Brookfield Infrastructure Partners L.P.'s (BIP) CEO Sam Pollock on Q1 2019 Results - Earnings Call Transcript

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About: Brookfield Infrastructure Partners L.P. (BIP)
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Earning Call Audio

Brookfield Infrastructure Partners L.P. (NYSE:BIP) Q1 2019 Results Earnings Conference Call May 3, 2019 9:00 AM ET

Company Participants

Melissa Low - Vice President, Investor Relations

Sam Pollock - Chief Executive Officer

Bahir Manios - Chief Financial Officer

Ben Vaughan - Chief Operating Officer

Conference Call Participants

Rupert Merer - National Bank Financial

Robert Kwan - RBC Capital Markets

Robert Catellier - CIBC Capital Markets

Cherilyn Radbourne - TD Securities

Devin Dodge - BMO Capital Markets

Andrew Kuske - Credit Suisse

Dennis Coleman - Bank of America Merrill Lynch

Jeremy Rosenfield - Industrial Alliance

Operator

Good day, ladies and gentlemen. And welcome to the Brookfield Infrastructure’s First Quarter 2019 Conference Call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session, and instructions will follow at that time. [Operator Instructions]

As a reminder, this call may be recorded. I would now like to introduce your host for today’s conference, Melissa Low. You may begin.

Melissa Low

Thank you, Operator, and good morning. Thank you all for joining us for Brookfield Infrastructure Partners’ first quarter earnings conference call for 2019. On the call today is Sam Pollock, our Chief Executive Officer; Bahir Manios, our Chief Financial Officer; and Ben Vaughan, our Chief Operating Officer. Following their remarks, we look forward to taking your questions and comments.

At this time, I’d 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 risk factors, I would encourage you to review our annual report on Form 20-F, which is available on our website.

With that, I’d like to turn the call over to Bahir.

Bahir Manios

Great. Thank you, Melissa, and good morning, everyone. I am pleased this morning to discuss our results of operations for the quarter and provide you an update on our liquidity position. So first just on our results, we are off to a strong start in 2019.

We generated funds from operations or FFO of $351 million for the quarter or $0.88 on a per unit basis and that’s up from $333 million in the prior year. On a per unit basis, our results were up 4% compared to the prior year and our payout ratio for the period was 71% after taking into account our recent 7% distribution increase.

Results for the quarter reflects strong performance by each one of our operating segments, which in total delivered 10% organic growth over 2018, exceeding our annual long-term target range of 6% to 9%.

Organic growth was generated by inflation indexation across approximately 75% of our business, solid GDP driven volume growth predominantly at our transport operations and contributions from accretive capital projects commissioned during the period.

Our results also benefited from contributions from our recently acquired businesses. These positive factors were partially offset by the impact of a weaker Brazilian real, which reduced earnings by $13 million in the quarter.

Our Utilities segment contributed to FFO of $137 million compared to $169 million in the prior year. Underlying performance was strong as our operating groups were able to grow their results by 5% on a same store basis over the prior year. This was predominantly driven by inflationary increases to our rate base, combined with another strong quarter of results at our U.K.-regulated distribution business.

These contributions were offset by us having less capital, invested following the sale of our Chilean Electricity Transmission business in March of last year. Higher interest expenses associated with the financing completed our Brazilian regulated gas transmission operation and a $9 million impact from foreign exchange.

Our U.K.-regulated distribution business maintained its momentum, following a record year of performance in 2018. Sales and connection activity exceeded the prior year by 8% and 16% respectively.

At the end of March, our order book stood at an all time high of 1.1 million connections, which is 12% higher than the prior year. In particular, the multi-utility product offering continues to be attractive to developers, as evidenced by the strong results, which have materialized from our fiber offering where sales are 50% higher than the prior year.

At our Brazilian Electricity Transmission business, we are making good progress on the development of 4300 km of transmission lines. The first three segments of which totaled approximately 1600 kilometers, which are fully operational and construction for the remaining 2700 kilometers is on track.

In April, we exercised our first option to acquire a 50% interest in 500 kilometers of operating lines from our partner, bringing our ownership to 100%. We plan on exercising our buyout options for the remaining operating lines later this year.

FFO from our transport segment was $139 million for the quarter, in line with the prior year results. This segment benefited from organic growth of 6% driven by higher tariff and traffic levels across our global toll road portfolio, strong volumes at our container terminals and higher revenues at our Australia -- Australian rail operations.

