Transcript Project Flamingo

Surface Transportation Board Fall Forum
October 15, 2007
Washington D.C.
Strictly Confidential
Macquarie Securities (USA) Inc.
Mark Rosner
Senior Vice President
Macquarie Securities (USA) Inc.
Important Notice
The name "Macquarie" refers to the Macquarie group, which
comprises Macquarie Bank Limited and its worldwide subsidiaries,
affiliates, and funds or other investment vehicles that they manage.
This document does not constitute an offer to sell or a solicitation of
an offer to buy any securities. It is an outline of matters for
discussion only.
This document and its contents are confidential to the person (s) to
whom it is delivered and should not be copied or distributed, in
whole or in part, or its contents disclosed by such person (s) to any
other person.
You may not rely upon this document in evaluating the merits of
investing in any securities referred to herein. This document does
not constitute and should not be interpreted as either an investment
recommendation or advice, including legal, tax or accounting
advice.
Future results are impossible to predict. Opinions and estimates
offered in this presentation constitute our judgement and are subject
to change without notice, as are statements about market trends,
which are based on current market conditions.
This presentation may include forward-looking statements that
represent opinions, estimates and forecasts, which may not be
realized. We believe the information provided herein is reliable, as
of the date hereof, but do not warrant its accuracy or completeness.
In preparing these materials, we have relied upon and assumed,
without independent verification, the accuracy and completeness of
all information available from public sources.
STRICTLY CONFIDENTIAL
Nothing in this document contains a commitment from Macquarie to
subscribe for securities, to provide debt, to arrange any facility, to
invest in any way in any transaction described herein or is otherwise
imposing any obligation on Macquarie. Macquarie does not
guarantee the performance or return of capital from investments.
Any participation by Macquarie in any transaction would be subject
to its internal approval process. Macquarie Bank Limited is not
licensed to conduct banking business in the United States. It
maintains Representative Offices in New York, Texas, California
and Washington. With respect to matters pertaining to US
securities laws, and to the extent required by such laws, Macquarie
Bank Limited and its worldwide subsidiaries consult with, and act
through, Macquarie Securities (USA) Inc., a registered broker-dealer
and member of NASD, or another US broker-dealer.
Macquarie Securities (USA) Inc. is not an authorized deposit-taking
institution for the purposes of Banking Act (Commonwealth of
Australia) 1959, and Macquarie Securities (USA) Inc.’s obligations
do not represent deposits or other liabilities of Macquarie Bank
Limited ABN 46 008 583 542. Macquarie Bank Limited does not
guarantee or otherwise provide assurance in respect of the
obligations of Macquarie Securities (USA) Inc.
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Macquarie Group
Introduction to Macquarie
Diversified, international financial services organization
Macquarie Group – A Global Institution
Market capitalization of ~ US$18 billion
Total Macquarie assets under management ~ US$160 billion
55% of total operating income derived from international markets
11,000+ employees in 24 countries
- Over 1,200 employees in the Americas
Successive years of consistent growth since 1992
MACQUARIE IS ONE OF THE WORLD’S LARGEST
PRIVATE MANAGERS OF INFRASTRUCTURE
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Macquarie’s IBG
Business Model
A UNIQUE COMPLETE SERVICE PROVIDER
Broker
Financial
Adviser
Underwriter
Fund & Asset Manager
Principal
GOVERNANCE SEPARATION
Macquarie Advisory
IB Funds
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Advisory (Macquarie managed and other
non-affiliates)
Asset sourcing
1000+ executives (500+ infrastructure
specialists) worldwide with deal origination
and execution skills and experience
Funds focus
Active asset management
Investment evaluation
590+ staff worldwide
Equity under management ~$49bn*
Strong alignment of interests
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Fund shareholdings
Performance fee incentive
Remuneration based on fund
performance
*Market capitalization for listed
funds and net asset value for
unlisted funds for IBF funds
since inception to June 30,
2007 (listed funds as of June
30, 2007, unlisted funds as at
December 31, 2006).
