Good morning, ladies and gentlemen. My name is Denise, and I'll be your conference operator today. At this time, I'd like to welcome everyone to the Brookfield Infrastructure Partners Q3 Earnings Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question and answer session.
I would now like to turn the call over to Melissa Lowe, Vice President, Investor Relations. Please begin.
Thank you, operator, and good morning. Thank you all for joining us for Brookfield Infrastructure Partners' 3rd quarter earnings conference call for 2018. On the call today is Bahir Manoz, our Chief Financial Officer and Sam Pollock, Chief Executive Officer. Following their remarks, we look forward to taking your questions and comments. At this time, I'd like to remind you that in responding to questions and in talking about our growth initiatives and our financial and operating performance, we may make forward looking statements.
These statements are subject to known and unknown risks, and future results may differ materially. For further information on known risk factors, I would encourage you to review our annual report on Form 20 F, which is available on our website. With that, I'd like to turn the call over to Bahir.
Great. Thank you, Melissa, and good morning, everyone. Financial results for Brookfield Infrastructure in the Q3 were solid, reflecting the regulated and contractual cash flows that underpin our operations. Our results continued to benefit from solid organic growth across the business driven by inflation indexation across the majority of our businesses, higher volumes delivered through our transport and energy networks and the commissioning of growth projects into earnings. 2018 has been an active year on the capital deployment front, having exceeded our annual new investment target of $500,000,000 to $1,000,000,000 We recently invested over $600,000,000 in a North American Residential Infrastructure Business.
In addition, we advanced acquisition of our Western Canadian Midstream business, where we'll be deploying $525,000,000 We recently also closed on the provincially regulated portion of the business, investing $265,000,000 and expect to close the federally regulated portion in mid-twenty 19. We also continue to advance on closing 3 other transactions in which we will deploy in total approximately 600,000,000 to generate an average going in funds from operations or FFO yield of over 10%. Looking ahead, we're very well positioned to generate strong FFO per unit growth of almost 20% on a run rate basis, beginning in the second half of twenty nineteen. With the recent deployment of capital, this more than makes up for the FFO gap from our recent asset sale and capital raises. More importantly, the future upside in the acquired assets is expected to be substantial and this will stand us in good shape to continue to grow our FFO in the future.
So just on our overall results, our business generated FFO of $278,000,000 or 0 point 7 $1 per unit during the Q3 of 2018. Results benefited from another period of strong organic growth, which enhanced our results by 8% on a constant currency basis. We're very pleased with the performance of each of our operating groups as our businesses continue to perform in most cases ahead of their plans. Notwithstanding the fact that our current period results were impacted by the loss of income from a very successful asset sale and the impact of a stronger U. S.
Dollar, underlying fundamentals are very strong and our outlook remains positive for the balance of the year and beyond. Our Utility segment generated FFO of 130,000,000 dollars benefiting from solid underlying performance and same store income that increased 4% year over year. The increase was partly due to substantial connection activity in our UK regulated distribution business as well as capital commissioning to our rate base. This compares to $170,000,000 of FFO in the same quarter last year, which included our Chilean operations sold last quarter and costs associated with a debt financing recently completed at our Brazilian regulated transmission business as well as the impact of foreign exchange. At the end of July, our UK regulated distribution business order book reached 1,000,000 connections, its highest ever.
We've secured 129,500 connections to date in 2018 and that's 10% ahead of the prior year, which was a record year for our business. Year to date sales are strong, including several notable deals in the 3rd quarter. We're also very encouraged by our current projections that indicate that this momentum is sustainable heading into 2019. We recently acquired a controlling stake in Gas Natural Colombia, the 2nd largest gas distribution network in the country. Since closing, our asset management team has been very focused on transitioning the company into a decentralized operating business.
