Ron Baron invests in small and mid-size growth companies. He likes companies with open-ended growth opportunities and defensible niches. These are the commentaries excerpted from his fund's quarterly report. Related companies: AECOM Technology (ACM, Financial), Carrizo Oil & Gas (CRZO, Financial), LKQ (LKQX, Financial), Allegiant Travel (ALGT, Financial) and Macquarie Infrastructure Company (MIC, Financial).
AECOM Technology (ACM) (market capitalization: $2.4 billion).
Following the tragic bridge collapse in Minnesota and steam pipe explosion in Manhattan earlier this year, we believe there will be a renewed focus on safer, more modern infrastructure in this country. One company at the forefront of designing and planning for these sustainable needs is AECOM. With $3.5 billion in revenue, AECOM— the “AE” signifying Architects & Engineers — is the largest pure design & engineering firm in the world. The company is a leader in providing technical and architectural planning and support services for a broad range of clients, from blue chip corporations to state and local governments. In simple terms, before any new bridge, highway, subway tunnel or airport terminal can be constructed and made operational, it needs to be designed, planned, and engineered. That’s what AECOM’s team of 30,000 engineers do everyday around the world. The company’s strengths lie, we think, in its end market focus, specifically transportation infrastructure and environmental facilities, sectors which have been seeing rapid growth, its geographic diversity with operations in 60 countries that allow for sharing of best practices, and a prestigious client roster, for whom it works on some of the most complex and notable projects.
Our investment thesis on the company is four-fold: 1) AECOM has leading market share in its respective niches: transportation and environmental engineering projects. We believe these end markets are well positioned to grow, as global growth, especially among developing nations in Asia, India, and the Middle East, have fueled tremendous infrastructure and capacity needs. In addition, the increased urbanization of cities and focus on sustainable environmental buildings has generated demand to design greener, more energy efficient facilities. Healthy state and local budgets and the nearly $300 billion of earmarked federal funding for transportation projects will also in our opinion, help sustain growth for years. 2) AECOM’s global diversity is, we think, unique among its peer group and it is seen as the acquirer of choice in a fragmented industry. The company enjoys significant cross-selling synergies from having offices spread across sixty countries, where it has been able to leverage the expertise from past projects in certain locales toward winning contracts in new geographies. 3) Unlike most engineering firms which tend to have construction arms, AECOM is singularly focused on front-end design work, a lower risk strategy in our view with less exposure to fixed-price contracts and cost overruns. The result is a debt-free business model with healthy free cash generation. 4) The company’s size and leading reputation has led to work on many iconic and high-profile projects. Over the next decade, the company has exclusive contracts for the master planning services for the London 2012 Summer Olympics, program management services for the Second Avenue New York City Subway, renovation of the Pentagon, design of the World Trade Center Path Terminal, and development of Hong Kong’s elevated roadways. The fact that AECOM tends to work on technically interesting and sought after projects, we think, helps it recruit and retain the best employees, a key advantage in the tight labor market for skilled engineers.
Although the company recently came public, it has a long operating history and experienced management team. Current CEO John Dionisio started out as a field engineer at one of the predecessor companies over twenty years ago. In fact, the ten most senior members of the executive team have an average of twenty years experience at the firm. With a proven track record of growth— 20% compounded revenue over ten years and 24% net income over five — combined with the visibility of a $3 billion backlog, we believe AECOM offers a unique way to capitalize on the growth in global infrastructure over the next several decades. Analyst: Matt Weiss.
Carrizo Oil & Gas (CRZO) (market capitalization: $1.1 billion).
Carrizo Oil & Gas is actively engaged in the exploration and production of oil and natural gas primarily in proven onshore trends along the U.S. Gulf Coast and the Barnett Shale area in North Texas. The company’s focus is on areas where it can grow production through a repeatable relatively low-risk drilling program (“gas manufacturing”), utilizing advanced 3-D seismic techniques to identify potential oil and gas reserves. Carrizo has grown rapidly over the last five years ending 2006 with proved reserves of 210 billion cubic feet equivalent as compared to 59 billion cubic feet equivalent at the end of 2001, which represents a 29% compound annual growth rate over that period.
