Ladies and gentlemen, thank you for standing by. Welcome to the Brookfield Infrastructure Partners LP third quarter 2020 results conference call and webcast. At this time, all participants' lines are in a listen-only mode. After the speakers' presentation, there will be a question-and-answer session. To ask a question during the session, you will need to press star and then one on your telephone. Please be advised that today's conference may be recorded. If you require any further assistance, please press star and then zero. I would now like to hand the conference over to your speaker today, Rene Lubianski, Managing Director, Investment. You may begin.
Thank you, and good morning. Thank you for joining us for Brookfield Infrastructure Partners' third quarter earnings conference call for 2020. On the call today is Sam Pollock, Chief Executive Officer, Bahir Manios, Chief Financial Officer, and David Krant, SVP of Finance. Following their remarks, we look forward to taking your questions and comments. At this time, I'd like to remind you that in responding to questions and 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'll turn the call over to Bahir.
Thank you, Rene. Good morning, everyone. I am pleased to be on this morning to report on our strong results for the quarter. We reported funds from operations or FFO of $365 million, or $0.79 on a per unit basis. This is an increase of 8% compared to the prior year, as all of our operating groups reported solid operating results, in addition to contributions received from new investments completed over the last 12 months and gains on some realizations we had on our financial asset program. On a constant currency basis, our FFO per unit would have been 16% higher than the prior year. The impact of a lower Brazilian real reduced our U.S. dollar results by $30 million during the period.
I'm pleased to share that similar to the second quarter, government restrictions had very little impact on most of our businesses, allowing them to perform in line with our expectations. The economic recovery over recent months has had a positive impact on our GDP-sensitive operations. Two notable examples being our total traffic volumes, which are now currently operating at pre-shutdown levels, and connection activity at our regulated distribution business in the U.K., which is now currently averaging almost 90% of plan. David will walk through the detailed results for the various operating segments. Before handing off the call to him, I wanted to make a few remarks on our balance sheet and liquidity position. As we've highlighted in our materials many times in the past, a fundamental element of our business strategy is to maintain a strong financial position throughout each economic cycle.
Our resilience to the economic slowdown this year was aided not only by the sustainability of our underlying cash flows but also due to the disciplined approach we've utilized over the years in financing our investments. As a result, we've maintained a robust credit metric and a solid investment-grade rating. With the prevailing backdrop of low interest rates and supportive credit capital markets, we've taken the opportunity during the period to further enhance our balance sheet. We successfully extended maturities at attractive rates across our portfolio, which reduces exposure to any near to medium-term capital market volatility. In this regard, we completed two financings at the corporate level, which increased our average corporate term to maturity from six to eight years. First, we issued CAD 500 million of 12-year notes, in the Canadian market to opportunistically refinance a $450 million series of notes that are maturing in 2022.
In addition to being our longest issuance to date, the new series also has the lowest coupon to date at 2.855%. Second, we issued $200 million of perpetual green preferred units at a fixed rate of 5.125%. This inaugural issuance is our first corporate financing in the U.S. market and demonstrates greater access to capital markets and our commitment to sustainable investment practices. Following an active quarter of capital deployment, which Sam will touch on in his remarks, our liquidity position remains healthy as we have approximately $3.6 billion of liquidity on a total basis, with $2.4 billion of that residing at the corporate level. Over the next six months, we will look to enhance our current liquidity position with proceeds from several ongoing asset sales that are being progressed. During the quarter, we launched several new processes, which could generate almost $1.5 billion of additional liquidity by mid-2021.
Thanks for your time this morning, and I'll turn the call over to David to discuss our operating results in a little bit more detail.
Thank you, Bahir, and good morning, everyone.
I'm pleased to be joining today's call to provide a summary of our operating results for the third quarter. As Bahir mentioned, this was a strong quarter for our business. Results reflect organic growth across our regulated and contracted businesses, as well as the initial contribution from new investments. I'll now touch on the underlying performance of our operations, starting with utilities. This segment generated FFO of $139 million. These results represent an increase of 6% over the prior year after adjusting for the impact of a weaker Brazilian real. In general, our regulated and contracted utilities are performing well in the current environment. Underlying earnings benefit from the inflation indexation, approximately $300 million of capital added to rate base, and the contribution from our North American regulated gas transmission system acquired late last year.
