Q4 2023 Brookfield Infrastructure Partners LP Earnings Call

Okay.

Good day, and thank you for standing by welcome to the Brookfield infrastructure partners fourth quarter 2023 results conference call.

At this time all participants are in a listen only mode.

The speaker's presentation there'll be a question and answer session.

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

We'll then hear an automated message advising your hand is raised.

To withdraw your question. Please press star one again.

Please be advised that today's conference is being recorded.

I would now like to hand, the conference over to your host today, David Grant Chief Financial Officer. Please go ahead.

Thank you operator, and good morning, everyone.

Welcome to Brookfield infrastructure Partners' fourth quarter 2023 earnings conference call.

As introduced my name is David Crafts, and I'm, the Chief financial Officer of Brookfield infrastructure.

I'm joined today by our Chief Executive Officer, Sam Pollock, Our Chief operating Officer, Ben Vaughan.

I'll begin the call today with a discussion of our 2023 financial and operating results followed by some brief remarks on our access to capital and recent financing initiatives.

I'll, then turn the call over to Beth who will discuss the merits of investing boldly during periods of capital scarcity.

Finally, Sam will provide an update on our recent acquisitions and will conclude with an outlook for the business.

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.

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.

2023 was another successful year for Brookfield infrastructure, we executed many of our strategic priorities across all areas of our business.

Some of our key accomplishments include closing over $2 billion of new investments.

Generating $1 $9 billion of total proceeds from capital recycling.

Our second investment grade credit rating.

Maintaining our financial strength during the capital constrained here.

I'm also pleased to report that we exited in 2023 on a high note with fourth quarter funds from operations of 79 cents per unit, a 10% increase over prior year levels.

These strong results and favorable outlook for 2024, the board of directors have approved a quarterly distribution increase of 6% to $1 62 per unit and share on an annualized basis.

This marks the 15th consecutive year of distribution increases.

I'll now go through our annual results and discuss each of our business segments in more detail.

Funds from operations totaled $2 3 billion, an increase of 10% compared to 2022.

<unk> growth for the year was 8%, reflecting strong levels of inflation in the countries, where we operate volume growth across the majority of our critical infrastructure networks and the commissioning of approximately $1 billion of new capital projects that are now contributing to earnings.

Taking a closer look at our results by segment, our utilities business generated <unk> of $879 million compared to $739 million in the prior year. This represents a 19% increase this growth can be attributed to inflation indexation.

Which benefited our results by approximately 6%.

And the contribution associated with approximately $500 million of capital commissioned into our rate base.

Results also benefited from the strong initial performance at Homeserve, which we privatized in January of 2023.

Moving to our transport segment, <unk> was $888 million, representing a 12% increase compared to the $794 million generated in the prior year.

This business results, primarily benefited from inflationary tariff increases and higher volumes driven by strong economic activity around our networks.

In particular, our rail operations realized an average annual rate increase of 8% and volumes were up 2% from the previous year.

And our diversified terminals rates and volumes benefited from strong demand for bulk goods and commodities that underpin the global economy.

And finally, our toll road portfolio.

Realized annual traffic levels, and tariff increases of four 9% or 9%, respectively compared to the prior year.

Our results. Additionally benefited from the acquisition of Triton, our global intermodal logistics operation, which closed at the end of the third quarter and is performing ahead of expectations.

Our midstream segment <unk> totaled $684 million for the year.

Results were impacted by the sale of a third of our interest in the U S gas pipeline in June of 2023, as well as the normalization of market sensitive revenues at our diversified Canadian midstream business.

The outlook for our midstream business remains strong, particularly as we continue to have success executing commercial agreements and increasing rates as a result of a lack of new investment in the sector.

Lastly, <unk> from our data segment with $275 million, an increase of 15% year on year.

The increase is largely attributable to three large scale acquisitions completed during the year. These included a European Telecom tower operation in the first quarter and two Hyperscale data center platform in the third and fourth quarters.

Partially offsetting the contribution from these new investments was the sale of our New Zealand integrated data distribution business completed in the second quarter of 2023.

The existing businesses performed well and continued to benefit from sector tailwind and network Densification requirements.

The strong operational and financial performance I've, just outlined was supported by our consistent access to capital despite volatile market conditions throughout the year.

Following several years of exceeding our new investment target. We're pleased to end the year with $2 8 billion in corporate liquidity.

During the fourth quarter Central banks began to shift their monetary policy stance, which proved favorable for capital markets and allowed us to close the year on a very active now.

In addition to proactively refinancing and extending debt maturities within our businesses. We recent recently completed opportunistic asset level financings to right size the capital structure at two mature pipeline operations in North America.

Combined these financings generated $550 million of capital for the partnership and more importantly reduced the equity required in a future sale of these pipelines.

These activities combined with the optimism we have seen them return to the investment landscape sets us up well to achieve our $2 billion capital recycling target in 2024.

That concludes my remarks for this morning, I'll now turn the call over to Ben.

Thanks, David and good morning, everyone I'm pleased to join today's call to discuss the merits of investing during periods of capital scarcity with a focus on two of our Brazilian utility assets.

In 2023 capital markets were volatile and there was scarcity of capital for even the highest quality companies as a result last year, we capitalized on the opportunity to invest boldly into several large platform businesses to earn what we believe will be excellent risk adjusted returns.

