Brookfield Infrastructure Partners LP (BIP) 2017 Q4 法說會逐字稿

Thank you for standing by. This is the conference operator. Welcome to the Brookfield Infrastructure Partners 2017 Year-end Conference Call and Webcast. (Operator Instructions) This conference is being recorded. (Operator Instructions)

At this time, I would like to turn the conference over to Mr. Rene Lubianski, Senior Vice President, Corporate Development. Please go ahead, Mr. Lubianski.

Thank you, and good morning. Thank you, all for joining us for Brookfield Infrastructure Partners Fourth Quarter Earnings Conference Call for 2017.

On the call today is Bahir Manios, our Chief Financial Officer; and Sam Pollock, our Chief Executive Officer.

Following their remarks, we look forward to taking your questions and comments. At this time, I'd like to remind you that in responding to questions and in taking -- 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. 2017 was another positive year for Brookfield's Infrastructure, completing a successful decade for our business.

We continue to execute very well on our overall business strategy and achieved meaningful growth on a relatively low-risk bases, generating strong financial results as we grew our funds from operations or FFO per unit by 14% compared to the prior year.

In addition to these strong financial results, some of our major accomplishments for the year included; an investment of $1.3 billion into a highly strategic Brazilian utility, that serves the country's growing natural gas sector. This is a business that generates stable cash flows, supported by long-term contracts, has no volume risk and inflation index revenues.

Second, we invested $900 million into several organic growth capital projects. These projects increase the size of our utility's rate base and will expand our transport, energy and communication infrastructure networks.

Third, we secured $400 million of accretive tuck-in acquisitions that will enhance of our existing toll road and district energy businesses.

Fourth, we raised $1.3 billion of new capital in the form of common equity, debt and preferred shares to bolster our balance sheet and liquidity, that will finance a number of growth initiatives we are pursuing.

And finally, we signed a binding agreement to sell our interest in Transelec, our Chilean electricity transmission business, for $1.3 billion at an attractive valuation.

With respect to our results from operations in 2017, Brookfield Infrastructure earned FFO of $1.17 billion or $3.11 on a per unit basis. Results reflected contributions to our new investments and organic growth of 10%, generated across our operating groups.

The negative impact of a strong U.S. dollar reduced results by approximately $30 million, and FFO per unit was also affected by our equity issuance in the second half of the year, which is yet to -- the proceeds of which have yet to be deployed.

I'll now take you through a quick overview of the results at our operating segments.

Our utility segment generated FFO of $610 million in the year, a step change compared to $399 million in the prior year. This was driven by contribution from our newly acquired Brazilian regulated gas transmission business and to a lesser extent, an increase in our rate base and upward inflation adjustments.

Results for this operating group were modestly offset by the impact of the sale of our Canadian electricity transmission asset in late 2016.

The standout performer within our utility's operating group continues to be our U.K. regulated distribution business, which achieved a record year across all key performance indicators, including new sales and connections.

Momentum has been sustained by robust growth in new home completions and a higher number of utility connections per plot. The business is multi-utility offering, is gaining acceptance with homebuilders and we're seeing an acceleration in the sale of higher-yielding utility products such as fiber, water and district energy.

In November, the business closed on its previously disclosed transaction to acquire up to $2 million smart meters, which is expected to require up to $500 million of capital to be deployed over 3 years. This contract significantly expands our smart meter adoptions by growing our potential backlog to 3.5 million meters, representing a nearly $1 billion investment or $800 million net to Brookfield Infrastructure.

Our Transport segment generated FFO of $532 million in 2017, 26% ahead of last year. The increase was driven by higher tariffs and volumes across a number of our businesses, and results were positively impacted by full year contributions from new investments in our road and port businesses.

The segment also experienced organic growth of 13%, driven by strong year-over-year volume growth, predominantly at the toll roads -- at our toll roads as well as positive foreign exchange movements.

