level 27, 35 collins street hastings funds management ... · 12/12/2012 · of substantially all...

Hastings Funds

Management Limited

ABN 27 058 693 388

AFSL No. 238309

Australian Infrastructure

Fund Limited

ABN 97 063 935 553

Level 27, 35 Collins Street

Melbourne VIC 3000 Australia

T +61 3 8650 3600

F +61 3 8650 3701

www.hfm.com.au

Melbourne, London, New York, Sydney

ASX Announcement

Australian Infrastructure Fund (AIX) Total pages: 197

12 December 2012

AIX Notice of EGM and Explanatory Booklet

Australian Infrastructure Fund Limited and Hastings Funds Management Limited as responsible entity of the Australian Infrastructure Fund Trust (together, AIX) announced today the release of the Notice of General Meetings of Australian Infrastructure Fund Limited and Australian Infrastructure Fund Trust (the EGM) and Explanatory Booklet for the Proposed Transaction involving the sale of AIX’s assets and return of funds to securityholders.

The EGM will be held on Tuesday 15 January 2013 from 10:30am (AEDT) or the conclusion of the AIX Annual General Meeting, if later, at the Park Hyatt Melbourne, 1 Parliament Square, off Parliament Place, Melbourne, Victoria.

The Explanatory Booklet, including an Independent Expert’s Report prepared by Grant Samuel & Associates, has been sent to securityholders. The Explanatory Booklet explains the Proposed Transaction and contains information material to securityholders in making an informed decision on how to vote on the resolutions required to implement the Proposed Transaction.

The Independent Expert has concluded that the Proposed Transaction is fair and reasonable to and in the best interests of securityholders, in the absence of a superior proposal.

The AIX Independent Directors unanimously consider that the Proposed Transaction is in the best interests of securityholders and recommend that securityholders vote in favour of the Proposed Transaction, in the absence of a superior proposal.

Securityholders should contact the AIX Information Line on 1800 606 449 (toll-free in Australia) or +61 2 8256 3382 (outside Australia) if they have any questions about the Proposed Transaction.

For further enquiries, please contact:

Jeff Pollock Chief Executive Officer

Australian Infrastructure Fund Tel: +61 3 8650 3600 Fax: +61 3 8650 3701 Email: [email protected] Website: www.hfm.com.au

Simon Ondaatje Head of Investor Relations

Hastings Funds Management Tel: +61 3 8650 3600 Fax: +61 3 8650 3701 Email: [email protected] Website: www.hfm.com.au

Jefferson Petch Company Secretary

Australian Infrastructure Fund

Unless otherwise stated, the information contained in this document is for informational purposes only. It does not constitute an offer of securities and should not be relied upon as financial advice. The information has been prepared without taking into account the investment objectives, financial situation or particular needs of any particular person or entity. Before making an investment decision you should consider, with or without the assistance of a financial adviser, whether any investments are appropriate in light of your particular investment needs, objectives and financial circumstances. Neither Hastings, nor any of its related parties including Westpac Banking Corporation ABN 33 007 457 141, guarantees the repayment of capital or performance of any of the entities referred to in this document and past performance is no guarantee of future performance. Hastings, as the Manager or Trustee of various funds, is entitled to receive management and performance fees.

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Financial Adviser Legal Adviser

THIS IS AN IMPORTANT DOCUMENT and requires your immediate attention. You should read this Explanatory Booklet in full before making any decision as to how to vote on the resolutions to be considered at the EGM. If you are in any doubt as to what you should do, you should consult your broker or financial or other professional adviser.

Australian Infrastructure Fund (AIX)Australian Infrastructure Fund Limited (ABN 97 063 935 553) and Australian Infrastructure Fund (ARSN 089 889 761), collectively AIX

Explanatory BookletFOR THE PROPOSED SALE OF AIX’S ASSETS AND RETURN OF FUNDS TO AIX SECURITYHOLDERS

Notice of EGM to be held on 15 January 2013 following the AIX Annual General Meeting

The Independent Directors unanimously recommend that you vote in favour of each resolution to be considered at the EGM, in the absence of a Superior Proposal

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Explanatory Booklet

Contents

Important NoticesGeneralThis document is important. You should read it in full before making any decision as to how to vote on the resolutions to be considered at the EGM. A Proxy Form for the EGM is enclosed.Purpose of this Explanatory BookletThis Explanatory Booklet comprises a Notice of EGM and an explanatory memorandum issued by AIFL and Hastings as responsible entity of AIFT.This Explanatory Booklet provides AIX Securityholders with information which is material to your decision whether or not to vote in favour of the resolutions to be considered at the EGM.ASX and ASICA copy of this Explanatory Booklet has been lodged with ASX and ASIC. None of ASX, ASIC nor any of their officers takes any responsibility for the contents of this Explanatory Booklet.Preparation and responsibilityOther than as set out below, this Explanatory Booklet has been prepared by AIFL and Hastings as responsible entity of AIFT.Grant Samuel (Independent Expert) has prepared the Independent Expert’s Report contained in Annexure 1 of this Explanatory Booklet and is responsible for that report and any statements based on it. The Independent Expert is not responsible for any other information contained in this Explanatory Booklet. AIX Securityholders should read the Independent Expert’s Report carefully to understand the scope of the report, the methodology of the assessment, the sources of information and the assumptions made.Greenwoods & Freehills has prepared the letter contained in Section 5 of this Explanatory Booklet and is responsible for that letter and any statements based on it. Greenwoods & Freehills is not responsible for any other information contained in this Explanatory Booklet. AIX Securityholders should read the letter contained in Section 5 of this Explanatory Booklet carefully.Except to the extent they are responsible under law, AIFL and Hastings (in any capacity) do not assume responsibility for the accuracy or completeness of the Independent Expert’s Report or the letter contained in Section 5 of this Explanatory Booklet.Investment decisionsThis Explanatory Booklet does not take into account the investment objectives, financial situation, tax position or requirements of any particular person. The information contained in this Explanatory Booklet is not financial product advice. This Explanatory Booklet should not be relied on as the sole basis for any investment decision in relation to AIX Securities. You should seek independent financial and taxation advice before making any decision in relation to AIX Securities or the resolutions to be considered at the EGM. It is important that you read this Explanatory Booklet in full before making any decision as to how to vote on the resolutions to be considered at the EGM.Forward looking statementsThis Explanatory Booklet contains forward looking statements which are subject to known and unknown risks, uncertainties and other factors that could cause the actual results, performance or achievements of AIX, or the effect or implementation of the Proposed Transaction, to vary materially from those expressed or implied in such forward looking statements. Some of the risk factors that affect forward looking statements

in this Explanatory Booklet are set out in the section ‘Risks if the Proposed Transaction proceeds’ of this Explanatory Booklet.Actual events or results may differ materially from the events or results expressed or implied in any forward looking statement and deviations are both normal and to be expected. None of AIFL, Hastings (in any capacity) or any person named in this Explanatory Booklet makes any representation or warranty (either express or implied) as to the accuracy or likelihood of fulfilment of any forward looking statement, or any events or results expressed or implied in any forward looking statement. You are cautioned not to place undue reliance on those statements.The forward looking statements in this Explanatory Booklet reflect views held only as at the date of this Explanatory Booklet.Notice to foreign personsThis Explanatory Booklet has been prepared to comply with the requirements of the laws of Australia, which may differ from the requirements in jurisdictions outside of Australia.Privacy and personal informationAIFL, Hastings as responsible entity of AIFT and the AIX Registry may collect personal information in the process of implementing the Proposed Transaction.The personal information may include the names, addresses, other contact details, bank account details and details of the holdings of AIX Securityholders, and the names of individuals appointed by AIX Securityholders as proxies, corporate representatives or attorneys at the EGM.The collection of some of this information is required or authorised by the Corporations Act. AIX Securityholders who are individuals and the other individuals in respect of whom personal information is collected have certain rights to access the personal information collected in relation to them. Such individuals should contact the AIX Company Secretary at [email protected] if they wish to exercise those rights.If the information outlined above is not collected, AIX may be hindered in, or prevented from, conducting the EGM or implementing the Proposed Transaction effectively or at all.The information may be disclosed to related bodies corporate of AIFL or Hastings, third party service providers, including print and mail service providers and parties otherwise involved in the conduct of the EGM, professional advisers and to regulatory authorities, and also where disclosure is otherwise required or allowed by law.AIX Securityholders who appoint an individual as their proxy, corporate representative or attorney to vote at the EGM should ensure that they inform that individual of the matters outlined above.Defined terms and financial informationCertain terms used in this Explanatory Booklet have been defined in the Glossary in Section 7 of this Explanatory Booklet.All financial and operational information contained in this Explanatory Booklet is stated as at the date of this Explanatory Booklet, unless otherwise specified. Currency amounts are in Australian dollars, unless otherwise specified.DateThis Explanatory Booklet is dated 7 December 2012.

Letter from the Chairmen of AIX 1Directors’ recommendations 3What is the Proposed Transaction? 4Timing and structure of payments to AIX Securityholders 7What actions are required? 8Reasons to vote in favour of the Proposed Transaction 9Reasons why you may want to vote against the Proposed Transaction 14Risks if the Proposed Transaction proceeds 16Frequently Asked Questions 18

1 Description of the Proposed Transaction 222 Evaluation of the Proposed Transaction 283 Explanation of the resolutions to be considered at the EGM 344 AIX profile 375 Taxation considerations 416 Additional information 627 Glossary 70Annexure 1 73Independent Expert’s Report Annexure 2 190Notice of EGM Annexure 3 192Proposed amendments to AIFT Constitution Corporate directory IBC

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1Explanatory Booklet

Dear AIX SecurityholderRecommended transaction with the Future FundYour Independent Directors are pleased to present to you the Proposed Transaction involving the sale of AIX’s Assets and the return of substantially all of AIX’s cash reserves for your consideration.Australian Infrastructure Fund Limited and Hastings Funds Management Limited as responsible entity of Australian Infrastructure Fund (together, AIX) have entered into a binding conditional agreement with the Future Fund to sell all of AIX’s Assets for $2.0 billion (subject to agreed adjustments). If approved by AIX Securityholders, the sale of AIX’s Assets is expected to be completed in early 2013.Following completion of the sale, AIX will return substantially all of AIX’s cash reserves (including the net proceeds of the sale of AIX’s Assets) to AIX Securityholders, which is expected to be within the range of $3.19 and $3.23 per AIX Security. This amount will be paid to AIX Securityholders in the form of a:• Main Return, estimated to be in the range of $2.95 to $2.98 per AIX Security comprising several payments from both AIFT and AIFL.

The Main Return is currently expected to be paid in late April 2013; and• Residual Return, estimated to be in the range of $0.24 to $0.25 per AIX Security comprising additional payments from AIFL only.

AIX is targeting payment of this amount by late June 2013, however, this may be delayed until after 30 June 2013 but to no later than 31 December 2013 depending on the timing of receipt of proceeds by AIFL and the process to ensure that AIFL has sufficient franking credits to fully-frank the dividend component of the Residual Return.

Additionally, you will receive an expected distribution of 5.5 cents per AIX Security in respect of the half-year ending 31 December 2012, to be paid in February 2013.The Proposed Transaction requires your approval at the EGM to be held on 15 January 2013 following the AIX AGM. The EGM is required to approve, amongst other things, the sale of AIX’s Assets, the return of the majority of AIX’s cash reserves to you and the fixing of Hastings’ final performance fee at $54 million (excluding GST).Your Independent Directors have considered the advantages, disadvantages and risks of the Proposed Transaction, as well as the alternatives available to AIX. Your Independent Directors unanimously concluded that the Proposed Transaction is in the best interests of AIX Securityholders and we recommend that AIX Securityholders vote in favour of the Proposed Transaction, in the absence of a Superior Proposal. In reaching this conclusion, your Independent Directors considered the following key supporting reasons:• the estimated cash return to AIX Securityholders reflects a substantial premium to the pre-announcement trading price of AIX Securities,

representing a premium of 20.4% to 21.9% to the closing price of AIX Securities on 23 August 2012, being the last full trading day before the first announcement in relation to the Proposed Transaction;

• the Independent Expert has concluded that the Proposed Transaction is fair and reasonable to and in the best interests of AIX Securityholders, in the absence of a Superior Proposal;

• while AIX is an attractive vehicle for investors wishing to have exposure to a diversified portfolio of airport assets, the Independent Directors consider that, notwithstanding the expected benefits of the Proposed Internalisation, the Proposed Transaction will deliver superior value to AIX Securityholders than the other options presently available; and

• if the Proposed Transaction is not approved and no Superior Proposal emerges, there is a risk that the AIX Security price will fall.However, it is important that you also consider the disadvantages and risks associated with the Proposed Transaction. For example, you should consider whether the expected timing of payments of the Main Return and Residual Return and the tax consequences of the Proposed Transaction suit your individual circumstances. In addition, while considered unlikely, it is possible that the expected payments to AIX Securityholders may not be made within the anticipated timeframe and the sale of one or more of the Assets may not complete by the required timeframe due to delays in the sales process.All of the Independent Directors intend to vote all AIX Securities held or controlled by them in favour of the Proposal Resolutions to be considered at the EGM, in the absence of a Superior Proposal and subject to any restrictions noted in the Notice of EGM. To assist with your consideration of the Proposed Transaction, we urge you to read this Explanatory Booklet in full having regard to your own personal circumstances. The tax implications of the Proposed Transaction for AIX Securityholders are set out in Section 5 of this Explanatory Booklet. By way of summary, the net after tax result for most Australian resident AIX Securityholders after payment of the Main Return and Residual Return referred to earlier in this letter (excluding the expected distribution of 5.5 cents per AIX Security for the half-year ending 31 December 2012) is expected to be approximately the same as if they sold their AIX Securities on ASX for a price equal to the total of those amounts (disregarding the delay in timing of the payments).We encourage you to attend the AIX AGM and EGM on Tuesday, 15 January 2013 or appoint a proxy, attorney or corporate representative (in the case of corporate securityholders) to vote on your behalf.If you have any queries in relation to the Proposed Transaction or this Explanatory Booklet, please contact the AIX Information Line on 1800 606 449 (toll-free within Australia) or +61 2 8256 3382 (for calls made from outside Australia).

Paul Espie Alan Cameron AOChairman ChairmanAustralian Infrastructure Fund Limited Hastings Funds Management Limited

Letter from the Chairmen of AIX ‘Your Independent Directors unanimously concluded that the Proposed Transaction is in the best interests of AIX Securityholders and we recommend that AIX Securityholders vote in favour of the Proposed Transaction, in the absence of a Superior Proposal.’

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2 Explanatory Booklet

Key dates for the EGMLast time and date for receipt of Proxy Form for the EGM

10.30am on Sunday, 13 January 2013

Time and date to determine your eligibility to vote at the EGM

7.00pm on Sunday, 13 January 2013

AIX AGM 10.00am on Tuesday, 15 January 2013

EGM From 10.30am on Tuesday, 15 January 2013 or the conclusion of the AIX AGM, if later

Key process dates that may changeCompletion of the pre-emptive rights sale processes for the relevant Assets

Early March 2013

Completion of the transactions comprising the Asset Sale

Mid-March 2013

Completion of the special review and due diligence process to determine AIX’s financial position

Mid-April 2013

Record Date – time and date to determine your eligibility to receive the Main Return

Mid-April 2013

To be announced by AIX at least 7 Business Days in advance

Payment of the Main Return to AIX Securityholders Late April 2013

Payment of the Residual Return to AIX Securityholders*

Targeted for late June 2013, but in any event no later than 31 December 2013

Delisting of AIX On the payment of the Residual Return if, as targeted, it is paid within 6 months of payment of the Main Return

Otherwise by late October 2013

Expected winding-up and payment of any winding-up distribution to AIX Securityholders*

By June 2014

This timetable is indicative only and AIX has the right to vary these times and dates and will announce any variations to ASX. Additionally, the expected dates are subject to change depending on future events and are dependent on events outside of AIX’s control. Any change to this timetable will be notified to ASX and posted on AIX’s website at www.hfm.com.au/asxlisted/funds/aif/.

* At this point, payment(s) will be made to AIX Securityholders in their capacity as AIFL Shareholders and on the assumption that the AIX Securityholders will continue to be AIFL Shareholders at the relevant record dates. Additional approvals will be sought at a general meeting before payment of the Residual Return.

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Independent Directors’ recommendationThe Independent Directors consider that the Proposed Transaction is in the best interests of AIX Securityholders and unanimously recommend that AIX Securityholders vote in favour of the Proposed Transaction, in the absence of a Superior Proposal.

In making this recommendation, the Independent Directors have considered:

• the advantages and disadvantages of the Proposed Transaction;• the risks associated with implementation of the Proposed Transaction;• the alternatives to the Proposed Transaction; and• the findings of the Independent Expert, set out in the Independent Expert’s Report contained

in Annexure 1 of this Explanatory Booklet.The Independent Directors comprise Paul Espie, John Harvey, Robert Humphris OAM, Mike Hutchinson and Robert Tsenin from AIFL, Alan Cameron AO from Hastings and James Evans from both AIFL and Hastings.

All of the Independent Directors intend to vote all AIX Securities held or controlled by them in favour of the Proposal Resolutions to be considered at the EGM, in the absence of a Superior Proposal and subject to the restrictions set out in the Notice of EGM.

Non-independent DirectorsSome directors of Hastings are non-independent.

The immediate holding company of Hastings is Hastings Management Pty Limited (HMPL) and the ultimate holding company is Westpac. Andrew Day is a director of HMPL, Liam Forde is the Chairman of HMPL and Victoria Poole is an executive of Westpac.

A separate subcommittee of Hastings directors is considering the Proposed Transaction from the perspective of other Hastings managed funds that are asset-level co-investors with AIX. Stephen Gibbs and James McDonald are members of this subcommittee. While Stephen Gibbs and James McDonald are usually considered independent for the purposes of the ASX Corporate Governance Council’s Principles and Recommendations, they are not independent for the purposes of the Proposed Transaction due to their role on this separate subcommittee.

Due to these relationships or roles, each of Andrew Day, Liam Forde, Victoria Poole, Stephen Gibbs and James McDonald have abstained from making any recommendation in relation to the Proposed Transaction or the Proposal Resolutions.F

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What is the Proposed Transaction?The Proposed Transaction that AIX Securityholders are being asked to approve involves the sale of AIX’s Assets (the Asset Sale) and the return of substantially all of AIX’s cash reserves, including the net proceeds of the Asset Sale, to AIX Securityholders (the Cash Return).

The Asset Sale and Cash Return, including the tax implications for AIX Securityholders, are summarised below. This Section is a summary only and should be read together with all other parts of this Explanatory Booklet.

The Asset SaleAs part of the Proposed Transaction, AIX will sell all of its Assets for $2.0 billion (subject to agreed adjustments). The Assets comprise AIX’s interests in 11 Australian airports, three international airports and a residual interest in a service centre concession located on Sydney’s M4 Motorway. AIX is a partial owner in each of these investments. Further details of AIX’s ownership levels are contained in Section 4.3 of this Explanatory Booklet.

If AIX Securityholders approve the Proposed Transaction at the EGM, AIX will enter into sale arrangements with the Future Fund (or its nominee) in relation to each of the Assets in accordance with the Implementation Agreement between AIX and the Future Fund or as otherwise agreed between AIX and the Future Fund.

The entry into the sale arrangements with the Future Fund (or its nominee) will, in respect of most of the Assets, trigger pre-emptive rights in favour of each of the asset-level co-investors such that AIX’s co-investors will have the right to purchase the Assets at the price offered by the Future Fund. The sale of AIX’s interest in each of Perth Airport Development Group (Perth Airport), Australian Pacific Airports Corporation (Melbourne and Launceston Airports), Queensland Airports Limited (Gold Coast, Townsville, Mount Isa and Longreach Airports) and Airport Development Group (Darwin, Alice Springs and Tennant Creek Airports) will be conditional on AIX completing these pre-emptive rights sale processes. No pre-emptive rights provisions apply to the transfer of AIX’s interest in Statewide Roads or the holding vehicle for AIX’s interest in HTAC.

If one or more of AIX’s co-investors with pre-emptive rights exercise their right to acquire some or all of an Asset, then AIX will:

• sell all or part of that Asset to the relevant co-investor(s) instead of the Future Fund (or its nominee); and• pay the Future Fund a fee equal to 1% of the purchase price allocated to that Asset (or part of the Asset).

To the extent that AIX’s co-investors do not exercise their pre-emptive rights or AIX has a right to reject acceptances (for example, because acceptances are not received for the entire Asset), AIX will sell the Assets (in full or in part, as the case may be) to the Future Fund or its nominee(s) for the prices agreed in the sale arrangements. The co-investors in two of the relevant assets must approve the Future Fund (or its nominee) as a proposed securityholder of appropriate financial standing, subject to a requirement to act reasonably. These consents will be sought concurrently with the pre-emptive rights sale processes.

AIX will therefore receive in aggregate an amount between (subject to agreed adjustments):

• $2.0 billion (if all Assets are sold to the Future Fund or its nominee(s)); or• approximately $1.98 billion (if all of the relevant Assets are sold to AIX’s co-investors, after deducting a fee of 1% payable

to the Future Fund).

Completion of the transactions comprising the Asset Sale is expected to occur by mid-March 2013. While AIX intends to comply fully with all relevant pre-emptive rights sale processes in order to allow the sales to complete within this timeframe, if there is a delay in this process for any reason this could result in the delay of the sale of an Asset, or could result in an Asset not being sold. The risk and implications of a delay of this nature are described on pages 16 to 17 of this Explanatory Booklet.

The Cash ReturnFollowing the completion of the transactions comprising the Asset Sale, AIX will return substantially all of AIX’s cash reserves, including the net proceeds of the Asset Sale, to AIX Securityholders by way of the Cash Return.

The payments under the Cash Return are expected to be within the range of $3.19 to $3.23 per AIX Security1 and are expected to comprise the:

• Main Return: comprising payments from AIFT and AIFL as follows: – from AIFT:

– a distribution of Distributable Income, which comprises the net capital gain derived by AIFT on the sale of its Assets (after applying the CGT discount), which is expected to be $0.95 per AIFT Unit;

– a distribution of trust capital, which is expected to be approximately $1.01 per AIFT Unit; and – consideration for the cancellation of AIFT Units, which is expected to be between $0.91 to $0.93 per AIFT Unit; and

– from AIFL, a fully-franked dividend of up to $0.02 per AIFL Share and a capital return of up to $0.07 per AIFL Share; and• Residual Return: a fully-franked dividend of up to $0.06 per AIFL Share and a capital return of up to $0.19 per AIFL Share from AIFL.

1 The factors that may cause these payments to be higher or lower than this range are described in Section 1.3(b) of this Explanatory Booklet. The high end of the range assumes that all Assets are sold to the Future Fund and therefore no fee is payable to the Future Fund as a result of Assets being sold to an entity other than the Future Fund or its nominee(s).

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Additionally, AIX Securityholders will receive an expected distribution of 5.5 cents per AIX Security in respect of the half-year ending 31 December 2012, to be paid in February 2013.

In order to receive the Main Return, you must be registered as the owner of AIX Securities at the Record Date, which is expected to be a date in mid-April 2013. This date cannot be settled until completion of the transactions comprising the Asset Sale. AIX will announce the Record Date at least 7 Business Days in advance of the date. The Main Return is expected to be paid to AIX Securityholders in late April 2013.

The timing and record date for the Residual Return will be determined in 2013. AIX Securityholders (in their capacity as AIFL Shareholders) will be sent a separate explanatory booklet in relation to further approvals that will be sought for the purposes of the Residual Return. AIX will seek to pay the Residual Return as early as possible, and is targeting late June 2013. AIX Securityholders should see Section 1.3(b) of this Explanatory Booklet for more information about this process and timing.

Tax implications for AIX SecurityholdersThe tax consequences of receipt of each of the above components of the Cash Return will vary depending on an AIX Securityholder’s taxation and financial circumstances. General information about the expected Australian taxation implications is set out in Section 5 of this Explanatory Booklet. It is strongly encouraged that AIX Securityholders obtain their own independent taxation advice. The calculations set out below are based on the assumptions that:

• the 1% fee (or part thereof) is not payable to the Future Fund; and• the Residual Return is paid before 30 June 2013.

In very broad summary, the tax treatment of the expected payments under the Cash Return for an Australian resident AIX Securityholder who holds their AIX Securities on capital account is generally expected to be as set out below:

• fully-franked dividends of up to $0.08 per AIFL Share will be included in an AIX Securityholder’s assessable income;• capital returns on the AIFL Shares of up to $0.26 per AIFL Share will reduce the CGT cost base of the AIFL Shares. If the capital

return exceeds the amount of the cost base of the AIFL Shares then the AIX Securityholder will derive a capital gain in respect of that excess;

• the distribution of Distributable Income of $0.95 per AIFT Unit, which will result in an AIX Securityholder: – making a ‘grossed up’ capital gain of approximately $1.91 per AIFT Unit which, after applying any available capital losses

(including any loss that may arise on cancellation of their AIFT Units), may be reduced under the CGT discount provisions if the AIX Securityholder is an individual, a trustee or a complying superannuation entity; and

– including in their taxable income their proportionate share of the franking credits from franked dividends received by AIFT of approximately $0.02 per AIFT Unit and will consequently be entitled to a tax offset equal to that amount;

• the distribution of trust capital of approximately $1.01 per AIFT Unit, which will effectively be disregarded for CGT purposes and will not reduce the cost base of the AIFT Units; and

• the cancellation of an AIX Securityholder’s AIFT Units for $0.93 per AIFT Unit will be a CGT event in respect of the AIFT Units. An Australian AIX Securityholder whose reduced cost base in the AIFT Units is greater than the amount paid to cancel the AIFT Units will make a capital loss on cancellation. Such a capital loss should be able to be offset against the ‘grossed up’ capital gain of approximately $1.91 per AIFT Unit made as a result of the distribution of Distributable Income by AIFT. Conversely, a capital gain will arise if cancellation proceeds exceed the cost base of the AIFT Units.

By way of example, for an Australian resident individual AIX Securityholder on the top marginal tax rate with a cost base of $1.95 per AIX Security who has held the AIX Securities for at least 12 months, the post-tax cash position as a result of receiving the Main Return and the Residual Return will be approximately $2.95, based on the expected payments under the Cash Return. Full details of the calculations and assumptions are contained in the examples in Section 5 of this Explanatory Booklet.

If the Residual Return is paid after 30 June 2013 then:

• the fully-franked dividend of up to $0.06 per AIFL Share included in the Residual Return will be included in the assessable income of the AIX Securityholder for the income year ending 30 June 2014, rather than the income year ending 30 June 2013; and

• the return of share capital of up to $0.19 per AIFL Share included in the Residual Return will be taken into account in determining whether a capital gain arises in respect of the AIFL Shares and, if so, calculating the net capital gain for the income year ending 30 June 2014.

A description of the tax consequences relating to the Residual Return will be included in a separate explanatory booklet sent to AIX Securityholders in 2013 to approve the capital return forming part of the Residual Return.

By way of very broad summary, the net after tax result for most Australian resident AIX Securityholders after the payments under the Cash Return is expected to be approximately the same as if they sold their AIX Securities on ASX for a price equal to the Cash Return (disregarding the timing of the payments under the Cash Return). However, the result will be dependent on the individual facts and circumstances for AIX Securityholders and accordingly it is strongly encouraged that AIX Securityholders obtain their own independent taxation advice.

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For non-resident AIX Securityholders the distribution of Distributable Income and distribution of trust capital by AIFT as part of the Main Return will be subject to Australian Managed Investment Trust withholding tax to the extent that the distribution represents the net capital gain arising on disposal by AIFT of those Assets that constitute ‘taxable Australian property’. This is expected to be approximately $1.56 per AIFT Unit. The withholding tax rate on that amount will be either 15% or 30% depending on the address of the investor.

Australian withholding tax will not apply to the balance of the Cash Return unless AIFL pays a dividend which is not fully-franked.

Non-resident AIX Securityholders may be entitled to a tax credit in their home jurisdiction in respect of the amount withheld and should seek their own advice on the tax implications for their individual circumstances.

An AIX Securityholder who is not an Australian resident for Australian tax purposes should not be subject to Australian CGT in relation to the receipt of the remainder of the payments under the Cash Return unless their AIX Securities constitute taxable Australian property at the time of the payment, as described in Section 5 of this Explanatory Booklet.

Changes to Hastings’ fee arrangementsIf the Proposed Transaction is approved, Hastings’ performance fee entitlements will be amended, so that, if the Asset Sale and cancellation of AIFT Units as part of the Main Return occurs by 30 June 2013, the performance fee for the period commencing 1 July 2012 and ending immediately prior to the date on which AIFT Units are cancelled will be fixed at $54 million (excluding GST) (instead of being a floating amount depending on the relative performance of AIX compared to the benchmark index).

While AIX considers it unlikely, if it becomes apparent that the cancellation of AIFT Units as part of the Main Return cannot occur by 30 June 2013, the parties to the Facilitation Deed (which sets out these proposed changes) may consider an appropriate variation to Hastings’ proposed management arrangements and fees such that AIX Securityholders and Hastings each receive equivalent benefits to those that would have been received had the proposed arrangements been implemented by 30 June 2013. If a variation cannot be agreed, Hastings’ existing fee arrangements will continue to apply.

AIX Securityholders should refer to Section 1.4 of this Explanatory Booklet for further information on Hastings’ fee arrangements and the changes proposed to be implemented as part of the Proposed Transaction.

Actions following payment of the Main ReturnFollowing payments under the Main Return to AIX Securityholders:

• AIFT will be wholly-owned by AIFL and AIFL will retain an amount of capital sufficient to meet the anticipated liabilities of both AIFL and AIFT;

• AIX Securityholders will continue to be AIFL Shareholders; and• AIFL will return the majority of its remaining cash reserves to AIX Securityholders (in their capacity as AIFL Shareholders)

by way of the Residual Return.

AIX will apply to ASX to be delisted and will commence a voluntary winding-up process. AIX intends to remain listed for the maximum period permitted under the ASX Listing Rules, being 6 months after payment of the Main Return. However, in the event that the Residual Return is, as targeted, able to be paid within 6 months after payment of the Main Return, AIX will apply to be delisted on payment of the Residual Return.

To the extent that there is any additional cash in the delisted vehicle (including after payment of the Residual Return), AIX Securityholders will continue to benefit from that remaining balance due to their ongoing capacity as AIFL Shareholders.

The winding-up of AIX is expected to occur before the end of June 2014, subject to appropriate arrangements being made for residual liabilities.

What are the risks of the Proposed Transaction?While the Proposed Transaction is expected to provide a number of advantages for AIX Securityholders, it also involves a number of key risks associated with its implementation. These risks include the possibility that:

• the estimated payments to AIX Securityholders may be lower than anticipated;• the estimated payments to AIX Securityholders may not be made within the anticipated timeframe;• the sale of one or more of the Assets may not complete by the required timeframe or at all; and• payment of the Residual Return requires further approval.

These risks are further outlined on pages 16 to 17 of this Explanatory Booklet. Additionally, AIX Securityholders should consider both the advantages and disadvantages of the Proposed Transaction, which form the basis for the sections titled ‘Reasons to vote in favour of the Proposed Transaction’ and ‘Reasons why you may want to vote against the Proposed Transaction’ on pages 9 to 15 of this Explanatory Booklet.

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Timing and structure of payments to AIX Securityholders

Set out below is a breakdown of the payments under the Cash Return (in addition to the expected distribution of 5.5 cents per AIX Security for the half-year ending 31 December 2012) on the assumption that either:1 all Assets are sold to the Future Fund or its nominee(s); or2 all of the relevant Assets are sold to AIX’s co-investors.

1. All Assets are sold to the Future Fund or its nominee(s)2

Distribution = 5.5 cents Cash Return = $3.23Expected distribution for half-year to 31 Dec 2012

Main Return Residual Return

February 2013

5.5 cents

April 2013

$2.98

Targeted for June 2013, but in any event no later than December 2013

$0.25AIFT AIFL AIFT AIFL AIFT AIFL

Dis

trib

utio

n 5.5 cents – $2.89 9 cents – $0.25

Regular distribution

– Distribution of Distributable Income

Distribution of trust capital

Cancellation of AIFT Unit

Dividend Capital return


Am

ount 5.5 cents nil $0.95 $1.01 $0.93 up to $0.02 up to $0.07 nil up to $0.06 up to $0.19

Tax

Trea

tmen

t Reduces cost base

– Capital gain to be grossed up to $1.91

No tax effect

Proceeds on cancellation for calculation of capital gain or loss

Assessable income; fully franked

Reduces cost base; may cause capital gain

– Assessable income; fully franked


2. All of the relevant Assets are sold to AIX’s co-investors3

Distribution = 5.5 cents Cash Return = $3.19Expected distribution for half-year to 31 Dec 2012

Main Return Residual Return

February 2013

5.5 cents

April 2013

$2.95

Targeted for June 2013, but in any event no later than December 2013

$0.24*AIFT AIFL AIFT AIFL AIFT AIFL

Dis

trib

utio

n 5.5 cents – $2.86# 9 cents – $0.24*

Regular distribution

– Distribution of Distributable Income

Distribution of trust capital

Cancellation of AIFT Unit



Am

ount 5.5 cents nil $0.95 $1.01 $0.91 up to $0.02 up to $0.07 nil up to $0.06 up to $0.19

Tax

Trea

tmen

t Reduces cost base

– Capital gain to be grossed up to $1.90

No tax effect

Proceeds on cancellation for calculation of capital gain or loss

Assessable income; fully franked


– Assessable income; fully franked


2 In this scenario, the 1% fee will not be payable to the Future Fund.3 In this scenario, the 1% fee will be payable to the Future Fund in respect of the relevant Assets.

Note – all calculations included in the above diagrams are an estimation only and are rounded to the nearest cent unless otherwise specified. #While the rounded components of the payments from AIFT under the Main Return in scenario 2 add up to $2.87, $2.86 is the rounded sum of the non-rounded components of those payments. *While the rounded components of the payments from AIFL under the Residual Return in scenario 2 add up to $0.25, $0.24 is the rounded sum of the non-rounded components of those payments. Timing is indicative only. Additionally, on the winding-up of AIFL, which is expected to occur by June 2014, a small winding-up distribution may be paid to AIX Securityholders (in their capacity as AIFL Shareholders).Note – the Independent Expert has estimated the current value of the consideration to be paid to AIX Securityholders to be in the range of $3.17 to $3.21 per AIX Security. This consideration represents the present value of the estimated future cash returns to AIX Securityholders, comprising the expected payments under the Cash Return of $3.19 to $3.23 and an expected distribution of 5.5 cents per AIX Security in respect of the half-year ending 31 December 2012. The Independent Expert’s Report is contained in Annexure 1 of this Explanatory Booklet. The Independent Expert’s valuation range is used in this Explanatory Booklet in situations where the Independent Expert’s Report, and its conclusions, are discussed. Elsewhere in this Explanatory Booklet, AIX refers to the amount and structure of expected payments under the Cash Return and the expected distribution in respect of the half-year ending 31 December 2012.

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What actions are required?Step 1 Read this Explanatory Booklet and seek advice as appropriate

This is an important document. You should read this Explanatory Booklet and the accompanying Notice of EGM in full before deciding how to vote at the EGM.

If you are in any doubt as to what action you should take, you should seek financial, tax or other professional advice before making any decision in relation to your AIX Securities and how to vote at the EGM.

Step 2 Vote on the resolutions at the EGM

You may vote on the resolutions to be considered at the EGM if you are registered on the AIX Security Register at 7.00pm (Melbourne time) on Sunday, 13 January 2013.

You may vote in person or by proxy.

If you wish to vote in person at the EGM, you should attend the EGM at the Park Hyatt Melbourne, 1 Parliament Square, off Parliament Place, Melbourne VIC 3002 on Tuesday, 15 January 2013.

The EGM will be held at 10.30am (Melbourne time) or the conclusion of the AIX AGM, if later.

If you wish to appoint a proxy for the EGM, you must complete and lodge the enclosed applicable Proxy Form so that it is received no later than 10.30am (Melbourne time) on Sunday, 13 January 2013.

Completed Proxy Forms may be lodged by:

• mailing it to the AIX Registry, Computershare Investor Services Pty Limited, GPO Box 242 Melbourne, VIC 3001;

• hand delivering it to the AIX Registry at Yarra Falls, 452 Johnston Street, Abbotsford, VIC 3067;• faxing it to the AIX Registry on 1800 783 447 (within Australia) or +61 3 9473 2555

(outside Australia);• lodging it online on the AIX Registry’s website at www.investorvote.com.au using the

Control Number located on the front of your Proxy Form; or• for custodians, lodging it online at www.intermediaryonline.com.

Refer to the enclosed applicable Proxy Form and the Notice of EGM contained in Annexure 2 of this Explanatory Booklet for more information on how to complete and lodge the applicable Proxy Form.

EnquiriesIf you have any questions about the Proposed Transaction or the content of this Explanatory Booklet, please call the AIX Information Line on 1800 606 449 (toll-free for calls made from within Australia) or +61 2 8256 3382 (for calls made from outside Australia) between 9.00am and 5.00pm (Melbourne time), Monday to Friday.

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0

0.50

1.00

1.50

2.00

2.50

3.00

3.50

$

Cash Return premiums

AIX

Secu

rity

pric

e ($

)

Midpoint of estimated distributions under Cash Return

AIX Security priceon 23 August 2012

AIX Security’sone month VWAPon 23 August 2012

AIX Security’sthree month VWAPon 23 August 2012

AIX Security’stwelve month VWAPon 23 August 2012

$3.21

$2.65 $2.59 $2.46$2.15

21.1% premium 24.0% premium 30.5% premium 49.3% premium

Source: IRESS.

The Independent Directors consider that there are a number of advantages associated with the Proposed Transaction. Some of the key advantages and reasons why AIX Securityholders may want to vote in favour of the Proposed Transaction include:

1 The estimated Cash Return to AIX Securityholders reflects a substantial premium to the pre-announcement trading price of AIX SecuritiesAs part of the Proposed Transaction, AIX Securityholders will receive a series of payments as part of the Cash Return. These payments are expected to be within the range of $3.19 to $3.23 per AIX Security.4 This represents a premium of:

• 20.4% to 21.9% to the closing price of AIX Securities of $2.65 on 23 August 2012, being the last full trading day before the first announcement in relation to the Proposed Transaction on 24 August 2012;

• 23.2% to 24.8% to the volume weighted average trading price of AIX Securities in the month prior to 23 August 2012;• 29.7% to 31.4% to the volume weighted average trading price of AIX Securities in the 3 months prior to 23 August 2012; and• 48.4% to 50.3% to the volume weighted average trading price of AIX Securities in the 12 months prior to 23 August 2012.

The Proposed Transaction provides an opportunity for AIX Securityholders to crystallise their investment in AIX for a return that reflects an attractive premium to AIX’s trading price in the absence of the Proposed Transaction.

Reasons to vote in favour of the Proposed Transaction

4 The factors that may cause these payments to be higher or lower than this range are described in Section 1.3(b) of this Explanatory Booklet. The high end of the range assumes that all Assets are sold to the Future Fund and therefore no fee is payable to the Future Fund as a result of Assets being sold to an entity other than the Future Fund or its nominee(s).

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$

0

0.50

1.00

1.50

2.00

2.50

3.00

3.50

Independent Expert valuation range vs. estimation of consideration to AIX Securityholders

Independent Expert’s valuation (Low)

Independent Expert’s assessment of consideration (Low)

Independent Expert’s assessment of consideration (High)

Independent Expert’s valuation (High)

$3.12 $3.17 $3.21$3.55

Source: Independent Expert’s Report, which is contained in Annexure 1 of this Explanatory Booklet.

2 The Independent Expert has concluded that the Proposed Transaction is fair and reasonable to and in the best interests of AIX Securityholders, in the absence of a Superior ProposalThe Independent Directors appointed Grant Samuel & Associates Pty Limited (Grant Samuel or the Independent Expert) to prepare an independent expert’s report setting out whether, in its opinion, the Proposed Transaction is fair and reasonable to and in the best interests of AIX Securityholders. Grant Samuel is independent of AIX and the Future Fund and has no involvement with, or interest in, the outcome of the Proposed Transaction other than the preparation of the Independent Expert’s Report, which is contained in Annexure 1 of this Explanatory Booklet.

The Independent Expert has concluded that the Proposed Transaction is fair and reasonable to and in the best interests of AIX Securityholders, in the absence of a Superior Proposal.

The Independent Expert has:

• assessed the value of AIX to be in the range of $1,936 million to $2,202 million, representing $3.12 to $3.55 per AIX Security; and

• estimated the current value of the consideration to be paid to AIX Securityholders to be in the range of $3.17 to $3.21 per AIX Security. This consideration represents the present value of the estimated future cash returns to AIX Securityholders, comprising the expected payments under the Cash Return of $3.19 to $3.23 and an expected distribution of $0.055 per AIX Security in respect of the half-year ending 31 December 2012.

The Independent Expert states that:

• the Proposed Transaction delivers a significant premium to the price at which AIX Securities were trading prior to the first announcement in relation to the Proposed Transaction;

• the price of AIX Securities is likely to fall in the absence of the Proposed Transaction, assuming there is no speculation as to an alternative or revised proposal, under current market conditions and given AIX’s current ownership structure; and

• a superior alternative proposal is unlikely.

Reasons to vote in favour of the Proposed Transaction continued

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0.000.50

1.00

1.50

2.00

2.50

3.00

3.50

4.00

$

AIX Security price compared to the NAV (since 30 June 2002)6

AIX

Secu

rity

pric

e ($

)

Source: IRESS, AIX statutory accounts.

AIX Security price Historical NAV per AIX Security

24 Aug 12:AIX announces MOU with the Future Fund

8 Nov 11:AIX announces that AIFL and Hastings

boards are in discussions regarding a potential restructure to internalise management

29 Jun 12:AIX announces that AIFL and

Hastings boards have reached an in-principle agreement to

internalise management

Jun 12Jun 11Jun 10Jun 09Jun 08Jun 07Jun 06Jun 05Jun 04Jun 03Jun 02

3 The aggregate purchase price under the Proposed Transaction reflects a premium to the independently assessed value range of the Assets as at 30 June 2012KPMG Corporate Finance is engaged by AIX to provide an independent valuation of each of the Assets on a semi-annual basis for financial reporting purposes. KPMG Corporate Finance determines a valuation range for each of the Assets by discounting each asset’s projected future cash flows back to their present value using a risk adjusted discount rate.

The projected future cash flows, which are reviewed by KPMG Corporate Finance, are prepared by the management teams at the respective assets and are based on a number of assumptions, including assumptions regarding any growth in cash flows associated with the future operations and development of the particular asset.

AIFL and Hastings as responsible entity of AIFT have adopted, for financial reporting purposes, the midpoint of the range for each of the valuations prepared by KPMG Corporate Finance. As at 30 June 2012, the midpoint of the independently assessed value of the Assets was in total $1.8 billion, which equated to $2.93 per AIX Security. The aggregate purchase price for the Assets of $2.0 billion represents a 5.3% to 15.4% premium5 to the range of the independently assessed total value of the Assets as at 30 June 2012 of $1.7 to $1.9 billion.

The KPMG Corporate Finance independent valuation of the Assets was completed in June 2012 and it is expected that the Main Return will be paid in late April 2013. Information regarding the value of the Assets, including the KPMG Corporate Finance independently assessed value of the Assets for the last three financial years and the Independent Expert’s valuation, is set out in Section 2.3 of this Explanatory Booklet.

While the independently assessed value of the Assets is a consideration for AIX Securityholders in assessing the aggregate purchase price for the Assets offered by the Future Fund, AIX Securityholders should refer to the Independent Expert’s Report contained in Annexure 1 of this Explanatory Booklet, which was prepared specifically for the Proposed Transaction.

The net asset value (NAV) of AIX is comprised of the independent valuations of the Assets, fund level cash and other assets and liabilities. As at 30 June 2012, the NAV of AIX was $3.01 per AIX Security.

As highlighted in the chart below, during the period from 30 June 2002 to 23 August 2012 (being the last full trading day before the first announcement in relation to the Proposed Transaction) AIX Securities have generally, but not always, traded at a discount to NAV. As at 30 June 2012, the discount to NAV was 20.2%. The NAV of AIX is only calculated at specific points in time, being 30 June and 31 December each year, when the AIX assets are independently valued by KPMG Corporate Finance.

5 The range assumes that there are no adjustments to the aggregate purchase price. The agreed adjustments are described in Section 6.1(a) of this Explanatory Booklet.

6 The NAV line displayed in the chart is illustrative only. The NAV is measured semi-annually at 30 June and 31 December.

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4 The Independent Directors consider that the Proposed Transaction is the most favourable option presently available to AIX SecurityholdersIn considering whether to recommend the Proposed Transaction, the Independent Directors have assessed the Proposed Transaction against a number of alternatives including continuing as a listed entity trading on the ASX and implementing the Proposed Internalisation.

As announced to ASX on 29 June 2012, AIX and Hastings’ parent company HMPL had reached a non-binding in-principle agreement to internalise the management of AIX, under which responsibility of the management of AIX would be transferred to AIFL (or a related entity of AIFL).

The expected advantages of the Proposed Internalisation, including anticipated net cost savings as a result of removing the ongoing liability to pay management fees and potential performance fees to Hastings, would, in the view of the Independent Directors, have created a more attractive investment platform compared to the status quo.

While the Proposed Internalisation had expected advantages, the payments under the Cash Return provide AIX Securityholders with certain cash proceeds, which the Independent Directors believe deliver the most favourable option presently available to AIX Securityholders.

If the Proposed Transaction is not implemented and no Superior Proposal emerges, there is a risk that AIX Securities will trade at levels below the estimated total of the payments under the Cash Return.

The Independent Directors have not received a Superior Proposal and consider that the likelihood of a party, other than the Future Fund, making an offer to acquire AIX (either before or after the Proposed Internalisation) or all of the Assets for consideration higher than that offered by the Future Fund is low.

Reasons to vote in favour of the Proposed Transaction continued

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0.00

0.50

1.00

1.50

2.00

2.50

3.00

3.50

Dec 12Sep 12Jun 12Mar 12Dec 11

$

Cash Return compared to the AIX Security price (last 12 months)

AIX

Secu

rity

pric

e ($

)


AIX Security price Midpoint of estimated distributions under Cash Return



Hastings boards have reachedan in-principle agreement

to internalise management

5 If the Proposed Transaction is not approved and no Superior Proposal emerges, there is a risk that the AIX Security price will fallIf the Proposed Transaction is not approved, there is a risk that the AIX Security price will fall below current trading levels, in the absence of a Superior Proposal.

As at close of trade on 6 December 2012, the AIX Security price has increased 18.9% since 23 August 2012, being the last full trading day before the first announcement in relation to the Proposed Transaction on 24 August 2012.

The AIX Security price is affected by a range of factors which are not capable of precise estimation, and in relation to AIX, the actual trading price in the event the Proposed Transaction is not approved will be affected by, among other things, macroeconomic factors, expectations of future cash flows from the Assets, expected distributions from AIX and the likelihood of potential future transactions.

The following graph traces the price of AIX Securities prior to, and following, the first announcement in relation to the Proposed Transaction on 24 August 2012.

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Total securityholder return for AIX compared to ASX200 Industrials Accumulation Index (last five years)

Tota

l sec

urity

hold

er re

turn

for A

IX (i

ndex

ed to

100)

Source: IRESS.

30.1%

-8.4%

AIX accumulated return ASX 200 Industrials Accumulation Index

0.0

20.0

40.0

60.0

80.0

100.0

120.0

140.0

Dec 12Jun 12Dec 11Jun 11Dec 10Jun 10Dec 09Jun 09Dec 08Jun 08Dec 07

The Independent Directors consider that there are possible disadvantages associated with, and reasons why AIX Securityholders may want to vote against, the Proposed Transaction, including:

1 You may want to maintain your exposure to the Assets or the AIX portfolioIn assessing the benefits of maintaining exposure to the Assets through the current management structure, AIX Securityholders may wish to consider a comparison of the total securityholder return performance of AIX relative to the broader market. The chart below shows the total securityholder return for the past five years of AIX relative to the ASX200 Industrials Accumulation Index, which is the basis for the measure of AIX Security performance for purposes of the Hastings historical performance fee calculation since 1 July 2007.The performance of AIX Securities was generally consistent with the benchmark index until November 2011, after which time AIX Securities have consistently outperformed the benchmark index. The outperformance of AIX Securities since that time is thought to be attributed to several factors, including the divestment of non-core assets (being Port of Geelong, Port of Portland and Metro Transport Sydney), the increase in Australian listed infrastructure sector market prices generally, the announcement at the Annual General Meeting in November 2011 that the internalisation of AIX’s management was being considered and the first announcement in relation to the Proposed Transaction on 24 August 2012.

Reasons why you may want to vote against the Proposed Transaction

If the Proposed Transaction is implemented, AIX Securityholders will no longer have an exposure to the Assets or the potential benefits of the AIX portfolio, as the fund established by the Future Fund Act is not open to public investment.

Future growth in the value of the Assets may be realised as a result of capital expenditure and expansion or upgrade works that have been undertaken or are presently being planned or undertaken at the asset-level as described in Section 4.4 of this Explanatory Booklet. While the AIX Security price reflects expectations of the value to be generated from these works, you may have different expectations as to the value that will flow to AIX from these works.The Independent Directors, having had regard to the findings of the Independent Expert, consider that the payments under the Cash Return provide AIX Securityholders with appropriate compensation for foregoing exposure to potential future growth of the Assets. You may, however, have a different view and may wish to maintain your exposure to the Assets.In addition, if the Proposed Transaction is approved, the Proposed Internalisation will not proceed. Accordingly, AIX Securityholders will not receive any anticipated advantages of the Proposed Internalisation but will not be exposed to any potential disadvantages and risks of the Proposed Internalisation. AIX Securityholders should refer to Section 2.4(a) for further information about the Proposed Internalisation. The Independent Directors consider that the Proposed Transaction provides AIX Securityholders with a superior outcome compared to the Proposed Internalisation.

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2 The timing of the payments may not suit the individual circumstances of some AIX SecurityholdersThe Main Return is expected to be paid in late April 2013. The Residual Return is targeted to be paid in late June 2013, but in any case is expected to be paid no later than 31 December 2013.

The expected timing of the payments under the Cash Return may negatively affect an individual AIX Securityholder’s assessment of the value of the Proposed Transaction.

The risks that payments may be delayed, as outlined in the following Section of this Explanatory Booklet, may also not be suitable for some AIX Securityholders.

AIX Securityholders will be able to sell their AIX Securities or AIFL Shares on market rather than waiting to receive payment of the Main Return or Residual Return. Liquidity in AIFL Shares on ASX, following the payment of the Main Return but prior to the delisting of AIX, may however be low. This may negatively affect the ability of AIX Securityholders to sell, or the value realised for, their AIFL Shares during this period. Additionally, AIX Securityholders should note that the price at which AIX Securityholders may be able to sell their AIX Securities or AIFL Shares on market may be lower or higher than the amount received under the Main Return or Residual Return, as applicable.

3 Possibility of a Superior Proposal emergingThe Independent Directors and the Independent Expert consider that the potential for a Superior Proposal to emerge in the foreseeable future is low. However, you may disagree with this assessment.

If AIX Securityholders approve the Proposed Transaction at the EGM, AIX must proceed with the Proposed Transaction and will not be able to enter into any other arrangement with another party, even if the Independent Directors consider that it is a Superior Proposal.

If a Superior Proposal emerges before the conclusion of voting at the EGM, the Independent Directors have the right to consider it subject to certain conditions as set out in Section 6.1(c) of this Explanatory Booklet. Since the first announcement in relation to the Proposed Transaction on 24 August 2012, no Superior Proposal has emerged.

4 The tax consequences of the Proposed Transaction may not be optimal for some AIX SecurityholdersThe tax consequences of receipt of each of the components of the Cash Return will vary depending on an AIX Securityholder’s personal taxation and financial circumstances. General information about the expected Australian taxation implications is set out in Section 5 of this Explanatory Booklet.

By way of summary, the net after tax result (disregarding the timing of the payments under the Cash Return) for most Australian resident AIX Securityholders after the payments under the Cash Return is expected to be approximately the same as if they sold their AIX Securities on ASX for a price equal to the total of the Main Return and the Residual Return.

For non-resident AIX Securityholders most of the distribution of Distributable Income and distribution of trust capital by AIFT as part of the Main Return will be subject to Australian Managed Investment Trust withholding tax to the extent that the distribution comprises the net capital gain of AIFT in respect of ‘taxable Australian property’. Non-resident AIX Securityholders should refer to Section 5 of this Explanatory Booklet for further information and should seek their own advice on the tax implications for their individual circumstances.

5 You may disagree with the recommendation of the Independent Directors or the conclusion of the Independent ExpertYou may disagree with the opinion of the Independent Directors, or the conclusion of the Independent Expert, that the Proposed Transaction is fair and reasonable to and in the best interests of AIX Securityholders in the absence of a Superior Proposal.

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There are a number of risks and uncertainties, which are both specific to AIX and of a general nature, that may affect the future operating and financial performance of AIX and the assets. As AIX Securityholders are already subject to these risks due to their investment in AIX, this Section describes only the key risks associated with implementation of the Proposed Transaction.

1 The estimated payments to AIX Securityholders may be lower than anticipatedAIX Securityholders should note that the payments under the Cash Return may be higher or lower than the range estimated by AIX as a result of:

• any difference between expected and actual distributions from the Assets;• any difference in expected transaction related expenses and liabilities; and• any contingencies unforeseen as at the date of this Explanatory Booklet, such as a material adverse change in respect

of an Asset or a claim or liability arising under the documents for the Proposed Transaction.

On receipt of the proceeds of the Asset Sale, AIX will conduct a special review and due diligence process to determine AIX’s financial position, including to ascertain and quantify all residual liabilities.

During this process, it is possible that AIX may identify unforeseen contingencies or identify that the quantum of known liabilities exceeds its expected quantum, or may not be able to come to suitable arrangements to provide for contingent or other liabilities that exist after the Asset Sale.

As a result, the amount of capital that must be retained by AIX in order to meet its anticipated liabilities and ongoing costs may be greater than estimated.

2 The estimated payments to AIX Securityholders may not be made within the anticipated timeframeThere are a number of factors that influence the timing of the payments under the Cash Return, including:

• the pre-emptive rights sale and consent processes;• the special review and due diligence process on receipt of the proceeds of the Asset Sale; and• ensuring that AIFL has sufficient franking credits to fully-frank the dividend component of the Residual Return.

It is possible that the Main Return or the Residual Return will not be made in the estimated timeframe if there are delays or complications in any of these processes.

Risks if the Proposed Transaction proceeds

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3 The sale of one or more of the Assets may not complete by 30 April 2013 or at allIt is the intention of AIX and the Future Fund that the sale of all of the Assets is completed on or before 30 April 2013, in order to allow for the payment of the Main Return by 30 June 2013, and therefore in the same financial year in which the Assets are sold. AIX has allowed sufficient time for each of the Assets subject to pre-emptive rights to be sold within the timeframes specified in the relevant ownership agreements.

While AIX intends to comply fully with all relevant pre-emptive rights sale processes in order to allow the sales to complete within the above timeframe, if there is a delay in the pre-emptive rights sale processes for any reason this could result in the delay of the sale of an Asset, or could result in an Asset not being sold. While AIX cannot be certain that such a delay will not occur, AIX considers it unlikely that the sale of the Assets will not complete by 30 April 2013.

However, if the sale of one or more of the Assets cannot be completed by 30 April 2013 or the sale of an Asset does not complete at all, the proposed steps to effect the Cash Return may not be feasible or may not necessarily be the most efficient way of returning substantially all of AIX’s cash reserves, including the net proceeds of the Assets sold at the time, to AIX Securityholders. As a result, the tax consequences for AIX Securityholders may differ from those set out in Section 5 of this Explanatory Booklet. For example, there is a risk that AIX Securityholders who might otherwise realise a capital loss on the cancellation of AIFT Units may not realise that loss until a later time. To the extent that an Asset is not able to be sold, then arrangements for the ongoing ownership of the Asset would need to be determined.

If these circumstances arise, AIX may elect to seek further AIX Securityholder approval of an alternative means of returning substantially all of AIX’s cash reserves to AIX Securityholders. There is no guarantee that AIX Securityholders would pass any necessary resolutions at that time. If AIX seeks further AIX Securityholder approval, the nature and purpose of this approval (and any ongoing arrangements in respect of any Assets which have not been sold) will be explained in a separate explanatory booklet, and would be sought during the first half of the 2013 calendar year. As part of any revised arrangements, the parties to the Facilitation Deed may consider an appropriate variation to Hastings’ proposed management arrangements and fees, such that AIX Securityholders and Hastings each receive equivalent benefits to those that would have been received had the proposed arrangements been implemented by 30 June 2013.

4 Payment of the Residual Return requires further approvalAIX Securityholders (in their capacity as AIFL Shareholders) will be sent a separate explanatory booklet in relation to further approvals that will be sought for the purposes of the Residual Return. AIX will seek to pay the Residual Return as early as possible, and is targeting late June 2013, though payment may be as late as December 2013. AIX Securityholders should see Section 1.3(b) of this Explanatory Booklet for more information about this process and timing.

If AIFL Shareholders do not pass an ordinary resolution to approve the capital return forming part of the Residual Return, AIFL will be unable to pay that amount.

While AIX Securityholders (in their capacity as AIFL Shareholders) will continue to have an ownership interest in the cash retained by AIFL, there would be a delay in the receipt of that money in the event that AIFL Shareholders do not approve the capital return.

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This Section provides summary answers to some key questions that AIX Securityholders may have about the Proposed Transaction. It is not intended to address all relevant issues for AIX Securityholders. This Section should be read together with all other parts of this Explanatory Booklet.

Question Answer

What is the Proposed Transaction? The Proposed Transaction involves two key elements:• the Asset Sale; and• the Cash Return.

Sections 1.2 and 1.3(b) provide a detailed description of the Asset Sale and the Cash Return respectively.

What alternatives did the Independent Directors consider?

In evaluating the Proposed Transaction, the Independent Directors considered alternatives including:

• whether it would be in your best interests for AIX to continue with its current strategy, involving progressing with the Proposed Internalisation and retaining the core Assets; and

• the sale of AIX, or the full or partial sale of the Assets, to a party other than the Future Fund or its nominee(s).

After having considered these alternatives in detail, the Independent Directors came to the conclusions that:

• while the Proposed Internalisation had expected advantages, the payments under the Cash Return provide you with certain cash proceeds, which the Independent Directors believe deliver the most favourable outcome presently available to you; and

• the likelihood of another party making an offer to acquire AIX or all of the Assets for consideration higher than that offered by the Future Fund is relatively low.

Section 2.4 provides a detailed analysis of the alternatives considered by the Independent Directors.

What are the Proposal Resolutions? The key step for the Proposed Transaction to proceed is the approval of the Proposed Transaction by AIX Securityholders.

At the EGM, you will be asked to vote on the Proposal Resolutions, which are six inter-conditional resolutions to approve the Asset Sale and authorise some of the key steps to effect the Cash Return.

Section 3, which should be read together with the Notice of EGM contained in Annexure 2, provides further information on the Proposal Resolutions.

While there are no other conditions to the Proposed Transaction as a whole following AIX Securityholder approval at the EGM, you should note that certain termination rights are available to AIX and/or the Future Fund at any time before the sale arrangements for the Assets are executed under the Implementation Agreement.

Section 6.1(b) provides further information on the conditions precedent. Sections 6.1(e) to 6.1(g) provide further information on the termination rights that apply under the Implementation Agreement.

Frequently Asked Questions

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Question Answer

What choices do I have as an AIX Securityholder?

As an AIX Securityholder, you have the following choices available to you in respect of the Proposed Transaction:

Voting• vote for or against or abstain from voting at the EGM;

Receiving payments under the Cash Return• if the Proposed Transaction is approved at the EGM:

– sell your AIX Securities on ASX on or before the fifth Business Day prior to the Record Date; or

– receive the Main Return by holding your AIX Securities at the Record Date;

• if you continue to hold your AIFL Shares after payment of the Main Return: – sell your AIFL Shares on ASX before AIX is delisted; – seek to find a buyer for an off-market transfer of your AIFL Shares after AIX

is delisted; or – receive the Residual Return by continuing to hold your AIFL Shares at the record

date for the Residual Return;

• if you continue to hold your AIFL Shares after payment of the Residual Return: – seek to find a buyer for an off-market transfer of your AIFL Shares; or – potentially receive a small winding-up distribution by continuing to hold

your AIFL Shares.

Selling your AIX SecuritiesAlternatively, you may wish to sell your AIX Securities on ASX before the EGM.

What if I do not vote on the Proposal Resolutions or vote against the Proposal Resolutions?

If the Proposal Resolutions are approved by the requisite majorities, the Proposed Transaction will be implemented even if you did not vote on the Proposal Resolutions or voted against the Proposal Resolutions.

Section 3.2 provides further information on the requisite majorities for the Proposal Resolutions.

Why does the Proposed Transaction involve the Asset Sale?

The Proposed Transaction involves the Asset Sale because:

• it will allow the Future Fund or its nominee(s), subject to the pre-emptive rights sale processes, to acquire the Assets in their own right and hold legal title to the Assets; and

• it provides the Future Fund with certainty that it will pay only for the Assets that it ends up acquiring.

Section 1.2 provides further information on the key elements of the Asset Sale.