And this reminds us of a period back in the 2015 to 2017 timeframe when we made similar investments in Brazil.

Uncertainty in the country.

In 2016, we acquired the contractual rights to establish quantum which builds and operates electricity lines that connect renewable power generation assets to the national grid.

This Greenfield development platform is now comprised of over 5300 kilometers of transmission lines.

To mitigate construction risk we entered into a partnership with a Spanish EPC company and a turnkey arrangement that mitigated construction risk and incentivized our partner to deliver projects on time and on budget, while ensuring a highly visible return profile.

Quantum is transmission lines are underpinned by 30 year concession agreements that generate stable revenues linked to inflation.

And in 2022, we carved out and sold a portfolio of 2004 hundred kilometers of newly constructed lines for approximately $240 million net to bip.

Presenting a realized return of two four times our capital.

We're now nearing completion of the remaining 2900 kilometers of lines with 180 kilometers still under construction and we expect to complete construction during the first quarter of this year, which will position us to monetize our fully derisk transmission utility that has a platform capable of participating in future government auctions.

For the Buildout of the nation's electricity grid.

And secondly in 2017, we acquired MTS with 100% equity capital due to temporarily poor borrowing conditions in the country.

This deal involved a complex carve out of more than 2000 kilometers of natural gas pipelines from Petrobras, which is Brazil's national champion Energy company.

During our ownership, we realized significant value by executing efficient financings as market conditions in the country re rated and in addition, we transitioned the business from finite life contracts to a business that operates under a perpetual regulatory framework, creating enhanced terminal value.

Today, the business is 100% contracted on an availability basis with no volume exposure and full inflation indexation Rev.

Revenues have grown at a 13% compound annual growth rate, which has led to meaningful dividends. In fact, we will have already realized at two four times multiple of our initial investment following the completion of an imminent deep dividend recapitalization, while still owning our 31% interest.

This perpetual regulated utility.

We believe the business is the best positioned platform in the Brazilian gas transport sector with strong growth potential over the next decade as gas plays an increasingly important role as a reliable transition fuel.

Unlike the 2015 to 2017 timeframe the current environment in Brazil is highly supportive of new investment activity.

The country has inflation under control and interest rates have begun to decrease ahead of many other large global economies. So we're optimistic about the future of Brazil as the country is strategically important on the global stage due to its natural competitive advantages with respect to several key commodities.

And investors can participate in the country's required infrastructure buildout, while enjoying its supportive regulatory frameworks that are afforded to its electricity and energy sectors.

Our contrarian investment posture has served us well during our history and has allowed us to make some of our best investments during market dislocations. These investments in Brazil are expected to extend our track record of investing well above our 12% to 15% IRR target with anticipated IRR of over 25.

Percent.

Drawing parallels between the most recent investment cycle in this period of capital scarcity in Brazil provides conviction in our optimism that our newest platform investments should deliver outsized returns.

So thanks for your time this morning, and I'll now pass the call over to Sam.

Well, thank you Ben and good morning, everyone.

For my remarks today I'm going to provide an update on our strategic initiatives and then I'll conclude with an outlook for the year ahead.

As David touched on in his opening remarks, it was another outsized year for new investments in 2023.

We deployed over $2 billion, three acquisitions, including the take private of training, our global intermodal logistics operation.

We also acquired two geographic diverse Hyperscale data center platform.

In support of our view that the digital economy will continue to grow exponentially from Andrew's industry tailwind created by the rollout of <unk> and artificial intelligence.

Our business continues to benefit from the digitalization investment team and.

In January we completed an additional data center investment acquiring 40 sites of the bankruptcy from Nextera.

This multi faceted transaction include the acquisition of associated real estate underlying several of the sites and the contribution of 10 retail co location sites that we already owned.

The newly created platform will be a leading retail colocation data center provider with over 330 megawatts of capacity deployed in high demand areas across North America.

The total purchase price of approximately $1 3 billion implied at 'twenty 'twenty four EBITDA multiple of around eight times, which was fully financed that did not require any new equity capital.

Also in January we announced the acquisition.

ATC, India in a transaction valued at around $2 billion.

The business consists of 78000 telecom site.

And we will be combined with our existing tower business summit digital which has 175000 towers in the country.

The combined platform will be one of the largest tower platforms globally.

ATC, India will diversify our existing customer mix provided perpetual asset base and deepen our strategic relationships with key mobile network operators in India.

We believe we are acquiring the business at an attractive valuation of around six times 2020 for EBITDA.

Our equity contribution expected to be approximately $150 million.

And the transaction should close in the second half of the year.

Now looking ahead.

We are already off to a good start to the year.

We anticipate that 2024 will be more constructive that 2023 for capital recycling, while providing ample investment opportunities above our targeted returns.

In addition, we expect this year to offer an improved operating environment.

One significant factors shaping our optimism for the upcoming year is the anticipated decline in interest rates.

The downward trend in rates and market belief that rates have peaked a major addictions is.

<unk> is expected to have a positive impact on our cost of capital and asset valuations.

In turn this should reduce capital scarcity and generate heightened interest and well contracted and de risked infrastructure supporting our capital recycling initiatives.

Our global footprint, we will continue to be a competitive advantage, allowing us to arbitrage varying economic conditions to buy and sell assets for attractive valuations in the same market environment.

