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TABLE OF CONTENTS
BROOKFIELD INFRASTRUCTURE PARTNERS L.P. INDEX TO FINANCIAL STATEMENTS

Table of Contents

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington D.C. 20549

FORM 20-F


o

 

REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR 12(g) OF THE SECURITIES EXCHANGE ACT OF 1934

OR

ý

 

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934


for the fiscal year ended December 31, 2016

OR

o

 

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

OR

o

 

SHELL COMPANY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Commission file number 001-33632

BROOKFIELD INFRASTRUCTURE PARTNERS L.P.
(Exact name of Registrant as specified in its charter)

Bermuda
(Jurisdiction of incorporation or organization)

73 Front Street
Hamilton, HM 12, Bermuda
(Address of principal executive offices)

Jane Sheere
73 Front Street
Hamilton, HM 12, Bermuda
+1-441-294-3309
(Name, Telephone, E-mail and/or Facsimile number and Address of Company Contact Person)

Securities registered pursuant to Section 12(b) of the Act:

Title of class   Name of each exchange on which registered
Limited Partnership Units   New York Stock Exchange; Toronto Stock Exchange

Securities registered or to be registered pursuant to Section 12(g) of the Act:
None

Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act:
None

Indicate the number of outstanding shares of each of the issuer's classes of capital or common stock as of the close of the period covered by the annual report:

259,450,045 Limited Partnership Units as of December 31, 2016

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.        Yes ý No o

If this report is an annual or transition report, indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934.        Yes o No ý

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.        Yes ý No o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).        Yes o No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of "accelerated filer and large accelerated filer" in Rule 12b-2 of the Exchange Act (Check one):

Large accelerated filer ý   Accelerated filer o   Non-accelerated filer o

Indicate by check mark which basis of accounting the registrant has used to prepare the financial statements included in this filing:

o U.S. GAAP   ý International Financial Reporting Standards as issued by the
International Accounting Standards Board
  o Other

If "Other" has been checked in response to the previous question indicate by check mark which financial statement item the registrant has elected to follow.        Item 17 o Item 18 o

If this is an annual report, indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).        Yes o No ý

   


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TABLE OF CONTENTS

 
   
   
  PAGE  

INTRODUCTION AND USE OF CERTAIN TERMS

    1  

FORWARD-LOOKING STATEMENTS

    4  

PART I

    8  

Item 1.

  IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS     8  

Item 2.

  OFFER STATISTICS AND EXPECTED TIMETABLE     8  

Item 3.

  KEY INFORMATION     8  

  3.A   SELECTED FINANCIAL DATA     8  

  3.B   CAPITALIZATION AND INDEBTEDNESS     10  

  3.C   REASONS FOR THE OFFER AND USE OF PROCEEDS     10  

  3.D   RISK FACTORS     10  

Item 4.

  INFORMATION ON THE COMPANY     50  

  4.A   HISTORY AND DEVELOPMENT OF BROOKFIELD INFRASTRUCTURE     50  

  4.B   BUSINESS OVERVIEW     54  

  4.C   ORGANIZATIONAL STRUCTURE     72  

  4.D   PROPERTY, PLANT AND EQUIPMENT     75  

Item 4A.

  UNRESOLVED STAFF COMMENTS     75  

Item 5.

  OPERATING AND FINANCIAL REVIEW AND PROSPECTS     76  

  5.A   OPERATING RESULTS     81  

  5.B   LIQUIDITY AND CAPITAL RESOURCES     110  

  5.C   RESEARCH AND DEVELOPMENT     118  

  5.D   TREND INFORMATION     118  

  5.E   OFF BALANCE SHEET ARRANGEMENTS     119  

  5.F   TABULAR DISCLOSURE OF CONTRACTUAL OBLIGATIONS     120  

  5.G   SAFE HARBOUR     120  

Item 6.

  DIRECTORS AND SENIOR MANAGEMENT     120  

  6.A   DIRECTORS AND SENIOR MANAGEMENT     120  

  6.B   COMPENSATION     129  

  6.C   BOARD PRACTICES     130  

  6.D   EMPLOYEES     134  

  6.E   SHARE OWNERSHIP     134  

Item 7.

  MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS     135  

  7.A   MAJOR SHAREHOLDERS     135  

  7.B   RELATED PARTY TRANSACTIONS     135  

  7.C   INTEREST OF EXPERTS AND COUNSEL     146  

Item 8.

  FINANCIAL INFORMATION     146  

  8.A   CONSOLIDATED STATEMENTS AND OTHER FINANCIAL INFORMATION     146  

  8.B   SIGNIFICANT CHANGES     147  

Item 9.

  THE OFFER AND LISTING     147  

  9.A   PRICING HISTORY     147  

  9.B   PLAN OF DISTRIBUTION     148  

  9.C   MARKET     148  

  9.D   SELLING SHAREHOLDERS     149  

  9.E   DILUTION     149  

  9.F   EXPENSES OF THE ISSUE     149  

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  PAGE  

Item 10.

  ADDITIONAL INFORMATION     149  

  10.A   SHARE CAPITAL     149  

  10.B   MEMORANDUM AND ARTICLES OF ASSOCIATION     149  

  10.C   MATERIAL CONTRACTS     177  

  10.D   EXCHANGE CONTROLS     178  

  10.E   TAXATION     178  

  10.F   DIVIDENDS AND PAYING AGENTS     213  

  10.G   STATEMENT BY EXPERTS     214  

  10.H   DOCUMENTS ON DISPLAY     214  

  10.I   SUBSIDIARY INFORMATION     214  

Item 11.

  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT NON-PRODUCT RELATED MARKET RISK     214  

Item 12.

  DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES     214  

PART II

    215  

Item 13.

  DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES     215  

Item 14.

  MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS     215  

Item 15.

  CONTROLS AND PROCEDURES     215  

Item 16A.

  AUDIT COMMITTEE FINANCIAL EXPERT     216  

Item 16B.

  CODE OF ETHICS     216  

Item 16C.

  PRINCIPAL ACCOUNTANT FEES AND SERVICES     216  

Item 16D.

  EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT COMMITTEE     217  

Item 16E.

  PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASER     217  

Item 16F.

  CHANGE IN REGISTRANT'S CERTIFYING ACCOUNTANT     218  

Item 16G.

  CORPORATE GOVERNANCE     218  

Item 16H.

  MINE SAFETY DISCLOSURES     218  

PART III

    219  

Item 17.

  FINANCIAL STATEMENTS     219  

Item 18.

  FINANCIAL STATEMENTS     219  

Item 19.

  EXHIBITS     219  

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INTRODUCTION AND USE OF CERTAIN TERMS

        Unless the context requires otherwise, when used in this annual report on Form 20-F, the terms "Brookfield Infrastructure", "we", "us" and "our" refer to Brookfield Infrastructure Partners L.P., collectively with the Holding LP, the Holding Entities and the operating entities (each as defined below). All dollar amounts contained in this annual report on Form 20-F are expressed in U.S. dollars, unless specified otherwise, and references to "dollars", "$", "US$" or "USD" are to U.S. dollars, all references to "C$" or "CAD" are to Canadian dollars, all references to "A$" or "AUD" are to Australian dollars, all references to "CLP" are to Chilean pesos, all references to "COP" are to Colombian pesos, all references to "reais", "BRL" or "R$" are to Brazilian reais, all references to "rupees", "INR" or "I$" are to Indian rupees, and all references to "UF" are to Unidad de Fomento which is an inflation indexed Chilean peso monetary unit that is set daily, on the basis of the prior month's inflation rate. In addition, all references to "£" or "GBP" are to pound sterling, all references to "NZD" are to New Zealand dollars, all references to "€" or "EUR" are to Euros, all references to "PEN" are to Peruvian Neuvo Sol and, unless the context suggests otherwise, references to:

    "Brookfield" are to Brookfield Asset Management and any affiliate of Brookfield Asset Management, other than us;

    "Brookfield Asset Management" are to Brookfield Asset Management Inc.;

    our "current operations" are to the businesses in which we hold an interest as set out in Item 4.B "Business Overview";

    our "communications infrastructure operations" are to our interest in French communication tower infrastructure operations and, subject to the completion of the acquisition of certain telecommunications tower assets from Reliance Communications Limited, Indian communication tower infrastructure operations, as described in Item 4.B "Business Overview—Our Operations—Communications Infrastructure—Overview";

    our "energy operations" are to our interest in North American gas transmission operations in the U.S., North American natural gas storage operations in the U.S. and Canada, North American district energy operations in the U.S. and Canada, and Australian energy distribution operations, as described in Item 4.B "Business Overview—Our Operations—Energy—Overview";

    our "General Partner" are to Brookfield Infrastructure Partners Limited, which serves as our partnership's general partner;

    "Holding Entities" are to certain subsidiaries of the Holding LP, from time-to-time, through which we hold all of our interests in the operating entities;

    the "Holding LP" are to Brookfield Infrastructure L.P.;

    the "Infrastructure General Partner" are to Brookfield Infrastructure Special GP Limited, which serves as the general partner of the Infrastructure Special LP;

    the "Infrastructure Special LP" are to Brookfield Infrastructure Special L.P., a subsidiary of Brookfield Asset Management, which is the special limited partner of the Holding LP and "Special Limited Partner Units" refers to the units of the Holding LP that the Infrastructure Special LP holds in such capacity;

    "Licensing Agreements" are to the licensing agreements described in Item 7.B "Related Party Transactions—Licensing Agreements";

    our "Limited Partnership Agreement" are to the amended and restated limited partnership agreement of our partnership, as amended from time to time;

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    the "managing general partner" are to our partnership in its capacity as managing general partner of the Holding LP and "Managing General Partner Units" refers to the units of the Holding LP that our partnership holds in such capacity;

    "Master Services Agreement" are to the amended and restated master services agreement dated as of March 13, 2015, among the Service Recipients, Brookfield Asset Management, the Service Provider and others, as described in Item 6.A "Directors and Senior Management—Our Master Services Agreement";

    "Merger Transaction" are to our acquisition of the ownership interests in Prime that were not already held by us, which was completed on December 8, 2010;

    "NTS Acquisition" means the transaction pursuant to which our partnership and its institutional partners have entered into agreements to acquire a stake in Nova Transportadora do Sudeste S.A. ("NTS"), a system of natural gas transmission assets, from Petróleo Brasileiro S.A. ("Petrobras"). Completion of this transaction is subject to satisfaction of all conditions and regulatory approval.

    "operating entities" are to the entities which directly or indirectly hold our current operations and assets that we may acquire in the future, including any assets held through joint ventures, partnerships and consortium arrangements;

    our "partnership" are to Brookfield Infrastructure Partners L.P.;

    "Prime" are to Prime Infrastructure, known collectively as Babcock & Brown Infrastructure Limited and Babcock & Brown Infrastructure Trust, or BBI, prior to its recapitalization on November 20, 2009;

    "rate base" are to a regulated or notionally stipulated asset base;

    the "Redemption-Exchange Mechanism" are to the mechanism by which Brookfield may request redemption of its limited partnership interests in the Holding LP in whole or in part in exchange for cash, subject to the right of our partnership to acquire such interests (in lieu of such redemption) in exchange for units of our partnership, as more fully set forth in Item 10.B "Memorandum and Articles of Association—Description of the Holding LP's Limited Partnership Agreement—Redemption-Exchange Mechanism";

    "Redeemable Partnership Unit" is a limited partnership unit of the Holding LP that has the rights of the Redemption-Exchange Mechanism. See Item 10.B "Memorandum and Articles of Association—Description of the Holding LP's Limited Partnership Agreement";

    "Relationship Agreement" are to the amended and restated relationship agreement dated as of March 28, 2014, as amended from time to time, by and among our partnership, the Holding LP, the Holding Entities, the Service Provider and Brookfield Asset Management, as described in Item 7.B "Related Party Transactions—Relationship Agreement";

    the "Service Provider" are to Brookfield Infrastructure Group L.P., Brookfield Asset Management Private Institutional Capital Adviser (Canada), LP, Brookfield Asset Management Barbados Inc., Brookfield Global Infrastructure Advisor Limited, Brookfield Infrastructure Group (Australia) Pty Limited and, unless the context otherwise requires, includes any other affiliate of Brookfield Asset Management that provides services to us pursuant to the Master Services Agreement or any other service agreement or arrangement;

    "Service Recipients" are to our partnership, the Holding LP and certain of the Holding Entities in their capacity as recipients of services under the Master Services Agreement;

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    "spin-off" are to the issuance of the special dividend by Brookfield Asset Management to its shareholders of 35,016,762 of our units on January 31, 2008;

    our "transport operations" are to our interests in Australian and Brazilian rail operations, port operations in the U.S., the U.K., Europe, Australia, and New Zealand, toll road operations in Chile, Brazil, Peru and India, as described in Item 4.B "Business Overview—Our Operations—Transport—Overview";

    our "units" are to the limited partnership units in our partnership other than the preferred units, references to our "preferred units" are to preferred limited partnership units in our partnership and references to our "unitholders" and "preferred unitholders" are to the holders of our units and preferred units, respectively;

    "Class A Preferred Units", "Series 1 Preferred Units", "Series 2 Preferred Units", "Series 3 Preferred Units", "Series 4 Preferred Units", "Series 5 Preferred Units", "Series 6 Preferred Units", "Series 7 Preferred Units" and "Series 8 Preferred Units" are to cumulative class A preferred limited partnership units, cumulative class A preferred limited partnership units, series 1, cumulative class A preferred limited partnership units, series 2, cumulative class A preferred limited partnership units, series 3, cumulative class A preferred limited partnership units, series 4, cumulative class A preferred limited partnership units, series 5, cumulative class A preferred limited partnership units, series 6, cumulative class A preferred limited partnership units, series 7 and cumulative class A preferred limited partnership units, series 8 in our partnership, respectively;

    "Holding LP Class A Preferred Units", "Holding LP Series 1 Preferred Units", "Holding LP Series 3 Preferred Units", "Holding LP Series 5 Preferred Units" and "Holding LP Series 7 Preferred Units" are to cumulative class A preferred limited partnership units, cumulative class A preferred limited partnership units, series 1, cumulative class A preferred limited partnership units, series 3, cumulative class A preferred limited partnership units, series 5 and cumulative class A preferred limited partnership unit, series 7 of the Holding LP, respectively;

    our "utilities operations" refer to our interests in Australian regulated terminal operation, South American electricity transmission operations in Chile and Brazil and distribution operation in Colombia and European regulated distribution operation in the U.K. and, subject to the completion of the NTS Acquisition, South American natural gas transmission operation, as described in Item 4.B "Business Overview—Our Operations—Utilities—Overview"; and

    "Voting Agreements" are to the voting arrangements described in Item 7.B "Related Party Transactions—Voting Agreements".

        On September 14, 2016, we completed a three-for-two split of our units by way of a subdivision of units (the "Unit Split"), whereby unitholders received an additional one-half of a unit for each unit held, resulting in the issuance of approximately 115 million additional units. Our preferred units were not affected by the Unit Split. All historical per unit disclosures have been adjusted to effect for the change in units due to the Unit Split.

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FORWARD-LOOKING STATEMENTS

        This annual report on Form 20-F contains certain forward-looking statements and information concerning our business and operations. The forward-looking statements and information also relate to, among other things, our objectives, goals, strategies, intentions, plans, beliefs, expectations and estimates and anticipated events or trends. In some cases, you can identify forward-looking statements by terms such as "anticipate," "believe," "could," "estimate," "expect," "intend," "may," "plan," "potential," "should," "objective," "will" and "would" or the negative of those terms or other comparable terminology.

        Although we believe that our anticipated future results, performance or achievements expressed or implied by the forward-looking statements and information are based on reasonable assumptions and expectations, the reader should not place undue reliance on forward-looking statements and information because they involve assumptions, known and unknown risks, uncertainties and other factors which may cause our actual results, performance or achievements to differ materially from anticipated future results, performance or achievements expressed or implied by the forward-looking statements and information.

        The following factors could cause our actual results to differ materially from our forward looking statements and information:

    our assets are or may become highly leveraged and we intend to incur indebtedness above the asset level;

    our partnership is a holding entity that relies on its subsidiaries to provide the funds necessary to pay our distributions and meet our financial obligations;

    future sales and issuances of our units or preferred units, or the perception of such sales or issuances, could depress the trading price of our units or preferred units;

    pending acquisitions may not be completed on the timeframe or in the manner contemplated, or at all;

    deployment of capital for our committed backlog and other projects we are pursuing may be delayed, curtailed or redirected altogether;

    acquisitions may subject us to additional risks and the expected benefits of our acquisitions may not materialize;

    foreign currency risk and risk management activities;

    increasing political uncertainty, which may impact our ability to expand in certain markets;

    general economic conditions and risks relating to the economy;

    commodity risks;

    availability and cost of credit;

    government policy and legislation change;

    exposure to uninsurable losses and force majeure events;

    infrastructure operations may require substantial capital expenditures;

    labour disruptions and economically unfavourable collective bargaining agreements;

    exposure to occupational health and safety related accidents;

    exposure to increased economic regulation and adverse regulatory decisions;

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    exposure to environmental risks, including increasing environmental legislation and the broader impacts of climate change;

    high levels of government regulation upon many of our operating entities, including with respect to rates set for our regulated businesses;

    First Nations claims to land, adverse claims or governmental claims may adversely affect our infrastructure operations;

    the competitive market for acquisition opportunities and the inability to identify and complete acquisitions as planned;

    our ability to renew existing contracts and win additional contracts with existing or potential customers;

    timing and price for the completion of unfinished projects;

    some of our current operations are held in the form of joint ventures or partnerships or through consortium arrangements;

    our infrastructure business is at risk of becoming involved in disputes and possible litigation;

    some of our businesses operate in jurisdictions with less developed legal systems and could experience difficulties in obtaining effective legal redress and create uncertainties;

    actions taken by national, state, or provincial governments, including nationalization, or the imposition of new taxes, could materially impact the financial performance or value of our assets;

    reliance on technology and exposure to cyber-security attacks;

    customers may default on their obligations;

    reliance on tolling and revenue collection systems;

    our ability to finance our operations due to the status of the capital markets;

    changes in our credit ratings;

    our operations may suffer a loss from fraud, bribery, corruption or other illegal acts;

    Brookfield's influence over our partnership and our partnership's dependence on the Service Provider;

    the lack of an obligation of Brookfield to source acquisition opportunities for us;

    our dependence on Brookfield and its professionals;

    interests in our General Partner may be transferred to a third party without unitholder or preferred unitholder consent;

    Brookfield may increase its ownership of our partnership;

    our Master Services Agreement and our other arrangements with Brookfield do not impose on Brookfield any fiduciary duties to act in the best interests of unitholders or preferred unitholders;

    conflicts of interest between our partnership, our preferred unitholders and our unitholders, on the one hand, and Brookfield, on the other hand;

    our arrangements with Brookfield may contain terms that are less favourable than those which otherwise might have been obtained from unrelated parties;

    our General Partner may be unable or unwilling to terminate the Master Services Agreement;

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    the limited liability of, and our indemnification of, the Service Provider;

    our unitholders and preferred unitholders do not have a right to vote on partnership matters or to take part in the management of our partnership;

    market price of our units and preferred units may be volatile;

    dilution of existing unitholders;

    adverse changes in currency exchange rates;

    investors may find it difficult to enforce service of process and enforcement of judgments against us;

    we may not be able to continue paying comparable or growing cash distributions to unitholders in the future;

    our partnership may become regulated as an investment company under the U.S. Investment Company Act of 1940 ("Investment Company Act"), as amended;

    we are exempt from certain requirements of Canadian securities laws and we are not subject to the same disclosure requirements as a U.S. domestic issuer;

    we may be subject to the risks commonly associated with a separation of economic interest from control or the incurrence of debt at multiple levels within an organizational structure;

    effectiveness of our internal controls over financial reporting; and

    other factors described in this annual report on Form 20-F, including, but not limited to, those described under Item 3.D "Risk Factors" and elsewhere in this annual report on Form 20-F.