With home builder activity ramping up, construction levels at our U.K. regulated distribution business are steadily improving. New connection activity during the quarter averaged nearly 90% of planned levels. The business also secured several new projects, most notably a significant capital project consisting of 9,500 new connections that span across 5 of our 6 utility offerings. This quarter, at our Australian regulated terminal, we received a positive draft regulatory decision, which proposes a transition to a more light-handed regime. The proposed change, if reflected in the final decision, would allow us to directly negotiate access charges with users of the terminal instead of operating with a single regulatory rate. We're excited about this potential outcome, which we expect early next year.
Moving to our transport segment, FFO increased by 5% compared to the prior year, despite some softness in toll road volumes related to the lingering effects of local government restrictions. Results benefited from higher agricultural volumes across our rail networks, the contribution of a North American rail operation, and a favorable rent settlement at our U.K. port. Traffic levels at our global toll road portfolio rebounded significantly in the third quarter, however, remain roughly 5% below the same period of last year. More recently, traffic levels in Brazil for September, October have fully recovered from the impact of the shutdown, and our operations in other regions remain only modestly below plan as a result of a slower recovery in light passenger traffic. During the quarter, our U.K. port operation received a favorable ruling on one of several ongoing arbitration processes the business has with its long-term tenants.
The ruling determined that the market rate for space at our facility should be almost four times higher than current levels. In addition to increasing future earnings, the settlement included the payment of backdated rent since 2016. FFO from our energy segment totaled $115 million, a meaningful increase compared to the prior year quarter. Our midstream businesses performed well, with FFO increasing 16% on a same-store basis compared to Q3 2019. These results speak to the critical and contractual nature of our midstream infrastructure and the long-life economic resources which support them. With no direct commodity exposure and approximately 85% of our current revenues secured under long-term contracts, we are well positioned to withstand potential energy price volatility in the future. Our distributed energy operating group grew by approximately 20% relative to the prior year after removing the impact of the Australian district energy system we sold last November.
This growth was driven by strong performance at our North American residential infrastructure business, which added over 55,000 long-term annuity-based rental contracts during the last 12 months. Our North American district energy systems have benefited from heightened consumer interest in sustainable and capital-light solutions to meet their heating and cooling needs. In addition to being selected as the preferred bidder to develop sustainable energy systems for 14 mixed-use buildings in Toronto, we closed on several exciting growth initiatives during the quarter, including two separate 40-year agreements to operate, maintain, and modernize large district energy systems in the U.S. The first with Syracuse University and the second with the National Western Center in Denver, Colorado. These initiatives, combined with the signing of five new 25-year capacity-based contracts, will provide incremental annual EBITDA of $25 million, with BIP share being approximately $9 million once fully commissioned.
Lastly, our fast-growing data infrastructure segment delivered FFO of $50 million, which represents an increase of nearly 40% compared to the prior year. We have continued to expand our global data transmission and distribution portfolio, and this step-change increase in FFO reflects several new investments completed in the last 12 months. Results for the quarter include the first month of earnings from the acquisition of 135,000 telecom towers in India, as well as contributions associated with investments made in New Zealand and the United Kingdom late last year. With that, I will now turn the call over to Sam for an update on our strategic initiatives and an outlook for the business.
Thank you, David. Good morning, everyone. As David just mentioned, I'll briefly discuss our strategic initiatives that we have underway then touch on our outlook for the balance of the year and into 2021. During the quarter, we closed on two large-scale acquisitions, deploying $1 billion. These investments should meaningfully contribute to our results going forward. In August, we acquired a portfolio of 135,000 operational telecom towers in India from Reliance Jio. In September, we acquired an interest in Cheniere Energy Partners, owner of the world-class Sabine Pass LNG export facility. As Bahir mentioned at the outset of the call, we also have several asset sales underway. With interest rates expected to be at low levels for the next several years, we expect significant opportunities to recycle capital. This activity will be a meaningful source of capital for us to fund future growth.
