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$2.1 Billion Power Play: Consortium Launches Two Infrastructure REITs

$2.1 Billion Power Play: Consortium Launches Two Infrastructure REITs

An international consortium of institutional investors is starting up two real estate investment trusts (REITs) targeting the electricity and gas transmission and distribution sector. The REITs would be the first to own energy assets rather than more traditional forms of real estate.

The investment group includes Hunt Power, Marubeni Corp., a Japanese financial firm, John Hancock Life Insurance (USA), TIAA-CREF, and OPTrust Private Markets Group, a large Canadian pension fund manager.

Together, they are pooling up to $2.1 billion to form Electric Infrastructure Alliance of America (EIAA) and Gas Infrastructure Alliance of America (GIAA).

The new REITs will invest in the energy infrastructure and gas storage and delivery sectors in the United States. That means they will develop and acquire electricity and gas transmission and distribution assets, primarily in Texas, the Great Plains and the desert Southwest.

Why now?

Electricity demand has increased by about 25% since 1990 while construction of transmission facilities has decreased by about 30% over the same period. Industry projections show electric utility investment needs alone could reach $1.5 trillion to $2 trillion by 2030.

EIAA and GIAA are actively seeking to partner with utilities, co-ops, municipalities and local distribution companies seeking expertise and capital to upgrade and expand their infrastructure systems.

In 2007, the Internal Revenue Service ruled that power transmission and distribution systems qualify as real property under federal law, and Hunt Power has been working to make the REITs a reality.

“This is an innovative direct investment alliance, leveraging the expertise and active participation of the members within a new REIT structure that will help to mobilize capital to invest in the electricity and gas transmission and distribution sectors,” says Kirk Baker, chairman and president of both EIAA and GIAA, and senior vice president of Hunt Power.

Baker says there are no plans for an initial public offering to investors outside the original investment group, creating essentially a private REIT.

Hunt Power LP is part of an affiliation of privately held companies, which are wholly owned subsidiaries of Hunt Consolidated Inc. directed by Ray L. Hunt. These entities are engaged in oil and gas exploration and production, Liquefied Natural Gas (LNG) processing, refining, alternative energy, power, real estate, private equity investments and ranching.

Subsidiaries of Hunt Power will manage the REITs and will invest up to $322.5 million in cash and assets in the alliance.

International intrigue

Marubeni will invest up to $500 million, John Hancock will invest up to $450 million, TIAA-CREF will invest up to $450 million, and OPTrust will invest up to $400 million.

Marubeni, headquartered in Tokyo, owns more than 7,600 megawatts of net capacity in its global power producer portfolio and owns utilities in Jamaica and Grand Bahama Island and transmission lines in Australia.

In October, Marubeni teamed up with Google to invest in Atlantic Wind Connection, a firm developing offshore wind energy off the Mid-Atlantic coast. Along with its new investment in EIAA, the company is looking for further expansion and investment opportunities in the U.S.

John Hancock Financial is a unit of Manulife Financial Corp., a leading Canadian-based financial services group serving millions of customers in 22 countries and territories worldwide.

“EIAA and GIAA will have the financial strength, broad industry expertise and the ability to transact as opportunities are identified,” says Jerry Hanrahan, managing director of John Hancock power and project finance.

TIAA-CREF is a national financial services organization with $434 billion in combined assets under management and provides retirement services to the academic, research, medical and cultural fields. It also views energy infrastructure services in the U.S. Southwest as a good addition to its growing infrastructure portfolio.

“This alliance unites a strong developer and manager with substantial investors so that all can participate in the growth of the region for the long term benefit of our respective clients,” says Lisa Ferraro, managing director of energy and infrastructure at TIAA-CREF.

OPTrust manages one of Canada's largest public pension plans, serving more than 82,000 members and pensioners, and has over $11.7 billion in assets under management.

“We are all pleased to be investing in a new and innovative REIT investment vehicle that represents a transformative means of mobilizing capital in the electricity infrastructure sector,” says Kevin Warn-Schindel, group head and managing director of OPTrust Private Markets Group. “

“As a group of active investors in this alliance,” concludes Warn-Schindel, “we all look forward to unlocking the operational and financial potential this transaction provides.”

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