        In light of these risks, uncertainties and assumptions, the events described by our forward-looking statements and information might not occur. We qualify any and all of our forward-looking statements and information by these cautionary factors. Please keep this cautionary note in mind as you read this annual report on Form 20-F. We disclaim any obligation to update or revise publicly any forward-looking statements or information, whether as a result of new information, future events or otherwise, except as required by applicable law.


CAUTIONARY STATEMENT REGARDING THE USE OF NON-IFRS ACCOUNTING MEASURES

        To measure performance, we focus on net income, an IFRS measure, as well as certain non-IFRS measures, including funds from operations ("FFO"), adjusted funds from operations ("AFFO"), adjusted EBITDA ("Adjusted EBITDA") and adjusted earnings ("Adjusted Earnings"), along with other measures.

FFO

        We define FFO as net income excluding the impact of depreciation and amortization, deferred income taxes, breakage and transaction costs, and non-cash valuation gains or losses. FFO is a measure of operating performance that is not calculated in accordance with, and does not have any standardized meaning prescribed by, International Financial Reporting Standards ("IFRS") as issued by the International Accounting Standards Board ("IASB"). FFO is therefore unlikely to be comparable to similar measures presented by other issuers. FFO has limitations as an analytical tool. Specifically, our definition of FFO may differ from the definition used by other organizations, as well as the definition of funds from operations used by the Real Property Association of Canada ("REALPAC") and the National Association of Real Estate Investment Trusts, Inc. ("NAREIT"), in part because the NAREIT definition is based on U.S. GAAP, as opposed to IFRS.

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AFFO

        We define AFFO as FFO less capital expenditures required to maintain the current performance of our operations (maintenance capital expenditures). AFFO is a measure of operating performance that is not calculated in accordance with, and does not have any standardized meaning prescribed by, IFRS. AFFO is therefore unlikely to be comparable to similar measures presented by other issuers and has limitations as an analytical tool.

Adjusted EBITDA

        In addition to FFO and AFFO, we focus on Adjusted EBITDA, which we define as net income excluding the impact of depreciation and amortization, interest expense, current and deferred income taxes, breakage and transaction costs, and non-cash valuation gains or losses. Adjusted EBITDA is a measure of operating performance that is not calculated in accordance with, and does not have any standardized meaning prescribed by, IFRS. Adjusted EBITDA is therefore unlikely to be comparable to similar measures presented by other issuers. Adjusted EBITDA has limitations as an analytical tool.

Adjusted Earnings

        We also focus on Adjusted Earnings, which we define as net income attributable to the partnership, excluding the impact of depreciation and amortization expense from revaluing property, plant and equipment and the effects of purchase price accounting, mark-to-market on hedging items and disposition gains or losses. Adjusted Earnings is a measure of operating performance that is not calculated in accordance with, and does not have any standardized meaning prescribed by, IFRS. Adjusted Earnings is therefore unlikely to be comparable to similar measures presented by other issuers. Adjusted Earnings has limitations as an analytical tool.

        For further details regarding our use of FFO, AFFO, Adjusted EBITDA and Adjusted Earnings as well as a reconciliation of net income to these performance measures, please see the "Reconciliation of Non-IFRS Financial Measures" section in Item 5 "Operating and Financial Review and Prospects—Management's Discussion and Analysis of Financial Condition and Results of Operations".

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PART I

ITEM 1.    IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS

        Not applicable.

ITEM 2.    OFFER STATISTICS AND EXPECTED TIMETABLE

        Not applicable.

ITEM 3.    KEY INFORMATION

3.A    SELECTED FINANCIAL DATA

        The following table presents financial data for Brookfield Infrastructure as of and for the periods indicated:

 
  For the Year Ended December 31,  
US$ MILLIONS, EXCEPT PER UNIT AMOUNTS
  2016   2015   2014   2013   2012  
Statements of Operating Results
 

Revenue

  $ 2,115   $ 1,855   $ 1,924   $ 1,826   $ 1,524  

Direct operating costs

    (1,063 )   (798 )   (846 )   (823 )   (766 )

General and administrative expenses

    (166 )   (134 )   (115 )   (110 )   (95 )

Depreciation and amortization expense

    (447 )   (375 )   (380 )   (329 )   (230 )

Interest expense

    (392 )   (367 )   (362 )   (362 )   (322 )

Share of earnings (losses) from investments in associates and joint ventures

    248     69     50     (217 )   1  

Mark-to-market on hedging items

    74     83     38     19     (49 )

Gain on sale of associates

                53      

Other income (expenses)

    174     54     (1 )   (35 )   8  
                       

Income before income tax

    543     387     308     22     71  

Current income tax expense

    (33 )   (22 )   (30 )   (3 )   (12 )

Deferred income tax recovery (expense)

    18     26     (49 )   1     42  
                       

Net income from continuing operations

    528     391     229     20     101  

Income from discontinued operations, net of income tax(1)

                45     190  
                       

Net income

  $ 528   $ 391   $ 229   $ 65   $ 291  
                       

Net income (loss) attributable to partnership(2)

    474     298     184     (58 )   106  

Net income (loss) per limited partnership unit (basic and diluted)(3)

    1.13     0.69     0.45     (0.29 )   0.31  

Funds from operations (FFO)(4)

    944     808     724     682     462  

Per unit FFO(5)

    2.72     2.39     2.30     2.20     1.61  

Adjusted funds from operations (AFFO)(6)

    771     672     593     553     355  

Adjusted EBITDA(7)

    1,322     1,177     1,142     1,110     841  

Adjusted Earnings(8)

    657     461     350     58     245  

Adjusted Earnings per unit(5)

    1.66     1.18     0.97     0.09     0.80  

Per unit distributions

    1.55     1.41     1.28     1.15     1.00  

(1)
The timber segment was reported as part of continuing operations until the second quarter of 2013 and has since been classified as discontinued operations for the comparative periods. Our Canadian and U.S. freehold timberlands were disposed of in the second and third quarter of 2013, respectively.

(2)
Net income (loss) attributable to partnership includes net income (loss) attributable to non-controlling interests—Redeemable Partnership Units held by Brookfield, general partner and limited partners.

(3)
During 2016, on average there were 244.7 million limited partnership units outstanding (2015: 238.9 million, 2014: 225.4 million, 2013: 221.7 million, 2012: 205.4 million).

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(4)
FFO is defined as net income excluding the impact of depreciation and amortization, deferred income taxes, breakage and transaction costs, and non-cash valuation gains or losses. Along with net income and other measures, FFO is a key measure of our financial performance that we use to assess the operating results and performance of our operations on a segmented basis. It is not calculated in accordance with, and does not have any standardized meanings prescribed by IFRS. For further details regarding our use of FFO as well as a reconciliation of net income to this measure, please see the "Reconciliation of Non-IFRS Financial Measures" section in Item 5 "Operating and Financial Review and Prospects–Management's Discussion and Analysis of Financial Condition and Results of Operations".

(5)
During 2016, on average there were 347.2 million units outstanding (2015: 337.4 million, 2014: 315.1 million, 2013: 310.0 million, 2012: 287.2 million), being inclusive of our units, the Redeemable Partnership Units, and the Special Limited Partner Units.

(6)
AFFO is defined as FFO less capital expenditures required to maintain the current performance of our operations (maintenance capital expenditures). AFFO is a measure of operating performance that is not calculated in accordance with, and does not have any standardized meaning prescribed by, IFRS. AFFO is therefore unlikely to be comparable to similar measures presented by other issuers. AFFO has limitations as an analytical tool. For further details regarding our use of AFFO, as well as a reconciliation of net income to these measures, please see the "Reconciliation of Non-IFRS Financial Measures" section in Item 5 "Operating and Financial Review and Prospects–Management's Discussion and Analysis of Financial Condition and Results of Operations".

(7)
Adjusted EBITDA is defined as net income excluding the impact of depreciation and amortization, interest expense, current and deferred income taxes, breakage and transaction costs, and non-cash valuation gains or losses. Adjusted EBITDA is not calculated in accordance with, and does not have any standardized meaning prescribed by, IFRS. Adjusted EBITDA is therefore unlikely to be comparable to similar measures presented by other issuers. Adjusted EBITDA has limitations as an analytical tool. For further details regarding our use of Adjusted EBITDA, as well as a reconciliation of net income to this measures, please see the "Reconciliation of Non-IFRS Financial Measures" section in Item 5 "Operating and Financial Review and Prospects–Management's Discussion and Analysis of Financial Condition and Results of Operations".

(8)
Adjusted Earnings is defined as net income attributable to our partnership, excluding the impact of depreciation and amortization expense from revaluing property, plant and equipment and the effects of purchase price accounting, mark-to-market on hedging items and disposition gains or losses. Adjusted Earnings is not calculated in accordance with, and does not have any standardized meaning prescribed by, IFRS. Adjusted Earnings is therefore unlikely to be comparable to similar measures presented by other issuers. Adjusted Earnings has limitations as an analytical tool. For further details regarding our use of Adjusted Earnings, as well as a reconciliation of net income to this measures, please see the "Reconciliation of Non-IFRS Financial Measures" section in Item 5 "Operating and Financial Review and Prospects–Management's Discussion and Analysis of Financial Condition and Results of Operations".


 
  As of December 31,  
US$ MILLIONS
  2016   2015   2014   2013   2012  
Statements of Financial Position Key Metrics
 

Cash and cash equivalents

  $ 786   $ 199   $ 189   $ 538   $ 263  

Total assets

    21,275     17,735     16,495     15,682     19,718  

Corporate borrowings

    1,002     1,380     588     377     946  

Non-recourse borrowings

    7,324     5,852     6,221     5,790     6,993  

Partnership capital—attributable to limited partners

    4,611     3,838     3,533     3,751     3,632  

Non-controlling interest—Redeemable Partnership Units held by Brookfield

    1,860     1,518     1,321     1,408     1,365  

Non-controlling interest—in operating subsidiaries

    2,771     1,608     1,444     1,419     2,784  

Partnership capital—attributable to general partner

    27     23     24     27     27  

Partnership capital—attributable to preferred unitholders

    375     189              
                       

Total Partnership Capital

    9,644     7,176     6,322     6,605     7,808  

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        Net income (loss) attributable to our partnership is the most directly comparable IFRS measure to FFO and AFFO. The following table reconciles net income (loss) attributable to our partnership to FFO and AFFO.

 
  For the Year Ended December 31,  
US$ MILLIONS, EXCEPT PER UNIT AMOUNTS(1)
  2016
  2015
  2014
  2013
  2012
 

Net income (loss) attributable to partnership(2)

  $ 474   $ 298   $ 184   $ (58 ) $ 106  

Add back or deduct the following:

                               

Depreciation and amortization

    609     506     481     400     300  

Impairment charge

                275     16  

Deferred income taxes

    (5 )   (53 )   (2 )   65     (37 )

Gain on sale of associate

                (53 )    

Mark-to-market on hedging items

    (17 )   (63 )   (39 )   (7 )   50  

Valuation (gains) losses and other

    (117 )   120     100     60     27  
                       

FFO

    944     808     724     682     462  

Maintenance capital expenditures

    (173 )   (136 )   (131 )   (129 )   (107 )
                       

AFFO

  $ 771   $ 672   $ 593   $ 553   $ 355  
                       

(1)
See Item 5 "Operating and Financial Review and Prospects–Management's Discussion and Analysis of Financial Condition and Results of Operations—Reconciliation of Non-IFRS Financial Measures" for a detailed reconciliation of our proportionate results to our consolidated statements of operating results.

(2)
Net income (loss) attributable to partnership includes net income (loss) attributable to non-controlling interest—Redeemable Partnership Units held by Brookfield, general partner and limited partners.

        Please see Item 5 "Operating and Financial Review and Prospects—Management's Discussion and Analysis of Financial Condition and Results of Operations—Reconciliation of Non-IFRS Financial Measures" for a reconciliation of net income to Adjusted EBITDA and Adjusted Earnings.

3.B    CAPITALIZATION AND INDEBTEDNESS

        Not applicable.

3.C    REASONS FOR THE OFFER AND USE OF PROCEEDS

        Not applicable.

3.D    RISK FACTORS

        You should carefully consider the following factors in addition to the other information set forth in this annual report on Form 20-F. If any of the following risks actually occur, our business, financial condition and results of operations and the value of our units and preferred units would likely suffer.

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Risks Relating to Our Operations and the Infrastructure Industry

         All of our operating entities are subject to general economic and political conditions and risks relating to the markets in which we operate.

        Many industries, including the industries in which we operate, are impacted by political and economic conditions, and in particular, adverse events in financial markets, which may have a profound effect on global or local economies. Some key impacts of general financial market turmoil include contraction in credit markets resulting in a widening of credit spreads, devaluations and enhanced volatility in global equity, commodity and foreign exchange markets and a general lack of market liquidity. A slowdown in the financial markets or other key measures of the global economy or the local economies of the regions in which we operate, including, but not limited to, new home construction, employment rates, business conditions, inflation, fuel and energy costs, commodity prices, lack of available credit, the state of the financial markets, interest rates and tax rates may adversely affect our growth and profitability.

        The demand for services provided by our operating entities are, in part, dependent upon and correlated to general economic conditions and economic growth of the regions applicable to the relevant asset. Poor economic conditions or lower economic growth in a region or regions may, either directly or indirectly, reduce demand for the services provided by an asset.

        For example, a credit/liquidity crisis, such as the global crisis experienced in 2008/2009, could materially impact the cost and availability of financing and overall liquidity; the volatility of commodity output prices and currency exchange markets could materially impact revenues, profits and cash flow; volatile energy, commodity input and consumables prices and currency exchange rates could materially impact production costs; poor local or regional economic conditions could materially impact the level of traffic on our toll roads or volume of commodities transported on our rail network and/or shipped through our ports; our U.K. regulated distribution business earns connection revenues that would be negatively impacted by an economic recession and a reduction of housing starts in the U.K.; and the devaluation and volatility of global stock markets could materially impact the valuation of our units and preferred units. Any one of these factors could have a material adverse effect on our business, financial condition and results of operations. If such increased levels of volatility and market turmoil were to continue, our operations and the trading price of our units and preferred units may be further adversely impacted.

        In addition, we may be affected by political uncertainties in the U.S. and Europe, which may have global repercussions, including in markets where we currently operate or intend to expand into in the future.

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         Some of our operations depend on continued strong demand for commodities, such as natural gas or minerals, for their financial performance. Material reduction in demand for these key commodities can potentially result in reduced value for assets, or in extreme cases, a stranded asset.

        Some of our operations are critically linked to the transport or production of key commodities. For example, our Australian regulated terminal operation relies on demand for coal exports, our Australian rail operation relies on demand for iron ore for steel production and our North American gas transmission operation relies on demand for natural gas and benefits from higher gas prices. While we endeavour to protect against short to medium term commodity demand risk wherever possible by structuring our contracts in a way that minimizes volume risk (e.g. minimum guaranteed volumes and 'take-or-pay' arrangements), these contract terms are finite and in some cases contracts contain termination or suspension rights for the benefit of the customer. Accordingly, a long-term and sustained downturn in the demand for or price of a key commodity linked to one of our operations may result in termination, suspension or default under a key contract, or otherwise have a material adverse impact on the financial performance or growth prospects of that particular operation, notwithstanding our efforts to maximize contractual protections.

        If a critical upstream or downstream business ceased to operate, this could materially impact our financial performance or the value of one or more of our operating businesses. In extreme cases, our infrastructure could become redundant, resulting in an inability to recover a return on or of capital and potentially triggering covenants and other terms and conditions under associated debt facilities.

         Acquisitions may subject us to additional risks and the expected benefits of our acquisitions may not materialize.

        A key part of Brookfield Infrastructure's strategy involves seeking acquisition opportunities. Acquisitions may increase the scale, scope and diversity of our operations. We depend on the diligence and skill of Brookfield's professionals to manage us, including integrating all of the acquired business' operations with our existing operations. These individuals may have difficulty managing the additional operations and may have other responsibilities within Brookfield's asset management business. If Brookfield does not effectively manage the additional operations, our existing business, financial condition and results of operations may be adversely affected.

        Acquisitions will likely involve some or all of the following risks, which could materially and adversely affect our business, financial condition or results of operations: the difficulty of integrating the acquired operations and personnel into our current operations; the ability to achieve potential synergies; potential disruption of our current operations; diversion of resources, including Brookfield's time and attention; the difficulty of managing the growth of a larger organization; the risk of entering markets in which we have little experience; the risk of becoming involved in labour, commercial or regulatory disputes or litigation related to the new enterprise; the risk of environmental or other liabilities associated with the acquired business; and the risk of a change of control resulting from an acquisition triggering rights of third parties or government agencies under contracts with, or authorizations held by the operating business being acquired. While it is our practice to conduct extensive due diligence investigations into businesses being acquired, it is possible that due diligence may fail to uncover all material risks in the business being acquired, or to identify a change of control trigger in a material contract or authorization, or that a contractual counterparty or government agency may take a different view on the interpretation of such a provision to that taken by us, thereby resulting in a dispute. The discovery of any material liabilities subsequent to an acquisition, as well as the failure of an acquisition to perform according to expectations, could have a material adverse effect on Brookfield Infrastructure's business, financial condition and results of operations. In addition, if returns are lower than anticipated from acquisitions, we may not be able to achieve growth in our distributions in line with our stated goals and the market value of our units may decline.

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         We operate in a highly competitive market for acquisition opportunities.

        Our acquisition strategy is dependent to a significant extent on the ability of Brookfield to identify acquisition opportunities that are suitable for us. We face competition for acquisitions primarily from investment funds, operating companies acting as strategic buyers, construction companies, commercial and investment banks, and commercial finance companies. Many of these competitors are substantially larger and have considerably greater financial, technical and marketing resources than are available to us. Some of these competitors may also have higher risk tolerances or different risk assessments, which could allow them to consider a wider variety of acquisitions and to offer terms that we are unable or unwilling to match. Due to the capital intensive nature of infrastructure acquisitions, in order to finance acquisitions we will need to compete for equity capital from institutional investors and other equity providers, including Brookfield, and our ability to consummate acquisitions will be dependent on such capital continuing to be available. Increases in interest rates could also make it more difficult to consummate acquisitions because our competitors may have a lower cost of capital which may enable them to bid higher prices for assets. In addition, because of our affiliation with Brookfield, there is a higher risk that when we participate with Brookfield and others in joint ventures, partnerships and consortiums on acquisitions we may become subject to antitrust or competition laws that we would not be subject to if we were acting alone. These factors may create competitive disadvantages for us with respect to acquisition opportunities.

        We cannot provide any assurance that the competitive pressures we face will not have a material adverse effect on our business, financial condition and results of operations or that Brookfield will be able to identify and make acquisitions on our behalf that are consistent with our objectives or that generate attractive returns for our unitholders. We may lose acquisition opportunities if we do not match prices, structures and terms offered by competitors, if we are unable to access sources of equity or obtain indebtedness at attractive rates or if we become subject to antitrust or competition laws. Alternatively, we may experience decreased rates of return and increased risks of loss if we match prices, structures and terms offered by competitors.

         We may be unable to identify and complete acquisitions as planned.

        Our acquisitions are subject to a number of closing conditions, including, as applicable, securityholder approval, regulatory approval (including competition authorities) and other third party consents and approvals that are beyond our control and may not be satisfied. In particular, many jurisdictions in which we seek to invest impose government consent requirements on investments by foreign persons. Consents and approvals may not be obtained, may be obtained subject to conditions which adversely affect anticipated returns, and/or may be delayed and delay or ultimately preclude the completion of acquisitions. Government policies and attitudes in relation to foreign investment may change, making it more difficult to complete acquisitions in such jurisdictions. Furthermore, interested stakeholders could take legal steps to prevent an acquisition from being completed. If all or some of our acquisitions are unable to be completed on the terms agreed, we may need to modify or delay certain acquisitions or terminate these acquisitions altogether, the market value of our units may significantly decline and we may not be able to achieve the expected benefits of the acquisitions. For example, our previously announced acquisition of NTS is subject to a number of conditions, including the finalization, to the satisfaction of the relevant Petrobras and consortium parties, of terms and conditions of a number of long-term agreements relating to the operation of the business and other customary conditions, including regulatory approvals, some of which are beyond our control and may not be satisfied. In addition, the NTS Acquisition may be blocked or modified by regulators or pursuant to litigation. If the NTS Acquisition is unable to be completed on the terms agreed, or is blocked or modified by regulators pursuant to litigation, we may need to delay or modify the transaction or terminate it altogether. In addition, if we are not able to complete the NTS Acquisition, we may not be able to identify alternative investments that are of a comparable quality to the NTS Acquisition in a timely manner, or at all.

