Q2 2024 Brookfield Infrastructure Corp Earnings Call
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Speaker Change: I would now like to hand, the conference over to David Grant Chief Financial Officer. Please go ahead.
Liz: I would now like to hand the conference over to David Krant, Chief Financial Officer. Please go ahead.
David Grant: Thank you Liz and good morning, everyone welcome to Brookfield infrastructure Partners' second quarter 2024 earnings Conference call.
David Krant: Thank you, Liz, and good morning, everyone. Welcome to Brookfield Infrastructure Partners' second quarter, 2024, earnings conference call. I introduce my name is David Krant, and I'm the Chief Financial Officer of Brookfield Infrastructure. I'm joined today by our Chief Executive Officer, Sam Pollock, and our Chief Operating Officer, Ben Vaughn. I'll begin the call today with a summary of our second quarter, 2024, financial operating results, followed by a discussion of our recent capital markets activities. I'll then turn the call over to Sam, who will provide an update on our strategic initiatives before concluding with an outlook for the business.
David Craig: As introduced my name is David Craig and I am the Chief financial Officer of Brookfield infrastructure.
Speaker Change: I'm joined today by our Chief Executive Officer, Sam Pollock, Our Chief operating Officer, Ben Vaughan.
Speaker Change: I'll begin the call today with a summary of our second quarter 2024, our financial and operating results followed by a discussion of our recent capital markets activities.
Speaker Change: I will then turn the call over to Sam who will provide an update on our strategic initiatives before concluding with our outlook for the business.
Speaker Change: 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.
David Krant: 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 and known risk factors, I would encourage you to review our annual report on Form 20-F, which is available on our website. During the second quarter, Brookfield Infrastructure generates strong financial and operating results, while also advancing our strategic initiatives. For the three-month ended June 30, 2024, we generated funds from operations, or SFO, of $608 million, an increase of 10 percent over the prior year period.
Speaker Change: For further information on known and known risk factors I would encourage you to review our annual report on form 20-F, which is available on our website.
Speaker Change: During the second quarter Brookfield infrastructure generate strong financial and operating results, while also advancing our strategic initiatives.
Speaker Change: For the three months ended June 32024, we generated funds from operations or <unk> of $608 million, an increase of 10% over the prior year period.
Speaker Change: Current quarter benefited from organic growth that was at the midpoint of our target range as well as recent acquisitions that significantly contributed to the results.
David Krant: The current corridor benefited from organic growth that was at the midpoint of our target range, as well as recent acquisitions that significantly contributed to results. This included a continuation of the strong performance at our global intermodal logistic operation, higher contributions from our increased stake in a Brazilian integrated rail and logistics provider, and three data center platform investments. These positive drivers were partially upset by the impact of capital recycling, higher interest costs, and the impact of foreign exchange. Looking at a result by offer and segment, starting with the utilities, we generated SFO of $180 million, compared to $224 million in the same period last year.
Speaker Change: This included a continuation of the strong performance at our global intermodal logistics operation higher contributions from our increased stake in our Brazilian integrated rail and logistics provider and three data center platform investments.
Speaker Change: These positive drivers were partially offset by the impact of capital recycling higher interest costs and the impact of foreign exchange.
Speaker Change: Looking at our results by operating segment, starting with the utilities, we generated <unk> of $180 million compared to $224 million in the same period last year.
Speaker Change: The decline is due to capital recycling activity, including the sale of our interest in an Australian regulated utility business and additional interest costs associated with the financing completed at our Brazilian regulated gas transmission business during the first quarter.
David Krant: The decline is due to capital recycling activity, including the sale of our interest in an Australian regulated utility business, and additional interest costs associated with the financing completed at our Brazilian regulated gas transmission business during the first quarter. After removing these impacts, the base business grew organically as a result of inflation indexation, and the contribution associated with $450 million of capital commissioned into the rate base over the last 12 months. Moving to our transport segment, SFO was $319 million, representing a 60 percent increase over the same period in the prior year. The increase is primarily attributable to our acquisition of a global intermodal logistic operation, which continues to perform ahead of expectations.
Speaker Change: After removing these impacts the base business grew organically as a result of inflation indexation and the contribution associated with $450 million of capital commissioned into the rate base over the last 12 months.
Speaker Change: Moving to our transport segment.
Speaker Change: <unk> was $319 million, representing a 60% increase over the same period in the prior year.
Speaker Change: The increase was primarily attributable to our acquisition of a global intermodal logistics operation, which continues to perform ahead of expectations as well as the incremental stake in our Brazilian integrated rail and logistics operation that delivered strong performance this quarter of tariffs increased by more than 15%.
David Krant: As well as the incremental stake in our Brazilian integrated rail and logistic operation, it delivered strong performances quarter as tariffs increased by more than 15 percent. The reigning businesses also performed well, achieving organic growth of 9 percent, which is primarily driven by inflationary tariff increases across the portfolio.
Speaker Change: The remaining businesses also performed well achieving organic growth of 9%, which was primarily driven by inflationary tariff increases increases across the portfolio.
Our midstream midstream segment generated <unk> of $143 million, which is ahead of the prior year after excluding the impact of capital recycling.
David Krant: Group. Our midstream segment generated FFO of $143 million, which is ahead of the prior year after excluding the impact of capital recycling. Strong demand and customer activity levels continue to benefit results, most prevalent at our North American gas storage business, where we continue to add contracturation at higher rates compared to prior years. The unprecedented growth in North American power demand has created further opportunities for our critical midstream assets. During the quarter, our businesses capitalized on the favorable market environment by securing several accretive commercial agreements and both on capital projects to meet growing customer demand. Lastly, FFO from our data segment was $78 million, representing an 8% increase over the same period last year.
Speaker Change: Strong demand and customer activity levels continued to benefit results most prevalent at our North American gas storage business, where we continue to add contract duration at higher rates compared to the prior years.
Speaker Change: The unprecedented growth in North American power demand has created further opportunities for our critical midstream assets during.
