Q1 2022 Brookfield Infrastructure Partners LP Earnings Call
Thank you for standing by and welcome to the Brookfield infrastructure Partners first quarter 2022 results conference call and webcast. At this time all participants are in listen only mode. After the speaker's 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.
Minor todays program may be recorded and now I'd like to introduce your host for today's program, David Queen Chief Financial Officer. Please go ahead Sir.
Thank you operator, and good morning, everyone welcome to Brookfield infrastructure Partners first quarter 2022 earnings Conference call. My name is.
David <unk> Chief Financial Officer.
Joining me today is Sam Pollock, our Chief Executive Officer, and Scott <unk>, Our Chief investment Officer.
Following our prepared remarks.
And our Chief operating officer will join us to take your questions.
At this time I would like to remind you that in our remarks today. We may make forward looking statements. These statements are subject to known and unknown risks and future results may differ materially.
Further information on known risks and encourage you to review our annual report on form 20-F, which is available on our website.
I'd like to begin with a few comments around the current macroeconomic environment.
Top of mind for investors today are the elevated inflation levels rising interest rates and decelerating global growth that creates headwinds for many industries. During these periods the infrastructure sector generally outperforms.
The growth in resiliency inherent in infrastructure assets and derive from inflation linked revenues and the ability to pass through operating costs to customers.
Exposure to rising interest rates is mitigated by long term capital structures largely on a fixed rate basis, given the highly predictable cash flows either produce.
From a valuation perspective established frameworks employed across revenue expense and debt financing protect or expand margins through revenue content offering increasing our capital costs.
These attributes in combination with strong operational performance and last year's successful capital deployment have resulted in record results to start the year.
We are pleased to report on our operations.
$493 million, 14% increase year over year basis.
The highest in history.
<unk> per unit of 93.
3% above the prior year as a result of the shares issued in conjunction with the acquisition of inter pipeline, our IPL and the equity offering completed in November and has yet to meaningfully contribute to our first quarter results.
After removing the weather related outperformance from our gas storage business last year total <unk> increased 35% in <unk> per unit increased 22%.
Organic growth was robust at 10%, reflecting the benefits of elevated inflation impacting our tariffs and the commissioning of approximately $1 billion of Nu.
Capital products over the last 12 months.
Our base business continues to perform well benefiting from outperformance in utility and transport segments. Additionally results from our North American Midstream operations have benefited from Ipl's first full quarter contribution as well as outsized cash flow due to higher asset utilization and notable increase in commodities revenues.
Taking a closer look at our operating costs.
Starting with utilities, we generated one.
$167 million, an increase of 8% on a same store basis organic grocery segment reflects higher than historical levels, given the inflation indexation and the fact, we commissioned approximately $450 million of capital into rate base. During the last 12 months.
Results also benefited from the partial contribution of the Australian regulated utility we acquired in February .
Our UK regulated distribution business continues to experience strong sales activity ending the quarter with over 100000, new cash and saw a 32% increase quarter over quarter.
Second highest quarterly result on record largely attributable to water collection sales.
At our Brazilian regulated gas transmission operations, we secured its first growth project as a result of strong demand from a key customer.
This low risk project will expand existing network bilateral kilometers and is underpinned by a shipper pay contracts with inflationary tariff increases over a 15 year term similar to our existing business, our investment will be approximately $60 million with bip share being $20 million.
Moving to our transport segment, <unk> was $185 million, a 14% increase over the prior year.
It continues to perform well under constrained supply chain conditions.
Higher traffic levels on our toll road portfolio were balanced by in line moves that are diversified terminal and lower volumes transported across our rail networks due to weather related demand.
Strong customer demand and activity levels have increased rates generally in line with inflation overall, our annualized rate increase across our portfolio is approximately 6% for the year with potential room to further increase.
<unk> from our diversified terminals increased by 40% compared to the first quarter of 2021, our port operations maximizing ancillary revenue by providing short term storage solutions to our customers offsetting lower volumes from shipping delays in transportation availability.
Our U S. LNG export terminals continued to experience strong demand. We recently completed an expansion of a commercial liquefaction train, bringing total LNG capacity, that's 30 million tons annually.
