Brookfield Infrastructure Partners LP (BIP) 2008 Q4 法說會逐字稿

Welcome to Brookfield Infrastructure Partners conference call and webcast to present their 2008 year-end results. As a reminder, all participants are in listen-only mode and the conference is being recorded. (Operator Instructions). At this time, I would like to turn the conference over to Tracey Wise, Vice President of Investor Relations.

Thank you and good morning. Thank you all for joining us for Brookfield Infrastructure Partners year-end 2008 earnings conference call. On the call today is Chief Executive Officer Sam Pollock, who will discuss our 2008 operating performance and provide comments on the current market environment. And we have John Stinebaugh, our Chief Financial Officer, who will review our financial results. Following their remarks, we will look forward to taking your questions and comments.

At this time, I would 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 would like to turn the call over to Sam Pollock.

Good morning, everyone, and thank you for joining our call this morning. In January of 2008, when Brookfield Infrastructure Partners was launched, our objective was to create a premier listed entity within the infrastructure sector. To that end, Brookfield Infrastructure was seeded with high-quality assets that would produce long-term sustainable cash flow and appreciate in value as a result of their strong underlying competitive positions.

Furthermore, we positioned Brookfield Infrastructure to grow by leveraging Brookfield Asset Management's operating platforms to enhance the value of our existing assets and to invest in opportunities that generate attractive returns.

By any number of measures, 2008 was one of the most turbulent years in recent economic history and was a difficult year in which to establish our business. However, despite this backdrop, we had a solid year, ending on strong financial footing.

We begin 2009 with over $550 million of available liquidity and a solid capital structure. Our debt has an average term of 10.8 years, with no significant maturities until 2011, and our average cash interest rate is 5.9%.

As a result, we believe that we are well positioned, both financially and operationally, to take advantage of opportunities that this environment will present.

Despite challenging market conditions in 2008, we made progress on a number of important initiatives that I would now like to highlight. In September of 2008, we exercised our put option to sell TBE, our Brazilian transmission assets, to a state-owned utility in Brazil. We are in the process of obtaining regulatory approval and we anticipate that the sale will close in the first quarter of 2009.

In addition to realizing an after-tax return in excess of 30% on this investment, the sale will generate after-tax proceeds of approximately $270 million, including hedge proceeds.

In January 2009, together with 50% partner Isolux, Brookfield was awarded the right to build $400 million of transmission lines in Texas to increase delivery of wind power in the state. Factoring in ancillary investments, we anticipate the project cost will be close to $500 million.

This project is a low-risk development project with attractive return potential. Brookfield Infrastructure will have an opportunity to invest equity in this project as it progresses.

In November of 2008, Longview, our U.S. timber operation, completed the add-on acquisition of a 68,000-acre tree farm in Washington state. This tree farm complements our existing portfolio and will enable us to increase exports from our U.S. operations.

We also expanded our asset mix and geographic footprint with the acquisition of interest in three public/private partnerships in the United Kingdom and Australia. This establishes our platform in social infrastructure, a sector where we see opportunities to deploy capital at attractive, risk-adjusted rates of return. We believe that the three-P market will expand significantly as governments continue to realize the benefit of delivering social and economic infrastructure with the private sector.

In April of 2008, our U.S. timber operations completed a $1 billion refinancing of its acquisition facility with an average coupon of 5.2%.

And in June of 2008, we closed a $450 million revolving credit facility with a syndicate of global financial institutions in the midst of difficult market conditions that demonstrate the strength of Brookfield's relationships with the financial community.

Now, I'd like to turn the call over to John to review our financial results.

I'd like to spend a few minutes walking through our financials. In my remarks, I will focus on our annual results. In our supplemental information, which is available on our website, we have provided our full-year, as well as fourth quarter, results. We've also provided pro forma results for comparability purposes.

For the prior periods, our pro forma results assume that all of our operations were held by Brookfield Infrastructure on the same basis as in the current period. I will focus on ANOI, which is net income plus depreciation and amortization, deferred taxes, and other items. We highlight this metric because we believe it is a good proxy for cash flow from our operations, which is the key driver of our business.

For the full year of 2008, Brookfield Infrastructure's pro forma ANOI was $63.3 million. Adjusting for non-recurring revenue of $8.5 million at Transelec, our ANOI increased 5% over 2007.