We recently hired a new CEO and internalized a number of processes, which were previously provided by its parent. We're also working towards executing several exciting growth opportunities in this business over the next 6 to 12 months. The Transport segment contributed FFO of $119,000,000 Results were positively impacted by higher tariffs charged at each one of our operating groups. Results at our Rail business benefited from increased agricultural volume, but these positive impacts were offset by lower volumes from our minerals customers and the handback of 1 of our state concessions in our Brazilian toll road business. FFO in this segment was also reduced by $15,000,000 as a result of foreign exchange, primarily the result of the conversion of income from our businesses to close to 20% lower FFO in U.
S. Dollars. The Energy segment reported FFO of $59,000,000 in the 3rd quarter. This represents a 23% increase over the same period in the prior year, reflecting higher transport volumes due to strong gas production growth across North America. Our District Energy operations benefited from new customer additions and warmer weather, which increased throughput in our North American business.
Our North American natural gas transmission business commissioned the first phase of its Gulf Coast expansion on October 1. The project, which required a total capital investment of $100,000,000 on a net to bib basis, was delivered on time, on scope and within budget and is expected to increase our EBITDA in that business by roughly $25,000,000 per year. Concurrently, one of the large LNG producers in the region has also announced a project to increase capacity at its Corpus Christi facility. And as a result, we will be proceeding with Phase 2 of NGPL's Gulf Coast expansion, which will require $230,000,000 of capital for annual EBITDA of $50,000,000 BIP's share of those two numbers being $115,000,000 $25,000,000 respectively. Our North American District Energy business was recently selected to own and operate 2 large scale systems in Colorado and New York State.
The City of Denver engaged our business to plan and build a system for the National Western Center, a newly designed 3,000,000 square foot smart campus. This 250 acre facility will double the footprint of the previous building and is expected to attract over 2,000,000 annual visitors and host over 400 annual events, including Colorado's largest agricultural convention. Additionally, our business was selected by a prominent U. S. Educational institution to exclusively negotiate a transaction to acquire, modernize and manage its district energy system.
The project consists of 3 plants and the distribution infrastructure will ultimately consist of over 6 miles of steam piping and over 2 miles of chilled water piping. These opportunities are high profile, strategic wins that expand our U. S. Footprint and on a combined basis represent total investments of approximately $300,000,000 or $120,000,000 net to BIP through long term concession contracts backed by high quality investment grade counterparties. The Data Infrastructure segment contributed FFO of $19,000,000 for the period, which was consistent with the prior year.
During the period, we were very pleased to have won the tender for the renewal for Eiffel Tower lease, allowing us to continue broadcasting frequencies to 1 5th of the French population from the top of this landmark. This 10 year extension goes into effect in March 2019, adding to the stability of our broadcasting platform. We also completed the commercial launch of our first fiber to the home tender. Our business rolled out 25,000 connections and has received positive commercial feedback. This is a meaningful milestone for our business.
And finally, before I conclude my remarks this morning, I wanted to briefly touch on our liquidity position in foreign exchange. First, during the period, we replenished our corporate liquidity. In anticipation of completing several investment initiatives, we enhanced our liquidity through a number of successful capital issuances, raising CAD 700,000,000 in the Canadian debt and preferred share markets, which brought corporate liquidity to almost CAD2.5 billion at the end of October. With this level of liquidity, we're able to fully fund all our committed transactions and organic growth backlog. 2nd, on foreign exchange, a weakening Brazilian real and lower rates on our Australian dollar and British pound hedge contracts reduced our results by $40,000,000 during the period.
We expect this negative trend to reverse in the future as our average hedge rates for the next 2 years are over 5% higher than 2018. In addition, we're off the view that the Brazilian real will recover from these nearly trough levels, which was impacted in the quarter from the uncertainty surrounding the country's recent elections, which is now behind it. We recently executed on our hedging strategy with respect to our near term cash flows from Chile, Colombia and Peru. And in addition to that, we're also prepared to enter into hedge contracts to lock in a portion of our near term cash flows generated in our Brazilian businesses, should there be a continued recovery in that currency. It is our objective to have between 80% to 85% of our total FFO be either generated in or hedged back to the U.