We expect this expansion to contribute to increased annual run rate EBITDA underpinned by long term take or pay contracts with diversified counterparties.
In our midstream segment, we generated <unk> of $196 million that change increased from 2021 levels.
After removing the outperformance of our gas storage operations in the prior year consume results more than doubled primarily due to the first full quarter contribution from Ivy Hill.
Organic growth for the segment reflects the stronger commodity price environment and higher utilization of our existing infrastructure, which has sufficient excess capacity to accommodate additional demand from our customers.
IPL, we're experiencing increased customer demand and accurate from an overbuild strategy employed on long haul pipelines.
During the quarter, we executed long term transportation service agreements that combined will add approximately $50 million of Canadian annual run rate EBITDA by 2025.
We continue to progress the completion of the Heartland petrochemical complex in a safe and reliable manner.
Last one strategic connectivity of our adjacent Red water assets, we plan to start up the facilities on a sequential basis, beginning with the polypropylene plant in Q2, followed by the startup of propane dehydrogenation plant in Q3.
Our current plan is to gradually ramp up production through the balance of the year.
Demand from North American polypropylene continues to be robust with end use customers excited about the introduction of our ESG friendly product and geographic diversity of supply.
<unk> from a data point was in line with the prior year at $58 million underlying growth from additional points of presence in inflationary tariff escalators were offset by lower revenues at our U S data center operation that were repositioning for Hyperscale growth as well as the impact of foreign exchange.
We continue to focus advancing a number of capital projects across our data storage sub segment as customer demand continues to grow globally.
Today, we have active developments at seven data centers in five different countries. Once complete we expect to add 25 megawatts of additional capacity to our portfolio.
And now I'd like to touch on the strength of our balance sheet. In recent years, we have spent considerable effort proactively managing our corporate and our balance.
Balance sheets.
Our financing strategy of securing long duration fixed rate debt has been successful with Blackstone.
1% of our asset level debt maturing in 2022, and no corporate maturity until 2024.
Despite a volatile backdrop of rising interest rates capital markets have remained supportive of high quality contracted and critical infrastructure that we are.
In April we further enhanced our corporate balance sheet and supplemented our liquidity through a Canadian $600 million note issuance.
The offering was oversubscribed and well received and split between a 12 year and 30 year tranche with an average coupon of approximately five 5%.
Following a note offering corporate liquidity liquidity totaled nearly $3 billion, which we plan on enhancing through our advanced capital recycling initiatives currently underway.
Before I turn the call over to Scott I'd like to report on a corporate matter that we recently approved our board of directors, we announced today a three for two stock split for Brookfield infrastructure Partners' units and Brookfield Corporation infrastructure Corporation's shares.
The split will be effective on June 10th for unit holders and shareholders of record at the close of business on June <unk>.
Following a strong relative performance of our shares in units over the last few years, we think that this split will ensure that our public securities remain accessible to individual holders and improve the liquidity of our units and chairs.
It's important to note that the split will not dilute our existing investors and will not be taxable in Canada or the United States.
As the sharing units, but it takes effect after the record date for the June distribution, it will not affect the announced distribution for the quarter, which remains at 54 cents per unit.
I'd like to thank you all for your time this morning, and I'll now pass the call over to Scott.
Thank you David and good morning, everyone.
I am pleased to be joining today's call to discuss natural gas as a reliable transition fuel and a path to energy security.
We are operating in a market environment of disrupted supply chains and rising commodity prices. The impact of recent geopolitical events has raised commodity prices to levels not seen in years and reinforced the importance of energy security.
Natural gas and more specifically LNG will continue to be a leading transition fuel and the move towards net zero. It is also expected to play a key role in providing global energy security.
These elements highlight the valuable role our critically located infrastructure plays in the processing transportation and distribution of natural gas.
Our North American midstream businesses are well positioned in the key market is currently benefiting from high utilization rates and increase in commodity prices. These businesses typically reserve a small portion of operational capacity is on contracted to provide operating flexibility.
Under the backdrop of the current market. This available capacity has generated incremental revenue that has contributed to our strong financial performance.
