Brookfield Infrastructure Partners LP

Thank you for standing by, and welcome to Brookfield Infrastructure Partners' second quarter 2022 earnings conference call. At this time, all participants are in a 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 1-1 on your telephone. I would now like to hand the call over to CFO David Krant. Please go ahead.

Thank you, Operator, and good morning, everyone. Welcome to Brookfield Infrastructure Partners' second quarter 2022 earnings conference call. As introduced, my name is David Krent, and I am the Chief Financial Officer of Brookfield Infrastructure Partners. Joining me today is Sam Pollack, our Chief Executive Officer, and Matt Grimes, a Senior Vice President of our Investments Team for the Infrastructure Group. I'll begin today with a discussion of our financial and operating results for the second quarter of 2022, as well as touch on the strength of our balance sheet and current liquidity position. I'll then turn the call over to Matt, who will walk through how decarbonization can influence capital allocation and new investment themes. Finally, Sam will provide an update on strategic initiatives and provide concluding remarks. Following our commentary, we will be joined by Ben Vaughn, our Chief Operating Officer, for our question and answer period. At this time, I'd like to remind you that in our remarks today, we may make forward-looking statements. These statements are subject to known and unknown risks, and future results may differ materially. For further information on known risk factors, I would encourage you to review our annual report on Form 20F, which is available on our website. We are pleased to report another quarter of record financial results. Funds from operations, or FFO, increased 30% compared to the same period last year, while FFO per unit was 20% higher at 67 cents. Organic growth remained robust at 10%, reflecting the benefits of elevated inflation, as well as the commissioning of approximately $1 billion of new capital projects and over $3 billion of capital deployed in new investments over the last 12 months. Taking a closer look at our operating results by segment, starting with utilities, adjusted EBITDA increased 14% relative to the prior year, reflecting the benefits from inflation indexation, the commissioning of approximately $500 million of capital into rate base, and the contribution from two Australian utility acquisitions completed earlier this year. FFO for the overall segment was consistent with the prior year, as these noted benefits were offset by the impact of higher borrowing costs at our Brazilian assets, which increased by $25 million compared to the prior year. After removing the impact of these costs, FFO increased 12% over the same period last year. Our UK regulated distribution business continues to perform well as connections activity increased 17% compared to last year. Our order book of 1.5 million connections is at a record high, reflecting a backlog of new home deliveries that were delayed due to the pandemic. These are expected to drive strong growth into the second half of the year. We completed two tuck-in acquisitions within our North American residential infrastructure business during the quarter. including the largest New York-based submetering provider and a portfolio of 9,000 submetering connections in British Columbia and Alberta, further expanding our existing footprint in Western Canada. On our European residential infrastructure business, it became one of the first installers in Germany to provide customer access to electric heat pumps under long-term rental agreements. Switching to a heat pump usually carries a high upfront cost and results in a tedious transition process for customers. By offering a rental product with a carefree package, we were able to double our expected sales in the first month. We anticipate increasing customer penetration to those looking for an easy transition to environmentally friendly heat pumps. I think Matt will elaborate on during his remarks. Moving on to our transport segment, which continues to experience elevated demand as global supply chains remain constrained. FFO was $199 million for the quarter, an increase of 15% compared with the prior year. Key highlights include a 16% increase in FFO across our global toll road portfolio driven by inflationary tariffs and an increase of 8% in traffic levels. At our diversified terminal operations, performance continues to benefit from higher rates, congestion surcharges, and the contribution from our U.S. LNG export terminal, which commissioned a sixth commercial liquefaction train earlier in the year. Performance has also remained strong in our rail networks, with inflationary tariff increases offsetting software volumes and the impact of foreign exchange. Our North American rail operation announced it will serve a new US-based electric vehicle, or EV, ecosystem. Hyundai Motor Group will invest $5.5 billion into a dedicated EV and battery manufacturing facility along our Georgia Central Railway that is scheduled to begin commercial production in the first half of 2025. We expect our rail network will transport inbound materials to support production as well as provide outbound transportation of new vehicles to markets across the United States. Additionally, in May 2022, the Western Australian government formally announced the first package of federal and state government funding towards the Western Australian Agricultural Supply Chain Improvement Program. Of the total Australian dollar 200 million program, We expect our Australian rail network will receive approximately $60 million to upgrade our track to handle incremental capacity. The program, combined with our existing capital plans, will facilitate the shifting of more grain freight from truck onto our rail network. Our midstream segment generated FFO of $170 million for the quarter, nearly triple the prior year, primarily due to the acquisition of our diversified Canadian midstream operation. Same-store results were favorably impacted by the robust commodity price environment and higher utilization of our existing infrastructure compared to the prior year. Commissioning at our Heartland petrochemical facility is progressing in line with our expectations. During the quarter, we completed the startup of our polypropylene plant and shipped our first railcars of the product to our customers. The entire Heartland complex is scheduled for an integrated startup in the third quarter. Once fully in service, approximately 70% of our volumes are contracted on a nine-year weighted average term. These agreements are structured to provide cash flow stability and eliminate direct commodity price exposure, similar to our other midstream operations. SFO from our data segment was consistent with the prior year at $60 million. Strong underlying growth from additional points of presence and incremental megawatts commissioned in the last 12 months as well as inflationary price escalators were offset by the impact of foreign exchange. Our French telecom operation has been selected by a local municipality to roll out 15,000 additional fiber connections to the home. This is estimated at approximately 22 million euros of growth capital underpinned by a 25-year concession agreement with the local authority. This is an attractive addition to our existing fiber network of over 700,000 connections. Our fiber business expects to complete the rollout in 2023 with commercialization rates significantly exceeding our plan levels. Now I'd like to touch on the strength of our balance sheet. Our corporate and asset level balance sheets are well capitalized with limited exposure to rising interest rates through proactive issuance of fixed rate and long dated debt. Capital markets remain open and supportive of our business due to our strong investment grade credit profile and high quality asset base. In April, we proactively issued $600 million of corporate notes in the Canadian debt market. The offering was significantly oversubscribed and split between a 12-year and a 30-year tranche, with an average coupon of approximately 5.5%. Also, during the quarter, we completed several asset-level financings to reduce risk by opportunistically locking in fixed rates and extending our average duration. most notably in investment-grade markets at our diversified Canadian midstream operation and our UK regulated distribution business. Following this activity, approximately 90% of our borrowings have been fixed for an average duration of over eight years, with less than 1% maturing in the balance of this year. From a funding perspective, at the end of the quarter, we ended the quarter with $2.8 billion of available corporate liquidity and have since made significant progress on our asset recycling strategy. As Sam will highlight, we have secured asset sales that will add over $700 million to our current liquidity position and fully fund our new investment activity. For the balance of the year, we have three additional sales processes underway that are combined to generate approximately $1.5 billion of net proceeds. I would like to thank you all for your time this morning, and I'll now pass the call over to Matt.

