Nov 7, 2012
Executives
Samuel J. B.
Pollock - CEO John Stinebaugh - CFO Tracy Wise - VP, Investor Relations
Analysts
Brendan Maiorana - Wells Fargo Securities Andrew Kuske - Credit Suisse Danny Hung - RBC Capital Markets Luigi Di Pede - BMO Capital Markets Cherilyn Radbourne - TD Securities Equity Research
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 Third 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’d like to turn the conference over to Tracy Wise, Vice President, Investor Relations.
Please go ahead, Ms. Wise.
Tracy Wise
Thank you, Operator, and good morning. Thank you all for joining us for Brookfield Infrastructure Partners’ third quarter 2012 earnings conference call.
On the call today is Chief Executive Officer, Sam Pollock, who will discuss highlights for the quarter, 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’d 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 future information on known risks factors, I’d 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 Sam Pollock. Sam?
Samuel J. B. Pollock
Thank you, Tracy and good morning, everyone. In the third quarter, Brookfield Infrastructure achieved a significant milestone in its growth.
Two years ago we commenced a $600 million upgrade in expansion of our Australian railroad, executing five commercial tracks access agreements with mining customers to support capital investment. We’re pleased to report that the railroad expansion has been completed under budget and ahead of schedule.
In early October, our largest customer commissioned its first train on the Midwest segment of our system and all five contracts are now contributing to our funds from operation. By the end of the first quarter of 2013, we anticipate that all of our customers will be operating at or above their take-or-pay volume levels.
During the quarter, we also progressed a number of strategic initiatives that will lay the foundation for the next phase of growth of our business and we raised $900 million of debt and equity that will finance these transactions. Once the transactions have closed, we will invest at approximately $1.3 billion of equity in our Utilities and Transport and Energy platforms, which will increase the scale and scope.
Respectively, our cash flow from regulatory frameworks or long-term contracts will increase to 85% which will provide even greater stability to our results. Now I’ll turn it over to John to review our results.
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.
Despite relatively weak global economic conditions, Brookfield Infrastructure posted solid operating results during the quarter. We generated FFO of $113 million, an increase of $16 million over the third quarter of 2011.
Our results reflected strong performances from our Utilities and Transport and Energy platforms, partially offset by a lower contribution from our timber business. Our FFO per unit of $0.58 was $0.04 lower than the prior-year, due to our August equity offering, whose proceeds have not yet begun to generate cash flow.
Our payout ratio with 65%, which is the mid-point of our targeted range of 60% to 70% and we earned an FFO yield of 8% in the period. Our Utilities platform generated FFO of $80 million in the quarter compared with $77 million in the prior-year.
The increase in FFO was driven by our regulated distribution operations due to greater connections revenue and a higher average rate base following the acquisition of our Colombian distribution utility earlier in the year. These factors were somewhat offset by a reduction in FFO from our regulated coal terminals, which were non-recurring revenues last year associated with approval of investments into our rate base.
Overall, our Utilities segment posted in the FFO yield of 16% in the current period. Our Transport and Energy platform earned $54 million of FFO compared to $39 million in the third quarter of 2011.
During the quarter, our railroads FFO increased by over a 140% compared to the prior-year due to contribution from four expansion tasks and a favorable green harvest. This strong performance was partially offset by a decline in FFO from our Ports business, which benefited from a start-up payment from an energy company in the prior-year and was impacted by reduced economic activity in Europe.
Overall, our Transport and Energy segment generated an FFO yield of 6% in the quarter. During the quarter, our Timber segment posted FFO of $3 million compared to $5 million in the third quarter of 2011.
Our results reflect soft demand from Asia, which cause average realized prices to decline by 7% combined with operating restrictions resulting from an abnormally extended buyer season that forced us to reduce harvest by 7%. For the quarter exports fell to 36% of total log sales, which is a level that we expect to maintain as demand in the domestic market continues to strengthen with the early stages of recovery in the housing market.
For the quarter, the AFFO yield for our Timber operations was 2%. On the financing front, we made significant progress executing the funding plan for our strategic initiatives during the past three months.