Why is there a long delay between the EGM and the payments under the Cash Return?

The reason for the length of time between the EGM and payment of the Main Return is that AIX must conduct pre-emptive rights sale processes for almost all of the Assets in accordance with the ownership agreements that apply to those Assets.

As AIX must make an unconditional offer to the asset-level co-investors to purchase the Assets, AIX is not able to commence these processes until AIX Securityholders approve the Proposed Transaction.

Additionally, AIX will conduct a special review and due diligence process on receipt of the proceeds of the Asset Sale to determine AIX’s financial position, including to ascertain and quantify all residual liabilities.

AIX will seek to pay the Residual Return as early as possible, and is targeting late June 2013, though payment may be as late as December 2013, depending on the timing of receipt of proceeds by AIFL and the process to ensure that AIFL has sufficient franking credits to fully-frank the dividend component of the Residual Return. AIX Securityholders should see Section 1.3(b) for more information about this process and timing.

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Question Answer

What fees will be payable to Hastings as a result of the Proposed Transaction?

Under the current management arrangements, Hastings earns a monthly management fee and is also eligible to receive an annual performance fee if AIX outperforms the benchmark ASX200 Industrials Accumulation Index after taking into account any previous shortfall.

If the Proposed Transaction is approved, Hastings’ performance fee entitlements will be amended, so that, if the Asset Sale and cancellation of AIFT Units occurs by 30 June 2013, the performance fee for the period commencing 1 July 2012 and ending immediately prior to the date on which AIFT Units are cancelled as part of the Main Return will be fixed at $54 million (excluding GST) (instead of being a floating amount depending on the relative performance of AIX compared to the benchmark index).

Additionally, Hastings’ management fees will be amended as follows:

• for the period from 24 August 2012 until immediately prior to the date on which AIFT Units are cancelled, Hastings’ management fee will be capped at $1,342,933 per month (excluding GST); and

• for the period commencing on the date on which AIFT Units are cancelled until AIFL is finally wound-up, AIX will pay to or at the direction of Hastings a fixed management fee of $1 million (excluding GST), which will be payable on the cancellation of AIFT Units.

Section 1.4 provides further detail of Hastings’ fee entitlements and the changes proposed to be implemented as part of the Proposed Transaction.

Can I still sell my AIX Securities after the EGM?

Yes – you will still be able to sell your AIX Securities on ASX on or before the fifth Business Day prior to the Record Date.

From the fourth Business Day prior to the Record Date, you will still be able to sell your AIFL Shares (which will continue to trade under the ticker ‘AIX’) on ASX before AIX is delisted, which is expected to take place within 6 months after payment of the Main Return. In the event that the Residual Return is, as targeted, able to be paid within 6 months of payment of the Main Return, AIX will apply to be delisted on payment of the Residual Return. You should note that liquidity in AIFL Shares on ASX, following the payment of the Main Return but prior to the delisting of AIX, may be low. This may negatively affect your ability to sell, or the value realised for, your AIFL Shares during this period.

If the Proposed Transaction is approved, you may decide that the timing of the payments under the Cash Return are not, or are no longer, appropriate for you. Accordingly, you may prefer to sell your AIX Securities or AIFL Shares on ASX, even if you voted in favour of the Proposal Resolutions.

You should note that the price at which you may be able to sell your AIX Securities or AIFL Shares on ASX may be lower or higher than the payments received under the Main Return and/or Residual Return. You should also note that you will incur brokerage costs if you sell your AIX Securities or AIFL Shares on ASX.

Can I sell my AIFL Shares after the delisting of AIX?

After the delisting of AIX, you will continue to hold AIFL Shares if you have not already sold your AIX Securities or your AIFL Shares.

You should note that after the delisting of AIX, your AIFL Shares will be in an unlisted vehicle and you may not be able to easily sell your AIFL Shares as the market for AIFL Shares may be small, particularly if the Residual Return has already been paid, as targeted.

Subject to being able to find a willing buyer, you will be able to transfer your AIFL Shares until AIFL is wound-up, which is expected to occur by June 2014, by sending a properly executed share transfer form (stamped if required by law) to the AIX Registry.

Section 1.3(c) provides further information on the proposed delisting.

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Question Answer

What are the tax implications for AIX Securityholders?

The tax consequences of receipt of each of the components of the Cash Return will vary depending on an AIX Securityholder’s personal taxation and financial circumstances.

Section 5 provides further information on the tax implications for AIX Securityholders.

All AIX Securityholders should note that Section 5 is a general guide only and is not intended to provide tax advice in respect of the particular circumstances of any individual AIX Securityholder.

What are the implications if the Proposed Transaction is not approved?

If the Proposed Transaction is not approved and AIX and the Future Fund are not able to agree a basis on which to continue to pursue a similar transaction:

• the Asset Sale will not take place and you will not receive the payments under the Cash Return;

• you will maintain your exposure to the Assets;• AIX Securities will continue to trade on ASX;• there is a risk that the AIX Security price will fall;• AIX will incur, or will have incurred, transaction costs relating to the Proposed

Transaction of approximately $4.5 million;• Hastings’ existing fee arrangements will continue to apply; and• in the absence of an equivalent or superior proposal, AIX intends to progress

the Proposed Internalisation by seeking to execute a binding implementation agreement and convening meetings to obtain AIX Securityholder approval of the Proposed Internalisation.

Section 2.7 provides further information on the implications if the Proposed Transaction is not approved.

When and where is the EGM? The EGM is scheduled for Tuesday, 15 January 2013 at the Park Hyatt Melbourne, 1 Parliament Square, off Parliament Place, Melbourne VIC 3002 from 10.30am (Melbourne time) or the conclusion of the AIX AGM, if later.

Am I entitled to vote? If you are an AIX Securityholder on the register as at 7.00pm (Melbourne time) on Sunday, 13 January 2013, you will be entitled to vote at the EGM, unless you are otherwise excluded in the manner set out in the accompanying Notice of EGM.

How do I vote? You may vote in person or by proxy.

If you wish to vote in person at the EGM, you should attend the EGM.

If you wish to appoint a proxy for the EGM, you must complete and return the enclosed applicable Proxy Form so that it is received no later than 10.30am (Melbourne time) on Sunday, 13 January 2013.

Refer to the enclosed applicable Proxy Form and the Notice of EGM contained in Annexure 2 for more information on voting at the EGM, including how to complete and lodge the Proxy Form.

Is there a number I can call if I have further questions in relation to the Proposed Transaction?

If you have any further questions in relation to the Proposed Transaction, you can call the AIX Information Line on 1800 606 449 (toll-free within Australia) or +61 2 8256 3382 (for calls made from outside Australia).

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1.1 Steps of the Proposed TransactionThe Proposed Transaction is conditional on AIX Securityholder approval. The Proposed Transaction involves two key elements:

• the Asset Sale; and• the Cash Return,

as described in detail in Sections 1.2 and 1.3(b) of this Explanatory Booklet.

If the Proposed Transaction is implemented, then it is expected that:

• following the EGM, AIX will conduct the pre-emptive rights sale processes in accordance with the ownership agreements that apply to the relevant Assets;

• by mid-March 2013, the transactions comprising the Asset Sale will each complete, resulting in the sale of the Assets to the Future Fund or its nominee(s) and/or, potentially, asset-level co-investors depending on the outcome of the pre-emptive rights sale processes;

• following completion of all of the transactions comprising the Asset Sale, AIX will conduct a special review and due diligence process on receipt of the proceeds of the Asset Sale to determine AIX’s financial position, including to ascertain and quantify all residual liabilities;

• by late April 2013, AIX will return the majority of its cash reserves, including the majority of the net proceeds of the Asset Sale, to AIX Securityholders by way of the Main Return, under which: – AIFL Shares and AIFT Units will be de-stapled; – Hastings as responsible entity of AIFT will issue a special AIFT Unit to AIFL or a wholly-owned subsidiary of AIFL; – all AIFT Units (other than the special AIFT Unit held by AIFL or a wholly-owned subsidiary of AIFL) will be cancelled; and – AIFT will then be wholly-owned by AIFL and AIFL will retain an amount of capital sufficient to meet the anticipated liabilities

of both AIFL and AIFT;• in 2013, AIX Securityholders (in their capacity as AIFL Shareholders) will be sent a separate explanatory booklet in relation

to further approvals that will be sought for the purposes of the Residual Return. AIX will seek to pay the Residual Return as early as possible, and is targeting late June 2013. AIX Securityholders should see Section 1.3(b) of this Explanatory Booklet for more information about this process and timing;

• AIX will apply to ASX to be delisted on payment of the Residual Return (unless the Residual Return is not paid by October 2013, in which case AIX will apply to ASX to be delisted at that point);

• in late 2013, AIX will seek approval to commence a winding-up (together with approval to pay the capital return forming part of the Residual Return, if this has not previously occurred). It is expected that, by June 2014, AIX will complete its voluntary winding-up process, subject to appropriate arrangements being made for residual liabilities.

AIX Securityholders should note that the expected dates set out in this Section are subject to change depending on future events and are dependent on events outside of AIX’s control. Any change to this timetable will be notified to ASX and posted on AIX’s website at www.hfm.com.au/asxlisted/funds/aif/.

1.2 T he Asset Sale(a) Background and the AssetsIf AIX Securityholders approve the Proposed Transaction, AIX will sell all of the Assets to the Future Fund or its nominee(s) and/or, potentially, asset-level co-investors depending on the outcome of the pre-emptive rights sale processes.

The Future Fund is the entity that is responsible for deciding how to invest the fund established by the Future Fund Act. The objective of the fund is to strengthen the Australian Government’s long term financial position by making provision for unfunded Commonwealth superannuation liabilities. The fund has received contributions from a combination of budget surpluses, proceeds from the sale of the government’s holding of Telstra and the transfer of remaining Telstra shares.

Importantly, the Asset Sale will allow the Future Fund or its nominee(s), subject to the pre-emptive rights sale processes, to acquire the Assets in their own right and hold legal title to the Assets, and provide the Future Fund with certainty that it will pay only for the Assets that it ends up acquiring.

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The Assets comprise predominantly Australian airport infrastructure assets and are described in Section 4.3 of this Explanatory Booklet. Further information on the Assets, including their financial and operating performance and outlook, can be found in the AIX 2012 Annual Report available at www.hfm.com.au/asxlisted/funds/aif.

AIX Securityholders should refer to Section 2.3 of this Explanatory Booklet for further information on the value of the Assets, including the value attributed to the Assets by:

• the Independent Expert, whose report contained in Annexure 1 of this Explanatory Booklet was prepared specifically for the Proposed Transaction; and

• the independent valuer, KPMG Corporate Finance, for financial reporting purposes.

(b) K ey terms of the Asset SaleOn 26 November 2012, AIX announced that AIFL and Hastings as responsible entity of AIFT had entered into a binding conditional agreement with the Future Fund in relation to the Asset Sale, referred to as the Implementation Agreement.

The key terms of the Implementation Agreement, including the annexed sale and purchase deeds, include:

• mechanisms for purchase price adjustments where: – AIX makes a capital contribution to an asset owning entity with the prior written consent of the Future Fund, in which

case the price for the relevant Asset would increase by the amount of the contribution; – AIX receives distributions from an asset owning entity that are above an agreed cap (such caps reflecting anticipated

distributions in the normal course). If AIX does not receive those anticipated distributions, the Future Fund is, in certain circumstances, obliged to pass the distributions on to AIX when it receives them;

– the net asset value of an Asset falls by 15% or more; – AIX undertakes or agrees to a disposal or restructure of its interest in HTAC; – an Asset or part of an Asset is acquired by an asset-level co-investor or its permitted nominee as a result of the valid exercise

of rights (for example, pre-emptive rights); or – the Future Fund validly claims under a warranty (claims under which require notification by 30 April 2013 at the latest);

• customary deal protection mechanisms for the period up to the conclusion of voting at the EGM, which: – prohibit AIX soliciting a Competing Proposal; – prohibit AIX from negotiating, facilitating or discussing a Competing Proposal, subject to an exception to accommodate

the fiduciary and statutory duties owed by the Directors; and – on being notified by AIX of a Competing Proposal which is considered to be a Superior Proposal, allow the Future Fund

to submit a revised proposal to AIX on terms no less favourable to AIX Securityholders than the Competing Proposal;• a reimbursement fee of $20 million plus any applicable GST payable by AIX to the Future Fund in certain circumstances

where the Proposed Transaction does not proceed (for example, as a result of an Independent Director withdrawing or changing his recommendation prior to or on the date of the EGM or termination of the Implementation Agreement as a result of breach by AIX);

• termination rights, including termination rights for breach of the Implementation Agreement; and• conditions precedent, including AIX Securityholder approval.

On satisfaction of the conditions precedent in the Implementation Agreement, the parties have agreed to enter into sale and purchase deeds for the sale of each of the Assets. The sale of the Assets will not be inter-conditional and completion of each sale may occur at different times.

AIX Securityholders should refer to Section 6.1 of this Explanatory Booklet for further information on the key terms of the Implementation Agreement.

Under the Implementation Agreement, the Future Fund has advised AIX of the purchase price allocations for the Assets that are held by AIFL only, in order to allow AIX to provide the estimated range of the payments under the Cash Return. The purchase price allocations for the other Assets have not been provided to AIX. The Future Fund must advise AIX of the purchase price allocations for the other Assets no later than the day after the EGM. The Future Fund has warranted to AIX that the allocations, including the allocations which are yet to be provided to AIX, will reflect the Future Fund’s view of the relative value of each of the Assets to it.

(c) T he pre-emptive rights sale processesUnder ownership and other agreements relating to the Assets, the transfer of ownership interests in the Assets is generally subject to pre-emptive rights.7 This means that the entry into sale arrangements with the Future Fund (or its nominee) will trigger the rights of each of the asset-level co-investors to purchase the Assets at the price offered by the Future Fund.

For the majority of the relevant Assets, if AIX does not receive acceptances from co-investors for all of the interests offered under this process, it has the right to elect to sell the relevant Asset in full to the Future Fund (or its nominee).

There are no pre-emptive rights provisions that apply to the transfer of AIX’s interest in Statewide Roads or the holding vehicle for AIX’s interest in HTAC.

7 No pre-emptive rights provisions apply to the transfer of AIX’s interest in Statewide Roads or the holding vehicle for AIX’s interest in HTAC.

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If the Proposed Transaction is approved by AIX Securityholders, AIX will comply with its pre-emptive rights obligations shortly following the EGM. This process, including completing the sale of the Assets, is expected to take between one month and 10 weeks. As part of this process, it is possible that AIX’s co-investors (which may include other funds that are managed by Hastings or a related entity of Hastings) may purchase some of the Assets instead of the Future Fund or its nominee(s) for an equivalent price, in which case a fee equal to 1% of the purchase price will be payable to the Future Fund.

Additionally, the co-investors in two of the relevant assets must approve the Future Fund (or its nominee) as a proposed securityholder of appropriate financial standing, subject to a requirement to act reasonably. These consents will be sought concurrently with the pre-emptive rights sale processes.

1.3 A ctions following the Asset Sale(a) R eview and due diligence processAIX expects to receive the final proceeds of the Asset Sale by mid-March 2013, following the expected completion of all the pre-emptive rights sale processes by early March 2013.

On receipt of the proceeds of the Asset Sale, AIX will conduct a special r eview and due diligence process to determine AIX’s financial position, including to ascertain and quantify all residual liabilities. This process is expected to conclude by mid-April 2013.

The purpose of this process is to ensure AIX returns the maximum amount to AIX Securityholders by retaining only an amount that AIX believes is reasonably necessary to meet its liabilities and ongoing costs.

(b) T he Cash ReturnThe purpose of the Cash Return is to facilitate the return of substantially all of AIX’s cash reserves, including the net proceeds of the Asset Sale, to AIX Securityholders.

As part of the Cash Return:

• AIX will return the majority of its cash reserves, including the majority of the net proceeds of the Asset Sale, to AIX Securityholders by way of the Main Return comprising: – $0.95 per AIFT Unit as a distribution of Distributable Income; – a distribution of trust capital of approximately $1.01 per AIFT Unit; – $0.91 to $0.93 per AIFT Unit as consideration for the cancellation of AIFT Units, referred to below; and – a fully-franked dividend of $0.02 per AIFL Share and a capital return of up to $0.07 per AIFL Share;

• AIFL Shares and AIFT Units will be de-stapled;• Hastings as responsible entity of AIFT will issue a special AIFT Unit to AIFL or a wholly-owned subsidiary of AIFL;• all AIFT Units (other than the special AIFT Unit held by AIFL or a wholly-owned subsidiary of AIFL) will be cancelled; and• AIFL will return the majority of its remaining cash reserves to AIX Securityholders (in their capacity as AIFL Shareholders)

by way of the Residual Return, being a fully-franked dividend of up to $0.06 per AIFL Share and a capital return of up to $0.19 per AIFL Share.

AIX Securityholders who are registered as the owner of AIX Securities at the Record Date will receive the Main Return. AIX expects to announce the Record Date to the ASX in mid-April 2013 and will provide at least 7 Business Days notice of that date.

The Main Return is expected to be paid in late April 2013, following completion of the special review and due diligence process. Immediately following the implementation of the steps to effect the Main Return, AIFT will be wholly-owned by AIFL.

AIX considers that there are a number of commercial advantages of AIFT becoming wholly-owned by AIFL and ceasing to be a public entity, including:

• reduced management and administration costs as a result of AIFT ceasing to be a registered managed investment scheme, such as lower costs relating to auditing the financial accounts and reporting obligations;

• the ability to wind-up AIFT will be simpler and more timely if AIFL is the sole AIFT Unitholder, as AIFT would only require AIFL’s consent to be wound-up;

• AIFL may form a tax consolidated group with AIFT and its controlled entities, reducing the tax compliance burden on AIFT; and• simplifying the potential arrangements through which AIFL and AIFT may provide financial support or comfort to each other

and allowing flexibility and efficiency in addressing residual liabilities.

The timing and record date for the Residual Return will be determined in 2013 and will depend on the timing of completion of the sale by AIFL of its interest in Australia Pacific Airports Corporations and on AIFL ensuring that it has generated sufficient franking credits to fully-frank the dividend component of the Residual Return. If these processes can be satisfactorily concluded by early April 2013, then AIX will seek approval to pay the capital return forming part of the Residual Return by late June 2013. However, if there is a delay in these processes, then it is possible that the Residual Return may not be paid until after 30 June 2013 but in any event no later than 31 December 2013 once AIFL’s tax return for the financial year ending 30 June 2013 is completed. AIX Securityholders (in their capacity as AIFL Shareholders) will be sent a separate explanatory booklet in relation to further approvals that will be sought for the purposes of the Residual Return.

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The payments under the Cash Return comprise the aggregate purchase price for the Assets of $2.0 billion (subject to agreed adjustments) plus the residual cash held by AIX after allowing for any taxes, payments to or at the direction of Hastings for management and performance fees, transaction related costs, and residual liabilities of AIX. A range for the payments under the Cash Return of $3.19 to $3.23 per AIX Security has been estimated based on:

• an aggregate purchase price which equates to approximately $3.22 per AIX Security; – less tax of approximately $0.03 per AIX Security, payable by AIX from the aggregate purchase price based on the estimated

capital gain derived by AIFL;• cash on hand as at 31 October 2012 of $0.20 per AIX Security, which is expected to be fully utilised in making the

following payments: – Hastings’ management and performance fees; and – transaction costs, including advisers fees and the cost of winding-up AIX; and

• the expected AIX distribution for the half-year ending 31 December 2012 of $0.055 per AIX Security (which is in addition to the payments under the Cash Return). This is expected to be paid out of net distributions received from the Assets. Net distributions comprise gross cash flow received from the Assets less any investment in the Assets during that period.

AIX Securityholders should note that the payments under the Cash Return may be higher or lower than the range estimated by AIX as a result of:

• any difference between expected and actual distributions from the Assets;• any difference in expected transaction related expenses and liabilities; and• any contingencies unforeseen as at the date of this Explanatory Booklet, such as a material adverse change in respect

of an Asset or a claim or liability arising under the documents for the Proposed Transaction.

(c) D elisting and winding-upIn the event that the Residual Return is, as targeted, able to be paid within 6 months of payment of the Main Return, AIX will apply to be delisted on payment of the Residual Return. However, if the Residual Return is not able to be paid by this time, AIX intends to remain listed for the maximum period permitted under the ASX Listing Rules, being 6 months after payment of the Main Return.

Shortly before the expiry of the relevant period of ongoing listing, AIX will apply to ASX to be delisted and will commence a voluntary winding-up process following the close-out of any residual liabilities.

AIX does not propose to seek any further securityholder approval before applying to ASX to be delisted, although it will send a letter to AIX Securityholders (in their capacity as AIFL Shareholders) advising of the proposed delisting.

Under ASX Listing Rule 17.11, ASX may, at its discretion, remove an entity from the ASX at the request of the entity. AIX Securityholders will still have the ability to sell their AIFL Shares, which will continue to trade under the ticker ‘AIX’, on market from the fourth Business Day prior to the Record Date until the last day of trading before the delisting of AIX.

To the extent that there is any additional cash in the delisted vehicle, AIX Securityholders will continue to benefit from that remaining balance due to their ongoing capacity as AIFL Shareholders.

AIX proposes to be wound-up as soon as possible but possibly as late as June 2014, subject to appropriate arrangements being made for residual liabilities.

The winding-up of AIFT is expected to occur first and will be facilitated by AIFL in its capacity as the sole unitholder.

It is then expected that AIFL will be wound-up through a members’ voluntary winding-up under section 491 of the Corporations Act. This procedure would involve:

• AIFL Shareholders passing a special resolution at a meeting expected to be held in late 2013 (which would also provide for approval of the payment of the capital return forming part of the Residual Return, if not already approved);

• the appointment of a liquidator to manage the process; and• potentially, a small winding-up distribution being made to AIX Securityholders (in their capacity as AIFL Shareholders).

1.4 E ffect of the Proposed Transaction on existing management arrangementsAt present, Hastings as responsible entity of AIFT and manager of AIFL is entitled to be remunerated in accordance with arrangements that were approved by AIX Securityholders in 2007. These comprise two components: a management fee and a performance fee.

AIX has reviewed these fee arrangements in the context of the Proposed Transaction. As a result, AIX has agreed changes to Hastings’ fee arrangements in order to ensure a better alignment of interests and the proper working of the fee arrangements throughout the Proposed Transaction.

The Facilitation Deed sets out these changes, as well as other obligations to be undertaken by AIFL and Hastings (in its own capacity and as responsible entity of AIFT) in connection with the Proposed Transaction. AIX Securityholders should refer to Section 6.2 of this Explanatory Booklet for further information on the key terms of the Facilitation Deed.

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To implement the changes to Hastings’ fee arrangements agreed under the Facilitation Deed, it is necessary to amend the AIFT Constitution at the EGM.

(a) M anagement feeHastings is entitled to a monthly management fee, calculated at the rate of 1% per annum of AIX’s market capitalisation. The fee is calculated and paid each month, with the market capitalisation calculated using the volume weighted average traded price of AIX Securities over the 20 business days prior to the calculation date (VWAP) multiplied by the number of AIX Securities outstanding. Subject to the Proposed Transaction proceeding (and completion of the transactions comprising the Asset Sale and the cancellation of AIFT Units as part of the Main Return by 30 June 2013), Hastings has agreed to cap its management fee for the period from the date of the first announcement in relation to the Proposed Transaction on 24 August 2012, on the following terms:

• from 24 August 2012 until immediately prior to the date on which AIFT Units are cancelled, Hastings’ management fee will be capped at $1,342,933 per month, calculated using the VWAP at 24 August 2012 (being $2.60), instead of any higher VWAP which occurs after that date. If the VWAP at the last day of each subsequent calendar month falls below $2.60, then that lower VWAP will be used in the calculations for the relevant month. Assuming AIX Securities continue to trade at approximately $3.00 during the period prior to going ‘ex-distribution’ in relation to the Main Return, AIX expects that this arrangement will result in a reduction in Hastings’ management fee of approximately $200,000 per month; and

• for the period commencing on the date on which AIFT Units are cancelled (other than the special AIFT Unit held by AIFL or a wholly-owned subsidiary of AIFL) until AIFL is finally wound-up, AIX will pay to or at the direction of Hastings (in potential reduction of, and in satisfaction of, any management or performance fees that may or would otherwise be applicable) a fixed management fee of $1 million (excluding GST), which will be payable on cancellation of the AIFT Units (other than the special AIFT Unit held by AIFL or a wholly-owned subsidiary of AIFL).

(b) Performance feeExisting arrangementsHastings is entitled to a performance fee if AIX outperforms the relevant benchmark index after taking into account any previous shortfall. The usual period for calculating the performance fee is the year to 30 June, although if a resolution is passed before 30 June in any given year to terminate AIFT, the calculation is to be made at that date of commencement of termination.

Under the AIFL Management Agreement and the AIFT Constitution, the fee is calculated by the approved valuer at the end of the relevant period as follows:

• the valuer must determine whether AIX’s total return (growth in security price plus notionally reinvested distributions) has out-performed the ASX200 Industrials Accumulation Index return calculated the same way (Benchmark Return), after taking into account the dollar amount of any carried forward performance deficit (previous shortfall);

• if AIX’s total return is more than the Benchmark Return for the period, Hastings is entitled to a performance fee equal to 10% of the out-performance multiplied by AIX’s average market capitalisation for the period, which is determined by taking the average of AIX’s market capitalisation as at the last day of the previous period and the market capitalisation as at the last day of the current period; and

• if AIX’s total return for the period is less than the Benchmark Return for that period, no performance fee is payable and the shortfall is carried forward to the subsequent period.

For the financial year ended 30 June 2012, Hastings became entitled to a performance fee of $34.6 million (excluding GST), which will be paid by 31 December 2012.

Implications of the Proposed TransactionWhen AIX conducts its business in the ordinary course the fee provisions operate to provide the intended incentives. However, the Proposed Transaction contemplates a number of steps which were not contemplated or addressed when the relevant provisions of the AIFT Constitution were enacted – in particular, the making of large distributions after assets are sold and the cancellation of AIFT Units, which is not provided for in the AIFT Constitution. One of the effects of these steps is that the existing performance fee provisions could lead to anomalous and undesirable outcomes.

In particular, the payment of a large extraordinary interim distribution would affect AIX’s market capitalisation, potentially distorting the performance fee calculation even though AIX Securityholders have received the benefit of that distribution. This could createa misalignment of interests between Hastings and AIX Securityholders, as Hastings would be entitled to exercise its discretion not to pay the Main Return until after 30 June 2013. That delay may result in a less favourable outcome for AIX Securityholders. Additionally, Hastings is not obliged to support the amendments to the AIFT Constitution to facilitate the cancellation of AIFT Units if that amendment creates an unintended adverse outcome for Hastings.

1. D escription of the Proposed Transaction continued

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Proposed amendment to performance fee arrangementsIt is proposed that the fee arrangements with Hastings be amended so that a fixed performance fee of $54 million (excluding GST) will be payable to Hastings, as both responsible entity of AIFT and manager of AIFL, on the cancellation of AIFT Units (other than the special AIFT Unit held by AIFL or a wholly-owned subsidiary of AIFL).

This amendment will provide an alignment of the interests of Hastings and AIX Securityholders, as well as increasing certainty in the return to be received by AIX Securityholders and reducing the risk resulting from adverse movements in the Benchmark Return.

The proposed fee, when considered together with the fixed management fee of $1 million, is the same as would have been payable to Hastings in connection with the Proposed Internalisation, in consideration for Hastings foregoing future management fees and potential performance fees, as well as providing key assistance in implementing the Proposed Internalisation.

The Proposed Transaction and the Proposed Internalisation are analogous for Hastings, with Hastings’ role as responsible entity of AIFT and manager of AIFL to ultimately be terminated in each circumstance. For AIX Securityholders, the transactions also have similarities, with the expected value for ASX Securityholders to be maximised by having Hastings continue in its role as responsible entity or trustee of AIFT and, in the case of the Proposed Transaction, also as the manager of AIFL through to the winding-up of AIX.

The AIFT Constitution and AIFL Management Agreement do not require that Hastings continue in these roles, nor provide adequate remuneration arrangements should Hastings agree to do so.

Consequently, having regard to:

• the desirability of delivering a certain outcome for AIX Securityholders so that the Cash Return can be estimated and planned for;• the agreement of Hastings to:

– provide additional services to facilitate an orderly and expeditious winding-up of AIX; – cap its management fees for the period from the first announcement in relation to the Proposed Transaction, up to the date

on which AIFT Units are cancelled as part of the Main Return; and – fix the management fees on and from the date on which AIFT Units are cancelled as part of the Main Return until AIFL

is finally wound-up; and• the desirability of ensuring an alignment of interests between Hastings and AIX Securityholders, including undertaking all of the

steps required to achieve the Proposed Transaction and provide the Cash Return to AIX Securityholders as efficiently as possible,

the Independent Directors have determined that it is preferable for AIX Securityholders for a fixed performance fee to be payable to Hastings, equivalent to the amount that would otherwise have been paid had the Proposed Internalisation proceeded (when considered together with the fixed management fee of $1 million).

Accordingly, under the amendments to the AIFT Constitution to be considered at the EGM, it is proposed that, in lieu of the performance fee under the present provisions of the AIFT Constitution and the AIFL Management Agreement, Hastings as responsible entity of AIFT and as manager of AIFL will be entitled to a fixed performance fee for the period commencing 1 July 2012 and ending immediately prior to the date on which AIFT Units are cancelled of $54 million (excluding GST), subject to completion of the transactions comprising the Asset Sale and the cancellation of AIFT Units as part of the Main Return by 30 June 2013. While AIX considers it unlikely, if it becomes apparent that the cancellation of AIFT Units as part of the Main Return cannot occur by 30 June 2013, the parties to the Facilitation Deed may consider an appropriate variation to Hastings’ proposed management arrangements and fees such that AIX Securityholders and Hastings each receive equivalent benefits to those that would have been received had the proposed arrangements been implemented by 30 June 2013. If a variation cannot be agreed, Hastings’ existing fee arrangements will continue to apply.

If the Proposed Transaction is approved and the AIFT Constitution amended, amendments will be made to the AIFL Management Agreement to reflect the arrangements described in this Section 1.4 of this Explanatory Booklet. Upon Hastings being paid under the amended arrangements, Hastings will waive its entitlement to payment of any further performance or management fee (as applicable) that may have otherwise accrued.

(c) Summary of effect of the Proposed Transaction on Hastings’ feesA summary of the annual amount of Hastings’ fees for the previous three financial years together with the proposed fees for the 2013 financial year is provided below.

Year ended 30 June ($m) Management fees* Performance fees*

2010 $9,931,039 Nil

2011 $11,707,050 Nil

2012 $12,509,592 $34,610,599

2013 (under proposed amended arrangements)** Capped at $13,514,489 $54,000,000

* Note – all figures are exclusive of GST and are rounded to the nearest dollar.** Note – these figures apply to the periods from 1 July 2012 until immediately prior to the date on which AIFT Units are cancelled, assumed

to be 30 April 2013. After cancellation, no further performance fees will be payable and a fixed management fee of $1 million (for the period until AIFL is finally wound-up) will be payable.

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AIX Security price compared to the NAV (since 30 June 2002)8

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AIX Security price Historical NAV per AIX Security


8 Nov 11:AIX announces that AIFL and Hastings

boards are in discussions regarding a potential restructure to internalise management


Hastings boards have reached an in-principle agreement to

internalise management

Jun 12Jun 11Jun 10Jun 09Jun 08Jun 07Jun 06Jun 05Jun 04Jun 03Jun 02

2.1 B ackground to the Proposed TransactionFor some time, AIX has pursued strategies to reduce the discount of its security price to its published net asset value (NAV). As highlighted in the chart below, during the period from 30 June 2002 to 23 August 2012 (being the last full trading day before the first announcement in relation to the Proposed Transaction), AIX Securities have generally, but not always, traded at a discount to NAV. As at 30 June 2012, the discount to NAV was 20.2%. The NAV of AIX is only calculated at specific points in time, being 30 June and 31 December each year, when the AIX assets are independently valued by KPMG Corporate Finance.

The main strategy that has been pursued to reduce the discount of the AIX Security price to the net asset value is the concentration of the composition of AIX’s portfolio of investments. The decision was taken to focus AIX on investment in Australian airports. This has resulted in the divestment over the last nine months of AIX’s investments in Port of Portland, Port of Geelong and Metro Transport Sydney.

In February 2012, AIX announced that, in addition to the sale of non-core assets, it was considering further strategies to realise greater value for AIX Securityholders, including restructuring the management arrangements of AIX. This led, in June 2012, to the boards of AIFL and Hastings reaching an in-principle non-binding agreement on the key terms to internalise the management of AIX. The main benefits of the Proposed Internalisation were considered to be management cost savings, broader investor appeal, removal of perceived or potential conflicts of interest and removal of some of the impediments to a takeover of AIX.

On 24 August 2012, AIX announced a proposal from the Future Fund to acquire all of the Assets for $2.0 billion.9 After careful consideration of the Proposed Transaction, including consideration of the advantages, disadvantages and risks associated with the Proposed Transaction and of alternatives to the Proposed Transaction, the Independent Directors formed the view that the Proposed Transaction was the most favourable option to maximise securityholder value.

AIX Securityholders should refer to pages 9 to 17 of this Explanatory Booklet for the key advantages, disadvantages and risks of the Proposed Transaction.

E valuation of the Proposed Transaction2

8 The NAV line displayed in the chart is illustrative only. The NAV is measured semi-annually at 30 June and 31 December.9 Subject to agreed adjustments, which are described in Section 6.1(a) of this Explanatory Booklet. If an Asset (or part of an Asset) is not sold to the

Future Fund (or its nominee), a fee of 1% of the relevant purchase price for that Asset (or part of that Asset) will be payable to the Future Fund.

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2.2 Go vernance arrangements for the Proposed TransactionIn order to manage any actual, potential or perceived conflicts of duty and interest in developing and evaluating the proposal to internalise the management of AIX, certain governance arrangements and protocols were established by AIFL and Hastings. These governance arrangements were also followed for the purposes of developing and evaluating the Proposed Transaction.

As part of these arrangements, the Hastings Board established a subcommittee of directors comprising James Evans and Alan Cameron. In the context of the Proposed Transaction, the role of this subcommittee is to consider whether the Proposed Transaction is in the best interests of AIX Securityholders and to engage with the independent directors of AIFL for this purpose.

The Hastings Board also established a second subcommittee of directors comprising James McDonald and Stephen Gibbs. In the context of the Proposed Transaction, the role of this subcommittee is to consider the implications of the Proposed Transaction on any other funds managed by Hastings and particularly on those funds that are asset-level co-investors with AIX.

Additionally, the Hastings Board delegated to its parent company HMPL the consideration and decision making in relation to matters concerning Hastings’ personal or commercial interests. Accordingly, HMPL has considered (on behalf of Hastings) the proposed changes to Hastings’ fee arrangements.

Certain HMPL employees were also divided into separate teams along similar lines and information barriers were put in place to prevent the sharing of certain information between divisions.

2.3 Va lue of the Assets(a) Ov erviewAs part of the Proposed Transaction, AIX will sell all of its Assets for $2.0 billion (subject to agreed adjustments). Following completion of the Asset Sale, AIX Securityholders will receive the Cash Return comprising the aggregate purchase price for the Assets of $2.0 billion (subject to agreed adjustments) plus the residual cash held by AIX after allowing for any taxes, payments to or at the direction of Hastings for management and performance fees, transaction related costs, and residual liabilities of AIX.

The Independent Directors appointed Grant Samuel to prepare an independent expert’s report as to the fairness and reasonableness of the Proposed Transaction to AIX Securityholders, which is contained in Annexure 1 of this Explanatory Booklet. Separately, as part of AIX’s regular valuation process, the value of the Assets was determined semi-annually for financial reporting purposes by an appropriately qualified independent valuer, KPMG Corporate Finance.

The table below compares the purchase price for the Assets under the Proposed Transaction, with:

• the Independent Expert’s current valuation of the Assets, prepared specifically for the Proposed Transaction; and• the KPMG Corporate Finance independent valuation of the Assets on an aggregate basis for the previous three financial years,

determined by the addition of the high and low values for each of the individual Assets. For the purpose of statutory reporting, AIX has historically adopted the midpoint of the KPMG Corporate Finance independent valuation range. AIX Securities have generally, but not always, traded at a discount to this midpoint, as discussed in Section 2.1 of this Explanatory Booklet.

The Independent Expert’s current valuation of the Assets, as set out in the table below, excludes the value of AIX’s other assets and liabilities, and cash. This valuation range differs from the Independent Expert’s current valuation range of AIX, of $1,936 million to $2,202 million, which is the aggregate of the estimated market value of AIX’s investments in the Assets, the value of AIX’s other assets and liabilities, and cash. The Independent Expert’s Report is contained in Annexure 1 of this Explanatory Booklet.

Purchase price – Implementation Agreement

$2,000 million (subject to agreed adjustments)

Assessment Low Midpoint High

Independent Expert’s current valuation of the Assets

$1,944 million $2,070 million $2,196 million

Independent valuation by KPMG Corporate Finance as at 30 June 2012






Source: Independent Expert’s Report (which is contained in Annexure 1 of this Explanatory Booklet), KPMG independent valuations for the financial years ending 30 June 2012, 30 June 2011 and 30 June 2010.

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Independent Expert’s valuation (Low)

Independent Expert’s assessment of consideration (Low)

Independent Expert’s assessment of consideration (High)

Independent Expert’s valuation (High)

$3.12 $3.17 $3.21$3.55

Source: Independent Expert’s Report, which is contained in Annexure 1 of this Explanatory Booklet.

(b) Independent Expert’s opinionThe Independent Expert has concluded that the Proposed Transaction is fair and reasonable to and in the best interests of AIX Securityholders in the absence of a Superior Proposal.

The Independent Expert:

• has assessed the value of AIX, including the value of the Assets, to be in the range of $1,936 million to $2,202 million, representing $3.12 to $3.55 per AIX Security; and

• estimated the current value of the consideration to be paid to AIX Securityholders to be in the range of $3.17 to $3.21 per AIX Security. This consideration represents the present value of the estimated future cash returns to AIX Securityholders, comprising the expected payments under the Cash Return of $3.19 to $3.23 and an expected distribution of $0.055 per AIX Security in respect of the half-year ending 31 December 2012.

The Independent Expert states that:

• the Proposed Transaction delivers a significant premium to the price at which AIX Securities were trading prior to the first announcement in relation to the Proposed Transaction;

• the price of AIX Securities is likely to fall in the absence of the Proposed Transaction, assuming there is no speculation as to an alternative or revised proposal, under current market conditions and given AIX’s current ownership structure; and

• a superior alternative proposal is unlikely.

(c) Approach used by KPMG Corporate FinanceKPMG Corporate Finance is engaged by AIX to provide an independent valuation of each of the Assets on a semi-annual basis for financial reporting purposes.

KPMG Corporate Finance determines a valuation range for each of the Assets by discounting each asset’s projected future cash flows back to their present value using a risk adjusted discount rate. AIFL and Hastings as responsible entity of AIFT have adopted, for financial reporting purposes, the midpoint of each of the valuations prepared by KPMG Corporate Finance.

The table above in Section 2.3(a) of this Explanatory Booklet presents the combined value of the independently assessed values of the Assets for financial reporting purposes as assessed by KPMG Corporate Finance as at 30 June for the previous three financial years. It should be noted that this represents an assessment of the value of the Assets at these dates. The value has the potential to increase or decrease over time, based on a range of factors including the projected performance of the assets as well as prevailing financial and economic conditions at the relevant time, passenger and earnings growth at each asset (which can be driven by organic growth or capital expenditure), increased equity investment by AIX in the assets and broader market factors. The last KPMG Corporate Finance valuation was carried out on 30 June 2012 while the Main Return is expected to be paid to AIX Securityholders by late April 2013.

As noted in Section 2.1 of this Explanatory Booklet, the AIX Security price has generally, but not always, traded at a discount to the NAV of AIX (comprising the independent valuations of the Assets, fund level cash and other assets and liabilities) and there is no certainty that it will be possible to realise the full value of the portfolio through a takeover or other like transaction in the future. The NAV of AIX should also be interpreted in the context of the Independent Expert’s Report contained in Annexure 1 of this Explanatory Booklet, which provides a detailed assessment of the expected payments under the Cash Return and the current value of AIX Securities and reflects the expected future performance of each of the Assets.

2. E valuation of the Proposed Transaction continued

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2.4 Alternatives considered by the Independent DirectorsIn evaluating the Proposed Transaction, the Independent Directors considered alternatives to the Proposed Transaction, including:

• whether it would be in the best interests of AIX Securityholders for AIX to continue with its current strategy, involving progressing with the Proposed Internalisation and retaining the core Assets; and

• the sale of AIX, or the full or partial sale of the Assets, to a party other than the Future Fund or its nominee(s).

In the event that the Proposed Transaction is not approved by AIX Securityholders or is not otherwise implemented, AIX intends to progress with the next stages of the Proposed Internalisation, including negotiating a binding implementation agreement, which would be subject to AIX Securityholder approval.

(a) P roposed Internalisation and retaining the core AssetsContinuation of the current strategy would involve progressing with the implementation of the Proposed Internalisation, including seeking to execute a binding implementation agreement, and continuing the process of divesting non-core Assets and retaining the core Assets. However, AIX may not be successful in divesting its remaining non-core Assets, being HTAC and Statewide Roads.

Under the Proposed Internalisation:

• responsibility for management of AIX would be transferred from Hastings to AIFL (or a related entity of AIFL);• Hastings would remain the legal owner of the Assets held by it and would receive a fee for this role;• AIX would pay an internalisation payment of $55 million to Hastings’ parent company HMPL in consideration for Hastings

foregoing future management fees and potential performance fees and providing assistance in the transfer of management;• AIX Securityholders would exchange their AIFT Units for units in a new head trust (subject to special provisions for certain

overseas securityholders);• units in the new head trust would be stapled to AIFL Shares to form new stapled securities, which would be listed on ASX; and• AIX Securityholders would maintain their exposure to the Assets.

The Independent Directors consider that there are a number of expected advantages of the Proposed Internalisation, including anticipated net cost savings as a result of removing the ongoing liability to pay management fees and potential performance fees to Hastings. Additionally, there are other potential advantages, including the elimination of perceived conflicts of interest that may arise between an external manager and securityholders, and the potential for an internalised fund to attract broader investor appeal and generate greater potential for a takeover or other control transaction.

In addition, if the current strategy continues to be pursued, AIX Securityholders would maintain exposure to the Assets (subject to the possible disposal of HTAC and Statewide Roads), and therefore would receive any benefits of recent asset-level capital expenditure and any resulting growth in passenger numbers described in Section 4.4 of this Explanatory Booklet. While the Independent Directors believe that AIX is well positioned for organic growth as a result of the asset-level capital expenditure programs and diversified nature of the Assets, it should be noted that there is no certainty that growth in passenger numbers will be achieved or that it would result in increased cash flow being received by AIX. Additionally, the Independent Directors consider that, if the Proposed Transaction does not proceed, divesting AIX’s interest in HTAC in the short-term without compromising value for AIX Securityholders may be difficult.

The Independent Directors consider that, even if AIX proceeds with the Proposed Internalisation and AIX retains its core Assets, it is likely that AIX Securities will trade at levels below the expected payments under the Cash Return of between $3.19 and $3.23 per AIX Security if the Proposed Transaction is not implemented and there is no other Superior Proposal.

While the Proposed Internalisation had expected advantages, the payments under the Cash Return provide AIX Securityholders with certain cash proceeds, which the Independent Directors believe deliver the most favourable outcome presently available to AIX Securityholders. This position is supported by the findings of the Independent Expert who has concluded that the Proposed Transaction is fair and reasonable to and in the best interests of AIX Securityholders in the absence of a Superior Proposal, having considered the projected growth in cash flows that may be received from the Assets.

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(b) Sale of AIX or the Assets to a party other than the Future FundThe Independent Directors also considered the likelihood of a party, other than the Future Fund, making an offer to acquire AIX or all or some of the Assets for consideration higher than that offered by the Future Fund.

The Independent Directors consider that the likelihood of another party making an offer to acquire AIX or all of the Assets for consideration higher than that offered by the Future Fund to be relatively low. This assessment takes into account:

• the consideration offered by the Future Fund;• that the offer from the Future Fund is for all of the Assets (including AIX’s interest in HTAC);• that the Future Fund required limited due diligence;• that the Future Fund was prepared to accept the risk of its offers for the Assets being pre-empted by asset-level co-investors

(subject to payment of a fee equal to 1% of the purchase price allocated to any Asset (or part of an Asset) that is sold to an asset-level co-investor); and

• the size of the Proposed Transaction, which is likely to limit the number of potential acquirers.

The Independent Directors have considered the likelihood of an Asset-by-Asset sale process generating consideration higher than that offered by the Future Fund for some Assets. This process would involve six separate processes for the sale of each Asset, initiated by AIX. The Independent Directors do not believe progressing such a process would be in the best interests of AIX Securityholders for the following reasons:

• there is no certainty that such a process would deliver total consideration higher than that offered by the Future Fund;• the potential bidder field may be affected by the existence of pre-emptive rights at the asset-level. Where bidding interest

from co-investors is perceived by third parties to be high, it may be difficult to attract third party bidders to a sale process;• execution of an Asset-by-Asset sale is likely to be a lengthy process given it would involve six separate sale processes;• some of the Assets may be less attractive to potential acquirers and may therefore be difficult to divest if Assets were being

sold on a piecemeal basis, such that the Assets may not be able to be sold for appropriate value; and• there may be potentially adverse tax implications arising from the timing in undertaking separate Asset-by-Asset sales that

may affect the overall net returns for AIX Securityholders relative to the Proposed Transaction. For example, if an Asset on which AIFT would derive a capital loss is sold in an income year subsequent to the sale of the Assets on which a capital gain would be derived, that loss will not be available to offset the capital gains made on the sale of other Assets.

The Independent Directors have reserved the right to consider Superior Proposals, subject to certain conditions as set out in Section 6.1(c) of this Explanatory Booklet. As at the date of this Explanatory Booklet, no Superior Proposal has emerged and the Independent Directors consider that the Proposed Transaction currently represents the most favourable outcome for AIX Securityholders. If a Superior Proposal emerges prior to the date of the EGM, AIX will inform AIX Securityholders and the Future Fund, who will have a right to submit a revised proposal to AIX on terms no less favourable to AIX Securityholders within 5 Business Days.

2.5 T ax and stamp duty considerations(a) T ax implicationsTax implications for AIXIf the Proposed Transaction is implemented, it is estimated that AIFL will realise a capital gain of approximately $87.3 million. After taking into account available capital losses of approximately $18.1 million as well as other income and deductions, it is estimated that AIFL will be required to pay income tax of approximately $19.1 million.

If the Proposed Transaction is implemented, it is estimated that AIFT will after deducting capital losses of approximately $22 million and transaction expenses of approximately $14.3 million, make a net capital gain of approximately $1,206 million.

The net capital gain will be referable to the Assets acquired more than 12 months prior to entering into the Implementation Agreement and will therefore be a ‘discount capital gain’ for CGT purposes. As a result, in calculating its net taxable income, AIFT will reduce the capital gain by 50% to approximately $603 million. This gain will be further reduced by deductible expenses of AIFT of approximately $10.8 million to approximately $592.1 million. This equates to $0.95 per AIFT Unit. This will be AIFT’s Distributable Income for the Distribution Period ending immediately prior to the cancellation of the AIFT Units.

Tax implications for AIX SecurityholdersThe tax consequences of receipt of each of the components of the Cash Return will vary depending on an AIX Securityholder’s personal taxation and financial circumstances. General information about expected Australian taxation implications is set out in Section 5 of this Explanatory Booklet.

2. E valuation of the Proposed Transaction continued

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(b) S tamp duty implications for AIX and AIX SecurityholdersAIX does not expect to incur any stamp duty liabilities in respect of the Proposed Transaction. In addition, stamp duty will not be payable by AIX Securityholders in respect of the Proposed Transaction.

Under the sale arrangements in respect of each of the Assets, the buyer (whether it be the Future Fund (or its nominee) or an asset-level co-investor) must pay all stamp duties and any fines and penalties with respect to stamp duty in respect of that sale.

2.6 I mplication if the Asset Sale is not completed by 30 April 2013If AIX Securityholders approve the Proposed Transaction but the sale of all of the Assets is not completed on or before 30 April 2013, it is possible that the Cash Return will not proceed in its current form as the proposed steps to effect the Cash Return may not be feasible or may not necessarily be the most efficient way of returning substantially all of AIX’s cash reserves, including the net proceeds of the Assets sold at the time, to AIX Securityholders.

AIX Securityholders should refer to pages 16 to 17 of this Explanatory Booklet for further information on this risk.

While AIX cannot be certain that such a delay in the Asset Sale will not occur, AIX considers it unlikely that the sale of the Assets will not complete by 30 April 2013.

2.7 I mplications of the Proposed Transaction not proceedingIf AIX Securityholders do not approve the Proposed Transaction, the Proposed Transaction will not proceed. If the Proposed Transaction does not proceed and AIX and the Future Fund are not able to agree a basis on which to continue to pursue a similar transaction:

• the Asset Sale will not take place and AIX Securityholders will not receive the payments under the Cash Return;• AIX Securityholders will continue to have exposure to the Assets;• AIX Securities will continue to trade on ASX;• there is a risk that the AIX Security price will fall;• Hastings’ existing fee arrangements will continue to apply;• AIX will incur, or will have incurred, transaction costs relating to the Proposed Transaction of approximately $4.5 million; and• in the absence of an equivalent or superior proposal, AIX intends, in accordance with a non-binding in-principle agreement that

it has entered into, to progress the Proposed Internalisation by seeking to execute a binding implementation agreement and convening meetings in 2013 to obtain AIX Securityholder approval.

In the event that the Proposed Internalisation proceeds, AIX Securityholders will be sent a separate explanatory booklet before being asked to approve the Proposed Internalisation.

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Explanatory Booklet34

Explanation of the resolutions to be considered at the EGM3

3.1 OverviewAs part of the Proposed Transaction, AIX Securityholders will be asked to approve the Proposal Resolutions.

The Proposal Resolutions being considered at the EGM are inter-conditional. This means that if any of the Proposal Resolutions are not passed by the required majorities, the Proposed Transaction will not be implemented.

The Proposal Resolutions are to:

• approve the Asset Sale pursuant to ASX Listing Rule 11.2;• amend the AIFT Constitution to:

– facilitate the issue of the special AIFT Unit to AIFL or a wholly-owned subsidiary of AIFL; – allow Hastings to effect the cancellation of all AIFT Units (other than the special AIFT Unit held by AIFL or a wholly-owned

subsidiary of AIFL); – amend Hastings’ performance fee entitlements, so that, if the Asset Sale and cancellation of AIFT Units occurs by 30 June 2013,

the performance fee payable for the period commencing 1 July 2012 and ending immediately prior to the date on which AIFT Units are cancelled as part of the Main Return will be fixed at $54 million (excluding GST), payable on the cancellation of AIFT Units; and

– remove the requirement to de-staple AIFL Shares and AIFT Units within 3 months of AIX Securityholder approval;• amend the AIFL Constitution to remove the requirement to de-staple AIFL Shares and AIFT Units within 3 months

of AIX Securityholder approval;• approve the de-stapling of AIFL Shares and AIFT Units for the purposes of the Cash Return;• authorise an equal capital return out of AIFL of up to $0.07 per AIFL Share pursuant to section 256C of the Corporations Act; and• approve the acquisition of AIFT by AIFL for the purpose of Item 7 of section 611 of the Corporations Act.

This Section provides an explanation of the resolutions to be considered at the EGM and should be read together with the Notice of EGM contained in Annexure 2 of this Explanatory Booklet.

3.2 Proposal Resolutions to be considered at the EGMResolution 1 – approval of the Asset SaleResolution 1 seeks approval for the Asset Sale.

Resolution 1 is required under ASX Listing Rule 11.2, which prohibits an entity from disposing of its main undertaking without securityholder approval. Resolution 1 is an ordinary resolution, requiring approval of more than 50% of the votes cast at the EGM by AIX Securityholders entitled to vote.

Resolution 2 – amendments to AIFT ConstitutionResolution 2 seeks approval for the AIFT Constitution to be amended as set out in Annexure 3 to enable the Cash Return to be implemented.

The proposed amendments to the AIFT Constitution are set out in full in Annexure 3 of this Explanatory Booklet.

In summary, these amendments:

• facilitate the issue of the special AIFT Unit to AIFL or a wholly-owned subsidiary of AIFL;• allow Hastings to effect the cancellation of all AIFT Units (other than the special AIFT Unit held by AIFL or a wholly-owned

subsidiary of AIFL);

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• amend Hastings’ performance fee entitlements, so that, if the Asset Sale and cancellation of AIFT Units occurs by 30 June 2013, the performance fee payable for the period commencing 1 July 2012 and ending immediately prior to the date on which AIFT Units are cancelled as part of the Main Return will be fixed at $54 million (excluding GST), payable on the cancellation of AIFT Units; and

• remove the requirement to de-staple AIFL Shares and AIFT Units within 3 months of AIX Securityholder approval (that is, de-stapling would be able to occur more than 3 months after the requisite AIX Securityholder approval is given).

Resolution 2 is required under section 601GC(1)(a) of the Corporations Act. Section 601GC(1)(a) requires certain amendments to the AIFT Constitution to be made by a special resolution of AIFT Unitholders, requiring approval of at least 75% of the votes cast at the EGM by AIFT Unitholders entitled to vote.

Resolution 3 – amendment to AIFL ConstitutionResolution 3 seeks approval for the AIFL Constitution to be amended as set out in the Notice of EGM contained in Annexure 2 of this Explanatory Booklet.

The purpose of the amendment is to amend the stapling provisions to remove the requirement to de-staple AIFL Shares and AIFT Units within 3 months of AIX Securityholder approval. This amendment, which will allow AIFL and Hastings as responsible entity of AIFT to determine that AIFL Shares and AIFT Units need not be stapled together at any point following AIX Securityholder approval of the de-stapling, is necessary to facilitate implementation of the Cash Return.

Resolution 3 is required under section 136(2) of the Corporations Act. Section 136(2) of the Corporations Act requires amendments to the AIFL Constitution to be made by a special resolution of AIFL Shareholders, requiring approval of at least 75% of the votes cast at the EGM by AIFL Shareholders entitled to vote.

Resolution 4 – de-stapling of AIFL Shares and AIFT UnitsResolution 4 seeks approval for the purposes of the Stapling Agreement to de-staple AIFL Shares and AIFT Units so that they can be dealt with separately to facilitate implementation of the steps to effect the Main Return.

If the Proposed Transaction is approved, consequential amendments will be made to the Stapling Agreement to remove the requirement to de-staple AIFL Shares and AIFT Units within 3 months of AIX Securityholder approval.

Resolution 4 is required under clause 3(1) of the Stapling Agreement. Resolution 4 is a special resolution, requiring approval of at least 75% of the votes cast at the EGM by AIX Securityholders entitled to vote.

Resolution 5 – equal capital return by AIFLResolution 5 seeks approval for AIFL to be authorised to return, by way of an equal capital return, the amount of up to $0.07 per AIFL Share to AIFL Shareholders.

This equal capital return constitutes part of the Main Return.

Resolution 5 is required under section 256C(1) of the Corporations Act. Resolution 5 is an ordinary resolution, requiring approval of more than 50% of the votes cast at the EGM by AIFL Shareholders entitled to vote.

In addition to this approval requirement, AIFL may only reduce its capital if, at the time of implementation, the reduction:

• is fair and reasonable to AIFL Shareholders as a whole; and• does not materially prejudice AIFL’s ability to pay its creditors.

Although the capital return is being approved at the EGM, it will not take place until after the proceeds of the Asset Sale have been received and the special review and due diligence process has taken place.

There is no requirement for AIFL Shareholders to approve the payment of the fully-franked dividend by AIFL.

Resolution 6 – acquisition of AIFT Unit by AIFLResolution 6 seeks approval for AIFL to be issued with the special AIFT Unit.

Section 606 of the Corporations Act prohibits the acquisition of units or interests in a listed managed investment scheme if the acquisition would increase a person’s voting rights in the scheme to more than 20%. Following payment of the Main Return, AIFL will hold 100% of AIFT following the cancellation of all AIFT Units (other than the special AIFT Unit held by AIFL or a wholly-owned subsidiary of AIFL).

However, section 611 (item 7) of the Corporations Act permits the acquisition if it has previously been approved by an ordinary resolution of AIFT Unitholders where no votes are cast in favour of the resolution by a person acquiring the interests and its associates or by persons from whom the acquisition is made and their associates. Approval is required under the Corporations Act notwithstanding the fact that AIX Securityholders will retain substantially the same underlying interest in AIFT following payment of the Main Return given their ongoing capacity as AIFL Shareholders.

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Section 611 (item 7) of the Corporations Act specifies matters that must be addressed for the purposes of obtaining approval under that section. For the purposes of section 611 (item 7), the following information is set out:

Identity of person proposing to make the acquisition and its associates

The person proposing to make the acquisition is AIFL.

The associates of AIFL are as follows:

• Hastings, due to the arrangements that exist for the governance of the stapled group; and• A.C.N. 159 615 719 Limited, due to the fact that it is a wholly-owned subsidiary of AIFL.

A.C.N. 159 615 719 Limited was established by AIFL to become the new responsible entity under the Proposed Internalisation.

Maximum extent of the increase in AIFL’s voting power as a result of the acquisition

As at the last trading day before the date of this Explanatory Booklet, AIFL does not have any voting power in AIFT. As a result of the steps to effect the Main Return, AIFL will have 100% of the voting power in AIFT.

Voting power that AIFL would have as a result of the acquisition

As a result of the steps to effect the Main Return, AIFL will have voting power of 100% in AIFT.

The maximum extent of the increase in the voting power of each of AIFL’s associates that would result from the acquisition

Each of Hastings and A.C.N. 159 615 719 Limited will have voting power in respect of the special AIFT Unit issued to AIFL (which, as a result of the cancellation of all other AIFT Units, will be the only AIFT Unit on issue) by virtue of their status as associates of AIFL.

As a member of the Westpac group, as at 6 December 2012, Hastings has voting power in 3.6% of AIFT due to holdings by other Westpac group members and, accordingly, the issue of the special AIFT Unit to AIFL and implementation of the steps to effect the Main Return will increase its voting power in AIFT from 3.6% to 100%.

As at 6 December 2012, A.C.N. 159 615 719 Limited does not have voting power in respect of AIFT. Accordingly, the issue of the special AIFT Unit to AIFL and implementation of the steps to effect the Main Return will increase its voting power in AIFT from 0% to 100%.

The voting power that each of AIFL’s associates would have as a result of the acquisition

As stated above, each of Hastings and A.C.N. 159 615 719 Limited will have voting power in respect of the special AIFT Unit issued to AIFL (which, as a result of the cancellation of all other AIFT Units, will be the only AIFT Unit on issue) and will each have voting power in AIFT of 100%.

3. Explanation of the resolutions to be considered at the EGM continued

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AIX profile44.1 Overview and corporate structureAIX is a stapled group, comprising AIFL and AIFT, which has been listed on ASX since March 1997.

In recent years, AIX has focused on airports infrastructure and, in particular, Australian airports infrastructure. As a result of this strategy and the sale of its investments in Port of Geelong, Port of Portland and Metro Transport Sydney, AIX’s portfolio comprises predominantly Australian airport infrastructure assets.

As at the last trading day before the date of this Explanatory Booklet, AIX had 620,733,944 securities on issue and a market capitalisation of $1,955 million.

Each AIX Security consists of one AIFL Share; and one AIFT Unit, bound together by the stapling arrangements.

Hastings is the responsible entity of AIFT and the manager of AIFL. Under agreed arrangements, the AIFL Board and Hastings Board guide and monitor the business and affairs of AIX on behalf of AIX Securityholders.

Further information about AIX’s corporate structure and governance, as well as the audited financial statements of AIX for the financial year ended 30 June 2012, can be found in the AIX 2012 Annual Report available at www.hfm.com.au/asxlisted/funds/aif.

4.2 Strategy and investment mandateAIX is a specialist in the investment and management of airports, and has pursued a strategy of actively seeking investment opportunities that are accretive to securityholder value, particularly from organic growth opportunities within airports that AIX is currently invested in.

4.3 The AssetsThe Assets comprise AIX’s interests in 11 Australian airports, three international airports and a residual interest in a service centre concession located on Sydney’s M4 Motorway.

The Assets are described in the table below. Further information on the Assets, including their financial and operating performance and outlook, can be found in the AIX 2012 Annual Report available at www.hfm.com.au/asxlisted/funds/aif.

Asset Description Key metrics

Perth Airport Development Group (Perth Airport)

Perth Airport is strategically located as one of Australia’s closest airports to South East Asia, Europe and Africa. It is Australia’s fourth largest airport in terms of passenger traffic, and is the principal gateway to Western Australia and its significant resources sector.