Thank you, David, and good morning, everyone. I'm pleased to be joining today's call to discuss decarbonisation of the global economy and the resulting investment opportunities. Our view is that this multi-decade initiative will require substantial infrastructure investment to improve and replace the existing energy supply chain. To achieve these aggressive net zero targets, governments, businesses and individuals must balance increasing energy consumption with the goal of reducing carbon footprints. This fundamental shift in how the world is powered is expected to be a catalyst for growth in our existing businesses, both organically and through new investment activity. We separate these opportunities into two categories. Firstly, supply side, which relates to the industries and companies directly responsible for the carbon emissions. And secondly, demand side, which focuses on consumer preferences for energy efficient solutions. On the supply side, we believe the fuels used today to power the global economy will either transition to a net zero economy or be run off safely and responsibly. Our existing midstream assets are predominantly natural gas, highly utilized and strategically located. We believe these characteristics favorably position us to participate in the energy transition through the adoption of emerging technologies as well as through the shift in the global energy mix from coal to natural gas, LNG, and eventually to hydrogen. To date, we have been most active on demand-side decarbonization initiatives to assist those seeking ways to increase energy efficiency, lower energy consumption, and reduce reliance on fossil fuels. Recently, we have made investments in both smart meters and submetering, which enable energy demand management through real-time information about energy usage. We are also investing in building a platform of residential energy infrastructure businesses in North America and Europe. The combination of evolving regulatory requirements and growing preference for low-carbon, high-efficiency in-home energy solutions provides significant tailwinds for this segment. As essential in-home infrastructure increases in cost and complexity, Customers should be more inclined to adopt our rental model to alleviate the high upfront cost of new technology such as heat pumps and solar panels. Through HomeServe, we will extend our rental model value chain by offering homeowners subscription-based recurring repair policies for residential infrastructure products. This investment creates an opportunity to scale our existing residential energy operations in North America where we currently have a large presence. In the US alone, HVAC installation, replacement and subscription-based repair memberships currently have an addressable market of in excess $40 billion that is expected to grow at a 5% compound annual growth rate over the long term. In Europe, where we have a smaller presence, this acquisition accelerates our growth plans and provides a model for expansion into other markets we know well. As the global economy moves closer to net zero targets, all new investment opportunities will have transition elements, given our focus on generating sustainable long-term returns for our unit holders. Our operating capabilities, extensive development experience, and ability to leverage the Brookfield ecosystem positions us well to secure supply and demand side decarbonization investment opportunities. We look forward to sharing our progress with you in the future. That concludes my remarks for today. I will now pass the call over to Sam.