In October, we issued 15.7 million LP units at a gross price of $0.33, $0.25 per unit, raising net proceeds of approximately $500 million. Subsequent to quarter end, we completed our inaugural corporate bond issuance, capitalizing on our investment grade credit rating.
We issued C$400 million of five-year bond in the Canadian market with a 3.5% interest rate, which we swapped into U.S. dollars at an effective interest rate of 2.7%.
Despite the successful execution in the corporate bond market, our financing strategy has not changed. Going forward, we will continue to predominantly issue non-recourse debt at the asset level with a target of less than 10% of our debt portfolio comprised of corporate debt.
Now I will turn the call back to Sam to provide an update on our growth initiatives and outlook.
Samuel J. B. Pollock
Thanks, John. I will start by reviewing the initiatives in our Transport and Energy platform.
In October we close the acquisition of an additional interest in our Chilean toll roads, increasing our ownership to approximately 50%. Furthermore, we continue to advance the acquisition of a 60% interest in the largest toll road operator in Brazil, which we were doing in partnership with Abertis and institutional investors.
Upon closing, which we expect will be in December; we will own interests in 11 toll roads in Brazil and Chile. Our 3,200 kilometer network will be diversified, with a balance of light and heavy vehicles and urban and interurban traffic.
All concessions will benefit from projected increases in traffic and tolls that escalate with inflation. As one of the largest owner/operators of toll roads in the region, we will be well positioned to invest in additional expansions and upgrades on our system as well as add-on acquisitions and development opportunities in two of the highest growth countries in the region.
We will be investing approximately $475 million into our South American toll roads platform in the fourth quarter. Also in October, we acquired a district energy system that serves commercial customers in downtown Toronto in partnership with institutional investors.
This business generates very stable cash flows, with 93% of its revenue under long-term contracts with high quality counter-parties. We are particularly excited about the growth opportunities of this business in light of the large pipeline of prospective new customers that can be connected to our deep lake cooling system.
We invested approximately $75 million for a 25% interest in this business. Now turning to our Utilities platform, during the quarter we closed the acquisition of a U.K.
regulated distribution business and have made significant progress towards completing the recapitalization of the company. In September, Challenger Infrastructure Fund’s unitholders approved the sale of its 85% interest to us and subsequently the minority shareholders exercised their right to sell their shares on the same terms, enabling us to acquire 100% of the business.
In October, we received clearance for the transaction from the UK Office of Fair Trading, and we’re in the process of finalizing the documentation for financing arrangements with our bank group. We expect to complete the recapitalization before the end of November.
Upon close of the transaction and the merger with our existing business, we will invest approximately $510 million and more than double our installed base of gas and electricity connections to over 1 million. Furthermore, we will extend our multi-utility capability into high margin fibre-to-home and district heating offerings.
During the quarter, we initiated a process to acquire Brookfield Asset Management’s interest in our Chilean transmission system. We recently received approval from the independent members of our Board of Directors to acquire the 10% interest for $235 million.
With this transaction, we will increase our stake in one of our premier assets to 28%. Our system is the backbone electricity transmission system in Chile, serving 98% of the population of the country.
With the economic growth in Chile, this business is well positioned to invest in upgrades and expansions to satisfy increased electricity demand. We expect to close this transaction during the first quarter of 2013, subject to obtaining required third-party consents.
Now looking forward with our outlook, our primary focus for the balance of the year is to close our strategic initiatives, also to integrate these businesses into our operating platforms and complete the processes to sell non-core assets and timber that have commenced. We’re aware that there have been several rumors in the market regarding specific transactions.
Our policy is not to comment on speculation and there is no update that we can provide at this time. Looking ahead to 2013, we expect that global economic uncertainties as a result of the European sovereign debt crisis combined with the lower growth in China, will limit our growth on the same-store basis in the near-term.
However, the investments that we’ve made in our Utilities and Transport and Energy businesses over the past two years, we will make a significant contribution to our results in 2013. Going forward, one of our main objectives is also to replenish our capital backlog.
