Q3 2021 Brookfield Infrastructure Partners LP Earnings Call

November 3, 2021

Ladies and gentlemen, thank you for standing by and welcome to the Brookfield infrastructure Partners Q3, 2021 results conference call.

At this time all participants are in a listen only mode. After the speaker presentation, there will be a question and answer session.

To ask a question. During this session you will need to press star one on your telephone.

If you require any further assistance please press star zero.

It is now my pleasure to introduce Chief Financial Officer, David Crane.

Thank you operator, and good morning, everyone.

Kind of inter pipeline or IPL.

Strong organic growth continued in the third quarter as results benefited from global economic expansion, improving commodity prices and the impact of inflation on our revenue stream.

This results were supported by strong growth from our base business and the initial contribution from IPO excluding the.

The recovery of shutdown related effects experienced last year organic growth was robust at 9%.

This includes inflationary tariff increases and the commissioning of over $800 million of new capital projects in the last 12 months.

Taking a closer look at our operating performance by segment, starting with our utilities, we generated <unk> of $182 million compared with $169 million in the prior year.

Organic growth for the segment was 7%, reflecting inflation indexation and the commissioning of over $400 million of capital invested into our rate base in the last year.

Results also benefited from the acquisition of the remaining interest in our Brazilian regulated gas transmission operation, whereas last year's results included earnings associated with the UK smart meter portfolio as well as our North American District energy platform, both of which were divested earlier this year.

Our U K regulated distribution operation connection sales exceeded those in the prior year by over 55%.

This growth reflects continued.

The strength of our legacy utility connections, but also robust water connection sales, which have more than doubled relative to last year.

In the quarter. The business also signed a 20 year agreement with Virgin media to offered CD Enbridge television and broadcast services across our fiber network.

We now have long term arrangements with both Sky and Virgin media two of the largest tier one internet service providers in the U K positioning our fiber offering for <unk> for continued growth.

Our North American residential infrastructure business continues its you have to build out during.

During the quarter the business opened two greenfield locations that provide a hub for regional expansion and nearly doubled if U S dealer network to $77.

Just capital light strategy should accelerate our growth plans.

We're also in the final stages of formalizing a partnership with the residential generator manufacturer that will provide a rental alternative product line and an annuity based revenue stream for us.

Now moving onto our transport segment, <unk> was $181 million, an improvement of approximately 18% when compared to the prior year.

<unk> benefited from strong organic growth driven by increased volume and higher tariffs in line with above average inflation in the markets we operate.

Growth is also attributable to a rent contribution from sorry growth is also attributable to a net contribution from capital recycling as the current period includes our U S. LNG export terminal, whereas the prior year included a larger contribution from Australian export terminal of which we sold at 22% stake in December of last year.

Each of the underlying operating groups within our transport segment are performing well in the current environment, starting with our global toll road portfolio traffic levels across our networks have continued to improve throughout the quarter on average volumes were 14% above the same quarter of last year and 10% above 2019 level.

At our rail operations higher revenues are driven by average increases in our tariffs of approximately 5% while volumes remained robust during the quarter.

And finally, our diversified terminals performed well with volumes up 7% over the prior year.

At our U S LNG export terminal and strong demand from Europe, and Asia combined with an increasing reliance on LNG as a cleaner fuel had supported contracting initiatives and higher pricing.

Approximately 85% of the terminals capacity is underpinned by take or pay contracts, providing stable and predictable cash flows.

<unk> portion of uncontrolled capacity allowed the business to capitalize on strong pricing environment.

Construction of the fifth liquefaction train is progressing well with substantial completion expected in the first quarter of next year roughly one year ahead of schedule.

Both the pricing environment and the.

Trained construction are well ahead of our expectations at the time of our initial investment.

Moving into our midstream segment, where <unk> totaled $103 million, an annual increase of more than 55% with.

With the completion of the first stage of the privatization in August results reflect the initial albeit partial contribution from IPL.

Additionally, our results on a same store basis benefited from strong gas transportation volumes and.

And elevated commodity prices across our existing businesses.

Carbon abatement remains a focus across our midstream business to reduce emissions and improve the efficiency and competitiveness of our operations.

In this regard our western Canadian Midstream business was recently awarded $18 million Canadian Federal government Grant for clean technology initiatives and greenhouse gas reduction projects.

The combination of reduced supply of traditional energy sources and the Intermittency of renewable power generation has driven commodity prices, it's a seven year high with.

With approximately 80% of our midstream revenue insulated from commodity prices are market sensitive revenues have outperformed our expectations and contributed to the strong performance this quarter.

This current pricing environment is not only good for our business, but also for our customers who have strengthened their balance sheets and are generating significant free cash flow at these commodity price levels.

This bodes well for future customer reinvestment into their operations as well as carbon reduction projects, both of which we are well positioned to participate in and benefit from.

Finally in our data segment, we recorded <unk> $58 million, an increase of 16% compared with the prior year. This increase reflects a full quarter of results from our Indian Telecom tower business and organic growth within our existing operation the.

The contribution from organic growth includes inflationary price increases and the build to suit tower and fiber to the home programs at our French telecom operation.

In July our Indian Telecom tower business agreed to acquire a leading indoor coverage solutions provider in the country for total equity consideration of up to $120 million with bip share being just over $20 million the strategic bolt on acquisition complements the business and enhances the existing service offering.

The transaction remains subject to regulatory approval and is expected to close in the first half of 2022.

Now before turning the call over to Sam I'll briefly touch on the strength of our balance sheet.

We continue to focus on extending our debt maturity profile mid constructive credit market conditions.

Liquidity across markets remains strong and we are well positioned to attract long term and fixed rate capital.

So far this year, we have raised or refinanced over $10 billion of nonrecourse financing at the asset level.

During the quarter, we signed an agreement to divest Brookfield remaining 34% stake in our Chilean toll road operation.

The transaction is expected to close later this month and will generate net proceeds to Brookfield infrastructure of approximately $160 million.

This equates to an enterprise value consistent with prior sales in 2019 and last year and overall investment IRR of approximately 16% on a us dollar basis.

Following the completion of the sale capital recycling initiatives will have raised nearly $2 billion in net proceeds this year and we continue to make meaningful progress on three processes that combined should generate a further $1 billion over the next six to eight months.

Following the completion of the first stage of inter pipeline's, the inter pipeline privatization in August we ended the quarter with $4 5 billion of total liquids.

Of which approximately $3 billion resided at the corporate level.

We will continue to have a healthy liquidity level. Following the completion of the take private of IPL given the strong support for BMC shares as part of the consideration.

Thank you all for your time this morning, and now I'll turn the call over to Sam.

Yeah.

Thank you David and good morning, everyone.

For today's call I'll make some comments regarding today's operating environment discuss some of the strategic initiatives, we have underway and I'll conclude the call with our outlook as we head into 2022.

Let me begin with a brief comment on todays operating environment.

It is our belief that the combination of favorable capital markets.

Healthy economic activity and low interest rates is driving three important macroeconomic themes that are all very positive for our business.

The first theme is elevated inflation.

Where does the regulated frameworks or contractual entitlements approximately 70% of our revenues are indexed to local inflation.

This feature combined with strong free cash flow conversion levels is driving significant <unk> growth within our base business.

Next is rising commodity prices.

Although 80% of our midstream sector revenues or insulate from commodity prices. The remaining 20% are market sensitive revenues that should outperform in the current environment.

Additionally, higher commodity prices result in more free cash flow generation for our counterparties, which not only strengthened their financial positions, but it can also lead to higher volumes and customer initiated growth projects.

The last thing I wanted to mentioned the supply chain bottlenecks.

<unk> infrastructure worldwide is under stress given the recent disruption to traditional supply chains.

This puts the spotlight on the essential nature of our networks and facilities.

With demand for infrastructure is high we tend to realize higher tariffs as customers compete or whatever remaining capacity is available.

We also tend to generate more revenues from storage services.

As a result of all this in the near term as these complementary market forces continue our business is well positioned to benefit from higher volumes increased tariffs and new capital expansion projects.

Now, let's review some of our current strategic initiatives.

