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Intrinsic Value is all-important and is the only logical way to evaluate the relative attractiveness of investments and businesses.
Ladies and gentlemen, thank you for standing by. And welcome to Brookfield Infrastructure Partners' First Quarter 2021 Results Conference Call and Webcast. At this time, all participants are in listen-only mode. After the speaker presentation, there will be a Question-and-Answer session. [Operator Instructions] Please be advised that today's conference is being recorded. [Operator Instructions]
It is now my pleasure to introduce CFO, David Krant.
Thank you, operator, and good morning everyone. Thank you all for joining us for Brookfield Infrastructure Partners first quarter earnings conference call for 2021. My name is David Krant and I am the Chief Financial Officer of Brookfield Infrastructure Partners. Joining me today is Sam Pollack, our Chief Executive Officer and our guest speaker this quarter Gabriele Montesi, Managing Director based in our London office.
Following our remarks, we look forward to taking your questions. At this time, I'd like to remind you that in responding to questions as well as talking about growth initiatives and our financial and operating performance, we may make forward-looking statements. These statements are subject to known and unknown risks and future results may differ materially. For further information on known risk factors, I would encourage you to review our annual report on Form 20-F, which is available on our website.
We're pleased to report that Brookfield Infrastructure had a strong first quarter and that 2021 looks like it will be an excellent year. Coming off an extremely resilient 2020, the business generated first quarter funds from operations, or FFO, of $431 million, or $0.93 per unit, a 20% compared to the prior year. This solid start reflects the benefit of inflationary revenue escalators, as well as new contracts and capital expansion projects completed in the last year.
Taking into account the 5% distribution increased announced in February, our payout ratio for the quarter was 70% of FFO. Many of our businesses are benefiting from higher volumes associated with robust demand for various industrial and agricultural commodities. Performance for the balance of the year will be further aided by GDP and consumer-related volume growth, which has not yet meaningfully contributed to results. The vaccine rollout remains in the early days in many countries.
However, in the US and UK, where solid progress has been made, we are seeing immediate improvement in economic growth and consumer activity. These positive early indicators give us optimism that this trend will continue and our business will benefit as more regions participate in this recovery. Now, moving on to our strong results for the quarter. FFO grew organically by 8% due to inflationary tariff increases, modestly higher volumes associated with the early stages of economic recovery, and the completion of $800 million worth of capital projects commissioned in the last 12 months.
Results for the quarter were further supplemented by favorable market dynamics produced by weather events that led to exceptional performance in our midstream segment. These positive factors were partially offset by the impact of foreign exchange in a number of our segments and the higher management fee relative to the prior year. The utility segment generated FFO of $166 million dollars, up 7% over the prior year on a constant currency basis.
All businesses within the segment are performing well, with results benefiting from inflation indexation, and the commissioning of almost $400 million of capital into rate base over the last year. These contributions were partially offset by the sale of two mature businesses in 2020. New connection activity at our UK regulated distribution operation exceeded planned by approximately 15% during the quarter. These results reflect good levels of construction activity that has been unaffected by government-imposed restrictions, as well as positive momentum in the housing sector.
The business also recorded strong connection sales with several large multi-utility projects secured during the quarter. We believe this momentum will persist supported by advanced vaccination rollout and economic restrictions having largely been lifted. Within our utility operations in Brazil, results at a regulated gas transmission business increased 21% in local currency terms compared to the prior year. This increase is primarily attributable to annual inflationary tariff adjustment that was confirmed at the end of 2020.
Following the quarter, a new law was enacted to promote continued investment and growth in Brazil's energy sector. The law removes the expiration date of pipeline authorizations, thereby converting this asset base to a perpetual franchise. We've also advanced the build out of our electricity transmission operations in the country, with the completion of approximately 600 kilometers of transmission lines during the quarter.
The platform now has approximately 2600 kilometers of operation transmission lines, which distribute electricity that is primarily generated from renewable energy sources. We're on track to complete the balance of the projects, which represent a further 2700 kilometers over the next 18 months. FFO from our transport segment was $162 million, an increase of 17% over the prior year.
