Macquarie International Infrastructure Fund

[Nick]

Since 2009, they became more cautious and halted the asset trading policy. Instead, value in the form of book value growth and distributions were tied directly to the performance of the 3 core assets. For example, MIIF unitholders will only benefit if TBC value appreciated or its distribution increased and this rest upon TBC Management's ability to grow its business and market share in the long run. In other words, value isn't being created by MIMAL directly anymore since they don't run it directly (though they sit on the Board). How the Management of TBC, CXP and HNE fares operationally will determine the Fund's fate.

Previously, I would be more concerned with the Management ability to buy low sell high or finding opportunities in distressed markets or using debt to buy new investments or making opportunistic bets etc. But these days, I would be more concerned about how is TBC performing or how is the traffic volume in HNE etc since these assets are funding the dividends. Hence, I would say that MIIF value rest on the underlying assets and their future prospects as opposed to MIMAL's ability to under-take active portfolio management (like in the past).

MIMAL did not run the assets previously.
MIMAL is also not running the assets that they acquire in the various Asian countries in the new strategy, either.

If U think of MIIF as a pure divid play then MIMAL can stop at the 3 assets.
But, what about putting the cash hoard from the divestments to use ?
MIMAL must undertake active portfolio management and invest in other assets to recycle the cash; otherwise why the base fee of close to 4m yearly ? which is an expense ( we are not talking performance fees).
MIMAL must be proactively looking for and researching better assets. otherwise they are sleeping at the wheel.
Also, HNE has an existing loan maturing soon. What are the plans for handling this?

Sorry on the 0.525 figure, should read 0.575 as U pointed out.
Remember MIIF as the name suggests is an Infra fund allocator; it manages the funds.
It cannot just use share buybacks to reduce the size of the funds (cash hoard), pay yearly divds and collect base fees

HNE loan matures in 2020 and it amortizes annually with a balloon profile.

If MIIF have no great investment target, it makes better sense to downsize the fund. Investors would be happy since the DPS will increase in the process since outstanding float is reduced and management fees would drop.

Of course, it will keep looking for something good. The fees will drive them to do that since it will be fee accretive to buy something. But with that being said, the current dividend profile hinges on the operational and capital sustainability of the underlying assets as opposed to MIMAL ability to divest these assets at a profit and buy something else and then sell it again at a profit while hoping no credit crunch comes and destroy the valuation of whatever they are holding. Again, all of this are based on my inferences of the Management actions over the past few years rather than concrete facts so I might be mistaken.

It would be more interesting to examine how the 4 assets will perform in the coming years.