3i Infra revises return target after record windfall

The London-listed firm, which will distribute a special dividend after selling rail leasing business Eversholt on a whopping profit, warns on high valuations in the large-cap segment.

3i Infrastructure (3iN), the UK-listed fund manager, yesterday posted a total return of 24.6 percent for the year ending 31 March 2015.

The return is the strongest ever recorded by 3iN since its 2007 flotation on the London Stock Exchange, Ben Loomes, a managing partner and co-head of infrastructure at 3i, told Infrastructure Investor. Coming on top of an 18.6 percent uplift in net asset value, it easily surpasses the company’s target return of 10 percent.

The positive results came on the back of the sale of UK rail lessor Eversholt, which Hong Kong-based conglomerate Cheung Kong acquired for £2.5 billion (€3.5 billion; $3.9 billion) last January. 3iN, which was a shareholder in the business alongside New York-headquartered Morgan Stanley Infrastructure Partners, UK fund manager STAR Capital Partners and Dutch pension administrator PGGM, divested its stake for £358 million and posted a 3.3x return multiple on the transaction.

Yet the competitive environment for buying large-cap core assets also led 3iN to revise its return target to an 8 to 10 percent range, rather than solely aiming for the top end of this bracket.

The move coincided with an inflexion in 3iN’s buying strategy, which is now putting a stronger focus on sourcing mid-market deals in more “niche” sectors as well as expanding its footprint in greenfield. The firm in May 2013 bought the infrastructure unit of UK lender Barclays in an effort to boost its PPP investment capabilities.

Loomes said that the sale of Eversholt Rail was not typical of 3iN’s approach to its assets, as it typically invests for the long term and does not plan to sell its investments.

The firm’s board yesterday announced a £150 million capital return to shareholders, in the form of a special dividend of 17.0p per share. It also introduced a new and progressive dividend policy which sets an absolute dividend per share, with a target dividend of 7.25 pence for the 2016 financial year.

Favourable conditions in the debt markets, it was noted yesterday, have recently allowed the firm to increase the size of its revolving credit facility from £200 million to £300 million, with lower pricing and an extended term.