These positive contributions were partially offset by the previously announced sale of a 33% interest in our Chilean toll road operation that closed in February and the expiry of one of the state concessions at our Brazilian toll road business. FFO for this segment was also reduced by $4 million as a result of foreign exchange, primarily the result of a decline in the Brazilian real.

Despite uncertainty over Brexit, our U.K. port operations is thriving. Container and bulk volumes remained robust exceeding the prior year by 45% and 5%, respectively.

Volume increases from our bulk and unitized customers have been driven by new contract wins and strong organic customer growth.

With our container terminal nearing its capacity, we are now proceeding with the fourth phase of its expansion comprising a total capital investment of $17 million. This will increase throughput capacity by a further 20% by mid 2020.

Our Energy segment contributed FFO of $107 million, which represents a 62% improvement from the prior year. This step change increase is attributable to organic growth and contributions from two recently acquired North American businesses.

Our North American Natural Gas Transmission business delivered another strong quarter, generating FFO that was 23% higher versus the prior year. Results for this business are benefiting from robust demand for transport services and contributions from the first phase of its Gulf Coast expansion project. At our gas storage operations, FFO was 43% above prior year levels as the business earned higher spreads related to cold weather conditions.

Within our Distributed Energy Operating group, several new growth initiatives are underway at our recently acquired North American Residential Energy Infrastructure business. We recently partnered with multiple homebuilders to be the exclusive provider of smart home technology for over 3,000 new homes. This offering will create opportunities for the sale of additional products and services to its new customer base.

We are currently progressing a partnership with the utility in Texas for a pilot program that will offer our residential infrastructure products to a subset of its existing clients. If this pilot is successful, the program has the potential to generate meaningful sales leads when we roll this out to its full customer base.

FFO for our Data Infrastructure segment was $28 million and that was up from $19 million last year. Recent investments in our global data center portfolio contributed FFO of $7 million for the quarter.

FFO at our French Telecommunication business grew by 13%, due to inflation -- inflationary increases and new points of presence added to our tower network. Commercialization for the second of the four fiber-to-the-home concessions held by our French Telecommunication Infrastructure business has commenced with a level of take up above -- that’s above underwriting and market averages thus far.

Our build-to-suit program continues to grow with over 300 towers built over the last 12 months. We currently have a contracted backlog of 900 towers, which is expected to be delivered over the next three years. This will provide us with strong visibility into the next phase of organic growth for the business.

So now I will take you or briefly take you through our liquidity position. Our balance sheet remains strong, with total liquidity of approximately $3 billion at the end of the period, of which approximately $1.9 billion was at the corporate level.

Liquidity was strengthened during the year by CAD$100 million preferred share issuance and the sale of 33% interest and financing in our Chilean toll road business that generated after-tax proceeds of approximately $360 million.

In line with our capital recycling strategy, we consider this to be an opportune time to monetize a portion of our Chilean toll road investment as the asset had reached the mature phase of its life cycle. We acquired a 51% interest in this road through a series of transactions during 2011 and 2012 for a total of $340 million.

Since acquisition, we implemented a number of initiatives to improve operating margins and raised investment grade debt that lowered our cost of capital. This coupled with strong tariff growth and a favorable tariff regime has resulted in significant value appreciation.

In February, we completed the partial sale of our interest and realize the multiple of invested capital of approximately 3 times. Additionally, as this investment is held at amortized cost under IFRS, the partial sale resulted in a $350 million accounting gain that was recognized in the quarter, because we monetized a non-controlling interest and retain control of this asset accounting rules require the gain to be recorded directly to our unit holder equity account.

Over the course of the year, we expect to further enhance our liquidity levels as we execute on our capital recycling program. In this regard, we have entered into an agreement to sell our bulk European port operations with a sale expected to complete in June of this year subject to regulatory approvals.

We expect to receive net after-tax proceeds of $130 million from this sale, which is approximately equal to the carrying value of the business. We remain on track to generate additional proceeds of $1.5 billion to $2 billion in the next 12 months to 18 months from several other sales processes that are underway.

And so, with that, thanks for your time this morning and I will now turn the call over to Sam.

Sam Pollock

Thank you, Bahir, and good morning, everyone. For my remarks today, I will begin by providing a brief update on our various strategic initiatives. I will follow that with some comments on our current activities and thinking regarding the data infrastructure sector, and lastly, I will conclude the call with an overall outlook for the business.

With respect to our current strategic initiatives, I am pleased to report that we have nearly concluded the process of closing our various acquisitions from 2018. Over the last several weeks, we closed the acquisition of a 2000-kilometer Indian natural gas pipeline and an interest in a large scale, South American data center business. We are happy with these transactions and are progressing well on the 100-day integration plans for both businesses.

