Brookfield Infrastructure Partners LP

Ladies and gentlemen, thank you for standing by, and welcome to the Brookfield Infrastructure Partners Q3 2021 results conference call. At this time, all participants are in listen-only mode. 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 one on your telephone. If you require any further assistance, please press star zero. It is now my pleasure to introduce Chief Financial Officer David Crane.

Thank you, operator, and good morning, everyone. Thank you all for joining us for Brookfield Infrastructure Partners' third quarter earnings conference call for 2021. My name is David Crane, and I am the Chief Financial Officer of Brookfield Infrastructure Partners. Joining me on today's call is Sam Pollack, our Chief Executive Officer, as well as Ben Vaughn, our Chief Operating Officer, and Brian Baker, a managing partner, who will be available for questions following our remarks. At this time, I'd like to remind you that in responding to questions, as well as talking about our growth initiatives and our financial and operating performance, we may make forward-looking statements. These statements are subject to known and unknown risks, and future results may differ materially. For further information on known risk factors, I would encourage you to review our annual report on Form 20-S, which is available on our website. With that, let's move on to third quarter results. We're pleased to report that Brookfield Infrastructure reported another strong or FFO, totaled $422 million, an increase of 16% compared with the third quarter of 2020. On a per-unit basis, results were 13% ahead of the prior year, even after considering the impact of the bid C shares issued in connection with the privatization of Interpipeline, or IPL. Strong organic growth continued in the third quarter, as results benefited from global economic expansion, improving commodity prices, and the impact of inflation on our revenue stream. These results were supported by strong growth from our base business and the initial contribution from IPL. Excluding the recovery of shutdown-related effects experienced last year, our organic growth was robust at 9%. This includes inflationary tariff increases and the commissioning of over $800 million of new capital projects in the last 12 months. Taking a closer look at our operating performance by segment, starting with our utilities, we generated FFO of $182 million, compared with $169 million in the prior year. Organic growth for the segment was 7%, reflecting inflation indexation and the commissioning of over $400 million of capital invested into our rate base in the last year. Results also benefited from the acquisition of the remaining interest in our Brazilian regulated gas transmission operation, whereas last year's results included earnings associated with our UK smart meter portfolio as well as our North American district energy platform, both of which were divested earlier this year. At our UK regulated distribution operation, connection sales exceeded those in the prior year by over 55%. This growth reflects the continued strength of our legacy utility connections, but also robust water connection sales, which have more than doubled relative to last year. In the quarter, the business also signed a 20-year agreement with Virgin Media to offer its TV and broadcast services across our fiber network. We now have long-term arrangements with both Sky and Virgin Media, two of the largest Tier 1 Internet service providers in the U.K., positioning our fiber offering for continued growth. Our North American residential infrastructure business continues its U.S. build-out. During the quarter, the business opened two Greenfield locations, to accelerate our growth plans. We are also in the final stages of formalizing a partnership with a residential generator manufacturer that will provide a rental alternative for its product line and an annuity-based revenue stream for us. Now, moving on to our transport segment, FFO was $181 million, an improvement of approximately 18% when compared to the prior year. Results benefited from strong organic growth driven by increased volumes and higher tariffs in line with above-average inflation in the markets we operate. Growth is also attributable to a net contribution from capital recycling as the current period includes our US LNG export terminal, whereas the prior year includes a larger contribution from Australian export terminal, of which we sold a 22% stake in December of last year. Each of the underlying operating groups within our transport segment are performing well in the current environment. Starting with our global toll road portfolio, traffic levels across our networks have continued to improve throughout the quarter. On average, volumes were 14% above the same quarter of last year and 10% above 2019 levels. At our rail operations, high revenues were driven by average increases in our tariffs of approximately 5%, while volumes remained robust during the quarter. And finally, our diversified terminals performed well, with volumes up 7% over the prior year. At our U.S. LNG export terminal, strong demand from Europe and Asia combined with an increasing reliance on LNG as a cleaner fuel has supported contracting initiatives in higher pricing. Approximately 85% of the terminal's capacity is underpinned by take-or-pay contracts, providing stable and predictable cash flows. The small portion of uncontracted capacity allowed the business to capitalize on strong pricing environments. Construction of the sixth liquefied next year, roughly one year ahead of schedule. Both the pricing environment and the six-train construction are well ahead of our expectations at the time of our initial investment. Moving into our midstream segment, where FFO totals $103 million, an annual increase of more than 55%. With the completion of the first stage of the privatization in August, Additionally, our results on a same-store basis benefited from strong gas transportation volumes and elevated commodity prices across our existing businesses. Carbon abatement remains a focus across our midstream business to reduce emissions and improve the efficiency and competitiveness of our operations. In this regard, our Western Canadian midstream business was recently awarded an $18 million Canadian federal government grant for clean technology initiatives and greenhouse gas reduction projects. The combination of reduced supply of traditional energy sources and the intermittency of renewable power generation has driven commodity prices to seven-year highs. With approximately 80% of our midstream revenue insulated from commodity prices, our market-sensitive revenues have outperformed our expectations and contributed to strong performance this quarter. This current pricing environment is not only good for our business, but also for our customers who have strengthened their balance sheets and are generating significant free cash flow at these commodity price levels. This goes well for future customer reinvestment into their operations, as well as carbon reduction projects, both of which we are well positioned to participate in and benefit from. Finally, in our data segment, we recorded FFO of $58 million, an increase of 16% compared with the prior year. This increase reflects a full quarter of results from our Indian Telecom Tower business and organic growth within our existing operations. The contribution from organic growth includes at our French telecom operation. In July, our Indian telecom tower business agreed to acquire a leading indoor coverage solutions provider in the country for total equity consideration of up to $120 million, with BIP share being just over $20 million. The strategic bolt-on acquisition complements the business and enhances the existing service offering. The transaction remains subject to regulatory approval and is expected to close in the first half of 2022. strength of our balance sheet. We continue to focus on extending our debt maturity profile amid constructive credit market conditions. Liquidity across markets remains strong, and we are well-positioned to attract long-term and fixed-rate capital. So far this year, we have raised or refinanced over $10 billion of non-recourse financing at the asset level. During the quarter, we signed an agreement to divest Brookfield's remaining 34% stake in our Chilean toll road operation. Their transaction is expected to basis. Following the completion of the sale, capital recycling initiatives will raise nearly $2 billion in net proceeds this year, and we continue to make meaningful progress on three current processes that, combined, should generate a further $1 billion over the next six to eight months. Following the completion of the first stage of the Interpipeline privatization in August, we ended the quarter with $4.5 billion of total liquidity, of which approximately $3 billion resided at the corporate level. We will continue to have a healthy liquidity level following the completion of the take private of IPL, given the strong support for BIMC shares as part of the consideration. Thank you all for your time this morning, and now I'll turn the call over to Sam.

