Nobody wants a parking ticket. Unless you're an infrastructure fund, that is, with Q-Park, National Car Parks and InterPark the latest assets to change hands since May. Car parks are an asset in demand and just like conventional parking tickets, they don’t come cheap, typically selling at multiples of around 15 times EBITDA.
Perhaps the demand within the sector is best encapsulated by the sale of Q-Park to KKR Infrastructure and EDF Invest, which reportedly generated interest from 30 bidders in the first round before eventually being sold for an enterprise value of €2.95 billion. The demand for the asset and the abundance of opportunities means the New York-based firm is unlikely to settle either.
“There is a lot of consolidation potential in that industry,” explains Vincent Policard, KKR’s director of energy and infrastructure. “If you look at the parking industry in all the markets in which Q-Park is active, this is a very fragmented industry and so you have the ability as a leading operator in the sector to go and buy more.”
The figures paint a clear picture: Q-Park estimates there to be about 48 million regulated parking places in Europe, with 50 percent of these falling outside countries in the company’s current market share and, even then, the seven-largest operators – including Q-Park, Saba and Indigo – represent between 10 percent or 20 percent of the market share, dependent on the country. From just a European perspective, the car parking industry is far from gridlocked.
REAL ESTATE, INFRA OR PE?
Perhaps part of the surprise at the increased interest in parking assets in the last couple of years stems from the question of whether car parks are really infrastructure at all. Car parks can be, and have been, considered at times real estate or private equity plays. Indeed, Alinda Capital Partners recently sold US parking operator InterPark, having originally bought it from GE Real Estate, while Dutch firm Bouwfonds Investment Management is now investing its third ‘Real Estate Parking Fund’. Yet, according to Policard, the red line needn’t be so straight.
“When we look at a parking business, we wouldn't categorise it per se as being infrastructure. It’s down to the business models that particular business follows,” he says. “In reality, even if you have significant real estate underpinning, and that's the case for Q-Park, you still have an operational dimension to the business which requires active management and that makes it more infrastructure to our mind.”
Policard adds that the long-term concession models of car parks also contribute to the infrastructure characteristics of the asset. This is particularly the case with Q-Park, where the current average remaining duration on its models amounts to 54 years. For KKR, he says, the long-term predictability of the cashflows and barriers to entry are perfectly suited to its definition of infrastructure.
However, depending on what kind of deal is in place, car parks can serve as a truly hybrid asset. While Mario Maselli, senior director of energy and infrastructure at TIAA Private Investments, the recent joint acquirer of InterPark, believes “this asset class has always been viewed as part of the infrastructure bucket”, InterPark assets can also be converted into commercial buildings, for example – a move he says would only happen in “the worst-case scenario”.
“Unlike in some other parking situations where it's a concession or a lease structure, in this particular case, we have the right to repurpose the asset if need be,” he says. “Obviously that's not what we're looking to do, but owning the real estate allows you to.”
As noted, an important aspect of various recent parking transactions are the EBITDA multiples investors are forking out to purchase such assets. While Q-Park was sold at 15 times EBITDA, Macquarie’s sale in July of the UK’s National Car Parks to Japanese investors amounted to 13.8 times. Meanwhile, Ardian and Crédit Agricole Assurances are seeking to exit parking firm Indigo and are understood to be hopeful of a valuation at 17 times EBITDA. Owning a car park, it seems, is good business if the competition can be squeezed out and Policard believes this is down to a mix of the characteristics of the asset coupled with the realities of today’s investment world.
“They are quite cash generative so the kind of yield that you achieve on a business like that is high,” he explains. “In today's world, yield is a sought-after commodity and so being a business which is so cash yielding is quite attractive. The other dimension people realise from parking assets compared with a lot of other transport infrastructure is those assets are actually a lot more stable in terms of volumes.” Q-Park’s long-term predicted cashflows were another significant factor in driving up the price in this specific case, he adds.
The consolidation aspect of the industry pointed out by Policard has also been a common method used to boost the value of parking assets. Stockholm-based EQT Partners bought Spain-based Parkia through its debut fund in 2011, before offloading the asset in 2016 after doubling the size of its base, while NCP’s new owners – Park24 and the Development Bank of Japan – earmarked further buys across Europe through its acquisition. However, the picture of value generation isn’t so straightforward given Macquarie’s sale of NCP netted an enterprise value of £450 million ($586 million; €503 million), 10 years after it paid 3i an enterprise value of £750 million.
One concern about car park investments is that this is an asset on its way to being outdated. Shifting consumer and technological trends such as online shopping and deliveries, as well as electric and automatic vehicles, could mean the typical uses of a car park are changing and could hit revenues.
However, Policard insists KKR won’t be a passive investor and will seek to react to the changing environment. In big cities, where the shifts in behaviour are taking place on the largest of scales, Q-Park is eyeing deals with municipalities to follow the trend and help authorities move parking from on-street to off-street. This, though, remains a small part of its asset base.
“If you look at the composition of Q-park revenues, the cities it’s exposed to are really mid-sized,” he says. “The sharing economy will not work in the same way because those cities don't have the required size for it.” The company has also installed more than 500 charging points for electric vehicles across its jurisdictions. Policard says equipping car parks with such capabilities “is very well received by municipalities” and allows other benefits to be reaped from the concession contracts.
The advent of automatic vehicles, though, is not a worry for KKR or TIAA. The former is likely to hold on to the asset for between seven and 10 years, a period when the technology will still be in its infancy, while TIAA is unconcerned about the immediate impact of the technology.
“It takes decades to replace fleets of vehicles, not something that would be planned overnight,” says Marietta Moshiashvili, managing director of its private infrastructure business.
Given the amount of dealflow, the market does not seem to think it is parking money in a stranded asset class.