Infrastructure, like ports and pipelines, is vital to the world and can be highly profitable to own and build. You can get exposure to infrastructure in different ways. Some companies, for example, invest directly in long-lived assets, while others focus on managing companies and collecting fees for the effort. Brookfield Asset Management (BN -0.74%) does the latter, and Cheniere Energy (LNG 0.95%) does both. If you are looking for infrastructure exposure, it's worth getting to know these two companies.
A slightly different model
The first thing to understand about Brookfield is that it's technically an asset management company -- it makes money by making investments on behalf of others. It has focused on the infrastructure space for roughly 100 years. Notably, it eats its own cooking, investing alongside its customers.
Brookfield manages money directly, but increasingly it has been using controlled master limited partnerships to put capital to work. It has its own money in these partnerships, but also collects fees for running the businesses. It manages well-known infrastructure partnerships such as Brookfield Infrastructure Partners, Brookfield Renewable Partners, and Brookfield Property Partners. Although Brookfield Asset Management doesn't technically own the underlying assets, it certainly benefits from the successful operation of vital infrastructure, including toll roads, ports, renewable power, and enclosed malls.
This approach has benefited Brookfield, helping it grow its revenue from roughly $12.1 billion in 2009 to $56.7 billion in 2018. There have been some big jumps along the way as the company has set up new partnerships and consummated acquisitions. Earnings have been a little volatile, but funds available for distribution have more than doubled over the past five years (the company has increased its dividend for eight consecutive years, though it yields a miserly 1.2%). Brookfield's controlled partnerships have been a big piece of that success, as they account for roughly 40% of its fee-bearing capital.
Notably, these entities are looked at as permanent capital because the units are public: Investors can't simply ask for their money back; they have to sell to another investor. And thus, Brookfield continues to collect its management fee no matter what is going on in the broader market. The rest of the company's $164 billion in fee-earning assets is split between private investment accounts and other pooled investments (funds). A lot of that money is directed to the infrastructure space, as well. That said, $44 billion of Brookfield's own money is in the partnerships it controls, allowing it to collect distributions like any other unitholder.
Brookfield Asset Management isn't a pure-play on the infrastructure space, but it has proven adept at growing its business using infrastructure as a core platform. Growth in the future will come from expanding its assets under management and growing its controlled partnerships. To be fair, a recession would likely lead to weaker financial results, but for those with a long-term view, Brookfield Asset Management is an attractive way to gain incredibly broad exposure to infrastructure.
Liquefied natural gas is where it's at
Cheniere is very different from Brookfield in many ways, but quite similar in one: It controls Cheniere Energy Partners (CQP -0.85%), the limited partnership that owns the Sabine Pass liquefied natural gas (LNG) export facility, one of the first facilities to send U.S. LNG overseas. It was a long and expensive process building this infrastructure asset, but once it opened for operation, it quickly became very profitable.
Cheniere Energy benefited, too, with revenue growing from $270 million in 2015 to roughly $1.2 billion in 2016 and $5.6 billion in 2017. But Cheniere has also been building a second LNG facility, in Texas, which has sucked up most of the cash it generates. That said, it has now started to send LNG through its Texas facility, as well. There's still more spending to be done, but Cheniere has hit a key inflection point in its business.
The problem is that Cheniere Energy has taken on a lot of debt to get its construction projects done (long-term debt is nearly 95% of the capital structure). And it has also sold a lot of shares. So, for now, the goal is to return value to shareholders through debt reduction and stock repurchases. Both of those, however, continue to take a back seat to investing in the business, as the company continues to build out its LNG assets.
Cheniere isn't a bad investment for fairly aggressive investors looking to capitalize on the expectation for increased LNG use across the globe. However, it is highly focused on this one niche and, despite hitting a key milestone, is still at a point where it has to spend a lot of money on construction. The stock doesn't pay a dividend (controlled entity Cheniere Energy Partners has a notable 5.7% distribution yield). Considering everything, there's still a lot of work to be done.
Which is better?
Brookfield Asset Management is a good option for investors looking to benefit from infrastructure assets. It offers a mixture of direct and indirect exposure to a broadly diversified collection of assets. Although a notable portion of the business isn't directly tied to the space, the company has a long history of success. For most investors, it would be a better option than Cheniere. That said, aggressive investors looking to home in on LNG might still want to look further into Cheniere. Just be sure to keep a close eye on the balance sheet.