Thursday, September 14, 2017

ATP and OTPP Strike Airport Deal?

Jacqueline Nelson of the Globe and Mail reports, Teachers’ European airport gets new pension investor:
Ontario Teachers' Pension Plan is getting a new partner in its investment in a growing European airport that is in the midst of an expansion.

Part of Denmark's Copenhagen Airports is trading hands as an infrastructure division of Macquarie sells a 27.7-per-cent stake to the country's state pension plan known as ATP Group, for 9.77 billion Danish Krone ($1.9-billion). Combined with the 30-per-cent stake Teachers owns, this will give pension funds control over 57.7 per cent of the flight hub. The Danish government will continue to own a nearly 40-per-cent stake.

The deal showcases the value of relationships among the world's top private market investors. Macquarie had been looking sell off its holding in the airport for several months and was required to first offer the stake to Teachers, because of a privilege called pre-emptive rights. Teachers, which also owns portions of a variety of other airports around Europe, did not want to enlarge its already sizable investment. But the Toronto-based pension fund was able to act as a matchmaker between ATP and Macquarie to secure a like-minded partner that is well-known and respected in its home Danish market. This could be an advantage as the airport continues an extensive capital investment and renovation plan amid rigorous regulatory oversight.

In infrastructure investing, being aligned with a partner that has similar aspirations, expectations and growth targets for the asset is desirable. Copenhagen is currently seeking to boost its status as a European hub airport, with the aim to increase the number of flights as well as domestic and international passengers moving through the terminal each year. It plans to boost capacity to 40 million passengers annually from 29 million, and at the same time lower some fees.

"The airport in Copenhagen is key infrastructure in Denmark and we are proud to be one of its stewards going forward," Christian Hyldahl, CEO of ATP Group, said in a statement. "We are keen to work together with all stakeholders to further develop the airport and contribute to its long-term continuation as a critical transportation hub in northern Europe to the benefit of both Danish society as well as the members in ATP."

Deals for infrastructure around the world are increasingly competitive and the utility assets where cash-flow streams are contracted and regulated are among the most appealing to investors. For pension funds looking for a proxy to fixed-income investments in a low-interest-rate environment, these holdings have a lot of appeal. Airports are a little different because they are high profile, relatively scarce and offer the potential for growth not only by increased global travel but also through the development of retail offerings and other services such as parking and on-site hotels.

Teachers and Macquarie have a long history working together on airport deals. Teachers' bought into Copenhagen's airport in 2011 when it agreed to trade stakes with a division of Macquarie. Teachers gave over its 11-per-cent holding in Sydney, Australia's airport and paid nearly $800-million (Australian) ($780-million) in exchange for stakes in Brussels and Copenhagen airports.

Since then, Teachers has had an active airport investment strategy, building up a dedicated aviation subsidiary called Ontario Airports Investments Ltd. to oversee its portfolio, as well as source other acquisition opportunities. It now owns parts of London City, Bristol and Birmingham airports, as well as Brussels and Copenhagen.
Reuters also reports, Danish pension fund to buy stake in Copenhagen Airports in $1.6 billion deal:
Danish pension fund ATP has agreed to buy a 27.7 percent stake in Copenhagen Airports (CPH) from Australia’s Macquarie for about 9.8 billion Danish crowns ($1.57 billion).

The transaction depends on approval by the Danish and European Union authorities and is expected to be completed in the fourth quarter, the parties said in a joint statement.

ATP estimated the offer price would be about 5,700 crowns per share, but said this could fluctuate depending on the date of completion.

Shares in the airport company rose as much as 12.3 percent after the announcement to 5,750 crowns per share. It closed at 5,620 crowns on Thursday.

Macquarie has invested more than 10 billion crowns during its 12 years of ownership in the company which owns Kastrup airport, the main international airport serving Copenhagen.

The Danish state owns 39.2 percent of the firm and Denmark’s Finance Minister Kristian Jensen said on Twitter he was “very satisfied” that the future ownership was clarified and was looking forward to working with the new shareholders.