Calculated in AUD. Cash
flows converted at historic
rates.
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Macquarie Group
Infrastructure Expertise
 Macquarie is one of the world’s leading providers of infrastructure advisory, financing and fund management services
— Macquarie has over 11,000 employees working in 24 countries
 The Infrastructure Advisory division is integrally involved in the acquisition and divestment of a broad range of infrastructure
assets in markets including the United States, Canada, Australia, New Zealand, Korea and the United Kingdom
 Through its involvement as a principal investor in infrastructure investments across the globe, Macquarie has expanded its
franchise by creating specialized funds targeting infrastructure assets
— Macquarie is a leading international infrastructure fund manager with over $49 billion of infrastructure asset equity under
management
— Macquarie has more than 500 staff worldwide in its IB Funds division, managing Macquarie’s listed and unlisted
infrastructure funds and companies
 Infrastructure assets are located in a number of international markets including the United States, Canada, the United
Kingdom, Germany, Spain, Portugal, Italy, Chile, Korea, South Africa and Australia
The Infrastructure Investment Spectrum
Throughput
Regulated
Contracted
Social
Infrastructure- Related
 Roads
 Tunnels
 Bridges
 Ports
 Airports
 Rail
 Electricity Distribution
 Gas Distribution
 Water Distribution


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 Ferries / Shipping
 Car Parks / Parking
Garages
 Telecoms Systems
 Directories
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District Energy
Renewable Energy
Power Generation
Communications
Towers
Hospitals
Long-Term Care
Schools
Courthouses
Prisons
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Macquarie Group
Successful private ownership
US$160 billion under management
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Sustained Deal Flow
109 ASSETS, 25 COUNTRIES –
UNIQUE GLOBAL POSITIONING, LOCAL ASSET MANAGERS
EUROPE
UK
United Arab Emirates
Al Ain Industrial City
Industrial City of Abu Dhabi (Phase 2)
Industrial City of Abu Dhabi Extension Phase 2
ICAD Effluent Treatment Plant
Airwave
Arqiva/NGW
Bristol Airport
CLP Envirogas
East London Bus Group
Energy Power Resources (UK)
M6 Toll
Moto
National Car Parks
Red Bee Media
Steam Packet
Talarius
Thames Water
Wales & West Utilities
Wightlink
Canada
Japan
407 ETR
A-25*
AltaLink
Cardinal Power
Clean Power Operating Trust***
Edmonton Ring Road
Fraser Surrey Docks
Halterm Limited
Leisureworld
New World Gaming*
Sea To Sky
Hakone Turnpike
Ibukiyama Driveway
Australia
AlintaGas Networks
Broadcast Australia
Dampier-Bunbury
Eastern Distributor (M1)
EastLink
Electranet SA
Macquarie Regional
Radioworks
Multinet
Prospect Water
RVG Sydney
Retirement Care Australia
Retirement Services Australia
Southern Cross Broadcasting
Sydney Airport
Transtoll
United Energy Distribution
Westlink M7
Zig Inge
China/Taiwan
Changshu Xinghua Port
Taiwan Broadband Communications
Belgium
Brussels Airport
Spain
Itevelesa
France
Autoroutes Paris-Rhin-Rhône
Energy Power Resources (Europe)
Trois Sources & Lomont windfarms
Germany
TanQuid (tank storage business)
Warnow Tunnel
Denmark
Copenhagen Airport
New Zealand
Portugal
Tagus Crossings
The Netherlands
European Directories**
NRE*
Netbeheer Haarlemmermeer*
Obragas Net*
USA
AFRICA
South Africa
Deep Sea Container Terminal
Bakwena Platinum Corridor
N3 Toll
N4 Maputo Toll
Neotel
Sweden
Tanzania
Arlanda Express
Kilimanjaro Airport
Poland
As at June 30, 2007 – the assets listed are managed on behalf of investors with various direct % stakes held in each
* Subject to financing and customary closing arrangements