We invested about $230 million into our Indian pipeline and $200 million per our share of Ascenty, the South American data center business, which included funding for Ascenty’s 2019 growth capital expenditures.

Staying on Ascenty, since closing the transaction, the business has expanded recently into Chile leasing 6 megawatts of capacity over the next 10 years to an investment grade customer. This anchored contract will facilitate the constructions facility, which is an accretive initiative that was not contemplated in our original business plan.

The business is performing well, our partnership with Digital Realty Trust is generating the desired synergistic benefits we expected and we are identifying other tuck-in opportunities that will grow Ascenty’s presence across South America.

The last investment from our 2018 transaction pipeline we need to close is the acquisition of the federally regulated assets in our Western Canadian Midstream business. We expect this to happen in the third quarter of 2019 upon completion of a regulatory process.

Turning now to Data Infrastructure. This sector continues to offer interesting investment opportunities given the large amounts of capital that need to be deployed in the space. We thought this would be an opportune time to discuss our strategy in this sector and where future opportunities may lie.

Over the past year, we have highlighted Data Infrastructure segment as an area of growth for Brookfield Infrastructure. Data has been one of the fastest growing commodities in the world and we expect this rapid growth to persist for the foreseeable future, driven by a number of factors including greater smartphone penetration, increasing data consumption, advent of 5G networks and other new and evolving uses such as Internet of Things, AI and other applications that depend on low latency.

We have identified this exponential growth in data users worldwide as a significant opportunity, particularly with the large scale infrastructure investments that will be required to support data transportation and storage.

As we positioned our business to take advantage of this secular trend, we have focused on various investment themes. First, wireless infrastructure such as telecom towers, second, fiber networks, third, data centers, and fourthly, integrated data operations.

Our belief is that as people, places and objects become increasingly more interconnected, the importance of Data Infrastructure assets will rise. Given the ongoing evolution and innovation taking place in the telecom sector, we are seeking to detach these assets from their corporate owners and focusing on contractual arrangements that hold attractive infrastructure characteristics and bear limit technology and obsolescence risk.

Now just touching on some of the investments that we have made and where we plan to expand. Let me first touch on wireless infrastructure. In 2015, we acquired a leading independent broadcast in telecom tower operator in France with over 7,000 towers and active rooftop sites.

Growth in this business is driven by the requirement for mobile network operators to increase their site coverage to meet spectrum license obligations and improve network capacity to support higher data speeds and usage.

We believe investments in wireless infrastructure are attractive, as these are long-life assets, which benefit from natural barriers to entry due location scarcity and challenging permitting environments. In addition, customers are willing to enter into the long-term contracts of up to 20 years with embedded indexation to secure capacity.

The second year we focused on fiber networks and to-date fiber -- our fiber investments have been through our existing portfolio companies. Our U.K.-regulated distribution business is deploying fiber to the home to new housing developments as part of its multi-utility offering.

Meanwhile, our French communication infrastructure business is rolling up four fiber-to-the-home networks to connect over 700,000 households, the next few years as part of the French government’s national broadband plan.

Residential fiber networks offer utility like characteristics due to significant cost to build out a dense network, which in turn limits the risk of replication. Furthermore, like traditional utilities, broadband is becoming a basic household need as society demands reliable connectivity. We are also reviewing opportunities to acquire fiber network specializing in enterprises -- enterprise services.

The third area is data centers and we have been most active with data centers over the last year having acquired businesses on three continents. Our focus is on the retail colocation and wholesale data center models, with a key differentiator between the two in the amount of computing power required by our customers.

In retail colocation, the customer contracts are typically three years to five years with strong renewal rates due to the high customer switching costs. Customer stickiness is further enhanced through a platform effect as our customers are often in multiple sites or locations, which increases the complexity of switching given their network architecture.

Our wholesale platforms in South America and Asia are in regions where cloud computing is an earlier stage of adoption and this should allow us to deploy additional capital on an accretive basis to build new data centers for large technology companies expanding their presence in the region and a good example of that is just what we did in Chile.

The build out of new sites is supported by anchor tenants entering into long-term take-or-pay contracts of 10 years or longer, which will allow us to achieve attractive risk adjusted returns within the initial contract term and significantly derisk the investments.

And then lastly, we are also focused on integrated data operations. A potential area of opportunity for us in this type of asset class is the acquisition of asset heavy integrated telecom operators.