AIX ownership: 29.7%

Co-investors:

• Utilities Trust of Australia (38.3%)• Perth Airport Property Fund (17.3%)• The Infrastructure Fund (4.3%)• AustralianSuper Pty Ltd (5.0%)• Commonwealth Bank Group Super (3.2%)• Colonial First State Private Capital Ltd (2.2%)

Total passengers (FY12): 12.6 million

Passenger growth (FY12): 10.3%

AIX equity valuation (EV) (30 June 2012): $609.6 million

Net debt/EV: 32.5%

Revenue (FY12): $347.4 million

EBITDA (FY12): $226.3 million

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Australia Pacific Airports Corporation (Melbourne and Launceston airports)

Australia Pacific Airports Corporation owns and operates Melbourne Airport, a key access point to Victoria and Australia for domestic and international travellers, as well as Launceston Airport, a gateway for travel between Tasmania and mainland Australia.


Co-investors:

• Utilities Trust of Australia (7.6%)• AMP (25.0%)• Future Fund (16.8%)• Industry Funds Management (20.7%)• Deutsche Asset Management

(RREEF Infrastructure) (17.5%)


Passenger growth (FY12): 0.1%

AIX equity valuation (30 June 2012): $477.4 million

Net debt/EV: 32.6%



Queensland Airports Limited (Gold Coast, Townsville, Mount Isa and Longreach airports)

Queensland Airports Limited owns and operates four key airport facilities in Queensland, Australia: Gold Coast Airport provides access to a major tourist destination and is the sixth busiest airport in Australia; Townsville Airport serves as North Queensland’s regional hub, supported by local military, government and industrial activity; Mount Isa Airport is the hub for the North West Queensland Mineral Province, servicing the local mining and commercial sectors; and Longreach Airport, which is primarily a pastoral and regional administrative hub.


Co-investors:

• The Infrastructure Fund (36.7%)• Other minority interests (14.2%)


Passenger growth (FY12): (1.0%)


Net debt/EV: 41.3%



Airport Development Group (Darwin, Alice Springs and Tennant Creek airports)

Airport Development Group owns and operates Darwin International Airport, Alice Springs Airport and Tennant Creek Airport. Darwin Airport forms an important hub for low-cost carriers, creating a vital link between Australia and Asia, as well as being the key entry point into the Northern Territory. Alice Springs Airport similarly forms an essential gateway to Central Australia for both domestic and international travellers. The group also has a substantial land holding, for which development opportunities are currently being pursued.


Co-investors:

• Industry Funds Management (55.6%)• Palisade Investment Partners (16.2%)


Passenger growth (FY12): (3.2%)


Net debt/EV: 36.4%



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HTAC (Sydney, Athens, Düsseldorf and Hamburg airports)

HTAC has minority holdings in four major international airports.

Sydney Airport (6.5% owned by HTAC) is the major gateway into and out of Australia, servicing approximately 37 international and eight domestic and regional passenger airlines. The airport is located eight kilometres south of Sydney’s central business district, and has high-quality road and rail links to the population and business centres of Sydney.

Athens International Airport (13.34% owned by HTAC) is Greece’s major airport, located 33 kilometres from central Athens in a catchment area of more than six million residents. The airport was opened in 2001 and is operated under an Airport Development Agreement with the Greek State, which expires on 11 June 2026.

Düsseldorf Airport (10% owned by HTAC) is Germany’s third busiest airport, after Frankfurt and Munich. The airport is located in the heart of the densely populated Rhine-Ruhr region, one of Europe’s biggest economic areas, and serves approximately 18.0 million people. Düsseldorf Airport hosts over 73 airlines that fly to 196 destinations worldwide.

Hamburg Airport (14.22% owned by HTAC) is Germany’s fifth busiest airport, servicing over 60 airlines that operate direct flights to 115 destinations. The airport is located nine kilometres northwest of Hamburg, Germany’s second largest city with 1.7 million residents. The airport has the capacity to process up to 15.0 million passengers per annum.


Co-investors:

• Caisse de dépôt et placement du Québec (40%)• Utilities Trust of Australia (10%)• KfW IPEX-Bank (10%)

Total passengers (FY12):*

• Sydney: 35.6 million• Düsseldorf: 20.3 million• Hamburg: 13.6 million• Athens: 14.4 million

Passenger growth (FY12):*

• Sydney: 0.2%• Düsseldorf: 7.1%• Hamburg: 4.6%• Athens: (6.3%)


Net debt/EV: 40.1%

Revenue (FY12):*

• Sydney: $972.8 million• Düsseldorf: €369.5 million• Hamburg: €257.7 million• Athens: €379.5 million

EBITDA (FY12):*

• Sydney: $790.7 million• Düsseldorf: €140.2 million• Hamburg: €91.3 million• Athens: €249.1 million* 31 December year end.

Statewide Roads Statewide Roads operated the M4 Motorway, an established tollroad servicing Parramatta and the western suburbs of Sydney, until 15 February 2010 when the concession agreement with the NSW Government expired resulting in the return of the M4 motorway assets to the NSW Roads and Traffic Authority.

Statewide Roads was also granted a 25 year concession to lease, operate and maintain a service centre which is tenanted to Caltex, and a number of fast food restaurants located on the M4. The service centre concession expires in 2017. AIX derives minor residual revenues from the service centre concession.



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4.4 Asset-level capital expenditure and potential growth prospectsAt an asset-level, a number of capital expenditure and expansion or upgrade works are presently being planned or undertaken to facilitate future growth, which may result in future growth in the value of the Assets. The independently assessed value of the Assets as assessed by KPMG Corporate Finance, which is set out in Section 2.3 of this Explanatory Booklet, considers the capital expenditure and expansion works described below. Any such growth would be subject to a range of factors including the projected performance of the assets as well as prevailing financial and economic conditions at the relevant time, passenger and earnings growth at each asset (which can be driven by organic growth or capital expenditure), increased equity investment by AIX in the assets and broader market factors.

In particular:

• Perth Airport Development Group (Perth Airport) is undertaking a significant redevelopment involving over $750 million of capital investment and three major terminal projects, underpinned by commercial agreements with airlines carrying 97% of passengers;

• Australia Pacific Airports Corporation (Melbourne and Launceston airports) is undergoing a number of capital works projects, including the phased development of a new domestic terminal facility designed to cater for continued growth in low-cost carrier volumes;

• Queensland Airports Limited (Gold Coast, Townsville, Mount Isa and Longreach airports) has refinanced its existing $468 million of debt and secured an additional $64 million to fund further expansion and upgrade works at its three airports; and

• Airport Development Group (Darwin, Alice Springs and Tennant Creek airports) has refinanced its existing $225 million of debt and obtained new capital expenditure facilities of $125 million, which will assist in funding its planned aeronautical capital expenditure requirements and provide flexibility to invest in accretive car parking and retail opportunities.

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Taxation considerations5F

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101 Collins Street Melbourne Vic 3000 Australia GPO Box 396 Melbourne Vic 3001 Australia

Liability limited by a scheme approved under Professional StandardsLegislation

Telephone +61 3 9288 1881 Facsimile +61 3 9288 1828www.gf.com.au DX 240 Melbourne

Greenwoods & Freehills Pty Limited ABN 60 003 146 852

The DirectorsHastings Funds Management Limited as responsible entity forAustralian Infrastructure Fund TrustLevel 2735 Collins StreetMelbourne VIC 3000

The DirectorsAustralian Infrastructure Fund LimitedLevel 2735 Collins StreetMelbourne VIC 3000

7 December 2012

Dear Directors

Summary of tax implications for AIX Securityholders

We have been instructed by AIX to prepare a summary of the expected Australian income tax (including capital gains tax (CGT)), GST and stamp duty implications arising for AIX and AIX Securityholders under the Proposed Transaction for inclusion in the Explanatory Booklet in relation to the Proposed Transaction.

Greenwoods & Freehills Pty Limited has provided the income tax and GST advice and has given its consent to the inclusion of this letter in the Explanatory Booklet. HerbertSmith Freehills has provided the stamp duty advice and has given its consent to being named in this letter.

Unless defined in this summary or the context indicates otherwise, all capitalised terms in this summary have the same meaning as those contained in the Explanatory Booklet.

1 ScopeThis summary is a general statement of the expected Australian income tax, CGT, GST and stamp duty implications arising for AIX Securityholders who are securityholders at the time of the EGM and receive the Main Return and Residual Return.

The summary is based on the Australian taxation law and administrative practice as at the date of this letter. The application of tax laws to AIX Securityholders will be dependent on their individual facts and circumstances and accordingly it is strongly encouraged that AIX Securityholders obtain their own independent taxation advice.

The representatives of Greenwoods & Freehills Pty Limited involved in preparing this summary are not licensed to provide financial product advice in relation to dealing in securities. AIX Securityholders should consider seeking advice from a suitably qualified AFSL holder before making any decision in relation to the Proposed Transaction. AIX Securityholders should also note that taxation is only one of the matters that may need to be considered when making a decision in respect of their AIX Securities.

We have not addressed the tax treatment for:

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• AIX Securityholders who hold their AIX Securities on revenue account, such as banks and other trading entities;

• non-resident AIX Securityholders who hold their AIX Securities in carrying on a business through a permanent establishment in Australia (other than some express comments on CGT); or

• AIX Securityholders who have made any of the tax timing method elections pursuant to the taxation of financial arrangements rules in Division 230 of Income Tax Assessment Act 1997 (Cth) in relation to gains and losses on their AIFT Units and AIFL Shares.

All calculations included in this summary are an estimation only. Where a figure is expressed as an amount per AIX Security, it involves rounding to the nearest cent. Thecalculations are based on the information contained in other sections of the ExplanatoryBooklet and on instructions from AIX as to its relevant cost base for the Assets, its other income, deductions and tax losses, and its available franking credits from other sources.

In addition, the amounts referred to in this letter are calculated on the basis that all of the Assets are sold to the Future Fund and therefore no part of the 1% fee payable to the Future Fund on Assets sold to co-investors under pre-emptive provisions is paid (1%Fee). If the 1% Fee were payable to the Future Fund in respect of all of the Assets it is estimated that the total return to AIX Securityholders would reduce by $0.04 from $3.23 to $3.19.

AIX will provide a summary of the tax consequences from carrying out the Proposed Transaction and distributions made to AIX Securityholders on or before 30 June 2013 inits annual tax summary, which will be sent to AIX Securityholders in August 2013.

2 Implications for AIFL and AIFT2.1 AIFL

If the Proposed Transaction is implemented, AIFL will realise a capital gain of approximately $87.3 million from proceeds of approximately $170.7 million. After taking into account available capital losses of approximately $18.1 million as well as other income and deductions, we estimate that AIFL will be required to pay tax in the amount of approximately $19.1 million.

2.2 AIFT

If the Proposed Transaction is implemented, we estimate that AIFT will, after deducting capital losses of approximately $22 million and other transaction expenses of approximately $14.3 million, make a net capital gain of approximately $1,206 million fromproceeds of approximately $1,829 million.

The net capital gain will be referable to Assets acquired more than 12 months prior to entering into the Implementation Agreement and will be a ‘discount capital gain’ for CGT purposes. As a result, in calculating its net taxable income, AIFT will reduce the capital gain by 50% to approximately $603 million. This gain will be further reduced by deductible expenses of AIFT of approximately $10.8 million to approximately $592.1 million. Thisequates to approximately $0.95 per AIFT Unit. This will be AIFT’s Distributable Income for the Distribution Period (as those terms are defined in the AIFT Constitution) ending immediately prior to the cancellation of the AIFT Units.

Prior to sale of the Assets to the Future Fund, AIFT is also expected to derive otherassessable income, including approximately $31.5 million in franked dividends. Thisincome will be reduced by deductible expenses to nil.

3 Summary of tax implications for AIX SecurityholdersSet out below is a brief summary of the expected Australian income tax consequences of the Proposed Transaction. The tax consequences will differ depending on whether or not the Residual Return is paid by 30 June 2013.F

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3.1 Tax implications for Australian resident AIX Securityholders if the Residual Return is paid on or before 30 June 2013

In very broad summary, the tax implications of the payments under the Cash Return if the Residual Return is paid on or before 30 June 2013 are expected to be as follows1:

• the fully-franked dividends of $0.08 per AIFL Share will be included in an AIX Securityholder’s assessable income;

• the capital returns on the AIFL Shares of up to $0.26 per AIFL Share will reduce the CGT cost base of the AIFL Shares. If the capital returns exceed the amount of the cost base of the AIFL Shares the AIX Securityholder will derive a capital gain in respect of that excess;

• the distribution of Distributable Income of approximately $0.95 per AIFT Unit, which will result in an AIX Securityholder:

• making a ‘grossed up’ capital gain of approximately $1.91 per AIFT Unit. As explained in section 4.1(b)(1) below, after applying any available capital losses (including any loss that may arise on cancellation of their AIFT Units), the resulting net capital gain made by the AIX Securityholder may be reduced under the CGT discountprovisions if the AIX Securityholder is an individual, a trustee or a complying superannuation entity; and

• subject to satisfying the conditions set out in section 4.1(a)(1) below,including in their taxable income their proportionate share of the franking credits from the franked dividends received by AIFT ofapproximately $0.02 per AIFT Unit and consequently being entitled to a tax offset equal to that amount;

• the distribution of trust capital equal to approximately $1.01 per AIFT Unit, which represents the amount of the capital gain of AIFT sheltered by the 50% CGT discount (approximately $603 million or $0.97 per AIFT Unit) and prior year capital losses (of $22 million or $0.04 per AIFT Unit). This distribution will effectively be disregarded for Australian CGT purposes and will not reduce the cost base of the AIFT Units held by the AIX Securityholder; and

• the cancellation of an AIX Securityholder’s AIFT Units for approximately $0.93per AIFT Unit will be a CGT event in respect of the AIFT Units. An Australian AIX Securityholder whose reduced cost base in the AIFT Units is greater than the amount paid to cancel the AIFT Units will make a capital loss on cancellation. Such a capital loss should be able to be offset against the ‘grossedup’ capital gain of approximately $1.91 per AIFT Unit made as a result of thedistribution of Distributable Income by AIFT. Conversely, an Australian AIX Securityholder will make a capital gain if the cancellation proceeds exceed the cost base of their AIFT Units.

3.2 Tax implications for Australian resident AIX Securityholders if the Residual Return is paid after 30 June 2013

In very broad summary, the tax implications of the payments under the Cash Return if the Residual Return is paid after 30 June 2013 are expected to be as follows:

(a) In the income year ending 30 June 2013

• the fully-franked dividend of $0.02 per AIFL Share under the Main Return will beincluded in an AIX Securityholder’s assessable income;

• the capital return on the AIFL Shares of up to $0.07 per AIFL Share under the Main Return will reduce the CGT cost base of the AIFL Shares. If the capital

1 These calculations are based on the assumption that the 1% Fee (or any part thereof) is not payable to the Future Fund.


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return exceeds the amount of the cost base of the AIFL Shares the AIX Securityholder will derive a capital gain in respect of that excess; and

• the tax consequences in respect of the distributions of Distributable Income and trust capital and cancellation of the AIFT Units will be the same as set out insection 3.1 above.

(b) In the income year ending 30 June 2014:

• the fully-franked dividend estimated to be approximately $0.06 per AIFL Share under the Residual Return will be included in an AIX Securityholder’s assessable income; and

• the capital return on the AIFL Shares estimated to be up to $0.19 per AIFL Share under the Residual Return will further reduce the cost base of an AIX Securityholder’s AIFL Shares. If the capital return exceeds the amount of the adjusted cost base in the AIFL Shares then the AIX Securityholder will derive a capital gain in respect of that excess.

By way of very broad summary, the net after tax result for most Australian AIX Securityholders after payment of the Cash Return is expected to be approximately the same as if they sold their AIX Securities on ASX for a price equal to the Cash Return(disregarding the timing of the distributions under the Cash Return). However, the result will be dependent on the individual facts and circumstances for AIX Securityholders andaccordingly it is strongly encouraged that AIX Securityholders obtain their own independent taxation advice.

3.3 Tax implications in respect of Cash Return for non-Australian resident AIXSecurityholders

For non-resident AIX Securityholders the distribution of Distributable Income and return of trust capital by AIFT as part of the Main Return will be subject to Australian ManagedInvestment Trust withholding tax to the extent that the distribution represents the netcapital gain arising on disposal by AIFT of those Assets that constitute ‘taxable Australian property’. This is expected to be approximately $1.56 per AIFT Unit. The withholding tax rate on that amount will be either 15% or 30%, depending on the address of the investor.

Australian withholding tax will not apply to the balance of the Cash Return unless AIFL pays a dividend which is not fully franked.


An AIX Securityholder who is not an Australian resident for Australian tax purposes should not be subject to Australian CGT in relation to the receipt of the remainder of theAIX distributions unless their AIX Securities constitute taxable Australian property at the time of the distribution, as described in section 5.3(b) below.

3.4 Final return on winding up of AIFL

It is not yet certain when AIFL will be wound up and the amount, if any, that will be distributed to AIFL shareholders at that time. The tax consequences are described in section 4.3.

4 Australian resident AIX SecurityholdersSet out below is a description of the Australian income tax consequences of the Proposed Transaction. AIX Securityholders who have acquired AIX Securities on different dates or at different acquisition prices will need to undertake separate calculations for each tranche of AIX Securities to calculate their overall tax liability. The tax consequences will differ depending on whether or not the Residual Return is paid by 30June 2013.F

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4.1 Tax implications if the Residual Return is paid on or before 30 June 2013

If the Residual Return is paid on or before 30 June 2013 the tax implications of the payments under the Cash Return are expected to be as follows:

(a) AIFL

If the Proposed Transaction is implemented and the Residual Return is paid on or before 30 June 2013, AIX Securityholders are expected to receive in total:

• fully-franked dividends of approximately $0.08 per share (expected to comprise up to $0.02 under the Main Return and $0.06 under the Residual Return); and

• share capital distributions of up to $0.26 per share (expected to comprise up to $0.07 under the Main Return and up to $0.19 under the Residual Return),

in respect of their AIFL Shares.

(1) Fully-franked dividend

The fully-franked dividend of approximately $0.08 per share will be included in an AIX Securityholder’s assessable income in the incomeyear ending 30 June 2013. If the AIX Securityholder satisfies the requirements to be entitled to the benefit of the franking credit ofapproximately $0.03 per share, the AIX Securityholder will include the franking credit in their assessable income and is entitled to a tax offset equal to the amount of the franking credit.

An Australian AIX Securityholder will generally be entitled to the benefit of the franking credit and resulting tax offset if that AIX Securityholder:

• has held their AIX Securities for a continuous period of at least 45 days; and

• has not entered into any arrangements that diminishes therisks of loss or opportunities for gain from their AIX Securities.

An Australian AIX Securityholder will satisfy the holding requirement if they hold their AIX Securities ‘at risk’ on the date of the EGM and do not dispose of their AIX Securities prior to the Record Date.

An Australian AIX Securityholder who has entered into any arrangement that may affect their economic exposure on their AIX Securities should seek their own independent taxation advice on their entitlement to the benefit of the franking credit.

(2) Share capital distribution

The amount of the share capital distribution in the Main Return of approximately $0.07 per AIFL Share and under the Residual Return of up to $0.19 per AIFL Share will be applied to reduce the cost base of the AIFL Shares held by AIX Securityholders.

Once the cost base of the AIFL Shares is reduced to nil no further adjustments are made. However, an AIX Securityholder will then make a capital gain to the extent that there is any excess amount of the share capital distribution which remains after reducing the costbase of the AIFL Shares.

In calculating the cost base and reduced cost base of their AIFT Units and AIFL Shares, AIX Securityholders will be required to apportion the acquisition cost of their AIX Securities between their AIFT Units and AIFL Shares. The Commissioner of Taxation will generally accept an


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apportionment that has been done on a reasonable basis. However,AIX Securityholders will need to make their own decision regarding the reasonable basis they will apply in their own circumstances. Further information that may be helpful to AIX Securityholders in making their apportionment calculations can be found on the AIX website (http://www.hfm.com.au/asxlisted/funds/aif/distributions/).

In broad terms, the cost base and reduced cost base of the AIFLShares will equal:

• the amount that the AIX Securityholder paid (or gave as consideration) to acquire the AIFL Shares (including certain incidental costs of acquisition, holding and disposal); less

• any share capital distributions received whilst the AIX Securityholder held the AIFL Shares.

If applicable an AIX Securityholder may increase the cost base of their AIFL Share by indexation if they would otherwise make a capital gain as a result of the distribution of share capital. Alternatively, the taxable amount of the net capital gain may be reduced if the AIX Securityholder elects to apply the CGT discount.

• Indexation

If an AIX Securityholder acquired their AIX Securities on or before 11.45am (Melbourne time), 21 September 1999, the AIX Securityholder may choose to reduce the amount of their capital gain by indexing the cost base of their AIFL Shares up to 30 September1999. If the AIX Securities were acquired after 11.45am (Melbourne time), 21 September 1999, indexation is not available. Choosingindexation precludes applying the CGT discount to the net capital gain.

• CGT discount

An individual, trustee or complying superannuation entity who acquired their AIX Securities at least 12 months before the date of theshare capital distribution may alternatively be entitled to choose to reduce the capital gain by the applicable CGT discount.

The CGT discount is applied to the capital gain after eligible capital losses have been deducted.

If the AIX Securityholder is an individual or trustee and chooses the CGT discount method, any resulting net capital gain will be reduced by 50%. If the AIX Securityholder is the trustee of a complyingsuperannuation entity, any resulting net capital gain will be reduced by one-third. The ultimate effect of the discount for other trustees depends on the identity and entitlement of beneficiaries.

The CGT discount is not available to companies.

(b) AIFT

On 6 December 2012 HFML as responsible entity of AIFT resolved in accordance with clause 43(4) of the AIFT Constitution to select as a Distribution Period (as defined in the AIFT Constitution) the period commencing on 1 July 2012 and ending on the date that is 3 Business Days after the Record Date. In accordance with clause 42(3) of the AIFT Constitution, this will result in HFML as responsible entity of AIFT becoming obliged to pay to each AIX Securityholder registered on the Record Date their proportionate share of the Distributable Income of AIFT for the Distribution Period (expected to be approximately $0.95 per AIFT Unit).For

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It is expected that prior to the Record Date HFML as responsible entity of AIFT will resolve pursuant to clause 42(6) of the AIFT Constitution to distribute trust capital to AIX Securityholders registered on the Record Date in proportion to their AIX Securityholdings an amount equal to the amount of the capital gain of AIFT sheltered by the 50% CGT discount (expected to be approximately $603 million or $0.97 per AIFT Unit) and prior year capital losses (of $22 million or $0.04 per AIFT Unit).

Finally, it is expected that prior to the Record Date HFML as responsible entity of AIFT will resolve pursuant to proposed clause 26A of the AIFT Constitution to cancel the AIFT Units (other than the Special Unit expected to be issued toAIFL) with effect from the fourth Business Day after the Record Date for the Cancellation Amount as defined in proposed clause 26A (expected to be approximately $0.93 per AIFT Unit).

Accordingly, if the Proposed Transaction is implemented AIX Securityholders are expected to receive as part of the Main Return in the income year ending 30June 2013:

• a distribution of Distributable Income by AIFT which it is expected willresult in an AIX Securityholder:

• making a ‘grossed up’ capital gain of approximately $1.91per AIFT Unit, which may be reduced under the CGT discount provisions, if applicable; and

• subject to satisfying the conditions set out in section4.1(a)(1) above, including in their taxable income their proportionate share of the franking credits from the franked dividends received by AIFT of approximately $0.02 per AIFT Unit and will consequently be entitled to a tax offset equal to that amount;

• a distribution of trust capital of approximately $1.01 per AIFT Unit; and

• consideration for the cancellation of AIFT Units, which is expected to be approximately $0.93 per AIFT Unit.

(1) Distribution of Distributable Income

The distribution of Distributable Income by AIFT of approximately $0.95 per AIFT Unit represents the net capital gain of AIFT on sale of its Assets discounted by 50% and then reduced by application of deductible expenses. Under the CGT rules, this gain must be ‘grossedup’ by multiplying it by 2. Accordingly, AIX Securityholders who are Australian residents will make a ‘grossed up’ capital gain’ of approximately $1.91 per AIFT Unit.

Capital gains and capital losses made by an Australian resident AIX Securityholder in an income year will be aggregated to determine whether there is a net capital gain or net capital loss for that income year. For example, where an Australian resident AIX Securityholder makes the grossed up capital gain as a result of receipt of the distribution of Distributable Income by AIFT as outlined above, but makes a capital loss on cancellation of their AIFT Units (see section 4.1(b)(3) below), that capital gain and capital loss will be set off against each other in calculating the net capital gain or loss for the AIX Securityholder.

After applying any current or prior year capital losses against the capital gains, any resulting net capital gain of an AIX Securityholdermay be reduced by the CGT discount if the AIX Securityholder is an individual, a trustee or a complying superannuation entity.


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If the AIX Securityholder is an individual or trustee and chooses toapply the CGT discount method, any resulting net capital gain will be reduced by 50%. If the AIX Securityholder is the trustee of a complying superannuation entity, any resulting net capital gain will be reduced by one-third. The ultimate effect of the discount for other trustees depends on the identity and entitlement of beneficiaries.


The net capital gain for the income year is included in the AIX Securityholder’s assessable income and is subject to income tax at the AIX Securityholder’s applicable rate.

A net capital loss for an income year cannot be deducted against an AIX Securityholder’s other assessable income but may be carried forward to be offset against capital gains derived in future years of income (subject to the AIX Securityholder satisfying any relevant carryforward loss tests).

(2) Distribution of trust capital

AIFT will distribute trust capital equal to approximately $1.01 per AIFT Unit. This amount will represent the amount of the capital gain of AIFT sheltered by the 50% CGT discount (approximately $603 million or $0.97 per AIFT Unit) and prior year capital losses (of $22 million or $0.04 per AIFT Unit).

This distribution will effectively be disregarded for Australian CGT purposes. While returns of trust capital generally reduce the cost base of the AIFT Units held by the AIX Securityholder, these distributionsare expressly excluded from having that effect.

This amount is referred to in the Annual Tax Statement of AIX as the CGT concession amount.

(3) Cancellation of AIFT Units

An AIX Securityholder will:

• make a capital gain if the cost base of their AIFT Units is less than the consideration for the cancellation of AIFT Units(currently estimated to be $0.93 per AIFT Unit); or

• make a capital loss if the reduced cost base of their AIFT Units is greater than the consideration for the cancellation of AIFT Units (currently estimated to be $0.93 per AIFT Unit).

In calculating the cost base and reduced cost base of their AIFT Units and AIFL Shares, AIX Securityholders who are Australian residents will be required to apportion the acquisition cost of their AIX Securities between their AIFT Units and AIFL Shares in the manner outlined in section 4.1(a)(2) above.

In broad terms, the cost base and reduced cost base of the AIFT Units will equal:

• the amount that the AIX Securityholder paid (or gave as consideration) to acquire the AIFT Units, and certainincidental costs of acquisition, holding and disposal; less

• the ‘tax deferred’ component of any AIFT distributions received whilst the AIX Securityholder held AIFT Units.

Historically, distributions made by AIFT to AIX Securityholders have comprised a significant tax deferred component. Further information on historical tax deferred distributions can be found on the AIX website (http://www.hfm.com.au/asxlisted/funds/aif/distributions/). In

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addition, the anticipated distribution of 5.5 cents in February 2013 is expected to be a tax deferred distribution which will reduce the cost base of AIFT Units.

If applicable, an AIX Securityholder may increase the cost base of their AIFT Unit by indexation if they would otherwise make a capital gain on cancellation of their AIFT Units. Alternatively, the taxable amount of the net capital gain may be reduced if the AIXSecurityholder elects to apply the CGT discount.

• Indexation

If an AIX Securityholder acquired their AIX Securities on or before 11.45am (Melbourne time), 21 September 1999, the AIX Securityholder may choose to reduce the amount of their capital gain by indexing the cost base of their AIFT Units up to 30 September 1999. If the AIX Securities were acquired after 11.45am (Melbourne time), 21 September 1999, indexation is not available. Choosingindexation precludes applying the CGT discount to the net capital gain.

• CGT discount

An individual, trustee or complying superannuation entity who acquired their AIX Securities at least 12 months before the date of cancellation (see below) may alternatively be entitled to choose to reduce the capital gain by the applicable CGT discount.

For AIX Securityholders, the date of cancellation of the AIFT Units for these purposes will be the date at which the cancellation of the units is effected, which will be in the income year ending 30 June 2013. The CGT discount is applied to the capital gain after eligible capital losses have been deducted.

If the AIX Securityholder is an individual or trustee and chooses the CGT discount method, any resulting net capital gain will be reduced by 50%. If the AIX Securityholder is the trustee of a complyingsuperannuation entity, any resulting net capital gain will be reduced by one-third. The ultimate effect of the discount for other trustees depends on the identity and entitlement of beneficiaries.


(4) Deemed franking credit and tax offset

Prior to sale of the Assets to the Future Fund, AIFT is also expected to derive approximately $31.5 million in franked dividends. This income will be reduced by deductible expenses to nil.

However, for tax purposes Australian resident AIX Securityholders who have held their AIX Securities at risk as outlined in section 4.1(a)(1) above will be required to include in their taxable income their proportionate share of the franking credits in respect of those dividends of approximately $0.02 per AIFT Unit and will consequently be entitled to a tax offset equal to that amount.

4.2 Tax implications if the Residual Return is paid after 30 June 2013

If the Residual Return is paid after 30 June 2013 the tax implications of the paymentsunder the Cash Return are expected to be as follows:

(a) In the income year ending 30 June 2013:

• the fully-franked dividend of $0.02 per AIFL Share under the Main Return will be included in an AIX Securityholder’s assessable income,as explained in section 4.1(a)(1) above;


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• the capital return on the AIFL Shares of up to $0.07 per AIFL Share under the Main Return will reduce the CGT cost base of the AIFL Shares. If the capital return exceeds the amount of the cost base of the AIFL Shares the AIX Securityholder will derive a capital gain in respect of that excess, as explained in section 4.1(a)(2) above;

• the tax consequences in respect of the distributions of Distributable Income and trust capital and cancellation of the AIFT Units will be the same as set out in section 4.1(b) above.

(b) In the income year ending 30 June 2014:

Holders of AIFL Shares will receive the Residual Return, which is expected to comprise:

• a fully-franked dividend of approximately $0.06 per share; and

• a distribution of share capital of up to $0.19 per share.


The fully-franked dividend of approximately $0.06 per share will be included in an AIX Securityholder’s assessable income in the income year ending 30 June 2014. If the AIX Securityholder satisfies the requirements to be entitled to the benefit of the franking credit of $0.03per share, then the AIX Securityholder will include the franking credit in their assessable income and is entitled to a tax offset equal to the amount of the franking credit.

Refer to section 4.1(a)(1) above in relation to whether an AIX Securityholder will be entitled to the benefit of the franking credit.

(2) Distribution of share capital

The amount of the share capital distribution in the Residual Return of up to $0.19 per share will be applied to reduce the cost base of theAIFL Shares (after adjustment for the share capital return in the Main Return) held by AIX Securityholders.

Once the cost base is reduced to nil no further adjustments are made.However, an AIX Securityholder will then make a capital gain to the extent that there is any amount of the share capital distribution whichremains after reducing the cost base of the AIFL Shares.

Refer to section 4.1(a)(2) above in relation to whether the capital gain can be reduced by either indexing the cost base or discounting the netcapital gain.

4.3 Tax consequences of winding up of AIFL

It is unclear when AIFL will be wound up or the amount of any distribution that will be paid at that time.

To the extent that the distribution on winding up constitutes a fully-franked dividend then the tax consequences will be as set out in section 4.2(b)(1) above.

To the extent that the payment on the winding up constitutes a distribution of sharecapital, an AIX Securityholder will:

• make a capital gain if the share capital distribution is greater than the cost baseof their AIFL Shares (taking into account the adjustments to the cost base for the return of share capital in the Main Return and the Residual Return); or

• make a capital loss if the reduced cost base of their AIFL Shares (taking into account the adjustments to the residual cost base for the return of share capital in the Main Return and the Residual Return) is greater than that distribution.For

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If an AIX Securityholder makes a capital gain, the taxable amount of the capital gain may be reduced if the CGT discount or indexation applies, as explained in section 4.1(b)(3)above.

5 AIX Securityholders who are not Australian residentsSet out below is a description of the expected income tax consequences of the Proposed Transaction for AIX Securityholders who are not Australian residents. Such AIX Securityholders who have acquired AIX Securities on different dates or at differentacquisition prices may need to undertake separate calculations for each tranche of AIX Securities to calculate their overall tax liability. The tax consequences will differ depending on whether or not the Residual Return is paid by 30 June 2013.

5.1 Tax implications if the Residual Return is paid on or before 30 June 2013

If the Residual Return is paid on or before 30 June 2013 the tax implications of the payments under the Cash Return are expected to be as follows:

(a) AIFL

In the income year ending 30 June 2013 holders of AIFL shares will receive intotal:

• franked dividends of approximately $0.08 per share (expected tocomprise up to $0.02 under the Main Return and $0.06 under the Residual Return); and

• share capital distributions of up to $0.26 per share (expected to comprise up to $0.07 under the Main Return and up to $0.19 under the Residual Return).


Assuming the dividend is fully-franked, no withholding tax will be withheld on the payment of the franked dividend and no other Australian tax will be payable.

(2) Share capital distribution

An AIX Securityholder who is not an Australian resident for Australiantax purposes will only be subject to Australian CGT in relation to the receipt of the share capital distribution if the AIFL Shares constitute ‘taxable Australian property’ by satisfying either of the conditions listed in section 5.3(a) below.

Any AIX Securityholder who satisfies either of the conditions in (1)(A)or (2) of section 5.3(a) below should seek their own advice on the Australian taxation implications of the Proposed Transaction.

(b) AIFT

If the Proposed Transaction is implemented, holders of AIX Securities willreceive in respect of their AIFT Units as part of the Main Return:

• a distribution of Distributable Income of approximately $0.95 per AIFT Unit;

• a return of trust capital of approximately $1.01 per AIFT Unit; and

• consideration for the cancellation of AIFT Units, which is expected to be approximately $0.93 per AIFT Unit;

(1) Distribution of net capital gain

As AIFT is a Managed Investment Trust (MIT) for Australian tax purposes, HFML, as responsible entity of AIFT, will be liable to deduct withholding tax on behalf of a non-resident holder of AIFT Units to the extent that the distribution comprises the net capital gain of AIFT in


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respect of ‘taxable Australian property’. For these purposes, ‘taxableAustralian property’ includes direct, and certain indirect, interests in real property situated in Australia (see section 5.3 below for further information on this term).

MIT withholding will not be imposed on the AIFT distribution to the extent that it is in respect of CGT assets that are not ‘taxableAustralian property’ for Australian tax purposes. It is currentlyconsidered that the distribution of the net capital gain referable to AIFT Assets that will be taxable Australian property, and therefore be subject to MIT withholding, is estimated to be approximately $1.56 perAIFT Unit.

The withholding rate depends on whether the address for payment tothe non-Australian holder of AIFT Units is in an “information exchangecountry”. A current list of “information exchange countries” is specifiedin Regulation 44E of the Taxation Administration Regulations 1976.The withholding tax rate for a non-Australian holder of AIFT Units whose address for payment is in an information exchange country is 15%. Based on a distribution of a net capital gain relating to ‘taxable Australian property’ of $1.56 per AIFT Unit the amount withheld will be approximately $0.23 per AIFT Unit. If the address for payment to the non-Australian holder of AIFT Units is not in an information exchange country, the withholding rate will be 30%. This will be approximately $0.47 per AIFT Unit based on a distribution of a net capital gain relating to ‘taxable Australian property’ of $1.56 per AIFT Unit.

This withholding tax represents a final tax liability for non-residentholders of AIFT Units for these amounts (i.e., there is no further tax on an assessment basis in respect of the amounts comprised by the fund payment component in Australia).


(2) Remainder of AIFT distributions

An AIX Securityholder who is not an Australian resident for Australian tax purposes should not be subject to Australian CGT, or realise a capital loss, in relation to the receipt of the remainder of the AIFT distributions and cancellation of their AIFT Units unless their AIFTUnits constitute taxable Australian property at the time of the distribution, as described in section 5.3(b) below.

5.2 Tax implications if the Residual Return is paid after 30 June 2013

If the Residual Return is paid after 30 June 2013, the tax implications of the paymentsunder the Cash Return are expected to be as follows:

(a) In the income year ending 30 June 2013:

• no Australian withholding tax will be imposed on the fully-frankeddividend of $0.02 per AIFL Share as explained in section 5.1(a)(1)above;

• the capital return on the AIFL Shares of up to $0.07 per AIFL Share under the Main Return will reduce the CGT cost base of the AIFL Shares. If the capital return exceeds the amount of the cost base of the AIFL Shares the AIX Securityholder will derive a capital gain in respect of that excess as explained in section 5.1(a)(2) above; andF

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• the tax consequences in respect of the distributions of Distributable Income and trust capital and cancellation of the AIFT Units will be the same as set out in section 5.1(b) above.

(b) In the income year ending 30 June 2014

If the Proposed Transaction is implemented, holders of AIFL shares mayreceive the Residual Return in their capacity as AIX Securityholders in the income year ending 30 June 2014 that comprises:

• a franked dividend of approximately $0.06 per share; and

• a distribution of share capital of up to $0.19 per share.


As the dividend is fully-franked, no withholding tax will be withheld on the payment of the franked dividend to AIX Securityholders who are not Australian residents for tax purposes. No other tax will be payable in relation to the fully-franked dividend.

(2) Distribution of share capital

An AIX Securityholder who is not an Australian resident for Australian tax purposes should not be subject to Australian CGT in relation to the receipt of the distribution of share capital unless their AIFL Shares constitute ’taxable Australian property’ at the time of the distribution asdescribed in section 5.3(a) below.

5.3 Treatment of capital gains: ‘taxable Australian property’

(a) AIFL Shares

An AIX Securityholder who is not an Australian resident for Australian tax purposes will generally not be subject to Australian tax on the return of share capital, unless:

(1) both:

(A) the AIX Securityholder (and their associates) hold, either at the date of the return of share capital or throughout a 12 month period within 2 years prior to that date held, 10% or more of the AIFL Shares on issue; and

(B) more than half of the value of AIFL’s assets, measured by market value, comprise real property situated in Australia and indirect interests in real property situated in Australia; or

(2) the AIFL Shares are held in carrying on a business through a permanent establishment in Australia.

It is not anticipated that condition (1)(B) above will be satisfied for AIFL in relation to any return of share capital occurring after the Asset Sale as AIFL will no longer hold any direct or indirect interests in Australian real property.

However, any AIX Securityholder who satisfies either of the conditions in (1)(A)or (2) above should seek their own advice on the Australian taxation implications of the Proposed Transaction.

(b) AIFT Units

An AIX Securityholder who is not an Australian resident for Australian tax purposes will generally not be subject to Australian CGT as a result of the cancellation of their AIFT Units unless:

(1) both:

(A) the AIX Securityholder (and their associates) hold 10% or more of the AIFT Units on issue either at the date of


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cancellation of their AIFT Units or throughout a 12 month period within two years prior to the date of cancellation of their AIFT Units; and

(B) more than half of the value of AIFT assets, measured by market value, comprise real property situated in Australiaand indirect interests in real property situated in Australia; or

(2) the AIFT Units are held in carrying on a business through a permanent establishment in Australia.

It is not anticipated that condition (1)(B) above will be satisfied for AIFT inrelation to the cancellation of the Units as at that time AIFT will no longer hold any direct or indirect interests in Australian real property.

However, any AIX Securityholder who satisfies either of the conditions in (1)(A)or (2) above should seek their own advice on the Australian taxation implications of the Proposed Transaction.

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6 Example calculations for resident AIX Securityholders We have prepared 2 examples based on the assumptions in section 6.1 below, showing the different tax consequences where the Residual Return is paid on or before 30 June 2013 (example 1) and where the Residual Return is paid after 30 June 2013 (example 2).

6.1 Assumptions

The following example has been prepared on the assumptions that:

(a) The example AIX Securityholder:

(1) is an Australian resident;

(2) has held their AIX Securities for more than 12 months;

(3) is a ‘qualified person’ in respect of the AIX Securities; and

(4) does not have any other capital gains or losses;

(b) The total proceeds of the Asset Sale are $2 billion, which has been apportioned between AIFL and AIFT in accordance with the Implementation Agreement;

(c) The Cash Return totals $3.23 (ie. the 1% Fee (or any part thereof) is not paid to the Future Fund) comprised as set out below:

(d) In respect of the Main Return:

(1) the fully-franked dividend of $0.02 per AIFL Share;

(2) the capital return on the AIFL Shares of up to $0.07 per AIFL Share;

(3) a distribution of Distributable Income of $0.95 per AIFT Unit resulting in the AIX Securityholder:

• making a ‘grossed up’ capital gain of approximately $1.91per AIFT Unit (which may be discounted if applicable); and

• including in their taxable income a franking credit of approximately $0.02 per AIFT Unit and will consequently be entitled to a tax offset equal to that amount;

(4) a return of trust capital of $1.01 per AIFT Unit which will not reduce the cost base of AIFT Units as explained in section 4.1(b)(2) above;and

(5) consideration for the cancellation of the AIFT Units of $0.93 per AIFT Unit.

(e) The Residual Return comprising:

(1) the fully-franked dividend estimated to be $0.06 per AIFL Share; and

(2) the capital return on the AIFL Shares estimated to be up to $0.19 perAIFL Share.

(f) The AIX Securities have a combined cost base of $1.95, comprised of a cost base in each AIFT Unit of $1.74 and in each AIFL Share of $0.21. The cost base of the AIFT Units has been adjusted to take into account the tax deferred distribution of 5.5 cents anticipated to be made in February 2013.

(g) AIFL and AIFT have 620,733,944 shares and units on issue respectively; and

(h) AIFL will have approximately $4.95 million in franking credits available to frank the dividend paid as part of the Main Return.

The amounts shown in this example are rounded to the nearest cent and are only a best approximation of the tax consequences and estimate of the expected distributions.


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6.2 Example 1: Residual Return paid on or before 30 June 2013

Australian resident individual

Australian resident complying superfund

Australian resident company

Per share/unit A$ Marginal tax rate 46.5% 15% tax rate 30% tax rate

2013 income tax consequences:

AIFL distributions

AIFL dividendAdd: gross-up for franking credits2

Grossed-up dividend

$0.08$0.03$0.11

$0.08$0.03$0.11

$0.08$0.03$0.11

AIFL distribution of capitalLess: cost base of AIFL SharesNet capital gain before discountCGT discount available?3

$0.26($0.21)$0.05Yes

$0.26($0.21)$0.05Yes

$0.26($0.21)$0.05

No

AIFT distribution and consequences of cancellation of AIFT Unit

Deemed share of franking credit $0.02 $0.02 $0.02

Grossed up AIFT capital gain4 $1.91 $1.91 $1.91

Capital proceeds for cancellation of AIFT UnitsLess: cost base of AIFT Units5

Capital gain or (loss) on cancellation of AIFT Units

$0.93($1.74)($0.81)

$0.93($1.74)($0.81)

$0.93($1.74)($0.81)

Net capital gain or (loss) before discount6CGT discount available?7

Net capital gain or (loss) after CGT discount

$1.15Yes

$0.58

$1.15Yes

$0.77

$1.15No

$1.15

Assessable Income8 $0.71 $0.90 $1.28

2 Franking credit tax offset is taken into account after calculation of the tax liability.3 The CGT discount is available for all individuals and superannuation funds in respect of the gain made on the distribution of capital provided that the AIFL Shares were acquired at least 12 months before the distribution that resulted in a capital gain.4 Being $0.95 multiplied by 2 (increased to $1.91 due to rounding).5 The AIFT cost base will not be reduced by the $1.01 return of trust capital.6 Being $0.05 (net capital gain on AIFL Shares) plus $1.91 (grossed up capital gain) minus $0.81 (capital loss on cancellation of AIFT Units).7 The CGT discount is available in respect of the ‘grossed up’ capital gain component of the distribution by AIFT for all individuals and superannuation funds. If you make a capital gain on the cancellation of your AIFT Units, you will also be able to apply the CGT discount to this amount if you have held them for more than 12 months. 8 Being ($0.08 (AIFL dividend) + $0.03 (AIFL franking credit) + $0.02 (AIFT deemed franking credit)) plus the ‘net capitalgain (or loss) after CGT discount’.

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Tax liabilityless: tax offset for franking credit

$0.33($0.05)

$0.14($0.05)

$0.38($0.05)

Net tax payable $0.28 $0.09 $0.33

Post-tax cash position after Residual Return9 $2.95 $3.14 $2.90

9 Being ($0.08 (AIFL dividend) + $0.26 (AIFL return of share capital) + $0.95 (AIFT Distributable Income) + $1.01 (AIFT return of trust capital) + 0.93 (cancellation proceeds for AIFT)) minus Net tax payable.


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6.3 Example 2: Residual Return paid after 30 June 2013

Australian resident individual

Australian resident complying superfund

Australian resident company

Per share/unit A$ Marginal tax rate 46.5% 15% tax rate 30% tax rate

2013 income tax consequences:

AIFL distributions


Grossed-up dividend

$0.02$0.01$0.03

$0.02$0.01$0.03

$0.02$0.01$0.03

AIFL distribution of capital11 $0.07 $0.07 $0.07

AIFT distribution and consequences ofcancellation of AIFT Unit

Deemed share of franking credit $0.02 $0.02 $0.02

Grossed up AIFT capital gain12 $1.91 $1.91 $1.91

Capital proceeds for cancellation of AIFT UnitsLess: cost base of AIFT Units13

Capital gain or (loss) on cancellation of AIFT Units

$0.93($1.74)($0.81)

$0.93($1.74)($0.81)

$0.93($1.74)($0.81)

Net capital gain or (loss) before discount14

CGT discount available?15

Net capital gain or (loss) after CGT discount

$1.10Yes

$0.55

$1.10Yes

$0.73

$1.10No

$1.10


Tax liabilityless: tax offset for franking credit

$0.28($0.03)

$0.12($0.03)

$0.35($0.03)

10 Franking credit tax offset is taken into account after calculation of the tax liability.11 The cost base of the AIFL Share will be reduced by the amount of the distribution of capital. In this example, based on the assumptions the cost base of $0.21 will be reduced by $0.07 to $0.14.12 Being $0.95 multiplied by 2 (increased to $1.91 due to rounding).13 The AIFT cost base will not be reduced by the $1.01 return of trust capital.14 Being $1.91 minus $0.81.15 The CGT discount is available in respect of the ‘grossed up’ capital gain component of the distribution by AIFT for all individuals and superannuation funds. If you make a capital gain on the cancellation of your AIFT Units, you will also be able to apply the CGT discount to this amount if you have held them for more than 12 months. 16 Being ($0.02 (AIFL dividend) + $0.01 (AIFL franking credit) + $0.02 (AIFT deemed franking credit)) plus the ‘net capital gain (or loss) after CGT discount’.

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Net tax payable $0.25 $0.09 $0.32

Post-tax cash position in respect of Main Return17 $2.73 $2.89 $2.66

2014 income tax consequences


Grossed-up dividend

$0.06$0.02$0.08

$0.06$0.02$0.08

$0.06$0.02$0.08

Return of share capitalLess: cost base of AIFL Shares19

Net capital gain before discountCGT discount available?Net capital gain after discount

$0.19($0.14)$0.05Yes

$0.02

$0.19($0.14)$0.05Yes

$0.03

$0.19($0.14)$0.05

No$0.05


Tax liabilityless: tax offset

$0.05($0.02)

$0.02($0.02)

$0.04($0.02)

Net tax payable (refund) $0.03 $0.00 $0.02

Post-tax cash position in respect of Residual Return payments in 201421

$0.22 $0.25 $0.23

Total post-tax cash position after Main Return and Residual Return

$2.95 $3.14 $2.8922

17 Being ($0.02 (AIFL dividend) + $0.07 (AIFL return of share capital) + $0.95 (AIFT Distributable Income) + $1.01 (AIFT return of trust capital) + 0.93 (cancellation proceeds for AIFT)) minus Net tax payable.18 Franking credit tax offset is taken into account after calculation of the tax liability.19 See footnote 11 above.20 Being $0.06 (AIFL dividend) + 0.02 (AIFL franking credit) plus Net capital gain (or loss) before CGT discount21 Being $0.06 (AIFL dividend) plus $0.19 (return of share capital) minus Net tax payable22 The total post-cash position for an Australian resident company only differs from that in Example 1 (section 6.2 above)due to rounding.


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7 GSTIn the event that the Proposed Transaction is implemented, GST should not be payable in respect of the cancellation of AIFT Units or AIFL Shares by AIX Securityholders.

8 Stamp dutyIn the event that the Proposed Transaction is implemented, stamp duty should not be payable by AIX Securityholders.

Yours faithfully,

GREENWOODS & FREEHILLS PTY LIMITED

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Additional information66.1 Ke y terms of the Implementation AgreementThe key terms of the Implementation Agreement, including the annexed sale and purchase deeds, are set out below.

(a) Pu rchase price adjustmentsAdjustment for capital contributionsIf, during the period from 24 August 2012 until the date of completion under the sale and purchase deeds, AIX makes a capital contribution to an asset owning entity with the prior written consent of the Future Fund (or its nominee), the purchase price will be increased by the amount of the capital contribution.

Adjustment for distributionsIf, during the period from 24 August 2012 until the date of completion under the sale and purchase deeds:

• AIX receives any dividends, capital returns or other distributions in respect of an Asset in excess of an agreed cap (such caps reflecting anticipated distributions in respect of the Assets), the purchase price will be reduced by the amount that the distributions exceed the cap; and

• AIX does not receive, or become entitled to dividends, capital returns or other distributions in respect of an Asset equal to or in excess of the agreed cap (which is subject to adjustment in certain circumstances), when the buyer receives its first such payment following completion, it must pay to AIX: – an amount equal to the agreed cap; or – if such dividends, capital returns or other distributions have been paid to AIX, the difference between the agreed cap

and the amount paid to AIX.

Ad justment for material adverse changeIf, prior to 8.00am on the date of the EGM, a material adverse change occurs in respect of an Asset, AIX and the Future Fund must use reasonable endeavours to discuss and agree an appropriate adjustment to the aggregate purchase price.

If agreement cannot be reached within 15 Business Days, where the material adverse change relates to AIX’s interests in:

• Statewide Roads or Airport Development Group, the appropriate adjustment will be determined by an expert; and• any other Asset (other than HTAC where that change is a result of an HTAC disposal or restructure described below), either party

can terminate the Implementation Agreement within 5 Business Days following the expiry of the adjustment negotiation period.

A ‘material adverse change’ means, in relation to an Asset, one or more matters or events that occur, are announced or become known to the Future Fund which have, or will have, either individually or in aggregate, the effect of diminishing by at least 15% the net asset value of any individual Asset (as determined in the independent valuation prepared by KPMG Corporate Finance for that Asset) other than as a result of a change of economic assumptions in the relevant valuation.

If a material adverse change occurs shortly before the date of the EGM, AIX may postpone or adjourn the EGM to allow for the adjustment process to take place.

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Ad justment for HTAC disposal or restructureAs part of pursuing the concentration of AIX’s portfolio to its core Australian airport assets, AIX has been considering the disposal or restructure of its interest in HTAC.

If, before AIX’s interest in HTAC is acquired by the Future Fund (or its nominee), AIX proposes to dispose of or restructure its interest in HTAC (including at the holding vehicle level), AIX must seek the prior written consent of the Future Fund before agreeing to, implementing or voting in favour of such a proposal.

If AIX seeks the Future Fund’s consent, the parties will discuss and agree whether any adjustment to the terms of the Asset Sale or the aggregate purchase price is required, having regard to the proposal.

If AIX agrees to, implements or votes in favour (or fails to exercise any rights or powers to procure that no asset owning entity agrees to, implements or votes in favour) of a disposal or restructure proposal without the prior written consent of the Future Fund, the Future Fund may terminate the Implementation Agreement by the earlier of 10 Business Days of being given written notice of that event and the date of the EGM.

Adjustment for exercise of co-investor rightsIf AIX’s interests in an Asset or part of an Asset is acquired by an entity other than the Future Fund (or its nominee) (for example, as a result of the exercise of pre-emptive rights), AIX must pay to the Future Fund a fee equal to 1% of the purchase price allocated to that Asset (or the relevant part of that Asset).

Adjustment for warranty claimsIf the Future Fund validly claims under a warranty (claims under which require notification by 30 April 2013 at the latest), the purchase price will be reduced by the amount paid out under the warranty. The warranties under the sale and purchase deeds are substantially the same as those described in Section 6.1(b) of this Explanatory Booklet.

(b) Co nditions precedentCo nditions precedentThe Asset Sale is conditional on the following conditions precedent:

• (AIX Securityholder approval) AIX Securityholders approving the Proposal Resolutions at the EGM by the requisite majorities;• (Exchange rate) the Australian Dollar/United States Dollar exchange rate not falling below 0.85 United States Dollars per

Australian Dollar on three consecutive Business Days between the date of the Implementation Agreement and the date of the EGM, based on the average of the buy and sell rates published in the hardcopy newspaper version of the Australian Financial Review under the heading “Retail Market Exchange Rates”;

• (No AIX prescribed event) no AIX prescribed event occurring between the date of the Implementation Agreement and 8.00am on the date of the EGM;

• (Due diligence) the due diligence materials provided to the Future Fund not being or becoming materially misleading or deceptive, including by omission, between the date of the Implementation Agreement and 8.00am on the date of the EGM;

• (AIX representations and warranties) the AIX representations and warranties being true and correct in all material respects as at the date of the Implementation Agreement and as at 8.00am on the date of the EGM; and

• (Prohibitive orders) prior to 8.00am on the date of the EGM, no government agency taking any action, or imposing any legal restraint or prohibition, to prevent the implementation of the Proposed Transaction, which remains in force at 8.00am on the date of the EGM.

The ‘AIX prescribed events’ concern asset owning entities taking certain actions that adversely affect AIX compared with other investors in those assets and various insolvency type events in respect of AIFL or AIFT.

The ‘AIX representations and warranties’ relate to:

• its power, authority and ability to execute and deliver the Implementation Agreement;• the validity of its title to the relevant securities;• there being no third party rights over any of the relevant securities, other than as disclosed or specified;• there being no consent requirements with respect to implementation of the Asset Sale, other than as disclosed or specified; and• AIX’s knowledge of the veracity of the due diligence materials.F

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Waiver of conditions precedentOther than the ‘AIX Securityholder approval’ condition precedent, which cannot be waived, and the ‘Prohibitive orders’ condition precedent, which may only be waived by written agreement between the parties, each of the conditions precedent may be waived by the Future Fund prior to 8.00am on the date of the EGM.

C o nsequences if the conditions precedent are not satisfied or waivedIf any event occurs that would, or does, prevent a condition precedent under the Implementation Agreement from being satisfied, the parties must consult in good faith to determine whether:

• the Asset Sale may proceed by way of alternative means or methods; or• to extend the sunset date of 30 April 2013.

If the parties are unable to reach agreement in relation to the above matters by the earlier of:

• 10 Business Days of notification of the relevant event;• 8.00am on the date of the EGM; or• such later date as is agreed between the parties,

then, unless the relevant condition is waived where capable of waiver, either party may terminate the Implementation Agreement. If the Implementation Agreement is terminated, the Proposed Transaction will not be implemented.

Entry into sale and purchase deeds on satisfaction of conditions precedentOn satisfaction of the conditions precedent, AIFL and/or Hastings as responsible entity of AIFT (as applicable) and the Future Fund (or its nominee) will enter into sale and purchase deeds no later than 2 Business Days after the date of the EGM and the finalisation of any purchase price adjustments under the Implementation Agreement. The sale of the Assets will not be inter-conditional and completion of each sale may occur at different times.

The sale of AIX’s interest in Perth Airport Development Group (Perth Airport), Australian Pacific Airports Corporation (Melbourne and Launceston airports), Queensland Airports Limited (Gold Coast, Townsville, Mount Isa and Longreach airports) and Airport Development Group (Darwin, Alice Springs and Tennant Creek airports) will be conditional on completing the required pre-emptive rights processes. The sale of AIX’s interest in HTAC and Statewide Roads will be unconditional.

(c) Re strictions on AIXNo -shop, no-talkEach of AIFL and Hastings as responsible entity of AIFT has agreed that, until the earlier of the termination of the Implementation Agreement or the conclusion of voting at the EGM, it and its representatives will not:

• solicit, invite, encourage or initiate any communications in relation to, or which may reasonably be expected to lead to, a Competing Proposal or with a view to obtaining a Competing Proposal or potential Competing Proposal;

• subject to an exception to accommodate the fiduciary and statutory duties owed by the Directors: – participate in or continue any discussions or negotiations; – grant access to information; – enter into any agreement, arrangement or understanding; or – communicate any intention to do any of these things,

in relation to, or which may reasonably be expected to lead to, a Competing Proposal or with a view to obtaining a Competing Proposal or potential Competing Proposal.

Notification rightAIX has agreed that, until the earlier of the termination of the Implementation Agreement or the conclusion of voting at the EGM, it must notify the Future Fund within 2 Business Days of becoming aware of:

• any approach in respect of the matters referred to in Section 6.1(c) above;• a proposal made to AIX or any of its representatives in connection with a Competing Proposal; or• the provision by AIX or any of its representatives of any non-public information in connection with an actual, proposed

or potential Competing Proposal,

subject to an exception to accommodate the fiduciary and statutory duties owed by the Directors.

6. Additional information continued

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Matching rightAIX has agreed that, until the earlier of the termination of the Implementation Agreement or the conclusion of voting at the EGM, it will give the Future Fund the opportunity to submit, within 5 Business Days of being notified of a Competing Proposal which is considered to be a Superior Proposal (or 2 Business Days in the case of an amended or modified proposal), a revised proposal to AIX on terms no less favourable to AIX Securityholders than the Competing Proposal.

(d) Future Fund reimbursement feeIf:• prior to or on the date of the EGM, an Independent Director withdraws or changes his recommendation that AIX Securityholders

vote in favour of the Proposed Transaction or makes a public statement indicating that they no longer recommend the Proposed Transaction;

• prior to or on the date of the EGM, any Director publicly recommends, promotes or otherwise endorses a Competing Proposal;• at any time prior to the date 6 months after termination of the Implementation Agreement, a person other than the Future Fund

(or an associate of the Future Fund): – acquires voting power of 50% or more in AIX pursuant to a transaction that is publicly announced before the date of the

EGM (whether a Competing Proposal or otherwise) and that is or becomes free of defeating conditions; or – acquires all or a substantial part of the Assets pursuant to a transaction (whether a Competing Proposal or otherwise) that

is publicly announced before the date of the EGM;• a disposal or restructure of AIX’s interest in HTAC is agreed to or resolved to be implemented without the prior written consent

of the Future Fund; or• AIX is in breach of the Implementation Agreement such that it could be terminated,

then, provided that AIX has not terminated the Implementation Agreement for material breach by the Future Fund, AIX must pay the Future Fund the sum of $20 million plus any applicable GST (subject to a reduction if the sale of any Asset to the Future Fund (or its nominee) has completed), or if a fee has been paid or is payable to the Future Fund as a result of an Asset or part of an Asset being acquired by an entity other than the Future Fund (or its nominee).

(e) AI X termination rightsAIX may terminate the Implementation Agreement by written notice to the Future Fund at any time before the sale and purchase deeds are executed if:

• each of the following occurs: – the Future Fund is in breach of any obligation under the Implementation Agreement which, if not remedied, would cause

the Asset Sale to be frustrated and unable to proceed in accordance with the Implementation Agreement; – AIX has given written notice to the Future Fund setting out the breach and stating an intention to terminate if it is not

remedied; and – the breach is not remedied by the Future Fund by the earlier of 10 Business Days from notification and the date that

is 2 Business Days after the sale and purchase deeds are scheduled to be executed; or• a majority of the Independent Directors on either the AIFL Board or the Hastings Board withdraw or change their recommendation

of the Proposed Transaction or that AIX Securityholders vote in favour of the Proposed Transaction.

(f) Future Fund termination rightsThe Future Fund may terminate the Implementation Agreement by written notice to AIX at any time before the sale and purchase deeds are executed if:

• AIX is in breach of the Implementation Agreement (including a breach of an AIX representation and warranty) and: – that breach is material; – the Future Fund has given written notice to AIX setting out the breach and stating an intention to terminate if it is not

remedied; and – the breach is not remedied by AIX by the earlier of 10 Business Days from notification and the date of the EGM;

• AIX is in breach of the exclusivity arrangements;• an Independent Director withdraws or changes his recommendation of the Proposed Transaction or that AIX Securityholders

vote in favour of the Proposed Transaction; or• any Director publicly recommends, promotes or otherwise endorses a Competing Proposal.

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(g) Ot her termination rightsTermination rights will also arise:

• on failure of the conditions precedent as described in Section 6.1(b) of this Explanatory Booklet;• in the event that the parties are unable to agree an appropriate adjustment to the purchase price allocation in the circumstances

described in Section 6.1(a) of this Explanatory Booklet;• in the event that AIX fails to obtain the prior written consent of the Future Fund in relation to an HTAC disposal or restructure

as described in Section 6.1(a) of this Explanatory Booklet; and• in respect of individual sales of Assets, if completion of the sale of the relevant Asset is delayed such that it cannot occur before

30 April 2013.

6.2 Ke y terms of the Facilitation DeedAIFL, Hastings (as responsible entity of AIFT and in its personal capacity) and HMPL (in its personal capacity and as delegate of Hastings in its personal capacity) have entered into a deed in relation to implementation of the Proposed Transaction, referred to as the Facilitation Deed. This document confirms the parties’ intention to take the actions contemplated by this Explanatory Booklet.

