Brookfield Infrastructure Partners LP

Good day and welcome to the Brookfield Infrastructure Partners Q3 2024 Results Conference Call and Webcast. 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. You will then hear an automated message advising your hand is raised. 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 Krantz, Chief Financial Officer. Please go ahead, sir.

Thank you, Cherie, and good morning, everyone. Welcome to Brookfield Infrastructure Partners Q3 2024 earnings conference call. As introduced, my name is David Krantz 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 Joynt, 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 20F, which is available on our website. Brookfield Infrastructure is pleased to report strong financial operating results while advancing many of our strategic initiatives this quarter. Our focus was on advancing our record capital backlog, delivering on our capital recycling objectives, which Sam will speak to next, and executing our capital market strategy. 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. We experienced strong contributions from new investments completed last year and the initial contribution from three accretive tuck-in 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. Results were partially offset by the impact of higher borrowing costs and foreign exchange, most notably the depreciation of the Brazilian $1.5 billion this period. 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. 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. Organic growth for the 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. Moving to our transport segment, FFO was $308 million, representing a 50% increase over the same period in the prior year. 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. 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. Our midstream segment generated FFO of $147 million, compared to $163 million in the same period last year. 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. 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. Lastly, FFO from our data segment was $85 million, representing a 29% increase over the same period last year. This increase is attributable to strong underlying performance and several new investments completed over the last 12 months. The most impactful this quarter was the tuck in acquisition of a portfolio of retail co-location data centers completed earlier this year. Our global data center platform continues to execute its development plans to drive growth with an additional 70 megawatts commissioned during the quarter, bringing our total installed capacity to over 900 megawatts. 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. In the U.S., we commissioned 50 megawatts of capacity on scope, schedule, and budget, and leasing activity remains very strong. 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. 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. 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. 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. 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. We completed $3 billion of non-recourse financing during the quarter with the goal of efficiently financing our business, extending maturities, and reducing our cost of capital. 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. 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. At our U.S. retail co-location data center business, we completed an inaugural $900 million of non-recourse financing through our ABS issuance in early October with proceeds used to partially repay our acquisition financing. The financing helped term out nearly half of our acquisition bridge for six years and reduces the company's annual interest expense by approximately $20 million. And the last example I will highlight is at our Western Canadian natural gathering and processing operation where we successfully completed a repricing of an $800 million term loan that reduced credit spreads by 25 basis points. This transaction was the second repricing this year, which allowed us to reduce the cost of the loan by a total of 75 basis points, resulting in $6 million of annual interest savings for the company. 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. 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. That concludes my remarks for the morning, and I'll now pass the call over to Sam. Thank

you, David, and good morning, everyone. For my remarks today, I'll provide an update on our transaction activity and conclude with a business outlook. Beginning with new investments, please report that we closed the acquisition of 76,000 Indian telecom tower sites in mid-September. We are now the largest telecom tower operator in India and the second largest globally with over 250,000 tower sites. This acquisition increases our tendencies from the country's second and third largest mobile network operators while offering significant operating synergies. The scale and benefits of the combined platform were all achieved at a value-based entry point of below six times EBITDA. Our total equity commitment was approximately $140 million, and we expect the business to generate a strong going-in FFO yield. 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 telecommunication space. Now, during the quarter, we secured approximately $600 million of capital recycling proceeds for a total of approximately $2 billion for the year. As a result, we have successfully achieved our capital recycling target. 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. The sale is expected to close in the first quarter of 2025. We also completed the recapitalization of our North American gas storage platform, raising $1.25 billion that enabled a $305 million distribution net to BIP in advance of the sales process. This financing alone returned more capital than we had initially invested, and increased the investment's realized multiple capital to approximately 2.5 times. This is an extremely attractive result given we still own a business that generates approximately $330 million in annual EBITDA. 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. These developments bode well for our business strategy, and we are confident they will create an even more favorable landscape for both asset sales and new investments. Now, starting first with asset sales, we are seeing elevated demand for high-quality infrastructure assets. In the next two years, we expect to generate $5 to $6 billion of proceeds from capital recycling initiatives to crystallize the value we've created within our mature and de-risked companies. These asset sales are expected to generate returns well above our targets. From a deployment perspective, the outlook for our business is strong. Our growth profile continues to accelerate, focused around the decarbonization and digitalization investment themes. We are 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. With our unparalleled access to scaled capital, we expect to put significant capital to work as we seek to expand our -of-choice reputation. Now, this year has been notable for the number of elections, including a very significant one yesterday in the United States. While election outcomes can result in policy changes, 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. 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, BIP provides investors an attractive mix of downside protection and upside growth potential that outpaces many of our pure play sector peers. We believe this is more relevant today than it's ever been. Our business is resilient due to the high degree of long-term contracted and regulated cash flow with significant protection from inflation. The business is also more diversified than at any point during our history. This combination gives us the confidence to believe that our portfolio can mean to increase cash flows in the years ahead. That now concludes my remarks, so I'll pass it over to Sherry to open the line for questions.

