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Brookfield Infrastructure Partners L.P. (NYSE:BIP)

Q2 2012 Results Earnings Call

August 8, 2012 9:00 AM ET

Executives

Tracey Wise – Vice President, Investor Relations

Sam Pollock – Chief Executive Officer

John Stinebaugh – Chief Financial Officer

Analysts

Bert Powell – BMO Capital Markets

Cherilyn Radbourne – TD Securities

Michael Goldberg – Desjardins Securities

Brendan Maiorana – Wells Fargo

Robert Kwan – RBC Capital Markets

Timm Schneider – Citigroup

Operator

Hello. This is the Chorus Call Conference Operator. Welcome to the Brookfield Infrastructure Partners’ Conference Call and Webcast to present the company’s 2012 Second Quarter Results to Unitholders. As a reminder, all participants are in listen-only mode and the conference is being recorded. After the presentation, there will be an opportunity to ask questions. (Operator Instructions)

At this time, I would like to turn the conference over to Tracey Wise, Vice President, Investor Relations. Please go ahead, Ms. Wise.

Tracey Wise

Thank you, Operator, and good morning. Thank you all for joining us for Brookfield Infrastructure’s second quarter 2012 earnings conference call. On the call today, Chief Executive Officer, Sam Pollock, who will discuss highlights for the quarter and provide comments on our strategy and the outlook for our business. Also joining us is John Stinebaugh, our Chief Financial Officer, who will review our financial results. Following their remarks, we look forward to taking your questions and comments.

At this time, I would like to remind you that in responding to questions and in talking about our 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 risks factors I would encourage you to review our annual report on Form 20-F which is available on our website.

With that, I would like to turn the call over to Sam Pollock. Sam?

Sam Pollock

Great. Thank you, Tracey, and good morning, everyone. In the second quarter, Brookfield Infrastructure continued to generate stable cash flows in a challenging macro economic environment. As a result of the European sovereign debt crisis and the slowdown of the Chinese economy, some of our operations and many of our customers were impacted by reduced trade and lower commodity prices.

Our businesses, however, for the most part have been immune from these circumstances due to their strong contractual and regulatory frameworks. We generated FFO of $0.60 per share, resulting in a distribution payout ratio of 63% for the quarter.

We also announced a number of transactions that will meaningfully expand our transportation and utility businesses. Over two years ago, we initiated an outreach program to position Brookfield Infrastructure to acquire businesses that might be divested as a result of the environment in Europe.

Our two-pronged strategy focused on developing relationships with European companies that own infrastructure assets in South America and also identifying potential add-on acquisitions for our existing European businesses. On both fronts we achieved success this quarter.

As a result of a relationship developed with Spanish toll road operator Abertis, we were invited to participate on an exclusive basis in the acquisition of a controlling stake in OHL Brasil. We also secured a transaction to purchase the remaining interests in our Chilean toll road from the German construction company Hochtief.

And finally, we executed agreements to acquire a controlling stake in a regulated distribution business in United Kingdom, a complicated transaction that we have been working on for the past year and one that should be very complementary with our existing U.K. regulated distribution business. While these transactions are subject to a number of closing conditions, we are optimistic that we will be able to successfully complete them later this year.

With that, I’ll now turn the call over to John to discuss our results for the quarter.

John Stinebaugh

Thanks, Sam. I’d like to spend a few minutes walking through our results. In my remarks I will focus on FFO which is a proxy for cash flow from our operations. I will also focus on AFFO yield, which is a measure of how effectively we deploy our capital.

During the quarter, we generated FFO of $111 million, an increase of $9 million over the second quarter of 2011. Our results reflected strong performances from our utilities and transport and energy segments, partially offset by a lower contribution from our timber segment.

Our FFO per unit of $0.60 was $0.05 lower than the prior year due to the impact of our equity issuance in October of last year. The proceeds from this offering were primarily used to fund the expansion of our railroad, which has just begun generating cash flows as expansion projects are being commissioned. Overall, we earned an AFFO yield of 9% in the period.

Our utilities segment generated FFO of $78 million in the quarter, compared with $66 million in the prior year. The increase in FFO was primarily due to greater connections revenue from our U.K. regulated distribution business, as well as contribution from our Colombian regulated distribution business, which was acquired in January of this year. Our utilities segment posted an AFFO yield of 16% in the current period, compared with 15% in the prior year.