As commodity prices have declined sharply from their highs, mining companies have deferred many of their expansion projects. As a result, we expect that the timetable for our Dungeon Point coal terminal will be delayed.
However, we’re continuing to progress the master planning process for the site and we’re preparing to initiate a pre-feasibility study. We’re still cautiously optimistic that we will be able to sign sufficient long-term contracts to support a smaller version of the project that we can expand over time to satisfy demand.
In addition, with the increased scale of our electricity transmission, regulated distribution, and toll road platforms, we’ve significantly enhanced our competitive positions and we believe that these platforms will be key drivers of our organic growth in the coming years. Operator, that concludes our remarks, and so I’d like to turn the call over to you to open the call for questions.
Operator
Thank you. We will now begin the question-and-answer session.
(Operator Instructions) First question is from Brendan Maiorana of Wells Fargo. Please go ahead, sir.
Brendan Maiorana - Wells Fargo Securities
Thanks. Good morning.
Sam, I was just listening to your comments about the same-store outlook, little bit of a caution, is it your view that outside of the capital projects that are coming online, do you actually think your same-store kind of same basis assets have positive growth, NOI growth, EBITDA growth going into 2013? Do you think its going to be flat, do you think it could be negative?
Samuel J. B. Pollock
Brendan, I think we will in certain areas continue to have growth, as you’re aware, we have a number of our utility businesses that benefit from inflation indexation and so we will see growth in those businesses. We will also see some growth in businesses such as our toll road platform where we have inflation indexation and as well as a ramp up in volumes just because of growth in those markets.
I think where we will probably see either flat growth or maybe – possibly small reductions is in the areas where there is a contractual framework that doesn’t have inflation indexation or a great GDP sense and the areas I’m referring to would be the ports business in Europe where we could possibly see some softness. We’ve always been surprised with the resilience of our U.K.
business, but the European business has been – the mainland European business is always been a bit softer and then with the natural gas environment in North America, we expect it will be probably take some time to see a recovery in our midstream and storage business.
Brendan Maiorana - Wells Fargo Securities
So, I guess, I forgot if it was in the letter or the supplemental, but I think you made reference that 85% of your cash flows and businesses are now set up with long-term contracts or – are under regulatory framework. So, I mean, it – is that a fair characterization, that 85% of your business obviously that the sort of typical inflationary type of improvements as you go into next year or because I just – hearing your comments it sounded like maybe there was a little more caution than I would have expected?
Samuel J. B. Pollock
A large part of that 85%, do have inflation indexation, but there is some that, that doesn’t. So there are some of our utility businesses that don’t benefit from inflation.
So, I don’t have off hand the percentage of what that is. It’s probably about 35%.
But I guess where we were being – trying to be cautious in our view of the world was just in relation to our more merchant activities where there is just economic uncertainty.
Brendan Maiorana - Wells Fargo Securities
Sure. The announcement’s is it the new investments that you guys are doing.
Can you give us a sense of where those checkout from a multiple basis or either on EBITDA or on an FFO yield basis as we’re looking at the $1.3 billion that you’re going to invest in the fourth quarter by early next year?
John Stinebaugh
Hey Brendan, this is John. So, if you take a look at the businesses that were in the process of closing or that closed recently, the OHL Brazil business based on where that is trading right now, which reflects the purchase price effectively that we paid, it’s around a seven times enterprise value to EBITDA multiple.
The Inexus transaction is probably in the range of 13 to 14 times EBITDA, but to that the business that has got essentially no maintenance CapEx and its got cash flow that is going to escalate at inflation minus a factor. So, it’s going to provide very good growth based on the investing connections that are in place.
And then in addition to that obviously the growth from new connections similar to what we’ve seen from the connection business that we’ve historically owned we should be able to generate from that merged business. And then finally the Enwave transaction is - it's a relatively small investment; it’s only $75 million.
It does have largely demand charges, so effectively very little volume risk and those demand charges do escalate with inflation and that’s probably a multiple of close to 13 times based on the in-place cash flow. In that business we think there’s going to be quite a bit of growth by virtue of new buildings that we can connect to the system.
