Brookfield Infrastructure Corporation (NYSE:BIPC) Q1 2024 Earnings Call Transcript

Brookfield Infrastructure Corporation (NYSE:BIPC) Q1 2024 Earnings Call Transcript May 1, 2024

Brookfield Infrastructure Corporation isn’t one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).

Operator: Hello, and welcome to the Brookfield Infrastructure Partners’ First Quarter 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. [Operator Instructions] Please be advised that today’s conference call is being recorded. It is now my pleasure to introduce Chief Financial Officer, David Krant.

David Krant: Thank you, operator, and good morning, everyone. Welcome to Brookfield Infrastructure Partners’ First Quarter 2024 Earnings Conference Call. As introduced, my name is David Krant, and I’m the Chief Financial Officer of Brookfield Infrastructure. I’m joined today by our Chief Executive Officer, Sam Pollock; and our Chief Operating Officer, Ben Vaughan. I’ll begin the call today with a discussion of first quarter 2024 financial and operating results, followed by some brief remarks on our 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 annual report on Form 20-F, which is available on our website. Brookfield Infrastructure’s business recorded an excellent start to the year. During the first quarter of 2024, we generated funds from operations, or FFO, of $615 million representing an 11% increase over the prior year period. This increase reflects organic growth of 7% as well as contributions associated with over $2 billion of capital deployed in the second half of last year. We’ve been pleased with the performance of our new investments. Notably our newest data center platforms in North America and Europe.

While it is early, the momentum building in each of these businesses positions us to exceed our initial return expectations. Taking a closer look at our results by segment, our utilities generated FFO of $190 million compared to $208 million in the same period last year. The lower reported result is primarily attributable to capital recycling initiatives completed over the last 12 months, most notably the sale of our interest in an Australian regulated utility. After adjusting for asset sales and financings completed, organic growth for the segment was 8%. This growth is primarily attributable to inflation indexation and the commissioning of over $450 million of capital into the rate base during the last 12 months. Moving to our Transport segment.

A deep sea tanker vessel laden with liquified natural gas, contrailing a majestic stream of white smoke.

FFO was $302 million representing a 57% increase over the same period last year. The step change is largely attributable to the acquisition of Triton, which is performing well above our plan. Geopolitical events in the Middle East have resulted in lengthening of certain shipping trade routes, thereby increasing global demand for containers. As a result, Triton’s fleet utilization has increased to over 98% while also securing attractive rates on recently contracted long duration leases. This is in contrast to the reduction in utilization we had conservatively underwritten in anticipation of reduced global economic activity. The balance of our transport operations grew by 10% driven by inflationary tariff increases and higher volumes. Our rail networks and toll roads realized average rate increases of 9% and 7%, respectively, over the same period last year, highlighting the benefits of inflation indexation.

Traffic levels on our roads increased by 4%, and our diversified terminals recorded 7% higher volumes. Our Midstream segment generated FFO of $170 million which is comparable to the prior year after excluding the impact of capital recycling initiatives. Although our direct commodity exposure is limited, the prevailing environment has been very favorable for customer activity levels and demand for our critical midstream assets. This demand has been most robust across our North American gas storage operations where the fundamentals for the business continue to improve. Growth in North American LNG export capacity, the necessity of gas as a backup for intermittent generation sources and extreme weather based events continue to support storage rates and contract duration.

As a result, we have successfully increased FFO at a compound annual growth rate of over 20% in the past five years. As we have highlighted before, last year we sold our interest in two non-core U.S. gas storage assets to strategic buyers. Through these sales and the dividends received during our ownership, we have returned more than our original invested capital and still own one of the largest independent gas storage businesses in North America as of today generates over $240 million of EBITDA annually. Lastly, FFO from our Data segment was $68 million which is comparable to the same period last year. Results for the quarter benefited from a full contribution from our German telecom tower operation, two hyperscale data center platform acquisitions and the purchase of 40 retail colocation data centers out of bankruptcy.

These acquisitions were largely offset by the sale of our interest in a New Zealand integrated data distribution business, which closed in June of last year. Focusing on our global data center platform, we continue to see significant activity from the major hyperscale customers. As a result, we have been able to commercialize significant capacity on favorable contract terms that are long duration and underpinned by highly creditworthy counterparties. Today, we have approximately 670 megawatts of booked but not built capacity that we expect to come online over the next three years. In the last 12 months, we have commissioned approximately 40 megawatts, which is expected to contribute roughly $45 million of run rate EBITDA on 100% basis. In addition to the strong financial and operational start to the year, we have an excellent financial position.

While macro debates on the pace and size of interest rate cuts by central banks has been recently influencing market behavior, we believe that investors will return to their focus on the micro factors that are key to differentiating businesses over the long-term. Today, despite higher interest rates, our business is the strongest it has ever been. This is evidenced by our current revenue profile and sector tailwinds driving our organic growth outlook. In terms of our revenue profile, approximately 90% of these cash flows are regulated or contracted and also inflation protected. This provides tremendous resiliency in this environment. Our sector leading organic growth is highly correlated to the two most significant trends of this decade, namely decarbonization and digitalization.

