Q3 2024 Brookfield Infrastructure Partners LP Earnings Call
and the next episode.
Speaker Change: Good day and welcome to the Brookfield Infrastructure Partners Q3 2020 for results conference call on webcast.
At this time, all participants are an illicit only move.
After the Speaker 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.
To withdraw your question, 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 speaker, Mr. David Krant, Chief Financial Officer. Please go ahead, sir.
David Krant: Thank you, Cherie, and good morning, everyone. Welcome to Brookfield Infrastructure Partners' third quarter 2024 earnings conference call. As introduced, my name is David Krant, and I am the Chief Financial Officer of Brookfield Infrastructure.
I'm joined today by our Chief Executive Officer, Sam Pollock, and also with us today is Dave Joint, a Managing Partner and Head of Transport Investing across our business, for the Q&A portion of the call.
I'll begin the call today with a summary of our third quarter 2024 results, followed by a discussion of our capital markets activity and strong financial position.
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.
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 latest annual report on Form 20-F, which is available on our website.
Brookfield Infrastructure is pleased to report strong financial and operating results while advancing many of our strategic initiatives this quarter.
Speaker Change: Our focus was on advancing a record capital backlog, delivering on our capital recycling objectives, which Sam will speak to next, and executing our capital market strategy.
Speaker Change: Beginning with our financial operating results, we generated funds from operations or FFO of $599 million during the third quarter, which is 7% above the comparable period.
Speaker Change: We experienced strong contributions from new investments completed last year and the initial contribution from three accretive Tuckton acquisitions that closed this year.
We also benefited from organic growth at the midpoint of our target range, capturing annual rate increases from inflation, stronger transportation volumes, and the commissioning of over $1 billion from our capital backlog.
Speaker Change: Results were partially offset by the impact of higher borrowing costs and foreign exchange, most notably the depreciation of the Brazilian Rei this period.
Speaker Change: Taking a closer look at our results by segment, our utility segment generated FFO of $188 million, an increase of 9% on a comparable basis.
Speaker Change: In total, the amount was higher last year as we sold our interest in an Australian regulated utility business and completed a recapitalization at our Brazilian regulated transmission business in the first quarter.
Speaker Change: Organic growth for this segment was driven by the continued benefit of inflation indexation and the commissioning of approximately $450 million of capital into our rate base over the last 12 months.
Speaker Change: Moving to our transport segment, FFO was $308 million, representing a 50% increase over the same period in the prior year.
Speaker Change: The increase is primarily attributable to the acquisition of our global intermodal logistics operation that closed last year and an incremental 10% stake in our Brazilian integrated rail and port logistics operation that was completed earlier this year.
Speaker Change: The remaining businesses performed well. The strong volumes across our networks and average rate increases of 7% across our rail networks and 5% across our toll road portfolio.
Speaker Change: Our midstream segment generated FFO of $147 million, compared to $163 million in the same period last year.
Speaker Change: The decline is primarily attributable to capital recycling activities completed last year at our U.S. gas pipeline and higher interest costs across the portfolio from new financing initiatives.
Speaker Change: The underlying businesses are performing well in the current environment, following continued demand for long-term services across our critical midstream assets, particularly at our North American gas storage business.
Speaker Change: Lastly, FFO from our data segment was $85 million, representing a 29% increase over the same period last year.
Speaker Change: This increase is attributable to strong underlying performance and several new investments completed over the last 12 months.
Speaker Change: The most impactful this quarter was the tuck and acquisition of a portfolio of retail co-location data centers completed earlier this year.
Speaker Change: Our global data center platform continues to execute its development plan to drive growth, with an additional 70 megawatts commissioned during the quarter, bringing our total installed capacity to over 900 megawatts.
Speaker Change: In July, our European hyperscale data center platform successfully commissioned 10 megawatts in Milan and is progressing on the build-out of an additional 80 megawatts of capacity to be delivered next year across a number of key European markets.
Speaker Change: In the U.S., we commissioned 50 megawatts of capacity on scope, schedule, and budget, and leasing activity remains very strong.
