Q3 2020 Brookfield Infrastructure Partners LP Earnings Call
Results conference call and webcast.
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I would now like to hand, the converts over to your speaker today, where they live Dansky managing director investments you may begin.
Thank you and good morning, Thank you for joining us for Brookfield infrastructure partners third quarter earnings conference call for 2020 on.
On the call today is Sam Pollock, Chief Executive Officer, Bahir, Manios, Chief Financial Officer, and David friend SVP of Finance.
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 then Tom King about our growth initiatives and our financial and operating performance we may.
They make forward looking statements. These.
These statements are subject to known and unknown risks and future results may differ materially.
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 will turn the call over to be here.
Thank you Renee and good morning, everyone.
I'm pleased to beyond this morning to report on our strong results for the quarter.
We reported funds from operations or effort for 365 million or 79 cents on a per unit basis.
This is an increase of 8% compared to the prior year as all of our operating groups reported solid operating results. In addition to contributions received from new investments completed over the last 12 months and gains on some reorganization we had on our financial asset program.
On a constant currency basis, our FFO per unit would have been 16% higher than the prior year.
The impact of a lower Brazilian real reduced our U.S. dollar results by $30 million during the period.
I'm pleased to share that similar to the second quarter government restrictions had very little impact on most of our businesses, allowing them to perform in line with our expectations.
The economic recovery over recent months has had a positive impact on our GDP sensitive operations.
Two notable examples being our toll road traffic volumes, which are now currently operating three shutdown novels.
In connection activity at our regulated distribution business in the UK, which is now currently averaging almost 90% flat.
David will walk through the detailed results for the various operating segments, but before handing off the call to him I want to make a few remarks on our balance sheet and liquidity position.
As we highlighted in our materials many times in the past a fundamental element of our business strategies to maintain a strong financial position throughout each economic cycle.
Our resilience to the economic slowdown this year was aided not only by the sustainability of for underlying cash flows, but also due to the disciplined approach we've utilized over the years in financing our investments.
As a result, we've maintained a robot robust credit metrics and a solid investment grade rating.
With the prevailing backdrop of low interest rates and support of credit capital markets. We've taken.
We've taken the opportunity during the period to further enhance our balance sheet.
We successfully extended maturities at attractive rates across our portfolio, which reduces exposure to any near to medium term capital market volatility.
In this regard we completed two financings at the corporate level, which increased our average corporate term to maturity from six to eight years.
First we issued $500 million Canadian of 12 year notes in the Canadian market to Opportunistically refinance say $450 million series of notes that are maturing in 2022.
In addition to being our longest issuance to date. The new series also has the lowest coupon to date at 2.855%.
Second we issued $200 million of perpetual green preferred units at a fixed rate of 5.125%.
This inaugural issuance is our first corporate financing in the U.S. market and demonstrates greater access to capital markets and our commitment to sustainable investment practices.
Following an active quarter of capital deployment, which Sam will touch on in his remarks, our liquidity position remains healthy as we have approximately $3.6 billion of liquidity on a total basis.
With $2.4 billion of dot residing at the corporate level.
Over the next six months, we will look to enhance our current liquidity position with proceeds from several ongoing asset sales that are being progressed.
During the quarter, we launched several new processes.
Which could generate almost $1.5 billion a condition of liquidity by mid 2021.
So with that thanks for your time this morning, and I'll turn the call over to David to discuss our operating results I know a little bit more detail. Thank you for here and good morning, everyone.
I'm pleased to be joining todays call to provide a summary of our operating results for the third quarter.
As Bahir mentioned this was a strong quarter for our business results reflect organic growth across our regulated and contracted businesses as well as the initial contribution from new investments.
I'll now touch on the underlying performance of our operations starting with utility.
This segment generated FFO of $139 million. These results represent an increase of 6% over the prior year after adjusting for the impact of a weaker Brazilian route.
In general our regulated and contracted utilities are performing well in the current environment under.
Underlying earnings benefit from inflation indexation, approximately $300 million of capital added to rate base and the contribution from our North American regulated gas transmission system acquired late last year.
With homebuilder activity ramping up construction levels at our UK regulated distribution business our steadily improving.
Connection activity during the quarter averaged nearly 90% of planned levels the.
The business also secured several new projects, most notably a significant capital projects consisting of 9500, new connections that span across five of our six utility offerings.
