Brookfield Infrastructure Partners LP (BIP) 2013 Q2 法說會逐字稿

Welcome to the Brookfield Infrastructure Partners conference call and webcast to present the Company 2013 second quarter results to unit holders. (Operator Instructions). At this time I would like to turn the conference over to Tracey Wise, Vice President, Investor Relations. Please go ahead.

Thank you, operator and good morning. Thank you all for joining us for Brookfield Infrastructure Partners second quarter 2013 earnings conference call. On the call today is John Stinebaugh our Chief Financial Officer, who will review our financial results, and Chief Executive Officer, Sam Pollock, who will discuss highlights from the quarter, provide comments on our strategy and the outlook for our business. Following their remarks we look forward to taking your questions and comments.

At this time, I would like to remind you that, in responding to questions and in talking about 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 different 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 now like to turn the call over to John Stinebaugh.

Thanks, Tracey. I will spend a few minutes walking through our results and balance sheet then turn the call over to Sam. In my remarks I will focus on FFO which is a proxy for cash flow from operations. I will also focus on AFFO yields, which is a measure of how effectively we deploy our capital.

The second quarter 2013 was the most profitable in our history as virtually all of our operations performed well. FFO for the period was $180 million or $0.88 per unit, representing year-over-year increases of 62% and 47% respectively. Our results also exceeded the first quarter with FFO and FFO per unit up 13% and 10% respectively. This strong performance was driven by our recently commissioned Australia railroad expansion and contribution from acquisitions that we closed in the latter part of 2012. We are very encouraged that many of our operations are performing ahead of expectation with outlooks that remain positive.

For the quarter we generated an AFFO yield of 13% and our pay out ratio of 55% was conservative versus our target range of 60% to 70%. Our utilities platform produced FFO of $96 million in the current quarter compared with $78 million last year. The increase was primarily due to the acquisition which doubled the size of our U.K. regulated distribution business and the increase ownership in our Chilean electricity transmission system. Excluding the contribution from these investments our underlying performance was solid, benefiting from inflation indexation, the commissioning of certain capital projects into our rate base and favorable weather conditions.

Our transport platform generated FFO of $83 million in the second quarter 2013 versus $36 million in the prior year. The increase was attributable to a doubling of FFO from our Australia railroad following completion of our expansions program the final portion of which was commissioned in March 2013. Our results also benefited from a strong performance from our toll roads, which posted FFO that exceeded expectations due to higher traffic volumes and tariffs.

Our energy platform earned FFO of $18 million in the quarter compared to $17 million last year. We benefited from strong results at our U.K. energy distribution operations due to unseasonably cold spring and the contribution from our recently acquired District Energy system in Toronto both of which more than offset a decline of performance at our natural gas transmission business.

I will now talk about some of our recent balance sheet initiatives. During the first half of the year we undertook a number of initiatives to further strengthen our balance sheet in order to position ourselves to capitalize on attractive large scale acquisition opportunities. We increased the availability under our corporate revolving credit facility by $500 million to $1.4 billion, adding nine new lenders to our bank group. The commercial terms of these bilateral agreements are the same as our existing facilities providing us with access to additional capital at a very low cost.

In early May we issued $340 million of equity in a transaction that was 2.5 times over subscribe further demonstrating the strong appetite for our units as well as investor confidence in our ability to grow our business in an accretive manner. Including the expected proceeds from the sell of our New Zealand regulated distribution business we will have access of approximately $2.5 billion of liquidity at the corporate level, with $1.1 billion of cash on hand.

During the last few months we complete several refinancing at our operations capitalizing on the opportunity to issue long-term debt in this historically low interest rate environment. At our Chilean transmission system we completed $440 million of local and international bond issuance. At our European ports business we closed a EUR450 million bank facility with the syndicate comprised primarily of European lending institutions. And at our District Energy business in Toronto we raised $250 million in a private placement that was rated A minus by DBRS. With the completion of these financings we have no significant near term maturities at any of our operations.