Furthermore, we anticipate that our unit price would be more constructive in the context of a falling rate environment.

As interest rates received the attractiveness of dividend paying equities, 10th increase potentially positioning our units for enhanced investor interest.

We remain committed to delivering strong cash flow and income growth to unit holders, which we believe will contribute positively to the valuation of our units.

So that concludes my remarks, I'm going to pass it back to the operator to open the line for Q&A.

As a reminder to ask a question you will need to press star one one on your telephone and wait for your name to be announced to withdraw your question. Please press star one again.

Please standby, while we compile the Q&A roster.

Yes.

Our first question comes from the line of Cherylene Radbourne with TD Cowen.

Yes.

Sam I was hoping to pick up on something that you touched on in your commentary at the end there.

2023 felt like it was better for capital deployment versus recycling, but you've got both John.

And my sense is that you see 2020 for it being perhaps a bit more balanced in terms of the backdrop for.

Its deployment and recycling.

Is that how youre thinking about the year ahead or is the environment more favorable to one versus the other.

Hi, Cherilyn.

It's still early in the year so.

There is a little bit of speculation and what I'll say.

But I do think that.

Yes.

For the most part it will be balanced as you.

Suggest that you mentioned in your remarks, I think we are already seeing.

More activity and more transactions coming to the market and more investors.

Looking at various opportunities so that would suggest that.

There'll be more competitiveness and what we saw.

Back in 2023.

But having said that I think this is a gradual process and so.

There may still be a little bit more.

A leading towards buyers, having competitive strength and sellers, but I suspect by the end of the year.

It will have fully.

Balanced out.

Great.

Then my second question is with respect to the future growth potential.

Residential de Carbonization business can you give us a bit of color in terms of how many households that business touches overall and how many services you're selling on average per helpful versus the potential for I think up to six across rooftop solar.

EV Chargers et cetera.

Thank you we'll take them.

Yes Sheryl.

It's Ben Yeah, So just to remind everyone.

In our residential de carbonization business, we own a large footprint in Europe and in North American were effectively over time trying to build.

<unk> rate base of in home infrastructure assets.

Things like air conditioning units hot water heaters those types of things.

The business has.

Millions of clients today across both of those jurisdictions in fact, probably about <unk>.

<unk> thousand 14 million homes and the real effort in this is to convert.

All of those opportunities that we have across those 14 million homeowners into having in like I said or a rate base of in home.

Long term rental cash flow streams.

And so today.

Yeah.

Our rate base of several billion dollars in both North America, and Europe, and we're trying to convert and I'd say were Cherilyn. We are relatively early days so.

So the business is large in scale. It has today it probably has a larger funnel of opportunities.

And the real opportunity for us is to convert them all into into the rate based product.

Jeff.

Helpful color.

Our next question comes from the line of Robert Kwan with RBC capital markets.

Great Good morning.

If I can just start with some questions on capital recycling.

And maybe just drilling down into the whole acquisition and divestiture market. Sam previously you commented that smaller deal sizes.

We're still getting good valuations.

Or that the spread maybe had blown out versus the larger deals and then OECD.

Certainly same kind of spread widening versus emerging markets or let's say non OECD can you just comment on how thats evolved since you last the last quarter conference call.

Hi, Robert.

Look it's only been three months since the last call. So I wouldn't want to say that there has been dramatic changes in market conditions, but I do think that sentiment has moved probably quite a bit and people are gearing up.

But I don't I wouldnt be able to provide you.

A lot of specific data points, just yet because in the private market. It takes time for <unk>.

Activity to take place.

But just in conversations with others in the industry and just ourselves yet we know we are preparing a number of things.

For later in the year and so that's what that's what gives me confidence.

But obviously, it's subject to how things unfolded.

Economically in various countries.

I do see.

As far as.

At those two elements.

And and geographies.

Think it will broaden out I think larger deals will start to get done.

And Youll see bigger checks being written and we know just from our discussions with.

Various Lps.

A number of them just very recently have indicated that they have appetite to deploy very large checks.

<unk>.

And these check sizes would be upwards of $1 billion so that.

It's from one LP and that means that there is a lot more capital available than there probably was last year.

In addition, I do think that given what we're seeing in a number of emerging markets and look for us.

Emerging markets.

To be India, and Brazil, Yes, we just think the dynamics in those two markets are.

Quite good and we will see greater activity in those markets throughout the year and in the next couple of years.

Got it thank you.

Just staying on capital recycling and just so I understand that $2 billion target.

I guess, just first on the $550 million.

Financing down at the North American pipe Op Cos is that essentially just enough financing and I guess when you talk about reducing the equity check I assume that's to the buyer and that this debt is portable.

You decide.

As to sell it and then the other question is are you, including the $550 million of financing and then on NCS. You had this eminence dividend recapitalization is that in the $2 billion or the $2 billion kind of more just a straight asset monetization target.

That's a good question.

And.

It depends on the situation, but we tend to include it in situations, where we have put that in place that is portable and note two cases that is portable and.

Where the expectation is that.

We're likely selling the business within the next 24 months.

So it really is just pulling capital forward.

And as part of the distribution process of making our positioning the businesses to the marketplace.

Got it I guess just last can you give an update just as to how we're heartland is right now how it's operating and what your outlook is for 2024.

Yes, Robert.