The bulk of Carrizo’s current value is in its sizable acreage position in the Barnett Shale of North Texas — the most active natural gas play in the United States. The company was early to recognize the potential of the Barnett Shale and began acquiring acreage in 2003. Today it has almost 87,000 net acres in the Barnett, the majority of which it acquired for an average cost of about $300 to $400 per acre. Similar acreage today goes for 10 times that or more. Since first entering the play in 2003, Carrizo has grown production in the Barnett to about 30 million cubic feet per day at present out of total company production of about 50 million cubic feet per day. With many years of drilling inventory left, we think production in the area should continue to ramp, since recent wells have been prolific. Importantly, we think the economics of a Barnett well are attractive with a development cost of about $1.50 to $1.75 per thousand cubic feet and relatively low lifting costs of about $1.00 per thousand cubic feet.
Beyond the core Barnett and Gulf Coast properties, which we believe support a solid return from the current stock price, we think Carrizo offers great option value through other plays it is pursuing. The largest of these is the Floyd Shale in Alabama and Mississippi, where the company has amassed 137,000 net acres at an average cost of about $75 per acre, which would be worth about $300 per acre today and we think potentially much more in the future. The Floyd Shale is a new area for gas exploration with very little operational data to look at to determine the potential of the play, but Carrizo is hopeful given the many similarities to the Barnett including the age, geology and depth of the shale rock it is targeting. If it is successful in the Floyd Shale, it could be a game changer for Carrizo given its current acreage position not to mention that there is still a significant amount of unleased acreage in the play for the company to go after. In addition to the Barnett and Floyd Shales, Carrizo has accumulated acreage in several other shale plays that hold potential including the Fayetteville Shale, the Barnett/Woodford Shale of West Texas and the New Albany Shale. None of these are as significant in size and/or as prospective as the previously mentioned shale plays, but together they cover over 107,000 acres that we think could someday be valuable to Carrizo and for which the stock receives no value today. Of course, exploration can be a risky business, and a recently drilled high impact well known as Mega-Mata in South Texas appears to be non-commercial. On the other hand, another recent well in the North Sea was a success, and our preliminary estimates suggest it could add at least $6.00 per share to Carrizo’s net asset value. If any of Carrizo’s emerging opportunities are successful, in our view it would be icing on the cake to what should be a solid growth story out of the North Texas Barnett Shale alone. Analyst: Geoff Jones
LKQ (LKQX) (market capitalization: $1.3 billion).
Unfortunately, car accidents appear inevitable. And, whether it’s a fender bender or a serious wreck, LKQ stands to benefit. LKQ is the leading dismantler and distributor of recycled vehicle parts and the second largest distributor of aftermarket vehicle parts in the United States. The company buys the vast majority of its vehicles from salvage auctions, tows the cars to its recycling yards, strips the vehicle for usable parts and finally resells the merchandise to body shops and mechanics. It is loud and dirty work and strict zoning laws inhibit new dismantling yard creation. LKQ’s recycled auto parts created in this process, however, save customers 25% to 50% and are welcome relief for the insurance companies who still purchase approximately 70% of their collision repair parts from original equipment manufacturers. While LKQ is the market leader in alternative vehicle parts, it only controls less than 10% of the $7 billion non-original, after-market equipment manufacturer parts business. However, through an acquisition strategy and impressive same store sales in a slow growth industry, LKQ could, in our opinion, continue to gain market share as it becomes a one stop shop for collision replacement parts.
We believe that LKQ’s biggest competitive advantage, besides its irreplaceable locations, is its distribution network. As a result of its many yards, warehouses and distribution centers, LKQ has designed an elaborate hub and spokes delivery system. Each night, its trucks receive parts to be delivered throughout a region. The distribution system permits a broader geographic reach and, in turn, a significantly lower out of stocks rate than its competitors. It also provides the ability to expand into auxiliary businesses such as “refurbishing” and “aftermarket parts” since these products can be delivered through the same “recycling parts” network. Increasing utilization of this distribution, we believe, was the rationale behind the recently proposed acquisition of leading aftermarket parts provider Keystone.
LKQ’s scale in the recycled business has also allowed it to expand into the potentially rewarding complimentary service of refurbishing. Refurbished parts are repaired recycled parts to near new condition. While selling at a fraction of the price of new equipment, the dollar profit for refurbished products are significantly higher than recycled parts. The vertical integration of the refurbishing business with the recycled business permits increased supply of parts. Its headlight business, for example, has already nearly tripled its per day production since its acquisition earlier this year. We suspect other refurbishing acquisition candidates will present themselves and LKQ will be able to leverage its salvage purchasing to achieve impressive returns.
