Brookfield Infrastructure Partners L P : Q4 2021 Transcript

Brookfield Infrastructure Partners L.P

(Q4 2021 Results)

February 02, 2022

Corporate Speakers:

• David Krant; CFO of Brookfield Infrastructure Partners
• Sam Pollock; CEO of Brookfield Infrastructure Partners
• Ben Vaughan; COO of Brookfield Infrastructure Partners

Participants:

• Cherilyn Radbourne; TD Securities Equity Research; Analyst
• Robert Kwan; RBC Capital Markets; Research Division, MD & Energy Infrastructure Analyst
• Robert Catellier; CIBC Capital Markets; Research Division, Executive Director of Institutional Equity Research
• Frederic Bastien; Raymond James Ltd.; Research Division, MD & Equity Research Analyst
• Devin Dodge; BMO Capital Markets Equity Research; Analyst
• Naji Baydoun; Industrial Alliance Securities Inc.; Research Division, Senior Equity Research Analyst
• Robert Hope; Scotiabank Global Banking and Markets; Research Division, Analyst
• Patrick Kenny; National Bank Financial, Inc.; Research Division, MD
• Andrew Kuske; Credit Suisse AG; Research Division, MD, Head of Canadian Equity Research and Global Coordinator for Infrastructure Research

PRESENTATION

Operator

Good day, and thank you for standing by. Welcome to the Brookfield Infrastructure Partners LP Fourth Quarter 2021 Results Conference Call and Webcast. Please be advised that today's conference is being recorded. I would now like to hand the conference over to David Krant, Chief Financial Officer. Please go ahead.

David Krant

Thank you, Shannon, and good morning, everyone. Thank you all for joining us f or Brookfield Infrastructure Partners' Fourth Quarter Earnings Conference Call for 2021.

As introduced, my name is David Krant, I'm the Chief Financial Officer of Brookfield Infrastructure Partners. Joining me today is Sam Pollock, our Chief Executive Officer, and Ben Vaughan, our Chief Operating Officer. Following our remarks, we look forward to taking your questions.

At this time, I'd like to remind you that in responding to questions as well as talking about our growth initiatives and our financial and operating performance, we may make forward-looking statements.

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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.

Now, over the last two years, Brookfield Infrastructure's cash flows has demonstrated tremendous resilience and sustainability, providing further validation of the attractiveness of the infrastructure sector as an asset class. In 2021, we further enhanced the quality of our business by opportunistically deploying capital into several attractive investments and organic growth projects.

Furthermore, the monetization of several mature businesses at strong valuations has generated significant liquidity to fund our growth initiatives at a low cost of capital. Consequently, Brookfield Infrastructure is well positioned to continue its growth trajectory in the years ahead.

We are pleased to announce that as a result of our strong financial and operating perf ormance and robust liquidity position, our Board of Directors has approved a quarterly distribution increase of 6%, to $0.54 per unit in 2022. This marks the 13th consecutive year of distribution increases, reflecting our positive outlook.

In addition to this distribution increase, our business achieved many other milestones over the past year, including solid performance across all of our operating segments, resulting in organic growth of 9%, deploying over $3 billion into growth initiatives, including the acquisition of Inter Pipeline, or IPL, and a $13 billion privatization, securing half of 2022 capital deployment through the two Australian utility acquisitions, generating $2 billion of proceeds from the com pletion of four sale processes, and finally, raising almost $3 billion in capital markets, ensuring strong liquidity levels.

Now, switching from accomplishments to our results for the year. We reported FFO or Funds from Operations of $1.7 billion or $3.64 per unit, a notable annual increase of 19% and 15% on a total FFO and per unit basis, respectively.

We ended the year on a very strong note, generating fourth quarter FFO per unit of $0.97, which exceeded the prior year by 13% and reflects a payout ratio of 68%. Results were supported by strong growth from our base business, the full recovery from shutdown related effects experienced in 2020, and the significant contribution from over $3 billion deployed in growth initiatives.