** European Directories also located in Sweden, Finland, Austria, Czech Republic, Slovakia, Denmark and France
*** Includes wind, hydro and biomass power assets
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AIR-serv
American Consolidated Media
Aquarion
Atlantic Aviation
District Energy
Dulles Greenway
Duquesne Light
Hanjin Container Terminals
Icon Parking
Indiana Toll Road
International-Matex Tank Terminals
Longview
FastTrack Parking
Skyway
Smarte Carte
South Bay Expressway
The Gas Company
South Korea
Baekyang Tunnel
Cheonan Nonsan Expressway
Daegu East Circular Road
Incheon Expressway
Incheon Grand Bridge
Kwangju 2nd Beltway, Section 1
Kwangju 2nd Beltway, Section 3
Machang Bridge
New Daegu Busan Expressway
SK E&S
Seosuwon-Osan-Pyungtaek
Expressway
Seoul Chuncheon Expressway
Seoul Subway #9
Soojungsan Tunnel
West Sea Power / West Sea Water
Woomyunsan Tunnel
Yongin Seoul Expressway
Metlifecare
Private Lifecare
RCNZ
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Provider of essential community services
around the globe
Employees
+65,000 across the assets
Airports
+115 million passengers per annum
Toll Roads
1.7 million cars per day
Gas Distribution
6.9 million households
Water Services
+5.2 million households
Electricity Distribution
1.2 million households
Communications
83 million people are reached by Macquarie’s television, telephone and radio
infrastructure, and cable and newspaper services
Real Estate
+700 properties including retail, office, residential, leisure & industrial
Rail
2.7 million passengers per annum
Ferries
+6.0 million passengers per annum
Aged Care / Retirement Villages
+7,500 beds / +7,700 units
Buses
300 million passengers per annum
* As of March 31, 2007
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Macquarie Group
Value Add
Macquarie can add value to its managed infrastructure assets above and beyond the
investment case – value that government can’t unlock
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Vast access to capital.
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Generally, acquisition base case IRRs can range
anywhere from 9-10% for mature toll facilities to 1618% for assets with a higher growth component
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Thorough understanding of capital intensive
businesses
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Invests for the long-term
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The difference between bid case IRRs and the
historical performance IRR can be attributed to several
factors, including:
– Refinancing: ability to replace existing debt on
better terms and higher amounts due to maturity of
an asset; accessing different debt markets; higher
than expected usage and therefore revenues
– Operational improvement: such as improved
facilities, marketing & signage, cost reductions /
efficiencies, etc
– Decreasing risk profile: as the asset matures and
yields increase, the market may “re-rate” the asset
(i.e. reduce the discount rate applied to the asset’s
forecast cash flows, which results in an increase in
valuation)
– First-mover advantage: assets re-rate as the
market develops, even if the risk profile and
projected cash flows are unchanged
– Exit strategy: infrastructure assets are well suited
to exits via dividend-paying listed vehicles which
have a low cost of capital and can therefore
generate significant uplift
These potential upsides are often not built into our
investment case valuations and can potentially lead to
improved cash flows, which enable higher than
forecast valuations and distributions to equity
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Macquarie Funds/Vehicles
US$49 billion of equity under management
Listed
* For listed funds/vehicles - market
capitalization as at June 30, 2006
plus fully underwritten or committed
future capital raisings. Jointly
managed funds (DUET, MKIF)
included at 50%. Exchange rates
as at June 30, 2006.
