Our view: The BIP update should help provide confidence in the base business and core capital recycling strategy, particularly with respect to BIP highlighting the improving transaction environment and specifically guiding to its expectation of selling about $5-6 billion of assets over the next two years. On top of that, BIP noted its record organic capital backlog, which stands at $8 billion plus a "shadow backlog" of another $4 billion. Last, BIP sees the potential for significant capital deployment along its "Digitalization" theme, and set out a combination of near-term and longer- term potential investments.
Key points:
Conversation with Bruce Flatt - The table is set. The Brookfield Listed Affiliates Investor Day kicked off with a session featuring Bruce Flatt (CEO of Brookfield), which focused on tailwinds for the investment business including a moderating interest rate environment and improving liquidity in the market, which should lead to increased transaction activity. Further, following on from a theme at the BN/BAM Investor Day in New York on September 10, there was a focus on Brookfield creating value with its owner/operator mentality.
Capital recycling set to ramp up. BIP expects to execute roughly $5-6 billion of asset monetizations over the next two years, which would continue on BIP's long history of monetizing assets at attractive valuations and reinvesting the proceeds at lower valuations and/or into assets with higher growth rates. As an update to its 2024 target for $2 billion of asset monetizations, BIP has executed roughly $1.8 billion of sales, and could exceed its $2 billion target based on ongoing processes.
Record backlog that is enhanced by its “shadow backlog”. BIP highlighted its record organic capital backlog that currently sits at roughly $8 billion. On top of that, management set out a “shadow backlog” of roughly $4 billion, which consists of projects/spending that is just outside of its 3-year timeframe and/or is pending a final investment decision. At a minimum, we believe the “shadow backlog” should provide some insight into BIP's confidence in extending its organic growth beyond the completion of the sizeable project for Intel.
Digitalization: Roughly 60% of BIP's FFO is exposed to this theme and BIP sees significant growth opportunities. Following the roll-out in 2022 of its “Three Ds” investment themes (i.e., digitalization, decarbonization and deglobalization), BIP highlighted the significant growth in its Data segment as well as complementary investments (e.g., midstream and utilities investments related to increased power requirements). Looking forward, BIP outlined opportunities related to “AI Infrastructure”, which will continue to follow its investment criteria (e.g., limited to no technological exposure, long-term contracts generating stable cash flow, etc.).