S. Dollar on a go forward basis. And so with that, I will turn the call over to Sam.
Great. Thank you, Bahir, and good morning, everyone. My agenda for the call today is to review our focus on investments in Energy Midstream. Then I'll provide an update on our strategic initiatives that we have underway, and I will conclude with an outlook for the business. We held our Annual Investor Day in New York in September, and I'd like to thank many of you who came out to join us.
For those of you who are unable to join us, I invite you to view the presentation on our website. Now let me begin. Over the past 3 years, our energy business has experienced transformative growth. We've built a global portfolio of attractive energy midstream assets and grown cash flows from this sector by nearly 4 times. Soon spanning 4 countries, these operations play a key role in the gathering, processing, storing and transporting of natural gas.
We built this business by capitalizing on contrarian views during periods of dislocation and market volatility. There are 3 key reasons why we have confidence in the midstream sector. 1st, we like its core infrastructure characteristics. These assets are strategically located, difficult to replicate and have a strong contracted cash flow profile. Their scarcity value is supported by the fact that they are often the only connections between supply and demand centers.
2nd, the businesses we own have significant growth potential. With the emergence of new resources and growing demand, there's a large funding gap for infrastructure build out, making these assets prime to benefit from future growth. And third, we are a well established owner and operator with almost 40 years of energy investment experience across Brookfield. We have deep institutional knowledge and access to market intelligence, which provides us with a competitive edge in identifying discrete opportunities. The scale of the North American natural gas market is unparalleled, given the massive transformation we've seen over the last 10 years.
Both supply and demand are at all time highs, requiring substantial amounts of infrastructure to help move and store gas. We believe that there is approximately $150,000,000,000 of energy infrastructure investment opportunities in the U. S. Alone. This is comprised of roughly $100,000,000,000 of capital required for midstream development through 2021 with the balance representing potential investments in MLPs, many of whom are seeking structural simplification.
This has created a large pipeline of prospective transactions of scale corporate carve outs, partnerships and privatizations. In the coming years, we are optimistic about our ability to continue to grow our presence in the energy sector. Now let me move on to our current initiatives. In our last quarterly call, we outlined our plans to deploy up to $1,700,000,000 into new investments in the latter half of twenty eighteen and in 2019. Over the past few weeks, we have invested approximately $900,000,000 of this amount, including $630,000,000 in our North American Residential Energy Infrastructure business.
In addition, we have completed the first phase of our Western Canadian Midstream Business acquisition with Phase 2 on track to close in mid-twenty 19. Once Phase 2 has closed, our investment in this midstream business, which we've now renamed North River Midstream will be approximately 500,000,000 dollars Staying with energy, we are also in advanced bilateral discussions to acquire a 1500 kilometer gas pipeline in India. This well located pipeline draws from the prolific Krishna, Gotaveri basin and spans the country from east to west. It will also provide secured cash flows generated under a 20 year take or pay contract with the largest company in the country. If successfully concluded, total equity invested by Brookfield and its institutional partners will be approximately $1,000,000,000 of which Brookfield Infrastructure will invest approximately $200,000,000 Lastly, in our growing data infrastructure business, in the Q3, we reached an agreement with a strategic partner to acquire a co controlling interest in Ascenty, the leading hyperscale data center operator in South America for close to $2,000,000,000 Workflow Infrastructure and its institutional partners will be investing $750,000,000 of which BIP's share will be approximately $200,000,000 We expect to close this transaction along with the acquisition of our U.
S. Data center business, which we discussed in our last call, by the end of 2018. Now moving to our outlook. From a global macroeconomic and political perspective, the Q3 has been eventful. Headlines were dominated by concerns over global trade war, volatility in the capital markets as a result of rising interest rates, political uncertainties with respect to Brexit negotiations and of course, elections in South America.