Been here, yes, so at Heartland, we continue to achieve new successes and milestones with the running of the plant.

But there is still some work to be done.

At the pp and of the plants of the polypropylene and the plant is doing really well and exceeding our performance expectations. We still have some refinements to do on the PTH side in the feedstock side.

We'll be working on those through the rest of 2024, but overall, we're very pleased with the process and the plant is running.

Operator: Thank you. Good day, and thank you for standing by. Welcome to the Brookfield Infrastructure Partners' fourth quarter 2023 results conference call. At this time, all participants are in a listen-only mode.

Is there like a percentage utilization you could talk about.

Overall, I'd say that percentage utilization at somewhere in and around the 80% range, 80%. That's correct. Okay perfect. Thank you.

Operator: After the speaker's presentation, there will be a question and answer session. To ask a question during the session, you will need to press star 1 1 on your telephone. You will then hear an automated message advising that your hand is raised.

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

Operator: To withdraw your question, please press star 1 1 again. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your host today, David Grant, Chief Financial Officer. Please go ahead.

Hey, good morning.

I wanted to go back to one of the earlier questions on specifically on the MTS. So bad you mentioned a dividend recap at MTS is yet to be completed soon.

David Krantz: Thank you, Operator. Good morning, everyone. Welcome to Brookfield Infrastructure Partners' fourth quarter 2023 earnings conference call. As introduced, my name is David Krantz, and I am the Chief Financial Officer of Brookfield. I'm joined today by our Chief Executive Officer, Sam Pollock, and our Chief Operating Officer, Ben Vaughan. I'll begin the call today with a discussion of our 2023 financial and operating results, followed by some brief remarks on our access to capital and recent financing initiatives. I'll then turn the call over to Ben, who will discuss the merits of investing boldly during periods of capital scarcity. Finally, SAM will provide an update on our recent acquisitions and will conclude with an outlook for the business. 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. 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.

I believe you mentioned that the multiple of capital return policy. So far can you go to two four times I think it's a bigger number than we were expecting are you able to clarify how much capital is expected to recover.

That upcoming dividend recap and where that transaction.

But after leveraging MTS.

Yes, I'm happy to David Here, Hey, Devin.

Yes look I think it's.

MTF is you know as a reminder for everyone is fully contracted availability based regulated utility that underpins Brazil's natural gas market.

Today that the capital structure, we have in place is about one five turns of debt on a debt to EBITDA basis. So I would say significantly under levered relative to the earnings profile of this business.

We haven't finalized the dividend size, our recapitalization, but it wouldn't be it wouldn't be I would say overly wouldnt change the risk profile of the company and I think we'd be adding about a turn of debt to EBITDA. So.

David Krantz: 2023 was another successful year for Brookfield Infrastructure. We executed many of our strategic priorities across all areas of our business. Some of our key accomplishments include closing over $2 billion of new investment, generating $1.9 billion of total proceeds from capital recycling, obtaining a second investment grade credit rating, and maintaining our financial strength during a capital-constrained year. I'm also pleased to report that we started 2023 on a high note, with fourth quarter funds from operations of $0.79 per unit, a 10% increase over prior yearlines. Considering these strong results and favorable outlooks for 2024, the Board of Directors has approved a quarterly distribution increase of 6% to $1.62 per unit and share on an annualized basis. This marks the 15th consecutive year of distributions.

It would bring it back in line to where it was probably pretty the last two years of growth that we've experienced in the business. So it's really just right sizing the capital structure.

At the business.

Okay. Okay. Thanks, and then.

Maybe speaking to Brazil, moving too.

Tariffs so the Colo business.

There was an agreement with the local government a couple of weeks ago related to one of the concessions there.

Can you provide some context for that settlement of weather, whether it changes your view on the toll road sector in Brazil.

Yes, it's Ben here again, yes that settlement was that our terrorist toll road in Brazil that had been in the works for many years.

And we've been expecting this outcome. So I would say overall, we're glad to have this effect of rebalancing of that state road behind Us and I would just make the comment that the nature of these toll road assets is there is a relatively constant number of rebalancing that are going on with the regulator and in.

David Krantz: I'll now go through our annual results and discuss each of our business segments in more detail. Funds from operations total $2.3 billion, an increase of 10% compared to 2022. Organic growth for the year was 8%, reflecting strong levels of inflation in the countries where we operate, volume growth across the majority of our critical infrastructure networks, and the commissioning of approximately $1 billion of new capital projects that are now contributing to earnings. Taking a closer look at our results by segment, our utilities businesses generated SFO of $879 million compared to $739 million in the prior year. This represents a 19% increase.

Some cases, the governments and so this was part of that normal course, rebalancing and really.

I wouldn't say it hasnt really changed our view overall of the business.

Okay. Thank you I'll turn it over.

As a reminder, that is star one one to ask a question.

Our next question comes from the line of Frederic Bastien with Raymond James.

Okay.

David Krantz: This growth can be attributed to inflation and deflation, which benefited our results by approximately 6% and the contribution associated with approximately $500 million of capital commissioned into our wage base. Results also benefited from the strong initial performance at HomeServe, which we privatized in January of 2020. Moving to our transport segment, FFO was $888 million, representing a 12% increase compared to the $794 million generated in the prior year. These business results primarily benefited from inflationary tariff increases and higher volumes driven by strong economic activity around our network. In particular, our rail operations realized an average annual rate increase of 8%, and volumes were up 2% from the previous year.