There are risks to the business, however. The aftermarket industry is currently being sued by Ford Motor Company for patent infringement. Also, State Farm, the largest automotive insurance company, currently uses original equipment and recycled parts, not the readily available aftermarket parts. We believe that Ford will not prevail in its lawsuit and State Farm will again use LKQ’s aftermarket parts. Excluding the impact of the pending Keystone acquisition, we think LKQ could grow its revenue in the mid teens with margin expansion resulting in net income growth of nearly 20%. Favorable outcomes on either the Ford suit or the State Farms issue could lead to considerably higher growth for the company. Analyst: Michael Baron
Allegiant Travel (ALGT) (market capitalization: $0.6 billion).
Allegiant is a leisure travel company focused on being a low cost passenger airline that markets directly to leisure travelers in small cities. It provides non-stop, low fare, scheduled services point to point to three world class leisure destinations: Las Vegas, Orlando and Tampa, Florida. In addition to its current point to point service from 46 small cities to the three above destinations, four new routes to Las Vegas, two new routes to Orlando and two to Tampa began in the 2007 second quarter. We believe the company has a competitive advantage versus other low cost carriers since most markets to which Allegiant offers service are too small to support two entrants. Allegiant is currently the only operator in 65 of 70 markets where it operates. This has enabled it to establish more routes as management has already identified another 49 cities in the U.S. and Canada in which to expand.
We believe the company’s management team, led by Maury Gallagher, the executive who founded ValuJet, as well as three other executives who have worked with Gallagher previously, is strong and entrepreneurial. Allegiant’s 26 plane fleet consists of only MD 80 jets, which are widely available and 80% cheaper than comparably sized Airbus 320s and Boeing 737s. However, while these planes are not fuel efficient, we think operating efficiencies with maintenance and crews outweigh the additional fuel costs. Allegiant’s balance sheet is strong. Its debt is 1.2 times EBITDA and we expect its earnings to grow approximately 20% per year for the next several years. We believe the company will continue to add traffic to its existing routes, as well as add new routes to its itinerary. Analyst: David Baron
Macquarie Infrastructure Company (MIC) (market capitalization: $1.8 billion).
Investors have recently flocked to infrastructure assets for their stable and defensible cash flow characteristics. However, many investors do not think of these assets as having growth characteristics. We, however, feel that Macquarie Infrastructure Company (MIC) proves that infrastructure assets can have both defensible characteristics and growing cash flows. MIC is an LLC formed by Macquarie Bank in Australia, mandated with acquiring and restructuring infrastructure assets in the United States. Since its IPO in late 2004, the company has assembled a fixedbased operations (FBO) company, an airport parking corporation, an energy business in Chicago, a Hawaiian gas company, and its most recent purchase of a tank terminal business. MIC runs with an extraordinarily lean investment team and utilizes Macquarie Bank’s extensive worldwide team to discover and secure investment opportunities. MIC is the only Macquarie Bank vehicle charged with investing in U.S. infrastructure assets. MIC pays the bank a performance fee if the stock's appreciation exceeds an infrastructure index.
The FBO acquisitions combine the free cash flow that is standard for MIC subsidiaries with a growth element. MIC’s largest national network of FBO's provide both fuel and service to aircraft; "glorified gas stations" according to the company. However, this essential element of aviation possesses, we think, great barriers to entry as a result of the airports limited available real estate. The majority of MIC's approximately 70 FBO's operate as the sole or dual provider of the service at a given airport. These FBO's generate 75% of the subsidiary’s cash flow. We think future acquisitions should focus on limited competition airports that cater to a transient customer who is not constrained by hanger availability. We expect business jets to continue to increase in use, MIC’s FBO's should benefit by offering a national footprint that can provide loyalty programs and standard amenities, better services and lower prices than those offered at mom and pop operators.
In 2006, MIC acquired a 50% ownership stake in IMTT, a tank terminal storage business, for $250 million. The founding family retained 50% ownership and remained in management positions. MIC will receive a $7 million per quarter dividend through 2008. After that, MIC will receive its fair share of earnings which we expect to exceed the current $28 million per year payment. We believe this acquisition presents a slight variation to typical infrastructure investments as it will not only produce quality cash flow, but we believe will also grow over the next few years as new projects come on board. About $150 million of the purchase price is being used primarily for a new facility in Geismar, La. This facility has already been contracted by BASF for non-petroleum liquids which we think garner higher than average revenue and margins. We believe Geismar should produce $24 million in EBITDA once complete. Terminal demand is so great that many contracts have been extended far earlier than their expiration dates which in our view leads to a relatively low risk asset and pricing power.