This quarter at our Australian regulated terminal, we received a positive draft regulatory decision, which proposes a transition to a more light handed regime.
The proposed change if reflected in the final decision would allow us to directly negotiate access charges with users of the terminal instead of operating with a single rate regulatory rate we're.
We're excited about this potential outcome, which we expect early next year.
Moving to our transport segment AFFO increased by 5% compared to the prior year. Despite some softness in toll road volumes related to the lingering effects of local government restrictions right.
Results benefited from higher agricultural volumes across our rail networks. The contribution of a north American rail operation and a favorable rent settlement at our UK port.
Traffic levels at our global toll road portfolio rebounded significantly in the third quarter. However remain roughly 5% below the same period of last year.
More recently traffic levels in Brazil for September October have fully recovered from the impact of the shutdown and our operations in other regions remain only modestly below plan as a result of a slow recovery in light passenger traffic.
During the quarter, our UK port operation received a favorable ruling on one of several ongoing arbitration processes. The business has with its long term tenants.
The ruling determined that the market rate for space at our facility should be almost four times higher than current levels in.
In addition to increasing future earnings the settlement included the payment of backdated rent since 2016.
FFO from our energy segment totaled $115 million, a meaningful increase compared to the prior year quarter.
Our midstream businesses performed well with FFO, increasing 16% on a same store basis compared to Q3 2019.
These results speak to the critical and contractual nature of our midstream infrastructure and the long life economic resources, which support them.
With no direct commodity exposure and approximately 85% of our current revenue secured under long term contracts, we are well positioned to withstand potential energy price volatility in the future.
Our distributed energy operating group grew by approximately 20% relative to the prior year after removing the impact of the Australian District Energy system, We sold last November.
This growth was driven by strong performance at our North American residential infrastructure business, which added over 55000 long term annuity based rental contracts during the last 12 months.
Our North American District energy systems have benefited from heightened consumer interest in sustainable and capital light solutions to meet their heating and cooling needs.
In addition to being selected as the preferred bidder to develop sustainable energy systems for 14 mixed use buildings in Toronto, we closed on several exciting growth initiatives during the quarter, including two separate 40 year agreement to operate maintain and modernized large district energy systems in the United States the <unk>.
First with Syracuse University, and the second with the National Western Center in Denver, Colorado.
These initiatives combined with the signing of five new 25 year capacity based contracts will provide incremental annual EBITDA of $25 million with dip share being approximately $9 million once fully commissioned.
Lastly, our fast growing data infrastructure segment delivered FFO of $50 million, which represents an increase of nearly 40% compared to the prior year.
We have continued to expand our global data transmission and distribution portfolio and this step change increase in FFO reflects several new investments completed in the last 12 months.
Results for the quarter include the first month of earnings from the acquisition of 135000 Telecom towers in India as well as contributions associated with investments made in New Zealand and the United Kingdom late last year.
With that I will now turn the call over to Sam for an update on our strategic initiatives and an outlook for the business.
Thank you David and good morning, everyone.
As David just mentioned I'll briefly discuss our strategic initiatives that we have underway and then touch on our outlook for the balance of the year and into 2021.
During the quarter, we closed on two large scale acquisitions deploying $1 billion diesel.
These investments should meaningfully contribute to our results going forward.
In August we acquired a portfolio of 135000 operational telecom towers in India from reliance Jio.
And in September we acquired interest engineer energy partners owner of the World class at Sabine pass LNG export facility.
As to hear mentioned the out of the call. We also have several asset sales underway with.
With interest rates expected to be at low levels for the next several years, we expect significant opportunities to recycle capital.
This activity will be a meaningful source of capital for us to fund future growth and in the next six to 12 months, we should generate approximately $1.5 billion of net proceeds from the sales.
Now turning to our outlook for the business.
You can infer from your comments today that we believe that the prospects for the company for the balance of the year and into 2021 are positive.
Although global economic conditions will be uncertain until the current health situation as past our assets have demonstrated that they have considerable downside protection mechanisms to weather any significant economic downturns.
As the economy recovers.
The business's cash flows that were temporarily impacted by shutdown have begun to return to normal levels.
As a result, we expect the 2021 results will be positively impacted by stronger economy and potentially by a recovery of the Brazilian real given its current low level.
And now they're Indian Telecom tower transaction has officially closed we can capture full annual contribution from the substantial going cash on cash yields this business generates.
