Brookfield Infrastructure Partners LP

Good day, and thank you for sitting by. Welcome to the Brookfield Infrastructure Partners LP fourth quarter 2021 results conference call and webcast. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during the session, you will need to press star one on your telephone. Please be advised that today's conference is being recorded. If you require any further assistance, please press star zero. I would now like to hand the conference over to your speaker today, David Krant, Chief Financial Officer, please go ahead.

Thank you, Shannon, and good morning, everyone. Thank you all for joining us for Brookfield Infrastructure Partners' fourth quarter earnings conference call for 2021. As introduced, my name is David Krant, and I'm the Chief Financial Officer at Brookfield Infrastructure Partners. Joining me today is Sam Pollack, our Chief Executive Officer, and Ben Vaughn, our Chief Operating Officer. Following our remarks, we look forward to taking your questions. At this time, I'd like to remind you that in responding to 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 20F, which is available on our website. Furthermore, the monetization of several mature businesses at strong valuations has generated significant liquidity to fund our growth initiatives at a low cost of capital. Consequently, Brookfield Infrastructure is well positioned to continue its growth trajectory in the years ahead. We are pleased to announce that as a result of our strong financial In addition to this distribution increase, our business achieved many other milestones over the past year, including solid performance across all of our operating segments, resulting in organic growth of 9%, deploying over $3 billion into growth initiatives, including the acquisition of InterPipeline, or IPL, and a $13 billion privatization, securing half of 2022's capital deployment through the two Australian utility acquisitions, generating $2 billion in proceeds from the completion of four sale processes, and finally raising almost $3 billion in capital markets, ensuring strong liquidity levels. Now switching from accomplishments to our results for the year. We reported FFO, or funds from operations, of $1.7 billion, or $3.64 per unit, a notable annual increase of 19% and 15% on a total FFO and per unit basis, respectively. We ended the year on a very strong note, generating fourth quarter FFO per unit of 97 cents, which exceeded the prior year by 13% and reflects a payout ratio of 68%. Results were supported by strong growth from our base business, the full recovery from shutdown-related effects experienced in 2020, and the significant contribution from over $3 billion deployed in growth initiatives. Organic growth for the year has been taking a closer look at our operating performance by segment. In addition to acquiring a leading German residential infrastructure business earlier in the year, in December we acquired a 60% interest in the second largest independent residential heating installer in the UK. At our existing operation in North America, we completed three follow-on acquisitions in the fourth quarter. Most notable is the acquisition of a residential solar installation and battery storage solutions provider with operations in seven of the U.S. states. This strategic transaction strengthened At our Brazilian electricity transmission lines, we recently exercised an option to acquire our drug manager's 50% interest in 900 kilometers of operational lines. This increases the portfolio of lines that we own to approximately 2,400 kilometers. With construction of the initial set of lines now complete, the scalable platform has been significantly de-risked, leading us to launch a sales process Moving on to our transport segments, FFO was 700 across most product groups. Due to the essential nature of the business, we've been able to protect our margins across each of our operations by reflecting inflationary cost pressures in our tariffs. At our diversified terminal operations, performance in the current environment continues to be robust, including record FFO during the fourth quarter. Results have benefited from a number of positive tailwinds, including improved volumes, higher tariffs and congestion surcharges, as well as inflation pass-through reflected in rates. Specifically, at our U.S. LNG export terminal, we continue to benefit from strong global demand and high LNG prices due to increasing exports to China and low storage levels, particularly in Europe. This favorable backdrop has facilitated the contracting of excess capacity under multi-year agreements at attractive rates. Additionally, construction of a sixth liquefaction train is progressing ahead of schedule, and substantial completion is expected to be achieved in the first quarter of 2022. FFO for the in 2021. In October, we successfully completed the privatization of IPL, a high-quality Canadian midstream platform providing critical long-term infrastructure. As a reminder, approximately 80% of the business is contracted, with the majority of our activities secured under long-term cost-of-service arrangements with investment-grade counterparties, where we take no commodity or volume exposure. The balance of the business has benefited from strong commodity price mid-2022 startup. The data segment recorded FFO of $238 million in 2021, an increase of 21%. Results reflect the demand for the country's major MNOs. Furthermore, the business connected fiber to almost 50,000 new homes, the strongest quarter on record. We continued to gain momentum with the expansion of our global data storage platform and reached several important milestones during the quarter. First, we In India and Europe, we have been successful in the early stages of our land bank strategy to drive organic data center developments. As central banks now turn to policy normalization to combat rising rates, our corporate and asset-level balance sheets are significantly de-risked. We have only modest maturities over the next several years. In fact, it's less than 10% over the next 24 months, once removing normal course amortization. Additionally, approximately 90% of our term debt, excluding local currency debt in Brazil, is fixed rate, with a remaining term across our business of 8%. alone, we raise your secured commitment. first quarter. Now, these activities resulted in us ending the year with total liquidity in excess of $5 billion, of which $3.7 billion resides at the corporate level. Following the completion of the two secured Australian utility investments, which Sam will discuss momentarily, pro forma liquidity at the corporate level is approximately $3 billion. This provides us with significant capacity to fund incremental new investment opportunities and their securities. Thank you all for your time this morning. I'll now pass the call over to Sam.

