Brookfield Infrastructure Partners - Q2 2023

Transcript

Operator (participant)

Hello, and thank you for standing by. Welcome to the Brookfield Infrastructure Partners 2nd quarter 2023 results conference call and webcast. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question-and-answer session. To ask a question during the session, you will need to press *11 on your telephone. You will then hear an automated message stating that your hand has been raised. To lower your hand, press *11 again. Please be advised that today's conference is being recorded. It is now my pleasure to introduce Chief Financial Officer, David Krant.

David Krantz (CFO)

Thank you, operator. Good morning, everyone. Welcome to Brookfield Infrastructure Partners second quarter 2023 earnings conference call. As introduced, my name is David Krant. I'm the Chief Financial Officer of Brookfield Infrastructure. I'm joined today by our Chief Executive Officer, Sam Pollock, and Uday Mathialagan, a Managing Director and CEO of our global data center platform. Uday is joining our call from Mexico. If we encounter any technical difficulties, we also have Ben Vaughan with us in the room today. I'll begin with a discussion of our second quarter financial and operating results, as well as our liquidity position and the recent success of our capital recycling initiatives. I'll turn the call over to Uday, who will expand upon one of the three Ds driving investment opportunities, digitalization, through the lens of our global data center operations.

Finally, Sam will provide an update on our strategic initiatives and an outlook for our business. At this time, I would like to remind you that in our remarks today, we may make forward-looking statements. These statements are subject to known and unknown risks. Future results may differ materially. For further information on our known risk factors, I would encourage you to review our annual report on Form 20-F, which is available on our website. Beginning with our financial and operating results, we generated funds from operations, or FFO, of $552 million during the second quarter, an increase of 8% over the comparable period last year.

Results were supported by the contribution of approximately $2.1 billion of capital deployed in new acquisitions over the past year, partially offset by the impact of asset sales and borrowing costs associated with financing these new investments. Organic growth was near the high end of our target, 6%-9% range, reflecting the benefit of elevated inflation on tariff increases and the commissioning of approximately $1 billion in new capital projects during the last 12 months. Partially offsetting the strong underlying performance of our business was the normalization of market-sensitive revenues, as the prior year benefited from elevated commodity prices. Starting with our segments, in the utility segment, we generated FFO of $224 million, an increase of 19% from the same period last year.

Organic growth for utilities was 10%, reflecting the continued benefit of elevated inflation indexation and the commissioning of approximately $500 million of capital into our rate base during the last 12 months. Current quarter results also benefited from the expansion of our residential decarbonization infrastructure platform in North America and Europe, following the acquisition of HomeServe in January of this year. FFO for the transport segment was $199 million, an increase of 5% from the prior year, once excluding our US container terminal that was divested in the second quarter of last year. Results continued to benefit from inflation-linked rate increases across our global portfolio. Compared to the prior period last year, our global toll road portfolio increased rates by 10%, and our rail networks passed through increases of 8%.

Volumes have remained resilient, with traffic levels increasing 2% across our portfolio of roads, and our rail volumes were consistent with the prior year. Partially offsetting the strong operational results of our road and rail assets was a 1% reduction in port volumes and the normalization of commodity prices that provided an outsized contribution at our US LNG export terminal in the prior year. The midstream segment generated FFO of $161 million, a modest decrease compared with the prior year. Strong performance across our base business was from increased utilization and higher contracted cash flows was offset by softer results at our Canadian diversified midstream business. Results were impacted by the normalization of market-sensitive revenues and the delay in meaningful contribution from the Heartland Petrochemical Complex, which underwent repairs and was offline for much of the quarter.

During July, we successfully completed the restart and ramp-up of the complex, which is currently achieving high operating rates. Heartland is anticipated to partially contribute to results during the third quarter, while the fourth quarter is expected to provide a full contribution. Lastly, FFO for the data segment was $72 million, an increase of 20% from the same period last year. Current quarter reflects the benefit of the acquisition of a European telecom tower operation in February, as well as the contribution from our Australian fiber business acquired in August of last year. In addition to the strong financial and operational results I've described, our business is also well positioned to execute its financing plans with access to capital strong and a very robust liquidity position.