Overall, our business is well positioned for meaningful growth our contracted capital backlog is currently sitting at over $2 billion.
Commission this over the next several years.
I'm also encouraged by the good momentum we are seeing with respect to new investment opportunities dislocation in the markets caused by the current economic environment has set the stage for us a compelling compelling investments.
Before we open the line for Q today, I want to take a moment to thank those of you who attended our annual Investor day in September either in person or virtually.
This year's teams focused on the current economic environment in particular, the resilient nature of our business and its compelling growth profile, we discuss the utility like characteristic of our business our strong track record of operational value creation, and our predictions of an infrastructure investment supercycle.
Ultimately, we feel we are creating a unique opportunity for investors to compound well overtime, and then certain and low interest rate environment.
For those of you who were unable to listen to the presentation. A replay is available on our website.
That concludes my remarks for today I'll now pass it over to the operator for questions.
Thank you ladies and gentlemen, if you have a question at this time. Please press the star followed by the number one key on your Touchtone telephone if your.
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And our first question comes from Cherilyn Radbourne from TD Securities. Your line is open.
Thanks, very much and good morning.
So Sam on the BBU call last week, Cyrus mentioned that M&A activity is picking up quite strongly since the summer after briefly coming to almost a halt just curious if you've seen the same kind of normalization at big Bend, where the bid ask spreads said.
Hi, Cherilyn.
Yes, I would.
I per se.
We had good activity.
Mr throughout the the whole year.
There is no doubt that.
For a period of probably two or three months.
Yes, there was.
Fewer processes underway, particularly I guess from March into June.
But anything that was sort of deferred quickly came back online and and we probably had a bit of a.
And the acceleration of activity for some of that just catching up so I guess, it's sure I'd confirm what with Cyrus is has set around activity levels today.
In respect of.
Bid ask spreads.
If things are as the.
As robust as they were prior to the the pandemic there.
There is a lot of capital.
Having said that we are still able to find good opportunities by leveraging.
Our teams around the world and and our operations, but.
But with low interest rates.
For the foreseeable future.
Yes, there will be it will be a competitive environment.
Great that's helpful color.
Here in your remarks, you mentioned some gains on financial assets does that imply that there's been some further monetization of that public toehold positions.
Good morning, Chairman Yep, Thanks for the question.
We didnt have.
A couple of realized nations.
In our portfolio, we built up a couple of other physicians also.
During the quarter. So on a net net basis from an asset perspective, I believe we are flat, but we did have to guess a few dispositions and as the reserves are the result of that we had a few.
A few realized gains that we recorded in our results.
Great. That's my two thank you.
Thanks.
Thank you. Our next question comes from Robert Kwan from RBC capital markets. Your line is open.
Hi, good morning.
Just kind of turning to the M&A side in midstream.
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With what we've seen recently in the midstream share prices just wondering what opportunities you're seeing if you can talk a little bit just around the framework as you approach these types of acquisitions specifically.
Are you focused on trying to find assets, where maybe you can get integration or revenue synergy benefits and also.
If you went with the corporate deal what percentage of this.
Mix would you be comfortable with today had.
Commodity exposure.
Hi, Robert I'll talk to that question.
I guess the first part of your question was just.
What type of.
Opportunities I guess to extract value from businesses do we do we look for.
To the extent that.
Yes, we can leverage some of the existing businesses, we have to extract those revenue synergies, we definitely would fac.
Factored those into our analysis and obviously, we try to find a complimentary businesses to things that we already own.
Sometimes that's not possible.
And then we then.
And look at opportunities.
On a discrete basis and look for things, where we think we can bring.
Some value and so that could be with.
Opportunities to invest further into the business to either.
Reduce costs or.
Grow particular platform, if it's been capital starved, we see that today, particularly in midstream where there is.
A shortage of capital.
In a number of companies so they're not invest in the cap of the normally would.
And.
I think part of the the value opportunity today is buying essentially for value may the businesses today are trading at.
Well north of double digit AFFO yields.
And.
And we think that Theres, a an ability to get a return of capital very quickly from some of those investments assets.
So that that would be I guess, the the framework I guess, the one thing that we do.
Yes take into account is the likely re rating of.
Midstream investments.
It's not clear and so we would not make an investment in the midstream sector today predicated on some sort of future re rating.
We would look at the cash flows and and run those off.