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         Infrastructure assets may be subject to competition risk.

        Some assets may be affected by the existence of other competing assets owned and operated by other parties. There can be no assurance that our businesses can renew all their existing contracts or win additional contracts with their existing or potential customers. The ability of our businesses to maintain or improve their revenue is dependent on price, availability and customer service as well as on the availability of access to alternative infrastructure. In the case where the relevant business is unable to retain customers and/or unable to win additional customers to replace those customers it is unable to retain, the revenue from such assets will be reduced.

         Investments in infrastructure projects prior to or during a construction or expansion phase are likely to be subject to increased risk.

        A key part of our growth strategy involves identifying and taking advantage of organic growth opportunities within our existing businesses. These opportunities typically involve development and construction of new infrastructure or expansion or upgrades to existing infrastructure. Investments in new infrastructure projects during a development or construction phase are likely to be subject to additional risk that the project will not receive all required approvals, will not be completed within budget, within the agreed timeframe and to the agreed specifications and, where applicable, will not be successfully integrated into the existing assets. During the construction phase, major risks include: (i) a delay in the projected completion of the project, which can result in an increase in total project construction costs through higher capitalized interest charges and additional labour, material expenses, and a resultant delay in the commencement of cash flow; (ii) the insolvency of the head contractor, a major subcontractor and/or a key equipment supplier; (iii) construction costs exceeding estimates for various reasons, including inaccurate engineering and planning, labour and building material costs in excess of expectations and unanticipated problems with project start-up; and (iv) defects in design, engineering or construction (including, without limitation, latent defects that do not materialize during an applicable warranty or limitation periods). Such unexpected increases may result in increased debt service costs, operations and maintenance expenses and damage payments for late delivery. This may result in the inability of project owners to meet the higher interest and principal repayments arising from the additional debt required.

        In addition, construction projects may be exposed to significant liquidated damages to the extent that commercial operations are delayed beyond prescribed dates or that performance levels do not meet guaranteed levels. For example, a liquidated damages regime applies in respect of some of the expansion of works at our Brazilian toll road business.

        We currently have approximately $1.4 billion of committed backlog. Total capital to be commissioned in the next two to three years currently stands at approximately $2.4 billion. We can provide no assurance that we will be able to complete these projects on time or within budget. In addition, we are pursuing a number of other organic growth opportunities that are not yet committed. Accordingly, we can provide no assurance that these projects will materialize on the terms currently contemplated, or at all.

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         We are subject to foreign currency risk and our risk management activities may adversely affect the performance of our operations.

        A significant portion of our current operations are in countries where the U.S. dollar is not the functional currency. These operations pay distributions in currencies other than the U.S. dollar, which we must convert to U.S. dollars prior to making distributions, and certain of our operations have revenues denominated in currencies different from our expense structure, thus exposing us to currency risk. Fluctuations in currency exchange rates could reduce the value of cash flows generated by our operating entities or could make it more expensive for our customers to purchase our services and consequently reduce the demand for our services. In addition, a significant depreciation in the value of such foreign currencies may have a material adverse effect on our business, financial condition and results of operations.

        When managing our exposure to such market risks, we may use forward contracts, options, swaps, caps, collars and floors or pursue other strategies or use other forms of derivative instruments. The success of any hedging or other derivative transactions that we enter into generally will depend on our ability to structure contracts that appropriately offset our risk position. As a result, while we may enter into such transactions in order to reduce our exposure to market risks, unanticipated market changes may result in poorer overall investment performance than if the derivative transaction had not been executed. Such transactions may also limit the opportunity for gain if the value of a hedged position increases.

         General economic and business conditions that impact the debt or equity markets could impact our ability to access credit markets.

        General economic and business conditions that impact the debt or equity markets could impact the availability of credit to, and cost of credit for, Brookfield Infrastructure. We have revolving credit facilities and other short-term borrowings. The amount of interest charged on these will fluctuate based on changes in short-term interest rates. Any economic event that affects interest rates or the ability to refinance borrowings could materially adversely impact our financial condition. Movements in interest rates could also affect the discount rates used to value our assets, which in turn could cause their valuations calculated under IFRS to be reduced resulting in a material reduction in our equity value.

        In addition, some of our operations either currently have a credit rating or may have a credit rating in the future. A credit rating downgrade may result in an increase in the cost of debt for the relevant businesses and reduced access to debt markets.

        Some assets in our portfolio have a requirement for significant capital expenditure. For other assets, cash, cash equivalents and short-term investments combined with cash flow generated from operations are believed to be sufficient for it to make the foreseeable required level of capital investment. However, no assurance can be given that additional capital investments will not be required in these businesses. If we are unable to generate enough cash to finance necessary capital expenditures through operating cash flow, then we may be required to issue additional equity or incur additional indebtedness. The issue of additional equity would be dilutive to existing unitholders at the time. Any additional indebtedness would increase our leverage and debt payment obligations, and may negatively impact its business, financial condition and results of operations.

        Our business relies on continued access to capital to fund new investments and capital projects. While we aim to prudently manage our capital requirements and ensure access to capital is always available, it is possible we may overcommit ourselves or misjudge the requirement for capital or the availability of liquidity. Such a misjudgment may require capital to be raised quickly and the inability to do so could result in negative financial consequences or in extreme cases bankruptcy.

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         All of our operating entities are subject to changes in government policy and legislation.

        Our financial condition and results of operations could also be affected by changes in economic or other government policies or other political or economic developments in each country or region, as well as regulatory changes or administrative practices over which we have no control such as: the regulatory environment related to our business operations, concession agreements and periodic regulatory resets; interest rates; currency fluctuations; exchange controls and restrictions; inflation; liquidity of domestic financial and capital markets; policies relating to climate change or policies relating to tax; and other political, social, economic, and environmental and occupational health and safety developments that may occur in or affect the countries in which our operating entities are located or conduct business or the countries in which the customers of our operating entities are located or conduct business or both.

        In addition, operating costs can be influenced by a wide range of factors, many of which may not be under the control of the owner/operator, including the need to comply with the directives of central and local government authorities. For example, in the case of our utility, transport and energy operations, we cannot predict the impact of future economic conditions, energy conservation measures, alternative fuel requirements, or governmental regulation all of which could reduce the demand for or availability of commodities our transport and energy operations rely upon, most notably coal and natural gas. It is difficult to predict government policies and what form of laws and regulations will be adopted or how they will be construed by the relevant courts, or to the extent which any changes may adversely affect us.

         We may be exposed to natural disasters, weather events, uninsurable losses and force majeure events.

        Force majeure is the term generally used to refer to an event beyond the control of the party claiming that the event has occurred, including but not limited to acts of God, fires, floods, earthquakes, wars and labour strikes. The assets of our infrastructure businesses are exposed to unplanned interruptions caused by significant catastrophic events such as cyclones, landslides, explosions, terrorist attacks, war, floods, earthquakes, fires, major plant breakdowns, pipeline or electricity line ruptures, accidents, extreme weather events or other disasters. Operational disruption, as well as supply disruption, could adversely affect the cash flow available from these assets. In addition, the cost of repairing or replacing damaged assets could be considerable and could give rise to third-party claims. In some cases, project agreements can be terminated if the force majeure event is so catastrophic as to render it incapable of remedy within a reasonable time period. Repeated or prolonged interruption may result in a permanent loss of customers, substantial litigation, damage, or penalties for regulatory or contractual non-compliance. Moreover, any loss from such events may not be recoverable in whole or in part under relevant insurance policies. Business interruption insurance is not always available, or available on reasonable economic terms to protect the business from these risks.

        Given the nature of the assets operated by our operating entities, we may be more exposed to risks in the insurance market that lead to limitations on coverage and/or increases in premium. For example, many components of our South American electricity transmission operations and toll roads are not insured or not fully insured against losses from earthquakes and our North American gas transmission operation, our Australian distribution operations and our European regulated distribution operations self-insure the majority of their line and pipe assets. Therefore, the occurrence of a major or uninsurable event could have a material adverse effect on financial performance. Even if such insurance were available, the cost may be prohibitive. The ability of the operating entities to obtain the required insurance coverage at a competitive price may have an impact on the returns generated by them and accordingly the returns we receive.

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        For example, our regulated energy distribution businesses generate revenue based on the volume transmitted through their systems. Weather that deviates materially from normal conditions could impact these businesses. A number of our businesses may be adversely impacted by extreme weather. Our Australian rail operation transports grain on its system, for which it is contracted on a volume basis. A drought could have a material negative impact on revenue from grain transportation.

         All of our infrastructure operations may require substantial capital expenditures in the future.

        Our utilities, transport and energy operations are capital intensive and require substantial ongoing expenditures for, among other things, additions and improvements, and maintenance and repair of plant and equipment related to our operations. Any failure to make necessary capital expenditures to maintain our operations in the future could impair the ability of our operations to serve existing customers or accommodate increased volumes. In addition, we may not be able to recover such investments based upon the rates our operations are able to charge.

        In some of the jurisdictions in which we have utilities, transport or energy operations, certain maintenance capital expenditures may not be covered by the regulatory framework. If our operations in these jurisdictions require significant capital expenditures to maintain our asset base, we may not be able to recover such costs through the regulatory framework. In addition, we may be exposed to disallowance risk in other jurisdictions to the extent that capital expenditures and other costs are not fully recovered through the regulatory framework.

         Performance of our operating entities may be harmed by future labour disruptions and economically unfavourable collective bargaining agreements.

        Several of our current operations or other business operations have workforces that are unionized or that in the future may become unionized and, as a result, are required to negotiate the wages, benefits and other terms with many of their employees collectively. If an operating entity were unable to negotiate acceptable contracts with any of its unions as existing agreements expire, it could experience a significant disruption of its operations, higher ongoing labour costs and restrictions on its ability to maximize the efficiency of its operations, which could have a material adverse effect on its business, financial condition and results of operations.

        In addition, in some jurisdictions where we have operations, labour forces have a legal right to strike which may have an impact on our operations, either directly or indirectly, for example if a critical upstream or downstream counterparty was itself subject to a labour disruption which impacted our ability to operate.

         Our operations are exposed to occupational health and safety and accident risks.

        Infrastructure projects and operational assets are highly exposed to the risk of accidents that may give rise to personal injury, loss of life, disruption to service and economic loss. Some of the tasks undertaken by employees and contractors are inherently dangerous and have the potential to result in serious injury or death.

        Our operating entities are subject to laws and regulations governing health and safety matters, protecting both members of the public and their employees and contractors. Occupational health and safety legislation and regulations differ in each jurisdiction. Any breach of these obligations, or serious accidents involving our employees, contractors or members of the public could expose them to adverse regulatory consequences, including the forfeit or suspension of operating licenses, potential litigation, claims for material financial compensation, reputational damage, fines or other legislative sanction, all of which have the potential to impact the results of our operating entities and our ability to make distributions. Furthermore, where we do not control a business, we have a limited ability to influence health and safety practices and outcomes.

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         Many of our operations are subject to economic regulation and may be exposed to adverse regulatory decisions.

        Due to the essential nature of some of the services provided by our assets and the fact that some of these services are provided on a monopoly or near monopoly basis, many of our operations are subject to forms of economic regulation. This regulation can involve different forms of price control and can involve ongoing commitments to economic regulators and other governmental agencies. The terms upon which access to our facilities is provided, including price, can be determined or amended by a regulator periodically. Future terms to apply, including access charges that our operations are entitled to charge, cannot be determined with any certainty, as we do not have discretion as to the amount that can be charged. New legislation, regulatory determinations or changes in regulatory approaches may result in regulation of previously unregulated businesses or material changes to the revenue or profitability of our operations. In addition, a decision by a government or regulator to regulate non-regulated assets may significantly and negatively change the economics of these businesses and the value or financial performance of Brookfield Infrastructure. For example, in 2010 regulatory action taken by the Federal Energy Regulatory Commission ("FERC") saw a significant reduction in annual cashflow expectations of our North American gas transmission operations. Similarly, in 2016 a periodic regulatory reset at our Australian coal terminal resulted in a decline in annual cashflows at that business.

         Our operating entities are exposed to the risk of environmental damage.

        Many of Brookfield Infrastructure's assets are involved in using, handling or transporting substances that are toxic, combustible or otherwise hazardous to the environment. Furthermore, some of our assets have operations in or in close proximity to environmentally sensitive areas or densely populated communities. There is a risk of a leak, spillage or other environmental emission at one of these assets, which could cause regulatory infractions, damage to the environment, injury or loss of life. Such an incident if it occurred could result in fines or penalties imposed by regulatory authorities, revocation of licenses or permits required to operate the business or the imposition of more stringent conditions in those licenses or permits, or legal claims for compensation (including punitive damages) by affected stakeholders. In addition, some of our assets may be subject to regulations or rulings made by environmental agencies that conflict with existing obligations we have under concession or other permitting agreements. Resolution of such conflicts may lead to uncertainty and increased risk of delays or cost over-runs on projects. All of these have the potential to significantly impact the value or financial performance of Brookfield Infrastructure.

         Our operating entities are exposed to the risk of increasing environmental legislation and the broader impacts of climate change.

        With an increasing global focus and public sensitivity to environmental sustainability and environmental regulation becoming more stringent, Brookfield Infrastructure's assets could be subject to increasing environmental responsibility and liability. For example, many jurisdictions in which Brookfield Infrastructure operates are considering implementing, or have implemented, schemes relating to the regulation of carbon emissions. As a result, there is a risk that the consumer demand for some of the energy sources supplied by Brookfield Infrastructure will be reduced. For example, the United Kingdom's phasing out of analog meters and use of gas as a source of heating for residential customers could lead to a reduction in revenue and growth at our U.K. utility business. The nature and extent of future regulation in the various jurisdictions in which Brookfield Infrastructure's operations are situated is uncertain, but is expected to become more complex and stringent.

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        It is difficult to assess the impact of any such changes on Brookfield Infrastructure. These schemes may result in increased costs to our operations that may not be able to be passed onto our customers and may have an adverse impact on prospects for growth of some businesses. To the extent such regimes (such as carbon emissions schemes or other carbon emissions regulations) become applicable to the operations of Brookfield Infrastructure (and the costs of such regulations are not able to be fully passed on to consumers), its financial performance may be impacted due to costs applied to carbon emissions and increased compliance costs.

        Our operating entities are also subject to laws and regulations relating to the protection of the environment and pollution. Standards are set by these laws and regulations regarding certain aspects of environmental quality and reporting, provide for penalties and other liabilities for the violation of such standards, and establish, in certain circumstances, obligations to remediate and rehabilitate current and former facilities and locations where our operations are, or were, conducted. These laws and regulations may have a detrimental impact on the financial performance of our infrastructure operations and projects through increased compliance costs or otherwise. Any breach of these obligations, or even incidents relating to the environment that do not amount to a breach, could adversely affect the results of our operating entities and their reputations and expose them to claims for financial compensation or adverse regulatory consequences.

        Our operations may also be exposed directly or indirectly to the broader impacts of climate change, including extreme weather events, export constraints on commodities, increased resource prices and restrictions on energy and water usage.

         Our operating entities may be exposed to higher levels of regulation than in other sectors and breaches of such regulations could expose our operating entities to claims for financial compensation and adverse regulatory consequences.

        In many instances, our ownership and operation of infrastructure assets involves an ongoing commitment to a governmental agency. The nature of these commitments exposes the owners of infrastructure assets to a higher level of regulatory control than typically imposed on other businesses. For example, several of our utilities, transport and energy operations are subject to government safety and reliability regulations that are specific to their industries. The risk that a governmental agency will repeal, amend, enact or promulgate a new law or regulation or that a governmental authority will issue a new interpretation of the law or regulations, could affect our operating entities substantially.

        Sometimes commitments to governmental agencies, for example, under toll road concession arrangements, involve the posting of financial security for performance of obligations. If obligations are breached these financial securities may be called upon by the relevant agency.

        There is also the risk that our operating entities do not have, might not obtain, or may lose permits necessary for their operations. Permits or special rulings may be required on taxation, financial and regulatory related issues. Even though most permits and licenses are obtained before the commencement of operations, many of these licenses and permits have to be renewed or maintained over the life of the business. The conditions and costs of these permits, licenses and consents may be changed on any renewal, or, in some cases, may not be renewed due to unforeseen circumstances or a subsequent change in regulations. In any event, the renewal or non-renewal could have a material adverse effect on our business, financial condition and results of operations.

        The risk that a government will repeal, amend, enact or promulgate a new law or regulation or that a regulator or other government agency will issue a new interpretation of the law or regulations, may affect our operations or a project substantially. This may also be due to court decisions and actions of government agencies that affect these operations or a project's performance or the demand for its services. For example, a government policy decision may result in adverse financial outcomes for us through directions to spend money to improve security, safety, reliability or quality of service.

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         The lands used for our infrastructure assets may be subject to adverse claims or governmental or First Nations rights.

        Our operations require large areas of land on which to be constructed and operated. The rights to use the land can be obtained through freehold title, leases and other rights of use. Although we believe that we have valid rights to all material easements, licenses and rights of way for our infrastructure operations, not all of our easements, licenses and rights of way are registered against the lands to which they relate and may not bind subsequent owners. Additionally, different jurisdictions have adopted different systems of land title and in some jurisdictions it may not be possible to ascertain definitively who has the legal right to enter into land tenure arrangements with the asset owner. In some jurisdictions where we have operations, it is possible to claim indigenous or aboriginal rights to land and the existence or declaration of native title may affect the existing or future activities of our utilities, transport or energy operations and impact on their business, financial condition and results of operations.

        In addition, a government, court, regulator, or indigenous or aboriginal group may make a decision or take action that affects an asset or project's performance or the demand for its services. In particular, a regulator may restrict our access to an asset, or may require us to provide third parties with access, or may affect the pricing structure so as to lower our revenues and earnings. In Australia, native title legislation provides for a series of procedures that may need to be complied with if native title is declared on relevant land. In Canada, for example, courts have recognized that First Nations peoples may possess rights at law in respect of land used or occupied by their ancestors where treaties have not been concluded to deal with these rights. In either case, the claims of a First Nations group may affect the existing or future activities of our operations, impact on our business, financial condition and results of operations, or require that compensation be paid.

         Some of our transactions and current operations are structured as joint ventures, partnerships and consortium arrangements, and we intend to continue to operate in this manner in the future, which may reduce Brookfield's and our influence over our operations and may subject us to additional obligations.

        Some of our transactions and current operations are structured as joint ventures, partnerships and consortium arrangements. An integral part of our strategy is to participate with institutional investors in Brookfield-sponsored or co-sponsored consortiums for single asset acquisitions and as a partner in or alongside Brookfield-sponsored or co-sponsored partnerships that target acquisitions that suit our profile. These arrangements are driven by the magnitude of capital required to complete acquisitions of infrastructure assets and other industry-wide trends that we believe will continue. Such arrangements involve risks not present where a third party is not involved, including the possibility that partners or co-venturers might become bankrupt or otherwise fail to fund their share of required capital contributions. Additionally, partners or co-venturers might at any time have economic or other business interests or goals different from us and Brookfield.

