May 5, 2014
Executives
Tracey Wise - Senior Vice President, Investor Relations Sam Pollock - Chief Executive Officer Bahir Manios - Chief Financial Officer
Analysts
Bert Powell - BMO Capital Markets Michael Goldberg - Desjardins Securities Brendan Maiorana - Wells Fargo Andrew Kuske - Credit Suisse Robert Kwan - RBC Capital Markets Frederic Bastien - Raymond James Cherilyn Radbourne - TD Securities
Operator
Thank you for standing by. This is the Chorus Call conference operator.
Welcome to the Brookfield Infrastructure Partners’ 2014 First Quarter Conference Call and Webcast. As a reminder, all participants are in listen-only mode and the conference is being recorded.
After the presentation, there will be an opportunity to ask questions. (Operator Instructions) At this time, I would like to turn the conference over to Tracey Wise, Senior Vice President of Investor Relations.
Please go ahead.
Tracey Wise - Vice President, Investor Relations
Thank you, operator and good morning. Thank you all for joining us for Brookfield Infrastructure Partners’ first quarter 2014 earnings conference call.
On the call today is Bahir Manios, our Chief Financial Officer, who will discuss our financial results and review our operational highlights; and Chief Executive Officer, Sam Pollock, who will provide comments on our acquisitions update, our review of emerging markets and provide an outlook for our business. Following their remarks, we look forward to taking your questions and comments.
At this time, I would like to remind you that in responding to questions and 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 would like to turn the call over to Bahir Manios.
Bahir?
Bahir Manios - Chief Financial Officer
Thanks, Tracey and good morning everyone. In my remarks, I will focus on funds from operations, or FFO, which is a proxy for cash that we generate in our business.
We are very pleased with the fact that we started the year off with strong first quarter financial results. We reported FFO of $186 million or $0.89 per unit, which were up 16% and 11% respectively compared to the prior year.
Our results reflect steady improvements in each one of our operating segments and the deployment of capital in organic growth initiatives and new businesses. During the quarter, we increased our distributions to unitholders by 12%.
And based on our results to-date, we are on track to achieve a payout ratio of 60%, which is at the lower end of our long-term payout target. Our utilities business generated FFO of $89 million in the period compared to the $92 million in the first quarter of 2013.
The lower results in this segment reflect the impact of the sale of our Australasian distribution operations in the fourth quarter of 2013. On a same-store basis, underlying performance was strong as FFO increased by $6 million or 7% as our businesses benefited from inflation indexation and the commissioning of certain capital projects into our regulated rate base.
Our transport business generated FFO of $95 million in the first quarter of 2014 compared to $67 million in the prior year period. The significant increase in FFO was driven by the full contribution from our Australian railroads expansion program, where the final portion was commissioned in March 2013.
In addition, higher volumes associated with a bumper grain harvest and a higher contribution from our toll road business, where we doubled our ownership interest in the Brazilian roads in September 2013, also contributed to these positive results. Our energy business generated FFO of $26 million in the first quarter of 2014 compared to $22 million in the prior year period.
Results in this segment were aided by improved performance at our North American natural gas transmission business. During the quarter, this business experienced increased natural gas volumes into the Chicago market and higher revenues from profit-sharing agreements with customers that were tied to improvements in basis spreads.
Higher spreads were primarily driven by natural gas price volatility caused by an unusually long and cold winter. Our UK energy distribution operations also recorded higher FFO compared to the prior year as a result of higher tariffs as well as lower costs associated with a margin improvement program that we have been implementing over the past year.
On the financing funds, we completed two very successful financings in the U.S. private placement market during the quarter.
First, our UK regulated distribution business completed a $165 million financing comprised of notes that received a BAA2 rating from Moody’s. This financing is expected to close in June and will have a 15-year maturity at a weighted average swap coupon of 4.5%.
The proceeds will be used to repay existing revolving bank facilities, which have been drawn to fund recent growth related capital expenditures. Also, our Australian railroad completed the $485 million long-term financing, whose proceeds will be used to repay shorter duration bank debt.
This financing, which is expected to close in the third quarter of the year, has been swapped into Australian dollars at an average rate of 6% and has the weighted average maturity of almost 10 years. The notes have been rated BBB stable by Standard & Poor’s and will extend the access average maturity profile.
We also remain committed in positioning our company for further growth by advancing a number of investment initiatives putting towards the significant liquidity we have in place today. During the quarter, we made some good progress on both organic growth and acquisitions funds.
