Good morning, ladies and gentlemen. My name is Julie, and I will be your conference operator today. At this time, I would like to welcome everyone to the Brookfield Infrastructure Partners Q1 earnings call. [Operator Instructions]. I would now like to turn the call over to Rene Lubianski, Senior Vice President, Corporate Development. You may begin.

Thank you and good morning. Thank you, all, for joining us for Brookfield infrastructure Partners First Quarter Earnings Conference Call for 2018. On the call today is Bahir Manios, 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 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.

Great. Thank you, Rene, and good morning, everyone. We are pleased to report that the business is off to a good start in 2018. We generated funds from operations, or FFO, of $333 million or $0.85 per unit, representing a 20% increase over the same period last year. During the quarter, distributions are raised by 8% to $0.47 per unit, which translated into a payout ratio of 68%, in line with our long-term target range of 60% to 70%. Entering the year, a key focus for us was to build up our corporate liquidity in response to signals suggesting a period of greater volatility. Even though economic conditions are quite favorable in most jurisdictions where we operate, we often source them of our best investment opportunities when markets are volatile. Consequently, heading into 2018, a major priority was completing the sale of our Chilean electricity transmission business. We are pleased to report that the transaction closed on March 15 and Brookfield Infrastructure received net proceeds of $1.1 billion, putting us in excellent financial condition. Our results in the period reflect contributions of new investments, as well as organic growth of 9% across the company. A stronger U.S. dollar has negatively impacted our results in the quarter by approximately $13 million, predominantly relating to lower hedge rates on our Australian dollar and pound sterling cash flow hedges. Our FFO hedging program is designed to lock-in currency rates over a period of 12 to 24 months to reduce volatility in our cash flows, provide visibility into our results and enhance our planning capabilities. Our contracted hedge rates will naturally reflect the prevailing market conditions at the time the hedges were entered into. Consequently, from time to time, changing market conditions may result in a lower locked-in hedge rate relative to the spot…

Great. Thank you, Bahir, and good morning, everyone. Today, I'm going to provide an update on a few of the strategic initiatives we have underway, walk you through the history of our investments in Transelec as an example of our full cycle investment strategy, as well as provide a bit of an outlook for the business in the current economic environment. Let me begin with our strategic initiatives. Our previously announced acquisition of a controlling interest in Gas Natural of Columbia, the second largest gas distribution network in that country, is advancing well. This business services almost 3 million customers including the City of Bogotá. It generates predictable cash flows within a favorable regulatory environment that we have significant experience with, given our initial investment in an electricity distribution company in 2012 in that country. We initially acquired 11% of the company late last year and are currently progressing the second phase of the acquisition which we expect to complete during the second quarter. Upon completion, this will result in Brookfield Infrastructure and its institutional partners owning a controlling interest in the company. In early April, we received antitrust approval. And once approvals have been received from the local securities regulator, we will launch a tender offer. Close to the home, we have been observing market dislocation in the North American energy sector. In particular, there's been a spot market selloff in listed energy infrastructure companies and the sentiment is relatively negative. We have monitored this space for many years and experienced that competition to deploy capital by both financial and strategic investors have driven active returns to levels we viewed unattractive. Moreover, the amount of leverage out of land made this historic acquisitions, leaving little margin for error should market conditions change. As the U.S. transitions to become a…

[Operator Instructions]. Your first question comes from Cherilyn Radbourne.

You're certainly amassing an impressive amount of liquidity, particularly given that you've launched several other sales processes. Sam, maybe you can just kind of elaborate on what, in addition to stock market volatility, suggests to you that on the one hand, it's the right time to be a seller of some of these mature assets but also that we could be on the cusp of opportunity here?

