Funds from Operations (FFO), Brookfield Infrastructure Partners L.P. (NYSE:BIP)’s measure of cash flow, for the first quarter 2015 (1Q15) was $186 million or $0.89/unit unchanged when compared to 1Q14. Results were unchanged as contributions from new investments and improvements in existing businesses were largely offset by a $15 million impact foreign exchange movements resulting from the strong U.S. Dollar. Same store growth on a constant currency basis was strong, generating an 11% increase in FFO per unit compared to the prior year. The distribution payout ratio for the quarter was 68% within the target range of 60-70%.
[Source] BIP’s 1Q15 Earnings Release
Funds from operations earned this quarter are equivalent to the year ago quarter. BIP’s business development and investments continue and will surface soon. The focus remains on real value creation for the benefit of unit holders and not superficial results for Wall Street.
How can we be sure this is going on to our benefit? There are no guarantees in investing but assurance from two sources are apparent. The first is the company’s open communication policy, keeping investors informed of business development and capital investment efforts underway. The second is their outstanding record of annualized equity investor total returns of 12%, 20% and 26% over one, three and five years respectively. These results take many quarters of effort to complete and surface in the results. Efforts underway suggest more to come in the future.
In management’s Letter to Unitholders [Source] they address the development efforts in part: “We closed the French telecom infrastructure transaction on March 31st, and expect this business to make a meaningful contribution to our results going forward. During the period, we were also focused on progressing several important initiatives that should set the stage for the next phase of growth for Brookfield Infrastructure. In anticipation of completing several of these initiatives, we enhanced our liquidity through a number of successful capital raises, with proceeds totaling approximately $1.4 billion. With $2.3 billion of liquidity at the corporate level at the end of April, we are ideally positioned to capitalize on the numerous exciting investment opportunities that we are actively pursuing, and which we are hopeful we will successfully advance within the near term.”
BIP has seven transactions they characterize as very advanced. The elements of these transactions include; 1) roll up strategies in the existing and expanding global business where small but meaningful acquisitions are cumulatively adding significant economic benefits; 2) sector expansions where the knowledge and expertise in one region of the world facilitates implementation of similar initiatives in other regions, and 3) value based investing, for example in Brazil, where political and economic factors are creating a capital shortage creating favorable conditions for value based investments.
Balance Sheet and Liquidity:
In anticipation of completing several initiatives a number of capital raises occurred with proceeds totaling $1.4 billion resulting in $2.3 billion of liquidity at the end of April. They included:
- Preferred L.P. unit issuance: we raised C$125 million of preferred L.P. units at a rate of 4.50% annually for the initial period ending June 30, 2020. The distribution rate is reset every five years at a rate equal to the five-year Government of Canada bond yield plus 3.56%.
- Corporate bond issuance: closed a C$450 million, seven-year medium term note offering in the Canadian bond market with a coupon of 3.5%. These notes were swapped into U.S. dollars on a matched maturity basis at an all-in rate of 3.9%.
- Equity issuance: subsequent to 1Q15 end, launched an equity offering where issuing 21 million units at a gross price of $45 raising gross proceeds of 950 million.
Acquisitions and Divestitures:
- After the close of 1Q15 on April 30th BIP announced that they along with partners intend to make a tender offer for the public minority shares of the Brazilian toll road subsidiary. If successful in the acquisition, BIP will invest an additional $200 million to acquire shares and reduce debt.
- BIP is in exclusive discussions with OAS, a large Brazilian construction company, regarding the purchase of their stake in a large toll road, airport and urban mobility company in Brazil called Invepar. A final agreement, should it be reached with OAS, and any subsequent acquisition of the Invepar stake would be subject to conditions, including applicable court and related creditor approvals, regulatory and third-party consents, etc.
The following table presents net income and FFO by segment:
The Utility Platform segment generated FFO of $95 million for the quarter, compared to $89 million in the 1Q14. The increase was the result of continued strength in connection activity in the UK regulated distribution operation, inflation indexation, commissioning of growth capital into rate base and cost reductions in a number of businesses.
The Transport Platform FFO of $96 million in the 1Q15, is in line with results in the 1Q14. The results benefited from volume and tariff growth in the majority of operations, and a significant contribution from our rail business in Brazil. These positive results were affected by a strong U.S. dollar, which rose against all of our other currencies, and rising interest rates in Brazil. In spite of these challenges the transport operations continue to deliver solid results.
The Energy Platform FFO was $28 million, compared to $26 million in the 1Q14. Results reflect the growth of our district energy platform, which benefited from the full contribution of systems acquired over the past 12 months. The positive results were partially offset by lower results from North American natural gas transmission business, which continues to be impacted by low natural gas markets.
Corporate and Other:
Total liquidity was ~$2.0 billion at March 31, 2015, and comprised of the following:
Management’s outlook is, in part, as follows; “Our business is diversified with high quality assets that should enable us to deliver solid results in a variety of economic environments. We are currently operating in global economic conditions that are generally good. …On the whole, our business should perform well in this economic environment.
For the balance of the year, our primary focus is to execute on our capital deployment strategy. Our business development teams are working diligently to convert our strong pipeline into investments that will provide further profitable growth for our platforms. As we deploy this capital, we expect to add high quality, sustainable cash flows that should help us meet or exceed our FFO and distribution growth objectives.”
The close of the French telecom infrastructure transaction is expected to make meaningful contribution to results going forward. At Brookfield Infrastructure Partner’ business and investment opportunities are continually being pursued and develop. Their growing global platform has several additional transactions underway including roll ups, sector expansion and value investing. We remain optimistic that the historic good risk adjusted returns will continue to surface.