Our view: With the in line Q2/24 results, we believe investors will remain focused on the partnership's capital recycling efforts, especially as the lower interest rate environment potentially leads to increased asset sales and acquisition activity. As we await the outcomes of ongoing asset sale processes that could result in almost $2.5 billion in proceeds in the "coming quarters", we view BIP as being well-positioned to grow its data infrastructure segment both organically via its record-high backlog, and inorganically with the Intel deal serving as a blueprint for similar large-scale opportunities.
Key points:
Asset Sales: Multiple processes underway. Following the monetization of roughly $0.2 billion of assets in Q2/24, BIP has completed around $1.4 billion of asset sales this year. It is “extremely active” on capital recycling and it currently has three advanced processes along with six further asset sales progressing that BIP believes could generate almost $2.5 billion in combined proceeds on a net to BIP basis over the coming quarters.
Significant backlog of capital projects (notably in the Data segment).
We highlight the company’s backlog of capital projects, which currently sits at around $7.7 billion, a record level for the partnership and up 15% year-over-year. Substantially all of this growth and almost 70% of the backlog relate to the Data segment, including the $3.9 billion U.S. semi- conductor foundries project with Intel, and roughly $1 billion relating to new datacenter facilities, much of which are underpinned by long-term contracts with investment grade, global hyperscale customers.
Potential for large-scale opportunities similar to the Intel deal. BIP believes that the transaction with Intel is providing a blueprint for similar large-scale opportunities, which it sees as gaining momentum. BIP has positioned itself as a well-capitalized partner of choice for technology companies that seek access to private capital, and BIP is in “active discussions” with several blue-chip technology companies that are interested in leveraging BIP’s scale and expertise. Importantly, we believe investors will find that BIP has progressively improved its returns relating to the Intel agreement, which highlights its ability to execute its plan and steadily de-risk large-scale projects.
Balance sheet that is positioned to fund growth opportunities. BIP noted that over the next 12 months, it has only 1% of its asset-level debt maturing, with no corporate maturities until 2027. Also, it has $1.9 billion of corporate liquidity available to support growth initiatives.
Modest reduction to our estimates. We have moderated our FFO/unit estimates for 2024 and 2025 to $3.17 and $3.42, respectively (down from $3.21 and $3.48, respectively) to primarily reflect higher corporate costs in light of the improved unit/share prices of BIP/BIPC.