Brookfield/Triton: infrastructure funds find goodies within containers

A shipping container leased by Triton International can contain all sorts of goodies. Triton shareholder portfolios will soon share the feeling. On Wednesday, the logistics company announced a deal to sell itself to Brookfield Infrastructure Partners for a $13.3bn transaction value. BIP will pay in its shares for a fifth of the consideration.

Instead of pure cash, Triton shareholders gain exposure to BIP’s investments across energy pipelines, electricity utilities, data centres and the like. Investors such as Brookfield have aggressively swallowed up and even redefined what constitutes infrastructure assets, bidding up their prices.

According to Triton, shippers such as Denmark’s Maersk and Cosco of China appreciate opportunities to rent containers. Triton has said supply chain snarls during the pandemic boosted volumes. Shippers required more containers per unit of cargo. Since their nadir early in the pandemic, Triton share price has roughly tripled.

Contracted lease revenues help fund meaningful capital expenditure. In turn they will plump up equity returns via Triton’s debt leverage capacity. Of the transaction’s $13bn, under $5bn goes to acquiring equity. Triton refinanced most of its balance sheet debt between 2020 and early 2022 while interest rates were at rock-bottom levels. Those interest costs should remain in place post-buyout.

Given a 35 per cent implied premium paid to Triton, that implies an all-time high share price. The question is how will Brookfield earn a suitable investment return.

Firstly, Triton could become a platform for future shipping deals that create savings. Next, infrastructure funds have more modest return requirements relative to classic private equity vehicles who seek to earn between 20 and 25 per cent over five to seven years.

Infrastructure deals can persist for more than decade. Stable cash flows compensate for lower returns. Triton shareholders will hope so, having traded the cash flows of one company for those of a broader portfolio.