However, at an operational level, none of these events have had a meaningful direct impact on our overall fundamentals and business conditions remain solid in all of our key markets. All in all, our outlook is positive as our financial position remains strong and much of the business is underpinned by networks with high barriers entry and cash flows that are highly regulated and contracted. We believe that Brookfield Infrastructure's investment and corporate finance strategies should allow us to prosper in any economic conditions. Now our primary focus for the balance of the year is to close our advanced transactions, integrate the newly acquired businesses into our various operating groups and execute on our organic capital project backlog, bring these projects to completion on time, scope and budget. We are also seeing many opportunities to continue to expand our globally diversified business with very high quality investments with tremendous flexibility and financial resources to pursue them.
With that, I will now pass it back to the operator to open the line for questions.
Your first question comes from Cherilyn Radbourne with TD Securities. Your line is open.
Thanks very much and good morning. Sam, maybe I could start by asking you for your thoughts on the recent election results in Brazil and what implications that has for business conditions?
Hi, Cherilyn. I figured someone might ask us about that. Look, I think the our main views on the result is that it's a positive outcome, definitely relative to the alternative. The new President has appointed what we believe to be a very friendly market friendly Finance Minister. Everything that they indicate that will be their plan going forward regarding various reforms to the way the economy is structured, to the fact that they're going to increase privatizations it's all very positive to us.
We've also seen a recovery in the exchange rates, which were pretty immediate once it was clear that he was going to be successful. So I'd say all in all, we're positive and optimistic about the next 4 years.
Great. And then switching track, wanted to ask about the district energy wins you announced this quarter, which were quite nice and meaningful in size. Can you give us a sense of the pipeline of opportunities behind that, that you're continuing to pursue? And just comment on whether opportunities are sort of inbound to fit or whether you have a team that's out scouting them?
Thank you, Cherilyn. I'll cover that one. The look, we're quite excited about those two particular situations. At this stage, I would caution that we've been selected as the preferred proponent. So we still need to secure and sign up the transactions, but there's no reason why that shouldn't happen.
But further to your question, I guess, regarding how we pursue these opportunities and how big our pipeline sits at the moment. We do have a fairly large team that's out there looking for new opportunities. As we've discussed in the past, we think that the sector is highly fragmented, particularly in United States and that there's lots of opportunities to grow this business. Today, our sales pipeline is has over 400 opportunities in it. And when I talk about the sales pipeline, this consists of systems like the ones that we refer to in our letter as well as just new customers who we might connect to the system.
And of those, today, we have probably close to 30 that are signed, but awaiting legal drafting. And then we probably have another 50 to 70 that would be in the proposal stage. And then at least another the balance of them, which would be several 100 that are in the outreach phase. And so we think there's lots of opportunity to grow the business. My only caution is that the lead time in bringing these leads to fruition is relatively long.
And so, I think it just goes to the pent up demand and the fact that this should be a continuing growing business, but one that you won't see leaps in its results in the near term.
Great. That's my 2. Thank you.
Okay. Thanks, Sheryl.
Your next question comes from Rupert Merer with National Bank. Your line is open.
Hi, good morning everyone. Good morning everyone. Good morning everyone. So just following up on the Brazilian market, you have a more positive outlook for that market. If you see privatizations, could you consider making additional investments in Brazil at this point?
Rupert, I'll tackle that one. The look, we are always looking for good I think our main focus in Brazil at the moment is, in fact, building out our existing platforms. As you know, we have many strong franchises in the country, whether it be the gas business, the electricity transmission business, the rail and the roads. So that's already very broad and each one of those businesses has great opportunities for tuck in acquisitions and expansions. Probably the most near term opportunity for us would be participating in some of the auctions that will take place for transmission lines in the coming months.
I believe there's one coming up in December that we will participate in. And so our focus is really today is about building out those businesses, building out our newly acquired data center business and probably less so on new investments. But again, if something pops up that's interesting, we'll definitely consider it.