Speaker Change: During the quarter, our businesses capitalize on this favorable market environment by securing several accretive commercial agreements and bolt on capital projects to meet growing customer demand.
Speaker Change: Lastly, <unk> from our data segment was $78 million, representing an 8% increase over the same period last year.
Speaker Change: This result reflects the contribution from recently completed acquisitions, including the purchase of 40 retail co location sites and to Mark key Hyperscale data center platforms.
David Krant: This result reflects the contribution from recently completed acquisitions, including the purchase of 40 retail co-location sites and two marquee hyper scale data center platforms. Across our global data center platform overall, we continue to see strong momentum in leasing activity on the tail of artificial intelligent investment and our customers' need for more processing and storage capacity.
Speaker Change: Across our global data center platform overall, we continue to see strong momentum in leasing activity on the tail of artificial intelligent investments in our customers' need for more processing and storage capacity.
Speaker Change: Moving on from our financial and operating performance.
David Krant: Moving on from our financial and operating performance, I would now like to highlight some of our recent capital market activity. In addition to replenishing our investment pipeline and progressing our asset sale plans, which Sam will speak to soon, our primary focus is quarter with capitalizing on very attractive debt capital markets to further de-risk our asset level balance sheets. Within our businesses, we completed approximately $5 billion of non-recourse financing during the quarter, and our activity can be broadly bucketed into three categories. The first category is right sizing capital structures. As our businesses grow their underlying cash flows, we can raise additional debt while preserving the existing capital structure.
Speaker Change: I would now like to highlight some of our recent capital markets activity.
Speaker Change: In addition to replenishing, our investment pipeline and progressing our asset sale plan, which Sam will speak too soon our primary focus this quarter with capitalizing on very attractive debt capital markets to further de risk our asset level balance sheets.
Sam Pollock: Within our businesses, we completed approximately 5 billion of non recourse financings during the quarter and our activity can be broadly bucket it into three categories.
Sam Pollock: The first category is right sizing capital structures.
Sam Pollock: As our businesses grow their underlying cash flows we can raise additional debt while preserving the existing capital structure.
Sam Pollock: In the last nine months, we've generated approximately $1 4 billion of proceeds of which $1 1 billion reflects capital recycling activity.
David Krant: In the last nine months, we've generated approximately $1.4 billion of proceeds, of which $1.1 billion reflects capital recycling activity. This is in specific instances where we are within 24 months of an expected sale, and the new capital structure allows us to reduce the equity required by a future buyer and pull forward future sale proceeds. The second category is maturity extensions. We have proactively refinanced 3.4 billion in maturities occurring over the next several years. Across these transactions, the combined average rate increase was only 50 basis points. The benefit of pushing out maturity is greatly outweighs the modest increase in finance and costs, which is also more than offset by the inflationary revenue increases we've experienced over the last several years.
Sam Pollock: This is in specific instances, where we are within 24 months of unexpected sale and the new capital structure allows us to reduce the equity required by a future buyer and pull forward future sale proceeds.
Sam Pollock: The second category is maturity extensions, we have proactively refinanced $3 4 billion in maturities occurring over the next several years across these transactions. The combined average rate increase was only 50 basis points the benefit of pushing out maturities greatly outweighs the modest increase in financing cost which is also more.
Sam Pollock: Offset by the inflationary revenue increases we've experienced over the last several years.
Sam Pollock: A great example of where we were able to achieve a term extension and an attractive price was at our western Canadian natural gas gathering and processing operation and.
David Krant: A great example of where we were able to achieve a term extension and a tract of price was at our western Canadian natural gas gathering and processing operation. In July, we completed a $720 million dollar eight-year bond issuance, with proceeds used to repay a 2026 maturity. The newly issued bonds allowed us to fully de-risk the maturity profile and extend the average duration of debt outstanding by two years. In addition, the new bonds were priced very competitively at a coupon in line with the debt being refinanced. The third and final category is opportunistic repricings. We took advantage of a strong spread environment and completed approximately $1 billion of loan repricings across three of our businesses during the second quarter.
Sam Pollock: In July we completed a $720 million eight year bond issuance with the proceeds used to repay a 2026 maturity.
Sam Pollock: The newly issued bonds allowed us to fully derisked, the maturity profile and extend the average duration of debt outstanding by two years and.
Sam Pollock: In addition, the new bonds were priced at a very competitive very competitively at a coupon in line with the debt being refinanced.
The third and final category is opportunistic repricing, we took advantage of the strong spread environment and completed approximately $1 billion of loan repricing across three of our businesses during the second quarter.
Sam Pollock: These activities reduced our cost of financing by over $7 million annually net to bip.
David Krant: These activities reduce our cost of financing by over $7 million annually net to bid. These repricing transactions are a unique feature of the floating rate loan market and allow the issuer to reduce the credit spread of a previously issued loan, while keeping the existing capital structure in place. Our balance sheet position was strong to begin the year and has been further bolstered by this activity. Over the next 12 months, only 1% of our asset level debt is matured, and we have no corporate maturities until 2027. In addition, we maintain significant corporate liquidity of $1.9 billion and remain well positioned to support growth initiatives.
Sam Pollock: These repricing transactions are a unique feature of our floating rate loan market and allow the issuer to reduce the credit spread of our previously issued loan while keeping the existing capital structure in place.
Sam Pollock: Our balance sheet position was strong to begin the year and has been further bolstered by this activity over the next 12 months only 1% of our asset level debt has matured and we have no corporate maturities until 2027.
Sam Pollock: In addition, we maintained significant corporate liquidity of $1 9 billion and remain well positioned to support growth initiatives.
Sam Pollock: That concludes my remarks for this morning, I'll now turn the call over to Sam.
David Krant: That concludes my remarks for this morning.