One last comment before I turn the call over to Sam. During the quarter we won a stamp duty dispute with the government of Western Australia relating to our Australian railroad business. Following our acquisition of Prime in 2010 we deposit $46 million in escrow to reserve against this potential stamp duty obligation. In April the Western Australia court of appeals rules in our favour, and our deposit was returned with $6 million of interest.

I will now turn the call over to Sam to walk through capital recycling initiatives and the outlook for our business.

Thanks, John, and good morning everyone. Let me begin by reviewing our successful capital recycling efforts.

A year ago we announced a plan to divest certain non-core assets and timber lands to fund a portion of the capital we invested in 2012 and provide further liquidity for new investments we are pursuing. We define non-core assets as ones in which Brookfield does not have sufficient control in order to deploy our operation oriented approach to enhance value as well as assets that are mature or have limited incremental upside. In relation to our timber assets while they were a core component of our business we had an opportunity dispose of these assets to strategic buyers who were prepared to offer prices that fully reflected our view of future log prices.

In the current market environment buyers are generally valuing both mature regulated assets and timber lands at rates of return that are meaningful lower than our targeted range of 12% to 15% per (Inaudible). As a result we felt that a sale of these assets would provide a very low cost source of financing for our business.

When we embarked upon our plan appreciate that we would not necessarily be able to time assets sales in order to match fund new investments. However we are confident that we will be able to recycle this capital in to new investments that offer superior returns to our unit holders in a relatively short period of time. Over the last nine months we have worked very hard to progress this initiative executing definitive agreements for five divesture totaling $1.5 billion of equity proceeds. Once completed these transaction will generate approximately $500 million of capital gains and average annual returns on our invested capital in excess of 25%.

As we regularly revalue the assets on our balance sheet in accordance with (Inaudible) many of these gains were recognize in our financial stamens in prior periods either through net income or our capital accounts. We believe that the returns we achieved on these assets highlight our ability to buy and sell assets for good value and demonstrate our disciplines (Inaudible) capital.

Turning to our recent transactions. During the quarter we announced the sales of the last of our Canada U.S. timberlands for combined proceeds of $640 million. These sales were complete at a modest premium to our recent appraisals that reflect a full recovery of log prices and historically low discount rates. Further more our U.S. timberland sold for a price that equates to $4,100 per acre a notable premium to most salesthat have taken place over the past 10 years in the Pacific Northwest.

In July we announced the signing of a definitive agreement to sell our 42% interest in our New Zealand regulated distribution business for NZD525 million New Zealand dollars which equates to approximately $410 million U.S. dollars. This business generates very strong cash flow for us since we first acquired it in 2009 as part of our recapitalization of Babcock & Brown Infrastructure. Upon closing of this transaction we will generate a internal rate of return on this investment in access of 25% largely attributable to the favorable price at which we acquired this asset during the financial crisis in 2009. We expect to receive proceeds from this sell by the end of this year following the approval of the New Zealand Overseas Investment Office.

Now let me walk through our outlook for the business. In our first quarter conference call I highlighted our general optimism regarding the long-term outlook for markets within which we operate and the strength of our deal pipeline. Since then there has been considerable volatility in the global markets as investors scramble to reposition themselves in advance of the impending tapering of quantitative easing by the U.S. Federal Reserve. In the past three months yields on ten year U.S. Treasury's have increased by approximately 100 basis points to 2.6%.

Our business development teams around the world continue to focus on a number of strategies that we believe will yield attractive investments opportunities. For instance, we continue to look at opportunities to acquire non-core infrastructure assets from industrial companies that are looking to delver their balance sheet and raise alternative sources of capital to fund their investment programs. We are also looking to buy GDP sensitive infrastructure assets from construction companies that are seeking to refocus on their core construction business and strengthen their balance sheet. In addition to those areas we are also looking to build out our North American District Energy business.

I am pleased to say we are making progress on this front, and yesterday we signed definitive documents to acquire 100% of Energy Solutions District Energy for $130 million in partnership with institutional investors. This business owns and operates District Energy assets serving the business districts in Houston and New Orleans, and Brookfield Infrastructure will own a 40% interest in the business. This operation will complement the system we acquired in downtown Toronto last year and this acquisition is expected to close in the third quarter 2013.

