BIP

Business Context and Reporting Period

Company: Brookfield Infrastructure Partners L.P. (BIP)

Reporting Period: Unaudited interim results for the three and six months ended June 30, 2024.

Business Overview: A global infrastructure company owning high-quality, essential assets in utilities, transport, midstream, and data sectors across the Americas, Asia Pacific, and Europe. The portfolio focuses on contracted and regulated revenues generating predictable cash flows. Brookfield Corporation holds an approximate 26.6% economic interest.

Key Financial Metrics

Note: Net income attributable to the partnership was $8 million (loss of $0.10 per unit) for Q2 2024, compared to $378 million ($0.38 per unit) in Q2 2023.

Material Changes vs. Prior Period

• Revenue Growth: Revenues increased 21% year-over-year for the six months ended June 30, 2024, driven by acquisitions (Triton, Data4, Cyxtera) and organic growth. The Data segment saw the largest increase (+83% YTD) due to new data center acquisitions.
• Net Income Decline: Consolidated net income decreased significantly in Q2 2024 compared to Q2 2023. The prior year included approximately $430 million in gains from business dispositions (Indian toll roads, Australian port, U.S. gas pipeline) which were not present in the current period.
• Interest Expense: Interest expense rose 45% YTD to $1,620 million, attributed to higher borrowing costs, incremental financings for acquisitions, and organic growth projects.
• Debt Levels: Non-recourse borrowings increased by $3.8 billion since December 31, 2023, primarily due to acquisition debt and incremental borrowings at Brazilian gas and North American rail operations.
• Foreign Exchange: Currency translation resulted in a loss of $586 million on partnership capital for the six-month period, as major operating currencies weakened against the U.S. dollar.

Guidance, Outlook, and Risks

• Distribution Policy: The Board approved a 6% year-over-year increase in the quarterly distribution to $0.405 per unit (annualized $1.62), effective March 2024. The target payout ratio remains 60-70% of FFO.
• Capital Targets: The company targets a long-term return on Invested Capital of 12% to 15%. For the six months ended June 30, 2024, the return on Invested Capital was 14%.
• Capital Expenditures: Growth capital expenditures were $1.07 billion YTD, heavily weighted toward the Data segment ($602 million) for semiconductor foundries and data center build-outs. Maintenance capex is estimated at $525-$585 million annually.
• Recent Developments:
  • Acquired Cyxtera Technologies (North American retail colocation) for $0.8 billion in January 2024, recording a $0.6 billion bargain purchase gain.
  • Agreed to acquire a portfolio of 78,000 telecom towers in India from American Tower for $2 billion (closing expected H2 2024).
  • Deconsolidated Peruvian toll road operations in June 2024; the interest is now held as a financial asset.
• Risks and Contingencies:
  • Interest Rate Risk: Approximately 40% of debt is floating rate, though hedging strategies reduce effective exposure to ~19%.
  • Foreign Exchange: Significant exposure to non-U.S. currencies, partially mitigated by hedging (74% of partnership capital effectively denominated in USD).
  • Regulatory/Political: Ongoing litigation and arbitration regarding Peruvian toll roads; regulatory changes in utility rate bases.

Investor Verification Checklist

• Non-IFRS Reconciliations: Verify the reconciliation of Net Income to FFO and AFFO, noting the significant impact of non-controlling interests and depreciation adjustments.
• Acquisition Accounting: Review the provisional fair value assessments for recent acquisitions (Cyxtera, Triton, Data4) and the resulting bargain purchase gains or goodwill.
• Debt Maturity Profile: Confirm the average term of debt attributable to the partnership (7 years) and the schedule of principal repayments over the next five years.
• Peruvian Toll Roads: Assess the valuation of the deconsolidated Peruvian toll road asset and the status of related legal proceedings.
• Capital Recycling: Monitor the execution of the capital recycling strategy, specifically the planned sale of mature assets to fund new growth investments.