CORE INFRASTRUCTURE FUND

Transcription

1 AMP Capital Investors Limited ABN , AFSL AMP CAPITAL CORE INFRASTRUCTURE FUND Quarterly Report December 2017

2 Contents 1. FUND PERFORMANCE AND COMMENTARY 3 Market Overview 4 Fund Performance 6 Sector and regional allocation 7 Top 10 Holdings 7 2. UNLISTED PORTFOLIO 9 Australia Pacific Airports Corporation (APAC) 10 Angel Trains 11 AquaTower 12 Powerco 13 SA Schools 14 Port Hedland International Airport (PHIA) 15 Global Infrastructure Fund (GIF) 16 AMP Capital Diversified Infrastructure Trust (ADIT) 17 Global Infrastructure Fund II (GIF II) LISTED PORTFOLIO 19 Listed portfolio performance trends 20 Performance summary listed portfolio 20 Utilities 21 Communications Infrastructure 21 Transport infrastructure 22 AMP CAPITAL CORE INFRASTRUCTURE FUND 2

3 1. FUND PERFORMANCE & COMMENTARY AMP CAPITAL CORE INFRASTRUCTURE FUND 3

4 Market Overview Global shares continued to be buoyed over the quarter by generally positive data and sentiment, with the International Monetary Fund revising up its global forecasts. At the end of the quarter, and as widely telegraphed to the market, the US Federal Reserve raised interest rates again by 0.25% to a % range. However, as wages growth and inflation remain under target, future hikes are likely to remain gradual. President Trump nominated Jerome Powell to succeed Janet Yellen as Chair of the US Federal Reserve, a move considered a vote for the status quo in terms of policy. The US House of Representatives and Senate passed the administration s tax reform programme during December. The US reported strong business conditions, a rebound in new home sales, solid gains in durable goods orders and historically low jobless claims, indicating overall robust business investment conditions. However, despite relatively high US asset valuations, current low volatility suggests there may be an element of market complacency, which increases the risk of a correction. In Asia, Japan s Shinzo Abe s Liberal Democratic Party led coalition was returned with a large victory, retaining a two-thirds parliamentary majority. Core inflation remains significantly below the Bank of Japan s 2% target, ensuring its accommodative monetary and fiscal policy and 0% 10-year bond-yield target will remain in place for the time being. However, overall Japanese economic data remains strong; with further gains in the Tankan business conditions indices, strong machine orders and positive economic sentiment. In China, foreign exchange reserves continue to rise with capital outflows remaining under control. Chinese equities saw some volatility during the quarter, following fresh government imposed liquidity restrictions and additional measures introduced to reduce the risk for loans linked to the shadow banking sector. The Chinese Communist Party Congress saw President Xi Jinping entrench his power base further with a seven-member leadership team. Key outtakes from the congress include a focus on sustainable growth, supply-side economic reforms, rebalancing towards more consumptionbased growth and policies to manage financial risks, pollution and inequality. Chinese export and import growth has been stronger than expected, indicating continuing solid growth. Infrastructure investment has also increased. In Europe, the European Central Bank announced a further extension of its quantitative easing programme, albeit at a reduced rate of 30 billion a month from January 2018 for nine months, with an intention to then taper down. The German political environment remained in a state of flux as initial coalition talks to form a new government collapsed. However, this uncertainty is seen by most market participants as a relatively short-term risk that is unlikely to have any significant long-term impacts on European stability. Despite political uncertainty, overall Eurozone business conditions remain strong, with the German Ifo Institute for Economic Research s Business Climate Index approaching its highest level since 1969, and European economic sentiment at its highest levels since In a sign of regulatory tightening, some of the world s largest banks are to discuss financial settlements with the European Commission, in an attempt to finalise a probe into allegations they organised a cartel to influence the US$5.3 trillion global foreign exchange market. The UK and European Union agreed initial terms of reference for the UK to split from the union, which will allow trade negotiations to proceed, although there remains a significant way to go. Elsewhere, crude prices have exhibited some recent support, despite some pull-backs and volatility, due to increasing demand and restricted supply, including ongoing supply restrictions from the Organization of the Petroleum Exporting Countries. Domestically, the Reserve Bank of Australia (RBA) kept interest rates on hold during the quarter, retaining a neutral short-term bias on future movements. Forces moving against an interest rate cut include improving global growth, strong business confidence, jobs growth, and high levels of household debt. However, record low wages growth, low underlying inflation, housing affordability and the relatively strong Australian dollar are providing countering forces. The next move in interest rates is still likely to be up, however, with the conflicting pressures, this is unlikely to occur until late 2018 or into With economic growth taking a while to gather momentum it will likely be a while until this feeds through to wages growth and higher underlying inflation. The RBA s Financial Stability Review reported Australia s financial system as being robust, however the primary risks remain centred around household debt and the housing market. It also announced it will be conducting bank stress tests, which have the potential to justify a further tightening of macro-prudential standards if weaknesses are found. The Australian investment cycle is showing some positive signs as it makes the final transition away from a mining-dominated economy. Non-mining investment plans should lead to a boost in growth and somewhat offset the weaker housing market and more subdued consumer spending. Weak wages growth and uncertainty on energy prices, set against a background of high household debt, are likely to constrain consumer spending for a while yet. On the positive side, an increase in liquefied natural gas exports and robust population growth should help stabilise economic growth. AMP CAPITAL CORE INFRASTRUCTURE FUND 4