Brendan Maiorana - Wells Fargo Securities
And what about Transelec?
John Stinebaugh
Transelec, the multiple that, that would reflect is probably around, I think around 12 times the EBITDA.
Brendan Maiorana - Wells Fargo Securities
Okay. Is that actually a lower multiple on FFO just because of the way the – you guys have the indexation on the bonds there.
Like, is that actually going to be a better multiple on FFO?
John Stinebaugh
The multiple on FFO probably will be a little bit lower on that. The way that I think about the returns for Transelec is that, based on the FFO it doesn’t really have much significant maintenance CapEx at all, but we should be able to generate a current yield of around close to 10%, plus we get inflation on top of that.
So, that would be an FFO yield of around – multiple of around 10 times.
Brendan Maiorana - Wells Fargo Securities
Okay, and then last one John, just that the corporate bond issuance. Unit holders pay 125 basis points on the increase in corporate level capitalization which I think includes corporate bonds.
So, if I look at the 2.7% on that and I add 125 basis points, so let’s just call it 4%. Is that better than project level financing that you guys can get now?
John Stinebaugh
Well, if you look at the use of proceeds that we stated for that issue a couple of quarters ago, we basically are refinancing bonds that are coming due in New Zealand that were corporate bonds yielding roughly 9% and then we also are refinancing a investment to retire holding company debt at (indiscernible), which would have been well north of 9%, because it would have been a premium to where the bonds were issued. So, it’s significantly cheaper, then had we raised capital at the operating company level that those – where we’re retiring the debt.
Brendan Maiorana - Wells Fargo Securities
Okay, great. All right, thanks.
John Stinebaugh
Thanks, Brendan.
Operator
The next question is from Andrew Kuske of Credit Suisse. Please go ahead.
Andrew Kuske - Credit Suisse
Thank you, good morning. If we could just talk a little bit more on Enwave and how you think about this asset not just in the context of Toronto and the growth opportunities within Toronto; but do you see other opportunities really around the world to expand into district heating in particular into downtown cores?
Samuel J. B. Pollock
Yeah, hi Andrew, maybe I’ll start and then John maybe will add some additional comments. This is a business that we do like.
It’s got a number of attributes that are particularly attractive. First of all, it’s basically a non-regulated utility.
It isn’t subject to any rate setting regulations and these are long-term contracted and inflation protected cash flows that basically you collect the capacity in consumption charge from your customers. And it’s clearly in a sense of service, as your customers are hospitals, universities, governments and large commercial properties.
And it’s a business that play’s to many of our strength as an organization, because it ties in and obviously the infrastructure element, but it has a power generation component to it and it has a realistic component to it. So, we’re able to leverage lots of knowledge in and around Brookfield.
And to your question I guess, we believe that there is an opportunity now that we have this business and we’ve got the intellectual capability to think about opportunities of how we can build similar systems. We can then leverage our real-estate knowledge that we have in other parts of North America in particular to grow that business.
So, it is something that we’re going to be looking to do. It’s obviously at the early stages.
I would caution you that, some of the attributes that Toronto has is different than what you see in other cities. So, some of the applications of this deep lake cooling only exist in a very few markets around North America, so we may not be able to duplicate that side of it, but clearly the whole trend towards sharing energy and cooling is something that it’s very prevalent particularly in Europe and we see greater applications of that probably on a smaller scale than what we have in Toronto, but nonetheless in other parts of North America.
Samuel J. B. Pollock
And what this does Andrew is it establishes a platform for us with the management team that we can build upon. And there are a lot of projects that would be quite a bit smaller in North America and other countries that we never really go after on a standalone basis, but now that we’ve got a platform in place, its somewhere Brookfield’s high growth strategy where you could buy single assets for like a university or thing of that nature and build up the business.
Andrew Kuske - Credit Suisse
So just on that last point, and that color is greatly appreciated. Do you think of this now or you’ve got one more key asset along the lines of just building up this business from that platform asset-by-asset, and then really having this under one umbrella of district heating systems?
Samuel J. B. Pollock
Absolutely.
