Parking Industry Remains Attractive for Investors

December, 2008

The current economic and financial market conditions provide challenges to car parking operators, and to potential investors in the parking industry.
A recession of the U.S. economy may impact cash flows in the near-term through office occupancy, travel activity – including airport and off-airport parking – and general economic activity. It is important to understand the impact of these changes.
Even with the recent meaningful reductions of gas prices, driving behaviour and traffic patterns seem to have been altered for the medium-term through the substantial run-up of oil prices earlier this year.
These short-term adjustments and difficulties do not alter the long-term growth trend of the industry. Its essential service nature provides resilience and helps the parking industry weather the current crisis better than others.
Most parking operating businesses are not capital intensive, which reduces the impact of the current difficult credit markets. However, debt is required for acquisitions, real estate deals, development projects and to refinance existing debt.
For companies that are attempting to raise debt in this marketplace, it is important to partner with a financial advisory team capable of navigating through these unprecedented times.
A debt structuring and advisory team should comprise leaders within the debt capital markets who have been successful in sourcing debt from lenders around the world and continues to secure committed debt financing for transactions even through the current economic turmoil.
Since August 2007, Macquarie Capital Advisors’ global debt team of 60-plus people has arranged more than U.S. $86 billion of debt financing for both its funds and third-party clients.
While it is crucial to analyze current operating performance trends, the circumstances have not closed the window for attractive car parking transactions.
We at the Macquarie Group (see sidebar) remain firm believers in the attractiveness of the parking industry.
What makes an attractive opportunity from an investor’s perspective?
Screening potential acquisition targets requires a case-by-case approach. However, certain central characteristics typically have a meaningful impact on how attractive a particular car parking business is to private investors.
• Demonstrated ability to retain locations and grow the portfolio. The key to the attractive, stable and long-term cash-flows thesis is to demonstrate that the existing portfolio of locations is stable and, ideally, growing. A track record of solid retention rates and new locations may indicate to investors that the business is a reduced risk of material reduction after acquisition. Meaningful market share in any given market provides evidence that operations can be successfully maintained and grown.
• Appropriate balance of leases and management agreements. From an investor perspective, leases are more attractive because they provide longer-term visibility to cash flows, as opposed to the risk of losing a management agreement at short notice. However, it is crucial that leases are structured and priced to fit the local market. A lot of markets and locations provide a higher level of demand risk and lend themselves more to management agreements, where the ability to retain locations over time becomes increasingly important.
• Proven management team. We at the Macquarie Group seek businesses with a proven management team that have created a successful business. Macquarie seeks to partner with existing management to help them further the business.
These are examples of key criteria that the Macquarie Group expects to apply to most car parking companies. We are excited about continuing to invest in and partner with excellent car parking operators.
Duncan Murdoch can be reached at duncan.murdoch@macquarie.com and Tobias Bachteler at tobias.bachteler@macquarie.com in Macquarie’s New York office.

Sidebar:
The Macquarie Group is a global provider of banking, financial, advisory, investment and funds-management services. Headquartered in Australia, it also is an active and leading financial investor in the car parking industry worldwide.
In 2006, a Macquarie-led consortium purchased Icon Parking, the leading car parking company in Manhattan. Macquarie Infrastructure Co. owns FastTrack, the largest off-airport parking network in the U.S. Another Macquarie-managed fund acquired the largest parking company in the UK, National Car Parks.
The Macquarie Capital Advisors division provides a wide range of financial advisory services, including mergers and acquisitions, equity capital markets, restructurings, project finance, and tailored strategic and financial advice across five offices in the U.S.