Our investment professionals are actively pursuing several opportunities of scale across our target sectors and geographies and we expect our access to capital our local presence and an active operating approach to continue to be differentiating factors.

Been aided by the fact that the current market environment for new investment activity remains very constructive.

The most significant milestone for the quarter was the acquisition of IPO, which Dave touched on earlier in the call.

In early September we successfully completed the first stage of the privatization acquiring shares to the tender offer process that brought our total ownership to 76%.

Alongside our institutional partners.

On October 28, we acquired the remaining 24% on our owned and subsequently delisted the company.

In total we deployed approximately $2 5 billion that was funded with cash and about $1 9 billion of newly issued <unk> shares.

We are excited about the long term value that we can create through our operating initiatives at the company.

In that regard we are making good progress implementing our 100 day plan at the business.

Initial activities include reviewing the construction and commissioning plants at the Heartland petrochemical complex to ensure an on time startup in 2022.

And identifying areas for optimization and efficiency post closing.

We've also started working on identifying near term commercial opportunities to improve profitability of the business.

As part of the commercial review, we are highly focused on opportunities, where we can assist customers in reaching their net zero goals.

Now moving on to another major initiative earlier. This week. It was announced that Brookfield is open ended core infrastructure funds alongside institutional partners recent agreement to acquire 100% of the bonds net a publicly traded regulated utility company in Australia for approximately $17 8 billion Australian on an enterprise value.

Basis.

Which translates into about $6 2 billion of equity value.

<unk> business predominant comprises three regulated networks in the state of Victoria electricity transmission electricity distribution and gas distribution.

These are high quality regulate utilities that provide essential services within Victoria, and a part of Australia as backbone electricity transmission grid.

The transit transactions expected to close in the second quarter of 2022, and PPP will invest approximately $500 million.

We believe it's an attractive investment for bip, given the strong going in yield sustainable cash flow profile and the significant growth opportunity to invest in the expected future build out of the company's regulated asset base as Australia electrifies its economy as part of their de carbonization efforts.

Now I'd like to conclude my remarks, with a few comments regarding the outlook for the business.

As we highlighted at our annual Investor Day in September.

We are excited about the future prospects for our business.

Along with economic tailwind, our asset rotation strategy will drive meaningful growth in the near term.

Also the long term outlook is equally favorable as the infrastructure Super cycle plays out and we create platform value across many of our portfolio companies.

As we've mentioned the current global economic environment is extremely supportive for our business with the three components of organic growth all surging.

Higher inflation and strong commodity markets will support top line growth as well as improve our already solid margins.

Customer initiated growth projects will likely continue to be boosted by these higher commodity prices and a significant strain on supply chain infrastructure should reinforce the criticality of our assets and lead to improved volumes and pricing.

These trends provide a positive backdrop for our business and reinforce our belief that organic growth over the next year or so it should be at the high end of our 6% to 9% target range.

This combined with the high levels of accretion achieved from our accurate patient strategy should result in our run rate <unk> per unit. This year that is over 20% above prior year levels.

So that concludes my remarks for today and I will pass it back over to the operator to open the line for questions.

Thank you.

As a reminder to ask a question you will need to press star one on your telephone.

Draw your question press the pound key.

Standby, while we compile the Q&A roster.

Our first question comes from the line of Cherilyn Radbourne with TD Securities.

Thanks, very much and good morning.

And maybe just to start on the CLO I'm curious if you could elaborate.

A bit more on the characteristics of that deal, which made it suitable for both the Super core.

Glenn just well is and whether you think thats, a unique circumstance or something that we could see more of going forward.

Hi, Cherilyn, it's Sam I'll take that question.

Maybe the.

The first thing I'll say is just on the business itself.

This is a.

High quality strategic.

Asset in Australia.

It provides in this part of the whole backbone grid for the country and you know as that country looks too.

Electrify over the next three years, we have we think the investment opportunity in expanding that grid could total over $30 billion and so theres meaningful capex to be invested.

What we like about it is the fact that.

We are investing at a point in time when.

I allowed returns we think are at a trough level and so we think the opportunity for higher returns as.

As interest rates and inflation go up.

We will be achieved by us all.

Obviously, given the regulated framework.

The stability and predictability to cash flows is very attractive.

And it'll be an investment that will be accretive for <unk>. So as we look.

And developing a.

At an attractive.

Portfolio composition for fifth.

We think.

Nicely rounds out.

Our investment activities for the year, we have added some midstream assets.

But this will give us.

Some additional exposure to to utilities, which we think are very attractive for the company. So from that perspective, it fits very well with our.

Investment objectives as it relates to.

The Super core fund.

<unk>.

Our experience is that the Super core fund.

It does tend to invest in businesses that are at a return level slightly lower than what we look to invest that spin.

We think that there are opportunities to achieve.

Achieve returns at a level for this business.

That meet our return thresholds, but we also think from a portfolio composition perspective, there's lots of qualitative reasons why it makes sense.

As for other businesses that <unk> might invest in it's hard to say whether or not there'll be other other.

There is that fall into this category, where we would participate in.

That's helpful color effectively an opportunity to invest in utility.

There's a lot of competition for that type of asset.

Maybe just on the topic of asset sales.

It's obviously, a very robust environment that so I'm curious whether there are any.

We're at a point with them.

<unk>.

Yes.

Consider accelerating.

And quickly take advantage of current market conditions.

So we.

We're always.

Looking at our peripheral and seeing if there are businesses.

That we can achieve full value.

Sooner than later.

I think I might have mentioned on the last call in fact, one of those businesses that.

We are thinking about accelerating.

The timeline of our.

Of our monetization would be our transmission business.

In South America and Brazil.

We've made great progress in advancing that.

That project is in fact, a series of construction projects.

It's highly sought after we've had a number of inbounds regarding that that business and.

We are evaluating whether or not we accelerate that into 2022.

That would probably be the only one at this stage and I would flag.

Otherwise we have.

Our plan over the next.

Three to five years to generate over $5 billion of proceeds from asset sales. So we do have a robust divestiture plan.

But that may be one business that we.

We could accelerate.

Great. That's it for me thank you.

Thank you.

Thank you and our next question comes from the line of Robert Kwan with RBC capital markets.

Good morning.

I can just start with the.

The growth outlook that you've put forward and you've got the long term six months to 9% organic growth, but in the near term you think you'd be at the high end of that range.

But I'm wondering as you think about your asset rotation strategy.

How would you see that contributing kind of as the adder to that 6% to 9% on say just an average annual basis long term as well as if you X out.

The impact of IPL, what do you think that could add as you think about the asset rotations in front of you over the next 12 months to 24 months.

Yeah, Hey, Rob.

Hey, Robert It's David here I can I can start with that one.

In terms of the asset rotation strategy I think when.

When we typically look at going in.

Capital deployment returns versus what we're able to monetize our mature derisked business that there's generally a pretty pretty meaningful spread between the two Robert I think over the last three years to five years, we probably averaged somewhere between 2% to 4% in terms of the gap.

I think we highlighted at Investor day, if this phase of asset rotation with with Enweave coming out in ICL coming in is certainly outsized relative to our historical averages. So it will be.

That really leads us to that 20%.

I think broadly when we look ahead from in 2021 versus 2020 on a run rate basis of <unk> on a long term basis I still think we view that we should be able to grow through asset rotation somewhere in that 2% to 4% annually and it just depends on the size and the quantum of capital recycling, that's being achieved and it can be.

Somewhat lumpy. So you have a year like this where we've already done $2 billion in 2021 and have a further $1 billion is well progressed and we will have years like last year, where we did maybe about $1 billion of asset sales. So it is hard to say what the.

Any given it will be but on an average youre looking at probably about a $1 billion to a billion and a half of asset sales at a 2% to 4% spread between buying and selling.

Maybe the only thing I'd add to that is.

It also depends on what.

What type of businesses, we're selling because there are some businesses, we talked about these platform businesses where.

Because they have a lot of embedded growth.

Good day.

We're selling them at very.

Low <unk> yields and so it does accentuate the growth and so there.

There was a lot of growth anyways.