In the next 6-12 months, we should generate approximately $1.5 billion of net proceeds from these sales. Turning to our outlook for the business. You can infer from our comments today that we believe that the prospects for the company for the balance of the year and into 2021 are positive. Although global economic conditions will be uncertain until the current health situation has passed, our assets have demonstrated that they have considerable downside protection mechanisms to weather any significant economic downturns. As the economy recovers, any of the businesses' cash flows that were temporarily impacted by the shutdown have begun to return to normal levels. As a result, we expect that 2021 results will be positively impacted by a stronger economy and potentially by a recovery of the Brazilian real, given its current low level.
Now that our Indian telecom tower transaction has officially closed, we can capture a full annual contribution from the substantial going cash-on-cash yields this business generates. Overall, our business is well-positioned for meaningful growth. Our contracted capital backlog is currently sitting at over $2 billion, and we plan to commission this over the next several years. I am also encouraged by the good momentum we are seeing with respect to new investment opportunities. Dislocation in the markets caused by the current economic environment has set the stage for some compelling investments. Before we open the line for Q&A, I want to take a moment to thank those of you who attended our annual investor day in September, either in person or virtually. This year's themes focused on the current economic environment, in particular, the resilient nature of our business and its compelling growth profile.
We discussed the utility-like characteristic of our business, our strong track record of operational value creation, and our predictions of an infrastructure investment super cycle. Ultimately, we feel we are creating a unique opportunity for investors to compound wealth over time in an uncertain and low interest rate environment. For those of you who were unable to listen to the presentation, a replay is available on our website. That concludes my remarks for today. I will now pass it over to the operator for questions.
Thank you. Ladies and gentlemen, if you have a question at this time, please press the star followed by the number one key on your touchtone telephone. If your question has been answered or you wish to remove yourself from the queue, please press the pound key. Once again, to ask a question, please press star and then one now. Our first question comes from Cherilyn Radbourne from TD Securities. Your line is open.
Thanks very much. Good morning. Sam, on the BBU call last week, Cyrus mentioned that M&A activity had picked up quite strongly since the summer after briefly coming to almost a halt. Just curious if you've seen the same kind of normalization at BIP and where the bid-ask spreads sit.
Hi, Cherilyn. I'd first say, we had good activity throughout the whole year. There's no doubt that for a period of probably two or three months, there was fewer processes underway, particularly, I guess, from March into June. Anything that was sort of deferred quickly came back online, and we probably had a bit of an acceleration of activity for some of that just catching up. I guess, in short, I'd confirm what Cyrus has said around activity levels today. In respect of bid-ask spreads, things are as robust as they were prior to the pandemic. There is a lot of capital. Having said that, we are still able to find good opportunities by leveraging our teams around the world and our operations. With low interest rates for the foreseeable future, it will be a competitive environment.
Great. That is helpful color. Bahir, in your remarks, you mentioned some gains on financial assets. Does that imply that there's been some further monetization of the public toehold positions?
Morning, Cherilyn. Yeah, thanks for the question. Yeah, we did have a couple of realizations in our portfolio. We built up a couple of other positions also during the quarter. On a net basis from an asset perspective, I believe we are flat. We did have, yes, a few dispositions, and as a result of that, we had a few realized gains that were recorded in our results.
Great. That's my two. Thank you.
Okay, thanks.
Thank you. Our next question comes from Robert Kwan from RBC Capital Markets. Your line is open.
Great. Good morning. Turning to the M&A side and midstream specifically, with what we've seen recently in the midstream share prices, wondering what opportunities you're seeing. If you can talk a little bit around the framework as you approach these types of acquisitions. Specifically, are you focused on trying to find assets where maybe you can get integration or revenue synergy benefits? If you went with a corporate deal, what percentage of the business mix would you be comfortable with if they had commodity exposure?