Speaker Change: Stepping back and looking at our operations as a whole, we are excited about the $8 billion backlog of organic growth projects embedded within our business.
Speaker Change: Our existing platform spans many of the sectors directly benefiting from the tailwinds created by artificial intelligence and associated power demand, including our natural gas and midstream infrastructure to our data center, fiber, and telecom platforms.
Speaker Change: We have seen this translate into a 20% increase in our backlog in the last 12 months, while providing very attractive project level returns at or above our target range.
Speaker Change: We additionally have a shadow backlog of over $4 billion in incremental organic growth opportunities that represent projects we are advancing but have not yet reached final investment decision.
Speaker Change: Now, before turning it over to Sam, I would like to spend a few minutes providing an update on some of our recent capital markets activity.
Speaker Change: We completed $3 billion of non-recourse financings during the quarter, with the goal of efficiently financing our business, extending maturities, and reducing our cost of capital.
Speaker Change: To highlight a few examples, first, at our North American Hyperscale Data Center platform, we continue to access capital markets as the first AAA-rated data center ABS issuer, raising $370 million in the quarter.
Speaker Change: The business has raised $1.1 billion of total proceeds this year that enable us to continue to build out our backlog of hyperscale data centers at attractive pricing.
Speaker Change: At our U.S. Retail Coalocation Data Center business, we completed an inaugural $900 million ABS issuance in early October, with proceeds used to partially repay our acquisition financing.
Speaker Change: The financing helps term out nearly half of our acquisition bridge for six years and reduces the company's annual interest expense by approximately $20 million.
Speaker Change: And the last example I will highlight is at our Western Canadian National Gathering and Processing operation, where we successfully completed a repricing of an $800 million term loan that reduced credit spreads by 25 basis points.
Speaker Change: We continue to maintain a conservatively capitalized balance sheet with no corporate maturities until 2027 and only 1% of our asset level debt maturing over the next 12 months.
Speaker Change: We ended the quarter with $4.6 billion of total liquidity, which includes $1.6 billion at the corporate level and over $1.4 billion of cash across our businesses, which positions us well to pursue both our organic and inorganic growth opportunities.
Speaker Change: That concludes my remarks for the morning, and I'll now pass the call over to Sam.
Sam Pollock: Thank you, David, and good morning, everyone.
Sam Pollock: For my remarks today, I'll provide an update on our transaction activity and conclude with a business outlook.
Sam Pollock: Now, beginning with new investments.
Sam Pollock: Please report that we closed the acquisition of 76,000 Indian telecom tower sites mid-September.
Sam Pollock: We are now the largest telecom tower operator in India and the second largest globally with over 250,000 tower sites.
Speaker Change: This acquisition increases our tendencies from the country's second and third largest mobile network operators, while offering significant operating synergies.
Speaker Change: The scale and benefits of the combined platform were all achieved at a value-based entry point of below six times EBITDA.
Speaker Change: Our total equity commitment was approximately $140 million and we expect the business to generate a strong going in FFO yield.
Speaker Change: Concurrent with the acquisition, we completed a rebranding of the business to a name called Altius, which brings together the three acquisitions we've made in Indian telecommunications space.
Speaker Change: Now, during the quarter, we secured approximately $600 million of capital recycling proceeds.
Speaker Change: for a total of approximately $2 billion for the year.
Speaker Change: As a result, we have successfully achieved our capital recycling target.
Speaker Change: Most recently, we agreed on terms to sell our Mexican-regulated natural gas transmission business for net proceeds of approximately $125 million for BIP, crystallizing an IRR of around 22% and a multiple capital of about 2.2 times.
Speaker Change: The sale is expected to close in the first quarter of 2025.
Speaker Change: We also completed the recapitalization of our North American Gas Storage Platform.
Speaker Change: raising $1.25 billion that enabled a $305 million distribution net to BIP in advance of the sales process.
Speaker Change: This financing alone returned more capital than we had initially invested and increased the investment's realized multiple capital to approximately 2.5 times.
Speaker Change: This is an extremely attractive result given we still own a business that generates approximately $330 million in annual EBITDA.