In addition to the terms relating to the proposed changes to Hastings’ fee arrangements described in Section 1.4 of this Explanatory Booklet, the key terms of the Facilitation Deed are set out below.

(a) Implementation of the Proposed TransactionObligations to give effect to the Proposal ResolutionsSubject to AIX Securityholder approval, AIFL and Hastings as responsible entity of AIFT have agreed to do all things within their power as may be necessary or desirable to give effect to the Proposal Resolutions, including amending the AIFT Constitution and AIFL Management Agreement, and effecting the sale of the Assets to the Future Fund or its nominee(s).

Specific obligations of HastingsSubject to completion of the transactions comprising the Asset Sale and cancellation of AIFT Units as part of the Main Return, Hastings as responsible entity of AIFT or in its personal capacity (as applicable) has agreed to:

• apply to ASIC for AIFT to be deregistered as a registered managed investment scheme;• act as trustee of AIFT pursuant to the terms of the AIFT Constitution (as amended) and as manager of AIFL pursuant to the terms

of the AIFL Management Agreement (as amended) until AIFT or AIFL (as applicable) is wound-up, and not retire or otherwise cease to act as either trustee or manager unless: – AIFL directs it to retire and be replaced by an entity nominated by AIFL; – Hastings obtains AIFL’s consent, which must not be unreasonably withheld or delayed, to it being replaced as trustee

or manager (as relevant) and nominates a related body corporate of Hastings to perform the relevant role; – the AIFT Constitution is amended without the prior consent of Hastings in a manner that reduces Hastings’ current

or future rights or discretions or increases its current or future obligations or liabilities; or – AIFT or AIFL becomes insolvent; and

• facilitate the orderly and expedient winding-up of AIFT and AIFL.

(b) Representations and warrantiesEach party has provided standard representations and warranties to each other party regarding its solvency and its standing, power, ability and authority to perform its obligations under the Facilitation Deed.


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(c) TerminationIf a party becomes aware that:

• AIX Securityholder approval of the Proposed Transaction has not been satisfied by 31 January 2013;• the Asset Sale has not been completed by 30 April 2013;• the cancellation of AIFT Units (other than the special AIFT Unit held by AIFL or a wholly-owned subsidiary of AIFL) has not

occurred by 30 June 2013; or• any of the above conditions become incapable of satisfaction or the parties agree that any of the above conditions cannot

be satisfied by the specified date,

that party must provide written notice to the other parties, following which the parties must consult in good faith to determine whether the terms of the Facilitation Deed, including those relating to Hastings’ fee entitlements, can be amended such that AIX Securityholders and Hastings each receive equivalent benefits to those that would have been received had the proposed arrangements been implemented by 30 June 2013.

If the parties are unable to reach agreement within 10 Business Days of notice, any party may terminate the Facilitation Deed.

In the event that the Facilitation Deed is terminated, the parties have agreed to consult in good faith to agree the terms on which the management of AIX could be reorganised, substantially in accordance with the non-binding in-principle agreement announced to ASX on 29 June 2012.

6.3 Interests of Directors in AIXThe directors of AIFL are:

• Paul Espie;• James Evans;• John Harvey;• Robert Humphris;• Mike Hutchinson; and• Robert Tsenin.

The directors of Hastings are:

• Alan Cameron;• Andrew Day;• James Evans;• James McDonald;• Liam Forde;• Stephen Gibbs; and• Victoria Poole.

The following table lists the AIX Securities held by the Directors and their related entities as at the date of this Explanatory Booklet:

Director Number beneficially held in own name

Number beneficially held in the name of another

Total holdings

Alan Cameron Nil Nil Nil

Andrew Day Nil Nil Nil

James Evans Nil Nil Nil

James McDonald Nil 15,000 15,000

Liam Forde Nil Nil Nil

Stephen Gibbs 139 Nil 139

Victoria Poole Nil Nil Nil

Paul Espie Nil 906,668 906,668

John Harvey 9,487 75,000 84,487

Robert Humphris Nil 300,000 300,000

Mike Hutchinson Nil 122,024 122,024

Robert Tsenin 18,173 138,887 157,060

The Directors, whether as directors, securityholders, creditors or otherwise, have no material interest in the Proposed Transaction, the resolutions to be considered at the EGM or any other arrangements or matters described in this Explanatory Booklet, except in relation to the holdings of AIX Securities as set out above. The effect of the Proposed Transaction on those interests is the same as its effect on the interests of other AIX Securityholders.

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6.4 Directors’ intentions regarding retirementIf AIX Securityholders approve the Proposed Transaction, and subject to the re-election of directors of AIFL at the AIX AGM, the current directors of AIFL propose to remain on the AIFL Board until the Main Return is paid to AIX Securityholders.

Following payment of the Main Return to AIX Securityholders, James Evans, Robert Humphris and Robert Tsenin currently propose to retire as directors of AIFL.

Paul Espie, Mike Hutchinson and John Harvey currently propose to remain as directors of AIFL until the Residual Return is paid to AIX Securityholders, or shortly thereafter.

In the event AIX Securityholders do not approve the Proposed Transaction, the directors of AIFL currently propose to continue as directors of AIFL until they advise otherwise.

6.5 ASIC, ASX and other regulatory waivers and consents

(a) ASIC declarations and exemptionsASIC has granted the following relief to AIFL and Hastings as responsible entity of AIFT in relation to the operation of the Corporations Act:

1 (Section 911A(1) – AFSL) to exempt AIFL from the requirement to hold an AFSL for any financial services that may be provided in connection with this Explanatory Booklet; and

2 (Section 941A – financial services guide) to exempt Hastings as responsible entity of AIFT from the requirement to provide a financial services guide in relation to any general financial product advice which may be provided in connection with the Proposed Transaction.

(b) ASX waiversASX has granted the following waivers and confirmations:

1 (ASX Listing Rule 7.40 – timetable) waiver from the timetable requirements of Appendix 7A, paragraph 5 to allow AIX to implement the steps to effect the Main Return in accordance with the indicative dates set out in this Explanatory Booklet, provided those dates remain acceptable to ASX;

2 (ASX Listing Rule 6.2 – additional class of AIFT Unit) confirmation that the special AIFT Unit issued to AIFL or a wholly-owned subsidiary of AIFL, which will have no entitlement to distributions of income or capital out of AIFT unless and until it is the only AIFT Unit on issue, is not of an additional class of ordinary securities for the purposes of ASX Listing Rule 6.2;

3 (ASX Listing Rule 7.25 – trading price of AIX Securities) waiver from the requirement that AIX must not implement the steps to effect the Main Return or, if applicable, the Residual Return if to do so would be likely to result in AIX Securities or AIFL Shares trading below $0.20 per security, provided that securityholder approval is obtained under section 256C(1) of the Corporations Act. This waiver is only relevant to the extent that AIX remains listed following payment of the Main Return or, if applicable, the Residual Return;

4 (ASX Listing Rules 11.1.3 – admission requirements) confirmation that ASX will not exercise its discretion under ASX Listing Rule 11.1.3 to require AIX to comply with Chapters 1 and 2 of the ASX Listing Rules after completion of the transactions comprising the Asset Sale;

5 (ASX Listing Rules 12.1, 12.2 and 12.3 – significant change to activities) confirmation that ASX will apply the standard policy set out in Guidance Note 12 in relation to ASX Listing Rules 12.1, 12.2 and 12.3; and

6 (ASX Listing Rule 17.11) confirmation that ASX is likely to remove AIX from the official list when requested without any further conditions, provided the delisting proceeds on the basis described in this Explanatory Booklet and there is no change of circumstances.


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6.6 Consents and disclaimersEach of the parties named below as consenting parties:

• has given and has not, before lodgement of this Explanatory Booklet with ASIC, withdrawn its written consent to be named in this Explanatory Booklet in the form and context in which it is named;

• has given and has not, before lodgement of this Explanatory Booklet with ASIC, withdrawn its consent to the inclusion of their respective statements and reports (where applicable) noted next to their names below, and the references to those statements and reports in the form and context in which they are included in this Explanatory Booklet;

• does not make, or purport to make, any statement in this Explanatory Booklet other than those statements referred to below in respect of that party’s name (and as consented to by that party); and

• to the maximum extent permitted by law, expressly disclaims and takes no responsibility for any statements in or omissions from this Explanatory Booklet.

Consenting party Role

Computershare Investor Services Pty Limited AIX Registry

Credit Suisse Financial adviser to AIX

Grant Samuel Independent Expert, in relation to the Independent Expert’s Report contained in Annexure 1 of this Explanatory Booklet and any statements based on that report

Greenwoods & Freehills Tax adviser, in relation to the letter contained in Section 5 of this Explanatory Booklet and any statements based on that letter

Herbert Smith Freehills Legal adviser to AIX

KPMG Corporate Finance Independent valuer, in relation to the valuations prepared for AIX for financial reporting purposes in the ordinary course and set out in Section 2.3 and any statements based on those valuations

6.7 Directors’ consent to lodgementEach Director has consented to the lodgement of this Explanatory Booklet with ASIC and has not withdrawn their consent prior to lodgement.

6.8 Supplementary informationAIX will issue a supplementary document to this Explanatory Booklet if it becomes aware of any of the following between the date of lodgement of this Explanatory Booklet with ASIC for registration by ASIC and implementation of the Proposed Transaction:

• a material statement in this Explanatory Booklet is false or misleading;• a material omission from this Explanatory Booklet;• a significant change affecting a matter included in th is Explanatory Booklet; or• a significant new matter has arisen and it would have been required to be included in this Explanatory Booklet if it had arisen

before the date of lodgement of this Explanatory Booklet with ASIC.

Depending on the nature and timing of the changed circumstances and subject to obtaining any relevant approvals, AIX may circulate and publish any supplementary document by:

• making an announcement to ASX;• placing an advertisement in a prominently published newspaper which is circulated generally throughout Australia; or• posting the supplementary document on AIX’s website.F

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Glossary7Term Meaning

AFSL Australian Financial Services Licence

AIFL Australian Infrastructure Fund Limited (ACN 063 935 553)

AIFL Board the board of directors of AIFL

AIFL Management Agreement

the agreement between AIFL and Hastings dated 12 July 2004 as amended

AIFL Share a fully paid ordinary share in AIFL

AIFL Shareholder the registered holder of an AIFL Share

AIFT Australian Infrastructure Fund (ARSN 089 889 761)

AIFT Constitution the trust deed dated 24 January 1997 between Hastings in its capacity as responsible entity of AIFT and Perpetual Trustees Victoria Limited (ACN 004 027 258) as amended

AIFT Unit a fully paid ordinary unit in AIFT

AIFT Unitholder the registered holder of an AIFT Unit

AIX the stapled group comprising AIFT and AIFL

AIX AGM the annual general meetings of AIFL Shareholders and AIFT Unitholders to be held concurrently at 10.00am on Tuesday, 15 January 2013

AIX Registry Computershare Investor Services Pty Limited (ACN 078 279 277)

AIX Security a stapled security, comprising one AIFT Unit and one AIFL Share

AIX Security Register the registers of AIX Securityholders maintained under section 168 of the Corporations Act

AIX Securityholder the registered holder of an AIX Security

ASIC Australian Securities & Investments Commission

Asset Sale the sale of the Assets in accordance with the Implementation Agreement

Assets the assets to be sold to the Future Fund or its nominee(s) or a third party in accordance with the Implementation Agreement, which comprise AIX’s interests in the following entities:

• Airport Development Group Pty Limited (ACN 081 422 915) and DIA Development Holding Trust;

• Australia Pacific Airports Corporation Limited (ACN 069 775 266);• Australian Infrastructure Fund International 1 Pty Ltd (ACN 112 925 130) and

Australian Infrastructure Fund International 1 Trust;• Perth Airport Development Group Pty Ltd (ACN 076 286 630) and PAPT Holdings Pty Ltd

(ACN 105 852 159);• Queensland Airports Limited (ACN 104 121 824) and QAL Investment Holding Trust; and• Statewide Roads Limited (ACN 003 573 573)

ASX ASX Limited (ACN 008 624 691) or the equity market conducted by it as the context requires

ASX Listing Rules the listing rules of the ASX as amended from time to time

Business Day any day on which the banks are open for business in Melbourne excluding a Saturday, Sunday or public holiday in Melbourne

Cash Return the proposed arrangements to facilitate the return of substantially all of AIX’s cash reserves (including the proceeds of the Asset Sale) to AIX Securityholders, as described in Section 1.3(b) of this Explanatory Booklet

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Term Meaning

CGT capital gains tax

Competing Proposal a transaction or arrangement pursuant to which any person other than the Future Fund or its nominees will, if the transaction or arrangement is entered into or completed:

1 acquire (whether directly or indirectly), become the holder of, or otherwise acquire a right to acquire or have an economic interest in all or a substantial part of the Assets, the underlying assets or businesses held directly or indirectly by any of the asset-level operating entities, AIX or its related bodies corporate, provided that a transaction or arrangement which concerns the underlying assets or businesses held by an asset-level operating entity, or an interest in an asset-level operating entity not held by AIFL or AIFT (as opposed to the Assets) is only within this definition if it is solicited, initiated, encouraged, assisted or invited by AIX, or AIX fails to use reasonable endeavours to prevent it;

2 acquire a relevant interest in 10% or more of AIX issued securities, or a right to acquire any such relevant interest, either by a new issue of securities by AIX or, in the case of an acquisition of existing securities or rights in respect of existing securities, where this arises in circumstances where the acquisition is solicited, initiated, encouraged, assisted or invited by AIFT, AIFL or any of their representatives on AIX’s behalf;

3 acquire control (as determined in accordance with section 50AA of the Corporations Act) of AIX; or

4 otherwise acquire or merge with AIX,

whether by way of takeover offer, scheme of arrangement, shareholder approved acquisition, capital reduction or buy-back, sale or purchase of shares or assets, joint venture, dual-listed company structure (or other synthetic merger), or other transaction or arrangement.

The following will not constitute a Competing Proposal:

5 AIX’s proposal to internalise its management (including any ‘top-hat’ restructure);

6 any internal transaction, restructure or arrangement undertaken by AIX to provide for an efficient distribution of funds arising from the Asset Sale to AIX Securityholders;

7 an acquisition of any Asset (or any interest in an Asset) through the valid exercise of pre-emption or other rights by a co-investor which is triggered by the Asset Sale, provided those rights existed on 24 August 2012;

8 the reorganisation of, or disposal of, HTAC or an asset held directly or indirectly by HTAC; or

9 a transaction or arrangement that has the prior written approval of the Future Fund,

and AIX may continue to proceed with the Proposed Internalisation (including any ‘top-hat’ restructure) until AIX Securityholders have approved the Proposed Transaction

Corporations Act Corporations Act 2001 (Cth)

Director a director of AIFL or Hastings

Distributable Income has the meaning given in the AIFT Constitution

Distribution Period has the meaning given in the AIFT Constitution

EGM the general meetings of AIFT Unitholders and AIFL Shareholders convened to consider the resolutions set out in the Notice of EGM contained in Annexure 2 of this Explanatory Booklet

Facilitation Deed the deed between AIFL, Hastings in its capacity as responsible entity of AIFT, Hastings in its personal capacity and HMPL in its personal capacity and as delegate of Hastings in its personal capacity regarding implementation of the Proposed Transaction

Future Fund Future Fund Board of Guardians

Future Fund Act Future Fund Act 2006 (Cth)

Grant Samuel Grant Samuel & Associates Pty Limited (ACN 050 036 372)

GST means a goods and services tax or similar value added tax levied or imposed under the GST Law

GST Law has the meaning given to it in the A New Tax System (Goods and Services Tax) Act 1999 (Cth)

Hastings Hastings Funds Management Limited (ACN 058 693 388)

Hastings Board the board of directors of Hastings

HMPL Hastings Management Pty Limited (ACN 101 976 336)

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Term Meaning

HTAC HOCHTIEF AirPort Capital GmbH & Co. KGaA

Implementation Agreement

the agreement between AIFL, Hastings in its capacity as responsible entity of AIFT and the Future Fund regarding implementation of the Asset Sale

Independent Directors Alan Cameron AO, James Evans, and the directors of AIFL

Independent Expert Grant Samuel

Independent Expert’s Report

the report prepared by the Independent Expert dated 7 December 2012 contained in Annexure 1 of this Explanatory Booklet

KPMG Corporate Finance KPMG Financial Advisory Services (Australia) Pty Ltd (ACN 007 363 215), of which KPMG Corporate Finance is a division

Main Return the total of the proposed:

• distribution of Distributable Income per AIFT Unit;• distribution of trust capital;• consideration for the cancellation of the AIFT Units; and• fully-franked dividend per AIFL Share and equal capital return per AIFL Share,

expected to be paid by late April 2013

Notice of EGM the notice of general meetings contained in Annexure 2 of this Explanatory Booklet

Proposal Resolutions the resolutions set out in the Notice of EGM contained in Annexure 2 of this Explanatory Booklet

Proposed Internalisation the proposal to internalise the management of AIX on the non-binding key terms set out in the announcement made to the ASX dated 29 June 2012

Proposed Transaction the Asset Sale and the Cash Return, as described in this Explanatory Booklet

Proxy Form the form accompanying this Explanatory Booklet for the EGM

Record Date the date announced by AIX to the ASX as the record date, being the date and time which determines the entitlements of AIX Securityholders to receive the Main Return

Residual Return the proposed fully-franked dividend per AIFL Share and equal capital return per AIFL Share, targeted to be paid in late June 2013 but in any event expected to be paid no later than 31 December 2013

Stapling Agreement the agreement dated 13 August 1999 that governs the relationship between Hastings and AIFL whilst the AIFT Units are stapled to the AIFL Shares

Superior Proposal a bona fide proposal in writing which is received by AIX after the date of the Implementation Agreement and which the Hastings Board and/or the AIFL Board, acting in good faith and in order to satisfy that board’s or those boards’ fiduciary or statutory duties after having taken advice from its legal advisers determines is:

1 reasonably capable of being valued and completed on a timely basis in accordance with its terms taking into account all aspects of the proposal, including without limitation, having regard to legal, regulatory and financial matters including any conditions precedent, certainty of funding and the ability of the proposing party to consummate the proposal; and

2 if completed according to its terms, would be more favourable to AIX Securityholders than the Asset Sale, taking into account all terms and conditions of the proposal

Telstra Telstra Corporation Limited (ACN 051 775 556)

Westpac Westpac Banking Corporation (ACN 007 457 141)

7. Glossary continued

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7 December 2012 The Independent Directors The Independent Directors Australian Infrastructure Fund Limited Hastings Funds Management Limited as responsible Level 27 entity of Australian Infrastructure Fund Trust 35 Collins Street Level 27, 35 Collins Street Melbourne VIC 3000 Melbourne VIC 3000 Dear Directors

Australian Infrastructure Fund Proposal 1 Introduction

Australian Infrastructure Fund (“AIX”) is an ASX listed stapled structure comprising Australian Infrastructure Fund Limited (“AIFL”) and Australian Infrastructure Fund Trust (“AIFT”). AIX is an investment fund that mainly invests in Australian and European airports. Hastings Funds Management Limited (“Hastings”) is the responsible entity of AIFT and the manager of AIFL. On 26 November 2012, AIX announced that it had entered into a binding conditional agreement with the Future Fund Board of Guardians (“Future Fund”) in relation to a proposal from the Future Fund to acquire all of AIX’s investments (the “Assets”) for $2.0 billion (“Implementation Agreement”). The Assets comprise a:

29.7% interest in Perth Airport Development Group Pty Ltd (“Perth Airport”);

12.4% interest in Australia Pacific Airports Corporation (“APAC”);

49.1% interest in Queensland Airports Limited (“QAL”);

28.2% interest in Airport Development Group (“NT Airports”);

40.0% interest in Hochtief AirPort Capital GmbH & Co. KGaA (“HTAC”); and

6.5% interest in Statewide Roads Limited (“Statewide Roads”). In addition to the sale of Assets to the Future Fund, AIX intends to amend the management arrangements with Hastings, wind up AIX, distribute any residual funds to AIX securityholders and then terminate the management arrangements with Hastings (“Proposal”). The Proposal is to be implemented through the sale of the Assets to the Future Fund (“Asset Sale”) and the return of substantially all of AIX’s cash to AIX securityholders (“Cash Return”) via two instalments: the Main Return ($2.95-2.98 per AIX security) and the Residual Return ($0.24-0.25) per AIX security). The Main Return is scheduled to be paid in April 2013 and the Residual Return is targeted to be paid in June 2013 but is expected to be paid before December 2013. AIX securityholders will also receive a distribution in respect of the half year ending 31 December 2012 estimated at 5.5 cents per security and payable in February 2013.

Annexure 1 – Independent Expert’s Report continued

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If the Proposal is approved, Hastings’ performance fee entitlements will be amended so that if the Asset Sale and cancellation of AIFT units occur before 30 June 2013, Hastings’ performance fee for the year ending 30 June 2013 will be fixed at $54 million. Hastings’ base management fee between 24 August 2012 and the payment of the Main Return will be calculated based on an assumed 20 day volume weighted average security price (“VWAP”) of $2.60 unless the VWAP falls below $2.60, in which case the lower VWAP will be used to calculate the base management fee. Hastings will receive an upfront fee of $1 million to manage the fund through to wind up and has waived all other management fees that it would otherwise be entitled to after the payment of the Main Return. However, Hastings will continue to be entitled to be reimbursed for any expenses in the wind up phase of the fund. Following the payment of the Residual Return or six months after payment of the Main Return, AIX is to be delisted and will commence a voluntary winding-up process. To the extent there is any residual cash held by AIX (including after payment of the Residual Return), it will be distributed to AIX securityholders, in their capacity as shareholders of AIFL. The Proposal is conditional on AIX securityholder approval of six inter-conditional resolutions to approve the Asset Sale, and authorise some of the key steps to effect the Main Return and Residual Return. The directors of AIX have engaged Grant Samuel & Associates Pty Limited (“Grant Samuel”) to prepare an independent expert’s report setting out whether, in its opinion, the Proposal is fair and reasonable to and in the best interests of AIX securityholders. A copy of the report (including this letter) will accompany the Explanatory Memorandum to be sent to securityholders by AIX. This letter contains a summary of Grant Samuel’s opinion and main conclusions.

2 Opinion

In Grant Samuel’s opinion, the Proposal is fair and reasonable to and in the best interests of AIX securityholders in the absence of a superior offer. Grant Samuel has estimated that the full underlying value of AIX is in the range $3.12-3.55 per security. Grant Samuel has estimated that the value of the Consideration is in the range $3.17-3.21 per security. This represents the present value of the estimated future returns to shareholders of $3.25-3.28 per security, comprising the Cash Return of $3.19-3.23 and a distribution of 5.5 cents per security. Given that the value of the Consideration falls within the valuation range for AIX, the Proposal is fair and reasonable to AIX securityholders.

The estimated value of the Consideration represents a significant premium to the AIX security price in the months immediately prior to the announcement of the Proposal on 24 August 2012. In the absence of the Proposal or a similar transaction, it is likely that AIX securities would trade at prices well below $3.17-3.21 (at least in the short to medium term). The Proposal follows a due diligence process and lengthy negotiations between Future Fund, AIX and their respective advisers. Other prospective acquirers of AIX or the Assets have had ample time to put forward a counter-proposal. No counter-offers for AIX or the Assets have been made. Accordingly, it is reasonable to conclude that the Consideration represents the highest price that can be realised for AIX in the current market. On this basis the Consideration reflects the full underlying value of AIX and is therefore by definition fair and reasonable. In Grant Samuel’s view, in the absence of a superior offer for AIX or the Assets, securityholders will be better off if they vote in favour of the Proposal than if they do not. Accordingly, Grant Samuel has concluded that the Proposal is in the best interests of AIX securityholders. F

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3 Key Conclusions

Grant Samuel has valued AIX’s equity in the range $1,936-2,202 million, representing $3.12-

3.55 per security.

Grant Samuel’s valuation of AIX is summarised below:

AIX – Valuation Summary ($ millions)

Report

Section

Reference

AIX Interest

Low High

Perth Airport 6.3 975 1,050

APAC 6.4 775 850

QAL 6.5 550 600

NT Airports 6.6 180 200

HTAC 6.7 293 323

Statewide Roads 6.10 1 2

External Manager Payment 6.8 (60) (50)

Corporate costs 6.9 (35) (30)

Enterprise value 2,679 2,945

AIX’s share of Assets’ net debt 6.3-6.6 (831) (831)

Net cash as at 30 June 2012 6.10 157 157

Distribution for six months ended 30 June 2012 6.10 (34) (34)

Hastings performance fee1 6.10 (35) (35)

Value of equity 1,936 2,202

Securities on issue (million) 620.7 620.7

Value per security 3.12 3.55

The valuation represents the estimated full underlying value of AIX and includes a premium forcontrol. This value was assessed by aggregating the estimated value of AIX’s investments and otherassets and adjusting for the capitalised value of corporate overheads and deducting externalborrowings. The value exceeds the price at which, based on current market conditions, GrantSamuel would expect AIX shares to trade on the ASX in the absence of a takeover offer or someother change of control proposal.

The valuation was determined based on discounted cash flow analysis and capitalisation of earnings(multiples of EBITDA2) for each of the Assets. The value ranges selected reflect judgementsderived through an iterative process. The objective is to determine a value that both fits with theoutput of the discounted cash flow analysis and is consistent with market evidence from earningsmultiples.

The valuation reflects the particular attributes of AIX’s business and takes into account factors suchas:

AIX is an investment vehicle with only minority interests in the Assets. It has no direct controlover the management of the underlying assets and its influence is limited to representation onthe boards of the Assets and rights under each Asset’s shareholders’ agreement;

all transfers of shareholdings in the Assets (except for Statewide Roads) are subject to pre-emptive rights in favour of co-investors under each Asset’s shareholders’ agreement or other

1 In relation to the year ended 30 June 2012.

2 EBITDA represents earnings before net interest, depreciation, amortisation, fair value movements, investment income and significantand non-recurring items.


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change of control provisions. A change of control of AIX, depending on the structure of the transaction, may also trigger these pre-emptive rights. Accordingly, the pre-emptive rights may make AIX or AIX’s investments less attractive to potential acquirers; and

potential acquirers of AIX would not expect to obtain the strategic benefits, operational synergies or costs savings that acquirers are often seeking through acquisitions.

On the other hand, AIX represents a unique opportunity to acquire a portfolio of investments in Australian airports for which potential acquirers may be willing to pay a premium.

The multiples implied by the valuation are reasonable. The valuation range represents the following EBITDA multiples:

AIX Implied EBITDA Multiples

Variable ($ million) Low High

Statutory EBITDA for year ended 30 June 2012 (actual) 198.0 13.5 14.9 Proportional EBITDA for the year ended 30 June 2012 (actual)3 209.3 12.8 14.1

Grant Samuel has also assessed the earnings multiples implied by the valuations of each of the Assets. The implied earnings multiples for the Assets and for AIX overall appear reasonable in comparison to earnings multiples implied by comparable transactions and by the trading multiples of comparable companies.

The Consideration of $3.17-3.21 per AIX security falls within Grant Samuel’s estimate of the full underlying value of AIX and, therefore, the Proposal is fair. Grant Samuel has estimated that the value of the Consideration is in the range $3.17-3.21 per security. This represents the present value of the estimated future returns to shareholders of $3.25-3.28 per security, comprising the Cash Return of $3.19-3.23 and a distribution of 5.5 cents per security. The present value has been determined using a discount rate of 7%. Given that the value of the Consideration falls within the valuation range for AIX, the Proposal is fair.

The Proposal delivers a significant premium to the price at which AIX’s securities were trading prior to the announcement of the Proposal. The Consideration4 represents the following premiums relative to the AIX VWAP over various periods prior to the announcement of the Proposal on 24 August 2012:

AIX – Premium over Pre-Announcement Prices Period VWAP($) Premium

Closing price on 24 August 2014 2.65 17.4-18.9%

1 month prior to 24 August 2012 2.59 20.1-21.7%

3 months prior to 24 August 2012 2.46 26.5-28.1%

6 months prior to 24 August 2012 2.36 31.6-33.3% Source: IRESS and Grant Samuel analysis The level of premiums observed in takeovers varies depending on the circumstances of the target and other factors (such as the potential for competing offers) but tends to fall in the range 20-35%.

3 Represents proportional EBITDA of $225.0 million (see page 12 of the full report) net of expenses of $15.8 million (see page 13 of

the full report). 4 For the purpose of calculating the premium implied by the terms of the Proposal, Grant Samuel has excluded the 5.5 cent distribution

from the value of the Consideration.

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Notwithstanding the significant increase in the security price in the two months prior to the announcement of the Proposal, the estimated value of the Consideration represents a premium of more than 20% relative to the VWAP for AIX securities for both one and three months prior to the announcement of the Proposal. In this context, in Grant Samuel’s opinion, the premium implied by the Consideration is consistent with premiums typically seen in takeovers.

The price of AIX securities is likely to fall in the absence of the Proposal. In the absence of the Proposal or a similar transaction, shareholders could only realise their investment by selling on market at a price that does not include any premium and would incur transaction costs (e.g. brokerage). In these circumstances (and assuming there was no speculation as to an alternative or revised proposal), it is likely that AIX securities, under current market conditions and given AIX’s current ownership structure, would trade at prices well below the value implied by the Consideration. It is conceivable that the AIX security price could reach levels around or above the Consideration in the medium to longer term. However, this will require that the Assets deliver significant and sustained growth in earnings. While the Assets are projecting earnings growth, there can be no assurance that the earnings growth will be delivered within a timeframe and to an extent that will adequately compensate securityholders for the delay and risk involved. In this context, the cash consideration delivered under the Proposal of $3.17-3.21 per share is, in Grant Samuel’s view, attractive.

A superior alternative proposal is unlikely. In weighing up any proposal, securityholders need to have regard to the alternatives that are realistically available to them. In voting in favour of the Proposal, securityholders will (hypothetically at least) be giving up the opportunity to accept some superior alternative offer in the future. In addition, AIX securityholders will be giving up the opportunity to realise greater value through security price appreciation over the medium to longer term. Since the announcement by AIX of the Proposal, any potential buyer of AIX would have been aware that AIX was effectively ‘in play’. Arguably, AIX has been in play since the announcement of the internalisation proposal on 29 June 2012. The existing external management arrangements represent a material impediment to an acquisition proposal but are removed through the internalisation. Potential acquirers have had four months to formulate an alternative proposal to acquire AIX. Over this time AIX has reported its accounts for the year ended 30 June 2012. Accordingly, potential acquirers have been able to consider their position with current information regarding the prospects for AIX. The Proposal provides a clear framework to potential acquirers to establish benchmarks for value and it defines the time period within which parties would have to act in preparing an alternative proposal. Nonetheless, at this time, the Proposal is the only change of control proposal that has emerged. Although AIX has agreed to pay a break fee to the Future Fund of $20 million in certain circumstances (i.e. a competing proposal is implemented, an independent director of AIX withdraws or changes his or her recommendation or the Implementation Agreement is terminated because of a breach of conditions by AIX), and has also provided various ‘no-shop’ and ‘no talk’ undertakings, these are not significant impediments to a superior proposal for AIX from a potential acquirer. A break fee of $20 million represents no more than $0.03 per security, and is not of a magnitude that would be expected to be a significant deterrent to genuine potential acquirers willing to make a superior offer. Further, the ‘no-talk’ undertakings are subject to carve-outs for the fiduciary and statutory duties of AIX directors. Moreover, the Future Fund does not have any securityholding in AIX that could otherwise deter potential acquirers. Accordingly, it appears reasonable to conclude that there is little prospect of a superior alternative proposal for AIX.


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Other issues are not significant. If the Proposal is approved, AIX securityholders will receive distributions consisting of various forms from a taxation perspective. The taxation consequences of the distributions will vary from securityholder to securityholder, depending on, for example, whether the securityholder is an Australian resident for taxation purposes. Details of the taxation consequences are set out in section 5 of the Explanatory Memorandum. If in any doubt, shareholders should consult their own professional adviser.

The Proposal is fair and reasonable to and in the best interests of AIX securityholders. Because the Proposal is fair, it is also reasonable. The Consideration delivers a significant premium to AIX securityholders. In the absence of the Proposal, the AIX security price is likely to fall, potentially materially. In Grant Samuel’s view, in the absence of a superior offer for AIX or the Assets, securityholders will be better off if they vote in favour of the Proposal than if they do not. Accordingly, Grant Samuel has concluded that the Proposal is fair and reasonable to and in the best interests of AIX securityholders.

4 Other Matters

This report is general financial product advice only and has been prepared without taking into account the objectives, financial situation or needs of individual AIX securityholders. Accordingly, before acting in relation to their investment, securityholders should consider the appropriateness of the advice having regard to their own objectives, financial situation or needs. Securityholders should read the Explanatory Memorandum issued by AIX in relation to the Proposal. Voting for or against the Proposal is a matter for individual securityholders, based on their own views as to value, their expectations about future market conditions and their particular circumstances including risk profile, liquidity preference, investment strategy, portfolio structure and tax position. Securityholders who are in doubt as to the action they should take in relation to the Proposal should consult their own professional adviser. Similarly, it is a matter for individual securityholders as to whether to buy, hold or sell securities in AIX. This is an investment decision independent of a decision on whether to vote for or against the Proposal upon which Grant Samuel does not offer an opinion. Securityholders should consult their own professional adviser in this regard. Grant Samuel has prepared a Financial Services Guide as required by the Corporations Act, 2001. The Financial Services Guide is included at the beginning of the full report. This letter is a summary of Grant Samuel’s opinion. The full report from which this summary has been extracted is attached and should be read in conjunction with this summary. The opinion is made as at the date of this letter and reflects circumstances and conditions as at that date.

Yours faithfully GRANT SAMUEL & ASSOCIATES PTY LIMITED

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Australian Infrastructure Fund

Financial Services Guide and

Independent Expert’s Report

Grant Samuel & Associates Pty Limited (ABN 28 050 036 372)

December 2012


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Financial Services Guide

Grant Samuel & Associates Pty Limited (“Grant Samuel”) holds Australian Financial Services Licence No. 240985 authorising it to provide financial product advice on securities and interests in managed investments schemes to wholesale and retail clients.

The Corporations Act, 2001 requires Grant Samuel to provide this Financial Services Guide (“FSG”) in connection with its provision of an independent expert’s report (“Report”) which is included in a document (“Disclosure Document”) provided to members by the company or other entity (“Entity”) for which Grant Samuel prepares the Report.

Grant Samuel does not accept instructions from retail clients. Grant Samuel provides no financial services directly to retail clients and receives no remuneration from retail clients for financial services. Grant Samuel does not provide any personal retail financial product advice to retail investors nor does it provide market-related advice to retail investors.

When providing Reports, Grant Samuel’s client is the Entity to which it provides the Report. Grant Samuel receives its remuneration from the Entity. In respect of the Report for Australian Infrastructure Fund (“AIX”) in relation to the proposal from the Future Fund (“the AIX Report”), Grant Samuel will receive a fixed fee of $375,000 plus reimbursement of out-of-pocket expenses for the preparation of the Report (as stated in Section 8 of the AIX Report).

No related body corporate of Grant Samuel, or any of the directors or employees of Grant Samuel or of any of those related bodies or any associate receives any remuneration or other benefit attributable to the preparation and provision of the AIX Report.

Grant Samuel is required to be independent of the Entity in order to provide a Report. The guidelines for independence in the preparation of Reports are set out in Regulatory Guide 112 issued by the Australian Securities & Investments Commission on 30 March 2011. The following information in relation to the independence of Grant Samuel is stated in Section 8 of the AIX Report:

“Grant Samuel and its related entities do not have at the date of this report, and have not had within the previous two years, any business or professional relationship with AIX, the Future Fund or any financial or other interest that could reasonably be regarded as capable of affecting its ability to provide an unbiased opinion in relation to the Proposal. Grant Samuel was recently engaged by Hastings to prepare an independent expert report in relation to the takeover offers for Hastings Diversified Utilities Fund. Grant Samuel does not consider this assignment capable of affecting its ability to provide an unbiased opinion in relation to the proposed transaction. Grant Samuel received a fee of $525,000 for this assignment. Grant Samuel commenced analysis for the purposes of this report in following the announcement of the proposal to internalise the management of AIX. Grant Samuel had no part in the formulation of the Proposal. Its only role has been the preparation of this report. Grant Samuel will receive a fixed fee of $375,000 for the preparation of this report. This fee is not contingent on the outcome of the Proposal. Grant Samuel’s out of pocket expenses in relation to the preparation of the report will be reimbursed. Grant Samuel will receive no other benefit for the preparation of this report. Grant Samuel considers itself to be independent in terms of Regulatory Guide 112 issued by the ASIC on 30 March 2011.”

Grant Samuel has internal complaints-handling mechanisms and is a member of the Financial Ombudsman Service, No. 11929. If you have any concerns regarding the AIX Report, please contact the Compliance Officer in writing at Level 19, Governor Macquarie Tower, 1 Farrer Place, Sydney NSW 2000. If you are not satisfied with how we respond, you may contact the Financial Ombudsman Service at GPO Box 3 Melbourne VIC 3001 or 1300 780 808. This service is provided free of charge.

Grant Samuel holds professional indemnity insurance which satisfies the compensation requirements of the Corporations Act, 2001.

Grant Samuel is only responsible for the AIX Report and this FSG. Complaints or questions about the Disclosure Document should not be directed to Grant Samuel which is not responsible for that document. Grant Samuel will not respond in any way that might involve any provision of financial product advice to any retail investor.

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Table of Contents

1 Terms of the Proposal ................................................................................................................................... 1

2 Scope of the Report ........................................................................................................................................ 4 2.1 Purpose of the Report ........................................................................................................................ 4 2.2 Basis of Evaluation ............................................................................................................................. 4 2.3 Sources of the Information ................................................................................................................ 5 2.4 Limitations and Reliance on Information ........................................................................................ 6

3 Profile of AIX ................................................................................................................................................. 9 3.1 Background ......................................................................................................................................... 9 3.2 Group Structure ................................................................................................................................. 9 3.3 Business Operations ......................................................................................................................... 11 3.4 Financial Performance ..................................................................................................................... 13 3.5 Distributions and Dividends ............................................................................................................ 15 3.6 Financial Position ............................................................................................................................. 15 3.7 Capital Structure and Ownership ................................................................................................... 16 3.8 Security Price Performance ............................................................................................................. 16

4 Airport Sector .............................................................................................................................................. 20

5 Overview of the Assets ................................................................................................................................ 25 5.1 Perth Airport .................................................................................................................................... 25 5.2 APAC ................................................................................................................................................. 30 5.3 QAL ................................................................................................................................................... 35 5.4 NT Airports ....................................................................................................................................... 40 5.5 HTAC ................................................................................................................................................ 44

6 Valuation ...................................................................................................................................................... 50 6.1 Summary ........................................................................................................................................... 50 6.2 Methodology ..................................................................................................................................... 51 6.3 Perth Airport .................................................................................................................................... 53 6.4 APAC ................................................................................................................................................. 60 6.5 QAL ................................................................................................................................................... 63 6.6 NT Airports ....................................................................................................................................... 65 6.7 HTAC ................................................................................................................................................ 67 6.8 External Manager Payment............................................................................................................. 69 6.9 Corporate Costs ................................................................................................................................ 71 6.10 Other Assets and Liabilities ............................................................................................................. 71 6.11 Franking Credits .............................................................................................................................. 71

7 Evaluation of the Proposal .......................................................................................................................... 73 7.1 Conclusion ......................................................................................................................................... 73 7.2 Fairness ............................................................................................................................................. 73 7.3 Reasonableness ................................................................................................................................. 74 7.4 Securityholder Decision ................................................................................................................... 77

8 Qualifications, Declarations and Consents ................................................................................................ 78 Appendices 1 Selection of Discount Rate 2 Market Evidence - Transactions 3 Market Evidence - Comparable Listed Companies


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1 Terms of the Proposal

Australian Infrastructure Fund (“AIX”) is an ASX listed stapled structure comprising Australian Infrastructure Fund Limited (“AIFL”) and Australian Infrastructure Fund Trust (“AIFT”). AIX is an investment fund that mainly invests in Australian and European airports. Hastings Funds Management Limited (“Hastings”) is the responsible entity of AIFT and the manager of AIFL. On 29 June 2012, AIX announced that it had entered into a non-binding in principle agreement with Hastings to internalise the management of AIX. Subsequently, on 24 August 2012, AIX announced that it had entered into a memorandum of understanding with the Future Fund Board of Guardians (“Future Fund”) in relation to a proposal from the Future Fund to acquire all of AIX’s investments (the “Assets”) for $2.0 billion. The Assets are:

a 29.7% interest in Perth Airport Development Group Pty Ltd (“Perth Airport”);

a 12.4% interest in Australia Pacific Airports Corporation (“APAC”);

a 49.1% interest in Queensland Airports Limited (“QAL”);

a 28.2% interest in Airport Development Group (“NT Airports”);

a 40.0% interest in Hochtief AirPort Capital GmbH & Co. KGaA (“HTAC”); and

a 6.5% interest in Statewide Roads Limited (“Statewide Roads”). On 26 November 2012, AIFL and Hastings as responsible entity of AIFT announced that they had entered into a binding conditional agreement with the Future Fund in relation to the proposal from the Future Fund (“Implementation Agreement”). Following the sale of the Assets to the Future Fund, AIX intends to wind up AIX, terminate the management agreements with Hastings and distribute any residual funds to AIX securityholders (“Proposal”). The Proposal is to be implemented in two stages:

the sale of the Assets to the Future Fund, or in accordance with the relevant pre-emptive rights (“Asset Sale”); and

the return of substantially all of AIX’s cash to AIX securityholders via two instalments, including the net proceeds from the Asset Sale.

The Asset Sale is subject to price adjustments, in the event that:

any distributions from the Asset entities are in excess of an agreed cap;

there is a material adverse change in respect of an Asset (excluding NT Airports and Statewide Roads);

there is a disposal or restructure of AIX’s interests in HTAC; or

there is an acquisition, or part acquisition of, one or more of the Assets by an asset-level co-investor or its permitted nominee as a result of a valid exercise of rights (i.e. pre-emptive rights). Where AIX’s interests are acquired by one or more of AIX’s co-investors by valid exercise of their pre-emptive rights, AIX will pay Future Fund a fee equal to 1% of the sale consideration received by AIX for those interests.

In the event AIX securityholders approve the Asset Sale, the Future Fund will enter into sale agreements with AIFL and/or Hastings as responsible entity of AIFT for each of the Assets. The execution of the sale agreements will trigger pre-emptive rights held by AIX’s co-investors in the Assets, except in the case of Statewide Roads and HTAC. Accordingly, AIX’s co-investors will have the right to acquire the Assets at


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the price and under the conditions offered by the Future Fund. In particular circumstances, if one or more of AIX’s co-investors successfully exercises their pre-emptive rights to acquire some or all of the Assets, AIX will sell all or part of the Assets to the co-investor and not to the Future Fund and pay the Future Fund a fee equal to 1% of the consideration received for that Asset or part of that Asset as applicable. Under the shareholder agreements for Perth Airport, QAL and NT Airports, AIX is not obliged to sell to co-investors who purport to exercise their pre-emptive rights for only part of their entitlement to the AIX investment in the relevant Asset: the pre-emptive rights are only effective if exercised in relation to all of AIX’s interest in the relevant Asset. Under the APAC shareholders’ agreement, AIX is obliged to sell to co-investors if pre-emptive rights are exercised for part or all of the AIX interest in APAC. There are also change of control provisions under various HTAC agreements. The Asset Sale is expected to be completed by mid-March 2013. Following the completion of the Asset Sale, AIX will return substantially all of its cash to AIX securityholders by way of a cash return (“Cash Return”), which will comprise:

the Main Return:

• a distribution of distributable income and trust capital of $1.96 per AIFT unit from the net proceeds from the Asset Sale and other income earned up to the time of the distribution. The distributions will represent the capital gain on the Asset Sale (after applying the 50% capital gain tax discount) and the amount of the gain sheltered by the capital gains tax discount and AIFT’s capital losses;

• a payment of $0.91-0.93 per AIFT unit in consideration for the cancellation of AIFT units; and

• a fully franked dividend of up to $0.02 per AIFL share and a capital return of $0.07 per AIFL share; and

the Residual Return comprising a fully franked dividend of $0.05-0.06 per AIFL share and a capital return of $0.19 per AIFL per share.

AIX securityholders will also receive a distribution in respect of the half year ending 31 December 2012, currently estimated at 5.5 cents per security. If the Proposal is approved, Hastings’ performance fee entitlements will be amended so that if the Asset Sale and cancellation of AIFT units occur before 30 June 2013, Hastings’ performance fee for the year ending 30 June 2013 will be fixed at $54 million. Hastings’ base management fee between 24 August 2012 and the payment of the Main Return is to be calculated based on a $2.60 security price (being the 20 day volume weighted average security price (“VWAP”) prior to 24 August 2012). If the 20 day VWAP before the end of a calendar month falls below $2.60, the lower VWAP will be used to calculate the base management fee. Hastings will receive an upfront fee of $1 million to manage the fund through to wind up and has waived all other management fees that it would otherwise be entitled to after the payment of the Main Return. Hastings will continue to be entitled to be reimbursed for any related expenses in the wind up phase of the fund. Following the payment of the Residual Return, or six months after payment of the Main Return, AIX is to be delisted and will commence a voluntary winding-up process. To the extent there is any residual cash held by AIX (including after payment of the Residual Return), it will be distributed to AIX securityholders, in their capacity as shareholders of AIFL. Under the Implementation Agreement, AIX is prohibited from soliciting a competing proposal or progressing a competing proposal except to fulfil any fiduciary or statutory duties. The Future Fund also has rights to submit a revised proposal if there is a competing proposal but any revised proposal must be on no less favourable terms than the competing proposal. Both the Future Fund and the AIX have the right to terminate the Implementation Agreement under certain circumstances. The Future Fund is entitled to a reimbursement fee of $20 million from AIX in the event that:

a competing proposal is implemented;

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an independent director of AIX withdraws or changes his or her recommendation; or

the Implementation Agreement is terminated because of a breach of conditions by AIX. The Proposal is conditional on AIX securityholder approval for six inter-conditional resolutions to approve the Asset Sale and authorise some of the key steps to effect the Main Return and Residual Return. Other conditions include:

the United States dollar Australian dollar exchange rate not falling below A$1.00:US$0.85 on three consecutive business days before the securityholder meeting;

no AIX prescribed event (i.e. the appointment of an administrator to AIFT or AIFL) occurring before the securityholder meeting;

the due diligence materials provided to the Future Fund, and representations and warranties provided to Future Fund by AIX, not being materially incorrect; and

no government agency taking any action, or imposing any legal restraint or prohibition, to prevent the implementation of the Proposal.


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2 Scope of the Report

2.1 Purpose of the Report

There is no requirement for an independent expert’s report on the Proposal under the Corporations Act or the Australian Securities Exchange (“ASX”) Listing Rules. However, the directors of AIFL and Hastings as responsible entity of AIFT have engaged Grant Samuel & Associates Pty Limited (“Grant Samuel”) to prepare an independent expert’s report setting out whether, in its opinion, the Proposal is fair and reasonable to and in the best interests of AIX securityholders and to state reasons for that opinion. A copy of the report will accompany the Notice of Meeting and Explanatory Memorandum (“Explanatory Memorandum”) to be sent to securityholders by AIX. This report is general financial product advice only and has been prepared without taking into account the objectives, financial situation or needs of individual AIX securityholders. Accordingly, before acting in relation to their investment, securityholders should consider the appropriateness of the advice having regard to their own objectives, financial situation or needs. Securityholders should read the Explanatory Memorandum issued by AIX in relation to the Proposal. Voting for or against the Proposal is a matter for individual securityholders based on their views as to value, their expectations about future market conditions and their particular circumstances including risk profile, liquidity preference, investment strategy, portfolio structure and tax position. Securityholders who are in doubt as to the action they should take in relation to the Proposal should consult their own professional adviser. Similarly, it is a matter for individual securityholders as to whether to buy, hold or sell shares in AIX. This is an investment decision independent of a decision to vote for or against the Proposal upon which Grant Samuel does not offer an opinion. Securityholders should consult their own professional adviser in this regard.

2.2 Basis of Evaluation

The Australian Securities & Investments Commission (“ASIC”) has issued Regulatory Guide 111 which establishes guidelines in respect of independent expert’s reports under the Corporations Act. ASIC Regulatory Guide 111 differentiates between the analysis required for control transactions and other transactions. In the context of control transactions (whether by takeover bid, by scheme of arrangement, by the issue of securities or by selective capital reduction or buyback), the expert is required to distinguish between “fair” and “reasonable”. A proposal that was “fair and reasonable” or “not fair but reasonable” would be in the best interests of securityholders. For most other transactions the expert is to weigh up the advantages and disadvantages of the proposal for securityholders. This involves a judgement on the part of the expert as to the overall commercial effect of the proposal, the circumstances that have led to the proposal and the alternatives available. The expert must weigh up the advantages and disadvantages of the proposal and form an overall view as to whether the securityholders are likely to be better off if the proposal is implemented than if it is not. If the advantages outweigh the disadvantages, the proposal would be in the best interests of securityholders. Fairness involves a comparison of the offer price with the value that may be attributed to the securities that are the subject of the offer based on the value of the underlying businesses and assets. For this comparison, value is determined assuming 100% ownership of the target and a knowledgeable and willing, but not anxious, buyer and a knowledgeable and willing, but not anxious, seller acting at arm’s length. Reasonableness involves an analysis of other factors that securityholders might consider prior to accepting an offer such as:

the offeror’s existing shareholding;

other significant shareholdings;

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the probability of an alternative offer; and

the liquidity of the market for the target company’s shares. An offer could be considered “reasonable” if there were valid reasons to accept the offer notwithstanding that it was not “fair”. Fairness is a more demanding criteria. A “fair” offer will always be “reasonable” but a “reasonable” offer will not necessarily be “fair”. A fair offer is one that reflects the full market value of a company’s businesses and assets. An offer that is in excess of the pre-bid market price but less than full value will not be fair but may be reasonable if securityholders are otherwise unlikely in the foreseeable future to realise an amount for their shares in excess of the offer price. This is commonly the case where the bidder already controls the target company. In that situation the minority securityholders have little prospect of receiving full value from a third party offeror unless the controlling security holder is prepared to sell its controlling shareholding. In Grant Samuel’s view, the commercial impact of the Proposal is in substance akin to a change of control transaction for AIX. Accordingly, Grant Samuel has assessed whether the Proposal is in the best interests of AIX securityholders by considering whether the Proposal is fair and reasonable. Grant Samuel has determined whether the Proposal is fair by comparing the estimated underlying value range of AIX with the cash expected to be distributed to AIX securityholders following the Asset Sale (“Consideration”). The Proposal will be fair if the Consideration falls within the estimated underlying value range. In considering whether the Proposal is reasonable, the factors that have been considered include:

the likelihood of an alternative offer and alternative transactions that could realise fair value;

the likely market price and liquidity of AIX’s securities in the absence of the Proposal; and

other advantages and disadvantages for AIX securityholders of approving the Proposal. A proposal that is “fair and reasonable” or “not fair but reasonable” would be in the best interests of securityholders.

2.3 Sources of the Information

The following information was utilised and relied upon, without independent verification, in preparing this report: Publicly Available Information

the Explanatory Memorandum (including earlier drafts which were not publicly available);

annual reports of AIX for the four years ended 30 June 2012;

annual reports for the Assets for the year ended 30 June 2012, except for HTAC;

summary audited financial accounts for HTAC for the two years ended 31 December 2011;

press releases, public announcements, media and analyst presentation material and other public filings by AIX and the Assets including information available on the Assets’ websites;

brokers’ reports and recent press articles on AIX; and

sharemarket data and related information on the management internalisation transactions. Non Public Information provided by AIX

summary budgets for the year ending 30 June 2013 for Perth Airport, APAC, NT Airports and QAL;

cash flow models for the Assets;


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monthly management accounts for Perth Airport (to August 2012), APAC (to May 2012), NT Airports (to August 2012) and QAL (to August 2012);

Asset shareholders’ agreements; and

other confidential documents in AIX’s possession as a shareholder in the Assets, AIX board papers, other presentations and working papers (including benchmarking analyses).

Grant Samuel held discussions with, and obtained information from, the boards and senior management of AIX and its advisers. Grant Samuel also requested access to the managers of the Assets. Grant Samuel visited and held discussions with the management teams of Perth Airport and QAL. Grant Samuel was not provided access to the management teams of APAC, NT Airports and HTAC. Grant Samuel also received copies of the valuation reports for the Assets as at 30 June 2012 (for information purposes and on a non-reliance basis) prepared for financial reporting purposes by KPMG Financial Advisory Services Australia Pty Limited, of which KPMG Corporate Finance is a division, and had discussions with KPMG Corporate Finance about the valuation reports.

2.4 Limitations and Reliance on Information

Grant Samuel believes that its opinion must be considered as a whole and that selecting portions of the analysis or factors considered by it, without considering all factors and analyses together, could create a misleading view of the process underlying the opinion. The preparation of an opinion is a complex process and is not necessarily susceptible to partial analysis or summary. Grant Samuel’s opinion is based on economic, sharemarket, business trading, financial and other conditions and expectations prevailing at the date of this report. These conditions can change significantly over relatively short periods of time. If they did change materially, subsequent to the date of this report, the opinion could be different in these changed circumstances. This report is also based upon financial and other information provided by AIX and its advisers. Grant Samuel has considered and relied upon this information. AIFL and Hastings as responsible entity of AIFT have represented in writing to Grant Samuel that to their knowledge the information provided by them was complete and not incorrect or misleading in any material aspect. Grant Samuel has no reason to believe that any material facts have been withheld. The information provided to Grant Samuel has been evaluated through analysis, inquiry and review to the extent that it considers necessary or appropriate for the purposes of forming an opinion as to whether the Proposal is fair and reasonable to and in the best interest of the securityholders of AIX. However, Grant Samuel does not warrant that its inquiries have identified or verified all of the matters that an audit, extensive examination or “due diligence” investigation might disclose. While Grant Samuel has made what it considers to be appropriate inquiries for the purposes of forming its opinion, “due diligence” of the type undertaken by companies and their advisers in relation to, for example, prospectuses or profit forecasts, is beyond the scope of an independent expert. Accordingly, this report and the opinions expressed in it should be considered more in the nature of an overall review of the anticipated commercial and financial implications rather than a comprehensive audit or investigation of detailed matters. An important part of the information used in forming an opinion of the kind expressed in this report consists of the opinions and judgement of management. This type of information was also evaluated through analysis, inquiry and review to the extent practical. However, such information is often not capable of external verification or validation. Moreover, Grant Samuel has had only limited access to the managers of the Assets, and in some cases no access at all. Preparation of this report does not imply that Grant Samuel has audited in any way the management accounts or other records of AIX and of the Assets. It is understood that the

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accounting information that was provided was prepared in accordance with generally accepted accounting principles and in a manner consistent with the method of accounting in previous years (except where noted). The information provided to Grant Samuel included cash flow models for each of the Assets. Each of the models was prepared by the management team of the relevant Asset. Accordingly, the basis of preparation may vary as between the cash flow models. However, AIX and KPMG Corporate Finance in its capacity as independent valuer of the Assets rely on the models for various purposes. Moreover, the models have been prepared on a consistent basis over time. The managers of the Assets are responsible for the information contained in the cash flow models (“the forward looking information”). Grant Samuel has considered and, to the extent deemed appropriate, relied on this information for the purposes of its analysis. The major assumptions underlying the forward looking information were reviewed by Grant Samuel in the context of current economic, financial and other conditions. It should be noted that the forward looking information and the underlying assumptions have not been reviewed (nor is there a statutory or regulatory requirement for such a review) by an investigating accountant for reasonableness or accuracy of compilation and application of assumptions. Subject to these limitations, Grant Samuel considers that, based on the inquiries it has undertaken and only for the purposes of its analysis for this report (which do not constitute, and are not as extensive as, an audit or accountant’s examination), there are reasonable grounds to believe that the forward looking information has been prepared on a reasonable basis. In forming this view, Grant Samuel has taken the following factors into account:

the forward looking information is prepared by the management teams of each of the Assets and is reviewed and used by AIX as well as some of AIX’s co-investors;

the forward looking information is relied upon by KPMG Corporate Finance every six months to prepare independent valuations of the Assets for AIX and in some cases valuations for AIX’s co-investors for financial reporting purposes. Valuation reports for each of the Assets as at 30 June 2012 were made available to Grant Samuel for information purposes and on a non-reliance basis; and

the forward looking information is utilised in annual impairment testing, which is then reviewed by the auditors of the entities that hold the Assets.

The achievability of the forecasts is not warranted or guaranteed by Grant Samuel. Future profits and cash flows are inherently uncertain. They are predictions by management of future events that cannot be assured and are necessarily based on assumptions, many of which are beyond the control of the company or its management. Actual results may be significantly more or less favourable. As part of its analysis, Grant Samuel has reviewed the sensitivity of net present values of certain of the Assets to changes in key variables. The sensitivity analysis isolates a limited number of assumptions and shows the impact of variations to those assumptions. No opinion is expressed as to the probability or otherwise of those variations occurring. Actual variations may be greater or less than those modelled. In addition to not representing best and worst outcomes, the sensitivity analysis does not, and does not purport to, show the impact of all possible variations to the business model. The actual performance of the Assets may be negatively or positively impacted by a range of factors including, but not limited to:

changes to the assumptions other than those considered in the sensitivity analysis;

variations to the assumptions considered in the sensitivity analysis that are greater or less than those modelled; and

combinations of different variations to a number of different assumptions that may produce outcomes different to the combinations modelled.

In forming its opinion, Grant Samuel has also assumed that:


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matters such as title, compliance with laws and regulations and contracts in place are in good standing and will remain so and that there are no material legal proceedings on foot, other than as publicly disclosed;

the information set out in the Explanatory Memorandum sent by AIX to its securityholders is complete, accurate and fairly presented in all material respects;

the publicly available information relied on by Grant Samuel in its analysis was accurate and not misleading;

the Proposal will be implemented in accordance with its terms; and

the legal mechanisms to implement the Proposal are correct and will be effective. To the extent that there are legal issues relating to assets, properties, or business interests or issues relating to compliance with applicable laws, regulations, and policies, Grant Samuel assumes no responsibility and offers no legal opinion or interpretation on any issue.

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3 Profile of AIX

3.1 Background

AIX was established as an investment vehicle to provide exposure for institutional and retail investors to the infrastructure sector and capture opportunities from the expected privatisation of infrastructure assets. The fund’s initial investments comprised interests in energy, toll roads and rail assets. AIX listed on the ASX as a stapled security on 6 March 1997. Shortly after listing, AIX acquired its initial stakes (directly and indirectly) in Perth Airport and APAC and, in 2000, it acquired an interest in NT Airports. Between 2001 and 2004, AIX invested in other sectors including toll roads, rail, ports and energy related assets. More recently, AIX has refocused its strategy to become a specialist airport investment vehicle. Key investment milestones over this period have included:

AIX – Key Investment Milestones Date Event

Nov 2004 Acquired 47.1% interest in Gold Coast Airport through QAL for $54 million

Feb 2005 QAL acquired 100% interest in Townsville and Mt Isa Airports for $77 million

Mar 2005 Acquired 40% interest in HTAC for $200 million, resulting in effective interests in Athens Airport (5.3%), Düsseldorf Airport (4.0%), Hamburg Airport (5.3%) and Sydney Airport (2.1%)

Dec 2006 Acquired an additional 0.4% interest in Hamburg Airport through its investment in HTAC increasing its effective ownership from 5.3% to 5.7%

Nov 2007 Hastings related funds (including AIX) and other co-investors in the respective assets acquired BAA International Holdings from BAA Limited for $775 million. AIX’s share of $126 million represented an additional 2.0% interest in APAC, additional 4.4% interest in Perth Airport, additional 2.8% interest in NT Airports and a 15.0% interest in the Perth Airport convertible notes

May 2010 Acquired additional 2.25% interest in APAC for $77 million due to the exercise of pre-emptive rights

Mar 2012 Completed sale of 35% interest in Port of Geelong for gross consideration of $26 million

Mar 2012 Completed sale of 38.9% interest in Metro Transport Sydney, the owner of Sydney’s light rail and mono rail, for gross consideration of $8.5 million

May 2012 Completed sale of 50% interest in Port of Portland for $66.5 million

Oct 2012 QAL entered into a 99 year lease over Longreach Airport in Queensland

Source: AIX AIX’s investments now mainly comprise minority interests in Australian and European airports, with a strategic focus on Australian airports. AIX also has a minority interest in Statewide Roads, which holds a concession to lease, operate and maintain a service centre on the M4 Motorway in New South Wales.