The gradual reopening of economies has contributed to volume growth at our rail imports businesses, supported by robust demand for commodities in Australia and Brazil. Volumes on our rail networks increased almost 10%. Volumes on our container terminals increased by almost 20% compared to the prior year, driven primarily by consumer-led activity in the United States and Australia. Results also benefited from the contribution of our US LNG export terminal that was acquired in September.
These positive factors were partially offset by asset sales as a result of our capital recycling initiatives and foreign exchange. During the quarter, the regulator of Australian bulk export terminal provided a final decision confirming the transition to a light-handed regulatory framework. Under this model, we will directly negotiate pricing with the users of the terminal instead of operating under a single regulated tariff. The new framework will become effective in July and will allow the company to establish rates that better reflect the economic value of the facility to customers.
Contracts with customers will retain the favorable features that existed at our previous frameworks, such as availability-based revenues and the socialization of customer obligations. FFO from our midstream segment totaled $146 million for the quarter, nearly a two-fold increase over the prior year. Strong performance reflects robust customer demand and the completion of an expansion at our US gas pipeline. Results of the quarter also benefited from the operational strength and preparedness of our gas storage business through the extreme weather conditions experienced in the United States.
In March, our US gas pipeline commissioned the second phase of its Gulf Coast expansion. The project will increase transport capacity in the region and was completed on time and below budget. Relative to a $200 million total capital investment, or approximately $75 million net to debt. The expansion will generate annual EBITDA of approximately $45 million on 100% basis, or $17 million net to debt. This portfolio was under long-term contracts with an investment-grade counterparty.
Completion of this important project coincided with a partial monetization of the business that Sam will touch on in his remarks. FFO from the data segment total $60 million, an increase over 40% versus the prior year. This reflects the contribution of the Indian telecom power acquisition completed in August, as well as organic growth of 7% across our existing businesses. This organic growth includes inflationary price increases built into our telecom tower and data center customer contracts, as well as the rollout of additional points of presence and fibre to the home at our French telecom operation.
We have two priorities within our data transmission and distribution platform during the quarter. First off, we significantly de-risked the cash flow profile of our French telecom business through the execution of 15-year contract extensions with two mobile network operators, or MNO customers. Secondly, our Indian telecom tower operation finalized the long-term master services agreement and commenced hosting services for a second leading MNO. We're now focused on the rollout of these services to additional tower locations across our network in India, as well as increasing colocation on our tower infrastructure.
Now, before turning the call over, I'll briefly touch on our balance sheet which is in excellent shape due to ample liquidity levels and a value-added maturity profile. Credit markets also remain highly supportive for the type of assets we own. With no material asset maturities in 2021, our focus for the year will be on completing opportunistic financings across our portfolio. With revenues largely adjusted for inflation, our focus on financing assets with long-term, fixed rate debt will provide further operational leverage and an economic recovery.
With a healthy pipeline of prospective investment opportunities and substantial available liquidity to support these, total liquidity currently exceed $4 billion, of which $2.6 billion is at the corporate level. Secured capital recycling initiatives will add over $1.3 billion to our corporate liquidity in the coming months. And we expect to further enhance our position by a $1 billion to $1.5 billion through the monetization of additional mature assets in the next year.
With that, I will now pass the call over to Gabs.
Thank you, David, and good morning, everyone. I'm pleased to be joining you on today's call to provide a spotlight on our UK port operation, PD Ports. We acquired PD Ports in 2010 as part of the recapitalization of popcorn and brown [ph] infrastructure. Ever since, our management team has worked tirelessly to diversify the Port's customer base and reinvent the business. Today, as we shift towards a more sustainable economy, we believe PD Ports is on the brink of yet another transformation.
But before I jump into more detail on its growth potential, let me take a step back and provide a quick overview of the merits of the business. As with any island country, or infrastructure is vital to the UK economy with an estimated 90% of the country's goods traded arriving by sea. Our operations span 13 sites and serve as the gateway to Northern England through critical rail and road linkages. This group of scars well located and connect land-up ports on worldwide markets and offer direct transport links to all corners of the UK.
The business today is highly diversified through the following revenue streams. First, our statutory harbor authority status provides a perpetual right to look after a river system and charge customers to bus through it. These fees contribute over 40% of EBITDA and provide recurring, stable and inflation linked cash flows. Second, as a landlord port [ph], we lease land adjacent to the port under long-term agreements with high-quality counterparties.