Thank you, Matt, and good morning, everyone. As David discussed, we've had a strong first half of the year. On top of our operational achievements and strong financial performance, we've successfully deployed and secured new investments for BIP, totaling approximately $2.8 billion, well in excess of our estimated $1.5 billion annual targets. As mentioned last quarter, we successfully invested approximately $700 million into two Australian utility investments, including the take private of an Australian regulated utility business, AusNet, and the acquisition of an Australian smart metering business, IntelliHub. This quarter, we have secured three additional acquisitions in the utilities and data segments for a further capital commitment of approximately $2.1 billion. In early May, we announced an agreement to acquire Unity Group, a provider of wholesale and retail telecommunication services to customers and businesses in Australia. We have now received shareholder and court approvals and expect this transaction to close in early August. Total Brookville equity for the investment is estimated to be $850 million, with BIP's share at approximately $200 million. During the quarter, we also signed an agreement to acquire HomeServe, a leading global provider of home services operating across North America and Europe, which Matt discussed earlier on the call. The total equity required for this investment is estimated to be $5 billion, with BIP's share at approximately $1.3 billion. The acquisition is expected to close in the fourth quarter of this year. In July, we secured our third acquisition at 51% interest in a $17.5 billion German tower portfolio alongside another institutional investor. This marquee portfolio of approximately 36,000 telecom towers in Germany and Austria was acquired from Deutsche Telekom, Europe's largest telecom operator. Deutsche Telekom will retain a 49% stake in the assets and will continue to be an anchored customer under a 30-year master services agreement. Total Brookfield equity for the investment is estimated to be $2.5 billion, with BIP's share at approximately $600 million. During the quarter, we were equally as successful on the capital recycling front. In the past several weeks, we signed definitive agreements to sell four assets, generating nearly $900 million in aggregate proceeds to BIP. In June, we signed an agreement and closed the sale of our 49% interest in a U.S. container terminal business in Los Angeles and Oakland, to our existing partner. Over our eight-year hold period, we successfully executed our business plan to grow and diversify volumes, as well as fully automate operations at the Los Angeles terminal. These enhancements, combined with a supportive market backdrop and constrained terminal capacity, created an opportune time to monetize the business at an attractive valuation. Our exit multiple was over 40 times pre-pandemic EBITDA and was approximately 20 times last year's normalized EBITDA, which was a record for the business. The sale resulted in an IRR of 19% during our holding period, with proceeds after debt repayment of $700 million or approximately $280 million net-to-bip. We also signed an agreement to start an Indian toll road business and an exit EBITDA multiple of over 14 times, with proceeds of over $600 million or approximately $200 million net to BIP. Closing is expected in Q4 and is subject to customary regulatory approvals. In mid-July, we signed an agreement to sell a 1,500 mobile telecom tower portfolio that was previously owned within our New Zealand telecom business. In 2019, we acquired a 50% stake in a fully integrated telecom network for approximately seven times EBITDA. Three years later, we were able to successfully exit the towers at a 34 times 2023 pro forma EBITDA and return nearly all our invested capital. The transaction is expected to generate proceeds of $1 billion, which results in $140 million net to BIP, with closing in Q4 of this year following customary regulatory approvals. And most recently, we reached an agreement to carve out and sell a portfolio of 2,400 kilometres of newly constructed electricity transmission lines in Brazil. Total proceeds will be approximately $800 million or approximately $240 million net to BIP, which implies an IRR of 22% in U.S. dollars. We expect the transaction will close in Q4, and we'll be focused on the organic build-out of the remaining 3,000 kilometers of transmission lines in the country. As David has highlighted in his remarks, we continue to be active in our capital recycling program with three additional sale processes underway. We anticipate that combined, these transactions could generate $1.5 billion of proceeds that will be used to fund future M&A activity. I will now conclude my remarks with a few comments regarding our positive outlook for the business. From a macro perspective, we are seeing central banks make a concerted effort to tackle high inflation through substantial interest rate hikes. Although these actions have increased the probability of recessionary conditions in many of the markets in which we operate, the highly contracted and regulatory nature of our revenue should cushion the effects on our businesses. Nonetheless, we will continue to operate prudently by monitoring inflationary cost pressures within our businesses and maintaining high levels of liquidity. From a deal flow perspective, we may be entering a period where we can buy businesses for value. Generally, we expect that infrastructure assets will hold their value through recessionary conditions, given their resilient nature. However, should liquidity in the market become tighter, certain owners of high-quality assets may become overextended, which will allow us to use our liquidity and access to capital to make investments at attractive entry points. For the remainder of the year, our priority will be to complete the investments and asset sales that we have secured or are in the process of securing. Once again, we expect to exceed our annual investment deployment target, and thus our financial results should remain strong and well ahead of last year. Finally, I'm pleased to announce that we've just published our second annual ESG report, which summarizes our approach and continued commitment to sustainability across our businesses. As you've heard from Matt, decarbonization is a key topic of focus for Brookfield infrastructure and is expected to drive future investment opportunities. A copy of the report can be found on the responsibility page of our website. That concludes my remarks for today. I'll now pass the call back over to the operator for questions from the analysts.