3.2 Group Structure

AIX is a stapled structure whereby each stapled security comprises one unit in AIFT and one share in AIFL. Units and shares are “stapled” to each other through the Stapling Agreement and trade on the ASX as a single security. Hastings is the responsible entity for AIFT and manager of AIFL. The two roles are linked through various agreements and for the purposes of this report are collectively referred to as the “Manager”. The majority of AIX’s investments are held by AIFT, although AIFL co-owns an interest in APAC and owns AIX’s investment in Statewide Roads. The corporate structure of AIX is illustrated in the chart below:


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The following charts illustrate AIX’s proportional interest in passenger movements, revenue,EBITDA and investment value for AIX’s airport interests. Passenger movements, revenue andEBITDA statistics are not directly comparable as they are based on different financial years1.However, the charts clearly show that AIX’s greatest exposure is to airports in Australia:

AIX Proportional Interest

Source: AIXNote: Value of investments based on independent valuations by KPMG Corporate Finance for financial reporting purposesat 30 June 2012 and reflect AIX’s equity interest. Revenue and EBITDA of the European airports converted at the averageexchange rate for the year ended 31 December 2011 of €1.00 = AUD1.3483. HTAC’s EBITDA includes corporate costs of$7.1 million (100% basis).

AIX’s Australian airports are operated under long term leases (50 years, with the option to renewfor another 49 years), most of which were granted in the late 1990s. The leases in relation toDüsseldorf and Hamburg airports expire in 2027 and 2020 respectively but are subject to unlimitedoperational permits. The concession to operate Athens Airport expires in 2026 and the Greekgovernment is currently considering sell-down options and potential extensions to the term of theconcession.

Major capital projects have recently been or are about to be completed at Gold Coast Airport andMelbourne Airport and a major redevelopment is currently underway at Perth Airport. Majorprojects are typically funded through debt raised by the entities that operate the underlying assets,and with limited equity calls on investors. AIX typically funds equity calls through equity raisingsand operating cash flows. It also has a standby $100 million debt facility it can draw upon for thispurpose. AIX has not yet drawn upon this facility.

1 Data for the Perth, APAC, Queensland and Northern Territory airports are for the year ended 30 June 2012, whereas the correspondingdata for HTAC relates to the year ended 31 December 2011.

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3.4 Financial Performance

The financial performance of AIX for the five years ended 30 June 2012 is summarised below:

AIX - Financial Performance2 ($ millions) Year ended 30 June

2008 actual

2009 actual

2010 actual

2011 actual

2012 actual

Interest income from securities 13.2 14.2 13.5 14.1 13.9 Dividend income 36.5 37.3 53.9 52.1 58.3 Distribution income 7.0 13.2 1.9 1.6 1.4 Net gains/(losses) on securities - unrealised 185.3 49.4 141.3 215.7 105.8 Net gains/(losses) on securities - realised (0.2) (0.1) (0.1) (47.7) 33.8 Other income 1.0 0.2 0.5 0.5 0.6 Total income 242.8 114.2 211.0 236.3 213.9 Management and responsibility entity fees (10.4) (7.2) (10.2) (12.0) (12.8) Investment expenses (2.5) (0.6) (0.5) (0.7) (0.5) Board and compliance (1.9) (1.6) (1.7) (1.9) (1.9) Investor relations (0.7) (0.5) (0.5) (0.5) (0.5) Other expenses (0.2) (0.1) (0.0) (0.1) (0.1)

Total expenses (15.7) (9.9) (12.9) (15.2) (15.8)

EBITDA3 227.1 104.3 198.1 221.2 198.0 Depreciation and amortisation - - - - -

EBIT4 227.1 104.3 198.1 221.2 198.0 Interest income on cash and cash equivalents 3.4 2.2 2.3 2.1 2.6 Finance costs (7.6) (11.2) (1.8) (1.0) (1.7) One-off expenses - - - - (1.7)

Profit before tax 222.9 95.3 198.5 222.3 197.2 Tax (16.4) 5.3 (7.3) (10.0) (1.3) NPAT 206.5 100.6 191.3 212.3 196.0

Total income growth - (52.9)% 84.7% 12.0% (9.5)% EBITDA growth - (54.1)% 89.9% 11.7% (10.5)%

Source: AIX and Grant Samuel analysis Note: Totals may not add up due to rounding. AIX does not consolidate any of its investments. It receives cash income from its investee companies in the form of distributions, dividends and interest income. It also brings to account adjustments in the fair value of the securities it holds in these entities to reflect the independent valuation undertaken semi-annually (unrealised net gains or losses) and the profit or loss crystallised on the sale of investments (realised net gains or losses). AIX’s financial performance over the five years ended 30 June 2012 reflects:

the acquisition of an additional 4.87% stake in Perth Airport through the acquisition of shares and convertible notes (from 24.87% to 29.74%), an additional 2.01% stake in APAC (from

2 Financial statements prepared in accordance with the Australian equivalent to international financial reporting standards (“AIFRS”). 3 EBITDA represents earnings before net interest, depreciation, amortisation, fair value movements, investment income and significant

and non-recurring items. 4 EBIT represents earnings before net interest, fair value movements, investment income and significant and non-recurring items.


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8.13% to 10.14%) and an additional 2.83% stake in NT Airports (from 25.40% to 28.23%) during the year ended 30 June 2008;

the acquisition of an additional 2.25% stake in APAC (from 10.14% to 12.39%) in May and June 2010; and

the sale of AIX’s interests in Port of Geelong (February 2012), Metro Transport Sydney (March 2012) and Port of Portland (May 2012).

In the year ended 30 June 2011, $45.5 million of the total $47.7 million loss realised on unlisted securities related to the redemption of Class A redeemable preference shares that AIX held in Statewide Roads. The $33.8 million net gain realised in the year ended 30 June 2012 comprised the gains made on the sale of AIX’s investments in Port of Portland and Port of Geelong net of the loss crystallised on the sale of Metro Transport Sydney. Management and responsibility entity fees represent fees paid to the Manager. Over the five years ended 30 June 2011, AIX management fees have consisted only of base management fees. The decrease in base management fees in the 2009 financial year reflected a decline in AIX’s market capitalisation resulting from a fall in AIX’s security price. During the 2010 financial year, AIX’s weighted average security price was slightly higher than in the previous year, but a 1:2 entitlement offer completed in July 2009 resulted in a significantly higher weighted average market capitalisation and thus base management fees. The combination of a placement (representing 44 million securities or 8% of the securities on issue at the time) in May 2010 to fund the acquisition of an additional 2.21% interest in APAC combined with significant increases in the AIX security price in the 2012 financial year, resulted in an increase in AIX’s market capitalisation over the 2011 and 2012 financial years and in the base management fees payable. For the first time since 2000, a performance fee is payable to the Manager in respect of the year ended 30 June 2012. The performance fee will total $35.5 million (including $0.9 million of non-recoverable GST) after taking into account the carry-forward deficit from underperformance in prior years. AIX has elected to pay the performance fee in cash and AIX and Hastings have agreed that payment of the performance fee will occur before 31 December 2012. The performance fee has been accounted for in the security-based payment reserve account (equity) rather than as an operating expense. As there is no carry forward deficit as at 30 June 2012, any outperformance of AIX’s total return over the S&P/ASX 200 Industrials Accumulation Index in the 2013 financial year would give rise to a performance fee should the existing fee arrangement stay in place. AIX also incurs various board, compliance and investor relations related expenses. These costs have been relatively stable over the five year period. AIX has no material assets other than its investments in securities and fund level cash and therefore it does not incur any depreciation or amortisation expenses. The finance costs in 2008 and 2009 related to interest on a multi-option corporate debt facility. The facility was repaid at the beginning of the 2010 financial year from the proceeds of the July 2009 entitlement offer. The ongoing finance costs relate to line, undrawn commitment, establishment and other fees on a $100 million debt facility which remains undrawn. The one-off expenses in the year ended 30 June 2012 relate to costs incurred as part of the proposed internalisation of management.

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3.5 Distributions and Dividends

The distributions and dividends paid by AIX to its securityholders over the five years to 30 June 2012 are summarised below:

AIX – Dividends and Distributions (cents per security) Year ended 30 June

2008 actual

2009actual

2010 actual

2011 actual

2012actual

Earnings per security 54.65 26.33 33.22 34.20 31.57 Total distributions and dividends: 16.50 13.00 10.00 10.00 10.50 - Trust distributions 12.54 10.08 8.07 8.55 9.14 - Company dividends 3.96 2.92 1.93 1.45 1.36 Dividends – Percentage franked 100% 100% 100% 100% 100%

Source: AIX Distributions and dividends are significantly lower than earnings per security primarily because earnings include substantial unrealised fair value adjustments and other non-cash items which are not distributable. AIX’s Distribution and Dividend Reinvestment Plan (“DRP”) is currently suspended.

3.6 Financial Position

The financial position of AIX as at 30 June 2012 is summarised below:

AIX - Financial Position ($ millions)

As at 30 June 2012 actual

Receivables and prepayments 1.0 Payables and provisions (71.9) Current tax asset / (liability) 0.3 Net working capital (70.6) Interest in unlisted securities 1,816.2 Deferred tax liability (net) (35.6)

Total funds employed 1,709.9 Cash 157.1

Net assets 1,867.1 Outside equity interests -

Equity attributable to AIX securityholders 1,867.1 Statistics Stapled securities on issue at period end (millions) 620.7 NTA5 per stapled security ($) 3.01

Source: AIX and Grant Samuel analysis Note: Totals may not add up because of rounding. AIX’s statement of financial position reflects the following:

investments in unlisted securities represent AIX’s proportional equity interests in the Assets and comprise:

5 NTA is net tangible assets, which is calculated as net assets less intangible assets.


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AIX - Investments at 30 June 2012

Asset Percentage Interest AIX Share ($ millions)

Perth Airport 29.74% 609.6 APAC 12.39% 477.4 HTAC 40.02% 297.9 QAL 49.07% 315.1 NT Airports 28.23% 115.1 Statewide Roads 6.25% 1.0 Total 1,816.2

Source: AIX

AIX’s investments are independently valued by KPMG Corporate Finance at 30 June and 31 December each year for financial reporting purposes. The valuations are derived through a discounted cash flow analysis. Investments comprise equity investments and shareholder loans;

working capital is essentially made up of payables to Hastings as manager ($36.7 million in fees at 30 June 2012, most of which represents Hastings’s performance fee entitlement for the year ended 30 June 2012) and to AIX securityholders ($34.1 million of distributions payable at 30 June 2012); and

AIX has a $100 million standby debt facility, which was undrawn as at 30 June 2012, and has not had any fund level debt since it repaid the outstanding balance of $159.5 million on its multi-option facility from the proceeds of the July 2009 entitlement offer.

3.7 Capital Structure and Ownership

As at 7 November 2012, AIX had 620,733,944 stapled securities on issue and 13,884 registered securityholders. The top fifteen securityholders accounted for approximately 47% of securities on issue and were principally institutional nominee or custodian companies or listed investment companies. As at 3 December 2012, AIX had two substantial securityholders, Australian Foundation Investment Company Limited (“AFIC”) and UBS AG:

AFIC lodged a substantial securityholder notice on 16 April 2010 in relation to 28,910,224 securities representing 5.01% of AIX’s total securities at the time. AFIC’s holding on 2 November 2012 is estimated at 40,213,645, representing 6.5% of AIX’s total securities on issue; and

On 21 November 2012, UBS AG and its related parties lodged a substantial securityholder notice in relation to 50,359,372 securities representing an 8.11% interest in AIX. On 30 November 2012, UBS AG announced that its interest had increased to 57,856,295 securities representing a 9.32% interest in AIX.

3.8 Security Price Performance

A summary of the price and trading history of AIX securities since the amended management fee arrangement came into effect on 1 January 2008 is set out below:

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AIX - Security Price History

Security Price ($)

Average

Weekly

Volume

(000’s)

Average

Weekly

TransactionsHigh Low Close

Year ended 31 December

2008 2.83 1.22 1.70 5,332 3,603

2009 1.93 0.99 1.78 9,339 4,324

2010 2.09 1.54 1.88 8,195 5,151

2011 2.00 1.62 1.93 7,520 5,881

Quarter ended

31 March 2012 2.30 1.90 2.28 5,999 5,609

30 June 2012 2.57 2.12 2.40 6,727 5,735

30 September 2012 3.26 2.26 3.02 21,024 6,367

Month ended

31 July 2012 2.70 2.26 2.59 13,174 6,557

31 August 2012 3.26 2.45 3.08 24,970 7,897

30 September 2012 3.09 2.99 3.02 25,121 4,399

31 October 2012 3.02 2.89 2.97 14,977 4,244

31 November 2012 3.15 2.92 3.15 26,172 5,350

Source: IRESSNote: Security prices are presented on an adjusted basis reflecting the entitlement offer in July 2009 and take into accountintraday trading.

The following chart illustrates the weekly movements in the AIX security price against the NTAper security as well as trading volumes since 1 January 2008:

Source: IRESS and Grant Samuel analysisNote: Security prices are on an adjusted basis reflecting the entitlement offer in July 2009. NTA is shown at the time ofcalculation.


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After reaching a high of $3.176 on 7 September 2007, the AIX security price trended down and fluctuated broadly in the range of $1.25 to $1.60 from end October 2008 to late July 2009, despite AIX’s NTA per security increasing during that period. The AIX security price trended upwards after the 1:2 entitlement offer completed in July 2009 (which resulted in AIX issuing 192.2 million securities at $1.10 per security) until 6 May 2010. On 7 May 2010, upon the announcement of the completion of an institutional placement to raise $80 million at $1.82 per security to acquire an additional stake in APAC, AIX’s security price fell 7.6% to $1.78. AIX’s security price was relatively stable during the 2011 financial year, trading in the range of $1.67 to $2.04, while AIX’s NTA per security increased by just under 9%. Since September 2011, AIX’s security price has performed strongly. During this period, AIX announced the sale of a number of non-core assets: its 35% interest in Port of Geelong, 39% interest in Metro Transport Sydney and 50% interest in Port of Portland. Moreover, AIX stated in several of its releases that it was reviewing its external management structure and announced on 29 June 2012 that it had reached an in principle agreement with Hastings to internalise its management. On 24 August 2012, following the announcement of the Proposal and AIX’s financial results for the year ended 30 June 2012, AIX’s security price increased by approximately $0.47 to close at $3.11 per security. Over the following 10 weeks, AIX’s security price declined, stabilising at around $2.95 in early November. It has since rebounded in the context of a general rise in the share market and the 26 November 2012 announcement that AIX and the Future Fund had entered into an implementation agreement. It closed at $3.15 on 3 December 2012. Trading volumes since the announcement of the Proposal have been significantly higher than prior to the announcement. AIX is a member of various indices including the S&P/ASX 200 Industrials Index, with a weight of 0.22% as at 3 December 2012. The performance of AIX against the S&P/ASX 200 Industrials Index since 1 January 2008 is illustrated in the following graph:

Source: IRESS

6 Security prices are adjusted for the July 2009 entitlement offer. Highs and lows are quoted on an intraday basis.

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From 1 January 2008 to mid-2011, AIX traded broadly in line with the S&P/ASX 200 Industrials Index. Since then, AIX has significantly outperformed the index, as a result of a range of factors including increase in its net asset backing, the sale of non-core assets, the announcement of the proposed management internalisation and the announcement of the Proposal. From 1 January 2008 (the day the amended management fee arrangements took effect) to 28 June 2012 (the day preceding the announcement of the internalisation proposal), AIX securities achieved average annual total returns of 0.4% compared to (4.3%) for the S&P/ASX 200 Industrials Accumulation Index. More recently, the outperformance of AIX securities over the benchmark index is even more pronounced, in particular over the year to 28 June 2012:

AIX Performance Comparison to Accumulation Index Accumulated Returns to 28 June 2012

1 month 3 month 1 year 3 years (annual)

Since 1 January

2008 (annual)

AIX 145.4% 29.2% 30.3% 25.0% 0.4% S&P/ASX 200 Industrials Accumulation Index 15.5% (6.3%) 4.3% 9.3% (4.3%)

Source: IRESS Since 30 June 2012, AIX’s security price has significantly outperformed the S&P/ASX 200 Industrials Accumulation Index. By 3 December 2012, AIX security price had increased by approximately 31% against a 15% increase in the index.


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4 Airport Sector

Australian Airport Sector

There are currently approximately 250 airports in Australia that receive regular public transport (“RPT”) flights and more than 2,000 smaller landing fields and airstrips. These airports can be categorised into privatised airports, government (local/state) owned regional airports/aerodromes, airports owned by the Department of Defence and privately owned airstrips. The privatised airports, generally the larger airports in Australia, were sold by the Federal Government between 1998 and 2002 as part of a campaign to divest all airports owned by the Federal Airports Corporation to improve operating and investment efficiency. These airports were:

Privatised Australian Airports State Airport New South Wales Sydney, Bankstown, Camden Victoria Melbourne, Essendon, Moorabbin Queensland Brisbane, Gold Coast, Townsville, Archerfield, Mount Isa South Australia Adelaide, Parafield Western Australia Perth, Jandakot Tasmania Hobart, Launceston Northern Territory Darwin, Alice Springs, Tennant Creek Australian Capital Territory Canberra

Source: Economic Regulation of Airport Services, Productivity Commission Inquiry Report, December 2011 The 12 largest airports (by passenger movements) are those located in Australia’s capital cities and in Gold Coast, Cairns, Townsville and Launceston. Airports charge airfield or landing fees for the use of runways and associated airside infrastructure (e.g. taxiways and aprons), terminal fees for the use of passenger terminals and charges for the provision of security services. These charges are typically subject to five to ten year pricing agreements between the airlines and the airport operator. Charges are structured as a fee per passenger and are generally set with reference to the airport’s capital expenditure program and operating costs. Capital expenditure programs are determined after taking into account the needs of both the airports and airlines over the life of the agreements. Charges may also include rebates for airlines meeting certain agreed objectives or other incentives. Airports also receive rent and/or a percentage of revenue from the operators of retail, food and beverage and car rental outlets, as well as fees from taxi and limousine operators. At some airports, airlines lease and operate their own domestic terminals. Under these arrangements, the airline pays rent for the use of the terminal, landing fees for use of the airside infrastructure and is responsible for the operating and capital costs of the terminal. Airport revenue is typically divided into aeronautical and non-aeronautical revenue:

Major and Major Regional Airport Revenue

Source: Australian Airport Association

Passenger related fees54%

Landing fees14%

Aeronautical security recovery

12%

Rental for hangars

8%

Aircraft parking2%

Fuel levy1%

Other9%

Aeronautical Revenue

Parking26%

Retail leases21%

Office lease18%

Landside transport

15%

Other20%

Non-Aeronautical Revenue

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At capital city and major regional airports in Australia, aeronautical revenue represents approximately56% of total revenue, whereas at regional and remote airports aeronautical revenue represents around75% of total revenue. Retail and hospitality activities tend to be less economic at the regional and remoteairports due to their smaller passenger base.

The major driver for aeronautical and non-aeronautical revenue (excluding office lease and other propertyincome) is passenger movements and passenger mix (international, domestic and regional). Passengermovements in Australia have grown steadily over the last few decades as a result of strong economicconditions, population growth and increasing competition between airlines, including from the emergenceof low cost carriers. There have been various events that have had adverse short term impacts onpassenger volumes, such as the 1990 recession, the Gulf War, terrorist attacks, the collapse of Ansett(Australia’s second largest airline at the time) and the global financial crisis. However, these events donot appear to have had a long term impact on passenger movements. Passenger movements haveincreased by 5.1% per annum over the 10 years to 30 June 2011:

Source: BITRE

In the year ended 30 June 2012, the 11 largest airports accounted for close to 90% of Australian passengermovements with Sydney, Melbourne and Brisbane airports contributing a combined 62% of the total:


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Source: Bureau of Infrastructure, Transport and Regional Economics International passenger movements are dominated by Sydney, Melbourne, Brisbane and Perth Airports, which account for a combined market share of 92%:

Source: Bureau of Infrastructure, Transport and Regional Economics

Sydney36.0

Melbourne28.0

Brisbane20.9

Perth12.0

Adelaide6.9

Gold Coast5.3

Cairns3.9

Canberra3.2

Darwin2.0

Hobart1.8

Townsville1.6

Other15.6

Australian Airports - Passenger MoevementsYear ennded 30 June 2012 (million)

Other0.5

Sydney12.0

Melbourne6.7

Brisbane4.5

Perth3.5

Gold Coast0.7

Adelaide 0.6

Darwin0.4

Australian Airports - International Passenger MovementsYear ended 30 June 2012 (million)

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Sydney had a 41.6% market share of international passengers in the year ended 30 June 2012, down from 43.4% in 2010, whereas Melbourne increased its market share from 21.4% to 23.1% over the same period. Brisbane’s and Perth’s market shares were slightly down over the same period. The Bureau of Infrastructure, Transport and Regional Economics (“BITRE”) is forecasting that passenger growth rates in Australian capital cities will remain positive over the next 20 years but will be lower than in the past largely because of weaker domestic and international economic conditions. The emergence of low cost carriers over the last ten years has contributed to increased affordability of air travel and, in turn, to growth in passenger movements. They are expected to continue to be an important driver of passenger movement growth in the future. International passenger movements are anticipated to experience the highest growth rates followed by inter-capital and then regional passenger movements. In general, labour costs account for over 30% of airport operating costs. For capital city or major regional airports, the balance of operating costs is made up of services and utilities (17%), property and maintenance (16%), other operational costs (15%), recoverable security costs (11%), regulation and compliance (3%) and other (8%). Like most infrastructure businesses, airports are capital intensive. In addition to capital required for ongoing maintenance, airports typically undergo a major expansion or redevelopment every 10 to 20 years. Capital projects typically relate to the refurbishment, expansion or development of passenger terminals, the construction of new car parks, runway resurfacing and increased security and baggage handling capabilities. Capital programs tend to have long lead times and are driven by growing passenger movements. Capital programs are typically agreed with the carriers who indirectly pay for the capital in the form of aeronautical fees. Regulatory Environment

Following privatisation, Australia’s capital city airports were subject to price cap regulation and service pricing monitoring. In 2002, the price controls were replaced by ‘light-handed’ monitoring of aeronautical services, which promoted commercial negotiations between airlines and airport operators. In 2006, Darwin and Canberra were released from the ‘light handed’ monitoring regime. There are now five airports (Sydney, Melbourne, Perth, Adelaide and Brisbane) for which the Australian Competition and Consumer Commission (“ACCC”) monitors price and quality of aeronautical and car parking activities. As part of this role, the ACCC monitors aircraft movements, passenger processing (including security), landside vehicle access and car parking. Retail, rental and business park activities are not monitored. The ACCC also reports on service quality. ACCC’s main objective is to ascertain if the airports are misusing their market power. In 2011, the Productivity Commission concluded an inquiry into the price monitoring regime and recommended that this regime be extended until 2020 with a further review in 2018. Other airports, including Canberra, Darwin, Hobart, Adelaide and Gold Coast, are subject to self-administration. Cairns is encouraged to participate in the ACCC monitoring regime but is under no legislative requirement to do so. Under the self-administered scheme, these airports are expected to publicly disclose aeronautical service prices, car parking prices, service quality outcomes and complaint handling outcomes. The operations of Adelaide, Alice Springs, Brisbane, Canberra, Darwin, Gold Coast, Hobart, Launceston, Melbourne, Perth, Sydney and Townsville Airports are governed under the Airports Act 1996 (Cwlth) (“Airports Act”). Under the Airports Act, airports must remain under Australian control (51% minimum holding), airlines must not own more than 5% of an airport and there is a maximum cross-ownership limit of 15% in relation to Sydney/Melbourne, Sydney/Brisbane and Sydney/Perth. Moreover, airports are subject to environmental regulations and security requirements. Some airports must also abide by curfew and capacity restrictions. Most are also required to prepare a master plan and environmental strategy every five years. Airports must be certified by the Civil Aviation and Safety Authority (“CASA”) and are subject to various environmental, health and safety regulations.


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European Airport Sector

With 800 million passenger movements a year, European airports account for approximately one third of the world’s market and form part of a mature market. Although the drivers of the underlying operating businesses are generally the same, there are a number of structural differences between the European and Australian airport markets:

European airports are generally subject to more stringent regulatory regimes than Australian airports. Investment returns from European airports are regulated through price caps, cost plus, or revenue sharing arrangements. Moreover, most European airports operate on a ‘single tariff’ or ‘single till’ basis, whereby the regulated returns are based on the airport’s total revenues including concession revenue from retail, car parking and other services. In Australia, airports operate under a ‘dual tariff’ or ‘dual till’ regime where only the aeronautical revenue is monitored by regulators;

many of Europe’s main airports are still fully or partially owned by the government and are not managed with performance targets similar to those that apply to Australian airports;

European airports tend to compete more directly with each other due to the short distances between airports, and are subject to competition from other forms of transport, in particular well-developed rail and road networks; and

Australian airports tend to outsource more of the lower margin auxiliary services such as baggage handling and catering, and, as a result, typically generate higher earnings margins than their European counterparts.

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5 Overview of the Assets

5.1 Perth Airport

Overview

Perth Airport is located on 2,105 hectares of land, approximately 12 kilometres north east of Perth’s central business district. In July 1997, Perth Airport acquired a 50 year lease plus a 49 year option (“Perth Airport Lease”) from the Federal Government for $639 million. The option is exercisable at the election of Perth Airport for no additional payment. Perth Airport is now Australia’s fourth largest airport in terms of passenger movements. Perth Airport comprises Perth Airport Development Group Pty Ltd (“PADG”) (the holding entity), Perth Airport Pty Ltd7 (“PAPL”) (the airport operating entity) and PAPT Holdings Pty Ltd (“PAPT”) which owns a 100% interest in an associated property trust8. Each shareholder owns the same proportional interest in PADG and PAPT, through a combination of ordinary equity and shareholder loans. Perth Airport’s shareholders are Utilities Trust of Australia (“UTA”) (38.3%), AIX (29.7%), Perth Airport Property Fund (17.3%), The Infrastructure Fund (4.3%), Australian Super Pty Ltd (5.0%), Commonwealth Bank Group Super (3.2%) and Colonial First State Private Capital Ltd (2.2%). Hastings manages the interests of the four largest shareholders, which represent a combined interest of 89.6%. Under the PADG shareholders’ agreement, all transfers of shareholdings in PADG are subject to pre-emptive rights in favour of co-investors. Its main airport facilities are a two (cross) runway system and three main passenger terminals:

an international terminal (Terminal 1);

a common-user domestic terminal (Terminal 3) – used by Virgin Australia, Alliance Airlines, Skywest Airlines and Tiger Airways; and

a Qantas domestic terminal (Terminal 4) – used by Qantas, QantasLink and Jetstar aircraft. Perth Airport also has general aviation facilities for charter flights and services to regional areas. Other aeronautical related facilities include air freight, aviation fuel and in-flight catering facilities, air traffic control facilities and rescue and fire fighting facilities. Perth Airport has 14,700 short and long term car parking bays located near each of the terminals, commercial and industrial property parks and approximately 224 hectares of excess land capable of being developed for non-aeronautical purposes. The airport is not subject to curfews and can be operated twenty four hours a day, seven days a week. Perth Airport is currently undertaking a $1 billion redevelopment to increase capacity, improve operating efficiency and improve the customer experience at the airport. Key elements of the redevelopment include:

7 PAPL is a wholly owned subsidiary of PADG. 8 PAPT was established to hold property investment assets and facilitate the development of surplus land. PAPT now owns two

properties with a combined value which represent less than 1% of Perth Airport’s total gross assets.


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Perth Airport Redevelopment Program

Estimated Cost

($ millions)

Spent to

30 June 2012

($ millions)

Expected

Completion

Terminal 3 upgrade 22 22 Completed

Development of new Terminal 2 115 52 December 2012

Terminal 1 arrival expansion 73 8 December 2012

Terminal 1 expansion/domestic pier 312 12 March 2014

Other 84 -

Total major projects 583 72

Other projects 453 97

Total 1,036 169

Source: Perth Airport

In conjunction with the Redevelopment Program, the Western Australian Government hascommitted $1.1 billion to upgrade the road network around the Tonkin Highway. This work willimprove access to and movement around the airport. Perth Airport has secured seven yearaeronautical pricing agreements with airlines representing approximately 97% of passengermovements to underpin the redevelopment. The construction is being funded by a mix of debt andequity with funding for all major projects already committed.

Operating Performance

Business passengers make up around 45% of the passengers travelling through Perth Airport, withpassengers visiting friends and relatives (“VFR”) accounting for approximately 26% and holidaymakers 24%9. The breakdown between domestic and international (excluding transit) passengersover the 13 years to 30 June 2012 is shown in the chart below:

Source: Perth AirportNote: CAGR represents compound annual growth rate.

9 Based on overnight visitors in 2010. Sourced from Productivity Commission Inquiry Report, Economic Regulation of AirportServices, December 2011.

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Growth in passenger movements at Perth Airport has been very strong over the last 12 years at 8.1% per annum. This growth is significantly higher than the national average reflecting the strong population growth and economic conditions in Western Australia. The most significant contributor to the growth in passenger movements has been the strength of the Western Australian resources sector and the sector’s adoption of a fly-in fly-out employment model. International passenger growth has benefited from the strong Australian dollar and the relative proximity of Perth to Asia, Europe and Africa. In particular, there has been a significant increase in international passenger movements, in part as a result of the strong performance of international low cost carriers, which have grown from nil in 2007 to 32% of outbound capacity in 2012. Financial Performance

PADG’s consolidated financial performance (representing the financial performance of Perth Airport except for PAPT) for the five years ended 30 June 2012 is summarised as follows:

PADG - Financial Performance10 ($ millions) Year ended 30 June

2008 actual

2009 actual

2010 actual

2011 actual

2012 actual

Total revenue 181.2 209.7 246.4 300.8 344.4

EBITDA 113.7 130.3 158.2 195.9 226.3

EBIT 110.6 115.2 139.2 175.3 196.5 Fair value adjustment 24.8 (39.8) 1.3 (4.7) 377.5 Finance revenue 2.0 1.5 1.9 2.9 4.3 External finance costs (41.5) (45.7) (67.1) (81.2) (133.7) Shareholder loans finance costs (12.9) (7.8) (8.7) (11.8) (10.7) Non-recurring items 11.5 - - - - Profit before tax 84.5 23.5 66.6 80.6 433.9 Tax (23.6) (8.3) (19.9) (24.9) (124.1) NPAT 60.9 15.2 46.6 55.7 309.7

Revenue growth (%) 14% 16% 17% 22% 14% EBITDA margin (%) 63% 62% 64% 65% 66% EBIT margin (%) 56% 55% 56% 58% 57% Distributions ($ million) 12.9 15.3 64.1 69.8 72.7

Source: Perth Airport and Grant Samuel analysis

10 Financial statements prepared in accordance with the Australian equivalent to international financial reporting standards (“AIFRS”).


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Revenue has grown at an average annual rate of 17.4% over the five years:

Source: Perth Airport and Grant Samuel analysis All forms of revenue have grown strongly and well above growth in passenger movements. Growth in aeronautical revenue reflects increases in passenger movements and price increases driven by capital improvements. Growth in trading revenue (predominantly retail revenue) reflects an increase in passenger movements as well as an improved retail offering. Revenue from ground transport (primarily car parking and car rentals) has increased due to an increased number of car parks and better pricing strategy. Property revenue primarily represents rental income but also includes recharged property services such as power and water and premium lease income11. Property revenue is not as dependent on passenger movements as the other revenue streams but it has benefited from the stronger economic conditions in Western Australia, in particular the resources sector. PADG’s costs comprise labour (26% in the year ended 30 June 2012), services and utilities (55%), administration and marketing (14%) and maintenance (5%). Perth Airport’s costs have not increased at the same rate as its revenue over the five years, largely due to scale benefits, which has resulted in an increase in EBITDA margins. The fair value adjustment represents the movement in the market value of investment properties. The non-recurring item in the year ended 30 June 2008 relates to the reimbursement of a technical service fee paid in 2007. PAPT reported revenue of $2.5 million for the year ended 30 June 2012 and a net profit after tax of $3.7 million. PAPT did not pay or declare a dividend for the year ended 30 June 2012.

11 Land under long term lease and subject to a single upfront payment rather than annual rent.

73.3 79.1 85.9 102.5 120.0

32.6 34.338.8

42.747.0

34.240.8

44.7

55.6

65.9

40.254.6

75.6

98.7

109.9

0.9

1.0

1.4

1.3

1.7

-

50

100

150

200

250

300

350

400

2008 2009 2010 2011 2012

Pass

enge

rs (m

illio

ns)

PADG - RevenueYear ended 30 June

Aeronautical Charges Trading Revenue Ground Transport Property Other

9.6%

2008-2012CAGR

13.1%

17.8%

28.6%

15.8%

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Financial Position

The financial position of PADG as at 30 June 2012 is summarised below:

PADG - Financial Position ($ millions)


Receivables and prepayments 51.1 Payables (42.9) Current tax asset / (liability) 7.1 Provisions (4.6) Net working capital 10.7 Infrastructure plant & equipment 641.9 Investment properties 755.3 Goodwill 443.6 Other assets/liabilities (14.2) Deferred tax liability (net) (215.0) Total funds employed 1,622.4 Cash and cash equivalents 75.0 Derivative financial instruments (63.2) External borrowings (1,031.2) Shareholder loans (131.0)

Net cash / (borrowings) (1,150.5) Net assets 471.9 Outside equity interests - Equity attributable to PADG shareholders 471.9 Statistics Gearing (net external debt/ net external debt plus equity) 67% Gearing (net external debt/net external debt plus independent valuation) 34%

Source: Perth Airport and Grant Samuel analysis Infrastructure, plant and equipment is recorded at cost and depreciated or amortised over its useful life. It largely represents land, buildings, runways, taxiways, apron and other airport buildings and equipment under the Perth Airport Lease. Of the $755.3 million at 30 June 2012, $174.0 million relates to assets currently under construction and $33.2 million to capitalised leases. Investment properties represent properties that are held to earn rental income and/or capital appreciation such as land (excess land capable of development), or developed land under lease. Investment properties are carried at fair value with any gains or losses on revaluation recognised through the profit and loss statement. The goodwill relates to the original acquisition of the Perth Airport Lease and is impairment tested annually. Perth Airport’s debt facilities at 30 June 2012 are summarised as follows:


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Perth Airport - Debt Facilities at 30 June 2012

Facility Facility Amount ($ millions)

Facility Drawdown at 30 June 2012

($ millions) Term Maturity

Domestic Bonds - 7 Year A$ Bond Issue 100.0 100.0 7 year Nov 2013 - 10 year A$ Bond issue 240.0 240.0 10 year Nov 2016 Syndicated Facility - Tranche 1 315.0 315.0 4 years Nov 2015 - Tranche 2 300.0 300.0 6 years Nov 2017 - Tranche 3 300.0 88.5 7 years Nov 2018 Working Capital Facility 15.0 - 1 year Nov 2015 Total 1,270.0 1,043.5

Source: Perth Airport and Grant Samuel analysis On 27 July 2012, Perth Airport announced that it had issued US$270 million and $30 million of senior secured notes in a private placement to investors in the United States. The proceeds from the issue of these notes are to be used to fund the airport’s expansion plans and are summarised as follows:

Perth Airport - New Debt Facilities

Tranche Facility Amount ($ millions) Coupon Term Maturity

10 year US$ Notes US$50 4.47% 10 years Jul 2022 12 year US$ Notes US$80 4.57% 12 years Jul 2022 15 year US$ Notes US$140 4.77% 15 years Jul 2024 10 year A$ Notes $30 7.32% 10 years Jul 2027

Source: Perth Airport and Grant Samuel analysis The United States dollar foreign exchange exposure arising from the debt raising was hedged through a currency swap. PAPT had net assets of $5.5 million as at 30 June 2012. PAPT’s main assets are investment properties which were valued at $19.6 million at 30 June 2012. These properties were acquired for $12.0 million in April 2005. PAPT is financed by shareholder loans totalling $13.8 million. Outlook

The outlook for Perth Airport is for continued strong growth. However, it is likely to be more subdued than levels experienced to date. Domestic and international passenger movements are expected to continue to benefit from the strong Australian dollar and the robust Western Australian economy. Growth in regional passenger movements is expected to slow as resources construction projects are completed. However, the fall in construction workers is expected to be offset by a smaller number of operational staff who tend to travel more frequently. Aeronautical revenue is underpinned by the recently negotiated aeronautical pricing agreements. The redevelopment is expected to result in increased trading and ground transport revenue as congestion will ease and service offerings can be improved with the new facilities. Property revenue is anticipated to increase with additional business and industrial park developments.

5.2 APAC

Overview

APAC has a 100% economic interest in Melbourne Airport and a 90% economic interest in Launceston Airport. The shareholders in APAC are AMP (25.0%), IFM (20.7%), the Future Fund (16.8%), SAS Trustee Corporation (16.2%), AIX (12.4%), UTA (7.6%) and National Nominees (1.3%). Hastings manages AIX’s and UTA’s combined 20.0% interest in APAC. All transfers of

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shareholdings are subject to pre-emptive rights in favour of co-investors under the APAC shareholders’ agreement. APAC’s corporate structure is illustrated as follows:

Source: APAC Note: As the holder of 10% of the special interest notes in Launceston Airport, Launceston City Council is entitled to 10% of the after tax profit. APAC acquired the assets of Melbourne Airport and a long term lease from the Commonwealth Government in July 1997 at a cost of $1.3 billion. The lease has a 50-year term with a free option to extend for an additional 49 years. Melbourne Airport is now the second largest airport by passenger movements in Australia. It is located 22 kilometres northwest of Melbourne’s central business district and covers an area of approximately 2,380 hectares. Melbourne Airport’s facilities are two intersecting runways and four terminals:

a Qantas domestic terminal (Terminal 1) – used by Qantas and Jetstar aircraft;

an international terminal (Terminal 2);

a common-user domestic terminal (Terminal 3) – used by airlines including Virgin Australia and REX; and

a low cost carrier terminal (Terminal 4) – used by Tiger Airways. Terminal buildings comprise the three-storey international terminal (T2) with two interconnecting two-storey domestic terminals (T2 and T3). Terminal 4 is located in a separate single storey building. Other aeronautical related facilities include air freight, aviation fuel and in-flight catering facilities, air traffic control facilities, and rescue and fire fighting facilities. Melbourne Airport has five car parks: short term, multi-level long term, long term, business and express. Other assets include commercial and industrial property parks and approximately 350 hectares of excess land. The airport is not subject to curfews and can be operated twenty four hours a day, seven days a week. Since the release of its last master plan in 2008, Melbourne Airport has completed a $45 million runway resurfacing and lighting project, a new freeway on-ramp and is close to completing the Terminal 2 expansion. Over the next five years, the airport intends to invest $1.0 billion on a number of projects of which the most significant is Stage 1 of the Southern Precinct Project (SPP). Stage 1 of the SPP is expected to be launched once aeronautical pricing agreements are concluded and is expected to be completed by the second half of 2014 at a cost of around $400 million.

APAC(Holdings No. 2)

Launceston AirportMelbourne Airport

100%

100%

APAC

APAC(Holdings)

100%

LauncestonCity Council

10%90%

100%

Ordinary Shares Notes


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The SPP is an integrated landside, terminal and airside development focusing on the area south of Terminal 3 and surrounding Terminal 4. Specific elements of the project include a new domestic terminal building, 17 new aircraft parking bays and taxi lanes, a new ground transport interchange, new car parking and car rental facilities. The 2013 Master Plan is anticipated to include the orientation of a third runway, more detail regarding improvements to ground transport including new airport roads, and provision for public transport facilities including a future rail link. In May 1998, APAC acquired 100% of the assets of Launceston airport and a long term lease from the Commonwealth Government at a cost of $19 million. Launceston Airport is located 16 kilometres south of Launceston’s central business district and covers an area of 180 hectares. The airport only caters to domestic passengers. Its facilities comprise a terminal, a single asphalt/concrete runway, two grass runways, retail and food and beverage outlet space, parking and rental car outlets. In March 2010, Launceston completed a $20 million expansion and upgrade. No significant expansion plans are currently planned for Launceston Airport. Operating Performance

Melbourne Airport is a destination airport and attracts a strong mix of visitors on business (40% of passenger movements), holiday (33%) and VFR (24%)12. Melbourne Airport’s domestic and international (including transit) passenger movements over the 13 years to 30 June 2012 are illustrated in the following chart:

Source: APAC Note: CAGR represents compound annual growth rate. Total passenger movements at Melbourne Airport grew at an average rate of 5.1% per annum over the past 13 years despite a dip in 2002 and 2003 attributed to a combination of the collapse of Ansett, the 9/11 terrorist attacks and SARS, and subdued growth in 2009 due to the global financial crisis. Growth in domestic passenger movements has benefited from the growth in the

12 Based on overnight visitors in 2010. Sourced from Productivity Commission Inquiry Report, Economic Regulation of Airport

Services, December 2011.

12.3 13.6 12.8 13.515.2 16.3 16.9 17.8 19.4 19.7 20.6 21.9 21.5

3.23.7 3.7 3.4

3.94.5 4.6

4.74.9 5.0

5.76.4 6.9

15.617.2 16.5 16.9

19.220.8 21.4

22.524.3 24.8

26.328.3 28.4

-

5

10

15

20

25

30

35

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

Pass

enge

rs (m

illio

ns)

Melbourne Airport - Passenger MovementsYear ended 30 June

Domestic International

6.6%

2000-2012CAGR

4.7%

5.1%

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low cost carrier segment, although the grounding of Tiger Airways in July and August 2011 (combined with the weak economic conditions) resulted in a fall in domestic passengers in the 2012 financial year. International passenger movements have accounted for a relatively stable share of around 20% of total passengers during the 2000 to 2009 period but have experienced significant growth over the three years to 30 June 2012 and represented 24% of total passengers in 2012. The recent growth in outbound international travel is attributable to the strong Australian dollar and improved servicing of international destinations by low cost carriers. The recent increase in inbound international travel is due to an increase in seat capacity particularly on routes from China. Melbourne Airport’s market share of international passenger movements has grown to 23.1% in the year ended 30 June 2012 from 21.4% in 2010, largely at the expense of Sydney Airport. Over the same period, passenger movements at Launceston Airport have grown from 0.5 million to 1.1 million despite the weak environment for tourism. Financial Performance

APAC’s financial performance for the five years ended 30 June 2012 is summarised as follows:

APAC - Financial Performance13 ($ millions) Year ended 30 June

2008 actual

2009 actual

2010 actual

2011 actual

2012 actual

Total revenue 449.0 476.9 517.6 560.8 588.4

EBITDA 334.0 351.3 387.2 422.3 435.5

EBIT 294.7 305.3 333.3 357.8 360.6 Fair value adjustment 21.9 (33.0) 11.2 59.4 17.4 Net interest (89.5) (95.6) (114.8) (126.1) (135.3) Profit before tax 227.1 176.7 229.8 291.1 242.7 Tax 68.4 53.2 68.9 87.6 73.0

NPAT 158.7 123.5 160.9 203.5 169.7

Revenue growth (%) 16.9 6.2 8.5 8.3 4.9 EBITDA margin (%) 74.4 73.7 74.8 75.3 74.0 EBIT margin (%) 65.6 64.0 64.4 63.8 61.3 Dividends ($m) 135.8 147.6 134.6 134.6 141.7

Source: APAC and Grant Samuel analysis Revenue for the year ended 30 June 2012 comprised aeronautical (including security and freight) (42%), retail (42%), property (12%) and utility and security recharges (4%). Aeronautical revenue consistently accounted for in excess of 40% of total revenue. Retail revenue consists of rental income from retail leases, car parks, car rental agencies and taxi and limousine operators. Property revenue mostly relates to rental earned on investment properties. Recharge income relates to outgoings (services and utilities and maintenance) recovered from the retail, food and beverage outlets, ground transport operators and leased properties. Costs comprise services and utilities (approximately 55%), labour (20-22%), maintenance and administration, marketing and other. Over the last five years, operating costs have grown in line with revenue and accordingly EBITDA margins have been relatively flat.



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Financial position

The financial position of APAC as at 30 June 2012 is summarised below:

APAC - Financial Position ($ millions)


Receivables and prepayments 32.5 Inventories 0.2 Payables and deferred revenue (70.4) Current tax asset / (liability) (10.9) Provisions (5.3) Net working capital (54.0) Property, plant and equipment 1,384.4 Investment property 1,009.8 Goodwill 671.9 Deferred tax liability (net) (344.2) Other assets 7.8 Other liabilities (79.1) Total funds employed 2,596.5 Cash and cash equivalents 3.0 External borrowings (1,911.2)

Net cash / (borrowings) (1,908.1)14 Net assets 688.4 Outside equity interests - Equity attributable to APAC shareholders 688.4 Statistics Gearing (net external debt/ net external debt plus equity) 73% Gearing (net external debt/net external debt plus independent valuation) 33%

Source: APAC and Grant Samuel analysis Property, plant and equipment includes roads, runways and other infrastructure, buildings and plant and equipment used in the context of aeronautical activities (including retail, food and beverages and ground transport activities). Investment property includes properties held to generate rental income or capital appreciation. The goodwill relates to the original acquisition of the Melbourne and Launceston airport leases and assets and is impairment tested annually.

14 Of which net debt of $35.3 million is attributable to Launceston Airport.

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APAC’s debt facilities at 30 June 2012 are summarised as follows:

APAC - Debt Facilities at 30 June 2012

Facility Facility Drawdown

at 30 June 2012 ($ millions)

Rate Maturity

Senior bank debt 675.5 - - Domestic bonds - fixed rate notes 100.0 6.5% 26 Aug 2014 - fixed rate notes 100.0 6.0% 15 Dec 2015 - variable rate notes 200.0 variable 15 Dec 2015 - fixed rate rotes 250.0 7.0% 26 Aug 2016 US Private Placements - fixed rate 191.1 7.5% 15 Sept 2021 - fixed rate 191.1 7.4% 15 Sept 2023 - fixed rate 191.1 7.4% 15 Sept 2026 Exchange rate fluctuations 22.6 Total 1,921.4

Source: APAC and Grant Samuel analysis US private placement notes are converted into Australian dollars with a cross currency swap (fair value reflected in the external borrowings balance shown above). APAC has issued two new series of US private placement notes, which are expected to be drawn in November 2012 and January 2013. Outlook

Melbourne Airport’s projected performance is expected to be supported by a recovery in domestic passenger growth and continued strength of the international passenger segment. Low cost carriers are expected to remain a major driver of growth in both domestic and international passenger movements. In the longer term, Melbourne Airport is expecting to reach passenger movements of around 50 million in the next two decades and is in the process of developing its master plan to meet these growth expectations.

5.3 QAL

Overview

QAL owns a 100% economic interest in Gold Coast Airport, Townsville Airport, Mount Isa Airport and Longreach Airport, as well as in Aviex Pty Ltd (“Aviex”), a North Queensland maintenance repair and overhaul business, and Aviation Ground Handling Pty Ltd (“AGH”), a Queensland aircraft ground handling company. Gold Coast and Townsville airports accounted for 73% and 23% respectively of total passenger movements at QAL’s airports and a combined 83%15 of QAL’s total revenue in the year ended 30 June 2012. QAL is privately held by investors who hold proportional interests in ordinary shares, loan notes and units in various QAL entities. AIX owns a 49.1% interest in QAL, The Infrastructure Fund 36.7% and other minor shareholders hold the balance of 14.2%. Both AIX and The Infrastructure Fund are managed by Hastings. Under the QAL shareholders’ agreement, any transfer of QAL securities is subject to pre-emptive rights in favour of co-investors. QAL acquired the assets and the long term lease of Gold Coast Airport from the Commonwealth Government in June 1998 and the Townsville and Mount Isa airports in March 2005. The leases over these three airports were granted by the Commonwealth Government in 1998 during the privatisation program of Australian airports and have a 50-year term with a free option to extend

15 Based on unaudited QAL management accounts


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for a further 49 years. On 1 October 2012, QAL acquired the lease and associated assets of Longreach Airport for $2.5 million from the Longreach Regional Council. The lease also has a term of 50 years with a free option to extend for a further 49 years. Gold Coast is largely a leisure destination for both domestic and international travellers and the airport has the first purpose-built low cost carrier terminal in Australia. Townsville is a mining and government sector hub. Mount Isa services the mining, government and pastoral industries of the area. Longreach is primarily a pastoral and regional administrative hub and is expected to only marginally contribute to the performance of QAL in the short and medium term. The characteristics of Gold Coast, Townsville, and Mount Isa airports can be summarised as follows:

QAL – Airport Characteristics Gold Coast Townsville Mount Isa Site area (ha) 374 81 431 Distance from town centre 20km 5km 8km Lease 50yr + 49yr option

Since 1998 50yr + 49yr option

Since 1998 50yr + 49yr option

Since 1998 Facilities 2 terminals 1 terminal 1 terminal Runways 2 1 1 Operations 6am – 11pm 24 / 7 24 / 7 Passengers (FY12 000’s) 5,315 1,693 247 Other services Retail, food outlets

Car rental Retail, food outlets


Car rental Source: QAL A major redevelopment of Gold Coast Airport was completed in late 2009. Townsville Airport is expected to account for two thirds of QAL’s capital spending in the short to medium term.

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The growth in passenger movements for Gold Coast, Townsville and Mount Isa airports over the 13 years to 30 June 2012 is shown in the chart below:

Source: QAL Note: CAGR represents compound annual growth rate. Passenger movements at Gold Coast Airport have grown at an average rate of 8.7% per annum since 2000. However, both domestic and international passenger movements fell in the year ended 30 June 2012 as a result of the subdued economic conditions, the strength of the Australian dollar, which encouraged Australians to travel overseas rather than domestically, and residual impacts of natural disasters in Queensland, Japan and New Zealand. Passenger movements at Townsville and Mount Isa airports have grown strongly largely as a result of growth in the resources sector. International passengers have accounted for slightly under 15% of total passengers travelling through Gold Coast Airport for the three years to 30 June 2012. Scheduled international flights were reintroduced to Townsville in the 2011 financial year but contributed only marginally to passenger movements and revenue in 2012. QAL expects strong growth in passenger movements at Gold Coast, Townsville and Mount Isa airports in the 2013 financial year, which is predominantly a reflection of subdued performance in the 2012 financial year, and moderate growth in the medium to long term. Following the commencement of a Gold Coast service by Scoot Airlines16 in June 2012 and the return of Qantas in October 2012, seven airlines now service the Gold Coast, with Jetstar and Virgin still accounting for the greatest share of passenger movements.

16 Singapore Airlines’ low cost carrier.

1,953 1,8961,723

2,215

2,577

3,212

3,5823,753

4,2874,615

5,1705,441 5,315

782 844 866 858998 1,126 1,241 1,373 1,485 1,540 1,598 1,673 1,693

116 106 88 88 100 118 138 163 197 183 185 217 247

-

1,000

2,000

3,000

4,000

5,000

6,000

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

Pass

enge

rs (0

00's

)

QAL Airports - Passenger MovementsYear ended 30 June

Gold Coast Townsville Mount Isa

8.7%

2000-2012CAGR

6.7%

Gold Coast

Townsville

6.5%

Mount Isa


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Financial Performance

QAL’s financial performance for the five years ended 30 June 2012 is summarised as follows:

QAL - Financial Performance ($ millions) Year ended 30 June

2008 actual

2009 actual

2010 actual

2011 actual

2012 actual

Total revenue 73.0 83.8 121.7 130.6 141.8

EBITDA 40.3 42.3 58.1 67.3 76.8

EBIT 30.4 31.6 40.4 47.5 54.6 Fair value adjustment and impairment 32.6 (22.7) (4.1) (6.1) 2.4 Gain / (loss) on sale of assets (0.0) 0.7 (3.0) (0.1) (0.2) Net finance costs (20.4) (21.3) (23.3) (35.4) (39.0) Profit before tax 42.6 (11.7) 9.9 5.9 17.7 Tax (11.0) 2.5 (3.7) (1.2) 1.2

NPAT 31.6 (9.2) 6.2 4.7 16.6 Minority interests (0.3) (0.2) - - -

Net profit attributable to QAL shareholders 31.9 (8.9) 6.2 4.7 16.6

Revenue growth (%) 13.4 14.8 45.2 7.3 8.5 EBITDA margin (%) 55.2 50.4 47.8 51.5 54.2 EBIT margin (%) 41.7 37.7 33.2 36.4 38.5 Dividends ($ million) 22.0 15.5 23.0 24.5 31.5 Franking (%) 100.0 88.5 48.6 8.5 29.1

Source: QAL and Grant Samuel analysis Note: Financial performance for the year ended 30 June 2012 is sourced from unaudited management accounts Revenue for the year ended 30 June 2012 can be broken down as follows:

QAL – FY12 Revenue Breakdown

Source: QAL unaudited management accounts Note: QAL’s classification of revenue is not consistent with other airports (e.g. terminal charges are included in commercial activities at QAL but in aeronautical revenue at other airports). QAL’s financial performance in 2008 and 2009 was adversely impacted by the redevelopment of Gold Coast Airport. QAL offered discounts to the airlines to compensate them for the inconvenience of the redevelopment. QAL experienced strong growth in revenue and earnings over the subsequent two years, largely as a result of the introduction of new terminal charges in

Aeronautical26%

Commercial activities

42%

Recharges15%

Property 5%

Other12%

Gold Coast59%

Townsville24%

Mount Isa6%

AGH7%

Aviex4%

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September 2009 following the completion of the Gold Coast terminal and stronger retail revenue. Revenue grew in 2012 despite a fall in passenger movements, largely due to AGH’s activities at Longreach Airport, increased management fees generated from both Roma and Longreach airports and improved trading by Aviex. Increase retail and rental income and strong growth from ground transport also contributed to increased revenue. Aeronautical revenue and terminal charges together accounted for approximately half of QAL’s total revenue in the 2012 financial year. Retail revenue, including the recharges of outgoings, accounted for slightly more than 35%. The balance related to rent on investment property and income from AGH and Aviex. Financial position

The financial position of QAL as at 30 June 2012 is summarised below:

QAL - Financial Position ($ millions)


Receivables and prepayments 20.9 Payables (9.2) Current tax asset / (liability) 3.5 Provisions (2.2) Net working capital 13.0 Property, plant and equipment 249.4 Investment property 110.1 Prepaid operating lease 27.6 Goodwill 73.7 Deferred tax liability (net) (10.3) Other asset / (liabilities) (7.5) Total funds employed 456.1 Cash and cash equivalents 20.9 Loan notes held by shareholders (50.5) Bank loans (468.6) Derivatives (22.9)

Net cash / (borrowings) (521.1) Net assets (65.0) Outside equity interests -

Equity attributable to QAL shareholders (65.0) Statistics Gearing (net external debt/ net external debt plus equity) - excluding derivatives 117% Gearing (net external debt/net external debt plus independent valuation) - excluding derivatives

45%

Source: QAL and Grant Samuel analysis Note: Sourced from 2012 unaudited management accounts. Infrastructure, plant and equipment principally consists of infrastructure assets. Investment properties relate to QAL’s holdings in properties held to generate rental income or capital appreciation. QAL completed a refinancing in late 2011. As at 30 June 2012, QAL had $468.6 million in bank loans and $50.5 million of loan notes issued to QAL shareholders, which expire in May 2021. QAL also had access to an additional $60 million in undrawn facilities at 30 June 2012. As part of


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the refinance, QAL shareholders are required to contribute a total of $10 million in equity over the 2013 and 2014 financial years. Outlook

Passenger growth is expected to improve for QAL in the short term. Gold Coast passenger movements are expected to increase due to additional capacity from Jetstar and Tiger, the return of Qantas (domestic) and the introduction of Scoot Airlines (international). Passenger growth at QAL’s other airports is expected to be supported by the resources sector. In the longer term, QAL’s passenger growth will depend on its ability to attract additional capacity on new and existing domestic and international routes. Aeronautical pricing agreements are in place with major airlines operating out of Gold Coast. Negotiations are underway at Townsville Airport and will soon commence at Mount Isa Airport.

5.4 NT Airports

Overview

NT Airports comprises Airport Development Group Pty Ltd (“ADG”), which owns a 100% economic interest in Darwin, Alice Springs and Tennant Creek airports, and two property trusts: the DIA Development Holding Trust and the AFP Development Site Trust. ADG and the two trusts are owned by Industry Funds Management (55.6%), AIX (28.2%) and Palisade Investment Partners Limited (16.2%). ADG acquired the assets of Darwin, Alice Springs and Tennant Creek airports under long term lease arrangements from the Commonwealth Government in June 1998 for a total cost of $110 million. The leases have a 50-year term and carry a free option for a further 49 years. Darwin Airport is an important hub for low cost carriers on routes between the eastern seaboard and Asia and is the key entry point into the Northern Territory’s tourism (national parks) and business centres (resources industry). Darwin Airport also benefits from a strong government presence in the region. Alice Springs is primarily a tourism destination. Tennant Creek services remote communities and the regional pastoral and mining industries and only makes a marginal contribution to the operations of NT Airports. The characteristics of the airports that make up NT Airports are summarised as follows:

NT Airports – Airport Characteristics Darwin Alice Springs Tennant Creek Site area (ha) 31117 3,544 323 Distance from town centre 13km 14km 1km Facilities 1 terminal for

domestic and international

1 domestic terminal 1 general aviation domestic terminal

Runways 2 2 2 Operations 24/7 24/7 24/7 Passengers (FY12 000’s) 2,287 637 n.a. Other services Retail, food outlets


Car rental -

Source: NT Airports Darwin Airport shares the airfield with the Royal Australian Air Force base in Darwin. The entire airfield site covers an area of 1,526 hectares but the lease acquired by the operator of Darwin

17 Refers to the area leased by Northern Territory Airports Pty Ltd, which excludes the area covered by the runways. Total site area is

1,526ha.

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Airport only covers an area of 311 hectares and excludes both runways, which are under the direct control of the Department of Defence. Air traffic control facilities are also the responsibility of the Department of Defence. The facility sharing agreement with the Department of Defence has little impact on the operations of Darwin Airport. Operating Performance

Passenger movements for Darwin and Alice Springs airports over the 12 years ended 30 June 2012 are shown in the chart below:

Source: NT Airports Passenger movements at Darwin Airport have grown steadily over the last 12 years driven by a 6.1% increase in domestic passengers. International passengers declined by 33% in 2002 and another 28% in 2003 due to Darwin Airport’s exposure to the weak tourism market, the high Australian dollar, the collapse of Ansett and weak economic conditions. International passengers reached a low point in 2004 and have since increased by over 10% per annum, largely driven by increased out-bound demand travel to Asia as a result of the strong Australia dollar and the introduction of low cost carriers. International passengers accounted for approximately 20% of total passengers at Darwin Airport in the year ended 30 June 2012. Alice Springs passenger movement growth has been more subdued than at Darwin. Alice Springs is heavily exposed to the tourism market and has not had the benefit of exposure to the growing resources sector. It has also been adversely affected by the withdrawal of Tiger Airways in July 2011. Tennant Creek is only serviced three times a week from Darwin and therefore only caters to a limited number of passengers. Neither Alice Springs nor Tennant Creek airports cater for international flights.

1,380

1,090 1,0851,182

1,386 1,440

1,654

1,813

1,998

2,140

2,287 2,254

665532 572 610 603 607 628 630 676 681 638 578

-

500

1,000

1,500

2,000

2,500

2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

Pass

enge

rs (0

00's

)

NT Airports - Passenger MovementsYear ended 30 June

Darwin Alice Springs

4.6%

2003-2012CAGR

(1.3)%

Darwin

Alice Springs


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ADG’s financial performance for the five years ended 30 June 2012 is summarised as follows:

ADG - Financial Performance18 ($ millions) Year ended 30 June

2008 actual

2009 actual

2010 actual

2011 actual

2012 actual

Total revenue 64.7 71.6 75.7 83.2 89.4

EBITDA 36.2 41.0 44.3 48.0 53.3

EBIT 26.1 29.8 32.4 35.6 40.4 Fair value adjustment and impairment 16.7 21.3 8.0 (7.9) (3.9) Net finance costs (10.8) (14.3) (19.0) (16.0) (23.7)

Profit before tax 31.9 36.8 21.4 11.7 12.8 Tax expense (9.7) (10.9) (5.7) (3.6) (3.6) NPAT attributable to ADG shareholders 22.2 25.9 15.7 8.2 9.2

Revenue growth (%) 15.0 10.6 5.7 9.8 7.4 EBITDA margin (%) 55.9 57.2 58.5 57.7 59.6 EBIT margin (%) 40.4 41.6 42.8 42.8 45.3 Dividends ($ million) 15.6 14.6 14.3 10.4 25.8 Franking (%) 100 100 100 64 -

Source: NT Airports and Grant Samuel analysis Note: Interest income is included in revenue for the two years ended 30 June 2009. Darwin contributed 80.5% of revenue for the year ended 30 June 2012 with Alice Springs contributing 19.3% and Tennant Creek 0.2%. In terms of business activities, revenue comprised aeronautical (including security and freight) (65%), retail and ground transport (16%), and property (13%). ADG is less exposed to retail activities than Australia’s major airports because of the smaller size of the Northern Territory airports and their lower exposure to international passengers. Revenue grew in 2012 despite a fall in passenger movements, as a result of new aeronautical pricing agreements with a number of airlines and increased property lease revenue following completion of stage three of the Lodge hotel and resort in June 2011. Operating costs comprise services and utilities (20%), labour (28%) maintenance (9%) and administration, marketing and other (43%). Over the four years ended 30 June 2011, operating costs grew broadly in line with revenue and accordingly EBITDA margins have been relatively flat through the period. The increase in EBITDA margin in the year ended 30 June 2012 reflected increased property income and reduced maintenance costs. The airport sharing arrangement between Darwin Airport and the RAAF enables ADG to charge the Department of Defence for a portion of work performed on joint user areas. However, the revenue is immaterial in comparison to ADG’s other activities. The AFP Development Site Trust, which is not consolidated into the ADG accounts, reported revenue of $7.0 million for the year ended 30 June 2012 ($1.4 million in rental revenue and $5.6 million in gain on the fair value of its investment property) and a net profit after tax of $6.3 million. DIA Development Holding Trust did not report any revenue or expenses for the year.