Organic growth for the year, as I mentioned, was 9%, reflecting the initial benefits of elevated inflation levels, the commissioning of nearly $900 million in capital projects over the last year and higher market-sensitive revenues, driven primarily by increased demand for transpo rtation services.

Taking a closer look at our operating performance by segment, starting with Utilities, we generated FFO of $705 million, compared to $659 million in the prior year. FFO growth on a same-store basis was an impressive 11%.

This growth reflects inflation indexation and commissioning of approximately $430 million of capital into our rate base and higher extensions activity at our U.K. regulated distribution business. This business recorded another solid period of sales activity, ending the year with a total of 322,000 new connections. This was the company's best year of sales and was 10% higher than its record previously set in 2019.

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Our residential infrastructure business continued its expansion through new product lines and geographies. In addition to acquiring a leading German residential infrastructure business earlier in the year, in December, we acquired a 60% interest in the second largest independent residential heating installer in the U.K.

At our existing operation in North America, we completed three follow-on acquisitions in the fourth quarter. Most notable, is the acquisition of a residential solar installation and battery storage solutions provider with operations in seven of the U.S. states.

This strategic transaction strengthens our role in the transition to green energy and provides an additional avenue for deploying our rental product offering. Following this acquisition and our partnership with the leading residential generator manufacturer, we are positioned to offer f our complementary utility offerings under long-term inflation index contracts.

At our Brazilian electricity transmission lines, we recently exercised an option to acquire our joint ventures 50% interest in 900 kilometers of operational lines. This increases the portfolio of lines that we own to approximately 2,400 kilometers.

With construction of the initial set of lines now complete, the scalable platform has been significantly de-risked, leading us to launch a sales process for this portion of the business. The process is now underway, and we expect to complete it in the second half of this year.

Moving on to our Transport segment. FFO was $701 million, an improvement of nearly 20% compared with the prior year. Results benefited from strong organic growt h driven by higher volumes, inflationary tariff increases and a full year contribution from our U.S. LNG export terminal.

Our Transport segment is a significant beneficiary of the robust economic recovery in most of our investment markets. Our rail networks continue to benefit from strong demand for bulk goods and commodities that underpin the global economy.

Following its robust performance last year, our North American rail operation has experienced higher carloads, as volumes are 8% ahead of the prior year, with improvements across most product groups. Due to the essential nature of the business, we've been able to protect our margins across each of our operations by reflecting inflationary cost pressures in our tariffs.

At our diversified terminal operations, performance in the current environment continues to be robust, including record FFO during the fourth quarter, results have benefited from a number of positive tailwinds, including improved volumes, higher tariffs and congestion and surcharges, as well as inflation pass-through reflected in rates.

Specifically, at our U.S. LNG export terminal, we continue to benefit from strong global demand and high LNG prices, due to increasing exports to China and low storage levels, particularly in Europe.

This favorable backdrop has facilitated the contracting of excess capacity under multi-year agreements at attractive rates. Additionally, construction of a sixth liquefaction train is progressing ahead of schedule, and substantial completion is expected to be achieved during the first quarter of 2022.

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FFO for the midstream segment totaled $492 million in 2021, an increase of approximately $200 million or 70% compared with the prior year. This step change increase reflects the acquisition of IPL, which was completed in the fourth quarter. Current year results also ref lect elevated commodity prices across our existing businesses.

This price environment and record storage volumes following extraordinary performance in the first quarter of the year led to same-store growth of 43% in 2021. In October, we successfully completed the privatization of IPL, a high-quality Canadian midstream platform providing critical long-term infrastructure.

As a reminder, approximately 80% of the business is contracted, with the majority of our activities secured under long-term cost of service arrangements with an investment-grade counterparties where we take no commodity or volume exposure.

The balance of the business has benefited from strong commodity prices. With res pect to the Heartland Petrochemical facility, construction is now mechanically complete and commissioning activities are on track with a mid-2022 startup.

The data segment recorded FFO of $238 million in 2021, an increase of 21%.