We ended the second quarter with $2.3 billion in corporate liquidity, which was supported by the significant progress achieved in our capital recycling initiatives. To date, in this calendar year, we have secured $1.9 billion of asset sale proceeds, of which $1.4 billion has already closed. Most notably, during the quarter, we secured and closed the sale of our 50% interest in our New Zealand integrated data distribution business to our existing joint venture partner for net to BIP proceeds of approximately $275 million. When combined with the sale of the tower assets last year, we generated a US dollar IRR of 31%, which represented a 2.6x multiple of our capital over the four-year hold period.

We also secured and closed the partial sale of a US gas pipeline to one of our existing partners for approximately $420 million. This implied an 18% IRR and a 2.8x multiple of our capital since the recapitalization of the business in 2015. Finally, we secured the sale of a portion of our financial asset portfolio and our 8% interest in our Australian regulated utility for total proceeds of approximately $840 million. Approximately $380 million has been received during the year, and with the remainder scheduled to close later this month. With our capital recycling objectives largely achieved, our organizational focus has shifted to the integration of our newly acquired businesses and the execution of their respective business plans.

This includes the development of our global data center platform, which Uday will discuss next. I would like to thank everyone for their time this morning. I will now pass the call over to him.

Uday Mathialagan (Managing Director and CEO, Global Data Center Platform)

Thank you, David. Good morning, everyone. I'm pleased to be joining today's call to discuss the digitalization investment theme and the exponential need for data storage. Digitalization has been a strong tailwind driving our recent investment activity. It refers to large-scale capital that is required to support exponential increases in data consumption. We typically invest in several core data-focused areas, including fiber, telecom towers, indoor wireless systems, and data centers. The data storage and processing industry, in particular, is benefiting from sector tailwinds, including the rise of generative artificial intelligence, which is transforming industries by automating complex tasks and advanced analytics. We're also experiencing an exponential surge in data storage and processing requirements from enterprises migrating workloads and applications from on-premises to the cloud, as well as the widespread adoption of new use cases such as 5G technology.

These trends are amplifying demand for robust, well-located, and scalable data infrastructure, including data centers. This year, we capitalized on these tailwinds and have significantly expanded our data center operations. We secured the acquisitions of two development platforms, Data4 and Compass, which meaningfully contribute to our operating capacity and expand our presence in Europe and North America, respectively. In fact, following the closing of both transactions, we will own and operate one of the largest global hyperscale data center platforms. Our operating capacity will increase to over 485 MW, with an additional 775 megawatts of capacity already contracted and reserved that will be built out over the next several years.

Combined, we expect to have over 1.25 gigawatts of capacity over the next few years that is highly contracted to provide stable cash flow and is underpinned by major hyperscale customers. These customers are of strong credit quality and represent industry-leading companies that are at the forefront of technological advancement, such as artificial intelligence. We believe our size, scale, and global portfolio will prove to be a competitive advantage going forward. Our operating footprint is across five continents, which can give our hyperscale customers a highly flexible and consistent offering in multiple geographies. These relationships will also provide critical and real-time information on the global market that should provide us with a competitive advantage. Another differentiator for our data center offering is the ability to leverage Brookfield's ecosystem to provide a turnkey solution that includes renewable power connectivity and adjacent real estate development.

Our near-term focus is on the execution of our large-scale and high-growth business plan. The high degree of contracted capacity provides multiyear visibility to secure access to critical equipment, reliable labor, and priority procurement, with the pricing benefits of development at scale. We also expect to benefit from our modular and repeatable build design, as well as our permitted power-ready and owned land bank for all of our development plans. To further support our customers' growth ambitions, we have an existing land bank in prime markets that has the potential to increase our total capacity to over two gigawatts. That concludes my remarks for this morning, and I will now pass the call over to Sam.

David Krantz (CFO)

Thank you, Uday. Good morning, everyone. For my remarks today, I'll provide an update on our strategic initiatives and conclude with an outlook for our business. As we highlighted in our letter to unit holders, we continue to find good opportunities to invest capital above our targeted return threshold. In that regard, for 2023, we have already exceeded our annual deployment objective, securing three new investments totaling nearly $2 billion.