Our Energy segment generated FFO of $209 million in 2017 compared to $175 million in 2016. This improvement in results captures incremental contributions from new contracts, higher gas transport volumes and reduced leverage at our natural gas transmission operations.

We also benefited from a full year contribution from the North American gas storage business, acquired in 2016, which was partially offset by the impact of the sale of a U.K. gas distribution business in the prior year.

Our North American natural gas transmission business has made good progress on $300 million of proposed expansion projects, we mentioned last quarter. The business finalized an agreement with a large LNG operator to provide incremental transport and pressure support to their facility in Southern U.S., which is backed by a 10-year take-or-pay contract, adding $30 million to Brookfield Infrastructure's capital backlog. Regulatory approval is required, and we anticipate this project to come online in early 2020.

The business is also advancing discussions around the potential Phase 2 to its Gulf Coast expansion, which we expect to provide an update on next quarter.

Also, our district energy business successfully raised CAD $100 million of private placement financing on the back of good organic growth and a tuck-in acquisition that closed earlier in the year. The terms of the offering was very positive, as we achieved an average term of 24 years at an average fixed rate of less than 4%.

Our communication infrastructure operations in France generated FFO of $76 million for the year, which was relatively consistent with the prior year. The business delivered results in line with expectations, as a result of its stable and predictable cash flow profile.

Our management team is executing well on its fiber to the home strategy. Securing 2 additional tenders that involved connecting over 500,000 households, with capital requirements of approximately $1 billion over the next few years.

This represents an approximately $210 million investment by Brookfield Infrastructure.

With these 2 deals, we now have over 700,000 households secured that will require total capital of approximately $1.3 billion as the networks are deployed or $275 million from Brookfield Infrastructure.

We're also positioning ourselves as a partner of choice with the large Internet service providers in the country and are exploring potential opportunities to build and operate segments of their networks. If successful, these initiative could represent a significant investment that should generate attractive risk-adjusted returns.

I now wanted to make a few remarks on our balance sheet.

First, just wanted touch on our diversified funding plans. Over the past 5 years, the capital markets have been robust and provided us with favorably priced capital to fund our growth initiatives.

We raised $4.5 billion in the capital markets, generated $2.4 billion of net proceeds from asset sales and $800 million of cash flow that was predominantly funded by cash generated and reinvested back into our business. This diversified funding strategy has worked well for us, and we intend to stay with it going forward. We will continue to opportunistically access the capital markets for equity and debt, when we can do so accretively to fund new investments.

One of our key financial objectives is to always maintain a high degree of liquidity to protect the business against extended periods of market weakness and to allow us to move quickly to capture time-sensitive investment opportunities.

Second, from a liquidity position, we currently have $1.8 billion at the corporate level, which will increase upon completion of the sale of our interest in Transelec. As our businesses continue to mature, we expect to accelerate the amount of capital recycling undertaken over the next several years, granting us more flexibility through our reduced reliance on accessing the capital markets.

Lastly, we will maintain a prudent payout ratio, thereby leaving us was 15% to 20% of our annual FFO that we generate to reinvest that back into the business.

And before I conclude my remarks and hand the call over to Sam, I'm pleased to report that our Board of Directors has approved an 8% increase in our quarterly distribution to $0.47 per unit, marking the ninth consecutive year of distribution increases for our business. This year's increase, while at the higher end of our target range is below our historical average. In setting our distribution level for 2018, we have taken a conservative view around the timing of deployment of our substantial liquidity, in addition to retaining more cash in the business to fund our growing backlog of projects.

And so with that, thanks for your time this morning, and I'll hand the call over to Sam.

Thanks, Bahir, and good morning, everyone.

As Bahir mentioned, we have deployed significant capital this year, both the organic growth and new investment fronts, and have made good progress with our capital recycling program.

While global M&A activity remains [frothy], we've been disciplined and focused on situations where we can leverage our competitive advantages to invest for value and we've disposed of mature businesses at premium valuations to redeploy the proceeds into higher-returning opportunities.