Our transport and energy segment produced $53 million of FFO, compared to $39 million in the second quarter of 2011, driven by increased profitability of our Australian railroad. During the quarter, our railroad’s FFO increased by 86% over the prior year, due to increased volume from the above average grain harvest and contribution from three expansion projects that have commenced operation.

Results from our energy transmission and distribution business, and our port operations were largely consistent with the prior year. Overall, our transport and energy segment generated an AFFO yield of 8% in the quarter, in line with the prior year.

During the quarter, our timber segment posted FFO of $6 million, compared to $13 million in the second quarter of 2011. Our timber results were impacted by weaker demand from China and South Korea, which placed downward pressure on log prices in both domestic and export markets.

As a result of a 14% decline in the average realized price for our logs, we reduced our harvest level by 8% compared to the prior year. Our timber segment generated an AFFO yield of 4% in the current quarter, compared to 10% in the prior year.

Although, we are not counting on a recovery in log prices in the second half of the year, we do believe that prices in the export market bottomed out during the second quarter. We expect that timber performance for the remainder of the year will be generally consistent with the first half of the year.

I will now touch on some of our corporate initiatives. Over the past several months, we made significant progress on a number of financings that extend our maturities and on a net basis reduce our interest expense.

In May, our Australian coal terminal issued $335 million of 12-year notes at 220 basis points over 10-year U.S. treasuries in order to refinance its $287 million February 2013 maturity and repay its capital expenditure facility. We also completed the refinancing of our North American gas transmission business’ 2012 debt maturity.

During the quarter, $1.3 million -- $1.3 billion of maturing bonds were refinanced with a five-year $700 million term loan priced at LIBOR plus 550 and a seven-year $550 million bond priced at 9.6%. Our intention is to reduce debt in this business over the next five years.

With this deleveraging combined with anticipated recovery in the natural gas market, we expect that financing costs should decrease significantly when these facilities are refinanced. This business has no other debt maturities prior to 2017.

Additionally, we invested $200 million to repay our share of holding company debt related to our North American gas transmission business. In the fourth quarter, we plan to raise approximately $350 million of corporate debt to refinance the retirement of this debt and $120 million of corporate debt that matures in November. We anticipate that our new corporate debt will be issued at a rate of less than 5%.

After quarter end, we renegotiated our $700 million our corporate credit facility to terms consistent with our investment grade rating, reducing our cost of borrowing by approximately 200 basis points and extending the facility's maturity to September 2016.

Finally, on July 30th, we launched an equity offering as part of the funding plan for our recently announced investments. We issued 15.6 million units at a gross price of $33.25, a 2% discount to the closing price of our units immediately prior to the issuance, raising net proceeds of approximately $500 million including the exercise of the over-allotment option.

This transaction was over two times subscribed, demonstrating our strong access to capital in the U.S. and Canadian markets, as investors seek to own businesses with sustainable cash flows from real assets.

I will now turn the call back to Sam to walk through our growth strategy and outlook for our business.

Sam Pollock

Great. Thank you, John. And as John mentioned, I'll review our growth initiatives right now. This past Saturday, we signed an agreement with Abertis to acquire 60% of OHL Brasil for total consideration of approximately $1.7 billion, consisting of $1.1 billion of equity and the assumption of $600 million of assumed liabilities.

On successful completion of this acquisition, we expect to invest approximately $250 million, with the possibility of further investments, if additional shares are acquired as part of a mandatory tender offer to minority holders.

This transaction, as well as the recently announced acquisition of the remaining interest in our Chilean toll road are subject to customary closing conditions and are expected to close in the fourth quarter.

Upon successfully closing, we believe we will own one of the leading toll road platforms in South America, with over 3,200 kilometers of roadways in Brazil and Chile. Our South American toll road platform will have substantial adversity with a combination of roads that connect major cities, gateway roads and urban roads.

In addition to benefiting from increases in traffic and high growth regions, and tariff regimes that are indexed to inflation, we believe that we are well-positioned to capture significant incremental value through organic growth projects related to our network. As congestion on our roads increases over time, we have the ability to propose projects to the regulator to de-bottleneck our roads and improve their connectivity.