Sam Pollock (CEO)

Beginning with Triton, the Triton privatization, I'm pleased to say that nearly all the required regulatory approvals have been received, and a shareholder vote has been set for August 24. We currently expect to close the transaction shortly after receiving confirmation of shareholder support. As Uday touched on just now, we recently accelerated our global data center growth strategy through the acquisition of two marquee development platforms in North America and Europe. These investments fill gaps in our existing portfolio, which was primarily focused on the South American and Asia Pacific regions. We now have development capabilities in all our core markets, including North America and Europe, and have become one of the largest developers in the world. Most recently, we entered into an agreement to acquire a co-controlling stake in Compass Datacenters, a leading North American hyperscale data center platform.

The business has approximately 170 MW of operating capacity, with a significantly de-risked capacity backlog of 565 MW to be developed on power ready and owned land across several major campuses. We expect the transaction to close in the fourth quarter. We also recently closed the previously announced acquisition of Data4, our European hyperscale data center platform. Since announcing the transaction, the business converted 130 MW memorandum of understanding with a leading hyperscale client into firm contracted capacity. This results in over 50% of our business plan growth profile of 400 MW being successfully contracted. For these recent data center investments, we expect to initially earn single digit going in yields that we expect will grow materially as we develop our highly visible and large scale growth pipeline.

We plan on developing almost one gigawatt of capacity over the next three years, which we anticipate will increase last year's EBITDA by over five times. To finance this growth, we intend to utilize our capital recycling experience to create a self-funded structure, monetizing operating and contracted data centers to fund capital backlog. These investments are expected to generate high to mid-teen returns, which could be even higher depending on the success of our capital recycling. Looking forward at our business more broadly, we continue to demonstrate strong momentum in our financial operating strategic initiatives. The closing of Triton is expected to generate meaningful accretion to results in the second half of the year. Our data center investments will provide meaningful FFO growth in the years to come.

In addition, our continued ability to pass through inflationary increases in our tariffs above headline rates should continue for the next several quarters. We continue to surface highly attractive opportunities to invest for value in this capital scarce environment. While we have surpassed our capital deployment target for the year, we will continue to pursue new and follow-on opportunities, especially those that offer greater returns than our target levels. At the same time, while we have largely completed our capital recycling efforts for the year, we are evaluating further dispositions for 2024. We fully expect to achieve continued success in our capital recycling initiatives in the years ahead, given the quality and diversification of our asset base. That concludes my remarks, and I'll now pass it back to the operator to open the line for questions.

Operator (participant)

A reminder, to ask a question, you will need to press star 1 1 on your telephone. Once again, to ask a question, please press star 1 1 on your telephone. Please stand by while we compile the Q&A roster. Our first question comes from the line of Cherilyn Radburtwith TD Cowen

Cherylin Radburn (Director in Equity Research)

Thanks very much. Good morning. In terms of the very large scale data center platform that you've now assembled, can you speak to the extent to which you can share best practices and generate synergies across it? Just considering that in some cases you have partnerships with other investors.

Sam Pollock (CEO)

Hi, Cherilyn. Maybe I'll, I'll start off and then, let Uday maybe chime in with a few comments from Mexico. Look, our goal is to extract as many synergies as possible from these transactions. I think, for those businesses where we control or co-control, in particular the more recent ones, I think we'll have lots of opportunities to share best practices. You know, in those businesses where we have partners who are, you know, quasi competitors, I guess, you know, it will be a little more challenging. But nonetheless, you know, we have a great relationship, you know, with our partner, particularly in South America and in India.

I expect that, you know, we'll, we'll take advantage of those things where it's mutually beneficial. And they've been a great partner to date, and I, I don't doubt they'll continue to be a great partner. I don't know, Uday, do you, did you want to add anything to that?

Operator (participant)

Probably just one more point, Sam, which is, I think, particularly in co-controlled situations, our interests are absolutely the same, and partners bring very specific inputs, and in some of these, arrangements, different parties are contracted to provide particular inputs. I think we have a very productive, collaborative approach to bringing best practices within those, you know, those JVs that.

Uday Mathialagan (Managing Director and CEO, Global Data Center Platform)

... Sam alluded to, and of course, in the other businesses where we have 100% ownership, there's clearly more opportunity as well to share best practices and lessons from other markets.

Cherylin Radburn (Director in Equity Research)

Great, that's helpful. Then as it relates to the plan to self-fund the development pipeline by selling fully operating and contracted data centers, can you give us some color on the pool of buyers out there that would be looking to purchase, I guess, single facilities or perhaps smaller scale clusters of facilities?