5 The US reported strong business conditions, a rebound in new home sales, solid gains in durable goods orders and historically low jobless claims, indicating overall robust business investment conditions. AMP CAPITAL CORE INFRASTRUCTURE FUND 5

6 Fund Performance The AMP Capital Core Infrastructure Fund (CIF or the Fund) returned 2.98% (Class A) and 2.93% (Class H) for the fourth quarter of 2017, outperforming the benchmark return of 1.46%. The Fund continues to deliver on its objectives with the mix of unlisted and listed infrastructure assets within the portfolio producing an above-benchmark return of 12.52% (Class A) and 12.29% (Class H) for the one-year period; each with a respective annualised volatility of 4.20% and 4.22%. CIF has performed above its benchmark of Australian 10-year government bonds +325 basis points (bps) over the one, two, three and five-year periods to. The return since inception in 2007 has also exceeded the benchmark. AMP Capital Core Infrastructure Fund-performance Performance to 3 months 1 year 2 years 3 years 5 years Since inception* Cum distribution, after fees (Class A) Benchmark Performance to 3 months 1 year 2 years 3 years 5 years Since inception* Cum distribution, after fees (Class H) Benchmark Past performance is not a reliable indicator of future performance *Inception date for Class A units: 19 November 2007 / Class H units: 30 October Returns are shown after fees and before tax and assume dividends are reinvested. Performance is annualised for periods greater than one year. Total returns are calculated using the unit price which uses the net asset values for the relevant month end. This price may differ from the actual unit price for an investor applying for or redeeming an investment. Actual unit prices will be confirmed following any transaction by an investor. The Fund has delivered a return of 8.73% p.a. for Class A units and 8.30% p.a. for Class H units since inception, and has provided these returns with considerably lower volatility than broader equity markets (5.72% for Class A units and 5.73% for Class H units). The chart below compares the inception returns and volatility of the Fund and its listed component with the broader domestic and global listed equity markets as measured by the S&P/ASX 200 Accumulation Index and the MSCI World ex AU Accumulation Hedged Index (MSCI World Index). During the current period of significant volatility in global markets CIF has proven its defensive characteristics, plotted a far steadier path, and provided strong-risk adjusted returns, including significantly lower volatility, relative to equity markets. Performance Since Inception Return p.a. % 12.00% 10.00% 8.00% 6.00% 4.00% 2.00% AMP Capital Core Infrastructure Fund (A Class) AMP Capital Infrastructure Fund (H Class) CIF Listed Componant MSCI World ex AU Accumulation (Hedged in AUD) S&P/ASX 200 Accum Index 0.00% 0.00% 2.00% 4.00% 6.00% 8.00% 10.00% 12.00% 14.00% 16.00% 18.00% 20.00% Volatility p.a. % Past performance is not a reliable indicator of future performance Source: AMP Capital & Bloomberg AMP CAPITAL CORE INFRASTRUCTURE FUND 6

7 Sector and regional allocation The Fund s asset allocation as at was: > > Global listed infrastructure 49% > > Direct infrastructure assets 35% > > Cash and accruals 16% The target allocation is 50% direct infrastructure and a combination of 50% listed infrastructure securities and cash. Currently, the Fund is looking to raise its exposure to direct infrastructure. Direct infrastructure opportunities that are currently under review include opportunities in the student accommodation, logistics and energy sectors. Sector Allocations Regional Allocations Transmission & Distribution 24.7% Healthcare Student 2.7% Accomodation Water 0.3% 5.1% Rail 8.9% Toll Roads 9.8% US 26.6% Japan 1.1% Asia excl. Japan 1.0% Australia 30.2% Airports 24.9% Canada 8.6% Integrated Regulated 9.1% Social 2.0% Diversified Infrastructure 1.0% Communications 11.1% Ports 0.8% UK 15.0% Europe 14.6% New Zealand 2.9% Top 10 Holdings Security details % of CIF 1 Sector Equity Country Australia Pacific Airports Corporation 17.36% Airports Unlisted Australia Angel Trains UK 5.83% Rail Unlisted UK Enbridge Inc 4.23% Transmission & distribution Listed Canada American Tower Corp 3.93% Communications Listed US Vinci SA 3.09% Toll roads Listed Europe National Grid PLC 2.61% Transmission & distribution Listed UK Crown Castle International Corp 2.66% Communications Listed US Powerco New Zealand Holdings Ltd 2.15% Transmission & distribution Unlisted New Zealand Consolidated Edison Inc 1.72% Transmission & distribution Listed US Port Hedland International Airport 1.57% Airports Unlisted Australia 45.40% 1 Includes look-through exposures in AMP Capital Global Infrastructure Fund and AMP Capital Diversified Infrastructure Trust AMP CAPITAL CORE INFRASTRUCTURE FUND 7