I will provide a quick update on some of the organic growth initiatives that we have on the go and Sam will speak to the new investments in his remarks. In our utilities business, we have added $90 million of new growth projects to our capital projects backlog and we are working on several other initiatives that should further expand it.
One example of a project that received approval was that our Australian coal terminal, where we committed to a $20 million capital project to augment the facility’s ability to manage storm water runoff during periods of heavy tropical rainfall. This capital investment representing the first phase of the overall project is expected to be commissioned into the terminal’s rate base by the middle of 2015.
We will also shortly commence further detailed engineering study from the second phase of this project, which could require further $50 million by 2016. Our Chilean transmission system also needed $90 million to its capital backlog as a result of seven upgrade projects that was awarded as part of its 2014 trunk transmission line expansion plan.
This system also grew its existing rate base by further $90 million as a result of an acquisition of 133 kilometer line that is adjacent to its existing system. In our transport business, we have many projects that are on the go with the most significant being the Serra do Cafezal expansion project, which consist of duplicating 30 kilometers of the Regis Bittencourt Highway in the state of Sao Paulo to ease congestion.
We commenced work on this expansion during the quarter and we expect that it will cost approximately $485 million of which our share is approximately $150 million, which will be funded from cash retained in the business and project level debt. We expect to be compensated for our investments through an increase in future toll rates and we are targeting equity returns at the higher end of our long-term target threshold of 12% to 15%.
In our energy business across our various district heating and cooling systems, we made significant headway advancing a number of organic growth projects. We are making good progress connecting to Louisiana State University campus to our system in New Orleans.
Also during the quarter, we reached an agreement to connect another major building to our system in Toronto and expect to complete a further five connections in Toronto by the end of the third quarter. With that, I will turn the call over to Sam.
Sam Pollock - Chief Executive Officer
Thank you, Bahir and good morning everyone. At the outset of the year, our goal was to invest approximately $500 million to $1 billion of capital into our various operations.
We are in an excellent position to achieve this goal as to-date we have originated five new investments in the transport and energy sectors that totaled approximately $600 million. We will be investing alongside institutional partners drawing on our $1.8 billion of corporate liquidity to acquire 40% interest in each of these investments.
We have referred to each of these acquisitions in our letter to unitholders, but I wanted to mention two of them that we haven’t talked about before. In February, agreements were signed to acquire a 50% equity stake in APMT’s Elizabeth container terminal located in the Port of New York, New Jersey.
This transaction represents a compelling opportunity for us to enter the second busiest port market in North America by investing in a high-quality long life asset with upside from economic growth in the (U.S.) .
We expect this transaction to close in the second quarter of 2014 subject to obtaining all required consents and regulatory approvals. In April definitive agreements were signed to acquire 100% of Macquarie District Energy and Seattle Steam.
Macquarie District Energy owns district cooling systems in Chicago and Las Vegas with a system in Chicago considered one of the highest quality facilities in the U.S. Seattle Steam provides heats to over 160 buildings in Seattle through 18 miles of distribution pipeline and operates two independent steam plants.
These acquisitions are expected to close by the third quarter of 2014, again subject to obtaining all required consents and regulatory approvals. These systems complement our existing operations, which includes systems in Toronto, Houston and New Orleans and our continuation of our overall strategy of acquiring systems in urban locations where we believe we can utilize our overall platform to enhance the operations.
I am not going to be discussing our VLI acquisition in Brazil today since I covered on our last call, but I do want to provide our perspective on investing in emerging markets since these markets have become topical over the last little while. In all the markets where we operate, we seek to acquire high quality assets that we assume we will own for the long-term and ideally which we will buy at less than replacement costs.
An indication of an appropriate time to invest is when capital becomes scarce. In order to make this strategy work having the flexibility to invest in a number of sector and regions is key as capital flows tend to be very fluid.
We have historically invested in emerging markets such as Chile in Brazil because Brookfield has the long history in those markets and we generally like the benefits of that diversification that comes from investing in stable developed markets as well as higher growth emerging markets. More often these days than in the past number of years we hear the viewpoint that exposure to emerging markets is a negative.
For us that suggest that the time is right to invest. But aside from current favorable investment conditions we also focus on investing in these markets because they provides us with certain unique dynamics that are rarely available if we were solely focused on investing in developed countries.
The start, we are always looking for investments of scale. However, they are not always available in the developed markets and all our targeted sectors.
