Brookfield Infrastructure LLP (BIP) Reports 1Q12

Brookfield Infrastructure (BIP) today announced results for the 1Q12.  No surprises here; good solid performance with Australian railroad expansion underway and on schedule. We’ll see most of $150 million cash flow increase over the next four quarters.

For income investors; the railroad cash flow increase itself over the upcoming year is about $.81/unit assuming all else equal. This will eventually lead to a dividend increase of about $.53/unit (assuming mid target payout ratio of 65%) from $1.50/unit to about $2.03/unit yielding about 6.8% on our original investment of $29.82/unit and giving us a nice 35% increase.

Management is patiently waiting for value investment opportunities to develop around the world; seeing more stressed banking assets in Europe; natural gas assets in North America. Our thesis remains on track.

To measure performance on BIP our focus is on funds from operations (FFO) and adjusted funds from operations (AFFO). FFO is net income excluding the impact of depreciation, depletion and amortization, deferred taxes and other non-cash items. AFFO is FFO less maintenance capital expenditures or what Warren Buffet refers to as “owner’s earnings”. FFO is a measure of operating performance and AFFO is a measure of the sustainable cash flow of the business.

BIP posted strong results with FFO totalling $108 million ($0.58 per unit) compared to FFO of $98 million ($0.62 per unit) in 1Q11. A significant increase in FFO from BIP’s transport and energy segment (due to railroad expansion and Chilean toll road) was partially offset by below average performance in its timber business (North America housing and China lumber inventory build) and natural gas pipeline segment (softness in North America natural gas market).

The $0.58 was lower than the prior year due to the impact of the equity issuance in October of last year to fund primarily the ongoing expansion of the Australian railroad. Cash flow from this investment doubled and is expected to increase sharply over the next four quarters.

The 7% distribution increase in February 2012 resulted in a payout ratio at 65%. This is the mid-point of the targeted range of 60% to 70%.

You will recall our investment in hard assets with geographic and currency diversification provide a hedge against inflation or repressive policies.  The added benefit is good upside potential exists over a 3-5 year time frame. While we wait for the appreciation the company is paying a 4.8% dividend with potential to grow.

From the news release:

“Organic growth initiatives, such as the expansion of our Australian railroad, are beginning to contribute meaningfully to our business. Cash flow from this investment will continue to ramp up during the course of the year,” said Sam Pollock, Chief  Executive Officer of Brookfield Infrastructure Group. “We are working on a number of  opportunities to increase the cash flow in all our operating platforms by developing organic projects and selectively making acquisitions.”

Segment Performance

Brookfield Infrastructure’s increase in FFO was primarily driven by the Partnership’s
transport and energy segment with FFO of $62 million, compared to $45 million the previous year. This segment’s strong performance reflects a doubling of FFO from its Australian railroad, as a result of contribution from three expansion projects that have been commissioned and an increase in grain volume following a record harvest in Western Australia.

Brookfield Infrastructure’s utilities segment generated FFO of $65 million in the first quarter of 2012, versus $61 million in the first quarter of 2011. The increase in FFO was driven by inflation indexation, favourable foreign exchange rates, and additions to
rate base across the majority of its operations.

Brookfield Infrastructure’s timber operations reported FFO of $6 million in the first quarter of 2012, compared to $10 million in 2011. This segment’s performance was negatively impacted by a decline in realized prices due to a build up of inventory primarily in the Chinese market, which was partially offset by firm demand from Japan.

The following table presents net income and FFO by segment:

Investment Grade Credit Rating

Brookfield Infrastructure recently engaged Standard & Poor’s (S&P) in a ratings advisory role in relation to the issuance of corporate debt. S&P has initiated coverage of Brookfield Infrastructure with an investment grade rating of BBB+. Brookfield
Infrastructure anticipates completing the corporate debt issue in the next two quarters.

Distribution Declaration

The Board of Directors has declared a quarterly distribution in the amount of US$0.375 per unit, payable on June 29, 2012 to unitholders of record as at the close of  business on May 31, 2012. Distributions are eligible for reinvestment under the Partnership’s Distribution Reinvestment Plan. Information on this Plan and on declared distributions can be found on Brookfield Infrastructure’s website under
Investor Relations/Distributions.

Additional Information

The Letter to Unitholders and the Supplemental Information for the three months ended March 31, 2012 contain further information on Brookfield Infrastructure’s strategy, operations and financial results. Unitholders are encouraged to read these
documents, which are available 


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