Brookfield Infrastructure Partners: Utility Play Wrapped in an MLP

Includes: BIP
by: Old Trader

Brookfield Infrastructure Partners (NYSE:BIP) can be considered somewhat of a "stealth" utility stock. BIP is a Master Limited Partnership (MLP) that's focused on holdings in utilities, infrastructure and timberlands.

The common theme that's BIP's focus is investing in long-life assets where high capital investment forms a basis for a barrier to entry, and maintenance cap ex is low. These holdings are international in scope, ranging from South America, Canada, the US, the UK, to Australia/New Zealand.

Let's start with BIP's utility holdings:

  • Transelec, Chile

An 18% stake. Transelec is the largest electrical distribution system in Chile. Comprising of approximately 8200 km. of distribution lines, Transelec serves 98% of the country's population. As I've noted in the past, the regulatory framework under which utilities operate is crucial to profitable operation. Regulated transmission assets in Chile earn a 10% real rate of return on replacement cost, and is mandated by Chilean law.

  • Ontario Transmission, Canada

BIP owns 100% of Ontario Transmission, which is a 550 km. transmission network connecting power generators in northern Ontario with customers in southern Ontario.

  • Powerco, New Zealand

BIP owns a 42% stake in Powerco, which is New Zealand's second largest electric and gas distribution firm.

  • IEG Connections, UK

A 100% interest holding of BIP, IEG Connections provides "last mile" electricity and nat gas connections to customers. Rates are "inflation linked".

In the transport and energy markets, BIP has the following interests:

  • Natural Gas Pipeline Company of America (NGPL)

BIP holds a 26% interest in NGPL, the largest provider of gas transmission and storage facilities to the Chicago, Illinois/ NW. Indiana market, and one of the largest firms in the country. The top 10 customers provide over 60% of storage and transport revenues, and are a mix of investment grade utilities and major oil companies. NGPL has exposure to various fast growing shale plays.

  • IEG Distribution, UK.

IEG Distribution, a 100% holding, is the sole gas distributor for the Channel Islands (Guernsey and Jersey), as well as the Isle of Man. Both are noted for their "tax friendly" environment.

  • Tasman Gas Network (TGN), Tasmania, Australia.

Yet another wholly owned entity, TGN is the only NG distributor in Tasmania. TGN has a 730 km. gas distribution network, serving over 6500 commercial, and residential customers.

BIP's transport investments are not restricted to pipelines. Another 100% holding

  • WestNet Rail, in Western Australia.

WestNet has a long term lease from the Western Australia (WA) government on approx. 5100 km. of rail lines. WestNet is the only rail line in the region serving the mining and agricultural industries, and has exclusive contracts to government-owned ports which transport over 90% of the freight in the state.

PD Ports in the UK, in which BIP has a 59% interest, as well as Euroports, where BIP has currently has a 60% interest, round out the transport and energy portfolios.


BIP owns 634k acres of freehold timberland, primarily on Vancouver Island, as well as 655k acres located in Oregon, as well as Washington State. Despite weakness in the US construction market, timber operations actually showed an increase in funds from operation (FFO) in Q1, 2011 of $10M (NYSEARCA:USD), compared to 2010 Q1's number of $2M, because of increased exports, and increases in pricing of 22% for exports, and 18% domestically.

As an MLP, BIP provides a respectable dividend of 5.11%, based on a closing price of $24.15 on June 15, 2011. BIP is a relatively recent spin-off of Brookfield Asset Management (NYSE:BAM) whose assets were merged with Prime Infrastructure, and started trading January 31, 2008.

Initially, distributions were set at $0.265/unit, but were raised to $0.275 in 2010, and raised again to $0.31 this year. Management seeks to raise distributions by a range of 3-7% annually, in a sustainable fashion.

Disclosure: I have no positions in any stocks mentioned. However, I may initiate a long position in BIP over the next 72 hours.