Canadian pension fund Ontario Teachers’ Pension Plan (OTTP) holds a 30 percent stake in the airport company.
4-traders also reports, ATP, Macquarie and Ontario Teachers' Pension Plan Announce Copenhagen Airports Transaction:
Ontario Teachers' Pension Plan issued the following news release:

Arbejdsmarkedets Tillcgspension ("ATP"), Macquarie Infrastructure and Real Assets (MIRA) and Ontario Teachers' Pension Plan ("Ontario Teachers'") are pleased to announce the signing of a transaction that will change the ultimate shareholding of Copenhagen Airports A/S ("CPH"). By announcement of 23 May 2017, Macquarie Infrastructure and Real Assets (Europe) Limited on behalf of Macquarie European Infrastructure Fund III ("MEIF3") informed CPH that it would undertake a strategic review of MEIF3's investment in CPH. Following this announcement, MEIF3 offered for sale its securities in Kastrup Airport Parents ApS ("KAP"), a holding company which indirectly holds a 57.7 percent ownership in CPH, to Ontario Teachers'. Today Ontario Teachers' has exercised its preemptive right to acquire MEIF3's stake in KAP.

Ontario Teachers' has partnered with Danish pension plan ATP which will provide the financing to fully fund the transaction which is valued at approximately DKK 9.8 billion (EUR1.3 billion) (such amount subject to change depending on the completion date of the transaction). Completion of the transaction is expected to occur during Q4 2017. As a result of the transaction, ATP will become a direct shareholder in KAP and, together with Ontario Teachers', the two will hold an indirect ownership of 57.7 percent of CPH.

"ATP is now becoming a significant investor in Copenhagen Airports. The airport in Copenhagen is key infrastructure in Denmark and we are proud to be one of its stewards going forward. We are keen to work together with all stakeholders to further develop the airport and contribute to its long-term continuation as a critical transportation hub in northern Europe to the benefit of both the Danish society as well as the members in ATP." said Christian Hyldahl, Chief Executive Officer, ATP Group.

"Macquarie is proud of the investments and focus that have contributed to making Copenhagen Airport one of the largest and best connected airports in Northern Europe. In the period of our 12 year ownership Copenhagen Airport invested over DKK 10 billion and it now has both state of the art and low cost terminals, the largest international route network in the Nordics and excellent transport links across Denmark and Southern Sweden. The airport is powerfully positioned, with the support of its new shareholder in ATP, to continue to grow and provide choice, competition and convenience as well as make a significant economic contribution to the Danish economy" said Martin Stanley, Global Head of MIRA.

"Having strong, long-term investment partners is crucial as we support Copenhagen Airports in delivering the best possible experience for its customers," said Andrew Claerhout, Senior Managing Director, Infrastructure and Natural Resources at Ontario Teachers'. "During our more than six years as a partner with Macquarie, Copenhagen Airports has received numerous industry awards for its quality and efficiency. We look forward to continuing and growing on this track record of success in what will be our second partnership with ATP, with whom we are strongly aligned in our focus on long-term value creation."

Completion of the acquisition is subject to approval by the EU Commission pursuant to the EU Merger Regulation (EUMR). Ontario Teachers' and ATP expect that completion of the transaction will result in joint control of the 57.7 percent indirect shareholding in CPH and ultimately the issuance of a mandatory tender offer for the remaining shares in CPH. The tender offer is also conditional on completion taking place and will be fully financed by ATP.

The tender offer price (per share of CPH) will be based on the price paid for MEIF3's securities in KAP in relation to the transaction, adjusted for third party debt financing, certain liabilities and cash in KAP and in its subsidiaries that hold the shares in CPH (all together, the Tender Price). The transaction value and the adjustments, as well as the Tender Price, are subject to change depending on the date of completion.

Ontario Teachers' and ATP estimate that the transaction value of approximately DKK 9.8 billion will imply a Tender Price in their tender offer of approximately DKK 5,700 per share in CPH based on an illustrative completion date of mid November 2017, however, such Tender Price shall be determined based on the transaction value and adjustments established on the actual completion date and be subject to approval of the Danish Financial Supervisory Authority of the tender offer document and the price offered. MEIF3 is not involved with, and assumes no responsibility or liability for, the mandatory tender offer and for determining the Tender Price.

External factors described herein are outside the control of Ontario Teachers', ATP or MEIF3 and thus there is no certainty that the transaction will complete or that a subsequent tender offer will be issued.

Ownership and Performance at Copenhagen Airports

* MIRA has been involved in Copenhagen Airports A/S for the past 12 years, having initially acquired a stake in 2005. MEIF3 invested in Copenhagen Airports A/S in 2008.

* Ontario Teachers' Pension Plan acquired its current stake in CPH in 2011.

* MEIF3 is a ten year closed-ended infrastructure fund whose investors include pension funds and institutional investors. MEIF3 is approaching fund life maturity.

* Since 2005, passenger volumes have increased by approximately 45 percent, and the airport now serves 77 airlines with direct connections to 165 destinations.