8 From its regional and sector allocations, as well as top 10 holdings, it can be observed that the Fund holds a broad array of welldiversified infrastructure assets. Specifically, the Fund has a diverse exposure to multiple geographies and sectors, as well as listed and unlisted assets. CIF s largest single-asset exposure is to APAC, representing 17.36% of the portfolio. APAC is the operator of Melbourne and Launceston Airports. APAC was the initial unlisted investment at the inception of the Fund in October 2007 and at the time it represented 50% of the portfolio. The next largest asset exposure is Angel Trains, which represents 5.83% of the portfolio. Angel Trains is one of the largest UK rolling stock companies, with approximately 35% of UK passenger rolling stock. The transmission & distribution sector features heavily in the top 10 holdings, with each company being a major component of the energy transportation industry in their respective countries: > > Enbridge transports 53% of US-bound Western Canadian crude oil exports and satisfies 15% of US daily crude oil imports. The company also operates a large-scale gas shipping business in Canada and the US. > > National Grid plc. owns and operates an extensive network of gas and electricity transmission systems in the UK and US. > > Powerco the largest electricity and gas distributor in New Zealand, with a geographically diverse 37,058 kilometre network that spreads across the upper central and lower central areas of New Zealand s North Island. > > Consolidated Edison Inc a leading provider of regulated electric, gas and steam utilities in the US. CIF s listed portfolio also provides exposure to leading US communications towers operators American Tower Corp and Crown Castle International. Collectively, American Tower and Crown Castle International own and operate a portfolio of over 100,000 communications towers. The Fund also holds Vinci SA, a global company with expertise in constructing and operating public infrastructure such as motorways, airports, road and rail infrastructures, car parks and stadiums. Vinci has 180,000 employees globally. Its concessions include 4,386 km of motorway in France, 23 airports in Portugal, France and Cambodia and 20 road infrastructure assets situated across the world. Port Hedland International Airport is located in Western Australia on the Pilbara Coast and supports the world s largest iron ore export port. The airport s passengers consist predominantly of fly-in fly-out workers associated with the town s port and rail infrastructure. CIF s listed portfolio also provides exposure to leading US communications towers operators American Tower Corp and Crown Castle International. AMP CAPITAL CORE INFRASTRUCTURE FUND 8

