Brookfield Infrastructure (BIP) Reports Solid Performance

Brookfield Infrastructure Partners L.P (BIP) (a spinoff of Brookfield Asset Management BAM) reported earnings today. It was a solid performance. You may recall BAM owns
30% of BIP and this performance should have a positive impact on BAM’s earnings to be released on 2/17/2012.

BIP Profile (per filings):

Brookfield Infrastructure owns and operates high quality, long-life assets that generate stable cash flows, require relatively minimal maintenance capital expenditures and, by virtue of barriers to entry or other characteristics, tend to appreciate in value over time. Our current operations consist of utility businesses, transport and energy businesses and freehold timberlands in North and South America, Australasia and Europe.

Our vision is to be a leading owner and operator of high quality infrastructure assets that produce an attractive risk-adjusted total return for our unit holders. To accomplish this objective, we seek to leverage Brookfield’s best-in-class operating platforms to acquire targeted assets and actively manage them to extract additional value following our initial investment. Brookfield has a strong track record of  executing such transactions and actively managing underlying assets to improve performance.

Our objective is to earn a total return of 12% to 15% per year on the infrastructure assets that we operate, measured over the long-term. This return will be generated from the in-place cash flow of our current operations plus growth. We endeavor to manage our operations to generate increasing FFO per unit over time. If we are successful in doing so, we will be able to increase distributions to unit holders.
Additionally, the increase in our FFO per unit should result in capital appreciation.

Map of global operations:

Summarizing BIP’s 2/9/12 release:

Note: FFO (Funds from Operations) is equal to net income plus depreciation, depletion and amortization, deferred taxes and certain other items.  

Summary of 2011:

  • Funds from operations (FFO) per unit grew 35% to $2.41
  • Increased distributions per unit (dividends) by 20% over 2010 levels
  • Infrastructure units appreciated by 32% on the New York Stock Exchange
  • Total return to unit holders of 39%

Outlook for 2012:

  • Positioned to deliver further growth for our unit holders
  • Closed equity offer in October of 2011 to fully fund our capital backlog
  • Expect to earn returns well in excess of our 12-15% objective
  • Capacity to fund new organic growth projects and attractive acquisitions
  • Board of Directors approved a 7% increase in distribution to $1.50/per unit (5.2%)
  • Dividend payout ratio at 55% of FFO vs. target range of 60-70%, room to grow

Operations:

  • Earned FFO of $392 million in 2011 compared with $197 million in 2010
  • Doubling of FFO primarily driven by our merger with Prime Infrastructure

Utilities Business:

  • Generated FFO of $275 million vs. $144 million in 2010
  • Australian coal terminal’s cash flow increased 15% over 2 the prior year
  • Chilean transmission business posted a steady increase in FFO
  • Significant growth in UK regulated distribution business
  • For the year utilities business earned an AFFO yield of 16%

Transport and Energy:

  • FFO was $167 million in 2011 compared to $91 million in 2010
  • North American gas transmission was adversely affected by a FERC rate settlement
  • Weak market conditions caused by low natural gas prices
  • Commissioning of nine billion cubic feet per day of new pipeline infrastructure
  • Railroad’s grain volume down 40% vs. 2010 due to severe drought in Western Australia
  • Record grain harvest starts 2012 40% above normal levels with a strong tailwind
  • Port business’ in UK and continental Europe consistent with 2010
  • In 2012 UK port beginning to generate incremental revenue from Corus steel mill
  • Steel mill completed over 90% of the upgrades required to re-open facility
  • UK ports’ revenues will step-up during 2012 as this facility comes on-line
  • Overall yield for transport and energy segment was 7% for the year below expectations
  • Expect AFFO to improve substantially over several years with expansion at railroad

Timber:

  • Timber business significantly increased with FFO of $33 million vs. $11million in 2010 Substantial demand for timber in China and other Asian countries
  • Demand from China moderated in the second half of the year, Japan and Korea strong. Average realized prices in 2011 increased 14% over 2010 levels
  • Harvest increased by 28% over 2010 to 99% of long-run sustainable yield
  • AFFO yield for timber business was 6% in 2011
  • Asia to remain strong, plan to increase harvest to 120% of long-run sustainable yield

Corporate

  • October issued $660 million of equity net of expenses, proceeds to:
  • Investment in Chilean toll road & pay down credit facility used for investments in Australian railroad
  • Closed a A$350 million credit facility at Australian railroad to fund expansion program
  • With these financings have fully funded capital backlog
  • Ended the year with $1.5 billion of group-wide liquidity
  • In 2012, will seek to proactively refinance debt portfolio and extend maturities
  • In 2012 retiring holding company debt for natural gas transmission and Prime merger

Growth

BIP has numerous organic growth opportunities underway. Rather than posting a long
list, please see the management presentation for unit holders and the 4Q2011
letter to unit holders
.

Note:

Brookfield Infrastructure Partners L.P (BIP) is a core holding in my portfolio. My portfolio has two primary components; core holdings and the more speculative special situations. Core holdings are companies that meet most if not all of Warren Buffett’s 12 principles of investing and are held as long as they continue to show favorable prospects, pay a dividend and don’t become overvalued. They make up the larger portion of my portfolio. Special situation are more speculative in nature, higher risk and are sold once intrinsic value is reached. Special situations make up the smaller portion of my portfolio. Brookfield Asset Management (BAM) is an example of a core holding and American Capital Limited (ACAS) a special situation.

Disclosures:

I am long BIP, BAM, BREP and ACAS.

The information contained herein is provided for informational purposes only, is not comprehensive, does not contain important disclosures and risk factors associated with investments, and is subject to change without notice. The author is not responsible for the accuracy, completeness or lack thereof of information, nor has the author verified information from third parties which may be relied upon. The information does not take into account the particular investment objectives or financial circumstances of any specific person or organization which may view it. Nothing contained within may be considered an offer or a solicitation to purchase or sell any particular financial instrument. Before making any investment, investors are advised to review such investment thoroughly and carefully with their financial, legal and tax advisors to determine whether it is suitable for them.

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