Brookfield Infrastructure Partners LP

Good day and thank you for standing by. Welcome to the Brookfield Infrastructure Partners fourth quarter 2024 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 1 1 on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question, please 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 David Krantz, Chief Financial Officer. Please go ahead.

Thank you, Liz, and good morning, everyone. Welcome to Brookfield Infrastructure Partners' fourth quarter 2024 earnings conference call. As introduced, my name is David Krantz, and I'm the Chief Financial Officer of Brookfield Infrastructure. I'm joined today by our Chief Executive Officer, Sam Pawlik. And joining us for the Q&A portion of the call is our Chief Operating Officer, Ben Vaughn. I'll begin the call today by highlighting our financial and operating results for the past year, followed by some brief remarks on our base business and its solid foundation. I'll then turn the call over to Sam, who will provide an update on our capital recycling 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 20X, which is available on our website. 2024 was another excellent year for Brookfield Infrastructure. Some of our key accomplishments include delivering on our capital recycling target, deploying over $1.1 billion of equity into growth initiatives, adding approximately $1.8 billion of new projects to our capital backlog, and completing approximately $10 billion of financing, which makes it our most active year in the capital markets. I'm pleased to report that we ended the year with funds from operations or FFO of $3.12 per unit, representing a 6% increase compared to 2023. When normalizing for the impact of foreign exchange, FFO per unit was up 10% versus the prior year. This would be in line with our target and better reflects the current operational performance and strength of our business. Considering our conservative payout ratio ended the year at 67% and a favorable outlook for 2025, which Sam will speak to soon, the Board of Directors have approved a quarterly distribution increase of 6% to $1.72 per unit or share on an annualized basis. This marks the 16th consecutive year of distribution increases within or above our target range. I'll now go through our annual results and discuss our business segments in more detail. FFO in 2024 totaled $2.5 billion, an increase of 8% compared to 2023. Organic growth for the year was 7%, driven by elevated levels of inflation in the countries where we operate, stronger volumes across our critical infrastructure networks, and the commissioning of over $1 billion of new capital projects from our backlog. In addition, we deployed over $2 billion into new investments during the second half of 2023 and completed three accretive token acquisitions this year, which are all fully contributing to earnings. Taking a closer look at our results by segment, starting with utilities, we generated FFO of $760 million, which is up 7% year-over-year on a comparable basis. after taking into account asset sales and currency in comparison to $879 million in the prior year. The reduction was primarily attributable to capital recycling activity, which included the sale of our Australian utility business in the third quarter of 2023 and a recapitalization of our Brazilian gas transmission business in the first quarter. The base business continued to perform well during the year. driven by inflation indexation and the contribution from nearly $470 million of capital commissioned into rate base. Moving on to our transport segment, FFO was $1.2 billion, representing a step change increase of nearly 40% from the prior year. This was primarily attributable to the acquisition of our global intermodal logistics company in the third quarter of 2023. and an incremental 10% stake in our Brazilian integrated rail and logistics operation in the first quarter of this year. We generated strong results across remaining businesses, driven by higher volumes and average tariff increases of 7% across our rail networks and 6% across our road portfolio. Our midstream segment generated FFO of $625 million, which on a comparable basis had grown 11% versus the prior year. The growth reflects higher volume increases across our midstream assets due to robust customer activity levels, particularly at our North American gas storage business. When considering the impact of asset sales and foreign exchange, the total FFO decreased from $684 million in the prior year, primarily related to capital recycling activities at our US gas pipeline. Lastly, FFO from our data segment was $333 million, representing a 21% increase over the prior year. Their increase is attributable to strong organic growth and the contribution of several new investments completed over the last 12 months, including three data center platforms and a power portfolio in India. Taking a closer look at our data storage numbers, we've invested over $9 billion of capital across three primary digital infrastructure verticals, namely data centers, fiber networks, and telecom towers. Data centers are one of the most significant areas of investment, with over $3.6 billion of capital invested in the last six years alone. Putting aside our investment in a U.S. retail co-location business, we have approximately $2.8 billion invested in high-growth, global, hyperscale data center platforms. The organic growth backlog in these businesses is approximately $1.4 billion at our share and is anchored by long-term, availability-based contracts with highly creditworthy counterparties. As we execute our backlog of growth, we are very focused on maintaining our project-level returns. We will not pursue growth at all costs and have maintained our yield on costs on new developments. We anticipate being able to enhance returns in the years ahead as we execute our strategy to sell fully contracted sites as they are built. This will create liquidity to fund future growth as well as crystallized significant developer profits. Before turning it over to Sam, I'd like to briefly touch on the macroeconomic backdrop and the strong positioning of our base business. There's been focus on a change in the government in the US and the resulting shift in policy, including the timing and magnitude of potential tariffs on foreign imports. Simultaneously, the US economy is showing strength and employment levels remain robust. Long-term interest rates have increased recently and remain at elevated levels as investors temper their expectations around future interest rate cuts and anticipate a prolonged period of higher inflation. As we've demonstrated, we are well positioned to benefit from higher inflation in our business. Our businesses provide essential services with regulated or contracted revenue streams, many of which are indexed to inflation. During the past three years, inflation has contributed meaningfully to our FFO growth, averaging more than a 5% annual compound growth rate. Today, our business remains highly indexed to inflation, which we expect will continue to drive organic growth into 2025. At the same time, we've been proactive in managing our capital structures and mitigating risks relating to interest rates at both the corporate and portfolio company levels. We completed over $9 billion of non-recourse asset level financings during the past year. And today, our weighted average debt maturity is eight years, of which 90% of our debt is fixed rate. This strong position not only mitigates the risk, but allows the benefits of inflation to compound in our results, with limited impact from rising interest rates. Put very simply, increased revenue from inflation indexation and fixed interest costs equals greater bottom line cash flow over time. That concludes my remarks for this morning, and I'll now turn the call over to Sam.