Sam Pollock (CEO)

Sure. Hi, hi, Sherilyn. You know, so today, you know, we've seen a number of industry participants, you know, monetize stakes, you know, to individual investors, both in Europe and in North America, and done so at cap rates that I think are, are, you know, very attractive. We've also seen some groups, you know, set up, you know, vehicles where they've dropped down assets and set up kind of private REITs. I think our, our plan will be to explore a whole range of different capital recycling alternatives, taking advantage of our knowledge of, you know, global, you know, LPs and their desires to deploy capital in these types of assets.

I think, you know, there's very few players who have that same global reach and understanding of, of, LP desires. And we'll do our best to match, you know, those buyers with the assets that we have in a structure that's appealing to them. That could be retail investors, institutional investors, and high net worth individuals. There's, there's a whole host of, of, of, capital out there that, that would like these types of assets, and, and, you know, we plan on, you know, setting up those structures to access them in a, in a very large way.

Cherylin Radburn (Director in Equity Research)

That's my two. Thank you for the time.

Operator (participant)

Thank you. One moment, please, for our next question. Our next question comes from the line of Robert Hope with Scotiabank.

Speaker 12

Good morning, everyone. Wanna stay on the theme of the hyperscale and data business. With now, now that you have platforms on five continents, how does the focus for growth shift? Will you move away from large platform M&A to smaller tuck-ins and focusing on the development pipeline? You know, could we continue to see, you know, what we'll characterize as platform acquisitions in this segment?

Sam Pollock (CEO)

Yeah. Hi, Robert. I'll start and then maybe again ask Uday to talk about our organic growth opportunities. Yeah, I think it's unlikely that we'll, you know, pursue any more platform investment opportunities. I think we have operations in all the regions where we wanna be. That's not to say there might be, not be some small, you know, investment somewhere in a region, you know, maybe the Middle East, to where we have, you know, relatively modest activities today. I think we have most of the regions where we wanna deploy capital well covered.

I think the focus will be on, you know, just organic growth, acquiring, you know, land and building more campuses and just executing the business plans that each of our businesses has in front of them. Maybe just with that, I'll, I'll turn it over to Uday to expand on that.

Uday Mathialagan (Managing Director and CEO, Global Data Center Platform)

Probably just building on that, Sam, exactly. I think, you know, we've got, I touched on it a bit earlier, there's a huge pipeline in front of us in terms of customer opportunities, and that's probably, we're definitely noticing a bit of an uptick as well with, you know, with hyperscalers in particular and others looking at applications like AI and probably, you know, seeking to secure supply. I think a lot of the focus will be just building out on the land banks we've got and perhaps some smart sort of extensions into new locations from each of the platform companies, you know, that serve some very natural geographies which could be expanded into. That's probably will be the main focus for the next, next little while.

Speaker 12

Appreciate that. As a follow-up, in the letter, you commented that buyers are having less access to capital. How is this impacting your pipeline of potential M&A opportunities? How much valuation compression have you seen, or some sellers balking at pricing and shelving processes?

Sam Pollock (CEO)

Robert, I think, all those things, you know, are, are, I guess, you know, dynamics taking place today. I, I think, you know, capital, while becoming less scarce, I, I, I do see an improvement in the market. Definitely the access to capital is improved. I also think that buyer expect-- seller expectations have moderated. I think that's also helped to improve deal activity. You know, I, I think it's safe to say that in this market as a whole, and that's not, I, you know, I'm always, you know, wary of generalizing too much because there are some sectors that are still in high demand, but for the most part, this is a buyer's market. You know, I, I do see the shift taking place, more capital coming back.

you know, fundraising for our, you know, our business remains strong, and I think, you know, we're seeing a number of our peers go to the market to raise new funds, and so that will, you know, create dry powder for acquisitions. I, I think, you know, the, the market is definitely picking up, but I think for the next little while, we still see an opportunity to, you know, invest in, you know, very high returning situations that particularly those that tuck into our existing operations. I think that's where the real opportunity lies today.

Operator (participant)

Thank you. One moment, please, for our next question. Our next question comes from the line of Robert Kwan with RBC Capital Markets.