I would say our transmission business given that most of the cash was haven't come on but that will be sold at a very low <unk> yield.

Probably PD ports.

Would be in that category as well. So there are some in the near term that that would be very beneficial to the asset rotation.

Story.

Got it if I can just shift to the midstream.

I know you probably don't want to put hard targets out there, but I'm just wondering how big from the midstream segment perspective would you be comfortable can you just refresh that as it relates to overall debt, but the other one is just taking a step back there is a number of other.

Assets that many investors would consider traditional midstream investments that you that you have sitting in other segments.

So looking at kind of that definition, how big would you want to see that as a percentage of overall debt.

Sure.

Maybe what's happened to that but.

Dave you can jump in as well look I think our midstream segment is about 25% today.

And typically over the last.

10, or so years, 20% might have been.

More typical level for us.

But I think the.

The thing to focus on Robert is the fact that.

We like to take advantage of.

Higher returning opportunities when they exist.

Did this.

A number of years ago in Brazil, where we made a number of big investments in the <unk>.

Gas transmission as well as the.

Electricity transmission business and so it felt like we're a little overweight in Brazil at that time, but then we haven't really done a lot since then.

In that market in fact, we will be looking to probably sell some of those businesses over the next couple of years and so we will see the.

South American content of our business.

Pretty dramatically from where it was at one point.

I suspect, we'll see the same things happened with midstream.

There was some great opportunities.

The market in the last little while which we took advantage of but as they mature and we sell them off.

Or just generate their cash flow because a lot of them are being bought.

On a.

Harvesting cash flow basis, we will see that percentage dropped down and I would say.

The vast majority.

<unk> of our.

Pipeline of opportunities tend to in fact be directed towards data at the moment and data is still a relatively minor.

Minor amount of our overall.

Investments, but I see that as being the big area for growth in the next three to five years.

That's great if I can just finish with a specific question on IPL.

Now that it's closed I don't know if you are.

Willing or able to talk a little bit more openly about it but you did mention.

Trying to help focus on your customers achieving net zero goals are decarbonising.

Just wondering what the interest is using some of that IPL infrastructure joining.

What was supposed to be the Alberta carbon grid to start with as.

As well as just overall you.

You made some statements during the process.

Potentially carving up the assets was that something you kind of just offered up more so to try to get the deal done or was there kind of a genuine interest as a plan a for.

A lot of a better term.

Okay.

Well.

As it relates to the first part maybe I'll get Brian to comment on.

The carbon grid.

As it relates to carving the business up.

Look I think.

We.

We're very commercial and how we look at the business, we're trying to create value in and.

If there's opportunities for us too.

Make more money by either in partnering or selling off businesses.

We will consider all of those avenues and I would say since we bought the business and been involved we've had a tremendous amount of.

Inbounds and outreach from others about opportunities. So we think they're all those possibilities still remain we will look to optimize the business through those.

Those discussions.

<unk>.

And.

That was what our plan always has been so we will continue along that path and we will just have to see how the those conversations with the various parties panels.

But maybe Brian do you want to talk about the yes.

I guess as it relates to call it.

Carbon grid or even just more broadly transition investing.

It is something we have a high degree of interest and I think these assets are well situated to there'll be parts of solutions for customers and these are conversations I guess, it's early days, we've only been in.

In the seats at IPL for a couple of weeks now.

But there is.

A lot of interest in having those conversations from our side and we're starting to have those conversations with various industry participants today. So we'll continue to evaluate them and if we think theres good accretive investment opportunities for the business going forward, we will look to execute.

That's great. Thank you very much.

Okay. Thank you.

Thank you and our next question comes from the line of Robert <unk> with CIBC capital markets.

Hey, good morning, Rob <unk> from CIBC, just a quick follow up to that question and answer.

So I take it then in terms of making investments in areas that are perhaps a little bit more carbon intensive youre not afraid of making those.

Investments.

From I gather from your answer, especially if there is a.

Economic projects that can reduce emissions down the road.

Correct.

The rate will come up.

So we wouldn't shy away from something just for the carbon intensity.

No no no.

Absolutely so.

The.

We are very cognizant of.

The direction going on in the world today.

It's.

It's in the papers, it's in discussions we have and so that's not lost on us, but I think as we've made it clear.

The transition.

To.

Reducing carbon is going to take a long period of time.

And we own businesses that are critical for.

The economy today and will be for the next couple of decades.

All the investments we've made are in recognition of the broader goals of net zero by 2050.

We will be harvesting a lot of cash flow.

During that period of time.

And I think.

One of the.

Things will find is in many of the businesses that we own today, while we've bought them on the basis of <unk>.

Just harvesting cash flows for the next 2030 years May then will be important pieces in the energy transition story and will require significant amounts of capital and we will and we will be very commercial for many decades beyond that we don't know exactly what that will look like today, but we think the these are.

Critical businesses and.

They will be repurposed.

To fit into that new world.

So thats the exciting story that we'll be able to tell and others.

Who own assets like ours in the future.

For today.

<unk>.

Investing with.

Cash flows in mind and with those risk parameters.

Julio on top of our of our mines.

Okay.

Just going back to the midstream portfolio for a minute.

But a lot of changes there recently, so what level of commodity price exposure, we're comfortable with.

But you have IPO under the pool.

Are the biggest exposures and related to that with the <unk>.

Marty prices I was hoping euro highs are you tempted at all to maybe accelerate monetization there.

Sumit.

I'll ask Brian to touch on this.

As you say monetization.

I think what we're we're looking at doing is locking in.

Some of these higher prices.

Two to improve what we had previously underwritten. So that's the real opportunity here is the fact that.

A lot of our businesses that we've recently bought <unk>.

Far more valuable today than they were when we bought them just.

In the last year, or two whether thats, Sabine pass or whether thats.

IPL.

They are both doing extremely well, but.

But Brian maybe you want to talk about the hedging strategy we have.

In place at IPL today, I realize it's early days, so you're you're only starting but it's something they were already starting to do but one that were encouraging I guess to make sure. We take advantage of these commodity prices, yes, sure cats, Emma and Luke I, just maybe say with most of our midstream businesses, we typically focus on businesses.

We're highly contracted.

Sometimes we will have businesses that will have some direct commodity exposure and I think one of the things we always like to put it in our pipeline was that the majority of the business is highly contracted for the long term.

Do have some commodity exposure in the business and that's primarily through our.

Our fractionation facilities and it's going to be through.

Really exposure to a frac spread where we have some commodity exposure in the business today.

Given the fact that we are in a very high commodity price environment, we're looking to hedge some of that exposure going forward to reduce our.

Volatility and exposure to those prices changing over time, and we're quite comfortable doing that with where prices are today because there are so strong.

Right. So it's a question of optimization.

The portfolio management at this point in time.

Yes, that's a fair characterization.

Alright.

Last one for me I'm, just curious on your indoor coverage solution.

<unk> that you've acquired.

Uh huh.

How would you describe the affordability of those solutions to other regions and businesses.

Well, maybe we'll get Ben to talk about that.

Because then we have the two businesses, obviously, yes look there.

Characterize as Theyre very portable and our plans are to.

Leverage that portability into new markets and leverage the overall Brookfield franchise.

We're deploying those indoor systems across various aspects of real estate in new market. So our strategy.

For all of those businesses that have the indoor capabilities to bring them to new markets.

Expanding their footprint and add elements of growth to them with those new geographies. So they are they are.

Theyre very portable and Thats one of the aspects that we really liked about it.

And just to remind you.

The first indoor solution business, we bought as part of our UK tower business, which we've actually.

Set up a business in the U S. We signed our first contract in.

In the West coast with Brookfield.

Property and we're looking at building that business in North America. So that's a perfect example, where we've taken the European business and actually brought it to North America.

And we will be able to do something similar probably with that business in India.

That's a big market opportunity, but hopefully we can transport it to different parts of <unk>.

Asia.

Okay.

Okay. That's it for me thank you very much.

Okay. Thank you.

Thank you and our.

Next question comes from the line of Devin Dodge with BMO capital markets.

Alright, Thanks, So maybe start with a question on on NTS.