* Employee numbers have increased by approximately 41 percent, providing greater employment opportunities in Denmark.

* In 2016, Copenhagen Airport was ranked best airport in Northern Europe, featured in the top five for overall passenger satisfaction out of 27 other European Airports with more than 15 million passengers a year, and for the tenth time in 12 years was named Europe's most efficient airport.

About ATP

ATP is a mandatory savings scheme with more than five million member and approximately DKK 750 billion (EUR 100 billion) under management. ATP has longstanding experience in direct investments both domestically and internationally, including infrastructure, timberlands and real estate.

ATP Lifelong Pension is guaranteed and lifelong and is disbursed to nearly all pensioners. For 50 per cent of all old-age pensioners, ATP Lifelong Pension is their only source of pension income other than their state-funded old-age pension. Besides ATP Lifelong Pension, ATP administers key welfare benefits and schemes on behalf of the Danish state, the local authorities in Denmark and the social partners. ATP is the largest administration provider in the Nordic countries, managing two thirds of welfare benefits disbursed in Denmark.

About MIRA

MIRA is part of Macquarie Asset Management Group, the asset management arm of Macquarie Group (Macquarie), a diversified financial group providing clients with asset management, banking, advisory and risk and capital solutions across debt, equity and commodities. Founded in 1969, Macquarie employs 13,597 people in 27 countries. As at 31 March 2017, Macquarie had assets under management of EUR345 billion.

MIRA pioneered infrastructure as a new asset class for institutional investors. For more than 20 years it has been investing in and managing the assets that people use every day - extending beyond Infrastructure to Real Estate, Agriculture and Energy. MIRA's dedicated operational and financial experts work where MIRA's funds invest and the portfolio companies operate. They are part of a global team which helps clients to see across the regions and deep into local markets. As at 31 March 2017, MIRA has assets under management of more than EUR110.4 billion invested in 134 portfolio businesses, ~300 properties and 4.5 million hectares of farmland.

About Ontario Teachers'

The Ontario Teachers' Pension Plan (Ontario Teachers') is Canada's largest single-profession pension plan, with C$180.5 billion in net assets at 30 June 2017. It holds a diverse global portfolio of assets, approximately 80 percent of which is managed in-house, and has earned an annualized gross rate of return of 10.1 percent since the Plan's founding in 1990. Ontario Teachers' is an independent organization headquartered in Toronto. Its Asia-Pacific region office is located in Hong Kong and its Europe, Middle East & Africa region office is in London. The defined-benefit plan, which is fully funded, invests and administers the pensions of the province of Ontario's 318,000 active and retired teachers. For more information, visit otpp.com and follow us on Twitter @OtppInfo.
How did Ontario Teachers' strike a deal with Denmark's ATP for this particular airpor? I suspect this man had something to do with this deal (click on image):

Ontario Teachers' new CIO, Bjarne Graven Larsen, was  the former CIO and executive board member of Denmark's ATP, so it's fair to assume he knew who to contact quickly to facilitate this transaction.

ATP is one of the best pension plans in Europe and the world. The last time I covered ATP was in a comment explaining how it's bucking the hedge fund trend. Lars Rohde, the former CEO of ATP,  became the governor of the country’s national bank in 2013.

One thing ATP and Ontario Teacher's Pension Plan (OTPP) have in common is matching assets with liabilities. OTPP's Infrastructure chief, Andrew Claerhout, is taking a new approach, but the name of the game remains the same, namely, how to best match assets with liabilities with the least amount of volatility over the long run.

Again, what are pension plans all about? Matching assets with liabilities. Pension liabilities are long-dated, going out 75+ years, and require long duration assets to be matched properly. But most assets are short duration and the ones that are long like a 30-year long bond, don't offer the actuarially required yield to ensure pensions will remain solvent over a long period.

In the last two decades, Canada's large pensions have been moving aggressively into private markets like private equity, real estate, infrastructure and natural resources which include farmland and timberland.

Real estate and infrastructure offer great cash flows and they are long duration assets, offering yields in between stocks and bonds, perfect for fully-funded or close to fully-funded pensions looking to reduce public market risk and match their long-dated liabilities.

I believe over the next ten or twenty years, infrastructure will take over real estate as the most important asset class for Canada's large pensions.

Why infrastructure? Apart from being able to match long-dated liabilities, infrastructure offers these large pensions scalability, meaning they can put a huge chunk of change to work relatively quickly. Also, unlike private equity, they invest in infrastructure directly, paying no fees to outside managers.