Your second question was what again Robert just around.
What percentage of the mix would you be comfortable with that had commodity exposure.
We don't have a hard and fast rule on that.
But yes in the midstream sector.
As you can see from our existing portfolio.
We favor businesses that are substantially contracted on a long term basis.
Yes today as David mentioned, 85% of our revenues across all our businesses.
Our contracted in some fashion.
We would.
That's probably not a terrible rule or rule of thumb as far as what we would seek to.
To achieve with any future acquisitions that there are there always is some portion even if you look at our recent.
Junnier transaction, where there is some portion that.
May benefit from commodity or merchant revenues, but we would probably predicate the vast majority of our return on contracted cash flows.
Yes.
Thank you just finished with.
And on how Youre viewing the dead Sea premium and then just maybe there's two parts to this the first being.
Typically targeted that 12% to 15% equity IR are which is really.
As you approach asset acquisition.
Perspective on how you Nancy do you see the BMC premium and giving you the ability.
Q.
You kind of.
Mitch Steves better returns because of where those shares are trading or does it give you the ability to maybe just some deals that have lower asset returns but.
Nancy Gibbs.
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You can see we've achieved a better corporate returns and then the second part of the question is.
How are you thinking about BMC has the potential to maybe just optimize the mix of MLP units versus.
Shares on an accretive basis.
Perspective per unit.
Okay. So there was a lot to unpack there let me see if I can.
Provide something insightful so.
Yes, we look at we've always looked at our units.
As an opportunity even before Pepsi was.
Was created as a way to create value.
Today I think we've been.
Fairly clear that we expect to fund.
Probably the majority of our future investments from capital recycling for the next couple of years the lease but to the extent that we can opportunistically completed a large scale transaction and either issue or.
Or utilize.
Pepsi or even bit LP units.
We will take advantage of those and and the fact that.
There is a.
A lot of interest in the Pip C units gives us confidence and be able to use that as a currency. So.
We don't get the short answer is yes, we will see if we can do that but at the same time, we're not deviating from our strategy which is to.
To do the vast majority of our base level investment through capital recycling, so thats not changing.
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And then I think your second question.
Yes really was.
You're asking about.
Optimizing the relative.
Number of units both of us.
The LP units and of these shares.
I think that was your question and.
The only thing I would I would say in that regard is we we will continue to look for opportunities to increase our float of the 50 shares.
And whether or not that's the issuing those and then in the future maybe buying back.
Dipped LP shares or Pip.
Units.
Yeah, we'll have to see but.
We are focused on increasing the flow for 50 shares at that I can confirm that.
That's great. Thank you Sam.
Okay.
Thank you.
Thank you. Our next question comes from Rupert Merer from National Bank Financial Your line is open.
Hi, Good morning, everyone wondering if you can give some more color on the asset sale processes, and perhaps talk about which segments.
The assets could come from and then with your asset rotation, how should we think about the target mix of the business in the future you seen favorable on on midstream and data and transport does does that mean, we should see less from utilities business in the future.
Hi, Hi, Rupert.
As far as the.
The progress on asset sales.
I won't get into specifics because we typically don't but what I would say is.
As as we mentioned their remarks.
Current environment is positive for asset sales.
We we are finding that.
The businesses that we are selling at least are very well attended theres lots of interest in those businesses.
And in particular anything that has.
And.
SG angle to it.
Clearly are in favor and so.
Some of our businesses that are in that sort of middle you were noticing a lot of interest so I'll leave it at that as far as the the the asset sales, where the progressing as far as the segments.
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We have.
In fact over the next.
Six to 12 months maybe.
May be upwards of four to five.
Process is underway and we have a asset sales I think in every single segment.
From some that are components of utilities down to transport and.
And even some data and energy so literally covers the full.
Spectrum.
We're not targeting asset sales in any segment per se. There really has to it comes back down to which businesses have we de risk and execute our business plan.
And are ready for their sale and the natural course, so so thats what were targeting it's really around the initial strategy and where we are in that strategy not around any particular segment.
We think theres interest in all these businesses.
And then finally to your question on target mix, how we might look in the next couple of years.
I think we might have touched on that a little bit at Investor day.
What we highlighted in the end you sort of alluded to this was that we expected.
An increase in our data infrastructure investments.
Yes, I think that could represent.
Close to 30% of our mix.