Speaker Change: In terms of our business outlook, the economic backdrop for infrastructure investing has improved significantly, broadly speaking, with short-term interest rates moving lower, inflationary pressures easing, and liquidity steadily returning to institutional investors.
Speaker Change: These developments bode well for a business strategy.
Speaker Change: We are confident they will create an even more favorable landscape for both asset sales and new investments.
Speaker Change: Now, starting first with acid cells.
Speaker Change: We are seeing elevated demand for high quality infrastructure assets.
Speaker Change: In the next two years, we expect to generate $5 billion to $6 billion of proceeds from capital recycling initiatives.
Speaker Change: to crystallize the value we've created within our mature and de-risked companies.
Speaker Change: These asset sales are expected to generate returns well above our targets.
Speaker Change: From a deployment perspective, the outlook for our business is strong.
Speaker Change: Our growth profile continues to accelerate, focused around the decarbonization and digitalization investment themes.
Speaker Change: We're also seeing more opportunities for value creation within our existing business and our new investments pipeline, which is as big as it's been in two years, and it continues to grow.
Speaker Change: With our unparalleled access to scale capital, we expect to put significant capital to work as we seek to expand our partner-of-choice reputation.
Speaker Change: Now, this year has been notable for the number of elections, including a very significant one yesterday in the United States.
Speaker Change: While election outcomes can result in policy changes,
Speaker Change: We believe that we are largely insulated from volatility due to the quality of the countries we invest in and our focus in areas of the economy that garner broad political support.
Speaker Change: We often characterize BIP as the investment for all seasons and cycles, because independent of these election outcomes or economic cycles or the direction of interest rates, Brickville infrastructure provides investors an attractive mix of downside protection and upside growth potential that outpaces many of our pure play sector peers.
Speaker Change: We believe this is more relevant today than it has ever been.
Speaker Change: Our business is resilient due to the high degree of long-term contracted and regulated cash flow with significant protection from inflation.
Speaker Change: The business is also more diversified than at any point during our history.
Speaker Change: This combination gives us the confidence to believe that our portfolio can immediately increase cash flows in the years ahead.
Speaker Change: That now concludes my remarks, so I'll pass it over to Sherry to open the line for questions.
Speaker Change: Thank you. As a reminder, to ask a question, please press star 11 on your telephone and wait for your name to be announced. To withdraw your question, press star 11 again. One moment while we compile the Q&A roster.
Sherry: And our first question will come from the line of Cherilyn Radborn with TD Cowan. Your line is open.
Cherilyn Radborn: Thanks very much and good morning.
Cherilyn Radborn: First question is on data and AI broadly.
Cherilyn Radborn: On the BAM call earlier this week, there was some discussion about using the unique nuclear capability within the Brookfield ecosystem to advance the collective opportunity to support AI.
Cherilyn Radborn: Now, I assume that SMRs are not contemplated in your current backlog, but I'm curious whether that's becoming a feature of your discussions with the large hyperscalers.
Speaker Change: Hi, Sherilyn. Thanks for your question.
Speaker Change: Yeah, maybe to...
Speaker Change: To put a fine point to it, I think everyone recognizes that
Speaker Change: You know SMRs and nuclear energy are going to play an important
Speaker Change: role in the long term.
Speaker Change: But I think in the short term, it's not really part of any...
Speaker Change: solutions that we're talking about. At the moment, you know, the focus is still, you know, largely on renewable options as well as, I'd say, natural gas potential in various parts of the U.S.
Speaker Change: and Cannes in particular.
Speaker Change: Okay, that makes sense.
Speaker Change: And then switching to the residential decarbonization business.
Speaker Change: It looks like you made some nice drives in the UK and Europe during the quarter.
Speaker Change: And I'm curious if there are good synergies available to managing the North American and European businesses together.
Speaker Change: or the residential markets in each geography at different phases with respect to decarbonization such that it would make sense to think of the two geographies as separate businesses each with, you know, attractive attributes in their own right.
Speaker Change: Okay, well, maybe I'll take that question and then...
Speaker Change: One or two Dave's might want to jump in if they have anything to add.
Speaker Change: I guess...
Speaker Change: For the most part, our philosophy is that we are believers in decentralization.