Now I will provide detail for each one of our operating segments. In 2008, our transmission business produced very strong results, largely attributable to the performance of Transelec. On a pro forma basis, excluding non-recurring revenue, ANOI from this segment was approximately $60 million in 2008, compared with $54.2 million in '07.

Transelec's recurring ANOI increased relative to the prior year by 29%, as a result of the rate increase from the implementation of the 2006 trunk transmission study, inflation indexation of revenues, and the impact of gross capital expenditures. Transelec's operating margin was 82%, which is in line with historical levels.

ANOI from our Ontario transmission operations was essentially flat, compared with the prior year, as increased costs associated with the stand-alone operation of this system were offset by a reduction in cash taxes.

Dividends from our TBE investment were $14.3 million in '08, compared to $16 million in '07.

In 2008, Transelec's gross capital expenditures were $71 million, which was lower than expected, primarily due to a number of budgeted projects that were deferred. As a result of the deferred projects, and approximately $190 million of new projects that were booked during the year, Transelec's capital expenditure backlog was approximately $240 million at the end of 2008, compared with $120 million at the end of the prior year.

Furthermore, as we enter 2009, we are seeing an increase in opportunities to build transmission lines for unregulated customers, such as generators and copper mines, as they seek to deploy their capital more efficiently. In the coming year, we will continue to explore these types of opportunities to grow our business. However, we have adjusted our investment hurdle rates to reflect the current environment.

In 2008, our Timber operations generated $12.8 million of pro forma ANOI, which was a decrease of 20% versus '07, primarily due to depressed conditions in the North American housing market. To mitigate this impact, we continued to shift our harvest mix to appearance-grade products and high-quality Douglas fir, which we exported to the Asian market. The Asian market was strong throughout the year, and we sold our product for higher prices, net of transportation.

Overall in '08, the average price we realized on our Douglas fir inventory declined by 4%, compared with the prior year, versus a 14% decline for Douglas fir in the domestic market.

In our Canadian operations in '08, sales volume decreased by 13%, compared with the prior year, as a result of a reduction of second-growth Douglas fir sales, in order to preserve the value of our inventory.

Export volumes accounted for 29% of sales in '08, compared to 27% in '07. Due to our shift in product mix, we held flat the year-over-year decline in our average Douglas fir selling price.

Cost per unit increased 6% compared to '07, primarily as a result of product mix and, to a lesser extent, higher fuel costs. As a result, our operating margins declined to 26% for the year, versus 31%.

In our U.S. timber operations in '08, sales volumes increased by 12% over the prior year, as a result of difficult weather conditions in 2007, which negatively impacted harvest levels. Inclusion of the 68,000 acres of timberlands purchased in November of '08 also contributed to the increase, although to a lesser degree.

Our export volumes increased to 24% of total sales in '08, up sharply from 16% in '07. As a result, we mitigated the year-over-year average decline in our selling price for Douglas fir, to 7%. Costs per unit increased 1% compared to 2007, principally due to higher costs associated with storm damage cleanup in early '08 and higher fuel costs.

Overall, margins decreased to 34% in '08 from 42% in '07.

Before I conclude the financial review, I'd like to take a minute to run through in more detail our liquidity position. At December '08, we had approximately $8 million of cash on our balance sheet. As Sam mentioned, once we close the sale of our interest in TBE, we expect to generate approximately $274 million in after-tax proceeds, which includes $21 million of cash received from hedge gains that we realized in '08, and an additional $47 million of cash received from hedge gains in January of this year.

Brookfield Infrastructure also has $311 million of undrawn capacity under its revolving credit facility, which is available to fund growth as well as working capital. In total, Brookfield Infrastructure has approximately $565 million in available liquidity, which, in this environment, we believe is quite significant.

That concludes my remarks. Now I will turn it back over to Sam to walk through the market overview as well as our outlook.

As we begin 2009, it is apparent that most developed countries are entering what may be a protracted recession, exacerbated by widespread declines in real estate prices and deleveraging throughout the economy.

In contrast, Latin American countries are healthier. Although Brazil and Chile will clearly experience reduced growth rates, they may not enter a recession.

North American and European banks, which were the catalyst for the global economic crisis, are capital constrained and have reduced abilities to lend as they continue to repair their balance sheets. Consequently, the capacity in the bank market has shrunk dramatically and lenders are paring their client lists in order to ration capital.