From about 15% to 20% now so that will definitely increase.
Midstream I think will stay.
Similar to where it is today I think we will see opportunities maybe there might be.
A moment in time when if there is a great opportunity that it goes up a bit but on a long term basis I see that representing maybe 20, 25%.
Transportation will stay the same and our utilities.
I realize.
They don't happen as often but off the transactions can be large.
We are still evaluating a number of utility opportunities.
It's still represents an important part of our.
Investment mandate so.
I think.
As far as what will go up data will go up.
Midstream.
I will.
I will stay flat as transportation, maybe a slight drop in utilities to make up for that increase in data.
Thanks, Thats great color on on the organic growth front, we've got a $2 billion backlog I think that that may be up a little bit what do you think the the run rate will be for organic growth and how are you looking at the returns on organic growth relative to what you can see in M&A.
Hey refer it David here I'll handle this one.
In terms of the backlog itself, you're right. It has grown a little bit part of that is some new mandate that we've won notably we'll have the add the six liquefaction trains at Sabine pass coming into our energy segment. So you'll see a bit of a bump up there but in terms of overall target returns I'd say these still provide some of the best risk adjuster.
The returns we can see it obviously depends on the size and timing of project, but you will see those contributing into results starting in Q4 with a few meaningful projects as well as a large one at NGL scheduled for mid next year as well so bill you'll see them come in line Cummings, our earnings pretty pretty steadily, but but a bit lumpier in the.
Energy side.
How much of your investment will come from organic so how much of that 2 billion could you see over the next 12 months.
Yes, similar to our current spend I'd say, we're on pace for $8 million to $900 million of growth capital spend for the year.
Roughly we equity fund, 50% so.
The M&A part I think we give a bit of guidance between could range between one and $2 billion, depending on the year. So.
It will make up a significant portion, but certainly similar to the levels, we've seen for the last year or so.
Great. Thanks for the color.
Thank you. Our next question comes from Frederic Bastien from Raymond James Your line is open.
Good morning, guys, you pointing to solid growth next year in spite of a pretty ambitious capital recycling program.
Can you get there organically and with the investment you just completed or are you assuming sort of a normalization of the headwinds.
You've been facing this year like currency.
Morning Frederic.
It's it's been here.
I think our expectation.
Would be as we've highlighted that.
We do think investment activities.
Should be strong.
For the foreseeable future. So we have a good amount of conviction that even though.
We have plenty of sale processes are a number of sale processes on the go where we would expect.
Hi, Jeff.
Outsize step proceeds coming from those we would expect that that will be reinvested back into a highly compelling offer.
Opportunities. So that's that's driving the majority of that on the Brazilian real we don't really forecast.
For that we are just noting that it could be a tailwind for our business, but all we can do for Nextshares, just maybe make some assumptions on our end as to how much we can sell how much we can buy and what kind of organic growth. We're seeing in the business, which we actually think it's going to be a really good year.
On from that on that front as well as David highlighted and.
And also given.
That cannot make recovery that hopefully will start happening.
Starting next year.
Okay. Thanks for the color on that.
With respect to.
The reliance Jio investment and just can you just closed I understand there might be some additional opportunity that may arise from your relationship with the owners can you provide a bit color on that or it's been thoughtful.
Sure Frederic its Sam here.
The.
Look we I guess just two things the first thing is.
Just the the portfolio itself there is a significant growth that we expect to come.
Out of the business over the next two years we.
We have roughly 40000 towers that.
Our plan to be constructed.
Which represents I think close to a.
Building a half of Capex.
Which would generate once they are fully built maybe 20 25 million of additional run rate FFO.
FFO, so thats fantastic and Thats, all debt funded and inside the business. So that so so that for sure is going to take place as far as other opportunities.
As you recall.
The tower transaction came out of the fact that we developed a relationship as a result of the pipeline transactions that we did with them.
So we are hopeful that.
As they continued to grow their franchise across India and today. They are I think by far the largest KMP.
Company in the country.
We see opportunities to do more things with them. So we will continue to look for that but there is nothing that we can.
Okay today, that's in the works.
Appreciate it thanks.
Okay.
Thank you.
Our next question comes from Robert Cavalier from CBC. Your line is open.
Hi, Good morning, everybody I just wanted to go back to the midstream business for a second.
It looks like there was some pretty strong same store sales growth there what seems out of context, given the market conditions. So can you just provide more color on the operations of the two.