For instance, there are no toll road platforms of scale in the United States, Canada or in the UK like we have in South America. As you recall in 2012, we were able to acquire an interest in a world class business that owns nine key road arteries in Brazil comprising approximately 3200 kilometers of motorways.
The ability to invest in the motorway sector North America and UK is limited because the regulatory framework and political will is not yet in place to introduce the private sector into the road infrastructure sector to the same degree as in South America. We are also focused on organic growth.
Investing in markets of high growth and expanding infrastructure needs provides tremendous follow-on capital investment opportunities. As we have described on many prior occasions a big value driver for our business is organic growth because it provides predictable high return sources of capital investment.
Much of organic growth comes from businesses such as Transelec, which transmits electricity in Chile. Transelec benefits from the rapidly growing Chilean economy, which is growing at an average rate of approximately 5% per annum over the past 10 years.
As most of the low cost sources of energy are some distances from load centers, this expanding network provides an ability for us to deploy capital into new transmission lines year-after-year. We also try to invest on a contrarian basis.
Emerging markets are by their nature more volatile, so it enables us to invest on a contrarian basis when geopolitical events occur as investors often paint all emerging markets with the same brush. Capital from the large money centers in North America and Europe often take risk on, risk off decisions that do not distinguish one emerging market from another.
As a result these windows of opportunity to invest on a contrarian basis tend to occur more frequently with emerging markets than they do in established markets. As we are long-term investors, we do not concern about – we are not concerned about periods of short-term volatility and generally see them as excellent entry points to invest.
However, investing in emerging markets is not simple and requires extensive experience in platform that Brookfield has built. We only folks on those countries and states that based on our experience and research we believe have sufficiently reliable judiciaries and sound economic and regulatory policies.
We don’t always agree with every decision that governments in these countries make, but the same can be said of governments in developed nations. We also only folks in those sectors that we believe exhibit good barriers to entry and attractive investment attributes.
Another key component to our investment philosophy is that we only invest significant capital if we have people on the ground. We recognize that we are in many cases investing in local businesses, which require the operating skill of executives with good local knowledge and relationships.
Now, our interest in emerging markets should not be mistaken for a dislike of investing in developed market such as the United States, Canada, Australia or the UK, because that’s not the case at all. We remain very active in these markets.
Nevertheless the lines separating developed markets from emerging ones can be very faint. For instance, one country that we have described is an emerging market, Chile, is in fact an OECD country with AA minus rating, the same as Japan and higher than many countries in Western Europe.
We would argue that the risk of investing in Chile is in fact much lower than many Western European countries today. While we are seeking to grow our presence in certain emerging markets currently less than 15% of our cash flow derived from non-OECD countries.
In summary, our view was that the benefits of our exposure to emerging markets outweigh their challenges and our ability to invest in them is a unique strength that should help us perform over the long run. I am going to conclude my remarks with an outlook for our business.
The business environment for Brookfield Infrastructure remains very favorable and should support continued solid results for our operations for the balance of the year. Earlier in the year, there was some volatility in the global currency and commodity markets, which was caused by uncertainty over the strength of the U.S.
and Chinese economies. In spite of this, we experienced minimal impact in our businesses as we are fortunate to own and operate a business today that is well-diversified and through our contractual and regulatory frameworks generally insulated from these types of economic headwinds.
Notwithstanding the resilience of our assets, we have also proactively set out over the past two years to reduce the financial risk in our business associated with foreign exchange and interest rates. From a currency perspective, we have hedged almost 80% of our non-U.S.
dollar denominated FFO for the next two years. And from an interest rate perspective, we have continued to extend the duration of our debt and we have locked in almost 90% of our total debt into fixed rates.
For the balance of the year, our primary focus is to execute our capital deployment strategy. We will endeavor to close the five transactions we have committed to and integrate these businesses into our operating platforms.
These acquisitions will expand the scale of our transport and energy platforms and will meaningfully add to our cash flows in the second half of 2014 and beyond. We will also continue to operate our businesses efficiently and execute our organic growth plans.
Finally, our business development teams are working diligently to convert our strong pipeline of opportunities into investments that will provide further profitable growth for our platforms. With that, I would like to turn the call back to the operator to open the line for questions.
Operator
Thank you. We will now begin the question-and-answer session.
(Operator Instructions) The first question is from Bert Powell of BMO Capital Markets. Please go ahead.