Robert Kwan (Analyst)

Great, good morning. If I can, just continue on, on, you know, the, the statement you made around buyers having less access to capital and the other statement just for you investing in a capital scarce environment. Sam, you touched a little bit on it with the last answer, but can you just talk about what all of this means in terms of the attractiveness, both, or opportunities for acquisitions and divestitures, just across the different asset classes and geographies that you're targeting?

Sam Pollock (CEO)

Hi, Robert. Maybe just let me rephrase your question to make sure I understood it. I think you're asking me just to, you know, give the investment outlook, you know, for lack of a better expression, across different regions in the world and different sectors. Is that what the question was?

Robert Kwan (Analyst)

Yeah, especially just with your comments here around, you know, capital scarcity and just the moderating valuations.

Sam Pollock (CEO)

Yeah. Look, I, I think the investment climate is pretty consistent in all markets. Today, I don't see any market, and which is unusual, because usually, you know, there's always one place that has no capital, another place that has a lot of capital. Today, it's actually pretty consistent across the globe as far as capital availability. You know, typically, we would expect that, you know, the North American capital markets, you know, would come back, you know, probably the soonest, would, would usually be my expectation. And I think that's probably still will be the case with the other markets falling behind a little bit. You know, we're seeing good opportunities, I guess, just to, to sum up, in all markets today.

In each, in each of our regions, we are looking at tuck-in acquisitions that are above our traditional return expectations. As far as sectors go, you know, the, you know, the digital sector remains very attractive for investors. There's still a lot of people who want to gain exposure to it. You know, there are parts of the, the data sector that are, you know, not as attractive as others, and so, you know, people are maybe a little more wary. You know, in, in particular, some of the wholesale fiber, you know, enterprise fiber-type businesses, you know, are a little bit more distressed.

We still see lots of capital for towers and data centers, and the demand that from customers is extremely strong, supporting those businesses. You know, similarly, you know, we see a lot of interest from us and from, you know, our clients, for utilities, you know, particularly electric utilities. Maybe less so for, you know, gas, or fossil fuel-related utilities. Electric utilities are very much in demand, and I think we'll see that for the long term.

Maybe, you know, from a thematic perspective, the three Ds that we've talked about for the last year, year and a bit, are still very relevant and driving a lot of the capital needs, as well as investor desires to get in front of decarbonization, digitalization, and some of these deglobalization trends that we see.

Robert Kwan (Analyst)

That's great. If, if I can just follow up, on a specific sector that you didn't touch on as much, just midstream. We've seen M&A valuations moderate there. Does that make it more attractive to you from the perspective of acquiring, or is it, you know, less attractive just in terms of whether it's how industry dynamics have played out, you know, where the market is? I don't know if there's any comments you can make as it read through to your own assets.

Sam Pollock (CEO)

Yeah, look, we, you know, we are still very enthusiastic about midstream and our midstream assets. You know, we think today our assets are highly cash generative, generating very robust, sustainable cash flow. Any business that you can have that, that generates those types of attributes, then, you know, we think they're great businesses. You know, I think the only caveat is, obviously, you know, we're into an environment where there's less buyers for some of those types of assets, and so terminal value is something that everyone's mindful of, and everyone takes a view of, you know, the longevity of certain types of assets. You know, that requires a lot of diligence.

For us, you know, we, yeah, we'll continue to invest in, in high quality and scarce midstream businesses and ones that provide a relatively quick return of capital. That's always been our investment focus and thesis for the last number of years, and we'll continue with that approach. We like the sector. You know, we think valuations are actually okay. You know, we've, we've, we've been on the buy and sell side the last couple of years, and I think they're, you know, fairly constructive.

Robert Kwan (Analyst)

That's great. Thank you.

Operator (participant)

Thank you. One moment, please, for our next question. Our next question comes from the line of Devin Dodge with BMO Capital Markets.

Devin Dodge (Analyst)

Thanks. Good morning. I wanted to start with a question with, on the toll road business in Brazil. You know, we haven't seen Arteris do many or bid on many new concessions recently. There's been some focus in the Brazilian media that Arteris' leverage is, is too high, which they're attributing as a factor behind that lack of growth, and, and they're even suggesting that the business may need a capital injection from Brookfield and its partners. I'm not sure if you want to respond to that directly, but I'm just trying to get a sense for how BIP views the Arteris business and its capacity for pursuing growth.

