - Income Taxes
The Company previously elected to be taxed as a REIT for federal income tax purposes and operated in a manner that allowed the Company to qualify as a REIT through December 31, 2019. As a consequence of the COVID-19 pandemic, the Company earned management income in lieu of lease income from a number of distressed tenants, which did not constitute qualifying REIT income for purposes of the annual REIT gross income tests, and, as a result, the Company was not in compliance with the annual REIT income tests for the year ended December 31, 2020. Accordingly, the Company did not qualify for taxation as a REIT in 2020 and continues to be taxed as a C corporation. As a C corporation, the Company is subject to federal income tax on its taxable income at regular corporate rates.
A full valuation allowance for deferred tax assets was historically provided each year since the Company believed that as a REIT it was more likely than not that it would not realize the benefits of its deferred tax assets. As a taxable C Corporation, the Company has evaluated its deferred tax assets for the nine months ended September 30, 2022, which consist primarily of net operating losses and its investment in the Operating Partnership (as a result of the Closing). Management assesses the available positive and negative evidence to estimate whether sufficient future taxable income will be generated to permit use of the existing deferred tax assets. A significant piece of objective negative evidence evaluated was the cumulative loss incurred over the three-year period ended September 30, 2022. Such objective evidence limits the ability to consider other subjective evidence, such as our projections for future growth. Due to the ongoing impact to the Company of the COVID-19 pandemic, the Company has determined that it will continue to record a full valuation allowance against its deferred tax assets for the nine months ended September 30, 2022. A change in circumstances may cause the Company to change its judgment about whether deferred tax assets should be recorded, and further whether any such assets would more likely than not be realized. The Company would generally report any change in the valuation allowance through its consolidated statements of operations in the period in which such changes in circumstances occur.
Note L — Fair Value
A fair value measurement is based on the assumptions that market participants would use in pricing an asset or liability in an orderly transaction. The hierarchy for inputs used in measuring fair value are as follows:
Level 1 – Inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities.
Level 2 – Inputs include quoted prices in active markets for similar assets and liabilities, quoted prices for identical or similar assets or liabilities in markets that are not active, and model-derived valuations whose inputs are observable.
Level 3 – Model-derived valuations with unobservable inputs.
In certain cases, the inputs used to measure fair value may fall into different levels of the fair value hierarchy. In such cases, for disclosure purposes, the level within which the fair value measurement is categorized is based on the lowest level input that is significant to the fair value measurement.
The Company's financial instruments include cash and cash equivalents, restricted cash, accounts receivable and accounts payable. Due to their short maturities, the carrying amounts of these assets and liabilities approximate fair value. The estimated fair value of the Company’s debt (including notes payable and the Revolving Credit Facility) was approximately $
Our real estate assets are measured and recognized at fair value, less costs to sell held-for-sale properties, on a nonrecurring basis dependent upon when we determine an impairment has occurred. When the Company impairs assets that have operational impairment indicators, management uses an independent third-party to determine the fair value primarily using the income capitalization approach based on the contracted rent to be received from the operator or the sales comparison approach. The income capitalization approach reflects the property’s income-producing capabilities based on the assumption that value is created by the expectation of benefits to be derived in the future. The sales comparison approach utilizes sales of comparable properties, adjusted for differences, to indicate value. These methods are considered Level 2 measurements in the hierarchy.
Note M— Commitments and Contingencies
Litigation
The nature of the Company’s business exposes our properties, the Company, the Operating Partnership and its other subsidiaries to the risk of claims and litigation in the normal course of business. Other than as noted below, or routine litigation arising out of the ordinary course of business, the Company is not presently subject to any material litigation nor, to its knowledge, is any material litigation threatened against the Company.
The Company has previously disclosed pending class action legal proceedings facing the Company and the Former Advisor and/or Mr. Shustek prior to the completion of the Transaction. As a result of the Transaction, the Settlement Agreement (as defined in the Purchase Agreement) was entered into subject to completion of Color Up’s Tender Offer (as defined in the Purchase Agreement) for up to
The Company has previously disclosed that the SEC was conducting an investigation relating to the Company. On March 11, 2021, the SEC notified the Company that they do not intend to recommend an enforcement action by the Commission against the Company.
The SEC investigation also related to the conduct of the Company’s former chairman and chief executive officer, Michael V. Shustek. On July 29, 2021, the SEC filed a civil lawsuit against Michael V. Shustek and his advisory firm Vestin Mortgage LLC, alleging violations of the securities laws (Case 2-21-civ-01416-JCM-BNW, U.S. District Court, District of Nevada). The SEC seeks disgorgement, injunctions, and bars against Mr. Shustek, and related penalties. Pursuant to the Transaction, Mr. Shustek's right to indemnification by the Company for certain claims related to the SEC's investigation shall not exceed $
On August 25, 2021, the Company also entered into an Assignment of Claims, Causes of Action, and Proceeds Agreement, or the Assignment of Litigation Agreement, pursuant to which the Company assigned to the Former Advisor certain claims and claim proceeds that the Company had against Ira S. Levine, Levine Law Group, Inc. (or any other name by which a firm including Ira Levine was known), Edwin Herbert Bentzen IV and Andrew Fenton.
Environmental Matters
Investments in real property create the potential for environmental liability on the part of the owner or operator of such real property. If hazardous substances are discovered on or emanating from a property, the owner or operator of the property may be held strictly liable for all costs and liabilities relating to such hazardous substances.
The Company believes that it complies, in all material respects, with all federal, state and local ordinances and regulations regarding hazardous or toxic substances. Furthermore, as of September 30, 2022, the Company has not been notified by any governmental authority of any non-compliance, liability or other claim, and is not aware of any other environmental condition that it believes will have a material adverse effect on the results of operations. The Company, however, cannot predict the impact of any unforeseen environmental contingencies or new or changed laws or regulations on properties in which the Company holds an interest, or on properties that may be acquired directly or indirectly in the future.
Note N — Related Party Transactions and Arrangements
Two of the Company’s Cincinnati assets, 1W7 Carpark and 222W7, are currently operated by PCA, Inc., dba Park Place Parking. Park Place Parking is a private parking operator that is wholly owned by relatives of the Company’s CEO. The Company’s CEO is neither an owner nor beneficiary of Park Place Parking. Park Place Parking has been operating these assets for five and four years, respectively. Both assets were acquired with their management agreements in place and at the same terms under which they were operating prior to the Transaction. As of December 31, 2021, the Company recorded a balance of approximately $
The Company has an investment in MVP St. Louis Cardinal Lot, DST, a Delaware Statutory Trust (“MVP St. Louis”). Pursuant to the Closing, the Former Advisor and Mr. Shustek, were replaced as manager of MVP Parking, DST, LLC, the entity that manages MVP St. Louis, by the Company's CEO.