Okay. Good morning, Cherilyn and thanks for the question. Let me begin by saying, in relation to the timing of our asset sale, we have a philosophy that we like to sell assets when it makes sense to sell the assets and not do it when we need the capital. Usually, if you try to sell assets when you're short of cash, you end up being more of a distressed seller and you don't get optimal prices. And so our focus and what we are trying to demonstrate with our full cycle investment strategy is that there is a time and a place when you should undertake these processes. And that's our philosophy and that's what we've been doing throughout our existence. So that's how we approach that sort of part of our liquidity strategy. In relation to your second part of your question, which is why we think there could be some interesting opportunities coming along. Look, and I'll caveat by saying that we don't have a crystal ball and so we can't predict when the market may shift on us. But we have known over the last little while that the market has started to move sideways, the volatility index is -- has changed and that often suggest that there could be periods of illiquidity in the market. And we do think that there is a bit of buyer fatigue in relation to asset valuations. And so all those things to us suggest that at some point in time, in the near term, there could be some opportunities. And in the short run, where we are seeing the most buyer fatigue is in relation to opportunities in the energy infrastructure sector in the U.S. Now I realize that in the last 2 or 3 weeks, we have seen a bit of a recovery in the stock market for those types of assets. But for the most part, for the last 18 months, we've seen a general decline. And we do think that there could be some interesting opportunities in that part of the market segment.

Great. And second one really is for Bahir. Certainly the quarterly materials hint at a few short term headwinds with liquidity the most obvious of those. May be you can just give us some help as to how to think about that for the balance of the year?

So I'll start off and say notwithstanding some of the volatility comments that Sam made, business conditions are good. Global economic growth is strong. It's also trending upwards. And as a result of that, our operations have pretty strong outlook as we do attempt to outperform in this kind of -- under these kind of market conditions. And you can see it in our connection activity in the U.K. That continues to be very robust. Our GDP sensitive businesses are performing well. And we continue to add great projects to our capital backlog. But we do note in the letter that in the very short term, we do have a number of specific, I'd call them, dynamics that we allude to, that may impact our short-term results. The first one would be the drag on results that you note. And so that will obviously have a short-term impact on our results. But we now have this great opportunity to deploy that capital into great opportunities that our teams are advancing and also capital projects in our business as well. In addition to that, there is, on the foreign exchange side of things, our hedge contracts in 2018 and specifically for the pound and Australian dollar have lower rates compared to the prior year. And so that will create some year-over-year variances. Good news on that is looking to the latter part of 2019 and 2020. We do have those currencies hedged at significantly higher rates than the ones which you will be observing in the latter part of 2018. And then just finally, we made some comments with respect to some customer related issues at our Australian rail business which will get sorted out over the next little while. So a couple of short term things that are happening. But the longer-term impact -- outlook for the business is very, very strong.

Your next question comes from Devin Dodge.

I just wanted to come back to the Australian rail operation. You mentioned there could be a $20 million or $25 million hit from the closure -- or potential closure of a couple of sites there. Were they not take-or-pay agreements for these study sites or did they just rolloff in the second half?

I'll answer that. And in relation to these two customers, one had a very -- relatively short notice period that it can provide us. And that was because the mine life was near end. And in fact, the issues that we had with that particular customer was that they had planned on some getting new mines up and running that were adjacent to their existing facilities and they didn't get the environmental permits and I think we mentioned that in some previous calls. In relation to the other customer, there are some minor amounts that they would owe us under the contract. But I think the expectation with that customer is in fact -- and this is the one that we are alluding to, the consolidation that's underway, our hope is in fact that they won't shut and that a number of other players in the market will take on that operation and extend it for another couple of years. That mine itself as well has a finite life to it. I think the current resource probably runs out at the run rate today in about 2 or 3 years.

Okay, okay. That makes sense. And then switching to TDF. The backlog continues to build there. Can you provide some color on the opportunities you see beyond the contracts that you've already secured? I think the letter mentioned announcing about the French government to accelerate the rollout of 4G. Just trying to get a sense for how the backlog could evolve over the next couple of years for that business.

Okay. Yes, unfortunately I don't have a lot in the way of specifics. I think the opportunities for that business really relate to the potential selloff of customer-owned towers. We see that today with Altice and it's possible that opportunities could come out of that as well as some other customers may divest of some of their towers. It's a little unclear exactly how the rollout related to the government will pan out as far as future capital deployment for us. But we are well-positioned we're the dominant or largest tower operator in the country. And I'd say at last, the other area that we are focused on in the country is the Fiber to the Home business. And we continue to build out the 4 concessions that we've won. And that should provide growth in the near term for us.

Okay. And may be one last one for me. We saw that in your recent interview, Bruce Flatt was talking about how China could develop into a pretty sizable market for Brookfield over the next several years. But do you feel these comments are relevant for BIP? And I guess what sectors do you think would be interesting?