What led to the right thing.
Good morning, Rob.
Robert its bill here I can take that one.
Pre dominantly most of that relates to.
Better spreads in our gas storage operations I'm pretty sure that reflects for most of the impact.
In that business.
Okay, so that tends to be a more volatile business.
So some great periods in some normal.
So maybe an outsize behavior.
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That's right.
Cost credit, it's a bit more.
Pete the rest of the businesses in our midstream.
Operating group by Sam alluded to earlier, our pre dominantly contracted there is a little bit of market.
Sensitive revenues, but they don't tend to.
Tom.
Moved the needle all that much. So it's really just mostly the gas storage spreads yep. Okay. That's helpful and then.
To capital allocation questions.
Maybe.
So if you look at your experience in 2020 and the impact.
[music].
Only 19 has had on the GP GDP sensitive businesses.
Obviously, we can't plan for.
Mix and things like that but I wonder what it does for your appetite.
Columbus than those more GDP sensitive businesses.
And following that for example, while you may not want to monetize holds at the bottom.
One area you will continue to invest in those and that was my question.
Okay, I'll I'll attack, because I didn't quite get the last part, but I think the first part of the question was just a.
Has our appetite for GDP sensitive businesses been.
Waned at all from.
What took place this year with the pandemic.
And and I look I would say the short answer is no.
We think transport continues to represent an important.
Components of our mix of investments.
Yes in fact I think.
Yes, we may be able to.
Yes, potentially add some sectors.
That historically have been very.
Expensive to to answer in that in that regards im referring to the to the airport sector.
I I think you know the.
The way we've always looked at this at the GDP sensitive assets is.
Making sure that we put the appropriate risk adjusted returns to them I think in the past.
Some investors have may been maybe been a little bit too aggressive and not consider the fact that there are cycles and.
And even though this was a uniquely induced recession, there are always recessions and so those.
GDP sensitive volumes can can go down so we'll continue to look at the sectors.
Yes, it will in.
Factor in new things that we've learned.
This past year into our analysis.
We'll use the right the right return levels.
And hopefully be able to buy for value with other investors now decide that they don't like the volatility.
Okay. That's helpful. And then my last question here is on the on the Big picture.
On distribution, obviously a month.
But even tipping your hand on the distribution today, but.
There's been a lot that went into.
Into 2020 on the one hand, the obvious headwinds from.
No the economic short films and.
Related to that the currency.
The other hand.
Those are both businesses are we can trend levels.
At the same time.
Of opportunities.
Well as Nick themselves so.
I guess ultimately the question is does the.
The the actual reported results in 2020 have significant influence on how you look at distribution policy, given that think return to trend lower levels.
So.
Look at.
As you said, it's a little premature for us to.
Yes speculate on on the final deliberations of the board, but what I would say is probably the most important thing that they will look at is the.
Ongoing earnings generation capability of the business, which I do not think has been impacted by what went on this year and in fact, if anything weve.
Determined that the business is extremely resilient to anything that that that could come up and so we have provided long term guidance as to what our targeted distribution levels would be in that 5% to 9% range and so those are probably.
The the deal.
The best markers that people should think about as far as what were able to achieve.
Okay, great. Thanks very much.
Thank you. Our next question comes from Devin Dodge from BMO capital markets. Your line is open.
Hi, Thanks, I wanted to get started by getting your thoughts on the Chilean market. I know you sold most of your investments there in recent years, but from a new investment standpoint is this a market that you're likely to avoid until we get better visibility into that political and business landscape or do you think there could be some interesting opportunities.
Become available.
Hi, Devin.
So it is a market we continue to.
Look at we.
Yes, our obviously cautious around.
Certain sectors.
Yes inside the the economy, where we think there is the most.
Yep potential for populist.
[music].
Measures by the government.
The country is going to drop to new constitution.
The way that format has been.
Or the process has been established we don't expect there to be.
Massive changes in that direction.
That they will draft up but there will be some areas that that could be impacted.
I think the the social safety net will definitely be widened and there is every expectation that the.
The annual spend on.
Welfare will be higher.
And the availability of education, those sorts of things would be greater there's probably also.
I'm going to be renewed.
Examination of the laws around the water sector. So thats, probably one sector that we would be cautious on until we see what the new constitution looks like having said all that yes.
We still believe it's.
