Brookfield Infrastructure Partners L.P.'s Earnings Rise on Recently Completed Acquisitions

By Markets Fool.com

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This past year has been a busy one for Brookfield Infrastructure Partners(NYSE: BIP), which has been working on several acquisitions to grow its portfolio of ports, toll roads, and energy assets. During the third quarter, the company closed three of these deals, helping to drive a double-digit increase in earnings. Meanwhile, with a pipeline full of additional opportunities, the company has clear visibility to continue to deliver substantial growth over the next few years.

Brookfield Infrastructure Partners results: The raw numbers

Metric

Q3 2016 Actuals

Q3 2015 Actuals

Growth (YOY)

Funds from operations

$235 million

$210 million

12%

FFO per unit

$0.68

$0.61

11%

YOY = year over year. Data source: Brookfield Infrastructure Partners.

What happened with Brookfield Infrastructure Partners this quarter?

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Energy and transportation drove results this quarter:

  • Brookfield's transportation segment delivered a 9% increase in FFO, bringing it up to $112 million. Driving that growth were higher tariffs and volumes across several operations. Furthermore, the company benefited from acquiring an incremental interest in its Brazilian toll road business and new toll road investments in Peru and India as well as an Australian ports business.
  • FFO in the utilities segment edged up 3% to $102 million thanks to the strength of the company's U.K.-regulated distribution business and capital projects placed into service over the past year.
  • Energy segment FFO surged 111% due in part to an increase in its ownership of the North American natural gas transmission business. Additional drivers were the newly acquired natural gas storage business in North America as well as same-store growth of 15%.
  • Finally, the communications segment remained relatively stable, generating $19 million in FFO.

What management had to say

CEO Sam Pollock commented on the company's performance by saying:

We continue to build momentum heading into 2017. We delivered 12% FFO per unit growth and completed three transactions in the third quarter.

The primary driver of Brookfield Infrastructure Partners' growth continues to be its ability to complete meaningfully accretive acquisitions. During the quarter, it closed three deals, including a group of Australian ports, toll roads in Peru, and a North American natural gas storage business. Brookfield invested $660 million into these transactions, and it believes that capital will generate yields of about 8% to 10%.

Looking forward

Additional acquisition-driven growth is in the pipeline, with Pollock noting:

In the upcoming years, we expect to benefit from a number of current growth initiatives. We will be investing over $1.1 billion in the build-out of our Brazilian gas and electricity transmission business and have $1.5 billion of growth projects that will be coming online over the next 12-18 months.

The largest investment in the pipeline is the acquisition of a stake in a Brazilian natural gas transmission system from oil giant Petrobras (NYSE: PBR). Brookfield is participating in a transaction that will acquire a 90% stake in the Petrobras system for $5.2 billion, with its investment a minimum of 20% of the deal or about $825 million. With cash flows indexed to inflation and no volume risk, the asset will generate very stable cash flow for Brookfield.

In addition to that, the company is investing about $300 million to develop transmission lines in Brazil over the next five years. Also, the company has a larger supply of organic growth projects than usual, which puts it in a position to "meaningfully outperform our 6%-9% same-store growth target range," according to Pollock. It is also currently evaluating large-scale opportunities to acquire communications towers in Europe and Asia. Finally, it intends to start positioning several businesses for sale to recyclethat capital into better long-term opportunities. Suffice it to say, 2017 looks to be an even busier year for the company.

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Matt DiLallo owns shares of Brookfield Infrastructure Partners. The Motley Fool recommends Brookfield Infrastructure Partners. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.