Brookfield Infrastructure Partners L P : Q1 2022 Transcript

Brookfield Infrastructure Partners

(Q1 2022 Results)

May 4, 2022

Corporate Speakers

• • David Krant; Brookfield Infrastructure Partners Limited; CFO

• • Scott Peak; Brookfield Infrastructure Partners L.P.; CIO, North America

• • Sam Pollock; Brookfield Infrastructure Partners Limited; CEO

• • Ben Vaughan; Brookfield Infrastructure Partners Limited; COO

Participants

• • Cherilyn Radbourne; TD Securities Equity Research; Analyst

• • Robert Kwan; RBC Capital Markets; Analyst

• • Robert Catellier; CIBC Capital Markets; Analyst

• • Robert Hope; Scotiabank Global Banking and Markets; Analyst

• • Andrew Kuske; Credit Suisse AG; Analyst

• • Dimitry Khmelnitsky; Veritas Investment Research Corporation; Analyst

• • Naji Baydoun; Industrial Alliance Securities Inc.; Analyst

PRESENTATION

Operator: Thank you for standing by and welcome to the Brookfield Infrastructure Partners First Quarter 2022 Results Conference Call and Webcast. (Operator Instructions)

And now I'd like to introduce your host for today's program, David Krant, Chief Financial Officer. Please go ahead, sir.

David Krant: Thank you, operator, and good morning, everyone. Welcome to Brookfield Infrastructure Partners First Quarter 2022 Earnings Conference Call. My name is David Krant, and I am Chief Financial Officer of Brookfield Infrastructure Partners. Joining me today is Sam Pollock, our Chief Executive Officer, and Scott Peak, our Chief Investment Officer for North America. Following our prepared remarks Ben Vaughan, our Chief Operating Officer, will join us to take your questions.

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 annual report on Form 20-F which is available on our website.

I'd like to begin with a few comments around the current macroeconomic environment. Top of mind for investors today are the elevated inflation levels, rising interest rates and decelerating global growth that creates headwinds for many industries. During these periods, the infrastructure sector generally outperforms. The growth and resiliency inherent in infrastructure assets is derived from inflation-linked revenues and the ability to pass through operating costs to customers. Exposure to rising interest rates is mitigated by long-term capital structures largely on a fixed rate basis, given the highly predictable cash flows these assets produce.

From a valuation perspective, the established frameworks employed across revenue, expense and debt financing protect or expand margins through revenue compounding, offsetting increases in our capital cost. These attributes in combination with strong operational performance and last year's successful capital deployment have resulted in record results to start the year.

We are pleased to report Funds from Operations, or FFO, of $493 million, a 14% increase year - over-year. This was the highest in our partnership's history. FFO per unit of $0.96 was 3% above of the prior year as a result of the shares issued in conjunction with the acquisition of Inter Pipeline, or IPL, and the equity offering completed November, that has yet to meaningf ully contribute to our first quarter results. After removing the weather-related outperformance f rom our gas storage business last year, total FFO increased 35% and FFO per unit increased 22%.

Organic growth was robust at 10%, reflecting the benefits of elevated inflation impacting our tariffs and the commissioning of approximately $1 billion in new capital projects over the last 12 months. Our base business continues to perform well, benefiting from outperformance in utility and transport segments. Additionally, results from our North American midstream operations have benefited from IPL's first full quarter contribution, as well as outsized cash f low due to higher asset utilization, and a notable increase in commodity-sensitive revenues.

Taking a closer look at our operating results by segment, starting with Utilities, we generated FFO of $167 million, an increase of 8% on a same-store basis. Organic growth for the segment reflects higher than historical levels, given the inflation indexation and the fact that we commissioned approximately $450 million of capital into the rate base during the last 12 months. Results also benefited from the partial contribution of the Australian regulated utility we acquired in February.

OurUKregulateddistributionbusinesscontinuestoexperiencestrongsalesactivity,endingthe quarter with over 100,000 new connections sold, a 32% increase quarter over quarter . This is the second-highest quarterly result on record, largely attributable to water connection sales.

At our Brazilian regulated gas transmission operation, we secured its first growth project as a result of strong demand from its key customer. This low-risk project will expand the existing network by 11 kilometers and is underpinned by a ship-or-pay contract with inflation and tariff increases over a 15-year term, similar to our existing business. Our investment will be approximately $60 million, with BIP's share being $20 million.