With the recent volatility in the capital markets, raising capital in the debt and equity markets now carries considerable greater uncertainty. Our ability to take a long term view and to commit capital on a timely basis provides an attractive alternative for those companies looking to sell assets or raise capital.

Further more a number of these opportunities are very large scale. With our liquidity position and proven access to the capital markets we believe we are one of a short list of buyers that can readily execute these types of transactions. We have a great amount of confidence in our ability to deploy significant amounts of capital at attractive returns as demonstrated by the approximately $4 billion we have invested in acquisitions over the last couple of years.

As we said last quarter our pipeline of investment opportunities is stronger than ever. We feel fortunate to have a significant war chest to invest at time when we believe equity return expectations are on the rise. The deployment of this capital will drive further distribution growth which should support our attractive valuation relative to other yield oriented investments.

With that, I would like to turn the call back over to the operator for questions.

Thank you. (Operator Instructions). Our first question today comes from Frederic Bastien of Raymond James. Please go ahead.

Good morning.

Good morning.

Just wondering if your areas of investment interest have changed dramatically since the last quarter? At the time I believe you highlighted ports and Potentially toll roads as an area of short-term focus. I'm wondering if that has changed?

Hi, Frederic, it is Sam. The short answer is no. Those would be categories that would be captured under the infrastructure assets that we are looking to buy from both construction companies and industrial companies.

Okay. If we look at geographies how are you thinking about Australia right now as a place to invest? I assume that prices for commodities related assets have come off in recent months. How would you reconcile the potential attractiveness of an investment there with your long-term goals to be a bit more globally diversified?

Well, there are two questions in that. The first question is what do we think of Australia. And we continue to think that is a attractive jurisdiction to invest in. It has a very stable regulatory regime. We can access capital quite well in that market, and we think the types of assets we and acquire there would be very attractive. I would say for the next little while the number of development opportunities are probably limited given a number of the resource companies are probably delaying or postponing some of their expansion plans, but I think there could be some great ground field opportunities there in the not too distant future and we think it is a great market to invest in.

Okay that is helpful.

With respect diversifying our business our strategy is to invest in market we can earn the best risk adjusted returns. So we are not as necessarily focused on trying be in one market versus another, it depends on where the opportunities arise. We do see lots of great opportunity today in South America so is that particular focus and we have seen some new opportunities arise for us in our pipeline in North American and Europe. So I would say today the opportunity set for us is quite balanced pretty much around the world.

Great. That is helpful. The last one I have for you is just housekeeping. Where the result of the timber platform consolidated with corporate in the second quarter?

Frederic, it is John. Is that absolutely right. The result were included in corporate. So if you look at our adjusted EBITDA as well as our FFO the timber results are reflected in those numbers.

Got it. Thank you. I will turn it over.

The next question comes from Brendan Maiorana of Wells Fargo. Please go ahead.

Thanks. Good morning. Sam, have you given that we have the ten-year up significantly, it sounds like maybe there is a better return options that are out there, have you adjusted your return requirements? You have been pretty consistent in that 12% to 15% levered IRR target since you came out, but has the higher rates caused any revaluation of those targets?

Hi, Brendan. The short answer again on this one is no. I would say when rates went down we didn't think they were sustainable at that level so we never adjusted them downwards. We have always been as I would describe absolute return investors, so we have always felt for the type of business that we are buying and our view of long-term interest rate levels and inflation levels that 12% to 15% is appropriate. I guess what I would just caveat and add to that is obviously the ability to achieve those levels of returns is easier during periods of distress or during periods where interest rates move, so I think our ability to achieve or over achieve those rates should be easier now than they were over the last couple of years.

I guess you don't have to push as many levers to get there and it sounds like there is probably a wider basket of opportunities to pick from now that meet those return requirements given that there is maybe less investors at the margin or there is less levered investors at the margin; is that fair?