John Stinebaugh
Yes.
Samuel J. B. Pollock
We look at this as we – we’ve got a business that’s got to scale, and we’re going to look to build it by acquisitions, selectively we might look at some developments, but because of the fragmentation of the industry, acquisitions are probably the biggest opportunity for us.
Andrew Kuske - Credit Suisse
Okay, that’s extremely helpful. And then, if I can just turn my attention to Transelec just briefly.
If memory serves me correctly that BAM bought that asset in about 2005 or thereabouts, and then had a fund construct around it. When does that fund terminate from an LP perspective?
John Stinebaugh
Maybe I’ll touch on that. The way I think you should think of that is, it was a co-investment with several pension funds in North America.
And there is real no termination to the fund. I would really see it as a joint venture.
What would terminate probably in about just under 10 years is an advisory contract that Brookfield has in managing the business. But other than that its, there is no finite light to that business.
Samuel J. B. Pollock
And all the investors are long-term investors that like the asset and view it as a long-term holding.
Andrew Kuske - Credit Suisse
And then just one final on that, but I assume given the nature of the structure of the ownership there’s rights of first refusal between the partners within or the joint venture partners within the asset?
Samuel J. B. Pollock
Yes. There are typical preemption rights that you expect for an arrangement of this kind.
Andrew Kuske - Credit Suisse
Okay. That’s extremely helpful.
Thank you.
Operator
The next question is from Robert Kwan of RBC. Please go ahead.
Danny Hung - RBC Capital Markets
Hi this is actually Danny filling in for Robert. I just have a question regarding the $475 million that you guys put in the [rev] press release regarding the South American toll roads.
So, is this just the purchase price or it does include other expansion investment?
John Stinebaugh
Hi, Danny; that is just the equity that we’re investing in those two transactions.
Danny Hung - RBC Capital Markets
Okay. And then sort of similar question for that $510 million the U.K.
distribution business, so it that purchase price and (indiscernible) costs or 100% of Inexus or are there other stuffs bundled in as well?
John Stinebaugh
I believe in that number there is some additional debt pay-down in relation to the existing GTC business.
Danny Hung - RBC Capital Markets
Okay, all right. That’s all I have.
Thanks.
John Stinebaugh
Okay. Thank you.
Operator
This concludes the time we have for questions – there is one question from Bert Powell. Please go ahead – with BMO Capital Markets.
Please go ahead.
Luigi Di Pede - BMO Capital Markets
Hi, good morning. This is Luigi, on behalf of Bert.
You talked about the merchant opportunities and there’s some risk to the outlook. Can you just kind of give us some more detail there?
John Stinebaugh
It’s John. So the merchant opportunities in the risk of the outlook, I think what Sam, was referring to is that, some of the businesses that we’ve got that don’t have necessarily the long-term contracts or inflation indexation like the ports business and also the gas pipeline in the United States as well as storage business.
We see that those businesses are going to be impacted a bit more by the economic condition right now. So, to reiterate what Sam, said regarding the ports we think that with the uncertainty in the European economy that they are probably going to be in a period of time where they might be able to hold their own volumes where there might be slight declines in volumes if economic activity continues to slowdown in Europe.
In the United States it’s going to be driven by the natural gas industry and we think we’ll probably hit a trough level in that industry, but we think it’s going to be a period of time before we start to see recovery for our North American gas transmission business.
Luigi Di Pede - BMO Capital Markets
Okay, thanks you. With respect to the acquisition of Inexus and Transelec; how should we think about the developer contributions and the return on rate points in 2013 utilities segment?
John Stinebaugh
With respect to Inexus, the business had largely – they’d taken themselves out of the market for competing for electricity and gas connections. And the reason why they did that is they over-levered and didn’t really have the capital to try to invest in the growth of their business.
So, on a going forward basis we think that the connections that we have been generating for electricity and gas are going to be basically the same level that our business had been experiencing. So a run rate in the £5 million level per quarter – $8 million per quarter activity has been pretty strong in the last couple of quarters, so it’s been above that, but we think that the $8 million is a pretty good run rate level.