Thank you, David. That was great. And good morning, everyone. For my remarks today, I'm going to discuss our capital recycling initiatives and then conclude with an outlook for the year ahead. In 2024, we achieved our targeted $2 billion of capital recycling proceeds in a challenging but improving asset sale environment. As we ended the year, we were seeing greater investor interest in high-quality infrastructure assets and a larger universe of buyers able to transact. This momentum has accelerated into 2025, and I'm pleased to announce that we've already secured approximately $200 million in proceeds from asset sales just one month into the new year. At our global intermodal logistics operation, we agreed to sell a minority equity interest in a portfolio of fully contracted containers. In total, we expect to receive over $120 million, with closing expected in the first half of 2025. This inaugural sale provides a structure and framework for us to further monetize, de-risk and contracted assets, which will generate meaningful liquidity at attractive returns. At a North American hyperscale data center platform, we secured the sale of a non-core site to a technology company. The sale was transacted at an attractive capitalization rate and will generate gross proceeds of over a billion dollars and crystallize developer profit of approximately $350 million. proceeds after debt repayment and transaction costs will be about $400 million, resulting in net proceeds of BIP of over $60 million with closing expected later this year. We believe the level of asset sale activity we've experienced so far in 2025 will be indicative of the year ahead. We have several advanced transactions that should be signed in the first half of the year, and we are very confident in our ability to deliver the $5 to $6 billion in asset sale proceeds that we've got it to over the next two years. Supporting this confidence is the return of buyers for core assets, which many of our mature businesses target from a risk return perspective on exit. We've seen this activity firsthand in Brookville's own super core infrastructure fund, which has been experiencing an influx of capital as fundraising increased to the highest levels in almost three years at the end of 2024, and this has continued into 2025. With respect to the outlook for growth, we feel very positive. As David mentioned in his remarks, much of our data segment's value is not yet reflected in our current financial results, given its development-focused profile. However, as projects come online, we expect them to contribute meaningfully to earnings and drive overall growth in the coming years. In terms of new development, We've entered 2025 with a pipeline of early-stage capital deployment opportunities that is the deepest it's been in years. Activity levels continue to improve, and the need for private capital to invest in critical infrastructure globally continues to rise. This creates ample opportunities for large-scale, well-capitalized global infrastructure owners and operators like us. Digitalization remains a key driver of our current deal flow. with the data sector accounting for over 40% of our anticipated capital deployment. We expect growth in this sector to persist, outpacing all other areas of our business and positioning it to become our largest sector within five years. We are also excited by the deployment opportunities in other segments of our portfolio that are benefiting from digitalization, such as our midstream and utility sectors, both of which we expect to be actively deploying capital in the years ahead. So that concludes my remarks, but before we go into our formal Q&A, we thought we'd call an audible and have someone from our team address the news that came out this week regarding DeepSeq. And so in that regard, I'd like to welcome Roberto Marcogliese, who is the head of our telecom business here in North America. And I thought I'd just pose a question to him that's probably on a lot of people's minds. And Rob, I guess the simple question is, you know, what happened this week? What is the news regarding DeepSeek and what they did? And how does that impact our business going forward?