MIC is an LLC that pays a large portion of its earnings to its investors. Its current growing dividend of $2.36 per share provides a nearly 6% yield. As the firm invests more in growth infrastructure assets, we anticipate the dividend could increase substantially in the coming years.
AECOM Technology (ACM) (market capitalization: $2.4 billion).
Following the tragic bridge collapse in Minnesota and steam pipe explosion in Manhattan earlier this year, we believe there will be a renewed focus on safer, more modern infrastructure in this country. One company at the forefront of designing and planning for these sustainable needs is AECOM. With $3.5 billion in revenue, AECOM— the “AE” signifying Architects & Engineers — is the largest pure design & engineering firm in the world. The company is a leader in providing technical and architectural planning and support services for a broad range of clients, from blue chip corporations to state and local governments. In simple terms, before any new bridge, highway, subway tunnel or airport terminal can be constructed and made operational, it needs to be designed, planned, and engineered. That’s what AECOM’s team of 30,000 engineers do everyday around the world. The company’s strengths lie, we think, in its end market focus, specifically transportation infrastructure and environmental facilities, sectors which have been seeing rapid growth, its geographic diversity with operations in 60 countries that allow for sharing of best practices, and a prestigious client roster, for whom it works on some of the most complex and notable projects.
Our investment thesis on the company is four-fold: 1) AECOM has leading market share in its respective niches: transportation and environmental engineering projects. We believe these end markets are well positioned to grow, as global growth, especially among developing nations in Asia, India, and the Middle East, have fueled tremendous infrastructure and capacity needs. In addition, the increased urbanization of cities and focus on sustainable environmental buildings has generated demand to design greener, more energy efficient facilities. Healthy state and local budgets and the nearly $300 billion of earmarked federal funding for transportation projects will also in our opinion, help sustain growth for years. 2) AECOM’s global diversity is, we think, unique among its peer group and it is seen as the acquirer of choice in a fragmented industry. The company enjoys significant cross-selling synergies from having offices spread across sixty countries, where it has been able to leverage the expertise from past projects in certain locales toward winning contracts in new geographies. 3) Unlike most engineering firms which tend to have construction arms, AECOM is singularly focused on front-end design work, a lower risk strategy in our view with less exposure to fixed-price contracts and cost overruns. The result is a debt-free business model with healthy free cash generation. 4) The company’s size and leading reputation has led to work on many iconic and high-profile projects. Over the next decade, the company has exclusive contracts for the master planning services for the London 2012 Summer Olympics, program management services for the Second Avenue New York City Subway, renovation of the Pentagon, design of the World Trade Center Path Terminal, and development of Hong Kong’s elevated roadways. The fact that AECOM tends to work on technically interesting and sought after projects, we think, helps it recruit and retain the best employees, a key advantage in the tight labor market for skilled engineers.
Although the company recently came public, it has a long operating history and experienced management team. Current CEO John Dionisio started out as a field engineer at one of the predecessor companies over twenty years ago. In fact, the ten most senior members of the executive team have an average of twenty years experience at the firm. With a proven track record of growth— 20% compounded revenue over ten years and 24% net income over five — combined with the visibility of a $3 billion backlog, we believe AECOM offers a unique way to capitalize on the growth in global infrastructure over the next several decades. Analyst: Matt Weiss.
Carrizo Oil & Gas (CRZO) (market capitalization: $1.1 billion).
Carrizo Oil & Gas is actively engaged in the exploration and production of oil and natural gas primarily in proven onshore trends along the U.S. Gulf Coast and the Barnett Shale area in North Texas. The company’s focus is on areas where it can grow production through a repeatable relatively low-risk drilling program (“gas manufacturing”), utilizing advanced 3-D seismic techniques to identify potential oil and gas reserves. Carrizo has grown rapidly over the last five years ending 2006 with proved reserves of 210 billion cubic feet equivalent as compared to 59 billion cubic feet equivalent at the end of 2001, which represents a 29% compound annual growth rate over that period.
The bulk of Carrizo’s current value is in its sizable acreage position in the Barnett Shale of North Texas — the most active natural gas play in the United States. The company was early to recognize the potential of the Barnett Shale and began acquiring acreage in 2003. Today it has almost 87,000 net acres in the Barnett, the majority of which it acquired for an average cost of about $300 to $400 per acre. Similar acreage today goes for 10 times that or more. Since first entering the play in 2003, Carrizo has grown production in the Barnett to about 30 million cubic feet per day at present out of total company production of about 50 million cubic feet per day. With many years of drilling inventory left, we think production in the area should continue to ramp, since recent wells have been prolific. Importantly, we think the economics of a Barnett well are attractive with a development cost of about $1.50 to $1.75 per thousand cubic feet and relatively low lifting costs of about $1.00 per thousand cubic feet.