There were some regulatory changes in the Brazilian Nat gas market earlier this year.

Around converting some concessions to indefinitely assets and I think creating more competition for building pipelines going forward can you speak to those regulatory changes and whether you see them.

Risks or opportunities for MTS.

Yeah, Devin it's Ben here.

We definitely see them as opportunities for MTS, when we bought NTS many years ago.

There really was no open market regulated framework in the country.

It's just evolving from basically a vertically integrated.

Energy structure through Petrobras into trying to get ensure market participants could add assets to the networks over time in an open access framework and these regulations, where many years in the making and we actively participated in discussions with the regulators about how.

Yes.

Everyone's goal is to ensure that the energy market in Brazil, especially for natural gas with growth and so we're very pleased with the regulations. As you mentioned I think the two key attributes are first of all they make our NTS franchise, a perpetual asset base, rather than concession based which allow.

<unk> us to invest over the long long term and the second thing is it makes it much easier for new entrants to come into the Brazilian market and effectively compete in a market where Petrobras otherwise was dominant and we think that will provide lots of growth opportunities.

Not only for domestic and industrial consumption, but for Powell.

Power natural gas to play a role in power generation in the country. So we're pretty I'd say excited by the whole evolution.

And we think it will provide a good growth for NTS overtime.

Okay. That's good color. Thanks for that maybe a question for Dave.

We've seen a lot of discussions between construction companies and project owners around covering.

Extra costs, whether it's productivity losses around COVID-19 material cost inflation higher wages et cetera, it's not clear how at least to US. How these negotiations will go but I think it's fair to say that the cost to complete projects are going up now for bip.

Is there a risk that the returns or the yields on our capital projects currently in your backlog.

Could they be less than what <unk> seen historically.

Sure.

Hey, Devin.

Yes, I think if we look at our backlog today.

Im using rough numbers about 80% of it today are small.

Last mile connections in and around the edges, where we we're constantly repricing every few weeks and months and capturing some of those inflationary pressures on our cost through to our customers. So I'd say the majority if not the vast majority of our backlog shouldn't be impacted from going in <unk> yield standpoint, or an IRR that we've underwritten the project that.

Those are the businesses like <unk> like the U K like Tds. So I'd say those are the bits and those are really the flagship components of our backlog. If we think of some of the larger capital initiatives that are more chunky and one off I think a great example of how we manage that construction risk would be in Brazil with our transmission lines.

We do have an off taker in terms of the construction management company. They bear the risk of cost overruns, and we'd get rebalanced through our our acquisition value. So I think we've done a great job on managing some of those projects, where we could have had those types of conversations as we're experiencing those inflationary prices inflationary pressures in the current viral.

For the most part I wouldn't expect it to impact the returns that we expect these projects to generating and I think these are some of the best risk adjusted returns we can find some.

I think we're in pretty good shape.

Okay. Thanks for that I'll turn it over.

Thank you.

Your next question comes from the line of Rob Hope with Scotiabank.

Good morning, everyone just on the potential decision to accelerate the South American.

Asset sale process. There in addition to your other processes.

Is this just a function of value youre seeing in the market or does it also tied to the opportunities that youre seeing to acquire some assets as well as provide liquidity for that.

Sorry, you cut off there.

I think the question was.

Are we accelerating that divestiture.

Just.

I think from a risk perspective or.

Sorry, maybe just to.

Is it just related to the value you are seeing in the market or does it actually tied to incremental.

M&A opportunities you can put capital to work.

Oh.

No I look I think we're just seeing good value for those types of businesses, there's a very strong demand.

And we've had numerous inbounds.

Regarding the business we are nearing.

We would have in any event, probably look to sell the business maybe in two.

2023.

So we're not massively accelerating the divestiture of that business, but we're just pulling forward a little bit.

But from a liquidity perspective, we have lots of levers for liquidity. So it really isn't from that perspective. It really is just a.

Value.

Alright. Thanks.

And then just longer term question.

Or you will be investing alongside these super core fund and that was Brooklyn, Hasnt been diversified Thats overall fund.

Portfolio, including the global trend Vision fund could we see.

Investing alongside other funds or.

Do you have enough capital to put to work.

At best for as well as what should be a law.

Brookfield infrastructure fund clients.

Yes.

I can't say definitively, but for the most part the vast majority of our.

Investment opportunities will come through our flagship.

Before five series of funds there will be the odd utility type investment that we'll participate in.

The Super core fund.

And.

It's too early to comment on the transition fund I think the vast majority of those investments will be renewables related and so likely will go through Beth but.

But I guess, we'll wait and see.

What services.

Alright, that's great. Thank you.

Thank you.

And our next question comes from the line of noisy they do with <unk> capital markets.

Hi, Good morning, just wanted to something else.

The interest rates.

I appreciate the yields are going to remain low, but with expectations, but they're moving up.

Are there any pressing with time sensitive refinancings, you think you need to complete in the next year or so.

Yeah.

Hey, Matt It's David I can I can start on that one I think we've been pretty vocal in our in our plan that for.

For the last 24 months, we've been very active on the refinancing front as I alluded to probably over $10 billion that we've done this year alone across our businesses.

And predominantly none of those were maturities. This year most of them were at through 2022 2023 that were getting ahead of just too with that in mind I think we're always looking at and managing that risk.

Non interest rates for a long term basis at certainly.

At the corporate level, we have nothing until 2024 and at our businesses. There is no material financings in the next 12 months that we're not working on today that we have that debt.

Yes, I think we've been very proactive on that front and where our balance sheet is in excellent position with that is the prevailing sentiment around interest rates and where they're headed.

Okay, Okay great.

I guess thats related to this but on the asset sales you highlighted sort of the <unk>.

Essential value of the platform businesses.

Building.

I guess my question is.

Being able to sell these businesses at higher multiples how much of that do you attribute to just being today and the lower interest rate environment versus maybe the added value you bring to the franchise.

And I guess.

Does it just mean that even if you sell assets at a higher multiples are also paying.

Higher multiples for new investments and net net back to earlier comments, youre still doing 2% to 4% spread.

Well look thats a look.

A fair comment.

I think.

In regards to the same by the way in regards to your first.

Comment about how much is.

Environment related.

Just slow interest rates pushing valuations up versus <unk>.

Selling growth.

Did the relative split is difficult to to answer I think there's a combination probably of both factors.

Buyers are using more leverage today.

To be able to pay more than that so theres very constructive capital markets feeding into valuations at the same time.

We are.

Selling businesses, where we didn't built great platforms and people are.

Happy to pay for growth.

So I think we're benefiting from both factors.

And they're both important as it relates to.

On the buy side look I think.

We always try to.

Limit the amount of goodwill that we paid for we try to create it not not by it but.

There is no doubt some level of.

<unk> future growth.

We do need to factor into it.

Any investment we make to be competitive.

And we just tried to be prudent we don't there's many transactions were not successful on.

Try and pick and choose those ones, where we can leverage other considerations and factors to be successful and I think.

<unk> I think is a good example, where we were able to buy a toehold and position ourselves in a different way and be.

Also by the time when.

Midstream is a little bit more out of favor so.

Those are the types of things we try to do so that we're not.

Giving back I think is what youre, implying some of those gains that we make on the sales side, when we buy new assets.

Hopefully that's helpful.

That's great. Thanks, Tom just a quick final question on data.

Would this bolt on acquisition in India.

I think thats, an existing business, but the JV with digital Realty is now also closed just wondering how youre thinking about I guess investments in <unk>.

Both of those.

Colin vehicles going forward in India.

Both are very early days.

Yes, you are right.

The indoor solutions business was bought as part of the towers platform.

And.

Given the size of the towers platform.

It's very modest in comparison, we do think it's a good tuck in to that business and positions us well for some highly accretive growth but.

It may not move the needle too much in the near term, we hope longer term it becomes more meaningful.

I would manage expectations in that regard.

And the JV with.

With digital Realty is in the early innings, we're excited by the growth potential in the market and.

The powerful combination of our franchise in their franchise and being able to grow that.

At this stage, we're really just building up a.

Our pipeline of <unk>.

Land and various key markets.

And we hope to have contract signed.