For approved projects, our concession agreements enable us to earn attractive rates of return on the capital that we deploy by increasing our tariffs or extending our concessions.

Finally, as one of the largest owners and operators of toll roads in South America, we will be well-positioned to pursue additional toll road projects in Brazil and Chile, as well as Colombia and Peru, two additional countries also in substantial need of new road infrastructure.

We also made significant headway on our organic growth projects over the past three months. In the second quarter, we continued to progress the expansion of our Australian railroad on budget and on schedule. We are nearing completion of works for the Worsley project, which is expected to commence service in August.

The upgrade of the mid-west segment, the largest component of our expansion program is now substantially complete with 100% of the track installed and about 90% of the track operating at full speed. We are projecting to finalize construction of this segment more than two months ahead of schedule and we anticipate that we’ll be in a position to commence services in October

And finally, the construction of our Texas electricity transmission system, consisting of three lines and six substations, continues on schedule and budget. We’ve now secured 100% of the right of way easements for the first and second lines, and 97% for the third line.

Construction is currently active on all three segments. We’ve invested almost one-third of the projected capital for this system and remain on schedule for an in-service date for all three segments during the first half of 2013.

As we look forward to the balance of the year, we believe that there will be -- continue to be considerable economic uncertainty emanating from the European sovereign debt crisis and lower growth from China, which will have an impact on commodity prices. Despite these uncertainties, Brookfield Infrastructure should generate sustainable, growing cash flows.

Over the next six months, the contribution from our Australian railroad's expansion program will continue to ramp up, accounting for a significant portion of this growth.

Additionally, the strategic initiatives to bolster the scale of our South American toll road platform and double the size of our U.K. regulated distribution business will meaningfully add to our cash flows in 2013, should we successfully complete them.

Our primary focus for the balance of the year is to close these strategic initiatives and integrate these businesses into our operating platforms. As always, we will continue to work hard to increase the profitability of our operating companies and develop attractive organic growth opportunities.

While we may witness a pause in customer initiated expansion projects due to lower commodity prices, we believe that our businesses are well-positioned over the long-term to benefit from GDP growth and the infrastructure investments that will be undertaken to meet this growth.

Operator, we have now concluded our initial remarks here. We would now like to turn the call over to you to open the lines for questions.

Question-and-Answer Session

Operator

Thank you. (Operator Instructions) The first question is from Bert Powell of BMO Capital Markets. Please go ahead.

Bert Powell – BMO Capital Markets

Thanks, Sam. Just in terms of divestitures to raise capital, can you maybe give us some thoughts in terms of markets where you are seeing your prices higher or high prices for assets or assets that you consider mature. And just a little bit around maybe the strategy partial sales, wholesales, just how you're thinking about raising additional capital from sales?

Sam Pollock

Sure. Maybe, I’ll start on that and John may jump in as well. I’d say the types of businesses where we think we can achieve the best prices today are probably in some of our utility businesses where people are paying or are looking for lower returns for businesses with very stable cash flows and secured frameworks.

And we have a couple of businesses where we see limited growth, but nonetheless very secured cash flows and as a result, they could be very attractive for, particularly pension fund type investors.

In addition to that, as we’ve indicated, we are also looking at potentially divesting some of our timber assets. We’ve seen in recent months some transactions take place at very low levels of returns or low cap rates.

And given the quality of the assets that we have, we may think that, we may -- maybe an opportunity for us to sell some of our timber at good value. Yeah, I think your second question, Bert, was in relation to partial versus wholesales?

Bert Powell – BMO Capital Markets

Yeah.

Sam Pollock

I think what you are getting at here, probably in relation to timber. But I'll just make a comment just on some of our other non-core assets. I think what we have told people in the past that, what is -- what we define is non-core assets, our businesses that have lower growth potential or opportunities for us to deploy limited amounts of cash to grow them organically and businesses where we don't have controlling stakes.

And so that’s generally how we would define non-core assets. And then on the timber side, at this stage we would probably be looking at selling partials stakes as opposed to full stakes.

Bert Powell – BMO Capital Markets

Okay. And just lastly how far advanced are you on any of this side of the equation?

Sam Pollock

We are still at relatively early stages of exploring our options. There is, maybe a couple situations that may be able to move quicker than others. But I’d say we are at relatively early stages.

Bert Powell – BMO Capital Markets

Okay. Thanks.

