Brookfield Infrastructure Partners L.P. annual report, Q4 FY2020

Brookfield Infrastructure Partners L.P. — FY2020 Form 20-F

Reporting period: Fiscal year ended December 31, 2020; the filing was signed March 18, 2021. This is an annual report, not a standalone fourth-quarter filing. Figures are in U.S. dollars unless noted. Financial statements use IFRS.

Business context

Brookfield Infrastructure owns and operates global utilities, transport, midstream and data infrastructure businesses. Management says about 95% of Adjusted EBITDA is supported by regulated or contracted revenues. Brookfield Asset Management controls the general partner and provides management services.

Financial and operating performance

Metric	FY2020	FY2019
Revenue	$8.885 billion	$6.597 billion
Net income	$904 million	$650 million
Net income attributable to the partnership	$394 million	$233 million
Net income per limited partnership unit	$0.35	$0.06
Funds from Operations (FFO)	$1.454 billion; $3.13 per unit	$1.384 billion; $3.06 per unit
Adjusted Funds from Operations (AFFO)	$1.173 billion	$1.096 billion
Adjusted EBITDA	$1.993 billion	$1.899 billion
Cash from operating activities	$2.530 billion	$2.143 billion
Cash used by investing activities	$4.609 billion	$11.372 billion
Cash from financing activities	$2.126 billion	$9.542 billion

Revenue rose 35%, mainly reflecting acquisitions, including the North American rail business, Indian telecom towers and the federally regulated Canadian midstream assets. Foreign exchange reduced reported revenue by $437 million.
Net income benefited from organic growth, acquisitions and gains on asset dispositions, partly offset by foreign exchange and higher depreciation. Partnership-attributable income and per-unit income also increased year over year.
FFO increased 5% and FFO per unit increased 2%. Management cites 6% organic growth and deployed capital as contributors; a 23% average decline in the Brazilian real reduced U.S.-dollar FFO by about $100 million.
Segment FFO was $659 million in utilities, $590 million in transport, $289 million in midstream and $196 million in data. Transport FFO fell from $603 million, chiefly due to toll-road traffic restrictions, a partial Chilean toll-road sale and a Brazilian concession hand-back. Data FFO rose from $136 million, largely on acquisitions and organic expansion.
Transport Adjusted EBITDA margin was 51% (52% in 2019); midstream margin was 66% (65%); data margin was 51% (52%). Utilities return on rate base was 12% in both years.

Debt, liquidity and distributions

At year-end, consolidated corporate borrowings were $3.158 billion and non-recourse borrowings were $20.020 billion, versus $2.475 billion and $18.544 billion, respectively, in 2019. Total assets were $61.331 billion; cash and cash equivalents were $867 million.
Proportionate net debt, a non-IFRS measure, was $14.485 billion, up from $12.121 billion. Proportionate net debt-to-capitalization increased to 61% from 57%. Weighted-average cash interest rate was 4.2%, compared with 4.5%.
Group-wide liquidity was approximately $3.5 billion, up from $3.0 billion. Management said liquidity was sufficient for current requirements. The total includes cash and financial assets, available facilities, subsidiary liquidity and other adjustments.
Operating cash flow increased by $387 million. Investing outflow fell substantially as acquisition and investment activity was lower than in 2019. Financing cash flow also declined, reflecting reduced capital deployment and lower financing needs.
FY2020 distributions were $1.94 per unit, up 7%; total distributions were $1.134 billion. The FFO payout ratio was 78%, above the 60–70% target, and the AFFO payout ratio was 97%. Management said the FFO payout ratio would have been about 68% excluding currency, pandemic-related traffic and timing effects.
In February 2021, the board approved a 5% quarterly distribution increase to $0.51 per unit, or $2.04 annualized. Management targets annual distribution growth of 5–9% and long-term total returns on invested capital of 12–15%. These are targets, not guarantees.

Material changes, outlook and notable items

The March 2020 BIPC special distribution issued one exchangeable share for every nine partnership units. The annual 2020 distribution per unit is presented as adjusted for this transaction; combined distributions on units and exchangeable shares were intended to remain approximately unchanged.
The 2020 partial sale of the Australian export terminal generated a reported $400 million gain for the partnership, including remeasurement of its retained interest. The transaction also shifted the retained interest to equity accounting.
COVID-19 reduced toll-road traffic and delayed some projects and earnings recognition. Management described rail and container-terminal activity as comparatively resilient and said most businesses remained operational. Asset valuations were based partly on an assumption that the earlier economic shutdown would not persist over the long term.
Committed growth projects and construction work were expected to support future cash flows; management reported approximately $1.4 billion of committed backlog and approximately $2.4 billion of capital to be commissioned over the next two to three years. It estimated FY2021 maintenance capital expenditure of $320–350 million.
Management expects capital recycling to provide more than $4 billion of proceeds by the end of 2022 and over $7.5 billion over five years, but cautions that sales may be delayed or not completed. After year-end, the partnership agreed to sell North American district energy interests, with about $1.0 billion of gross proceeds attributable to it, subject to closing conditions.
After year-end, Brookfield Infrastructure and partners announced an intention to pursue a privatization of Inter Pipeline for maximum cash consideration of approximately C$4.9 billion plus up to 19 million BIPC exchangeable shares; the partnership expected to hold about 40% if completed.
The filing reports asset-level covenant breaches: approximately $540 million in the consolidated debt disclosure and approximately $100 million on a proportionate basis in the MD&A. Management expected to refinance the debt or obtain waivers.
The filing reports no material pending or threatened governmental, legal or arbitration proceedings known to the partnership and no dividend arrears or defaults. The audit opinion on the financial statements was unqualified. Management concluded disclosure controls and internal control over financial reporting were effective, while the acquired Indian telecom-tower entity was excluded from the internal-control assessment.

Key risks and investor verification points

Verify the covenant-breach amounts, definitions and resolution status, including the difference between the consolidated and proportionate disclosures.
Assess leverage and refinancing needs, especially asset-level debt maturities, interest-rate exposure and the possibility that covenant restrictions could affect distributions.
Review distribution coverage: reported payout ratios exceeded management’s target range, and the adjusted 68% FFO payout depends on management’s stated exclusions.
Check realized versus expected proceeds and closing conditions for announced asset sales, and the funding, terms and completion risks of the Inter Pipeline proposal.
Evaluate COVID-19 effects on toll-road traffic, project schedules, counterparties and valuations, alongside foreign-exchange exposure; the Brazilian real was a major 2020 headwind.
Consider risks from regulated returns, commodity-linked assets, construction and maintenance costs, customer concentration, and changes in environmental or government policy.
Review Brookfield-related governance and fees: Brookfield controls the general partner, receives a base management fee and incentive distributions, and may face conflicts in allocating opportunities. Limited partners have restricted voting rights.
Interpret FFO, AFFO, Adjusted EBITDA, segment results and proportionate debt with care: these are non-IFRS measures and may not be comparable with other issuers. Compare them with the audited IFRS statements and the filing’s reconciliations.