Sam Pollock (CEO)

Yeah, Devin, it's, it's Ben here. you know, I guess Arteris and our Brazil toll road operations, you know, operating conditions have been a bit challenging over the last several years in Brazil, and mostly due to just the broad economic challenges impacting the country overall. As we always do, you know, we're very focused on evaluating our capital allocation into the business and need to make sure we're earning a proper return. you know, that's our main area of strategic focus with Arteris at this time. we will, you know, weigh all that very carefully as we consider adding further concessions to the platform in the coming years.

Devin Dodge (Analyst)

Okay. Okay, that's fair. Then, you know, I guess sticking in South America, but moving a bit further north to your toll road in Peru. Look, I know this is a smaller investment, but there's been a lot of unrest and media coverage on the toll road in Lima. Just can you provide an update on the situation there?

Sam Pollock (CEO)

Yeah, of, of course. At, at this stage, Devin, I can't get into too many details. You know, this is a road in Peru that we bought back in around 2016, and the road has a lot of really attractive characteristics. It's, it's got a good growth profile, and an excellent concession contract. Since we've owned it, the operations have gone very well. What's happened here is earlier this year, the municipality, which is the counterparty on our concession contract, indicated that they'd like to go in a different direction, with the road. We're now in discussions with the municipality on that, to see if we can accommodate their needs, and those discussions are underway.

Devin Dodge (Analyst)

Okay, thank you. I'll turn it over.

Sam Pollock (CEO)

Thanks.

Operator (participant)

Thank you. One moment, please, for our next question. Our next question comes from the line of Naji Baydoun with iA Capital Markets.

Naji Baydoun (Analyst)

Yeah, good morning. Just wanted to go back to the topic of M&A. You, you sort of fully funded these acquisitions this year from asset sales and the BIPS issuances. I guess your comment about maybe some capital recycling initiatives taking a bit longer to execute or complete, does that slow your appetite for acquisitions at all in the meantime, in terms of waiting to secure funding?

Sam Pollock (CEO)

Hi, Naji. Well, well, look, you know, we always have to invest, you know, you know, based on our available liquidity. You know, that's obviously a consideration. I think, you know, what is unique about our business is that, you know, we have, you know, many sources of capital to fund growth. You know, we'll evaluate all those different sources to the extent that, you know, we can raise capital in an accretive manner to fund, you know, high returning opportunities, we'll do so. Obviously, if the source of the capital, you know, don't provide for accretive growth, then we will slow down the growth.

You know, our history is that we've always been able to find these levers to continue to take advantage of opportunities, particularly in, in markets where you can buy for value. You know, that would be my expectation, is that we will continue to be able to grow and, and find ways to finance that growth.

Naji Baydoun (Analyst)

Okay, okay, understood. The comment that you made earlier about the utility market and the attractiveness maybe of certain assets over others, can you, can you maybe talk about your, your view on water utilities?

Sam Pollock (CEO)

Okay. Water utilities, you know, they, you know, they come in, in, in different structures and different regions. I, I'd have to talk about it based off each, each region. You know, probably the most well-known, prominent water utility investments are in the U.K. You know, as is, you know, I think, quite well known, and particularly now with all the media that's being attributed to it, it's been a very challenging environment. You know, these, you know, for the most part, you know, because of, you know, probably mistakes with capital structures and, and how people financed those acquisitions, as well as, difficult operating and, and regulatory environments, they haven't performed particularly well.

You know, again, there's probably a few that have done better than others, so I don't wanna, you know, smear everyone with that same comment because there are some that have done okay. For the most part, it's been a challenged sector, and it's probably one that we would avoid, and not find particularly interesting from a risk-return perspective today. In Europe, there's a few, you know, water utilities in Spain and other places, but for the most part, have not been actionable. In the U.S., it's, it's, it's, you know, there, there really hasn't been an ability to invest in the water utility sector in scale. You know, most of them have been small roll-ups, and so, you know, not really, you know, well suited for us.

They've also traded at extremely high returns or high valuations, driving lower returns. Again, that, you know, didn't really appeal to us. We haven't done much in the U.S., and I wouldn't expect that the opportunity set would be large there. Then in South America, there's, you know, a few, you know, water utility-type businesses in Chile and Brazil, and we've generally, you know, not focused on those.