In Latin America, balance sheets of banks and institutional investors are relatively strong; however, capacity in the local bank and capital markets is modest.

Outside of the banking community, we are seeing signs that capital markets are beginning to stabilize with liquidity returning to the investment-grade debt market. Although spreads are high compared to historic levels, new issues are being sold with more traditional new issue discounts. Access to the high-yield market continues to be quite choppy, with only the highest quality noninvestment-grade companies able to raise capital.

As a leading indicator of the current situation, global stock markets posted historic declines in 2008. The Dow Jones Brookfield Infrastructure index was down 36%. In Latin America, since the recent [slide] of foreign capital, local stock markets have declined precipitously as well, and foreign exchange rates have been extremely volatile.

So, with limited access to capital and valuations depressed in both public and private markets, we believe the business environment is favorable for growth-oriented companies with strong balance sheets.

In 2009, we will continue to work hard to enhance the value of our existing assets. Our transmission business should continue to generate stable cash flow and deliver strong returns. We will continue to look for opportunities to grow this business and have adjusted our investment hurdle rates to reflect the current environment.

In the near term, the timber market is likely to remain weak. Over time, as the U.S. housing market recovers and supply fundamentals improve, we will be prepared to increase our harvest levels and demonstrate the premium value of our asset base.

In the coming year, we expect there to be numerous opportunities to acquire high-quality infrastructure assets at attractive valuations and with lower leverage levels, thus providing us with solid risk-adjusted returns.

With significant liquidity, Brookfield Infrastructure has ample capacity to make acquisitions. Furthermore, we have strong relationships with a broad group of the largest global financial institutions through our affiliation with Brookfield. These relationships, combined with our track record of conservative, predominantly investment-grade financing, should provide us with access to debt capital to fund these acquisitions.

Finally, by leveraging Brookfield's operating platforms, we should be able to extract additional value from and enhance our returns on the assets that we acquire.

Since we are in an environment that still has considerable uncertainty, we will nonetheless be selective with respect to opportunities that we pursue, and we will proceed with caution.

Operator, that concludes our remarks, and so now I'd like to turn the call back to you to open the call for questions.

(Operator Instructions). Linda Ezergailis, TD Newcrest.

Sam, I just have a quick question with respect to your hurdle rates. Can you clarify what sort of magnitude of an adjustment you're making for your different types of investment opportunities?

Thank you, Linda. As we have discussed in the past, we have established 12% to 15% generally is our investment hurdle rate. Today, we have generally moved up our hurdle rates about 200 to 300 basis points on an unlevered basis, particularly in our transmission business. But we do believe that, in the near term, in fact, we should be able to possibly exceed these return thresholds.

And speaking of your transmission business, what is the reason for the Transelec projects being deferred? How long might they be deferred? And what sort of cash spend are you expecting for 2009?

I'll ask John to answer that question.

The projects that were deferred, it's really two things. One is some regulated projects that are part of the trunk transmission system, and we think that the regulator will likely approve those in the 2009 timeframe. So we think that we will have an opportunity to win those projects in '09.

The other piece of it is the [icing] project, where we were budgeting some spend in 2008, that project has been deferred. And given the economic environment, it's unclear what the timing of the project is going to be.

Can you remind me what the spend on the icing project was, and can you break down your $240 million deferrals between regulated and the icing and other?

The deferrals were primarily the regulated, and to a lesser extent, the icing. The icing was maybe about 25%, 30% of the deferral.

Of the $240 million backlog.

The backlog right now -- is, icing is not in that backlog. That basically is a combination of regulated trunk projects that we're seeing. We're also -- have additional lines, which are projects with generators and copper mines, as well as some sub-transmission lines. But the icing project is not in that backlog.

So then, you said it's about 25% to 30% of what's been deferred? I don't know what the number is of what's being deferred. So I don't know, maybe you can give me a dollar amount of the icing project, might be easiest.

We had been budgeting for '08 in the $150 million to $200 million range, and we spent roughly $71 million. So that's the amount of deferral -- roughly about in the $130 million range that was deferred. And the icing project was 25% to 30% of that.

Moving on to a bigger picture question, where are you focusing your acquisition efforts currently? Are you mostly looking at greenfield and brownfield projects, or are there any mature assets out there that are looking attractive?

I'll start with the question and maybe John will add to it at the end. Today, given the current business environment, we see many companies that are over-leveraged or have limited access to capital.