In March 2022, the Company entered into an agreement with MIT, an affiliate of Bombe, requiring the Company to be allocated, bear and (where practicable) pay directly certain costs and expenses related to the Merger and MIT IPO. During the three and nine months ended September 30, 2022, the Company incurred costs of approximately $
In May 2022, the Company entered into a lease agreement with ProKids, an Ohio not-for-profit. An immediate family member of the Company’s CEO is a member of the Board of Trustees and President-Elect of that organization. ProKids leased
The Company has agreed to pay for certain tax return preparation services of Color Up and certain member entities of Color Up. The Company has incurred $
In connection with the Transaction, the Company owes approximately $
License Agreement
On August 25, 2021, the Company entered into a Software License and Development Agreement, or the License Agreement, with an affiliate of Bombe, or the Supplier, pursuant to which the Company granted to the Supplier a limited, non-exclusive, non-transferable, worldwide right and license to access certain software and services for a fee of $
Tax Matters Agreement
On August 25, 2021, the Company, the Operating Partnership and Color Up entered into the Tax Matters Agreement, or the Tax Matters Agreement, pursuant to which the Operating Partnership agreed to indemnify Color Up and certain affiliates and transferees of Color Up, together, the Protected Partners, against certain adverse tax consequences in connection with (1) (i) a taxable disposition of certain specified properties and (ii) certain dispositions of the Protected Partners’ interest in the Operating Partnership, in each case, prior to the tenth anniversary of the completion of the Transaction (or earlier, if certain conditions are satisfied); and (2) the Operating Partnership’s failure to provide the Protected Partners the opportunity to guarantee a specified amount of debt of the Operating Partnership during the period ending on the tenth anniversary of the completion of the Transaction (or earlier, if certain conditions are satisfied). In addition, and for so long as the Protected Partners own at least 20% of the units in the Operating Partnership received in the Transaction, the Company agreed to use commercially reasonable efforts to provide the Protected Partners with similar guarantee opportunities.
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following is a financial review and analysis of the Company’s financial condition and results of operations for the three and nine months ended September 30, 2022 and 2021. This discussion and analysis should be read in conjunction with the accompanying consolidated financial statements and the notes thereto and Management's Discussion and Analysis of Financial Conditions and Results of Operations in the Company’s annual report on Form 10-K for the year ended December 31, 2021. As used herein, the terms “we,” “our” and “us” refer to Mobile Infrastructure Corporation, and, as required by context, Mobile Infra Operating Partnership, L.P., formerly known as MVP REIT II Operating Partnership, LP, which the Company refers to as the “Operating Partnership,” and to their subsidiaries.
Forward-Looking Statements
Certain statements included in this quarterly report on Form 10-Q (this “Quarterly Report”) that are not historical facts (including any statements concerning investment objectives, other plans and objectives of management for future operations or economic performance, or assumptions or forecasts related thereto) are forward-looking statements. Forward-looking statements are typically identified by the use of terms such as “may,” “should,” “expect,” “could,” “intend,” “plan,” “anticipate,” “estimate,” “believe,” “continue,” “predict,” “potential” or the negative of such terms and other comparable terminology.
The forward-looking statements included herein are based upon the Company’s current expectations, plans, estimates, assumptions and beliefs, which involve numerous risks and uncertainties. Assumptions relating to the foregoing involve judgments with respect to, among other things, future economic, competitive and market conditions and future business decisions, all of which are difficult or impossible to predict accurately and many of which are beyond the Company’s control. Although the Company believes that the expectations reflected in such forward-looking statements are based on reasonable assumptions, the actual results and performance could differ materially from those set forth in the forward-looking statements. Factors which could have a material adverse effect on operations and future prospects include, but are not limited to:
| ● |
the fact that the Company has limited history, as the Company was formed in 2015; |
|
| ● | the ability of Mobile Infrastructure Trust, a Maryland real estate investment trust (“MIT”), to consummate the initial public offering (the “MIT IPO”) of its common shares of beneficial interest, $0.0001 par value per share and the Company’s and MIT’s ability to consummate the merger and the transactions contemplated by the Amended and Restated Agreement and Plan of Merger, dated as of September 26, 2022 (the “Merger Agreement”), by and between the Company and MIT (the “Merger”) and realize the anticipated benefits of the MIT IPO and the Merger; |
| ● |
the Company’s ability to complete a liquidity event; |
| ● |
the Company’s ability to generate sufficient cash flows to pay distributions to the Company’s stockholders; |
| ● |
the impact on our business and those of our tenants from epidemics, pandemics or outbreaks of an illness, disease or virus (including COVID-19), including lockdowns and similar mandates; |
| ● |
the fact that the Company has experienced net losses since inception and may continue to experience additional losses; |
| ● |
changes in economic conditions generally and the real estate and debt markets specifically, including economic trends impacting parking facilities; |
| ● |
risks inherent in the real estate business, including tenant defaults, potential liability relating to environmental matters and the lack of liquidity of real estate investments; |
| ● |
competitive factors that may limit the Company’s ability to make investments or attract and retain tenants; |
| ● |
the ability of leases under our New Lease Structure (as defined below) to provide increases in same property rental revenue as compared to our prior leases; |
| ● |
the Company’s ability to attain its investment strategy or increase the value of its portfolio; |
| ● |
the loss of key personnel could have a material adverse effect upon the Company's ability to conduct and manage the Company’s business; |
| ● |
the performance of properties the Company has acquired or may acquire or loans the Company has made or may make that are secured by real property; |
| ● |
the Company’s ability to successfully integrate pending acquisitions and transactions and implement an operating strategy; |
| ● |
potential damage and costs arising from natural disasters, terrorism and other extraordinary events, including extraordinary events affecting parking facilities included in the Company’s portfolio; |
| ● |
the Company’s ability to act on its pipeline of acquisitions; |
| ● |
the availability of capital and debt financing generally, and any failure to obtain debt financing at favorable terms or a failure to satisfy the conditions, covenants and requirements of that debt; |
| ● |
changes in interest rates; |
| ● |
the Company’s ability to negotiate amendments or extensions to existing debt agreements; |
| ● |
the Company’s loss of REIT status and ability to remediate its loss of REIT status under U.S. federal income tax law; |
| ● |
potential adverse impacts from changes to the U.S. tax laws; and |
| ● |
changes to generally accepted accounting principles in the United States, or GAAP. |
Any of the assumptions underlying the forward-looking statements included herein could be inaccurate, and undue reliance should not be placed upon any forward-looking statements included herein. All forward-looking statements are made as of the date of this Quarterly Report, and the risk that actual results will differ materially from the expectations expressed herein will increase with the passage of time. Except as otherwise required by the federal securities laws, the Company undertakes no obligation to publicly update or revise any forward looking statements made after the date of this Quarterly Report, whether as a result of new information, future events, changed circumstances or any other reason. In light of the significant uncertainties inherent in the forward looking statements included in this Quarterly Report, the inclusion of such forward-looking statements should not be regarded as a representation by us or any other person that the objectives and plans set forth in this Quarterly Report will be achieved.
Overview
The Company focuses on acquiring, owning and leasing parking facilities and related infrastructure, including parking lots, parking garages and other parking structures throughout the United States. The Company targets 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 September 30, 2022, the Company owned 44 parking facilities in 22 separate markets throughout the United States, with a total of 15,750 parking spaces and approximately 5.4 million square feet. As of September 30, 2022, the Company also owned approximately 0.2 million square feet of commercial space adjacent to its parking facilities.
Management of the Company has been focused on the undertaking of four strategic objectives to reposition the Company for its next phase of growth and a potential liquidity event. The Company converted all management contracts back to leases under the New Lease Structure effective as of January 1, 2022, so that the Company once again has qualifying income from a REIT-test perspective beginning in 2022. The second objective was to focus on the balance sheet and the Company’s upcoming debt maturities. During the first quarter, the Company extended maturities and refinanced 2022 maturities with a revolving credit facility from KeyBank, which greatly improved the cost of interest on that debt. Management’s third objective was to focus heavily on the performance of each asset, working with the operators to create a business plan for each asset to improve cash flow and rental income to the Company. Those business plans were finalized in the first quarter of 2022 and are currently being implemented with our tenant-operators. The Company anticipates that asset-level performance will continue to improve through 2022. Finally, management continues to focus on the fourth objective which is the remediation of REIT status for the Company and evaluating options for a potential liquidity event, including a potential listing on a national securities exchange.