Naji Baydoun (Analyst)

Okay.

Sam Pollock (CEO)

I guess you can say, you can get from my remarks, that there's not too much for us to do in the water utility space.

Naji Baydoun (Analyst)

That's very clear and comprehensive an answer. Thank you for that. Just maybe last question on the two more recent capital recycling initiatives, the US pipeline and AusNet. Any comments on valuations for those two would be helpful. Thanks.

Sam Pollock (CEO)

Sorry, what was... It was AusNet, and what's the-

Naji Baydoun (Analyst)

NGPL.

Sam Pollock (CEO)

NGPL?

Naji Baydoun (Analyst)

NGPL, yeah.

Sam Pollock (CEO)

Yeah. NGPL, look, we, we, you know, we've sold down through two transactions, both to the same buyer. You know, one was done a couple of years ago, you know, prior to the movement in rates and one afterwards. I, you know, I think the takeaway is that, you know, the valuation for the business, you know, increased during that period of time. I think, you know, that says a lot to the quality of the asset and the fact that, you know, in spite of, you know, movement in rates, you can still achieve values that were, you know, present, you know, prior to this environment. I think that's a, you know, a great example of that. On AusNet, you know, we held it for a relatively short period of time.

You know, we sold it, effectively at a return consistent to what we bought at. It would have accreated up in value over the period of time that we held it. The going in and going out valuations were very consistent.

Devin Dodge (Analyst)

Okay. Thank you for that.

Operator (participant)

Thank you. One moment, please, for our next question. Our next question comes from the line of Andrew Kusky with Credit Suisse.

Speaker 10

Thanks. Good morning. I guess the question's targeted to Sam. Really, if you look at BIP's operations and the scale of them, you know, maybe you could just give us some insight as to how you're managing data. You know, effectively, if you think of all the information you have, you know, hydrocarbon flows, traffic numbers, connections, et cetera, across the whole portfolio, how are you managing that data to effectively generate proprietary insights, really at the top of the house, and then by way of extension, maybe across the broader Brookfield group to help direct you in allocating capital?

Sam Pollock (CEO)

Hi, Andrew. Well, that's a, that's a very interesting question, because it, it's topical given, you know, all the advances in, in AI and the ability to scrape and analyze databases that are not organized. That is one of the big uses for AI. That's something that, you know, we are, you know, looking at very closely, 'cause as you, as you rightly point out, you know, within all our businesses, you know, we have, you know, tremendous proprietary data. Historically, you know, it, it's been, you know, done more... I'm not sure what the right word is, but maybe haphazardly, where, you know, we would just get, you know, business leaders together and, you know, regularly compare notes and, and try to tie in opportunities.

We've done that successfully, particularly between our renewable group and some of our businesses that are heavy power users. Data being a good example of that. Businesses where we would have the ability to leverage new solar technology and capabilities to replace some fossil fuel type generation. That's where I'd say we've done a really good job in the past, I think we've done a reasonable job with the real estate group where we've been able to find synergies between many of our metering businesses in particular, and district energy businesses and the real estate group.

You know, what I think the next level is though, and what you're touching on, is where we can take advantage of the 14.5 million customers we have in our demand decarbonization business and understand, you know, the buying patterns, that, you know, exist within all those markets that they touch. Within our Triton investment, you know, being able to take advantage of, you know, the movement of boxes and, and how that's gonna be, telegraphing, you know, trade flows in the future. You know, we are working on, you know, how we can, you know, institute some AI solutions to all that. I'd say it's, it's early days, but hopefully that's something in the quarters and years ahead, we'll be able to brag about and tell you, you know, more of what we're doing.

Speaker 10

Okay, that's the... I appreciate that color, and that's, that's very helpful. I guess maybe just building upon that, with that potential informational advantage, along with the capital that you've managed to raise and then also recycle, I, I, I'd suggest nothing patronizing about it, but your partnership quality is probably the best it ever has been. When you have these kinds of strategic partners, does that allow you to better tilt and lean into organic growth on a longer term basis with increased competitive advantages? I'd, I'd just highlight just some of the activities with Reliance, you know, given the fact that Uday is also on the call.