Sherry Thank you. As a reminder, to ask a question, please press star 1-1 on your telephone and wait for your name to be announced. To withdraw your question, press star 1-1 again. One moment while we compile the Q&A roster. Our first question will come from the line of Sherry Lynn Radborne with TD Cowan. Your line is open.

Sherry Thanks very much and good morning. First question is on data and AI broadly. 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. 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.

Sherry Thanks for your question. Maybe to put a fine point to it, I think everyone recognizes that SMRs and nuclear energy are going to play an important role in the long term, but I think in the short term it's not really part of any solutions that we're talking about. At the moment, the focus is still largely on renewable options as well as I'd say natural gas potential in various parts of the US and Canada in particular.

Okay, that makes sense. Then switching to the residential decarbonization business, it looks like you made some nice drives in the UK and Europe during the quarter. I'm curious if there are good synergies available to managing the North American and European businesses together 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 attractive attributes in their own right.

David Okay, well maybe I'll take that question and then one or two days you might want to jump in if you have any of that. But I guess for the most part our philosophy is we're believers in decentralization and 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. Even just in Europe, our businesses largely run autonomously 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 US business. What we do do though is we have a lot of communication between the various groups where we look for best practices, we try to share technology, and obviously things that work well one market we try to export those ideas and systems to another market. So I say that's you know Brookfield tends to be the glue to ensure that best practices are moved across each of the regions but you know we have accountability at the local level with CEOs in each of the countries.

Sherilynn That's all for me. Thank you.

David Okay, thank you Sherilynn.

Thank you. One moment for our next question. And that will come from the line of Maurice Choi with RBC Capital Market. Your line is open.

Maurice 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. 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 US, that may act as a tailwind or headwind for your assets?

Well we operate in a lot of countries so I may be willing to go into each one but you know maybe just touching on the UK and the US where there's been changes. So in some of the other countries like India there hasn't really been a change. We can touch on Brazil I guess as well but maybe just more broadly speaking. I think the trends that are driving our business as we talked about are primarily decarbonization and digitalization. As it relates to digitalization I don't think there's any difference in views or eagerness to deploy capital across those elements of the economy in any new government. I'd say this is a focus for the Republicans as well as it was for the Democrats. It's a focus for labor as it was for the Conservatives in the UK. And it's a big focus down in Brazil as well. So obviously that trend doesn't change. There's probably a bit more nuances as it relates to decarbonization. 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 parties the reality on the ground is that most of the decisions aren't being made at the corporate level or at the state level and those things won't change with new governments. I think the only other comment I'd make, so in general I guess just to 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. I think the only thing that you might see now is in some countries like the UK I think they have a big focus on growth and we'll take steps to try to get the economy moving again. In the US 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.

Thanks, Saracala. Maybe very much related to that in terms of asking where you see the best suggested returns when you approach acquisitions. Obviously recognizing that the current environment there can be both a buyer's market and a sales market depending on where you're shopping.

Yeah, look I think the place where we see the most capital being deployed and our business as I've probably said many times on this call and at investor meetings very much follows the flow of capital. The greatest investment going on outside of China, which we don't really invest in right now, is in the US. We see huge amounts of dollars going to all parts of the economy and that's creating great opportunities for us. I have to say today the US is still probably the most interesting place for us. I'd say second to that, just to pick another place, 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. I think where there's a need for capital, that's usually an opportunity for it to get incentivized returns.

Thank you very much for that. Okay, thank

you. Thank you. One moment for our next question and that will come from the line of Devin Dodge with BMO Capital Markets. Your line is open.