These leases have embedded inflation escalation, extremely high renewal rates given the strategic location of the port, and contribute approximately 40% of EBITDA. Last, our port operation services contribute approximately 20% of EBITDA and involve handling services integral to our customers supply chains. The evolution of the port, however, did not happen overnight. To best position the business and enable it to benefit from attractive regional dynamics, we delivered a several value creation activities over the past decade.
And to mention just a few, we developed a port-centric strategy focused on integration with customers supply chains and attracting new volumes to the port. We reinvested over $120 million of operating cash flows to expand facilities, enhance capacity and modernize our infrastructure. We actively attracted new, long-term customers to the region, including the development of the world's largest biomass power station, and we invested in port automation to transition away from carbon-intensive activities into renewable and sustainably sourced goods and products. And we refinanced PD Ports legacy capital structure, increasing debt levels in the business commensurate with growing EBITDA.
The business has performed extremely well in the last decade, and the next 10 years look to be even better. With the success of vaccine rollout, the UK is poised to experience near-term economic expansion ahead of many other parts of the world. This coincides with the emergence from nearly a half decade of Brexit and use straight overhang [ph]. Furthermore, to encourage additional investment and promote new trade relationship with the EU, the UK Government awarded eight coveted free port status designations, one of which was given to Teesside, PD Ports' main location.
The status provides benefits from tax savings, simplified custom procedures, streamlined redevelopment processes, and government support. In addition to a favorable macroeconomic backdrop, the business is highly visible near term growth. First, PD Ports receives annual inflationary tariff increases on 80% of its revenues, which bodes well for near term inflationary expectations. Second, we anticipate highly captive customers to continue to provide growth opportunities and incremental revenues as legacy, conservancy, and property charges contractually reset to market rates.
Further, we have large scale expansions underway, including expecting new volumes from the development of the world's largest pulley like mine [ph], and almost two-fold increase in our container terminal capacity. Finally, the region is recognized as a renewable energy hub and has received core status as a center of renewable engineering from the UK Government. We are confident that this highly visible growth opportunities should contribute to doubling EBITDA over the next five years, and could even triple results by 2030.
So with that, I thank you for your time this morning, and will turn the call over to Sam.
Thank you, Gabs, and good morning, everyone. For my remarks today, I'll discuss the strategic initiatives we currently have underway, and then conclude the call with our outlook for the balance of 2021.
As David mentioned, our pipeline of prospective investment opportunities is robust and we have substantial available liquidity to support these initiatives. We also expect to further enhance our capital position through the monetization of additional mature assets in the next year and a half. The combination of the current low interest rate environment and demand for well contracted mature assets has allowed us to make meaningful progress in our near term capital recycling targets.
I'll begin by highlighting some sales that we've secured or completed recently. In early March, in conjunction with our partners in the business, we completed the sale of a 25% minority interest in our US gas pipeline. For bid share which was 12.5%, net proceeds totaled $412 million; this implies an enterprise value of approximately $5.2 billion on 100% basis, which values a company around $300 million above our IFRS carrying value. Further since the recapitalization of the business in 2015, over 75% of invested capital has been returned to us, and we realized an IRR of 21% on this partial sale.
Next, as we talked about last quarter, we're advancing two separate transactions to complete the divestment of our US and Canadian district energy platforms for $4.1 billion dollars. These sales achieve a multiple capital of over six times and underscore the meaningful created over eight years of ownership. We anticipate closing of the Canadian transaction to occur in the next month, with the sale of the US operation falling shortly thereafter.
Total proceeds to Brookfield Infrastructure from the sales are approximately $950 million. Lastly, subsequent to quarter end, we agreed to sell our portfolio of smart meters in the United Kingdom at an attractive valuation, reflecting the highly contracted nature of the business and high growth trajectory under the UK's energy transition plan. Brookfield Infrastructure will receive net proceeds after debt repayment of approximately $350 million.