I'll take this time to provide an update on a few of the initiatives underway as well as provide a bit of an outlook for the business in the current economic environment.

To start with, in November, we signed a binding agreement to acquire a minimum 53% controlling interest in Gas Natural Columbia, the second largest natural gas distribution system in Columbia.

The business operates a high-quality distribution system, with regulated revenues and predictable cash flows comprised of over 21,000 kilometers of pipelines, serving approximately 2.9 million residential, industrial and commercial customers within the city of Bogotá and around.

The business operates in a transparent and collaborative regulatory environment, where Brookfield has experienced owning and operating other regulated assets. We also have the ability to deliver incremental value and grow revenues through the offering of ancillary services.

At the end of December, we acquired an initial 11% stake in the company, along with our institutional partners, and we were making subsequent investment in a staged approach during the first half of 2018. This will include a private purchase of the remaining interest held by the larger shareholders as well as a minority tender offer for the remaining minority interest.

This may result in close to full ownership for Brookfield Infrastructure and its institutional partners.

In total, the opportunity for 100% ownership will require an equity investment of approximately $600 million or about $170 million by Brookfield Infrastructure.

With respect to organic growth, approximately $900 million was invested into such capital projects during 2017, of which $400 million was funded with equity and the balance of project-level debt.

We also added $1.3 billion of new projects to our capital backlog, several of which Bahir alluded to, which we expect to commission over the next 24 to 36 months.

Over the past 5 years, roughly 80% of equity for growth initiatives went to acquisitions, while approximately 20% went to organic growth projects. However, more recent years, a greater proportion of our investment activity has been directed to organic growth.

In the next 24 months, we estimate deploying approximately $1 billion of equity into organic growth initiatives, which, on an annualized basis is more than double the levels we invested at less than 5 years ago.

Our goal over the next several years is to generate 30% to 40% of our investment activity through organic projects, which typically generate the strongest risk-adjusted returns to our business.

On the capital recycling front, as mentioned in the past, we plan to monetize roughly $1.5 billion to $2 billion of investments over a 2-year period.

With the closing of the sale of our interest in Transelec, Brookfield Infrastructure will have sold all 5 of its initial investments from a spinoff in 2008.

Transelec generates strong and predictable cash flows throughout the time we held it, and now have a mature cash flow profile, making this a good time to monetize this investment for good value and redeploy the proceeds at significantly higher returns.

Upon closing, which is subject to customary closing conditions and approvals, we will generate a compound internal rate of return on this investment of approximately 16%, or 18% on a pretax basis. Closing is targeted to current first half of 2018.

Now I'll shift gears a bit and talk about the current economic environment and how certain trends might affect Brookfield Infrastructure.

Global economic growth going into 2018 is excellent, and in some regions, GDP growth is as strong as it's been since the financial crisis. It's approaching 3% in Canada, U.S. and Europe and China, India are projected to approach 7%.

In the meantime, South America continues its economic recovery as Brazil experiences growth and commodity prices recovery.

On the ground in our businesses, we are observing the following indicators of economic growth as well. We have the highest traffic growth relative to GDP growth, which we usually refer to as a multiplier on our South American roads that we've seen in years.

Record utility connections in our U.K. distribution business, which is driven by strong housing starts. We've got record volumes and corresponding long queues for vessels that are terminal in Australia; we've got increase in gas volumes on our gas transition system in United States; and data consumption reported by our French telecom customers have more than doubled year-over-year.

Credit quality and growth prospects for industrial commodity-based customers have improved significantly with the recovery in commodity prices in the past 12 to 18 months, and there is a notable increase in the level of inquiries from customers to invest into our networks to accommodate their growth projects.

As customers are typically required to commit to long-term contracts in order for us to proceed with the capital expansion, this provides a good indication of their positive business outlook.

This also bodes well for same-store growth in 2018 and supports our expectations that our capital backlog should continue its upward trend, fueling future growth in the business.