As the name implies these are businesses that provide utility like broadband and wireless services to customers through owner operated tower and fiber networks. These businesses will have customer facing activities, similar to our distribution companies.

For asset heavy operators, these activities represent a small fraction of the margin generated in the overall business. For certain large scale businesses, an opportunity exist to consider separating underlying network infrastructure from the service business. However, this would need to be assessed in the context of the existing market structure.

In general, we believe that managing retain the customer relationship is important as it provides increased flexibility to tailor the network to meet customer requirements and increases customer stickiness by bundling multiple services. If the retail component had sufficient scale and credit quality then a separation might make sense however.

So, I will finish my remarks now with a brief outlook. We are pleased with the performance of the business so far in 2019 and the prospects for the rest of the year remain positive. We are currently operating in an environment where main street economic activity is strong and the threat of an economic pullback in the near term appears very low.

In addition, the impetus for central bankers to raise rates also appears to have lanes and thus we should enjoy lower interest rates for longer. While our business generally performance well throughout all investment cycles, lower interest rates and steady GDP growth are particularly good for us.

The results of the first phase or a capital recycling initiative are encouraging. In 2018, we raised $1.1 billion from the sale of Transelec and redeployed the proceeds into five exciting new businesses. Once we complete the second part of the Western Canadian Midstream acquisition and achieve a full period of contribution from our newly acquired South American data center business and the Indian pipeline, our results will fully reflect the benefits of this capital recycling. These benefits include higher organic growth potential and greater diversification.

Furthermore, we believe that after removing the noise of short-term foreign exchange fluctuations, our second half of 2019 FFO run rate will be approximately 22% higher than what it was at the time we sold Transelec.

As previously noted, we are making good progress on our next phase of capital recycling. We expect this phase of the program to generate between $1.5 billion to $2 billion by the end of 2020, and the proceeds of which will be reinvested into exciting new infrastructure assets. We believe we will replicate the success from our most recent capital recycling initiative and create further unitholder value.

So, with that, I will now pass it back over to the Operator, and Daniel, I will ask you to open the line for Q&A.

Question-and-Answer Session

Operator

Thank you. [Operator Instructions] Our first question comes from Rupert Merer with National Bank Financial. Your line is now open.

Rupert Merer

Good morning, everyone.

Bahir Manios

Good morning, Rupert.

Sam Pollock

Good morning, Rupert.

Rupert Merer

So with your focus on data infrastructure today maybe I will start there. In your North American Residential Energy business, it sounds like you have a growing opportunity in smart home technology. Is there any potential overlap in your communication data infrastructure here?

Sam Pollock

Yeah. I would say initially that’s not the strategy really to leverage across the data center or fiber type businesses that we might be looking at and the smart home services. So in the future that could come about, but at this point, there really isn’t an interlinking between those two strategies across those businesses.

Rupert Merer

All right. And moving on then, so looking at the strength you had in the Energy business this last quarter, it seemed like a good deal of strengths came from a cold winter. Can you talk about the seasonality of the business today and how that’s changed versus the historical seasonality patterns we have witnessed and how much of a contribution to that the FFO this quarter came from your gas storage business?

Bahir Manios

Hi, Rupert. It’s Bahir. Maybe I will start off on that one. So there is a bit of a seasonal impact today in this segment albeit exactly to your point, that has been reduced over the years as our North American Pipeline business has become much more of a contracted utility like business.

That being said, a portion of those FFO streams coming out of that business in addition to our gas storage business do experience some seasonality. I’d say, Q1 and Q4 are typically our strongest quarters in this segment and just for this quarter, yes, we did have a very strong quarter. It was aided by cold weather conditions that created higher volatility in gas spreads.

And we did pick up that benefit, which is great and it’s great to have businesses that have that leverage, and so it’s somewhere between $7 million to $10 million, I would say, would be the impact of seasonality that I would guide you too.

Rupert Merer

Okay. So the quarter would be $7 million to $10 million higher than what we might expect in Q2 from --.

Bahir Manios

That’s exactly right. You will see a drop-off in Q2 due to natural seasonality, and yeah, so that would be a good estimate.

Rupert Merer

Okay. Thank you. I will get back in the queue.

Bahir Manios

Thanks, Rupert.

Operator

Thank you. And our next question comes from Robert Kwan with RBC Capital Markets. Your line is now open.

Robert Kwan

Good morning. Just with Euroports sale and you have got some pretty positive comments around PDP. I am just wondering, now that you have exited the rest of Europe, what is the longer term plan for PDP and even just how are you thinking about your global ports business in general?