As a reminder, to ask a question, you will need to press star 1-1 on your telephone. Please stand by while we compile the Q&A roster. Our first question comes from the line of Robert Holt. of Scotiabank. Robert Hope, your line is open. Good morning, everyone.

First question, as economic conditions soften, does it change where you're focusing your time for new investments? Or maybe to put this another way, do you think that softening conditions could yield opportunities in verticals where you've been a little bit more quiet in recent years, something like transport?

Hi, Robert. Maybe I'll tackle that one. This is Sam. I would guess that maybe I'll start off by saying at the moment, we're at the early stages of any real impact from the rising rates. So I think the potential opportunities are probably in the quarters ahead of us. We do expect that valuations for the most part, as I mentioned in my remarks, for infrastructure assets should hold because many investors are looking past near-term conditions and the compounding impact of inflation will support valuations. But as we also said and as you alluded to, there will be some groups and investors who have taken on too much leverage and as a result could face liquidity. And so we think the opportunities could arise. And the assets that typically are most affected are the ones you highlighted, which are transportation assets. And that's because they tend to be more GDP focused and aren't as contracted. So they will be affected. the ones where we'll see some pressure. At the moment, we haven't seen any particular opportunities arise on that front, but I think over the coming quarters, that's where likely the opportunities could arise.

I appreciate that. And then just as a follow-up, just looking at your own liquidity, pro forma, the asset sales and the pending acquisitions, you're kind of where you are. right now, could we see you further bolster your liquidity or even accelerate additional asset sales to further bolster the balance sheet if we do enter in recessionary conditions that could yield some incremental opportunities for yourself?