Moving to our transport segment, FFO was $185 million, a 14% increase over the prior year, as the segment continues to perform well under constrained supply chain conditions. Higher traf fic levels on our toll road portfolio were balanced by land moves at our diversified terminal, and lower volumes transported across our rail networks due to weather -related delays.

Strong customer demand and activity levels have increased rates generally in line with inflation . Overall, our annualized rate increase across our portfolio is approximately 6% for the year, with potential room to further increase.

FFO from our diversified terminals increased by 40% compared to the first quarter of 2021. Our port operations maximized ancillary revenues by providing short-term storage solutions to our customers, offsetting lower volumes from shipping delays and transportation availability. Our U.S. LNG export terminal continues to experience strong demand. We recently completed an expansion that added a sixth commercial liquefaction train, bringing total LNG capacity to

30 million tons annually. We expect this expansion to contribute to increased annual run-rate EBITDA, underpinned by long-term take-or-pay contracts with diversified counterparties.

In our midstream segment, we generated FFO of $196 million, a step-change increase from 2021 levels. After removing the outperformance of our gas storage operations in the prior year, midstream results have more than doubled, primarily due to the first full quarter contribution from IPL. Organic growth for the segment reflects the stronger commodity price environment and higher utilization of our existing infrastructure, which has sufficient excess capacity to accommodate additional demand from our customers.

At IPL, we are experiencing increased customer demand and benefit from an overbuilt strategy employed on a long-haul pipeline. During the quarter we executed long-term transportation service agreements that combined, will add approximately $50 million of Canadian annual run - rate EBITDA by 2025.

We continue to progress to completion of the Heartland Petrochemical Complex in a safe and reliable manner. Utilizing the strategic connectivity of our adjacent red water access we plan to start up the facilities on a sequential basis, beginning with the polypropylene plant in Q2, followed by the startup of the propane dehydrogenation plant in Q3. Our current plan is to gradually ramp up production through the balance of the year. Demand for North American polypropylene continues to be robust, with end-use customers excited about the introduction of our ESG-friendly product and geographic diversity of supply.

FFO from our data segment was in line with the prior year at $58 million. Underlying growth from additional points of presence and inflationary tariffs escalators, were offset by lower revenues at our U.S. data center operation that we're repositioning for hyperscale growth, as well as the impact of foreign exchange.

We continue to focus advancing a number of capital products across our data storage sub-segment, as customer demand continues to grow globally. Today, we have active developments at seven data centers in five different countries. Once complete, we expect to add 25 megawatts of additional capacity to our portfolio.

I'd now like to touch on the strength of our balance sheet. In recent years, we have spent considerable effort proactively managing our corporate and asset-level balance sheets. Our financing strategy of securing long-duration fixed-rate debt has been successful with less than 1% of our asset level debt maturing in 2022, and no corporate maturity until 2024 .

Despite a volatile backdrop of rising interest rates, capital markets have remained supportive for the high-quality contracted and critical infrastructure that we own. In April, we further enhanced our corporate balance sheets and supplemented our liquidity through a C$600 million note issuance. The offering was oversubscribed and well-received and split between a 12 -year and 30-year tranche, with an average coupon of approximately 5.5%. Following the note offering, corporate liquidity totaled nearly $3 billion, which we plan on enhancing through our advanced capital recycling initiatives currently underway.

Before I turn the call over to Scott, I'd like to report on a corporate matter that we recently approved at our board of directors. We have today, a three-for-two stock split for Brookfield Infrastructure Partners' units and Brookfield Infrastructure Corporation 's shares. The split will b e effective on June 10th for unitholders and shareholders of record at the close of business on June 6th.

Following the strong relative performance of our shares and units over the last few years, we think that this split will ensure that our public securities remain accessible to individual holders and improve the liquidity of our units and shares. It is important to note that this split will not dilute our existing investors and will not be taxable in Canada or the United States . As the shar e and unit split takes effect after the record date for the June distribution, it will not affect the announced distribution for the quarter which remains at $0.54 per unit.

I'd like to thank you all for your time this morning, and I'll now pass the call over to Scott.

Scott Peak: Thank you, David, Good morning, everyone. I'm pleased to be joining today's call to discuss natural gas as a reliable transition fuel and a path to energy security. We are operating in a market environment of disrupted supply chains and rising commodity prices. The impact of recent geopolitical events has raised commodity prices to levels not seen in years and reinforced the importance of energy security.

