First State debuts in US with rail acquisition

The North American division of Australia’s Colonial First State plans to grow the short-line rail business of Patriot Rail and Ports.

First State Investments has fully acquired a company managing short-line railways and ports to make the Australian firm’s first unlisted infrastructure deal in the US.

FSI, the North American division of Sydney-based Colonial First State Global Asset Management, said in a statement that it had purchased the full equity stake of Patriot Rail and Ports from SteelRiver Infrastructure Partners. Financial details of the transaction were not disclosed, but the deal adds US exposure to FSI’s $8 billion portfolio of unlisted infrastructure based in the UK, Europe, Australia and New Zealand.

The majority of Patriot Rail and Ports’ business activities is focused on the short-line rail industry, according to FSI’s director of infrastructure investments John Ma. The company operates 12 regional short-line railways and manages over 585 miles of tracks across 14 states. It also provides rail services including storage, trans-loading, railcar cleaning, scrapping, repair and maintenance.

“Short-line rail is the first and last mile in the rail network. It connects industrial customers to the main line freight rail network across the US,” Ma told Infrastructure Investor. “We believe it’s a very strong infrastructure class in the US which has a strong competitive position and provides a very essential transportation service.”

Patriot Rail and Ports, which is based in Jacksonville, Florida, also manages nine port terminals and two cold storage facilities in the southeastern US.

FSI has also developed a partnership with MidRail, which is led by longtime rail executive Gilbert Lamphere, to originate, acquire and develop rail asset operations at Patriot Rail and Ports.

“There’s a relatively small handful of platform-scale short -ine rail companies in the US, and we see real opportunities for Patriot to grow in this sector going forward,” Ma explained.

The transaction is the second exit since July for SteelRiver, a New York and California-based infrastructure firm that sold underwater transmission company Trans Bay Cable to a unit of NextEra Energy for around $1 billion.

It is also the second deal involving the US short-line rail sector in as many months. In July, Brookfield Infrastructure Partners teamed up with Singapore’s sovereign wealth fund GIC to acquire Genesee & Wyoming, a Connecticut-based company, which owns or leases 121 short-line and regional freight railroads, totalling 26,000 kilometres in North America, Europe and Australia. The deal was valued at $8.4 billion including debt.

In 2018, FSI established an investment team focused on unlisted infrastructure investments in North America after building a global portfolio of assets in the transportation and utilities sector. In March, it added four senior members to its North American team, including Ma, who joined from the Port Authority of New York and New Jersey, where he served as chief of staff and whose responsibilities included overseeing the region’s major infrastructure assets. Ma played a “significant leadership role” on major projects including the $4 billion La Guardia Terminal B redevelopment and the $1.5 billion Goethals Bridge replacement, Colonial First State said in a statement at the time.

The other three members to join were Diloshini Seneviratne from CalSTRS, Leigh Cruess from Enbridge and Terry Mah from the Veolia Group.

Previously owned by Commonwealth Bank of Australia, the firm was acquired last year by Japanese bank Mitsubishi UFJ Trust and Banking Corporation for A$4.13 billion ($2.93 billion; €2.58 billion).