Sam Pollock

Hi, Robert. We -- today, we operate even after the sale of Euroports in the U.K., North America and Australia, and other businesses are performing fairly well. And I think our plan would be that even to extent that we sell off mature businesses, we would look for opportunities to re-enter the sector on a value basis.

In the case of PD we are particularly excited about some of the recent developments that’s going on in the ports. I am sure you noticed the announcements this past week with Serious and the fundraising activities they have underway.

They have made significant strides in raising up to $3.8 billion to complete the financing package that they need to build that mine, that will have a huge impact on PD ports, driving potentially 10 million tons through the port.

There is also some other poly halite operations in the area that is also increasing production. So we are quite encouraged by that and then hopefully next year we will have the commencement of the biomass power facility at PD as well, which should drive significant volumes through the terminal.

So that’s just a fantastic new story. But it actually as it relates to our ports business, it doesn’t stop there. Our volumes and contract wins in Australia have been quite strong as well and it’s been a very good year and our business there is probably doing better than we expected.

Robert Kwan

Got it. Turning to data between you are highlighting wireless fiber and then the integrated just few different things. Where you are seeing the best opportunities within those three and then you talked about customer facing activities. Can you just talk about your thoughts on B2B versus B2C in that business? And then the third on the integrated side, would that be something where you would own the telecom/data equipment, and how do you just think about the technological risk?

Sam Pollock

Okay. So I will start and then Bahir or Ben can chime in if they have other thoughts. But I would say, today we are looking at opportunities across all four of those segments that I described and across the world. So I would not say that there is any one particular component of the data sector that doesn’t require capital and that there are people looking or parties like ourselves to help them.

What we are doing is, obviously, trying to put our capital to where we can get the best risk adjusted returns and that varies moment to moments. But I’d say, we feel confident that we can likely invest in each of our regions in the data sectors space in a not too distant future. So we -- I’d say it’s -- I can’t point to one particular component. It’s actually pretty active on all the components.

As it relates to B2B versus B2C. Yeah, we are value investors. So I think we are somewhat agnostic so long as we can get the best risk adjusted returns and so each business is compared based off the regulatory framework, the market conditions, the contractual framework and how those all come up in terms of returns. And we see opportunities in both businesses today and we are pursuing opportunities in both B2B and B2C.

As it relates to B2C in the data sector, I guess, this is mostly in those integrated type businesses. What we have found is that in certain small markets attempting to disintermediate the retail component from the infrastructure assets sometimes is counterproductive, because you are actually creating more risk for the business as opposed to less risk, because that there is you are creating a person in between you and the ultimate user of the asset.

In large markets where you have big players who can stand behind their contractual frameworks with the balance sheet then that’s fine. But otherwise, as long as you are not really paying much for that retail component then you are actually better to keep it, even though it might on the surface seem to give you more merchant exposure. And so I think people just need to appreciate that you have to do a deeper dive into understanding the dynamics before concluding that just more risk to a B2C business and a B2B business.

So those are the type of considerations we make when looking at this. We effectively though are looking at opportunities where we can provide utility like services to consumers through broadband and wireless, and how we get there, there is multiple ways to do that.

Robert Kwan

Got it. And then just on owning telecom data equipment technological obsolescence?

Sam Pollock

Yeah. I think the, again, where we are looking to invest is where the surface is primarily driven by the large networks being and a large investment being in the fiber and the tower networks and not so much on businesses that are very sensitive to switching and whatnot. But, yeah, there may be some component to that, the more you get into owning some of these surface components. But again that all goes into the underwriting analysis.

Robert Kwan

Okay. Thanks very much.

Sam Pollock

Thank you.

Operator

Thank you. And our next question comes from Robert Catellier with CIBC Capital Markets. Your line is now open.

Robert Catellier

Hey. Good morning, everybody. I’d like to start with hedging. I noticed a percent of FFO had just 70%. I wondered if you could give us an update on your thoughts about eventually getting around to the Brazilian reals are hedged?

Bahir Manios

Hi. Good morning, Robert. It’s Bahir. So, yeah, as you correctly noted, 70% of our FFO today is either generated in U.S. dollars or has been hedged back to the U.S. dollar at least for the next 24 months. In recent quarters, we added hedges as well to the various LatAm currencies that we are exposed to and so the remaining position is predominantly relating to the real.

We have noted in the past as you recall that we do have plans to hedge that currency just as interest rate differentials between the two countries being the Brazil and the U.S. have come down. But we are looking still for a rebound in the currency before we commence those activities.

