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, 2009
Accounting Basis: U.S. GAAP (transition to IFRS planned for Q1 2010)
Structure: BIP is a Bermuda exempted limited partnership. Its sole material asset is a 59% limited partnership interest in Brookfield Infrastructure L.P., which holds the operating assets. Brookfield Asset Management holds the remaining 41% interest in Brookfield Infrastructure.
Key Financial Metrics
| Metric (Millions USD) | 2009 | 2008 |
|---|---|---|
| Revenue | $29.8 | $32.9 |
| Net Income | $47.8 | $28.0 |
| Per Unit Net Income | $1.00 | $0.72 |
| Adjusted Net Operating Income (ANOI) | $117.4 | $59.7 |
| Per Unit ANOI | $2.46 | $1.54 |
| Cash and Cash Equivalents | $58.3 | $9.2 |
| Total Assets | $1,962.9 | $1,174.3 |
| Corporate Borrowings | $0 | $139.5 |
| Non-Recourse Borrowings | $114.0 | $97.6 |
| Proportionate Total Debt (All Operations) | $2,942.5 | $958.8 |
Note: Net Income for 2009 includes a one-time after-tax gain of $68.2 million from the sale of Transmissoras Brasileiras de Energia (TBE).
Material Changes vs. Prior Period
- Acquisitions: On November 20, 2009, the partnership invested $941.0 million to acquire a 40% interest in Prime Infrastructure (formerly Babcock & Brown Infrastructure) and direct interests in Dalrymple Bay Coal Terminal (DBCT) and PD Ports. This significantly expanded the asset base and added fee-for-service operations.
- Divestitures: Sold minority interest in TBE in June 2009 for $275 million, generating a $68.2 million after-tax gain.
- Debt Profile: Corporate borrowings were repaid in full using proceeds from the TBE sale. However, total proportionate debt increased significantly due to the leverage associated with the Prime Infrastructure acquisition.
- Performance: Net income increased 71% year-over-year, driven primarily by the TBE sale gain and six weeks of contribution from new assets. ANOI nearly doubled, reflecting the scale of new operations.
- Timber Segment: Timber operations reported a net loss of $26.0 million in 2009 (vs. $6.7 million profit in 2008) due to weak U.S. housing markets and reduced harvest levels to preserve value.
Guidance, Outlook, Risks, and Unusual Items
Outlook and Guidance
- Targets: Management targets a total return of 12% to 15% per annum and 3% to 7% annual distribution growth.
- Distribution Policy: Target payout ratio of 60% to 70% of ANOI.
- Capital Markets: Filed shelf registrations in December 2009 to facilitate future equity issuances.
Key Risks and Contingencies
- Regulatory Reviews: NGPL rates are under review by the Federal Energy Regulatory Commission (FERC); a settlement in principle was reached in April 2010, but final terms are confidential. Ontario Transmission is undergoing a rate review.
- Tax Disputes: Prime Infrastructure is in dispute with the Australian Tax Office regarding DBCT lease payments (potential liability ~A$145 million including interest) and the Offices of State Revenue regarding stamp duty (potential liability up to A$91 million).
- WestNet Rail: Potential inability to extend track access agreements for grain lines, which could trigger debt maturities of A$619 million in June 2011 and significant liabilities.
- Accounting Transition: The partnership plans to transition to IFRS for the quarter ending March 31, 2010, which may materially impact financial position and results of operations.
- Related Party Conflicts: Significant reliance on Brookfield Asset Management for management services and deal sourcing; Brookfield holds a 41% interest and has a Redemption-Exchange Mechanism that could increase its ownership in BIP.
Investor Verification Checklist
- FERC Settlement Impact: Verify the final terms of the NGPL rate settlement and the specific impact on future cash flows, given Kinder Morgan's reported impairment.
- Prime Infrastructure Tax Liabilities: Monitor the resolution of the Australian Tax Office and State Revenue disputes, as these could result in significant cash outflows or price adjustments.
- WestNet Rail Debt Maturity: Confirm the status of track access agreements and the ability to refinance the A$619 million debt maturing in June 2011.
- Timber Recovery: Assess the timeline for recovery in U.S. housing starts and its effect on timber harvest levels and pricing.
- IFRS Transition: Review the first IFRS financial statements (Q1 2010) to understand the impact on reported equity and earnings compared to U.S. GAAP.
- Brookfield Ownership: Track the exercise of the Redemption-Exchange Mechanism, which could increase Brookfield's ownership stake in the partnership.