Bert Powell - BMO Capital Markets
Thanks. Sam just related to the energy business, obviously a good quarter on weather, can you just give us a sense as to how much of that the circumstances that conspire to drive that performance in the quarter, have abated and maybe just kind of just generally give us an update on what you are thinking about that or how you are thinking about that asset today?
Sam Pollock
Okay, thanks Bert. I guess let me start with the fact that the extreme cold weather that we had this past year in North America obviously was a big driver for their performance in the quarter.
As you know, the business generates significant cash flow when there is volatility in the natural gas prices as this impacts basis spreads. And given the nature of the business, that’s typically how we earn our revenues.
Looking forward, it’s obviously hard to predict the balance of the year, but I would say over the next 12 months and maybe I will look at it from that perspective, we think that the way the market has evolved with the significant and in fact record withdrawals that we had over the winter that hit an all-time peak of about 3 TCF. It will take either a very cool summer or significantly higher prices for there to be the levels of injections to get back up to normal storage levels for next winter.
And so as a result, we think that there is every potential that you could see significantly higher natural gas prices next winter if as we expect you don’t get those record injection levels. And as a result, you are going to see a lot more volatility.
And in fact we could see a lot of volatility this summer and this is all positive for the business. So while I wouldn’t want to speculate that, there would be a massive turnaround in this business overnight, I do think that it does feel like the sector has troughed and that we should be seeing better results going forward.
I mean, I know Bahir want to talk about seasonality though.
Bahir Manios
Yes, Bert, just to add to Sam’s comments, also typically Q1 and Q4 are the strongest quarters for this business. So, there is a bit of swing in the results that you will notice in Q2 and Q3 just surely from a seasonality perspective.
Bert Powell - BMO Capital Markets
Okay, thanks Bahir. Thanks Sam.
Just in terms of the business development, yes, I just want to make sure I am understanding this correctly so you have got $600 million to go for five new investments, two have closed on the terminals you have another terminal and the two district energies, is that how to think about the $600 million?
Sam Pollock
No, we had one that closed. It happened there was two facilities, but it was one acquisition.
Bert Powell - BMO Capital Markets
Right, yes. Yes, okay.
So, it’s MOL?
Sam Pollock
That was MOL, that’s correct. So there is five more to go, there is five still to close, that’s the question?
Bert Powell - BMO Capital Markets
Yes, okay there is five, so the $600 million is for the additional five?
Sam Pollock
No, the $600 million is for all six.
Bert Powell - BMO Capital Markets
Okay.
Sam Pollock
And there is five to go, which is roughly $500 million.
Bert Powell - BMO Capital Markets
Got it, got it. Okay, thanks.
Thanks for the clarification on that. And just on VLI, third quarter is when you expect to close that, is that late third quarter you think or is that early on in the third quarter?
Sam Pollock
Our hope is early on in the third quarter, but as you know, these things are sometimes hard to predict and very much out of our control and particularly with Brazil and the World Cup coming up, I definitely wouldn’t want to speculate.
Bert Powell - BMO Capital Markets
Okay. And then just lastly Bahir, the corporate cost had $6 million of other income, which is kind of a new thing I guess, can you help us understand that?
Bahir Manios
Yes. Bert, if you look at our liquidity tables, we have got about $300 million of financial assets and cash that’s sitting at the corporate level, which we about two quarters ago, we started investing in highly liquid marketable securities, equity and debt instruments.
So this is just the current yield portion of that financial asset program comprised of realized gains of securities, which you buy and sell and then distributions and income aren’t that you receive on your investment.
Bert Powell - BMO Capital Markets
Okay, thanks Bahir.
Bahir Manios
You’re welcome.
Operator
The next question is from Michael Goldberg of Desjardins Securities. Please go ahead.
Michael Goldberg - Desjardins Securities
Thanks. Good morning.
EFH recently filed Chapter 11, can you talk about the possibility that BIP might get involved in resolution of EFH, does its size and complexity provides an advantage to BIP and BAM as well as your ability to involve institutional co-investors and what parts of EFH in particular might be a greatest interest?
Sam Pollock
Hi Michael, thanks for you question. So you are not going to like my first part of my answer which is generally we don’t comment on potential transactions.
So as far as what parts might fit or how we might approach it, it’s a large deal and I am not even speculating that we are even involved, but even if we were its not something I really can get into. So I won’t go there.