At today’s levels, we wouldn’t be interested in hedging the currency. Our view would be that it will rebound from here as we noted in our commentary last quarter. So, look for, if we are correct on that call then we would look to put on hedges against our real FFOs later on as the currency rebounds, but not at these loans.

Robert Catellier

Yeah. I guess the fact that your 70% hedge gives you the luxury of time. But I am sort of wondering if whether or not the fact of the hedge level is so high currently whether there is an impetus to hedge the real at all, price notwithstanding of course.

Bahir Manios

Yeah. And what we are not trying to do here is necessarily take our business 200% being cash flows hedged or generated 100% in U.S. dollars. So it may be a component depending on the analysis we do and the costs involved at that time.

But we would love to get it Robert up to 80 to 85, I think that’s what we you know, the guidance that we gave at our last Investor Day and but that all depends on if it makes sense at that point or not. So the analysis is still, it’s fluid, it’s dynamic, but that’s our thoughts as of today, but no assurances whether or not we will get this done or not.

Robert Catellier

Okay. One more accounting question before I go to the operations. I think you gave the FFO impact from IFRS 16 in the quarter. Did you have a full year impact or you are expecting under the current makeup of the business?

Bahir Manios

No. We think it was $7 million for the quarter so it’s insignificant in the grand scheme of things that predominantly relates to FFO coming out of our Ports business, sorry, our Transport business and you should expect those levels for the next couple of quarters as well, so it will be consistent.

Robert Catellier

Okay. Just on the operation side, the 24% growth in container volumes across the portfolio, I mean, what was driving that, I mean, it can all be organic growth.

Bahir Manios

So, we had a bunch of -- so first we had some contract wins as Sam alluded to at our U.K. operations, so those contributed quite significantly in the quarter. There were organic just natural tariff increases and such that we also enjoy. And then in our North American business, we had the higher moves activities there too. So that in total sort of equated to 24%, some of the businesses were higher, some of the businesses were lower.

Robert Catellier

Okay. Just moving on finally to Enercare, you mentioned that a exclusive provider for the home technology, smart home technology to those homes in Texas, what other business development progress have you made within Enercare and what do you think the organic growth for that segment will accelerate?

Sam Pollock

Yeah. Robert, it’s a good question. So, on Enercare, we have a number of initiatives, especially in the United States to in the focus on the growth profile of the business that drive growth. We are working on a number of projects to leverage the Brookfield relationships we have across homebuilding. I think as Bahir mentioned in his comments across various utility businesses we have and we are also looking at expanding our partnerships with plumbing services, home and condos servicing type businesses.

So in addition to I’d say just improving the basic product offering from Enercare, we are looking to leverage a lot of additional levers to get into different sales channels to drive the rental model, especially in the U.S.

And in Canada, a couple of developments we have had -- we have now entered the Alberta market, so there are some additional markets that we are trying to enter into once again leveraging across Brookfield.

Robert Catellier

Great. Thank you.

Operator

Thank you. Our next question comes from Cherilyn Radbourne with TD Securities. Your line is now open.

Cherilyn Radbourne

Thanks very much and good morning. In terms of your M&A pipeline, clearly you have highlighted that Data Infrastructure is a focus this morning, wonder if you could just update us on what you are seeing in other areas that have been topical for you particularly energy infrastructure and then India more generally?

Sam Pollock

Hi, Cherilyn. It’s Sam. Well, maybe I will touch on India first. I just got back from India last week and so it’s relatively topical. Just on the market itself, I have to admit, I came away quite encouraged with the macro situation there even though there is still a significant amount of stress in the credit markets there, as a result of the non-bank financials and some over leverage that took place in that part of the economy.

But otherwise, inflation is very much under control. GDP growth looks like it will be probably the highest among the large economies in the world over 7%. And it appears that Modi will be reelected and so at least with his allies, hopefully, I am not proven wrong in that, but that appears to be the general wisdom and people see that as favorable from a business perspective at least giving us a stability there and so that gives us encouragement to continue to focus on the market.

Today, we see a number of opportunities in that market in the Port sector, in the Toll Road sector, as well as in the Data Infrastructure sector. We will continue to have conversations with Reliance Industries on various initiatives that they have underway. As you know, we did a transaction on the pipeline with them and they become a key relationship for us in that market.

And I think the outlook for opportunities there is quite strong. So I’d say all in all, I think our team is doing a great job there, and there should be lots of opportunities to grow in that market going forward.