An indirect benefit of a constructive commodity environment is its impact on our energy customers, who are currently experiencing strong cash flow and strengthening balance sheets.
These tail winds to our customers' financial profile, coupled with improving market sentiment is expected to incent reinvestment into their operations.
After several years of more limited production growth, we anticipate a renewed interest in customer initiated infrastructure expansion projects to increase capacity and throughput across our asset base.
Today, we own three businesses that are expected to benefit from increased demand for LNG.
There is significant interest in securing capacity at U S LNG export terminals.
<unk> on our U S. Natural gas pipeline are discussing the contracting options for a third phase of our Gulf Coast Egress, and lastly, our Canadian midstream business is well situated to process and support gas deliveries to west coast LNG export terminals currently under construction.
In addition to traditional energy businesses, our utility operations play a vital role in the transportation and distribution of natural gas to residential and industrial customers in.
In each of the countries, we operate energy regulators are advocating for energy security and diversification of supply that includes natural gas as a transition fuel and reliable source of base load generation.
The more limited investment in traditional energy supply and the Intermittency of renewable power have created more scarcity value for our assets.
As we continue to expand our footprint and re contract our assets on attractive terms, we are well positioned to deliver strong returns on both our in place businesses and our capital recycling initiatives in the years to come.
That concludes my remarks for today I will now pass the call over to Sam.
Thank you Scott and good morning, everyone.
On today's call I'm going to discuss some of the strategic initiatives. We have underway and then I'll conclude with an outlook for the business.
Overall as David has discussed we have had a strong start to the year.
On top of our operational achievements and strong financial performance, we've secured nearly $1 billion of <unk>.
Desperate opportunities, leading us to believe that 2022 is shaping up to be an excellent year.
We continue to see opportunities to execute our full cycle investment strategy across all segments and geographies in which we operate.
We successfully invested approximately $750 million.
Two utility investments.
The take private of an Australian regulated utility business called net and the acquisition of an Australian smart metering business.
Sure.
Subsequent to quarter end, we announced an agreement to acquire Unity group and our Australian three 7 billion take private transaction through our 50 50 joint venture partnership with another infrastructure investor.
Total peripheral equity for the investment is estimated to be approximately $850 million with bip share at approximately $200 million.
<unk> provides wholesale or retail telecommunications services to customers and businesses in Australia strategically.
Strategically this investment provides exposure to the country's largest pure play greenfield fiber to the home wholesale operator, with a stable and predictable recurring revenue stream and a significant backlog.
This business has similarities.
Two our fiber to the home product that we sell in our UK last mile connections business.
What attracted us to acquire it.
The investment is expected to close in the third quarter of 2022.
In total and deploy our secured nearly $1 billion in equity thus far in 2022.
This represents over 60% of our estimated one 5 billion.
Annual deployment that we look to target.
We have a high degree of confidence in our ability to exceed the balance of our target based on the robust pipeline of opportunities at our global investment teams are pursuing.
Our access to capital presence in active operating approach are expected to continue to differentiate us from others.
We also continue to be active on the capital recycling front.
Expect to generate up to $2 billion over the next year or so.
Most advanced or the sales processes for our Indian toll road business and our 2004 hundred kilometers of newly constructed.
Tracy transmission lines in Brazil.
Both processes are anticipated to result in binding commitments in the coming weeks and be concluded in 2022.
Generally our capital recycling program continues to attract lower cost of capital buyers searching for de risked at mature core infrastructure assets.
In addition to sales our current corporate liquidity stands at nearly $3 billion.
Which positions us well to fund our growing pipeline of accretive new investments.
I'll now conclude my remarks with a few comments regarding our outlook for the business, which is very positive.
Yeah.
From a macro perspective, we continue to see the significant capital needs globally to build the data infrastructure networks, debottleneck supply chains, and Decarbonize energy and transportation sectors.
On top of this geopolitical challenges have led countries to emphasize the onshoring of critical supply chains and industries.
Phenomena has been referred to a D globalization and is increasing urgency because of the current complex in Europe .