Sam Pollock: I'll now turn the call over to Sam. Thank you, David, 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 a business outlook. In relation to our strategic initiatives, both public and private infrastructure deal flow has been a little slower start the year. However, one of the benefits of our business is that we have many avenues to deploy capital. In periods where large-scale M&A activities lower, we focus heavily on tuck-in and organic growth opportunities embedded in our portfolio. In 2024 alone, we secured or completed seven follow-on acquisitions comprising nearly $4 billion of enterprise value.
Sam Pollock: Thank you David and good morning, everyone.
Sam Pollock: My remarks today I'm going to provide an update on our strategic initiatives and then I'll conclude with our business outlook.
Sam Pollock: In relation to our strategic initiatives, both public and private infrastructure deal flow has been low slower start the year.
However, one of the benefits of our business is that we have many avenues to deploy capital.
Sam Pollock: In periods, where large scale M&A activity is lower we focus heavily on tuck in and organic growth opportunities embedded in our portfolio.
Sam Pollock: In 2024 loans, we secure completed seven follow on acquisitions, comprising nearly $4 billion of enterprise value.
Sam Pollock: Most significantly.
Sam Pollock: We were able to complete the acquisition of 40 datacenter sites due to a previous owners mismanaging their capital structure and ending up in bankruptcy.
Sam Pollock: Most significantly, we were able to complete the acquisition of 40 data center sites due to a previous owner's mismanaging, their capital structure, and ending up in bankruptcy. The quarter also included the follow-on acquisition of a 10% stake in our Brazilian integrated rail and the report's statistics business. In early in the year, we signed the bolt-on acquisition of a tower portfolio in India, which remains on track to close early in the fourth quarter or sooner. We also maintain a large project backlog, which is increased by 15% from this time last year to approximately $7.7 billion. In the mainstream sector, we were supporting increased producer activity through contracted facility and pipeline expansions.
Sam Pollock: The quarter also include the follow on acquisition of a 10% stake in our Brazilian integrated rail ports logistic business and.
Sam Pollock: And earlier in the year, we signed the bolt on acquisition of a tower portfolio in India, which remains on track to close early in the fourth quarter or sooner.
Sam Pollock: We also maintain a large project backlog, which has increased by 15% from this time last year to approximately 777 billion.
In the midstream sector, we are supporting increased producer activity through contracted facility and pipeline expansions.
Sam Pollock: In total these projects represent almost $800 million in capital, which will generate over $140 million in EBITDA and will fully contribute to result over the next two years.
Sam Pollock: In total, these projects represent almost $800 million in capital, which will generate over $140 million in EBITDA and will fully contribute to results over the next two years. In our data segment, we are commercializing our existing land bank and investing over $1 billion in near-term growth capital to build data centers for our hyper-scale customers. In addition, we are supporting their growth ambitions through strategic land acquisitions in Athens, Chicago, Frankfurt, Milan, and Phoenix. With respect to new investments, market conditions are trending positively. As a result, we expect a back half of 2024 to be active for M&A.
In our data segment, we are commercializing our existing land bank and investing over $1 billion in near term growth capital to build data centers for our hyperscale customers.
Sam Pollock: In addition, we.
We're supporting their growth ambitions through strategic land acquisitions, and Athens, Chicago Frankfurt Milan in Phoenix.
Sam Pollock: With respect to new investments.
Sam Pollock: Market conditions are trending positively.
Sam Pollock: As a result, we expect the back half of 2020 for it to be active for M&A.
Sam Pollock: Much of this is driven by the improved interest rate environment as the bank of Canada, and the European Central Bank are leading the way with the loosening of their monetary policies.
Sam Pollock: Much of this is driven by the improved interest rate environment as the Bank of Canada and the European Central Bank are leading the way with the loosening of their monetary policies. Additionally, the large industry tailwinds such as AI are creating opportunities for well-capitalized businesses like ours, where we are an obvious partner of choice for technology companies that are seeking alternative access to private capital. Our novel transaction with Intel several years ago is providing the blueprint for similar large scale opportunities, which are gaining momentum. In relation to capital recycling, we are extremely active and have three advanced processes in a number of areas.
Sam Pollock: Additionally, the large industry tailwind such as AI are creating opportunities for well capitalized businesses like ours, where we are in the obvious partner of choice for technology companies that are seeking alternative access to private capital.
Sam Pollock: Our novel transaction with Intel and several years ago has provided the blueprint for similar large scale opportunities, which are gaining momentum.
Sam Pollock: In relation to capital recycling we.
Sam Pollock: We're extremely active and have three advanced processes in a number of areas.
Sam Pollock: We have six further asset sales progressing that are expected to generate almost $2 5 billion in proceeds when combined with our three advanced processes.
Sam Pollock: We have six further asset sales progressing that are expected to generate almost 2.5 billion in proceeds, with combined with our three advanced processes. This quarter, we monetized assets totaling approximately $210 million, bringing our total capital recycling for the year to about $1.4 billion. In terms of our business outlook, recent market developments have provided an encouraging backdrop. Equal indices have reached historic highs, as I previously mentioned. G7 nations have initiated monetary easing measures that should reinvigorate large-scale mining activity. Our strong alignment with the global mega trends offers an exciting and under-appreciated growth opportunity for our business.
Sam Pollock: This quarter, we monetize assets totaling approximately $210 million, bringing our total capital recycling for the year to about $1 4 billion.
Sam Pollock: In terms of our business outlook.
Sam Pollock: Recent market developments and provide an encouraging backdrop.
Sam Pollock: Equity indices have reached historic highs.
Sam Pollock: Previously mentioned G. Seven nations have initiated monetary easing measures that should reinvigorate large scale M&A activity.
Sam Pollock: Our strong alignment with the global Mega trends offers an exciting and underappreciated growth opportunity for our business.
Sam Pollock: Several years ago, we coined the term the three DS, which namely digitalization decarbonization and de globalization to describe these themes.