The portfolio will be carved out of our UK regulated distribution business and sold on a standalone basis. During our ownership period, and including the proceeds from the sale, we earned an IRR of 58%. While we have surplus value from the sale of mature businesses, we've also made significant progress on two investment initiatives during the quarter. First, in February, alongside our institutional partners, we formally launched the $5 billion takeover offer to shareholders of Inter Pipeline Limited to privatize the company. If successful, we will deploy approximately $2 billion of cash and BIPC [ph] shares into a high quality portfolio of Canadian midstream assets. Second, subsequent to quarter end, alongside our institutional partners, we acquired the remaining 10% interest in our Brazilian regulated gas transmission business that was not already owned. We are funding the acquisition with additional asset level debt and that do not require further capital.
The investment is a great opportunity to increase our exposure to a fully contracted, inflation-linked cash flow producing assets that we've owned and operated for four years, and therefore, we know very well. Looking at the balance of the year as the vaccine rollout progresses, we anticipate that global economies will reopen, albeit at varying speeds. Based on our experience today, GDP growth will be robust as the combination of pent up demand and substantial fiscal monetary stimulus fuels a strong recovery.
The economic recovery in Asia and the US has already contributed to solid demand and rising prices for several commodities. As a result of higher prices for materials and demand for higher wages, the central focus for many economists has turned towards inflation. This economic backdrop should create a favorable environment for our operations. As we've said many times, one of the core attributes of our business is its predictable performance through economic cycles. The resilience of our operations was proven over the past year. Our Brookfield infrastructure stands to deliver stronger performance during periods of economic expansion.
We believe that our full cycle investment strategy is well-suited to the current environment. We are aggressively executing capital recycling initiatives to capture attractive valuations for high-quality de-risked assets. We have already been highly successful in this effort, and are well underway in meeting our near term target of $2.5 billion of proceeds from asset sales. We're also determined to remain disciplined in our capital deployment for new investments and pursue opportunities that meet our strict risk-adjusted return profile.
We will focus on commissioning our strong backlog of organic growth projects and pursue tuck-in acquisitions where we have a strategic advantage and larger multifaceted transactions, where we can leverage our operating expertise and skill.
That concludes my remarks for today. I'll pass the call back to the operator for questions.
Thank you. [Operator Instructions] Our first question comes from the line of Rupert Merer with National Bank.
Good morning. With the sale of the smart meter business in the UK, how are you thinking about the remaining portion of the UK utility? Maybe you could talk about some of the conditions there that might make the remaining part of the business less mature or less interesting for recycling at this point.
Hi, Rupert, I'll tackle that one. I probably said on many occasions that every one of our businesses could be sold at some point of time. The only caveat to that was probably be UK [ph], that's probably a business that we will never sell, or at least can't foresee it at the moment. And really, it's because it has such a unique position in the market where it's able to reinvent itself with new products and essentially serve the homebuilding market in the United Kingdom, which is always growing and adding new products. So, this was an opportunity where we developed a specific line of products in that business, we matured the business. And once we thought it was fully valued, we'd sold that particular product line, but we have many product lines in the company, and we're looking at new product lines going forward. So I think, short answer is, we would not look to sell the business, but we may in the future, if we have certain businesses within the business that makes sense to harvest. That's probably what we would look to do.
So how easy is it to separate the smart meter business from the rest of the utility operations? Is there any loss in operating efficiency or opportunities to cross sell?
Look, every cargo requires some complexity. But this was a relatively standalone investment initiative, and one that others have standalone businesses like it. So it was easy for us to replicate what other businesses look like. We don't foresee any dis-synergies from the sale, if that's what your question was.
Yes. Great. Then just secondly, so strong volume growth in rails, strong volume growth at the ports, given that the pandemic really started in Q2 last year, what's the outlook for volume growth into Q2? I mean, I imagine we should expect more of the same of what we saw in Q1, but potentially, could we see bigger volume increases in Q2?
Yes, maybe I'll start and then Dave can jump in or Ben, but what you're seeing is a varying speed recovery. As you are aware, we have operations around the world. Some jurisdictions like Asia and North America, or the US, have started to recover quicker. And so, we have seen those volumes in those markets improve in the first quarter. We expect that to continue. In fact, I think, in our port and rail operations, we are seeing lots of new activity and initiated demand.
So I think we'll continue to see growth in those regions. But what you'll also see is in regions that are lagging, where there are still restrictions related to COVID, particularly South America, where we have all the toll roads, we have a railroad, as well as India and a few other places, even Canada, for that matter, which is a bit behind, you'll see those markets start to pick up in the coming quarters. And so, we should see further improvement in results from businesses in those jurisdictions.