Hi, Robert. I'll tackle that question. I guess the first part of your question was just what type of opportunities, I guess, to extract value from businesses do we look for. To the extent that we can leverage some of the existing businesses we have to extract those revenue synergies, we definitely would factor those into our analysis. Obviously, we try to find complementary businesses to things that we already own. Sometimes that's not possible. We look at opportunities on a discrete basis and look for things where we think we can bring some value. That could be with opportunities to invest further into the business to either reduce costs or grow a particular platform if it's been capital starved.
We see that today, particularly in midstream, where there is a shortage of capital in a number of companies, so they're not investing the capital they normally would. A big part of the value opportunity today is buying essentially for value. Many of the businesses today are trading at well north of double-digit AFFO yields. We think that there's an ability to get a return on capital very quickly from some of those investments. That would be, I guess, the framework. I guess the one thing that we do take into account is the likely re-rating of midstream investments is not clear, and so, we would not make an investment in the midstream sector today predicated on some sort of future re-rating. We would look at the cash flows and run those off. Your second question was what again, Robert?
Yeah, just around what percentage of the business mix would you be comfortable with that had commodity exposure?
We don't have a hard and fast rule on that. In the midstream sector, as you can see from our existing portfolio, we favor businesses that are substantially contracted on a long-term basis. Today, as David mentioned, 85% of our revenues across all our businesses are contracted in some fashion. That's probably not a terrible rule of thumb as far as what we would seek to achieve with any future acquisitions. There always is some portion, even if you look at our recent Cheniere transaction, where there's some portion that may benefit from commodity or merchant revenues. We would probably predicate the vast majority of our return on contracted cash flows.
If I can just finish with a question on how you're viewing the BIPC premium. I guess maybe there's two parts to this. The first being, you've typically targeted that 12%-15% equity IRR, which is really, I think, just how you approach an asset acquisition irrespective of how you finance it. Do you see, though, the BIPC premium as giving you the ability to kind of achieve better returns because of where those shares are trading? Does it give you the ability to maybe do some deals that have lower asset returns, but if you finance it with BIPC, you can kind of achieve a better corporate return?
The second part of the question is, how are you kind of thinking about BIPC as the potential to maybe just optimize the mix of LP units versus C shares on an accretive basis from an FFO perspective per unit?
Okay. There was a lot to unpack there. Let me see if I can provide something insightful. We've always looked at our units as an opportunity, even before BIPC was created, as a way to create value. Today, I think we've been fairly clear that we expect to fund probably the majority of our future investments from capital recycling for the next couple of years at least. To the extent that we can opportunistically complete a large-scale transaction and either issue or utilize BIPC or even BIP LP units, we will take advantage of those. The fact that there is a lot of interest in the BIPC units gives us the confidence in being able to use that as a currency. I guess the short answer is yes, we will see if we can do that.
At the same time, we're not deviating from our strategy, which is to do the vast majority of our base level investment through capital recycling. That's not changing. Then, I think your second question really was You were asking about optimizing the relative number of units, both of the LP units and of the shares. I think that was your question. The only thing I would say in that regard is we will continue to look for opportunities to increase our float of the BIPC shares. Whether or not that's issuing those and in the future maybe buying back BIP LP shares or BIP LP units, we'll have to see. We are focused on increasing the float for BIPC shares. That I can confirm.
That's great. Thank you, Sam.
Thank you.
Thank you. Our next question comes from Rupert Merer from National Bank Financial. Your line is open.
Good morning, everyone. Wondering if you can give some more color on the asset sale processes and perhaps talk about which segments the assets could come from. With your asset rotation, how should we think about the target mix of the business in the future? You seem favorable on midstream and data and transport. Does that mean we should see less from the utilities business in the future?
Hi, Rupert. As far as the progress on asset sales, I won't get into specifics because we typically don't. What I would say is, as we mentioned in the remarks, the current environment is positive for asset sales. We are finding that the businesses that we are selling at least are very well attended. There's lots of interest in those businesses. In particular, anything that has an ESG angle to it clearly are in favor. Some of our businesses that are in that sort of milieu, we're noticing a lot of interest. I'll leave it at that as far as the asset sales, where they're progressing.