Speaker Change: and as a result, we tend to allow each region to operate on its own and make decisions that make sense for its particular market.
Speaker Change: And so, you know, whether even just in Europe, our businesses largely run autonomously, you know, whether it's in France, the UK, or Germany, or Spain for that matter. We have operations in each of those countries. And in North America here, the Canadian business runs separately from the U.S. business.
Speaker Change: What we do do, though, is we have a lot of communication between the various groups.
Speaker Change: where we look for best practices, we try to share technology.
Speaker Change: Regents, but we have accountability at the local level with CEOs in each of the countries.
Speaker Change: That's all from me. Thank you. Thank you, Cheryl. Thank you. One moment for our next question.
Speaker Change: And that will come from the line of Maurice Choi with RBC Capital Markets. Your line is open.
Maurice Choi: Thank you and good morning everyone. Maybe if I could start with a comment you made earlier about the number of elections this year and how election outcomes can result in policy changes.
Speaker Change: So, we obviously have quite a number of these elections done, including yesterday. Thoughts on what outcomes and potential policy shifts across all the countries you look at, not just the U.S., that may act as a tailwind or headwind for your assets?
Speaker Change: you know, the UK and the US, you know, where there's been changes. So in some of the other countries, like India, there hasn't really been a change.
Speaker Change: views or eagerness to deploy capital across those elements of the economy and any new government. I'd say this is a focus.
Speaker Change: for the Republicans as well as it was for the Democrats. It's a focus for Labour as it was for the Conservatives in the UK.
Speaker Change: And it's a big focus down in Brazil as well. So obviously that trend doesn't change. You know, there's probably a bit more nuances as it relates to decarbonization.
Speaker Change: I'd probably leave it to our renewables colleagues to touch on it in greater detail, but what they would tell you is that even though the tone may not be quite as strong across various
Speaker Change: parties, the reality on the ground is that most decisions aren't being made at the corporate level or at the state level and those things won't change with new governments.
Speaker Change: Benjamin Vaughan. Thank you. Thank you. Thank you.
Speaker Change: I think the only other comment I'd make, so in general, I guess just what you should take from that, is we don't see any meaningful change in the direction of those macro trends, which we think are as strong as ever in each of those countries.
Speaker Change: I think the only thing that...
Speaker Change: you might see now is, you know, in some countries, like the UK, I think they will have a big focus on growth.
Speaker Change: and we'll take steps to try to get the economy moving again.
Speaker Change: In the U.S., you know, I guess we'll have to wait and see some of the decisions that we've made. But there may, given that the economy is running pretty strong right now, there's probably not going to be as much of a stimulus impact in the near term.
Speaker Change: Thanks, Artikala, and maybe very much related to that in terms of asking where you see the best risk-adjusted returns when you approach acquisitions, obviously recognizing that the current environment, there can be both a buyer's market and a seller's market depending on where you're shopping.
Speaker Change: Yeah, the...
Speaker Change: Look, I think the place where we see the most...
Speaker Change: capital being deployed and our business as I've probably said many times on this call and at investor meetings you know very much follows the flow of capital.
Speaker Change: The greatest investment going on outside of China, which we don't really invest in right now, is in the U.S. We see huge amounts of
Speaker Change: of dollars going to all parts of the economy and that's creating great opportunities for us. And so I have to say today the U.S. is still probably the most interesting place for us.
Speaker Change: You know, I'd say second to that.
Speaker Change: Just to pick another place, you know, we often talk about Korea as being a very interesting market and we see some very interesting opportunities there. Again, for a lot of the same dynamics, there seems to be a very large capital investment trend going on in the country.
Speaker Change: and I think, you know, where there's a need for capital, that's usually, you know, an opportunity for it to be, to get incentivized returns.
Speaker Change: Thank you.
Speaker Change: Thank you very much for that.
Speaker Change: Okay, thank you.
Speaker Change: Thank you. One moment for our next question.
Speaker Change: And that will come from the line of Devin Dodge with BMO Capital Markets. Your line is open.
