Parkit Enterprise Inc. Ticker: PKTEF Purchase Price: .3995 Shares

Parkit Enterprise Inc.
(OTCQX: PKTEF)
Harvard Financial Analysts Club
March 12, 2015
Special Opportunities Group
Katherine Chen, Elaine Dai, Willie Jin, Kevin Li, David Reading, Collin Styring, Anita Xu, Carlos Xu, Jeremy Welborn
Special thanks to Nathan Gupta
Thesis
Heads We Win, Tails We Lo— Actually, Never Mind
Because Parkit’s stake in Canopy (one of its two parking
lots) accounts for its entire equity value, we get a free call
on growth of the parking lot real estate fund powered by
the experienced management teams of Parkit and Propark.
Table of Contents
 Introduction and Management
 Canopy Asset (Denver, CO)
 Expresso Asset (Oakland, CA)
 Valuation and Discussion
Parking Industry Basics
Large, Fragmented Market Creates Opportunities for Disciplined Investors
Within US, parking represents a large fraction of transportation costs
- Highly fragmented industry with ~$25-30 billion revenue every year
- 105 million parking spaces in US currently
- Annual market growth 2.5%
- Stable industry dynamics
Parking lots
- Competitive
- Costs as % of revenue: Rent 26.0%, Wages 26.2%, Purchases 7.2%, General
maintenance 12.9%, Depreciation 4.4%
- Increased automation leading to reduced labor expenses
- Industry profit margin estimated to be 20.8% in 2014
Parkit’s competitive advantage
- Propark’s national scale and high-quality parking lot management capabilities
- Ability to source off-market from Propark-generated leads or from the 475 Proparkoperated properties
- “Collectability is assured as customers pay upon exit.” (Parkit management)
Parkit At a Glance
Parkit is a Real Estate Investor Focused on United States Parking Lots
Parkit is coinvestor with Propark America, a parking lot manager, in a diversified portfolio of
parking lot assets.
Focused investment strategy within an alternative real estate asset class:
- Stable cash flows diversified by geography and type, across the United States
- Ability to enhance value through yield optimization, redevelopment and aggregation
- Off-market pipeline sourcing within Propark’s current footprint, unlisted off-market
properties, properties with commercial redevelopment potential, or municipalities
moving towards restrictive parking bylaws & zoning
Cap Stack
Investment economics:
- Goal to aggregate $500m to $1 billion of assets
over 4-5 years and divest for capital gain
- Acquire at 7% cap, optimize and divest at 6% cap
Share price (3/12/15)
FD shares out (m)
Market cap (m)
Warrants
Amt
Strike
Tranche 1
1.7 $ 0.40
Tranche 2
3.9
0.50
Tranche 3
1.6
0.60
Tranche 4
1
0.65
Options
2.7
0.50
Total
10.9
Shares out
FD shares out
$
0.39
30.9
$ 11.93
Net
30.9
30.9
Parkit Management
Demonstrated Track Record in Corporate Finance and Management
Rick Baxter (CEO & Director)
- Transportation experience – President & CEO of West Coast Air (small Canadian airline)
- Tourism Vancouver Board – 12 years; Chair of the Board – 2010 Vancouver Olympics
- Canadian Advisory Board for Marsh and Mclennan Companies (world’s largest
insurance broker) – MMC (NYSE) +12% in the last year, +130% in the past 5 years
Simon Buckett (CFO)
- Auditor for KPMG (2001-2006) and Ernst & Young (2006-2008)
- VP Finance and Operations Wurldtech (2008-2012) – purchased by GE in 2014
Patrick Bonney (VP, Corporate Development & Director)
-
Founder and Managing Partner – MI7 Advisory Service (business consulting for
opportunities in India)
Expert in cross-border real estate – Over $1 billion in cross-border US real estate
acquisitions for Mizuho Trust, with over 20 years global investment banking experience
Cofounded institutional private equity real-estate funds with combined capital
commitments of $500 million
Hired to spearhead the expansion of the Canopy project through numerous other
parking-related real estate acquisitions
Propark At a Glance
Parkit’s Strategic Partner is an Expert in Parking Management Services
Parking management company providing a variety of parking related services
- Primarily parking management services for hotels, airports, restaurants, stadiums,
universities, events, etc. (clients include Google, Citibank, Yale & Harvard)
- Parking real estate investment, purchasing, and management consulting services
- Employs leading technology and best-practices to optimize cash flow
Services 475 locations in 45 cities across US, 2,000 employees, founded 1984 in Hartford, CT
Has managed a total of $2.5B + in parking assets over its history
- Sustainability: started green initiatives in 2003
- Energy-efficient lighting, solar and wind tech, electric vehicle charging, carsharing
- Built Canopy Airport Parking which won National Parking Association’s 2012
Innovation Award
- High-tech
- Integrates smartphone and telematics information programs to provide clients with
better information on their parking lots and to improve customer service
- Uses occupancy numbers and projections to create dynamic pricing models to
maximize revenue
March 12, 2014: Joined Parkit as part of exclusive strategic alliance to bring property-level
operational expertise to their joint parking acquisition fund
Propark Management
They Love Parking Lots