Operator

The next question is from Cherilyn Radbourne of TD Securities. Please go ahead.

Cherilyn Radbourne – TD Securities

Thanks very much and good morning. So it’s been a very busy period for you from the point of view of transactions. So can I take from your opening remarks that you’re largely done in terms of looking at new opportunities and primarily focused over the next little while in terms of betting down the things that you have done?

Sam Pollock

Yeah. Hi, Cherilyn. I think in our closing comments -- my closing comments you are probably interpreting that correctly. We -- our focus is going to be mostly on betting down these assets over the next three to six months.

Having said that, we do have a number of initiatives that remain underway, both organically, we are still working on Dudgeon Point. We are still working on some opportunities at our U.K. port.

And there maybe some smaller transactions that that we think are very complementary. But I think it’s safe to say that there is no major initiative that we are pursuing at this particular point in time.

Cherilyn Radbourne – TD Securities

Okay. And if I could ask for a bit of color on the toll road platform that you are acquiring, if I understood this correctly, the Chilean platform primarily captures commuter traffic and the Brazilian platform is more directed towards long-range transport traffic?

And so I wondered if you could give us a bit of perspective on what that implies for GDP sensitivity at the underlying traffic flows and longer-term growth potential of those assets?

Sam Pollock

You’re correct. The Chilean road primarily is like traffic, mostly commuter traffic whereas our roads in Brazil will be mostly used for heavy traffic. I think about 70% of the traffic on those roads are trucks. Based on the work we've done, we believe that the heavy traffic is more affected by changes in GDP.

And so, in that sense it will be, maybe a slightly above more volatility to changes in growth in the Brazilian business versus the Chilean business. They both nonetheless have high correlation to growth in those respective markets and we think that the growth prospects in both of those markets are very strong for the foreseeable future.

Cherilyn Radbourne – TD Securities

Okay. And last one from me. You’ve indicated that the six expansion project on the Brookfield rail network is now on hold. What is the implication of that from a bit perspective just given that you’ve got take-or-pay contracts underpinning your investments?

John Stinebaugh

Hi, Cherilyn. It’s John. The six contracts you're right. It’s --our customer is in a dispute with their core supplier right now and until that is resolved, we’ve basically said that we think that project essentially is on hold.

However, as we've indicated, that is less than 10% of the minimum expected $150 million of EBITDA from the expansion program. So we will be able to benefit for more than 90% of that $150 million. And we think will be at that run rate in the first quarter of 2013.

Cherilyn Radbourne – TD Securities

Okay. Thank you. That’s helpful. That’s all for me.

Sam Pollock

Thank you.

Operator

Next question is from Michael Goldberg of Desjardins Securities. Please go ahead.

Michael Goldberg – Desjardins Securities

Thank you. I’m just going to ask about timber, but that impart got asked. I just want to clarify though, is it any specific asset that you are considering selling or is it as you said partial sales of the assets that you’re thinking about?

Sam Pollock

Hi, Michael. It’s Sam. Look, I don’t think there is much more we can say about that. I think as you know, we have two particular businesses that we own in Brookfield Infrastructure. We have our Island Timberlands, which is the Canadian operations on Vancouver Island and we have Longview, which is in Oregon and Washington. I think we will look at opportunities in within both businesses and see what the best opportunity is for us.

Michael Goldberg – Desjardins Securities

Okay. Turning to low natural gas prices, can you talk about that as an either an opportunity or threat for bid?

John Stinebaugh

Hi, Michael. It’s John.

Michael Goldberg – Desjardins Securities

Hi, John.

John Stinebaugh

In terms of the impact, that I think we have seen the impact of low natural gas prices on our pipeline system. So that largely we think has bottomed out and should recover over the next few years. In terms of opportunity, we have been looking at opportunities in the midstream space over the last couple of years. Valuations have been quite high in that sector in part, because the master limited partnerships have had pretty low costs of capital.

We do think there may be some opportunities with the low natural gas prices, reductions in rig counts where there is a bit more perhaps less stress within some of the gathering across companies, if they start to not hit the deliverability numbers that they're counting on and things of that nature, where could be to some opportunities. So that something we’re keeping an eye on.