As it relates to other areas, clearly Data Infrastructure is one of our key focuses. Energy continues to be adventures, I’d say, with the recent the stock market recovery and just the general enthusiasm credit, enthusiasm here in North America, it’s probably made it a bit more challenging in the North American energy space to do transactions, but there is still lots of opportunities and while there may be a near-term delay in some of those, I think, we will have lots to do going forward.

We have a number of opportunities in the Utilities and Transportation sectors that are currently underway, and hopefully, we will be able to progress those into acquisitions over the coming quarters. So, all in all, I’d say the environment is good and the pipeline is quite strong.

Cherilyn Radbourne

Okay. Well, that’s very helpful color. Maybe just a quick one for Bahir, you pointed there is some pretty strong growth in the second half excluding foreign exchange. I think you have indicated previously that your hedge rates are somewhat higher in the back half of the year, year-over-year. So should I read into that that the real is kind of the key wild card there?

Bahir Manios

Hi, Cherilyn. Yeah. That’s exactly right. We do expect to see a pickup from this quarter’s results into the last quarter of the year, just because our hedged rates that will be about 5% to 7% higher than what they are for this quarter and then the real will be the wild card as you noted so absolutely.

Cherilyn Radbourne

Great. Thank you. That’s all from me.

Bahir Manios

Thanks Cherilyn.

Operator

Thank you. And our next question comes from Devin Dodge with BMO Capital Markets. Your line is now open.

Devin Dodge

Hey. Good morning, everyone.

Sam Pollock

Good morning, Devin.

Bahir Manios

Good morning, Devin.

Devin Dodge

So NGPL continues to perform really well. Just can you give us an update on the opportunities that you see for this pipeline over the next one year to three years and can you give us a sense for the utilization of the asset and whether you have been on board these additional volume opportunities at relatively low incremental cost?

Ben Vaughan

Yeah. Hi, Devin. It’s Ben. Yeah. We are still seeing some good growth opportunities at NGPL predominantly driven by just the need to get more gas flowing down to the LNG infrastructure on the Gulf of Mexico. And most of the projects that we are seeing, we just completed one and we have a few other projects that are in undergoing FERC filing and commercialization and they are all very capital efficient.

So they are all -- we don’t need to build a lot of new pipe infrastructure, it’s mostly compression type infrastructure to increase flows to those facilities. So they are very -- I would describe them as very capital efficient and it feels like that markets team, we have been seeing still has a few more innings to play out, so NGPL is still positioned very well.

Devin Dodge

Okay. That’s helpful. And then maybe a broader question, one of your larger competitors recently switched from a partnership to a C Corp structure. Just can you talk about whether it changes ever being considered at Brookfield and maybe the merits of that remaining as a Bermuda based partnership?

Sam Pollock

Devin, maybe I will tackle that one. It’s Sam. The -- I would say we have noted all the recent announcements and while the background and circumstances are different from those companies to our Bermuda based partnerships. They are good food for thoughts. And I think at the overall band level we are evaluating the merits of the structure, which we always do and seeing if there is anything we can do to improve it.

Today, there is no plans to make any change, but I think as more knowledge and understanding comes out from what others have done we will definitely learn from them and take stock. So that as much I can tell you right now.

Devin Dodge

Okay. Thank you. That’s it from me.

Sam Pollock

Okay.

Operator

Thank you. [Operator Instructions] Our next question comes from Andrew Kuske with Credit Suisse. Your line is now open.

Andrew Kuske

Good morning, guys. The first question is probably for Bahir and it’s just on the Australian billion dollar of debt financing that you did. Could you just give us some color around that the tenure, the rate and then where it actually resides?

Bahir Manios

Good morning, Andrew. Say the tenure was -- it was a five-year facility that we got done with a number of institutions in the local market there. As far as the cost, it was I believe is about 5%, and sorry, there was a third component of your…

Sam Pollock

[Inaudible]

Bahir Manios

What is it, oh, sorry, it resides in the Patrick’s Terminal business, so this would have been the business that we acquired from Asciano back in 2016.

Andrew Kuske

Okay. And then maybe just another question sticking with Australia, as it relates to DBCT, is there anything on the regulatory front that could be of interest and asking part just because we saw a rise and you signed a 10-year commercial agreement with some of its customers and it had an upward bias and effectively the WACC that that they are receiving. So, I am just curious, is there anything of note as it relates to DBCT specifically?

Bahir Manios

Yeah. We are -- Andrew, we are waiting on a ruling that hopefully will come out this calendar year, if not early next calendar year on DBCT’s regulation. And but at this point it’s sort of premature to guess what it will look like, but we -- the base business today, we are not expecting it to change at all there, the regulation if anything could improve the facility, but at this point sort of too early -- there really haven’t been any material development.