On September 26, 2022, the Company and MIT entered into the Merger Agreement, which amended and restated the Agreement and Plan of Merger, dated as of May 27, 2022, pursuant to which, at the effective time, the Company will merge with and into MIT, with MIT continuing as the surviving entity resulting from the Merger. See Note A - Organization and Business Operations in Part I, Item 1 - Notes to the Consolidated Financial Statements of this Quarterly Report for further information regarding the Merger.
Objectives
The Company closed on the Transaction (as defined in Part I, Item 1 – Notes to the Consolidated Financial Statements Note A — Organization and Business Operations) on August 25, 2021, which resulted in a new management team. Over the next twelve months management will be focused predominantly on the following:
| • |
Continuing to identify paths for remediation of REIT status; |
|
| • |
Working with the third-party operators to optimize the performance of the Company's parking facilities and other assets to move towards cash flow positivity; |
|
| • |
Reducing corporate overhead to move the Company towards profitability; and |
|
| • |
Pursuing options for refinancing near-term debt maturities. |
The Company’s strategic plan includes pursuing acquisitions as well as a potential liquidity event, which may include a potential listing event or other alternatives intended to provide the Company scale and capacity to grow beyond its current asset base.
Since the closing of the Transaction, our new management team has been working closely with our tenants to evaluate capital requirements of the assets, with a view to understanding current and future demand drivers of those assets. The Company has been implementing its proprietary technology which provides real-time information on the performance of assets. Going forward under the New Lease Structure (as defined below), the Company is involved with capital expenditures related to upgrades and optimization of our parking facilities, including but not limited to gate arm systems, lighting, and large capital improvements to structure and concrete. We expect to maintain an active dialogue with our tenants for the betterment of the Company’s portfolio.
Investment Strategy & Criteria
Because of our new management team’s long experience in the parking industry, the Company often receives off-market calls for parking facilities that are not yet being marketed for sale, as well as have early notices on properties just getting ready to be marketed. As such, the Company has a pipeline of acquisitions that is both bespoke and actionable, that the Company believes are off-market and largely unavailable to our competitors. The Company intends to continue to consolidate the industry through acquisitions, partnering with both owners and operator tenants, to create a meaningful pipeline and scale.
The Company’s 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. The Company has historically focused primarily on investing in income-producing parking lots and garages with air rights in MSAs. In expanding the Company’s portfolio, the Company will seek geographically diverse investments that address multiple key demand drivers and demonstrate consistent consumer use that are expected to generate positive 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 |
|
| • |
Multifamily central business districts |
The Company generally targets parking facilities that are near multiple key demand drivers so as not to be solely reliant on a single source of income. Parking garages in downtown cores constitute a large portion of the Company’s parking facilities as they serve multiple key demand drivers.
As a result of the COVID-19 pandemic, such key demand drivers have been and are expected to be diminished for an indeterminate period of time with an uneven return of the office workforce for downtown cores across our properties.
The Company works closely with our current tenants to understand the return to each individual market, both as the Company considers the key demand drivers of the Company’s current assets, as well as new assets that the Company may consider acquiring as part of our investment strategy. The Company's deep relationships with key tenants help facilitate collaboration with respect to our portfolio.
The Company is focused on acquiring properties that are expected to generate positive cash flow, located in populated MSAs and expected to produce income within 12 months of the properties’ acquisition. The Company intends to acquire under-managed parking facilities and collaborate with its tenants 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, the Company would expect the foregoing criteria to serve as guidelines; however, management and the Company’s Board of Directors may vary from these guidelines to acquire properties which they believe represent value or growth opportunities.
The Company’s 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. The Company has obtained or intends to obtain all permits and approvals necessary under current law to operate its investments.
The Company cannot assure you that the Company will attain investment objectives or that the value of the Company’s assets will not decrease. The Company’s Board of Directors reviews the Company’s investment policies at least annually to determine whether the Company's investment policies continue to be in the best interests of the Company’s stockholders.
See Note A - Organization and Business Operations in Part I, Item 1 - Notes to the Consolidated Financial Statements of this Quarterly Report for information on the Company's recapitalization.
Trends and Other Factors Affecting Our Business
Various trends and other factors affect or have affected the Company's operating results, including:
The COVID-19 Pandemic
The ongoing COVID-19 pandemic has significantly adversely impacted global economic activity, contributing to significant volatility. The return to normalized movement is relatively uneven among markets and industries, which has impacted the performance of our assets, as many of the Company’s properties are located in urban centers, near government buildings, entertainment centers, or hotels. While the employment level in the United States has nearly returned to 2019 levels, many companies continue to deploy a work-from-home or hybrid remote strategy for employees. We anticipate that a hybrid work structure for traditional central business district office workers will be the normalized state going-forward. This has impacted the performance of many of our assets that have office exposure and underscores the importance of a multi-key demand driver strategy in repositioning current and/or acquiring new assets. During 2020 and 2021, many state and local governments restricted public gatherings and implemented social distancing measures, which has, in some cases, eliminated or severely reduced the demand for parking. State governments and other authorities have been increasingly lifting or modifying some of these measures, which will encourage greater movement around and between cities. Should public health restrictions be reinstated, the Company’s rental revenue may continue to be adversely affected by other pandemics and may be further materially adversely affected to the extent that economic conditions result in the elimination of jobs or the migration of jobs from the urban centers where the Company’s parking facilities are situated to other locations. In particular, a majority of the Company’s property leases call for additional percentage rent, which will be adversely impacted by a decline in the demand for parking. However, we see increasing demand for multi-use assets that have exposure to entertainment and sporting venues or have exposure to driving travel through hotel relationships. As restrictions continue to lift across the United States, we anticipate a return to normal, in particular a return to driving vacations, which may positively impact the longer-term outlook of central business districts.
The COVID-19 pandemic has had, and may continue to have, a material adverse effect on the Company’s business, financial condition, results of operations, cash flows, liquidity and ability to satisfy debt service obligations, and its duration and ultimate lasting impact is unknown. The Company’s business, financial condition, results of operations, cash flows, liquidity and ability to satisfy debt service obligations may continue to be negatively impacted as a result of the COVID-19 pandemic and may remain at depressed levels compared to pre-COVID-19 pandemic levels for an extended period.
The Company’s 2020 and 2021 annual financial results were more severely impacted by the COVID-19 pandemic in comparison with the financial results during the first nine months of 2022. In response to the COVID-19 pandemic, the Company entered into certain lease amendments and new lease agreements with tenants and operators during 2020. Under these lease amendments and agreements, the tenants operated parking facilities on the Company’s behalf and paid their operating expenses from gross parking revenue and was required to remit an agreed upon percentage of the remainder to the Company instead of base rent payments. Revenues from these properties were recorded as management income, which did not constitute qualifying REIT income for purposes of the annual REIT gross income tests, and, as a result, the Company was not in compliance with the annual REIT income tests for its taxable year ended December 31, 2020. Accordingly, the Company did not qualify as a REIT in 2020 and has been taxed as a C corporation beginning with its taxable year ended December 31, 2020. The Company converted these lease amendments and new lease agreements to the New Lease Structure as defined below and does not expect to recognize any management income from the New Lease Structure described below going forward.
Fuel Prices
Increased fuel prices may adversely affect the Company’s operating environment and costs. Fuel prices have a direct impact on the ability and frequency of consumers to engage in activities related to transportation. Increases in the price of fuel may result in higher transportation costs and adversely affect consumer use at the Company’s parking garages. Increases in fuel costs also can lead to other non-recoverable, direct expense increases to the Company through, for example, increased costs of energy. Increases in energy costs for the Company’s tenants are typically recovered from lessees, although the Company’s share of energy costs increases as a result of lower occupancies, and higher operating cost reimbursements impact the ability to increase underlying rents. Rising fuel prices also may increase the cost of construction and the cost of materials that are petroleum-based, thus affecting the development of the Company’s existing assets or tenants' ongoing development projects.