The one thing I will say is there is obviously lots of, it’s a big company there is lots of great components to it apart that it would fit best with us as the Encore subsidiary that’s obviously world class asset. And if opportunities arose we could buy that for value.
We would definitely look at that, but I think that’s really all I can mention about that particular name.
Michael Goldberg - Desjardins Securities
Okay. Thank you.
I have one other one, how much would you expect the six organic investment initiatives to contribute to FFO when fully phased in and similar question for year-to-date acquisitions?
Bahir Manios
Hi, Michael, it’s Bahir. Maybe I will start and maybe Sam could add some comments.
So if you look at the five acquisitions they are comprised of transportation assets, so the VLI deal and in addition to that the two terminals in the West Coast and the terminal on the East Coast. Those generally transportation assets given a ramp up that we see in volume and a lot of the CapEx opportunities that we have to either modernized ports or the $6 billion CapEx program that we have at VLI.
Generally, you will start off in the high single digit, low double digit range. And then over time, the next 2 to 3, 4 years out you tend to ramp up to sort of our desired range of 12% to 15%.
So that stems from the transport. And then the district energy businesses, these are more utility type assets.
So our going in FFO yield tends to be sort of in the – also in the low-double digits, but will ramp up quite quickly just with inflation indexation that we typically get on these contracts.
Michael Goldberg - Desjardins Securities
Thank you.
Operator
The next question is from Brendan Maiorana of Wells Fargo. Please go ahead.
Brendan Maiorana - Wells Fargo
Thanks. Good morning.
Sam your comments on emerging markets if I just look at the deals that were done in the quarter other than VLI which was talked about before and there are North American deals so was your comments kind of more related to what you are working on today or was that commentary just more kind of answer questions that you have been receiving from investors?
Sam Pollock
I guess it’s probably more the latter than the former. We do have a number of – we have good pipeline in South America.
This is probably, really arose out of some of the volatility early on in the quarters, probably dissipated more now, but we thought it was a good topic just to discuss we are trying to pick a few themes every year to just give our perspective on. And I think we just wanted to reemphasize to our investors why we spend time focused on those markets and why despite some of the challenges that arise and from operating in those markets we think its worthy effort and just a great positive for our company.
Brendan Maiorana - Wells Fargo
Yes, that’s helpful, that’s helpful commentary. And in terms of the follow-on CapEx maybe this is for Bahir but you mentioned at DBCT I think you started an initiative there and you have got some more at Transelec as well.
So, on the utility side, is there any pressure on the returns that you have gotten historically in comparison to what you are doing now in terms of those growth CapEx projects?
Bahir Manios
Hey, Brendan. No, I think with – if you look at the CapEx projects that we spoke to in the letter being the water project at DBCT and some of the contracts we have been winning or mandates that we are winning either for our Transelec business in Chile and even some of the connections mandates we are winning in our UK distribution business.
Across the board, we are seeing returns that are pretty consistent with what we have been earning in the past. So, we are not seeing any pressures on that front.
Brendan Maiorana - Wells Fargo
Okay. And just from an investment capacity standpoint, you mentioned there is about $500 million kind of left to go on the few deals that you have got under agreement and then your backlog is around $700 million or $750 million, so that’s a two-year backlog.
So, maybe for this year, it’s about half of that or about $350 million. You have got plenty of cash on the balance sheet.
So, it sounds like there is a lot of investment activity that is out there. How much do you think you could kind of comfortably do on your current balance sheet before you need to think about maybe selling additional assets or raising equity capital?
Sam Pollock
Maybe I will tackle that one. I think you are right to characterize the organic pipeline as something that we would execute over the next two or three years just using around plus or minus $300 million from the organic pipeline that we invest per year and a significant portion of that we finance with CapEx lines down at those operations.
And in addition to in some cases we have cash set aside for capital projects down at those levels. So, from the corporate line most of the cap that we use, are on new acquisitions.
And I think we have obviously the financial liquidity to at this pace of investing to get ourselves into next year, but as we will occasionally do, if there is opportunities to execute a very efficient transaction in the market in between now and then we obviously might take advantage of that just because we have pretty good visibility into our ability to deploy capital. So, I guess if your question’s ask is when we are thinking about doing another equity issuance, I can’t really tell you that.
Brendan Maiorana - Wells Fargo
No, I mean, it wasn’t that, it was more just to think about the opportunity set maybe that’s out there and if there was a sizable, a reasonable size transaction that came up, maybe something in the order of $250 million or $400 million or something like that. Is it fair to assume that your balance sheet could handle that?