Hi, good morning, everyone.

Good morning, good morning, Brad.

It looks like your most recent deal in India adds to the long list that that concern investments you've made over time.

Part of the reason why American towers is exiting ATC, India I understand.

As due to lower revenue per unit metrics on a challenging.

Regulatory environment, especially on the tax front.

What are you seeing differently in the business or industry that makes you want to actually increase your exposure to the sector.

Hey, Brad I'll take that one.

Look I think.

It's fair to say that.

Our our respective platforms are positioned differently in the market.

David Krantz: At our diversified terminals, rates and volumes benefited from strong demand for bulk goods and commodities that underpin the global economy, and finally, our full work portfolio realized annual traffic levels and sheriff increases of four and nine percent, respectively, compared to the prior year. Our results additionally benefited from the acquisition of Triton, our global intermodal logistics operation, which closed at the end of the third quarter and is performing ahead of expectations. Our Michigan segment FFO totaled $684 million for the year.

We had the benefit of coming in a bit later.

And having a very strong underlying tenant that.

Basically supported the the commercial framework of our business there.

Obviously, the strongest one by far.

And.

We're able to leverage the cost base that we have to make it more efficient both from an operations cost perspective, but also from a financial perspective.

David Krantz: Results were impacted by the sale of a third of our interest in a U.S. DAS pipeline in June of 2023, as well as the normalization of market-sensitive revenues at our diversified Canadian midstream business. The outlook for our midstream business remains strong, particularly as we continue to have success executing commercial agreements and increasing rates as a result of a lack of new investment in the sector. Lastly, FFO from our data segment was $275 million, an increase of 15% year-on-year.

And.

Yes.

As a matter of that.

Being able to tuck into our business.

Yes.

We're able to extract a lot more synergies out of it than they would have ever been able to because they would never been able to scale it up.

And or any new buyer could've done so we were kind of in a very unique position.

And.

Look we remain quite positive I think the benefit of this transaction is.

David Krantz: The increase is largely attributable to three large-scale acquisitions completed during the year. These included a European telecom tower operation in the first quarter, and two hyperscale data center platforms in the third and fourth quarters. Partially offsetting the contribution from these new investments was the failure of our New Zealand Integrated Data Distribution business, completed in the second quarter of 2023. The existing businesses performed well and continue to benefit from sector tailings and network densification requirements. The strong operational and financial performance I've just outlined was supported by our consistent access to capital, despite volatile market conditions throughout the year. Following several years of exceeding our new investment target, we are pleased to end the year with $2.8 billion in corporate liquidity. During the fourth quarter, central banks began to shift their monetary policy stance, which proved favorable for capital markets and allowed them to close the year on a very active basis.

It does add some additional.

Diversity and flexibility from an operations perspective.

It does bring to us some capabilities from a.

Bts perspective that.

We didn't have that we were somewhat reliant on our.

That's great color. Thanks, Tom I appreciate it.

Maybe one last one is I know.

Data has been a big focus of yours is it still the platform of the <unk>.

<unk> platforms. The operators is still the one that you expect to grow the fastest over the next three to five years.

Yes.

I think from a.

Overall perspective, I think thats.

Fair comment.

Within.

Various businesses, we have other businesses, particularly ones.

That are involved in decarbonization that BR.

Metering businesses, our demand side decompensation businesses.

David Krantz: In addition to proactively refinancing and extending debt maturities within our businesses, we recently completed opportunistic asset-level financing to right-size the capital structure at two mature pipeline operations in North America. Combined, these financings generated $550 million of capital for the partnership, and more importantly, reduced the equity required in a future sale of these pipelines. These activities, combined with the optimism we have seen in the return of the investment landscape, set us up well to achieve our $2 billion capital recycling target in 2020. That concludes my remarks this morning. I'll now turn the call over to Ben. Thanks, David. And good morning, everyone.

If you if that's the nature of your question that I think.

The.

<unk>.

The largest amount of new capital being deployed we'll be towards data versus the other three areas that we invested.

At least for the next little while.

Thanks, Tom I appreciate it okay. Thanks, guys Thats all I have.

Yes.

That concludes today's question and answer session I would like to turn the call back to Sam Pollock for closing remarks.

Alright, well, thank you operator that was quicker than usual, but.

I appreciate everyone's interest.

And and for having everyone joined the call. This morning, we hope you're all having a good start to the year and we look forward to giving you an.

Date on our first quarter results in May.

Ben Vaughan: I'm pleased to join today's call to discuss the merits of investing during periods of capital scarcity with a focus on two of our Brazilian utility assets. In 2023, the capital markets were volatile, and there was a scarcity of capital for even the highest quality companies. As a result, last year we capitalized on the opportunity to invest boldly in several large platform businesses to earn what we believe will be excellent risk-adjusted returns. And this reminds us of a period back in the 2015 to 2017 time frame when we made similar investments in Brazil. We leveraged our extensive operating history in the region to make two contrarian investments in high-quality utility assets during a period of economic and political uncertainty in the country.

Until then take care. Thank you.

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

Okay.

[music].

Okay.

Okay.

Yes.

[music].