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Fund/Vehicle
Description
Macquarie Infrastructure Group (MIG)
ASX listed infrastructure fund investing in toll roads in OECD countries
Macquarie Airports (MAp)
ASX listed fund investing in airports globally
Macquarie Communications
Infrastructure Group (MCG)
ASX listed fund investing in communications infrastructure in OECD countries
Macquarie Korea Infrastructure Fund
(MKIF)
KRX and LSE listed fund predominantly investing in Korean toll roads and tunnels
ConnectEast Group (CEU)
ASX listed fund through which the Eastlink toll road project was financed
Macquarie Infrastructure Company
(MIC)
NYSE listed company investing in infrastructure in the United States and other developed
countries
Macquarie Media Group (MMG)
ASX listed fund investing in media assets globally
Macquarie International Infrastructure
Fund (MIIF)
SGX listed infrastructure fund investing in a diversified group of infrastructure businesses
around the world
Macquarie Capital Alliance Group
(MCAG)
ASX Listed fund that has a global investment mandate investing in any industry sector other
than property
Southern Cross FLIERS Trust (SCF)
ASX listed special purpose fund holding subordinated debt investment in Sydney Airport
Diversified Utility and Energy Trusts
(DUET)
ASX listed trust investing in energy utility assets primarily in Australia and New Zealand
MAREST - TICkETS
ASX listed special purpose fund through which hybrid securities were issued to partially fund
the acquisition of Brussels Airport
Macquarie Power & Infrastructure
Income Fund (MPT)
TSX listed fund investing in infrastructure in Canada and US, with an emphasis on power
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Macquarie Funds/Vehicles
US$49 billion of equity under management
Unlisted
* Unlisted funds at committed capital
less any called capital subsequently
returned to investors. Invested capital
for mandated assets, MBL direct
holdings and MBL consortia equity.
Jointly managed funds (SAIF, AIIF,
GSKF and HCF) included at 50% of
committed capital, ZIF included at 49%
of committed capital. Adjustments have
been made where Macquarie-managed
funds have invested in other Macquariemanaged funds. Exchange rates as at
June 30, 2006.
STRICTLY CONFIDENTIAL
Fund
Description
Macquarie European Infrastructure
Fund (MEIF)
Unlisted fund investing in infrastructure in European OECD countries
Macquarie European Infrastructure
Fund II
(MEIF II)
Unlisted fund investing in infrastructure in EU member states, Norway, Switzerland
and other countries acceding to the EU on set dates during the Commitment Period.
Macquarie Airports Group (MAG)
Unlisted airport fund – focus on UK and Europe
Macquarie Infrastructure Partners
(MIP)
Unlisted fund investing in infrastructure predominantly in Canada and the United
States
Macquarie Essential Assets
Partnership (MEAP)
Unlisted fund focused on essential infrastructure assets in Canada and the United
Stated
Macquarie Korea Opportunities
Fund (MKOF)
Unlisted Korean infrastructure fund
Global Infrastructure Fund II (GIFII)
Unlisted infrastructure fund. Targets equity investments in OECD countries
ZonesCorp Infrastructure Fund
(ZIF)
Unlisted fund investing in infrastructure and related assets in industrial and commercial
zones located predominantly in UAE
African Infrastructure Investment
Fund (AIIF)
Unlisted fund with a focus on private sector investment in infrastructure projects in
southern Africa
Other
Includes funds managed under Macquarie Direct Investment, GSKF, MFIT, GIF, SAIF,
HCF, Mandated assets, Balance Sheet assets and MBL Consortia Equity
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Infrastructure
Why we like it
 Essential
 Strategic competitive advantage
 Stable, predictable cash flows
 Low correlation to other asset classes
 Price inelasticity
 Long-life assets
Core characteristics of infrastructure assets generally make them very attractive
to pension fund investors
Source: publicly available press articles
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Infrastructure
Acquisition
Private sector ownership - assets acquired through:
 Negotiation
 Government privatization
 Business combinations
 Public to private
 Incremental acquisition
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Railways
State of affairs
Railway management teams are on the receiving end of constant
scrutiny
Investors
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Railways not returning enough to investors
Underleveraged
Ability to increase returns
– Increased dividends
– Share repurchases

Management not doing enough
Shippers
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Poor service
Not enough competition
Rates too high
Sluggish traffic volumes have taken the
bloom off of the rail renaissance rose….
…Is this temporary or have we entered the
counter reformation
Labor
 Management not willing to share the spoils of the rail renaissance
 Aligning with shipper interests?