That's great. I'll get back in the queue. Thank you.
Thank you. Your next question comes from the line of Robert Kwan with RBC Capital Markets.
Great, good morning. If I can start with GDP [ph], you talked about the potential EBITDA over the next five years not being fairly visible and quite possibly tripling by 2030. Just wondering, is there one or two things that really need to come together for that type of EBITDA growth to materialize, or is really just a collection of all the things that you've outlined?
Well, maybe I'll let Gab take a first stab at that and then I can add to it. So Gabs, do you want to describe?
Yes, hi, Rob, good morning. You should note that there's a number of different leavers that will come to fruition in the coming years. There's a very strong commercial pipeline that we built in recent years, with very favorable macro outlook. And then, there's a number of larger projects like, for example, the Anglo-American polaire, like mine [ph], they will have a meaningful contribution to results. But there is a number of those, we have LNG regasification expected to come online in the coming years. And we also have additional momentum, for example, with the designation of Teesside as a free port, we expect that to drive further investment in the area. And it's a critical element of the Government's strategy to stimulate the local economy, which will benefit PD Ports. So there's a number of different elements that will come together and contribute to those expected results.
And how much of that is locked in today versus things that you think will unfold?
Yes, the way we think about is, there is another element of that that is contractually locked in, for example, the MGT power plant, and then there's element what we think is captive, are essentially customers that have invested significant amount of capital in the area or in the Port itself, and really have a vested interest in continuing to operate on through PD Ports. And those are the likes of Anglo-American with developing a multibillion mine with over 100 years lifetime.
And then on top of that, we have more investment-driven growth, like the container terminal expansion. So rapidly, you could probably split those predominantly between captive and contracted, with additional optionality around the non-contracted growth.
Maybe I'll just add, there's really three elements to the growth wedges and Gabs described two of them, but the other one relates to the uplift in rent from the rent reviews, which we expect to see a number of them come to fruition over the coming quarters, and some to be reflected which you just know just got signed and arbitrary over the last two quarters. And so, there's significant lift from that. There's the lift from the investments from captive customers, which Gabs mentioned, which is MGT, the LNG, as well as Anglo-American operations, which are all well underway and very visible.
And then, there are certain expansion initiatives that we're undertaking that we have in our control, which are reflective of the near capacity that we're at with our container terminal operation, where we know just from the growth of the last number of years that we require further investment to meet that demand. So I'd say for the growth in the next five years, we're extremely confident about the doubling. And then, the tripling, obviously, there's a few things that have to happen, but a lot of that's very visible as well.
In terms of DBI, and now that you've got the final approval to move to the new regulatory framework, in terms of your optimism there, what's the ability to move your fees up to something, let's say example to Gabs' point, or is your optimism really more about protection against some of the potential declines you could have seen in cost of capital parameters, given low interest rate environment around the future access arrangements?
Robert, it's Ben here. Optimism is more around the fact that our asset is fully used and utilized. So it's oversubscribed by its users. So there's a strong demand for the service that it provides. And, we think there could be room in the rate structure for some appreciation over time, given that it's oversubscribed and in strong demand. I don't know if I understood your question, but that's the fundamental underpinning of why we think this was a favorable development.
Got it. Yes, that's helpful. So you're expecting an actual or potential increase in EBITDA and cash flow versus just kind of protecting what you've got?
I think that's correct.
Look, I think if you look at how some of the light-touch regulatory approaches work for the airports, in Australia they are very constructive for both customers and for the owners, we expect that same environment for the facility.
Okay, if I can just finish with what you're seeing on the acquisition side, we've obviously seen an equity price recovery, so I don't know if that kind of takes away from potential other privatization opportunities.
But, as you think about your discussions on carve outs, rising equity prices, maybe taking pressure of some of those companies to think about carve outs, and also if you can just touch on what you're seeing from the government privatization point of view, that'd be great.
Okay, so I think there's two questions there, maybe I'll start with the government situation, just the opportunities with both the Canadian and US governments, they have been vocal about encouraging infrastructure development. I'd say it's early days because we're still trying to determine what role they would like the private sector to play in a lot of those very ambitious infrastructure plans.