Ben Vaughan: In 2016, we acquired the contractual rights to establish QUANTUM, which builds and operates electricity lines that connect renewable power generation assets to the national grid. This greenfield development platform is now comprised of over 5,300 kilometers of transmission. To mitigate construction risk, we entered into a partnership with a Spanish EPC company in a turnkey arrangement that mitigated construction risk and incentivized our partner to deliver projects on time and on budget while ensuring a highly visible return profile. Quantum's transmission lines are underpinned by 30-year concession agreements that generate stable revenues linked to inflation. And in 2022, we carved out and sold a portfolio of 2,400 kilometers of newly constructed lines for approximately $240 million net to fit, representing a realized return of 2.4 times our capital. We're now nearing completion of the remaining 2,900 kilometers of lines, with 180 kilometers still under construction.

Ben Vaughan: And we expect to complete construction during the first quarter of this year, which will position us to monetize a fully de-risked transmission utility that has a platform capable of participating in future government auctions for the build-out of the nation's electricity. Secondly, in 2017, we acquired NTS with 100% equity capital due to temporarily poor borrowing conditions. This deal involves a complex carve-out of more than 2,000 km of natural gas pipelines from Petrobras, which is Brazil's national champion energy company. During our ownership, we've realized significant value by executing efficient financing as market conditions in the country re-rated, and in addition, we transitioned the business from finite life contracts to a business that operates under a perpetual regulatory framework, creating enhanced terminal value. Today the business is 100% contracted on an availability basis with no volume exposure and full inflation indexation. However, revenues have grown at a 13% compound annual growth rate, which has led to a meaningful decline.

Ben Vaughan: In fact, we will have already realized a 2.4 times multiple of our initial investment following the completion of an imminent dividend recapitalization, while still owning our 31% interest in this perpetual regulation. We believe the business is the best platform in the Brazilian gas transport sector with strong growth potential over the next decade as gas plays an increasingly important role as a reliable transition. Unlike the 2015-2017 timeframe, the current environment in Brazil is highly supportive of new investment activities. The country has inflation under control, and interest rates have begun to decrease ahead of many other large global economies.

Ben Vaughan: So we're optimistic about the future of Brazil, as the country is strategically important on the global stage due to its natural competitive advantages with respect to several key commodities. And investors can participate in the country's required infrastructure build-out while enjoying its supportive regulatory frameworks that are afforded to its electricity and energy sectors. Our contrarian investment posture has served us well during our history and has allowed us to make some of our best investments during market dislocation. These investments in Brazil are expected to extend our track record of investing well above our 12-15% IRR target with anticipated IRRs of over 25%. Drawing parallels between the most recent investment cycle and this period of capital scarcity in Brazil provides conviction and optimism that our newest platform investments should deliver outsized returns. So thanks for your time this morning, and I'll now pass the call over to Sam. Thank you, Ben, and good morning, everyone.

Samuel J. B. Pollock: In my remarks today, I'm going to provide an update on our strategic initiative, and then I'll conclude with an outlook for the year ahead. As David Creston said in his opening remarks, it was another outsized year for new investments in 2023, where we deployed over $2 billion in pre-acquisition, including the Tate private acquisition of Triton, our global and commodal logistics operation. We also acquired two geographically diverse hyperscale data center platforms in support of our view that the digital economy will continue to grow exponentially from the industry-wide trail width created by the rollout of 5G and artificial intelligence. Our business continues to benefit from the digitalization investment team. In January, we completed an additional data center investment, acquiring 40 sites out of bankruptcy from Fixera.

Samuel J. B. Pollock: This multi-faceted transaction includes the acquisition of associated real estate underlying several of the sites and the contribution of 10 retail co-location sites that we already own. The newly created platform will be a leading retail co-location data center provider with over 330 megawatts of capacity deployed in high-demand areas across North America. The total purchase price of approximately $1.3 billion implies a 2024 EBITDA multiple of around 8 times, which was fully financed and did not require any new equity capital.

Samuel J. B. Pollock: Also in January, we announced the acquisition of ATC India in a transaction value of around $2 billion. The business consists of 78,000 child-cum-sites, and we'll be combining our existing tower business, Summit Digital. We have 175,000 towers in the country.

Samuel J. B. Pollock: The combined platform will be one of the largest tower platforms globally. ATC India will diversify our existing customer mix, provide a perpetual asset base, and deepen our strategic relationships with key mobile network operators in India. We believe we are acquiring the business at an attractive valuation of around six times 2024 EBITDA. Our equity contribution is expected to be approximately $150 million, and the transaction should close in the second half of the year. Now, looking ahead... We're already off to a good start this year.

Samuel J. B. Pollock: We anticipate that 2024 will be more constructive than 2023 for capital recycling while providing ample investment opportunities above our targeted return. In addition, we expect this year to offer an improved operating environment. One significant factor shaping our optimism for the upcoming year is the anticipated decline in interest rates. The downward trend in race, and market belief that race has peaked in many jurisdictions, is expected to have a positive impact on the cost of capital and asset valuation.

Operator: In turn, this should reduce capital scarcity and generate heightened interest in well-contracted and de-risked infrastructure supporting our capital recycling industry. Our global footprint will continue to be a competitive advantage, allowing us to arbitrage varying economic conditions to buy and sell assets for attractive valuations in the same market environment. Furthermore, we anticipate that our enterprise will be more constructive in the context of a falling rate environment. As interest rates recede, the attractiveness of dividend-paying equities tends to increase, potentially positioning our units for enhanced investment. We remain committed to delivering strong cash flow and income growth to unit holders, which we believe will contribute positively to the valuation of our units. That concludes my remarks. I'm going to pass it back to the operator to open the line for Q&A. As a reminder, to ask a question, you'll need to press star 1 1 on your telephone and wait for your name to be announced.

