MIC ups dividend by 40%, posts loss in Q2

Macquarie Infrastructure Company is on target to meet full-year guidance despite net loss of $848,000.

New York-based Macquarie Infrastructure Company, a wholly-owned subsidiary of Macquarie Group, increased its quarterly dividend to $.0875 per share from $0.625 a year earlier and increased its earnings before interest, tax, depreciation and amortisation (EBITDA) by 9.7 percent in the second quarter, re-affirming its full-year guidance.

The company also reported a slight drop in revenue of 2.3 percent to $252.6 million and a net loss of $848,000 compared to a net profit of $11.14 million in the second quarter of 2012. The latter was primarily due to performance fees, according to a company statement.

“MIC’s manager [Macquarie Infrastructure Management] was entitled to an outperformance fee for the second quarter of $24.5 million and elected to re-invest this fee in additional shares,” MIC chief executive James Hooke said during a conference call. “Settlement of the performance fee in additional shares renders it effectively a non-cash expense.”

For Macquarie, cash generation and the dividend paid to shareholders as a percentage of free cash flow are more reliable metrics than the bottom line.

“As you know, our policy is to first pay out a significant portion of the cash flow generated by our businesses as a quarterly cash dividend,” Hooke explained.

MIC’s proportionately combined free cash flow in the second quarter rose 7.3 percent from $43.5 million to $46.7 million year-on-year, while the increase in the quarterly dividend translates into $3.50 per share on an annualised basis, representing a pay-out ratio of approximately 85 percent.

Atlantic Aviation, the company’s airport services operator, and its best performer in the quarter – posting a 48 percent increase in net income to $8.4 million from $5.7 million a year earlier – significantly contributed to the increase in the quarterly dividend thanks to a successful refinancing of its long-term debt in May.

The successful refinancing at Atlantic Aviation also contributed to substantially reducing MIC’s leverage to 3.5 times net debt to EBITDA on a proportionately combined basis from 4.3 times net debt to EBITDA at the end of the prior comparable period. “MIC is now rated investment grade,” Hooke said.

Two operational issues, however, weighed on the company’s bottom line, in addition to the performance fee.

The first was a decline in the volume of gas sold through Hawaii Gas, MIC’s wholly-owned producer of synthetic natural gas and distributor of liquefied petroleum gas on the islands of Hawaii. This was due to the closing of a refinery which resulted in fluctuations in average customer inventory levels and to a large Hawaii resort which was offline during the entire quarter for repair and maintenance.

The second was substantially higher than anticipated maintenance capital expenditures at International-Matex Tank Terminals (IMTT), the bulk liquid storage  business in which MIC holds a 50 percent stake.

“IMTT’s maintenance capital expenditures ballooned to $26.9 million in the second quarter of this year from $7.3 million in the second quarter of 2012,” Hooke said. “We now expect maintenance capex to be $80 million to $85 million,” he added, as opposed to the $60 million the company had anticipated for the year.

MIC’s Direct Energy, which includes Thermal Chicago, operator of the largest cooling system in the US and in which MIC holds a controlling 50.01 percent stake, also detracted from the company’s second quarter performance due to the loss of a customer, which cost the company $1.6 million. 

MIC, however, saw its latest investment of $5.7 million and the newest addition to its portfolio, MIC Solar, comprising two solar generation facilities, perform as anticipated. Since then, MIC acquired a third facility, expected to be operational by year end. The three facilities will have a combined capacity of 43 megawatts and are expected to generate about $1 million in incremental cash distributions to MIC in 2013. 

The company is also in advanced negotiations for the acquisition of a fourth facility.