Here's How Brookfield Infrastructure Partners LP Crushed It in 2017

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By every measure, 2017 was an excellent year for Brookfield Infrastructure Partners (NYSE: BIP). For example, funds from operations (FFO) in the recently completed third quarter rocketed 28.1% versus the year-ago period, driven by a combination of acquisitions and growth projects. The company currently has the most extensive backlog of expansion projects in its history -- with more on the way -- which should fuel growth over the next few years. These factors enabled it to increase its distribution to investors 11% earlier this year, which helped fuel a total return of more than 30%, crushing the roughly 20% total return of the S&P 500.

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Here's a look at what drove this strong performance and why Brookfield should be able to maintain its momentum in 2018.

The game changer

Brookfield Infrastructure Partners can attribute some of its success this year to the groundwork it laid in 2016. That was an active year for the company, after securing more than $2 billion of acquisitions, including toll roads in India and Peru as well as a world-class container terminal business in Australia. In addition, the company took advantage of Brazil's weakening economy and growing political crisis to secure a number of electricity transmission projects. However, the crown jewel of last year's efforts was sealing a deal to buy a stake in a natural gas transmission business from Brazilian oil giant Petrobras (NYSE: PBR), which needed the cash to pay down its mountain of debt.

The deal with Petrobras closed this April and paid immediate dividends for Brookfield. In the second quarter, FFO in its utilities segment rocketed 68% to $168 million. Meanwhile, last quarter it provided a similar boost, with FFO in that business group spiking 67% to $170 million.

Expanding its reach

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Apart from that needle-moving deal, Brookfield has also benefited from recently completed expansion projects and other strategic initiatives. During 2016, the company completed construction on $850 million of organic growth projects, which helped set the stage for 2017. Those expansions and others that came on line this year helped drive 10% organic FFO growth last quarter. One of the highlights was in the North American natural gas pipeline business it co-owns with Kinder Morgan (NYSE: KMI). Brookfield and Kinder Morgan spent the past year restructuring that entity by paying down debt while at the same time investing in expansion projects. Those efforts have paid off this year and were a major driver of the 20% FFO increase in Brookfield's energy segment last quarter.

Laying the foundation for future growth

In the meantime, Brookfield has continued securing expansion projects that will drive growth in future years. The company quickly replenished its capital project backlog and currently has $2.4 billion in projects underway, which is double the level of the past two years. It has another $1.5 billion to $2 billion in projects that could potentially get added to the backlog over the next few months. These expansions should drive significant growth in the coming years. For example, it's currently working with Kinder Morgan to secure $300 million of new projects in their pipeline joint venture, which alone could boost Brookfield's earnings by $45 million per year.

In addition to that organic growth, the company continues to acquire more infrastructure assets around the globe. Last quarter, it signed a deal to invest $100 million into two more toll roads in India, which will more than double that business. According to Reuters, Brookfield also recently agreed to buy a 59.1% stake in a retail gas distribution business in Colombia. Furthermore, the report said that Brookfield plans to launch a takeover offer for the remaining 48.1% stake in that entity. The company is reviewing several opportunities to buy communications towers in India as well. While it had one deal fall through, there are few bidders for the available assets, which leads the company to believe it can acquire an attractive portfolio for a reasonable price. Finally, it sees several exciting growth opportunities on the horizon, including water, which could drive growth in the coming years.

Set up for continued success

Brookfield's bold bet on Brazil last year enabled the company to crush it this year as the earnings from the former Petrobras pipeline business was a leading growth driver in 2017. Meanwhile, it complemented that purchase with several smaller deals and expansion projects across many of its legacy assets. Those growth engines position the company to continue expanding in 2018 and beyond, with it currently targeting 5% to 9% annual FFO growth from organic expansion alone, which would support a similar yearly increase in shareholder distributions. That said, given its immense growth prospects, it's looking like Brookfield can keep growing both FFO and the distribution well above the high end of that forecast in the coming years.

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Matthew DiLallo owns shares of Brookfield Infrastructure Partners and Kinder Morgan and has the following options: long January 2018 $30 calls on Kinder Morgan, short December 2017 $19 puts on Kinder Morgan, and short March 2018 $17 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.