Brookfield Infrastructure Partners LP is seeing investment opportunities in shipping and transportation stemming from a growing trend toward “deglobalization” as countries around the world work to rebuild disrupted supply chains.
The huge interruptions to the global flow of goods caused by the COVID-19 pandemic prompted businesses to make different decisions, and to prioritize investments in shoring up supply chains that allow them to manufacture and deliver goods. Though the movement of goods has substantially recovered since then, there are still imbalances between supply and demand in many markets.
Last month, Brookfield’s infrastructure arm made a significant move in this sector by acquiring the world’s largest freight container player, Triton International Ltd., for US$4.7-billion in cash and shares. The deal includes an equity investment of about US$1-billion from Brookfield Infrastructure Partners.
The deal, when combined with prior investments, makes Brookfield one of the largest end-to-end transportation services in the world, said managing partner Dave Joynt.
The pandemic “really pulled back the curtain on the fragility of the overall supply chain network that exists today, and needs to get rebuilt over the coming decades,” Mr. Joynt said on a conference call with financial analysts on Wednesday.
As companies start to revamp the way their supply chains work, “that’s going to require significant capital, and I think that creates a lot of opportunity for us,” he said. “You see people taking decisions they wouldn’t have taken five years ago.”
On Wednesday, Brookfield Infrastructure Partners – a publicly listed affiliate of Brookfield Asset Management Ltd. – reported earnings of US$23-million, or a loss of 7 US cents a unit, in the quarter that ended March 31. That compared with profit of US$70-million or a loss of 1 US cent a year earlier.
The affiliate reported funds from operations – a measure of cash generated in the business that serves as a barometer of operating performance – of US$554-million or 72 US cents a unit, which was up 12 per cent from the same quarter last year.
As some assets such as commercial real estate come under pressure from rising interest rates, investors are flocking to infrastructure, which often produces steady and predictable cash flows.
“We expect [Brookfield Infrastructure Partners] will continue to benefit from economically sensitive and inflation-linked cash flows in addition to attractive new investment opportunities,” said Robert Hope, an analyst at Scotia Capital Inc., in a note to clients.
The Triton deal, combined with a separate acquisition of European data centre market Data4, means Brookfield’s infrastructure affiliate has already met its US$1.5-billion annual investment target. And Brookfield Infrastructure Partners expects to reclaim about US$2-billion in capital from asset sales this year, which would give it further capacity to pursue further deals, including in the transportation and supply chain sectors.
In particular, Brookfield hopes to capitalize on the window that Triton can provide into global trade flows to react more quickly to shifting trends and to decide where to invest its capital.
“We think that there’s great opportunities in deglobalization and supply chains, and I think we’ll see a movement into those assets,” said Brookfield’s infrastructure chief executive officer, Sam Pollock, on the conference call.
The constellation of potential buyers for Brookfield’s more mature assets – typically pension funds, sovereign wealth funds or strategic buyers – “is a bit narrower than in the past,” Mr. Pollock said, but those buyers “are still in the market” for the right opportunities.
For now, the changes in transportation and supply chains, combined with developing opportunities from the projects related to the climate transition and decarbonization as well as data storage and infrastructure, are creating plenty of opportunities for Brookfield to invest in North America and Europe, without having to reach deep into emerging markets to find deals, according to Mr. Pollock.
“We’re finding some of the best value right here at home,” he said.