As far as the segments, we have, in fact, over the next six to 12 months, maybe upwards of four to five processes underway, and we have asset sales, I think, in every single segment, from some that are components of our utilities down to transport and even some data and energy. It literally covers the full spectrum. We're not targeting asset sales in any segment per se. It comes back down to which businesses have we de-risked and executed our business plan, and are ready for their sale in the natural course. That's what we're targeting. It's really around the initial strategy and where we are in that strategy, not around any particular segment. We think there's interest in all these businesses. Finally, to your question on target mix, how we might look in the next couple of years.
I think we might have touched on that a little bit at Investor Day. What we highlighted, and you sort of alluded to this, was that we expected an increase in our data infrastructure investments. I think that could represent close to 30% of our mix from about 15%-20% now. That will definitely increase. Midstream, I think will stay similar to where it is today. I think we will see opportunities. Maybe there might be a moment in time when, if there's a great opportunity that it goes up a bit, but on a long-term basis, I see that representing maybe 20%-25%. Transportation will stay the same. Our utilities, I realize they don't happen as often, but often the transactions can be large. We are still evaluating a number of utility opportunities. It still represents an important part of our investment mandate.
I think as far as what will go up, data will go up.
Midstream will stay flat as transportation, maybe a slight drop in utilities to make up for that increase in data.
Thanks. That's great color. On the organic growth front, you've got a $2 billion backlog. I think that may be up a little bit. What do you think the run rate will be for organic growth, and how are you looking at the returns on organic growth relative to what you can see in M&A?
Hey, Rupert, it's David here. I'll handle this one. In terms of the backlog itself, you're right, it has grown a little bit. Part of that is some new mandates that we've won. Notably, we'll have the sixth liquefaction train at Sabine Pass coming into our energy segment. You'll see a bit of a bump up there. In terms of overall target returns, I'd say these still provide some of the best risk-adjusted returns we can see. It obviously depends on the size and timing of the project, but you'll see those contributing into results starting in Q4 with a few meaningful projects, as well as a large one at NGPL scheduled for mid-next year as well. You'll see them come into our earnings pretty steadily, but a bit lumpier on the energy side.
How much of your investment will come from organic? How much of that $2 billion could you see over the next 12 months?
Yeah. Similar to our current spend, I'd say we're on pace for $800 million-$900 million of growth capital spend for the year, which roughly we equity fund about 50%. The M&A part, I think we give a bit of guidance between, it could range between $1 billion-$2 billion, depending on the year. It'll make up a significant portion, but certainly similar to the levels we've seen for the last year or so.
Great. Thanks for the color.
Thank you. Our next question comes from Frederic Bastien from Raymond James. Your line is open.
Good morning, guys. You're pointing to solid growth next year in spite of a pretty ambitious capital recycling program. Can you get there organically and with the investment you just completed, or are you assuming sort of a normalization of the headwinds you've been facing this year, like currency?
Morning, Frederic. It's Bahir. I think our expectation would be, as we've highlighted, that we do think investment activities should be strong for the foreseeable future. We have a good amount of conviction that even though we have plenty of sale processes or a number of sale processes on the go, where we would expect to have outsized proceeds coming from those, we would expect that that will be reinvested back into highly compelling opportunities. That's driving the majority of that. On the Brazilian real, we don't really forecast for that.
We're just noting that it could be a tailwind for our business, but all we can do for next year is just maybe make some assumptions on our end as to how much we can sell, how much we can buy, and what kind of organic growth we're seeing in the business, which we actually think is going to be a really good year on that front as well, as David highlighted, and also given the economic recovery that hopefully will start happening starting next year.
Okay, thanks for the color on that. With respect to the Reliance Jio investment that you just closed, I understand there might be some additional opportunities that may arise from your relationship with the owners. Can you provide a bit of color on that or expand, if possible?
Sure, Frederic, it's Sam here. Look, I guess there's two things. The first thing is just the portfolio itself. There is significant growth that we expect to come out of the business over the next two years. We have roughly 40,000 towers that are planned to be constructed, which represents, I think, close to a billion and a half of CapEx, which would generate, once they're fully built, maybe $20 million-$25 million of additional run rate FFO. That's fantastic, and that's all debt-funded inside the business. That for sure is going to take place. As far as other opportunities, as you recall, the tower transaction came out of the fact that we developed a relationship as a result of the pipeline transactions that we did with them.
