Heading into 2018, Brookfield Infrastructure Partners (NYSE:BIP) identified three trends that it expected would be key growth drivers over the next decade. One of them was the need for more infrastructure to support the movement and storage of data. To capitalize on this trend, the company has focused on building out its data infrastructure business.
The company recently took its next step in building out a data infrastructure business by forming a new data center strategic alliance with AT&T (NYSE:T). The deal will transfer the ownership of several data centers to Brookfield, which will work with AT&T to expand the platform.
Details on the deal
Under the terms of the agreement, AT&T will transfer ownership of 18 Internet Data Centers (IDCs) in the U.S. and another 13 in other countries to Brookfield Infrastructure and its institutional partners in exchange for $1.1 billion in cash. AT&T will use that money to repay debt, which has ballooned due to its recent acquisition of Time Warner. Brookfield intends on establishing a wholly owned company to operate the data centers. Meanwhile, AT&T will continue to deliver network services to the more than 1,000 customers of the IDCs, actively market the capabilities of the IDCs, and be an anchor tenant of the operations.
Last fall, Brookfield laid out the vision for its second decade as a public company by identifying three areas that would likely drive growth in the coming years: data, smart cities, and Asia. On data, CEO Sam Pollock stated that it "is the fastest growing commodity in the world, with global usage growing exponentially, which requires massive investment in networks to store and transmit it, like fiber and telecom, where we have already made investments and remain focused on growing our portfolios."
The company's initial investment in data infrastructure came in late 2014 when it invested in TDF, the largest independent communications tower infrastructure business in France. At the time, TDF operated nearly 6,700 towers, as well as a fiber-optic network of more than 3,000 miles. The company and its partners have been expanding both segments and are currently investing about $1.3 billion in building out the fiber business.
Brookfield has also been actively working on deals to acquire additional tower businesses, with its current focus on India, where it had a deal for a large portfolio of towers fall through at the end of last year. It's still actively looking at tower portfolios in the country due to its belief that "this space has tremendous growth potential as the demand for data in India, primarily through mobile phones, is expected to increase exponentially over the coming decades," according to Pollock's comments in the company's third-quarter shareholder letter.
However, in addition to tower and fiber infrastructure, Brookfield also views data centers as being an important strategic fit for its infrastructure business. That's because they facilitate the storage of data, benefit from stable revenue due to long-term contracts, and have growth potential as demand for these facilities increases. That's why the strategic alliance with AT&T makes sense because it enables Brookfield to begin building a data center business alongside a strong partner that has nearly 20 years' experience in this space.
Starting to reaccelerate
After a red-hot run in 2017, Brookfield Infrastructure Partners sold off this year due to some concerns about slower growth up ahead after it sold its electricity transmission business in Chile. However, this transaction should put those worries to rest, as the company will not only put some of those cash proceeds back to work quickly, but it has added a new growth platform to its portfolio. That increases its appeal as a top income-growth stock to consider buying right now.