I am just kind of thinking about the corporate cash that you have on the balance sheet, which is a little over $400 million. You’ve got $500 million of acquisitions left to close, let’s say, the growth CapEx gets funded at the business level, where you have got plenty of cash there.
I am just trying to get a sense of kind of order of magnitude of maybe how much capital you would be comfortable deploying today with the balance sheet as where it stands, because I would imagine it’s more than the $500 million, but it’s obviously not an infinite number?
Sam Pollock
Fair enough. So, we have $1.8 billion of corporate liquidity today and $500 million of that spoken for.
Then I think generally we probably wouldn’t want to take our lines lower than $400 million to $500 million. So that gives an order of magnitude I think of our capacity.
Brendan Maiorana - Wells Fargo
Okay, alright, great. Thank you.
Operator
The next question is from Andrew Kuske of Credit Suisse. Please go ahead.
Andrew Kuske - Credit Suisse
Thank you. Good morning.
I guess the first question is really directed towards Sam. And overnight, we saw the deal from Aurizon with Baosteel for Aquila Resources, when sort of a divide and conquer strategy I guess for resources, assets and infrastructure assets in Australia.
I was just sort of curious on your appetite to align yourself with a mining company in that kind of approach, obviously not specific on Aquila, just sort of more broadly, is that the kind of thing that you would look to do to really hive off infrastructure assets that would really be non-core to a mining company?
Sam Pollock
Hi, Andrew. I think the short answer is absolutely.
I think we would be very prepared to take a creative approach to breakup, let’s say, a infrastructure heavy mining company and split it between infrastructure and mining operations and have a partner take the mining operations. I think the only difference between maybe the approach, Aurizon took on that transaction.
And again, I only saw little bits of it overnight. So, I just read what they were doing and got a bit of an update, but I think their approach is position themselves for future greenfield expansions that Aquila’s operations might be undertaking, whereas our approach probably will be more focused on existing operations in brownfield assets.
Andrew Kuske - Credit Suisse
So, do you see Aurizon just expanding in a bit of support operations, which they really haven’t had exposure before and bulking up it’s already pretty extensive rail network is being a bit more competitive with your assets in Australia or is it really this is just a one-off kind of scenario?
Sam Pollock
I can’t comment on their strategy, but we have seen them get involved in a number of new potential rail and port opportunities. They were looking at a rail line and port project up just north of us in the Galilee Basin.
And I think they are also looking at some other operations in the Pilbara. So, they have been quite active in looking to build on to their business.
I think some of it you could say is competitive with us, some of it’s not. I think their interest has generally been on a lot of newbuild situations, where that’s something that we are not really that focused on.
So, I think there is – they are taking a slightly different strategic approach than us, but definitely they are a competitor of ours and they are very impressive company, it’s got some great assets.
Andrew Kuske - Credit Suisse
Okay, that’s helpful. I guess just switching to geographies but staying on the Southern Hemisphere.
Your comments on broadly emerging markets but also more specifically Brazil, what are you seeing really from a capital allocation into that market is we look at a lot of external data points and obviously the BOVESPA is re-rated, it’s sold off dramatically, it’s re-rated upwards, some of the inflows that we see from the Brazilian data look to be positive like money is coming back in. But it still seems pretty early from any kind of M&A in that market, valuations still don’t really seem overly stretched.
So how do you think about that market just in the context of what we’ve seen in say the last six months and then the 12 months and I guess the two timeframes would be a bit of a rebound and then the prior period really have the pretty dramatic sell-off?
Sam Pollock
No, I wasn’t quite sure what the question was. But I think you’re just asking from my general comments on the market from an investment perspective.
Is that right?
Andrew Kuske - Credit Suisse
Yes, exactly.
Sam Pollock
Okay. So I think the way you described is right.
There is – there was a very steep sell-off and I think the capital moved out the market pretty quickly and we saw the reais pulled back considerably. And it’s since surprising to us strengthened a bit over the last couple of months.
I’d say the overall economic performance of the country is disappointing this year. I think we are hopeful that we will start to see a pickup now that the Reais has weakened and make some of the companies in the country more competitive.
I’d say we think first from a foreign currency perspective, it’s a much better entry point than it was a year or two ago. We have seen valuations pull back a bit although as you’ve rightly pointed, they have got a little more expensive in the last couple of months, but I think we as a whole think it’s an attractive place to invest.
