Business Context and Reporting Period
Company: Brookfield Infrastructure Partners L.P.
Filing Type: Form 20-F (Annual Report)
Reporting Period: Fiscal year ended December 31, 2012
Accounting Basis: International Financial Reporting Standards (IFRS)
Business Overview: The partnership owns and operates a globally diversified portfolio of high-quality infrastructure assets across four primary platforms: Utilities (electricity transmission, regulated distribution, terminals), Transport (railroads, toll roads, ports), Energy (gas transmission, storage, district energy), and Timber (freehold timberlands). The partnership is managed by Brookfield Asset Management under a Master Services Agreement.
Key Financial Metrics
| Metric (in millions USD) | 2012 | 2011 | 2010 |
|---|---|---|---|
| Revenue | $2,004 | $1,636 | $634 |
| Net Income Attributable to Partnership | $106 | $187 | $430 |
| Funds from Operations (FFO) | $462 | $392 | $197 |
| Adjusted Funds from Operations (AFFO) | $353 | $300 | $148 |
| Per Unit FFO | $2.41 | $2.41 | $1.79 |
| Per Unit Distribution | $1.50 | $1.32 | $1.10 |
| Total Assets | $19,718 | $13,269 | $13,352 |
| Corporate Borrowings | $946 | $0 | $18 |
| Non-Recourse Borrowings | $6,993 | $4,885 | $4,575 |
| Cash and Cash Equivalents | $263 | $153 | $154 |
Liquidity: Group-wide liquidity was approximately $763 million as of December 31, 2012, down from $1.5 billion in 2011, primarily due to draws on the corporate credit facility to finance fourth-quarter acquisitions.
Material Changes vs. Prior Period
- Revenue Growth: Revenue increased 22% to $2.0 billion, driven by new investments in UK regulated distribution, Chilean toll roads, Colombian distribution, and North American district energy, as well as increased throughput at Australian railroad operations.
- Net Income Decline: Net income attributable to the partnership decreased 43% to $106 million. This was primarily due to a significant reduction in fair value adjustments (revaluation gains) on timberlands ($63 million in 2012 vs. $144 million in 2011) and a $50 million non-recurring charge related to a refinancing at the North American natural gas transmission business.
- Debt Structure: Corporate borrowings increased to $946 million from zero in 2011, reflecting a $400 million bond issuance and a $546 million draw on the corporate credit facility to bridge finance acquisitions. Non-recourse borrowings increased to $6.99 billion to fund asset-level growth.
- Acquisitions: Significant 2012 acquisitions included a controlling interest in a Brazilian toll road platform ($310 million), additional interest in Chilean toll roads ($170 million), and a UK regulated distribution business merger ($525 million investment).
Guidance, Outlook, and Risks
Management Commentary & Outlook:
- Distribution Policy: The Board approved a 15% increase in the quarterly distribution to $0.43 per unit. The partnership targets a payout ratio of 60% to 70% of FFO and anticipates 3% to 7% annual distribution growth.
- Performance Targets: The company targets a total annual return of 12% to 15% on infrastructure assets. The AFFO yield for the full portfolio was 10% in 2012.
- Capital Allocation: Future growth will be funded through operating cash flows, debt financing, and equity issuances. The partnership maintains a capital backlog of $326 million for utilities and significant growth capital requirements for transport and energy sectors.
Key Risks and Contingencies:
- Regulatory Risk: Many operations are subject to economic regulation (e.g., FERC in the U.S., QCA in Australia). Changes in regulatory frameworks or rate decisions can materially impact cash flows.
- Commodity and Market Risk: Timber operations are exposed to log price volatility and housing market recovery. Energy operations face natural gas price fluctuations. Transport operations depend on commodity demand (iron ore, coal, grain).
- Foreign Currency: Significant operations are in non-USD currencies (AUD, GBP, CLP, BRL). While hedging strategies are in place, exchange rate fluctuations can impact reported results.
- Related Party Transactions: The partnership relies on Brookfield Asset Management for management services and acquisition sourcing. Conflicts of interest may arise regarding the allocation of opportunities between the partnership and other Brookfield vehicles.
Investor Verification Checklist
- FFO vs. Net Income: Verify the reconciliation of Net Income to FFO, noting the significant impact of non-cash fair value adjustments on timber assets which caused Net Income to diverge from operating cash flow metrics.
- Debt Maturity Profile: Review the schedule of principal repayments for non-recourse borrowings, noting the average term of six years and the concentration of debt maturities.
- Acquisition Integration: Assess the performance of major 2012 acquisitions (Brazilian toll roads, UK distribution) against initial yield expectations in subsequent quarterly reports.
- Timber Valuation: Monitor the annual revaluation of timberlands, as this is a primary driver of volatility in Net Income and Comprehensive Income.
- Related Party Fees: Confirm the calculation of the base management fee (1.25% annually of market value plus recourse debt) and its impact on operating expenses.