And as a result, the returns that, historically, we were able to transact at are obviously much better now. And so, our focus is on those businesses that have balance sheets that are constrained. There are a number, particularly in the utility and energy sector, that we like, and we particularly like those areas because they're areas that we understand very well. We've got very deep operating platforms within them.

In addition to that, we think those are businesses that will benefit, particularly from the current government policies in the States, where there is a push for renewable energy projects that are going to require additional transmission spend. There's green policies that are going to require upgrades to generating facilities amongst utilities, and this all plays to our strength. That is probably our primary focus today.

So that sounds like it would be more brownfield projects, but if they do have an existing operation, you would be looking for some significant expansion potential? Am I interpreting your comment correctly?

Yes, that is correct. The other thing to keep in mind, and I want to caution our shareholders and analysts, is that we do want to be cautious and prudent in this environment. And as a result, we are looking for projects that are probably smaller than ones that we may have considered in the past, and that's primarily because our ability to obtain large-scale financing from banks these days is limited.

And so, the check size that we're able to arrange with our own liquidity and those from banks is less than in the past. So these will be smaller transactions. What is beneficial, and maybe I'll ask John to talk a bit about the Texas project, what was attractive about that particular asset is the fact that it is one that is very financeable, and it's one that is at a time when we think the capital markets will be stronger than they are today.

Maybe I'll start off by just talking about what we like about the project. First of all, it is a development project, but it's a very low-risk development project because, after we have been awarded the project, as of this past week, we start to accrue all of our development costs and construction costs into the rate base on which we're going to earn a return.

So, although it's a greenfield project, there's quite a bit less risk than the typical greenfield project.

The other thing we like about it is, as we look at it, we're essentially establishing a utility for one times rate base. Typically, you have to pay a premium to acquire a utility. And if I look over the long term on a buy-and-hold basis, we think we can get low teens returns. But if we were to sell it at a premium to rate base, we think we can get returns that are in the mid-teens level or potential even higher.

So you will be purchasing this or co-investing with Brookfield, the parent company, at book value?

We will be investing at book value, and we envision that Brookfield Infrastructure will be the one that invests Brookfield's equity share in the project.

Any sort of capital cost overruns, which I guess there is a pretty low risk going forward over the next year of that, but any sort of overruns, would they go into rate base or would those be at risk to unitholders?

To the extent they are prudently incurred, then they would go into rate base. And we think we can mitigate any sort of disallowance risk by having an open book construction strategy, where we go out and we get bids for the various components of construction and can demonstrate that it's on a market basis.

Last question on that, what sort of returns do you expect to get from those and what sort of capital structure would be appropriate? And what sort of percentage would BIP potentially participate in? Would it be the full 50% or would it be less?

In terms of the capital structure, right now utilities in Texas have roughly about 60% debt to caps. In terms of returns, as I was saying, we think that, on a buy-and-hold basis, we can get low teens returns on this investment. But to the extent that we exit and get a premium to book, we think it's mid-teens or potentially higher.

Regarding the equity strategy, it's pretty early days. We're not going to financially close until probably the end of 2010. So we have not run to ground what the equity strategy is going to be. But whatever Brookfield is going to invest in the project of the 50%, that would be allocated to BIP.

Thank you.

Brendan Maiorana, Wachovia Capital Markets.

Good morning. John, the returns on the unregulated projects at Transelec, how do those compare to the regulated returns?

The returns we're targeting for the unregulated are typically going to be a little bit higher. And it really is going to be a function of any deal that we do, we're going to structure it to make sure that we mitigate credit risk and have the appropriate provisions in there, etc., because these are going to be contractual relationships.

But we would look at a premium to the regulated returns, and as Sam said, in this environment, we basically have increased our hurdle rates in general by about 200 basis points for investments in new projects. And that's on an unlevered pretax real basis.

The $240 million backlog, what would be the timing that you would expect to work through that level?

In terms of the timing of it, it's going to be -- longer than one year. If I look at '09, I don't anticipate that we would spend the full amount because a number of these projects are going to have construction periods that are going to go beyond a year. So our CapEx spend for '09 would be less than that.

Okay. And then, just lastly on transmission, the maintenance CapEx level has increased -- reasonably steadily throughout the year to $2.6 million in the current quarter. I think it was about $1.5 million running in the first half of the year on a quarterly basis. Is there a reason why that number has continued to move up, and what would be the expectation level that we should think about for 2009?