To develop those those.

Those land parcels over the coming quarters, but it's early days.

Look forward to giving you more feedback on that but again I think.

The the financial impact from that initiative will be in the years ahead, you will not see it in the short run.

These are all a little.

Seeds that we're planting that we think will be very meaningful for the company in the future.

Got it thank you very much.

Yeah.

Thank you.

I'm showing no further questions at this time.

Now I'll turn the call back over to Chief Executive Officer, Sam Pollock for any closing remarks.

Okay. Thank you operator, and thank you for everyone who joined the call. This morning, and we appreciate your ongoing support.

Appreciate we may not speak again until the new year. So.

In that regard, we'd like to wish everyone happy holidays, and all the best for the remaining part of the year.

Thank you.

Yeah.

This concludes today's conference call. Thank you for participating and you may now disconnect.

[music].

Ladies and gentlemen, thank you for standing by and welcome to the Brookfield infrastructure Partners Q3, 2021 results conference call.

At this time all participants are in a listen only mode. After the speaker presentation, there will be a question and answer session.

To ask a question. During this session you will need to press star one on your telephone.

If you require any further assistance please press star zero.

It is now my pleasure to introduce <unk>, Chief Financial Officer, David Craig.

Thank you operator, and good morning, everyone.

Thank you all for joining us for Brookfield infrastructure Partners' third quarter earnings conference call for 2021.

My name is David Craig and the G fast.

Foster Brookfield.

Joining me on today's call and Sam Pollock, Chief Executive Officer, as well as Ben Vaughan, Our Chief operating Officer, and Brian Baker Magic will be available for questions. Following our remarks.

At this time I would like to remind you that in responding to questions was talking about our growth initiatives and our financial and operating performance. We may make forward looking statements.

These statements are subject to known and unknown risks and future results may differ materially.

For further information on known risk factors I would encourage you to review our annual report on form 20-F, which is available on our website.

With that let's move on to the third quarter results.

I'm pleased to report that Brookfield infrastructure recorded another strong quarter.

Funds from operations or <unk> for $422 million, an increase of 16% compared with the third quarter of 2020.

On a per unit basis.

10% ahead of the prior year, even after considering the impact of the 50 shares issued in connection with the privatization of inter pipeline where ICL.

Strong organic growth continued in the third quarter as results benefited from global economic expansion, improving commodity prices and the impact of inflation on our revenue stream.

If the results are supported by strong growth from our base.

So contribution from IPO.

Excluding the recovery of shutdown related effects experienced last year organic growth was robust at 9%.

Inflationary tariff increases and the commissioning of over $800 million of new capital projects in the last fall.

Taking a closer look at our operating performance by segment, starting with our utilities, we generated <unk> $182 million compared with $169 million in the prior year organic.

Organic growth for the segment was 7%, reflecting inflation indexation and the commissioning of over $400 million of capital invested into our rate base in the last year.

Results also benefited from the acquisition of the remaining interest in our Brazilian regulated gas transmission operation.

Last year's results included earnings associated with the UK smart meter portfolio as well as our North American Fisher platform, both of which were divested earlier this year.

Our UK regulated distribution operation cash and sales exceeded those in the prior year by over 55%.

This growth reflects.

<unk> strength of our legacy utility connections, but also robust water connection sales, which have more than doubled relative to last year.

In the quarter. The business also signed a 20 year agreement with Virgin media to offer its JV Enbridge television and broadcast services across our fiber network.

Now have long term arrangements with both Sky and Virgin media two of the largest tier one internet service providers in the U K positioning our fiber offering for our continued growth.

Our north American residential infrastructure business continued to do you have to build out.

During the quarter the business, helping to greenfield locations that provide a hub for retail expansion and nearly double if U S dealer network to $77 million.

This capital light strategy should accelerate our growth plans.

We are also in the final stages of formalizing a partnership with a residential generator manufacturer that will provide a rent alternative breast product line and an annuity based revenue stream for us.

Now moving on to our transport segment.

<unk> was $181 million in them.

<unk> of approximately 18% when compared to the prior year.

Results benefited from strong organic growth driven by increased volume and higher tariffs in line with above average inflation in the markets we operate.

Growth is also attributable to a rent contribution from alright growth is also attributable to a net contribution from capital recycling as the current period includes our U S. LNG export terminal, whereas the prior year includes a larger contribution from Australian export terminal of which we sold at 22% stake in December of last year.

Each of the underlying operating groups within our transfer segment are performing well in the current environment, starting with our global toll road portfolio traffic levels across our network to continue to improve throughout the quarter on average volumes were 14% above the same quarter of last year and 10% above 2019 level.

At our rail operations higher revenues are driven by average increases in our cash of approximately 5% while volumes remained robust during the quarter and finally, our diversified terminals performed well with volumes up 7% over the prior year.

And our U S LNG export terminal and strong demand from Europe, and Asia, combined with an increasing reliance on LNG as a cleaner fuel and supported contracting initiatives and higher pricing.

85% of the Charles capacity is underpinned by take or pay contracts, providing stable and predictable cash flows.

A small portion of uncontacted capacity allowed the business to capitalize on strong pricing environment.

Construction of the fixed liquefaction train is progressing well with substantial completion expected in the first quarter of next year roughly one year ahead of schedule.

Both the pricing environment and the train.

Trained construction are well ahead of our expectations at the time of our initial investment.

Moving into our midstream segment wrap a bow totaled $103 million in.

An annual increase of more than 55%.

The completion of the first stage of the privatization in August results reflect the initial albeit partial contribution from IPL.

Additionally, our results on a same store basis benefited from strong gas transportation volume and.

And elevated commodity prices across our existing businesses.

Carbon abatement remains a focus across our mentioned.

To reduce emissions and improve the efficiency and competitiveness of our operations.

In this regard our western Canadian Midstream business was recently awarded $18 million Canadian Federal government Grant for clean technology initiatives and greenhouse gas reduction project.

The combination of reduced supply of traditional energy sources and the Intermittency of renewable power generation has driven commodity price, it's a seven year high.

With approximately 80% of our midstream revenue insulated from commodity prices are market sensitive revenues had outperformed our expectations and contributed to the strong performance this quarter.

This bodes well for future customer reinvestment into their operations as well as carbon reduction projects, both of which we are well positioned to participate in and benefit from.

The contribution from organic growth includes inflationary price increases and the build to suit tower and fiber to the home programs at our French telecom operation.

The strategic bolt on acquisition complements the business and enhances the existing service offerings.

The transaction remains subject to regulatory approval and is expected to close in the first half of 2022.

Now before turning the call over to Sam I'll briefly touch on the strength of our balance sheet. We continue to focus on extending our debt maturity profile mid constructive credit market conditions.

Quiddity across markets remains strong and we are well positioned to attract long term fixed rate capital.

So far this year, we have raised or refinanced over $10 billion of nonrecourse financing at the asset level.

During the quarter, we signed an agreement to divest Brookfield remaining 34% stake in our Chilean toll road operation.

Our transaction is expected to close later this month and will generate net proceeds to Brookfield infrastructure of approximately $160 million.

This equates to an enterprise value consistent with prior sales in 2019 and last year and overall investment IRR of approximately 16% on a us dollar basis.

Following the completion of the first stage of inter pipeline the inter pipeline prioritization in August we ended the quarter with $4 $5 billion of total liquidity.

Of which approximately $3 billion resided at the corporate level.

We will continue to have a healthy liquidity level. Following the completion of the take private of IPL given the strong support for <unk> shares as part of the consideration.

Thank you all for your time this morning, and now I'll turn the call over to Sam.

Thank you David and good morning, everyone.

Let me begin with a brief comment on todays operating environment.

It is our belief that the combination of favorable capital markets.

Healthy economic activity and low interest rates is driving three important macroeconomic themes that are all very positive for our business.

The first theme is elevated inflation.

Whereas the regulated frameworks or contractual entitlements approximately 70% of our revenues are indexed to local inflation.

This feature combined with strong free cash flow conversion levels is driving significant <unk> growth within our base business.

Next is rising commodity prices.