We are hopeful that as they continue to grow their franchise across India, and today they are, I think, by far the largest company in the country. We see opportunities to do more things with them. We'll continue to look for that, but there's nothing that we can tell you today that's in the works.
Okay. Appreciate it. Thanks.
Okay.
Thank you. Our next question comes from Robert Catellier from CIBC. Your line is open.
Hi, good morning, everybody. I'd just like to go back to the midstream business for a second. It looks like there was some pretty strong same-store sales growth there, which seems out of context given the market conditions. Can you just provide more color on the operations as to what led to the outsize gain?
Morning, Robert. It's Bahir. I can take that one. Predominantly, most of that relates to better spreads in our gas storage operations. I'm pretty sure that reflects for most of the impact in that business.
Okay. That tends to be a more volatile business. Some great periods and some normal. Maybe an outsized period here?
That's right. I've classified it. It's a bit more lumpy. The rest of the businesses in our midstream operating group, as Sam alluded to earlier, are predominantly contracted. There is a little bit of market sensitive revenues, but they don't tend to move the needle all that much. It's really just mostly the gas storage spreads.
Yeah. Okay. That's helpful. Two capital allocation questions. Maybe, if you look at your experience in 2020 and the impact that COVID-19 has had on the GDP sensitive businesses, obviously you can't plan for pandemics or things like that, but I wonder what it does for your appetite to invest in those more GDP sensitive businesses. Following that, for example, while you may not want to monetize toll roads at the bottom, is that an area you'll continue to invest in as an asset class?
Okay. I'll tackle that. I didn't quite get the last part, but I think the first part of the question was just has our appetite for GDP sensitive businesses been waned at all from what took place this year with the pandemic? Look, I would say the short answer is no. We think transport continues to represent an important component of our mix of investments. In fact, I think we may be able to potentially add some sectors that historically have been very expensive to enter in that regards, I'm referring to the airport sector. I think the way we've always looked at the GDP sensitive assets is making sure that we put the appropriate risk-adjusted returns to them. I think in the past some investors have maybe been a little bit too aggressive and not considered the fact that there are cycles.
Even though this was a uniquely induced recession, there are always recessions. Those GDP sensitive volumes can go down. We'll continue to look at the sectors. We'll factor in new things that we've learned this past year into our analysis. We'll use the right return levels. Hopefully be able to buy for value if other investors now decide that they don't like the volatility.
Okay. That's helpful. My last question here is on the big picture on distribution. Obviously, I'm not expecting you to tip your hand on the distribution today, but there's been a lot that went into 2020. On the one hand, the obvious headwinds from the economic shutdowns and related to that, the currency. On the other hand, those businesses are returning to trend levels. At the same time, there's a lot of opportunity to invest as well as make some sales. I guess ultimately the question is, does the actual reported results in 2020 have a significant influence on how you look at distribution policy given that they've returned to trend line levels?
Look, as you said, it's a little premature for us to speculate on the final deliberations of the board. What I would say is probably the most important thing that they will look at is the ongoing earnings generation capability of the business, which I do not think has been impacted by what went on this year. In fact, if anything, we've determined that the business is extremely resilient to anything that can come up. We have provided long-term guidance as to what our targeted distribution levels would be in that 5%-9% range. Those are probably the best markers that people should think about as far as what we're aiming to achieve.
Okay, great. Thanks very much.
Thank you. Our next question comes from Devin Dodge from BMO Capital Markets. Your line is open.
Thanks. Look, I wanted to get started by getting your thoughts on the Chilean market. I know you sold most of your investments there in recent years, but from a new investment standpoint, is this a market that you're likely to avoid until we get better visibility into that political and business landscape? Or do you think there could be some interesting opportunities that become available?