We aren’t seeing nearly as many competitors for transactions as we did a couple of years ago, although there might be a few more today than it was six months ago. But it’s a market we are definitely focused on and we have actually got a pretty robust pipeline of opportunities that we are looking at.
So I think to answer your question briefly, the market is good for investors like ourselves and I think that we can invest there on a bit of a contrarian basis, because many people are predicting longer term lower growth environment, where we have a view that will seek the economic rebound somewhat and we have a more rosier outlook for the country than others do.
Andrew Kuske - Credit Suisse
Okay, that’s helpful. And then if I just may ask one more related question in relation to Brazil, do you see any kind of interesting appetite for electric utilities and ask the question in part is the distribution companies are struggling right now with the high power pricing and really passing on that cost or really trying to hedge that cost, is there any kind of interesting transaction that you could foresee with yourselves in Brookfield Renewable within that marketplace?
Sam Pollock
We have generally avoided distribution companies in Brazil just because it’s the one part of the electricity sector where the government has taken the more, I will say, slightly proactive approach in influencing rates. And as a result, yes, we think it’s the one that’s – the risk is from that perspective, but where we do like to invest is on the generation side.
And so BREP has pursued a number of opportunities down there and continue to do so. And we like the transmission sector, again just because of the regulatory environment for that particular part of the business is less apt to attract government intervention.
Andrew Kuske - Credit Suisse
Okay, that’s very helpful. Thank you.
Operator
The next question is from Robert Kwan of RBC Capital Markets. Please go ahead.
Robert Kwan - RBC Capital Markets
Just on the $600 million of acquisitions, I am just wondering if you think you can add more leverage to those investments over and above whatever amounts of debt you are assuming?
Sam Pollock
Robert, I guess, the each business when we acquired it, we put in an investment grade level of debt need to the acquisitions. Sometimes, we need to close with a bridge facility and then look to refinance it in short order, but we tend to – yes, within the first year or two, side a long-term appropriate level of debt.
And so I think on some of them that is the case and others and I think the ones that are probably under-levered in the short run would the transport investments, but as they look to complete their expansion projects, which we will largely finance capital expenditure facilities, you will see those debt levels increased. So, I think that as I have talked through that was probably your question.
Over time, you will see the transport assets those container port facilities and BOI slowly increase our debt levels to more normal longer term amounts.
Robert Kwan - RBC Capital Markets
Okay. So the other way to put it, is that on the gates between cash and potential as you down the road, some amount of common equity, you want to basically finance $600 million with equity sources, but if we could see leverage increase over time as the CapEx build out basically beyond something closer to 100%?
Sam Pollock
That $600 million finance was equity, so that is the equity component. And in a number of those businesses, there are opportunities to deploy significant amounts of capital, in particular, BOI and Trapac and those expansion projects are going to be financed with debt at the operating levels.
Robert Kwan - RBC Capital Markets
Okay. Just turning to the Australian rail segments that you are covered by the take-or-pays, I am just wondering the volumes that you are moving right now, are you moving any material volume or just can you comment on where the volumes are versus the take-or-pay levels either above or below and how material that might be?
Sam Pollock
Generally, I think they are all moving volumes at or above their take-or-pay levels.
Robert Kwan - RBC Capital Markets
Okay. As you look at the outlook for your customers as production, do you see anything on the Aurizon that would materially may, move those volumes up?
Sam Pollock
No, I don’t see anything on Aurizon that would move those up. I think generally most of our customers are fully ramped up and are looking to just reduce cost, because I think everyone is particularly as it relates to iron ore, people are expecting prices to drop.
So they are all making sure they can maintain their margins as best as possible by reducing costs. Yes, we have one customer who is probably operating at a bit less than their rate of capacity, but they have been supplementing their volumes on their contract by taking in some other people’s iron ore.
So they have managed to ship pretty close to their take-or-pay levels. And we will see continuing to ramp up.
Robert Kwan - RBC Capital Markets
Okay. Just the last question here kind of swinging back to NGPL, for the large several pipes that kind of move south to north, we have seen some increased contracting and some good optionality.
And it seems like that has been progressively moving from the east and west pipes to those more Western which your system is one of the most Western out there. So, I am just wondering do you think it’s just a matter of time before you see that are kind of long-term economics on your system potentially projects to move more volume either into Chicago area or even further south into the Gulf or is there another way to be thinking about how you see the recovery in the system over time?