I'll tackle this one, but Dave might add some comments as well. For the most part, we have a five-year plan on when we think We think it's appropriate time to dispose of our businesses based on where we think they are in their life cycle and where we've achieved most of the operating plans that we've set up for them. We do take into account each year changes that take place within those assets and market conditions. But for the most part, we have so many ways to access capital, we tend not to look to accelerate asset sales. So I guess in short, we probably wouldn't do that. We probably wouldn't change our timing on asset sales. We would utilize the other forms of capital that we have. But the only thing I would also add is every year you know given the scale of our business we have a you know a number of large businesses that we intend to sell and so we have continuous source of capital from recycling activities that are available to deploy new opportunities thank you thank you

Thank you. Our next question comes from the line of Maurice Choi of RBC Capital Markets. Maurice Choi, please go ahead.

Good morning. I just want to follow up on that question about investment. You mentioned that infrastructure assets tend to hold their value through recessionary conditions. At least until these sellers have liquidity issues, as you say, Are you therefore seeing more opportunities to buy assets at a lower growing yield rate, but with greater organic growth versus buying assets at a good or deep value, which has been a hallmark of Brookfield over recent years?

Maurice, I didn't quite get the... The full question, let me just paraphrase and tell me if I got this right. I think the question was, in this market condition, will we have an opportunity to buy at lower multiples, reflecting maybe lower platform value or goodwill, or not reflecting as much growth in the business? No, I...

I was trying to understand the mix between buying assets at a deep value versus buying assets at a lower going yield with a greater platform opportunity, especially given that sellers are not selling or lowering their price in the face of, I guess, a lack of liquidity issues on their side.

Yeah.

So, I think the, I don't think today the opportunity for some of those, you know, deep distress acquisitions exists. I don't think that's yet the market we're in. So, I don't see, this is not, you know, the financial crisis type conditions, nor the conditions we saw yesterday. in Brazil back in 2015, 2016, where we had some really deep value opportunities. That's not to say they could arise, but it's not here today, that's for sure. But I do think that the opportunity to buy growth platforms at lower valuations, yes, I think that is definitely the market environment we are in and what we would look to do.

Thank you for that. And my second question is about midstream. You obviously have midstream exposure primarily through your midstream segment, but also through some of the assets in other segments, including in transport. How do you broadly view your exposure to this subsector? And whether this is related to the IPL assets or not, do you see the potential to add more exposure or even find options to monetize some of these assets in the near term?

Look, I think what we've mentioned in the past and would reiterate today is that we think midstream investments are a key component of our portfolio mix and what we think are very attractive assets and critical to the world economy. And we recognize that midstream assets will evolve and transition into different fuels over time, but for the most part, they are going to be critical for the next couple of decades. As far as quantum or what percentage we would have within our broader portfolio, I think that will always evolve because we are constantly buying and selling assets depending on their maturity profile. I don't think we have a specific target in mind of what the right amount is. I think our goal is always to have a diversified portfolio across sectors and regions so that we have you know, minimal exposure to changes in political, regulatory, or sector dynamics that might take place from time to time. So other than trying to balance that diversity requirement, we don't really have a percentage in mind.

Great. Thank you very much.

Thank you. Our next question comes from the line of Robert Cotelier. of CIBC. Robert Catalia, your line is open.

Thanks, and good morning, everyone. I'd like to start with the comments on decarbonization, and maybe you can discuss what ways you're most likely to leverage your sister companies and their renewable and transition platforms to secure new opportunities.

Hi, Robert. Maybe I'll tackle that one. I guess the first thing I would mention is that while we have different investment groups that deploy capital within the various funds, we are all one team. And so we work very closely with the renewable and transition group. And so it is very seamless as to how we exchange information and ideas and philosophies. We very much compare notes on opportunities and particularly I think what we try to achieve is within our existing franchises that we already own, you know, take the learnings from the various groups to drive value within those businesses. And I think, you know, some of the ideas that we talked about on the... Hello?

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Hi, operator. Can you hear us?

I can, sir.

Okay, are we on the line now?

We are, sir, and Robert Fertilli's line is still open as well.

Okay, thank you.

We're dropped off, I think, as you were talking about, within the existing franchises, you take the learnings and drive value?