9 2. UNLISTED PORTFOLIO AMP CAPITAL CORE INFRASTRUCTURE FUND 9

10 Australia Pacific Airports Corporation (APAC) Melbourne Airport served over 35 million domestic and international passengers in 2017, and is the second busiest airport in Australia. Launceston Airport served over one million domestic passengers in 2017, and is the second busiest airport in Tasmania. APAC is the holding company of these airport investments, having acquired the concessions in 1997 and 1998 respectively. CIF equity (A$) Distribution received Year to (A$) Total return Year to 70,839,032 1,538, % Total passengers at Melbourne Airport for the year-to-date (YTD) (five months to 30 November 2017) were 4.6% above the prior corresponding period (PCP) and 0.7% above forecast. Domestic passenger volumes YTD for Melbourne Airport increased 2.9% compared with the PCP and were 1.0% above forecast. All carriers grew relative to the PCP, with the outperformance relative to YTD forecasts principally attributable to capacity increases and stronger load factors by the Virgin Australia Group and Tigerair. International passenger volumes YTD were 9.0% higher compared to the PCP although marginally lower than forecast (-0.1%). Growth continues to be achieved through a combination of capacity increases on existing routes, new services and strong average load factors. Overall, financial performance YTD was marginally above forecast. Total revenue YTD was 3.9% higher than the PCP (0.7% above forecast) and EBITDA YTD increased 2.1% relative to the PCP (1.2% above forecast). Domestic passenger volumes performed strongly (1.0% above forecast), benefiting both aeronautical revenues and the commercial business units, which all exceeded forecast expectations. Operating costs were 0.7% below forecast (9.2% above the PCP) with the favourable variance to forecast due to the phased timing of maintenance and general administration costs. Melbourne Airport continues to strengthen new and existing routes facilitating strong international traffic growth. Key developments and milestones for the quarter include: > > LATAM Airlines: A new three-times weekly Melbourne Santiago service utilising B787-9 aircraft commenced on 6 October The inaugural service was the first ever non-stop commercial passenger flight between Melbourne and South America > > Sri Lankan Airlines: A new daily Melbourne Colombo service utilising A aircraft commenced on 30 October The new route marks the first non-stop service between Melbourne and Sri Lanka > > Tianjin Airlines: A new three-times weekly Melbourne Chongqing service utilising A aircraft commenced on 1 November 2017 > > Air Canada: A new four-times weekly Melbourne Vancouver seasonal service utilising B787-9 aircraft commenced on 3 December 2017 and will operate until 4 February 2018, before recommencing on a year-round basis in June 2018 > > Jetstar: A new two-times weekly Melbourne Zhengzhou service utilising B787-8 aircraft commenced on 7 December 2017 > > Xiamen Airlines: A new two-times weekly Melbourne Hangzhou service utilising B787-8 aircraft commenced on 17 December The new route is Melbourne Airport s 12th to mainland China, with four new routes to mainland China being added in 2017 (Hangzhou, Zhengzhou, Shenzhen, and Chongqing) > > Qantas: A new Melbourne San Francisco service utilising B787-9 aircraft will commence in late The announcement followed the airline s first international flight to Los Angeles in December 2017 Melbourne Airport unveiled its refurbished retail and dining precinct in the international terminal in December The redevelopment showcases Melbourne s position as Australia s food and fashion capital, mirroring the city s world-renowned shopping, food and beverage and cultural experiences. The shopping precinct includes 11 new luxury retailers including sought after designer brands such as Burberry, Tiffany & Co., Salvatore Ferragamo, Bally, Michael Kors and Hugo Boss amongst others; while the revamped dining experience includes six new venues Café Vue by Shannon Bennett, Bar Pulpo by Movida by Frank Camorra, Two Johns, BaXa, Urban Provedore and Brunetti. In the December 2017 independent valuation, APAC experienced an 8.4% increase in capital value. The key factors contributing to the increase include a return to the midpoint discount rate, a roll forward in the valuation date to, updates for FY17 actuals and an update to the assumed long-term interest rates to reflect market expectations. AMP CAPITAL CORE INFRASTRUCTURE FUND 10

11 Angel Trains Angel Trains is one of the largest UK rolling stock companies (ROSCOs) with approximately a third of the UK passenger rolling-stock market and a diversified fleet of over 4,300 vehicles. Angel Trains leases its rolling stock to all nineteen UK franchised train operating companies (TOCs) and two open access train operators on leases which are typically seven years long, reflecting the lengths of the TOCs franchises. CIF equity (A$) Distribution received Year to (A$) Total return Year to 30,073, , % In respect of the fleets leased to the TOCs, Angel Trains has direct agreements with the UK Government which facilitate the government stepping into the shoes of a TOC if it renounces its franchise for any reason. Angel Trains has no exposure to passenger volume risk because the TOCs and other customers pay monthly availability rents to ROSCOs even if the rolling stock is not in service or not operational (i.e. on a hell or high-water basis). Angel Trains continued its solid performance with EBITDA for 2017 YTD 3.8% ahead of budget. This is due to revenue outperformance and reduced heavy maintenance costs against budget, largely as a result of timing differences where costs have been deferred to later periods. The business has successfully re-leased its incumbent trains onto the West Midlands franchise until Management continues to closely follow refranchising and new-build activity in a disciplined manner, as well as ensuring the contracted new-build, including East Anglia, progresses smoothly on time and budget. In the December 2017 independent valuation, Angel Trains experienced a 5.8% increase in capital value. The key factors contributing to the increase include a decrease in the equity discount rate to reflect a reduction in refinancing risk following successful refinancing activities during the last six months, and a roll forward in the valuation date to. AMP CAPITAL CORE INFRASTRUCTURE FUND 11