We do think it makes sense for the private sector to have a big role in it, but that's still to be determined, and I think just given the amount of projects that are being contemplated, that will lead to opportunities.
As it relates to the rest of the world, there's lots of opportunities that are being similarly discussed elsewhere. I think with balance sheets constraint, it's only a matter of time before new programs, new incentives are put in place for the private sector to generate growth through infrastructure.
As is relates to carve outs, from different companies, look, it is a very highly liquid market environment, and companies looking to source capital have a number of opportunities in both the debt and credit markets to source capital.
But I would say that we've always been successful in finding opportunities around the world. We have a large team in place where we can come up with win-win transactions with companies that are looking to, not only just look for the lowest cost of capital, but also for flexibility and expertise to work with and building companies.
And today, I think where we see a lot of that and where we see a lot of opportunities is in the data sector, where we're working with a number of the telecom companies in either expanding our data center operations or a lot of new build investment opportunities, as well as fiber developments, particularly with the fiber to the home.
So, I'm optimistic that we will find great opportunities, but I also don't want to minimize what is a fairly liquid environment with fairly high valuations.
Thank you very much.
Thank you. [Operator Instructions] Next question comes from the line of Andrew Kuske with Credit Suisse.
Thank you. Good morning. Maybe a nitpicky question first just on the accounting, and that relates to the weather impacts that you saw, and I guess this really centers on the Rockport business, or Rockpoint, and gas storage.
So that US $55 million of FFO impact in the quarter, how much would you view as being sort of normal storage gains in a quarter versus what you booked?
Hi Andrew, it's David here. I think, as you know that business well, it does have a little volatility, period to period, so normal storage levels is tough to say. I think that the number you referenced would be relative to last year, albeit last year was quite low.
So, I think normally, it's probably about $10 million of FFO recorded, and we did outperform it there. So I think there's a bit of judgment in that, but that's how I'd say.
Okay, appreciate that color. And then a bigger, broader question. And I guess, if you look back over the last year, obviously, you've got one of your toeholds now very public in that process. So, maybe let's just put that one aside, but the other toehold positions that you took over the course of the year, and in some cases have exited, what's the post op on just the returns that you've made? And then, the rationale for you leaving wasn't strictly valuation based, or you couldn't foresee a probability of getting control, or you just saw better risk adjusted returns elsewhere? I know that's a lot sort of packed into that question, but if you could give us color, it would be much appreciated.
Yes, hi, Andrew. Look, I see the toeholds as really just one tool in our toolkit as far as creating transaction opportunities. Often we see situations where, based on our knowledge of the sector and our transactions that we've undertaken, where we see a mismatch between private and public valuations, and that will provide us an impetus to take a position really not knowing at that time, if we can convert that into a private transaction.
And so, often that will result in a transaction as it has over the last 12 years on occasion, and sometimes it just results in a game. But it's an important part of our business development activity to monitor for mispriced securities, take positions and then see if we can create something out of it.
And sometimes, it leads to something, sometimes it just turns out to be a good investment, and at the appropriate time when we think that we don't have ability to convert, we'll just sell it off.
Appreciate the color, and then, if I may, just an extension of that. Have you increased your dialogue with governments around whether they'd be Triple P arrangements which you've had in the past, although a long time ago or water infrastructure. And maybe this is more super core-focused or core plus, but have you increased your dialogue there just given government finances being strained?
Yes, I'd say today, every government around the world is seeking input from us on thoughts of how the private sector can be helpful and how the governments can be helpful to the private sector in investing further capital.
So, they're looking for ideas around various tax credits or other incentives to spur that infrastructure development, and so that's feedback that we give on a pro bono basis, and I hope we leave to opportunities.
Today, I'd say, we have not seen the level of investment opportunity from governments that we expected or hoped to see, but I still remain highly confident that over the next five to 10 years, there will be significant volume of opportunities from that sector.
That's great, thank you.
Thank you. And I'm showing no further questions at this time. So with that, I'll turn the call back over to CEO, Sam Pollock for any closing remarks.
Okay, thank you, operator, and thank you everyone who participated in our call today. We appreciate your interest in the company and I look forward to providing you with further updates in the next quarter. Thank you very much.
This concludes today's conference call and webcast. Thank you for participating and you may now disconnect.