Results reflect the construction of 12,000 telecom tower sites across our portfolios in India and France to accommodate mobile data growth and corresponding network densification requirements. Our highly contracted data transmission and storage businesses have also benefited from inflation indexation and higher rates across the portfolio.

At our French telecom tower business, over 100 towers were added during the quarter, the second highest on record. The co-location of our build-to-suit tower portfolio increased further, given growing demand for the country's major MNOs. Furthermore, the business connected fiber to almost 50,000 new homes, the strongest quarter on record.

We continue to gain momentum with the expansion of our global data storage platform and reached several important milestones during the quarter. First, we secured a second greenfield location in Auckland, New Zealand to support incremental demand from the anchor tenant at its initial site in the country. We also acquired our first site in a highly attractive market of Seoul in South Korea.

In India and Europe, we have been successful in the early stages of our land bank strategy to drive organic data center developments. And lastly, in South America, we commissioned a further 11 megawatts of capacity in the last 12 months. Combined, these capital expansion projects should double adjusted EBITDA for this operating group by the end of 2024.

Before turning the call over to Sam, I'd like to touch on the strength of our balance sheet. With interest rates remaining at historically low levels, despite the onset of inflationary pressures, we accelerated opportunistic issuances and actively secured fixed rate debt with long -dated maturities. This is reflected in our robust credit metrics and strong investment-grade credit rating, which was reaffirmed at BBB+ by S&P in December.

As central banks now turn to policy normalization to combat rising rates, our corporate and asset level balance sheets are significantly de-risked. We have only modest maturities over the next several years. In fact, it's less than 10% over the next 24 months once we're moving

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normal course amortization. Additionally, approximately 90% of term debt, excluding local currency debt in Brazil, is fixed rate with the remaining term across our business of eight years.

As I mentioned, this year was active with respect to refinancing initiatives. During 2021 alone, we raised or secured commitments for a total of approximately $18 billion at the asset level, with the primary objective of refinancing near-term maturities versus increasing leverage at our businesses.

On our capital recycling program, we secured approximately $2 billion of net proceeds this year. Most recently in December, we signed a definitive agreement to sell our 50% owned f reehold landlord port in Victoria, Australia.

Our share of proceeds is expected to be approximately $100 million, which is anticipated to have closed in the late first quarter. Now, these activities resulted in ending the year with total liquidity in excess of $5 billion, of which $3.7 billion resides at the corporate level.

Following the completion of the two secured Australian utility investments, which Sam will discuss momentarily, pro forma liquidity at the corporate level is approximately $3 billion. This provides us with significant capacity to fund incremental new investment opportunities as they are secured this year.

Thank you all for your time this morning. I'll now pass the call over to Sam.

Sam Pollock

Okay. Thank you, David, and good morning, everyone. On today's call, I'm going to begin with a few comments on the current macroeconomic environment and its impact on our business. I'll then discuss some of the strategic initiatives we have underway and then conclude the call with our outlook for the year ahead.

With central banks around the world signaling a transition to tightening monetary policy to control rising prices, we thought it was a good opportunity to outline how inflation and rising interest rates may impact our business.

All else equal, this economic environment is generally favorable for stable infrastructure businesses like ours. Before exploring the tailwinds and potential risks associated with elevated inflation and higher interest rates, we thought we should first caveat the underlying assumptions that frame that outlook.

Now first, the prevailing inflation environment, we think, is a product of many factors, including pandemic-induced supply chain disruptions, fiscal stimulus and labor shortages. In add ition, though, the influences of deglobalization and with some referred to as green inflation or "greenflation" are expected to contribute to longer-term inflation.

Given all these factors, we do not expect current inflation levels to be transitory, i.e., just to last this one year, as a number of factors will likely lead to a period of persistent inflation. However, we also don't anticipate a return to the excessive and long-lasting inflation that occurred back in the 1970s.

Accordingly, this current period of elevated inflation should ultimately stabilize in the next few years, as the Federal Reserve and other central banks raise interest rates and shrink their

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