The Company’s 2020 and 2021 annual financial results and the financial results for the nine months ended September 30, 2022 were not impacted by the recent increase in fuel prices in the United States. The Company cannot predict the extent and duration of the increase in fuel prices or its economic impact. Further, the extent and strength of any economic recovery, and/or when fuel prices decline is uncertain and subject to various factors and conditions. As a result, the Company’s results of operations and balance sheets may not be indicative of future operating results or of its future financial condition.
Results of Operations for the three months ended September 30, 2022, compared to the three months ended September 30, 2021 (dollars in thousands):
| For the Three Months Ended September 30, |
||||||||||||||||
| 2022 |
2021 |
$ Change |
% Change |
|||||||||||||
| Revenues |
||||||||||||||||
| Base rental income |
$ | 2,173 | $ | 3,285 | $ | (1,112 | ) | (33.9 | )% | |||||||
| Management income |
— | 1,290 | (1,290 | ) | (100.0 | )% | ||||||||||
| Percentage rental income |
6,245 | 1,203 | 5,042 | 419.1 | % | |||||||||||
| Total revenues |
$ | 8,418 | $ | 5,778 | $ | 2,640 | 45.7 | % | ||||||||
Base rental income
The decrease in base rental income for the three months ended September 30, 2022 compared to the same period in 2021 is due to (1) a $1.3 million decrease in rental income from our same store properties as a result of restructuring most of our leases and management contracts to a new lease structure which require tenants to pay a lower base rent (typically $500-$1,000 per month) (the "New Lease Structure"), partially offset by (2) a $0.3 million increase in base rental income related to five parking facilities acquired in the third and fourth quarters of 2021 and one property acquired during the second quarter of 2022 and (3) a $0.2 million increase for base rental income recognized through a consolidated VIE entity that prior to August 25, 2021 was accounted for under the equity method of accounting. The Company defines same store properties as those that were owned and consolidated for the full period in both comparison periods.
Management income
The $1.3 million decrease in management income for the three months ended September 30, 2022 compared to the same period in 2021 is due to the restructuring of management contracts to the New Lease Structure. Management income for 2021 reflects income from 14 management contracts that existed as of September 30, 2021. As of September 30, 2022, there are no management contracts in effect.
Percentage rental income
The $5.0 million increase in percentage rent income is due to (1) a $2.6 million increase from our same store properties as a result of an increase in the demand for parking across our portfolio as well as the impact of our New Lease Structure whereby we are recognizing a higher percentage of parking revenues generated at our properties, and (2) a $2.4 million increase related to five parking facilities acquired in the third and fourth quarters of 2021 and one property acquired during the second quarter of 2022. Under the New Lease Structure in addition to base rent we recognize percentage rent equal to a designated percentage, typically ninety percent (90%), of the amount by which gross revenues at the property during any lease year exceed a negotiated base amount.
The demand for event parking has increased during 2022 as a result of Major League Baseball and National Basketball Association producing full seasons with limited, if any, restrictions on capacity at sporting venues compared to the prior year restrictions due to COVID-19. This demand positively affects several our properties in St. Louis, Minneapolis, Houston and Milwaukee. The demand for event parking has also increased in our markets where theatres, festivals, and other gatherings have resumed during 2022.
Additionally, the demand for hotel parking has increased in key markets such as Chicago, Detroit, Denver and Cincinnati, driven by the corresponding increase in events, vacation, and business travel during 2022.
| For the Three Months Ended September 30, |
||||||||||||||||
| 2022 |
2021 |
$ Change |
% Change |
|||||||||||||
| Operating expenses |
||||||||||||||||
| Property taxes |
$ | 1,912 | $ | 1,119 | $ | 793 | 70.9 | % | ||||||||
| Property operating expense |
501 | 338 | 163 | 48.2 | % | |||||||||||
| General and administrative |
2,455 | 1,805 | 650 | 36.0 | % | |||||||||||
| Professional fees |
525 | 413 | 112 | 27.1 | % | |||||||||||
| Organizational, offering and other costs |
2,168 | — | 2,168 | 100.0 | % | |||||||||||
| Depreciation and amortization expenses |
2,137 | 1,437 | 700 | 48.7 | % | |||||||||||
| Total operating expenses |
$ | 9,698 | $ | 5,112 | $ | 4,586 | 89.7 | % | ||||||||
Property taxes
The $0.8 million increase in property taxes during the three months ended September 30, 2022 compared to September 30, 2021 is attributable primarily to (1) approximately $0.7 million related to new acquisitions, including the five properties acquired during the third and fourth quarters of 2021 and one property acquired during the second quarter of 2022 and (2) the New Lease Structure, which increased the property tax burden on the Company as it is solely responsible for the property tax payments under the New Lease Structure.
Property operating expense
The $0.2 million increase in property operating expense during the three months ended September 30, 2022 compared to September 30, 2021 is attributable primarily to increased insurance, professional services related to engineering surveys and other operating expenses attributable to the five properties acquired during the third and fourth quarters of 2021 and one property acquired during the second quarter of 2022.
General and administrative
The $0.7 million increase in general and administrative expenses during the three months ended September 30, 2022 compared to September 30, 2021 is primarily attributable to non-cash compensation cost for performance units granted on May 27, 2022 of approximately $1.1 million which was partially offset by a decrease in corporate directors and officers insurance of approximately $0.4 million.
Professional fees
Professional fees increased by approximately $0.1 million during the three months ended September 30, 2022 compared to September 30, 2021. The increase was primarily due to insurance proceeds received in 2021 to reimburse the Company for legal fees for claims made against the director and officer insurance policy, partially offset by a decrease in legal fees of approximately $0.5 million.
Organizational, offering and other costs
During the three months ended September 30, 2022, the Company incurred approximately $2.2 million in organizational and offering costs in connection with the Merger and other transactions primarily attributable to legal and accounting fees.
Depreciation and amortization expenses
The $0.7 million increase in depreciation and amortization expenses during the three months ended September 30, 2022 compared to September 30, 2021 is due to the five properties acquired during the third and fourth quarters of 2021, the one property acquired during the second quarter of 2022, and the $4.0 million of technology acquired as a result of the Transaction.
| For the Three Months Ended September 30, |
||||||||||||||||
| 2022 |
2021 |
$ Change |
% Change |
|||||||||||||
| Other income (expense) |
||||||||||||||||
| Interest expense |
$ | (3,387 | ) | $ | (2,487 | ) | $ | (900 | ) | 36.2 | % | |||||
| Loss on sale of real estate |
(52 | ) | — | (52 | ) | 100.0 | % | |||||||||
| Settlement of deferred management internalization |
— | 10,040 | (10,040 | ) | (100.0 | )% | ||||||||||
| Transaction expenses |
— | (12,224 | ) | 12,224 | (100.0 | )% | ||||||||||
| Gain on consolidation of DST |
— | 360 | (360 | ) | (100.0 | )% | ||||||||||
| Other income |
123 | 5 | 118 | 2369.2 | % | |||||||||||
| Total other expense |
$ | (3,316 | ) | $ | (4,306 | ) | $ | 990 | (23.0 | )% | ||||||
Interest expense
The increase in interest expense of approximately $0.9 million during the three months ended September 30, 2022 compared to the same period in the prior year is primarily attributable to (1) $1.5 million of third quarter 2022 interest expense on the Company’s Revolving Credit Facility (which includes $0.5 million of non-cash fee amortization), and (2) interest expense on loans assumed as part of the Transaction, partially offset by the repayment of $56.1 million of mortgage loans during the second quarter of 2022.
Loss on sale of investment in real estate
On September 1, 2022, the Company sold a parking lot located in Canton, Ohio (“Canton Lot”) for $0.7 million, resulting in a loss on sale of real estate of approximately $0.1 million.