Devin Dodge: All right, thanks. Good morning. I wanted to start with the India Telecom Tower business. With the American Tower deal completed, just wondering if there are complexities with holding a mix of leased and owned sites, and is there an impact to the exit strategies available?
Speaker Change: Hey Devin, thanks for the question. This is Dave Joyne. I'm filling in for Ben this week.
Speaker Change: I think there's no inherent complexity to having owned sites and leased sites into a single portfolio. I think the nice thing about the tuck-in here is it now gives us...
Speaker Change: even greater development capability that we can build up and continue to add a lot of terminal value to the business over time.
Speaker Change: But, look, as the leases come up on the existing portfolio, we'll be working to, you know, extend those, you know, on terms that make sense. And to Sam's comment about putting them into a, you know, a single vehicle with rebranding, we think has a lot of benefits as well.
Speaker Change: Okay, makes sense. And just wondering if you could provide a bit more color on the potential synergies, like where they're going to be coming from and how meaningful they could be.
Speaker Change: Bye. Bye. Bye.
Speaker Change: I think what I would say is the...
Speaker Change: The logical area of Synergy, which I sort of already alluded to, is having the development platform kind of within the business itself. And obviously with scale, from a...
Speaker Change: you know, an SG&A perspective, I think that makes a big difference. I would say our thesis of the transaction was not premised on the realization of hard-to-get synergies.
Speaker Change: It was a value opportunity, you know, so we feel like we've acquired these at extremely deep value and that's where really the value creation is coming from. And there will be some O&M opportunities by combining the two, you know, businesses.
Speaker Change: to Reliance and then having this business, there will be some overlap where sites are near each other, be able to leverage whatever business has the cheaper opportunity to manage those sites.
Speaker Change: HPC has been performing better in recent months. I think the Q3 was the best performance to date that we've seen there.
Speaker Change: As you look ahead, and this business continues to demonstrate stability, is BIP the best owner of this asset over the medium to long term, or do you expect to monetize?
Speaker Change: Some or all of it to a more strategic buyer.
Speaker Change: You know, we know that commissioning, you know, these assets takes a little bit of time. And so, as you note, I think we've made great progress, but the focus for us at the moment is on continuing to sort of...
Speaker Change: stabilize it, get it running at the levels that we want to, you know, up to the capacity of the plants themselves.
Speaker Change: The position of the asset itself has never been a question. It's in a great location with great access to low-cost feedstock.
Speaker Change: but right now we're focused on kind of managing the asset as opposed to thinking about something on a long-term basis.
Speaker Change: Well look, as you note, obviously there would be a lot of institutional logic for a strategic to own some or all of the assets at some point in time.
Speaker Change: Okay, thanks for that. I'll turn it over.
Speaker Change: and Samuel Pollock, Benjamin Vaughan, Samuel Pollock, Samuel Pollock, Samuel Pollock, Samuel
Speaker Change: Thank you. One moment for our next question.
Speaker Change: And that will come from the line of Robert Cattelier with CIBC Capital Markets. Your line is open.
Robert Cattelier: Hey, good morning everyone. I'd like to go back to the nuclear topic here because I think it's timely. Can you clarify your interest in investing in nuclear assets, please, and is it even possible in BIP or are these opportunities limited to other funds and listed entities?
Speaker Change: Hi, Robert.
Speaker Change: Well, I can't predict exactly the nature of what that investment would look like. More likely than not, it would be done through our transition fund and also through BEP. So it's unlikely it would be a BEP investment.
Speaker Change: Right.
Speaker Change: Just on the macro picture, as you alluded to in your letter to unit holders, the market environment right now is increasing deal flow, but at the same time your corporate liquidity is somewhat low at $1.6 billion.
Speaker Change: entirely unusual for BIP but what's your perspective on how these two dynamics influence distribution growth because they seem to point to there being some incentive to retain capital for new investments
Speaker Change: I can start Sam and feel free to to let in.