There are two pieces of it. On the Transelec side, it's going to be a function of what projects we do at what times during the year. So you might see some variability across the year.

For Ontario Transmission, we classified basically depreciation as the maintenance expenditure, because we've got to spend at least that much to maintain our rate base, so that's going be fairly consistent but will grow as we grow the rate base.

In terms of the -- for Transelec on a 100% basis, a good number for the maintenance CapEx is in the $10 million to $15 million range.

So still the same as you were expecting at the beginning part of last year.

That's right.

On the timber side, can you give us the amount of acreage that was associated with the HPU sales?

I don't have that number in front of me. Can we get that to you later?

Sure, no problem. And then, just, when I think about your long-term plans, your harvest levels, and I think, if memory serves, the number is around 1.8 million is kind of the potential harvest level that you're targeting once the market recovers. What would be the level of pricing improvement that we need to see before we can get to that level?

I think we would hope that prices in the U.S. market would probably be about 15% higher than they are today, 15% to 20%. And that would probably be closer to trendline prices that we have seen over the last -- averaged over the last five years. Having said all that, our expectation is, in fact, that we will see a period of even higher prices above trendline, because of -- the factors that we have talked about in the past, namely some of the supply issues that are going to take place.

So, if I think about -- let's call it 15% to 20% on the U.S. side and maybe up a little bit on the Canadian side, so if I'm going to use, say, 10% upside in terms of pricing overall, is the margin expectation that you guys discussed -- let's call it a year ago, which I think was around 55% to 60% at Longview and 35% to 40% at Island, do those targets still hold?

Those are pretty good estimates. In fact, Longview may be a bit higher than that, in fact. But the numbers you used for Island are about right.

So the target level of NOI that we could expect for timber -- granted this is once the market recovers -- is somewhere, give or take, the $70 million range relative to what's probably about $40 million, ex-HPU sales in '08.

We can go over the math off-line, I guess.

We will have to do that. I apologize -- in front of me.

Lastly, the dividend level again, the CAD was below your dividend level of $0.265. How are you guys feeling about the level of the dividend as we sit here today?

In terms of the dividend, as we've discussed in the past, we sized the $0.265 based on what we thought the long run earning capability of the business was, and a payout in the 60% to 70% of ANOI range. So, we definitely tried to size it at a level that was more normalized cash flow as opposed to any sort of trends that we're seeing with respect to timber, etc..

Right now, we think we've got plenty of liquidity to be able to continue paying that out. And we anticipate holding it at this level, and as we grow the business, etc., then we will reevaluate.

Okay. Thank you.

Andrew Kuske, Credit Suisse.

Good morning. I guess this is a question for Sam. It just relates to your timber sales into Asia. If you could give us any specific commentary on really what you're seeing in various Asian markets, where the demand is really coming from, and really the species that are being most sought after.

When we speak about Asian sales, for us, it is primarily the Japanese market. We do sell small amounts into China and Korea, but generally, it's Japanese markets. Today, I guess over this past year, we've seen prices increase between 15% to 25% in that market, and they probably represent a premium over our U.S. sales of comparable products of about 40%. So it is quite significant.

Our expectation and hope is that this market will continue to stay robust over the coming year, although to be honest, there is -- that's something we're watching very closely, as we've seen other economies slow down, much like the U.S. over the past little while.

And in the context of that market, most of your log sales are being used in a variety of applications, homebuilding, surface-facing applications, and that kind of thing. Not really into paper or anything else.

That's correct. This is -- the types of products we sell into that market are appearance-grade products, so if you can imagine, they are veneers where they would use them -- primarily, it is inside the house. So it's veneers and it's also large squares that they would use as pillars in the house as well.

Just broadly, when you look at timber [reets] and the just private sales of timberland in the last little while and valuations, where do you see them settling out at this stage and time? There has been a bit of a pullback in prices, to say the least, and HPU sales, in general, have fallen off. So the interest in the asset class, where do you see it at this stage compared to 12 months ago?

The last big sale was at the end of the summer. And that transaction was done at extremely strong valuation. Since that time, there has been a few deals in the market that haven't really transacted. So it's tough to say exactly where the market is today.