 Relationship strained
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Railways
State of affairs
While various stake holders are focusing on
their own issues, they are losing site of the
most critical issue
Infrastructure
Investment
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Railways
The Real Issue – Investment
From 1980 to 2005:
- Vehicle miles traveled:  96%
- Roadway lane miles:
 5.7%
- Rail volumes (in GTM’s):  64%
- Railway miles of track:  27%
Over the next 30 years:
- Population grows to 380+ million
- Freight demand (in tons) doubles
- $148 billion needs to be invested
in rail infrastructure to meet projected
capacity demand
Source:
Estimated Annual Highway Expenditure
“You cannot escape the
responsibility of tomorrow by
evading it today”
…Abraham Lincoln
Source: American Road and Transportation Builders Association
(Source: Global Insight, AAR / Cambridge Systematics - National Rail Freight Infrastructure Capacity and Investment Study, Statistical Abstract of the United States, US DOT)
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Railways
The Real Issue – Investment
WHERE WILL THE MONEY COME FROM FOR US
RAILROAD INVESTMENT?
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After Tax Profits
Probably
Tax Credits
Uncertain
Infrastructure Funds
Uncertain
Private Equity
Doubtful
PPP Activities
Doubtful
Government Grants
Doubtful
A Miracle?
Doubtful
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Railways
The Real Issue – Investment
Were shippers subsidized in the past?
We must not lose sight of
our past lessons…
Unlike the 60’s & 70’s:
 The US highway network cannot absorb
the volumes currently using rail
infrastructure if the rail infrastructure no
longer functions properly
 The ability to rationalize property, plant,
equipment and staff to improve
profitability no longer exists
 The bar has been raised
Using the wrong inputs to the proposed CAPM methodology can create
irreversible harm to the US rail network, US transportation network and the US
economy
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Railways
The Real Issue – Investment
Infrastructure capital naturally flows to the sources which yield the
highest balance of risk & return
Infrastructure Capital
Rail
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Toll Roads
Airports
Utilities
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Railways
The Real Issue – Investment
Restrictions to profitability will cause infrastructure capital to flow in
different directions
Infrastructure Capital
RE-REG
Rail
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Toll Roads
Airports
Utilities
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Railways
Time to get along
Stake holders must begin to focus on the issues of their counterparts
and work together to achieve understanding and solution
Investors
 Understand the CAPEX issues
 Choose boards that can understand the business and direct change
Shippers
 Understand the CAPEX issues
 Understand the cost of capacity
 Pay full allocation of costs
 Work to achieve efficiency of operations
 Be realistic
Management
 Enter into a proactive dialogue with Labor
 Be willing to address one off small shipper rate issues
 Do everything in your power to please your investors
 Rebuild the trust
Labor
 Enter into a proactive dialogue with Management
 Align your interests in the proper place
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Original Questions
ORIGINAL QUESTIONS
 Investment Strategy
—Invest in infrastructure or entities that display infrastructure characteristics
 Why infrastructure is a good investment
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
Essential
Strategic competitive advantage
Stable, predictable cash flows
Low correlation to other asset classes
Price inelasticity
Long-life assets
 Why transportation assets are worth acquiring or leasing or investing in?
 What affects our analysis?
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Final Thought
Infrastructure Investment Concerns
National security concerns do not justify restricting private funding to
domestic capital sources
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Private funding regulated by same anti-money laundering, fraud and other rules and
restrictions as domestic owners
No sensitive national security information is compromised via private ownership
—

Restricting capital to domestic sources would not be efficient
—
—
—

Homeland security requirements are the same regardless of ownership
Not realizing full value potential
Leaving money on the table
Restricting competition
Domestic sources of capital are often not necessarily so
—
—
Foreign investors frequently commit large sums of capital into domestically-raised private
equity funds
Just because the fund manager is based in the U.S. does not mean that all sources of
capital are domestic
Source: publicly available press articles
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Contact
Mark Rosner
Senior Vice President
Macquarie Securities (USA) Inc.
Tel.: (212) 231-1361
Fax.: (212) 231-1717
[email protected]
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