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Brookfield Infrastructure Partners: Global Infrastructure Assets That Are Solid As A Rock


Brookfield Infrastructure Partners owns and operates a global portfolio of essential infrastructure assets the global economy requires to function.

Its stated objective is "to own and operate a globally diversified portfolio of high-quality infrastructure assets that will generate sustainable and growing distributions over the long term for our unitholders."

The infrastructure asset class offers numerous benefits to investors, including performance that is more resilient to varying economic cycles and a proven ability to deliver stable, low-volatility, long-term cash flows.

Think for a moment of all of the essential infrastructure the global economy requires to function - roadways and railways, ports and pipelines, electrical transmission and distribution systems, telecommunications infrastructure. Without these essential assets, the economy would essentially shut down. This is one of the reasons I purchased units Brookfield Infrastructure Partners when it first went public and continue to purchase additional units every quarter through the company's DRIP plan. It has a stake in all of these essential assets.

Brookfield Infrastructure Partners (NYSE:BIP) owns and operates a global portfolio of premier, long-life assets with attractive attributes, as they are:

  • Diversified both by geography and by industry;
  • Typically regulated or contracted on a long-term basis;
  • Generate stable cash flows;
  • Require relatively minimal maintenance capital expenditures; and
  • By virtue of high barriers to entry and steady, predictable returns, have continued to appreciate in value over time.

About 47% of earnings before interest, taxes, depreciation and amortization (EBITDA) is from low-risk regulated operations, while 42% is governed by long-term contracts, providing stability and predictability.

These attributes contribute to minimizing competition and enhancing the stability of returns.

Brookfield Infrastructure Partners LP, a Bermuda-based limited partnership, is a spin-off company of Brookfield Asset Management (NYSE:BAM) and began trading on the New York Stock Exchange in 2008. Since the units were listed on the Toronto Stock Exchange in September 2009, they have posted an annualized total return of 23.5%, including distributions.

Brookfield Asset Management is a strong parent and partner to Brookfield Infrastructure. Not only does it provide management and administrative guidance and assistance, but together they excel at scouring the globe to uncover and acquire high-quality companies at attractive - at times distressed - prices.

Institutional partners are a key to doing deals, particularly in weaker equity markets. BIP is not dependent on the state of the capital markets due to its relationship with Brookfield Asset Management, which has backstopped capital, in addition to the BAM-led private infrastructure funds that invest alongside BIP. Having access to committed private capital allows BIP to participate in acquisitions even in weak equity markets, as well as to take on larger deals.

In addition, BAM's broader funds outside of infrastructure allow BIP to enter into complex transactions which other strategic investors may not be able to execute; for example, to put infrastructure assets into BIP and non-infrastructure assets into a BAM-led private equity fund.

Brookfield Infrastructure's business segments include Utilities, Transport, Energy, Communications Infrastructure and Other. Its Utilities segment consists of a "regulated terminal," which is a coal export terminal; "electricity transmission," which consists of approximately 11,100 kilometers of transmission lines in North and South America, and "regulated distribution," which consists of approximately 2.6 million electricity and natural gas connections. Its Transport segment provides transportation for freight, bulk commodities and passengers. Its Energy segment provides energy transmission, distribution and storage services. Its Communications Infrastructure segment provides services and infrastructure to the media broadcasting and telecommunications sectors.

Within these segments, BIP's diversified mix of assets include rail tracks, toll roads, container ports, energy transmission

and distribution, pipelines, coal terminals and communications towers. The assets are geographically diverse as well, situated primarily in North and South America, Europe and Australasia.

Brookfield Infrastructure continuously assesses acquisition opportunities with similar attributes to continue to drive growth in its business - and its distribution - which makes its current yield of about 5.05% even more appealing.

Units of Brookfield Infrastructure Partners trade on the New York Stock Exchange under the symbol BIP and on the Toronto Stock Exchange under the symbol BIP.UN.

The company's stated objective is "to own and operate a globally diversified portfolio of high-quality infrastructure assets that will generate sustainable and growing distributions over the long term for our unitholders."

Investment Thesis

I bought units of Brookfield Infrastructure Partners when it first listed on the TSX in 2009 because the investment thesis for the company was simple, solid and straightforward, and it remains so today.

Infrastructure is a massive and growing sector globally. In both developed markets and emerging economies, there has been a significant underinvestment in infrastructure over many decades. As a result, globally, there is an enormous infrastructure deficit and existing infrastructure is increasingly obsolete. For this reason, it is a key policy for governments to facilitate and cooperate in infrastructure investment to upgrade existing and build new infrastructure, with the added benefit of stimulating and supporting economic activity.

User demand for infrastructure assets tend to be relatively inelastic because of the essential nature of many of the services. As a result, they exhibit a lower correlation to economic cycles compared to other sectors. Some assets, such as electricity and gas distribution networks, in which BIP itself is engaged, are often regulated, which usually results in an increase in the predictability of return.

Current Estimated Infrastructure Investment Requirement

Geography Estimated Funding Gap
United States US$3.6 trillion
Canada C$200 billion
Europe €1 trillion
Australia A$700 billion

Click to enlarge

Source: Standard & Poor's

Constraints on government fiscal budgets have resulted in a significant need for private capital to fill the funding gap. Globally, demand for private infrastructure capital continues to grow because of these government budget constraints.

Infrastructure as an asset class offers numerous attractive benefits to investors, including:

  1. The ownership of real assets, together with these assets' critical underpinning for the provision of essential services, often to a diversified end-user base;
  2. Typically high barriers to entry;
  3. High degree of regulation for certain infrastructure asset classes;
  4. Performance characteristics that are more resilient to varying economic cycles; and
  5. Proven potential to deliver stable, low-volatility, long-term cash flows, often with some form of inflation protection - all contributing to providing attractive, inflation-hedged total returns.

Infrastructure requires high initial capital investment and is often associated with regulated assets. Both act as impediments to potential competitors entering the market. Such assets often enjoy monopolistic or near-monopolistic market positions, as it is often economically unsound, or legally not possible, to build competing infrastructure.

Infrastructure investment offers diversification for investors because of its lower correlation with other major asset classes. Investment in quality infrastructure has historically delivered attractive risk-adjusted returns because of its relatively low volatility and strong returns, particularly over the medium to long term.

Now, seven years after my initial investment in Brookfield Infrastructure, the investment thesis remains intact. Based on the Partnership's results through the years and the quality of the management team, I expect that the business - and the distribution - will continue to grow through a continued combination of astute acquisitions and organic investment.

Brookfield Infrastructure checks off the attributes I look for in a stock: a market leader with a boilerplate business...