Michael Goldberg – Desjardins Securities

Okay. And lastly, assuming completion wall current organic projects and recent acquisition, and financing initiative sort of have been round numbers, so as we can get an idea of scale. How much potentially does that increase your AFFO?

John Stinebaugh

I think probably the best way to look at it, it would be if you take a look at the railroad program, we’ve given pretty good guidance that, we will be able to generate 90% of the $150 million of minimum expected EBITDA and will be at a run rate in Q1 for that. If you take a look at the capital that has not been committed working commercial operation within our utility business. It is a total of right around call at $375 million.

And I think we would expect to earn AFFO yield that are consistent with our existing business right now, which would be mid-teens for that. And then for the new investments that we are looking at, we haven't given any specific guidance in terms of what the near-term cash flow is. But what I can say is we are underwriting those to be 12% to 50% total return that is our stated target and these are businesses that are in operation and they produce pretty solid cash flow. So we think we should get some pretty strong initial yield on those as well.

Michael Goldberg – Desjardins Securities

Okay. Thanks very much.

Operator

The next question is from Brendan Maiorana of Wells Fargo. Please go ahead.

Brendan Maiorana – Wells Fargo

Thanks. Good morning. Sam, can you give an update on the status of Dudgeon Point and where your customer increase or just given what seems to be a bit of a slowdown from some of the mining companies that are operating in Australia where you guys stand on the project?

Sam Pollock

Sure. Brendan, the -- I think the way you’ve interpreted the situation is correct. There has been -- and I used the expression pause in my initial remarks in -- these types of projects I think a lot of mining companies are stepping back and revisiting their expansion projects. I’d say in relation to this one, we still have a number of customers, who are looking forward, I guess, beyond the current the gas prices and are looking for capacity.

And we continue to have discussions with them. And so actually we’re still optimistic that we’ll be able to conclude some feasibility funding arrangements with certain customers over the next couple of months that will see us continue to progress the project.

I think our expectation is that the scale of the project may be smaller initially and then phased up overtime, which is something we're quite comfortable with. And obviously, that will be dependent over market conditions over the next 12 to 18 month, when we are in that stage of really scoping out the project.

We are waiting for assistance from the state in setting the master plan for the site as probably one of the key considerations to help us, progress this further. And it's been slightly delayed for things beyond our control. And again, we’re hopeful that that will take place over the next coming weeks and months, so that they will have better visibility on what we're building and with that, they will be able to size it to meet our customers expectations.

Brendan Maiorana – Wells Fargo

So I apologize, because I can recall. But the initial customer that you are talking to that was, I forget to stay actually committed to from the feasibility study or if you are just in discussions that they were going to from the feasibility study. Have they pulled back their commitment or indication that they would fund the feasibility study, which I think was around $140 million of memory serves?

Sam Pollock

Yeah. We have one large customer that was funding up portion of that. It wasn’t up to the $140 million, it was a smaller amount. And what we were -- we are in the process of doing is going out to the whole community of customers who have expressed interests. And so we’ve been looking to do that, so that we could size up the scale of feasibility project. That customer still is signed up but we decided not to proceed with a larger feasibility study until we have the balance of customers on board.

Brendan Maiorana – Wells Fargo

Got it. Okay. Thanks. John, if I look at the investments that you guys have done, I think around $865 million of equity investment, how much is that -- when we look through to the program, a portion of debt and then -- onto then what’s the pro rata enterprise value investment that BIP is making on AVN, OHL and Inexus?

John Stinebaugh

If you take a look at, Brendan, its going to be pretty consistent with our existing debt to cap.

Brendan Maiorana – Wells Fargo

So lets say that’s -- call it 45 equity kind of, so it’s roughly you call it a little less than $2 billion or so?

John Stinebaugh

Yeah. That’s right.

Brendan Maiorana – Wells Fargo

Okay. So…

John Stinebaugh

Little bit higher than 50%, probably culture at 55% debt to cap on those investments.

Brendan Maiorana – Wells Fargo

So if you -- so then if you raised $500 million of equity, its $365 million roughly sort of equity funding shortfall. If we take that number and let’s just for argument sake, say it’s kind of levered one to one it sort of give you a little bit over $700 million of asset level dispositions that are going to happen. Is it -- is that sort of the way that we should be thinking about the dispositions that go out the door, not sort of a $350 million just to make your equity commitment?

