Nick Sciple: Matt, the next stock we’re going
to discuss is Brookfield Infrastructure Partners. Key thing to point out with Brookfield Infrastructure,
it’s more diversified than Crestwood. Also, in addition to having some pipeline
investments, they also have some investments in data centers, they have some investments
in regulated utilities. They yield about 4.8%. Their distribution has grown at a 11% cumulative
annual growth rate since 2009. What really stands out to you
about Brooklyn Infrastructure? Matt Dilallo: As you mentioned, it’s diversified.
It does have the pipelines. They’ve got a pipeline through North America,
they’ve got one in Brazil, they’re buying one in India. Not only do you get the North American that you can get
in any of these MLPs, but you get the global pipelines. And then, in addition to that, they’re savvy of knowing
what type of infrastructure is needed elsewhere. You mentioned the data centers. They see data
as being the new oil, exponential growth in data. They’re investing in cell phone towers,
data centers, fiber networks. They’re also big on transportation-type
businesses like ports, toll roads, and rail. Really a broad way to diversify
into infrastructure generally. It’s a different way to play
this side of the market. Sciple: The way to think about it with Brookfield
Infrastructure is, if you need to move something from place to place, whether it’s data, oil,
goods on a toll road, or anything like that, that’s something that they’re going to pay
attention to and look for opportunities in that space. About 95% of their adjusted EBITDA comes from
regulated or contracted revenues. You’re getting a pretty steady cash flow through
the business. It’s very predictable business. Let’s talk about their acquisitions. With their cash flow being relatively steady
year over year, a lot of their growth is going to come from acquisitions. They just announced about $1.8 billion in
new investments, $1.4 billion of which is going to go into energy, while the rest of
that is going to go into data centers and some other opportunities. Do you want to talk about what they’re looking
at with these new investments, and what opportunities Brookfield has to pursue there? Dilallo: One of the things Brookfield does is,
they’ll buy a business and they’ll own it for a long time. They just sold an
electric transmission business in Chile. They’re using that money to reinvest in some
other higher-growth opportunities. They’ve got about six
deals going right now. One of them is, they’re buying Enbridge,
the Canadian pipeline company. They’re a gathering and processing business
in Western Canada, focused on the Montney shale, which is a
natural-gas-liquids-type of shale play up there. They see that as a growth opportunity as
Canada starts exporting natural gas. It has really good returns up there.
They see that as a good organic growth opportunity. They also are buying a pipeline in India. India’s
the faster-growing energy market going forward. China was the big story for
the past couple decades. But India is going to grow very, very fast the
next couple years. This is their inroads into India. They also bought a residential
infrastructure company. What they do is they lease things like home
heating systems and water heaters, those sorts of things, to homes and businesses.
That’s their energy investments. They also bought a gas utility in Colombia.
Again, spread all over the world, diversified. And, as you mentioned, a lot of
these are contracted cash flow. Just like a pipeline company will sign a long-term
contract with shippers, a lot of these are long-term contracts.
You have that stable cash flow. And then, they have the data infrastructure investments,
ones that deal with AT&T device and data centers. Another, they’re partnering with a real estate
investment trust to buy data centers in Brazil. Again, you’ve got that diversification,
both in sector and geography. It’s a way for them to grow faster than a
typical pipeline company. They have so many more opportunities. Another benefit of this switch from the Chilean
business to these other ones is, the Chilean business is going to grow about 2-3% a year,
and they see these as growing 5-7% a year organically. So, they can accelerate the growth rate, plus
getting the uplift from a really stable business to businesses that are growing faster. They see
this as accelerating the growth rate going forward. Sciple: Let’s talk about the advantages. We talked about some of the diversification
that Brookfield gives you because they’re not just in the oil space. A lot of these other energy, oil plays can get affected
by the cyclicality we see in the energy market. Is Brookfield more insulated from that
because of these opportunities? If the oil market’s doing really well and
assets are over-inflated, they can push assets to those other areas, data centers
and things like that. For an investor, is that a thing that you
think about when you’re deciding how you want to allocate or go into these businesses?
Dilallo: Yeah, they’re very contrarian. They’ll look at a situation where nobody else
wants to invest, and that’s when they’ll buy. I think it was two years ago,
Brazil was in some trouble. The oil prices really hit Brazil’s oil
company Petrobras pretty hard. On top of that, they had a political scandal.
So, nobody wanted to invest in Brazil. That allowed Brookfield to buy a really good
pipeline business for a fantastic price. That focusing on looking for opportunities
when nobody else is has enabled them to get some really good deals. Right now, the midstream
sector is under pressure in North America. Nobody wants to buy midstream assets
because with interest rates going up, that’s put pressure on stock prices. Midstream companies are selling to Brookfield
for pretty good values. That’s how they play it. They look for opportunities when things are
down, and that’s when they’ll pounce. Sciple: I pulled some data from one of Brookfield’s
investor presentations earlier this year. You talk about the market downturn. Brookfield’s balance sheet sets them up to
be in a good position to invest there. Less than 5% of their debt is maturing in
the next five years. 90% of their debt is at a fixed rate. They have no significant
maturities in the next five years. While we’re at this bottom or weakness in
the MLP market, they have the opportunity, without significant obligations on their balance
sheet, to throw some money into where opportunities present themselves.
Dilallo: Yeah, and that’s by design. They like to sell assets not when they have
to, but when they’re at full value. For example, Enbridge, they sold their Western Canadian
gathering processing business because they had to. The market put a lot of pressure on them because
their debt load has been higher because they’re building all these pipelines
in the U.S. and Canada. They needed to de-lever, and that provided
Brookfield the opportunity to buy. That’s one of the things that sets them apart.
They’ll sell when the values are high. That hurts them in the short-term. Their earnings
have gone down the past two quarters. However, it gave them the cash to buy a bunch
of really good assets when prices came down. Sciple: Awesome. Going away on Brookfield, again,
if an investor wants to start a position or tracking this business to maybe think about starting a position
in the future, what should they be following? What should they be paying attention to? What are the important things that they should
be tracking with this company? Dilallo: Like we mentioned, they have six
deals going on right now. Their focus right now
is closing those deals. If they all close, they believe that’ll boost
earnings 20% starting the second half of next year. There might be some pressure in the near-term.
Fourth quarter earnings might be down. They did close some deals recently.
But I see it as an opportunity to buy. I just bought not that long ago.
The focus on them is the long-term. They’re looking three to five years. They believe
they can grow their distribution by 5-9% per year. It’ll be more generated by the organic growth
that they can get from these businesses. They have a pipeline joint venture with Kinder Morgan,
for example, that they’re expanding. They have some other businesses. They’re building
these small projects that can increase earnings. That’s going to drive a lot of
this growth going forward. And then, the acquisitions, if they can get
good deals, it’s like icing on the cake.