Sam Pollock: Several years ago, we coined the term 3D's, which namely, dislization, decarbonization, and deactivization to describe these themes. While our business spans all three, we are particularly significantly levered towards digitalization and decarbonization. We are in active discussions with several blue chip technology companies that are interested in leveraging virtual infrastructure's market-leading scale and expertise. The tailwinds created from AI adoption supports exponential growth in our global data center platforms that serve as a large-type of scalers, as well as our electric utilities and natural gas infrastructure. Although we've been very active pursuing growth through both on acquisitions and organic capital projects during the past few quarters, we are experiencing significant improvement in our business to achieve our 2024 capital recycling and deployment targets.
Sam Pollock: While our business spans all three.
Sam Pollock: We are particularly significantly levered towards digitalization and de carbonization.
Sam Pollock: We are in active discussions with several blue chip technology companies that are interested in leveraging Brookfield infrastructure's market, leading scale and expertise.
Sam Pollock: The tailwind created from AI adoption support exponential growth in our global data center platforms that service the large hyperscale.
Sam Pollock: As well as our electric utilities and natural gas infrastructure.
Sam Pollock: Although we've been very active pursuing growth through bolt on acquisitions and organic capital projects during the past few quarters.
Sam Pollock: We are experiencing significant improvement in our business to achieve our 2020 for capital recycling and deployment targets.
Sam Pollock: Strict adherence to our financial guard rails has resulted in a strong balance sheet and liquidity position with tremendous access to large scale capital.
Sam Pollock: It's a quick adherence to our financial car rails as resulted in a strong balance sheet and liquidity position, with tremendous access to large-scale capital. This combined connectivity into global transaction activity and our ability to move quickly should continue to create attractive investment opportunities for our business.
Sam Pollock: This combined with our connectivity into global transaction activity and our ability to move quickly should continue to create attractive investment opportunities for our business.
Sam Pollock: This concludes my remarks, and I'll now pass it over to Liz for some Q&A.
Liz: This concludes my remarks, and I'll pass it over to Liz for some Q&A. As a reminder, if you'd like to ask a question at this time, please press star-1-1 on your touch-tone telephone and wait for your name to be announced. To withdraw your question, please press star-1-1 again. Please stand by while we compile the Q&A roster.
Liz: As a reminder, if you'd like to ask a question at this time. Please press star one one on your Touchtone telephone and wait for your name to be announced to withdraw your question. Please press star one again.
Speaker Change: Please standby, while we compile the Q&A roster.
Speaker Change: Our first question will come from the line of Cherilyn Radbourne with TD Cowen.
Sheryl Radborne: Our first question will come from the line of Sheryl and Radborne with Judy Cowan. Thanks very much, and good morning. I wanted to pick up on the comments in the letter regarding capital deployment opportunities tied to AI across data, utility, and midstream.
Cherilyn Radbourne: Thanks, very much and good morning.
Cherilyn Radbourne: I wanted to pick up on the comment in the letter regarding capital deployment opportunity tied to AI.
Speaker Change: Data utility and midstream I think the opportunity and data are fairly self explanatory, but maybe you could spend some time to add color on where youre seeing leverage.
Sam Pollock: I think the opportunities in data are fairly self-explanatory, but maybe you could spend some time to add color on where you're seeing leverage in utilities and natural gas vectors. I guess the term that's probably going to get coined in the next little while will be AI infrastructure, and that will be the whole ecosystem around building large scale AI data centers. And that will include not only data centers themselves but also the equipment that goes inside them, as well as the power, the transmission, you know, that will support those facilities. And obviously, you know, the power side is large; you're going to be served by companies like Bepp, you know, who have many relationships with the hyperscale is already.
Speaker Change: In the utility and natural gas sectors.
Speaker Change: Okay.
Cherilyn Radbourne: Okay. Thanks, Thanks Cherilyn.
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Yes.
Cherilyn Radbourne: I guess the.
Cherilyn Radbourne: The term, that's probably going to get coins in the next little while we'll be AI infrastructure and that will be the whole ecosystem around.
Cherilyn Radbourne: Building large scale AI.
Cherilyn Radbourne: AI data centers and that will include not only the data centers themselves, but also.
Cherilyn Radbourne: The equipment that goes inside them as.
Cherilyn Radbourne: As well as the.
Cherilyn Radbourne: Power the transmission that will.
Cherilyn Radbourne: Support those facilities.
Speaker Change: And obviously the power side, it's largely going to be served by companies like <unk>, who have many relationships with the hyperscale is already but.
Speaker Change: In addition to.
Sam Pollock: But in addition to building a power facility, you also have to connect to the build the transformers and connect to the grid. And so a lot of our businesses are tied to that type of activity. And in addition to that, I think it's recognized that renewables probably can't be built quick enough to surface all the power needs that will be available for these large, you know, gigawatt size data centers that are being talked about. And so natural gas, in our view, as well as possibly nuclear, but in the short term will be natural gas, you know, will need to be utilized to provide the power.
Speaker Change: Building a power facility you also have to connected to build the transformers and.
Connected to the grid and so a lot of our businesses are.
Are tied to that type of activity.
Speaker Change: In addition to that.
Speaker Change: I think it's recognized that.
Speaker Change: Renewables, probably can't be built quick enough to.
Speaker Change: Surface all the power needs that will be available for these.
Speaker Change: Large.
Speaker Change: Gigawatt sized data centers that are being talked about and so natural gas.
Speaker Change: And our view as well as possibly nuclear but in the short term it will be natural gas.
Speaker Change: We will need to be utilized to provide the power and so thats, creating.
Sam Pollock: And so that's creating, you know, opportunities for us to invest across our natural gas complex to facilitate the movement of gas and storage of gas, you know, to, you know, to serve that whole ecosystem. So it's probably a little bit more complicated to get into a breach type of situation, but I would just say that all our natural gas complexes are in this discussion with a number of hyperscalers.
Opportunities for us too.
Speaker Change: Invest across our natural gas complex to facilitate the movement of gas and storage of gas to.
Speaker Change: To serve that whole ecosystem.
Speaker Change: It's probably a little bit more complicated to get into it for each type of situation, but.
Speaker Change: I would just say that all our natural gas complex is or in this discussion with a number of hyperscale.