The investments we are currently making in our transmission, residential decarbonization, semiconductor and data center businesses will fuel our growth for many years to come. Lastly, I wanted to touch on the strength of our balance sheet and the debt of debt capital markets. Credit markets have performed exceptionally well thus far in 2024. Investment grade index spreads remain only modestly higher than post financial crisis lows despite nearly $500 billion of supply in the first quarter. This environment has provided a constructive backdrop to opportunistically derisk and optimize capital structures of many of our businesses while taking advantage of record low spreads. Following an active quarter of re-financings today, over 90% of our capital structure is fixed rate with an average term of seven years.

Only 4% of our asset level debt is maturing over the next 12 months, and we have no corporate maturities until 2027. Based on where interest rates are today and recently completed or well-progressed financings, we expect less than $600 million of asset level maturities in 2024 to have higher borrowing costs than those in place today. Moreover, our corporate liquidity at the end of the first quarter remained strong with over $2 billion available to support our growth initiatives. That concludes my remarks for this morning, and I’ll now turn the call over to, Sam.

Sam Pollock: Thank you, David, and good morning, everyone. As Dave mentioned at the outset of the call, I’m going to provide an update on our strategic initiatives and conclude with an outlook for the year ahead. As we’ve advanced through 2024, market conditions have continued to improve. Activity levels for M&A processes have increased, and as a result, the environment for transacting should be more balanced this year as compared to the prior year. We’ve made significant progress in our capital recycling plant, securing $1.2 billion in proceeds, of which $1.1 billion has been closed to-date. This success sets us up well to achieve our $2 billion annual capital recycling target regardless of transaction activity in the sector.

In April, we signed binding documentation to sell the fiber platform within our French Telecom Infrastructure business. The transaction has an enterprise value of over EUR1 billion and is expected to result in an IRR of 17% and a multiple of capital of approximately 1.9 times. We’ve created this greenfield fiber development segment in 2017 and quickly scaled the business to become a leading wholesale fiber-to-the-home network in the region. We expect to generate up to $100 million in proceeds when the transaction closes later this year. The balance of our capital recycling initiatives were completed through opportunistic asset level financing to right-size capital structures and pull forward future sale proceeds. During the quarter, we completed a $1.6 billion financing at our Brazilian regulated gas transmission business that resulted in approximately $500 million of proceeds.

This recapitalization takes advantage of the strong demand for high-quality issuance in Brazil and low leverage levels at the company. When combined with two previously completed re-financings, we have generated over $1 billion for the partnership and successfully reduced the equity required from future buyers. Moving to acquisitions. The investment pipeline remains quite full, but we are being very selective in pursuing only those opportunities with high-risk adjusted returns. There are significant number of organic and tuck-in opportunities that are our primary focus at the moment since these are typically our highest returning investments. Our largest investment in the quarter was a low-risk follow-on investment. We acquired an incremental 10% stake in our Brazilian integrated rail and logistics provider from an existing shareholder for approximately $365 million.

The purchase increased our ownership in a high-performing business with strong fundamentals at an approximately 20% discount to our view of fair value. The other initiative we are advancing is the follow-on acquisition of a portfolio of telecom towers in India, which is expected to close in the fourth quarter. The total equity consideration is $1 billion with our share expected to be approximately $150 million. We’re also screening a large pipeline of early-stage M&A opportunities that we believe could achieve returns in excess of our targets. These opportunities range from asset carve-outs to strategic partnerships and are concentrated in OECD countries in Asia Pacific, North America and Europe. As we look ahead, the longer term outlook for the global economy remains positive.

However, our expectation is that we may experience several additional quarters of volatility as we settle into a flat-to-lower interest rate environment, and geopolitical situations in Europe and the Middle East remain unresolved. Nonetheless, in this environment, infrastructure assets should continue to attract significant interest from institutional investors worldwide as a source of stability for their portfolios. This interest in this sector is best exemplified by new allocations to the asset class, which we’ve seen accelerate over the past six months. In addition, we are also witnessing significant excitement about the growth in the data sector driven by the tailwinds created from digitalization, including advancements in AI and the build-out of fiber and telecom networks to support the growth in data consumption.

Overall, we believe our strong business performance and strategic outlook outweighs any factors related to the near-term interest rate environment. Over the long run, interest rates will stabilize, but there are few infrastructure businesses like ours that are globally diversified across sectors and geographies that can offer investors a stable and growing distribution, which over time will easily overtake any interest rate increases. This global footprint continues to be a competitive advantage and enables us to arbitrage various economic conditions to buy and sell attractive assets at valuations in the same market, same environment. This concludes my remarks, and I will now pass it over to the operator, for Q&A.

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