Hi, Devin. It is a market we continue to look at. We are obviously cautious around certain sectors inside the economy where we think there is the most potential for populist measures by the government. The country is going to draft a new constitution. The way the format has been or the process has been established, we don't expect there to be massive changes in the direction that they'll draft up, but there will be some areas that could be impacted. I think the social safety net will definitely be widened, and there is every expectation that the annual spend on welfare will be higher, and the availability of education, those sorts of things, will be greater. There's probably also going to be a renewed examination of the laws around the water sector.
That's probably one sector that we would be cautious on until we see what the new constitution looks like. Having said all that, we still believe it's one of the premier destinations for investments in South America. Our focus may be largely on B2B businesses in the near term. I'd say overall, it's a country, in spite of some of the additional uncertainty due to the constitutional process, it's still a great place to invest.
Okay, that's helpful. Maybe just a question on your Australian rail business. Think back about a year ago, I think there was some optimism around some potential new opportunities for that business. I suspect the pandemic may have at least delayed some of those, but how are you thinking about the prospects of Arc Infrastructure over the next few years?
Good morning Devin, it's Bahir. Maybe I'll take that one and Ben or Sam might chime in. Yes, we did allude to certain projects that we've been analyzing at the time in our business. These will be highly accretive, and it would be great if we can get them done. As you alluded to, probably the situation this year has slowed down the negotiations somewhat, but activity levels in the region remain very robust. Our results in that business are very good. Our clients are doing very well. Iron ore prices have held up nicely. We'd be optimistic that there could be some opportunities there where we would execute on a number of growth projects over the short to medium term. Nothing concrete to tell you about at this stage.
Okay, fair enough.
Oh, sorry, it's Ben here. I would just generally add, I think Bahir covered all of it, but generally, I think our outlook would be positive. Our clients are engaging us about expansions and moving more along the rail, and while nothing has firmed up yet, there are a number of discussions, and the region is very active, which is just a positive for the business.
Okay. That's good. I'll just sneak in one more quick one here for Bahir. Bahir, can you remind us of the hedged currency rates in 2021 and any early read on how 2022 is shaping up?
Devin, maybe I can follow up on those offline. I don't have them, I apologize, handy. We're fully hedged on all OECD currencies, just to remind everybody, for 2021 and going into early 2022. I'll follow up on the specifics offline.
Okay, thank you. I'll turn it over.
Thank you. Our next question comes from Rob Hope from Scotiabank. Your line is open.
Morning, everyone. Wanted to follow up on just a midstream M&A question from before. Recently you've been talking about the potential that North American midstream could be an attractive place to invest in. Does the potential change of a U.S. administration favoring Biden potentially alter this view? Will you take a little bit of a wait and see approach? Are you quite happy with the longer term prospects?
Hi, Rob. It's Sam. I'll tackle that one. Look, I think the change in administration was obviously something that we've been aware of for a number of months. It was always a possibility, and even with or without the change, the long-term direction towards ESG considerations around the whole midstream sector has been going in the same direction. It may be accelerated slightly now that it looks like there'll be a new administration. Having said that, our view towards the sector hasn't really changed. I think the fact of the matter is, any assets that are operating today clearly have a significant scarcity value. The ability to meaningfully expand or build new pipelines is going to be very challenging, and even more so challenging with the new administration.
We think it means that the assets that we own today are extremely valuable, and that to the extent that we can acquire new businesses for value, then that's something we'll look at. We'll obviously have to buy them with the characteristics that I mentioned earlier in the call.
All right. That's helpful. Just a more detailed-oriented one. Good to see the U.K. utility businesses connections rebound there. How are we fairing kind of into November and potentially December, given the increasing stringency of lockdowns there?
It's Ben again. We're faring very well. The business, I'd say at the depths of the original lockdown was about 40% of normal activity. That increased to 90% through Q3. In the last few weeks, we've been up to 95%. We've seen an ongoing pickup in activity. The new lockdowns that have been announced in the U.K. do not include a shutdown of construction activity. At this point, we don't see any signs that that trend is going to reverse.
Thank you.
Thank you. Our next question comes from Asit Sen from Bank of America. Your line is open.