Speaker Change: Okay. That's helpful.
Speaker Change: And then on the opportunity.
Sam Pollock: Okay, that's helpful. And then on the opportunities that are progressing based on the Intel blueprint, can you talk about how much capital you have the appetite and capacity to deploy to those opportunities and just what some of the guardrails are in negotiating that type of deal. Sure. So, as far as amount of capital, I'd say, you know, given the interest we have from our global P base to participate in those types of deals, I think it's unlimited. I think we could source, you know, tens of billions of dollars for similar type transactions, you know, whether it's for chip facilities or, you know, to provide the capital to go inside, as I mentioned, a lot of these future AI data centers.
Speaker Change: And based on the Intel Blueprint can you talk about how much capital you have the appetite and capacity to deploy some of those opportunities and just some of the guard rails are in negotiating that deal.
Speaker Change: Sure so as.
As far as.
Speaker Change: Amount of capital I'd say, given the interest we have from.
Speaker Change: Our global LP base to participate in those types of deals I think it's.
Speaker Change: Unlimited.
Speaker Change: I think we could.
Speaker Change: Source tens of billions of dollars for.
Speaker Change: Similar type transactions, whether it's.
Speaker Change: Four.
Speaker Change: Chip facilities or.
Speaker Change: To provide the capital to go inside as I mentioned a lot of these.
Future AI data centers.
Speaker Change: As far as I think.
Sam Pollock: As far as I think, I think, structure wise, or what's some of the limiting factors, probably the most important one will be the counter party that we need to have stand behind a lot of the commercial elements of the transaction. So Intel was obviously a very strong credit for that particular situation. I think any of the hyperscalers or some of the other large chip manufacturers would be great counter parties as well. In some cases, it may be governments as governments are now stepping into this area. So I think the opportunity set is huge, and we expect to be a leader in this area.
Speaker Change: Structure wise or what some of the limiting factors.
Speaker Change: Probably the most important one will be the counter party that we need to have stand behind a lot of the commercial elements of the transaction. So Intel was.
Speaker Change: Obviously, a very strong credit for that particular situation.
Speaker Change: Yes, I think any of the hyperscale or some of the other large chip manufacturers would be great counterparties as well in some cases it may be governments as governments are now stepping into this area. So I think.
Speaker Change: The opportunity set is huge and we expect to be a leader in this area.
Speaker Change: And if I could tack on one quick follow on are all of those technologies in the technology space.
Sam Pollock: And if I could check on one quick follow-on, are all of those technologies in the technology space, or is there anything that will be analogous outside of tech? So that's a very good question.
Speaker Change: Is there anything that would be analogous outside attack.
Speaker Change:
Speaker Change: So.
Speaker Change: So it's a very good question.
Speaker Change: Yes, I think the.
Sam Pollock: You know, I think the structure that we have come up with, elements of it are being used in areas that relate to hydrogen and other decarbonization type of facilities that are large. Some of those will be done by our sister company, but some also touch us, and to extend that, it relates to industrial gases. So I would say the type of approach that we use for Intel does have many opportunities outside of just AI technology; batteries being another area where I guess we've got a lot of conversations.
Speaker Change: The structure that we have come up with.
Elements of it are being used.
Speaker Change: In.
In areas that relate to.
Speaker Change: Hydrogen and other de carbonization type of facilities that are large.
Speaker Change: Some of those that will be done.
Speaker Change: By our sister company, but some also touch us into the extent that it relates to industrial gases.
Speaker Change: I would say.
Speaker Change: <unk>.
Speaker Change: Type of approach that we used for.
Speaker Change: Intel does have many.
Speaker Change: Opportunities outside of just.
Speaker Change: AI technology batteries being another area, where I guess, we've had lots of conversations.
Speaker Change: That's all for me. Thank you okay. Thank you.
Sheryl Radborne: That's all from me. Thank you. Okay.
Speaker Change: Sure.
Our next question will come from the line of Robert Kwan with RBC capital markets.
Robert Kwan: Thank you. Our next question will come from the line of Robert Kwan with RBC Capital Markets. Thank you.
Thank you good morning, if I can just kind of a follow on to start with.
Robert Kwan: Good morning. If I can just follow on, start with the comments around similar deals like the Intel deal and what you're seeing out of your private investors and that demand, can you just talk about having gone through the Intel and getting feedback from kind of the publicly and the investors and the public funds, just the thoughts on whether you think that the de-risking you've done on something like that is being appreciated versus the relatively low return out of that deal and then especially just the multi-year or just the lag between capital out the door before it shows up in cash flow and just how you would expect that to participate in any of these types of deals going forward.
Speaker Change: The comments around.
Robert Kwan: Similar deals like the Intel deal on what Youre seeing out of your private investors in that demand can you just talk about having gone through.
Robert Kwan: The Intel and getting feedback from.
Robert Kwan: Kind of a publicly.
Robert Kwan: And the investors in the public funds.
Speaker Change: The thoughts on whether you think that the derisking you've done on something like that is being appreciated versus the relatively low return out of that deal and then, especially just some multiyear or it's just a lag between capital out the door before it shows up in cash flow and just how you would expect to participate in any of these types of deals.
Speaker Change: Going forward.
Robert Kwan: Hey, Robert.
Robert Kwan: <unk>.