Gain on consolidation of DST
The gain on consolidation of DST is the result of consolidating our investment in MVP St. Louis Cardinal Lot, DST, beginning in the third quarter of 2021which was previously accounted for under the equity method of accounting.
Settlement of deferred management internalization and Transaction expenses
As of the closing of the Transaction, expenses of approximately $12.2 million, including investment banking, legal, lender consent and employee severance costs, and the settlement of the deferred management internalization liability of $10.0 million were recorded in transaction expenses and settlement of deferred management internalization, respectively.
Results of Operations for the nine months ended September 30, 2022, compared to the nine months ended September 30, 2021 (dollars in thousands):
| For the Nine Months Ended September 30, |
||||||||||||||||
| 2022 |
2021 |
$ Change |
% Change |
|||||||||||||
| Revenues |
||||||||||||||||
| Base rental income |
$ | 6,346 | $ | 9,570 | $ | (3,224 | ) | (33.7 | )% | |||||||
| Management income |
427 | 2,294 | (1,867 | ) | (81.4 | )% | ||||||||||
| Percentage rental income |
15,430 | 1,443 | 13,987 | 969.3 | % | |||||||||||
| Total revenues |
$ | 22,203 | $ | 13,307 | $ | 8,896 | 66.8 | % | ||||||||
Base rental income
The decrease in base rental income for the nine months ended September 30, 2022 compared to the same period in 2021 is due to (1) a $3.9 million decrease in rental income from our same store properties as a result of restructuring most of our leases and management contracts to the New Lease Structure which require tenants to pay a lower base rent (typically $500-$1,000 per month), partially offset by (2) a $0.9 million increase in base rental income related to five parking facilities acquired in the third and fourth quarters of 2021 and one property acquired during the second quarter of 2022 and (3) a $0.6 million increase for base rental income recognized through a consolidated VIE entity that prior to August 25, 2021 was accounted for under the equity method of accounting.
Management income
The $1.9 million decrease in management income for the nine months ended September 30, 2022 compared to the same period in 2021 is due to the restructuring of management contracts to the New Lease Structure. Management income for 2021 reflects income from 14 management contracts that existed as of September 30, 2021. The management income for 2022 reflects collections from the remaining management contracts which were converted to the New Lease Structure at the beginning of 2022. As of September 30, 2022, there are no management contracts in effect.
Percentage rental income
The $14.0 million increase in percentage rent income is due to (1) a $8.2 million increase from our same store properties as a result of an increase in the demand for parking across our portfolio as well as the impact of our New Lease Structure whereby we are recognizing a higher percentage of parking revenues generated at our properties, and (2) a $5.7 million increase related to five parking facilities acquired in the third and fourth quarters of 2021 and one property acquired during the second quarter of 2022. Under the New Lease Structure in addition to base rent we recognize percentage rent equal to a designated percentage, typically ninety percent (90%), of the amount by which gross revenues at the property during any lease year exceed a negotiated base amount.
The demand for event parking has increased during 2022 as a result of Major League Baseball and National Basketball Association producing full seasons with limited, if any, restrictions on capacity at sporting venues compared to the prior year restrictions due to COVID-19. This demand positively affects several our properties in St. Louis, Minneapolis, Houston and Milwaukee. The demand for event parking has also increased in our markets where theatres, festivals, and other gatherings have resumed during 2022.
Additionally, the demand for hotel parking has increased in key markets such as Chicago, Detroit, Denver and Cincinnati, driven by the corresponding increase in events, vacation, and business travel during 2022.
| For the Nine Months Ended September 30, |
||||||||||||||||
| 2022 |
2021 |
$ Change |
% Change |
|||||||||||||
| Operating expenses |
||||||||||||||||
| Property taxes |
$ | 5,592 | $ | 3,421 | $ | 2,171 | 63.5 | % | ||||||||
| Property operating expense |
2,069 | 894 | 1,175 | 131.4 | % | |||||||||||
| General and administrative |
5,843 | 4,665 | 1,178 | 25.3 | % | |||||||||||
| Professional fees |
2,087 | 2,243 | (156 | ) | (7.0 | )% | ||||||||||
| Organizational, offering and other costs |
4,693 | — | 4,693 | 100.0 | % | |||||||||||
| Depreciation and amortization expenses |
6,125 | 3,953 | 2,172 | 54.9 | % | |||||||||||
| Total operating expenses |
$ | 26,409 | $ | 15,176 | $ | 11,233 | 74.0 | % | ||||||||
Property taxes
The $2.2 million increase in property taxes during the nine months ended September 30, 2022 compared to September 30, 2021 is attributable primarily to (1) approximately $2.0 related to new acquisitions, including the five properties acquired during the third and fourth quarters of 2021 and one property acquired during the second quarter of 2022 and (2) the New Lease Structure, which increased the property tax burden on the Company as it is solely responsible for the property tax payments under the New Lease Structure.
Property operating expense
The $1.2 million increase in property operating expense during the nine months ended September 30, 2022 compared to September 30, 2021 is attributable primarily to increased insurance, professional services related to engineering surveys and other operating expenses attributable to the five properties acquired during the third and fourth quarters of 2021 and one property acquired during the second quarter of 2022.
General and administrative
The $1.2 million increase in general and administrative expenses during the nine months ended September 30, 2022 compared to September 30, 2021 is primarily attributable to an increase in payroll and related expenses of approximately $0.4 million, non-cash compensation cost for performance units granted on May 27, 2022 of approximately $1.5 million, and an increase in travel and other office related expenses of approximately $0.1 million. This was partially offset by a decrease in corporate directors and officers insurance of approximately $1.0 million.
Professional fees
Professional fees decreased by approximately $0.2 million during the nine months ended September 30, 2022 compared to September 30, 2021, primarily due to legal fees incurred in connection with the settlement of previously disclosed investigations, partially offset by insurance proceeds received in 2021 to reimburse the Company for legal fees for claims made against the director and officer insurance policy.
Organizational, offering and other costs
During the nine months ended September 30, 2022, the Company incurred approximately $4.7 million in organizational and offering costs in connection with the Merger and other transaction primarily attributable to legal and accounting fees.
Depreciation and amortization expenses
The $2.2 million increase in depreciation and amortization expenses during the nine months ended September 30, 2022 compared to September 30, 2021 is primarily due to the five properties acquired during the third and fourth quarters of 2021, one property acquired during the second quarter of 2022, and the $4.0 million of technology acquired as a result of the Transaction.
| For the Nine Months Ended September 30, |
||||||||||||||||
| 2022 |
2021 |
$ Change |
% Change |
|||||||||||||
| Other income (expense) |
||||||||||||||||
| Interest expense |
$ | (9,094 | ) | $ | (6,783 | ) | $ | (2,311 | ) | 34.1 | % | |||||
| Other income |
153 | 5 | 148 | 2969.2 | % | |||||||||||
| Loss on sale of real estate |
(52 | ) | — | (52 | ) | 100.0 | % | |||||||||
| PPP loan forgiveness |
328 | 348 | (20 | ) | (5.7 | )% | ||||||||||
| Settlement of deferred management internalization |
— | 10,040 | (10,040 | ) | (100.0 | )% | ||||||||||
| Gain on consolidation of DST |
— | 360 | (360 | ) | (100.0 | )% | ||||||||||
| Transaction expenses |
— | (12,224 | ) | 12,224 | (100.0 | )% | ||||||||||
| Total other expense |
$ | (8,665 | ) | $ | (8,254 | ) | $ | (411 | ) | 5.0 | % | |||||
Interest expense
The increase in interest expense of approximately $2.3 million during the nine months ended September 30, 2022 compared to the same period in the prior year is primarily attributable to (1) $2.5 million of interest expense on the Company’s Revolving Credit Facility (which includes non-cash fee amortization of $1.0 million), (2) interest expense on new loans assumed as part of the Transaction, partially offset by the repayment of $56.1 million of mortgage loans during the second quarter of 2022.
