Executive Summary / Key Takeaways

• Brookfield Infrastructure Corporation (BIPC) is strategically positioned to capitalize on global megatrends of digitalization and decarbonization, with 75-80% of new investment opportunities and 80% of its capital project backlog concentrated in these high-growth areas.
• The company delivered robust financial performance in the first half of 2024, with Q2 FFO increasing 10% to $608 million and Q1 FFO rising 11% to $615 million, driven by organic growth and strategic acquisitions like Triton (TRTN) and new data center platforms.
• BIPC maintains a strong financial position with significant liquidity and a derisked capital structure, having proactively refinanced $3.4 billion in maturities and reduced annual financing costs by over $7 million through opportunistic repricings.
• A substantial $7.7 billion project backlog, up 15% year-over-year, underscores future organic growth, particularly in data centers and midstream assets, with an expectation of active M&A in the latter half of 2024.
• BIPC's competitive advantage stems from its global footprint, access to Brookfield's capital, and a proven strategy of acquiring high-quality assets, enhancing them, and recycling capital into higher-returning opportunities, targeting 15-20% IRRs on new investments.

The Infrastructure Imperative: BIPC's Strategic Foundation

Brookfield Infrastructure Corporation (BIPC) stands as a globally diversified infrastructure powerhouse, owning and operating essential utility, transport, midstream, and data assets across Brazil, the United Kingdom, and other international markets. Its core business revolves around providing critical services, from managing 4.7 million gas and electricity connections in the UK and operating 2,000 kilometers of natural gas pipelines in Brazil to deploying a global fleet of 7 million intermodal containers. BIPC's overarching strategy is deeply rooted in what it terms the "3D's": digitalization, decarbonization, and deglobalization, with a particular emphasis on the first two megatrends. This strategic alignment positions BIPC to leverage its foundational strengths, including its affiliation with Brookfield Infrastructure Partners (BIP), which provides unparalleled access to global capital and expertise, alongside a diversified geographic footprint that allows for market arbitrage.

The company's competitive landscape is populated by other large, diversified infrastructure players such as National Grid plc (NGG), Enbridge Inc. (ENB), TC Energy (TRP), and AES Corporation (AES), as well as indirect competitors like MYR Group Inc. (MYRG) in specialized areas. BIPC distinguishes itself through its global network and regulatory asset base, which fosters strong customer loyalty and recurring, often inflation-indexed, revenues. This broad reach allows BIPC to mitigate regional risks, offering a qualitative advantage over more geographically concentrated rivals like NGG. While competitors like ENB and TC Energy possess vast North American energy infrastructure, BIPC's expertise in emerging markets, particularly in regulated utilities, provides a unique edge. Similarly, against AES, which focuses heavily on renewables, BIPC's stable regulated assets offer a different value proposition, though AES might demonstrate faster innovation in certain green technologies. BIPC's access to Brookfield's substantial capital is a significant differentiator, enabling faster project execution and the pursuit of diverse opportunities that might be out of reach for some competitors.

BIPC's technological differentiation is primarily embedded in the modernization and expansion of its core infrastructure assets, particularly within its rapidly growing data and utility segments. In the data sector, BIPC is actively building hyperscale data centers, a technology critical for supporting the exponential growth in processing and storage capacity driven by artificial intelligence (AI) investment. This involves not just the physical data centers but also the underlying power and transmission infrastructure. The company is investing over $1 billion in near-term growth capital for these facilities and strategically acquiring land in key global hubs like Athens, Chicago, Frankfurt, Milan, and Phoenix to expand its footprint. The "so what" for investors is clear: BIPC is directly enabling the AI revolution, securing long-duration contracts with highly creditworthy hyperscale customers, which translates into predictable, high-growth revenue streams.

Furthermore, BIPC's utility and midstream assets are increasingly becoming "AI infrastructure." The unprecedented growth in North American power demand, fueled by large gigawatt-size data centers, creates opportunities for BIPC's electric utilities to build and connect power facilities, transformers, and grid infrastructure. Given that renewables alone cannot meet this demand quickly enough, natural gas infrastructure, where BIPC has significant assets, is crucial for providing backup power. This positions BIPC to invest across its natural gas complex to facilitate the movement and storage of gas, directly benefiting from the AI tailwind. The company's North American gas storage operations have already seen FFO grow at a compound annual growth rate exceeding 20% over the past five years, driven by LNG export capacity growth, the need for gas as an intermittent generation backup, and extreme weather events. This technological and operational alignment with digitalization and decarbonization forms the bedrock of BIPC's long-term growth strategy.

A History of Strategic Capital Deployment and Growth

Brookfield Infrastructure Corporation, incorporated in 2019, has a history of strategic asset development and capital recycling that underpins its current robust position. As early as 2017, the company established a greenfield fiber development segment within its French Telecom Infrastructure business, scaling it rapidly into a leading wholesale fiber-to-the-home network. This early success in digital infrastructure foreshadowed its current focus. A "novel transaction with Intel (INTC)" completed "several years ago" has since become a blueprint for similar large-scale partnerships, demonstrating BIPC's capability to engage in complex, long-term deals with blue-chip technology companies.