I think that is fair. And in certain regions particularly South America and India and a few other emerging markets there were a number of aggressive buyers over the last couple of years and I think certain investors from those areas are now far more cautious and have a lot less capital available, so I think that has reduced completion somewhat.

Sure. In Brazil I think there was news out during the quarter about a potential rate freeze on toll roads. Can you give an update on what if any impact that could or may have on your business there, and how do you feel about the valuation of the investments you made in the Brazil toll roads late last year relative to where pricing is for those assets today?

Let me start and then John might want to add a few things. Just dealing with your second question first. We think our timing was quite good in those assets and as you know the values for the business we bought in Brazil have gone up quite significantly since that time. And putting aside just where the share price has gone I would say more generally the performance of the roads despite what I would describe as relatively weak GDP in Brazil, the traffic levels have been quite strong and we are quite pleased with that. It just shows the demographic of that region coming through.

And I would the same goes for Chilean. The GDP in Chile has been obviously stronger than what is going on in Brazil and the performance of our roads there have been fantastic, so we are quite pleased with both of those opportunities today. With respect to some of the announcements in particular in Sao Paulo state regarding putting a cap or a short-term freeze on some of the inflationary increases to tariffs, there still hasn't been any formal announcement what the regulator intends.

I would say two things, one the regulator has indicated all concessionaires would be kept whole, so this is really something that they are doing for their own population. There is a long history that Brazil has of compensating concession holders when they make changes to the tolling regime, and we are still very comfortable with the concessionary framework there. Some of these things are in response to some of the tensions going on in the country, but as far as performance of the roads and concessionary framework everything is as we expected.

So there hasn't been a real change in terms of where you think roads would price today; is that the case? And if it is not the case, does that make you feel more optimistic about investments in additional toll roads in Brazil or surrounding areas in South America?

I would say the challenge for new investments in Brazil at the moment is the government in it's privatization efforts that have been underway for the last six months or so has been trying to push the envelope down on allowed rates to return. S they have had a few false starts in the privatization process. I think we have been encouraged with the direction they are heading and as far as providing an opportunity earn at a better rate of the return. We still have to wait to see how that all shakes out because those are probably the best opportunities to invest meaningful amounts of capital in that market. To summarize wee do still think it is a great place to invest. We like what we have today, and we obviously need to digest that investment for the next little while so I wouldn't say we are actively looking to do new things a the moment.

All right, that is helpful. Thank you.

Operate the next question comes from Bert Powell of BMO Capital Markets. Please go ahead.

Thanks. Sam, you talk about the acquisition pipeline being stronger than ever. I'm wondering if you can give us a sense as to how that splits between distressed or situations where you offer something that is unique and precludes competition versus auction situations?

Obviously I can't go into too much detail around the specific opportunities, but to give you a flavor for why we feel pretty good about the current situation. First off I wouldn't say anyone is distressed. I don't think in this market I would like describe it as a distressed market. I think there is motivated sellers because they have a number of initiatives they are looking to do and they are trying to right size their balance sheets or generate cash for investment programs but it is not distressed market.

But to give you an example of why I think we have an unique business development platform, we today have about six opportunities that we are currently evaluating that would be exclusive or effectively exclusive opportunities, so these would be non-options situation. And they would be situations around the world. Some are more modest in size and some are large scale, and it is hard to predict how many of those we can turn into a completed transactions because obviously there is still lots of negotiations to take place and diligence to undertake. But that is pretty robust pipeline that are proprietary transactions.

Bert, it is John. Another thing we look to do, we are targeting acquiring infrastructure from industrial companies and these type of opportunities really deleverage our structuring capabilities because not only do you have to acquire an assets but you also have to negotiate a contractual framework with the counterparty because they still want access to the infrastructure asset. So in those type of transactions it really does gives us a good opportunity to leverage not only our acquisition skills but structuring skills in order to put deals together where we think we can get good overall value.

That is very helpful, John. In the rail which had a good showing this quarter, can you give us a sense as to the plan? How much of it is take versus pay are they running at plan or below but they are paying you anyways? I am trying to get a since as to how strong the underlying fundamentals are for that asset.