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        Joint ventures, partnerships and consortium investments may provide for a reduced level of influence over an acquired company because governance rights are shared with others. Accordingly, decisions relating to the underlying operations, including decisions relating to the management and operation and the timing and nature of any exit, will be made by a majority or supermajority vote of the investors or by separate agreements that are reached with respect to individual decisions. For example, when we participate with institutional investors in Brookfield-sponsored or co-sponsored consortiums for asset acquisitions and as a partner in or alongside Brookfield-sponsored or co-sponsored partnerships, there is often a finite term to the investment or a date after which partners are granted liquidity rights, which could lead to the investment being sold prior to the date we would otherwise choose. In addition, such operations may be subject to the risk that the company may make business, financial or management decisions with which we do not agree or the management of the company may take risks or otherwise act in a manner that does not serve our interests. Because we may have a reduced level of influence over such operations, we may not be able to realize some or all of the benefits that we believe will be created from our and Brookfield's involvement. If any of the foregoing were to occur, our business, financial condition and results of operations could suffer as a result.

        In addition, because some of our transactions and current operations are structured as joint ventures, partnerships or consortium arrangements, the sale or transfer of interests in some of our operations are or may be subject to rights of first refusal or first offer, tag along rights or drag along rights and some agreements provide for buy-sell or similar arrangements. For example, some of our investments are subject to a shareholder agreement which allows for the sale of the assets without our consent. Such rights may be triggered at a time when we may not want them to be exercised and such rights may inhibit our ability to sell our interest in an entity within our desired time frame or on any other desired basis.

         Our infrastructure business is at risk of becoming involved in disputes and possible litigation.

        Our infrastructure business is at risk of becoming involved in disputes and possible litigation, the extent of which cannot be ascertained. Any material or costly dispute or litigation could adversely affect the value of the assets or future financial performance of Brookfield Infrastructure. In addition, as a result of the actions of the Holding Entities or the operating entities, Brookfield Infrastructure could be subject to various legal proceedings concerning disputes of a commercial nature, or to claims in the event of bodily injury or material damage. The final outcome of any proceeding could have a negative impact on the business, financial condition or results of operations of Brookfield Infrastructure during a given quarter or financial year.

         Some of our businesses operate in jurisdictions with less developed legal systems and could experience potential difficulties in obtaining effective legal redress and create uncertainties.

        Some of our businesses operate in jurisdictions with less developed legal systems than those in more established economies. In these jurisdictions, Brookfield Infrastructure could be faced with potential difficulties in obtaining effective legal redress; a higher degree of discretion on the part of governmental authorities; a lack of judicial or administrative guidance on interpreting applicable rules and regulations; inconsistencies or conflicts between and within various laws, regulations, decrees, orders and resolutions; and relative inexperience of the judiciary and courts in such matters.

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        In addition, in certain jurisdictions, Brookfield Infrastructure may find that the commitment of local business people, government officials and agencies and the judicial system to abide by legal requirements and negotiated agreements could be uncertain, creating particular concerns with respect to permits, approvals and licenses required or desirable for, or agreements entered into in connection with, the Brookfield Infrastructure business in any such jurisdiction. These may be susceptible to revision or cancellation and legal redress may be uncertain or delayed. There can be no assurance that joint ventures, licenses, permits or approvals (or applications for licenses, permits or approvals) or other legal arrangements will not be adversely affected by the actions of government authorities or others and the effectiveness of and enforcement of such arrangements in these jurisdictions cannot be assured.

         Action taken by national, state or provincial governments, including nationalization or the imposition of new taxes, could materially impact the financial performance or value of our assets.

        Our assets are located in many different jurisdictions, each with its own government and legal system. Different levels of political risk exist in each jurisdiction and it is possible that action taken by a national, state or provincial government, including the nationalization of a business or the imposition of new taxes, could materially impact our financial performance or in extreme cases deprive Brookfield Infrastructure of one or more of its businesses without adequate compensation.

         Our business relies on the use of technology, and as a result, we may be exposed to cyber-security attacks.

        Our business places significant reliance on information and other technology. This technology includes our computer systems used for information, processing, administrative and commercial operations and the operating plant and equipment used by our assets, including that on our toll roads, in our electricity transmission systems, coal terminal operations, ports, rail networks, and by our electricity and gas distribution companies. In addition, our business also relies upon telecommunication services to interface with its widely distributed business network and customers. The information and embedded systems of key business partners and regulatory agencies are also important to our operations. Our business relies on this technology functioning as intended.

        Our computer systems may be subject to cybersecurity risks or other breaches of information technology security, noting the increasing frequency and severity of these kinds of incidents. Further, the operating equipment used by our assets may not continue to perform as it has in the past, and there is a risk of equipment failure due to wear and tear, latent defect, design or operator errors or early obsolescence, among other things.

        A breach of our cyber/data security measures, the failure of any such computerized system or of the operating equipment used by our assets for a significant time period could have a material adverse effect on our business prospects, financial condition, results of operations and cash flow and it may not be possible to recover losses suffered from such incidents under our insurance policies. Although we are continuing to develop defenses to such attacks, we can provide no assurance they will be successful in preventing or ameliorating damage from such an attack on us and, as the manner in which cyber-attacks are undertaken has become more sophisticated, there is a risk that the occurrence of cyber-attack may remain undetected for an extended period.

        Furthermore, our communications infrastructure operations rely for their continued viability on the ongoing demand for tower infrastructure, which is uncertain and could be subject to bypass risk or obsolescence as a result of new or developing technologies.

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         Many of our operations depend on relevant contractual arrangements.

        Many of our operations rely on revenue from customers under contracts. There is a risk that customers will default under these contracts. We cannot provide assurance that one or more customers will not default on their obligations to us or that such a default or defaults will not have a material adverse effect on our operations, financial position, future results of operations, or future cash flows. Furthermore, the bankruptcy of one or more of our customers, or some other similar proceeding or liquidity constraint, might make it unlikely that we would be able to collect all or a significant portion of amounts owed by the distressed entity or entities. In addition, such events might force such customers to reduce or curtail their future use of our products and services, which could have a material adverse effect on our business, financial condition and results of operations. For example, we have a single customer which represented a majority of contractual and regulated revenues of our South American electricity transmission operations in 2014. As this accounts for a majority of its cash flow, our South American electricity transmission operations could be materially adversely affected by any material change in the financial condition of that customer. Similarly, our rail business is party to several commercial track access agreements to provide access to our rail network for the haulage of iron ore. The largest of these contracts currently accounts for a significant portion of forecast Adjusted EBITDA within the rail business and an event of default under this contract could have a materially adverse effect on that business.

        We endeavour to minimize risk wherever possible by structuring our contracts in a way that minimizes volume risk (e.g. minimum guaranteed volumes and 'take-or-pay' arrangements), however it is possible that the take-or-pay arrangements may not be fully effective. In addition, the contract terms are finite and in some cases the contracts contain termination or suspension rights for the benefit of the customer.

        Certain of our assets with revenues contracted under contracts will be subject to re-contracting risk in the future. We cannot provide assurance that we will be able to re-negotiate these contracts once their terms expire, or that even if we are able to do so, that we will be able to obtain the same prices or terms we currently receive. If we are unable to renegotiate these contracts, or unable to receive prices at least equal to the current prices we receive, our business, financial condition, results of operation and prospects could be adversely affected.

         We rely on tolling and revenue collection systems.

        Revenues at some of our assets depend on reliable and efficient tolling, metering or other revenue collection systems. There is a risk that, if one or more of our businesses are not able to operate and maintain these tolling, metering or other revenue collection systems in the manner expected, or if the cost of operation and maintenance is greater than expected, our assets, business, financial condition, and risks of operations could be materially adversely affected. Users of our facilities who do not pay tolls or other charges may be subject to either direct legal action from the relevant business, or in some cases may be referred to the state for enforcement action. We bear the ultimate risk if enforcement actions against defaulting customers are not successful or if enforcement actions are more costly or take more time than expected.

         Our ability to finance our operations is subject to various risks relating to the state of the capital markets.

        Our financing strategy involves both the issuance of partnership level equity and the issuance of corporate debt. For example, in December 2016, we issued approximately 15.6 million units at $32 per unit in the United States and Canada, together with 8,139,000 additional Redeemable Partnership Units to Brookfield in a concurrent private placement, and in August 2016, we raised C$250 million of gross proceeds through the issuance of Series 5 Preferred Units in Canada.

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        We have corporate debt and limited recourse project level debt, the majority of which is non-recourse that will need to be replaced from time to time. Our financings may contain conditions that limit our ability to repay indebtedness prior to maturity without incurring penalties, which may limit our capital markets flexibility. Refinancing risk includes, among other factors, dependence on continued operating performance of our assets, future electricity market prices, future capital markets conditions, the level of future interest rates and investors' assessment of our credit risk at such time. In addition, certain of our financings are, and future financings may be exposed to floating interest rate risks, and if interest rates increase, an increased proportion of our cash flow may be required to service indebtedness. Future acquisitions, development and construction of new facilities and other capital expenditures will be financed out of cash generated from our operations, borrowings and possible future sales of equity. Our ability to obtain financing to finance our growth is dependent on, among other factors, the overall state of the capital markets, continued operating performance of our assets, future electricity market prices, the level of future interest rates and investors' assessment of our credit risk at such time, and investor appetite for investments in renewable energy and infrastructure assets in general and in our securities in particular. To the extent that external sources of capital become limited or unavailable or available on onerous terms, our ability to make necessary capital investments to construct new or maintain existing facilities will be impaired, and as a result, our business, financial condition, results of operations and prospects may be materially adversely affected.

         Changes in our credit ratings may have an adverse effect on our financial position and ability to raise capital.

        We cannot assure you that any credit rating assigned to us or any of our subsidiaries' debt securities will remain in effect for any given period of time or that any rating will not be lowered or withdrawn entirely by the relevant rating agency. A lowering or withdrawal of such ratings may have an adverse effect on our financial position and ability to raise capital.

         We may suffer a significant loss resulting from fraud, bribery, corruption other illegal acts, inadequate or failed internal processes or systems, or from external events.

        We may suffer a significant loss resulting from fraud, bribery, corruption, other illegal acts by our employees or those of Brookfield, inadequate or failed internal processes or systems, or from external events, such as security threats affecting our ability to operate. Both Brookfield and our partnership operate in different markets and rely on our employees to follow our policies and processes as well as applicable laws in their activities. Risk of illegal acts or failed systems is managed through our infrastructure, controls, systems and people, complemented by a focus on enterprise-wide management of specific operational risks such as fraud, bribery and corruption, as well as personnel and systems risks. Specific programs, policies, standards and methodologies have been developed to support the management of these risks, however these cannot guarantee that such conduct does not occur and if it does, it can result in direct or indirect financial loss, reputational impact or regulatory consequences.

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Risks Relating to Our Relationship with Brookfield

         Brookfield exercises substantial influence over our partnership and we are highly dependent on the Service Provider.

        Brookfield is the sole shareholder of our General Partner. As a result of its ownership of our General Partner, Brookfield is able to control the appointment and removal of our General Partner's directors and, accordingly, exercise substantial influence over our partnership and over the Holding LP, for which our partnership is the managing general partner. Our partnership and the Holding LP do not have any employees and depend on the management and administration services provided by the Service Provider. Brookfield personnel and support staff that provide services to us are not required to have as their primary responsibility the management and administration of our partnership or the Holding LP or to act exclusively for either of us. Any failure to effectively manage our current operations or to implement our strategy could have a material adverse effect on our business, financial condition and results of operations.

         Brookfield has no obligation to source acquisition opportunities for us and we may not have access to all infrastructure acquisitions that Brookfield identifies.

        Our ability to grow depends on Brookfield's ability to identify and present us with acquisition opportunities. Brookfield established our partnership to own and operate certain infrastructure assets on a global basis. However, Brookfield has no obligation to source acquisition opportunities for us. In addition, Brookfield has not agreed to commit to us any minimum level of dedicated resources for the pursuit of infrastructure-related acquisitions. There are a number of factors which could materially and adversely impact the extent to which suitable acquisition opportunities are made available from Brookfield, for example:

    there is no accepted industry standard for what constitutes an infrastructure asset. For example, Brookfield may consider certain assets that have both real-estate related characteristics and infrastructure related characteristics to be real estate and not infrastructure;

    it is an integral part of Brookfield's (and our) strategy to pursue the acquisition of infrastructure assets through consortium arrangements with institutional investors, strategic partners or financial sponsors and to form partnerships to pursue such acquisitions on a specialized or global basis. Although Brookfield has agreed with us that it will not enter any such arrangements that are suitable for us without giving us an opportunity to participate in them, there is no minimum level of participation to which we will be entitled;

    the same professionals within Brookfield's organization that are involved in acquisitions that are suitable for us are responsible for the consortiums and partnerships referred to above, as well as having other responsibilities within Brookfield's broader asset management business. Limits on the availability of such individuals will likewise result in a limitation on the availability of acquisition opportunities for us;

    Brookfield will only recommend acquisition opportunities that it believes are suitable for us. Our focus is on assets where we believe that our operations-oriented approach can be deployed to create value. Accordingly, opportunities where Brookfield cannot play an active role in influencing the underlying operating company or managing the underlying assets may not be suitable for us, even though they may be attractive from a purely financial perspective. Legal, regulatory, tax and other commercial considerations will likewise be an important consideration in determining whether an opportunity is suitable and will limit our ability to participate in these more passive investments and may limit our ability to have more than 50% of our assets concentrated in a single jurisdiction; and

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    in addition to structural limitations, the question of whether a particular acquisition is suitable is highly subjective and is dependent on a number of factors including our liquidity position at the time, the risk profile of the opportunity, its fit with the balance of our then current operations and other factors. If Brookfield determines that an opportunity is not suitable for us, it may still pursue such opportunity on its own behalf, or on behalf of a Brookfield-sponsored partnership or consortium.

        In making these determinations, Brookfield may be influenced by factors that result in a misalignment or conflict of interest. See Item 7.B "Related Party Transactions—Conflicts of Interest and Fiduciary Duties."

         The departure of some or all of Brookfield's professionals could prevent us from achieving our objectives.

        We depend on the diligence, skill and business contacts of Brookfield's professionals and the information and opportunities they generate during the normal course of their activities. Our future success will depend on the continued service of these individuals, who are not obligated to remain employed with Brookfield. Brookfield has experienced departures of key professionals in the past and may do so in the future, and we cannot predict the impact that any such departures will have on our ability to achieve our objectives. The departure of a significant number of Brookfield's professionals for any reason, or the failure to appoint qualified or effective successors in the event of such departures, could have a material adverse effect on our ability to achieve our objectives. Our Limited Partnership Agreement and our Master Services Agreement do not require Brookfield to maintain the employment of any of its professionals or to cause any particular professionals to provide services to us or on our behalf.

         The control of our General Partner may be transferred to a third party without unitholder or preferred unitholder consent.

        Our General Partner may transfer its general partnership interest to a third party in a merger or consolidation or in a transfer of all or substantially all of its assets without the consent of our unitholders or preferred unitholders. Furthermore, at any time, the shareholder of our General Partner may sell or transfer all or part of its shares in our General Partner without the approval of our unitholders or preferred unitholders. If a new owner were to acquire ownership of our General Partner and to appoint new directors or officers of its own choosing, it would be able to exercise substantial influence over our partnership's policies and procedures and exercise substantial influence over our management and the types of acquisitions that we make. Such changes could result in our partnership's capital being used to make acquisitions in which Brookfield has no involvement or in making acquisitions that are substantially different from our targeted acquisitions. Additionally, our partnership cannot predict with any certainty the effect that any transfer in the ownership of our General Partner would have on the trading price of our units and preferred units or our partnership's ability to raise capital or make investments in the future, because such matters would depend to a large extent on the identity of the new owner and the new owner's intentions with regard to our partnership. As a result, the future of our partnership would be uncertain and our partnership's business, financial condition and results of operations may suffer.

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         Brookfield's ownership position of our partnership and the Holding LP entitles it to a significant percentage of our distributions, and Brookfield may increase its ownership relative to other unitholders.

        Brookfield beneficially owns, directly or indirectly, approximately 29.5% of our units on a fully-exchanged basis, substantially all of which consists of 108,401,992 Redeemable Partnership Units of the Holding LP that are redeemable for cash or exchangeable for our units in accordance with the Redemption-Exchange Mechanism. See Item 10.B "Memorandum and Articles of Association—Description of the Holding LP's Limited Partnership Agreement—Redemption-Exchange Mechanism." In addition, Brookfield owns approximately 0.4% of the Holding LP through Special Limited Partner Units, which entitle Brookfield to receive distributions in proportion to its special limited partnership interest, plus additional incentive distributions, as described in Item 7.B "Related Party Transactions—Special Limited Partner Distributions" and "—Incentive Distributions." Accordingly, Brookfield's ownership position of Redeemable Partnership Units and Special Limited Partner Units allows Brookfield to receive a substantial percentage of our distributions. See Item 10.B "Memorandum and Articles of Association."

        Brookfield may increase its ownership position in our partnership and the Holding LP. Under the distribution reinvestment plan of the Holding LP, Brookfield can reinvest distributions on its Redeemable Partnership Units for additional Redeemable Partnership Units. In addition, Brookfield may also elect to reinvest incentive distributions from its Special Limited Partner Units in exchange for additional Redeemable Partnership Units. Brookfield has advised us that it may from time to time reinvest these distributions for such additional Redeemable Partnership Units, which would increase its beneficial ownership percentage of our units and increase its share of distributions relative to public unitholders. To date, Brookfield has not elected to reinvest any of the distributions from its Redeemable Partnership Units or its Special Limited Partner Units for additional Redeemable Partnership Units, but it may elect to do so in the future.

        Brookfield may also purchase additional units of our partnership in the open market or pursuant to private placement. Brookfield historically has purchased additional Redeemable Partnership Units in private placements concurrent with public offerings of our units. Most recently, it purchased 8,139,000 Redeemable Partnership Units in connection with our December 2016 offering. See Item 5.B "Liquidity and Capital Resources—Partnership Capital."

        Any of these events may result in Brookfield increasing its ownership of our units relative to other unitholders, which could reduce the amount of cash available for distribution to public unitholders.

         Our Master Services Agreement and our other arrangements with Brookfield do not impose on Brookfield any fiduciary duties to act in the best interests of our unitholders or preferred unitholders.

        Our Master Services Agreement and our other arrangements with Brookfield do not impose on Brookfield any duty (statutory or otherwise) to act in the best interests of the Service Recipients, nor do they impose other duties that are fiduciary in nature. As a result, our General Partner, a wholly-owned subsidiary of Brookfield Asset Management, in its capacity as our General Partner, has sole authority to enforce the terms of such agreements and to consent to any waiver, modification or amendment of their provisions, subject to approval by a majority of our independent directors in accordance with our conflicts protocol.

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        In addition, the Bermuda Limited Partnership Act of 1883 ("Bermuda Limited Partnership Act"), under which our partnership and the Holding LP were established, does not impose statutory fiduciary duties on a general partner of a limited partnership in the same manner that certain corporate statutes, such as the Canada Business Corporations Act ("Canada Business Corporations Act"), impose fiduciary duties on directors of a corporation. In general, under applicable Bermudian legislation, a general partner has a duty to: (i) act at all times in good faith; and (ii) subject to any express provisions of the partnership agreement to the contrary, act in the interests of the limited partnership. Applicable Bermuda legislation also provides that a general partner has certain limited duties to its limited partners, such as the duty to render accounts, account for private profits and not compete with the partnership in business. In addition, Bermudian common law recognizes that a general partner owes a duty of utmost good faith to its limited partners. These duties are, in most respects, similar to duties imposed on a general partner of a limited partnership under U.S. and Canadian law. However, to the extent that our General Partner owes any such fiduciary duties to our partnership, our preferred unitholders and unitholders, these duties have been modified pursuant to our Limited Partnership Agreement as a matter of contract law, with the exception of the duty of our General Partner to act in good faith, which cannot be modified. We have been advised by Bermudian counsel that such modifications are not prohibited under Bermudian law, subject to typical qualifications as to enforceability of contractual provisions, such as the application of general equitable principles. This is similar to Delaware law which expressly permits modifications to the fiduciary duties owed to partners, other than an implied contractual covenant of good faith and fair dealing.