Yes. So, first of all, let me just apologize for the line dropping, and clearly we need to make data investments in this country. But just coming back to the lessons learned, yes, we work very closely with the Renewables Transition Group on our strategies and share not only best practices but just learnings from our various investments. And we collectively think from a Brookfield perspective that, um you know the decarbonization trends you know represent an opportunity to invest many billions of dollars over the next couple of decades and uh in particular you know not only on new investments but on investments and franchises that we have today and obviously the uh the residential infrastructure business where we're tackling the demand side equation uh we think is particularly large and um And so we have benefited from the assistance of the renewables group. So in short, yes, we are working closely together, and we'll continue to do so.

Okay. I just wanted to follow up on the HPC polypropylene plant startup a bit. Can you give us just a little bit more color on how that startup process is going? I know it takes time, and there are You can't rush it, but is the product on spec? Have you had to call any contractors to perform any warranty work or anything like that? And then other than startup, with the facility 70% contracted, is there anything more required to de-risk that asset and consider other options such as partnering or perhaps divesting a stake?

Sure, Robert, it's Ben speaking. Maybe I'll handle the first part of that question. And maybe just to remind everyone, you know, since we took over IPL, you know, the first phase of getting Heartland up and running was to complete construction. And so we've now, that is behind us. And the startup was planned to occur in three phases. The first was to get the central utility block up and running. The second was to operate the polypropylene plant. And then the third is to start the PDH side of the facility. So in the spring of this year, we successfully commissioned the central utility block. And there weren't any major warranty claims or any material issues, Robert, in that startup. We got it running with what I would describe as normal course startup challenges, but got it up and running. In July this year, we commissioned the polypropylene plant. And maybe just to add a bit of color to what Dave mentioned in his speaking notes, you know, we were able to achieve full output from the extruder and achieve full capacity on a daily basis for rail car loading. So, you know, the polypropylene end of the plant is up and running well. And once again, there were no major, you know, achieve full output from the extruder and achieve full capacity on a daily basis for rail car loading. So, you know, the polypropylene end of the plant is up and running well. And once again, there were no major, you know, a few learnings along the way that I would describe once again as completely normal course for the startup of a plant. And then we're excited because during August and September, we're starting up the PDH side. And so once we get the PDH side up and running, we do expect to complete the ramp up to full production at the plant in the fall and towards the end of this year. So, so far, no major issues and the commissioning and operations of the plant is progressing as we had, as we'd initially planned. So hopefully that's a little bit of extra color and maybe I'll In terms of de-risking Heartland going forward, we have been able to make the spec of product that we were targeting for the commissioning. We have a bit of a wider spec menu that we expect to make as the plant reaches full operation. And as we make that, we'll look to continue to just de-risk the revenue side of the plant. As you mentioned, it's 70% contracted today. And as we move our product into the market, we'll look to achieve more contracts where it's practicable to do so and continue to just de-risk the revenue side as we bed down the operations. And with that, maybe I'll leave the more strategic question about the plant for either Sam or Dave to comment on.

Thanks, Ben. I guess the only thing I'd add, I guess, regarding your question was, you know, are we looking to bring in any partners, which at this point in time, you know, we're not looking to bring any partners, but that's obviously an opportunity that we can consider down the road.

Okay. That was great, Culler. Thank you.

Okay. Thank you. Thank you. Our next question comes from the line. Devin Dodge of BMO Capital Markets. Devin Dodge, your line is open.

Thanks. Good morning. I wanted to ask about Brazil and the level of, at least the general level of investor interest down there. Are you still expecting to be a net seller in Brazil, or are you seeing improved prospects for new investments that could see BIP redeploy any recycled capital back into the country?

Hi, Devin. We are always looking for opportunities within the country. It's been an area of focus for us given our long history in the country. Given the significant asset base that we currently have, we have investments in most of, if not all, the key segments of of infrastructure sector in brazil there hasn't been too much for us to look at more recently and most of our investments have been add-ons to our existing business whether it's growing our transmission or growing our data center business or even adding on to our gas transmission business so i'd say it's mostly been organic growth i i think likely that that's um going to be our investment posture for at least the next little while. And possibly there will be some exits as a number of the businesses are becoming more mature. So it's probably, I hate to say the word net seller because it sounds more negative, but just from the life cycle of our businesses, that may be the case. But to the extent another opportunity arises that's great value, we would definitely look at it.