Andrew Kuske

Okay. That’s great. Thank you.

Sam Pollock

Thanks, Andrew.

Operator

Thank you. And our next question comes from Dennis Coleman with Bank of America Merrill Lynch. Your line is now open.

Dennis Coleman

Thank you and thank you for taking my question. I guess, there has been quite a lot of discussion about the opportunity in telecom and related areas and maybe just to ask a very specific question just because of quite a lot of chatter out there. I wonder KPN has come up a lot in relation to Brookfield Infrastructure. So just, I guess, the question is more broadly, can you address that in any way just to give you an opportunity to talk specifically about that if there is anything you can say.

Sam Pollock

So, Dennis, I guess, our standard answer for transactions is, we can’t really speculate or talk about transaction, so whether or not there is something going on or not, it probably would be inappropriate for me to comment.

So all I can say is look -- that’s a large situation, obviously, but we, yeah, we are looking at various types of transactions around the world that could assist companies in servicing value for themselves and that could include part of the assets or companies themselves, but I can’t comment on that anymore than that.

Dennis Coleman

Sure. No. I appreciate that and just wanted to give you the chance to say that and we can move on. I guess my second question, you had the contract roll off in Brazil. If you can just remind me, are there any other potential roll-offs or if any progress on capturing new opportunities?

Bahir Manios

Hi, Dennis. It’s Bahir and maybe I will take this one. So you are absolutely right we did have that happen. Last year we do have another one of our state road concessions that expires on June 30th of this year and then another road -- another state road which would be the final one, that would be -- that has its concession agreements expire on November 30, 2020.

In terms of an FFO impact, it would be about $4 million to $5 million a quarter for each one of those roads. But that would be offset by various expansion programs that we are carrying out in that business that are -- that have come on line or are coming online in addition to a couple of tuck-in acquisitions of roads that we have made in the prior year that are also contributing to our results. So I would expect the FFO -- the impact to our FFO to be neutral, but just for people to note that there are those two concession handbacks that will happen between this year and next year.

Dennis Coleman

Okay. Thank you for that. That’s it for me.

Bahir Manios

Thanks, Dennis.

Operator

Thank you. And our next question comes from Jeremy Rosenfield with Industrial Alliance. Your line is now open.

Jeremy Rosenfield

Thanks. Good morning. Just from a high level strategic perspective and I appreciate a lot of color on the data infrastructure. In terms of the sizes of opportunities that you are looking for in the past that they have been sort of what I would call sort of bite-sized opportunities. Do you think that there is an opportunity to be more strategic and to go after larger targets looking forward within the data infrastructure business to really establish a much larger platform going forward?

Sam Pollock

Hi, Jeremy. I guess, it’s Samuel. I will tackle that one. I think the short answer is, yes. I think, we are seeing opportunities across the spectrum in terms of scale. One of our key advantage as an organization is the fact that we do have a structure where we have committed capital that we can invest alongside Brookfield Infrastructure and it’s a significant scale.

And in addition to that, those investors who have committed capital alongside of us have an interest to invest with us on various transactions like you have seen on transactions like NTS or Asciano, our ability to pull together capital for $5 billion to $10 billion transactions is not unheard of and so we can do large transactions. But it will be in partnership with others and obviously we will manage BIP’s capital according to its capabilities.

Jeremy Rosenfield

Okay. Good. And then just a little bit of a cleanup, and I may have missed this off the top, but there was a mention of a buyout option on Brazil Transmission Infrastructure and I was just wondering if you had a number in terms of the expected investment to execute those buyout options.

Bahir Manios

Good morning, Jeremy. It’s Bahir. I will take that one. The number is going to be small. So it’s going to happen in various parts of the year that would be our expectation. On a net [to BIP] basis, you are talking about $25 million to $30 million here. While the number is small it’s strategically very important as we are going to be now 100% controlling those assets. But, yeah, that would be the expectation as of today.

Jeremy Rosenfield

Okay. Perfect. That’s what I was looking for. Thank you. That’s it from me.

Operator

Thank you. Ladies and gentlemen, this concludes our question-and-answer session for today’s call. I would now like to turn the call back over to Sam Pollock for any further remarks.

Sam Pollock

Okay. Well, thank you, Daniel, and I’d like to thank everyone for joining the call this morning. We look forward to updating you on our progress during the upcoming year. Thank you.

Operator

Ladies and gentlemen, thank you for participating in today’s conference. This does conclude today’s program and you may all disconnect. Everyone have a wonderful day.