12 AquaTower AquaTower owns and operates four water treatment plants in four regional towns in Victoria. AquaTower has exclusive rights, under a water treatment service agreement, to deliver potable water to Ararat, Great Western, Halls Gap and Stawell until December Under this agreement, AquaTower receives variable, volume-linked payments for its services. CIF equity (A$) Distribution received Year to (A$) Total return Year to 4,001, , % The plants continue to treat potable water to the highest quality. No incidents materially disrupted operations or service delivery and no service-fee abatements were recorded in the period. The operator, Trility, undertook a range of minor repairs and maintenance activities during the period to ensure the ongoing performance of the plants. These included new chlorine analysers at two of the plants. The remaining two plants are to receive new analysers in early The lime pumps at Halls Gap also underwent refurbishment. During the quarter, AMP Capital held its regular quarterly meeting with GWM Water and Trility in GWM s head office at Horsham. AquaTower and Trility met GWM Water s new Manager of Water Treatment. Overall catchment storages are very healthy, which is a positive for the communities, as well as for AquaTower and Trility. GWM Water advised us that it was not currently considering adding the Willaura Water Treatment Plant to the AquaTower portfolio. While this is disappointing for AquaTower and Trility, we intend to engage further with GWM on its strategic priorities with a view to broaden and deepen our relationship with GWM Water. GWM Water has recently had a new board put in place. Other opportunities for expansion of the project are also on hold while the new GWM Board settles in and focusses on a range of other priorities for GWM Water. The December independent valuation of AquaTower resulted in an 8.7% capital value decrease compared to the June valuation. This was partly due to the fact AquaTower is a concession style asset (where the capital value progressively decreases over the term of the concession); however the bulk of the reduction in valuation was attributable to lower water volumes. While disappointing, AquaTower is a very small asset (less than 1% of CIF s portfolio) so the impact of this valuation reduction on CIF is minimal and overall fund performance remains strong. AMP CAPITAL CORE INFRASTRUCTURE FUND 12

13 Powerco Powerco is New Zealand s largest electricity and gas distribution company, representing 16% of total electricity connections and 40% of the total gas connections in New Zealand. CIF equity (A$) Distribution received Year to (A$) Total return Year to 6,752, , % Powerco s YTD to November 2017 earnings before interest, tax, depreciation, amortisation and financial movements (EBITDAF) of NZ$185.0 million was 3.5% ahead of budget, driven by revenue outperformance and operating cost control. Healthy electricity revenue and customer contributions continue to drive growth in earnings, supported by direct costs and business support costs tracking below budget. Reliability metrics are in line with expectations, with settled weather conditions yielding positive results in both the System Average Interruption Duration Index (SAIDI) and System Average Interruption Frequency Index (SAIFI) metrics. SAIDI metrics are aligned with the seasonally-adjusted YTD target, and SAIFI metrics are well within the YTD target. Capital expenditure programs have started to come online with more approvals being provided. Resource shortages continue to persist with resources being diverted from budgeted capital works programs. The Commerce Commission (Commission) released its draft decision in response to Powerco s customised price-quality path (CPP) application, approving the majority of requested changes and exceeding management expectations: > > 98% of opex was approved > > 95% of proposed capital works was approved > > The Commission approved a full allowance on the corporate headcount increase, a proposed upgrade in information technology systems and an increase in the amount of spending required for vegetation management > > Powerco management continues to engage with the regulator and other stakeholders, to improve the supporting evidence for the final determination in March 2018 and seek to drive the best possible outcome for the business. In the December 2017 independent valuation, Powerco experienced a 3% increase in capital value. The key factors contributing to the increase included increases to operational efficiency related to a number of initiatives implemented by management and a decrease to the equity discount rate. AMP CAPITAL CORE INFRASTRUCTURE FUND 13

14 SA Schools SA Schools involves the design, construction, and maintenance of six new super school facilities in the greater Adelaide region in South Australia. The schools have an operational capacity of over 4,600 places. All six schools were constructed and operational by May CIF equity (A$) Distribution received Year to (A$) Total return Year to 7,401, , % SA Schools operational performance continues to be strong. For the 12 months to November 2017, 99.98% of the service fee was received from the state government and all abatements were passed through to sub-contractors. Revenue payments and operating expenses are in line with budget. A significant number of minor modifications are currently being progressed. While equity shareholders are not funding any capital costs, they will be entitled to a margin on the facilities management fees paid to our appointed sub-contractor, Spotless. AMP Capital has provided a final proposed payment model update to the state, to reflect agreed modifications. The state is currently reviewing this update, which we plan to complete in January Minor remedial works have been identified that are required to the hot water heating system at the various school sites. Since the installation of an above-ground reticulation system, a number of external brackets have shown minor signs of corrosion. The original installer is to replace these brackets over the course of the next 12 months, at no cost to SA Schools. Works at Woodville Gardens commenced during the quarter and were proceeding well, with the full cooperation of the state, the school and Spotless. The works are expected to take up to 18 months to complete at all of the schools. The works will be planned around school holidays to minimise inconvenience to the operations of each school and allow the contractor the best access periods in which to complete the works. In the December 2017 independent valuation, SA Schools experienced a 1.8% decrease in capital value (which is as expected because SA Schools is a concession-style asset where the capital value progressively reduces to zero over the full term of the concession). The key factors contributing to the decrease were a roll forward in the valuation date to and changes in interest rates and Australian Consumer Prices Index. AMP CAPITAL CORE INFRASTRUCTURE FUND 14