Parkit’s coinvestor and strategic partner is run by expert parking lot managers and investors
David Schmid – CIO of Propark
- 25 years experience in parking industry, past CFO and COO of Propark
- Led Propark from regional parking lot company to leading national parking
management firm
- Operates 475 lots in 45 cities, with $100M income on $1.2B parking lot assets
John Schmid – CEO and President of Propark
- 30 years experience, launched Propark’s real estate division
- Chairman of Green Parking Council and pioneer in the green parking movement
Tom Bechard – Chief Development Officer of Propark
- Leading commercial real estate broker
- Helped develop Canopy project
Table of Contents
 Introduction and Management
 Canopy Asset (Denver, CO)
 Expresso Asset (Oakland, CA)
 Valuation and Discussion
Canopy Airport Parking
Valuable Denver Airport Parking Asset with Room to Grow
Canopy is a 4,200 stall parking lot at the Denver International Airport (DIA)
- Canopy is a very green facility – has solar panels, a geothermal heating and cooling
system, and wind turbines
- Built by Propark for $19m in 2010; appraised at $38m in 2013; managed by Propark
- Discount prices at Canopy lot compared to other lots
- NOI from Canopy increased 39% from 2013 to 2014 on only 21% growth in revenue
- NOI grew 73% over the past two years on revenue growth of just 36%
- This reflects operating leverage, as cost structure is mainly fixed
- Financial leverage: $16.4m long-term debt on the parking lot
- Occupancy rate grew from 52% in 2013 to 57.5% in 2014
- Blended parking rates grew as well – this means more people are using the more
expensive parking options such as valet as opposed to open air parking
Growth potential: DIA is one of the U.S.’s busiest airports, and traffic hit an all-time high for the
first six months of 2014 after little growth from 2008–2013
Table of Contents
 Introduction and Management
 Canopy Asset (Denver, CO)
 Expresso Asset (Oakland, CA)
 Valuation and Discussion
Oakland International Airport (OAK)
Popular San Francisco Airport with Recovering Passenger Traffic
- 5mi south of downtown Oakland
- 1 of 3 international airports in SF
Bay Area
- OAK is closest airport to the SF
financial district
- Focus city for Southwest Airlines
(71%), Alaska Airlines (6%)
- Passengers peaked in 2007 at
14.6M. Currently 10.3M
- Advantage of OAK over SFO is
OAK’s history of on-time arrivals
Source: http://www.transtats.bts.gov/airports.asp?pn=1&Airport=OAK&Airport_Name=Oakland
• OAK’s passenger volumes fell during the 2008
Financial Crisis but are steadily increasing
• Airport is slowly growing capacity, adding new
nonstop flights and increased flights to
destinations such as Hawaii annually
Source: http://www.transtats.bts.gov/airports.asp?pn=1&Airport=OAK&Airport_Name=Oakland
-
Expresso provides long-term parking at OAK
Least expensive daily and LT parking (tax included in prices)
Open 24/7
Offers free 8-minute shuttle to airport
Offers Self Park Outdoors, Premium Indoor Self Park, Valet Parking Inside
Very strong branding
Expresso Airport Parking
Late 2014 Acquisition
-
14 acre, 1900 stall parking property with valet, covered and open air parking lots
Acquired on September 26, 2014 by JV between PKT and PRE (Parking Real Estate, LLC, comprised
of Propark executives)
Funded by a $13.2 million mortgage with Capital-Source (Pacific Western Bank) and a $5.5 million
investment by Parkit ($5.0 million debt and $0.5 million in cash)
September 26, 2014: TTM revenue increased by 7%, TTM NOI increased by 24%
Management anticipates accelerated growth through optimization of operations and financing
Over 5 weeks following September 26, 2014: Expresso returned $CAD 150,422 in profit to Parkit
Table of Contents
 Introduction and Management
 Canopy Asset (Denver, CO)
 Expresso Asset (Oakland, CA)
 Valuation and Discussion
Valuation
Unusual Equity Cash Flow Payout Waterfall Favors Class A Shareholders
Note: Parkit owns 81.6% of Class A shares
Valuation
Investors Enjoy Margin of Safety from Canopy Asset Alone
2013 Appraisal
NOI
Cap rate
Asset value
(-) Debt
Equity value
$
$
38.4
16.4
22.0
Equity cash flow distribution
Distributed value
$
10.9
Stage 1 (<$11.08m)
0.2
Stage 2 (<$18.00m)
6.9
Stage 3 (<$27.24m)
4.0
Excess
$
Class A share of distribution
Stage 1 (100%)
$
0.2
Stage 2 (80%)
5.5
Stage 3 (60%)
2.4
Excess (50%)
5.4
Total value
$
13.6
Parkit's 81.6% stake $
Upside
11.1
-7%
Canopy @ Denver Int'l Airport
2015 Appraisal
2014 Low
2014 High
$
3.2
$
3.2
8.4%
8.0%
$
44.0
$
38.1
$
40.0
16.4
16.4
16.4
$
27.6
$
21.7
$
23.6
$
$
$
$
$
10.9
0.2
6.9
9.2
0.4
$
0.2
5.5
5.5
5.6
16.9
$
13.8
16%
$
$
$
10.9
0.2
6.9
3.7
-
$
0.2
5.5
2.2
5.4
13.4
$
10.9
-8%
$
$
$
2015 Low
$
3.5
8.0%
$
44.0
16.4
$
27.6
2015 High
$
3.8
7.5%
$
51.2
16.4
$
34.8
10.9
0.2
6.9
5.6
-
$
10.9
0.2
6.9
9.2
0.4
$
0.2
5.5
3.4
5.4
14.5
$
0.2
5.5
5.5
5.6
16.9
$
11.9
-1%
$
13.8
16%
$
$
$
$
$
10.9
0.2
6.9
9.2
7.6
0.2
5.5
5.5
9.2
20.5
16.7
40%
Thesis
Asymmetric Risk-Reward
Because Parkit’s stake in Canopy (one of its two parking
lots) accounts for its entire equity value, we get a free call
on growth of the parking lot real estate fund powered by
the experienced management teams of Parkit and Propark.