Appraisals are still coming in at very strong levels, so that has not shown any weakness in the market. I expect, like everything else, that with the weakening of the capital markets that there is some softness in the market. However, we're not expecting any major downward changes in the valuation of timber over the next little while. But it's something we're going to watch closely, and there will be probably a couple transactions over the next six months that will give us a good indication of that.

One final question, if I may. Financeability of timber versus transmission -- which has become more challenged? This is not specific to a BIP question, but just broadly in the marketplace, which do you think is most challenging at this stage, say, versus four, five months ago?

One of the things we're seeing is that -- for utility-type assets that generate stable cash flow and are strong credit quality, the markets are open. And the investment-grade market, there has been a number of utilities that have been -- deals that have been done, at prices that -- from a coupon perspective are higher than the past, but nonetheless, liquidity is there.

On the timber side, given the current cash flow environment and the cash flow profile, it's going to be a bit more challenging to do than transmission assets. But nonetheless, we think that for high-quality assets, you're going to be able to get leverage but probably less so than you were in the past.

That's great. Thank you very much.

Robert Kwan, RBC Capital Markets.

With respect to future acquisitions or projects going forward, and you look at where your liquidity is, your expected cash flows and with the dividend payments, what do you see as your acquisition capacity, presumably that won't include the issuance of new units? Just kind of an aggregate number.

In terms of that -- we would look at it and we would basically say that the proceeds that we have from TBE, after we pay down the facility, that's clearly what we're earmarking for acquisitions. So that amount of capacity, we don't have to issue any new units, etc..

Now, as you know, we've got the credit facility there at 450. I think we're going to think a bit more cautiously about drawing the credit facility down and using it for acquisitions in this environment. As you know, companies that have levered up and have refinancing issues have not been treated too well. So we will think pretty closely about that before we drop the facility down for incremental capacity.

And just kind of going back to that hurdle rate, just so I'm understanding. You mentioned the 12% to 15% is what you previously would've used. Now that was a levered equity return?

That's correct.

That's correct.

And you mentioned that you've increased 200 to 300 basis points, but I believe you mentioned that's an unlevered return?

That is correct.

So you're probably looking at something kind of more in the high teens on a levered basis, high teens to 20%?

Yes. Today, in this environment, I think that's what we believe we can achieve.

And on top of that, those levered returns would be on a more conservative capital structure?

Yes.

Just one last kind of cleanup question on the multiplex purchase. It looks like the purchase price is down. Is that just due to valuations that have fallen since the time you announced that you might be looking at the assets, or is there some sort of change in either the businesses or the assets you've been acquiring?

The answer is pretty simple, actually. When we acquired those assets from Brookfield, we did it on a U.S. return basis. And from the time that we signed the deal -- from the time we closed, there was a big change in exchange rates.

So it's purely FX, there was -- even though we've seen asset values fall, there was no kind of adjustment in the purchase price?

No, that was FX.

Thanks, then.

Peter Sklar, BMO Capital Markets.

First, I just have a question for John on your accounting for the quarter. I noticed that, just in terms of your financial disclosure, that your equity income is a big number, then it seems when you're getting down to adjusted net operating income, it seems to come out under the other line. I assume it has something to do with the non-cash inflation indexation on your Chilean debt. Is that true? And it so, can you give the magnitude of the adjustment and explain in layman terms what's going on here?

Let me just re-ask the question to make sure I've got it. You're trying to understand the difference between ANOI and net income, what the big drivers are below the ANOI line?

No, there seems to be one number -- there seems to be one issue that flows through equity income and is a non-cash item, so it comes out of adjusted net operating income. I mean, there's a huge bump in your equity income that you reported for the quarter. I assume it has something to do with this inflation indexation of your Chilean debt.

Actually, Peter, the two big factors for the quarter are, first of all -- the performance fee on Island is below the ANOI line. And with the revaluation of that asset, that ended up contributing to a good part of that number that you're referring to. The second is basically mark to market gains on hedges.

Okay.

To be specific, Peter, the mark to market gains are with respect to Transelec, because, as you may recall, we've got match maturity, cross currency interest rate swaps for a good portion of it. But the remaining Chilean equity investment we have done was basically just FX swaps. And those are below the ANOI line. And given what happened with the peso, the devaluation, those generated quite a bit of mark to market income.

Okay. So these are non-cash items.

It's non-cash items, that's right. But obviously, in the case of the swaps, there is definitely value there.

