Last year was an active one for Brookfield Infrastructure Partners (BIP 0.41%). The global infrastructure giant invested more than $2.8 billion in a combination of acquisitions and organic growth projects, which drove 14% growth in its funds from operations (FFO), enabling the company to increase its distribution to investors by 11%. While the company hasn't been quite as busy in 2017, it has still made some brilliant moves that will help it deliver high-end growth in the coming years.
Finally getting some closure
One of the best moves Brookfield Infrastructure Partners made last year was leading a consortium to acquire a 90% stake in a natural gas transmission business in Brazil from oil giant Petrobras (PBR 2.85%). The draw is the fact that the system generates stable and growing cash flow since Petrobras locked up 100% of the volumes under long-term ship-or-pay contracts with customers that also came with full inflation indexation. It's an asset that likely wouldn't have been available at the price Brookfield paid if it wasn't for Petrobras' financial troubles and Brazil's economic and political woes.
With Brookfield expecting to earn a low-teens annual return given its purchase price, its top priority this year was to close the deal, which was easier said than done. A Brazilian federal judge initially granted an injunction against the acquisition, saying it wasn't sufficiently publicized to foster competition, thus allowing Brookfield to score such a great deal. However, the company fought that challenge and won, which enabled it to close the transaction in early April. Because of that, this acquisition should fuel robust FFO growth for Brookfield in 2017.
Making a new connection in India
One of Brookfield's newest operating platforms is communication towers, which it added to its portfolio in 2015 after buying a stake in the largest independent communications tower business in France. That segment is about to expand after the company signed an agreement to purchase a portfolio of mobile tower assets in India earlier this year. Brookfield expects to invest $200 million for its share in the portfolio, and it should close the deal sometime in the third quarter.
What's smart about this transaction is that it provides the company with a platform from which to leverage its footprint in India by acquiring additional tower portfolios in the country. In fact, according to reports, the company is in advanced talks to buy two other smaller tower portfolios in the country. These transactions would give the company an extensive collection of communications towers in one of the fastest-growing emerging markets, which could provide immediate growth upon closing the deals as well as long-term organic expansion opportunities.
Refilling the organic growth pipeline
After deploying $850 million in capital into organic growth projects last year, Brookfield had drained its backlog down to $1.4 billion by year-end. However, thanks to two big wins in the first quarter, the company boosted its growth pipeline back over $2 billion worth of projects, which should drive growth over the next two to three years.
The largest win in the first quarter was in the company's U.K. regulated distribution business, which won the right to acquire up to 850,000 smart meters. With that award, the company has now secured 1.5 million smart meters for that business. The company expects to invest $400 million in capital to deploy these meters by 2019, which it anticipates will earn "solid risk-adjusted returns." In addition, the company's Brazilian toll road business recently won a 30-year concession to operate and expand a nearly 450-mile toll road in the country. The company paid $215 million up front and will invest up to $90 million over the next few years to expand and upgrade the road, which connects with its existing network and will widen its footprint in one of the most economically attractive regions in the country.
Increased visibility to create value
Brookfield Infrastructure Partners believes it can grow its distribution to investors by 5% to 9% annually just from the embedded growth of its portfolio. That said, it has enhanced those growth prospects by making several brilliant moves this year. Because of that, the company is more likely to grow the distribution at or above the high end of its range, which should create more value for long-term investors.