Sam Pollock
I think you described it pretty well, obviously it’s complicated and it’s evolving, but there is definitely bottlenecks in the distribution of gas that’s coming or at least that’s being produced out of the Marcellus. And so it’s looking for a home.
And as you know REX has announced some open seasons to see if they can move the gas west out of the Marcellus. And that creates I think good optimality to describe to take advantage of that gas that’s moving towards our direction and either taken North or South.
We have seen an increase in customers securing long-term contracts on our network and so that’s a positive trend. And I think that the things we will be watching and monitoring will be the – whether or not there is any further approvals for LNG facilities down in the Gulf.
And obviously those are ones that we would likely serve and would create great value for us. So to-date, I think there has only been one that’s been approved by FERC.
But there are a number that have been submitted to them for approval and if that takes place that would be very, very positive.
Robert Kwan - RBC Capital Markets
That’s great. Thank a lot Sam.
Operator
The next question is from Frederic Bastien of Raymond James. Please go ahead.
Frederic Bastien - Raymond James
Good morning just one for me, do you continue to see better opportunities in the GDP sensitive transport and energy segments right now or are you also coming by some promising prospects in the utilities segment?
Sam Pollock
Hi Fredric, look I think it’s safe to say that to achieve our target returns in 12% to 15% range there is far more of those opportunities in the transport and energy sector than utilities sector. And utilities sector is still pretty frothy.
I think as people digest the great transaction that SNC did with AltaLink that will give you a sense of the valuations for that sector. And obviously there is two ways to look at that.
Obviously, that’s a challenge for people like ourselves to focus on those types of assets when they trade at those prices. But on the positive side it gives you a tremendous indication of value for our own business, which I think in some respects is even better than what Buffet bought with AltaLink.
Frederic Bastien - Raymond James
Okay. Thanks Sam.
Operator
The next question is from Cherilyn Radbourne of TD Securities. Please go ahead.
Cherilyn Radbourne - TD Securities
Thanks very much. Good morning.
Just one for me as well, I guess there have been a couple of recent auctions in Australia that have attracted some pretty high multiples, this is kind of related to the last question, can you just give us a bit of perspective on competition for deals now versus 12 months ago and the kind of leverage that’s being used in multiples being paid relative to sort of the peak years of ‘06, ‘07, ‘08?
Sam Pollock
Hi Cherilyn, I guess we are hitting the two areas where we are seeing a significant valuation increases. One is utilities sector, particularly in North America and then Australia just more broadly.
The multiple for a number of those recent transactions have all been north of 25%. This is related to those port transactions and toll road transactions.
I haven’t – I am not sure if there is – they are not necessarily fueled by high levels of debt although debt levels are higher than they have been over the last couple of years but not – I wouldn’t say they are anywhere near that level or that types of structures that we saw back in 2005, ‘06, ‘07. So I guess that’s a positive.
But I guess there is more capital there and equity capital that’s prepared to accept lower returns or take a little bit more risk. As far as what that means for us as we mentioned in our remarks having that flexibility to invest in different sectors and in different regions is just a huge benefit to be able to avoid some of these cost of capital shootouts and find situations in other markets that just don’t have that amount of capital flowing into them.
And I think I am very pleased with the fact that even in this environment where we are seeing those types of transactions we still have been able to deploy already $600 million this year on what we think are good transactions that are lower risk and meet that hurdle that we set for ourselves.
Cherilyn Radbourne - TD Securities
And so just in terms of your pipeline are you still having good luck originating proprietary type of deals?
Sam Pollock
Yes, that is our focus and the way we do it as we have described in the past it’s going out and building relationships and working with either owners of infrastructure assets or people who are looking to buy infrastructure and who need an operating partner and trying to convince them of the benefits of our skills over and above just cost of capital. And so we are trying to actually build our business and not just be the one who invests to earn the lowest return but, the one who can invest well and create value from a business once we have acquired it.
Cherilyn Radbourne - TD Securities
Thanks. That’s all for me.
Sam Pollock
Okay. Thank you very much.
Operator
There are no more questions at this time. I will now hand the call back over to Mr.
Sam Pollock for closing comments.
Sam Pollock - Chief Executive Officer
Great, thank you, operator. We appreciate everyone’s questions today and for everyone who were on the call.
And we look forward to speaking with you again next quarter to review our progress.
Operator
This concludes today’s conference call. You may now disconnect your lines.
Thank you for participating and have a pleasant day.