Brookfield Infrastructure Partners returns 34% in 2010

Sam Pollock, chief executive of the New York Stock Exchange-listed fund praised an ‘outstanding’ year during a conference call and fielded tough questions from analysts wondering whether Brookfield Infrastructure Partners could sustain its returns and effectively compete against non-listed infrastructure funds.

Brookfield Infrastructure Partners achieved a 34 percent total return in 2010, beating the S&P 500 stock market index by nearly 20 percent, the firm’s chief executive officer said Friday.

“We won’t be able to achieve this level of out-performance every year,” chief executive Sam Pollock cautioned on a conference call. Pollock called 2010 an “outstanding” year for the New York Stock Exchange-listed infrastructure fund.

The year’s performance reflected an uplift in Brookfield Infrastructure Partners’ (BIP) cashflow, which quadrupled from $49 million in 2009 to $197 million in 2010, according to an earnings press release.

The increase was “primarily due” to BIP’s acquisition of Prime Infrastructure, the former Sydney-listed infrastructure fund managed by Babcock & Brown. The $3.5 billion deal, completed in two parts in 2009 and 2010, gave BIP equity stakes in at least eight new infrastructure assets spread across Europe, New Zealand, Asia and Australia.

We won't be able to achieve this level of out-performance every year

Sam Pollock

The Australian portfolio weathered several natural disasters and accidents in 2010, including a train derailment, a flood and a drought. The drought reduced grain hauling volumes by 40 percent on WestNet, BIP’s 5,000 kilometre railroad in Australia. John Stinebaugh, BIP’s chief financial officer, said the firm will “mitigate a significant amount” of the shortfall via cost savings.

Stinebaugh also disclosed a massive capital expenditure plan for the railroad. Thanks in part to six mining projects in need of rail access, BIP plans to plow $600 million into improvements on the railroad over the next three to four years, with $500 million of that “likely” to come in 2011 and 2012.

The ambitious plans prompted one analyst to ask Stinebaugh and Pollock whether they’d be able to match the railroad’s current returns if they were to spend so much money in future years.

Sam Pollock

“I think the returns will hold up for a long period of time,” Pollock, the chief executive, answered. “But I also want to make sure that people understand railroads are capital intensive”, he added, meaning that BIP might have to spend more on the business in future years to maintain it.

The ambitious expansion plans also prompted queries as to whether BIP could in fact “meet or exceed” its long-term dividend growth target of 3 percent to 7 percent, as Pollock said is likely.

“We feel pretty confident that we should be at the higher end of that range . . . because we have a number of GDP-sensitive and commodity-sensitive businesses such as timber and the railroad that we think in the current environment are going to do pretty well,” Pollock answered.

A 13 percent increase in the dividend, now at $.31 per share, was just approved by BIP’s board.

Pollock was also asked whether BIP could effectively compete against large, unlisted infrastructure funds like Global Infrastructure Partners, which placed the winning A$2.1 billion (€1.5 billion; $2.1 billion) bid for the Port of Brisbane in an auction late last year.

Pollock said the BIP’s growth estimates are “not dependent on new investment opportunities” and that BIP often finds “it’s better not to pursue investment opportunities where there is a frothy auction around them”.

Nevertheless, when pressed by an analyst to discuss one new investment opportunity – the Abbot Point Coal Terminal being auctioned off by the Queensland government – BIP management confirmed they are “looking” at it.

A document released by the Australian Competition and Consumer Commission in January said BIP had submitted a proposal to acquire a 99-year lease on the terminal.

BIP’s New York-listed shares ended the day up 2.3 percent, closing on $22.50.