Sorry, going back to the adjustment on Island, is the adjustment just a reversal of the previous accrual you'd set up for the fee?

That's correct.

Okay. Does that account for that entire $19.7 million adjustment you have, when you show the calculation of NOI for the quarter?

That's the lion's share of it, Peter.

My next question is for Sam. Question on Longview. The acquisition that Longview undertook during 2008, where it acquired the tree farm. If you look at the valuation of that acquisition on a per-acre basis, I'm wondering if you could comment if you feel that that acquisition value is representative of the value of Longview as a whole, or how you would benchmark Longview relative to that particular transaction.

The one thing I would caution, it's always dangerous to -- extrapolate a per-acre number across different tree farms. Obviously -- they are relatively close in value, but that particular tree farm has a high concentration of hemlock, and as a result, it's probably, I would say, anywhere between 15%, 20% lower value on a per-acre basis than what we would probably value the rest of our Longview assets at.

Okay. And lastly, last year, the Company provided update on your assessment of the value of the HBU lands. I've not yet read all the documentation associated with the quarter. Have you provided an update on the HBU value?

We have not yet, but as part of the 20-F, that disclosure will be in there. And it's predicated on finalizing the appraisal, etc.

That's all I have, thank you.

(Operator Instructions). Michael Goldberg, Desjardins.

I have a couple of quick questions. First of all, how much gain on TBE is yet to be recognized?

The way to think about that one, is if you take the 275 that we have disclosed, and if you subtract out what we have brought in the door for the realization on hedge gains, which is approximately $68 million, that will give you a good sense as to the proceeds that are to come in the door.

Okay. And how much gain is included in those remaining net proceeds still to come in?

Are you talking about accounting gain, or are you talking about cash?

Accounting gain.

There's no gain that has been included in our results to date, because we got hedge accounting on our swaps. So, all the gain will flow through when we close the transaction. So, if we close in March as we are expecting, it will be in Q1 '09 numbers.

Can you tell me what that will amount to?

We are the process of finalizing it, but it's probably in the $60 million to $70 million range. From an accounting perspective.

Okay. Now also, more generally, are you prepared to buy opportunistically now, or are you still generally holding back. And if you're holding back, are there particular catalysts that you're waiting for? And just further on this topic, does the modest easing of liquidity for investment-grade issuers mean that you run the risk that those investors that may hold attractive assets may be able to hang onto them has occurred with power assets early this decade?

I'll start with that question, and John, you can add, as well. As far as the pace at which we will pursue that, I do think that we are holding back somewhat. The reason for that, obviously, is we have felt that there would be better opportunities to come, because we're not convinced, especially in 2008, that the market had fully reflected the effects that were underway in the economy.

We still think that there is some more trouble ahead, and that the economy will weaken further. And we do want to make sure that -- obviously, taking on any additional debt, that we are comfortable that we have a very strong and comfortable plan as to how we will finance that and refinance it going forward.

To add some color to that, one of the things that we see in the infrastructure space is that, first of all, stocks are down considerably. On average, they are down probably about 40%, in the ballpark.

And one of the big factors is that companies that have a lot of follow-on capital spend, you used to have to pay pretty good premiums for those. So you'd have to pay for the right to invest in the future at attractive rates. Those premiums have largely declined, so we think, from a valuation perspective, it's quite an attractive environment to buy high-quality infrastructure assets.

But to get your point regarding the power assets in the early part of the decade, those were truly distressed situations, where you had -- it was primarily combined cycle gas plants and stuff like that, where there was overcapacity and no cash flow coming out of these assets. We really don't see that kind of distress in the infrastructure space. Valuations have come off, but we don't see that level of overall distress.

Maybe adding to that, I think our view is this particular period probably resembles the real estate period in the early to mid-90s, where there was a number of good years from which you could make investments. And it wasn't a very short period where companies rebounded quickly. So we don't think we need to rush and make an acquisition right away.

I only asked because I recall that in the early part of this decade, there were a number of what appeared to be attractive opportunities in the power sector that never sprang free, because the owners were able to hang on by their fingernails as liquidity conditions improved for them back then.

We think the market is very different. Back then, there was so much liquidity that you had situations where these assets really didn't go into bankruptcy because there were bailouts, financings through the [belong] market, etc.. And you had this all being funded or financed by just all the liquidity in the system.