But what we're excited about is the Inexus business had focused on particularly fiber offerings, so that’s going to expand our capability and we think that’s a high-growth opportunity that we’ll be able to begin capitalizing on after we integrate Inexus into our existing business.
Luigi Di Pede - BMO Capital Markets
And then the returns on the rate base next year potentially?
John Stinebaugh
For Inexus or for …
Luigi Di Pede - BMO Capital Markets
Just for the segment in overall.
John Stinebaugh
Oh, (indiscernible). I think it’s going to largely be consistent with what we’ve realized up to this point, so in the 12% ballpark.
Luigi Di Pede - BMO Capital Markets
Okay. Thank you very much.
Operator
The next question is from Cherilyn Radbourne of TD Securities. Please go ahead.
Cherilyn Radbourne - TD Securities Equity Research
Thanks very much. Good morning.
I wanted to actually ask a couple of questions also on the topic of IEG connections and Inexus, and I guess first off, the growth in the contribution from IEG connections has been, I think surprising just given the European situation. So, I wondered if you could just speak about the recent strengths of that business.
John Stinebaugh
Okay. Hi, Cherilyn.
One of the main reasons for the strength in that business really has to do with our competitive position in that marketplace. So, while housing has been relatively flat I guess, in the U.K.
market over the last couple of years, it has improved somewhat, but obviously not to levels it was previously. Our market share has probably more than doubled from the late 2000s to where it is today and so that’s really been a big driver of the stronger performance.
The other benefit of that lower amount of competition has been that we’ve been able to price our services at levels higher than what we’ve been able to achieve in the past as well. So, we really benefit from both those situations.
Samuel J. B. Pollock
And the other thing, Cherilyn, the one that’s reflecting is it; over the last couple of years there’s been a ramp-up in the percentage of electricity connections that we’ve been winning. They’ve put in place a pricing regime for electricity connections to open up the market to independent such as ourselves, and those have been increasingly a greater percentage of our mix which has driven our connections revenue.
Cherilyn Radbourne - TD Securities Equity Research
Okay. And in terms of some of the revenue and expense synergies that you would expect as you combine Inexus business; how quickly do you think you can get out some of those synergies?
Samuel J. B. Pollock
We think we can get them at – most of them very quickly. We’re targeting to achieve our synergies probably within the first six months.
And really it’s about combining a number of back office related activities and moving it from one office where Inexus is at today to GTCs office. And given the very strong similarities in the business and the compatibility of our information systems, we’re very comfortably we can achieve it in short order.
Cherilyn Radbourne - TD Securities Equity Research
And then just last one on that topic. I think the $510 million which you indicated that you’re going to invest in Inexus is up somewhat from what was contemplated in August.
Does that indicate that you’re just de-levering that asset a little bit more than you expected initially?
Samuel J. B. Pollock
Yes, that’s what we’re doing. In our earlier numbers we were just speaking about Inexus on a standalone basis, and today the number we’ve just provided is basically looking at it on a combined GTC and Inexus basis.
Cherilyn Radbourne - TD Securities Equity Research
Okay, thanks. That’s all my questions.
Operator
The next question is from Brendan Maiorana of Wells Fargo. Please go ahead.
Brendan Maiorana - Wells Fargo Securities
Thanks. So, John, I had a question.
If I look at all the investments, it sounds like the $1.3 billion is – that’s the equity contribution that you guys are making. You raised $500 million of equity back in August, but its $1.3 billion of equity investment.
So, it seems like there is a lot – there would have to be a lot of asset sales probably more than what we would think is likely not to see an increase in leverage after these deals are all completed. How should we think about look-through leverage at the BIP level?
John Stinebaugh
First of all to address your point. The financing plan is largely the same as what we had talked about last quarter.
So, we raised $500 million of equity. The corporate bond is a little bit greater than the refinancing that we’ve got to do, so there’s some incremental proceeds there.
And then in terms of the balance of it, it will be from asset sales. I think largely Brendan, to address your question, the pro forma leverage we think is not going to change much from where the business is today up following the new investments that we will close on as well as the mix of asset sales that were considered.