We expect this re onshoring activity anti globalization trend to continue to accelerate which could create hundreds of billions of dollars of new potential investment opportunities.
Given the scale and global nature of our business.
We are uniquely positioned to be a leader in this potentially massive investment opportunity set.
At the micro level the outlook for our business is equally as strong.
Our expectation for 2022 is that we would deliver organic growth at the high end of our target annual range.
The visit is expected to benefit from the following factors, including favorable operating conditions, resulting in higher tariffs from elevated inflation levels and how are you.
<unk>, our midstream assets.
We have higher embedded organic growth as we continue our asset rotation strategy and we have incremental cash flows as we progress the commissioning of several meaningful growth projects into full operation.
In addition, our business insight from rising interest rates, and we anticipate being able to continue to achieve a 12% 15% return on invested capital.
We have strong visibility on cap deployment with over 60% of this year's estimated targets for new investments already secured and the.
Operating opportunity pipeline is probably as strong as ever been.
Now that concludes my remarks for today I'll pass it back to the operator, we'd be happy to take some questions.
Certainly ladies and gentlemen, if you have any questions. At this time. Please press Star then one if your question has been answered and you'd like to move yourself from the queue. Please press the pound key.
First question comes from the line of apparel right.
TD Securities Your question please.
Thank you very much and good morning.
In terms of the residential infrastructure business it looks like you've been making some interesting acquisitions to add adjacent products and services kind of following the playbook of the UK residential distribution business to some degree. So I was hoping you could give us a bit of color on that and also talk at a high level.
Whether there are any relevant differences and how you would expect consumer oriented infrastructure to perform in this type of environment versus infrastructure, that's more oriented to industrial counter parties.
Hi, Sharon.
Maybe I'll start and.
If <unk>.
Scott has anything to add to my comments then.
At least for him too to add to them.
So.
I guess your first question is just regarding.
The residential infrastructure business and our.
Our strategy.
Adding new <unk>.
Distribution and products to grow the business.
This is a playbook.
As you pointed out that we were very successful in employing in our in our UK business.
Yes.
But we were.
Where we've had great success is when we've had businesses that had that great operational leverage where we have access into a customer's home or or to a developer who has multiple needs.
And.
Yeah.
Theater care franchise.
Which is our which is where our residential business resides in North America.
It has great access to the home and.
We think that.
As a as.
The trend towards de Carbonization takes hold and many new more expensive components are introduced to consumers.
To facilitate.
The reduction or the conversion.
<unk>.
Conventional fuels that customers will need.
Some assistance in the form of parental products or other types of means to invest in those.
New products and services and so we're well positioned to do that.
And by adding the solar product to edit care, we think that again is something that's very unique adding the generation capability after that partnership.
We think its very unique so.
<unk>.
We will continue to do that and I think that is the most accretive way we can grow that franchise.
The other question I guess, you had which is a.
A follow on to that and I think what you're alluding to is are there.
There are noises.
Around the potential for recessions in various markets around the world.
And.
And that might impact.
The ability for the consumer to to invest.
We think that our businesses are residential infrastructure businesses.
Our largely.
Recession proof I hate to use that word because it's maybe.
Too strong word but.
They are critical people need.
Heating or plumbing or water products. These are not things people can do without and many of the things that we do our replacement products.
Yes.
We believe that the.
The demand for what we provide.
It will be sustained and the fact that we're providing a payment mechanism and and and and.
A peace of mind for this product that.
It could in fact do very well.
Secondary environments at the one area, where we might see some softness is to the extent that.
We're providing product to homebuilders for new home sales well then yes, it's possible we could see some weakness in that regard, but for the most part I think our businesses are very well positioned for.
For any economic environment.
That's great.
Yes.
No look I thought that was great Sam I'd, just highlight that we emphasized investments in platforms.
We seek accretive growth wherever it resides so it will not be uncommon for us to pursue adjacent synergistic growth were actionable across our asset portfolio.
These types of bolt ons and opportunistic acquisitions are going to be commonplace for us across our asset.
That's great detail since that was really two questions in one I'll pass it on thanks.
Thank you Charles.
