Energy Acquisitions Fuel Brookfield Infrastructure Partners L.P.'s Fourth-Quarter Results

By Matthew

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During 2016,Brookfield Infrastructure Partners (NYSE: BIP) invested more than $2.8 billion in capital across several growth projects and strategic acquisitions, fueling double-digit year-over-year earnings growth. That growth enabled the company to announce an 11% increase in its distribution for 2017, marking seven straight years of double-digit increases. The company expects to continue growing in 2017 and beyond thanks to a rich pipeline of investment opportunities.

Brookfield Infrastructure Partners results: The raw numbers

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Data source: Brookfield Infrastructure Partners. FFO = funds from operations. YOY = year over year.

What happened with Brookfield Infrastructure Partners this quarter?

Energy and transportation continued to drive results:

  • Brookfield's energy segment fueled growth this quarter, with funds from operations rocketing 160% to $52 million. Powering those results was the company's partnership with natural gas pipeline giant Kinder Morgan (NYSE: KMI) to increase its stake in the Natural Gas Pipeline Company of America, which boosted its share of that system's earnings. In addition, the Kinder Morgan-Brookfield partnership invested capital to de-lever the business and expand its reach, which provided additional earnings during the quarter. Brookfield's energy segment also benefited from the recent acquisition of a natural gas storage business. Overall, full-year energy segment earnings jumped 94.4% thanks to those investments, and the company saw a 16% increase in same-store earnings across its various entities.
  • Brookfield's transportation segment was the other driver of FFO growth during the quarter, with its FFO rising 21.1% to $115 million. Several transactions propelled that growth, including an incremental investment in its Brazilian toll road business, new toll road investments in India and Peru, and the acquisition of an Australian ports business. These acquisitions, as well as higher tariffs and volumes across its other operations, drove a 12% increase in full-year FFO to $423 million.
  • Utilities segment FFO slipped during the quarter, falling 3% to $97 million primarily thanks to the sale of two transmission businesses. However, full-year FFO increased 8% to $399 million, benefiting from inflation indexation and the commissioning of several growth projects.
  • Finally, FFO in the communications segment remained steady at $20 million. For the full year, FFO increased 28.3% to $77 million, although that's because Brookfield did not acquire this business until March of 2015.

What management had to say

CEO Sam Pollock commented on the company's full-year results, noting:

Brookfield Infrastructure Partners spent about $850 million on growth projects in 2016, which not only increased FFO last year, but will supply steady earnings for years to come. One project worth noting was the completion of the Chicago market expansion project within its Kinder Morgan joint venture. The project cost just $75 million, which was 10% below budget, and it will increase Brookfield's FFO by $10 million on an annual basis. Overall, the company delivered organic full-year FFO growth of 10% supported by growth projects, improving volumes, and higher rates.

Acquisitions supplied the rest of the company's growth last year. While it completed several deals across its portfolio, the transportation segment was particularly active. The company not only boosted its Brazilian toll roads stake, it also added new toll road businesses in Peru and India. Brookfield has focused muchof its attention on those three geographies over the past year, which has added new acquisitionopportunities to its pipeline.

Looking forward

The largest-scale investment in that pipeline is the company's pending purchase of a stake in a natural gas transmission system in Brazil from oil giant Petrobras (NYSE: PBR). Brookfield will invest $1.3 billion to acquire about 28% of the Petrobras system, which is up from the 20% stake it initially expected to buy.

Brookfield also plans to invest up to $200 million to acquire an interest in a telecom tower business in India. It's participating in a consortium to buy an entity that currently controls 10% of that nation's towers. The company is also exploring several other opportunities to expand its global tower business over the next year.

Finally, Brookfield expects to close the acquisition of a water irrigation system in Peru shortly. While it's only investing $15 million in the transaction, it is acquiring a high-quality business for a good value as it continues to expand its water business.

In addition to these transactions, Brookfield has its eye on two trends that could lead to additional deals over the next few years. First, it sees the potential to invest in Mexico thanks to the increased uncertainty in that nation as a result of the wave of protectionism in America. That situation caused the Mexican peso to drop to its lowest level since 1994, and it has slowed down foreign investment, which could open up the door for Brookfield to make acquisitions in the country on a value basis. Second, it sees corporations increasingly likely to sell non-core infrastructure assets so they can fund their capital program, similar to its deal for Petrobras' gas transmission business. In particular, it sees the likelihood for additional corporate carve-outs in the North American energy and Indian telecom sectors. Needless to say, Brookfield sees no shortage of opportunities to expand its global infrastructure portfolio.

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Matt DiLallo owns shares of Brookfield Infrastructure Partners and Kinder Morgan and has the following options: short January 2018 $30 puts on Kinder Morgan and long January 2018 $30 calls 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.