Natural gas, and more specifically, LNG, will continue to be a leading transition fuel in the move towards net zero. It is also expected to play a key role in providing global energy security. These elements highlight the valuable role our critically located infrastructure plays in the processing, transportation and distribution of natural gas.

Our North American midstream businesses are well positioned in the key markets currently benefiting from high utilization rates, and increasing commodity prices. These businesses typically reserve a small portion of operational capacity as uncontracted to provide operating flexibility. Under the backdrop of the current market, this available capacity has generated incremental revenue that has contributed to our strong f inancial performance .

An indirect benefit of a constructive commodity environment is its impact on our energy customers, who are currently experiencing strong cash flow and strengthening balance sheets . These tailwinds to our customers' financial profile, coupled with improving market sentiment is expected to incent reinvestment into their operations.

After several years of more limited production growth, we anticipate a renewed interest in customer-initiated infrastructure expansion projects to increase capacity and throughput across our asset base. Today, we own three businesses that are expected to benefit from increased demand for LNG. There is significant interest in securing capacity at U.S. LNG export terminals. Customers on our U.S. natural gas pipeline are discussing the contracting options for a third phase of our Gulf Coast egress. Lastly, our Canadian midstream business is well situated to process and support gas deliveries to West Coast LNG export terminals currently under construction.

In addition to traditional energy businesses, our utility operations play a vital role in the transportation and distribution of natural gas to residential and industrial customers. In each of the countries we operate, energy regulators are advocating for energy security and diversification of supply that includes natural gas as a transition fuel and reliable source of base load generation.

The more limited investment in traditional energy supply and the intermittency of renewable power have created more scarcity value for our assets. As we continue to expand our f ootprint and recontract our assets on attractive terms, we are well positioned to deliver strong returns on both our in-place businesses and our capital recycling initiatives in the years to come. That concludes my remarks for today. I will now pass the call over to Sam.

Sam Pollock: Thank you Scott, and good morning, everyone. On today's call, I'm going to discuss some of the strategic initiatives as we have underway, and then I'll conclude with an outlook for the business. Overall, as David has discussed, we've had a strong start to the year . On top of our operational achievements and strong financial performance, we've secured nearly $1 billion of investment opportunities leading us to believe that 2022 is shaping up to be an excellent year.

We continue to see opportunities to execute our full cycle investment strategy across all segments and geographies in which we operate. We successfully invested approximately $750 million into two utility investments, including the take private of an Australian regulated utility business called AusNet and the acquisition of an Australian smart metering business called Intellihub.

Subsequent to quarter end, we announced an agreement to acquire Uniti Group in an A$3.7 billion take private transaction through a 50-50 joint venture partnership with another infrastructure investor. Total Brookfield equity for the investment is estimated to be approximately $850 million, with BIP's share at approximately $200 million.

Uniti provides wholesale and retail telecommunications services to customers and businesses in Australia. Strategically, this investment provides exposure to the country's largest pure play greenfield fiber-to-the-home wholesale operator with a stable and predictable recurring revenue stream and a significant backlog.

This business has similarities to our fiber-to-the-home product that we sell in our UK last mile connections business, and this is what attracted us to acquire it. The investment is expected to close in the third quarter of 2022.

In total, BIP has deployed or secured nearly $1 billion in equity thus far in 2022, and this represents over 60% of our estimated $1.5 billion in annual deployment that we look to target. We have a high degree of confidence in our ability to exceed the balance of our target , based on the robust pipeline of advanced opportunities that our global investment teams are pursuing . Our access to capital, local presence, an active operating approach are expected to continue to differentiate us from others.

We also continue to be active on the capital recycling front and expect to generate up to $2 billion over the next year or so. Most advanced are the sales processes for our Indian toll road business and our 2,400 kilometers of newly constructed electricity transmission lines in Brazil. Both processes are anticipated to result in binding commitments in the coming weeks and be concluded in 2022.

Generally, our capital recycling program continues to attract lower cost of capital buyers searching for de-risked and mature core infrastructure assets. In addition to sales, our current cooperative equity stands near $3 billion, which positions us well to fund a growing pipeline of accreting new investments.

I'll now conclude my remarks with a few comments regarding our outlook for the business, which is very positive. From a macro perspective, we continue to see the significant capital needed globally to build out data infrastructure networks, de-bottleneck supply chains, and decarbonize the energy and transportation sectors.

On top of this, geopolitical challenges have led countries to emphasize the onshoring of critical supply chains and industries. This phenomenon has been referred to as de-globalization and