John Stinebaugh

Well, on a proportionate basis, yes, there would be proportionate debt that would be sold down along with equity that we sold down. I think the best way to think about it is what we’re looking to do here is to sell asset that are in strong demand by either strategic investors or institutional investors once the people who bid too low equity returns be able to redeploy the capital at higher risk adjusted return.

So, that's how we're thinking about that. And we think we've identified some assets that fit that bill and we think we should be able to do some value accretive trades.

Brendan Maiorana – Wells Fargo

So just on a some sort of hearing your comments correctly. If we were think about going in cap rates versus going out cap rates or if you want to just take the inverse and say EBIT, EBITDA multiples. We have at least the assets that you are acquiring, ought to have EBIT, EBITDA multiples that are in line or lower than the exit EBIT, EBITDA multiples. Is that reasonable way to think about it or do you think there may be some initial dilution from the asset sales and then where you got better growth and what you are buying?

Sam Pollock

I think you're thinking about it, right, Brendan. I think that in terms of the AFFO yields of the asset that we are thinking about divesting. We think that they will be pretty low AFFO yields, because their assets that people bidding at pretty low levels of return. And we think that we will be able to deploy that capital in investments, the $865 million that you mentioned that will have higher yields.

John Stinebaugh

It’s John. Just to clarify that, Brendan, your last comment was correct as well. Where -- we are taking to account the different growth projects -- growth potential for each of the businesses were buying versus what we’re selling. And so we are looking on it -- looking at it as a value accretion basis not necessarily a cash flow accretion basis. So when we look at -- our returns we’re looking at investing at hopefully close to 50% returns and selling at equity returns considerably less than that.

Brendan Maiorana – Wells Fargo

That’s helpful. And then just last one, a point of clarification on the timber. If I look at your timber book value, I think it works out to like $2,200 or $2,300 per acre. The transactions have been higher than that. Is it fair to say that you guys would not transact if you’re going to get a number that’s lower than what the timbers on the books for?

Sam Pollock

Let me answer that one too. The short answer is that’s correct. We’re not looking to sell it below our base value. But I just want to clarify one thing, when you look at that -- when you state that number that’s a blended between both our Canadian operations and our U.S. operations.

And the price per acre in our Canadian operations is, from a value perspective is much lower than our U.S. operations for a number of reasons and it just has to go to the margins that we can achieve on a lot of sales we have far greater primary growth in our Canadian operations versus what we have in our U.S. operations where dollar second growth and the margins are extremely high with a much higher percentage of Douglas-fir. So I just want to caution you and others in relation to using blended acreage values for our business.

Brendan Maiorana – Wells Fargo

Sure. Okay. Thank you.

Operator

Next question is from Robert Kwan of RBC Capital Markets. Please go ahead.

Robert Kwan – RBC Capital Markets

Good morning. Just on the quarter with the connection revenue, which was quite strong. Just wondering was there one or two specific larger projects where that came through, was it just very strong across the board. I’m just wondering, if you can also provide relatively shorter term outlook for the connection business?

John Stinebaugh

Hey Robert, it’s John. We won some big projects during the quarter so that accounts for the higher level of connection revenue that we booked versus previous quarters. So if we look forward, the run rate that we’ve talked about in the past for the business we think still stands roughly about $7 million U.S. per quarter.

Robert Kwan – RBC Capital Markets

Okay. So just in terms of the big project that all came through in the quarter because the backlog also came up a little bit. Will some of that spell into say second half?

John Stinebaugh

For the balance of the year, I think the run rate is probably the best way to think about it.

Robert Kwan – RBC Capital Markets

Okay. Just, I guess, at a higher level, when you’re looking at the distribution policy in the in the 60% to 70% of FFO, which you reiterated again this morning. Do you see that changing now a little bit with the some of the shorter dated concessions in Brazil and possibly just more of an explicit focus on AFFO path?

John Stinebaugh

That’s something that we definitely had been thinking about. Robert, there is no doubt that with OHL Brasil, we've got a bigger portion of our revenues in FFO with our concessions that have finalized. So we are considering what the appropriate level is but I think it -- we haven’t changed the policy yet, but that’s something we’re going to reevaluate. But it made coming down to a lower payout of our FFO in recognition of that.