Although 80% of our midstream sector revenues are insulated from commodity prices. The remaining 20% are market sensitive revenues that should outperform in the current environment.

Additionally, higher commodity prices result in more free cash flow generation for our counterparties, which not only strengthen their financial positions, but it can also lead to higher volumes and customer initiated growth projects.

The last thing I wanted to mentioned that supply chain bottlenecks.

<unk> infrastructure worldwide is under stress given the recent disruption to traditional supply chains.

This put the spotlight on the essential nature of our networks and our facilities.

With demand for infrastructure is high we tend to realize higher tariffs as customers compete for whatever remaining capacity is available.

We also tend to generate more revenues from storage services.

Now, let's review some of our current strategic initiatives.

<unk> remains very constructive.

The most significant milestone for the quarter was the acquisition of IPL, which Dave touched on earlier in the call.

In early September we successfully completed the first stage of the privatization acquiring shares to the tender offer process that brought our total ownership to 76%.

Alongside our institutional partners.

So on October 28, we acquired the remaining 24% on our owned and subsequently delisted the company.

In total we deployed approximately $2 5 billion.

That was funded with cash and about $1 9 billion of newly issued <unk> shares.

We are excited about the long term value that we can create through our operating initiatives at the company.

In that regard we are making good progress implementing our 100 day plan at the business.

Initial activities include reviewing the construction and commissioning plants of the Heartland petrochemical complex to ensure an on time startup in 2022.

And identifying areas for optimization and efficiency post closing.

We've also started work on identifying near term commercial opportunities to improve profitability of the business.

As part of the commercial review, we are highly focused on opportunities, where we can assist customers in reaching their net zero goals.

Now moving on to another major initiative earlier. This week. It was announced that Brookfield is open ended core infrastructure funds alongside institutional partners recent agreement to acquire 100% of <unk> net a publicly traded regulated utility company in Australia for approximately $17 8 billion Australian on an enterprise value.

Basis.

Translates into about $6 2 billion of equity value.

As that business predominant comprises three regulated networks in the state of Victoria electricity transmission electricity distribution and gas distribution.

These are high quality regulate utilities that provide essential services within Victoria, and a part of Australia as backbone electricity transmission grid.

The transit transactions expected to close in the second quarter of 2022, and PPP will invest approximately $500 million.

Now I'd like to conclude my remarks, with a few comments regarding the outlook for the business.

As we highlighted at our annual Investor Day in September we are excited about the future prospects for our business.

Along with economic tailwind, our asset rotation strategy will drive meaningful growth in the near term.

Also the long term outlook is equally favorable as the infrastructure Super cycle plays out and we create platform value across many of our portfolio companies.

As we've mentioned the current global economic environment is extremely supportive for our business with the three components of organic growth all surging.

Higher inflation and strong commodity markets will support top line growth as well as improve our already solid margins.

These trends provide a positive backdrop for our business and reinforce our belief that organic growth over the next year or so should be at the high end of our 6% to 9% target range.

This combined with the high levels of accretion achieved from our accurate patient strategy should result in our run rate <unk> per unit. This year that is over 20% above prior year levels.

So that concludes my remarks for today and I will pass it back over to the operator to open the line for questions.

Thank you.

As a reminder to ask a question you will need to press star one on your telephone.

Draw your question press the pound key please standby, while we compile the Q&A roster.

Our first question comes from the line of Cherilyn Radbourne with TD Securities.

Thanks, very much and good morning.

Maybe just to start on the net Guillermo Im curious if you could elaborate a bit more on the unique characteristics of that deal, which make it suitable for both the super core blends as well as Beth and whether you think thats a unique circumstance. There is something that we could see more of going forward.

Hi, Cherilyn, it's Sam I'll take that question.

And maybe the.

The first thing I'll say is just on the business itself.

This is a high quality strategic.

Asset in Australia.

It provides and that's part of the whole backbone grid for the country and as that country looks too.

Electrify over the next three years, we have we think the investment opportunity in expanding that grid could total over $30 billion and so theres meaningful capex to be invested.

What we like about it is the fact that.

We are investing at a point in time when.

The allowed returns we think are at a trough level and so we think the opportunity.

For higher returns.

Interest rates and inflation go up.

Yes, it will be achieved by us obviously, given the regulated frameworks.

The stability and predictability to cash flows is very attractive and it will be an investment that will be accretive to prevent so.

As we look.

Yes.

Developing a.

Yes and attractive.

Portfolio composition for that we think.

Nicely rounds out.

Our investment activities for the year.

We have added some midstream assets.

But this will give us.

Some additional exposure to utilities, which we think are very attractive for the company. So from that perspective, it fits very well with our.

Investment objectives as it relates to.

The Super core fund.

Thanks.

Our experience is that the Super core fund.

It does tend to invest in businesses that are at a return level or slightly lower than what we look to invest that fifth.

Yes, we think that there are opportunities to achieve.

To achieve returns at a level for this business.

That meet our return thresholds, but we also think from a portfolio composition perspective, there's lots of qualitative reasons why it makes sense.

As for other businesses that <unk> might invest in it's hard to say, whether or not there'll be other others that fall into this category, where we would participate in.

That's helpful color effectively an opportunity to invest in the utility.

In an environment, where there's a lot of competition for that type of asset.

And maybe just on the topic of asset sales, it's obviously very robust environment that so I'm curious whether there are any businesses that are at a point with the value creation plan.

Maybe you might consider accelerating the disposition plan Q with you Nick.

Quickly take advantage of current market conditions.

Okay.

So.

Yes.

We're always.

Looking at our poor fall and seeing if there are businesses that we can achieve full value.

Sooner than later.

I think I might have mentioned on the last call in fact that one of those businesses that.

We are thinking about accelerating.

The timeline of our.

Of our monetization would be our transmission business in south.

South America and Brazil.

We've made great progress in advancing that.

That project is in fact, a series of construction projects.

It's highly sought after we've had a number of inbounds regarding that that business in.

Yes, we are evaluating whether or not we accelerate that into 2022.

That would probably be the only one at this stage that I would flag.

Otherwise we have.

Our plan over the next.

Three to five years to generate over $5 billion of proceeds from asset sales. So we do have a robust divestiture plan.

But that may be one business that we.

We can accelerate.

Great. That's it for me thank you.

Thank you.

Thank you and our next question comes from the line of Robert Kwan with RBC capital markets.

Good morning.

I can just start with the.

The growth outlook that you've put forward and you've got the long term, 6% to 9% organic growth, but in the near term you think you'd be at the high end of that range.

But I'm wondering as you think about your asset rotation strategy.

How do you see that contributing kind of as the adder to that 6% to 9% on say just an average annual basis long term as well as if you X out the impact of IPL. What do you think that could add as you think about the asset rotations in front of you over the next 12 to 24 months.

Yes.

Hey, Robert It's David here I can I can start at that one.

In terms of the asset rotation strategy I think when.

While we typically look at going in.

Capital deployment returns versus what we're able to monetize our mature derisked business that there is generally a pretty pretty meaningful spread between the two Robert I think over the last three years to five years, we probably averaged somewhere between 2% to 4% in terms of the gap.

I think we highlighted at Investor day.

This phase of asset rotation with with anyway coming out in ICL coming in is certainly outsized relative to our historical averages. So it will be.

That really leads us to that 20%.

Alright, thank relative when we look ahead from in 2021 versus 2020 on a run rate basis with amyloid too on a long term basis I still think we view that we should be able to grow through asset rotation somewhere in that 2% to 4% annually and it just depends on the size and the quantum of the capital recycling, that's being achieved and it can.

Any given it will be but on an average youre looking at probably about a $1 billion to 1 billion and a half of asset sales at a 2% to 4% spread between buying and selling.

Maybe the only thing I'd add to that as yet.

It also depends on what.

What type of businesses, we're selling because there are some businesses, we talked with these platform businesses where.

Because they have a lot of embedded growth.

Good day.

We're selling that vary.

Low ethanol yields and so it does accentuate the growth and so there.

There was a lot of growth to anyways.

I would say our transmission business given that most of the cash was haven't come on that that will be sold at a very low <unk> yields.