Sam Pollock: Hey Robert. that could be a long conversation because you touched on a lot of elements there so I'll try to keep it somewhat free but obviously there is a different level of patience for lack of a better expression between private investors and public investors who are maybe more a big quarter quarter and so you know it's easier for us to do those type of transactions, those long lead development type deals in private funds and obviously that's a little bit the rationale behind the you know the private equity industry. however, you know I think the benefit of Brookfield infrastructure is the fact that we are a large diversified business and so you know we have many businesses at all stages of maturity you know and so we have lots of businesses that are generating significant amount of cash flow and then we have these platform businesses that we talked about in the past that generate high IRRs of the long run but maybe a little less cash flow in a short run and so our investors for BIP for instance you know get the benefit of that will you know sweet of assets and I think that's very attractive. I appreciate you know it would be great if everything we could buy would be generating cash flow day one but then again you know I think our returns would be lower you know I think to get the higher returns that people want we need to have some of these businesses that have a bit of a growth wedge to them. I think in the Intel transaction in the end we're going to find that's going to be a very high returning opportunity the situation today though is the you know we still have a couple years to wait before you know we should see the benefits of that but you know I think hopefully you know having the long history that we do you know our shareholders are generally patients and like the dividend growth that we have and you know we'll you know have the same sort of patients that many of our private fund investors do so I rise at the long-winded answer I apologize for it but it was a little bit tough to to tackle all the things you mentioned.
Robert Kwan: So look I think.
Robert Kwan: But that could be a long conversation because you touched on a lot of elements there.
Speaker Change: I'll try to keep it somewhat brief but.
Speaker Change: Obviously, there is a.
Speaker Change: At a different level up patients for lack of a better expression between private investors.
Speaker Change: In public investors, who are maybe more a bit quarter to quarter.
Speaker Change: And so.
It's easier for us to do those type of transactions those long lead development type deals and private funds.
Speaker Change: And obviously, that's the rationale behind.
Speaker Change:
Speaker Change: The private equity industry.
Speaker Change: However, I think the benefit of Brookfield infrastructure is the fact that we are a large diversified business and so we have many businesses.
Speaker Change: All stages of.
Speaker Change:
Speaker Change: Maturity and so we have lots of businesses that are generating significant amounts of cash flow and then we have these platform businesses that we've talked about in the past that generate.
Speaker Change: Hi.
Speaker Change: High IRR over the long run, but maybe a little less cash flow in the short run.
And so our.
Speaker Change: Investors for <unk> for instance, get the benefit of the Apple.
Speaker Change: Suite of assets and I think thats very attractive I appreciate.
Speaker Change: It would be great. If everything we could buy would be generating cash flow day, one, but then again.
Speaker Change: Our returns would be lower.
Speaker Change: I think to get the higher returns that people want we need to have some of these businesses that have a bit of a growth wedge to them I think in the Intel transaction in the end, we're going to find that is going to be very high returning opportunity.
Speaker Change: The <unk>.
Speaker Change: Our situation today, though is.
Speaker Change: Yes, we still have a couple of years to wait before we truly see the benefits of that but.
Speaker Change: I think hopefully.
<unk> the long history that we do.
Our shareholders are generally patient and like.
Speaker Change: I like the dividend growth that we have in.
Speaker Change: You'll have the same sort of patients that many of our <unk>.
Speaker Change: Abbott fund investors do it.
It's a long winded answer I apologize for it.
Speaker Change: But it was a little bit tough to.
Speaker Change: All the things you mentioned.
No I appreciate that color was a multifaceted question.
Sam Pollock: Yeah, yeah, I appreciate that the color is a multifaceted question. Just if I can turn to your comment and the letters around the M&A market heating up, and there's both sides of it, so I'll try to touch on both. But just some thoughts on how the up to two and a half billion dollars of asset sale proceeds you might intend to use that. Do you would you expect that fully back into acquisitions? Would you look to maybe create some dry powder by paying down some of the old co-lines? Or even on the other side, would you expect acquisition activity to exceed the two and a half billion dollar sugar?
Speaker Change: Just if I can turn to your comment in the letter just around the M&A market heating up and there is both sides of it so I'll try to touch on both.
Just some thoughts on how the up to $2 $5 billion of asset sale proceeds you might intend to use that do you would you expect that fully back into acquisitions would you look to maybe create some dry powder by paying down some of the holdco lines or even on the other side would you expect acquisition activity to exceed the two and a half billion dollar figure.
Speaker Change: Uh huh.
Speaker Change: Again so.
Sam Pollock: Again, so you know, it's a little difficult to look into the crystal ball as to, you know, exactly, you know, what the proceeds could be. I think today we feel confident about two and a half, but it could be more, you know, in relation to some of the whole co-facilities. Obviously, to the extent that they're related to those asset sales, and most of them are, they would just be paid off when and go with the asset.
Yes, it's a little difficult to look into the crystal ball as to.
Speaker Change:
Speaker Change: Exactly what the proceeds could be.
Speaker Change: I think today, we feel confident about two and a half but it could be more.
In relation to some of the Holdco facilities, obviously to the extent that they are related to those asset sales and most of them are they would just be paid off and go with the asset.
Speaker Change: Yeah.
Speaker Change: The we don't have too many other holdco facilities and the structure I'd say.
Sam Pollock: You know a, and we don't have too many other hotel facilities in the structure, I'd say. And, you know, the intention, as always, is to redeploy that into higher earning investments. So I think to continue the cycle of buying high quality assets with returns in the, you know, plus or minus 15% range, you know, we've done a little better in the last couple of years, but maybe that trend back down a little bit, you know, as rates come down, but in that range historically, and then, you know, add value, invest in them, you know, fix them up and then sell them, you know, at returns, probably closer to 10, 11%.
Speaker Change: And.
Speaker Change: <unk>.
The the intention as always is.
Speaker Change: Is to redeploy that into higher earning.
Speaker Change: Investments, so I think to continue the cycle of Vale.
Speaker Change: Buying high quality assets with returns in the plus or minus 15% range, we've done a little better in the last couple of years.
Speaker Change: But maybe that trend back down a little bit.
Speaker Change: <unk>.
Speaker Change: Come down but in that range historically and then.
Speaker Change: Add value invest in them fix them up and then sell them at returns probably closer to 10 or 11%.
Speaker Change: No.
Speaker Change: We'll continue to do that.
Sam Pollock: So we'll continue to do that.
Speaker Change: Got it and if I can just finish like what geographies and for sub classes are you seeing as having the strongest evaluations for the divestiture side, and then just where you're seeing the more attractive valuations on the acquisition side.