Cherilyn Radbourne: To withdraw your question, please press star 1 1 again. Please stand by while we compile the Q&A roster. Our first question comes from a line from Cherilyn Radbourne with TD Cowan. Thanks very much and good morning.

Samuel J. B. Pollock: Sam, I was hoping to pick up on something that you touched on in your commentary at the end there. 2023 felt like it was better for capital deployment versus recycling, but you got both done. And my sense is that you see 2024 as being perhaps a bit more balanced in terms of the backdrop for both deployment and recycling. Does that fit with how you're thinking about the year ahead? Or is the environment still more favorable to one versus the other?

Cherilyn Radbourne: Hi, Cherilyn. It's still early in the year, so there's a little bit of speculation in what I'll say, but I do think that, um, Thank you. For the most part, it will be balanced, as you suggest and that you mentioned your remarks. I think we are already seeing more activity and more transactions coming to the market and more investors looking at various opportunities. So that would suggest that there will be more competitiveness than what we saw back in 2020. You know, but having said that, I think this is a gradual process. And so, you know, there may still be a little bit more of a lean towards buyers having competitive strength than sellers, but I suspect by the end of the year, it will fully downsell. Great.

Samuel J. B. Pollock: And then my second question is with respect to the future growth potential of the residential decarbonization business. Can you give us a bit of color in terms of how many households that business touches overall and how many services you're selling on average per household versus the potential for, I think, up to six across rooftops, solar, heat pumps, et cetera? So just to remind everyone, in our residential decarbonization business, we own a large footprint in Europe and in North America, and we're effectively trying to build a meaningful rate base of in-home infrastructure assets over time. You know, things like air conditioning units, hot water heaters, those types of things.

Samuel J. B. Pollock: The business has millions of clients today across both of those jurisdictions, in fact, probably about 14 million homes, and the real effort in this is to convert all of those opportunities that we have across those 14 million homeowners into having, like I said, a rate base of in-home long-term rental cash flows. And so today, you know, we have a rate base of several billion dollars in both North America and Europe, and we're trying to convert, and I'd say we're, Cherilyn, relatively early days, so the business is large in scale. Today it probably has a larger funnel of opportunities, and the real opportunity for us is to convert them all into the rate base. That's my cue.

Robert Kwan: Thank you. Our next question comes from the line of Robert Kwan with RBC Capital Markets. Good morning.

Samuel J. B. Pollock: If I can just grab a few questions on capital recycling and maybe just drilling down into the whole acquisition and divestiture market. Sam, previously, you commented that smaller deal sizes are still getting good valuations or that the spread maybe has blown out versus the larger deals. And then OECD, certainly the same kind of spread widening versus emerging markets or, let's say, non-OECD. Can you give comments on how that has evolved since the last quarter? Hi Robert,

Samuel J. B. Pollock: You know, look, it's only been three months since the last call, so, you know, I wouldn't want to say that there's been, you know, dramatic changes in market conditions, but I do think that sentiment, you know, has moved, you know, probably, you know, quite a bit, and people aren't gearing up, but I don't, I wouldn't be able to provide you, you know, a lot of specific data points just yet because, you know, in the private market, it takes time for activity to take place, but, you know, just in conversations with others in the industry and just ourselves, you know, we know we are preparing a number of things for, you know, later in the year, and so that's what gives me my confidence. But obviously it's subject to how things unfold, economically in various ways.

Samuel J. B. Pollock: I do see... As far as those two elements, you know, size and geography, I think it will broaden out. I think larger deals will start to get done, and you'll see bigger checks being written, and we know that just from our discussions with various LPs. A number of them, just very recently, have indicated that they have an appetite to deploy very large tech, and, um... And these check sizes would be upwards of a billion dollars, so that's from 1 LB, and that means that there's a lot more capital available, and probably one guy.

Samuel J. B. Pollock: In addition, I do think that, you know, given what we're seeing in a number of emerging markets, look for us. Emerging markets tend to be India and Brazil. We just think the dynamics in those two markets are quite good, and we'll see greater activity in those markets throughout the year. Okay. Thank you.

Devin Dodge: Just staying on capital retail, just so I understand, it's a $2 billion target. I guess this first one, the $550 million financing down at the North American pipe offload, is that essentially just enough financing? And I guess when you talk about reducing the equity check, I assume that's the buyer and that this debt is portable, even if you decide to sell it.

Samuel J. B. Pollock: And then the other question is, are you including the $550 million of financing, and then on NPS, you have this imminent dividend recapitalization. Is that in the $2 billion, or is the $2 billion kind of more just a straight asset monetization target? That's a good question.