So from a band perspective, we do think that, also given the scale of the Chinese market, that there's huge opportunities. And it's a big focus for us and we have a number of people on the ground trying to source those for us. In relation to infrastructure and I've been there myself in the not-too-distant past and met with various owners of infrastructure to see what the opportunities would be for us, I think in relation to the other parts of Brookfield, it may be a little bit outward in sort of the years before we have a meaningful investment in the country. The reasons for that -- our primary due to regulation. It's a country that is just transitioning into a market economy. The regulatory framework is relatively new. And many of the market participants, particularly in the regulated sectors, are state owned companies. And so the number of businesses for sale, as well as just understanding how the regulator operates in relation to the state owned companies is still a bit uncertain. To may be state a bit of a shorter answer, I think it's -- it won't be a market for us in the near term. But it's one that in the next 3 to 5 years, hopefully, something will surface.

Your next question comes from Frederic Bastien.

I was wondering if you could provide a bit more granularity on the opportunities that are in front of you in the midstream sector?

Okay, Frederic. Obviously, I can't name specific situation. I guess what I can tell you is that they fall into 3 categories. There's JV, there's carveout and there's take privates. I'd say, those are the 3 areas we're focused on. JVs really are -- I would describe them as various midstream companies, whether Canadian or U.S., who, because of their unit price today, can access the capital markets in the traditional way. Typically, they would've just issued equity. But they find that it's unaccretive to do that. And so there's a number of examples in the market where you see companies basically establish joint ventures or others invest to fund the growth capital and earn a [indiscernible] referred on equity. Operator, can you deal with that noise. [Technical Difficulty]

Your next question comes from Robert Catellier.

I just wanted to follow-up on Frederic's question there. You mentioned the categories of types of investments you might be interested in making. But I wonder if there's a specific asset class where you see the best opportunity or where you find have strategic value?

Okay, and may be just dealing with Frederic's. I apologize about what happened with Frederic. I think there must've been noise on his end. And so the operator must have shut down his line. So I didn't quite finish my answer there. But then, I'll answer yours, Robert, as well. So I was just going through the three examples. On the JV, that was just bringing in -- or investing alongside an existing player and funding their growth capital. Carveouts is a situation where there is just a number of midstream companies that are selling distinct businesses and we can buy platforms that would be great businesses for us to continue to grow. And then lastly, with the drop in the number of prices, we are seeing some of the MLPs in particular in the U.S. drop 50% to 75% over some of their highs. And so we think that there's some good value in those particular situations. Now coming to your question, which is the various asset classes that we like. I guess we are focused across the whole midstream sector. So I think each situation is specific to its own dynamics. We probably have a bias to the gas sector because it's one that we understand well, given our investment in NGPL and we think the long-term sustainability of that business is quite robust. We also probably have a preference for more -- in relation to liquids, more downstream assets that are closer to the demand center and may be less reliant on some of the supply base initiatives that exist. But having said that, we are looking at, I'd say, a whole host of opportunities. So I realize that's quite general, but I hesitate to point you in any one direction.

Well, that was actually the characterization I was looking for. So you have an open mind. But I get the idea of what -- where you stand now. And just on the liquidity, $4 billion is a lot. There's a little bit more on the way. So I'm wondering, how much of that is targeted for investment versus may be just buffering up the liquidity in anticipation of the market volatility that you alluded to?

I'll start there and Bahir might jump in. And I think the -- our general approach would be that as we see interesting opportunities, we'll deploy our capital in a consistent manner. So our strategy is to invest in business that provide us an internal rate of return of 12% to 15%. To the extent that we find an incredible opportunity like we did last year with NGS where we felt we could invest at much higher risk adjusted returns, then we will invest a significant amount of our liquidity. So I think it depends on the type of opportunity in front of us. If it's one that just meets our general return requirements, then we will invest. But may be not back up the bus. But if there is, I just say, incredible opportunity because of the market dislocation that I referred to earlier, then we may be far more aggressive.