The company's commitment to growth is evident in its consistent capital deployment. In the second half of 2023, BIPC deployed over $2 billion, acquiring new data center platforms in North America and Europe, a German telecom tower operation, and 40 retail colocation data centers from a bankruptcy situation. The acquisition of Triton, a global intermodal logistics operation, during the same period, has performed ahead of expectations, benefiting from increased fleet utilization and attractive long-duration leases, partly influenced by geopolitical events. This strategic acquisition of high-quality, cash-generating assets, coupled with a disciplined approach to capital recycling, has been a hallmark of BIPC's growth trajectory.

Performance with Purpose: Financial and Operational Highlights

BIPC delivered strong financial and operating results in the first half of 2024, reflecting its strategic initiatives and the inherent resilience of its diversified asset base. For the three months ended June 30, 2024, Funds From Operations (FFO) reached $608 million, marking a 10% increase over the prior year period. This growth was fueled by organic expansion within the target range and significant contributions from recent acquisitions, including the global intermodal logistics operation and an increased stake in a Brazilian integrated rail and logistics provider. These positive drivers were partially offset by capital recycling activities, higher interest costs, and foreign exchange impacts. In the first quarter of 2024, BIPC generated FFO of $615 million, an 11% increase year-over-year, driven by 7% organic growth and the deployment of over $2 billion in capital during the latter half of the previous year.

The Utilities segment generated FFO of $180 million in Q2 2024, a decrease from $224 million in Q2 2023. This decline was primarily due to capital recycling, including the sale of an interest in an Australian regulated utility, and increased interest costs from financing a Brazilian regulated gas transmission business. However, the underlying business demonstrated organic growth, driven by inflation indexation and the commissioning of $450 million of capital into the rate base over the last 12 months. In Q1 2024, Utilities FFO was $190 million, with 8% organic growth attributed to similar factors.

The Transport segment was a significant growth driver, with FFO surging 60% to $319 million in Q2 2024. This substantial increase was largely attributable to the acquisition of the global intermodal logistics operation (Triton), which continues to outperform expectations. An incremental stake in a Brazilian integrated rail and logistics operation also contributed strongly, with tariffs increasing by over 15%. The remaining transport businesses achieved 9% organic growth, primarily from inflationary tariff increases. In Q1 2024, Transport FFO increased 57% to $302 million, with Triton's fleet utilization exceeding 98% due to geopolitical events in the Middle East lengthening shipping routes and securing attractive long-duration leases.

The Midstream segment generated FFO of $143 million in Q2 2024, surpassing the prior year's results when excluding capital recycling impacts. Strong demand and customer activity, particularly in North American gas storage, drove this performance, with the business securing longer contract durations at higher rates. The segment is capitalizing on the "unprecedented growth in North American power demand" by securing accretive commercial agreements and bolt-on capital projects. Q1 2024 Midstream FFO was $170 million, comparable to the prior year, with North American gas storage operations demonstrating a compound annual growth rate of over 20% in FFO over the past five years.

The Data segment continued its upward trajectory, with FFO increasing 8% to $78 million in Q2 2024. This growth reflects contributions from recently completed acquisitions, including 40 retail co-location sites and two hyperscale data center platforms. The company reported "strong momentum in leasing activity" across its global data center platform, driven by artificial intelligence investments and the increasing need for processing and storage capacity. Q1 2024 Data FFO was $68 million, benefiting from a German telecom tower operation and hyperscale data center acquisitions, partially offset by the sale of a New Zealand integrated data distribution business.

From a consolidated financial perspective, BIPC reported annual revenue of $3.67 billion and annual operating cash flow of $1.74 billion, with free cash flow of $655 million. While the company recorded an annual net income of -$608 million, its robust operating cash flow and strategic focus on FFO highlight the cash-generative nature of its infrastructure assets. Profitability margins, such as a gross profit margin of 62.53% and an operating profit margin of 60.37%, underscore the efficiency of its operations.

Financial Strength and Strategic Capital Management

BIPC maintains a formidable financial position, characterized by a strong balance sheet and proactive capital management. In Q2 2024, the company completed approximately $5 billion of non-recourse financings, demonstrating its ability to access attractive debt capital markets. Over the last nine months, BIPC generated approximately $1.4 billion in proceeds, with $1.1 billion stemming from capital recycling activities designed to optimize capital structures and accelerate future sale proceeds.

A key aspect of BIPC's financial strategy is its proactive approach to debt maturities. The company refinanced $3.4 billion in maturities over the next several years, incurring a modest average rate increase of only 50 basis points. Management emphasizes that the benefit of extending maturities significantly outweighs these financing costs, which are further offset by inflationary revenue increases. An example of this success is a $720 million eight-year bond issuance in July for its Western Canadian natural gas gathering and processing operations, which repaid a 2026 maturity and extended the average debt duration by two years at a competitive coupon. Furthermore, opportunistic repricings of approximately $1 billion in floating rate loans during Q2 2024 resulted in annual financing cost reductions of over $7 million net to BIPC.

