Brookfield Infrastructure Partners (BIP), a publicly-listed fund managed by Brookfield Asset Management (BAM), posted a strong second quarter thanks to solid organic growth and contributions from new investments, the Toronto-based firm said in a statement on Wednesday.
Funds from operations (FFO) – BIP’s key measure defined as net income excluding the impact of depreciation and amortisation, deferred income taxes, breakage and transaction costs and other non-cash items – totaled $208 million, up from $180 million during the same period last year, making it the firm’s “best ever” quarterly results, BIP chief executive Sam Pollock stated in his quarterly Letter to Unitholders.
In terms of net income, Brookfield Infrastructure finished the three-month period ending June 30, 2015, with $18 million compared with $13 million in the second quarter of 2014.
“The increase in net income is attributable to higher earnings generated from operations, partially offset by increased depreciation and unrealized mark-to-market losses,” the firm said in a statement.
While all of the company’s business segments performed better than the same period last year in FFO terms, energy saw the biggest increase, up 43.8 percent to $23 million. The results reflected organic growth and new investments in the firm’s district energy platform. BIP has acquired a heating and cooling system located at Sydney Airport that provides services under long-term contracts to Qantas Airlines facilities. It has also agreed to acquire a heating and cooling system, also in Sydney, and has been awarded a project to develop a water system in Queensland. BIP did not provide further details other than that it plans to deploy around $70 million in these systems.
According to Pollock, Brookfield is still exploring strategic alternatives to sell its interest in its North American gas transmission operation, referring to Natural Gas Pipeline Company of America (NGPL). According to reports, Myria Acquisition, the consortium which bought an 80 percent stake in NGPL in 2008 and of which BIP is a member, has been looking to sell its stake at least since last November.
Transportation was BIP’s second-best performer in the second quarter, posting an 11 percent increase in FFO of $104 million compared with $94 million the previous year.
“Results benefited from the contribution of the Brazilian rail operation acquired in August 2014,” BIP said in the statement, referring to VLI, an integrated logistics company that owns and operates interconnecting railways, terminals and ports, in nine Brazilian states and the Federal District. Brookfield acquired a 26.5 percent stake in the company for R$2 billion (€525.9 million; $573.3 million) from Vale, a global mining company headquartered in Brazil.
One of the most noteworthy performers in this sector was Darlymple Bay Coal Terminal in Australia, Pollock stated in his letter, with capacity utilisation exceeding a record 97 percent in June and 85 percent for the quarter.
Higher volumes at BIP’s PD Ports in the UK and TraPac Terminals on the US West Coast, also drove improvements within the ports sector.
“At our UK port we successfully commissioned the first phase of the Number 1 quay project, on time, scope and budget,” Pollock said in reference to the £22 million (€31.5 million; $34.3 million) PD Ports invested in the Teesport project. Brookfield expects to invest an additional $15 million to upgrade an adjacent section of the quay to deepen its berth.
PD Ports also completed the $20 million acquisition of Groveport, a privately-owned inland port complex on the River Trent, which handles a mix of bulk cargoes through its 190-acre freehold site, and which has a dominant position in the UK’s market for imported steel long products.
Brookfield’s utilities segment remained stable generating FFO of $93 million, slightly higher than the $92 million reported for the second quarter of 2014.
Its communications platform, which Brookfield launched in the first quarter of this year with the acquisition of a 23 percent stake in TDF, the largest independent communication tower infrastructure business in France, performed slightly ahead of expectations, generating $20 million of FFO.
Looking ahead, Brookfield also provided an update on acquisitions and divestitures. The firm is in the final stages of receiving regulatory approvals for the sale of Cross Sound Cable, a 39-kilometre submarine transmission cable linking Connecticut to Long Island, New York, a transaction Brookfield expects will close in the third quarter, generating $30 million in proceeds for its share. Independent investment management firm Argo Infrastructure Partners agreed to acquire 100 percent of the company through its AIA Energy North America fund.
As for acquisitions, Brookfield is in the process of acquiring the public minority shares of Arteris, its Brazilian toll road subsidiary. It made a tender offer in April and hopes to conclude the process before the end of the year.
Plans to acquire a 24 percent stake in Invepar, a toll road, airport and urban mobility company in Brazil, are also advancing. Last month, BIP received court approval to proceed with a $250 million debtor in possession (DIP) loan to OAS, a Brazilian construction company that currently holds the 24 percent stake in Invepar and which filed for bankruptcy protection earlier this year.
“This is a rare opportunity to invest in a large portfolio of irreplaceable assets,” Pollock stated in the letter to unitholders. “The multi-faceted nature of the situation, combined with our long operating history in Brazil, has created a transaction that uniquely suits our capabilities,” he added.
Invepar’s business comprises urban toll roads in Brazil and Peru, a controlling stake in São Paulo/Guarulhos International Airport and an interest in three urban mobility systems in Rio de Janeiro that serve over 200 million passengers per year.
The OAS transaction is an example of the approach Brookfield is taking in deploying the $3 billion liquidity it currently has available. Pollock said that the firm has primarily directed its efforts towards opportunities where it can work exclusively with sellers. “In today’s environment, far too many transactions arise through broad auctions that lead to disappointing outcomes, particularly for buyers, and hence we intend to continue largely to avoid them,” he stated.
Another approach is to focus on “out-of-favour” sectors and regions. According to a Brookfield spokesperson, out of favour sectors would include commodity-related infrastructure, such as infrastructure currently owned by mining or oil and gas companies, while out of favour regions include countries where capital is currently scarce, including Brazil.