Sam Pollock: In fact, just finished, like, what geography is an in-front subclasses, are you seeing is having the strongest valuations so for the investiture side and just where you seeing the more attractive valuations on the acquisition side? So, this will sound a bit like a broken record. I think the, on the opportunity side, you know, we've seen them everywhere. We have a pretty balanced pipeline across AsiaPak. AsiaPak was where I think we had the most advanced deals earlier in the year, and probably some of those got pushed a little bit, but we think they're still coming, and it gives us a lot of confidence about some of the activity we have for later in the year.
Speaker Change: So.
Speaker Change: This will sound a bit like a broken record I think the on the opportunity side, we see them everywhere, we have a pretty balanced.
Speaker Change: Yes.
Speaker Change: Our pipeline across Asia Pac Asia Pac is where I think we had the most advanced deals earlier in the year and probably some of those got pushed a little bit, but we think there.
Speaker Change: We are still coming in.
Speaker Change: It gives us a lot of confidence about some of the activity we have for later in the year.
Speaker Change: But the pipelines in North America, and Europe definitely.
Sam Pollock: But the pipelines in North America and Europe have definitely filled up as well. So I think we're seeing good opportunities there. We're probably maybe less active in South America, but, you know, that's a market that I think we're seeing, particularly in Brazil, some good improvements in sentiment, and so I think there could be more activity there as well.
Speaker Change: Filled up as well so I think we're seeing good opportunities there were probably.
Speaker Change: May be less active in South America.
Speaker Change: But that's a market that I think that we're seeing.
Speaker Change: Particularly in Brazil, some good.
Speaker Change: Improvements in sentiment and so I think there could be more activity there as well.
Speaker Change: And on the sell side.
Sam Pollock: And on the sort of sell side, look, you know, the deepest market will always be the US market; that goes without saying, and then after that, probably Europe. So I don't think, unfortunately, I don't have any real shockers for you there. It's the same as usual. Okay. Appreciate it. Thank you very much.
Speaker Change:
Speaker Change: Look.
Speaker Change: Yes.
Speaker Change: The deepest market will always be the U S market that goes without saying.
Speaker Change:
Speaker Change: And.
Speaker Change: And then after that probably.
Speaker Change: Europe.
No.
Speaker Change: Unfortunately don't have any real.
Speaker Change: Shockers for you there it's the same as usual.
Speaker Change: Okay I appreciate it thank you very much.
Speaker Change: Okay. Thank you.
Liz: Thank you. As a reminder, if you'd like to ask a question at this time, please press star 1-1 on your touchdown telephone.
Speaker Change: As a reminder, if you'd like to ask a question at this time. Please press star one one on your Touchtone telephone.
Speaker Change: Our next question will come from the line of Devin Dodge with BMO capital markets.
Devon Dodge: Our next question will come from the line of Devon Dodge with BMO Capital Markets. Thank you. Good morning. There seems to be a bit more M&A activity lately in the mystery sector. You're a well-known contrarian investor. Just wondering if you're, or we should expect you to be leading into that increased demand. Pretty types of assets and, you know, whether we could see one or more of your mature investments sold in the near term. And maybe just, and if the answer is yes, just what types of assets within this streamer are getting the most potential, or most interest from potential buyers?
Devin Dodge: Alright, Thank you good morning.
Devin Dodge: There seems to be a bit more M&A activity lately in the midstream sector Youre well known controlling investor I'm. Just wondering if we should expect you to be leading into that increased demand for these types of assets.
Whether we could see one or more of your mature investments sold in the near term and maybe just and if the answer is yes, just what types of assets with a midstream are giving the most potential most interest from potential buyers.
Devin Dodge: So.
Speaker Change: I would concur I think the midstream sector.
Sam Pollock: So, I would concur. I think the midstream sector is a very interesting place. A lot of buyers have returned there over the last couple of years. And it's been, from an operational perspective, you know, one of our best segments for sure for the last while. And we first see that to continue for the, for definitely the medium term, short and medium term. You know, we see lots of opportunities. I'd say, you know, today we've got businesses across a number of geographies. And so a lot of the, let's call it M&A slash deployment, is being done through those platforms. And so, you know, we are looking for, you know, new investments as well, but I would say much of it is being done at that subsidiary level.
Speaker Change: It's a very interesting place a lot of lot of buyers have returned there over the last couple of years.
Speaker Change: <unk>.
Speaker Change: It's been from an operational perspective.
Speaker Change: One of our best segment for sure for the last while and we foresee that to continue for the.
Speaker Change: But definitely the medium term.
Speaker Change: Short and medium term.
Speaker Change:
Speaker Change: We see lots of.
Speaker Change: Opportunities I'd say today, we've got businesses.
Speaker Change:
Speaker Change: A number of geographies.
Speaker Change: And so.
Speaker Change: A lot of the let's call it M&A slash.
Speaker Change: Deployment is being done through those platforms and so we are looking for.
Speaker Change: New investments as well, but.
Speaker Change: I would say much of it is being done.
At the subsidiary level.
The deployment is significantly high.
Sam Pollock: And the deployment is significantly high. And I think we'll take advantage of all those opportunities.
Speaker Change: And.
Speaker Change: And I think we will take advantage of all those and those opportunities.
Speaker Change: As far as capital recycling.
Sam Pollock: You know, as far as, you know, capital recycling, you know, we look across our businesses, you know, the one that, you know, I think we've talked about in the past that it's probably the most mature. We've done a lot to it. And I think is incredibly well positioned as our natural gas storage business. That may be one that, you know, we look to bring in partners or, or sell down pieces of; it's doing exceptionally well. I think it's well recognized today as being critical, particularly in a number of markets for balancing loads, particularly related to LNG.
Speaker Change: Look across our businesses.
Speaker Change: The one that.
Speaker Change: I think we've talked about in the past that.
Speaker Change: It is probably the most mature we've done a lot to it and I think as <unk>.
Speaker Change: Credibly well positioned as our natural gas storage business that may be one that we.