        Our Limited Partnership Agreement contains various provisions that modify the fiduciary duties that might otherwise be owed to our partnership, our preferred unitholders and unitholders, including when conflicts of interest arise. Specifically, our Limited Partnership Agreement states that no breach of our Limited Partnership Agreement or a breach of any duty, including fiduciary duties, may be found for any matter that has been approved by a majority of the independent directors of our General Partner. In addition, when resolving conflicts of interest, our Limited Partnership Agreement does not impose any limitations on the discretion of the independent directors or the factors which they may consider in resolving any such conflicts. The independent directors of our General Partner can therefore take into account the interests of third parties, including Brookfield, when resolving conflicts of interest. Additionally, any fiduciary duty that is imposed under any applicable law or agreement is modified, waived or limited to the extent required to permit our General Partner to undertake any affirmative conduct or to make any decisions, so long as such action is reasonably believed to be in, or not inconsistent with, the best interests of our partnership.

        In addition, our Limited Partnership Agreement provides that our General Partner and its affiliates do not have any obligation under our Limited Partnership Agreement, or as a result of any duties stated or implied by law or equity, including fiduciary duties, to present business or investment opportunities to our partnership, the Holding LP, any Holding Entity or any other holding entity established by us. They also allow affiliates of our General Partner to engage in activities that may compete with us or our activities. Additionally, any failure by our General Partner to consent to any merger, consolidation or combination will not result in a breach of our Limited Partnership Agreement or any other provision of law. Our Limited Partnership Agreement prohibits our limited partners from advancing claims that otherwise might raise issues as to compliance with fiduciary duties or applicable law. These modifications to the fiduciary duties are detrimental to our unitholders and preferred unitholders because they restrict the remedies available for actions that might otherwise constitute a breach of fiduciary duty and permit conflicts of interest to be resolved in a manner that is not in the best interests of our partnership or the best interests of our unitholders and preferred unitholders. See Item 7.B "Related Party Transactions—Conflicts of Interest and Fiduciary Duties".

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         Our organizational and ownership structure may create significant conflicts of interest that may be resolved in a manner that is not in the best interests of our partnership or the best interests of our unitholders and preferred unitholders.

        Our organizational and ownership structure involves a number of relationships that may give rise to conflicts of interest between our partnership, our unitholders and preferred unitholders, on the one hand, and Brookfield, on the other hand. In certain instances, the interests of Brookfield may differ from the interests of our partnership, our preferred unitholders and our unitholders, including with respect to the types of acquisitions made, the timing and amount of distributions by our partnership, the reinvestment of returns generated by our operations, the use of leverage when making acquisitions and the appointment of outside advisors and service providers, including as a result of the reasons described under Item 7.B "Related Party Transactions".

        In addition, the Service Provider, an affiliate of Brookfield, provides management services to us pursuant to our Master Services Agreement. Pursuant to our Master Services Agreement, on a quarterly basis, we pay a base management fee to the Service Provider equal to 0.3125% (1.25% annually) of the market value of our partnership. For purposes of calculating the base management fee, the market value of our partnership is equal to the aggregate value of all our outstanding units (assuming full conversion of Brookfield's limited partnership interests in Brookfield Infrastructure into units), preferred units and securities of the other Service Recipients that are not held by Brookfield Infrastructure, plus all outstanding third party debt with recourse to a Service Recipient, less all cash held by such entities. Infrastructure Special LP will also receive incentive distributions based on the amount by which quarterly distributions on the Holding LP's units (other than Holding LP Class A Preferred Units) exceed specified target levels as set forth in the Holding LP's limited partnership agreement. For a further explanation of the base management fee and incentive distributions, see Item 6.A "Directors and Senior Management—Management Fee" and Item 7.B "Related Party Transactions—Incentive Distributions". This relationship may give rise to conflicts of interest between us, our unitholders and preferred unitholders, on the one hand, and Brookfield, on the other, as Brookfield's interests may differ from the interests of Brookfield Infrastructure, our unitholders and preferred unitholders.

        Our General Partner, the sole shareholder of which is Brookfield, has sole authority to determine whether we will make distributions and the amount of distributions on our units and timing of these distributions. The arrangements we have with Brookfield may create an incentive for Brookfield to take actions which would have the effect of increasing distributions and fees payable to it, which may be to the detriment of us, our unitholders and preferred unitholders. For example, because the base management fee is calculated based on the market value of our partnership, it may create an incentive for Brookfield to increase or maintain the market value of our partnership over the near-term when other actions may be more favourable to us or our unitholders and preferred unitholders. Similarly, Brookfield may take actions to increase distributions on our units in order to ensure Brookfield is paid incentive distributions in the near-term when other investments or actions may be more favourable to us or our unitholders and preferred unitholders. Also, through Brookfield's ownership of our units and the Redeemable Partnership Units, it has an effective economic interest in our partnership of approximately 29.5% and therefore may be incentivized to increase distributions payable to our unitholders and thereby to Brookfield.

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         Our arrangements with Brookfield were negotiated in the context of an affiliated relationship and may contain terms that are less favourable than those which otherwise might have been obtained from unrelated parties.

        The terms of our arrangements with Brookfield were effectively determined by Brookfield in the context of the spin-off. While our General Partner's independent directors are aware of the terms of these arrangements and have approved the arrangements on our behalf, they did not negotiate the terms. These terms, including terms relating to compensation, contractual or fiduciary duties, conflicts of interest and Brookfield's ability to engage in outside activities, including activities that compete with us, our activities and limitations on liability and indemnification, may be less favourable than otherwise might have resulted if the negotiations had involved unrelated parties. Under our Limited Partnership Agreement, persons who acquire our units or preferred units and their transferees will be deemed to have agreed that none of those arrangements constitutes a breach of any duty that may be owed to them under our Limited Partnership Agreement or any duty stated or implied by law or equity.

         Our General Partner may be unable or unwilling to terminate the Master Services Agreement.

        The Master Services Agreement provides that the Service Recipients may terminate the agreement only if: the Service Provider defaults in the performance or observance of any material term, condition or covenant contained in the agreement in a manner that results in material harm to us and the default continues unremedied for a period of 30 days after written notice of the breach is given to the Service Provider; the Service Provider engages in any act of fraud, misappropriation of funds or embezzlement against any Service Recipient that results in material harm to us; the Service Provider is grossly negligent in the performance of its duties under the agreement and such negligence results in material harm to the Service Recipients; or upon the happening of certain events relating to the bankruptcy or insolvency of the Service Provider. Our General Partner cannot terminate the agreement for any other reason, including if the Service Provider or Brookfield experiences a change of control, and there is no fixed term to the agreement. In addition, because our General Partner is an affiliate of Brookfield, it may be unwilling to terminate the Master Services Agreement, even in the case of a default. If the Service Provider's performance does not meet the expectations of investors, and our General Partner is unable or unwilling to terminate the Master Services Agreement, the market price of our units or preferred units could suffer. Furthermore, the termination of the Master Services Agreement would terminate our partnership's rights under the Relationship Agreement and our Licensing Agreements. See Item 7.B "Related Party Transactions—Relationship Agreement" and Item 7.B "Related Party Transactions—Licensing Agreements".

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         The liability of the Service Provider is limited under our arrangements with it and we have agreed to indemnify the Service Provider against claims that it may face in connection with such arrangements, which may lead it to assume greater risks when making decisions relating to us than it otherwise would if acting solely for its own account.

        Under the Master Services Agreement, the Service Provider has not assumed any responsibility other than to provide or arrange for the provision of the services described in the Master Services Agreement in good faith and will not be responsible for any action that our General Partner takes in following or declining to follow its advice or recommendations. In addition, under our Limited Partnership Agreement, the liability of our General Partner and its affiliates, including the Service Provider, is limited to the fullest extent permitted by law to conduct involving bad faith, fraud or willful misconduct or, in the case of a criminal matter, action that was known to have been unlawful. The liability of the Service Provider under the Master Services Agreement is similarly limited, except that the Service Provider is also liable for liabilities arising from gross negligence. In addition, our partnership has agreed to indemnify the Service Provider to the fullest extent permitted by law from and against any claims, liabilities, losses, damages, costs or expenses incurred by an indemnified person or threatened in connection with our operations, investments and activities or in respect of or arising from the Master Services Agreement or the services provided by the Service Provider, except to the extent that the claims, liabilities, losses, damages, costs or expenses are determined to have resulted from the conduct in respect of which such persons have liability as described above. These protections may result in the Service Provider tolerating greater risks when making decisions than otherwise would be the case, including when determining whether to use leverage in connection with acquisitions. The indemnification arrangements to which the Service Provider is a party may also give rise to legal claims for indemnification that are adverse to our partnership, our unitholders and preferred unitholders.

Risks Relating to Our Partnership Structure

         Brookfield Infrastructure and our operating entities use leverage and such indebtedness may result in Brookfield Infrastructure or our operating entities being subject to certain covenants which restrict our ability to engage in certain types of activities or to make distributions to equity.

        The Holding LP and many of our Holding Entities and operating entities have entered into credit facilities or have incurred other forms of debt, including for the purposes of acquisitions and investments as well as for general corporate purposes. The total quantum of exposure to debt within Brookfield Infrastructure is significant, and we may become more highly leveraged in the future. Some facilities are fully drawn, while some have amounts of principal which are undrawn.

        Highly leveraged assets are inherently more sensitive to declines in revenues, increases in expenses and interest rates and adverse economic, market and industry developments. A leveraged company's income and net assets also tend to increase or decrease at a greater rate than would otherwise be the case if money had not been borrowed. As a result, the risk of loss associated with a leveraged company, all other things being equal, is generally greater than for companies with comparatively less debt. In addition, the use of indebtedness in connection with an acquisition may give rise to negative tax consequences to certain investors. Leverage may also result in a requirement for short-term liquidity, which may force the sale of assets at times of low demand and/or prices for such assets. This may mean that we are unable to realize fair value for the assets in a sale.

        Our credit facilities also contain covenants applicable to the relevant borrower and events of default. Covenants can relate to matters including limitations on financial indebtedness, dividends, investments, or minimum amounts for interest coverage, Adjusted EBITDA, cash flow or net worth. If an event of default occurs, or minimum covenant requirements are not satisfied, this can result in a requirement to immediately repay any drawn amounts or the imposition of other restrictions including a prohibition on the payment of distributions to equity.

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        Our credit facilities or other debt or debt-like instruments may or may not be rated. Should such debt or debt-like instruments be rated, a credit downgrade may have an adverse impact on the cost of such debt.

         Our partnership is a holding entity and currently we rely on the Holding LP and, indirectly, the Holding Entities and our operating entities to provide us with the funds necessary to pay distributions and meet our financial obligations.

        Our partnership is a holding entity and its sole material asset is its managing general partnership interest and preferred limited partnership interest in the Holding LP, which owns all of the common shares of the Holding Entities, through which we hold all of our interests in the operating entities. Our partnership has no independent means of generating revenue. As a result, we depend on distributions and other payments from the Holding LP and, indirectly, the Holding Entities and our operating entities to provide us with the funds necessary to pay distributions on our units and preferred units and to meet our financial obligations. The Holding LP, the Holding Entities and our operating entities are legally distinct from us and some of them are or may become restricted in their ability to pay dividends and distributions or otherwise make funds available to us pursuant to local law, regulatory requirements and their contractual agreements, including agreements governing their financing arrangements, such as the Holding LP's credit facilities and other indebtedness incurred by the Holding Entities and operating entities. Any other entities through which we may conduct operations in the future will also be legally distinct from us and may be similarly restricted in their ability to pay dividends and distributions or otherwise make funds available to us under certain conditions. The Holding LP, the Holding Entities and our operating entities will generally be required to service their debt obligations before making distributions to us or their parent entities, as applicable, thereby reducing the amount of our cash flow available to pay distributions, fund working capital and satisfy other needs.

        Our partnership anticipates that the only distributions that it will receive in respect of our partnership's managing general partnership interest in the Holding LP will consist of amounts that are intended to assist our partnership in making distributions to our unitholders in accordance with our partnership's distribution policy and to allow our partnership to pay expenses as they become due. Distributions received in respect of our partnership's preferred limited partnership interest in the Holding LP will consist of amounts that are intended to assist our partnership in making distributions to our preferred unitholders in accordance with the terms of our preferred units. The declaration and payment of cash distributions by our partnership is at the discretion of our General Partner. Our partnership is not required to make such distributions and neither our partnership nor our General Partner can assure you that our partnership will make such distributions as intended.

        While we plan to review our partnership's distributions to our unitholders periodically, there is no guarantee that we will be able to increase, or even maintain the level of distributions that are paid. Historically, as a result of this review, we decided to increase distributions in each of the last five years. However, such historical increases in distribution payments may not be reflective of any future increases in distribution payments which will be subject to review by the board of directors of our General Partner taking into account prevailing circumstances at the relevant time. Although we intend to make distributions on our units in accordance with our distribution policy, our partnership is not required to pay distributions on our units and neither our partnership nor our General Partner can assure you that our partnership will be able to increase or even maintain the level of distributions on our units that are made in the future.

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         Future sales or issuances of our units or preferred units in the public markets, or the perception of such sales or issuances, could depress the trading price of our units and/or preferred units.

        The sale or issuance of a substantial number of our units, preferred units or other equity related securities of our partnership in the public markets, or the perception that such sales or issuances could occur, could depress the market price of our units or preferred units and impair our ability to raise capital through the sale of additional units or preferred units. For example, in December 2016, we issued 15,625,000 units in a public offering in the United States and Canada, together with 8,139,000 additional Redeemable Partnership Units to Brookfield in a concurrent private placement, and in August 2016, we raised C$250 million of gross proceeds through the issuance of Series 5 Preferred Units in Canada. We cannot predict the effect that future sales or issuances of our units, preferred units or other equity-related securities would have on the market price of our units or preferred units.

         Our partnership is not, and does not intend to become, regulated as an investment company under the Investment Company Act (and similar legislation in other jurisdictions) and if our partnership was deemed an "investment company" under the Investment Company Act, applicable restrictions could make it impractical for us to operate as contemplated.

        The Investment Company Act (and similar legislation in other jurisdictions) provide certain protections to investors and impose certain restrictions on companies that are required to be regulated as investment companies. Among other things, such rules limit or prohibit transactions with affiliates, impose limitations on the issuance of debt and equity securities and impose certain governance requirements. Our partnership has not been and does not intend to become regulated as an investment company and our partnership intends to conduct its activities so it will not be deemed to be an investment company under the Investment Company Act (and similar legislation in other jurisdictions). In order to ensure that we are not deemed to be an investment company, we may be required to materially restrict or limit the scope of our operations or plans. We will be limited in the types of acquisitions that we may make, and we may need to modify our organizational structure or dispose of assets of which we would not otherwise dispose. Moreover, if anything were to happen which causes our partnership to be deemed an investment company under the Investment Company Act, it would be impractical for us to operate as contemplated. Agreements and arrangements between and among us and Brookfield would be impaired, the type and amount of acquisitions that we would be able to make as a principal would be limited and our business, financial condition and results of operations would be materially adversely affected. Accordingly, we would be required to take extraordinary steps to address the situation, such as the amendment or termination of the Master Services Agreement, the restructuring of our partnership and the Holding Entities, the amendment of our Limited Partnership Agreement or the termination of our partnership, any of which could materially adversely affect the value of our units and preferred units. In addition, if our partnership were deemed to be an investment company under the Investment Company Act, it would be taxable as a corporation for U.S. federal income tax purposes, and such treatment could materially adversely affect the value of our units and preferred units.

         Our partnership is an "SEC foreign issuer" under Canadian securities regulations and is exempt from certain requirements of Canadian securities laws and a "foreign private issuer" under U.S. securities laws and as a result is subject to disclosure obligations different from requirements applicable to U.S. domestic registrants listed on the New York Stock Exchange ("NYSE").

        Although our partnership is a reporting issuer in Canada, it is an "SEC foreign issuer" and is exempt from certain Canadian securities laws relating to disclosure obligations and proxy solicitation, subject to certain conditions. Therefore, there may be less publicly available information in Canada about our partnership than would be available if we were a typical Canadian reporting issuer.

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        Although our partnership is subject to the periodic reporting requirement of the U.S. Securities Exchange Act of 1934, as amended, and the rules and regulations promulgated thereunder ("Exchange Act"), the periodic disclosure required of foreign private issuers under the Exchange Act is different from periodic disclosure required of U.S. domestic registrants. Therefore, there may be less publicly available information about our partnership than is regularly published by or about other public limited partnerships in the U.S. Our partnership is exempt from certain other sections of the Exchange Act to which U.S. domestic issuers are subject, including the requirement to provide our unitholders with information statements or proxy statements that comply with the Exchange Act. In addition, insiders and large unitholders of our partnership are not obligated to file reports under Section 16 of the Exchange Act, and certain corporate governance rules imposed by the NYSE are inapplicable to our partnership.

         We may be subject to the risks commonly associated with a separation of economic interest from control or the incurrence of debt at multiple levels within an organizational structure.

        Our ownership and organizational structure is similar to structures whereby one company controls another company which in turn holds controlling interests in other companies; thereby, the company at the top of the chain may control the company at the bottom of the chain even if its effective equity position in the bottom company is less than a controlling interest. Brookfield controls the sole shareholder of our General Partner and, as a result of such ownership of our General Partner, Brookfield is able to control the appointment and removal of our General Partner's directors and, accordingly, exercises substantial influence over us. In turn, we often have a majority controlling interest or a significant influence in our investments. Even though Brookfield currently has an effective economic interest in our partnership of approximately 29.5% as a result of ownership of our units and the Redeemable Partnership Units, over time Brookfield may reduce this economic interest while still maintaining its controlling interest, and, therefore, Brookfield may use its control rights in a manner that conflicts with the economic interests of our other unitholders and preferred unitholders. For example, despite the fact that we have a conflicts protocol in place, which addresses the requirement for independent approval and other requirements for transactions in which there is greater potential for a conflict of interest to arise, including transactions with affiliates of Brookfield, because Brookfield will be able to exert substantial influence over us, and, in turn, over our investments, there is a greater risk of transfer of assets of our investments at non-arm's length values to Brookfield and its affiliates. In addition, debt incurred at multiple levels within the chain of control could exacerbate the separation of economic interest from controlling interest at such levels, thereby creating an incentive to leverage us and our investments. Any such increase in debt would also make us more sensitive to declines in revenues, increases in expenses and interest rates, and adverse market conditions. The servicing of any such debt would also reduce the amount of funds available to pay distributions to us and ultimately to our unitholders and preferred unitholders.

         Our failure to maintain effective internal controls could have a material adverse effect on our business in the future and the price of our units and preferred units.

        Any failure to maintain adequate internal controls over financial reporting or to implement required, new or improved controls, or difficulties encountered in their implementation, could cause us to report material weaknesses or other deficiencies in our internal controls over financial reporting and could result in errors or misstatements in our consolidated financial statements that could be material. If we or our independent registered public accounting firm were to conclude that our internal controls over financial reporting were not effective, investors could lose confidence in our reported financial information and the price of our units and preferred units could decline. Our failure to achieve and maintain effective internal controls could have a material adverse effect on our business in the future, our access to the capital markets and investors' perception of us. In addition, material weaknesses in our internal controls could require significant expense and management time to remediate.

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Risks Relating to Our Units and Preferred Units

         Our unitholders and preferred unitholders do not have a right to vote on partnership matters or to take part in the management of our partnership.

        Under our Limited Partnership Agreement, our unitholders and preferred unitholders are not entitled to vote on matters relating to our partnership, such as acquisitions, dispositions or financing, or to participate in the management or control of our partnership. In particular, our unitholders and preferred unitholders do not have the right to remove our General Partner, to cause our General Partner to withdraw from our partnership, to cause a new general partner to be admitted to our partnership, to appoint new directors to our General Partner's board of directors, to remove existing directors from our General Partner's board of directors or to prevent a change of control of our General Partner. In addition, except for certain fundamental matters and as prescribed by applicable laws, our unitholders' and preferred unitholders consent rights apply only with respect to certain amendments to our Limited Partnership Agreement. As a result, unlike holders of common stock of a corporation, our unitholders are not able to influence the direction of our partnership, including its policies and procedures, or to cause a change in its management, even if they are unsatisfied with the performance of our partnership. Consequently, our unitholders may be deprived of an opportunity to receive a premium for their units in the future through a sale of our partnership and the trading price of our units may be adversely affected by the absence or a reduction of a takeover premium in the trading price. Unitholders and preferred unitholders only have a right to vote under limited circumstances as described in Item 10.B "Memorandum and Articles of Association—Description of Our Units, Preferred Units and Our Limited Partnership Agreement."