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Financial position

The financial position of ADG as at 30 June 2012 is summarised below:

ADG - Financial Position ($ millions)


Receivables and prepayments 14.8 Payables and deferred revenue (11.0) Provisions (2.0) Current tax liability (3.3) Net working capital (1.5) Infrastructure, plant and equipment 159.9 Investment properties 162.2 Goodwill 14.0 Deferred tax liability (net) (46.7) Other assets and liabilities (net) 19.2 Total funds employed 307.2 Cash and cash equivalents 19.9 External borrowings (244.4)

Net cash / (borrowings) (224.5) Net assets 82.7 Outside equity interests -

Equity attributable to ADG shareholders 82.7 Statistics Gearing (net external debt/ net external debt plus equity) 73% Gearing (net external debt/net external debt plus independent valuation 37%

Source: NT Airports and Grant Samuel analysis Infrastructure, plant and equipment principally consists of infrastructure assets. ADG refinanced its debt facilities in October 2011 and at 30 June 2012 the facilities comprised:

ADG - Debt Facilities at 30 June 2012

Facility Facility Amount ($ millions)

Facility Drawdownat 30 June 2012

($ millions) Term Maturity

Facility 1 55.0 55.0 3 years 21 Oct 2014 Facility 2 180.0 180.0 5 years 21 Oct 2016 Facility 3 115.0 7.5 3 years 21 Oct 2014 Total 350.0 242.5

Source: NT Airports ADG also has a $5 million overdraft facility. ADG does not consolidate the trusts in its accounts. These trusts had combined net assets of $5.6 million at 30 June 2012. In particular, AFP Development Site Trust held investment properties valued at $18.3 million and cash of $1.2 million and had a bank loan drawn to $12.2 million. Outlook

Darwin Airport expects annual passenger movements to reach 3.1 million by 2017 driven by the continued emergence of Darwin Airport as Northern Australia’s hub for narrowbody aircraft


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servicing Asian destinations, growth in the resource industry (e.g. INPEX gas project) with fly in fly out operations and the recent deployment of United States marines to Darwin. Darwin Airport is currently embarking on a $50 million development plan, which includes a 55% increase in terminal area and additional aircraft parking positions. Darwin Airport expects that the redevelopment will result in a doubling of peak hour capacity and a 40% increase in passenger movements over the next decade. The development is underpinned by aeronautical pricing agreements with major airlines servicing Darwin. Alice Springs Airport’s development plans included an $8 million upgrade of the apron completed during 2012. In March 2011, five year pricing agreements were negotiated with the major airline customers to support the development.

5.5 HTAC

Overview

HTAC is owned by four shareholders: AIX, UTA, Caisse de dépôt et placement du Québec, Montréal / Canada (“CDPQ”) and KfW IPEX-Bank GmbH, Frankfurt am Main (“KfW”). They each have proportional interests in shares and a shareholder loan. HTAC has interests in three European airports (Düsseldorf, Hamburg and Athens) and in Sydney Airport. HTAC’s effective shareholding structure and asset ownership is summarised as follows:

Source: HTAC HTAC is managed by HOCHTIEF AirPort Capital Verwaltungs GmbH & Co. KG (“General Partner”). The General Partner receives airport service fees and success fees for its services. The characteristics of the airports can be summarised as follows:

Sydney Airport is Australia’s busiest airport. It is Australia’s major international gateway and benefits from both strong leisure and business markets. It is operated under a 50 year lease expiring in 2048 with an option to renew for a further 49 years. The lease and the associated assets were acquired from the Commonwealth Government for a one-off payment of $4.2 billion and the assumption of $1.5 billion in debt in June 2002 when the airport was privatised;

Düsseldorf Airport is located in the heart of Germany’s densely populated Rhine-Ruhr region, a major economic area with a population of 18 million people. It is Germany’s third

Hamburg AirportDusseldorf AirportSydney Airport Athens Airport

HTAC

CDPQUTAAIX KfW

Shares Shareholder loan

40.02%

40.02%

9.98%

9.98%

40.00%

40.00%

10.00%

10.00%

6.50% 10.00% 14.22% 13.34%

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busiest airport after Frankfurt and Münich. It serves as a major hub for Lufthansa and Air Berlin, Germany’s first and second largest airlines. The airport is operated under an unlimited permit and a lease over the land expiring in 2027, with an option to either extend the lease or buy the land. The operator pays annual rent for the use of the land;

Hamburg is Germany’s second largest city, a major transport hub in northern Germany and one of Europe’s most affluent cities. Hamburg Airport is Germany’s fifth busiest airport. The airport is operated under an unlimited permit and a lease over the land expiring in 2020, with an option to either extend the lease. The operator pays annual rent for the use of the land; and

Athens International Airport, which opened in March 2001, is Greece’s major international and domestic airport. Athens Airport is operated under a concession which expires in 2026.


Passenger movements through HTAC’s airports since 200019 is shown in the chart below:

Source: HTAC Passenger movements declined from their 2000 levels at Düsseldorf and Hamburg airports and remained below these levels until 2005 as a result of subdued economic growth in Germany and Europe more generally, and one-off external shocks (e.g. 9/11 terrorist attacks, SARS). Passenger movements increased by more than 4% per annum in the period from December 2006 to December 2011 despite the onset of the global financial crisis and the continued uncertainty surrounding Europe’s economic conditions. Overall, growth in passenger movements over the 2000-2011 period averaged 2.2% and 2.9% per annum at Düsseldorf and Hamburg airports respectively. Passenger movements at Sydney Airport in 2002 and 2003 were dramatically affected by Australia- and Asia-centric shocks (e.g. collapse of Ansett, Bali bombing). However, passenger movements grew strongly between 2004 and 2011 resulting in an average growth rate of 3.1% per annum overall for the 2000-2011 period. Growth at Athens Airport has been more subdued. Passenger movements have been declining sharply since 2009, after growing strongly

19 Compound annual growth rate for Athens airport is for the 2002 to 2011 period to capture full calendar years (the airport opened in

March 2001)

2526

2425

2829

3032

33 33

36 36

16 15 15 1415 15

1718 18 18

1920

10 9 9 9 10 1112 13 13 12 13 14

0

1012 12

14 14 1517 16 16 15

14

-

5

10

15

20

25

30

35

40

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011

Pass

enge

rs (m

illio

ns)

HTAC Airports - Passenger MovementsYear ended 31 December

Sydney Düsseldorf Hamburg Athens

3.1%

2000-2011CAGR*

2.9%

Sydney

Hamburg

Dusseldorf2.2%

Athens2.2%


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during the 2002-2007 period and plateauing in 2008-2009. This is largely attributable to the pooreconomic situation in Greece and the rationalisation of the domestic network with regional holidaydestinations being serviced directly rather than through Athens. For the European airports, theinternational sector has performed better than the domestic market, whereas for Sydney thedomestic market has performed better.

A combined 84 million passengers travelled through HTAC’s airports during the year ended31 December 2011, or 8.2 million on a proportional basis:

Source: HTACNote: Numbers may not add up due to rounding.

Domestic passengers represent approximately two thirds of passengers travelling through SydneyAirport but only one third of the total passengers travelling through HTAC’s European airports.This difference can be attributed to the different geographic and competitive characteristics ofAustralian and European airports. Sydney Airport is Australia’s major international gateway with11.6 million international passengers travelled through the airport in the year ended31 December 2011 compared to 6.6 million travelling through Melbourne Airport over the sameperiod.


HTAC does not consolidate any of its investments and receives cash income from the investmentcompanies in the form of distributions and interest on shareholder loans. HTAC values itsinvestments at acquisition cost rather than market value. Expenses largely consist of the airportservice fee and success fee paid to the General Partner and interest expenses.

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The financial performance of HTAC for the three years ended 31 December 2011 is summarisedas follows:

HTAC - Financial Performance20

(€ millions)

Year ended 31 December

2009

actual

2010

actual

2011

actual

Income from long term equity investments 21.4 40.0 26.6

Income under profit transfer agreements 9.0 10.2 12.3

Other revenue 0.2 0.1 0.2

Total revenue 30.6 50.4 39.0

General partner fee (6.5) (6.7) (6.8)

Other expenses (5.8) (0.4) (0.3)

Net interest expenses (17.1) (16.5) (15.0)

Total expenses (29.3) (23.6) (22.2)

Profit before tax 1.3 26.8 16.9

Tax - (0.0) (0.1)

NPAT 1.3 26.8 16.8

Source: Unternehmens-Register and Grant Samuel analysis

The underlying revenue and EBITDA of HTAC’s airports for the five years ended31 December 2011 is shown on the following charts:

Source: AIX Annual Reports

20 Financial statements prepared in accordance with the regulations of the German Commercial Code applicable to firms organised in acorporate form and in compliance with the German Stock Corporation Law.


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Source: AIX Annual Reports

Sydney Airport has enjoyed strong revenue and EBITDA growth over the five years ended31 December 2011 despite the global financial crisis and weak economic conditions. Düsseldorfand Hamburg airports experienced a dip over the same period although revenue and EBITDA forthe year ended 31 December 2011 were slightly higher than in 2007. Revenue and EBITDA atAthens Airport has trended downwards since 2008.

HTAC’s proportionate revenue and EBITDA for the year ended 31 December 2011 were$231 million and $133 million21 respectively.

HTAC – Proportional Revenue and EBITDA21

(Year ended 31 December 2011)

Source: AIX Annual Report and Grant Samuel analysis

Düsseldorf and Hamburg airports have significantly lower EBITDA margins in the year ended31 December 2011 (38% and 35% respectively) than Sydney Airport (81%) and Athens Airport(66%). European airports typically provide ancillary services (e.g. baggage handling, catering)which generate lower margins than core aeronautical services, do not generate as much retail

21 Revenue and EBITDA of the European airports were converted from euros to Australian dollars at the average exchange rate for theyear to 31 December 2011 of €1.00 = AUD1.3483. Revenue and EBITDA data reflect a number of specific adjustments as detailed inthe AIX Annual Report for the year ended 30 June 2012. HTAC EBITDA before management fees and other costs.

Sydney63

Düsseldorf50

Hamburg49

Athens68

Revenue ($ million)

HTAC Share: $231 million

(Total HTAC Airports: $2.3 billion)

Sydney51

Düsseldorf19

Hamburg18

Athens45

EBITDA ($ million)

HTAC Share: $133 million

(Total HTAC Airports: $1.4 billion)

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revenue per passenger and face greater competition from other airports, rail and road as travelling distances are much shorter. It should be noted however that both these airports operate under a similar dual-till system to Sydney Airport. Athens Airport enjoys relatively high margins (66% including the Airport Development Fund subsidy and 59% excluding the subsidy) possibly reflecting a lower level of competition from other airports, rail and road although it does face competition from ferry services to the Greek islands. Sydney Airport is the international gateway into Australia and faces virtually no competition from the rail and road network Financial position

The financial position of HTAC as at 31 December 2011 is summarised below:

HTAC - Financial Position (€ millions)

As at 31 December 2011actual

Receivables 7.5 Payables and provisions (0.9)

Net working capital 6.7 Equity investments 369.6 Other assets and liabilities 9.7

Total funds employed 385.9 Cash and cash equivalents 1.7 Shareholder loans (92.7) Third party loans (92.7)

Net cash / (debt) (183.6)

Net assets 202.3 Outside equity interests -

Equity attributable to HTAC securityholders 202.3 Source: Unternehmens-Register and Grant Samuel analysis HTAC’s statement of financial position reflects the following:

HTAC’s main assets are minority interests in investments held through holding companies. HTAC’s interest in the various airports are not carried at market value;

HTAC had loans totalling €185.3 million as at 31 December 2011. The loans were evenly split between a shareholder loan, held by the shareholders in HTAC proportionate to their shareholdings, and loans from third parties. Both loans are due in 2015; and

the majority of receivables, payables and other assets and liabilities are receivables from or liabilities to affiliated entities or the Greek government. Other assets include a €3.6 million claim against the Greek government over a withholding tax refund, which HTAC expects will be successful. The amount has been brought to account at its full value.

Outlook

Growth in passenger movements at Sydney, Düsseldorf and Hamburg airports (particularly international passenger growth) is expected to remain robust, benefitting from the resilient economic environments in Australia and Germany. Continued economic uncertainty is expected to put pressure on the performance of Athens Airport. The Greek government is exploring sell-down options for its 55% stake in Athens Airport and the possible extension of the concession to operate the airport which currently expires in 2026. Any capital projects implemented in the next few years at the HTAC airports are expected to be funded out of each airport’s operating cash flows or debt facilities and without the requirement for equity contributions from HTAC’s shareholders.


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6 Valuation

6.1 Summary

AIX has been valued in the range $1,936-2,202 million, which corresponds to a value of $3.12-3.55 per security. The valuation represents the estimated full underlying value of AIX and includes a premium for control. The value exceeds the price at which, based on current market conditions, Grant Samuel would expect AIX securities to trade on the ASX in the absence of a takeover offer or other change of control proposal. The value of AIX is the aggregate of the estimated market value of AIX’s investments in the Assets, the value of AIX’s other assets and liabilities, and cash. The valuation is summarised below:

AIX – Valuation Summary ($ millions)

Report Section

Reference

AIX’s Interest

Low High

Perth Airport 6.3 975 1,050 APAC 6.4 775 850 QAL 6.5 550 600 NT Airports 6.6 180 200 HTAC 6.7 293 323 Statewide Roads 6.10 1 2 External Manager Payment 6.8 (60) (50) Corporate costs 6.9 (35) (30) Enterprise value 2,679 2,945 AIX’s share of Assets’ net debt 6.3-6.6 (831) (831) Cash as at 30 June 2012 6.10 157 157 Distribution for six months ended 30 June 2012 6.10 (34) (34) Hastings performance fee22 6.10 (35) (35)

Value of equity 1,936 2,202 Securities on issue (million) 620.7 620.7

Value per security 3.12 3.55

The valuation was determined based on both discounted cash flow analysis and capitalisation of earnings for each of the Assets. The value ranges selected reflect judgements derived through an iterative process. The objective is to determine a value that both fits with the output of the discounted cash flow analysis and is consistent with market evidence from earnings multiples. Grant Samuel prepared a discounted cash flow analysis for each of the Assets. Grant Samuel has modelled the impact of various sensitivities in relation to growth in passenger movements, aeronautical revenue, operating costs and capital expenditure for Perth Airport and APAC, being AIX’s two largest assets. The sensitivity analysis to some extent is arbitrary as the performance of the airports is a function of a large number of interdependent variables that are subject to considerable uncertainty and contingencies, many of which are outside of the control of the airports. However, the sensitivities reflect the range of judgements that potential acquirers of the Assets could make. The sensitivity analysis does not, and do not purport to, represent possible best and worst case outcomes for the future performance of the Assets. They are simply theoretical indicators of particular sensitivities. Nevertheless, Grant Samuel considers that the analysis does provide some insight into value.

22 In relation to the year ended 30 June 2012.

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Except for HTAC, the financial models used as their starting point the balance sheets of the Assets at 30 June 2012 and projected cash flows from 1 July 2012 for 20-25 years. Projected ungeared after tax cash flows were discounted to a present value using nominal after tax discount rates of 8.5-9.5%. Appendix 1 sets out a detailed analysis of the selection of the discount rates. Terminal values were calculated based on long term annual growth in free cash flows of 3.0-4.0%. A corporate tax rate of 30% was assumed. The discounted cash flow analysis for HTAC was based on after tax cash flow projections developed by the management of HTAC. The cash flows were discounted based on a cost of equity of 10.5-11.5%. The valuation range represents the following EBITDA multiples:

AIX Implied EBITDA Multiples

Variable ($ million) Low High

Statutory EBITDA for year ended 30 June 2012 (actual) 198.0 13.5 14.9 Proportional EBITDA for the year ended 30 June 2012 (actual)23 209.3 12.8 14.1

The directors of AIX have decided not to include any forecasts in the Explanatory Memorandum and therefore forecast financial information and the multiples of forecast earnings implied by the valuation have not been disclosed in this report. The valuation reflects the particular attributes of AIX’s business and takes into account factors such as:

AIX is an investment vehicle with only minority interests in the Assets. It has no direct control over the management of the underlying assets and its influence is limited to representation on the boards of the Assets and rights under the Asset’s shareholders’ agreements;

all transfers of shareholdings in the Assets (except for Statewide Roads and HTAC) are subject to pre-emptive rights in favour of co-investors under each Asset’s shareholders’ agreement. HTAC is subject to change of control provisions. A change of control of AIX, depending on the structure of the transaction, may also trigger the pre-emptive rights relating to the Assets. Accordingly, the pre-emptive rights may make AIX or the Assets less attractive to potential acquirers; and

potential acquirers of AIX would not expect to obtain the strategic benefits, operational synergies or costs savings that acquirers are often seeking through acquisitions.

On the other hand, AIX represents a unique opportunity to acquire a portfolio of investments in Australian airports for which potential acquirers may be willing to pay a premium. The valuation includes a premium for control for AIX. The valuation represents a premium of 20-44% over the one to three month volume weighted average security price (“VWAP”) at which AIX securities traded prior to the announcement of the Proposal. Takeover premiums are typically in the range 20-35% depending on the individual circumstances.

6.2 Methodology

6.2.1 Overview

Grant Samuel’s valuation of AIX has been estimated by aggregating the estimated market value of its investments together with the realisable value of non-trading assets and deducting external borrowings and non-trading liabilities as at 30 June 2012. The value of its investments has been estimated on the basis of their fair market value, defined as the

23 Represents proportional EBITDA of $225.0 million (see page 12) net of expenses of $15.8 million (see page 13).


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maximum price that could be realised in an open market over a reasonable period of time assuming that potential buyers have full information. The valuation of AIX is appropriate for the acquisition of AIX as a whole and, accordingly, incorporates a premium for control. The value is in excess of the level at which, under current market conditions, securities in AIX could be expected to trade on the sharemarket. Shares in a listed company normally trade at a discount of 15-25% to the underlying value of the company as a whole (but this discount does not always apply). The most reliable evidence as to the value of a business is the price at which the business or a comparable business has been bought and sold in an arm’s length transaction. In the absence of direct market evidence of value, estimates of value are made using methodologies that infer value from other available evidence. There are four primary valuation methodologies that are commonly used for valuing businesses:

capitalisation of earnings or cash flows;

discounting of projected cash flows;

industry rules of thumb; and

estimation of the aggregate proceeds from an orderly realisation of assets. Each of these valuation methodologies has application in different circumstances. The primary criterion for determining which methodology is appropriate is the actual practice adopted by purchasers of the type of business involved. Nevertheless, valuations are generally based on either discounted cash flow analysis or capitalisation of earnings and Grant Samuel has had regard to both methodologies in the valuation of AIX.

6.2.2 Capitalisation of Earnings or Cash Flows

Capitalisation of earnings or cash flows is the most commonly used method for valuation of industrial businesses. This methodology is most appropriate for industrial businesses with a substantial operating history and a consistent earnings trend that is sufficiently stable to be indicative of ongoing earnings potential. This methodology is not particularly suitable for start-up businesses, businesses with an erratic earnings pattern or businesses that have unusual capital expenditure requirements. This methodology involves capitalising the earnings or cash flows of a business at a multiple that reflects the risks of the business and the stream of income that it generates. These multiples can be applied to a number of different earnings or cash flow measures including EBITDA, EBIT or net profit after tax. These are referred to respectively as EBITDA multiples, EBIT multiples and price earnings multiples. Price earnings multiples are commonly used in the context of the sharemarket. EBITDA and EBIT multiples are more commonly used in valuing whole businesses for acquisition purposes where gearing is in the control of the acquirer but are also used extensively in sharemarket analysis.

6.2.3 Discounted Cash Flow

Discounting of projected cash flows has a strong theoretical basis. It is the most commonly used method for valuation in a number of industries, including resources, and for the valuation of start-up projects where earnings during the first few years can be negative but it is also widely used in the valuation of established industrial businesses. Discounted cash flow valuations involve calculating the net present value of projected cash flows. This methodology is able to explicitly capture depleting resources, development projects and fixed terms contracts (which are typical in the resources sector), the effect of a turnaround in the business, the ramp up to maturity or significant changes expected in capital

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expenditure patterns. The cash flows are discounted using a discount rate which reflects the risk associated with the cash flow stream. Considerable judgement is required in estimating future cash flows and it is generally necessary to place great reliance on medium to long term projections prepared by management. The discount rate is also not an observable number and must be inferred from other data (usually only historical). None of this data is particularly reliable so estimates of the discount rate necessarily involve a substantial element of judgement. In addition, even where cash flow forecasts are available, the terminal or continuing value is usually a high proportion of value. Accordingly, the multiple used in assessing this terminal value becomes the critical determinant in the valuation (i.e. it is a “de facto” cash flow capitalisation valuation). The net present value is typically extremely sensitive to relatively small changes in underlying assumptions, few of which are capable of being predicted with accuracy, particularly beyond the first two or three years. The arbitrary assumptions that need to be made and the width of any value range mean the results are often not meaningful or reliable. Notwithstanding these limitations, discounted cash flow valuations are commonly used and can at least play a role in providing a check on alternative methodologies, not least because explicit and relatively detailed assumptions as to expected future performance need to be made. Financial models for the Assets have been developed by the management of each of the Assets. AIX relies on these financial models for its own planning purposes. Moreover these financial models are used by KPMG Corporate Finance for the six monthly independent valuation of the Assets for financial reporting purposes. Except for HTAC, the models allow the key drivers of revenues, costs and capital expenditure to be modelled. The models are based on a large number of assumptions regarding factors bearing on the future performance of the Assets, many of which are outside the control of AIX or the managers of the Assets. Grant Samuel has based its discounted cash flow analysis on these models, although it has amended valuation assumptions or adopted its own assumptions as appropriate. The assumptions upon which the DCF analysis was based are discussed in more detail in sections 6.3-6.7 of this report.

6.2.4 Industry Rules of Thumb

Industry rules of thumb are commonly used in some industries. These are generally used as a “cross check” of the result determined by a capitalised earnings valuation or by discounting cash flows. While they are only used as a cross check in most cases, industry rules of thumb can be the primary basis on which buyers determine prices in some industries. Grant Samuel is not aware of any commonly used rules of thumb that would be appropriate to value the investments of AIX. In any event, it should be recognised that rules of thumb are usually relatively crude and prone to misinterpretation.

6.2.5 Net Assets/Realisation of Assets

Valuations based on an estimate of the aggregate proceeds from an orderly realisation of assets are commonly applied to businesses that are not going concerns. They effectively reflect liquidation values and typically attribute no value to any goodwill associated with ongoing trading. Such an approach is not appropriate in AIX’s case.

6.3 Perth Airport

Grant Samuel has valued AIX’s 29.74% economic interest in Perth Airport (ordinary equity, shareholder loans and trust units) in the range $672-747 million. The valuation is summarised as follows:


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29.74% interest in Perth Airport – Valuation Summary ($ millions) Low High

Share of operating business 975 1,050 Share of net debt (excluding shareholder loans) as at 30 June 201224 (303) (303) Economic interest in Perth Airport 672 747

The valuation of AIX’s 29.74% interest in Perth Airport reflects the value of a minority interest in Perth Airport and the existence of the pre-emptive rights held by the co-investors under the Perth Airport shareholders’ agreement. The valuation is an overall judgement having regard to both DCF analysis and earnings multiple analysis. The key assumption for Grant Samuel’s DCF analysis for Perth Airport relates to passenger movements. Forecast passenger movements directly affect the requirement for capital investment and are a key factor in negotiating the terms of the aeronautical pricing agreements with airlines. Passenger movements also affect retail revenue growth. The most recent publicly available forecasts of passenger movements for Perth Airport are set out in the 2009 Master Plan for Perth Airport (“Perth Airport Master Plan”). The Perth Airport Master Plan forecast passenger movements growing at 3.3% per annum over the period 2009-2013. Actual growth over that period was 9.1% per annum, reflecting the impact of the Western Australian resources boom and economic conditions that were generally stronger than expected. As a result, actual passenger movements for 2012 were 12.6 million by comparison with the 10.4 million forecast in the Perth Airport Master Plan. The Perth Airport Master Plan forecast growth in passenger movements of 3.6% per annum over the 17 year period from 2012 to 2029. Grant Samuel’s DCF analysis reflects an assumption that domestic passenger growth will remain strong for the next three years and then fall significantly as major resource capital projects are completed, although domestic passenger movements are expected to be supported by an increase in the number of fly-in fly-out operational personnel for the newly completed resources projects. Growth in international passenger movements is expected to remain strong in the short term, as new routes are developed and new airlines service Perth, and then to decline steadily to long term assumptions in 2033. The net effect of the assumptions regarding growth in passenger movements is that overall passenger movements for the period 2013 to 2037 grow at rates marginally higher than the long term growth rate of 3.6% per annum assumed in the Perth Airport Master Plan (although the growth rates in Grant Samuel’s DCF analysis are relative to a much higher base in terms of passenger movements in 2012). On the basis of the assumptions adopted, EBITDA grows largely in line with the growth in passenger movements, although this growth is augmented by EBITDA margin improvements resulting from stronger growth in non-aeronautical revenue, the assumed realisation of efficiencies and economies of scale. Major capital expenditure items include the current redevelopment (new domestic terminal, domestic pier and apron at Terminal 1, and expansion of the international terminal), which is projected to be completed in 2015 at a cost of around $1 billion, and a new international terminal.

24 Includes value of derivatives at 30 June 2012.

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The output of the DCF analysis is summarised below:

100% Perth Airport – Net Present Values ($ millions)

Discount rateLong Term Growth Rates

3.0% 3.5% 4.0%

9.5% 3,207 3,292 3,392

9.0% 3,548 3,660 3,794

8.5% 3,954 4,103 4,286

The terminal values calculated in the DCF analysis imply earnings multiples in the range 11.4-13.7 times terminal year EBITDA.

Net present values from discounted cash flow analyses are subject to significant limitations andshould always be treated with considerable caution. In particular, the net present values are verysensitive to relatively small changes in discount rate and terminal value growth rates. GrantSamuel has also analysed the sensitivity of the net present values to changes in the followingvariables:

passenger movement growth rates: +/- 10% from the 2014 financial year;

aeronautical pricing: +/- 5% from the 2019 financial year (being the year the newaeronautical pricing agreements will apply);

operating expenditure: +/- 10% from the 2014 financial year (excluding recharges); and

capital expenditure: +/- 10% from the 2014 financial year.

The output of the sensitivity analysis is summarised below:

Note: Based on mid-point WACC of 9.0% and terminal value growth rate of 3.5%

The sensitivity analysis allows an assessment of the impact on value of various key assumptions.These sensitivities do not, and do not purport to, represent the range of potential value outcomesfor Perth Airport. They are simply theoretical indicators of the sensitivity of the net present values


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derived from the DCF analysis. It should be recognised that the sensitivities do not necessarily reflect the impact, mitigating or otherwise, of a change in a value driver on the other value drivers. The net present value outcomes show a relatively wide range across the different sensitivities, highlighting the sensitivity to relatively small changes in assumptions. In particular, there is considerable sensitivity to assumptions regarding annual growth in passenger movements. Grant Samuel’s valuation of AIX’s 29.74% interest in Perth Airport in the range $975-1,050 million (on an ungeared basis) takes into account the DCF analysis set out above as well as the following factors:

the net present values reflect full underlying value (i.e. notionally including a premium for control). Minority interests normally trade at a discount of 15-25% to underlying value, although this discount does not always apply; and

the Perth Airport shareholders’ agreement contains pre-emptive rights, which may increase the perceived transaction risk for potential acquirers of AIX’s minority interest in Perth Airport.

On the other hand, a minority interest in Perth Airport is likely to be an attractive asset for a wide range of investors:

Perth is Western Australia’s largest city and is undergoing very strong growth due to its exposure to the resources sector. Moreover, the resources sector is becoming increasingly reliant on fly-in fly-out employees, for which Perth is an important transportation hub;

due to the size of Western Australia, air travel in and out of Perth is subject to little competition from other forms of transport;

Perth’s economic cycle is more volatile than for other capital cities in Australia, largely due to its exposure to the resources sector. The DCF analysis reflects the current boom economic conditions in Western Australia and an assumption of a decline to much weaker conditions. However, it does not reflect any further cycles;

Perth Airport has a well diversified passenger mix;

Perth Airport has a large area of excess land that could be used for additional aeronautical assets (i.e. another runway) or to develop leasable property assets; and

Perth Airport is currently undergoing a $1 billion redevelopment which should increase capacity, enhance operating efficiency and improve the customer experience at the airport. On the other hand, the redevelopment remains subject to the risk of cost overruns and/or project delay.

The valuation of $975-1,050 million (on an ungeared basis) implies the following earnings multiples:

Perth Airport – Implied Multiples

Year ended 30 June 2012 (actual) Variable – AIX Share25

($ millions) Low High

EBITDA 67.8 14.4 15.5 EBIT 58.7 16.6 17.9

Grant Samuel has also considered the multiplies of projected earnings for the years ending 30 June 2013 and 2014 (as projected in the DCF model) implied by its valuation of Perth Airport in the range $975-1,050 million. However, Grant Samuel has not disclosed these prospective

25 Includes PAPT EBITDA and EBIT of $1.5 million (100% basis).

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earnings multiples in this report at the request of AIX, due to the confidentiality obligations of AIX to third parties. Grant Samuel has reviewed both the multiples of historical earnings and the multiples of prospective earnings having regard to EBITDA multiples for transactions involving airports and comparable listed companies. The following table sets out the EBITDA and EBIT multiples implied by selected transactions involving the acquisition of airport businesses in Australia and New Zealand since February 2007:

Recent Transaction Evidence

Date Target Transaction Consid-eration

(millions)

EBITDA Multiple (times)

EBIT Multiple(times)

Historical Forecast Historical Forecast

Australia Jul 11 Sydney Airport Acquisition of 11.02% by

Macquarie Airports A$7,305 19.3 18.2 27.7 na26

Aug 10 Moorabbin Airport Acquisition by Goodman Group

A$182 38.0 na 47.6 na

May/ Jun 10 APAC (Melbourne, Launceston Airports)

Acquisition of additional 2.25% by Australian Infrastructure Fund

A$3,404 14.8 13.5 17.0 na

Jan 10 North Queensland Airports Corporation

Acquisition of 24.55% by Auckland International Airport

A$541 18.8 20.6 na 32.5

Dec 08 Cairns Airport Acquisition by North Queensland Airports Group

A$530 14.7 na 25.0 na

Nov 08 Mackay Airport Acquisition by North Queensland Airports Group

A$209 26.9 na 49.3 na

Oct 08 Brisbane Airport Acquisition of 12.4% by existing shareholders

A$2,334 17.3 na 20.9 na

Dec 07 Hobart International Airport Acquisition by Tasmanian Gateway Consortium

A$310 33.5 na 41.7 na

Nov 07 APAC (Melbourne, Launceston Airports)

Acquisition of 19.82% by Hastings Consortium

A$2,964 15.9 15.3 18.5 na

Nov 07 Perth Airport Acquisition of 15% by Hastings Consortium

A$1,031 14.9 15.3 na na

Nov 07 NT Airports Acquisition of 10% by Hastings Consortium

A$247 12.4 10.3 17.1 na

Mac 07 Sydney Airport Acquisition of 2.77% by HOCHTIEF AirPort

A$4,404 20.2 19.5 28.2 na

Feb 07 Sydney Airport Acquisition of 15.1% by Macquarie Airports

A$4,391 20.2 19.5 28.2 na

Feb 05 Townville and Mount Isa Airports

Acquisition by Queensland Airports Limited

A$75 na 11.6 na na

New Zealand Jul 10 Queenstown Airport Acquisition of 24.99% by

Auckland International AirportNZ$111 13.5 11.3 18.8 na

Nov 09 Auckland International Airport Limited

Sale of 3.87% by Infratil Limited placement

NZ$2,256 12.0 12.1 14.9 15.2

Nov 07 (did not proceed)

Auckland International Airport Limited27

Takeover offer for 39.2% by Canadian Pension Plan Investment Board

NZ$4,468 21.4 19.2 26.1 23.4

Nov 06 Palmerston North Airport Acquisition of 13.5% by Palmerston North City Airport

NZ$20 8.8 na 10.8 na

Source: Grant Samuel analysis (see Appendix 2) Grant Samuel has focussed its review on transactions in the period since mid 2007 as these transactions are most indicative of current market conditions and growth expectations. Capital market uncertainty and weaker global economic conditions since mid 2007 have resulted in lower value parameters for airports than previously. The following factors are relevant to consideration of the transaction evidence:

26 na = not available 27 Although Auckland Airport shareholders approved CPPIB’s partial takeover offer and the required level of acceptances were obtained,

this transaction did not complete as it did not obtain approval from the New Zealand Overseas Investment Office.


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the implied multiples reflect a range of business specific factors including:

• the regulatory environment in which the airport operates;

• whether the airport business comprises hub or regional activities and whether the airport operates an international hub for an airline;

• the competitive environment (e.g. proximity to other airports and other forms of transport);

• the business mix of the airport, particularly the proportion of non-aeronautical revenue (e.g. retail or investment property income) relative to aeronautical revenue; and

• the level of property development activities and the extent to which the airport may hold land for future development;

the majority of Australian airports were privatised prior to 2005 and are owned by private consortia. In this context:

• the transactions reviewed primarily involve minority interests in major Australian airports and majority interests in regional airports;

• airport shareholder agreements typically include provisions that impact the marketability of ownership interests (e.g. pre-emptive rights arrangements). The terms of such shareholder agreements are confidential and likely to differ between entities. As a consequence, it is unclear from public information whether the value parameters implied by the Australian transactions reflect pre-agreed valuation methodologies or full underlying value (notwithstanding that minority interests have changed hands);

• transaction multiples for interests in capital city airports (e.g. Sydney, Melbourne, Perth and Brisbane) are generally higher than for regional airports (e.g. NT Airports); and

• the multiples implied for Hobart International Airport and Moorabbin Airport are relatively high reflecting opportunities for major property development activity and a substantial development land bank respectively. If the consideration for Moorabbin Airport is adjusted for the market value of the land bank the historical EBITDA and EBIT multiples decline to 21.5 and 26.9 times respectively;

the New Zealand evidence is limited and all transactions are for minority interests, but they may not be as meaningful for valuation purposes as the Australian transactions, as the regulatory environment in New Zealand is slightly different to that in Australia. In this regard:

• although the partial takeover offer for 39.2% of Auckland International Airport Limited (“Auckland Airport”) by the Canadian Pension Plan Investment Board did not proceed (as the Overseas Investment Office declined its application), the offer price exceeded the full underlying value of Auckland Airport estimated by the independent expert and the requisite shareholder votes and acceptances were received to enable the transaction to complete. The multiples implied by this transaction therefore arguably include a control premium;

• at the time Auckland Airport agreed to acquire a 24.99% interest in Queenstown Airport Corporation Limited, it also acquired an option to increase its shareholding to 30-35%. Although this option was not exercised, the terms of the option implied multiples of 12.9-13.9 times forecast EBITDA for a 30-35% interest (albeit still a minority interest);

• the sale by way of institutional placement of 3.87% of Auckland International Airport Limited (“Auckland Airport”) by Infratil Limited took place at a 3.9% discount to the share price immediately prior to the sell down; and

• Palmerston North City Council controlled Palmerston North Airport prior to the acquisition of the remaining 13.5%.

The value range attributed to Perth Airport implies EBITDA multiples that are consistent with the multiples implied by the price at which the Hastings Consortium acquired a 15% interest in Perth

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Airport in November 2007. It is arguable that general economic and financial market conditions were stronger in November 2007 than they are currently. However, the expected growth prospects for Perth Airport are stronger now than they were in November 2007. The following table sets out the implied earnings multiples for a range of listed comparable companies based on share prices as at 3 December 2012:

Sharemarket Ratings of Selected Listed Companies – Airports28

Company Airport, Country

Market Capital- isation29

($ millions)

EBITDA Multiple30 (times)

EBIT Multiple31 (times)

Historical ForecastYear 1

Forecast Year 2 Historical Forecast

Year 1 ForecastYear 2

Australia/New Zealand

Sydney Airport Sydney, Australia 6,514 17.2 15.6 14.6 28.8 24.0 22.2 Auckland International Auckland, New Zealand 2,833 14.2 13.4 12.6 17.9 16.8 15.6

Asia Airports of Thailand 6 airports in Thailand 4,257 10.0 9.6 8.9 21.0 14.0 13.2 Shanghai International Shanghai, China 3,418 8.6 8.4 7.0 14.0 12.9 10.0 Beijing Capital Beijing, China 2,837 9.2 8.5 7.2 15.9 14.1 11.1 Malaysia Airports 39 airports in Malaysia 2,078 10.3 9.4 8.8 13.2 11.7 13.2

Europe Aeroports de Paris Paris, France 7,383 8.3 8.0 7.5 13.7 13.5 12.6 Fraport Frankfurt, Germany 4,934 8.8 8.4 7.6 14.2 13.8 12.4 Kobenhavns Lufthavne Copenhagen, Denmark 2,650 11.0 8.9 8.2 15.6 12.5 11.6 Flughafen Zuerich Zurich, Switzerland 2,608 8.7 8.3 8.0 15.6 14.9 13.9 Gemina Rome, Italy 1,547 8.5 8.6 7.7 20.5 20.2 15.7 Flughafen Wien Vienna, Austria 1,018 8.0 7.2 6.9 12.3 14.6 16.0 SAVE Venice, Italy 485 7.2 6.7 5.6 10.9 10.1 8.0

Source: Grant Samuel analysis (see Appendix 3) None of these companies is directly comparable to Perth Airport, although Sydney Airport is the most similar. It is subject to a similar regulatory environment and land ownership arrangements and its earnings are reported using similar accounting treatments. However, it is a significantly larger airport (the largest in Australia) and has a much greater exposure to international passenger movements. Auckland Airport is also a good comparison because it has similar characteristics in terms of land ownership and regulatory environment. Sydney Airport and Auckland Airport trade at significantly higher earnings multiples (respectively 15.6 and 13.4 times forecast EBITDA) than airport companies in Asia and Europe. In comparison, multiples for global peers that operate in more highly regulated markets with higher levels of government ownership are relatively low. Multiples for Asian listed airport operators (8.4-9.6 times forecast EBITDA) are slightly higher than for European airport operators (6.7-8.9 times forecast EBITDA), possibly reflecting the greater competition and lower expected passenger growth in Europe.

28 The companies selected have a variety of year ends and therefore the data presented for each company is the most recent annual historical result plus the

subsequent two forecast years. 29 Market capitalisation based on sharemarket prices and exchange rates as at 3 December 2012. 30 Represents gross capitalisation (that is, the sum of the market capitalisation adjusted for minorities, plus borrowings less cash as at the latest balance

date) divided by EBITDA. EBITDA is earnings before net interest, tax, depreciation, amortisation, fair value movements, investment income and significant and non-recurring items.

31 Represents gross capitalisation divided by EBIT. EBIT is earnings before net interest, tax, fair value movements, investment income and significant and non-recurring items.


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The prospective trading multiples for Sydney Airport and Auckland Airport are higher than the implied multiples for Perth Airport. Sydney and Auckland are major capital cities and their airports are the major international air transport hubs for their countries. In contrast, Perth is still a minor capital city. Overall, Grant Samuel believes that the multiples implied by its valuation of Perth Airport are consistent with market evidence. Moreover, the valuation range is 10-23% higher than AIX’s carrying value for its interest in Perth Airport at 30 June 2012 of $609.6 million (although the premium in part reflects the different timing of the two valuations).

6.4 APAC

Grant Samuel has valued AIX’s 12.39% economic interest in APAC in the range $539-614 million. The valuation range is summarised as follows:

AIX’s 12.39% interest in APAC – Valuation Summary ($ millions) Low High

Share of operating business32 775 850 Share of net debt as at 30 June 201233 (236) (236) Economic interest in APAC 539 614

Grant Samuel’s valuation of AIX’s 12.39% interest in APAC reflects the value of a minority interest in APAC and the existence of the pre-emptive rights held by the shareholders in APAC. The valuation is an overall judgement having regard to both DCF analysis and earnings multiple analysis. It has particular regard to valuation evidence derived from AIX’s acquisition of an additional 2.25% interest in APAC in May and June 2010. The valuation of $775-850 million (before adjusting for net debt) implies the following earnings multiples:

APAC – Implied Multiples

Year ended 30 June 2012 (actual) Variable - AIX Share($ million) Low High

EBITDA 54.0 14.4 15.8 EBIT 44.7 17.3 19.0

Grant Samuel has also considered the multiplies of projected earnings for the years ending 30 June 2013 and 2014 (as projected in the DCF model) implied by its valuation of APAC in the range $775-850 million. However, Grant Samuel has not disclosed these prospective earnings multiples in this report at the request of AIX, due to the confidentiality obligations of AIX to third parties. Both the multiples of historical earnings set out above and the multiples of prospective earnings implied by the valuation of APAC are consistent with the multiples implied by AIX’s acquisition of an additional 2.25% interest in APAC in May and June 2010. The transaction implied:

EBITDA multiples of 14.8 times historical earnings and 13.5 times forecast earnings; and

a multiple of 17.0 times historical EBIT (year ended 30 June 2009). The 2010 transaction followed the exercise of pre-emptive rights by certain APAC shareholders. It resulted in APAC increasing its interest to 12.39%, which, combined with UTA’s take up of its

32 Net of Launceston City Council’s 10% economic interest in Launceston Airport. 33 Net of Launceston City Council’s 10% economic interest in Launceston Airport $35.3 million net debt.

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entitlement in the context of the same transaction, entitled Hastings to appoint a second director to the board of APAC. Similarly, the acquisition of AIX’s full stake would allow an acquirer to nominate at least one director to the board of APAC. Furthermore, there does not appear to have been any significant shift in views on the outlook for Melbourne Airport since May 2010. The S&P ASX 200 Industrials Index and the S&P ASX All Ordinaries Index are currently trading at broadly the same levels as in early May 2010. Grant Samuel’s valuation of APAC also had regard to DCF analysis. The key assumption underpinning Grant Samuel’s DCF analysis for APAC relates to passenger movements. Passenger movements for Melbourne Airport represent more than 95% of total passenger movements for APAC. The most recent publicly available forecasts in passenger movements for Melbourne Airport are set out in the 2008 Master Plan for Melbourne Airport (as updated in July 2010) (“Melbourne Airport Master Plan”). The Melbourne Airport Master Plan forecasts growth in passenger movements over the period from 2013 to 2028 of approximately 4.0% per annum. Actual passenger movements increased at 5.1% per annum from 2000 to 2012 and passenger movements for the year ended 30 June 2012 were in line with the upper end of the forecast range included in the Melbourne Airport Master Plan for that year. Melbourne Airport is a mature airport with relatively stable long-term growth prospects. Consequently, Grant Samuel’s assumptions regarding growth rates in passenger movements for Melbourne Airport for the period from 2013 to 2037 are broadly in line with the growth forecast in the Melbourne Airport Master Plan. Total APAC revenue is projected to grow more quickly than the growth in passenger movements, largely due an assumed increase in aeronautical charges following the completion of major capital projects and general inflation. EBITDA is assumed to grow at rates that reflect both the assumed growth in revenues and the realisation of efficiencies over time. The model includes substantial capital expenditure. Major capital expenditure items proposed for Melbourne Airport include the Southern Precinct Project, comprising a $400 million integrated landside, terminal and airside development, with completion of stage one anticipated in 2014. Capital expenditure beyond 2014 is subject to several factors, including the achievement of the expected growth in passenger movements and agreement of appropriate commercial terms with key airline partners, and in part is yet to be approved by APAC. Melbourne Airport has recently announced the proposed construction of a third runway (proposed to be operational around 2018-2022), at an indicative cost of around $500 million. Other capital expenditure for Melbourne Airport may include additional passenger aircraft gates and apron areas, as well as development of a new freight apron. Melbourne Airport has announced that the proposed third runway would be part of a programme of investment of up to $10 billion over the next two decades. The output of the DCF analysis is summarised below:

100% APAC – Net Present Values ($ millions)34

Discount rate Terminal Value Growth Rates

3.0% 3.5% 4.0%

9.5% 4,588 4,854 5,168 9.0% 5,234 5,576 5,986 8.5% 6,020 6,466 7,012

The terminal values calculated in the DCF analysis imply earnings multiples of 10.6-12.6 times terminal year EBITDA.

34 Net of Launceston City Council’s 10% economic interest in Launceston Airport.


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Grant Samuel has analysed the sensitivity of the net present values to changes in the following variables:

passenger movement growth rates: +/- 10% from the 2014 financial year;

aeronautical services pricing: +/- 5% from the 2014 financial year;

operating expenditure: +/- 10% from the 2014 financial year; and

capital expenditure: +/- 10% from the 2014 financial year. The output of the sensitivity analysis is summarised below:

Note: Based on mid-point WACC of 9.0% and terminal value growth rate of 3.5% The net present values reflect full underlying value and include a premium for control. Minority interests normally trade at a discount to underlying value, although this discount does not always apply. Grant Samuel’s valuation of AIX’s 12.39% interest in APAC’s operating business in the range $775-850 million (on an ungeared basis) is at the upper end of the net present values calculated in the DCF analysis. However, this is considered reasonable in light of valuation analysis based on the earnings multiples and, in particular, the 2010 APAC transaction. In Grant Samuel’s view, a minority interest in Melbourne Airport is likely to be an attractive asset for a wide range of investors:

Melbourne is Australia’s second largest airport. It faces virtually no competition from other airports in the state and only limited competition from the rail and road network, and offers favourable operating conditions (integrated facilities, no curfew); and

it benefits from a diversified mix of passengers (international and domestic, business and leisure) and revenue streams (aeronautical, retail, car parking) and has been very resilient to various macro-economic and other shocks in the past.

Overall, Grant Samuel believes that its valuation of AIX’s 12.39% stake in APAC in the range $539-614 million is reasonable having regard to market evidence and the DCF analysis. The valuation range is 13-29% higher than AIX’s carrying value for its interest in APAC at 30 June 2012 of $477.4 million. The premium may in part reflect the different timing of the two valuations.

4,750 5,000 5,250 5,500 5,750 6,000 6,250

Passenger movement growth (-/+ 10%)

Pricing (-/+5%)

Operating expenditure (+/-10%)

Capital expenditure (+/-10%)

APAC's Operating BusinessSensitivity Analysis

DCF analysis mid-point

NPV Outcomes ($ million)

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6.5 QAL

Grant Samuel has valued AIX’s 49.07% economic interest in QAL (ordinary equity, shareholder loans and trust units) in the range $319-369 million. The valuation is summarised as follows:

AIX’s 49.07% interest in QAL – Valuation Summary ($ millions) Low High

Share of operating business 550 600 Share of net debt (excluding shareholder loans) as at 30 June 201235 (231) (231)

Economic interest in QAL 319 369

Grant Samuel’s valuation of AIX’s 49.07% interest in QAL reflects the value of a non-majority interest in QAL and takes into account the pre-emptive rights held by the shareholders in QAL. The valuation is an overall judgement having regard to both DCF analysis and earnings multiple analysis. Grant Samuel prepared a DCF analysis of QAL’s operations and modelled the impact of various sensitivities on the future financial performance of QAL’s business. The key DCF assumption relates to passenger movements. Passenger movements at Gold Coast Airport account for approximately three quarters of total passenger movements at the QAL airports. The most recent publicly available forecasts of passenger movements for Gold Coast Airport are set out in the Gold Coast Airport 2011 Master Plan (“Gold Coast Airport Master Plan”). The Gold Coast Airport Master Plan forecasts growth in passenger movements of approximately 6.3% per annum over the five years to 30 June 2017 and approximately 4.8% per annum for the following 15 years to 30 June 2032. Actual passenger movements at Gold Coast Airport increased by 8.7% per annum over the 12 years ended 30 June 2012. However, passenger movements only grew by 5.2% for the year ended 30 June 2011 and fell 2.3% for the year ended 30 June 2012, due to a combination of the high Australian dollar and natural disasters in Queensland, Japan and New Zealand. As a result, there were 5.4 million passenger movements in the year ended 30 June 2012 by comparison with the 6.0 million forecast in the Gold Coast Airport Master Plan. Grant Samuel has assumed for the purposes of its DCF analysis that passenger movements at Gold Coast Airport will rebound strongly in the year to 30 June 2013 after a subdued performance in the prior year. Thereafter, however, it has been assumed that continued strength in the Australian dollar will result in growth in passenger movements for the period from 2013 to 2037 being more subdued than that forecast in the Gold Coast Airport Master Plan. Total QAL revenue is projected to grow more quickly than the growth in passenger movements at the QAL airports, reflecting increases in aeronautical charges linked to capital projects and general inflation. Economies of scale are expected to contribute to an expansion in EBITDA margins at Gold Coast and Townsville airports over the medium term. Major capital expenditure items include the imminent terminal upgrade and the overlay of the runway at Townsville Airport. Other capital projects considered include the potential expansion of the terminal and the expansion and overlay of the apron at Gold Coast Airport in 2018-2020. This capital expenditure is subject to several factors, including the achievement of the expected growth in passenger movements and agreement as to appropriate commercial terms with the airlines.

35 Includes value of derivatives


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The output of the DCF analysis is summarised below:

100% QAL – Net Present Values ($ millions)


3.0% 3.5% 4.0%

9.5% 1,329 1,363 1,404 9.0% 1,463 1,508 1,563 8.5% 1,623 1,684 1,759

The terminal values calculated in the DCF analysis imply earnings multiples of 11.1-13.3 times terminal year EBITDA. Grant Samuel has assessed the impact of changes in passenger growth rates on the calculated net present values. A 10% increase in passenger growth rates from the 2014 financial year increases the NPV by $106 million based on a weighted average cost of capital of 9.0% and longer term growth rate of 3.5%. A 10% decrease in growth rates using the same parameters reduces the NPV by $61 million. Grant Samuel’s valuation of AIX’s 49.07% interest in QAL’s operating business in the range $550-600 million (on an ungeared basis) takes into account the NPV analysis set out above as well as the following factors:

the net present values reflect full underlying value and include a premium for control. Minority interests normally trade at a discount to underlying value, although this discount does not always apply;

the QAL shareholders’ agreement contains pre-emptive rights which are likely to increase the perceived transaction risk for potential acquirers of AIX’s minority interest in QAL; and

the heavy reliance of Gold Coast Airport on the inbound leisure market and the direct competition from Brisbane Airport are significant downside risk factors.

On the other hand:

although not a majority interest, AIX’s 49.07% interest in QAL provides significant shareholder rights and is likely to be more attractive to potential acquirers than a smaller minority interest;

long term aeronautical pricing agreements are in place with major airlines operating out of Gold Coast providing some certainty around pricing;

the impact of lower passenger growth rates is mitigated by the structure of the aeronautical fees and the potential to delay or reduce the scope of capital projects; and

a substantial redevelopment of Gold Coast Airport was completed in 2009, although a significant redevelopment is tabled for Townsville Airport.

The valuation of $550-600 million (on an ungeared basis) implies the following earnings multiples:

QAL – Implied Multiples

Year ended 30 June 2012 (actual) Variable - AIX Share($ million) Low High

EBITDA 37.7 14.6 15.9 EBIT 26.8 20.5 22.4

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Grant Samuel has also considered the multiplies of projected earnings for the years ending 30 June 2013 and 2014 (as projected in the DCF model) implied by its valuation of QAL. However, Grant Samuel has not disclosed these prospective earnings multiples in this report at the request of AIX, due to the confidentiality obligations of AIX to third parties. Grant Samuel has reviewed the multiples of both historical and prospective earnings implied by its valuation of QAL by reference to earnings multiples implied by acquisitions of minority interests in airport businesses in Australia and New Zealand since February 2005 and by the trading value of comparable listed companies. The acquisition of Cairns Airport by the four-party consortium comprising North Queensland Airports Group in December 2008 arguably provides the most useful valuation evidence. The EBITDA multiple of 14.7 times historical earnings implied by the Cairns Airport transaction is, in Grant Samuel’s view, consistent with the multiples implied the valuation of QAL: Cairns Airport is of the same order of magnitude (although smaller) than Gold Coast Airport and QAL in terms of passenger numbers (3.8 million passenger movements in the financial year prior to the acquisition), tourism is the main business driver and mining a secondary driver and the Cairns Airport transaction took place at a time when views on value were lower than they currently are (as evidenced by sharemarket trading). The other transactions involving Queensland-based airports in the past five years provide less useful evidence. Brisbane Airport is significantly larger than any of the QAL airports (18.5 million passenger movements in the financial year prior to the transaction) and benefits from a more diversified passenger and revenue mix. Mackay Airport, arguably comparable to Townsville and Mt Isa airports, is significantly smaller and its performance is affected by different factors (i.e. coal mining) than Gold Coast Airport, QAL’s largest value contributor. The acquisition of a 24.55% stake in North Queensland Airports Corporation by Auckland Airport may also reflect specific strategic value (i.e. the opportunity to open routes between New Zealand and Cairns). Grant Samuel has also had regard to the trading multiples of Auckland Airport, which are as follows:

EBITDA multiples of 14.2 times historical, 13.4 times 2013 forecast and 12.6 times 2014 forecast earnings; and

EBIT multiples of 17.9 times historical, 16.8 times 2013 forecast and 15.6 times 2014 forecast earnings.

As noted, Auckland Airport also owns minority interests in Cairnsand Mackay airports as well as Queenstown Airport, and is arguably the listed company most comparable to QAL. However, there are significant differences. Auckland Airport is significantly larger in terms of passenger traffic than any of the QAL airports, it is the main gateway into New Zealand and is the principal hub for Air New Zealand. On the other hand, it is a mature airport and unlikely to achieve the short and medium term growth rates projected for QAL. Notwithstanding these limitations, Grant Samuel believes that the AIA trading multiples provide general support for its valuation of QAL. Overall, Grant Samuel believes its valuation of AIX’s 49.07% stake in QAL in the range $319-369 million is consistent with market evidence and the DCF analysis. The valuation range is 1-17% higher than AIX’s carrying value for its interest in QAL at 30 June 2012 of $315.1 million. The premium may in part reflect the different timing of the two valuations.

6.6 NT Airports

Grant Samuel has valued AIX’s 28.23% economic interest in NT Airports (ordinary equity and trust units) in the range $117-137 million. The valuation is summarised as follows:


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AIX’s 28.23% interest in NT Airports – Valuation Summary ($ millions) Low High

Share of operating business 180 200 Share of net debt as at 30 June 201236 (63) (63) Economic interest in NT Airports 117 137

Grant Samuel’s valuation of AIX’s 28.23% interest in NT Airports reflects the value of a minority interest in NT Airports and takes into account the pre-emptive rights held by the shareholders in NT Airports. The valuation is an overall judgement having regard to both DCF analysis and earnings multiple analysis. The key valuation assumption for the DCF analysis relates to passenger movements. Passenger movements at Darwin Airport account for approximately 80% of total passenger movements of NT Airports. The most recent publicly available passenger movement forecasts for Darwin Airport are set out in the 2010 Darwin International Airport Master Plan (“Darwin Airport Master Plan”). The Darwin Airport Master Plan was based on an assumption of annual growth in passenger movements of approximately 11.5% per annum for the four years ended 30 June 2012 to reach approximately 2.8 million passenger movements in 2012, followed by much lower growth of 2.0% per annum from 2012 to 2030. Actual growth over the four years ended 30 June 2012 was 5.6% per annum and passenger movements were 2.2 million in the year ended 30 June 2012. Grant Samuel has assumed that the growth in passenger numbers from 2012 to 2032 will be more consistent with historical growth rates than those projected in the Darwin Airport Master Plan for the 2012 to 2030 period. The higher growth rates assumed reflect Darwin Airport’s growing significance as a hub for low cost carriers servicing Asian destinations and the increase in fly-in fly-out passenger movements related to resources projects in the region. Revenue for the NT Airports is projected to reflect the assumed growth in passenger movements as well as moderate increases in aeronautical charges as provided for in the current pricing arrangements, which anticipate the redevelopment of the terminal at Darwin Airport. EBITDA margins are expected to increase over the forecast period as economies of scale and efficiencies are realised. Major capital expenditure items include the current redevelopment of Darwin Airport. The output of the DCF analysis is summarised below:

100% NT Airports – Net Present Values ($ millions)


3.0% 3.5% 4.0%

9.5% 735 761 791 9.0% 809 842 882 8.5% 897 940 993

The terminal values calculated in the DCF analysis imply earnings multiples of 11.4-13.7 times terminal year EBITDA. Grant Samuel’s valuation of AIX’s 28.23% interest in NT Airports in the range $180-200 million (on an ungeared basis) takes into account the NPV analysis set out above and the following factors:

36 Includes value of derivatives

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the net present values reflect full underlying value and include a premium for control. Minority interests normally trade at a discount to underlying value, although this discount does not always apply;

the NT Airports shareholders’ agreement contains pre-emptive rights which are likely to increase the perceived transaction risk for potential acquirers of AIX’s minority interest in NT Airports;

Darwin International Airport has historically recovered more slowly than its peers from external shocks; and

growth at Darwin International Airport is heavily reliant on construction of the INPEX project.

The valuation of $180-200 million (on an ungeared basis) implies the following earnings multiples:

NT Airports – Implied Multiples

Year ended 30 June 2012 (actual) Variable - AIX

Share37 ($ million)

Low High

EBITDA 15.4 11.7 13.0 EBIT 11.8 15.3 17.0

Grant Samuel has also considered the multiplies of projected earnings for the years ending 30 June 2013 and 2014 (as projected in the DCF model) implied by its valuation of NT Airports. However, Grant Samuel has not disclosed these prospective earnings multiples in this report at the request of AIX, due to the confidentiality obligations of AIX to third parties. In Grant Samuel’s view, the multiples of historical and forecast earnings implied by the valuation of NT Airports are broadly consistent with the multiples implied by acquisitions of interests in airport businesses and by the trading value of comparable listed companies. Overall, Grant Samuel believes its valuation of AIX’s 28.23% stake in NT Airports in the range $117-137 million is consistent with market evidence and the DCF analysis. The valuation range is 2-19% higher than AIX’s carrying value for its interest in NT Airports at 30 June 2012 of $115.1 million. The premium in part reflects the different timing of the two valuations.

6.7 HTAC

Grant Samuel has valued AIX’s 40.02% total economic interest in HTAC (ordinary equity and shareholder loans) in the range €241-266 million, which equates to $296-327 million at an exchange rate of €1.00 = $1.23. The valuation is summarised as follows:

AIX’s 40.02% interest in HTAC – Valuation Summary (€ millions) Low High

Share of equity value 175 200 Share of shareholder loans as at 30 June 2012 66 66 Economic interest in HTAC 241 266

Grant Samuel’s valuation of AIX’s 40.02% interest in HTAC reflects the fact that HTAC itself owns minority interests in the underlying assets.

37 Includes AFP Development Site Trust EBITDA and EBIT of $1.3 million (100% basis).


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Grant Samuel was provided with a forecast distribution model for HTAC and used the dividend discount approach for its DCF analysis. The cash and shareholder loan balances as at 30 June 2012 were used as the starting point for the DCF analysis. The model forecasts distributions from the underlying assets and the costs incurred and taxes paid at the HTAC level to derive distributions payable to the HTAC shareholders. The model forecasts euro denominated cash flows from 1 July 2012 to 30 June 2027 and includes a terminal value to reflect the value of the cash flows in perpetuity. It does not allow the modelling of sensitivities on the drivers of the underlying businesses. The cash flows have been discounted using a cost of equity of 10.5-11.5%. Tax rates appropriate for the various jurisdictions have been used. The output of the DCF analysis is summarised below:

100% HTAC – Net Present Values (€ millions)

Cost of equity Terminal Value Growth Rates

3.0% 3.5% 4.0%

11.5% 557 569 582 11.0% 594 608 624 10.5% 635 652 671

Grant Samuel’s valuation of AIX’s 40.02% equity interest in HTAC in the range €175-200 million takes into account the NPV analysis set out above as well as the following factors:

AIX’s interest in HTAC carries substantial shareholder rights at the HTAC level. However, the size of HTAC’s interests in the underlying assets is unlikely to provide HTAC or AIX with significant influence at the asset level;

a significant proportion of the distributions received by HTAC are from Athens Airport, which has been adversely affected by the economic situation in Greece and is likely to continue facing challenging conditions. However, the model assumes that the concession to operate Athens Airport is not renewed when it expires in 2026, which is potentially a conservative assumption; and

although the German economy has been relatively resilient, there is still great economic uncertainty in Europe.

The valuation range of €175-200 million for AIX’s 40.02% in HTAC’s equity implies the following multiples of net profit after tax38:

16.3-18.7 times net profit after tax of €10.7 million39 for the year ended 31 December 2010; and

26.0-29.8 times net profit after tax of €6.7 million40 for the year ended 31 December 2011. Grant Samuel has reviewed these multiples having regard to the price earnings multiples of a range of listed comparable companies. The following table sets out the price earnings multiples based on share prices as at 3 December 2012:

38 The directors of AIX have decided not to include any forecast information in the Explanatory Memorandum and therefore this

information has not been disclosed in this report. Furthermore, brokers do not forecast net profit after tax at the HTAC level. Accordingly, the multiples set out above are based on publicly released historical data.