Bert, it is John. In terms of where the rail is right now with the take or pay framework we are pretty much running at the take or pay levels right now. Even though we have that contractual framework in place, we a bit in excess in the take or pay levels. So all in all the production of our customers is according to their plans, we think there may well be some additional upside as we talk about in previous quarters to the extent they continue to ramp up their operations. We are definitely in a situation where they are operating at levels that exceed the minimums that are in the take or pay contracts.

Okay. Last question. I know Euro ports and PD ports that has been a more challenged part of the business. Is there any signs that you can see that could be very recent data points, that would tell you things are improving there or is it still a challenge?

I would say it is still a challenge. I am trying to search for little glimpses of a strong turn around. I would say we have months that are pretty good but then things slow down again. I think the only thing I would say we have a number of things we look at in mainland Europe and the rate of decline or the slow down does appear to be tapering off and I think the region is hitting bottom. But we really don't have any visibility at this stage as to what the recovery will look like. So I would say it is flat to looking like it is turning the corner, but what that rate of recovery will be is too early to tell.

Okay. I was hoping for a little bit of a turn too, Sam. Thanks.

The next question comes from Robert Kwan of RBC Capital Markets. Please go ahead.

Good morning. You mentioned in the outlook a couple of those buckets around specific assets. I'm wondering what your appetite is or where you see the opportunities for larger corporate type acquisition?

Sorry, Robert, I didn't quite follow. You were asking what the appetite was for larger corporate acquisitions?

Either corporate acquisition or a company that a has a larger number of assets somewhat similar to what you did with Babcock & Brown.

I see. We do keep an eye out for opportunities like that, that are a bit more multi-facet and complex. I would say, our business is focused on pursuing those type of M&A activities, generally because the success rate of translating public transactions to conclusion are often relatively modest, but we do have a number on the radar screen and depending on market conditions that's something we could always do, we have the capability of executing them, but I wouldn't say that's where we generally focus our attention.

It sounds like it is more back burner item then even in terms of what might be in front of you in terms of most immediate acquisitions?

It's just not what I describe is our bread and butter. I would say our bread and butter is going out to meet companies, finding out what's their business plans require for them to be successful and whether they need to raise capital or they are looking for a partner to grow, then we think we are that ideal partner. For companies looking to sell themselves, generally, they will run a process and often that's not something that we tend to focus on too much. And we don't tend to really do hostile transactions. So we are not really going out there looking to take advantage of someone.

But Robert, it is John. As you know, the infrastructure industry is very capital intensive and transactions where we buy infrastructure assets from industrial companies or the types of things that are bread and butter. There is a range of sizes some of which can be quite large just given the capital intensively of the sector.

Okay. And just with the upsize to corporate credit facility are you still looking at that as more of an equity bridge, or do you think you now have the capacity for more permanent debt at the whole co level?

Our thoughts on that haven't changed Robert so that's more of a source of liquidity for us that we would look to replace with permanent capital, but with our credit rating we were able to increase the size of facility at very low cost and thought that in light of the opportunities that we are seeing in deal pipeline that was something we intend to do.

Okay, and the last question I have is Sam you mentioned earlier around concessions coming at the front end being a good way to invest at, basically, one times rate base similar to what you are doing in Texas. What is the appetite for Greenfield in terms of size, particularly given you need to carry some of that construction on a multi year basis, how big, would you feel comfortable taking that on knowing that you are paying out a good portion of cash flow?

Robert, I think that all depends on the nature of the opportunity. I think we feel pretty comfortable that we have the capacity to take on relatively large projects and that we can explain it to our shareholders, if there is a time lag between when we invest the capital to when the FFO shows up in our results. I would say that is what really took place with the Australian railroads expansion where there was a good year to year and half gap from the time we invest capital to the time it came through our results.

And that really would have been the case with Dudgeon Point if we were proceeding with that, that is a very large transactions that used to give an order of magnitude probably would have required equity well in the excess of $1 billion and if we were able to proceed with that with the framework that we were negotiating with various parties, we would have been comfortable going ahead

But in light of the issue that you mentioned Robert and just the overall risk profile was even though we focus on low risk development projects, they do have greater risks than operating projects. So we would look for a premium in return for those types of opportunities.