Loss on sale of investment in real estate
On September 1, 2022, the Company sold the Canton Lot for $0.7 million, resulting in a loss on sale of real estate of approximately $0.1 million.
PPP loan forgiveness
During May 2021, the Company received notification from the U.S. Small Business Administration ("SBA") stating that the first-round paycheck protection program loan was forgiven in full in the amount of $348,000. During April 2022, the Company received notification from the SBA stating that the second-round paycheck protection program loan was forgiven in full in the amount of $328,000. The forgiveness of these loans was recognized in the consolidated statements of operations in the month they were forgiven.
Gain on consolidation of DST
The gain on consolidation of DST is the result of consolidating our investment in MVP St. Louis Cardinal Lot, DST, beginning in the third quarter of 2021which was previously accounted for under the equity method of accounting.
Settlement of deferred management internalization and Transaction expenses
As of the closing of the Transaction, transaction expenses of approximately $12.2 million, including investment banking, legal, lender consent and employee severance costs, and the settlement of the deferred management internalization liability of $10.0 million were recorded in transaction expenses and settlement of deferred management internalization, respectively.
Liquidity and Capital Resources
Effective March 29, 2022, the Company secured a $75.0 million Revolving Credit Facility with a $75.0 million accordion feature (the “Revolving Credit Facility”) with KeyBanc Capital Markets, as lead arranger, and KeyBank National Association, as administrative agent. During the second quarter of 2022, the Company drew on $73.7 million of the available $75.0 million for the repayment of debt maturities. The $75.0 million accordion feature of the Revolving Credit Facility can be utilized for acquisitions, capital expenditures and other working capital requirements.
The Company’s principal source of funds to meet our operating expenses, pay debt service obligations and make distributions to our stockholders will be rents from tenants at the Company’s parking facilities. Although the Company has no present intention to do so, the Company also may sell properties that the Company owns or place mortgages on properties that the Company owns to raise capital.
The Company has no commercial paper outstanding, nor have we entered into any swaps or hedges.
The Company’s short-term and long-term liquidity needs will consist primarily of funds necessary for payments of indebtedness, acquisitions of assets, development of properties, and capital expenditures. Existing development activities expected to be completed in the near-term are expected to cost approximately $2.2 million.
Going Concern
The accompanying consolidated financial statements are prepared in accordance with generally accepted accounting principles applicable to a going concern, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business.
The Company has incurred net losses since its inception and anticipates net losses for the near future. As of September 30, 2022, the Company was in compliance with all applicable covenants in agreements governing its debt. However, based on the Company’s projected financial performance for the twelve-month period subsequent to the date of the filing of this Quarterly Report on Form 10-Q, the Company currently projects that it will not be in compliance with a financial covenant under the Company’s Revolving Credit Facility, as defined in Note F, Revolving Credit Facility, prior to the maturity date, which would result in an event of default. Such a default would allow the lender under the Revolving Credit Facility to accelerate the maturity of the debt, which carries a balance of $73.7 million as of September 30, 2022, making it due and payable at that time. Further, if our independent auditor includes an explanatory paragraph regarding our ability to continue as a “going concern” in its report on our financial statements for the year ending December 31, 2022, this may accelerate a default under our Revolving Credit Facility to the first quarter of 2023 at the time our financial statements for the year ending December 31, 2022 are filed. The Company does not currently have sufficient cash on hand, liquidity or projected future cash flows to repay these outstanding amounts upon an event of default. These conditions and events raise substantial doubt about the Company’s ability to continue as a going concern.
In response to these conditions, management’s plans include the following:
| 1. |
Capitalizing on recent business development initiatives that we anticipate will improve total revenues through increased utilization of our parking assets and in many cases at higher average ticket rates. |
| 2. |
Management is budgeting reduced overhead costs in 2023 through the reduction or elimination of certain controllable expenses. |
| 3. |
The Company is pursuing further amendments and/or extensions with respect to the Revolving Credit Facility, including waivers of noncompliance with covenants. |
| 4. |
The Company is pursuing certain potential capital raise or liquidity events, including the Merger as described above. |
However, there can be no assurance that the Company will be successful in completing any of these options. As a result, management’s plans cannot be considered probable and thus does not alleviate substantial doubt about the Company’s ability to continue as a going concern.
The consolidated financial statements do not include any adjustments relating to the recoverability and classification of recorded asset amounts or the amounts of liabilities that might result from the outcome of this uncertainty.
Sources and Uses of Cash
The following table summarizes our cash flows for the nine months ended September 30, 2022 and 2021 (dollars in thousands):
| For the Nine Months Ended September 30, |
||||||||
| 2022 |
2021 |
|||||||
| Net cash provided by (used in) operating activities |
$ | 2,359 | $ | (15,826 | ) | |||
| Net cash used in investing activities |
$ | (19,359 | ) | $ | (3,598 | ) | ||
| Net cash provided by financing activities |
$ | 12,887 | $ | 29,601 | ||||
Comparison of the nine months ended September 30, 2022 to the nine months ended September 30, 2021:
The Company’s cash and cash equivalents and restricted cash were approximately $12.6 million as of September 30, 2022, which was a decrease of approximately $5.6 million from the balance of $18.2 million as of September 30, 2021.
Cash flows from operating activities
Net cash provided by operating activities for the nine months ended September 30, 2022 was approximately $2.4 million, compared to approximately $15.8 million used in operating activities for the nine months ended September 30, 2021. The increase in cash provided by operating activities was primarily attributable to a $8.9 million increase in revenue (partially offset by an increase of $2.2 million and $1.2 million in property taxes and property operating expense, respectively), plus an increase in accounts payable resulting from organizational, offering and other costs related to the Merger. The net cash used in operating activities during the nine months ended September 30, 2021 was primarily attributable to Transaction expenses of approximately $12.2 million.
Cash flows from investing activities
Net cash used in investing activities for the nine months ended September 30, 2022 was approximately $19.4 million compared to approximately $3.6 million for the nine months ended September 30, 2021. The increase is primarily attributable to the acquisition of a $17.6 million parking garage in June 2022 as well as routine and strategic capital expenditures.
Cash flows from financing activities
Net cash provided by financing activities for the nine months ended September 30, 2022 was approximately $12.9 million compared to approximately $29.6 million for the nine months ended September 30, 2021. The cash provided by financing activities during the nine months ended September 30, 2022 was primarily attributable to proceeds from the Revolving Credit Facility of $73.7 million. This was partially offset by the repayment of $55.1 million of notes payable and the payment of loan fees on the Revolving Credit Facility and extension of certain other notes payable. The cash provided by financing activities during the nine months ended September 30, 2021 was primarily attributable to the cash contribution at the closing of the Transaction.
Company Indebtedness
On March 29, 2022, the Company entered into the Credit Agreement which includes a $75.0 million revolving credit facility. During 2022, the Company used $73.7 million of available capacity to refinance certain of the Company’s current loans for various properties and to finance the acquisition of a parking garage in June 2022. The remaining capacity of $1.3 million will also be available for our general corporate purposes, including liquidity, acquisitions and working capital. The Company borrows under the Revolving Credit Facility in U.S. dollars and expects borrowings to bear interest at a floating rate based upon a Secured Overnight Financing Rate, or SOFR, benchmark rate or an alternate base rate, plus a margin of between 1.75% and 3.00%, with respect to SOFR loans, or 0.75% to 2.00%, with respect to base rate loans, based on the leverage ratio as calculated pursuant to our Revolving Credit Facility.