The company's balance sheet is exceptionally strong, with only 1% of its asset-level debt maturing in the next 12 months and no corporate maturities until 2027. Corporate liquidity stands at a healthy $1.9 billion, providing ample capacity to support growth initiatives. In Q1 2024, corporate liquidity was over $2 billion, and over 90% of BIPC's capital structure is fixed rate with an average term of seven years, providing stability in a volatile interest rate environment. BIPC expects less than $600 million of asset-level maturities in 2024 to incur higher borrowing costs.

BIPC is well on track to achieve its $2 billion annual capital recycling target, having secured $1.2 billion in proceeds, with $1.1 billion already closed. The sale of the fiber platform within its French Telecom Infrastructure business, with an enterprise value exceeding EUR1 billion, is expected to generate up to $100 million in proceeds for BIPC upon its anticipated closure later in 2024, yielding an impressive IRR of 17% and a multiple of capital of approximately 1.9 times. A $1.6 billion financing at its Brazilian regulated gas transmission business also generated approximately $500 million in proceeds, reducing the equity required from future buyers. This continuous capital recycling allows BIPC to redeploy capital into higher-earning investments, targeting returns in the 15% to 20% range for new acquisitions, while selling mature assets at returns closer to 10% to 11%.

Strategic Outlook and Growth Drivers

BIPC's outlook is underpinned by its strong alignment with global megatrends and a robust pipeline of investment opportunities. The company anticipates an active M&A environment in the latter half of 2024, driven by improved interest rate conditions and monetary easing measures initiated by G7 nations. BIPC positions itself as a "partner of choice for technology companies that are seeking alternative access to private capital," leveraging its "novel transaction with Intel" as a blueprint for similar large-scale opportunities. These opportunities, which could involve "tens of billions of dollars," extend beyond chip facilities to include future AI data centers, hydrogen, other decarbonization facilities, and batteries, contingent on securing strong credit counterparties like hyperscalers, large chip manufacturers, or even governments.

The company's project backlog has increased by 15% year-over-year to approximately $7.7 billion, signaling significant organic growth. In the midstream sector, BIPC is investing almost $800 million in contracted facility and pipeline expansions, expected to generate over $140 million in EBITDA and fully contribute to results over the next two years. The data segment is a particular focus, with over $1 billion allocated to near-term growth capital for building data centers for hyperscale customers. BIPC has approximately 670 megawatts of booked but not built data center capacity expected to come online over the next three years, with 40 megawatts commissioned in the last 12 months projected to contribute roughly $45 million of run-rate EBITDA. The bolt-on acquisition of a tower portfolio in India, with BIPC's share at approximately $150 million, is expected to close in Q4 2024.

Management remains selective in its capital deployment, prioritizing tuck-in and organic growth opportunities, which typically offer the highest returns. The acquisition of an incremental 10% stake in its Brazilian integrated rail and logistics provider for approximately $365 million was made at an estimated 20% discount to fair value, exemplifying this disciplined approach. While acknowledging potential short-term volatility from geopolitical situations in Europe and the Middle East, BIPC's management believes its globally diversified business and strategic focus on high-growth areas will ensure a stable and growing distribution for investors over the long run.

Risks and Challenges

Despite its strong positioning, BIPC faces several risks and challenges. The company's operations are subject to known and unknown risks, and future results may differ materially, as highlighted by management. The global economic environment, while showing signs of improvement, is expected to experience "several additional quarters of volatility" as interest rates stabilize and geopolitical situations remain unresolved. This volatility could impact M&A activity and the cost of capital.

Operational risks include the successful execution of its large project backlog, such as the ramp-up of the Inter Pipeline (IPL) Heartland facility, which is expected to reach full run rate by mid-2024. While BIPC benefits from its global diversification, it is exposed to regulatory changes in various jurisdictions, which could impact its regulated asset base and profitability. Furthermore, while the Intel transaction provides a blueprint for large-scale deals, the success of similar opportunities hinges on securing strong credit counterparties, which may not always be readily available. The competitive landscape, with established players and new entrants, also presents ongoing challenges in securing new projects and maintaining market share.

Conclusion

Brookfield Infrastructure Corporation presents a compelling investment thesis, firmly rooted in its strategic alignment with the transformative megatrends of digitalization and decarbonization. The company's robust financial performance in the first half of 2024, marked by strong FFO growth across its diversified segments, underscores its operational effectiveness and the resilience of its asset base. BIPC's proactive capital management, characterized by a derisked balance sheet, significant liquidity, and a disciplined approach to capital recycling, provides a solid foundation for future growth.

The substantial and growing project backlog, particularly in the high-demand data and midstream sectors, coupled with an anticipated active M&A environment, positions BIPC for continued expansion. Its unique competitive advantages, including a global footprint, access to Brookfield's capital, and a proven ability to execute complex, large-scale transactions, differentiate it from peers. While geopolitical uncertainties and interest rate volatility present ongoing risks, BIPC's strategic focus on essential infrastructure, its technological leadership in enabling the AI revolution, and its commitment to delivering stable and growing distributions make it an attractive proposition for discerning investors seeking long-term value in the evolving global infrastructure landscape.