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 withholding a mix of leased and owned sites and is there an impact to the exit strategies available?

Hey, Devin. Thanks for the question. This is Dave John. I'm filling in for Ben this week. 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 even greater development capabilities that we can build up and continue to add a lot of terminal value to the business over time. As the leases come up on the existing portfolio, we'll be working to extend those on terms that make sense. To Sam's comments about putting them into a single vehicle with rebranding, we think has a lot of benefits as well.

Okay, makes sense. 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.

I think what I would say is the logical area of synergy, which I sort of already alluded to, is having the development platform kind of within the business itself. Obviously with scale, from 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 -to-get synergies. It was a value opportunity. We feel like we've acquired these at an extremely deep value, and that's where really the value creation is coming from.

There will be some O&M opportunities by combining the two businesses. Today we outsourced some of our O&M to Reliance, and then having this business. There'll be some overlap where sites are near each other, be able to leverage whatever business has the cheaper opportunity to manage those sites.

Okay, makes sense. Then just maybe switching over to IPL, it appears HPC has been performing better in recent months. I think the Q3 was the best performance to date that we've seen there. 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 some or all of it to a more strategic buyer?

Hey, Devin, it's Dave again. I guess the first thing I'd comment is we know that commissioning these assets takes a little bit of time. As you note, I think we've made great progress, but the focus for us at the moment is on continuing to stabilize it, get it running at the levels that we want to, up to the capacity of the plants themselves. The position of the asset itself has never been in question. It's in a great location with great access to low cost feedstock, but right now we're focused on managing the asset as opposed to thinking about something on a long term basis. 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. Okay, thanks for that. I'll turn it over.

Thank you. One moment for our next question. That will come from the line of Robert Cattelier with CIBC Capital Market. Your line is open.

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? Is it even possible in BIP, where are these opportunities limited to other funds and listed entities?

Hi, Robert. While 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 BIP. So it's unlikely it would be a BIP investment.

Right. Then just on the macro picture, as you alluded to in your letter to the 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. We can argue that it's not 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.

I can start Sam and feel free to later in. So I'll tackle that question too. First, Rob, on the distribution growth outlook, that's something we revisit annually with our board in the fourth quarter, so I won't comment on any levels that we're expecting, but we've appreciated the value of increasing our distributions between the 5% to 9% target range. I think that's extremely valuable and our business has performed well this year. The business is doing excellent. So 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 cash across our businesses to fund a lot of that organic growth pipeline that we've been alluding to. So we feel like we're in a good position. The other thing that we'll have coming in over the next six to 12 months will be proceeds from asset sales. We have secured two sales between our Mexican transmission business and our fiber operations in France. That'll generate $225 million of net proceeds to BIP that we expect to receive in the next month or two, and we have $5 to $6 billion of proceeds that we expect to generate over the next 12 to 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.

Yeah, maybe I'll

just

put a fine point to that. We have lots of liquidity, but our dividend growth is sacrosanct to our business strategy, and we're not going to take away the cash that we put towards our dividends to stretch ourselves on new investments. So I think you should take that. Our dividend is very important. Yeah, okay, thanks.

Thank you. As a reminder, if you would like to ask a question, please press star 1-1. Our next question will come from the line of Robert Hope with Scotiabank. Your line is open.

Good morning, everyone. Quasi-election related, just want to get a sense of your thinking around the prospect for a stronger US dollar for an extended period of time. Could we see you focus on opportunities where we've seen the real strengthening of the US dollar? For instance, Brazil has been quite weak recently. So just want to get a sense of could that potentially add to investment opportunities outside of the continental US?

Well, maybe I'd say it in two different ways. I think first, when we make investments, we don't really take a view on currencies because those are almost impossible to predict. And so whenever we make investments, including any new investments we do in Brazil, we hedge our investments and don't take that risk. 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, obviously, currency is strengthened because money is moving into those countries and potentially out of other countries. And so to 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.

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.

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, 3% to 4% 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. The only business that has a true regulated lag on their inflation pastor is the UK and our regulated utility there. So you'll still see elevated levels come through there, even though headline or 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. 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. Thank you.

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.

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. 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.

This concludes today's program. Thank you all for participating. You may now disconnect.