And Robert, I'll just add to that. At the corporate level, which would be sort of the dry powder to do those deals that Sam would be -- was alluding to, that today sits at $3 billion. We'll probably be using about $500 million of that to fund some of the larger projects we have in the business. So that will happen in a staggered fashion for the remainder of the year and it's probably another $200 million to $250 million that will go towards funding transactions that have already been secured. So some of that are -- some of the Indian toll roads that we secured last year and the Gas Natural opportunity that Sam alluded to that earlier.

Okay, that's helpful. And then just I wanted to sort of get an understanding of the strategic partnership with the city of Toronto. You said eight nodes were identified. But what type of scale are we talking about in terms of capital and timelines? And is there any -- what's the level of commitment by each party? Is there an idea of a minimum capital spend or is it on a case-by-case basis?

Look. It's basically a framework agreement and it requires that developers in each of those 8 nodes need to come to us on an exclusive basis to install district guarantee for those districts. So basically, it provides us with the first opportunity to build the systems. And so the actual amount is really market dependent though. So long as Toronto continues to grow at the pace it does and the number of areas where we have the exclusivity, like Liberty Village or the Portlands area are up by its carbon center, those are all areas that we think we will see good development over the foreseeable future. We think that the scale could be quite large. As far as aspirational dollars over a medium to long-term basis, I think it could be $1 billion. But it's not happening tomorrow. This is obviously something that happens as the city develops.

Okay, that's very interesting. And then finally, I'm not sure if I would take the comments on the Australian business. You gave a second half 2018 possible impact. Is it -- we did take this as a 2018 phenomenon only or is there an expectation that, that will fact be the run rate in terms of headwinds unless your customers find mitigating -- unless there's some mitigating circumstance?

So what Bahir provided was basically a worst-case scenario to the extent that both operations shut down. And if we factored in the cost reductions that we've identified in the business related to those activities, our hope is that one of the operations will continue to run. Our expectation is that it may run at a lower rate than what it operates at today. And hence, rather than trying to predict what that would be and get into probability, we thought we'd just give you the worst-case scenario. And so hopefully, it will be somewhere in between where we run at today and case that Bahir gave you. The other thing though that I did want to make sure no one forgets is that these businesses are dynamic. And while there is -- these 2 operations that are coming to the end of their lives, we are seeing expansion proposals in other parts of the network. And in particular, the alumina box producers are looking to expand their operations to growing need and they're one of the lowest cost, biggest suppliers around the world. So those are very vibrant and successful businesses. In addition to that, our Chinese customer, who has, for many years, talked about growing the scale of its operation, now has its business running quite well. They earn a premium for their product because they upgrade magnetite. And so our expectation is that over the next couple of years, they'll look to potentially double the size of their business. And so we see these as more near-term issues as opposed to long-term issues for the business.

Your next question comes from Andrew Kuske.

Sam, I appreciate the context on Transelec and then may be just going back to that a little bit, that Transelec was done at the Brookfield Asset Management level back in 2006 or prior to your existence and it's been a great monetization for you. I just wonder if you could compare your thought process on Transelec and how you look at the fund model you have now where you have effectively 10 year long funds or 10 year life funds that do come to a point where you have to make monetization decisions that you don't necessarily control the same way you did Transelec.

Sure. You're right. Most of the investments that we have today are through the funds. The funds have a 12 year life with several opportunities for extensions. I think the interesting thing to note, which may be what you're alluding to is the fact that in the case of Transelec, this was an asset we held on balance sheet. It was prior to when we established the fund business. And so irrespective of the fact that we did not have a fund expiry, we still chose to exit. In fact, all the initial 5 businesses that we spun out with Brookfield Infrastructure we have now exited even though none of them had, really, expires. And I think it just goes to the fact that it really isn't a matter of having a certain life associated with an asset. It has to do with the fact that we have a business plan that each business was bought with, how we think we can create value with it and then ultimately realize it, realize on it. And typically, that business plan is usually over a 7 to 10 year period. So I think that would be our expectation for most of our businesses. Now sometimes, we just got an incredible business that just continues to give, give and give. I would put our, at this stage, the U.K. business in the U.K. obviously in that category where it continues to exceed our initial expectations for it. But otherwise, I'd say whether or not we have the business in the fund or whether or not everything was on balance sheet, we would still take the same approach.