Why bother trying to invest $20, $50 or $100 million tickets to some hedge funds or private equity funds when you can write a $300, $500 or even a billion or more dollar ticket to own a stake in some coveted infrastructure asset which is already operational (brownfield), has well-known revenue streams, and very realistic growth projections?

Fewer headaches, more secure and less volatile cash flows (yield) and you can put a lot of money to work relatively quickly.

Are there risks to infrastructure? You bet, illiquidity, regulatory and currency risks are among them. The strong Canadian dollar has already impacted Ontario Teachers' mid-year results and will impact its second half results too.

But if you ask me, now is the time to pounce on foreign assets, using the CTA momentum-chasing artificially high loonie to pounce on foreign assets. This isn't the case here, but now is the time for Canada's large pensions to crank it up, diversifying in private and public markets outside Canada.

By the way, Ontario Teachers' isn't the only large Canadian pension that loves airports or airport related investments. Earlier this month, Reuters reported that Canadian pension fund Caisse de depot et Placement du Quebec (CDPQ) and private equity fund Ardian entered into exclusive talks to acquire a significant stake in airport ground support firm Alvest:
Canada’s second-biggest public pension fund and the French private equity investor are set to acquire the stake from French Sagard Private Equity Partners. The terms of the deal were not disclosed.

Alvest designs, manufactures and distributes technical products for the aviation industry and has more than 1,800 employees. It operates 10 factories in the United States, Canada, France and China.
And in May, Barbara Shecter of the National Post reported, Pension funds circle around airports amid speculation about a Canadian sale:
Canadian pension funds still love airports, judging by the latest deal of the Public Sector Pension Investment Board.

On Tuesday, PSP Investments said it purchased a 40 per cent interest in Aerostar Airport Holdings LLC, operator of the Luis Munoz Marin International Airport in San Juan, Puerto Rico.

The balance of Aerostar is held by Grupo Aeroportuario del Sureste S.A.B. de C.V. (ASUR), which already owned 50 per cent and picked up an additional 10 per cent stake.

The seller was funds managed by Oaktree Capital Management L.P., and the combined new purchases by PSP and ASUR were valued at US$430 million.

“This acquisition is an excellent fit with PSP Investments’ long-term investment philosophy and leverages the capabilities of AviAlliance, our airport platform,” said Patrick Charbonneau, managing director of infrastructure investments at PSP.

AviAlliance holds interests in the airports of Athens, Budapest, Düsseldorf and Hamburg. With the latest investment in Aerostar, airports will represent more than 15 per cent of PSP Investments’ infrastructure portfolio, a spokesperson for the pension investment manager said.

The latest deal comes amid speculation that the Canadian government is mulling the sale airports, or stakes in them, to private interests to raise funds. Toronto’s Pearson International Airport has been valued at $5 billion, according to media reports.

Canada Pension Plan Investment Board chief executive Mark Machin told the Financial Post earlier this year that CPPIB would look at any Canadian airport put on the block.

“We know airports, we like airports, we’d be interested if something happened,” he said during an interview in March.

A group of Canadian pension investment managers including the Ontario Teachers’ Pension Plan, OMERS, and Alberta Investment Management Corp. (AIMCo) joined a consortium last year to purchase London City Airport.

Teachers’ had already acquired a 39 per cent stake in Brussels Airport, and a 30 per cent of Denmark’s Copenhagen airport in 2011.
In short, Canada's large pensions know airports, love airports, and they almost all have some platform made up of outside experts to manage these assets properly.

I can also tell you while Greece is still a mess, the Athens airport is booming, doing extremely well, and PSP was smart to have purchased a stake in it years ago.

All in all, this is a great deal for ATP and OTPP, two of the very best pension plans in the world looking to match assets and liabilities very closely.

Below, inside Copenhagen Airport located just outside Copenhagen in Denmark (actually located in Kastrup a town located in the Tårnby municipality and a small piece in Dragør). This footage was taken early morning in the international departures area of the airport past security control where only passengers have access.

There is no doubt this is one of the most important airports in Northern Europe, one that will provide ATP and OTPP stable cash flows for a very long time.

Update: Someone sent me an email after reading this comment:
"Regarding the Copenhagen airport transaction - OTPP really just swapped Macquarie for ATP as a partner. This wasn't really a buy or sell from OTPP's perspective but they now get a new partner which should have better alignment."
I agree and I'm sorry if it didn't come out properly in this post (my bad).

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