Robert Kwan – RBC Capital Markets

Okay. Just maybe one last question I had with OHL Brasil. They had highlighted other potential concessions in the country aside from toll roads. Specifically, there were some airports and container ports. Is that something where you see this platform growth or those things that you would be shying away from there?

Sam Pollock

Robert, it’s Sam. I think it's early days. Obviously, we need to sit down with our partner and discuss strategy for the business. But my sense is that, the focus will be predominantly if not exclusively on toll roads for that particular business. Yet we may in our other activities in Brazil look at airports and ports in that market but most likely not through this particular business.

Robert Kwan – RBC Capital Markets

Okay. That’s great. Thank you.

Operator

The next question is from Timm Schneider of Citigroup. Please go ahead.

Timm Schneider – Citigroup

Hey guys. Just quick question, how do opportunities on the gas infrastructure side specifically within North America fit in the overall mix at this point. Has this kind of been push the back burner, given the large international acquisitions lately or is that still something that you're actively looking at?

John Stinebaugh

Hi Timm, it’s John. We definitely are continuing to look at opportunities and monitor what's going on in the sector. As I mentioned earlier, valuations to date have been pretty strong. We do think that with low gas prices in some of the other dynamic going on sector, there may be some better value opportunities. So we’re definitely continuing to look and see if that pieces bears out.

But as Sam mentioned in his earlier comments, for the balance of the year, the primary focus that we’ve got is going to be to complete the acquisitions that we announced and to integrate those businesses.

Timm Schneider – Citigroup

Okay. Thank you. And then also quick follow-up to that, would you be looking at, kind of, gas utility assets or more so on the midstream side, specifically I'm assuming fee-based gathering and processing maybe long haul pipe and storage?

John Stinebaugh

In terms of gas utilities, we haven't really been focusing on either gas or electric utilities in North America because the return that you can get on those assets are pretty low. We do like the midstream sector particularly fee-based as you mentioned because you can earn good potential going in yields and if you buy them at the right price, the CapEx earns quite high returns as pretty accretive follow-on CapEx but it’s all a question of just being able to buy those for the right valuations.

Timm Schneider – Citigroup

Okay. Should we be open to doing something on a joint venture basis with one of these midstream players, is it more something that you would prefer to do on your own?

John Stinebaugh

We look at joint ventures as you saw we are doing a joint venture with Abertis for the OHL Brasil deal. So we definitely consider those types of structures along with buying assets outright. So we look at all types of opportunities?

Timm Schneider – Citigroup

Okay. Thanks guys.

Operator

Next is a follow-up question from Bert Powell of BMO Capital Markets. Please go ahead.

Bert Powell – BMO Capital Markets

Hey, Sam. I apologize if I missed this in your opening remarks just around OHL. What is the opportunity to extend concessions, the difference between your federal and state concessions in the portfolio because there is a bit of a difference in terms of what’s left and what's still available in each of those kind of two buckets?

Sam Pollock

So the opportunity to extend concessions or to raise terrace above the rate of inflation, really comes down to whether or not you can deploy capital around the roads on approved project with regulators. And as we mentioned in our remarks, in particular, in relation to the federal roads which are in ramp-up phase and are experiencing significant growth.

We think over the next 20 years, there could be considerable situations that arise where there will be unforeseen CapEx that the regulator would want us to deploy and where we’ll be able to earn a good return and that will be either in the form of increased tariffs or extensions of the concessions.

In relation to the state roads, I think the opportunity there from a development in perspective are probably fewer. There may be some minor opportunities available to us. But what we’ll be watching over the next number of years is opportunities to rebuy concessions or extend them by doing other things that the government hope he will give us visibility on as they deal with a number of concession renewals that will be taking place both in this sector and other sectors over the next couple of years.

And so we’re going to be watching those very closely and we think that just represent upside for us because it’s -- we didn't ascribe any value to concession extensions in our underwriting.

Bert Powell – BMO Capital Markets

Good. Thank you.

Operator

There are no more questions at this time. I will now turn the call back over to Mr. Pollock for closing comments.

Sam Pollock

Hey. Thank you, Operator, and thanks everyone for joining us today in the call. We look forward to updating you again on our progress next quarter. Bye.

Operator

Ladies and gentlemen, this concludes today's conference call. You may disconnect your lines. Thank you for participating and have a pleasant day.

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