One of the Premier.
Destinations for investments in South America.
Our focus may may be large on BT businesses in the near term.
But I'd just I'd say overall, it's a country in spite of some of the.
Additional uncertainty do these the constitutional.
Process, it's still a great place to invest.
Okay. That's helpful.
Maybe just a question on your trillion rail business then.
Think back about a year ago, and there were some optimism around some potential new opportunities for that business I suspect. The pandemic may have at least delayed some of those but.
How are you thinking about the prospects.
Market infrastructure over the next few years.
Okay.
Hi, good morning.
Devin it's bahir.
Maybe I'll take that one and bend, our sand might chime in.
But yes, we did elude to.
Certain.
Projects that we were.
We're we've been analyzing at the time in our in our business. These will be highly accretive and they would be great. If we can get them.
John as you alluded to probably the situation this year has slowed down.
The negotiations are somewhat but activity levels in the region remain.
Very robust our results in that business.
Our very good our clients are doing very well iron ore prices have held up nicely.
And so there could be we'd be optimistic that there could be some opportunities there where we execute on a number of growth projects over the short to medium term, but.
Nothing concrete to tell you about this.
The stage.
Okay Fair enough and then Devin.
Oh, sorry, Ben I would just generally add new figure covered all that but generally I think our outlook would be positive. What we have we are having our clients are engaging us about expansions and moving more along the rail and.
While while nothing has firmed up yet.
There are a number of discussions and.
In the region is very active which is just a positive for the business.
Okay. Okay. That's good Ellis sneak in one more quick one here for a bit here, but but here can you remind us of the hedged currency rates in 2021 and any early read on how 22 22 is shaping up.
Hi, Devin maybe I can follow up on goes offline I don't have them I apologize handy, but we're fully hedged on OE CD.
Currencies just to remind everybody.
For for 2021 and going into.
Early 2022, but I'll follow up on some of the marks on the specifics offline.
Okay. Thank you I'll turn it over.
Thank you. Our next question comes from Rob Hope from Scotiabank. Your line is open.
Good morning, everyone.
One of the follow up on just the midstream M&A question from before.
Recently, you've been talking about the potential that north American midstream could be an attractive place to invest and does the potential change of you EPS administration uh-huh favoring biden potentially alter this view will it take a little bit of a wait and see approach are you.
Quite happy with the longer term prospects.
Hi, Rob.
So I'll tackle that one.
Look I think.
The.
The change in administration.
Yes. It was obviously something that we've been aware up for a number of months it was always a possibility and even.
With or without the change.
Yes, the long term direction.
Towards.
SG considerations around the whole.
Midstream sector. You know has has been going in in the same direction. So.
It may be accelerated slightly now that the it looks like there will be a new administration.
Administration, but.
But having said that.
Our view towards the sector hasn't really changed.
I think the fact that matter is.
Any.
Any assets that are operating today clearly have a.
Significant scarcity value the.
<unk> ability to meaningfully expand or build new pipelines is going to be very challenging and even more so challenging with the new administration.
And so we think it means that the assets that we own today are extremely valuable and that to the extent that we can acquire new businesses for value.
Dan that's something we'll look at but we'll obviously have to.
To buy them with the characteristics that I mentioned earlier in the call.
All right. That's helpful. And then just a more detailed our into one.
Good to see the UK utility business is connections a rebound there, but how are we faring kind of into November and potentially December given the increasing stringency lockdowns there.
Yeah, we're alive its Ben again, yeah, we're faring very well the business.
I'd say the depth of the original lock down was about 40% of normal activity that increased to 90% through Q3 and in the last few weeks, we've been up to 95, so we've seen.
Ongoing pickup in activity and the new Lockdowns that have been announced in the UK.
Do not include a shutdown of construction activity. So at this point.
We don't see any signs that that trend is going to reverse.
Thank you.
Thank you.
Our next question comes from asset Sen from Bank of America. Your line is open.
Thanks. Good morning, appreciate the color on midstream and he is cheap, but just wanted to ask you on.
On the U.S. LNG following the recent acquisition.
How are you thinking about business fundamentals here and availability of such assets.
On one hand, you have the.
Fairly pulled.
Full time gas market global gas market in the regulatory regime, but on the other hand like you pointed out U.S. LNG is a low cost we tend to be global de carbonization effort. So just wanted to see how you see the availability and appetite to deepen that portfolio.
