Brookfield Infrastructure (NYSE:BIP)(NYSE:BIPC) has agreed to sell its North American district energy business, Enwave, for $4.1 billion. The company announced today that it is selling the business to institutional investors in two separate deals, splitting the Canadian and U.S. operations. Brookfield expects to receive $950 million in net proceeds from the transactions.
Enwave's district energy systems heat and cool buildings from a central plant using a network of underground pipes to pump steam, hot water, and chilled water into the facilities. Brookfield initially acquired Enwave for 480 million Canadian dollars ($375 million in today's dollars at the current exchange rate) in 2012 and has since grown it into the largest district energy system in North America. In a 2017 shareholder letter, the company noted that it had since grown its district energy business to a nearly $2 billion enterprise value.
Brookfield grew Enwave's value by acquiring other high-quality district energy systems and completing organic expansions. Overall, it has increased the business' EBITDA at more than a 20% compound annual rate. According to CEO Sam Pollock, the company is now cashing in on this "hugely successful investment" to recycle that capital into new opportunities.
The company intends to use the proceeds to fund a large portion of its $2 billion annual growth investment target. Brookfield believes the economy is heading toward an infrastructure super-cycle, which should drive governments and corporations to sell assets to finance new investments. It sees the greatest opportunities in data infrastructure, energy midstream, and transportation.
Brookfield estimates that its capital recycling program could grow its cash flows by an incremental 1% to 5% per year, on top of its 6% to 9% organic growth rate. That could allow it to continue outperforming the market.