As a follow-on to my comments on growth, I'd also like to comment on the prospect of rising inflation and interest rates.

While statistically, there currently appears to be only benign levels of inflation in most of the jurisdictions where we operate, there is some evidence of wage and price increases in certain markets and it's unclear to us whether this will translate into higher inflation rates or whether it will be offset by the deflationary impact of technology.

As approximately 75% of our revenues are indexed to inflation, all of the factors being the same, we are positioned to benefit from higher inflation. But should inflation rates increase, we feel that our contractual frameworks will protect our cash flows and allow us to outperform many other businesses that do not have these protections.

With respect to interest rates, we have been in the midst of a rate tightening cycle by central banks. So far, the yield curve has mostly flattened and long rates sustain under 3% in the U.S.

The prudent assumption, however, is that the yield curve will contain to edge upward over the next year.

We have expected for some time that interest rates may move up and as a result, over the past number of years, we have proactively refinanced our businesses and extended debt maturities. Consequently, Brookfield Infrastructure has only 25% of its debt maturing before 2022, and approximately 80% of this debt is fixed rate.

Therefore, our financial costs are for the most part locked in and we have little exposure to rising rates in their operating cash flows for the foreseeable future.

In our recent investment activities, we continue to apply a conservative approach to our underwriting assumptions, especially with respect to financing.

To conclude, the current economic environment is favorable for operations and we are optimistic about 2018. Our strong balance sheet and $2.6 billion backlog will fuel continued growth in the business.

For the balance of the year, our primary focus is to execute on our capital deployment strategy, including closing on the Colombian transaction and completing the Indian toll road investments, which are both under contract, and executing on our committed backlog of growth projects.

Our business development teams are working diligently to convert a strong pipeline of M&A opportunities into investments as well. As we deploy the significant capital that currently sits in our balance sheet, we expect to add high-quality sustainable cash flows to support our FFO and distribution growth objectives.

With that, I'll conclude my remarks, and I'll now pass it back to the operator for Q&A.

(Operator Instructions) The first question comes from Frederic Bastien with Raymond James.

You noted that a greater proportion of BIP's investment activity will be directed at organic growth in the future. But CapEx invariable takes longer to produce FFO than acquisitions. How much of a lag should we expect from the time you deploy capital and the time this capital actually starts generating FFO? And just curious, if that actually influences at all your organic growth expectations?

I'll start on that, Frederic and Bahir might add some more color as well. I guess my first reaction to your question is that, given the continuous nature of the CapEx in the backlog, I think we always have new projects been commissioned as well as new projects being started. So I'm not sure there will be sort of a necessary lag in the business because it's kind of a steady growth profile. Yes, as we ramp up, I guess you're probably right, there may be a bit of a delay or maybe you'll see in effect higher organic growth rates, because of that. But I don't think that will be a meaningful change in our growth profile. I think as often is the case, in fact, our M&A activity tends to be a bit more lumpy as they come in bits and spurts. And so, that's probably where we have a bit more of the variability in our FFO growth, because if we do a large transaction, then, that could have a meaningful impact. But there could be a period of time, when we're being patient and disciplined and then we don't have that impact on our results. So I'm not sure I fully answer your question. But hopefully, that was helpful.

Maybe, I can reward it another way. You're going to get significant proceeds from the sale of Transelec and you obviously, can't redeploy that on Day 2. So are you comfortable that you can readily deploy that capital in a fair -- in a pretty short period of time?

So what I'm very comfortable in stating is that we will find great opportunities to deploy that capital in a reasonable period of time. What I don't want to state, because we pride ourselves on being very disciplined and super selective in our opportunities is that, we aren't in any rush to deploy. In fact, given the market conditions, yes, if there is further weakness, then I'll be very happy to sit on the couch for a little bit and take advantage of any more distressed sellers that could come along. So we'd like to be patient. We're in no rush to deploy it. But if we see a great opportunity, as Bahir said, having that strong liquidity allows us to move quickly and take advantage of those opportunities.