15 Port Hedland International Airport (PHIA) On 11 March 2016, a consortium led by AMP Capital commenced its 50-year lease of PHIA from the Town of Port Hedland. CIF equity (A$) Distribution received Year to (A$) Total return Year to 7,193, % Total passengers YTD were 0.3% above budget and 0.4% above the PCP. The stabilisation of passenger traffic continued during the first five months of FY2018, which is reflected in performance relative to the PCP. In October 2017, PHIA recorded its highest monthly passenger volumes (32,900) since the lease commenced in March Aeronautical revenue YTD is 5.8% below budget as a result of lower than expected aircraft tonnage landed. As noted above, YTD passenger performance is broadly in line with budget. Lower than expected aircraft tonnage landed is attributable to a decrease in aircraft movements and the utilisation of smaller Fokker 100 aircraft in place of larger B aircraft. Non-aeronautical revenue YTD is 0.5% above budget due to higher than expected car parking and hire-car concession revenues. Total expenses YTD are 6.3% below budget driven by lower maintenance expenditure, marketing, utilities and employment costs. EBITDA YTD is 3.1% below budget with growth in non-aeronautical revenues and operating cost efficiencies partially offsetting softer than expected aeronautical revenue. PHIA provided an update on its proposed plans to redevelop the airport at a public meeting held in South Hedland in December The meeting was attended by PHIA s Board of Directors and General Manager Rod Evans. The proposed upgrades include an asphalt overlay of the runway, taxiway enhancements, upgraded runway lighting and a new terminal building. The Town of Port Hedland Council approved the renewal of the Port Haven TWA lease at a Council meeting in December The current lease was due to expire in March The 10-year renewal (with an option for a further 10 years) provides mediumterm certainty to both PHIA and to BHP, which is the primary user of the accommodation at Port Haven. The approval is subject to a number of conditions precedent, including BHP undertaking a socio-economic impact assessment and preparing a social impact management plan PHIA has engaged a legal and town planning consultant to prepare a local development plan (LDP). The LDP will streamline the planning approval process for future development at PHIA, particularly in light of the upcoming redevelopments at the airport. In the December 2017 independent valuation, PHIA experienced a 5.1% increase in capital value. The key factors contributing to the increase included a roll forward in the valuation date to 31 December 2017 and an update to the long-term interest rates assumptions to reflect market expectations. AMP CAPITAL CORE INFRASTRUCTURE FUND 15

16 Global Infrastructure Fund (GIF) During November 2016 CIF made a US$15 million commitment to the AMP Capital Global Infrastructure Fund (GIF). This investment is fully drawn down. The investment in GIF provides CIF s investors with exposure to a diversified portfolio of mature cash flow producing infrastructure assets in the transport, energy and utilities sectors. GIF has a primary focus on infrastructure investments within OECD Europe and North America, and it targets a portfolio of investments with the potential to generate an overall gross IRR of 12-15%, including a gross cash yield of 4-6%. CIF is not charged any fees on its investment in GIF, to ensure CIF investors pay fees to AMP Capital only at the CIF level. During the quarter, GIF made an investment in Leeds Bradford Airport, acquiring 100 per cent of the asset from Bridgepoint Advisers Limited. It is an international airport serving the cities of Leeds, Bradford and the broader Yorkshire area, with four million annual passengers. Leeds Bradford Airport is a compelling investment for GIF due to its excellent location and strong growth prospects augmented by AMP Capital s expertise and successful track-record of investing in airports globally within its infrastructure portfolio for more than 20 years. CIF s investment in GIF provides the opportunity to further increase (indirectly through its investment in GIF) its exposure to two key assets, APAC and Angels Trains, which it has held for some time. GIF currently holds interests in eleven infrastructure assets (shown in the table below). Asset Geography Description Newcastle Airport UK Largest airport in North East England Millennium Garages US Largest underground downtown parking system in the US, located in the Chicago CBD Alpha Trains Germany Continental Europe s largest private lessor of rolling stock Angel Trains UK UK s largest passenger rolling stock company ESVAGT Denmark, Norway, UK Leading provider of emergency rescue and response vessels in the North Sea Adven Finland, Sweden, Estonia Leading provider of energy infrastructure in the pan-nordic market Axion Spain Leading independent broadcasting and telecommunications infrastructure provider APAC Australia Melbourne and Launceston airports ITS ConGlobal US North American leading transport and logistics manager Opal Aged Care Australia Second largest provider of residential aged care in Australia Leeds Bradford Airport UK International airport with excellent geographical location AMP CAPITAL CORE INFRASTRUCTURE FUND 16

