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Brookfield Infrastructure Partners L.P. Just Keeps on Rolling

Brookfield Infrastructure Partners (NYSE: BIP) has invested heavily over the past year to expand its portfolio of infrastructure assets. Those initiatives continue paying dividends and powered the company to post strong third-quarter results. Meanwhile, with a large pipeline of opportunities ahead of it, the company's high growth days don't show any signs of slowing.

Brookfield Infrastructure Partners results: The raw numbers

Metric

Q3 2017

Q3 2016

Year-Over-Year Change

Funds from operations

$301 million

$235 million

28.1%

FFO per unit

$0.81

$0.68

19.1%

Data source: Brookfield Infrastructure Partners.

Image source: Getty Images.

What happened with Brookfield Infrastructure Partners this quarter?

A blend of acquisitions and organic growth projects fueled the quarter.

  • The utilities segment generated $170 million of FFO, rocketing 66.7% above the year-ago quarter. Powering that surge was the recent acquisition of a natural gas transmission business in Brazil. In addition, the company also benefited from some recently completed growth projects and inflationary rate adjustments, which combined to easily offset the sale of its Canadian electricity transmission business last year.
  • The transportation segment rode strong volume growth in its toll road businesses, which drove a 21% increase in FFO to $136 million. Traffic volume in Brazil was 4% higher, which was the first increase since mid-2014 thanks to a noticeable improvement in that country's economy following a deep slump.
  • The energy segment's FFO jumped 20% to $48 million thanks in part to the turnaround of the company's North American natural gas pipeline business, which it co-owns with Kinder Morgan (NYSE: KMI). Brookfield and Kinder Morgan recently completed efforts to deleverage that entity, which reduced its debt level and interest expenses. Those efforts, when combined with higher volumes and new contracts, helped offset some weakness in Brookfield's natural gas storage business.
  • The communications infrastructure segment contributed $19 million in FFO, which was in-line with the year-ago quarter. That said, after adjusting for foreign exchange fluctuations, results were 8% higher as a result of recently completed growth projects.

What management had to say

CEO Sam Pollock commented on the company's third-quarter results and what he sees ahead:

FFO per unit continues to grow as we progress through the second half of the year, up 19% since last year. A strong global economy is fueling the need for ongoing infrastructure capital, and we are well-positioned to participate through our capital backlog and new investment opportunities.

One of the contributors to Brookfield's success this year is its organic growth initiatives. The company's target is to organically grow FFO by 6% to 9% each year through a combination of inflationary price increases, volume improvements, and incremental earnings from expansion projects. However, in the third quarter, the company delivered a 10% year-over-year organic growth rate. One of the drivers is the company's pipeline joint venture with Kinder Morgan, which has produced meaningful growth over the past year as the partners have invested the money needed to turn it around and position it to capture expansion opportunities. Because of that, this business should continue driving meaningful organic growth since the partners have one project underway and are developing another $300 million expansion that could boost Brookfield's annual EBITDA by $45 million, which represents about an 18% increase in adjusted EBITDA in its energy segment.

Looking forward

In addition to maintaining a healthy backlog of organic growth projects, Brookfield has several acquisitions in the pipeline. In August, it agreed to invest $100 million into two more toll roads in India, which will more than double the size of its network in the country. In addition to that, it continues to move forward with a $15 million investment in a water utility in Peru. However, the company noted that its deal to invest $200 million into a communication infrastructure portfolio in India fell through. Though, the company is reviewing another opportunity with this seller as well as other potential telecom tower portfolio acquisitions in the country. Brookfield's ability to capture those opportunities could help it deliver distribution growth above its target to boost the payout by 5% to 9% annually over the long term.

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Matthew DiLallo owns shares of Brookfield Infrastructure Partners and Kinder Morgan and has the following options: short January 2018 $30 puts on Kinder Morgan, long January 2018 $30 calls on Kinder Morgan, and short December 2017 $19 puts on Kinder Morgan. The Motley Fool owns shares of and recommends Kinder Morgan. The Motley Fool recommends Brookfield Infrastructure Partners. The Motley Fool has a disclosure policy.