The obligations under the Credit Agreement underlying the Revolving Credit Facility are guaranteed by the Company and other guarantors. The Credit Agreement contains customary representations, warranties, conditions to borrowing, covenants and events of default, including certain covenants that limit or restrict, subject to certain exceptions, the ability of the Company, the Operating Partnership and other subsidiaries to sell or transfer assets, enter into a merger or consolidate with another company, create liens, make investments or acquisitions or incur certain indebtedness. The Credit Agreement also includes financial covenants that require the Company to (i) maintain a total leverage ratio not to exceed 65.0%, (ii) not to exceed certain fixed charge coverage ratios, and (iii) maintain a certain tangible net worth.
As of September 30, 2022, $73.7 million was outstanding under the Revolving Credit Facility.
On November 17, 2022, the Company executed an amendment to Credit Agreement which extends the maturity of the Revolving Credit Facility to April 1, 2024, amends certain financial covenants through the new term, and adds a requirement for the Company to use diligent efforts to pursue an equity raise or liquidity event by March 31, 2023. In connection with this extension, the Company will owe an extension fee of $375,000. When paid, the extension fee will be deferred and amortized over the new term of the Revolving Credit Facility.
The Company's loan with Bank of America, N.A. for the MVP Detroit Center Garage, LLC (“MVP Detroit”) garage requires the Company to maintain approximately $2.3 million in liquidity at all times, which is defined as unencumbered cash and cash equivalents. As of the date of this filing, the Company was in compliance with this lender requirement.
The Company may establish capital reserves with respect to particular investments. The Company also may, but is not required to, establish reserves out of cash flow generated by investments or out of net sale proceeds in non-liquidating sale transactions. Working capital reserves are typically utilized to fund tenant improvements, leasing commissions and major capital expenditures. The Company’s lenders also may require working capital reserves.
Over time, management intends to both extend and sculpt our maturity wall, so that our maturities are spread over multiple years. As of the date of this filing, the Company has significant commercial mortgage-backed securities (“CMBS”) debt with prohibitive defeasance, which will limit our ability to refinance our CMBS debt prior to the maturity date or any permitted prepayment date. As our loans approach maturity, we will assess the lowest cost, most flexible options available to the Company and refinance those loans accordingly. Our intent over the mid-term period is to work with lending relationships to maintain a revolver that can address upcoming maturities, should market conditions not permit us to refinance with longer-term debt.
On July 5, 2022, VRMI merged with and into Suncrest Holdings, LLC (“Suncrest”), an entity managed by an entity majority owned and controlled by Michael Shustek, the Company’s former Chief Executive Officer. On July 11, 2022, Suncrest assigned and sold five of the six notes issued originally by VRMI to certain of the subsidiaries of the Company (collectively, the “VRMI Notes”) to VRMII. As a result, the obligations of Company subsidiaries under the five VRMI Notes, including all repayment obligations, are now owed to VRMII. All of the loans evidenced by the VRMI Notes mature and are payable in full on August 25, 2022. However, in August 2022, the Company extended the term of the VRMI Notes to August 2023. In connection with this extension, the coupon rate was increased from 7.0% to 7.5% and the Company paid the lender a $0.6 million extension fee.
Distributions and Stock Dividends
On March 22, 2018, the Company suspended the payment of distributions on its shares of common stock, par value $0.0001 per share (the "Common Stock"). There can be no assurance that cash distributions to the Company’s common stockholders will be resumed in the future. The actual amount and timing of distributions, if any, will be determined by the Company’s Board of Directors in its discretion and typically will depend on various factors that the Company's Board of Directors deems relevant.
The Company is not currently and may not in the future generate sufficient cash flow from operations to fully fund distributions. The Company does not currently anticipate that it will be able to resume the payment of distributions. However, if distributions do resume, all or a portion of the distributions may be paid from other sources, such as cash flows from equity offerings, financing activities, borrowings, or by way of waiver or deferral of fees. The Company has not established any limit on the extent to which distributions could be funded from these other sources. Accordingly, the amount of distributions paid may not reflect current cash flow from operations and distributions may include a return of capital, (rather than a return on capital). If the Company pays distributions from sources other than cash flow from operations, the funds available to the Company for investments would be reduced and the share value may be diluted. The level of distributions will be determined by the Board of Directors and depend on several factors including current and projected liquidity requirements, anticipated operating cash flows and tax considerations, and other relevant items deemed applicable by the Board of Directors.
The Company did not repurchase any of its shares during the nine months ended September 30, 2022. During the nine months ended September 30, 2022, the Company did not pay dividends on its shares of Common Stock and does not intend to pay dividends on its shares of Common Stock in 2022. No cash dividends can be made on the Common Stock until the preferred distributions are paid.
Dividend Reinvestment Plan
From inception through March 22, 2018, when the Company suspended payment of distributions on Common Stock, the Company had paid approximately $1.8 million in cash, issued 83,437 shares of its Common Stock pursuant to its Dividend Reinvestment Plan (“DRIP”) and issued 153,826 shares of its Common Stock in distributions to the Company’s stockholders. All of the cash distributions were paid from offering proceeds and constituted a return of capital.
Preferred Stock
On March 24, 2020, the Company’s Board of Directors unanimously authorized the suspension of the payment of distributions on the Series A Convertible Redeemable Preferred Stock ("Series A Preferred Stock"), par value $0.0001 per share, and Series 1 Convertible Redeemable Preferred Stock ("Series 1 Preferred Stock" and, together with the Series A Preferred Stock, "Preferred Stock"), par value $0.0001 per share; however, such distributions will continue to accrue in accordance with the terms of the Series A Preferred Stock and Series 1 Preferred Stock.
As of September 30, 2022 and 2021, approximately $0.6 million and $0.3 million of accrued and unpaid Series A Preferred Stock distributions, respectively, are included in accounts payable and accrued liabilities on the consolidated balance sheet.
As of September 30, 2022 and 2021, approximately $7.2 million and $4.4 million of accrued and unpaid Series 1 Preferred Stock distributions, respectively, are included in accounts payable and accrued liabilities on the consolidated balance sheet.
Common Stock Warrants
On August 25, 2021, in connection with the Closing, the Company entered into a warrant agreement (the “Warrant Agreement”) pursuant to which it issued warrants (the “Warrants”) to Color Up to purchase up to 1,702,128 shares of Common Stock, at an exercise price of $11.75 per share for an aggregate cash purchase price of up to $20.0 million (the “Common Stock Warrants”). Each whole Common Stock Warrant entitles the registered holder thereof to purchase one whole share of Common Stock at a price of $11.75 per share (the “Warrant Price”), subject to customary adjustments, at any time following a “Liquidity Event,” which is defined as an initial public offering and/or Listing of the Common Stock on the Nasdaq Global Market, the Nasdaq Global Select Market, or the New York Stock Exchange. The Common Stock Warrants will expire five years after the date of the Warrant Agreement.
The Company assesses its warrants as either equity or a liability based upon the characteristics and provisions of each instrument. Warrants classified as equity are recorded at fair value as of the date of issuance on the Company’s balance sheet and no further adjustments to their valuation are made. Management estimates the fair value of these warrants using option pricing models and assumptions that are based on the individual characteristics of the warrants or other instruments on the valuation date, as well as assumptions for future financings, expected volatility, expected life, yield and risk-free interest rate. As of September 30, 2022, all outstanding warrants issued by the Company were classified as equity.
Critical Accounting Policies
Our 2021 Annual Report on Form 10-K, filed with the U.S. Securities and Exchange Commission (the "SEC") on March 30, 2022, contains a description of our critical accounting policies and estimates, including those relating to real estate investments and acquisitions. There have been no significant changes to our critical accounting policies during 2022.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not applicable.
