Fees
The fees and costs which are applied in the management of your investment include:
Base Management Fee
Babcock & Brown Infrastructure Management Pty Limited (BBIM), subsidiary of Babcock & Brown (B&B), is the Manager of both Babcock & Brown Infrastructure Limited (BBIL) and Babcock & Brown Infrastructure Trust (BBIT).
Under the BBIL Management Agreement, BBIM receives a quarterly fee of 0.1% of Base Capitalisation (being $400 million) plus 1% per annum of the amount (if any) by which the Calculated Market Capitalisation (CMC) exceeds the Base Capitalisation.
For more detail on and a worked example of the Base Management Fees, refer to pages 66-69 of Part B of the Alinta Scheme Booklet which can be downloaded by clicking here.
Incentive Management Fee
Under the BBIL Management Agreement, there may also be an entitlement to an incentive fee payable yearly and related to the relative performance of Babcock & Brown Infrastructure.
The Incentive Management Fee is calculated yearly as 15% of the amount (if any) of excess return by Babcock & Brown Infrastructure Stapled Securities (as measured by the Stapled Security Accumulation Index, an index formulated by the Manager to measure the accumulated market value of Stapled Securities) over the S&P/ASX 200 Accumulation Index in a Financial Year.
The Incentive Management Fee is calculated in respect of a financial year at the end of that year (Relevant Year) and payable in three equal instalments. The first instalment is immediately payable. The second and third instalments are due and payable as at 30 June of the two financial years after the Relevant Year.
For more detail on and a worked example of the Incentive Management Fee, refer to pages 66-69 of Part B of the Alinta Scheme Booklet which can be downloaded by clicking here.
Overall cap on Base Management Fee and the Incentive Management Fee
Fees payable to the Manager are capped such that if the Base Management Fee and the Incentive Management Fee payable in respect of a year together exceed 2% per annum of BBIT's "Gross Asset Value" (the fee that would otherwise be payable to the Responsible Entity), the Manager will not be paid the excess amount.
Reimbursement of out of pocket expenses
BBIM is entitled to a fixed amount per annum (stated below) in respect of management expenses. BBIM is also entitled to recover any costs paid by it on behalf of BBIL and any costs in providing the services to the extent that these require input beyond the scope of the management team or are additional services. BBIM is also entitled to recover any costs paid by it on behalf of Babcock & Brown Investor Services.
Management expenses are currently $8.216 million for FY07 and are escalated by CPI over the term of the BBI Management Agreements (being 25 years from 1 July 2005).
Other fees that may be payable to B&B
The following fees may be incurred by BBI:
(i) Break fees – one-third of the value of any break, termination or similar fee received net of acquisition costs incurred by BBI in connection with an investment or proposed investment will be paid to BBIM at the relevant time from the fees received by the relevant BBI entity.
(ii) Financial advisory fees – BBI has entered into an Exclusive Financial Advisory Agreement with B&B. The fees for these services are negotiated case by case at the time, and are always on reasonable arm’s length terms. The independent BBI Directors have protocols in place to benchmark fees proposed and to ensure that they are on reasonable arm’s length terms. In the case of acquisitions, fees are normally expressed as a percentage of enterprise value, which is usually defined as the risk capital invested by BBI plus the proportion of debt financing to the investment represented by BBI’s investment.
For more information on Fees and Expenses including a worked example of annual fees and costs for an investment in BBI, refer to pages 66-69 of Part B of the Alinta Scheme Booklet which can be downloaded by clicking here.