BIPH

Business Context and Reporting Period

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

Filing Type: Form 20-F (Annual Report)

Reporting Period: Fiscal year ended December 31, 2008

Business Overview: BIP is a Bermuda exempted limited partnership established as the primary vehicle for Brookfield Asset Management to own and operate high-quality infrastructure assets. Its sole material asset is a 60% limited partnership interest in Brookfield Infrastructure L.P., which holds interests in electricity transmission systems (Chile, Brazil, Canada), timberlands (Canada, U.S.), and social infrastructure projects (Australia, U.K.). The partnership was formed in May 2007, with operations seeded in November 2007 and a spin-off completed in January 2008.

Key Financial Metrics (Year Ended Dec 31, 2008)

Note: 2007 actual results reflect only one month of activity for Brookfield Infrastructure post-formation. Pro forma results adjust for the spin-off and asset transfers as if they occurred on January 1, 2006.

Material Changes vs. Prior Period

• Net Income Growth: Net income increased to $28.0 million in 2008 from $12.0 million in 2007. This increase is primarily driven by strong performance in the electricity transmission segment and non-recurring revenue of $8.5 million from the retroactive application of a 2006 trunk transmission study in Chile.
• Segment Performance:
  • Electricity Transmission: Pro forma ANOI increased to $68.4 million in 2008 from $54.2 million in 2007. Chilean operations benefited from rate increases and inflation indexation, while Ontario operations saw flat revenues but lower cash taxes.
  • Timber: Pro forma ANOI decreased to $12.8 million in 2008 from $15.9 million in 2007 due to softness in the U.S. housing market, which reduced demand for structural lumber and pressured log prices. Operating margins declined to 26% in Canada and 34% in the U.S.
• Divestiture: On September 23, 2008, BIP exercised an option to sell its interests in Brazilian transmission investments (TBE) to a state-owned utility. Expected after-tax proceeds are approximately $274 million, with closing anticipated in Q2 2009.
• Acquisitions: Completed acquisitions of two social infrastructure PPP projects (Long Bay Forensic and Prison Hospitals in Australia; Peterborough Hospital in U.K.) in December 2008. Acquired an additional 68,000 acres of timberland in Washington State in November 2008.
• Liquidity: Corporate borrowings increased to $139.5 million in 2008 due to draws on a $450 million senior secured credit facility to fund the Longview add-on acquisition and PPP investments.

Guidance, Outlook, and Risks

Outlook and Management Commentary

• Performance Targets: Management targets a long-term total return of 11% to 15% per annum, driven by initial ANOI, growth in ANOI, and asset appreciation.
• Timber Recovery: Management expects timber results to improve over the long term but notes timing depends on the recovery of U.S. new home construction. Harvest levels are expected to increase in 2010 as market conditions improve.
• Transmission Growth: Chilean operations have a capital expenditure backlog of approximately $240 million. Management remains optimistic about achieving a $1 billion five-year growth capital plan.
• Unit Repurchase: Authorized a program to repurchase up to $25 million of units. As of Dec 31, 2008, 180,602 units were repurchased at an average price of $11.05.

Risks and Contingencies

• Global Economic Conditions: The filing highlights significant risks from the global credit crisis, including restricted access to capital, increased counterparty risk, and volatility in commodity and currency markets.
• Relationship with Brookfield: BIP is highly dependent on Brookfield Asset Management for management services, acquisition sourcing, and financing. Brookfield does not owe fiduciary duties to unitholders and may prioritize other entities or pursue competing opportunities.
• Regulatory and Political Risk: Operations are subject to government regulation regarding rates (transmission), forestry practices (timber), and PPP funding models (social infrastructure). Changes in law or political attitudes could adversely affect returns.
• Foreign Currency: Significant exposure to Chilean Peso, Brazilian Real, Canadian Dollar, and Australian Dollar. While hedging programs are in place, devaluation (e.g., Chilean Peso) impacts reported results.
• Leverage: Assets are highly leveraged. A breach of financial covenants in the credit facility could restrict distributions or trigger immediate repayment of debt.

Investor Verification Checklist

• TBE Divestiture Closing: Verify the completion of the TBE sale to CEMIG and the receipt of the expected $274 million in proceeds in Q2 2009.
• Timber Market Recovery: Monitor U.S. housing starts and lumber prices to assess the timeline for the expected recovery in the timber segment's ANOI.
• Chilean Peso Hedging: Review the effectiveness of the hedge program implemented in August 2008 against subsequent currency devaluation impacts on ANOI.
• Debt Covenants: Confirm compliance with the interest coverage ratio and debt-to-cash flow covenants in the $450 million credit facility, especially given the drawdown in late 2008.
• PPP Project Cash Flows: Track the commencement of cash flows from the Long Bay and Royal Melbourne Showgrounds projects, expected to begin in 2009.
• Brookfield Equity Commitment: Monitor whether the $200 million equity commitment from Brookfield is called to fund future acquisitions or working capital.