Okay, great. And in past calls, we talked about NTS, and you mentioned that you like the way that the rates were going. And you mentioned that you may be considering adding leverage to the business. How do you guys think about it right now?

So the -- we're still evaluating it. We're getting proposals from various institutions. The market appears to be quite favorable. We haven't made a final decision though. But yes, there's a good probability that we'll do something sooner than later. I guess that's all I can say.

Okay. Great. Just last one from me. More -- just pretty straightforward here. You mentioned that the U.S. dollar reduced your results by about $30 million for the year. Didn't get through all of the supplementals just yet, but can you indicate what the impact was on Q4?

Frederic, it's Bahir. So yes, $30 million was -- you're correct -- the impact for the full year for Q4, it was about $6 million to $7 million. So predominately most of that effect happened in the first 9 months. Q4 was a little bit lighter from that perspective.

Your next question comes from Cherilyn Radbourne with TD Securities.

Sam, I wanted to start with a bigger picture question for you. And that is, where do you think we are in this cycle? And what I'm driving at there is, the M&A market would tend to suggest that we're pretty late cycle. And yet, as you talk about in your letter, your industrial and commodity-based customers seem to be in the early stages of a recovery following a pretty severe downturn. So I'm just curious what you make of those dynamics? And what you think they mean for BIP?

That's a great question, Cherilyn. And I think the answer to that -- I guess in our view and look, we are not experts in predicting cycles. So this is probably not worth all that much. But while we said we are in sort of very favorable environment with synchronized growth around most of the world, I think in relation to the cycle, it may not be so synchronized. I think their -- in relation to maybe the consumer-related industries, where they're dependent on optimistic consumers with lots of capital. Maybe we're more in the late stages, because housing prices feel like they're high and debt levels are high, particularly in a number -- countries like Canada and the U.K. and Australia. But in some of the commodity-type areas, maybe as you said, we might be in a different point of cycle, because they've already shaken out a bit. So I think our -- I think we might see different reactions in different sectors, it may not be the same as in past cycles. So as it relates to BIP, I think our view is that our commodity-related businesses are going to experience a period of growth for the next couple of years. It feels like we're heading into a period of expansion. And because it takes such a long time for them to scope projects and bring them online, that will play out for a couple of years. But on the consumer-led areas, I feel like I'm a little bit more cautious on those fronts. So I don't know if that's helpful or not. But...

I think everybody's struggling with that question. My second question is easier. In terms of the smart meter opportunity, obviously, you've been able to add a lot of capital to a marquee asset. Just curious, whether that smart meter opportunity has run its course? Or are there still more smart meters coming up for tender?

Cherilyn, it's Bahir. So look, we were very pleased to execute on that large contract. If we adopted in all the meters that we secured so far, we take our offering size up to 3.5 million units. I think there's still a lot more to come, and there's up to 20 million meters that could come as early as 2020. We're not trying to indicate that we will win all of that. But if we can take a sufficient market share of that number, we think we would do very well, just given the risk-adjusted return profile here. So definitely, attracted to the product offering and optimistic in our ability to secure some more in the future.

Your next question comes from Devin Dodge with BMO Capital Markets.

Can you provide an update on where you're seeing the most attractive opportunities from a new investment point of view? And just given some of your commentary on the distribution increase and pushing more capital into organic growth, should we take this to mean that the M&A pipeline is perhaps a little less robust than it has been in the recent past?