Thank you, David, and good morning, everyone. For today's call, I'll make some comments regarding today's operating environment, discuss some of the strategic initiatives we have underway, and I'll conclude the call with our outlook as we head into 2022. Let me begin with a brief comment on today's operating environment. It is our belief that the combination of favorable capital markets, healthy economic activity, and low interest rates is driving three important macroeconomic themes that are all very positive for our business. The first theme is elevated inflation. Whether through regulated frameworks or contractual entitlements, approximately 70% of our revenues are indexed to local inflation. This feature, combined with strong free cash flow conversion levels, is driving significant FFO growth within our base business. Next is rising commodity prices. Although 80% of our midstream sector revenues are insulated from commodity prices, the remaining 20% are market-sensitive revenues that should outperform in the current environment. Additionally, higher commodity prices result in more free cash flow generation for our counterparties, which not only strengthens their financial positions, but can also lead to higher volumes and customer-initiated growth projects. The last theme I wanted to mention is supply chain bottlenecks. Logistics infrastructure worldwide is under stress given the recent disruption to traditional supply chains. This puts a spotlight on the essential nature of our networks and facilities. When demand for infrastructure is high, we tend to realize higher tariffs as customers compete for whatever remaining capacity is available. We also tend to generate more revenues from storage services. As a result of all this, in the near term, as these complementary market forces continue, our business is well positioned to benefit from higher volumes, increased tariffs, and new capital expansion projects. Now, let's review some of our current strategic initiatives. Our investment professionals are actively pursuing several opportunities of scale across our target sectors and geographies, and we expect our access to capital, our local presence, and an active operating approach to continue to be differentiating factors. We've been aided by the fact that the current market environment for new investment activity remains very constructive. The most significant milestone for the quarter was the acquisition of IPL, which Dave touched on earlier in the call. In early September, we successfully completed the first stage of the privatization, acquiring shares through the tender offer process that brought our total ownership to 76% alongside our institutional partners. On October 20th, we acquired the remaining 24% not already owned and subsequently delisted the company. In total, we've deployed approximately $2.5 billion that was funded with cash and about $1.9 billion of newly issued BIPC shares. We are excited about the long-term value that we can create through our operating initiatives at the company. In that regard, we are making good progress implementing our 100-day plan at the business. Initial activities include reviewing the construction and commissioning plans of the Heartland Petrochemical Complex to assure an on-time startup in 2022 and identifying areas for optimization and efficiency post-closing. We've also started work on identifying near-term commercial opportunities to improve profitability of the business. As part of the commercial review, we are highly focused on opportunities where we can assist customers in reaching their net zero goals. Now, moving on to another major initiative, earlier this week, it was announced that Brookfield's Open-Ended Core Infrastructure Fund, alongside institutional partners, reached an agreement to acquire 100% of Bosnet, a publicly traded regulated utility company in Australia for approximately $17.8 billion Australian dollars on an enterprise value basis, which translates into about $6.2 billion of equity value. AusNet's business predominantly comprises three regulated networks in the state of Victoria, electricity transmission, electricity distribution, and gas distribution. These are high-quality regulated utilities that provide essential services within Victoria and are part of Australia's backbone electricity transmission grid. The transaction is expected to close in the second quarter of 2022, and BIP will invest approximately $500 million. We believe it's an attractive investment for BIP, given the strong going-in yield, sustainable cash flow profile, and the significant growth opportunity to invest in the expected future build-out of the company's regulated asset base as Australia electrifies its economy today. as part of their decarbonization efforts. Now, I'd like to conclude my remarks with a few comments regarding the outlook for the business. As we highlighted at our annual investor day in September, we are excited about the future prospects for our business. Along with economic tailwinds, our asset rotation strategy will drive meaningful growth in the near term. Also, the long-term outlook is equally favorable as the infrastructure super cycle plays out and we create platform value across many of our portfolio companies. As we've mentioned, the current global economic environment is extremely supportive for our business, with the three components of organic growth all surging. Higher inflation and strong commodity markets will support top-line growth, as well as improve our already solid margins. Customer-initiated growth projects will likely continue to be boosted by these higher commodity prices, and a significant strain on supply chain infrastructure should reinforce the criticality of our assets and lead to improved volumes and pricing. These trends provide a positive backdrop for our business and reinforce our belief that organic growth over the next year or so should be at the high end of our 6% to 9% target range. This, combined with the high levels of creation achieved from our asset rotation strategy, should result in a run rate FFO per unit this year that is over 20% above prior levels. So that concludes my remarks for today, and I'll pass it back over to the operator to open the line for questions.