That is great. Thanks, Sam, thanks John.

The next question comes from Andrew Kuske of Credit Suisse. Please go ahead.

Thank you. Good morning. The first question is for Sam and it's really along the lines of how do you think about the scalability of your business, I guess there is a few ways to sort of think about this you in the context of WestNet Rail or I guess now Brookfield rail to the degree you have an appetite to move into the ports or move further upstream in say storage and handling of materials to a greater degree.

And the other way you mentioned this earlier in your commentary on the district heating, scale is just having a lot of individual one-off facilities that are scattered across North America where there is only really synergies at a hold co level managing all of those assets, not on individual asset basis. And so how do you think about scalability as BIP continues to grow around the globe?

Hi, Andrew. I think the comments you made in reference to those assets I think are all right on as far as how you evaluate them. I would say that there is, in all our businesses generally, tuck-in opportunities where we can achieve synergies, the example of what we did with our regulated distribution business in the U.K. was a good example of where we are able to grow the platform through an acquisition, add new products to the product line that really was able to leverage the sales channel. I think there are opportunities to do that in various parts of our businesses.

In another parts of businesses really the scalability comes from being able to replicate an acquisition or a roll up model that we can then manage more from a corporate perspective and I think the District Energy example, the one you used, is probably a good one. I do think also with that business and with our toll road business, there are opportunities to take advantage of best practices that can also drive some cost synergies. It may not be as obvious from the outset, but we are seeing good examples of that, working with Abertis, who are helping us drive best practices in our tariffs business. And so I think as our business grows, we can do that as well.

Another aspect of it, Andrew, is that what we are really doing is we are leveraging the knowledge and operating capabilities that we have within Brookfield and we deploy that in new acquisitions. So as an example, if we bought another railroad, we have the expertise in-house to be able to execute, upgrade an expansion projects that would drive value and I think that aspect of our business model is very scalable.

And on that point, in relation with the district heating, do you see an interesting crossover between the power group at BAM and also the property group at BAM, they all are somewhat interrelated?

There is no doubt that we can leverage the knowledge in each of those businesses to help that business and leverage the relationships. It is not a coincidence that we had an interest in this Houston District Energy business given the footprint that Brookfield Properties has in Houston. So obviously that creates some potential opportunities for growth. In addition to that a big component of cost for District Energy and district cooling is power cost and so leveraging the knowledge that our power group has in relation to managing power cost and managing risk in relation to power price increases is usually valuable for us. So that is a particular business where the power of the Brookfield franchise is particularly relevant.

Okay. That's very helpful. And then if I may just a question directed towards John. I think in the last 20-F filing you had tax losses carry forward of about $250 million, trying to get a better understanding on where your current tax position is right now, how much do you have, is that NOL number still accurate at this stage after the quarter?

Andrew, in terms of the tax position, I think our tax profile over the next few years is going to be pretty similar to how it's been over the last couple of years in terms of the amount of cash taxes that we're paying out. When we do acquisitions, we do a lot of structuring in order to minimize tax leakage across the various businesses that we acquire in being able to get cash out in order to be able to distribute it, but I think the profile is going to be pretty flat and pretty similar to how it's been over the last few years.

That is helpful. Thank you.

The next question comes from Michael Goldberg of Desjardins. Please go ahead.

Thank you. With $2.5 billion of liquidity $1.1 billion cash on hand and a 12% to 15% targeted return, how much could you invest on a leverage basis while still maintaining a desired liquidity cushion and how much could this add to annualize FFO in relation to recent contributions from assets that have been sold?

Hi, Michael, it is John Stinebaugh. In terms of the amount that we can invest, as we talked about in the past, the capital structure is going to be dependent upon the types of assets, so utility assets might have that investment grade metrics 60% debt, maybe even 65% debt, whereas transportation assets are going to be a bit less perhaps maybe 35% to 40%. So if you basically just took 50% as an average, then the $1.1 billion of cash that we have got on hand, we can basically double that in terms of the amount of enterprise value that we will be able to buy.