So maybe I'll start with your last comment first, and then come to -- I'll give a brief overview of where we see opportunities around the world. As far as M&A activity, it's very high. So I think, it's as strong as it's ever been. Having said that, there is a lot out capital out there. And it's also as competitive as it's been. So it doesn't necessarily translate that because there's more supply that it'll lead to more near-term deployment of capital. Because we're going to be disciplined and coming back to Cherilyn's comment about where we are in the cycle, there may be some good opportunities ahead of us if we're patient. As far as where we're focused on opportunities, I think pretty broad-based. We're clearly focused in the telecom sector in -- the United States, we've got a number of things that are actual in the near term. Still lots of telecom activity in Europe, and we're involved in situations there. And of course, we continue to monitor some interesting situations in India and in Asia. So that sector is very good. On the Transportation side, yes, we'll continue to look to build out our toll road business in India. There are a number of privatizations underway in that country that we think we're well placed on. And so, that's exciting. There's also a number of other ports and general infrastructure opportunities in United States that we are monitoring, and are involved with. And so, again, I'd say those -- the activity level there is quite high. So hopefully, that give you a sense of -- I'd say Transportation and telecom are the 2 sectors. And regionally, it's North America, Europe and Asia.

Okay. That's really helpful. And I guess, can you provide some color on the impact from the U.S. tax law changes on your existing investments? And do these tax reforms change the way you think about future investments in the U.S.?

Devin, it's Bahir. So look, the 3 key changes with respect to the tax bill that was signed into law. Obviously, relate to a reduction in corporate tax rates. There's also changes with respect to debt limit, interest deductibility to 30% of EBITDA. And third, just again changes with respect to how much of deduction you get for your capital investments, et cetera. Given the size of our business today in the United States, we don't see the changes having a material impact to BIP. So I would classify them as -- the whole tax reform as neutral to slightly positive, especially in light of the fact that the 2 last changes I noted are -- don't -- are irrelevant for rate-regulated businesses. So to the extent that we -- for future investments, if we make investments in assets that are not rate regulated, we potentially benefit from these tax reforms, definitely. But for our existing business today, I would say the impact will be pretty small.

Your next question comes from Andrew Kuske with Credit Suisse.

The question really relates to some of the near-term equity or volatility we've seen, and clearly, that volatility, you guys are balancing of art, science and a healthy dose of emotion as it relates to evaluation of broad markets. But when you look at BIP and your business, you clearly have a lot of capital deployment opportunities. Has there been any structural change from a funding perspective that you're seeing in the market basis? And clearly, from your results and the commentary, a lot of your underlying operation seem to be working extremely well at this stage with some good growth, especially in the emerging market businesses. So maybe just some commentary on what you're seeing from the funding markets in relation to the equity valuations, just broadly?

Andrew, I'll start with this one. I guess at the asset level, access to debt capital around the world is still very strong. So we're not seeing anything in the credit markets that give us concern. In fact, they -- even throughout the volatility in the first half of -- first month in the bit of the year, the credit markets are still very good. And all the initiatives that we have underway are progressing and seem to be going well. So that's very positive. In relation to investor reaction, it's still too early to tell. We've -- I can't say we've seen any noticeable changes in the private equity markets as far as people competing against us and how they're thinking about valuations and pricing their cost of capital. So time will tell. I think this is still in the early innings. So we'll see if this is a long-term pullback or a -- that might impact people's views or if it's just a short-term blip. And yes, it relates to us. As Bahir mentioned in his remarks, we just -- we've had a strategy for 10 years, which is a whole balance of being opportunistic in the capital markets. With debt, preferred and common equity, we continue to recycle assets. And we're probably are inching a period of maybe recycling more assets, even than we have in the past, and of course, maintaining a low payout ratio so we can retain some cash flow. So that's our balanced approach, we'll just keep with and it should serve us well for whatever markets are ahead.

And then, perhaps as a follow-up. When we look at the distribution growth that you posted this year, the 8% increase from the prior year. Obviously, that's still a good numbers, down from your historical averages, which was extremely good. Do you look at the current market situation as higher-growth dividend payers and dividend growers aren't necessarily being rewarded? And given the capital backlog you have organically and the M&A opportunities, and then echo your comments on the capital recycling, it's just more prudent at this stage in time to effectively keep that capital on your balance sheet as opposed to keeping a double-digit distribution growth?