Sam Pollock (CEO)

Yeah, the short answer is yes, because, you know, as, as I think you, you were telegraphing and, and what I would, you know, concur with, is, you know, we aim to be a partner of choice, for, you know, strategics and help them, you know, invest in their businesses and where we're helpful to provide some of our, you know, strategic and operating knowledge. Sometimes we're just providing capital, other times it's a combination of those two things. You know, whether or not... Whether it's, you know, with the, Ambanis or with, the Reliances, with the Intels, you know, I think, you know, we cover, you know, many different types of strategics and, you know, we are able to grow with them.

you know, maybe just on the telecom side, you know, I can turn it over to Uday and, and, and he can provide maybe some additional examples, but I, I think he would concur that we do see lots of growth, investing alongside our partners.

Uday Mathialagan (Managing Director and CEO, Global Data Center Platform)

Yeah, I, I'll probably just add one more point, Sam. I'll probably draw the example of the Indian market, where I think we took a view, two years ago that, you know, the runway in India is quite long in terms of just opportunities for data, and the just the quality of the infrastructure there, we just is amazing, you know, and the new stuff needed to be built. As we progressed, you know, building this partnership, so what's now happened is we've got three great partners bringing very, very complementary different skills. You're right, Andrew, to point out to Reliance, particularly in that market. I mean, the large telecom operator, great sort of national infrastructure here, combined with our real estate and renewable capability and Digital Realty's, you know, global access to customers and data center designs.

I think it is just a very, very powerful combination. That's, that's one example, but, I think we are, you know, obviously partnering in different places, with different, different counterparties.

Speaker 10

Okay. That's great. Appreciate the time.

Operator (participant)

Thank you. One moment, please, for our next question. Our next question comes from the line of Will Ga with CIBC.

Speaker 9

Hi. Just wondering how have the wildfires in Alberta impacted your midstream assets? If there are any impacts to the HPC ramp-up that you can talk about?

Sam Pollock (CEO)

Yeah. Hi, Hi, Will. It's, it's Ben here. I think the question was, how are we impacted from the wildfires in, in Western Canada? They had we did have to take two facilities in one of our businesses down for a very brief period of time. It was immaterial from a financial perspective, and they're all back up and running today. There was no wildfire impact at all on the Heartland facility. So, so that's.

Speaker 11

Yes, that's what happened with the wildfires in Western Canada.

Speaker 8

Okay. Thank you. One more, if I could. I guess, can you talk about the broad implications of AI on the growth trends and, and, and their growth trends on the data center business?

Sam Pollock (CEO)

Okay. you know, that, that's a, that's a great question just to throw over to Uday. Uday, do you want to respond to that?

Uday Mathialagan (Managing Director and CEO, Global Data Center Platform)

Happy to, Sam. I, thank you. Look, I think I touched on it briefly a bit earlier. AI is just creating some, some great new opportunities for our data center portfolio. You know, particularly when you look at the, you know, the way the AI is breaking up data processing for, you know, the large language models and, and the way, you know, capacity can actually tolerate a bit more latency. In some cases, we're also noticing that the redundancy requirements for power could potentially be different to general cloud computing. What it means is, I think, you know, one, the hyperscalers are accelerating, securing capacity.

Two, we're seeing some other new players potentially coming in, and it enables us to really leverage the land banks we have to create much larger campuses, which could be slightly away from the center, so lower land costs and being able to combine our renewable energy capabilities and real estate development. I think net-net, you know, it is a real, an additional tailwind to the data centers sector, and it also, particularly some of the more recent acquisitions of very well targeted, you know, benefiting from the AI capacity uptake and changed sort of needs from customers.

Speaker 8

Perfect. Thanks. That's all from me.

Operator (participant)

Thank you. I would now like to hand the call back over to CEO, Sam Pollock, for any closing remarks.

Sam Pollock (CEO)

Okay. Thank you, operator, and thank you to everyone who joined the call this morning. We look forward to sharing more details on our outlook and specific growth plans, particularly related to our global data center platform at our upcoming Annual Investor Day event, which will be held in Toronto on September 21st. We look forward to seeing everyone there. If you can make it, please join us. We look forward to, again, providing an update on our results next quarter. We hope you enjoy the rest of your summer. Thank you.

Operator (participant)

Ladies and gentlemen, this concludes today's conferencecall and webcast. Thank you for participating, and you may now disconnect.