Okay, that's helpful. And may be just on U.K. As you mentioned, obviously the growth there continues to be at a very high rate. And it's been a great acquisition from when you got Babcock, [indiscernible] Babcock. When we look at some of the U.K. distribution assets, they tend to trade at pretty hefty premium wrap. So how should one really think about the valuation of your connections business given the growth that it has and given the similarities to your regulated construct?

Well, that's a good question. It's on the back of the envelope, it is tough to value because it's a unique regulatory business in a sense that it has extremely high growth. And that owes itself to the fact that it is, in some respects, a market-driven regulated company. So we have regulated contracted cash flows. But we compete in a competitive basis to acquire those regulated cash flows. And so it's a business that given its high growth rate, would trade at multiples. On an EBITDA basis, far higher than traditional distribution businesses. So I would expect and what we are seeing in the past is these generally trade in the high teens multiples. If you want to do it on a DCF basis, I think given what we've seen, you would probably discount this business in a 5% to 7% range. And so that's why when we think about it and I know we don't give sort of valuation guidance on individual assets, but for a company that we now have an invested cost base of probably 0 to $100 million, it's probably worth to us well over $3 billion, may be more.

Your next question comes from Robert Kwan.

If I can come back to just your thoughts on midstream. And do you have a preference for rate regulated versus unregulated?

So I would say it all depends on what price we are paying for it. So I like rate regulated in a consistent, stable cash flow if I can buy them for value. If I'd have to pay a 5% to 6% or return for them or these [indiscernible] I would achieve then, it doesn't fit our business philosophy. So in that case then, if I can earn in a very well contracted business with great barriers-to-entry and it's unregulated, then that would be a more interesting proposition for me. I realize I'm being a little being weasely there in that response. But I think it really depends on how much we pay for it and some of the specific attributes of the company.

Understood. And obviously it does come down to price and value. I guess just continuing with that. Just general, do you have any thoughts or concerns to just some of the decisions that have come out of the FERC as it would relate to rate regulated? Did that cause you some pause? And as well, do you think about rate regulated, while it may not be strictly kind of traditional North American cost of service, how do you think about that with your business with respect to not really having a real or a strict real return component? And what a declining rate base over time might do? Or are you looking for assets like you've seen here with NGPL where it may be rate regulated but lots of opportunities to put capital into the system?

Okay. So I don't know if I have time to answer that in great -- in full detail, Robert. That's a lot of stuff there that's interesting. Let me start by saying that I think too many people, when they hear rate regulated or regulated, they think that there's no risk. And we have never felt that way. We understand that regulated businesses actually have lots of risk because you have someone who's always looking at the tariff and has control over what you can charge and can change their mind on how it works. And we've seen that in many jurisdictions over the years. And so there's so many other factors that you have to take into account when looking at it. And primarily, you need to look at your -- what you're earning and does that earnings makes sense in relation to the amount of capital that has been invested historically or the amount of capital you invest. So we take that view. We look at the fairness between what we are earning and how the customers may look at that and take that into account in buying any business in relation to the risk to those tariffs. So hopefully that answers your first part of your question. And on the second part as what businesses we would favor. Look, I don't know if we have a preference per se because I think even in the case of, say, NGPL where we have a regulator which determines max rates and it was more of a competitive environment and we can transact with customers based off of market conditions and deploy capital where it makes sense, even there over time, we would recognize that what we can earn is dependent on the rate base. And so I think ultimately it comes back to that. I would just say, look, without going on too much longer, just that all the businesses make sense. We just need to look at the underlying attributes.

Understood. If I could just finish with the NTS financing. And Bahir, I think you mentioned looking at a five-year term, roughly 7%. And I apologize if you talked about the size. What is the expected size of the financing? And do you expect that to be dividend back up or are there capital needs to retain that in the business?

Hey, Robert. Yes, so the total financing is a little over BRL 5 billion on 100% basis. And so net to BIP in U.S. dollar terms, it would be around $500 million and the expectation is hopefully that this will close sometime in May and that this cash would be dividend up to BIP.

We have reached the end of our question-and-answer session. I will now turn the call back over to Sam Pollock for closing remarks.

Okay. Thank you, operator. And I know that was a long call today. So thank you for everyone for listening in. And we look forward to providing further updates in the next quarter. Go, Raptors.

This concludes today's conference call. You may now disconnect.