Continuing last week’s theme of unconventional partnerships, today I would like to cover three within the Brookfield Asset Management (NYSE: BAM) family. BAM is a global alternative asset manager and operator with a focus on property, renewable energy, infrastructure and private equity. Three of its affiliates are publicly traded partnerships akin to MLPs, although their Canadian primary listings, Bermuda legal domicile and global operating reach create a further layer of tax complexity and potential complications.

Brookfield Infrastructure Partners (NYSE, TSX: BIP) was formed to own global infrastructure assets that generate stable cash flows, require relatively modest maintenance capital expenditures, and tend to appreciate in value over time. The business owns and operates the following infrastructure assets in North and South America, Australia, and Europe:

• Utilities — Networks in North and South America, Europe and Australia including a regulated coal terminal, 10,800 km of transmission lines and 2.4 million electricity and gas connections
• Transport — 30 ports, 3,300 km of toll roads and 9,900 km of rail operations in Europe, North America, South America and Australia
• Energy — Centralized district energy systems delivering heating and cooling to customers in North America and Australia as well as a natural gas pipeline and storage systems in North America
• Communications Infrastructure — ~7,000 multi-purpose towers and active rooftop sites and 5,000 km of fiber backbone in France

Close to 90% of BIP’s cash flow comes from regulated businesses or long-term contracts, and roughly 70% is indexed to inflation. The partnership is geographically diversified, deriving 8% of cash flow from North America, 34% from Europe, 27% from South America and 31% from Australia. BIP’s cash flow is also diversified by segment, with 43% from Transport, 39% from Utilities, 10% from Energy, and 8% from Communications Infrastructure.

BIP has an Enterprise Value (EV) of $11.8 billion, and an EV/EBITDA of 12.6. Since 2009, the partnership has grown funds from operations (FFO) per unit at a compound annual growth rate (CAGR) of 23%, and over the same time period grew the distribution per unit at a CAGR of 12%. BIP is targeting a long-term distribution growth rate of 5-9% and a payout ratio of 60-70%.    

For the quarter ended June 30, BIP generated FFO of $208 million versus $180 million for Q2 2014. The company declared a quarterly distribution of $0.53 per unit, which translates to an annualized yield of 5.6% and a payout ratio for the quarter of 67% (equivalent to 1.5x distribution coverage.)

Brookfield Renewable Energy Partners (NYSE, TSX: BEP) owns renewable power generation facilities valued at $20 billion. Eighty percent of its power is produced by 204 hydroelectric generating stations on 75 river systems. BEP also owns 28 wind facilities and two natural gas-fired plants, accounting for 6,707 megawatts (MW) of generating capacity in the U.S., Canada, Brazil and Europe.

Over the past decade BEP has acquired and developed power generating facilities with an aggregate capacity of some 4,000 MW. The company finances organic growth with cash flow from operations, and is currently developing over 3,000 MW of value-added projects, including 750 MW in advanced stages. Over the next five years BEP will invest $500 to $750 million at targeted returns of 15-20%. Cash flow is contracted at 92% for 2015, and is at least 81% contracted out to 2019.

BEP has a current EV of $15 billion, an EV/EBITDA of 13.7, and yields 6.3%. Over the past five years, revenue and EBITDA have a CAGR of 10%, and FFO has a CAGR of 17%. Over that same time span units have appreciated at a CAGR of  19%.

Brookfield Property Partners LP (NYSE, TSX: BPY) owns, operates and invests in office, retail, multifamily and industrial assets. BPY has $61.4 billion in assets on a proportionate basis and interests in over 100 premier office properties and over 150 best-in-class retail malls around the globe.

BPY’s goal is to be the leading global owner & operator of high-quality real estate, generating 5% – 8% annual distribution growth from a diversified portfolio of income streams as well as capital appreciation. BPY’s primary focus is on commercial property, including office, retail, multifamily, industrial, hotels and triple net lease. BPY is active in the U.S., Canada, the U.K., Australia and Brazil. BPY does not typically invest in single-family homes, real estate services or construction.

BPY’s property portfolio includes:

• Retail — Interests in approximately 171 retail assets, predominantly in the U.S. and Brazil, including a 35% interest in Brazil Retail Fund, a significant owner of shopping centers in Brazil
• Office — 260 office properties totaling approximately 123 million square feet of commercial space
• Multifamily — Interests in 28,000 multifamily units throughout North America
• Industrial — Interests in 44 million square feet of assets with prime land sites to develop an additional 69 million square feet of distribution facilities near major markets and transport routes in North America, Europe, and China
• Hotel — Portfolio of 12 hotels in North America and Australia with 8,859 guest rooms

Since 1989 BPY has invested over $30 billion of equity in properties, generating an estimated annual gross IRR of approximately 16%. For the quarter ended June 30, BPY reported net income attributable to unitholders of $1.03 billion ($1.44 per unit) versus $892 million ($1.31 per unit) for the same period in 2014. BPY has a current EV of $34.2 billion, an EV/EBITDA of 11.9, and yields 5.3%.

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Portfolio Update

Parents to the Rescue

On another tough day for energy equities, at least one was granted a reprieve. DCP Midstream Partners (NYSE: DPM) units appreciated more than 6% Wednesday. Business didn’t improve, because the energy prices on which it depends sagged once again. But at least DPM’s indirect corporate parents finally came through with a long awaited aid infusion.

In combination with its general partner, DCP Midstream is the largest U.S. gas processor and natural gas liquids producer, a dubious distinction with the price of these commodities at multi-year lows. It is particularly sensitive to NGLs, which have been discounted dramatically following the tumble in crude prices.

The DPM publicly listed partnership is now almost fully shielded from commodity price risk for the balance of this year and mostly protected (locking in 80% or so of its cash flow) for 2016. But its general partner, a 50/50 joint venture between Spectra Energy (NYSE: SE) and Phillips 66 (NYSE: PSX) is much more exposed. It lost its investment-grade credit rating earlier this year as a result, casting doubt on  DPM’s growth prospects.

The infusion of $1.5 billion in cash from Phillips and one-third stakes in two natural gas liquids pipelines from Spectra will keep DCP Midstream on the good side of its credit line covenants and more than cover its expected cash outflows over the next year.

Spectra, meanwhile, could see its cash flow cut more than 10% as a result, after the horse-trading necessary to pry the pipeline interests it’s contributing from its own MLP, Spectra Energy Partners (NYSE: SEP).

Spectra’s own credit rating remains at risk of downgrade at Moody’s, potentially forcing it to rely more on equity and less on debt as it pursues an ambitious long-term gas transmission growth plan along the Eastern seaboard.

But at least the worrying over what DCP Midstream will cost it can now end. Like every other driller and midstream processor, Spectra mainly needs a rebound in commodity prices, and we continue to expect a meaningful upturn sometime over the next year.

DPM remains a Growth Portfolio buy below $42. As with our $42 buy limit on SE and $64 maximum for SEP in the Conservative Portfolio, that’s a level unlikely to be reached any time soon. But those targets should quickly become more relevant once the commodity slump starts to reverse.

— Igor Greenwald