Thank you. Our next question comes from the line of Robert Kwan from RBC capital markets. Your question. Please.
Great Good morning.
I'm wondering just as you think about new investments and obviously, you're just targeting trying to get strong IRR in total.
There's been some instances here, where you've had high return maybe lower multiple about high cash on cash returns like like inter pipe and then you've had lower going in cash on cash returns.
Light.
And now, obviously, some lower risk or volatility and in the <unk>.
Rates are going to be higher growth, but.
When you take a step back and you think about kind of combining the investments and where you want <unk> to be like how much of a consideration is that and maybe just overall where are you seeing the best opportunities.
Right now is at a higher cash on cash returns are for the lower ones with good growth profile.
Yeah.
Hi, Robert maybe I'll start there again.
Colleagues want to jump in.
Let them do that.
So.
I would say that the first thing is.
We don't make acquisitions.
Based on whether or not.
They have high <unk> accretion <unk> accretion we are.
IRR investors.
And multiple capital investors first and foremost so.
The long term prospects for the business are what counts and so.
You are correct in pointing out that sometimes.
It may be that we buy businesses that have a high <unk> yields out of the gate and sometimes.
The profile is reversed.
I think the you know the.
Overriding consideration and and and I think you're.
Your question is well when we buy businesses that have lower <unk> yield out of the gate.
What considerations do we taken to account for that versus the reverse because it would imply higher risk I guess.
And really.
Yes, what we're taking into account is the.
The longevity and risk profile around the growth in that business.
And.
Factors will take into account are you how much of that growth is contracted and and how visible you know that growth is and in addition to that we'll also look at.
Scott referred to as the <unk>.
The potential platform effect that we could that we could leverage.
Because in May the businesses that we buy often we're buying.
Entities, where someone is all they exploiting a small piece of the opportunity and because of our experience in running many different businesses globally.
We have a view that we can.
Span that growth.
To a much greater extent.
So all those things I mean, those are the things that make us successful in buying entities versus others.
And we always look to yep.
Add on ancillary services in.
And products to businesses too.
To enhance that operating leverage.
Right.
Is that answer your question.
Yeah, No that's a great thing.
The second question here is just around inflation.
And you talked about 10% organic growth in Q1, and I apologize if you broke it out but how much of that was specifically.
Inflation and as we look forward.
How much more shows up in the future quarters.
This year, whether that's contractually.
Or regulatory wise.
Okay.
Dave is going to answer that.
Good morning, Robert.
So if we look at the 10% organic growth that we generated during the Carter I'd say, if you're going to break out kind of three components.
And just as a reminder, that the inflation indexation GDP related volume growth capital commissioned into our earnings by about 5%, 6% of it was from inflation and.
And if we look across our segments, where you're seeing the biggest tailwind is obviously going to be in our utilities transport and data center.
Were you know.
On balance by about 90% of our businesses within those segments have inflationary mechanisms built into the revenue construct.
In terms of the B looking ahead for the rest and the balance of the year could we see further increases in inflation I think that's possible.
If the levels persist a lot of our businesses do rollover at different parts of the urine.
Good example, in the U S. We're seeing average inflation of prior around in our business this quarter by around 6%, if we continue to run well.
They are paying for the balance of the euro we could see that grow 70% have been a bit higher in certain elements I do see there being a little bit of opportunity for additional outperformance in the back half of its euro that's occurred.
Environment persist.
And just on the capital side.
In terms of what you're spending do the regulatory.
Construct and or the contractual side of things are you protected on cost increases for capital and in fact, the benefit just from the higher spending level.
Largely yes, I think to your point on the utility side for rate base inclusion, we will benefit from higher capital costs of our connections and additions into our rate base a lot of our large scale capital projects that we highlighted this quarter, including train six.
Petrochemical facility.
Brazilian transmission lines, either fully complete construction in the case of a transaction.
Inter pipeline's HBC.
Our cost of our 96% physically done construction, so a lot of that inflation calories.
Yes.
On the more normal recurring connection.
Carrier additions.
Additions I think those are all repriced pretty regularly and capture inflation to your point.
It should be beneficial for the business looking ahead.