And in terms of the cash yield on the investments, once again it does depend a bit by the type of assets, but we're targeting as you know 12% to 15% overall returns. So I think high single digit cash yields initially with growth to get to the 12% to 15% ballpark would be a reasonable assumption. So I think that gives you some metrics in order to frame how to think about it. The credit facility as I mentioned in my earlier remarks, it is $1.4 billion, it is not permanent capital. We could well end up drawing down on the facility to fund acquisitions and then that's why we have it in place, but we wouldn't look at that as a permanent capital.

Okay. I have a question about the credit facility. Do you have any idea how much commitment fees might go up in light of the emerging leverage rules for bank that include undrawn commitments, and would higher fees change your stance towards the use of term-able facilities?

It's something we would definitely evaluate as we thought about the decision to upsize the facility from $900 million to $1.4 billion, part of our thought process is that it is low cost for that additional committed capital. W only pay about 50 basis points for the committed but undrawn facilities. If that were to materially increase, think we would evaluate whether $1.4 billion is the right number. We haven't seen any indications in discussions with our bank group that things are going up; however, it's been a pretty good market for strong credits like ourselves to borrow money at low cost of recent.

Okay. With respect to the dispute with Western Australia, is it now fully resolved or could it take any other steps and will there be any impact on your financials? If so, what will it be?

It is fully resolved the government decided not to appeal so it is final decision. The impact on the financials is we had the money that was in escrow as an asset on the balance sheet that is going to be converted in to cash or has been converted in to cash, and the other impact as we mentioned is that because we do have certainty now we have taken the interest income on the money that was in escrow in to the P&L.

That was in the second quarter?

That was this quarter; that is correct.

Okay. Thank you.

The next question comes from Cherilyn Radbourne of TD Securities. Please go ahead.

Thanks very much and good morning. I wanted to ask you a question on currency. Clearly, your hedging program would have cushioned your cash flow this quarter and I am just curious whether you have a view on the Australian dollar in particular that would cause you to pull back your hedging at the margin or whether you think your hedging program is just prudent to maintain in light of your distribution policy?

Cherilyn, it is John. I think it is more the latter. When we ended up putting in place the FFO hedging program that we talked about, we thought that it just made a sense to put that level of hedges in place in order to protect the FFO that we've got and support the dividends that we're paying out. So we have no thought that at this point about changing that program and we basically continue to roll it over as quarters roll-off. So we got the target of minimum of 12 months of FFO hedges up to probably 18 months, but that's something that we are planning on continuing at this point.

Okay. I miss part of the call, so I apologize, if someone has asked this question or something like it, but the mining sector is one area where access to capital has clearly changed, I wonder if you could just talk about your interest in acquiring infrastructure assets from mining companies and how you think about counterparty risk in those situations?

Hi Cherilyn, it's Sam. In our prepared remarks, we spoke about looking at asset sales from industrial companies as being a key strategy for us and I would include mining companies within that broader category of industrial companies. We are seeing a number of situations in South America and in Australia and even in North America where companies are looking at ways to generate cash through sale of infrastructure assets and so given our background at Brookfield with the mining sector, it is a business we feel that we understand well and have comfortable making those types of investments.

With respect to counterparty risk, which was the main crust of your question, obviously every situation is different. We need to look at the quality of the resource, the quality of the management team and just a general jurisdiction in which the business operates and to take a view on that counterparty risk, but obviously I can't make broad statements of which commodity or which companies we would favor the most, but sufficient to say that I think we have the internal capabilities to assess those counterparty risks properly.

Thanks. That is all from me.

Okay. Thank you.

There are no further questions at this time. I will turn the call over back to Mr. Pollock for any closing comments.

Great. Thank you, operator. And I would like to thank everyone for participating on the call today, and we look forward to speaking with you again next quarter to review our progress. Thank you.

Ladies and gentlemen, this concludes today's conference call you may now disconnect your lines. Thank you for participating, and have a pleasant day.