Okay, great. And then sticking with Brazil, but moving over to the transport sector, you had one concession headed back in the quarter. Can you give us some color how large was that concession? And also a little color on the maturities you might see in those concessions in the next couple of years and any opportunities you may have to extend those concessions with reinvestment?
Hi, Rupert. I'll start and maybe Sam will jump in as well. But with respect to the magnitude on the handback, from an FFO perspective, it's about $6,000,000 to $7,000,000 a quarter. And just with respect to maturities, I believe we have one also coming due next year and that will be also same magnitude as this one, albeit it will take place in the latter part of the year or at the back end of 2019.
Yes. And just to add on to that, last year, we were successful in securing a new road, which was a package consisting of an existing road that was expiring as well as additional roads around it that the government had put in with it. And so I would say there is sort of a recycling of these roads as the 1st generation expire and parties like ourselves. And it's relatively few players in the market that are participating in the government auctions. And so we expect that we will be replenishing our roads on a fairly regular basis.
Okay, great.
Thanks for the color.
Thanks for the color. Okay. Thank you. Thank you.
Your next question comes from Andrew Kuske with Credit Suisse. Your line is open.
Thank you. Good morning. Maybe just a specific question to start on Dalrymple Bay. And if you could just give us a regulatory update on the regime that's in place and any kind of progress on getting market pricing?
Hi, Andrew. We don't have any update on that at the moment. We don't expect that there will be any just to provide, I guess, a bit of a timeline. The QCA will make its views known on our submission probably at the end of this quarter, December is our expectation. And then the minister will make a final decision regarding moving to market pricing sometime in the 1st or Q2 of next year.
And the views of the QCA are just a recommendation. She can make her own decision, either going along with the QCA's recommendation or taking her own
and the recent investment in Brazil. Do you look at and the recent investment in Brazil. Do you look at your positioning in Brazil as something that you can scale and grow significantly beyond the initial investment and then effectively support that knowledge in other marketplaces?
So the answer to the question is yes and yes. We're pretty excited by the partnership that we have with Digital Realty. They obviously have fantastic existing relationships with all the tech company and cloud computing companies. We've got a, I believe, a second to none platform in South America and Brazil in particular. And so in fact already we have begun to source opportunities to take that business outside of Brazil and into Colombia.
And so we're looking at a few opportunities there that have come our way. And I think marrying our local expertise and knowledge with their relationships should turn us into a very large business.
So maybe just an extension on that. Do you see opportunities to expand it into Chile and Peru like your core markets in South America?
Yes. So the business plan is this is a South American business, not just a Brazil business. So we look to take it into Peru, Chile, Colombia and Brazil if possible.
Okay, that's great. Thank you. That's great. Thank you. Okay.
Your next question comes from Fredrik Bastien with Raymond James. Your line is open.
Good morning, guys. Good morning, guys. Good morning, guys. A few years back, you identified water infrastructure as a platform of potential interest, but it has recently taken a backseat to other priority factors. Are you still kind of looking at that sector with interest?
And are there any opportunities that you may be considering in the next quarter of the year?
Hi, Frederic. We still are very positive on the water sector. It happens to be one that is more challenging to get into, much like airports, I guess, highly sought after, and the opportunities are fairly rare. It's not as big a sector as you might think. At least it's not as big in private hands.
We have a couple of opportunities that we're looking at in South America at the moment. It's a little unclear whether or not they will proceed or whether or not they'll meet our underwriting standards. So at this stage, I can't give you an estimate as to when we'll make another investment in water. We continue to progress the desalination project in California. We remain excited about that particular business.
It's obviously been a very slow permitting process, but we're hopeful that in 2019 with a new governor in place that we'll have the political support to bring that forward.
Okay. Thanks. The other question I have, when we think of the Brazilian pipeline that you purchased, I guess, a couple of years ago, you increased your interest last year. My question relates to the rest of your portfolio. Are there any other assets in which you could increase your stake in over the next couple of years or is that not a possibility?