Okay. That's great. Thank you very much.
Yeah.
Thank you. Our next question comes from the line of Robert <unk> from CIBC capital markets. Your question. Please.
Hi, Good morning, everyone could you provide some context around the U S data center operations.
The lower revenue and that was the business being repositioned.
And in light of that have the dynamics changed at all.
Hello.
Bip is investing and that's that particular component of the segment.
Hi, Robert Thanks.
To that question and I think we'll ask Ben Vaughan.
Who's our chief operating officer to to address that question.
Yeah, Hey, Robert.
So in the U S data center business, we basically been migrating clients base away from traditional retail colo product towards the Hyperscale and edge computing product.
And so as we've been engaging in that shift we now have a boat.
Seven megawatts of new contracts from Hyperscale or to.
To take up our space, whereas to put in perspective, a few years ago, we would've had none of those types of contracts of the businesses migrating away from a traditional retail colo offering.
And towards the Hyperscale and edge computer offerings. So that is the process that we're undertaking and we've got a good pipeline of hyperscale opportunities.
That we're pursuing and a proven track record now of.
Contracting with Hyperscale clients for that service. So I don't know if that's responsive to your question, but that's the.
I guess, the strategic shift that's going on within that asset at this point.
Yes, Ben.
What I was looking for some <unk>.
Curious as to the impact of competition versus.
But deliberate strategic.
<unk> there.
And then I guess, Robert sorry, just to highlight that maybe to reinforce the strategic nature of it we are reinvesting some capital into the facilities in order to reconfigure them because the needs of the hyperscale or is are different than just the the rack direct retail colo setup. So there it is a very.
Deliberate strategy with a physical repositioning of the assets that complements the new product offering essentially so I hope that I hope that's helpful.
Yes.
Definitely helps and then I'm just curious on the impact of rising interest rates on the utility Roe.
Are you generally expecting increases in ROE, we used to be commensurate with rising rates, allowing.
Allowing for the regular the normal regulatory lag or do you expect some compression to where are we.
Because they didn't necessarily chase rates down to the bottom.
And obviously you know to mitigate the pressure on customer bills.
Hi, Robert It's Sam here.
The short answer to your question is it will depend on jurisdictions.
In Australia, and the U K, yet we expect subject to the lag as you pointed out that the.
The rates will adjust and the normal regulatory environment.
In the U S.
Where we don't really have utility operations per se.
But that would be a jurisdiction where.
Yes.
There may be some delay.
Delay in response to higher rates, because they didn't go down as much but for most of our businesses.
Whether it's South America or.
Australian and U K I would expect rates to move up.
Pretty quickly with rising rates.
Okay, and just finally I'm curious if you're noticing any change in the permitting environment.
And then your operating jurisdictions in light of the need for energy security if that is the permitting environment changing to accommodate that.
Maybe I'll ask Scott to address that one.
Look it's evolving and it's a continuing discussion with local regulators.
Can't say, we're seeing a quantum shift, but I think some of the recent geopolitical events have re emphasize the need for energy security and we're hopeful we'll get everyone aligned to.
To get permits needed for.
Very projects to achieve that energy security, but I can't say, we're seeing a quantum shift but.
<unk> a constructive tailwind.
Okay. Thank you very much.
Thanks Robyn.
Thank you. Our next question comes from the line of Rob Hope from Scotia Bank. Your question. Please.
Good morning, everyone. Just a follow up question for me I appreciate the commentary on organic growth being towards the upper end.
Range in 2022, but just as we look out to 2023, you Shouldnt, we see kind of equally strong organic growth just given the quantum of capital being put into place as well as the fact that you have.
You will see kind of inflation being feathered into tariffs in throughout the year. So just taking a look at 2023 shows the factors that we're seeing benefit 2022 equally benefit 2023 as well.
Hey, Robert It's David here I can I can take that one.
Thank you your assumption is correct I think one of the things that is important to highlight is obviously be the inflation that we're passing through this year one of the biggest benefits as it is compounds.
These do continue to to grow and to your point, we will expect to see additional inflation through the back half of this year that should lead all else being equal and there are a lot of other variables that go into it but as of today and should lead to.