         The market price of our units and preferred units may be volatile.

        The market price of our units and preferred units may be highly volatile and could be subject to wide fluctuations. Some of the factors that could negatively affect the price of our units and preferred units include: general market and economic conditions, including disruptions, downgrades, credit events and perceived problems in the credit markets; actual or anticipated variations in our quarterly operating results or distributions on our units; actual or anticipated variations or trends in market interest rates; changes in our investments or asset composition; write-downs or perceived credit or liquidity issues affecting our assets; market perception of our partnership, our business and our assets; our level of indebtedness and/or adverse market reaction to any indebtedness we incur in the future; our ability to raise capital on favourable terms or at all; loss of any major funding source; the termination of our Master Services Agreement or additions or departures of our or Brookfield's key personnel; changes in market valuations of similar infrastructure companies; speculation in the press or investment community regarding us or Brookfield; and changes in U.S. tax laws that make it impractical or impossible for our partnership to continue to be taxable as a partnership for U.S. federal income tax purposes. Securities markets in general have experienced extreme volatility that has often been unrelated to the operating performance of particular companies or partnerships. Any broad market fluctuations may adversely affect the trading price of our units and preferred units.

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         We may need additional funds in the future and we may issue additional units or preferred units in lieu of incurring indebtedness which may dilute existing holders of our units or we may issue securities that have rights and privileges that are more favourable than the rights and privileges accorded to our unitholders and preferred unitholders.

        Under our Limited Partnership Agreement subject to the terms of any preferred units then outstanding, we may issue additional partnership securities, including units, preferred units and options, rights, warrants and appreciation rights relating to partnership securities for any purpose and for such consideration and on such terms and conditions as our General Partner may determine. Subject to the terms of any preferred units outstanding, our General Partner's board of directors will be able to determine the class, designations, preferences, rights, powers and duties of any additional partnership securities, including any rights to share in our profits, losses and distributions, any rights to receive partnership assets upon our dissolution or liquidation and any redemption, conversion and exchange rights. Subject to the terms of any preferred units outstanding, our General Partner may use such authority to issue additional units or preferred units, which could dilute holders of our units, or to issue securities with rights and privileges that are more favourable than those of our units or preferred units. Subject to the terms of any preferred units then outstanding, holders of units and preferred units will not have any pre-emptive right or any right to consent to or otherwise approve the issuance of any such securities or the terms on which any such securities may be issued.

         Non-U.S. unitholders will be subject to foreign currency risk associated with Brookfield Infrastructure's distributions.

        A significant number of our unitholders will reside in countries where the U.S. dollar is not the functional currency. Our distributions are denominated in U.S. dollars but are settled in the local currency of the unitholder receiving the distribution. For each non-U.S. unitholder, the value received in the local currency from the distribution will be determined based on the exchange rate between the U.S. dollar and the applicable local currency at the time of payment. As such, if the U.S. dollar depreciates significantly against the local currency of the non-U.S. unitholder, the value received by such unitholder in its local currency will be adversely affected.

         U.S. investors in our units and preferred units may find it difficult or impossible to enforce service of process and enforcement of judgments against us and directors and officers of our General Partner and the Service Provider.

        We were established under the laws of Bermuda, and most of our subsidiaries are organized in jurisdictions outside of the United States. In addition, our directors and senior management identified in this annual report on Form 20-F are located outside of the United States. Certain of the directors and officers of our General Partner and the Service Provider reside outside of the United States. A substantial portion of our assets are, and the assets of the directors and officers of our General Partner and the Service Provider identified in this annual report on Form 20-F may be, located outside of the United States. It may not be possible for investors to effect service of process within the United States upon the directors and officers of our General Partner and the Service Provider. It may also not be possible to enforce against us or the directors and officers of our General Partner and the Service Provider judgments obtained in U.S. courts predicated upon the civil liability provisions of applicable securities law in the United States.

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         Canadian investors in our units and preferred units may find it difficult or impossible to enforce service of process and enforcement of judgments against us and the directors and officers of our General Partner and the Service Provider.

        We were established under the laws of Bermuda, and most of our subsidiaries are organized in jurisdictions outside of Canada. Certain of the directors and officers of our General Partner and the Service Provider reside outside of Canada. A substantial portion of our assets are, and the assets of the directors and officers of our General Partner and the Service Provider and the experts identified in this annual report on Form 20-F may be, located outside of Canada. It may not be possible for investors to effect service of process within Canada upon the directors and officers of our General Partner and the Service Provider. It may also not be possible to enforce against us, the experts identified in this annual report on Form 20-F, or the directors and officers of our General Partner and the Service Provider judgments obtained in Canadian courts predicated upon the civil liability provisions of applicable securities laws in Canada.

         We may not be able to continue paying comparable or growing cash distributions to our unitholders in the future.

        The amount of cash we can distribute to our unitholders depends upon the amount of cash we receive from the Holding LP and, indirectly, the Holding Entities and the operating entities. The amount of cash the Holding LP, the Holding Entities and the operating entities generate will fluctuate from quarter to quarter and will depend upon, among other things: the weather in the jurisdictions in which they operate; the level of their operating costs; and prevailing economic conditions. In addition, the actual amount of cash we will have available for distribution will also depend on other factors, such as: the level of costs related to litigation and regulatory compliance matters; the cost of acquisitions, if any; our debt service requirements; fluctuations in our working capital needs; our ability to borrow under our credit facilities; our ability to access capital markets; restrictions on distributions contained in our debt agreements; and the amount, if any, of cash reserves established by our General Partner in its discretion for the proper conduct of our business. As a result of all these factors, we cannot guarantee that we will have sufficient available cash to pay a specific level of cash distributions to our unitholders. Furthermore, unitholders should be aware that the amount of cash we have available for distribution depends primarily upon the cash flow of the Holding LP, the Holding Entities and the operating entities, and is not solely a function of profitability, which is affected by non-cash items. As a result, we may declare and/or pay cash distributions on our units during periods when we record net losses.

Risks Related to Taxation

General

         Changes in tax law and practice may have a material adverse effect on the operations of our partnership, the Holding Entities, and the operating entities and, as a consequence, the value of our assets and the net amount of distributions payable to our unitholders.

        Our structure, including the structure of the Holding Entities and the operating entities, is based on prevailing taxation law and practice in the local jurisdictions in which we operate. Any change in tax legislation (including in relation to taxation rates) and practice in these jurisdictions could adversely affect these entities, as well as the net amount of distributions payable to our unitholders. Taxes and other constraints that would apply to our operating entities in such jurisdictions may not apply to local institutions or other parties, and such parties may therefore have a significantly lower effective cost of capital and a corresponding competitive advantage in pursuing such acquisitions.

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         Our partnership's ability to make distributions depends on it receiving sufficient cash distributions from its underlying operations, and we cannot assure our unitholders that our partnership will be able to make cash distributions to them in amounts that are sufficient to fund their tax liabilities.

        Our Holding Entities and operating entities may be subject to local taxes in each of the relevant territories and jurisdictions in which they operate, including taxes on income, profits or gains and withholding taxes. As a result, our partnership's cash available for distribution is indirectly reduced by such taxes, and the post-tax return to our unitholders is similarly reduced by such taxes. We intend for future acquisitions to be assessed on a case-by-case basis and, where possible and commercially viable, structured so as to minimize any adverse tax consequences to our unitholders as a result of making such acquisitions.

        In general, a unitholder that is subject to income tax in Canada or the United States must include in income its allocable share of our partnership's items of income, gain, loss and deduction (including, so long as it is treated as a partnership for tax purposes, our partnership's allocable share of those items of the Holding LP) for each of our partnership's fiscal years ending with or within such unitholder's tax year. See Item 10.E "Taxation—Certain Material Canadian Federal Income Tax Considerations" and "Taxation—Certain Material U.S. Federal Income Tax Considerations". However, the cash distributed to a unitholder may not be sufficient to pay the full amount of such unitholder's tax liability in respect of its investment in our partnership, because each unitholder's tax liability depends on such unitholder's particular tax situation and the tax treatment of the underlying activities or assets of our partnership. If our partnership is unable to distribute cash in amounts that are sufficient to fund our unitholders' tax liabilities, each of our unitholders will still be required to pay income taxes on its share of our partnership's taxable income.

         As a result of holding our units, our unitholders may be subject to U.S. federal, state, local or non-U.S. taxes and return filing obligations in jurisdictions in which they are not resident for tax purposes or otherwise not subject to tax.

        Our unitholders may be subject to U.S. federal, state, local and non-U.S. taxes, including unincorporated business taxes and estate, inheritance or intangible taxes that are imposed by the various jurisdictions in which our partnership entities do business or own property now or in the future, even if our unitholders do not reside in any of those jurisdictions. Our unitholders may be required to file income tax returns and pay income taxes in some or all of these jurisdictions. Further, our unitholders may be subject to penalties for failure to comply with these requirements. Although our partnership will attempt, to the extent reasonably practicable, to structure our partnership operations and investments so as to minimize income tax filing obligations by our unitholders in such jurisdictions, there may be circumstances in which our partnership is unable to do so. It is the responsibility of each unitholder to file all U.S. federal, state, local, and non-U.S. tax returns that may be required of such unitholder.

    Our unitholders may be exposed to transfer pricing risks.

        To the extent that our partnership, the Holding LP, the Holding Entities or the operating entities enter into transactions or arrangements with parties with whom they do not deal at arm's length, including Brookfield, the relevant tax authorities may seek to adjust the quantum or nature of the amounts included or deducted from taxable income by such entities if they consider that the terms and conditions of such transactions or arrangements differ from those that would have been made between persons dealing at arm's length. This could result in more tax (and penalties and interest) being paid by such entities, and therefore the return to investors could be reduced. For Canadian tax purposes, a transfer pricing adjustment may in certain circumstances result in additional income being allocated to a unitholder with no corresponding cash distribution or in a dividend being deemed to be paid by a Canadian-resident to a non-arm's length non-resident, which is subject to Canadian withholding tax.

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        Our General Partner believes that the base management fee and any other amount that is paid to the Service Provider will be commensurate with the value of the services being provided by the Service Provider and comparable to the fees or other amounts that would be agreed to in an arm's length arrangement. However, no assurance can be given in this regard.

        If the relevant tax authority were to assert that an adjustment should be made under the transfer pricing rules to an amount that is relevant to the computation of the income of the Holding LP or our partnership, such assertion could result in adjustments to amounts of income (or loss) allocated to our unitholders by our partnership for tax purposes. In addition, we might also be liable for transfer pricing penalties in respect of transfer pricing adjustments unless reasonable efforts were made to determine, and use, arm's length transfer prices. Generally, reasonable efforts in this regard are only considered to be made if contemporaneous documentation has been prepared in respect of such transactions or arrangements that support the transfer pricing methodology.

        For Canadian tax purposes, the general tax risks described above are equally relevant to preferred unitholders in respect of their preferred units.

         The U.S. Internal Revenue Service ("IRS") or Canada Revenue Agency ("CRA") may not agree with certain assumptions and conventions that our partnership uses in order to comply with applicable U.S. and Canadian federal income tax laws or that our partnership uses to report income, gain, loss, deduction, and credit to our unitholders.

        Our partnership will apply certain assumptions and conventions in order to comply with applicable tax laws and to report income, gain, deduction, loss, and credit to a unitholder in a manner that reflects such unitholder's beneficial ownership of partnership items, taking into account variation in ownership interests during each taxable year because of trading activity. However, these assumptions and conventions may not be in compliance with all aspects of the applicable tax requirements. A successful IRS or CRA challenge to such assumptions or conventions could adversely affect the amount of tax benefits available to our unitholders and could require that items of income, gain, deduction, loss, or credit, including interest deductions, be adjusted, reallocated or disallowed in a manner that adversely affects our unitholders. See Item 10.E "Taxation—Certain Material Canadian Federal Income Tax Considerations" and "Taxation—Certain Material U.S. Federal Income Tax Considerations".

United States

         If our partnership or the Holding LP were to be treated as a corporation for U.S. federal income tax purposes, the value of our units might be adversely affected.

        The value of our units to unitholders will depend in part on the treatment of our partnership and the Holding LP as partnerships for U.S. federal income tax purposes. However, in order for our partnership to be treated as a partnership for U.S. federal income tax purposes, under present law, 90% or more of our partnership's gross income for every taxable year must consist of qualifying income, as defined in Section 7704 of the U.S. Internal Revenue Code of 1986, as amended ("U.S. Internal Revenue Code"), and our partnership must not be required to register, if it were a U.S. corporation, as an investment company under the Investment Company Act and related rules. Although our General Partner intends to manage our partnership's affairs so that our partnership will not need to be registered as an investment company if it were a U.S. corporation and so that it will meet the 90% test described above in each taxable year, our partnership may not meet these requirements, or current law may change so as to cause, in either event, our partnership to be treated as a corporation for U.S. federal income tax purposes. If our partnership (or the Holding LP) were treated as a corporation for U.S. federal income tax purposes, adverse U.S. federal income tax consequences could result for our unitholders and our partnership (or the Holding LP, as applicable), as described in greater detail in Item 10.E "Taxation—Certain Material U.S. Federal Income Tax Considerations—Partnership Status of Our Partnership and the Holding LP".

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         We may be subject to U.S. backup withholding tax or other U.S. withholding taxes if any unitholder fails to comply with U.S. tax reporting rules or if the IRS or other applicable state or local taxing authority does not accept our withholding methodology, and such excess withholding tax cost will be an expense borne by our partnership and, therefore, by all of our unitholders on a pro rata basis.

        We may become subject to U.S. "backup" withholding tax or other U.S. withholding taxes with respect to any unitholder who fails to timely provide our partnership (or the applicable clearing agent or other intermediary) with an IRS Form W-9 or IRS Form W-8, as the case may be, or if the withholding methodology we use is not accepted by the IRS or other applicable state or local taxing authority. See Item 10.E "Taxation—Certain Material U.S. Federal Income Tax Considerations—Administrative Matters—Withholding and Backup Withholding". To the extent that any unitholder fails to timely provide the applicable form (or such form is not properly completed), or should the IRS or other applicable state or local taxing authority not accept our withholding methodology, our partnership might treat such U.S. backup withholding taxes or other U.S. withholding taxes as an expense, which would be borne indirectly by all of our unitholders on a pro rata basis. As a result, our unitholders that fully comply with their U.S. tax reporting obligations may bear a share of such burden created by other unitholders that do not comply with the U.S. tax reporting rules.

         Tax-exempt organizations may face certain adverse U.S. tax consequences from owning our units.

        Our General Partner intends to use commercially reasonable efforts to structure the activities of our partnership and the Holding LP, to avoid generating income connected with the conduct of a trade or business (which income generally would constitute "unrelated business taxable income" ("UBTI") to the extent allocated to a tax-exempt organization). However, neither our partnership nor the Holding LP is prohibited from incurring indebtedness, and no assurance can be provided that neither our partnership nor the Holding LP will generate UBTI attributable to debt-financed property in the future. In particular, UBTI includes income attributable to debt-financed property, and neither our partnership nor the Holding LP is prohibited from financing the acquisition of property with debt. The potential for income to be characterized as UBTI could make our units an unsuitable investment for a tax-exempt organization. Each tax-exempt organization should consult its own tax adviser to determine the U.S. federal income tax consequences of an investment in our units.

         If our partnership were engaged in a U.S. trade or business, non-U.S. persons would face certain adverse U.S. tax consequences from owning our units.

        Our General Partner intends to use commercially reasonable efforts to structure the activities of our partnership and the Holding LP to avoid generating income treated as effectively connected with a U.S. trade or business, including effectively connected income attributable to the sale of a "United States real property interest", as defined in the U.S. Internal Revenue Code. If our partnership were deemed to be engaged in a U.S. trade or business, or to realize gain from the sale or other disposition of a U.S. real property interest, Non-U.S. Holders (as defined in Item 10.E "Taxation—Certain Material U.S. Federal Income Tax Considerations") generally would be required to file U.S. federal income tax returns and could be subject to U.S. federal withholding tax at the highest marginal U.S. federal income tax rates applicable to ordinary income. See Item 10.E "Taxation—Certain Material U.S. Federal Income Tax Considerations—Consequences to Non-U.S. Holders".

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         To meet U.S. federal income tax and other objectives, our partnership and the Holding LP may invest through U.S. and non-U.S. Holding Entities that are treated as corporations for U.S. federal income tax purposes, and such Holding Entities may be subject to corporate income tax.

        To meet U.S. federal income tax and other objectives, our partnership and the Holding LP may invest through U.S. and non-U.S. Holding Entities that are treated as corporations for U.S. federal income tax purposes, and such Holding Entities may be subject to corporate income tax. Consequently, items of income, gain, loss, deduction, or credit realized in the first instance by the operating entities will not flow, for U.S. federal income tax purposes, directly to the Holding LP, our partnership, or our unitholders, and any such income or gain may be subject to a corporate income tax, in the United States or other jurisdictions, at the level of the Holding Entity. Any such additional taxes may adversely affect our partnership's ability to maximize its cash flow.

         Our unitholders taxable in the United States may be viewed as holding an indirect interest in an entity classified as a "passive foreign investment company" or "controlled foreign corporation" for U.S. federal income tax purposes.

        U.S. Holders may face adverse U.S. tax consequences arising from the ownership of an indirect interest in a "passive foreign investment company" ("PFIC") or "controlled foreign corporation" ("CFC"). These investments may produce taxable income prior to the receipt of cash relating to such income, and U.S. Holders will be required to take such income into account in determining their gross income subject to tax. In addition, all or a portion of any gain realized upon the sale of a CFC may be taxable at ordinary income rates. Further, with respect to gain realized upon the sale of and excess distributions from a PFIC for which an election for current inclusions is not made, such income would be taxable at ordinary income rates and subject to an additional tax equivalent to an interest charge on the deferral of income inclusions from the PFIC. See Item 10.E "Taxation—Certain Material U.S. Federal Income Tax Considerations—Consequences to U.S. Holders—Passive Foreign Investment Companies" and "Taxation—Certain Material U.S. Federal Income Tax Considerations—Consequences to U.S. Holders—Controlled Foreign Corporations". Each U.S. Holder should consult its own tax adviser regarding the implications of the PFIC and CFC rules for an investment in our units.

         Tax gain or loss from the disposition of our units could be more or less than expected.

        If a sale of our units by a unitholder is taxable in the United States, the unitholder will recognize gain or loss for U.S. federal income tax purposes equal to the difference between the amount realized and the unitholder's adjusted tax basis in such units. Prior distributions to a unitholder in excess of the total net taxable income allocated to such unitholder will have decreased such unitholder's tax basis in our units. Therefore, such excess distributions will increase a unitholder's taxable gain or decrease such unitholder's taxable loss when our units are sold, and may result in a taxable gain even if the sale price is less than the original cost. A portion of the amount realized, whether or not representing gain, could be ordinary income to such unitholder.

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         Our partnership structure involves complex provisions of U.S. federal income tax law for which no clear precedent or authority may be available. The tax characterization of our partnership structure is also subject to potential legislative, judicial, or administrative change and differing interpretations, possibly on a retroactive basis.