So I guess, Frederic, I'm just thinking quickly about that. At this stage, there obviously, our ability to increase stakes in our assets is dependent upon our various partners and whether or not they're looking to reduce the amount of capital they have in particular business or if they don't want to participate in a capital project. There's always situations where we have partners who have less capital than we do. And so there is that possibility. I'm just not sure, to be honest, that it would be fair for me to comment about that, because many of them are public companies and it's probably not right for me to say something.
Okay. Fair enough. Thank you very much. Thank you very much.
Okay. Thank you.
Your last question comes from Jeremy Rosenfield with Industrial Alliance. Your line is open.
Thank you. I apologize if there's some feedback on my line. I just had one question on the sort of opportunity in the U. S. Energy infrastructure space and particularly with regards to MLPs.
Is there a specific hurdle or something that you're waiting for before you're able to execute on one of these opportunities? Maybe I'm thinking here a decision from FERC in terms of regulatory items?
Hi, Jeremy. The I guess the only thing that is a hurdle is not so much any regulatory issues with a lot of these situations. It's just a matter of reaching a commercial arrangement with the various either capital raisers or sellers. Obviously, in many cases, they're just a bit aspirate. A lot of these MLPs enjoyed a great access to the capital markets for a number of years.
That's now fallen away. A number of them still remember the share price they traded at. They are low to sell assets that they might have held on a 100% base for many years. So it's just a matter of the current market conditions settling in and they're being accustomed to a new paradigm and then us agreeing on a transaction that makes sense. But we have a number of discussions that we that are underway with various parties.
And we're hopeful that in the coming quarters or years, we'll be able to progress.
Okay. Sounds good. Thank you. That's it for me.
Okay. Thank you, Jeremy.
There are no further Your next question comes from Ryan Levine with Citigroup. Your line is open.
Thanks. Just a follow-up on that last question. Can you provide some color if you're in terms of what asset classes or types of midstream U. S. Midstream opportunities you'd be considering?
And would you be open to stepping in to support some of the historic dropdown stories to help facilitate some of their organic and future dropdowns.
Okay. Hey, Ryan. You just got in there under the wire, look like. The as it relates to the types of opportunities, as you can probably tell from my comments, we have a strong interest in natural gas. We think the dynamics in that sector are probably on a long term basis a bit more attractive than some of the liquid pipelines.
But nonetheless, I think we would consider both, just take into account the various differences in long term outlook. One of the things and you touched on, the dropdown stories, That is something that we have also very much identified as an opportunity. And for those on the call, what we're referring to is the fact that many of the large integrated companies used to rely on MLPs as a source of capital to drop down some mature assets at which they would recycle a capital back into their other operations. And a number of the large integrated companies that have these subsidiaries no longer can use the capital markets. And so we are we have approached all of them, all these companies about alternatives to their drop down strategies.
And again, those would be situations that we're hopeful over the coming quarters years to strike relationships where we can be acquirers of those assets as opposed to them continue to drop them down into their subsidiaries. It's early days because all of this market volatility is relatively new, but we do think that these represent great long term opportunities for us.
Okay. And just one follow-up. I think on your in your prepared remarks, you highlighted the NGPL expansion to Corpus. If there's additional trains built at Corpus, would you see further expansion opportunity?
Yes. I guess the short answer is yes. We continue to have open season to check demand for from various customers. Today, I think we have met the various demand that's out there, but our expectation is that with the continued growth in production that there'll be further expansion opportunities going forward.
Okay, great. Thank you. Great. Thank you.
Okay. Thank you.
I would now like to turn the call over to Sam Pollock for closing remarks.
Okay. Thank you, operator, and thank you, everyone, for joining the call this morning. We look forward to updating you on our progress next quarter. And on behalf of the management team, we wish you all the best for 2018 and the upcoming holiday season. Thank you.
This concludes today's conference call. You may now disconnect.