Okay, thank you, David. And good morning, everyone. On today's call, I'm going to begin with a few comments on the current macroeconomic environment and its impact on our business. I'll then discuss some of the strategic initiatives we have underway and then conclude the call with our outlook for the year ahead. Now, central banks around the world are signaling a transition to tightening monetary policy to control rising prices. we thought it was a good opportunity to outline how inflation and rising interest rates may impact our business. All else equal, this economic environment is generally favorable for stable infrastructure businesses like ours. Before exploring the tailwinds and potential risks associated with elevated inflation and higher interest rates, we thought we should first caveat the underlying assumptions that frame that outlook. The prevailing inflationary environment, we think, is a product of many factors, including pandemic-induced supply chain disruptions, fiscal stimulus, and labor shortages. In addition, though, the influences of deglobalization and what some refer to as green inflation are expected to contribute to longer-term inflation. Given all these factors, we do not expect current inflation levels to be transitory, i.e., just to last this one year. as a number of factors will likely lead to a period of persistent inflation. However, we also don't anticipate a return to the excessive and long-lasting inflation that occurred back in the 1970s. Accordingly, this current period of elevated inflation should ultimately stabilize in the next few years as the Federal Reserve and other central banks raise interest rates and shrink their balance sheets. Assuming our time horizon for inflation stabilization is not significantly off, this will result in a gradual but hopefully not dramatic rise in interest rates over the next few years. We think this view is consistent with many forecasts that show U.S. 10-year treasuries reaching about 3% over this period. Although higher than the last few years, these expected levels are low in the historical context and can provide an accommodating market environment for highly contracted and well-capitalized businesses like ours. Now, with this forecast in mind, we foresee elevated short-term inflation acting as a tailwind for our business, as a significant portion of our business has inflation indexation. Now, while we may not be fully inflated from rising costs, our inflation-linked revenues in high-margin businesses should largely inflate the impact. Today, Approximately 70% of our revenues are adjusted by local inflation indices. This benefit will largely impact our utilities, transport, and data investments, where between 80% to 90% of revenues are contractually indexed inflation. Together with a largely fixed cost structure and prudent cost management strategies, the compounding impact of inflationary revenue increases should drive operating leverage across our high-margin critical infrastructure. The economic impact from inflation is not without its consequences, namely higher interest rates. Fortunately, our direct interest rate exposure to near-term movements is minimal and effectively mitigated, as David talked about. We've always employed a conservative approach to financing our business through long-dated maturities and mostly fixed-rate pricing. In addition, we have actively extended maturities and optionistically secured long-term fixed-rate debt to take advantage of of the low interest rate environment we just went through. In summary, our expectations for continued high levels of inflation for the next few years to be countered with modest increased interest rates, which will result in a net-net positive environment for our business. Now, shifting to the investment activity for the quarter, pleased to report that we've secured two attractive utility investments, representing, as David mentioned earlier, approximately 50% of our deployment target for this year, up to 2022. This includes AusNet, which is a portfolio of high-quality utility businesses in Victoria, Australia, that provides electricity and gas transmission and distribution services across various critical networks. The closing of our investment is on track after having received shareholder approval last week, and is expected to occur in mid-February. We are excited to own a highly coveted, perpetual regulated utility franchise that is well positioned to participate in the decarbonization of Victoria's economy to meet its legislated 2050 net zero target. VIP expects to invest approximately $500 million. Then in December, we agreed to acquire a 50% interest in TeleHub, a leading provider of electricity smart meters in Australia and New Zealand. Total equity for the investment is approximately $870 million, with BIP's share being approximately $215 million. The business has 1.2 million meters, leased and contractual relationships with energy retailers that cover 99% of the consumer market. This is an asset class that we are familiar with, as we held a smart meter portfolio within our UK regulated distribution business for many years. we believe that point of consumption metering will continue to be an essential component of the electricity network with digitalization and decarbonization goals accelerating the deployment of smart meters in the region. We expect to complete this transaction in late Q1. Now I'll conclude my remarks with a few comments regarding our outlook for the market and for Brookfield infrastructure. Notwithstanding the tailwinds for our business, As we've seen in recent weeks, expectations of quantitative tightening and a rising interest rate environment have caused significant stock market volatility. This volatility has been most pronounced as it relates to the technology sector, where we've seen a large pullback in valuations to start the year. Now, although our unit price will undoubtedly move with broader market sentiment, we believe the underlying value of our privately owned infrastructure assets will be much less impacted. Private buyers of infrastructure assets, especially those for high-quality de-risk essential infrastructure, take a longer-term view and are less influenced by short-term economic conditions or sentiment. Like most, the last two years posed many challenges both for our people and our businesses. Although we are proud of the accomplishments of the last year, we are feeling equally optimistic about the year ahead. We are pursuing opportunities to execute our full cycle investment strategy, having identified several mature businesses that can be monetized at strong valuations. We've already secured half of our $1.5 billion annual deployment target, and these transactions are expected to close in the coming weeks. So we have a high degree of confidence regarding achieving the balance of our deployment target based on the pipeline of advanced opportunities our global teams are pursuing. and we have strong liquidity that provides us the ability to pursue and fund these new investments and meet our target returns. Now, that concludes my remarks. I'll now pass it back to the operator to open the line for Q&A.