Organic growth at the high end of our target range next year and if you factor in.
The.
HPE will be ramping up in the balance of this year that that is another large project that should come on line in 2023 now contribute to our base business earnings next year as well. So there are a number of tailwind that should lead to a strong outlook for 2023 as well.
I appreciate the color. Thank you.
Thank you. Our next question comes from line of Andrew <unk> from Credit Suisse. Your question. Please.
Thanks. Good morning, I think the question is for Sam and it really relates to just the partnerships and ventures, you've used over the years and how they've.
Evolved maybe a little bit of how and why they've evolved and maybe just some examples how to partner on the Vodafone New Zealand deal you align yourself with DLR in a couple of jurisdictions.
Just maybe context on how this has changed or evolved over time is it easier for exit helps with risk management.
Just some color would be great.
Yeah.
Yeah, Hi, Ed Hi, Andrew.
Okay, I guess I would start off by saying.
One of our.
Yep critical success factors.
Is to be a partner of choice.
And so that's something that when we go out.
And meet potential.
Strategics or even some of our peers.
We we pride ourselves on the fact that we've got a long history going way back when.
To the the old Brascan days, when we had the mining companies and we have many partnerships on I'm projects Aldo.
All the way through today at 40 years later.
We continue to.
Built upon partnerships.
Yeah.
The investments can be large and often.
Others are looking for someone to come into to help them, they're not necessarily looking to sell in every case or in some cases someone else might have secured the deal ahead of us and need someone to help them achieve their business plans. So.
We are always looking to two partners with others, where it makes sense.
Sometimes.
We choose to do things on our own because.
Yeah, we feel it may make sense for us to have the full discretion over the business plan in order to to achieve it.
And sometimes maybe the business opportunity isn't big enough to two until a partner but.
But I would say given the scale of the opportunities today.
Yep.
We see being a good partner and finding good partners as a critical component to the strategy.
Thank you that's helpful and then maybe a different kind of partnership.
When one looks internally that the broader group and we think about the data business.
Part of that is real estate oriented part of his power oriented and part of it is sort of telecom infrastructure oriented has the thought process changed internally at Brookfield on how you think about allocating capital to that or is it a divide and conquer at times or is it just solely within them.
So as it relates to.
Sure.
You know that this is clearly an area that our infrastructure group is focused on.
Yeah.
You rightly pointed out that.
And particularly with data centers, there's elements were there.
But the real estate group can be extremely helpful. Given there.
Land Assembly capabilities, we do leverage.
Those capabilities in.
In markets, where it makes sense and I think one of the.
Great attributes of Brookfield as they are an asset manager is the fact that at the various platforms.
Our able to work seamlessly.
Yeah Cross opportunities and we don't yes.
We don't.
That's the fact that one group May fund the capital.
You'll reduce the ability to leverage all the capabilities and expertise. So so yes. The short answer I. Appreciate this long winded, but short answer is we do get help from time to time from the other platforms, but we do fund all the dirty infrastructure through our infrastructure group.
Okay. That's great. Thank you.
Thank you.
Thank you as a reminder, if you have a question at this time. Please press Star then one.
Our next question comes from the line of Dmitry Lewinsky from third to US Your question. Please.
Hi, and thanks.
Thanks for taking my my question.
I Wonder if you can walk us through.
How are your business benefits from rising interest rates by segment disposable.
David do you want to start with that I am sure I.
I can.
I can start with asking me I'd say largely before going segment by segment.
It's important to understand our business is largely insulated from rising interest rates.
Because of the capital structures and the financing approach that we put in place so much that was.
Largely fixed rate long duration asset level borrowings, so I'd say across the portfolio outside of Brazil, 90% of our business is fixed rate with an average maturity of over seven years. So from us from a balance sheet standpoint, we're largely insulated from the impacts from short term rising rates.
On the upside and where we could benefit from rising rates with Sam alluded to earlier is most likely in our utilities business where.
Largely ROE and returns on equity are derived from the risk free in prevailing interest rates up that was awful environments in which case, we should start to see.