17 AMP Capital Diversified Infrastructure Trust (ADIT) CIF made a A$20 million commitment to the AMP Capital Diversified Infrastructure Trust ( ADIT ) in September 2017, followed by an additional A$10 million commitment in December The A$20 million portion of this investment is fully drawn with the remaining A$10 million to be drawn down in January The investment in ADIT provides CIF s investors with exposure to a diversified portfolio of mature cash flow producing infrastructure assets in the transport, energy, utilities and student housing sectors. ADIT has a primary focus on infrastructure investments within Australia and New Zealand, and it targets a total return of 450bps over the 10-year Australian Government bond yield. CIF is not charged any fees on its investment in ADIT, to ensure CIF investors pay fees to AMP Capital only at the CIF level. During the quarter, AMP Capital led and completed the A$2.256 billion refinancing and recapitalisation of Reliance Rail. The deal was completed on behalf of investors in ADIT and one other managed client. Reliance Rail had a complex capital structure which led to a sub-optimal operating environment. Consequently, the company experienced some financial stress during the global financial crisis which necessitated the Government of New South Wales providing significant credit support. With more favourable capital market conditions, and supported by exceptionally strong operational performance, AMP Capital led a process to remove state government support, executing the refinancing and recapitalisation of the business. As a result, AMP Capital has now increased its holding to 66.7% of the equity and gained majority control over the Reliance Rail business. Reliance Rail is expected to provide a high and stable yield to the fund. This investment also gives CIF the opportunity to further increase (indirectly through its investment in ADIT) its exposure to three key assets, APAC, Powerco and PHIA. ADIT currently holds interests in six infrastructure assets (shown in the table below). Asset Geography Description APAC Australia Melbourne and Launceston airports Powerco NZ NZ New Zealand s largest regulated electricity and gas distribution business Interlink Roads Australia Interlink is the owner and operator of the M5 toll road in Sydney Port Hedland International Airport Australia Port Hedland International Airport is the gateway to the world s largest iron ore export port. Student Housing Accommodation Group Australia Provides on-campus student accommodation at a pre-eminent university. Reliance Rail Australia Responsible for the delivery and maintenance of 78 trains operated by Sydney Trains on Sydney s suburban network AMP CAPITAL CORE INFRASTRUCTURE FUND 17

18 Global Infrastructure Fund II (GIFII) During December 2017 CIF made a US$15 million commitment to the AMP Capital Global Infrastructure Fund II ( GIF II ). This investment is approximately 50% drawn down. GIF II has a primary focus on infrastructure investments within OECD markets, with a particular focus on Europe, North America and Australia, in the transport, communications, infrastructure health, energy and utilities sectors, and it targets a portfolio of investments with the potential to generate an overall gross IRR of 12-15%, including a gross cash yield of 4-6%. CIF is not charged any fees on its investment in GIF II, to ensure CIF investors pay fees to AMP Capital only at the CIF level. During the quarter, GIF II made its first investment. It acquired, alongside management, 100% of The Regard Group ( Regard ) from Montreux Healthcare Fund PLC and Macquarie Principal Finance. Regard is the fourth largest specialist care provider in the UK, it generates stable cash flows through the provision of specialist resident care, supported living, outreach support services and day resource centres for service users with learning difficulties, mental health issues and acquired brain injuries. The company generates 90% of its revenue from the publicly-funded learning difficulties sector, with the majority of users based in residential care. Regard has market-leading quality of care, demonstrated through its leading Care Quality Commission ratings and high occupancy levels. It also exhibits a robust EBITDA margin. GIF II currently holds interests in one asset (shown in the table below). Asset Geography Description The Regard Group UK The Regard Group is the fourth largest specialist care provider in the UK AMP CAPITAL CORE INFRASTRUCTURE FUND 18