Brendan Maiorana - Wells Fargo Securities
What's the – can you give us a sense of that $1.3 billion equity. What's the enterprise value investment?
John Stinebaugh
It’s probably – the financing is a little bit more than 50% debt to equity. So, the $1.3 billion would be a little bit more than $2.6 billion of enterprise value.
Brendan Maiorana - Wells Fargo Securities
And maybe I’m just missing something, but how is that not going to increase leverage significantly if there’s $2.6 billion of assets that are coming online and you raised $500 million of equity?
John Stinebaugh
Because we’re selling assets that also is going to take debt off the books as well. And based on the mix of assets, we think that on a pro forma basis the combination of raising equity and then selling assets and then with the new assets that come on, we think its roughly going to be the same.
Brendan Maiorana - Wells Fargo Securities
The asset sales that you do, do you think the returns that you’re talking about earlier when I asked, the returns that you’re getting on those investments, do you think that assets that you sell will have lower returns or be sold at a higher cash flow multiple than what you’re investing in? Just on a current basis?
Samuel J. B. Pollock
The assets that we’re targeting, Brendan based on what we had mentioned last quarter is assets we would consider non-course, so those are going to be once it – are pretty mature and/or we own minority stakes in. For those we think in this environment people are going to bid those at a pretty low return.
So pay pretty high multiples for. And then also we’re looking at selling some timber, and from a multiple standpoint because in this market people are willing to pay for upside in timber prices, that effectively would go for pretty high multiples as well.
Brendan Maiorana - Wells Fargo Securities
Right. Okay.
Another question is probably more – well it could be for John or Sam, the you guys have at least on our estimates, traded at a premium to the – some of the parts of your existing in place cash flowing assets. And I think, that’s largely because you’ve had this great backlog of projects that we’ve been able to see that, we know its going to generate a lot of solid cash flow growth as we look out over 2013 and maybe a little bit beyond that.
But with the slowdown, with Dungeon Point that’s being delayed, I think probably the Western rail projects that we had talked about a few quarters ago; those are probably likely delayed with commodity prices down. You guys didn’t put a backlog in your Transport and Energy segment disclosure this quarter, so what – is there a backlog of projects that is inline with what its been in the past, that maybe it’s a channel pipeline or something that will come up or is there, at least in the near-term the backlog of projects that you guys have traditionally gotten high returns on a lot lower now than it had been over the past, 18, 24 months?
John Stinebaugh
Yeah. Hi, Brendan.
I will make a couple of comments on, I think as far as the growth outlook for the business, for the next year or two at least, we’re seeing – we’re going to see tremendous growth because of the rail expansion coming online as well as these new investments we’ve made this year. So, I think, some of our trading probably reflects the fact that, that growth will come on.
With respect to the organic pipeline, I actually think that our ability to generate organic projects is better now than it ever it has been because of the new businesses that we’ve entered and the prospects for growing those businesses. I think that, given the slowdown in business, overall in the world the economic conditions, we just haven’t met the strict definition of backlog that we’ve applied for those projects.
So, for us backlog to go into our tables needs to be contract or be in a regulatory framework within two years of today. We have numerous projects that we’re working on, Dungeon Point, it is just one.
And we’re hopeful that over the coming year that we will be able to move a number of those projects into our backlog. But there is no doubt that it hasn’t been as quick as we would like and that this is a reflection of the economic uncertainty in the world today.
Brendan Maiorana - Wells Fargo Securities
Okay. Okay, well that’s helpful.
Thanks, guys.
John Stinebaugh
Okay. Thank you.
Samuel J. B. Pollock
Thanks.
Operator
This concludes the time we have for questions. I will turn the conference back to Mr.
Pollock.
Samuel J. B. Pollock
Okay. Thank you, Operator.
And thank you everyone for participating on our call today. We look forward to speaking with you again next quarter.
Operator
Ladies and gentlemen, this concludes today’s conference call. You may disconnect your lines.
Thank you for participating, and have a pleasant day.