Regulated earnings go up as these regulatory rate resets kicking over whatever period or whatever that may be on but I'd say, our utilities business stands to benefit from it the most.
Got it.
And then the potential downside.
Downsides.
From so rising rates.
And then all of the segments.
Okay.
Yeah.
I would say it wasn't that.
David touched on.
The AR balance sheet impacts, obviously that that's where we see the most impact.
Hum.
I I think.
Where we're able to adjust the business is to the extent that.
Have they increased.
We reflect that in.
Our acquisition models and adjust.
Our capital allocation.
Both organically and Inorganically.
I feel that as rates move up we reflect those rising rates and all the capital decisions, we make going forward.
But other than on a more medium to long term basis, we don't see too much impact from rising rates.
Awesome got it.
Question is I just wonder if you can confirm.
Did that in 2022, you plan to generate 2 billion of proceeds from capital recycling and whether that will come primarily from our Brazilian electricity transmission.
And the Indiana toll roads.
Yeah.
So we have probably.
Six.
So.
Investments that are currently being marketed.
The only two that we have publicly disclosed are the ones you mentioned.
Those are the near term situations that we expect to secure.
Those are relatively small in the context.
There are several others that are more meaningful and will be signed hopefully in the.
Third quarter of this year.
And I think the overall timing to receive.
We received proceeds it will take place.
Over the next you know.
12 to 15 months I think the.
The ones that are going to be signed shortly we hope to have a probably Q3 and then the rest of them that we sign.
In Q2 Q3.
Q4 will be thereafter, but yeah.
But that is the current amount that's in the pipeline is that roughly $2 billion worth.
Right. Okay. Thank you so much.
Okay.
Thank you. Thank you.
Next question comes from the line of N T.
<unk> from <unk> capital markets. Your question. Please.
Hi, good morning.
Just wanted to go back to the topic of tailwind you talked about inflation and customer demand and I'm. Just wondering if you can provide any color on the FX.
<unk>.
Sure.
Impacts there, particularly from the unhedged exposure.
Yeah.
Yes happy to not do you think.
You've seen.
You know, 80% of our business today is OECD and therefore hedged back into U S dollars for the next you know on average about 24 months, so largely our business is very well insulated from those movements.
The one currency, where we do have.
Exposures on the Brazilian real and we've had that historically.
That's a balance of somewhere between 15 and 17% of our.
That could be one of them the tailwind that we start to see starting in the second quarter. If the currency can remain around the current level.
For the first quarter, we started to see appreciation of that currency in the months of March, albeit the overall impact on the quarter was modest.
Pretty negligible I think looking ahead, that's one of the tailwind that we could see on me Amit a balance in our business at that time.
And there are eight or nine that won't come here.
Yeah.
Okay.
Helpful detail and just wanted to ask on the M&A pipeline.
It seems like it's very active the other different types and scale up transactions.
In the Hopper.
Some of them in the public news I'm, just wondering do you see more opportunities today to pursue more public are the corporate or asset transactions, just given the volatile market environment or are you still seeing a lot of scale opportunities on the profit side.
Yeah.
Yeah, maybe I'll take that one.
It's it's a mix.
So I would say today.
We have a good balance of both private versus public to privates.
You, usually we wouldn't have as much public to privates as we have today there does appear to be.
You know.
A value discrepancy between public valuations and private valuations which are.
It makes a public to privates are attractive for <unk>.
It's just like ourselves.
And I think given the increasing volatility and the pullback in the market.
It's likely to persist.
Going out the balance of the year.
And and so that will it will remain a focus but today.
I wouldn't want to give you the impression that all we're focused on is public to privates, who we have a large number of.
Private opportunities that we're pursuing as well.
Yeah.
Got it understood. Thank you.
This does conclude the question and answer session of today's program I'd like to hand, the program back to Sam Pollock, Chief Executive Officer for any further remarks.
Thank you operator, and thank you to everyone for joining the call. This morning. We appreciate your ongoing support and look forward to speaking with you again next quarter. Thank you.
Yes.
Thank you, ladies and gentlemen for your participation in today's conference. This does conclude the program you may now disconnect good day.
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