Okay, thanks for that. It's a good color. Second question, I was going to ask about Vodafone New Zealand. With the towers carved out, there really isn't much what we would consider to be infrastructure remaining in the business. Can you give an update on your plans for the remainder of the company, and are there other candidates out there where you think there are opportunities to acquire the towers that are integrated with the retail operations?

So maybe just the first part, I would say we still think that the Vodafone business, it does have significant infrastructure remaining. It has a very substantial wireline business that provides significant internet and other services to the country. And so we We would actually say it does have tremendous infrastructure bones to it. I think we still like the business and whether or not we decide to operate on a holistic basis today or further separate the operating business from that remaining infrastructure component is something to consider. We're very happy with the the business that we have and we think there's lots of value to generate. I guess on your second question, are there similar type opportunities to buy these fully integrated telecom utilities and separate out some of the infrastructure assets? Yes, I think there still are a number around the world that we can look at. And given the success of this transaction, if one came up that the that made sense from a value perspective, we would definitely consider it.

Okay, that's helpful. Thanks. I'll turn it over.

Thank you.

Thank you. Our next question comes from the line of Frederick Bastian of Raymond James. Frederick Bastian, your line is open. Good morning, guys. Good results.

Thank you. I was wondering if you could provide your views on the CHIPS Act and whether you see it as a positive catalyst for BIP. From what I gather, this could bode well for your joint venture with Digital Bridge, but since I'm no expert in that space, I was hoping you could add a bit of color here.

Maybe just to clarify, I guess the JV we have at Digital Bridges on the Deutsche Telekom business in Germany, and I think we're excited about that opportunity. I don't think the CHIPS Act will impact that business, but it is related to the re-onshoring of semiconductor facilities into the U.S., which has been an area of focus for us. And we do think that it will provide the impetus and the additional source of capital to make those chip facilities more viable and profitable and probably encourage the number of of the semiconductor businesses to, to proceed. And, you know, we are in discussions, um, to help facilitate the development of those, uh, businesses. And so, um, uh, I think, uh, you know, we hope that that will in the not too distant future, help us secure a transaction and, uh, you know, hopefully in future course, we can talk about that.

Okay, sorry for the confusion, but it does sound like it's an underappreciated part of your story here. That's all I have, actually. I'll pass it on to others. Thanks, Greg.

Thank you. Our next question comes from the line of Andrew Kuski of Credit Suisse. Andrew Kuski, your line is open.

Thanks. Good morning. maybe just in the context of the decarb opportunity that you've highlighted on this call and in the letter. Obviously, buildings is one of the biggest culprits from an emissions standpoint. Industrials and autos gets a lot of focus, but buildings is a big issue. How do you see the interplay of BIP, the flagship funds, and then just the broader transition fund, and how does this all sort of work together in the context of the investment potential for BIP?

um hi andrew um the uh i i didn't quite uh and maybe just make sure i answered your question properly uh do you want me to bring it back to buildings in particular on the real estate side or just where i think that uh in particular will play a a focus on it i think um maybe just clarify the first part of your question

Yeah, and fairness is probably a bit of both. You've got your residential strategy, which is very BIP-centric, but you've also got buckets in the bigger, broader Brookfield family of office exposure, residential exposure. So there's a bunch of different levers. And then from a capital deployment standpoint, you've got a bunch of buckets of capital from different sources that you can effectively spend or invest. So I'm just sort of curious on how you think about that.

broadly and then more specifically to bep okay um okay so i'll i'll probably um go on the safe side and maybe leave some of the uh uh real estate related uh answers to brian or or bruce on a later call because i probably won't probably answer answer it properly but uh you know i On the real estate side, where it relates to our business is mostly on the metering side, where we think there's a huge opportunity to deploy capital and grow our metering businesses, both in North America as well as Australia. So that's primarily our focus. And to the extent that we can expand those businesses to other geographies, we will definitely do that. And we think that's an important component, a component of improving the efficiency of real estate, both residential and industrial. But I think where we have the most immediate and largest potential in our business really is on the residential side. side of the business, particularly as it relates to driving the deployment of new rental products through Enercare and now leveraging the benefit of Home Search and really just growing the number of products that we provide to customers and assisting them in financing those. And today we've expanded the products to you know, generators, rooftop solar, as well as HVAC and different types of HVAC and heat pumps. So I think the array of products has grown dramatically. And I think over the coming decade, you know, the number of products will grow even more and become more relevant in the sense that they become more expensive and more sophisticated. And so, People will need our services that much more. So I think the market opportunity is truly in the billions of dollars. And, you know, we think we're well positioned to be leaders in building that business.