Speaker Change: We look to bring in partners or.
Speaker Change: Or sell down a piece of that.
Speaker Change: It's doing exceptionally well.
I think it's well recognized.
Speaker Change: Today as being critical.
Speaker Change: Particularly a number of markets for balancing.
Speaker Change: Loads, particularly related to LNG.
Speaker Change: And.
Speaker Change: If I think of one of.
Devon Dodge: And that, you know, if I think of one of our best positioned assets today, it probably has to be that asset. Okay. Make sense. Thanks for that.
Our best positioned assets today, it probably has to be that asset.
Speaker Change: Okay, Okay makes sense thanks for that.
Speaker Change: And then data centers.
Devon Dodge: And then data centers, there was a discussion in the letter about it.
Speaker Change: There was some discussion in the letter about it I'm just wondering if you could provide a bit of an update on the development pipeline and when we could start to see that self funding strategy start to ramp up.
Sam Pollock: Just wondering if you could provide, you know, a bit of an update on the development pipeline. And when could we start to see that self-funding strategy start to ramp up. Okay. On the development side, I think we've gotten a lot of information earlier on the call, just on new areas we've gone into to add to our land bank. And today, we're just building out the existing facilities that are contracted. And for those relatively few pieces of land that where we have power, we're very close to having those under contract as well. And, and, you know, it takes this.
Speaker Change: Okay.
Speaker Change: <unk>.
Speaker Change: Development side, I think we've gotten a lot of.
Speaker Change: Okay.
Speaker Change: The information earlier on the call just on <unk>.
Two areas, we've gone into to add to our land bank and.
Speaker Change: Yes.
Speaker Change: Today, we're just building out.
Speaker Change: The existing facilities that are <unk>.
Speaker Change: Contracted and for those relatively few.
A piece of land that where we have power.
Speaker Change: We're very close to having those under.
Under contract as well in the existing.
Speaker Change: Whether it's South America.
Sam Pollock: and whether it's South America, you know, in Brazil and Chile, in the US, you know, in Phoenix and Chicago. You know, we've got obviously Europe, Germany, France, and Spain, as well as Greece. All of them are active at the moment, and then, you know, we've got activities going on in Chennai and Mumbai in India, and then Korea and New Zealand and Australia. So, you know, literally, you know, I'm not probably missed a few places. So, we've got a lot of things going on in all those areas. Every one of those places has construction activity underway.
Speaker Change: In Brazil and Chile.
In the U S and Phoenix and Chicago.
Speaker Change: We've got obviously Europe, Germany.
Speaker Change: France and Spain.
Speaker Change: In Spain, as well as Greece all of them are active at the moment and then.
Speaker Change: We've got activities going on in the.
Speaker Change: Chennai and Mumbai.
Speaker Change: In India, and then Korea, and New Zealand and Australia. So.
Speaker Change: Literally.
Speaker Change: And I probably missed a few places so we've we've got a lot of things going on in all those areas every one of those places has construction activity underway.
Speaker Change: As far as the.
Sam Pollock: You know, as far as the capital recycling, you know, we are well advanced on a number of situations. I think, you know, the goal here is to, you know, not only do one-off, so we will do some one-off transactions, but in addition to that, to have something that's probably more programmatic, where we have a series of investors who will look to, you know, have, you know, repeatedly by completed properties. And so those initiatives are underway. We're quite encouraged. Obviously, we have the benefit of being able to take advantage of our several thousand, you know, a number of clients across the world, and data centers are attracted to many of them.
Speaker Change: Capital recycling.
Speaker Change:
Speaker Change: We are.
Speaker Change: Well advanced on a number of situations.
Speaker Change:
Speaker Change: I think.
Speaker Change: The goal here is to.
Speaker Change: Not only do one offs, which we will do some one off transactions, but in addition to that to have something that's probably more programmatic, where we have a series of investors who will look to.
Speaker Change: Yes.
Repeatedly by completed.
Speaker Change: Completed properties.
Speaker Change: And so those initiatives are underway.
Speaker Change: We're quite encouraged obviously, we had the benefit of being able to take advantage of our.
Speaker Change: Several thousand.
Speaker Change: Uh huh.
Speaker Change: A number of clients across the world and.
Speaker Change: And data centers are attractive to many of them today, a lot of them don't have them in their portfolio and they're looking to get exposure.
Devon Dodge: Today, a lot of them don't have them in their portfolio, and they're looking to get exposure. So, I'd say stay tuned. Hopefully, next quarter, we'll have some more updates. And if not, next quarter, definitely, the quarter after that. Okay, good color. I appreciate it.
Speaker Change: I would say.
Speaker Change: Stay tuned hopefully next quarter, we'll have some more updates.
Speaker Change: And if not next quarter definitely in the quarter after that.
Speaker Change: Okay. Good color I appreciate it I'll turn it over.
Liz: I'll turn it over.
Speaker Change: That concludes today's question and answer session.
Liz: That concludes today's question-and-answer session.
Speaker Change: I'd like to turn the call back to Sam Pollock for closing remarks.
Sam Pollock: I'd like to turn the call back to Sam Pollock for closing remarks. All right. Thank you. Thank you, Liz. I appreciate your help.
Sam Pollock: Alright. Thank you. Thank you list and we appreciate your help and thank you to everyone for joining the call. This morning.
Sam Pollock: And thank you to everyone for joining the call this morning. We hope everyone’s summer has been going well, and we look forward to providing an even more detailed update that our upcoming annual investor day event, which will be held in Toronto on September 24th. So thank you again, and take care.
We hope everyone summer has been going well and we look forward to providing.
Sam Pollock: I need a more detailed update at our upcoming annual Investor day event, which will be held in Toronto on September 24th.
Sam Pollock: So thank you again and.
Sam Pollock: Take care.
Speaker Change: This concludes today's conference call. Thank you for participating you may now disconnect.
Operator: This concludes today's conference call. Thank you for participating. You may now disconnect.