Yes. Look, I think, yes, as we looked at it -- yes, we didn't think -- there's no magic to keeping our double-digit growth in perpetuity. I think that the way we think of it is -- let's -- obviously, be conservative in retaining cash when we have a lot of projects in front of us. We can stay conservative in our payout ratio. And to extend that, we are very successful in deploying capital, if it means doing a midyear adjustment to our distributions, we can always do that. We've done that in the past. So this would not be the first time that we have come out with an 8% distribution at the beginning of the year and then update during the year. I think we'll just wait and see how things unfold. And I think we're just kind of doing what we've done in the past. I don't think there's any change in how we're thinking about things.

(Operator Instructions) Your next question comes from Robert Kwan with RBC Capital Markets.

If I can maybe just start and follow-on, on your last answer there, Sam. With respect to the lower distribution growth, is it more like -- directionally, is there a strategic change within the organization to try to retain more cash in addition to upping the capital recycling to keep more of the funding in-house? Or is -- was the decision more around the 8% kind of that other piece of being conservative around just matching it more with the timing of deploying the cash, whether that's into acquisitions or otherwise?

So you mean organization -- are you talking about BIP or are you referring more broadly there? I wasn't...

Oh, a BIP. Yes.

Okay. No, look, I think the main driver was just -- we want to be patient and disciplined in how we use that capital. And today, we have a -- we will have a significant amount of liquidity on the balance sheet at the corporate level. And we're just not sure, we could deploy capital. There are situations -- it could happen very quickly or if we don't get the right guys, then we may choose to hold on to for a bit. And so, we just felt that to extent that we are conservative or be too conservative. As I said in my last answer, we can always make adjustments if things play out faster and more positive than our conservative outlook. So I think, we just felt good with this number. We didn't feel we needed to come out with a higher growth rate. And -- but we'll see how the year progresses.

Got it. So is it fair to say it's probably more about timing than it is -- than a strategic kind of shift to -- on more internally?

Yes, I think it's probably more that.

Okay. When you look at the organic program, it continues to build with uptick in the backlog this quarter with the smart meters, especially. Just wondering, as that's unfolded, if you kind of just maintain the backlog and keep it flat where it is, how does that position you with respect to the 6% to 9% long-term FFO per unit growth target? Or specifically kind of the noninflationary, non-GDP wedge that you've previously weighed out?

Robert, it's Bahir. So you're referring to the last bucket of -- just to be clear, the 2% to 3%?

Yes, the 2% to 3% cash flows reinvested. Like in terms of what you have kind of underlying if you kept the backlog flat, would you be above that i.e., you got more backlog than you might think about long-term, relative to your size of the overall organization?

Yes, so the 6% to 9%, doesn't require new capital. So then, anything over and -- and that's basically investing 20% of our -- 15% to 20% of our cash flows that we retain. But at these elevated levels of backlog, we will do much better than the 6% to 9%, at least be on the higher end, and then potentially outperform. But then, you'd have to take into account the cost of that capital that we put into the businesses. So it's not -- the trajectory is not going to be off the charts here. So I would say for the next little while, we would forecast -- and just leave currency to the side for a sec, 10% to 11% growth is something that we feel pretty comfortable with.

With strong visibility, just given the backlog to the secured investment number?

That's correct.

Okay. If I can just finish with -- in the comments, you had on some of the increase in credit quality of your customers and the increased inquiries you're getting from them. Wondering, just when you've looked at the past cycle and how is your approach going to change as you go forward with respect to new contracting? Whether that be increased expected returns? Or more contract structuring, given some of the past experience you've had with some of these customers on the way down, things like iron ore?