        The U.S. federal income tax treatment of our unitholders depends in some instances on determinations of fact and interpretations of complex provisions of U.S. federal income tax law for which no clear precedent or authority may be available. Unitholders should be aware that the U.S. federal income tax rules, particularly those applicable to partnerships, are constantly under review by the Congressional tax-writing committees and other persons involved in the legislative process, the IRS, the Treasury Department and the courts, frequently resulting in changes which could adversely affect the value of our units or cause our partnership to change the way it conducts its activities. For example, changes to the U.S. federal tax laws and interpretations thereof could make it more difficult or impossible for our partnership to be treated as a partnership that is not taxable as a corporation for U.S. federal income tax purposes, change the character or treatment of portions of our partnership's income, reduce the net amount of distributions available to our unitholders, or otherwise affect the tax considerations of owning our units. In addition, our partnership's organizational documents and agreements permit our General Partner to modify our Limited Partnership Agreement, without the consent of our unitholders, to address such changes. These modifications could have a material adverse impact on our unitholders. See Item 10.E "—Taxation—Certain Material U.S. Federal Income Tax Considerations—Administrative Matters—New Legislation or Administrative or Judicial Action".

         Our partnership's delivery of required tax information for a taxable year may be subject to delay, which could require a unitholder who is a U.S. taxpayer to request an extension of the due date for such unitholder's income tax return.

        Our partnership has agreed to use commercially reasonable efforts to provide U.S. tax information (including IRS Schedule K-1 information needed to determine a unitholder's allocable share of our partnership's income, gain, losses, and deductions) no later than 90 days after the close of each calendar year. However, providing this U.S. tax information to our unitholders will be subject to delay in the event of, among other reasons, the late receipt of any necessary tax information from lower-tier entities. It is therefore possible that, in any taxable year, a unitholder will need to apply for an extension of time to file such unitholder's tax returns. In addition, unitholders that do not ordinarily have U.S. federal tax filing requirements will not receive a Schedule K-1 and related information unless such unitholders request it within 60 days after the close of each calendar year. See Item 10.E "Certain Material U.S. Federal Income Tax Considerations—Administrative Matters—Information Returns and Audit Procedures".

         The sale or exchange of 50% or more of our units will result in the constructive termination of our partnership for U.S. federal income tax purposes.

        Our partnership will be considered to have been terminated for U.S. federal income tax purposes if there is a sale or exchange of 50% or more of our units within a 12-month period. A constructive termination of our partnership would, among other things; result in the closing of its taxable year for U.S. federal income tax purposes for all of our unitholders and could result in the possible acceleration of income to certain of our unitholders and certain other consequences that could adversely affect the value of our units. However, our General Partner does not expect a constructive termination, should it occur, to have a material impact on the computation of the future taxable income generated by our partnership for U.S. federal income tax purposes. See Item 10.E "Taxation—Certain Material U.S. Federal Income Tax Considerations—Administrative Matters—Constructive Termination".

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         If the IRS makes an audit adjustment to our income tax returns for taxable years beginning after December 31, 2017, it may assess and collect any taxes (including penalties and interest) resulting from such audit adjustment directly from us, in which case cash available for distribution to our unitholders might be substantially reduced.

        Under the Bipartisan Budget Act of 2015, for taxable years beginning after December 31, 2017, if the IRS makes an audit adjustment to our income tax returns, it may assess and collect any taxes (including penalties and interest) resulting from such audit adjustment directly from our partnership instead of unitholders (as under prior law). We may be permitted to elect to have our General Partner and our unitholders take such audit adjustment into account in accordance with their interests in us during the taxable year under audit. However, there can be no assurance that we will choose to make such election or that it will be available in all circumstances. If we do not make the election, and we pay taxes, penalties, or interest as a result of an audit adjustment, then cash available for distribution to our unitholders might be substantially reduced. As a result, our current unitholders might bear some or all of the cost of the tax liability resulting from such audit adjustment, even if our current unitholders did not own our units during the taxable year under audit. The foregoing considerations also apply with respect to our partnership's interest in the Holding LP. These rules do not apply to our partnership or the Holding LP for taxable years beginning on or before December 31, 2017.

         Under the Foreign Account Tax Compliance ("FATCA") provisions of the Hiring Incentives to Restore Employment Act of 2010, certain payments made or received by our partnership may be subject to a 30% federal withholding tax, unless certain requirements are met.

        Under FATCA, a 30% withholding tax may apply to certain payments of U.S.-source income made to our partnership, the Holding LP, the Holding Entities, or the operating entities, or by our partnership to a unitholder, unless certain requirements are met, as described in greater detail in Item 10.E "Taxation—Certain Material U.S. Federal Income Tax Considerations—Administrative Matters—Foreign Account Tax Compliance". The 30% withholding tax may also apply to certain payments made on or after January 1, 2019 that are attributable to U.S.-source income or that constitute gross proceeds from the disposition of property that could produce U.S.-source dividends or interest. To ensure compliance with FATCA, information regarding certain unitholders' ownership of our units may be reported to the IRS or to a non-U.S. governmental authority. Unitholders should consult their own tax advisers regarding the consequences under FATCA of an investment in our units.

Canada

        For purposes of the following Canadian tax risks, references to our "units" are to the limited partnership units in our partnership, including the preferred units, and references to our "unitholders" are to the holders of our units and preferred units.

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         If the subsidiaries that are corporations ("Non-Resident Subsidiaries") and that are not resident or deemed to be resident in Canada for purposes of the Income Tax Act (Canada) (together with the regulations thereunder, "Tax Act") and that are "controlled foreign affiliates" (as defined in the Tax Act and referred to herein as "CFAs") in which the Holding LP directly invests earned income that is "foreign accrual property income" (as defined in the Tax Act and referred to herein as "FAPI"), our unitholders may be required to include amounts allocated from our partnership in computing their income for Canadian federal income tax purposes even though there may be no corresponding cash distribution.

        Certain of the Non-Resident Subsidiaries in which the Holding LP directly invests are expected to be CFAs of the Holding LP. If any CFA of the Holding LP or any direct or indirect subsidiary thereof that is itself a CFA of the Holding LP (an "Indirect CFA") earns income that is characterized as FAPI in a particular taxation year of the CFA or Indirect CFA, the FAPI allocable to the Holding LP must be included in computing the income of the Holding LP for Canadian federal income tax purposes for the fiscal period of the Holding LP in which the taxation year of that CFA or Indirect CFA ends, whether or not the Holding LP actually receives a distribution of that FAPI. Our partnership will include its share of such FAPI of the Holding LP in computing its income for Canadian federal income tax purposes and our unitholders will be required to include their proportionate share of such FAPI allocated from our partnership in computing their income for Canadian federal income tax purposes. As a result, our unitholders may be required to include amounts in their income for Canadian federal income tax purposes even though they have not and may not receive an actual cash distribution of such amounts. The Tax Act contains anti-avoidance rules to address certain foreign tax credit generator transactions (the "Foreign Tax Credit Generator Rules"). Under the Foreign Tax Credit Generator Rules, the "foreign accrual tax" (as defined in the Tax Act) applicable to a particular amount of FAPI included in the Holding LP's income in respect of a particular "foreign affiliate" (as defined in the Tax Act) of the Holding LP may be limited in certain specified circumstances. See Item 10.E "Taxation—Certain Material Canadian Federal Income Tax Considerations".

         Unitholders may be required to include imputed amounts in their income for Canadian federal income tax purposes in accordance with section 94.1 of the Tax Act.

        Section 94.1 of the Tax Act contains rules relating to interests in entities that are not resident or deemed to be resident in Canada for purposes of the Tax Act or not situated in Canada, other than a CFA of the taxpayer (the "Non-Resident Entities"), that could in certain circumstances cause income to be imputed to unitholders for Canadian federal income tax purposes, either directly or by way of allocation of such income imputed to our partnership or to the Holding LP. See Item 10.E "Taxation—Certain Material Canadian Federal Income Tax Considerations".

         Unitholders' foreign tax credits for Canadian federal income tax purposes will be limited if the Foreign Tax Credit Generator Rules apply in respect of the foreign "business-income tax" or "non-business-income tax" (each as defined in the Tax Act) paid by our partnership or the Holding LP to a foreign country.

        Under the Foreign Tax Credit Generator Rules, the foreign "business-income tax" or "non-business-income tax" for Canadian federal income tax purposes for any taxation year may be limited in certain circumstances. If the Foreign Tax Credit Generator Rules apply, the allocation to a unitholder of foreign "business-income tax" or "non-business-income tax" paid by our partnership or the Holding LP, and therefore, such unitholder's foreign tax credits for Canadian federal income tax purposes, will be limited. See Item 10.E "Taxation—Certain Material Canadian Federal Income Tax Considerations".

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         Unitholders who are not and are not deemed to be resident in Canada for purposes of the Tax Act and who do not use or hold, and are not deemed to use or hold, their units of our partnership in connection with a business carried on in Canada ("non-Canadian limited partners"), may be subject to Canadian federal income tax with respect to any Canadian source business income earned by our partnership or the Holding LP if our partnership or the Holding LP were considered to carry on business in Canada.

        If our partnership or the Holding LP were considered to carry on business in Canada for purposes of the Tax Act, non-Canadian limited partners would be subject to Canadian federal income tax on their proportionate share of any Canadian source business income earned or considered to be earned by our partnership, subject to the potential application of the safe harbour rule in section 115.2 of the Tax Act and any relief that may be provided by any relevant income tax treaty or convention.

        Our General Partner intends to manage the affairs of our partnership and the Holding LP, to the extent possible, so that they do not carry on business in Canada and are not considered or deemed to carry on business in Canada for purposes of the Tax Act. Nevertheless, because the determination of whether our partnership or the Holding LP is carrying on business and, if so, whether that business is carried on in Canada, is a question of fact that is dependent upon the surrounding circumstances, the CRA might contend successfully that either or both of our partnership and the Holding LP carries on business in Canada for purposes of the Tax Act.

        If our partnership or the Holding LP is considered to carry on business in Canada or is deemed to carry on business in Canada for the purposes of the Tax Act, non-Canadian limited partners that are corporations would be required to file a Canadian federal income tax return for each taxation year in which they are a non-Canadian limited partner regardless of whether relief from Canadian taxation is available under an applicable income tax treaty or convention. Non-Canadian limited partners who are individuals would only be required to file a Canadian federal income tax return for any taxation year in which they are allocated income from our partnership from carrying on business in Canada that is not exempt from Canadian taxation under the terms of an applicable income tax treaty or convention.

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         Non-Canadian limited partners may be subject to Canadian federal income tax on capital gains realized by our partnership or the Holding LP on dispositions of "taxable Canadian property" (as defined in the Tax Act).

        A non-Canadian limited partner will be subject to Canadian federal income tax on its proportionate share of capital gains realized by our partnership or the Holding LP on the disposition of "taxable Canadian property" other than "treaty-protected property" (as defined in the Tax Act). "Taxable Canadian property" includes, but is not limited to, property that is used or held in a business carried on in Canada and shares of corporations that are not listed on a "designated stock exchange" (as defined in the Tax Act) if more than 50% of the fair market value of the shares is derived from certain Canadian properties during the 60-month period immediately preceding the particular time. Property of our partnership and the Holding LP generally will be "treaty-protected property" to a non-Canadian limited partner if the gain from the disposition of the property would, because of an applicable income tax treaty or convention, be exempt from tax under the Tax Act. Our General Partner does not expect our partnership or the Holding LP to realize capital gains or losses from dispositions of "taxable Canadian property". However, no assurance can be given in this regard. Non-Canadian limited partners will be required to file a Canadian federal income tax return in respect of a disposition of "taxable Canadian property" by our partnership or the Holding LP unless the disposition is an "excluded disposition" for the purposes of section 150 of the Tax Act. However, non-Canadian limited partners that are corporations will still be required to file a Canadian federal income tax return in respect of a disposition of "taxable Canadian property" that is an "excluded disposition" for the purposes of section 150 of the Tax Act if tax would otherwise be payable under Part I of the Tax Act by the non-Canadian limited partners in respect of the disposition but is not because of an applicable income tax treaty or convention (otherwise than in respect of a disposition of "taxable Canadian property" that is "treaty-protected property" of the corporation). In general, an "excluded disposition" is a disposition of property by a taxpayer in a taxation year where (a) the taxpayer is a non-resident of Canada at the time of the disposition; (b) no tax is payable by the taxpayer under Part I of the Tax Act for the taxation year; (c) the taxpayer is not liable to pay any amounts under the Tax Act in respect of any previous taxation year (other than certain amounts for which the CRA holds adequate security); and (d) each "taxable Canadian property" disposed of by the taxpayer in the taxation year is either (i) "excluded property" (as defined in subsection 116(6) of the Tax Act) or (ii) property in respect of the disposition of which a certificate under subsection 116(2), (4) or (5.2) of the Tax Act has been issued by the CRA. Non-Canadian limited partners should consult their own tax advisors with respect to the requirements to file a Canadian federal income tax return in respect of a disposition of "taxable Canadian property" by our partnership or the Holding LP.

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         Non-Canadian limited partners may be subject to Canadian federal income tax on capital gains realized on the disposition of our units if our units are "taxable Canadian property".

        Any capital gain arising from the disposition or deemed disposition of our units by a non-Canadian limited partner will be subject to taxation in Canada, if, at the time of the disposition or deemed disposition, our units are "taxable Canadian property" of the non-Canadian limited partner, unless our units are "treaty-protected property" to such non-Canadian limited partner. In general, our units will not constitute "taxable Canadian property" of any non-Canadian limited partner at the time of disposition or deemed disposition, unless (a) at any time in the 60-month period immediately preceding the disposition or deemed disposition, more than 50% of the fair market value of our units was derived, directly or indirectly (excluding through a corporation, partnership or trust, the shares or interests in which were not themselves "taxable Canadian property"), from one or any combination of (i) real or immovable property situated in Canada; (ii) "Canadian resource properties" (as defined in the Tax Act); (iii) "timber resource properties" (as defined in the Tax Act); and (iv) options in respect of, or interests in, or for civil law rights in, such property, whether or not such property exists, or (b) our units are otherwise deemed to be "taxable Canadian property". Since our partnership's assets will consist principally of units of the Holding LP, our units would generally be "taxable Canadian property" at a particular time if the units of the Holding LP held by our partnership derived, directly or indirectly (excluding through a corporation, partnership or trust, the shares or interests in which were not themselves "taxable Canadian property") more than 50% of their fair market value from properties described in (i) to (iv) above, at any time in the 60-month period preceding the particular time. Our General Partner does not expect our units to be "taxable Canadian property" of any non-Canadian limited partner at any time but no assurance can be given in this regard. See Item 10.E "Taxation—Certain Material Canadian Federal Income Tax Considerations". Even if our units constitute "taxable Canadian property", our units will be "treaty-protected property" if the gain on the disposition of our units is exempt from tax under the Tax Act under the terms of an applicable income tax treaty or convention. If our units constitute "taxable Canadian property", non-Canadian limited partners will be required to file a Canadian federal income tax return in respect of a disposition of our units unless the disposition is an "excluded disposition" (as discussed above). If our units constitute "taxable Canadian property", non-Canadian limited partners should consult their own tax advisors with respect to the requirement to file a Canadian federal income tax return in respect of a disposition of our units.

         Non-Canadian limited partners may be subject to Canadian federal income tax reporting and withholding tax requirements on the disposition of "taxable Canadian property".

        Non-Canadian limited partners who dispose of "taxable Canadian property", other than "excluded property" and certain other property described in subsection 116(5.2) of the Tax Act, (or who are considered to have disposed of such property on the disposition of such property by our partnership or the Holding LP), are obligated to comply with the procedures set out in section 116 of the Tax Act and obtain a certificate pursuant to the Tax Act. In order to obtain such certificate, the non-Canadian limited partner is required to report certain particulars relating to the transaction to CRA not later than 10 days after the disposition occurs. Our General Partner does not expect our units to be "taxable Canadian property" of any non-Canadian limited partner and does not expect our partnership or the Holding LP to dispose of property that is "taxable Canadian property" but no assurance can be given in these regards.

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         Payments of dividends or interest (other than interest not subject to Canadian federal withholding tax) by residents of Canada to the Holding LP will be subject to Canadian federal withholding tax and we may be unable to apply a reduced rate taking into account the residency or entitlement to relief under an applicable income tax treaty or convention of our unitholders.

        Our partnership and the Holding LP will be deemed to be a non-resident person in respect of certain amounts paid or credited or deemed to be paid or credited to them by a person resident or deemed to be resident in Canada, including dividends or interest. Dividends or interest (other than interest not subject to Canadian federal withholding tax) paid or deemed to be paid by a person resident or deemed to be resident in Canada to the Holding LP will be subject to withholding tax under Part XIII of the Tax Act at the rate of 25%. However, the CRA's administrative practice in similar circumstances is to permit the rate of Canadian federal withholding tax applicable to such payments to be computed by looking through the partnership and taking into account the residency of the partners (including partners who are resident in Canada) and any reduced rates of Canadian federal withholding tax that any non-Canadian limited partners may be entitled to under an applicable income tax treaty or convention, provided that the residency status and entitlement to treaty benefits can be established. In determining the rate of Canadian federal withholding tax applicable to amounts paid by the Holding Entities to the Holding LP, our General Partner expects the Holding Entities to look-through the Holding LP and our partnership to the residency of the partners of our partnership (including partners who are resident in Canada) and to take into account any reduced rates of Canadian federal withholding tax that non-Canadian limited partners may be entitled to under an applicable income tax treaty or convention in order to determine the appropriate amount of Canadian federal withholding tax to withhold from dividends or interest paid to the Holding LP. However, there can be no assurance that the CRA will apply its administrative practice in this context. If the CRA's administrative practice is not applied and the Holding Entities withhold Canadian federal withholding tax from applicable payments on a look-through basis, the Holding Entities may be liable for additional amounts of Canadian federal withholding tax plus any associated interest and penalties. Under the Canada-United States Tax Convention (1980) (the "Treaty"), a Canadian-resident payer is required in certain circumstances to look-through fiscally transparent partnerships, such as our partnership, and the Holding LP to the residency and Treaty entitlements of their partners and take into account the reduced rates of Canadian federal withholding tax that such partners may be entitled to under the Treaty.

        While our General Partner expects the Holding Entities to look-through our partnership and the Holding LP in determining the rate of Canadian federal withholding tax applicable to amounts paid or deemed to be paid by the Holding Entities to the Holding LP, we may be unable to accurately or timely determine the residency of our unitholders for purposes of establishing the extent to which Canadian federal withholding taxes apply or whether reduced rates of withholding tax apply to some or all of our unitholders. In such a case, the Holding Entities will withhold Canadian federal withholding tax from all payments made to the Holding LP that are subject to Canadian federal withholding tax at the rate of 25%. Canadian-resident unitholders will be entitled to claim a credit for such taxes against their Canadian federal income tax liability but non-Canadian limited partners will need to take certain steps to receive a refund or credit in respect of any such Canadian federal withholding taxes withheld equal to the difference between the withholding tax at a rate of 25% and the withholding tax at the reduced rate they are entitled to under an applicable income tax treaty or convention. See Item 10.E "Taxation—Certain Material Canadian Federal Income Tax Considerations" for further detail. Unitholders should consult their own tax advisors concerning all aspects of Canadian federal withholding taxes.

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         Our units may or may not continue to be "qualified investments" under the Tax Act for registered plans.

        Provided that our units are listed on a "designated stock exchange" (which includes the NYSE and the TSX), our units will be "qualified investments" under the Tax Act for a trust governed by a registered retirement savings plan ("RRSP"), deferred profit sharing plan, registered retirement income fund ("RRIF"), registered education savings plan, registered disability savings plan, and a tax-free savings account ("TFSA"). However, there can be no assurance that our units will continue to be listed on a "designated stock exchange". There can also be no assurance that tax laws relating to "qualified investments" will not be changed. Taxes may be imposed in respect of the acquisition or holding of non-qualified investments by such registered plans and certain other taxpayers and with respect to the acquisition or holding of "prohibited investments" (as defined in the Tax Act) by an RRSP, RRIF or TFSA.