ITEM 4. CONTROLS AND PROCEDURES
Controls and Procedures
(a) Evaluation of Disclosure Controls and Procedures
In connection with the filing of this Form 10-Q for the quarter ended September 30, 2022, our Chief Executive Officer (“CEO”) and our Chief Financial Officer (“CFO”) evaluated the Company's disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934. As a result of this evaluation, our CEO and CFO concluded that the material weaknesses previously identified in Item 9A. “Controls and Procedures” of our Annual Report on Form 10-K for the year ended December 31, 2021, were still present as of September 30, 2022 (“the Evaluation Date”). Based on those material weaknesses, and the evaluation of our disclosure controls and procedures, our CEO and CFO concluded that our disclosure controls and procedures were not effective as of the Evaluation Date.
(b) Remediation Plan and Status
Our remediation efforts previously identified in Item 9A. “Controls and Procedures” of our Annual Report on Form 10-K for the year ended December 31, 2021, are ongoing and we continue our initiatives to implement and document policies, procedures, and internal controls. Remediation of the identified material weaknesses and strengthening our internal control environment will require a substantial effort throughout 2022 and beyond. While we believe the steps taken to date and those planned for implementation will improve our internal controls over financial reporting, we have not completed all remediation efforts. The planned remediation activities described in Item 9A. “Controls and Procedures” of our Annual Report on Form 10-K for the year ended December 31, 2021 highlight our commitment to remediating our identified material weaknesses and remain largely unchanged through the date of filing this Quarterly Report.
The following remedial actions have been identified and initiated by the Company through September 30, 2022:
• The Company has hired a Chief Accounting Officer and will continue hiring and training additional accounting resources with appropriate levels of experience and reallocating responsibilities across the Company’s finance organization. This measure provides for segregation of duties and ensures that the appropriate level of knowledge and experience will be applied based on the risk and complexity of transactions and tasks under review.
• The Company will continue to educate control owners and enhance policies to ensure appropriate restrictions related to user access and privileged access are in place.
• The Company has provided access to accounting literature and research to enable the control owners in evaluating technical accounting pronouncements for certain transactions, in addition to utilizing third party resources when appropriate.
• Through its continued remediation efforts, the Company identified and recorded certain accounting adjustments during the third quarter of 2022 that were considered immaterial, individually and in the aggregate, to our Consolidated Financial Statements taken as a whole for the affected periods. The Company’s continued remediation activities will include the designing of internal control policies and practices that directly respond to these accounting adjustments.
As the Company continues to evaluate and works to improve its internal control over financial reporting, the Company’s management may determine that additional or different measures to address control deficiencies or modifications to the remediation plan are necessary.
(c) Changes in Internal Control over Financial Reporting
There have been no changes in internal control over financial reporting during the third quarter of 2022, that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.
The nature of the Company’s business exposes its properties, the Company, its Operating Partnership and its other subsidiaries to the risk of claims and litigation in the normal course of business. Other than as noted above or routine litigation arising out of the ordinary course of business, the Company is not presently subject to any material litigation nor, to its knowledge, is any material litigation threatened against the Company.
See Note M — Commitments and Contingencies in Part I, Item 1 Notes to the Consolidated Financial Statements of this Quarterly Report.
The following risk factors are material changes only and should be read in conjunction with the risk factors in the Company’s annual report on Form 10-K for the year ended December 31, 2021.
We have determined that there are conditions that raise substantial doubt about our ability to continue as a going concern.
The accompanying consolidated financial statements are prepared in accordance with generally accepted accounting principles applicable to a going concern, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business.
The Company has incurred net losses since its inception and anticipates net losses for the near future. As of September 30, 2022, the Company was in compliance with all applicable covenants in agreements governing its debt. However, based on the Company’s projected financial performance for the twelve-month period subsequent to the date of the filing of this Quarterly Report on Form 10-Q, the Company currently projects that it will not be in compliance with a financial covenant under the Company’s Revolving Credit Facility, as defined in Note F, Revolving Credit Facility, prior to the maturity date, which would result in an event of default. Such a default would allow the lender under the Revolving Credit Facility to accelerate the maturity of the debt, which carries a balance of $73.7 million as of September 30, 2022, making it due and payable at that time. Further, if our independent auditor includes an explanatory paragraph regarding our ability to continue as a “going concern” in its report on our financial statements for the year ending December 31, 2022, this may accelerate a default under our Revolving Credit Facility to the first quarter of 2023 at the time our financial statements for the year ending December 31, 2022 are filed. The Company does not currently have sufficient cash on hand, liquidity or projected future cash flows to repay these outstanding amounts upon an event of default. These conditions and events raise substantial doubt about the Company’s ability to continue as a going concern.
In response to these conditions, management’s plans include the following:
| 1. |
Capitalizing on recent business development initiatives that we anticipate will improve total revenues through increased utilization of our parking assets and in many cases at higher average ticket rates. |
| 2. |
Management is budgeting reduced overhead costs in 2023 through the reduction or elimination of certain controllable expenses. |
| 3. |
The Company is pursuing further amendments and/or extensions with respect to the Revolving Credit Facility, including waivers of noncompliance with covenants. |
| 4. |
The Company is pursuing certain potential capital raise or liquidity events, including the Merger as described above. |
However, there can be no assurance that the Company will be successful in completing any of these options. As a result, management’s plans cannot be considered probable and thus does not alleviate substantial doubt about the Company’s ability to continue as a going concern.
The consolidated financial statements do not include any adjustments relating to the recoverability and classification of recorded asset amounts or the amounts of liabilities that might result from the outcome of this uncertainty.
An increase in fuel prices may adversely affect our operating environment and costs.
Fuel prices have a direct impact on the ability and frequency of consumers to engage in activities related to transportation. Increases in the price of fuel may result in higher transportation costs and adversely affect consumer use at the Company’s parking garages. Increases in fuel costs also can lead to other non-recoverable, direct expense increases to us through, for example, increased costs of energy. Increases in energy costs for our tenants are typically recovered from lessees, although our share of energy costs increases as a result of lower occupancies, and higher operating cost reimbursements impact the ability to increase underlying rents. Rising fuel prices also may increase the cost of construction and the cost of materials that are petroleum-based, thus affecting the development of our existing assets or our tenants’ ongoing development projects.
None.
| * |
Filed concurrently herewith. |
|
| ** | Management compensatory agreement | |
| (1) |
Filed previously with Pre-Effective Amendment No. 2 to the Registration Statement on Form S-11 on September 24, 2015 and incorporated herein by reference. |
|
| (2) |
Filed previously on Form 8-K on December 18, 2017 and incorporated herein by reference. |
|
| (3) |
Filed previously on Form 8-K on October 28, 2016 and incorporated herein by reference. |
|
| (4) |
Filed previously on Form 8-K on March 30, 2017 and incorporated herein by reference. |
|
| (5) |
Filed previously on Form 8-K on November 12, 2021 and incorporated herein by reference. |
|
| (6) | Filed previously on Form 8-K on March 21, 2022 and incorporated herein by reference. | |
| (7) | Filed previously on Form 8-K on September 27, 2022 and incorporated herein by reference. | |
| (8) | Filed previously on Form 8-K on August 26, 2022 and incorporated herein by reference. |
Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
| Mobile Infrastructure Corporation |
||
| By: |
/s/ Manuel Chavez |
|
| Manuel Chavez |
||
| Chief Executive Officer |
||
| Date: |
November 18, 2022 |
|
| By: |
/s/ Stephanie Hogue |
|
| Stephanie Hogue |
||
| President and Chief Financial Officer |
||
| Date: |
November 18, 2022 | |