Look, I think generally, our experience has been quite favorable. We've -- even with the one customer that we gave some concessions to, it's pretty remarkable circumstances. And reality is, we haven't in fact, given much concessions, because the price rebounded very quickly. And it's been almost to nothing. But we had -- we really protect ourselves well in relation to having the minimum volumes as well as the protection in the dire situation. We had $300 million of bank guarantees and that really covered investment that we made. So I feel that in that particular case you're referencing, it was probably very well structured. And in the 3 or 4 -- it's probably 4 or 5 years now that it's in running, we've already made our money back. So it's a fantastic investment. I think going forward, we'll continue to look to secure contracts with solid counterparties. And to extent that we're unsure about their credit quality, we'll get some sort of bank protection as well. So we'll approach it the same and I don't see this cycle being any different than last cycle.

Your next question comes from Rupert Merer with National Bank.

Looking at the divestiture of Transelec, how should we think about the headwind to FFO from that sale this year? And if you are looking at potentially more recycling opportunities, you have any concern on potential FFO drag this year around the timing of redeployment of that capital?

Rupert, it's Bahir. I'll -- maybe I'll take this one. So Transelec typically generates anywhere between $75 million to $80 million of FFO, or $65 million to $70 million of AFFO. So that would be, call it, impact on our results. And...

On annualized basis.

Sorry, on an annualized basis. And so that would be the impact. With respect to impact on our overall results, it's all dependent again back to Sam's earlier remarks, it's dependent on how fast we deploy that capital. We feel pretty good that with all -- we have a lot of visibility with respect to the organic growth that's going to come online. There could be dilution as a result of the sale of Transelec, no different than with equity offering proceeds that we are currently have on the balance sheet today. But we feel pretty good that we've got sufficient enough organic growth to give us a lot of -- with good visibility on that, to give us a lot of flexibility into our results going into the new year and into 2018 and beyond. So, yes, hopefully that helps..

Maybe I'll just add one thing. I guess what we -- what we're confident about and all the reasons for doing sales is that the net proceeds that we received from the sale of Transelec, we were highly confident that we will reinvest at high returns than what we sold at. So while there may be some period of time, when it sits in our balance sheet, and that's obviously dilutive. As Bahir just said, we don't think that will be too long, but irrespective of whether that's 6 months or 3 months or a year, whatever. On the long-term basis, that capital that we just surfaced, yes, will be accretively deployed. So that we'll be better off than we were ahead of time. That's the main take away.

Okay, great. And secondly, your communications infrastructure business. The results were relatively flat year-over-year. I was interested in the letter to unitholders, you highlighted that data volumes and in France actually doubled year-over-year. Can you talk a little bit of detail about how that business is structured with its capacity utilization today? And the contracts? And is there a point where that scale of volume increase translates into increased capital deployment for increased returns on capital?

Okay. Well, the business model there -- putting aside the Fiber to the Home business. But in relation to the tower business, we don't have a direct impact to our results from data usage. What happens is, we obviously provide the infrastructure to towers and they're rented on a long-term basis. And where we make more money is, to extent that there is higher data usage than the tower operators typically need to add more equipment to the existing towers or they need new towers. And so, we usually call these points of presence. And every year, we have more points of presence coming onto the business, because either we're increasing the collocation on our existing towers or we're providing new towers to the businesses -- to the customers. And so, that's sort of the relationship with data usage. And that -- yes, we see no change in the direction of that dynamic in the near term. It's just there's more and more data. And so, we expect more and more densification of our system going forward.

Is it going to translate into increased organic growth potential? Capital deployment?

Absolutely, absolutely. Yes, it does.

And Rupert, just with -- Rupert, it's Bahir. I'll just add to -- just with respect to the results in local currency, we actually achieved a good amount of growth. But that was offset a little bit by foreign exchange. So in local currency terms, we are seeing some good steady progress in that business. And we've yet to commission some of the growth projects that we've alluded to. So there is a good amount of backlog here, which will be coming online in the next couple of years. That being said, the business today is also performing pretty well.

This concludes the question-and-answer session. I will now hand the call back over to Mr. Pollock for closing comments.

Okay. Well, thank you, operator, and thank you to everyone who joined us for the call this morning. We hope you have a great rest of the winter, and we look forward to updating you on our progress next quarter. Bye.

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