Beyond the core Barnett and Gulf Coast properties, which we believe support a solid return from the current stock price, we think Carrizo offers great option value through other plays it is pursuing. The largest of these is the Floyd Shale in Alabama and Mississippi, where the company has amassed 137,000 net acres at an average cost of about $75 per acre, which would be worth about $300 per acre today and we think potentially much more in the future. The Floyd Shale is a new area for gas exploration with very little operational data to look at to determine the potential of the play, but Carrizo is hopeful given the many similarities to the Barnett including the age, geology and depth of the shale rock it is targeting. If it is successful in the Floyd Shale, it could be a game changer for Carrizo given its current acreage position not to mention that there is still a significant amount of unleased acreage in the play for the company to go after. In addition to the Barnett and Floyd Shales, Carrizo has accumulated acreage in several other shale plays that hold potential including the Fayetteville Shale, the Barnett/Woodford Shale of West Texas and the New Albany Shale. None of these are as significant in size and/or as prospective as the previously mentioned shale plays, but together they cover over 107,000 acres that we think could someday be valuable to Carrizo and for which the stock receives no value today. Of course, exploration can be a risky business, and a recently drilled high impact well known as Mega-Mata in South Texas appears to be non-commercial. On the other hand, another recent well in the North Sea was a success, and our preliminary estimates suggest it could add at least $6.00 per share to Carrizo’s net asset value. If any of Carrizo’s emerging opportunities are successful, in our view it would be icing on the cake to what should be a solid growth story out of the North Texas Barnett Shale alone. Analyst: Geoff Jones
LKQ (LKQX) (market capitalization: $1.3 billion).
Unfortunately, car accidents appear inevitable. And, whether it’s a fender bender or a serious wreck, LKQ stands to benefit. LKQ is the leading dismantler and distributor of recycled vehicle parts and the second largest distributor of aftermarket vehicle parts in the United States. The company buys the vast majority of its vehicles from salvage auctions, tows the cars to its recycling yards, strips the vehicle for usable parts and finally resells the merchandise to body shops and mechanics. It is loud and dirty work and strict zoning laws inhibit new dismantling yard creation. LKQ’s recycled auto parts created in this process, however, save customers 25% to 50% and are welcome relief for the insurance companies who still purchase approximately 70% of their collision repair parts from original equipment manufacturers. While LKQ is the market leader in alternative vehicle parts, it only controls less than 10% of the $7 billion non-original, after-market equipment manufacturer parts business. However, through an acquisition strategy and impressive same store sales in a slow growth industry, LKQ could, in our opinion, continue to gain market share as it becomes a one stop shop for collision replacement parts.
We believe that LKQ’s biggest competitive advantage, besides its irreplaceable locations, is its distribution network. As a result of its many yards, warehouses and distribution centers, LKQ has designed an elaborate hub and spokes delivery system. Each night, its trucks receive parts to be delivered throughout a region. The distribution system permits a broader geographic reach and, in turn, a significantly lower out of stocks rate than its competitors. It also provides the ability to expand into auxiliary businesses such as “refurbishing” and “aftermarket parts” since these products can be delivered through the same “recycling parts” network. Increasing utilization of this distribution, we believe, was the rationale behind the recently proposed acquisition of leading aftermarket parts provider Keystone.
LKQ’s scale in the recycled business has also allowed it to expand into the potentially rewarding complimentary service of refurbishing. Refurbished parts are repaired recycled parts to near new condition. While selling at a fraction of the price of new equipment, the dollar profit for refurbished products are significantly higher than recycled parts. The vertical integration of the refurbishing business with the recycled business permits increased supply of parts. Its headlight business, for example, has already nearly tripled its per day production since its acquisition earlier this year. We suspect other refurbishing acquisition candidates will present themselves and LKQ will be able to leverage its salvage purchasing to achieve impressive returns.
There are risks to the business, however. The aftermarket industry is currently being sued by Ford Motor Company for patent infringement. Also, State Farm, the largest automotive insurance company, currently uses original equipment and recycled parts, not the readily available aftermarket parts. We believe that Ford will not prevail in its lawsuit and State Farm will again use LKQ’s aftermarket parts. Excluding the impact of the pending Keystone acquisition, we think LKQ could grow its revenue in the mid teens with margin expansion resulting in net income growth of nearly 20%. Favorable outcomes on either the Ford suit or the State Farms issue could lead to considerably higher growth for the company. Analyst: Michael Baron
Allegiant Travel (ALGT) (market capitalization: $0.6 billion).