We think it's a very different environment right now where, although you're starting to see the investment-grade market coming back and maybe if you're a high-quality, high-yield issuer, you can get something done. But there is substantially less liquidity at present.

Thank you very much.

Linda Ezergailis, TD Newcrest.

This is just a cleanup question. Can you provide some more color on the reason for the TBE sale day? And is there any risk of further delays, any sort of wrinkle that it might not happen at all? What's going on there?

We started the process to get regulatory approval back in the fall when we exercised our puts. It typically takes anywhere between three and five months to get those approvals in Brazil. In addition to that, we're at -- we've had Christmas and the summer and Carnivale season upon us now, and that just adds to the delays of it. So we think we're being conservative in estimating March, but unfortunately, it's a little unclear down there what the timing would be.

One other thing to add about that is, as you know, with the way the exercise price is structured, it ends up accreting if we wait, so there's not a loss of value to the extent that it's delayed by a couple of months.

Thank you.

Cherilyn Radbourne, Scotia Capital.

I think most of the questions have been asked, so I'm just going to ask a quick one. Clearly, the strong U.S. dollar will have increased your purchasing power in places like Brazil and Chile, as an example. Can you give us a feel for how that shift in the foreign exchange rates interacts with your comments about the relative depths of the credit markets in both places to just influence relative acquisition opportunities in developed versus more emerging or high-growth markets?

Regarding the FX, clearly it's depreciated. The Reai has depreciated by 30%, 40%. The peso has depreciated by 15% to 20%. So, in terms of investing, it's not a bad time to invest in those markets.

Regarding the capacity in the capital markets, there's a couple dynamics that have happened. One dynamic is that the local markets don't have the same sort of issues with the financial institutions that we see in North America. But by the same token, the local markets are quite a bit smaller in terms of capacity, etc.. So there is an ability to get deals done, but it's smaller deals now without having to take advantage of foreign capital.

And -- but nonetheless, we are proceeding. Valuations are quite attractive with the sell-off in the stock markets there and the devaluation of assets, so we think it's a good vintage period to invest in South America.

Maybe one last one. Just in discussing acquisition opportunities, the issue of sort of stock prices and public valuations have come up a number of times. Should we interpret that that you're seeing more opportunities in the public versus private market, or am I just taking that out of context?

We look for opportunities, both to take private, but also -- joint venture situations with public companies. So those would be private transactions. And we, obviously, to the best we can, try to point to public market valuations as a proxy for the types of returns that we're looking for.

I say the one area where we're probably not spending a lot of time these days is on the large privatizations that have taking place, where we still see lots of participants. And a good example of this would be the Midway Airport type of situations, where valuations are still extremely high for those types of assets and the number of participants are still extremely high. So our focus is on public companies and transactions with public companies.

Thanks very much, that's all for me.

Brendan Maiorana, Wachovia Capital Markets.

Just wanted to circle back on this Texas transmission deal. I recognize that the establishment of this platform certainly will help you as you try to win new development awards from Texas, but does the establishment of a platform in the U.S. help you with trying to either acquire, maybe, utilities in the U.S. from a regulatory standpoint, or do development deals outside of the state of Texas?

First of all, in terms of this joint venture with Isolux, the scope of it is to basically build this transmission project in Texas, so we're not looking to use that as a platform to do other deals outside of Texas.

But to answer your second question regarding other transmission outside of Texas, we certainly do think that it establishes further credibility for ourselves. It's obviously a very high-profile process, and the regulatory scrutiny and other scrutiny that we went through and the size of award we were able to get, we think establishes credibility which will help us in other jurisdictions of the United States.

And regarding how it helps with acquisition of utilities, I don't think it really helps so much directly in getting a utility transaction approved through the regulatory process, but I think what it does demonstrate is, as we've talked about before, a key one of our strategies with respect to acquiring utilities is to put more follow-on capital in the ground.

And transmission is one of the key things that we target. So I think this demonstrates our ability in helping to facilitate that.

Thank you. Lastly, a point of clarification. The low teens return targets that you talked about, that's a levered number?

That would be a levered after-tax return on equity on a buy-and-hold basis.

Great. Thank you.

There are no more questions at this time. I will turn the call back over to Mr. Pollock.

Thank you, Operator. I would just like to thank everyone for joining us on the call today, and we look forward to speaking with you again next quarter.