39 AIX share 40 AIX share

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Sharemarket Ratings of Selected Listed Companies – Airports41

Company Market

Capitalisation42 ($ millions)

Price Earnings Multiple43 (times)

Historical Forecast Year 1

Forecast Year 2

Sydney Airport 6,514 53.5 50.8 51.9 Auckland International 2,833 25.6 23.9 21.9

Asia Airports of Thailand 4,257 33.5 20.5 16.7 Shanghai International 3,418 14.6 13.8 11.6 Beijing Capital 2,837 17.8 13.5 10.8 Malaysia Airports 2,078 16.2 14.6 16.2

Europe Aeroports de Paris 7,383 17.9 17.0 15.9 Fraport 4,934 17.1 16.4 15.6 Kobenhavns Lufthavne 2,650 20.9 18.3 16.1 Flughafen Zuerich 2,608 16.7 15.8 14.5 Gemina 1,547 nmf 33.2 16.6 Flughafen Wien 1,018 9.6 13.3 15.3 SAVE 485 9.5 12.5 10.1

Source: Grant Samuel analysis (see Appendix 3) In Grant Samuel’s view, the multiples implied by its valuation of HTAC are broadly consistent with those set out above, particularly having regard to the very high multiples on which Sydney Airport and Auckland International Airport are trading. The valuation of HTAC (and therefore the implied multiples) reflects an estimate of full underlying value, while the price earnings multiples for the comparable companies reflect portfolio (trading) values and do not incorporate a premium for control. Moreover, HTAC’s income mainly consists of distributions from its investee companies rather than reflecting HTAC’s proportional share of the investee companies' net profit after tax. Distributions from the underlying investments can vary for reasons unrelated to the profitability of the underlying assets. Although valuation judgments are subject to some uncertainty given HTAC’s performance in the two years ended 31 December 2011, the lack of forecasts for HTAC and the broad range of multiples for comparable companies, Grant Samuel believes that the evidence supports its valuation of a 40.02% equity interest in HTAC in the range €175-200 million. Grant Samuel’s valuation of AIX’s total economic interest in HTAC of €241-266 million, which equates to $296-327 million at an exchange rate of €1.00 = $1.2344, is 1% lower to 10% higher than AIX’s carrying value for its interest in HTAC at 30 June 2012 of $297.9 million. The premium may reflect, among other factors, the timing of the two valuations and the improvement in market sentiment since the 30 June 2012 valuation was completed.

6.8 External Manager Payment

It is likely that any acquirer of AIX would need to negotiate a payment to Hastings to terminate the management arrangements. Grant Samuel has assumed that this payment would be in the range of $50-60 million. This range reflects the fee agreed by AIX and Hastings in relation to the proposal to internalise AIX’s management arrangements. If the Proposal is not implemented then it is the

41 The companies selected have a variety of year ends and therefore the data presented for each company is the most recent annual historical result plus the

subsequent two forecast years. 42 Market capitalisation based on sharemarket prices as at 3 December 2012. 43 Represents market capitalisation dividend by net profit after tax (before discontinued operations and significant items). 44 Exchange rate around 3 December 2012.


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intention of AIX to proceed with the internalisation, which would result in the payment of a termination fee of $55 million. The termination payment appears reasonable in the context of other internalisation transactions. There are no prescribed terms in the AIX management agreements for the termination of the management arrangements. In the absence of contractual terms termination payments are typically the result of a negotiation process between parties and can vary greatly depending on specific circumstances, including whether the management contracts are particularly onerous, whether the removal or transfer of the manager triggers pre-emptive rights or the repayment of loans, whether the manager has an substantial interest in the investment vehicle, or whether there is a likelihood of substantial performance fees. The most relevant parameter in comparing internalisation transactions is multiples of net savings (i.e. base management fees avoided less incremental overhead costs). Parameters such as multiples of base management fees or consideration as a percentage of funds under management do not take into account the relative cost structure of the management functions. Set out below is a summary of internalisation transactions involving Australian entities since mid 2007 in which incumbent managers received consideration and for which there is sufficient information to calculate meaningful valuation parameters:

Precedent Internalisation Transactions

Date Entity Consid’n45

($ millions)

Multiple of Base Management Fees46

(times)

Multiple of Net Savings47

(times) Jun 2012 AIX Internalisation Proposal 55.0 3.9 6.948 Apr 2011 Spark Infrastructure 49.0 5.6 13.6 Feb 2011 Qube Logistics Holdings 40.0 3.8 7.0 Oct 2009 Macquarie Media Group49 40.5 4.1 7.4 Oct 2009 Macquarie Infrastructure Group 50.0 2.9 5.4 Jul 2009 Macquarie Airports 345.0 7.9 10.7 Jun 2009 Macquarie Leisure Trust Group 15.950 5.3 15.9 May 2009 Orchard Industrial Property Fund 6.0 3.2 5.0 May 2009 Viridis Clean Energy Group 2.8 2.8 nmf51 Apr 2009 Babcock & Brown Japan Property Trust 20.0 1.7 na Mar 2009 Macquarie Communications Infrastructure Group52 96.553 5.0 12.0 Dec 2008 Babcock & Brown Wind Partners 40.0 1.4 2.0 Nov 2008 Babcock & Brown Capital 5.0 0.3 na May 2008 GEO Property Trust 2.5 0.7 nmf

Source: Grant Samuel analysis54 The transactions involving property funds are less relevant for AIX as the extent of management involvement and level of management fees is lower for property funds (e.g. there is less emphasis on performance fees). A number of transactions reflect the internalisation of management for the purpose of separating from financially distressed managers (e.g. Babcock & Brown funds). In some cases, internalisations

45 Gross consideration for internalisation of management including payments for transition services. 46 Gross consideration divided by base management fees. 47 Gross consideration divided by net savings (i.e. base management fees saved less incremental operating costs). 48 Incremental costs (assumed at $6 million) are expected to be less than half management fees avoided ($14 million). 49 Calculated by reference to base management fee savings of $10.4 million calculated after the proposed $294 million entitlement offer

as the entitlement offer was not conditional on the internalisation. 50 Consideration is net of $1.1 million management fees and reimbursable expenses waived by the manager. 51 nmf = not meaningful 52 The Canada Pension Plan Investment Board acquired 100% of Macquarie Communications Infrastructure Group and separately

acquired the manager from Macquarie. 53 Includes NPV of advisory fees. 54 Grant Samuel analysis based on data obtained from IRESS, Capital IQ, company announcements and transaction documentation.

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occurred as part of (or immediately prior to) recapitalisations or restructurings (e.g. Qube Logistics Holdings Limited (“Qube Logistics”), Orchard Industrial Property Fund, GEO Property Trust) or the manager was not paid a base management fee (only cost reimbursement) (e.g. Babcock & Brown Capital). Most of the transactions involved cash consideration except Qube Logistics (cash and scrip) and Viridis Clear Energy Group (scrip). The analysis is complicated by the existence of additional benefits provided to the managers in addition to consideration. Multiples for the Macquarie Infrastructure Group internalisation are understated as the headline consideration does not allow for the impact of the reset of the $4.8 billion performance fee deficit for the demerged Macquarie Atlas Roads to nil. Theoretically, the present value of all future performance fees should be added to the consideration, however, the future performance fees were unknown. Since the transaction, performance fees of $62.6 million have been paid by Macquarie Atlas Roads. Including these performance fees in the consideration (but excluding potential future performance fees), the transaction implies multiples of 6.5 times base management fees and 12.2 times cost savings. Multiples for internalisation transactions which do not involve distressed situations fall in a wide range of 7-16 times cost savings. The assumed “internalisation cost” for AIX of $50-60 million represents multiples in the range of 6.3-7.5 times cost savings and is at the lower end of the transaction evidence.

6.9 Corporate Costs

AIX’s unallocated corporate costs are currently around $3.0 million per annum. These corporate overheads represent the costs of managing AIX including costs associated with being a publicly listed company, such as directors’ fees and expenses, annual reports and shareholder communications, share registry and listing fees. A small proportion of these costs represent investment expenses. In addition, Hastings incurs a variety of costs (which are recovered in the management fees) including costs relating to the monitoring and management of investments. An acquirer of AIX would have to assume some of these costs. Grant Samuel has estimated that the increments costs for an acquirer of AIX would be of the order of $3 million per annum. These have been capitalised at a multiple of approximately 10-12 times to estimate notional capitalised corporate costs in the range $30-35 million.

6.10 Other Assets and Liabilities

AIX’s only other asset is its 6.25% interest in Statewide Roads. AIX’s investment in Statewide Roads was recorded on its balance sheet at 30 June 2012 at $1 million. Given the size of the assets, Grant Samuel has not separately valued AIX’s Statewide Roads investment but has attributed a value of $1.0-2.0 million. AIX also had $157.1 million of cash at 30 June 2012 and no drawn debt. The cash at 30 June 2012 has been adjusted for the distribution to AIX securityholders and the performance fee payable to Hastings accrued but not paid at 30 June 2012.

6.11 Franking Credits

Under Australia’s dividend imputation system, domestic equity investors receive a taxation credit (franking credit) for tax paid by a company. The franking credit attaches to any dividends paid by a company and the franking credit offsets personal tax for Australian investors. To the extent that personal tax has been fully offset the individual will receive a refund of the balance of the franking credit. Franking credits therefore have value to the recipient. However, in Grant Samuel’s opinion, while acquirers are attracted by franking credits there is no clear evidence that they will actually pay extra for a company with them (at any rate the


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sharemarket evidence used by Grant Samuel in valuing the AIX businesses will already reflect the value impact of the existence of franking credits). Further, franking credits are not an asset of the company in the sense that they can be readily realised for a cash sum that is capable of being received by all shareholders. The value of franking credits can only be realised by shareholders themselves when they receive distributions. Importantly, the value of franking credits is dependent on the tax position of each individual shareholder. To some shareholders (e.g. overseas shareholders) they will have very little or no value. Similarly, if they are attached to a distribution which would otherwise take the form of a capital gain taxed at concessional rates there may be minimal net benefit. Accordingly, while franking credits may have value to some shareholders they do not affect the underlying value of the company itself. No value has therefore been attributed to AIX’s accumulated franking credit position in the context of the value of AIX as a whole.

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7 Evaluation of the Proposal

7.1 Conclusion

In Grant Samuel’s opinion, the Proposal is fair and reasonable to and in the best interests of AIX securityholders in the absence of a superior offer. Grant Samuel has estimated that the full underlying value of AIX is in the range $3.12-3.55 per security. Grant Samuel has estimated that the value of the Consideration is in the range $3.17-3.21 per security. This represents the present value of the estimated future returns to shareholders of $3.25-3.28 per security, comprising the Cash Return of $3.19-3.23 and a distribution of 5.5 cents per security. The present value has been determined using a discount rate of 7%. Given that the value of the Consideration falls within the valuation range, the Proposal is fair and reasonable to AIX securityholders. The Proposal crystallises value that is otherwise not likely to be available to AIX securityholders:

AIX has been re-rated over the last six months and now trades at a smaller discount to net assets. There is no reasonable basis to expect any further significant security price outperformance, at least in the short to medium term;

while the Assets are performing well, a number are undertaking substantial capital projects. These projects could take longer or ultimately be more costly than expected. Moreover, the funding commitments associated with these projects are likely to restrict the Assets’ ability to pay distributions and thus AIX’s ability to pay distributions to AIX securityholders;

although the precise amount of the Consideration is not certain, the estimated value of the Consideration represents a significant premium to the AIX security price in the months immediately prior to the announcement of the Proposal on 24 August 2012; and

in the absence of the Proposal or a similar transaction, it is likely that AIX securities would trade at prices well below $3.17-3.21 (at least in the short to medium term).

While payment of the Consideration to securityholders will be deferred (potentially in part until almost a year after securityholders have voted on the Proposal), this delay has been reflected in Grant Samuel’s assessment of the value of the Consideration. The Proposal follows a due diligence process and lengthy negotiations between Future Fund, AIX and their respective advisers. Other prospective acquirers of AIX or the Assets have had ample time to put forward a counter-proposal. No counter-offers for AIX or the Assets have been made. Accordingly, it is reasonable to conclude that the Consideration represents the highest price that can be realised for AIX in the current market. On this basis the Consideration reflects the full underlying value of AIX and is therefore by definition fair and reasonable. In Grant Samuel’s view, in the absence of a superior offer for AIX or the Assets, securityholders will be better off if they vote in favour of the Proposal than if they do not. Accordingly, Grant Samuel has concluded that the Proposal is in the best interests of AIX securityholders.

7.2 Fairness

Grant Samuel has estimated that the full underlying value of AIX, including a control premium, is in the range $1,936-2,202 million, which corresponds to $3.12-3.55 per security. The value was estimated by valuing each of the Assets having regard to both DCF analysis and earnings multiples. The value exceeds the price at which AIX securities would be expected to trade on the ASX in the absence of the Proposal or some other similar transaction. AIX is essentially an investment company that owns minority interests in a number of airport assets. It has no direct control over the management of the investments and its influence is limited to representation on the boards of the Assets and various rights under the Assets’ shareholders’ agreements. Accordingly a potential acquirer of AIX would not obtain the strategic benefits,


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operational synergies or costs savings that acquirers are typically seeking in corporate acquisitions. Moreover, all transfers of shareholdings in the Assets (except HTAC and Statewide Roads) are subject to pre-emptive rights in favour of co-investors under the Assets’ shareholders’ agreement. These factors are all likely to limit the value that potential acquirers would attribute to AIX and its investments. On the other hand, AIX represents a unique opportunity to acquire a portfolio of investments in Australian airports, for which potential acquirers may be willing to pay a premium. The Consideration of $3.25-3.28 (on an undiscounted basis) comprises a series of payments: a distribution for the half year to 31 December 2012 of 5.5 cents per security and the Cash Return, which is estimated to be in the range $3.19-3.23 per security. The range of values estimated for the Consideration reflects the possible value leakage if existing investors in the Assets exercise their pre-emptive rights, in which case fees would be payable to the Future Fund. The Cash Return is to be paid in two instalments:

a Main Return totalling $2.95-2.98 per security, payable around the end of April 2013; and

a Residual Return totalling $0.24-0.25 per security, payable potentially in June 2013 but maybe as late as December 2013.

The precise amount of the Consideration is not certain and may be less than the amounts identified above. It will vary depending on the actual distributions that AIX earns from the Assets before the Asset Sale, the quantum of transaction related expenses (in particular the costs incurred to wind up AIX), or if there is a material adverse change in respect of an Asset. However, AIX securityholders are already exposed to potential changes in distributions and Asset performance, and the Proposal will not materially affect this exposure. Total transaction costs to implement the Proposal are currently estimated at approximately $11 million, representing only $0.02 per AIX security. The transaction costs would have to be significantly higher to have a meaningful impact on the returns to AIX securityholders. The timing of the Cash Return is uncertain and dependent on a number of factors outside the control of AIX, particularly related to the potential exercise of pre-emptive rights in relation to some or all of the Assets. There is a risk that the process to implement the Proposal will take longer than envisaged and, potentially, that the Main Return will not be paid until after 30 June 2013. If the Main Return was not paid until after 30 June 2013, the taxation consequences of the Proposal for AIX securityholders could be adversely affected. In the event that the Main Return is not paid until after 30 June 2013, AIX will consider more tax efficient alternatives to distribute the proceeds from the Asset Sale. Because the estimated value of the Consideration of $3.17-3.21 per security falls within the valuation range for AIX, the Proposal is fair.

7.3 Reasonableness

Because the Proposal is fair, it is by definition reasonable. However, there are other factors that also suggest that the Proposal is reasonable. 7.3.1 Premium for Control

The estimated value of the Consideration55 represents a premium of approximately 30% to the VWAP at which AIX securities traded in the three months prior to the announcement of the Proposal on 24 August 2012:

55 For the purpose of calculating the premium implied by the terms of the Proposal, Grant Samuel has excluded the 5.5 cent distribution

from the value of the Consideration.

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AIX – Premium over Pre-Announcement Prices

Period VWAP($) Premium

Closing price on 24 August 2014 2.65 17.4-18.9%

1 month prior to 24 August 2012 2.59 20.1-21.7%



Source: IRESS and Grant Samuel analysis

The premium based on daily security prices for the three months prior to the announcementof the Proposal is shown graphically below:

Source: IRESS

The level of premiums observed in takeovers varies depending on the circumstances of thetarget and other factors (such as the potential for competing offers) but tends to fall in therange 20-35%.

The AIX security price strengthened significantly in the two months prior to theannouncement of the Proposal (in contrast to a relatively modest increase in the S&P/ASX200 Industrials Index during that period). This appears in large part to have been the resultof the announcement on 24 June 2012 of the proposal to internalise management. AIX’sfinancial results for the year ended 30 June 2012 were announced on 24 August 2012.However, the financial results do not appear to have included any significant informationthat the market was not expecting, based on broker reports at the time, and there is noreason to expect that they would have resulted in any significant re-rating of AIX.

Notwithstanding the significant increase in the security price in the two months prior to theannouncement of the Proposal, the estimated value of the Consideration represents apremium of more than 20% relative to the VWAP for AIX securities for both one and threemonths prior to the announcement of the Proposal. In this context, in Grant Samuel’sopinion, the premium implied by the Consideration is consistent with premiums typicallyseen in takeovers.


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7.3.2 Security Trading in the Absence of the Proposal

The Proposal enables securityholders to realise their investment in AIX at a cash price that incorporates a premium. In the absence of the Proposal or a similar transaction, shareholders could only realise their investment by selling on market at a price that does not include any premium and would incur transaction costs (e.g. brokerage). In these circumstances (and assuming there was no speculation as to an alternative or revised proposal), it is likely that AIX securities, under current market conditions and given AIX’s current ownership structure, would trade at prices well below the value implied by the Consideration. It is conceivable that the AIX security price could reach levels around or above the Consideration in the medium to longer term. However, this will require that the Assets deliver significant and sustained growth in earnings. While the Assets are projecting earnings growth, there can be no assurance that the earnings growth will be delivered within a timeframe and to an extent that will adequately compensate securityholders for the delay and risk involved. In this context, the cash consideration delivered under the Proposal of $3.17-3.21 per security is, in Grant Samuel’s view, attractive.

7.3.3 Prospect of an Alternative Proposal

In weighing up any proposal, securityholders need to have regard to the alternatives that are realistically available to them. In voting in favour of the Proposal, securityholders will (hypothetically at least) be giving up the opportunity to accept some superior alternative offer in the future. Since the announcement by AIX of the Proposal, any potential buyer of AIX would have been aware that AIX was effectively ‘in play’. Arguably, AIX has been in play since the announcement of the internalisation proposal on 29 June 2012, given that internalisation will remove the material impediment to an acquisition proposal constituted by the existing external management arrangements. Potential acquirers have had four months to formulate an alternative proposal to acquire AIX. Over this time AIX has reported its accounts for the year ended 30 June 2012. Accordingly, potential acquirers have been able to consider their position with current information regarding the prospects for AIX. The Proposal provides a clear framework to potential acquirers to establish benchmarks for value and it defines the time period within which parties would have to act in preparing an alternative proposal. Nonetheless, at this time, the Proposal is the only change of control proposal that has emerged. Although AIX has agreed to pay a break fee to the Future Fund of $20 million in certain circumstances (i.e. a competing proposal is implemented, an independent director of AIX withdraws or changes his or her recommendation or the Implementation Agreement is terminated because of a breach of conditions by AIX), and has also provided various ‘no-shop’ and ‘no talk’ undertakings, these are not impediments to a superior proposal for AIX from a potential acquirer. A break fee of $20 million represents no more than $0.03 per security, and is not of a magnitude that would be expected to be a significant deterrent to genuine potential acquirers willing to make a superior offer. Further, the ‘no-talk’ undertakings are subject to carve-outs for the fiduciary and statutory duties of AIX directors. Moreover, the Future Fund does not have any securityholding in AIX that could otherwise deter potential acquirers.

7.3.4 Other Matters

There are few issues other than price when securityholders are faced with a cash offer. Other factors that securityholders should take into consideration are:

if the Proposal is approved, AIX securityholders will receive distributions consisting of various forms of income from a taxation perspective. The taxation consequences of

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the distributions will vary from securityholder to securityholder, depending on, for example, whether the securityholder is an Australian resident for taxation purposes. Details of the taxation consequences are set out in section 5 of the Explanatory Memorandum. If in any doubt, shareholders should consult their own professional adviser; and

if the Proposal is not approved, AIX expects to incur total costs of approximately $4.2 million in relation to its engagement with the Future Fund. Furthermore, in certain circumstances, AIX will also be liable to pay a $20 million break fee to Future Fund if the Proposal is not implemented.

7.4 Securityholder Decision

The decision whether to vote for or against the Proposal is a matter for individual securityholders based on each securityholder’s views as to value, their expectations about future market conditions and their particular circumstances including risk profile, liquidity preference, investment strategy, portfolio structure and tax position. In particular, taxation consequences may vary from securityholder to securityholder. If in any doubt as to the action they should take in relation to the Proposal, securityholders should consult their own professional adviser. Similarly, it is a matter for individual securityholders as to whether to buy, hold or sell securities in AIX. This is an investment decision independent of a decision on whether to vote for or against the Proposal upon which Grant Samuel does not offer an opinion. Securityholders should consult their own professional adviser in this regard.


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8 Qualifications, Declarations and Consents

8.1 Qualifications

The Grant Samuel group of companies provide corporate advisory services (in relation to mergers and acquisitions, capital raisings, debt raisings, corporate restructurings and financial matters generally), manages specialist funds and provides marketing and distribution services to fund managers. The primary activity of Grant Samuel & Associates Pty Limited is the preparation of corporate and business valuations and the provision of independent advice and expert’s reports in connection with mergers and acquisitions, takeovers and capital reconstructions. Since inception in 1988, Grant Samuel and its related companies have prepared more than 455 public independent expert and appraisal reports. The persons responsible for preparing this report on behalf of Grant Samuel are Stephen Cooper BCom (Hons) ACA CA(SA) ACMA and Sarah Morgan BE (Hons) MBA MAusIMM. Each has a significant number of years of experience in relevant corporate advisory matters. Matt Leroux M.Aero.E MBA, Caleena Stilwell BBus FCA F Fin and Celeste Oakley BEc LLB CFA F Fin assisted in the preparation of the report. Each of the above persons is a representative of Grant Samuel pursuant to its Australian Financial Services Licence under Part 7.6 of the Corporations Act.

8.2 Disclaimers

It is not intended that this report should be used or relied upon for any purpose other than as an expression of Grant Samuel’s opinion as to whether the Proposal is fair and reasonable to and in the best interests of the non-associated securityholders. Grant Samuel expressly disclaims any liability to any AIX securityholder who relies or purports to rely on the report for any other purpose and to any other party who relies or purports to rely on the report for any purpose whatsoever. This report has been prepared by Grant Samuel with care and diligence and the statements and opinions given by Grant Samuel in this report are given in good faith and in the belief on reasonable grounds that such statements and opinions are correct and not misleading. However, no responsibility is accepted by Grant Samuel or any of its officers or employees for errors or omissions however arising in the preparation of this report, provided that this shall not absolve Grant Samuel from liability arising from an opinion expressed recklessly or in bad faith. Grant Samuel has had no involvement in the preparation of the Explanatory Memorandum issued by AIX and has not verified or approved any of the contents of the Explanatory Memorandum. Grant Samuel does not accept any responsibility for the contents of the Explanatory Memorandum (except for this report). Grant Samuel has had no involvement in AIX’s due diligence investigation in relation to the Explanatory Memorandum and does not accept any responsibility for the completeness or reliability of the process which is the responsibility of AIX.

8.3 Independence

Grant Samuel and its related entities do not have at the date of this report, and have not had within the previous two years, any business or professional relationship with AIX, the Future Fund or any financial or other interest that could reasonably be regarded as capable of affecting its ability to provide an unbiased opinion in relation to the Proposal. Grant Samuel was recently engaged by HFML to prepare an independent expert report in relation to the takeover offers for Hastings Diversified Utilities Fund. Grant Samuel does not consider this assignment capable of affecting its ability to provide an unbiased opinion in relation to the proposed transaction. Grant Samuel received a fee of $525,000 for this assignment.

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Grant Samuel commenced analysis for the purposes of this report in following the announcementof the proposal to internalise the management of AIX. Grant Samuel had no part in theformulation of the Proposal. Its only role has been the preparation of this report.

Grant Samuel will receive a fixed fee of $375,000 for the preparation of this report. This fee is notcontingent on the outcome of the Proposal. Grant Samuel’s out of pocket expenses in relation tothe preparation of the report will be reimbursed. Grant Samuel will receive no other benefit for thepreparation of this report.

Grant Samuel considers itself to be independent in terms of Regulatory Guide 112 issued by theASIC on 30 March 2011.

8.4 Declarations

AIX has agreed that it will indemnify Grant Samuel and its employees and officers in respect ofany liability suffered or incurred as a result of or in connection with the preparation of the report.This indemnity will not apply in respect of the proportion of any liability found by a court to beprimarily caused by any conduct involving negligence or wilful misconduct by Grant Samuel.AIX has also agreed to indemnify Grant Samuel and its employees and officers for time spent andreasonable legal costs and expenses incurred in relation to any inquiry or proceeding initiated byany person. Any claims by AIX are limited to an amount equal to three times the total fees paid toGrant Samuel (excluding reimbursement of out-of-pocket expenses). Where Grant Samuel or itsemployees and officers are found to have been negligent or engaged in wilful misconduct GrantSamuel shall bear the proportion of such costs caused by its action.

Advance drafts of this report were provided to AIX and its advisers. Certain changes were madeto the drafting of the report as a result of the circulation of the draft report. There was no alterationto the methodology, evaluation or conclusions as a result of issuing the drafts.

8.5 Consents

Grant Samuel consents to the issuing of this report in the form and context in which it is to beincluded in the Explanatory Memorandum to be sent to securityholders of AIX. Neither the wholenor any part of this report nor any reference thereto may be included in any other documentwithout the prior written consent of Grant Samuel as to the form and context in which it appears.

8.6 Other

The accompanying letter dated 7 December 2012 and the Appendices form part of this report.

Grant Samuel has prepared a Financial Services Guide as required by the Corporations Act. TheFinancial Services Guide is set out at the beginning of this report.

GRANT SAMUEL & ASSOCIATES PTY LIMITED

7 December 2012


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Appendix 1

Selection of Discount Rate 1 Overview

A discount rate in the range of 8.5-9.5% has been selected as appropriate to apply to the forecast nominal ungeared after tax cash flows of the Assets excluding HTAC. A cost of equity of 10.5-11.5% has been selected to apply to the forecast nominal net profit after tax of HTAC. Selection of the appropriate discount rate to apply to the forecast cash flows of any business enterprise is fundamentally a matter of judgement. The valuation of an asset or business involves judgements about the discount rates that may be utilised by potential acquirers of that asset. There is a body of theory which can be used to support that judgement. However, a mechanistic application of formulae derived from that theory can obscure the reality that there is no “correct” discount rate. Despite the growing acceptance and application of various theoretical models, it is Grant Samuel’s experience that many companies rely on less sophisticated approaches. Many businesses and investors use relatively arbitrary “hurdle rates” which do not vary significantly from investment to investment or change significantly over time despite interest rate movements. Valuation is an estimate of what real world buyers and sellers of assets would pay and must therefore reflect criteria that will be applied in practice even if they are not theoretically correct. Grant Samuel considers the rates adopted to be reasonable discount rates that acquirers would use irrespective of the outcome of any particular theoretical model. The discount rate that Grant Samuel has adopted is reasonable relative to the rates derived from theoretical models. The discount rate represents an estimate of the weighted average cost of capital (“WACC”) appropriate for these assets. Grant Samuel has calculated a WACC based on a weighted average of the cost of equity and the cost of debt. This is the relevant rate to apply to ungeared cash flows. There are three main elements to the determination of an appropriate WACC. These are:

cost of equity;

cost of debt; and

debt/equity mix. WACC is a commonly used basis but it should be recognised that it has shortcomings in that it:

represents a simplification of what are usually much more complex financial structures; and

assumes a constant degree of leverage which is seldom correct. In selecting the discount rate range, we utilised the capital asset pricing model (“CAPM”) as the starting point in our analysis to determine a cost of equity. However, it is easy to credit the output of models with a precision it does not warrant. The reality is that any cost of capital estimate or model output should be treated as a broad guide rather than an absolute truth. The cost of capital is fundamentally a matter of judgement, not merely a calculation. In this context, regard was also had to other methods such as the implied cost of equity based on the Gordon Growth Model (or perpetuity formula), market evidence that suggests that equity investors have substantially repriced risk since the global financial crisis and the fact that interest rates are at low levels by comparison with historical norms. The CAPM is probably the most widely accepted and used methodology for determining the cost of equity capital. There are more sophisticated multivariate models which utilise additional risk factors but these models have not achieved any significant degree of usage or acceptance in practice. However, while the theory underlying the CAPM is rigorous the practical application is subject to shortcomings and limitations and the results of applying the CAPM model should only be regarded as providing a general guide. There is a tendency to regard the rates calculated using CAPM as inviolate. To do so is to misunderstand the limitations of the model. For example:

the CAPM theory is based on expectations but uses historical data as a proxy. The future is not necessarily the same as the past;

the measurement of historical data such as risk premia and beta factors is subject to very high levels of statistical error. Measurements vary widely depending on factors such as source, time period and sampling frequency;

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the measurement of beta is often based on comparisons with other companies. None of these companies is likely to be directly comparable to the entity for which the discount rate is being calculated and may operate in widely varying markets;

parameters such as the debt/equity ratio and risk premium are based on subjective judgements; and

there is not unanimous agreement as to how the model should adjust for factors such as taxation. The CAPM was developed in the context of a “classical” tax system. Australia’s system of dividend imputation has a significant impact on the measurement of net returns to investors.

In addition, the market upheaval since 2007 has seen a repricing of risk by investors and global interest rates, including long term bond rates, are at very low levels by comparison with historical norms. The CAPM methodology does not readily allow for these types of events. The cost of debt has been determined by reference to the pricing implied by the debt markets in Australia. The cost of debt represents an estimate of the expected future returns required by debt providers. In determining the appropriate cost of debt over this forecast period, regard was had to debt ratings of comparable companies. Selection of an appropriate debt/equity mix is a matter of judgement. The debt/equity mix represents an appropriate level of gearing, stated in market value terms, for the business over the forecast period. The relevant proportions of debt and equity have been determined having regard to the financial gearing of the industry in general and comparable companies, and judgements as to the appropriate level of gearing considering the nature and quality of the cash flow stream. The following sections set out the basis for Grant Samuel’s determination of the discount rates for the Assets and the factors which limit the accuracy and reliability of the estimates.

2 Definition and Limitations of the CAPM and WACC

The CAPM provides a theoretical basis for determining a discount rate that reflects the returns required by diversified investors in equities. The rate of return required by equity investors represents the cost of equity of a company and is therefore the relevant measure for estimating a company’s weighted average cost of capital. CAPM is based on the assumption that investors require a premium for investing in equities rather than in risk free investments (such as Australian government bonds). The premium is commonly known as the market risk premium and notionally represents the premium required to compensate for investment in the equity market in general. The risks relating to a company or business may be divided into specific risks and systematic risks. Specific risks are risks that are specific to a particular company or business and are unrelated to movements in equity markets generally. While specific risks will result in actual returns varying from expected returns, it is assumed that diversified investors require no additional returns to compensate for specific risk, because the net effect of specific risks across a diversified portfolio will, on average, be zero. Portfolio investors can diversify away all specific risk. However, investors cannot diversify away the systematic risk of a particular investment or business operation. Systematic risk is the risk that the return from an investment or business operation will vary with the market return in general. If the return on an investment was expected to be completely correlated with the return from the market in general, then the return required on the investment would be equal to the return required from the market in general (i.e. the risk free rate plus the market risk premium). Systematic risk is affected by the following factors:

financial leverage: additional debt will increase the impact of changes in returns on underlying assets and therefore increase systematic risk;

cyclicality of revenue: projects and companies with cyclical revenues will generally be subject to greater systematic risk than those with non-cyclical revenues; and

operating leverage: projects and companies with greater proportions of fixed costs in their cost structure will generally be subject to more systematic risk than those with lesser proportions of fixed costs.


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CAPM postulates that the return required on an investment or asset can be estimated by applying to the market risk premium a measure of systematic risk described as the beta factor. The beta for an investment reflects the covariance of the return from that investment with the return from the market as a whole. Covariance is a measure of relative volatility and correlation. The beta of an investment represents its systematic risk only. It is not a measure of the total risk of a particular investment. An investment with a beta of more than one is riskier than the market and an investment with a beta of less than one is less risky. The discount rate appropriate for an investment which involves zero systematic risk would be equal to the risk free rate. The formula for deriving the cost of equity using CAPM is as follows: Re = Rf + Beta (Rm – Rf) Where: Re = the cost of equity capital; Rf = the risk free rate; Beta = the beta factor; Rm = the expected market return; and Rm - Rf = the market risk premium. The beta for a company or business operation is normally estimated by observing the historical relationship between returns from the company or comparable companies and returns from the market in general. The market risk premium is estimated by reference to the actual long run premium earned on equity investments by comparison with the return on risk free investments. The formula conventionally used to calculate a WACC under a classical tax system is as follows: WACC = (Re x E/V) + (Rd x (1-t) x D/V) Where: E/V = the proportion of equity to total value (where V = D + E); D/V = the proportion of debt to total value; Re = the cost of equity capital; Rd = the cost of debt capital; and t = the corporate tax rate The models, while simple, are based on a sophisticated and rigorous theoretical analysis. Nevertheless, application of the theory is not straightforward and the discount rate calculated should be treated as no more than a general guide. The reliability of any estimate derived from the model is limited. Some of the issues are discussed below:

Risk Free Rate Theoretically, the risk free rate used should be an estimate of the risk free rate in each future period (i.e. the one year spot rate in that year if annual cash flows are used). There is no official “risk free” rate but rates on government securities are typically used as an acceptable substitute. More importantly, forecast rates for each future period are not readily available. In practice, the long term Commonwealth Government Bond rate is used as a substitute in Australia and medium to long term Treasury Bond rates are used in the United States. It should be recognised that the yield to maturity of a long term bond is only an average rate and where the yield curve is strongly positive (i.e. longer term rates are significantly above short term rates) the adoption of a single long term bond rate has the effect of reducing the net present value where the major positive cash flows are in the initial years. The long term bond rate is therefore only an approximation. The ten year bond rate is a widely used and accepted benchmark for the risk free rate. Where the forecast period exceeds ten years, an issue arises as to the appropriate bond to use. While longer term bond rates are available, the ten year bond market is the deepest long term bond market in Australia and is a widely used and recognised benchmark. There is a limited market for bonds of more than ten years. In the United States, there are deeper markets for longer term bonds. The 30 year bond rate is a widely used benchmark. However, long term rates accentuate the distortions

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of the yield curve on cash flows in early years. In any event, a single long term bond rate matching the term of the cash flows is no more theoretically correct than using a ten year rate. More importantly, the ten year rate is the standard benchmark used in practice.

Market Risk Premium The market risk premium (Rm - Rf) represents the “extra” return that investors require to invest in equity securities as a whole over risk free investments. This is an “ex-ante” concept. It is the expected premium and as such it is not an observable phenomenon. There is no generally accepted approach to estimating a forward looking market risk premium and therefore the historical premium is used as the best available proxy measure. The premium earned historically by equity investments is usually calculated over a time period of many years, typically at least 30 years. This long time frame is used on the basis that short term numbers are highly volatile and that a long term average return would be a fair indication of what most investors would expect to earn in the future from an investment in equities with a 5-10 year time frame. In the United States it is generally believed that the premium is in the range of 5-6% but there are widely varying assessments (from 3% to 9%). Australian studies have been more limited and mainly derive from the Officer Study1 which was based on data for the period 1883 to 1987 (prior to the introduction of dividend imputation) and indicated that the long run average premium was in the order of 8% using an arithmetic average but subject to significant statistical error2. More recently, the Officer Study has been updated to 20083 with the long term average declining to 7.1%. However, due to concerns about the earlier market data, Officer now places emphasis on the average risk premium since 1958 which is estimated to be 5.7% ignoring the impact of imputation4. In addition, the market risk premium is not constant and changes over time. At various stages of the market cycle investors perceive that equities are more risky than at other times and will increase or decrease their expected premium. Indeed, prior to 2008 there were arguments being put forward that the risk premium was lower than it had been historically while today there is evidence to indicate that current market risk premiums are above historical averages. However, there is no accepted approach to deal with changes in market risk premia for current conditions.

Beta Factor The beta factor is a measure of the expected covariance (i.e. volatility and correlation of returns) between the return on an investment and the return from the market as a whole. The expected beta factor cannot be observed. The conventional practice is to calculate an historical beta from past share price data and use it as a proxy for the future but it must be recognised that the expected beta is not necessarily the same as the historical beta. A company’s relative risk does change over time. The appropriate beta is the beta of the company being acquired rather than the beta of the acquirer (which may be in a different business with different risks). Betas for the particular subject company may be utilised. However, it is also appropriate (and may be necessary if the investment is not listed) to utilise betas for comparable companies and sector averages (particularly as those may be more reliable). Moreover, there are very significant measurement issues with betas which mean that only limited reliance can be placed on such statistics. There is no “correct” beta. For example:

1 R.R. Officer in Ball, R., Brown, P., Finn, F. J. & Officer, R. R., “Share Market and Portfolio Theory: Readings and Australian

Evidence” (second edition), University of Queensland Press, 1989 (“Officer Study”). 2 The “true” figure lies within a range of approximately 2-10% at a 95% confidence level. 3 R.R. Officer and S. Bishop, “Market Risk Premium: A Review Paper” (August 2008) and “Market Risk Premium: Further Comments”

(January 2009), papers prepared for Energy Networks Association, Australian Pipeline Industry Australia and Grid Australia. 4 Where the market return explicitly includes a component for imputation benefits of 1.0 the market risk premium over the same period

is 6.4%. Consequently, Officer and Bishop recommend that, if no allowance is made for imputation, the generally accepted level of 6% for the market risk premium is appropriate. In comparison, they recommend that where the market return explicitly includes a component for imputation benefits greater than 0.3 the market risk premium for Australia should be increased to 7%.


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• over the last three years AIX’s beta as measured by the Australian Graduate School of Management (“AGSM”) has varied between 1.07 and 1.15. The bottom of the range, 1.07 was measured at June 2012. Prior to 30 June 2012, the range was 1.10 to 1.15; and

• the standard error of the AGSM’s estimate of the AIX’s beta has generally been in the order of 0.22 meaning that for a beta of, say, 1.07 even at a 68% confidence level, the range is 0.85 to 1.29.

Debt/Equity Mix The tax deductibility of the cost of debt means that the higher the proportion of debt the lower the WACC, although this would be offset, at least in part, by an increase in the beta factor as leverage increases. The debt/equity mix assumed in calculating the discount rate should be consistent with the level implicit in the measurement of the beta factor. Typically, the debt/equity mix changes over time and there is significant diversity in the levels of leverage across companies in a sector. There is a tendency to calculate leverage at a point in time whereas the leverage should represent the average over the period the beta was measured. This can be difficult to assess with a meaningful degree of accuracy. The measured beta factors for listed companies are “equity” betas and reflect the financial leverage of the individual companies. It is possible to unleverage beta factors to derive asset betas and releverage betas to reflect a more appropriate or comparable financial structure. In Grant Samuel’s view this technique is subject to considerable estimation error. Deleveraging and releveraging betas exacerbates the estimation errors in the original beta calculation and gives a misleading impression as to the precision of the methodology. Deleveraging and releveraging is also incorrectly calculated based on debt levels at a single point in time. In addition, the actual debt and equity structures of most companies are typically relatively complex. It is necessary to simplify this for practical purposes in this kind of analysis. Finally, it should be noted that, for this purpose, the relevant measure of the debt/equity mix is based on market values not book values.

Specific Risk The WACC is designed to be applied to “expected cash flows” which are effectively a weighted average of the likely scenarios. To the extent that a business is perceived as being particularly risky, this specific risk should be dealt with by adjusting the cash flow scenarios. This avoids the need to make arbitrary adjustments to the discount rate which can dramatically affect estimated values, particularly when the cash flows are of extended duration or much of the business value reflects future growth in cash flows. In addition, risk adjusting the cash flows requires a more disciplined analysis of the risks that the valuer is trying to reflect in the valuation. However, it is also common in practice to allow for certain classes of specific risk (particularly sovereign and other country specific risks) in a different way by adjusting the discount rate applied to forecast cash flows.

3 Calculation of WACC for the Assets

3.1 Cost of Equity Capital

The cost of equity capital has been estimated by reference to the CAPM to be in the range 8.6-9.2% as follows: For

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Risk Free Rate Grant Samuel has adopted a risk free rate of 3.2%. The risk free rate approximates the current yield to maturity on ten year Australian Government bonds.

Market Risk Premium Grant Samuel has consistently adopted a market risk premium of 6% and believes that, particularly in view of the general uncertainty, this continues to be a reasonable estimate. It:

• is not statistically significantly different to the premium suggested by long term historical data;

• is similar to that used by a wide variety of analysts and practitioners (typically in the range 5-7%); and

• makes no explicit allowance for the impact of Australia’s dividend imputation system.

Beta Factor Grant Samuel has adopted a beta factor in the range 0.90-1.00 for the purposes of valuing the Assets. Grant Samuel has considered the beta factors for a range of airport entities in Australia, New Zealand and Europe in determining an appropriate beta for the Assets. The betas have been calculated on two bases relative to each entity’s home exchange index and relative to the Morgan Stanley Capital International Developed World Index (“MSCI”), an international equities market index that is widely used as a proxy for the global stockmarket as a whole.


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A summary of betas for selected comparable listed entities is set out in the table below:

Equity Beta Factors for Selected Airport Entities

Entities

Market Capital- isation5

(millions)

Monthly Observations over 4 years

Weekly Observations over 2 years

AGSM/BARA6

Bloomberg7 Bloomberg Local Index MSCI8 Local

Index MSCI

AIX A$1,639 1.07 1.00 0.92 0.84 0.72 Australia n and New Zealand Sydney Airport Holdings Limited A$6,514 1.14 1.08 0.93 0.73 0.52

Auckland International Airport Ltd. NZ$3,558 0.29 0.84 0.35 0.83 0.41

Asia Airports of Thailand THB133,571 0.98 1.15 0.85 1.00 0.60 Beijing Airport CNY18,190 0.87 1.01 1.13 0.76 0.71 Shanghai Airport CNY21,909 0.90 0.92 0.64 0.79 0.45 Malaysia Airports MYR6,510 1.03 1.20 0.72 0.75 0.50

Europe Aeroports de Paris €5,863 0.75 0.83 1.03 0.70 0.84 Fraport AG €3,918 0.90 0.97 1.17 0.81 1.02 Kobenhavns Lufthavne A/S DK15,618 0.70 0.89 0.90 0.42 0.43

Flughafen Zuerich AG CHF2,505 0.97 0.91 0.82 0.97 0.94 Gemina SpA €1,228 0.73 0.93 1.31 0.69 0.95 Flughafen Wien AG €808 0.78 0.74 0.83 0.75 0.98 Save SpA €385 0.59 0.68 1.04 0.50 0.64

Source: AGSM, Bara, Bloomberg The evidence suggests that a beta around 1.0 is appropriate for airport entities. However, considerable caution is warranted in selecting a beta for the Assets: • individual company betas (for the same source/period) fall in a very wide range. For

example, the Bloomberg four year monthly betas against the MSCI range from 0.37 for Auckland International Airport to 1.36 for Gemina;

• all of the data is subject to significant statistical error. For example Sydney Airport’s AGSM beta has a standard error of 0.29 (i.e. even at a 68% confidence level it lies somewhere between 0.85 and 1.44) and AIX’s AGSM beta has a standard error of 0.22; and

• the betas vary significantly depending on the measurement source (AGSM, Barra and Bloomberg).

Having regard to the factors above, Grant Samuel has selected a beta factor in the range of 0.90-1.00 for the Assets.

5 Based on share prices as at 3 December 2012, except AIX which is based on its share price as at 23 August 2012 (being the day prior

to announcement of the proposal). 6 The Australian beta factors calculated by the Australian Graduate School of Management (“AGSM”) as at June 2012. Beta factors are

calculated over a period of 48 months using ordinary least squares regression or the Scholes-Williams technique where the stock is thinly traded.

7 Bloomberg betas have been calculated up to 1 November 2012, except for AIX which is calculated up to 23 August 2012. Grant Samuel understands that betas estimated by Bloomberg are not calculated strictly in conformity with accepted theoretical approaches to the estimation of betas (i.e. they are based on regressing total returns rather than the excess return over the risk free rate). However, in Grant Samuel’s view the Bloomberg beta estimates can still provide a useful insight into the systematic risks associated with companies and industries. The figures used are the Bloomberg “adjusted” betas.

8 MSCI is calculated using local currency so that there is no impact of currency changes in the performance of the index.

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Calculation Using the estimates set out above, the cost of equity capital in the range 7.5-8.1% can be calculated as follows:

Low High Re = Rf + Beta (Rm-Rf) Re = Rf + Beta (Rm-Rf) = 3.2% + (0.90 x 6.0%) = 3.2% + (1.00 x 6.0%) = 8.6% = 9.2%

3.2 Cost of Debt

A cost of debt of 7.0% has been adopted. This figure represents the expected future cost of borrowing over the duration of the cash flow model. Grant Samuel believes that this would be a reasonable estimate of an average interest rate, including a margin, which would match the duration of the cash flows assuming that the operations were funded with a mixture of short term and long term debt.

3.3 Debt/Equity Mix

The selection of the appropriate debt/equity ratio involves perhaps the most subjectivity of discount rate selection analysis. In determining an appropriate debt/equity mix, regard was had to gearing levels of the Assets and the peer group entities used in the beta analysis. Gearing levels for these entities for the past four years are set out below:

Gearing Levels for Selected Listed Energy Infrastructure Entities

Entity Year End

Net Debt/(Net Debt + Market Capitalisation)

Financial Year Ended Current9 4 Year

Average Historical 4 Historical 3 Historical 2 Historical 1

AIX 30 Jun 19.2% (6.2)% (7.1)% (11.8)% (10.6)% (1.5)% Australia and New Zealand Sydney Airport 30 Jun 58.2% 49.7% 45.6% 52.4% 47.7% 51.5% Auckland Airport. 30 Jun 34.6% 30.1% 26.1% 24.8% 23.1% 28.9%

Asia Airports of Thailand 30 Jun 56.1% 44.9% 41.4% 24.4% 17.2% 41.7%

Beijing Airport 30 Jun 28.9% 52.0% 56.1% 47.0% 44.8% 46.0% Shanghai Airport 31 Dec 9.3% 8.7% 0.6% (6.1)% (7.8)% 3.1%

Malaysia Airports 30 Jun 10.1% 8.2% 18.1% 21.6% 24.2% 14.5%

Europe Aeroports de Paris 30 Jun 32.3% 32.3% 26.7% 35.5% 35.6% 31.7%

Fraport AG 30 Jun 46.7% 45.6% 38.8% 49.3% 48.3% 45.1% Kobenhavns Lufthavne A/S 30 Jun 24.9% 25.2% 20.7% 20.2% 19.8% 22.7%

Flughafen Zuerich AG 30 Jun 42.7% 34.9% 28.4% 34.4% 25.0% 35.1%

Gemina SpA 30 Jun 33.0% 64.0% 53.5% 52.0% 40.7% 50.6% Flughafen Wien AG 30 Jun 49.9% 42.4% 50.0% 53.4% 48.4% 48.9%

Save SpA 30 Jun 27.8% 19.2% 16.0% 21.7% 19.5% 21.2%

Source: Company Reports, IRESS, Bloomberg, Grant Samuel analysis

9 Current gearing levels are based on the most recent balance sheet information and on share market prices as at 3 December 2012,

except AIX which is based on its share price as at 23 August 2012 (being the day prior to the announcement of the Proposal).


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The table shows a range of gearing levels and no particular trends. Moreover there appears to be no particular relationship between betas and gearing. Grant Samuel has also considered the gearing levels of the Assets:

Asset Gearing at 30 June 2012

Asset Net Debt/(Net Debt + Valuation)

Perth Airport 36.1%

APAC 33.1%

QAL 44.8%

NT Airports 36.6%

AIX’s current gearing assuming its proportional share of the Asset’s net debt at 30 June 2012 is 29.4%. Having regard to the above, the debt/equity mix has been estimated as 30-40% debt and 60-70% equity. This is regarded as being broadly consistent with beta factors in the range 0.90-1.00.

3.4 WACC

On the basis of the parameters outlined and assuming a corporate tax rate of 30%, the nominal WACC is calculated to be in the range 6.3-6.8%:

Low

WACC = (Re x E/V) + (Rd x (1-t) x D/V)

High

WACC = (Re x E/V) + (Rd x (1-t) x D/V) = (8.6% x 60%) + (7.0% x 0.7 x 40%) = 7.1%

= (9.2% x 70%) + (7.0% x 0.7 x 30%) = 7.9%

This is an after tax discount rate to be applied to nominal ungeared after tax cash flows. However, it must be recognised that this is a calculation based on statistics of limited reliability and involving a multitude of assumptions. In this regard, Grant Samuel’s view is that the selected cost of capital should incorporate a margin over the calculated WACC range to reflect:

alternative approaches for estimating the cost of equity such as the Gordon Growth Model suggest rates significantly higher than the 8.6-9.2% implied by the CAPM. Analysis of the entities most comparable to the Assets (i.e. Sydney Airport) using the Gordon Growth Model suggests costs of capital in the range 10-12% (yields mostly around 6.0-7.0% and growth of 4.0-5.0%) with a median of around 11%. The Gordon Growth Model is an alternative approach to estimating the cost of equity under which it is calculated as the current forecast yield plus the expected long term growth rate. This approach is particularly useful when valuing assets which generate long term stable growth cash flows such as airports. However, caution is warranted in considering this analysis because of the difficulties of putting the yields of airport entities on a comparable basis because of differing regulatory and tax treatments;

anecdotal information suggests that equity investors have substantially repriced risk since the global financial crisis (notwithstanding the uplift in equity markets since March 2009) and that acquirers are pricing offers on the basis of hurdle rates well above those implied by theoretical models. This can be evidenced through the decline in listed company earnings multiples (relative to the peak in 2007) although it has yet to be translated into the measures of market risk premium (at least those based on longer term historical data). Another way of looking at this is to note that while long term interest rates have fallen by approximately 150-200 basis points over the past 12 months there has been no corresponding lift in earnings multiples, suggesting investors have offset this reduction with an increase in their risk

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premium and/or a reduction in long term earnings growth rates. In this regard, an increase in the market risk premium of 1% (i.e. from 6% to 7%) would increase the calculated WACC range to 7.6-8.6%;

global interest rates, including long term bond rates, are at very low levels by comparison with historical norms reflecting the very substantial amounts of liquidity being pumped into many advanced economies (particularly Western Europe and the United States) to stimulate economic activity. Effective real interest rates are now extremely low, if not negative in some cases (e.g. the United States). We do not believe this position is sustainable and, in our view, the risk is clearly towards a rise in bond yields. Conceptually, the interest rates used to calculate the discount rate should recognise this expectation (i.e. they should be forecast for each future period) but for practical ease market practice is that a single average rate based on the long term bond rate is generally adopted for valuation purposes. Some academics/valuation practitioners consider it to be inappropriate to add a “normal” market risk premium (e.g. 6%) to a temporarily depressed bond yield and therefore a “normalised” risk free rate should be used. On this basis, an increase in the risk free rate to (say) 5.5% would increase the calculated WACC range to 8.5-9.5%; and

analysis of research reports on Australian entities involved in airports (i.e. AIX and Sydney Airport) indicates that brokers are currently adopting costs of equity capital in the range 10.0-12.5%, and WACC in the range 8.6-11%.

Having regard to these matters and the calculations set out above, Grant Samuel has selected a discount rate range of 8.5-9.5% for application in the discounted cash flow analysis.

4 Dividend Imputation

The conventional WACC formula set out above was formulated under a “classical” tax system. The CAPM model is constructed to derive returns to investors after corporate taxes but before personal taxes. Under a classical tax system, interest expense is deductible to a company but dividends are not. Investors are also taxed on dividends received. Accordingly, there is a benefit to equity investors from increased gearing. Under Australia’s dividend imputation system, domestic equity investors now receive a taxation credit (franking credit) for any tax paid by a company. The franking credit attaches to any dividends paid out by a company and the franking credit offsets personal tax. To the extent the investor can utilise the franking credit to offset personal tax, then the corporate tax is not a real impost. It is best considered as a withholding tax for personal taxes. It can therefore be argued that the benefit of dividend imputation should be added into any analysis of value. There is no generally accepted method of allowing for dividend imputation. In fact, there is considerable debate within the academic community as to the appropriate adjustment or even whether any adjustment is required at all. Some suggest that it is appropriate to discount pre tax cash flows, with an increase in the discount rate to “gross up” the market risk premium for the benefit of franking credits that are on average received by shareholders. On this basis, the discount rate might increase by approximately 2% but it would be applied to pre tax cash flows. However, not all of the necessary conditions for this approach exist in practice:

not all shareholders can use franking credits. In particular, foreign investors gain no benefit from franking credits. If foreign investors are the marginal price setters in the Australian market there should be no adjustment for dividend imputation;

not all franking credits are distributed to shareholders; and

capital gains tax operates on a different basis to income tax. Investors with high marginal personal tax rates will prefer cash to be retained and returns to be generated by way of a capital gain.

Others have proposed a different approach involving an adjustment to the tax rate in the discount rate by a factor reflecting the effective use or value of franking credits. If the credits can be used, the tax rate is reduced towards zero. The proponents of this approach have in the past suggested a factor in the range


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50-65% as representing the appropriate adjustment (gamma). Alternatively, the tax charge in the forecast cash flows can be decreased to incorporate the expected value of franking credits distributed. There is undoubtedly merit in the proposition that dividend imputation affects value. Over time dividend imputation will become factored into the determination of discount rates by corporations and investors. In Grant Samuel’s view, however, the evidence gathered to date as to the value the market attributes to franking credits is insufficient to rely on for valuation purposes. More importantly, Grant Samuel does not believe that such adjustments are widely used by acquirers of assets at present. While acquirers are undoubtedly attracted by franking credits there is no clear evidence that they will actually pay extra for them or build it into values based on long term cash flows. The studies that measure the value attributed to franking credits are based on the immediate value of franking credits distributed and do not address the risk and other issues associated with the ability to utilise them over the longer term. Accordingly, it is Grant Samuel’s opinion, that it is not appropriate to make any adjustment.

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Appendix 2

Market Evidence - Transactions

Australia and New Zealand Set out below is a summary of transactions involving airport businesses in Australia and New Zealand since 2007 (primarily) for which there is sufficient information to calculate meaningful valuation parameters:

Recent Transaction Evidence – Australian and New Zealand Airports

Date Target Transaction Consid- eration1

(millions)

EBITDA Multiple2 (times) EBIT Multiple3 (times)

Historical4 Forecast Forecast Historical Forecast Forecast

Australia Jul 11 Sydney Airport Acquisition of 11.02% by Macquarie

Airports A$7,305 19.3 18.2 16.8 27.7 na5 na

Aug 10 Moorabbin Airport Acquisition by Goodman Group A$182 38.0 na na 47.6 na na May/ Jun 10

APAC (Melbourne, Launceston Airports)

Acquisition of additional 2.25% by Australian Infrastructure Fund

A$3,404 14.8 13.5 12.3 17.0 na na

Jan 10 North Queensland Airports Corporation

Acquisition of 24.55% by Auckland International Airport

A$541 18.8 20.6 16.7 na 32.5 28.0

Dec 08 Cairns Airport Acquisition by North Queensland Airports Group

A$530 14.7 na na 25.0 na na

Nov 08 Mackay Airport Acquisition by North Queensland Airports Group

A$209 26.9 na na 49.3 na na

Oct 08 Brisbane Airport Acquisition of 12.4% by existing shareholders

A$2,334 17.3 na na 20.9 na na

Dec 07 Hobart International Airport

Acquisition by Tasmanian Gateway Consortium

A$310 33.5 na na 41.7 na na

Nov 07 APAC (Melbourne, Launceston Airports)

Acquisition of 19.82% by Hastings Consortium

A$2,964 15.9 15.3 12.8 18.5 na na

Nov 07 Perth Airport Acquisition of 15% by Hastings Consortium

A$1,031 14.9 15.3 12.9 na na na

Nov 07 NT Airports Acquisition of 10% by Hastings Consortium

A$247 12.4 10.3 10.0 17.1 na na

Mar 07 Sydney Airport Acquisition of 2.77% by HOCHTIEF AirPort GmbH

A$4,404 20.2 19.5 18.2 28.2 na na

Feb 07 Sydney Airport Acquisition of 15.1% by Macquarie Airports

A$4,391 20.2 19.5 18.1 28.2 na na

Feb 05 Townville and Mount Isa Airports

Acquisition by Queensland Airports Limited

A$75 na 11.6 na na na na

New Zealand Jul 10 Queenstown Airport Acquisition of 24.99% by Auckland

International Airport NZ$111 13.5 11.3 na 18.8 na na

Nov 09 Auckland International Airport Limited

Sale of 3.87% by Infratil Limited via institutional placement

NZ$2,256 12.0 12.1 11.4 14.9 15.2 14.2

Nov 07 (did not proceed)

Auckland International Airport Limited6

Takeover offer for 39.2% by Canadian Pension Plan Investment Board

NZ$4,468 21.4 19.2 17.3 26.1 23.4 20.8

Nov 06 Palmerston North Airport

Acquisition of 13.5% by Palmerston North City Airport

NZ$20 8.8 na na 10.8 na na

Source: Grant Samuel analysis7 1 Implied equity value if 100% of the company or business had been acquired. 2 Represents gross consideration divided by EBITDA. EBITDA is earnings before net interest, tax, depreciation, amortisation,

investment income and significant and non-recurring items (including fair value adjustments on investment properties). 3 Represents gross consideration divided by EBIT. EBIT is earnings before net interest, tax, investment income and significant and

non-recurring items (including fair value adjustments on investment properties). 4 Historical multiples are based on the most recent publicly available full year earnings prior to the transaction announcement date.

Forecast multiples are based on company published earnings forecasts or brokers’ reports available at transaction announcement date. 5 na = not available 6 Although Auckland Airport shareholders approved CPPIB’s partial takeover offer and the required level of acceptances were obtained,

this transaction did not complete as it did not obtain approval from the New Zealand Overseas Investment Office. 7 Grant Samuel analysis based on data obtained from IRESS, Capital IQ, company announcements, transaction documentation and, in the

absence of company published financial forecasts, brokers’ reports. Where company financial forecasts are not available, the median of the financial forecasts prepared by a range of brokers has generally been used to derive relevant forecast value parameters. The source, date and number of broker reports utilised for each transaction depends on analyst coverage, availability and corporate activity.