Probably PD ports.

Would be in that category as well.

There are some in the near term that that would be very beneficial to the asset rotation.

Story.

Got it.

This shift.

The midstream.

I know you probably don't want to put hard targets out there, but just wondering how big from the midstream segment perspective.

Comparable units refresh that as it relates to overall debt, but the other one is just taking a step back there is a number of other assets.

Many investors would consider traditional midstream investments that you that you have sitting in other segments.

So looking at kind of that definition.

How big would you want to see that as a percentage of overall debt.

No.

Okay.

Maybe what's happened to that but.

Dave you can jump in as well look I think our midstream.

Segment is about 25% today.

And typically over the last.

10, or so years, 20% might have been.

More typical level for us.

But I think the.

The thing to focus on our operated the fact that.

Yes.

We like to take advantage of.

Higher returning opportunities when they exist.

Did this.

A number of years ago in Brazil, where we made a number of big investments in that.

Gas transmission as well as the.

Electricity transmission business and so it felt like we're a little overweight in Brazil at that time, but then we haven't really done a lot since then.

In that market in fact, we will be looking to probably sell some of those businesses over the next couple of years and so we will see the.

South American content of our business.

Paul pretty dramatically from where it was at one point.

I suspect, we'll see the same things happen with midstream there with some great opportunities.

In the market in the last little while which we took advantage of but as they mature and we sell them off.

Or just generate their cash flow because a lot of them are being bought.

On a.

Harvesting cash flow basis, we will see that percentage dropped down and I would say.

The vast majority of our.

Pipeline of opportunities tend to in fact be directed towards data at the moment.

<unk> is still a relatively minor.

Minor amount of our overall.

Investments, but I see that as being a big area for growth in the next three to five years.

That's great if I can just finish with a specific question on IPL.

Now that it's closed on us here.

Willing or able to talk a little bit more openly about it but you did mention.

Trying to help focus on your customers achieving net zero goals are decarbonising.

Just wondering what the interest is using some of that IPL infrastructure joining.

What was supposed to be the Alberta carbon grid to start with as.

As well as just overall you.

You made some statements during the process.

Potentially carving up the assets was that something you kind of just offered more so to try to get the deal done or was there kind of a genuine interest as a plan a for.

A lot of a better term.

As it relates to the first part maybe ill get Brian to comment on.

The carbon grid, but.

Yes, as it relates to carving the business up.

Look I think.

Yes.

We're very commercial and how we look at the business, we are trying to create value in that.

If there's opportunities for us too.

Make more money by either partnering or selling off businesses.

We will consider all of those avenues and I would say since we bought the business and been involved we've had a tremendous amount.

Inbounds and outreach from others about opportunities. So we think all of those possibilities still remain we will look to optimize the business through those <unk>.

Those discussions.

And.

Yes that was what our plan always.

So we'll continue along that path and we'll just have to see how those conversations with various parties panels.

But maybe Brian you want to talk about the.

Yes, I guess as it relates to.

Got it.

The carbon grid or even just more broadly transition investing.

It is something we have a high degree of interest and I think these assets are well situated to there'll be parts of solutions for customers and these are conversations. It's early days, we've only been in.

In the seats.

Dale for a couple of weeks now.

But there is.

A lot of interest in having those conversations from our side and we're starting to have those conversations with various industry participants today. So we will continue to evaluate them and if we think theres good accretive investment opportunities for the business going forward, we will look to execute.

That's great. Thank you very much.

Okay. Thank you.

Thank you and our next question comes from the line of Robert <unk> with CIBC capital markets.

Hey, good morning, Rob <unk> from CIBC, just a follow up to that question announcer.

So I take it then in terms of making.

And areas that are perhaps a little bit more carbon intensive youre not afraid of making those.

Investments.

From I gather from your answer, especially if there is a.

Economic projects that can reduce emissions down the road.

Correct.

All right welcome that.

So you wouldn't shy away from something just for the carbon intensity.

No no no.

Absolutely so.

The.

We are very cognizant of.

The direction going on in the world today.

It's.

It's in the papers, it's in discussions we have and so that's not lost on us, but I think as we've made it clear.

Yes, the transition.

To.

Reducing carbon is going to take a long period of time.

And we own businesses that are critical for.

The economy today and will be for the next couple of decades.

All of the investments we've made are in recognition of the.

The broader goals of net zero by 2050.

We will be harvesting a lot of cash flow.

During that period of time.

And I think.

One of the.

Things will find is in many of the businesses that we own today, while we've bought them on the basis of <unk>.

Critical businesses and.

They will be repurposed.

To fit into that new world. So.

Thats the exciting story that we'll be able to tell and others.

Who own assets like ours in the future.

For today.

<unk>.

Investing with.

Cash flows in mind and with those risk parameters.

Fully on top of our of our minds.

Okay.

Just going back to the midstream portfolio for a minute.

But a lot of changes there recently, so what level of commodity price exposure comfortable with.

Now that you have IPO under the fold.

Where are the biggest exposures and related to that with the <unk>.

Quality prices I was hoping to euro highs were you tempted at all to maybe accelerate monetization there.

Okay.

Sumit.

I'll ask Brian to touch on this.

As you say monetization.

I think what we're we're looking at doing is locking in.

Some of these higher prices.

Two to improve what we had previously under rich so thats the real opportunity here is the fact that.

A lot of our businesses that we've recently bought.

Are far more valuable today than they were when we bought them just.

In the last year, or two whether thats, Sabine pass or whether thats.

IPL.

They are both doing extremely well.

But Brian maybe you want to talk about the hedging strategy we have.

In place at IPL today, I realize it's early days, so youre already starting but it's something they were already starting to do but one that were encouraging I guess to make sure. We take advantage of these commodity prices, yes, no extra accounts, Emma and Luke just maybe say with most of our midstream businesses, we typically focus on businesses.

Our highly contracted.

Do have some commodity exposure in the business.

Thats primarily through our.

Our fractionation facilities and it's going to be through.

Really exposure to a frac spread where we have some commodity exposure in the business today.

Given that we are in a very high commodity price environment, we're looking to hedge some of that exposure going forward to reduce our volatility.

<unk> exposure to those prices changing over time, and we're quite comfortable doing that with where prices are today because they are so strong.

Right. So it's a question of optimization.

Postal portfolio management at this point in time.

Yes, that's a fair characterization.

Alright.

Last one for me I'm, just curious on your indoor coverage solution.

BARDA that you've acquired.

Hoping that.

Yes.

How would you describe the affordability of those solutions to other regions and businesses.

Well, maybe we'll get Ben to talk about that.

Because then we have the two businesses, obviously, yes I would.

As theyre very portable and our plans are to.

Leverage that portability into new markets and leverage the overall Brookfield franchise for deploying those indoor systems across various aspects of real estate in new market. So our strategy.

For all of those businesses that have the indoor capabilities to bring them to new markets and expand their footprint and add elements of growth to them with those new geographies. So they are they are there.

Theyre very portable and Thats one of the aspects that we really liked about them.

And just to remind you.

The first indoor solution business, we bought as part of our UK tower business, which we've actually.

Set up a business in the U S. We signed our first contract in.

In the West coast with Brookfield.

Property and we're looking at building that business in North America. So that's a perfect example, where we've taken the European business and actually brought it to North America.

And we will be able to do something similar probably with that business in India.

Yes, that's a big market opportunity, but hopefully we can transport it to different parts of <unk>.

Asia.

Okay.

Okay. That's it for me thank you very much.

Okay. Thank you.

Thank you and our next question comes from the line of Devin Dodge with BMO capital markets.

Alright. Thanks.

Maybe start with a question on on NTS.

There were some regulatory changes in the Brazilian Nat gas market earlier this year around converting some concessions to indefinitely assets.

I think creating more competition for building pipelines going forward just can you speak to those regulatory changes and whether you see them as risks or opportunities for MTS.

Yeah, Devin it's Ben here.

We definitely see them as opportunities for MTS, when we bought NTS many years ago.

There really was no open market regulated framework in the country. The country was just evolving from basically a vertically integrated.

Yes.