Okay. Thank you its a salmon I'll take that question again.
So yes.
Not to repeat myself and what you just said, but we we think that.
Hi, Matt.
US LNG it is critical to achieve the global de carbonization goals for the next 20 or 30 years, and and Thats, a big part of our investment thesis both.
Both fourish near but also.
Some of the existing pipelines, we own like NGL that that feed all those terminals.
Yes, we will look to potentially add to the portfolio, where it makes sense.
Yes, there is a.
A general lack of availability, particularly from the.
Public capital markets for the midstream sector, which I think is creating opportunities for private investors like ourselves, who have capital and an access to a pro.
Private investor partners, such as pension funds, the sovereign wealth funds to invest in these businesses. So.
We will use the the advantages we have to to.
To make additional investments.
And we see North America as one of the best places to do that.
Well established low cost and and obviously, we know the recent very well.
Got it and then if I could follow up on the same lines.
Youve issue.
Recently issued 200 million dollar in Green.
For unit, just wondering broadly again, how do you see opportunities in the energy transition value chain and.
Recognizing that some of these early.
Early stage investments people are talking about hydrogen et cetera, good could.
Could be very early stage Nate in nature, but how does the investment and this team fit into your.
Some framework and anything you can offer on that.
Conceptual basis.
Yeah, I think it's early days for us to report I think in the coming.
In coming quarters and years, you will probably.
Hear from us.
The.
The status of where we are in a number of those initiatives we have begun to.
Examine opportunities within our portfolio, particularly the gas storage business as well as.
Our gathering and processing business in British Columbia for opportunities to.
Yes, hi, there introduce.
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Yes, a hydrogen component into our our mix too.
To create a different product or or just to electrify some of our activities today to reduce the the carbon footprint of those assets. So so that so that's something that's underway across almost all our assets.
But but I think its a.
It's safe to say that we're in the early innings of that and so we have a lot more work to do before we can come out with something more concrete and reportable.
Thank you.
Thank you. Our next question comes from Nazi Bay down from Industrial Alliance. Your line is open.
Hi, good morning.
The couple of questions on the UK Port operations, you mentioned the ruling there can you just give us more background on that process and what are the terms on the length of the existing contracts with that customer.
Yes, its Ben again look.
Look we have a number of rent reviews ongoing in this business and generally speaking, we probably have several more to come in the coming quarters.
These are all long term contracts and generally speaking that the process. We go through is one where.
This essentially an arbitration of the new rental rate and.
Specifically.
There are a number that have gone on to this wasn't just one binary rent reviews. So I can't comment on the specific duration of this one but there are several going on.
And these rent reviews, our upward only so.
As we continue to execute.
In the coming quarters, we expect more base.
Basically the FFO this business to continue to go up.
Okay, I guess it sounds like you've identified several areas, where you think the contracts are below market and I guess the question is can you maybe quantify the path to increasing those hospitals some of those contracts.
Good morning, Naji sat here, maybe I'll take that one the impact this.
This quarter from this particular settlement that we have.
Executed during the quarter was about $10 million.
And.
We'd be hopeful that there could be another settlement that we execute on maybe in the fourth quarter.
Summing 2021, but they could be in the order of magnitude of about.
$5 million to $10 million per settlement, if you will.
That's just a rough guide it depends it all depends on.
Which which settlements we do by way.
Okay. That's very helpful. Thank you and just.
Maybe going back to the airports are its public sector.
How comfortable are you pulling the trigger on lets say in airports are allowed or not an airline at this point would you say you're still in the early stages of looking at these types of opportunities or would you be willing to make an investment right away if the right opportunity came up tomorrow.
This is Sam.
I guess.
I mean, there is a number of considerations that you have to take into account obviously value.
Value being the most important one but.
The discharge the short answer is yes, we would.
Execute tomorrow, if the right opportunity came up the.
The right asset for the right price.
So we're not waiting to.
To see what happens with that with their travel.
Okay I appreciate that thank you.
Thank you and that does conclude our question and answer session for conference I'd now like to turn the conference back over to Sam Pollock for any closing remarks.
Okay. Thank you operator, and we appreciate.
Great everyone, who joined us on the call today and thank you for listening in and for your ongoing support.
Ladies and gentlemen, thank you for participating in todays conference that does conclude the program and you may all connect everyone have a wonderful day.
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