Thanks. Good morning. Appreciate the color on midstream and ESG. I just wanted to ask you on U.S. LNG following the recent acquisition. How are you thinking about business fundamentals here and availability of such assets? On one hand, you have a fairly volatile global gas market and the regulatory regime. On the other hand, like you pointed out, U.S. LNG is a low-cost way into a global decarbonization effort. Just wanted to see how you see the availability and appetite to deepen that portfolio.
Okay. Thank you. It's Sam, I'll take that question again. Not to repeat myself and what you just said, but we think that U.S. LNG is critical to achieve the global decarbonization goals for the next 20-30 years. That's a big part of our investment thesis, both for Cheniere but also some of the existing pipelines we own, like NGPL, that feed all those terminals. We will look to potentially add to the portfolio where it makes sense. There is a general lack of availability, particularly from the public capital markets for the midstream sector, which I think is creating opportunities for private investors like ourselves who have capital and access to private investor partners, such as pension funds and sovereign wealth funds, to invest in these businesses. We will use the advantages we have to make additional investments.
We see North America as one of the best places to do that. It's well-established, low cost, and obviously, we know the region very well.
Got it, Sam. If I could follow up on the same lines. You've recently issued $200 million in green preferred unit. Just wondering broadly again, how do you see opportunities in the energy transition value chain? Recognizing that some of these early-stage investments, people are talking about hydrogen, et cetera, could be very early-stage in nature. How does the investment and this team fit into your investment framework? Anything you can offer on that on a conceptual basis?
I think it's early days for us to report. I think in the coming quarters and years, you will probably hear from us the status of where we are in a number of those initiatives. We have begun to examine opportunities within our portfolio, particularly the gas storage business as well as our gathering processing business in British Columbia for opportunities to either introduce a hydrogen component into our mix to create a different product or just to electrify some of our activities today to reduce the carbon footprint of those assets. That's something that's underway across almost all our assets. I think it's safe to say that we're in the early innings of that, we have a lot more work to do before we can come out with something more concrete and reportable.
Thank you.
Thank you. Our next question comes from Naji Baydoun from Industrial Alliance. Your line is open.
Hi, good morning. Just a couple questions on the U.K. port operations. You mentioned the ruling there. Can you just give us more background on that process, and what are the terms and the length of the existing contracts with that customer?
Yeah, it's Ben again. Look, we have a number of rent reviews ongoing in this business. Generally speaking, we probably have several more to come in the coming quarters. These are all long-term contracts. Generally speaking, the process we go through is one where there's essentially an arbitration of the new rental rate. Specifically, there are a number that have gone on. This wasn't just one binary rent review. I can't sort of comment on the specific duration of this one. There are several going on. These rent reviews are upward only. As we continue to execute these in the coming quarters, we expect basically the FFO of this business to continue to go up.
Okay. I guess it sounds like you've identified several sort of areas where you think the contracts are below market. I guess the question is, can you maybe quantify the path to increasing the cash flows from those contracts?
Morning, Naji. Bahir. Maybe I'll take that one. The impact this quarter from this particular settlement that we have executed during the quarter was about $10 million. We'd be hopeful that there could be another settlement that we execute on maybe in the fourth quarter, and some in 2021. They could be in the order of magnitude of about $5 million-$10 million per settlement, if you will. That's just a rough guide. It all depends on which settlements we do by when.
Okay. That's very helpful. Thank you. Just maybe going back to the airport or air travel sector. How comfortable are you pulling the trigger on, let's say, an airport or an airline at this point? Would you say you're still in the early stages of looking at these types of opportunities, or would you be willing to make an investment right away if the right opportunity came up tomorrow?
This is Sam. I guess, there's a number of considerations that you have to take into account. Obviously, value being the most important one. The short answer is we would execute tomorrow if the right opportunity came up, the right asset for the right price. We're not waiting to see what happens with air travel.
Okay. Appreciate that. Thank you.
Thank you. That does conclude our question and answer session for today's conference. I'd now like to turn the conference back over to Sam Pollock for any closing remarks.
Okay. Thank you, operator. We appreciate everyone who joined us on the call today. Thank you for listening in and for your ongoing support.
Ladies and gentlemen, thank you for participating in today's conference. That does conclude the program, and you may all disconnect. Everyone, have a wonderful day.