Allow us to invest over the long long term and the second thing is it makes it much easier for new entrants to come into the Brazilian market and effectively compete in a market where Petrobras otherwise was dominant and we think that will provide lots of growth opportunities.

Not only for domestic and industrial consumption, but for <unk>.

Power natural gas to play a role in power generation in the country. So we're pretty I'd say excited by the whole evolution.

And we think it will provide a good growth for NTS overtime.

Okay. That's good color. Thanks for that maybe a question for Dave.

We've seen a lot of discussions between construction companies and project owners around covering.

Say extra costs, whether it's productivity losses around COVID-19.

<unk> cost inflation higher wages et cetera, it's not clear how at least to US. How these negotiations will go but I think it's fair to say that the cost to complete projects are going up now for bip is there a risk that the returns or the yields on our capital projects currently in your backlog.

Could they be less than what <unk> seen historically.

Sure.

Hey, Devin.

Yes, I think if we look at our backlog today and I'm using rough math about 80% of it today are small.

Last mile connections in around the edges, where we we're constantly repricing every few weeks and months and capturing some of those inflationary pressures on our cost through to our customers. So I'd say the majority if not the vast majority of our backlog shouldn't be impacted from going in <unk> yield standpoint, or an IRR that we've underwritten the project.

So those are the businesses that are kind of like the U K like Tds. So I'd say those are the bits and those are really the flagship components of our backlog. If we think of some of the larger capital initiatives that are more chassis and one off I think a great example of how we manage that construction risk would be in Brazil with our transmission lines.

We do have an off taker in terms of the construction management company. They bear the risk of cost overruns, and we get rebalanced through our our acquisition.

Acquisition value. So I think we've done a great job on managing some of those projects, where we could have had those types of conversations as we're experiencing those inflationary prices inflationary pressures in the current environment for the most part I wouldn't expect it to impact the returns that we expect these projects to generating.

These are some of the best risk adjusted returns we can find zone.

I think we're in pretty good shape.

Okay. Thanks for that I'll turn it over.

Thank you.

And our next question comes from the line of Rob Hope with Scotiabank.

Good morning, everyone just on the potential decision to accelerate the South American.

Asset sale process. There. In addition to your other processes is this just a function of value youre seeing in the market or does it also tied to the opportunities that youre seeing to acquire some assets as well as provide liquidity for that.

Sorry, you cut off there.

I think the question was.

Are we accelerating that divestiture.

Just.

I think from a risk perspective or.

Oh, sorry.

Is it just related to the value youre seeing in the market or does it actually tied to incremental.

M&A opportunities you can put capital to work.

Oh.

No look I think we're just seeing good value for those types of businesses, there's a very strong demand.

And we've had.

<unk> inbounds.

Regarding the business we are nearing.

We would have in any event, probably look to sell the business may be in.

2023.

So we're not massively accelerating the divestiture of that business and if we're just pulling forward a little bit.

But from a liquidity perspective, we have lots of levers for liquidity. So it really isn't from that perspective. It really is just.

Value.

Alright, Thanks, and then just longer term question.

Or you will be investing alongside these two per core fund and then Brookfield asset management.

Diversifies its overall fund portfolio.

Portfolio, including a global trend vision fund could we see.

Investing alongside other funds or.

Do you have enough to capital to put to work.

At this for as well as what should be a larger Brookfield infrastructure fund slide.

Yes.

I can't say definitively, but for the most part the vast majority of our.

Sure.

Investment opportunities will come through our flagship.

Before five series of funds there will be the odd utility type investments that will participate in <unk>.

The Super core fund.

And.

It's too early to comment on the transition fund I think the vast majority of that.

Those investments will be renewables related and so likely will go through <unk>, but.

But I guess, we'll wait and see.

What services.

Alright, that's great. Thank you.

Thank you.

And our next question comes from the line of <unk> <unk> with <unk> capital markets.

Hi, Good morning, just wanted to.

The interest rates.

So I.

I appreciate the yields are going to remain low, but with expectations have been moving up.

Are there any pressing or time sensitive refinancings, you think you need to complete in the next year or so.

Hey, Matt it's David.

I'll start on that one I think but we've been pretty vocal in our in our plan for.

For the last 24 months, we've been very active on the refinancing front as I alluded to probably over $10 billion that we've done this year alone across our businesses.

And predominantly none of those were maturities. This year as most of them are either 2022 2023 that were getting ahead of just too with that in mind I think we're always looking at and managing that risk certainly on interest rates for a long term basis at certainly.

At the corporate level, we have nothing until 2024 and at our businesses. There is no material financings in the next 12 months that we're not working on today that we have that that we're worried about there. So I think we've been very proactive on that front.

She is in an excellent position with that is the prevailing estimate around interest rates and where they're headed.

Okay great.

I guess thats related to this but on the asset sales you highlighted the potential value of the platform businesses.

Building an eye.

I guess my question is.

Being able to sell these businesses at higher multiples how much of that we attribute to just being today and the lower interest rate environment versus maybe the added value you bring to the franchise.

And I guess.

Does it just mean that even if you so assets at a higher multiples are also paying.

Higher multiples for new investments and net net back to earlier comments, youre still doing 2% to 4% spread.

Hello.

Look.

A fair comment.

I think.

In regards to the sand by the way in regards to your first.

Comment about how much is.

Environment related.

Just slow interest rates pushing valuations up versus.

Selling growth.

Did the relative split is difficult to to answer I think there's a combination probably of both factors.

Buyers are using more leverage today.

To be able to pay more than that so theres very constructive capital markets feeding into valuations at the same time.

We are.

Im.

Selling businesses, where we have built great platforms and people are happy.

Happy to pay for growth.

No.

I think we're benefiting from both factors.

And they're both important.

As it relates to us.

On the buy side look I think.

We always try to.

Limit the amount of goodwill that we paid for we try to create it not buy it but.

There is no doubt some level of.

Future growth.

We do need to factor into.

Any investment we make to be competitive.

And we just tried to be prudent we don't there's many transactions were not successful on.

Try and pick and choose those ones, where we can leverage other considerations and factors to be successful and I think.

IPL I think is a good example, where we were able to buy a toehold and position ourselves in a different way.

<unk>.

Also by the time when.

Midstream was a little bit more out of favor so.

Those are the types of things we try to do so that we're not.

Giving back I think is what youre, implying some of those gains that we make on the sales side, when we buy new assets.

Hope that's helpful.

That's great. Thanks, Tom just a quick final question on data.

Would this bolt on acquisition in India.

I think thats in your existing business, but the JV with digital Realty is now also closed just wondering how youre thinking about I guess investments.

Both of those.

Colon vehicles going forward in India.

Yes.

Both are very early days.

Yes, you are right.

Sure.

The indoor solutions business was bought as part of the towers platform.

And.

Given the size of the towers platform.

It's very modest in comparison, we do think it's a good tuck in to that business and positioned us well for some highly accretive growth, but it may not move the needle too much in the near term, we hope longer term it becomes more meaningful.

I would manage expectations in that regard.

And the.

The JV with.

With digital Realty is in the early innings, we're excited by the growth potential in the market and.

The powerful combination.

Of our franchise in their franchise and being able to grow that.

Yes at this stage, we're really just building up a.

Our pipeline of <unk>.

Land and various key markets.

And we hope to have contracts signed.

To develop those.

Those land parcels over the coming quarters, but it's early days.

Look forward to giving you more feedback on that but again I think.

The the financial impact from that initiative will be in the years ahead, you will not see it in the short run these are all little.

Seeds that we're planting that we think will be very meaningful for the company in the future.

Got it thank you very much.

Thank you.

Im showing no further questions at this time.

I'll now turn the call back over to Chief Executive Officer, Sam Pollock for any closing remarks.

Okay. Thank you operator, and thank you for everyone who joined the call. This morning, and we appreciate your ongoing support.

Appreciate we may not speak again until the new year.

So.

In that regard, we'd like to wish everyone happy holidays, and all the best for the remaining part of the year.

Thank you.

This concludes today's conference call. Thank you for participating and you may now disconnect.

Q3 2021 Brookfield Infrastructure Partners LP Earnings Call

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