Allegiant is a leisure travel company focused on being a low cost passenger airline that markets directly to leisure travelers in small cities. It provides non-stop, low fare, scheduled services point to point to three world class leisure destinations: Las Vegas, Orlando and Tampa, Florida. In addition to its current point to point service from 46 small cities to the three above destinations, four new routes to Las Vegas, two new routes to Orlando and two to Tampa began in the 2007 second quarter. We believe the company has a competitive advantage versus other low cost carriers since most markets to which Allegiant offers service are too small to support two entrants. Allegiant is currently the only operator in 65 of 70 markets where it operates. This has enabled it to establish more routes as management has already identified another 49 cities in the U.S. and Canada in which to expand.
We believe the company’s management team, led by Maury Gallagher, the executive who founded ValuJet, as well as three other executives who have worked with Gallagher previously, is strong and entrepreneurial. Allegiant’s 26 plane fleet consists of only MD 80 jets, which are widely available and 80% cheaper than comparably sized Airbus 320s and Boeing 737s. However, while these planes are not fuel efficient, we think operating efficiencies with maintenance and crews outweigh the additional fuel costs. Allegiant’s balance sheet is strong. Its debt is 1.2 times EBITDA and we expect its earnings to grow approximately 20% per year for the next several years. We believe the company will continue to add traffic to its existing routes, as well as add new routes to its itinerary. Analyst: David Baron
Macquarie Infrastructure Company (MIC) (market capitalization: $1.8 billion).
Investors have recently flocked to infrastructure assets for their stable and defensible cash flow characteristics. However, many investors do not think of these assets as having growth characteristics. We, however, feel that Macquarie Infrastructure Company (MIC) proves that infrastructure assets can have both defensible characteristics and growing cash flows. MIC is an LLC formed by Macquarie Bank in Australia, mandated with acquiring and restructuring infrastructure assets in the United States. Since its IPO in late 2004, the company has assembled a fixedbased operations (FBO) company, an airport parking corporation, an energy business in Chicago, a Hawaiian gas company, and its most recent purchase of a tank terminal business. MIC runs with an extraordinarily lean investment team and utilizes Macquarie Bank’s extensive worldwide team to discover and secure investment opportunities. MIC is the only Macquarie Bank vehicle charged with investing in U.S. infrastructure assets. MIC pays the bank a performance fee if the stock's appreciation exceeds an infrastructure index.
The FBO acquisitions combine the free cash flow that is standard for MIC subsidiaries with a growth element. MIC’s largest national network of FBO's provide both fuel and service to aircraft; "glorified gas stations" according to the company. However, this essential element of aviation possesses, we think, great barriers to entry as a result of the airports limited available real estate. The majority of MIC's approximately 70 FBO's operate as the sole or dual provider of the service at a given airport. These FBO's generate 75% of the subsidiary’s cash flow. We think future acquisitions should focus on limited competition airports that cater to a transient customer who is not constrained by hanger availability. We expect business jets to continue to increase in use, MIC’s FBO's should benefit by offering a national footprint that can provide loyalty programs and standard amenities, better services and lower prices than those offered at mom and pop operators.
In 2006, MIC acquired a 50% ownership stake in IMTT, a tank terminal storage business, for $250 million. The founding family retained 50% ownership and remained in management positions. MIC will receive a $7 million per quarter dividend through 2008. After that, MIC will receive its fair share of earnings which we expect to exceed the current $28 million per year payment. We believe this acquisition presents a slight variation to typical infrastructure investments as it will not only produce quality cash flow, but we believe will also grow over the next few years as new projects come on board. About $150 million of the purchase price is being used primarily for a new facility in Geismar, La. This facility has already been contracted by BASF for non-petroleum liquids which we think garner higher than average revenue and margins. We believe Geismar should produce $24 million in EBITDA once complete. Terminal demand is so great that many contracts have been extended far earlier than their expiration dates which in our view leads to a relatively low risk asset and pricing power.
MIC is an LLC that pays a large portion of its earnings to its investors. Its current growing dividend of $2.36 per share provides a nearly 6% yield. As the firm invests more in growth infrastructure assets, we anticipate the dividend could increase substantially in the coming years.