Samuel J. B. Pollock: And obviously, it depends on the situation, but we tend to include it in situations where we have put debt in place that is portable, and in those two cases, it is portable, and where the expectation is that we're likely selling the business, you know, within the next 24 months. And so it really is just pulling capital forth, and it's part of the distribution process of making, of positioning the businesses, you know, in the market. I got it. I guess just last, can you give an update as to where Heartland is right now, how it's operating, and what your outlook is kind of for 2024? Yeah, Robert, it's Ben here. Yeah, so at Heartland, you know, we continue to achieve new successes and milestones in the running of the plant, but there is still some work to be done. The PP end of the plant, so the polypropylene end of the plant, is doing really well and exceeding our performance expectations.

Ben Vaughan: We still have some refinements to do on the PH side and the feedstock side, and we'll be working on those through the rest of 2024. But overall, we're very pleased with the process, and the plant is running. Is there like a percentage utilization you could talk about? Overall, I'd say that percentage utilization is somewhere in and around 80%.

Ben Vaughan: That's right. Okay, perfect. Our next question comes from Devin Dodge with CMO Capital Markets. Hey, good morning. I want to go back to one of the earlier questions, specifically on NTS.

Devin Dodge: So, Ben, you mentioned a different recap on NTS, and it should be completed soon. I believe you mentioned that the multiple of capital returns so far should go to 2.4 times. I think that's a bigger number than we were expecting. Are you able to clarify how much capital debt is expected to recover from that upcoming recovery cap and where that transaction puts financial leverage on OTS? Yeah, I'm happy to—it's David here. Hey Devin.

David Krantz: Yeah, look, I think it's—NCS, as you know, is, as I remind everybody, is a fully contracted availability-based regulated utility that underpins Brazil's natural gas market. Today, the capital structure we have in place is about one-and-a-half turns of debt on a debt-to-EBITDA basis, so I'd say it is significantly underleveraged relative to the earnings profile of this business. We haven't finalized the dividend size or recapitalization, but it wouldn't be, I think, excessive—it wouldn't change the risk profile of the company.

David Krantz: I think we'd be adding about a turn of debt-to-EBITDA. So, again, it would bring it back in line to where it was probably before the last year's growth that we've experienced in the business. So, it's really just right-sizing the capital structure. Okay, okay. Thanks a lot.

Ben Vaughan: Okay, and then speaking to Brazil, moving to Paris, the total business. There was an agreement with the local government a couple of weeks ago related to one of the concessions there. Can you provide some context for that settlement and whether it changes your view on this whole growth sector in Brazil? Yeah, it's Ben here again. Yeah, that settlement was on our Ferris toll road in Brazil.

Ben Vaughan: That had been in the works for many years, and we've been expecting this outcome. So I'd say overall we're glad to have, you know, this effective rebalancing of that state road behind us. And I'd just make the comment that the nature of these toll road assets is that there is a relatively constant number of rebalancings that are going on with the regulator and, in some cases, the governments. And so this is part of that normal course rebalancing, and really, you know, I wouldn't say it hasn't really changed our view overall. Okay, thank you. I'll turn it over to you. As a reminder, that is Star 1 1 to ask a question. Our next question comes from the line of Frederic Bastien with Raymond James. Good morning, everyone. Marfa. Marfa.

Frederic Bastien: It looks like your most recent deal in India adds to the long list of contrarian investments you've made over time. Part of the reason why American Towers is exiting ATC India, I understand, is due to lower revenue per unit metrics and a challenging regulatory environment, especially on the tax front. What are you seeing differently in the business or industry that makes you want to actually increase your exposure to the sector? Hey, Fred.

Samuel J. B. Pollock: I'll take that one. Look, I think it's fair to say that our respective platforms are positioned differently in the market. We had the benefit of coming in a bit later and having very strong underlying tenets that basically... Robert Kuske, Ben Vaughan, Jeremy Rosenfield, Robert Kuske, Ben Vaughan, Jeremy Rosenfield, and It just is a matter of just being able to, you know, tap into our business, and we were able to extract a lot more synergies out of it than they would ever have been So we were kind of in a very unique position.

Samuel J. B. Pollock: And, you know, look, we remain quite positive. I think the benefit of this transaction is that it does add some additional diversity and flexibility from an operations perspective. It does bring to us some capabilities from a BGS perspective that we didn't have, that we were somewhat reliant on our partner there, and obviously, you know, the assets are perpetual, and we think the growth in data in India is still at the early stages, so you're having the dominant platform positions as well. That's great! Thanks, Sam. I appreciate it. And maybe one last one is, I know data has been a big focus of yours. Is it still one of the four platforms you operate? Is it still the one that you expect to grow the fastest over the next three to five years?

Samuel J. B. Pollock: I think, from an overall perspective, I think that's a fair comment. I think, you know, within..., you know, various businesses, we have other businesses, particularly ones that are involved in decarbonization, whether that be our..., meet room businesses or our demand-stack decarbonization businesses, where I also see tremendous growth within those classes. But if, you know, from a new investment perspective, if you, and that's the nature of your question, then I think, you know, the... The largest amount of new capital being deployed will be towards data versus the other three areas.

Samuel J. B. Pollock: Yeah, thanks, I appreciate it. Okay, thank you guys, that's all I have. That concludes today's question and answer session. I'd like to turn the call back to Sam Pollock for closing remarks. All right. Well, thank you, Akbar. That was quicker than usual, but I appreciate everyone's interest and for having everyone join the call this morning. We hope you all are having a good start to the year, and we look forward to giving you an update on our first quarter results in May. Until then, take care. This concludes today's conference call. Thank you for participating. You may now disconnect.