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A brief summary of each transaction is set out below: Australia Southern Cross Airports Corporation Holdings Limited / Macquarie Airports On 20 July 2011, Macquarie Airports (“MAp) reached agreement with Ontario Teachers’ Pension Plan Board (“OTPP”) on an asset swap proposal by which it would acquire a further 11.02% in Southern Cross Airports Corporation Holdings Limited, the provider and manager of airport facilities at Sydney (Kingsford Smith) Airport (“Sydney Airport”), for A$805 million (based on MAp Board approved valuation as at 31 December 2010). This transaction increased MAp’s interest in Sydney Airport to 85%. Moorabbin Airport Corporation Limited / Goodman Group On 16 August 2010, Goodman Group announced the acquisition of a 294 hectare airport and business park in Melbourne’s inner south east for a gross value of A$201.5 million from Goodman Holdings Pty Limited (“Goodman Holdings”), a company associated with two directors of Goodman Group. The property is leased from the Commonwealth Government under a 99 year lease (87 years remaining) and comprises the 171 hectare Moorabbin Airport and associated aviation activities, 50 hectares of income producing industrial and retail land and 73 hectares of land for future development. The transaction is to be implemented by the sale of all shares in Moorabbin Airport Corporation Limited (“MAC”) with Goodman Holdings to continue to operate the airport under a separate agreement for an annual fee of A$1.7 million (in exchange for the entitlement to all aviation revenues and responsibility for all aviation expenses). No forecasts are publicly available for MAC. The multiples implied by the transaction are high as a large proportion of MAC’s earnings are from property investment rather than airport activities and as the gross consideration reflects the land available for future development (non income producing). If the consideration is adjusted for the development land historical EBITDA and EBIT multiples decline to 21.5 times and 26.9 times respectively. Furthermore, the aviation operation (excluding rental of aviation properties) has been loss making in the last five years and is forecast to continue to be so for the foreseeable future. Consequently, the multiples implied by this transaction may not be meaningful for valuation purposes. Australian Pacific Airports Corporation Limited / Australian Infrastructure Fund On 6 May 2010, Australian Infrastructure Fund (“AIX”) announced that it had acquired an additional 2.21% interest in Australian Pacific Airports Corporation Limited (“APAC”) (the owner and operator of Melbourne and Launceston Airports) from a divesting shareholder for A$75.1 million increasing its interest to 12.35%. This interest was acquired under pre-emptive provisions contained in the APAC Shareholders’ Deed. Subsequently, on 17 June 2010 AIX acquired a further 0.04% interest in APAC for A$1.5 million after an existing APAC shareholder declined to take up its entitlement under the pre-emptive provisions. As a result, AIX increased its interest in APAC to 12.39%. The multiples presented have been calculated by reference to the aggregate investment for 2.25% of A$76.6 million. North Queensland Airports Corporation Limited / Auckland International Airport Limited On 11 January 2010 Auckland International Airport Limited (“Auckland Airport”) announced the acquisition of Westpac Banking Corporation’s 24.55% interest in North Queensland Airports Corporation Limited (the operator of Cairns and Mackay Airports) for A$132.8 million. This acquisition is Auckland Airport’s first outside of its core business in Auckland and opens up opportunities to grow air service connections between New Zealand and Cairns. Limited detail was available in relation to the transaction and most market commentators considered the price paid to be full, particularly having regard to the depressed economic conditions in Cairns. Cairns Airport / North Queensland Airports Group On 24 December 2008, the Queensland Government announced the sale of Cairns Airport to a consortium comprising The Infrastructure Fund, Perron Investments Pty Ltd, Westpac Banking Corporation and JP Morgan Infrastructure Investments Fund (North Queensland Airports Group) for A$530 million. The sale was implemented by way of the sale of all of the issued capital of Cairns Airport Pty Ltd and a 99 year lease of the airport land and infrastructure assets. No forecasts for Cairns Airport are available. The historical multiples in

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the table above have been calculated by reference to the segment reporting by Cairns Ports Limited which owned and operated the airport prior to its restructure for sale. These multiples may not be meaningful as a consequence of the restructure. The historical EBITDA multiple calculated by reference to normalised earnings (excluding any allocation of corporate overheads) for Cairns Airport disclosed at the time of Auckland Airport’s acquisition of a 24.55% interest in North Queensland Airports Group is lower at 11 times. Mackay Airport / North Queensland Airports Group On 21 November 2008, the Queensland Government announced the sale of Mackay Airport to North Queensland Airports Group for A$208.8 million. The sale was implemented by way of the sale of all of the issued capital of Mackay Airport Pty Ltd and a 99 year lease of the airport land and infrastructure assets. No forecasts for Mackay Airport are available. The historical multiples in the table above have been calculated by reference to the segment reporting by Mackay Ports Limited which owned and operated the airport prior to its restructure for sale. These multiples may not be meaningful as a consequence of the restructure. The historical EBITDA multiple calculated by reference to normalised earnings (excluding any allocation of corporate overheads) for Mackay Airport disclosed at the time of Auckland Airport’s acquisition of a 24.55% interest in North Queensland Airports Group is lower at 22.4 times. BAC Holdings Limited / Certain Existing Shareholders On 16 October 2008, the Queensland Government announced the sale of its 12.4% shareholding in BAC Holdings Limited (the lessee, operator and developer of Brisbane Airport) for A$289.4 million to a number of existing shareholders including Industry Funds Management, Schiphol Australia Pty Ltd, entities of Colonial First State Asset Management and UniSuper. Under the existing shareholders agreement, the 12.4% interest was subject to pre-emptive rights. There are no publicly available forecasts for BAC Holdings Limited. Hobart International Airport Pty Limited / Tasmanian Gateway Consortium On 13 December 2007, the Tasmanian Gateway Consortium announced the acquisition of 100% of Hobart International Airport Pty Limited, the owner and operator of Hobart International Airport, for gross consideration of A$350.5 million (implied equity value of A$309.7 million). The multiples implied by the transaction are high as a result of a number of major developments commenced in September 2007 (including a hotel/motel complex and a childcare centre) which are not reflected in the historical earnings. BAA Limited’s interests in various Australian Airports / Hastings Consortium On 9 November 2007, Hastings Funds Management Limited (“Hastings”) announced that it had acquired BAA International Holdings Limited (“BAAIH”) from BAA Limited (“BAA”) for a total of A$775 million. BAAIH owns BAA’s interests in Australian airports, being a 19.82% interest in Australia Pacific Airports Corporation Limited (“APAC”) which holds Melbourne and Launceston Airports, a 15% interest in Airstralia Development Group Pty Limited which holds Perth Airport (“Perth Airport”) plus a 15% interest in the convertible notes on issue by Perth Airport and a 10% interest in Airport Development Group Pty Limited which holds Darwin, Alice Springs and Tennant Creek Airports (“NT Airports”). The acquisition was made by a company owned by three funds managed by Hastings (the listed AIX and the unlisted Utilities Trust of Australia and The Infrastructure Fund) and existing shareholders in each of these entities were entitled to acquire their pro-rata share of the interests being sold by BAA under pre-emptive rights. Given the nature of the transaction, multiples have been calculated for each of the entities in which interests were acquired, namely APAC, Perth Airport and NT Airports. The historical multiples calculated are marginally higher than those announced publicly. Southern Cross Airports Corporation Holdings Limited / HOCHTIEF AirPort GmbH On 20 March 2007, HOCHTIEF AirPort GmbH (“HOCHTIEF AirPort”) announced that it had exercised its pro-rata pre-emptive rights in relation to Ferrovial Infraestructures S.A.’s (“Ferrovial”) 20.9% interest in Sydney Airport to acquire an additional 2.77% interest for A$122 million.


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Southern Cross Airports Corporation Holdings Limited / Macquarie Airports On 27 February 2007, MAp exercised its call option over Ferrovial Infraestructures S.A.’s 20.9% interest in Sydney Airport. The exercise of the option was subject to the existing pre-emptive arrangements among the other shareholders in Sydney Airport and, as anticipated, these shareholders exercised their pre-emptive rights in full. Consequently, MAp announced on 20 March 2007 that it had acquired an additional 15.1% of Sydney Airport for A$663 million to increase its beneficial interest to 72.1% (and voting rights to 78.7%). Townsville and Mount Isa Airports / Queensland Airports Limited On 14 February 2005, Queensland Airports Limited (“QAL””) announced the acquisition of the companies that lease and operate the Townsville and Mount Isa airports for A$75.1 million. QAL owns Gold Coast Airport Limited, the lessee and operator of Gold Coast Airport and the acquisition presents an opportunity to derive synergies. New Zealand Queenstown Airport Corporation Limited / Auckland International Airport Limited On 8 July 2010, Auckland Airport announced that it had formed a strategic alliance with Queenstown Airport Corporation Limited (“Queenstown Airport”) and had agreed to invest NZ$27.7 million to acquire 4,013,485 new shares in Queenstown Airport (NZ$6.91 per share) equal to 24.99% of the enlarged capital. Auckland Airport also acquired an option to increase its shareholding to 30-35% any time up to 30 June 2011 under which the price for the additional shares would be NZ$7.47 per share plus a lump sum payment of NZ$2.2 million to reflect the additional value of a shareholding over 25%. Although for various reasons this option was not exercised, the terms of the option implied historical and forecast EBITDA multiples for a 30-35% interest in Queenstown Airport of 15.4-16.5 times and 12.9-13.9 times respectively (although it should be noted that these multiples also reflect a minority interest and not a controlling interest). Auckland International Airport Limited / Institutional Placement On 10 November 2009, Infratil Limited (“Infratil”) sold its 3.87% investment in Auckland Airport by way of an institutional placement at a price of NZ$1.84 per share realising NZ$87.3 million. The price obtained by Infratil was a 3.9% discount to the last trading price prior to the sell down. Auckland International Airport Limited / Canadian Pension Plan Investment Board On 16 November 2007, Auckland Airport received a notice from a subsidiary of the Canadian Pension Plan Investment Board (“CPPIB”) in relation to a takeover offer for 39.2% of the shares in Auckland Airport at a price of NZ$3.6555 per share. If successful the partial takeover offer CPPIB’s interest in Auckland Airport would be 40%. The offer is conditional on, inter alia, approval by New Zealand’s Overseas Investment Office (“OIO”), the 40% shareholding being achieved and the approval of the majority of Auckland Airport shares voting on the offer. In December 2007 the Auckland Airport board recommended rejection of the offer by shareholders and advised shareholders not to accept the offer (although the offer price exceeded the full underlying value of Auckland Airport assessed by the independent expert). However, as a consequence of a material change in market conditions, the board revised its recommendation on 25 February 2008 and on 14 March 2008 the CPPIB takeover met the required levels of approvals and acceptances to proceed. Nevertheless, the CPPIB partial takeover did not proceed as the OIO declined to approve CPPIB’s acquisition. The transaction has been included as a comparable transaction as the offer price was assessed to represent fair value. Palmerston North Airport Limited / Palmerston North City Council On 30 November 2006, Palmerston North City Council acquired the remaining 13.5% interest in Palmerston North Airport Limited (the owner and operator of Palmerston North International Airport on the North Island of New Zealand) for NZ$2.7 million.

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United Kingdom and Europe Set out below is a summary of transactions involving airport businesses in the United Kingdom and Europe since 2007 for which there is sufficient information to calculate meaningful valuation parameters:

Recent Transaction Evidence – United Kingdom and European Airports

Date Target Transaction Consid- eration

(millions)

EBITDA Multiple (times) EBIT Multiple (times)

Historical Forecast Forecast Historical Forecast Forecast

United Kingdom Oct 12 pending

Newcastle International Airport

Acquisition of 49% by fund managed by AMP Capital Investors

£174 19.6 na na 31.9 na na

Aug 12 pending

Heathrow, Stansted, Glasgow, Aberdeen and Southampton Airports

Acquisition of 20% by Qatar Holdings £4,500 14.2 na na 27.1 na na

Apr 12 Edinburgh Airport Acquisition by Global Infrastructure Partners

£680 16.2 na na 27.7 na na

Oct 11 Heathrow, Stansted, Glasgow, Aberdeen, Southampton and Edinburgh Airports

Acquisition of 5.88% by funds managed by Alinda Capital Partners LLC

£4,762 15.7 na na 33.1 na na

Oct 09 Gatwick Airport Acquisition by Global Infrastructure Partners

£688 8.8 8.6 na 14.7 15.1 na

Sep 09 Bristol Airport Acquisition of 35.5% by Ontario Teachers’ Pension Plan

£361 23.7 na na 33.9 na na

Dec 08 London Southend Airport Acquisition by Stobart Group £21 34.7 na na 55.1 na na Sep 08 Belfast City Airport Acquisition by ABN AMRO Global

Infrastructure Fund and Faros Investment Partners

£133 27.3 na na 45.7 na na

May 08 Bristol Airport Acquisition of 3.4% by Macquarie Airports

£316 22.8 na na 31.9 na na

May 07 Leeds Bradford International Airport

Acquisition by Bridgepoint Capital £146 31.2 na na 104.8 na na

May 07 Birmingham Airport Acquisition of 28.65% by Ontario Teachers’ Pension Plan and 19.6% by Victorian Funds Management Corporation

£871 20.7 na na 36.2 na na

Europe Mar 12 Florence Airport Acquisition of 4.893% by Tuscany Region €100 12.8 na na 18.1 na na Dec 11 Florence Airport Acquisition of 2.05% by C.C.I.A.A. de

Firenze and Camera di Commercio di Prato

€112 14.4 14.3 na 20.8 20.2 na

Jul 11 Copenhagen Airports Acquisition of 30.8% by Ontario Teachers’ Pension Plan

DK22,038 15.3 15.1 14.5 21.7 22.0 20.7

Jul 11 Brussels Airport Acquisition of 39% by Ontario Teachers’ Pension Plan

€1,695 13.5 na na na na na

Jun 11 Budapest Airport Acquisition of 25% by HOCHTIEF Airport consortium

€560 25.1 na na 29.8 na na

Oct 10 Naples Airport Acquisition of 65% by F2i SGR SpA €220 15.4 na na 32.1 na na Mar 10 Rome Airports Acquisition of 5.186% by Changi Airport

Group €1,040 13.5 11.3 9.1 43.9 22.0 15.6

Dec 09 Brussels Airport Acquisition of 3% by Macquarie Airports €1,543 12.5 na na na na na Nov 09 Florence Airport Acquisition of 11.89% by Cassa di

Risparmio di Firenze SpA €240 25.9 26.6 na 42.3 43.6 na

Sep 09 Copenhagen Airports Acquisition of 3.9% by Macquarie Airports

DK14,615 10.5 11.6 na 13.7 15.8 na

Oct 08 Paris Airports Acquisition of 8% by N.V. Luchthaven Schiphol

€6,625 11.8 10.6 na 20.5 18.3 na

Oct 08 Amsterdam Airport Subscription for 8% by Aeroports de Paris €4,625 11.3 na na 17.4 na na Aug 08 Brussels Airport Acquisition of 26.08% by Macquarie

European Infrastructure Fund III €1,543 12.6 na na na na na

Aug 08 Copenhagen Airports Acquisition of 26.85% by Macquarie European Infrastructure Fund III

DK14,168 10.8 10.3 na 14.0 13.1 na

Nov 07 Brussels Airport Acquisition of 3.2% by Macquarie Airports €1,591 15.2 na na na na na Oct 07 Brussels Airport Acquisition of 5% by Macquarie Airports €1,566 15.2 na na na na na Jun 07 Rome Airports Acquisition of 44.68% by Gemina SpA €2,765 16.5 na na 27.8 na na

Source: Grant Samuel analysis7


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A brief summary of each transaction is set out below: United Kingdom NIAL Group Limited / Fund managed by AMP Capital Investors Limited (pending) On 26 October 2012, Kobenhavns Lufthavne A/S announced the sale of its 49% interest in NIAL Group Limited (“NIAL”), the parent of Newcastle International Airport, to a fund managed by AMP Capital Investors Limited for £85 million plus a £65 million contribution to partially pay down NIAL’s existing debt. The remaining 51% of NIAL is owned by seven municipalities. In connection with the sale, NIAL has decided to refinance its existing group facility and the sale is conditional on the new facility agreement. The transaction is expected to close in November 2012. FGP Topco Limited / Qatar Holdings LLC (pending) On 17 August 2012, Qatar Holdings LLC agreed to acquire a 20% interest in FGP Topco Limited (“FGP”) from Ferrovial, GIC Special Investments and Caisse de Depot et Placement du Quebec for £900 million. FGP is the holding company of BAA. It provides and manages regulated and non-regulated airport facilities in the United Kingdom (namely Heathrow, Stansted, Glasgow, Aberdeen and Southampton airports) and operates the Heathrow Express rail link between Heathrow and Paddington, London. The transaction is subject to approval of European Union competition authorities and is expected to be completed before the end of 2012. In addition, on the 20 August 2012, BAA announced that it had decided to proceed with the sale of Stansted Airport. Edinburgh Airport Limited / Global Infrastructure Partners On 23 April 2012, BAA announced the sale of its 100% interest in Edinburgh Airport Limited to Global Infrastructure Partners for £807.2 million. The sale of Edinburgh Airport was in response to the Competition Commissions’ requirements for BAA to dispose of certain of its airports. Edinburgh Airport is unregulated and is one of the United Kingdom’s fastest growing airports. FGP Topco Limited / Funds managed by Alinda Capital Partners LLC On 10 October 2011, funds managed by Alinda Capital Partners LLC acquired a 5.88% interest in FGP from a subsidiary of Ferrovial for £280 million. FGP provides and manages regulated and non-regulated airport facilities in the United Kingdom (namely Heathrow, Stansted, Edinburgh, Glasgow, Aberdeen and Southampton airports) and operates the Heathrow Express rail link between Heathrow and Paddington, London. Gatwick Airport Limited / Global Infrastructure Partners On 21 November 2009 Global Infrastructure Partners announced the acquisition of Gatwick Airport Limited for £1,455 million on a cash free, debt fee basis (i.e. enterprise value) from BAA plus a further £55 million on a deferred basis contingent on certain defined targets relating to passenger volume and future capital structure being achieved. Gatwick Airport is a regulated airport and BAA announced its plan to sell Gatwick in September 2008 before the end of the Competition Commission’s United Kingdom airports market investigation. The multiples implied by transaction have been calculated excluding the contingent consideration (as subsequently the acquirers directors stated that in their view no contingent amount will be payable). The implied multiples are low reflecting market conditions, the market view that it was a forced sale and that Gatwick Airport is regulated. At 31 March 2009 the regulated asset base (“RAB”) of Gatwick airport was £1,575 million and therefore the transaction was completed at RAB multiple of 0.92 times. South West Airports Limited / Ontario Teachers’ Pension Plan Board On 16 September 2009, MAp announced the sale of a 35.5% interest in South West Airports Limited (the holding company for Bristol Airport) to OTPP for £128 million. Bristol Airport is located in south west England and one of the United Kingdom’s fastest growing regional airports serving a catchment area of more than five million people. London Southend Airport Company Limited / Stobart Group Limited On 5 December 2008, Stobart Group Limited (“Stobart”) acquired London Southend Airport Company Limited (which operates a commercial airport east of London in Essex) for £21 million including £5 million contingent

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on achievement of certain aspects of the airport’s development. Stobart is a transport and distribution company which also operates in property development, ports, airports and civil engineering. Stobart intends to implement Southend Airport’s development plans including the construction of a new railway station. The multiples are implied by the transaction are calculated by reference to the maximum consideration payable and are relatively high. If the contingent consideration is excluded the transaction implies 26.3 times historical EBITDA and 41.7 times historical EBIT (more in line with transactions in the same period). Belfast City Airport Limited / ABN AMRO Global Infrastructure Fund and Faros Investment Partners On 6 September 2008, ABN AMRO Global Infrastructure Fund and Faros Investment Partners announced the acquisition of Belfast City Airport Limited (the operator of George Best Belfast City Airport) from Ferrovial for £132.5 million. South West Airports Limited / Macquarie Airports On 16 May 2008, MAp announced that as a consequence of the restructure of Macquarie Airports Group (“MAG”) (which holds a 50% interest in Bristol Airport) it had acquired an additional 6.7% of MAG from Colonial First State Super and UniSuper for £21.2 million thereby increasing its beneficial interest in Bristol Airport by 3.4% to 35.5%. Leeds Bradford International Limited / Bridgepoint Capital Limited On 3 May 2007, Bridgepoint Capital Limited (“Bridgepoint”) acquired Leeds Bradford International Airport Limited from five west Yorkshire councils for £145.5 million. Bridgepoint has a strategic plan for the airport including £70 million of capital expenditure to increase terminal capacity to accommodate anticipated growing passenger volumes from Yorkshire and Humberside and other infrastructure requirements. The multiples implied by the transaction are relatively high possibly reflecting the strategic plan. Birmingham Airport Holdings Ltd / Ontario Teachers’ Pension Plan Board and Victorian Funds Management Corporation On 17 May 2007, OTPP and Victorian Funds Management Corporation entered into a conditional agreement to acquire a 48.25% interest in Birmingham Airport Holdings Ltd (the operator and manager of Birmingham International Airport) for £420 million. West Midlands District Council owns a 49% interest in the airport and has pre-emptive rights to the shares being acquired. The transaction completed in September 2007. Europe Aeroporto di Firenze S.p.A. ADF / Tuscany Region On 12 March 2012, Tuscany Region acquired a 4.89% interest in Aeroporto di Firenze S.p.A. ADF (the operator of Florence Amerigo Vespucci Airport in Italy) for €4.9 million. The company is listed on the Italian Stock Exchange and its three state shareholders account for 22.75% of issued capital (Florence Chamber of Commerce 15.46%, Prato Chamber of Commerce 5.11% and Municipality of Florence) and have signed a shareholders’ agreement which obligates them to consult before exercising voting rights and places limits on the transfer of shares. The shareholders agreement is due to expire on 31 October 2012 unless extended. Aeroporto di Firenze S.p.A. ADF / C.C.I.A.A di Firenze and Camera di Commercio di Prato On 15 December 2011, C.C.I.A.A di Firenze and Camera di Commercio I.A.A. di Prato acquired an additional 2.05% interest in Aeroporto di Firenze S.p.A. ADF (the operator of Florence Amerigo Vespucci Airport in Italy) for €2.3 million. Following the acquisition, C.C.I.A.A di Firenze will own a 15.46% interest and Camera di Commercio di Prato will own a 5.11% interest. Kobenhavns Lufthavne A/S / Ontario Teachers’ Pension Plan Board On 20 July 2011, OTPP reached a binding asset swap agreement with MAp whereby it acquired a 30.8% interest in Kobenhavns Lufthavne A/S (the owner and operator of Copenhagen Airport) and a 39% interest in The Brussels Airport Company SA (the operator of Brussels Airport) for total consideration of A$1,596 million (comprising 11.02% of Sydney Airports and $791 million cash payment). The split of the consideration was not disclosed but it was announced that the transaction implied a multiple of 15.2 times EBITDA for the 12 months


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ended 31 March 2011 for Kobenhavns Lufthavne A/S. The multiples presented are based on the enterprise value implied by this EBITDA multiple. Kobenhavns Lufthavne A/S is listed on the Copenhagen Stock Exchange but only has a free float of around 3.2% (Danish State owns 39.2% and OTPP, MAp and Macquarie European Infrastructure Fund III jointly control 57.6% prior to this transaction). The Brussels Airport Company SA / Ontario Teachers’ Pension Plan Board On 20 July 2011, OTPP reached a binding asset swap agreement with MAp whereby it acquired a 30.8% interest in Kobenhavns Lufthavne A/S (the owner and operator of Copenhagen Airport) and a 39% interest in The Brussels Airport Company SA (the operator of Brussels Airport) for total consideration of A$1,596 million (comprising 11.02% of Sydney Airports and $791 million cash payment). The split of the consideration was not disclosed but it was announced that the transaction implied a multiple of 13.3 times EBITDA for the 12 months ended 31 March 2011 for The Brussels Airport Company SA. Airport Holding Tanáscsadó Kft / Consortium led by HOCHTIEF AirPort GmbH On 11 June 2011, a consortium led by HOCHTIEF AirPort acquired the remaining 25% plus one share in Airport Holding Tanáscsadó Kft (the holding company for Budapest Airport) from the Hungarian Government for €140 million. The multiples implied by the transaction are relatively high reflecting a premium to acquire 100% of the company. G.E.S.A.C. S.p.A. / Fondi Italiani per le Infrastrutture SGR S.p.A. On 1 October 2010, Fondi Italiani per le Infrastrutture SGR S.p.A. (“F2i”) agreed to acquire a 65% interest in G.E.S.A.C. S.p.A. (the operator of Naples International Airport in Italy) for €147 million from Ferrovial, S.A. €13 million of the purchase price will be deferred for three years on an unconditional basis and fully backed by on demand bank letters of credit. The sale is conditional upon Italian competition clearance and the expiry or waiver of pre-emptive rights held by the City and Province of Naples, which are the minority shareholders. The multiples implied by the transaction have been calculated by reference to the total consideration. Gemina S.p.A. / Changi Airport Group (Singapore) Pte Ltd On 1 March 2010, Changi Airport Group (Singapore) Pte Ltd (“Changi Airport Group”) acquired a 5.186% interest in Milan Stock Exchange listed Gemina S.p.A (which holds a 95.76% interest in Aeroporti di Roma (“AdR”), the concession holder for Leonardo da Vinci (Fiumicimo) and Giovan Battista Pastine (Ciampino) airports in Rome, Italy) for €53.9 million (i.e. Changi Airport Group acquired a 4.966% beneficial interest in AdR). The investment is an integral part of a strategic industrial partnership to be forged with the major shareholders of Gemina S.p.A. whereby Changi Airport Group will play a role in the future expansion and development of the airports in Rome. The Brussels Airport Company SA / MAp Airports Limited On 17 December 2009, MAp acquired a 3% beneficial interest in The Brussels Airport Company SA (Brussels Airport) from Global Infrastructure Fund II as consequence of the exercise of a put option triggered by the internalisation of MAp’s management. The consideration payable under the terms of the put option is fair market value as determined by an independent valuer. The valuer determined that the fair market value for the 3% interest was €48.3 million. This price represents a 2.5% discount from the fair market value attributed by the valuer to 100% of The Brussels Airport Company SA (€1,591.5 million). The discount adopted is low as the minority shareholders protections prescribed in the shareholders’ agreement are considered to be meaningful in eliminating any minority discount. Aeroporto di Firenze S.p.A. ADF / Cassa di Risparmio di Firenze S.p.A. On 16 November 2009, Cassa di Risparmio di Firenze S.p.A. (“Cassa”) agreed to acquire a 11.89% interest in Aeroporto di Firenze S.p.A. ADF (the operator of Florence Amerigo Vespucci Airport in Italy) from Meridiana S.p.A. for €428.6 million. Following this acquisition, Cassa will be the second largest shareholder with a 17.5% interest.

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Kobenhavns Lufthavne A/S / Macquarie Airports Limited On 16 September 2009, MAp acquired an additional 3.9% interest in Copenhagen Stock Exchange listed Kobenhavns Lufthavne A/S (the owner and operator of Copenhagen Airport) from OTPP for DK570 million. The transaction takes MAp’s interest to 30.8% and is subject to European Union anti-trust clearance. Aeroports de Paris / N.V. Luchthaven Schiphol On 21 October 2008, N.V. Luchthaven Schiphol acquired an 8% interest in Aeroports de Paris (the developer and manager of Paris-Charles de Gaulle, Paris-Orly and Paris-Le Bourget airports in Paris, France) from the French Government for €530.03 million. The acquisition was part of a long term industrial co-operation agreement between the parties under which Aeroports de Paris also acquired an 8% interest in N.V. Luchthaven Schiphol. The parties expect synergies of €89 million per annum by 2013 of which €69 million per annum will accrue to Aeroports de Paris. N.V. Luchthaven Schiphol / Aeroports de Paris On 21 October 2008, Aeroports de Paris subscribed €370 million to acquire an 8% interest in N.V. Luchthaven Schiphol, an unlisted company that primarily operates the Amsterdam Airport Schiphol. The investment was part of a long term industrial co-operation agreement between the parties under which N.V. Luchthaven Schiphol also acquired an 8% interest in Aeroports de Paris. The Brussels Airport Company SA / Macquarie European Infrastructure Fund III On 20 August 2008, the Macquarie European Infrastructure Fund III acquired a 26.08% interest in The Brussels Airport Company SA (Brussels Airport) from MAp for €402.5 million. Kobenhavns Lufthavne A/S / Macquarie European Infrastructure Fund III On 20 August 2008, the Macquarie European Infrastructure Fund III acquired a 26.85% Kobenhavns Lufthavne A/S from MAp for €510 million. The Brussels Airport Company SA / Macquarie Airports Limited On 14 November 2007, MAp acquired a 3.2% interest in The Brussels Airport Company SA (Brussels Airport) from Macquarie International Infrastructure Fund for €50.9 million. The Brussels Airport Company SA / Macquarie Airports Limited On 22 October 2007, MAp acquired a 5% interest in The Brussels Airport Company SA (Brussels Airport) from Macquarie International Infrastructure Fund for €78 million. Aeroporti di Roma S.p.A / Gemina S.p.A On 18 June 2007, Gemina S.p.A acquired a 44.74% interest in AdR (the concession holder for Leonardo da Vinci (Fiumicimo) and Giovan Battista Pastine (Ciampino) airports in Rome, Italy) from MAp for €1,237 million.


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Appendix 3

Market Evidence - Comparable Listed Companies Only about 20 airport groups are publicly listed and are mainly located in the Asia Pacific and Europe. In the United States, airports are local/state government owned and operated while in Canada, airports are operated by private not for profit airport authorities or are municipally owned. Many other airport operators are privately owned (e.g. BAA Airports Limited, a subsidiary of Ferrovial S.A. which operates major airports in the United Kingdom). A number of the listed airport groups are not directly comparable to AIX’s portfolio assets and, therefore, have been excluded from the analysis. In particular, Japan Airport Terminal Co., Ltd operates under a public-private partnership model whereby it owns and operates passenger terminals but public authorities operate airside operations. Other airport companies derive a substantial share of income outside the operation of airports (e.g. Singapore based SATS Ltd derives 64% of revenues from food solutions such as catering). It is difficult to compare airport operators between countries and regions as a result of differences in:

degree of privatisation: partial privatisation is common in both Asia and Europe, however, in Asia, governments more commonly retain a majority ownership interest whereas in Europe, governments more often retain a minority (albeit substantial) interest. There are relatively few examples of airports that are fully privatised. These include Australian airports (i.e. Australian Infrastructure Fund (“AIX”) and Sydney Airport Holdings Limited (“Sydney Airport”)) as well as Gemina S.p.A. (“Gemina”), which operates airports in Rome, Italy.

ownership of the land and terminal assets: there are broadly two distinct models, government ownership of land with a lease or concession (i.e. Sydney Airport, Airports of Thailand Public Company Limited (“Airports of Thailand”), Malaysia Airports Holdings Berhad (“Malaysia Airports”), Gemina and SAVE S.p.A. (“SAVE”)) and private ownership of land. Different forms of ownership give rise to different expense structures. Land which is owned outright is not depreciated, whereas airport operators that lease land or operate under concession agreements typically record the leased land and/or concession rights as an intangible asset which is amortised over the remaining life of the relevant agreements, resulting in relatively higher non cash charges as well as relatively higher multiples of EBIT and net tangible assets (“NTA”);

accounting treatment: of leased land and terminal assets is not always consistent. Although concession rights and/or leased land are typically recognised as an intangible asset, Airports of Thailand does not recognise any asset (tangible or intangible) in relation to these rights (and therefore its multiple of NTA is more consistent with companies that own freehold land). Furthermore, while most companies recognise terminal buildings as tangible fixed assets (which are depreciated over their remaining useful life), Malaysia Airports and Gemina recognise revenue from construction services provided under concessions in the income statement (30% and 4% of 2011 revenue, respectively) and an intangible asset, which is amortised over the life of the concession;

regulatory environment: there are various forms of tariff regulation (i.e. price caps, cost plus, revenue sharing). Regulation can relate both aeronautical and non-aeronautical revenues (“single till”) or can relate only to aeronautical revenue (“dual till”). Price caps are the most common form of tariff regulation. Single till regulation is more common in Asia while dual till regulation is more common in Europe. In addition, some entities (e.g. Aeroports de Paris) are transitioning to a dual till model. Sydney Airport and Auckland International Airport Limited (“Auckland Airport”) are subject only to price monitoring and their EBIT margins (47% and 59%, respectively) are substantially higher than margins for operators in other regions (generally in the range 20-35%). Flughafen Zuerich AG (“Zurich Airport”)) is unregulated, however, it is also exposed to substantial competition and has an ongoing dispute with Germany in relation to aircraft noise. Furthermore, Italian airport operators (Gemina and SAVE) have been subject to a tariff freeze since 2001 (so that tariffs are well below European average) and their EBIT margins are relatively low (13% and 20%, respectively) although their tariff determination is expected to revert to an European Union standard by 31 December 2012;

competitive environment: airports in Europe are subject to higher levels of competition than those in the Asia Pacific region, particularly for regional airports which compete with each other and the nearest hub airport;

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the rate of growth in passenger numbers: is substantially higher in the Asia Pacific region (6.9% in the 12 months to 31 December 2012) than in Europe (2.1%)1;

passenger mix: international, domestic, regional. All of the companies presented above operate an international airport and many hold minority interests in other airports. However, Airports of Thailand and Malaysia Airports also operate a large number of wholly owned regional airports. Equity accounted investments have been excluded from the calculation of earnings multiples;

relationships with airlines: Sydney Airport, Beijing Capital International Airport Company Limited (“Beijing Airport”), Aeroports de Paris and Fraport AG (“Fraport”) operate airports which are the principal international hub for some of the largest airlines in the world (i.e. Sydney Airport supports the operations of Qantas, Beijing Capital Airport supports the operations of China Southern Airlines, Paris Charles de Gaulle Airport supports the operations of Air France and Frankfurt am Main Airport supports the operations of Lufthansa). Multiples for these airport operators are at the high end of the range (within their region). Other airports also support major airlines, however, airports managed by Kobenhavns Lufthavne A/S (“Copenhagen Airports”), Flughafen Wien AG (“Vienna Airport”) and SAVE (which operates Venice Marco Polo Airport) are not major hubs. Multiples for Vienna Airport and SAVE are at the low end of the range;

business mix: the extent to which the companies are involved in aeronautical, non-aeronautical or unrelated activities impacts market rating. For most companies, aeronautical services comprise 50-60% of revenue and non-aeronautical services comprise 40-50% of revenue. Some companies have substantial operations outside airport services including SAVE, which manages and provides retail services at railway stations and Malaysia Airports, which generates 17% of revenue from the sale of duty free and non dutiable retail goods and 5% from unrelated services (e.g. hotel operations, horticulture and agriculture). Furthermore, definitions of aeronautical and non-aeronautical revenue may be inconsistent between companies;

limited free float: many of the airport operators have a limited free float. In particular, Copenhagen Airport has a free float of 3.1%, SAVE (25.0%), Airports of Thailand (30%), Aeroports de Paris (31.9%) and Beijing Airport (34.2%); and

surplus land: a number of the companies have surplus land which is not used in the operations but may be developed in the future. Where surplus land has been separately identified, it has been excluded from the calculation of multiples. However, it is not always possible to separately identify surplus land for all companies.

The highest multiples are observed for Sydney Airport and Auckland Airport (13.4-15.6 times first forecast year EBITDA). These companies are the most liberalised in terms of government ownership, land ownership and regulatory environment. In comparison, multiples for global peers which operate in more highly regulated markets with higher levels of government ownership are relatively low. Multiples for Asian listed airport operators (8.4-9.6 times EBITDA) are slightly higher than for European airport operators (6.7-8.9 times EBITDA), possibly reflecting that there is greater competition and lower expected passenger growth in Europe. The sharemarket ratings of the selected listed airport companies are set out below:

1 ACI Traffic Forecast Advisory Services, Short Term Forecast (October-December 2012)


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A brief description of each company is set out below: Sydney Airport Holdings Limited Sydney Airport is fully privatised. It was formerly managed by Macquarie Group Limited (“Macquarie”), which retains a 22.35% interest. Sydney Airport has an 85% interest in Southern Cross Airport Corporation Holdings Limited (“Southern Cross”). A further 12% interest in Southern Cross is held by HOCHTIEF AirPort GmbH and 3% is held by Australian superannuation funds. Sydney Airport is the principal hub of Qantas. Land is held under a 99 year lease (which expires in 2097) and Southern Cross also holds an airport operator licence, which is subject to meeting certain requirements set by regulatory bodies in Australia on an annual basis. Leasehold land and concessions are recognised on the balance sheet as intangible assets and are amortised over the remaining life of the agreements. Plant and equipment (including terminal buildings) is depreciated over its remaining useful life. The degree of tariff regulation is relatively low (price monitoring based on a dual till reference point). Revenue is primarily derived from aeronautical services (49% of 2011 revenue), as well as retail (23%), real estate (16%) and other services (11%). Sydney Airport recently introduced cost control measures including the full integration and co-location of management teams. Auckland International Airport Limited Auckland Airport operates the Auckland airport in New Zealand. Auckland Airport is the principal hub of Air New Zealand. It is partially privatised and Auckland and Manukau City Councils together hold a 21.96% interest. Both operation and land ownership is held by Auckland Airport. The degree of regulation is relatively low (price monitoring based on a dual till reference point). Auckland Airport provides aeronautical services (52% of 2012 revenue), retail services (39%) and property services (9%). Auckland Airport also holds 24.55% interest in North Queensland Airports Limited (which operates Cairns Airport and Mackay Airport in Queensland, Australia) and a 24.99% interest in Queenstown Airport Corporation Limited (which operates Queenstown airport in New Zealand). Airports of Thailand Public Company Limited Airports of Thailand operates six international airports in Thailand, including Suvarnabhumi, Don Mueang, Chiang Mai, Hat Yai, Phuket and Mae Fah Luang Chiang Rai, which provide services for domestic and international flights. Suvarnabhumi Airport is the principal hub of Thai Airways International. Airports of Thailand is owned 70% by The Ministry of Finance, Thailand, and operated under a concession. Therefore, it has a limited free float. Land is leased from the Ministry of Finance under a 50 year lease (to 30 September 2052, including two options for extension) based on a proportion of revenue or operating profit. No intangible asset is recognised with respect to leased land or concession rights. Other assets (e.g. terminal buildings) are recognised on the balance sheet as fixed assets and depreciated. Aeronautical tariffs and charges are set by the Department of Civil Aviation on a cost plus basis. Revenue in 2011 was sourced from aeronautical services (60%) and non-aeronautical services including concession revenues (22%), service revenues (12%) and real estate (6%). Shanghai International Airport Co. Ltd Shanghai International Airport Co., Ltd. (“Shanghai Airport”) provides airport services at Pudong International Airport in Shanghai, China. Pudong International Airport is a major hub for Air China. Shanghai Airport is partially privatised, with Shanghai Airport (Group) Co., Ltd, a State-owned organization directly under the Shanghai Municipal Government, holding a 53.25% interest. Shanghai Airport has listed and unlisted shares on issue. Both operation and land ownership is held by Shanghai Airport. It is regulated by the Civil Aviation Administration of China, which sets price caps in relation to both aeronautical and non-aeronautical revenue. Shanghai Airport offers ground handling services to domestic and foreign airlines and passengers, and other airport related services, manages and leases aviation operation space, commercial space, and offices inside the airport and operates a domestic trade and advertising business. It also supplies air fuel. No segment data is available. Beijing Capital International Airport Company Limited Beijing Capital International Airport Company Limited (“Beijing Airport”) owns and operates the Beijing Capital Airport in Beijing, China. Beijing Capital Airport is a major hub for China Southern Airlines as well as Air China. It has a dual class share structure comprising domestic shares and H shares (which can be owned by


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domestic and foreign investors). It is partially privatised and Capital Airports Holding Co., Ltd., which is owned by the Civil Aviation Administration of China, holds 100% of the domestic shares (i.e. 56.61% of total shares). The Government of Singapore Investment Corporation Pte Ltd., a sovereign wealth fund of the Government of Singapore, holds a 21.07% interest in the H shares (i.e. 9.15% of total shares). Therefore, Beijing Airport has a limited free float. It is regulated by the Civil Aviation Administration of China, which sets price caps in relation to aeronautical and non aeronautical revenue. It provides aeronautical services (62% of 2011 revenue) and engages in non-aeronautical business including retail and real estate services (38%). Malaysia Airports Holdings Berhad Malaysia Airports Holdings Berhad (“Malaysia Airports”) operates and manages 39 airports including Kuala Lumpur International, which comprise international and domestic airports, and short take-off and landing ports. Kuala Lumpur International Airport is the principal hub of Malaysia Airlines and AirAsia. Malaysia Airports is 49.09% owned by Khazanah Nasional Berhad, a sovereign wealth fund of the Government of Malaysia. A further 10.05% interest is held by the Employees Provident Fund of Malaysia, a national social security organisation owned by the Ministry of Finance, Malaysia. It operates under concessions from the Government of Malaysia. The concession in relation to Kuala Lumpur international Airport runs for 50 years to May 2048. User charges in relation to concession rights are calculated as a percentage of revenue from all activities. Land is held under a lease agreement with the Federal Lands Commissioner which extends for the same period as the concession agreements. No value has been attributed to leasehold land, however, concession rights and terminal buildings are recognised as intangible assets and are amortised over the concession period. Both aeronautical and non-aeronautical tariffs and charges are set by Malaysia Airports but require approval from the Government of Malaysia. Revenues are derived from aeronautical services (32% of 2011 revenue), non-aeronautical services (15%), airport construction revenues (30%), sale of retail goods (17%) and 5% from unrelated services (e.g. hotel operations, horticulture and agriculture). Aeroports de Paris Aeroports de Paris builds, develops and manages three airports in Paris, France: Paris-Charles de Gaulle airport; Paris-Orly; and Paris-Le Bourget. Paris-Charles de Gaulle airport is the principal hub of Air France. It also owns and operates 10 general aviation airfields and the Issy-les-Moulineaux heliport. Aeroports de Paris is partially privatised, with the Republic of France holding a 52.13% interest. Fond Stratégique d’Investissement, a French sovereign wealth fund, holds 8% and Netherlands based NV Luchthaven Schiphol holds a further 8%. Therefore, it has a limited free float. Both operation and land ownership is held by Aéroports de Paris. Aeronautical revenue and non-aeronautical revenue (other than real estate revenue) are subject to a price cap. Aeronautical services contributed 60% of revenue in 2011. It also operates a highly profitable retail business which contributed 26% of revenue but 61% of EBIT. A further 8% of revenue was derived from real estate and 7% from other activities (e.g. communications). In May 2012, Aeroports de Paris acquired a 38% interest in TAV Havalimanlari Holding A.S. ("TAV Airports") in Turkey for €668 million. TAV Airports and other equity accounted investments have been excluded from the calculation of the EBITDA and EBIT multiples. Including associates, the first year forecast multiple increases to 8.8 times EBITDA. Fraport AG Fraport operates Frankfurt Airport in Germany, which is the principal hub of Lufthansa. It holds a 30% interest in Hanover Airport and a 65% interest in Frankfurt-Hahn Airport. Fraport is partially privatised, with state and city governments holding a collective 51.49% interest (31.42% held by the State of Hesse and 20.07% by Stadtwerke Frankfurt Am Main Holding Gmbh). Both operation and land ownership is held by Fraport. Aeronautical tariffs are set based on a revenue sharing agreement with Ministry of Economics, Transport, Traffic and Development. Non aeronautical revenue is unregulated. It operates through four segments: Aviation, Ground Handling, Retail & Real Estate, and External Activities & Services. Aeronautical services (Aviation and Ground Handling) accounted for 60% of 2011 revenue, Retail and Real Estate accounted for 19% of revenue and External Activities and Services (which provides facility management and information and telecommunication services) accounted for 21% of revenue. Substantial provisions in relation to noise abatement and associated expenses have been excluded from the calculation of the multiples. Kobenhavns Lufthavne A/S Kobenhavns Lufthavne A/S (“Copenhagen Airports”) operates the Copenhagen Airport at Kastrup and Roskilde Airport at Roskilde in Denmark. It is partially privatised and the Danish Government holds a 39.2% interest.

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Copenhagen Airports Denmark ApS (a private company which is jointly controlled by Ontario Teachers’ Pension Plan and Macquarie European Infrastructure Fund III) hold a further 57.7% interest. Therefore, it has a limited free float of 3.1%. Both operation and land ownership is held by Copenhagen Airports. Aeronautical revenues are subject to a price cap (other revenues are not regulated). The Aeronautical segment accounted for 55% of 2011 revenue although only 24% of EBIT, while the Non-Aeronatical segment (including retail and real estate services) accounted for 55% of revenue but 75% of EBIT. Flughafen Zuerich AG Zurich Airport operates the Zurich-Kloten Airport in Switzerland. Zurich-Kloten Airport is the principal hub of Swiss International Air Lines. It is partially privatised and a 38.38% interest is held by local and municipal government (33.34% by Canton of Zurich and 5.04% by the City of Zurich Pension Fund). Both airport operation and land ownership is held by Zurich Airport. It has been awarded an operating agreement from The Federal Department of the Environment, Transport, Energy and Communications which extends for 50 years from 1 June 2001. It operates in four segments: Aviation Flight Operations, Aviation Security, Aviation Aircraft Noise, and Non-Aviation. Aeronautical services (i.e. the Aviation Flight Operations, Aviation Security and Aviation Aircraft Noise segments) accounted for 57% of 2011 revenue although only 33% of EBIT. Non-aeronautical services (i.e. the Non-Aviation Segment) accounted for 43% of revenue but 67% of EBIT. Revenues are not regulated, however, it is exposed to substantial competition from Frankfurt, Munich, Vienna and Amsterdam airports. Furthermore, it has an ongoing dispute with Germany in relation to aircraft noise. The multiples calculated exclude the impact of the Aircraft Noise segment. Including this segment, the first year forecast multiple decreases to 7.7 times EBITDA. Gemina SpA Gemina is a listed investment holding company in which privately owned Sintonia S.A., a subsidiary of privately owned Edizione S.r.l., holds a 34.8% interest. Gemina owns 95.9% of Aeroporti di Roma S.p.A (“Aeroporti di Roma”), which operates two airports in Rome, Italy: the Leonardo da Vinci Airport of Fiumicino; and the G.B. Pastine Airport of Ciampino. The residual shares in Aeroporti di Roma are held primarily by various government agencies. Leonardo da Vinci Airport is the principal hub of Alitalia. The airports are operated under a concession granted by the Ministry for Infrastructure and Transport which expires in 2044. Concession rights and buildings (e.g. terminal buildings) are recognised as intangible assets and amortised over the remaining life of the concession. No value is recognised for land on the balance sheet. Concession fees are based on passenger/freight volumes. Aeronautical revenues are subject to a price cap (other revenues are not regulated). The airports have been subject to a tariff freeze since 2001, however, tariffs determination is expected to revert to a European Union standard by 31 December 2012. Approximately 50% of revenue in 2011 was derived from aeronautical services and 44% was derived from non-aeronautical services. In July 2012, Aeroporti di Roma sold retail business ADR Retail S.r.l. for $289.3 million in July 2012. Flughafen Wien AG Flughafen Wien AG (“Vienna Airport”) manages Vienna Airport, Austria. It is partially privatised, with local and state governments holding a 40% interest (City of Vienna holds a 20% interest and the State of Lower Austria holds a 20% interest). An employee trust holds a further 10% interest. Both airport operation and land ownership is held by Vienna Airport. Aeronautical tariffs are subject to a price cap (other revenues are not regulated). It operates in four segments: Airport, Handling, Retail and Properties, and Other. Aeronautical services (i.e. the Airport and Handling segments) accounted for 78% of 2011 while Retail and Properties segment accounted for a further 19% of revenue. SAVE S.p.A. SAVE manages the Venice Marco Polo and Treviso airports in Italy. It is partially privatised, with local and state governments holding a combined 32.8% interest (Amministrazione Della Provincia Di Venezia has a 15.19% interest, the City of Venice has a 15.37% interest and the Privincia di Treviso holds a 2.20% interest). In addition, privately held Marco Polo Holdings S.r.l. holds a 42.16% interest in SAVE. Therefore, SAVE has a limited free float (25.0%). The airports are operated under concessions granted by the Ministry for Infrastructure and Transport which expire in 2041 (however, the concession for Treviso airport has not yet been ratified). Concession rights are recognised as intangible assets and amortised over the remaining life of the concession. No asset is recognised in relation to leasehold land. Other buildings (e.g. terminal buildings) are recognised as tangible fixed assets and are depreciated over their remaining useful life. Aeronautical revenues are subject to a


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price cap (other revenues are not regulated). SAVE has been subject to a tariff freeze since 2001, however, tariffs determination is expected to revert to a European Union standard by 31 December 2012. SAVE operates three segments: Airport Management (which includes aeronautical services, non-aeronautical services and other , Infrastructure Management (i.e. the management of 103 Italian railway stations) and Food & Beverage and Retail (at both airports as well as train stations and other infrastructure). In 2011, aeronautical services contributed 22% of revenue, non aeronautical services contributed 46% of revenue, infrastructure management (train stations) contributed 9% of revenue and retail services at train stations and other infrastructure accounted for 23% of revenue. SAVE announced that the General Meeting of its shareholders held on October 3, 2012 did not approve the proposal for a merger with Marco Polo Holding S.rl.

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Annexure 2 – Notice of EGM

Notice of general meetingsAustralian Infrastructure Fund Limited ABN 97 063 935 553

and

Australian Infrastructure Fund Trust ARSN 089 889 761

Notice is given that a general meeting of the shareholders of AIFL will be held together with a concurrent general meeting of the unitholders of AIFT (collectively, ‘AIX’) at the Park Hyatt Melbourne, 1 Parliament Square, off Parliament Place, Melbourne, Victoria 3002, on Tuesday, 15 January 2013 at 10.30am (AEDT) or the conclusion of the AIX AGM, if later, to transact the following business:

Resolution 1 – approval of the Asset Sale – AIFL and AIFTTo consider, and if thought fit, approve the following resolution as an ordinary resolution of AIFL and AIFT:

THAT, subject to each of resolutions 2, 3, 4, 5 and 6 being passed, approval is given for the purposes of ASX Listing Rule 11.2 and all other purposes for the Asset Sale on the terms described in the Explanatory Booklet accompanying and forming part of this notice of meetings.

Resolution 2 – amendments to AIFT Constitution – AIFT onlyTo consider, and if thought fit, approve the following resolution as a special resolution of AIFT, in accordance with section 601GC(1)(a) of the Corporations Act:

THAT, subject to each of resolutions 1, 3, 4, 5 and 6 being passed, the amendments to the AIFT Constitution set out in Annexure 3 of the Explanatory Booklet accompanying and forming part of this notice of meetings be approved.

Resolution 3 – amendment to AIFL Constitution – AIFL onlyTo consider, and if thought fit, approve the following resolution as a special resolution of AIFL, in accordance with section 136(2) of the Corporations Act:

THAT, subject to each of resolutions 1, 2, 4, 5 and 6 being passed, the AIFL Constitution be amended by deleting the following text from clause 72(i):

‘PROVIDED HOWEVER THAT any period for which the Responsible Entity and directors jointly determine that all or some issued and/or unissued shares and Units need not be stapled together shall commence within 3 months after the later of the dates on which the approval of member and approval of holders of Units is obtained as aforesaid.’

Resolution 4 – de-stapling of AIFL Shares and AIFT Units – AIFL and AIFTTo consider, and if thought fit, approve the following resolution as a special resolution of AIFL and AIFT:

THAT, subject to each of resolutions 1, 2, 3, 5 and 6 being passed, approval is given for the de-stapling of AIFL Shares and AIFT Units for the purposes of the Stapling Agreement, effective on the date determined by AIFL and Hastings as responsible entity or trustee of AIFT.

Resolution 5 – equal capital return by AIFL – AIFL onlyTo consider, and if thought fit, approve the following resolution as an ordinary resolution of AIFL, in accordance with section 256C(1) of the Corporations Act:

THAT, subject to each of resolutions 1, 2, 3, 4 and 6 being passed, AIFL be authorised to reduce its share capital by payment to each AIFL Shareholder of up to $0.07 per AIFL Share.

Resolution 6 – acquisition of AIFT Unit by AIFL – AIFT onlyTo consider, and if thought fit, approve the following resolution as an ordinary resolution of AIFT:

THAT, subject to each of resolutions 1, 2, 3, 4 and 5 being passed, the acquisition by AIFL of a relevant interest in the special AIFT Unit on the terms described in this Explanatory Booklet be approved for the purposes of item 7 of section 611 of the Corporations Act.

The Explanatory Booklet provides AIX Securityholders with important information in relation to the Proposed Transaction. In particular, Section 3 of the Explanatory Booklet provides an explanation of the resolutions to be considered at the EGM.

Capitalised terms and expressions used in this Notice of EGM have, unless otherwise defined, the same meanings set out in Section 7 of the Explanatory Booklet.

By order of the Boards of Australian Infrastructure Fund Limited and Hastings Funds Management Limited as Responsible Entity for Australian Infrastructure Fund Trust.

Jane Frawley Company Secretary Australian Infrastructure Fund Limited

and

Hastings Funds Management Limited as Responsible Entity for Australian Infrastructure Fund Trust

7 December 2012

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Voting Exclusion Statement

Resolutions 1, 2, 3, 4, 5 and 6Hastings and its associates are not entitled to vote their interests on Resolutions 1, 2, 3, 4, 5 or 6 if they have an interest in the resolution or matters other than as a member of AIFT. Hastings and its associates may vote on Resolutions 1, 2, 3, 4, 5 or 6 as a proxy for an AIX Securityholder who is eligible to vote on the resolution if the appointment as proxy specifies the way they are to vote and they vote that way.

Resolution 1In addition, in accordance with the ASX Listing Rules, AIX will disregard any votes cast on Resolution 1 by:

• the Future Fund or a co-investor in the Assets; and• an associate of those persons.

However, AIX need not disregard a vote if:

• it is cast by a person as proxy for a person who is entitled to vote, in accordance with the directions on the proxy form; or

• it is cast by the Chairman of the EGM as proxy for a person who is entitled to vote, in accordance with a direction on the applicable Proxy Form to vote as the proxy decides.

Resolution 6AIFL and its associates are not entitled to vote their interests on Resolution 6. AIFL and its associates may vote on Resolution 6 as a proxy for an AIFT Unitholder who is eligible to vote on the resolution if the appointment as proxy specifies the way they are to vote and they vote that way.

Voting entitlementsPursuant to applicable legislation and regulations, the Directors have determined that the securityholding of each AIX Securityholder for the purpose of ascertaining the voting entitlements for the EGM will be as appears in the AIX Security Register at 7.00pm (AEDT) on Sunday, 13 January 2013.

1 AIX Securityholders may only vote their AIFL Shares in relation to resolutions being put to shareholders of AIFL, and may only vote their AIFT Units in relation to resolutions being put to unitholders of AIFT.

2 An AIX Securityholder entitled to attend and vote has a right to appoint a proxy to attend and vote instead of the securityholder. AIX Securityholders who are unable to attend the EGM are encouraged to appoint a proxy to attend and vote on their behalf. A proxy holder need not be a securityholder. An AIX Securityholder who is entitled to cast two or more votes may appoint up to two proxy holders and may specify the proportion or number of votes each proxy holder is appointed to exercise. If there is no proportion or number specified, each proxy holder may exercise half of the votes. On a show of hands, a proxy holder may not vote if more than one proxy holder attends.

3 A form of appointment of proxy is enclosed. To be effective, the document appointing the proxy holder (and if the appointment is signed or executed by the appointor’s attorney, the authority under which the appointment

was signed or a certified copy of the authority), must be received by AIX by 10.30am (AEDT) on Sunday, 13 January 2013. The documents should be delivered to AIX’s registry:

Computershare Investor Services Pty Limited Yarra Falls 452 Johnston Street Abbotsford Victoria 3067

Postal address: GPO Box 242 Melbourne Victoria 3001

Facsimile: 1800 783 447 (Within Australia) or +613 9473 2555 (Outside Australia)

Electronically, by visiting www.investorvote.com.au and following the instructions provided but a proxy cannot be appointed online if appointed under power of attorney or similar authority.

For Intermediary Online Subscribers only (custodians) please visit www.intermediaryonline.com to submit your voting intentions.

4 A body corporate that is a securityholder, or that has been appointed as a proxy of a securityholder, may appoint an individual to act as representative at the EGM. The appointment must comply with the requirements of sections 250D and 253B of the Corporations Act. The representative should bring to the EGM evidence of his or her appointment, including the authority under which the appointment is signed, unless that evidence has previously been given to AIX.

5 If you wish to appoint a different proxy holder to vote on your behalf in relation to your AIFT Units from the proxy holder you appoint to vote on your behalf in relation to your AIFL Shares, or if you wish to direct your proxy holder to vote differently in respect of your AIFT Units than in respect of your AIFL Shares (regarding Proposal Resolutions on which both AIFL Shares and AIFT Units are able to be voted), please contact AIX’s registry to obtain another Proxy Form:

Computershare Investor Services Pty Limited

Telephone: 1300 132 288 (Within Australia) or +613 9415 4054 (Outside Australia)

6 AIX Securityholders can direct their proxy how to vote by following the instructions on the applicable Proxy Form. AIX Securityholders are encouraged to direct their proxy how to vote on each item of business. In particular, if a securityholder appoints a person who is excluded from voting on a resolution and no direction is provided (or a direction to abstain is provided), the proxy will not be able to cast the securityholder’s votes, and those votes will not be counted in computing the required majority on a poll.

7 Any directed proxies that are not voted on a poll at the EGM by a securityholder’s appointed proxy will automatically default to the Chairman of the EGM, who is required to vote all proxies cast on resolutions 1, 3, 4 and 5 as directed on a poll.

8 Please refer to other notes appearing on the applicable Proxy Form.

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Annexure 3 – Proposed amendments to AIFT Constitution

That the AIFT Constitution is amended as follows:

(a) by inserting the following definition into clause 1 in alphabetical order: ‘“Special Units” means Units which may not participate in distributions of income or capital of the Trust unless they are, at the time, the only Units on issue, but which otherwise confer the same rights as ordinary Units. A Special Unit may only be held by the Company or by a subsidiary of the Company.’

(b) by deleting the following words from the end of clause 74(1):‘PROVIDED HOWEVER THAT any period for which the Responsible Entity and the directors of the Company jointly determine that all or some issued and/or unissued Units and Shares need not be stapled together shall commence within 3 months after the later of the dates on which the approval of Unit Holders and the approval of shareholders of the Company is obtained as aforesaid.’

(c) by inserting the following sub-paragraph (c) after sub-paragraph (b) in clause 6(4):‘the application is for Special Units.’

(d) by inserting the following new clause 7(12A):‘Issue of Special Units: The Responsible Entity may issue Special Units at an issue price of $10.00 per Special Unit.’

(e) by inserting the following new clause 26A:‘CANCELLATION

Cancellation of Units

(1) If there is a sale of any of the Infrastructure Investments, the Responsible Entity may determine that, with effect from such time as the Responsible Entity decides, all Units on issue, other than the Special Units, are cancelled, for consideration per Unit of the Cancellation Amount.’

(2) Cancellation Amount means the amount determined as follows:CA = (NAV – SUP) / NUwhere:CA means the Cancellation Amount;NAV means the Net Asset Value of the Trust Fund (for

the avoidance of doubt, determined after treating as a Liability of the Trust Fund:(a) any Distribution Entitlement or corpus of the Trust

Fund which, prior to the cancellation becoming effective, the Responsible Entity has determined to distribute to Unit Holders; and

(b) that part of the fee described in clause 48A as being payable out of the assets of the Trust);

SUP means the aggregate issue price of all Special Units on issue at the time including any part of the issue price that has not yet been paid, even if not due for payment; and

NU means the number of Units (excluding Special Units) on issue immediately prior to the cancellation.

(f) by inserting the following new paragraphs 48(4), (5) and (6):‘Remuneration – Period commencing 1 July 2012

(4) Upon the cancellation of all issued Units (other than Special Units) pursuant to clause 26A on or before 30 June 2013:(A) the Responsible Entity will be paid, immediately

after the cancellation of Units pursuant to clause 26A, a performance fee equal to $54 million (plus GST), in respect of its services in acting as Responsible Entity of the Trust for the period commencing 1 July 2012 and ending immediately prior to the day of cancellation of Units pursuant to clause 26A; and

(B) subject to payment of the performance fee described in clause 48(4)(A), all other provisions of this Constitution regarding payment of a performance fee in respect of any period commencing on or after 1 July 2012 cease to have any operation.

(5) Where clause 48(4) applies, the performance fee payable under clause 48(4) represents the aggregate performance fee payable to the Responsible Entity by the Group in respect of the performance by the Responsible Entity of its duties in relation to the Group members.

(6) If a performance fee is payable pursuant to clause 48(4), then it will be apportioned between the Group members as follows: 85% of the performance fee will be paid out of the assets of the Trust and 15% of the performance fee will be paid out of the assets of the Company.

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Corporate directory

Australian Infrastructure Fund LimitedABN 97 063 935 553Registered OfficeLevel 27, 35 Collins StreetMelbourne VIC 3000AustraliaTelephone +61 3 8650 3600Facsimile +61 3 8650 3701Email [email protected] www.hfm.com.au

Security RegistryComputershare Investor Services Pty LimitedYarra Falls452 Johnston StreetAbbotsford VIC 3067Australia

AIFL Board of DirectorsPaul Espie, ChairmanJames EvansJohn HarveyRobert Humphris OAMMike HutchinsonRobert Tsenin

AIX Chief Executive OfficerJeff Pollock

AIFL Company SecretariesJane FrawleyJefferson Petch

Legal AdviserHerbert Smith FreehillsLevel 42, 101 Collins StreetMelbourne VIC 3000

Tax AdviserGreenwoods & FreehillsLevel 42, 101 Collins StreetMelbourne VIC 3000

Financial adviserCredit Suisse (Australia) LimitedLevel 31 Gateway1 Macquarie PlaceSydney NSW 2000

Responsible EntityHastings Funds Management LimitedABN 27 058 693 388Holder of Australian Financial Services Licence No. 238309

Registered OfficeLevel 27, 35 Collins StreetMelbourne VIC 3000AustraliaTelephone +61 3 8650 3600Facsimile +61 3 8650 3701Email [email protected] www.hfm.com.au

Other Offices

SydneyLevel 10, 55 Market StreetSydney NSW 2000AustraliaTelephone +61 2 9287 8700Facsimile +61 2 9287 8801

LondonCamomile Court23 Camomile StreetLondon EC3A 7LLTelephone +44 20 7337 6720Facsimile +44 20 7929 2502

New York39th Floor575 Fifth AvenueNew York New York 10017-24United States of AmericaTelephone +1 212 681 2524

Hastings Board of DirectorsAlan Cameron AO, ChairmanAndrew Day, Chief ExecutiveJames EvansLiam FordeStephen GibbsJames McDonaldVictoria Poole

Hastings Company SecretariesJane FrawleyJefferson Petch

Independent ExpertGrant Samuel & Associates Pty LimitedLevel 6, 1 Collins StreetMelbourne VIC 3000

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AIX

Hastings Funds Management is a subsidiary of Westpac Banking Corporation. Hastings is a specialist manager of infrastructure equity and debt investment. As at 30 September 2012, Hastings had approximately $8.2 billion in funds under management.

AIX Securityholders can call the AIX Information Line on 1800 606 449 (toll-free for calls made from within Australia) or +612 8256 3382 (for calls made from outside Australia).

www.hfm.com.au/asxlisted/funds/aif

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level 27, 35 collins street hastings funds management ... · 12/12/2012 · of substantially all...

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