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Infratil's asset values rise, boosting Morrison & Co fees

Monday 8th April 2019

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Infratil says the value of three of its businesses, Canberra Data Centres, Longroad Energy and Tilt Renewables, has roughly tripled compared with their carrying value last September.

However, that means the incentive fees owed to Infratil’s manager, Morrison & Co, will go up and, together with additional operating costs and tax incurred by Longroad, as well as deferred earnings from Longroad, has led to a downgrade for expected underlying earnings before interest, tax, depreciation and financial instruments to $535-545 million from the $580-620 million expected previously.

Infratil’s shares fell 2.3 percent to $4.20, trimming their gain the past year to about 35 percent.

Morrison & Co’s additional incentive fees from the sale of student housing in Canberra and from the rising CDC and Longroad values total $71.6 million. Infratil began investing in Longroad in conjunction with the New Zealand Superannuation Fund and Longroad’s management in October 2016.

The rising CDC value will add $60 million to ebitdaf while the forecast Longroad Rio Bravo development gain of $16.3 million, which had been expected to be recorded in the 2019 results has been pushed into the 2020 financial year, as announced last October when Infratil reaffirmed its previous earnings guidance.

As well, Longroad will incur additional operating costs and taxes of about $20 million. The forecast contribution from other investments will be $10 million lower than previously estimated.

The Morrison & Co fees agreement requires Infratil’s international investments to be independently valued at March 31 and allows for incentives to be paid for performance in excess of 12 percent.

“The independent valuation increases underline the material shareholder value created through Infratil’s investment strategies in recent years,” says chair Mark Tume in the statement announcing the earnings downgrade, revaluations and fees.

“The board also notes that the excess returns for these assets above the international fund management agreement hurdle of 12 percent per annum is a very positive outcome in light of the current low interest rate environment,” Tume says.

Infratil says there’s no change to its dividend guidance – in November, Infratil said it expected total cash dividends for the year would total 17 cents per share with 5.68 cents per share of imputation credits. It declared a first-half dividend of 6.25 cents per share with 1.5 cents per share of imputation credits.

It said then its forecast cashflows meant it is likely to pay rising cash dividends but that imputation credits would be constrained by the rising share of income coming from Australia and the US.

The value of Infratil’s 65.3 percent stake in Tilt investment has risen from $427 million to between $650-$785 million, including the $49.8 million it spent on last year’s takeover offer and its $178.9 million contribution to Tilt’s recent rights issue.

Infratil says the mid-point of the valuation range implies the shares are worth $2.34 each. Tilt shares ended last week at $2.40. Tilt, which owns windfarms and solar energy projects, mostly in Australia, was spun out of Trustpower in October 2016.

The valuation of Infratil’s 48 percent stake in CDC has risen from $487.8 million to between $841-942 million. Infratil says since it bought the stake in September 2016, CDC’s run-rate ebitdaf has risen from A$50 million to A$90 million at March 31. CDC is currently forecasting run-rate ebitdaf of A$135 million by March 31 next year, much of which is already contracted.

“This growth reflects the significant investment in additional data centre facilities in Canberra and the acquisition of an existing data centre in Sydney which has enabled extensive expansion opportunities,” Infratil says.

Since the first investment in Longroad, it has executed two significant development projects.

Project Phoebe, a 250-megawatt solar generation project in Texas, which was sold to a Canadian investor, and Project Rio Bravo, a 238 MW windfarm in Texas, which has also been sold. At March 31, Longroad had four advanced development projects totalling 800 MW and a pipeline of longer-term development projects in multiple markets in the United States, Infratil says.

Longroad also holds 685 MW of operating assets and wind turbine inventory which are reflected in its valuation of $128 million, up from $84.5 million at Sept. 30.

Infratil’s shares ended last week at $4.30 and have risen nearly 40 percent in the last 12 months.


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