Appreciate that color. And then maybe just a follow up. when you think about securitizing those cash flow streams and effectively repackaging them, are there certain markets, like say the U.S. market and to a certain degree the Canadian market, where it's sort of well-established that that can be done? Does that mean those areas grow at a faster rate than maybe some areas where securitization could just be a bit more difficult because there's not as many examples or precedents where that's been done?

Yeah, look, I think the... I think there's lots of pools of capital to grow this business, even outside of North America, whether it's Australia or Europe. There's lots of deep pools of capital and low-cost capital that will still make it an attractive value proposition for our customers. Obviously, you know, to the extent that we have the securitization, you know, that's the gold standard as far as driving down cost of capital, particularly in this type of business. And so North America, I think, is the best suited. But, look, I think there are lots of pools of capital that, you know, we can tap into to grow the business elsewhere.

Okay. Very much appreciated. Thank you.

Okay. Thank you.

Thank you. Our final question comes from the line of Najee Beydoun of Industrial Alliance. Najee Beydoun, your line is open.

Apologies, Najee, your line is open.

Topic of discussion in the previous quarter, but just wanted to see if you can provide more details on that for Q2. Sorry, Najee, can you repeat that? We just missed the first part of that. Sure. I'm just wondering if you can break down the components of organic growth in the quarter, the 10% that you posted.

Yeah. Hey, Najee, it's David here. I can tackle that one. So if we look a little deeper into the 10% for the quarter, I'd say the primary driver is going to be the outsized inflation that we're benefiting from today. And you'll recall that benefits all four of our segments. Most notably, it would be across utilities, transport, and data that you're seeing those benefits in the upwards of 80% to 95% of those businesses. So I'd say on average of the 10%, 6% of it, almost 7% is from the inflation indexation. Volumes overall were pretty resilient. I'd say they were pretty flat when you're looking year over year in terms of total trends. And then the other key driver would be the commissioning. of capital projects. We have our normal course additions to rate base at BUK, for example, but I'd say the larger and chunkier ones that you're seeing in this quarter would be the sixth train at Sabine in our transport sector, and then one of the lines within Quantum, our Brazilian electricity transmission project, was commissioned in the first quarter that's now fully contributing to revenues relative to the prior year. So those would be the two So on the utilities and transport side where you're seeing outside CapEx in this current quarter, but those would be the two biggest drivers looking year over year.

Okay, that's perfect. That's great color. And I think initially when you started to see some of this higher inflation dynamics, you were maybe, you know, pointing or to the ability to hit the high end of your organic growth targets. I noticed some of that language is no longer there in the supplemental, but do you still see sort of a lag in terms of inflation impacting results and still being able to potentially hit the upper end of organic growth targets, let's say this year and the next one?

Definitely for the back half of this year, Najee, and I wouldn't read into just not touching on it in the current quarter. We had a ton of strategic initiatives to highlight, so I wouldn't read too much into that. I'd say for the back half of this year, inflation still runs well above our target range in all of the markets in which we're operating, so we'll look to capture that and continue to benefit And to your point, we do have a number of our regulated utilities in Australia and the UK that do have a bit of a lag between the risk-free rate and when you pass through current inflation. So we should see incremental benefits looking ahead to 2023. So no, I still expect next year to be above our target range as well, based on the current environment we're in.

Okay, fantastic.

Thank you.

Thank you. At this time, I'd like to turn the call back over to Sam Pollack, CEO, for closing remarks, sir.

Thank you, operator. And thank you everyone for joining the call this morning. We do apologize for the technical difficulties that we had and appreciate you bearing with us. And more importantly, thank you for your support and look forward to speaking to you next quarter, but also at our investor day presentation, which is on September 29th. Details of that are available on our website. So thank you very much, and enjoy the rest of your summer.

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

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