19 3. LISTED PORTFOLIO AMP CAPITAL CORE INFRASTRUCTURE FUND 19

20 Listed Portfolio Performance Trends Regional return trends to Sector return trends to US UK New Zealand Japan Europe Canada Australia Asia excl.japan Water Transmission & Distribution Toll Roads Rail Port Integrated Regulated Diversified Utilities Communication Infrastructure Airport One Year Three Year Five Year One Year Three Year Five Year Performance summary - listed portfolio Performance to 30 September months (%) 1 year (%) 5 years (%) CIF listed infrastructure portfolio Benchmark (FTSE Custom Developed Core Infrastructure Index) Global equities (the MSCI World ex AU Accumulation Hedged Index) The CIF listed infrastructure portfolio returned 2.46% for the quarter to, underperforming the MSCI World Index by 3.08%. For the December quarter Australia, Europe, New Zealand and the US provided a positive return contribution; whilst Asia excl. Japan, Canada, Japan and the UK, provided a negative return contribution (in local currency terms). The following sector analysis refers to local currency returns for the quarter ended. AMP CAPITAL CORE INFRASTRUCTURE FUND 20

21 Utilities The following sector analysis refers to local currency returns for the quarter ended. Utilities Returns - December 2017 Diversified Utilities Diversified Utilities Asia excl. Japan Asia excluding Japan provided a negligible contribution to returns. Water Water US UK Europe The water sector provided a positive return contribution of 0.46% to the portfolio. This was driven by the US which provided a positive return contribution of 0.52%. The return was partially offset by Europe and the UK, providing smaller negative contributions of -0.05% and -0.02% respectively. Integrated Regulated Integrated Regulated US Japan Europe Canada Asia excl. Japan The integrated regulated sector provided a negative contribution to the portfolio with an overall return contribution of -0.26%. This return was primarily caused by the US, which provided a return of -0.23%. Additionally, Europe and Japan contributed a negative return of % and -0.04% respectively. Negative contributions were partially offset by Canada, which provided a positive portfolio return contribution of 0.02%. Asia excl. Japan made a negligible contribution to returns. Transmission & Distribution Transmission & Distribution US UK New Zealand Europe Canada Australia The transmission & distribution sector provided an overall neutral contribution to portfolio performance over the period. This was due to the net weighted effect of the underlying geographical regions. Europe, the US and Australia provided returns of 0.10%, 0.34% and 0.5% respectively. These positive returns were offset by negative contributions from Canada and the UK of -0.29% and -0.21% respectively. New Zealand made a marginal contribution to returns Communications Communications Infrastructure - December 2017 Communications Infrastructure US UK Europe Communications Infrastructure Communications infrastructure provided a positive return contribution of 0.82%. This was driven by a return contribution of 1.35% from the US. The return was partially offset by the negative returns from the UK and Europe of -0.12% and -0.41% respectively. AMP CAPITAL CORE INFRASTRUCTURE FUND 21

22 Transport Infrastructure Transport Infrastructure - December 2017 Rail Rail Toll Roads Europe Europe Australia Europe provided a positive return contribution of 0.04%. Toll roads Toll roads provided a positive portfolio return contribution of 0.93%. This was driven by the positive return contribution of 0.68% from Europe. Additionally, Australia made a positive return contribution of 0.25%. Marine ports Ports Europe Canada Asia excl. Japan The ports sector provided a slight negative portfolio return contribution of -0.01%. Europe and Asia excluding Japan both provided negative contributions of -0.01% which were partially offset by the positive return contribution from Canada of 0.01%. Airports The airports sector provided a positive return contribution of 0.20%. This return was driven by Europe which provided a positive return contribution of 0.17%. Additionally, Australia and New Zealand both contributed a positive return of 0.01%. New Zealand 0.01 Airports Europe Australia AMP CAPITAL CORE INFRASTRUCTURE FUND 22

23 AMP CAPITAL CORE INFRASTRUCTURE FUND 23

24 CONTACT DETAILS If you would like to know more about how AMP Capital can help you, please visit Important note: Investors should consider the Product Disclosure Statement (PDS) available AMP Capital Investors Limited (ABN ) (AFSL ) (AMP Capital) for the AMP Capital Core Infrastructure Fund before making any decision regarding the Fund. AMP Capital Funds Management Limited (ABN , AFSL ) is the responsible entity of the Fund and the issuer of units in the Fund. The PDS contains important information about investing in the Fund and it is important investors read the POS before making a decision about whether to acquire, continue to hold or dispose of units in the Fund. Neither AMP Capital, nor any other company in the AMP Group guarantees the repayment of capital or the performance of any product or any particular rate of return referred to in this document. Past performance is not an indicator of future performance. While every care has been taken in the preparation of this document, AMP Capital makes no representation or warranty as to the accuracy or of any statement in it without limitation, any forecasts. This fact sheet has been prepared for the purpose of providing general information, without taking account of any particular investor s objectives, financial situation or needs. Investors should, before making any investment decisions, consider the appropriateness of the information in this factsheet and seek professional advice, having regard to their objectives, financial situation and needs.