Sam Pollock: So I'll tackle that question too, first Rob, on the distribution growth outlook, that's
Speaker Change: something we revisit annually with our board in the fourth quarter, so I won't comment on, you know, any
Speaker Change: any levels that we're expecting, but, you know, we've
Speaker Change: We appreciate the value of increasing our distributions between the 5 to 9 percent target range. I think that's extremely valuable and our business has performed well this year. The business is doing excellent, so
Speaker Change: I won't comment specifically on where we're thinking for the year and the desire to retain cash. I think our liquidity today is strong at $1.6 billion, and as I alluded to, we have $1.4 billion in cash across our businesses to fund a lot of that organic growth pipeline that we've been alluding to.
Speaker Change: We feel like we're in a good position. The other thing that we'll have coming in over the next, you know, six to 12 months will be for proceeds from asset sales. We have secured two sales between our Mexican.
Speaker Change: Transmission business and our fiber operations in France that will generate you know 225 million dollars of net proceeds to BIT that we expect to receive in the next month or two.
Speaker Change: And we have $5-6 billion of proceeds that we expect to generate over the next 12-24 months through asset sales. So I think that's the real ability for us to replenish the liquidity and get it back so we can continue to deploy it into highly creative opportunities.
Speaker Change: Yeah, maybe I'll just...
Speaker Change: You know take away the the cash that we put towards our dividends to stretch ourselves on new investments, so I think
Speaker Change: You should take that as our dividend is very important.
Speaker Change: Yeah, okay. Thanks.
Speaker Change: Thank you. As a reminder, if you would like to ask a question, please press star 1 1. And our next question will come from the line of Robert Hope with Scotiabank. Your line is open.
Robert Hope: Good morning everyone. Quasi-election related, just want to get a sense of your thinking around the prospect for a stronger U.S. dollar for an extended period of time.
Robert Hope: Could we see you focus on opportunities where we've seen, you know, the real strengthening of the US dollar? For instance, Brazil has been quite weak recently. So I just want to get a sense of, you know, could that, you know,
Robert Hope: potentially add to investment opportunities outside of the continental U.S.
Robert Hope: Thank you.
Speaker Change: Well, maybe I'd say it in two different ways. First, when we make investments, we don't really take a view on currencies, because those are almost impossible to predict.
Robert Hope: Whenever we make an investment, including any new investments we do in Brazil, we hedge our investments and don't take that risk.
Robert Hope: So, that's not really a consideration as far as going into countries that maybe the currency is weaker at the moment, because that's not part of the thesis. But, having said that...
Robert Hope: You know, obviously a, you know, currency strength because money is moving into those countries and potentially out of other countries.
Robert Hope: To the extent that capital is scarce in places like Brazil, and that creates an opportunity for us to earn attractive risk-adjusted returns, then absolutely we'll go to those countries if we think we can achieve those outsized returns.
Speaker Change: Thanks for that. And then maybe just turning over to kind of the growth profile of the business, good to see 7% organic growth once again there. As we take a look into 2025, the capital backlog will continue to add to growth, but I want to get a sense of how much inflation that we saw on elevated levels that is now coming down is still yet to roll through the numbers.
Speaker Change: Yeah, I can take that, Rob. From an inflation perspective, a lot of our businesses are pricing with very limited lag. So you've seen us capture, I'd say, three to four percent inflation across many of our businesses in the last 12 months. That still is elevated to your point and certainly better than what we were getting historically.
Robert Hope: The headline CPI or RPI in the country has normalized or certainly come back down. So that'd be the only sub-segment where I'd expect to see that trailing.
Robert Hope: But I'd say inflation still is trending 50 to 75 basis points ahead of where we would have historically seen in many of the markets We operate so it still should be a tailwind to results as we look ahead
Speaker Change: Thank you.
Speaker Change: Thank you. I'm showing no further questions in the queue at this time. I would now like to turn the call back over to Mr. Sam Pollock for any closing remarks.
Sam Pollock: Okay, thank you, operator, and thank you to everyone who joined the call this morning. We know that there was probably lots of competing calls with election results coming in.
Sam Pollock: But we'd just like to thank everyone for joining, and we wish you a very happy upcoming holiday season and look forward to providing you our fourth quarter and year-end results early in the new year. All the best. Thank you.
Speaker Change: This concludes today's program. Thank you all for participating. You may now disconnect.