        Notwithstanding the foregoing, an annuitant under an RRSP or RRIF or a holder of a TFSA, as the case may be, will be subject to a penalty tax if our units held in an RRSP, RRIF or TFSA are "prohibited investments" for the RRSP, RRIF or TFSA, as the case may be. Generally, our units will not be a "prohibited investment" for a trust governed by an RRSP, RRIF or TFSA, provided that the annuitant under the RRSP or RRIF or the holder of the TFSA, as the case may be, deals at arm's length with our partnership for purposes of the Tax Act and does not have a "significant interest" (as defined in the Tax Act for purposes of the prohibited investment rules) in our partnership. Unitholders who will hold our units in an RRSP, RRIF or TFSA should consult with their own tax advisors regarding the application of the foregoing prohibited investment rules having regard to their particular circumstances.

         The Canadian federal income tax consequences to our unitholders could be materially different in certain respects from those described in this Form 20-F if our partnership or the Holding LP is a "SIFT partnership" (as defined in the Tax Act).

        Under the rules in the Tax Act applicable to a "SIFT partnership" (the "SIFT Rules"), certain income and gains earned by a "SIFT partnership" will be subject to income tax at the partnership level at a rate similar to a corporation, and allocations of such income and gains to its partners will be taxed as a dividend from a "taxable Canadian corporation" (as defined in the Tax Act). In particular, a "SIFT partnership" will be required to pay a tax on the total of its income from businesses carried on in Canada, income from "non-portfolio properties" (as defined in the Tax Act) other than taxable dividends, and taxable capital gains from dispositions of "non-portfolio properties". "Non-portfolio properties" include, among other things, equity interests or debt of corporations, trusts or partnerships that are resident in Canada, and of non-resident persons or partnerships the principal source of income of which is one or any combination of sources in Canada (other than a "portfolio investment entity", as defined in the Tax Act), that are held by the "SIFT partnership" and have a fair market value that is greater than 10% of the equity value of such entity, or that have, together with debt or equity that the "SIFT partnership" holds of entities affiliated (within the meaning of the Tax Act) with such entity, an aggregate fair market value that is greater than 50% of the equity value of the "SIFT partnership". The tax rate that is applied to the above mentioned sources of income and gains is set at a rate equal to the "net corporate income tax rate", plus the "provincial SIFT tax rate" (each as defined in the Tax Act).

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        A partnership will be a "SIFT partnership" throughout a taxation year if at any time in the taxation year (i) it is a "Canadian resident partnership" (as defined in the Tax Act), (ii) "investments" (as defined in the Tax Act) in the partnership are listed or traded on a stock exchange or other public market, and (iii) it holds one or more "non-portfolio properties". For these purposes, a partnership will be a "Canadian resident partnership" at a particular time if (a) it is a "Canadian partnership" (as defined in the Tax Act) at that time, (b) it would, if it were a corporation, be resident in Canada (including, for greater certainty, a partnership that has its central management and control located in Canada), or (c) it was formed under the laws of a province. A "Canadian partnership" for these purposes is a partnership all of whose members are resident in Canada or are partnerships that are "Canadian partnerships".

        Under the SIFT Rules, our partnership and the Holding LP could each be a "SIFT partnership" if it is a "Canadian resident partnership". However, the Holding LP would not be a "SIFT partnership" if our partnership is a "SIFT partnership" regardless of whether the Holding LP is a "Canadian resident partnership" on the basis that the Holding LP would be an "excluded subsidiary entity" (as defined in the Tax Act). Our partnership and the Holding LP will be a "Canadian resident partnership" if the central management and control of these partnerships is located in Canada. This determination is a question of fact and is expected to depend on where our General Partner is located and exercises central management and control of the respective partnerships. Our General Partner will take appropriate steps so that the central management and control of these entities is not located in Canada such that the SIFT Rules should not apply to our partnership or the Holding LP at any relevant time. However, no assurance can be given in this regard. If our partnership or the Holding LP is a "SIFT partnership", the Canadian federal income tax consequences to our unitholders could be materially different in certain respects from those described in Item 10.E. "Taxation—Certain Material Canadian Federal Income Tax Considerations". In addition, there can be no assurance that the SIFT Rules will not be revised or amended in the future such that the SIFT Rules will apply.

ITEM 4.    INFORMATION ON THE COMPANY

4.A    HISTORY AND DEVELOPMENT OF BROOKFIELD INFRASTRUCTURE

Overview

        Brookfield Infrastructure owns and operates high quality, long-life assets that generate stable cash flows, require relatively minimal maintenance capital expenditures and, by virtue of barriers to entry and other characteristics, tend to appreciate in value over time. Our current operations consist of utilities, transport, energy and communications infrastructure businesses in North and South America, Europe and Asia Pacific. Brookfield Infrastructure has appointed the Service Provider to provide certain management, administrative and advisory services for a fee under the Master Services Agreement. Brookfield owns an approximate 29.5% interest in our partnership on a fully exchanged basis.

        Our mission is to own and operate a globally diversified portfolio of high quality infrastructure assets that will generate sustainable and growing distributions over the long-term for our unitholders. To accomplish this objective, we will seek to leverage our operating segments to acquire infrastructure assets and actively manage them to extract additional value following our initial investment. An integral part of our strategy is to participate with institutional investors in Brookfield-sponsored partnerships that target acquisitions that suit our profile. We focus on partnerships in which Brookfield has sufficient influence or control to deploy an operations-oriented approach.

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        We target a total return of 12% to 15% per annum on the infrastructure assets that we own, measured over the long-term. We intend to generate this return from the in-place cash flows of our operations plus growth through investments in upgrades and expansions of our asset base, as well as acquisitions. If we are successful in growing our FFO per unit, we expect to be able to increase distributions to unitholders. Additionally, an increase in our FFO per unit should result in capital appreciation. We also measure the growth of FFO per unit, which we believe is a proxy for our ability to increase distributions. See Item 5 "Operating and Financial Review and Prospects—Management's Discussion and Analysis of Financial Condition and Results of Operations" for more detail.

        Our objective is to pay a distribution to unitholders that is sustainable on a long-term basis while retaining within our operations sufficient liquidity to fund recurring growth capital expenditures, debt repayments and general corporate requirements. We currently believe that a payout of 60% to 70% of our FFO is appropriate.

        In light of the current prospects for our business, the Board of Directors of our General Partner recently approved an 11% increase in our annual distribution to $1.74 per unit, or 43.5 cents per unit quarterly. Distributions have grown at a compound annual growth rate of 12% since inception of our partnership in 2008 and our 2016 increase marks the seventh consecutive year of double digit growth. We target a 5% to 9% annual distribution growth in light of the per unit FFO growth that we foresee in our operations. We intend to review our distribution per unit in the first quarter of each year in the normal course. Please refer to Item 3.D "Risk Factors—Risks Relating to Our Partnership Structure—Our partnership is a holding entity and currently we rely on the Holding LP and, indirectly, the Holding Entities and our operating entities to provide us with the funds necessary to pay distributions and meet our financial obligations".

        Our partnership, Brookfield Infrastructure Partners L.P., is a Bermuda exempted limited partnership that was established on May 21, 2007 under the provisions of the Bermuda Exempted Partnership Act of 1992 ("Bermuda Exempted Partnerships Act") and the Bermuda Limited Partnership Act. Our registered office is 73 Front Street, Hamilton HM 12, Bermuda and our telephone number at this address is +1-441-294-3309. Our partnership was spun-off from Brookfield on January 31, 2008.

Recent Business Developments

        The following table outlines significant transactions and events that transpired in our business during the year:

Date   Segment   Event
January 2016   Utilities:   On January 29, 2016, Brookfield Infrastructure signed binding agreements to sell its 100% interest in its Ontario electricity transmission operation for gross proceeds of approximately C$370 million, resulting in net proceeds of approximately C$220 million.

February 2016

 

Transport:

 

On February 18, 2016, the takeover bid for Asciano Limited made by our partnership, together with institutional partners, ("Brookfield Consortium") lapsed, following the withdrawal of its recommendation by the board of directors of Asciano Limited. This change of recommendation triggered an A$88 million payment to the Brookfield Consortium.

March 2016

 

Transport:

 

On March 1, 2016, Brookfield Infrastructure expanded its toll road business through the acquisition of a 40% interest in a toll road business in India from Gammon Infrastructure Projects Limited for consideration of $42 million through a Brookfield-sponsored infrastructure fund.

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Date   Segment   Event

March 2016

 

Corporate:

 

On March 29, 2016, Brookfield Infrastructure closed an upsizing of its corporate credit facilities, increasing commitments to $1.975 billion. The incremental $100 million of commitments have substantially the same terms as the previous facilities. These corporate credit facilities continue to be available to provide short-term liquidity for investments and acquisitions as well as general corporate purposes.

April 2016

 

Energy:

 

On April 7, 2016, Brookfield Infrastructure and its partner in its North American gas transmission operation each injected $312 million into the business to pay down operating level debt.

May 2016

 

Transport:

 

In May 2016, Brookfield Infrastructure, alongside an institutional investor and a partner in the business, executed a privatization of its Brazilian toll road operation. The privatization resulted in our partnership's ownership interest increasing from 40% to 48% in exchange for cash consideration of $73 million. Subsequent to the privatization, Brookfield Infrastructure, alongside an institutional partner, injected $114 million into the Brazilian toll road operation for growth capital expenditure requirements.

May 2016

 

Energy:

 

On May 26, 2016, Brookfield Infrastructure completed the sale of its 100% interest in its European energy distribution operation to a third party for gross proceeds of approximately $135 million and net proceeds of approximately $127 million.

June 2016

 

Corporate:

 

On June 17, 2016, Brookfield Infrastructure amended its corporate credit facilities to, among other things, effect an extension of those corporate credit facilities to June 30, 2021.

June 2016

 

Transport:

 

On June 28, 2016, Brookfield Infrastructure acquired a 17% interest in Rutas de Lima S.A.C, through a Brookfield-sponsored infrastructure fund, for total consideration of $127 million, comprised of $118 million of cash and an amount payable of $9 million.

June 2016

 

Utilities:

 

In June 2016, Brookfield Infrastructure and its partners agreed to construct approximately 2,800 kilometres of greenfield transmission lines in Brazil and establish a business with substantial scale in the country. These are long-life, 30-year concession assets that earn cash flows under a stable, availability-based regulatory framework.

July 2016

 

Corporate:

 

On July 8, 2016, Brookfield closed a $14 billion infrastructure fund. Brookfield manages the fund and has committed $4 billion to the fund's total capital commitments, with Brookfield Infrastructure participating in the fund to the extent target acquisitions suit Brookfield Infrastructure's investment profile.

July 2016

 

Energy:

 

On July 19, 2016, Brookfield Infrastructure acquired a 40% interest in Niska Gas Storage ("Niska") for consideration of $227 million through a Brookfield-sponsored infrastructure fund. This consideration is comprised of $141 million of Niska senior notes currently owned by Brookfield Infrastructure, which Brookfield Infrastructure paid $104 million to acquire, $19 million of a working capital credit facility provided to Niska by Brookfield Infrastructure prior to the acquisition date, and cash of $67 million.

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Date   Segment   Event

August 2016

 

Corporate:

 

On August 2, 2016, our partnership issued 10 million Series 5 Preferred Units at an offering price of C$25.00 per Series 5 Preferred Unit in a public offering in Canada. Our partnership acquired 10 million Holding LP Series 5 Preferred Units at the offering price. Holders of the Series 5 Preferred Units and Holding LP Series 5 Preferred Units will be entitled to receive a cumulative quarterly fixed distribution at a rate of 5.35% annually for the initial period ending September 30, 2021. Thereafter, the distribution rate will be reset every five years at a rate equal to the greater of: i) the 5-year Government of Canada bond yield plus 4.64% and ii) 5.35%. Proceeds were used for investment opportunities, working capital and other general corporate purposes. Net proceeds from this offering totaled approximately $186 million.

August 2016

 

Transport:

 

On August 18, 2016, Brookfield Infrastructure acquired a 27% interest in Linx Cargo Care and a 13% interest in Patrick Terminals and Logistics ("Patrick") from Asciano Limited, through a Brookfield-sponsored infrastructure fund, along with institutional partners, for total consideration of $145 million and $202 million, respectively, resulting in the expansion of Brookfield Infrastructure's ports business to Australia.

September 2016

 

Corporate:

 

On September 14, 2016, our partnership completed a three-for-two split of our units by way of a subdivision of units, whereby unitholders received an additional one-half of a unit for each unit held, resulting in the issuance of an additional approximately 115 million units. Any fractional units otherwise issuable to registered holders as a result of the Unit Split were rounded up to the nearest whole unit. Our preferred units were not affected by the Unit Split. The Managing General Partner Units, Special Limited Partner Units and Redeemable Partnership Units of the Holding LP were concurrently split to reflect the Unit Split.

September 2016

 

Utilities:

 

On September 23, 2016, Brookfield Infrastructure, together with institutional clients of Brookfield Asset Management announced that they had reached an agreement to acquire a 90% controlling stake in NTS, a system of natural gas transmission assets in the southeast of Brazil currently owned by Petrobras, for approximately US$5.3 billion. Brookfield Infrastructure's expected investment is 30% of the total transaction, representing approximately $1.3 billion of the consideration payable on closing, with the remaining balance payable on the fifth anniversary of the closing. Completion of this transaction is subject to certain closing conditions and regulatory approvals.

October 2016

 

Utilities:

 

In October 2016, Brookfield Infrastructure and its partners agreed to construct an additional 1,400 kilometres of greenfield transmission lines in Brazil, bringing the total development to 4,200 kilometres. Brookfield Infrastructure will deploy approximately $300 million during the construction period. Construction of these projects is underway and they are expected to be commissioned over the next five years.

October 2016

 

Utilities:

 

On October 31, 2016, we completed the sale of our 100% interest in the Ontario electricity transmission operation to a third party for gross proceeds of approximately C$370 million and net proceeds of approximately C$220 million.

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Date   Segment   Event

December 2016

 

Corporate:

 

On December 2, 2016, we issued 15,625,000 units at an offering price of $32.00 per unit in public offerings in the U.S. and Canada. In a concurrent private placement, Brookfield acquired 8,139,000 Redeemable Partnership Units at the offering price net of commissions. Gross proceeds from this equity offering totaled approximately $750 million ($730 million net of issuance costs). Our partnership expects to use the net proceeds to partially fund its investment in the NTS Acquisition and to deploy backlog of organic growth projects.

December 2016

 

Transport:

 

On December 12, 2016, Brookfield Infrastructure invested a further approximately $124 million in its Brazilian toll road business, increasing its ownership to approximately 49%.

December 2016

 

Communications Infrastructure:

 

On December 21, 2016, Brookfield Infrastructure, through a Brookfield-sponsored infrastructure fund reached agreements to acquire a 29% interest in a telecommunications tower business from Reliance Communications Limited in India, for approximately $600 million. Brookfield Infrastructure is expected to invest approximately $200 million. Completion of this transaction is subject to certain closing conditions and regulatory approvals.

January 2017

 

Corporate:

 

On January 26, 2017, our partnership issued 12 million Series 7 Preferred Units at an offering price of C$25.00 per Series 7 Preferred Unit in a public offering in Canada. Our Partnership acquired 12 million Holding LP Series 7 Preferred Units at the offering price. Holders of the Series 7 Preferred Units will be entitled to receive a cumulative quarterly fixed distribution at a rate of 5.00% annually for the initial period ending March 31, 2022. Thereafter, the distribution rate will be reset every five years at a rate equal to the greater of: i) the 5-year Government of Canada bond yield plus 3.78% and ii) 5.00%. Proceeds were used for investment opportunities, working capital and other general corporate purposes. Net proceeds from this offering totaled approximately $220 million.

February 2017

 

Corporate:

 

On February 22, 2017, our partnership completed a C$300 million corporate bond issuance through a public offering in Canada. Proceeds will be used to partially refinance indebtedness that will mature in October 2017.

        For a description of our principal capital expenditures in the last three fiscal years, see Item 5.B, "Liquidity and Capital Resources—Capital Reinvestment" and Note 30, "Contractual Commitments" in our financial statements included in this annual report on Form 20-F.

4.B    BUSINESS OVERVIEW

Our Operations

        We own a portfolio of infrastructure assets that are diversified by sector and by geography. We have a stable cash flow profile with approximately 90% of our Adjusted EBITDA supported by regulated or contracted revenues. In order to assist our unitholders and preferred unitholders in evaluating our performance and assessing our value, we group our businesses into operating segments based on similarities in their underlying economic drivers.

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        Our operating segments are summarized below:

Operating Segment(1)
 
Asset Type
 
Primary Location(1)

Utilities

       

Regulated or contractual businesses which earn a return on their asset base

  •  Regulated Distribution
•  Electricity Transmission
•  Regulated Terminal
  •  Europe & South America
•  North & South America
•  Asia Pacific

Transport

       

Provide transportation for freight, bulk commodities and passengers

  •  Rail

•  Toll Roads

•  Ports
  •  Asia Pacific & South America
•  South America & Asia Pacific
•  Europe, North America & Asia Pacific

Energy

       

Provide energy transmission, distribution and storage services

  •  Energy Transmission, Distribution & Storage
•  District Energy
  •  North America

•  North America & Asia Pacific

Communications Infrastructure

       

Provide essential services and critical infrastructure to the broadcasting and telecom sectors

  •  Tower Infrastructure Operations   •  Europe

(1)
See Item 5 "Operating and Financial Review and Prospects—Management's Discussion and Analysis of Financial Condition and Results of Operations" and Item 18 "Financial Statements" for information regarding revenue by segments and geographic market.

GRAPHIC

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Utilities

Overview

        Our utilities segment is comprised of regulated utilities businesses, including regulated distribution (electricity and natural gas connections), electricity transmission and a regulated terminal (coal export terminal). These businesses earn a return on a regulated or notionally stipulated asset base, which we refer to as rate base, or from revenues in accordance with long-term concession agreements. Our rate base increases with capital that we invest to upgrade and expand our systems. Depending on the jurisdiction, our rate base may also increase by inflation and maintenance capital expenditures and decrease by regulatory depreciation. The return that we earn is typically determined by a regulator or contracts for prescribed periods of time. Thereafter, it may be subject to customary reviews based upon established criteria. Concession agreements are typically for 30-year periods with inflation protected revenue streams with no material volume risk. Our diversified portfolio of assets allows us to mitigate exposure to any single regulatory regime. In addition, due to the franchise frameworks and economies of scale of our businesses, we often have significant competitive advantages in competing for projects to expand our rate base and earn incremental revenues. Accordingly, we expect this segment to produce stable revenue and margins overtime that should increase with investment of additional capital and inflation. Nearly all of our utility segment's Adjusted EBITDA is supported by regulated or contractual revenues.

        Our objectives for our utilities segment are to invest capital in the expansion of our rate base and in accordance with our concession agreements, as well as to provide safe and reliable service for our customers on a cost efficient basis. If we do so, we will be in a position to earn an appropriate return on our rate base and concession agreements. Our performance can be measured by the growth in our rate base, the return on our rate base, and the growth in our AFFO.

        Our utilities segment is comprised of the following:

Regulated Distribution

    Approximately 2.8 million connections, predominantly electricity and natural gas, and approximately 450,000 installed smart meters.

Electricity Transmission

    Approximately 11,200 kilometres of operating transmission lines in North and South America with an additional 4,200 kilometres of greenfield electricity transmission under development in South America.

Regulated Terminal

    One of the world's largest metallurgical coal export terminals, with 85 million tons per annum ("mtpa") of capacity.

        In September 2016, we signed an agreement in connection with the NTS Acquisition, to acquire a natural gas transmission operation in the southeast of Brazil, which supplies natural gas to Brazil's core industrialized and most populated states, including Rio de Janeiro, São Paulo and Minas Gerais. It operates under a stable regulatory framework with volumes 100% contracted under long-term "ship-or-pay" gas transportation agreements with full inflation indexation. Our expected investment is 30% of the total transaction, representing approximately $1.3 billion of the consideration payable on closing, with the remaining balance payable on the fifth anniversary of the closing. Completion of the NTS Acquisition is subject to certain closing conditions and regulatory approvals.

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Regulated Distribution Operations

        Our regulated distribution operations have approximately 2.8 million electricity and natural gas connections in the U.K. and Colombia. In the U.K., our operation is the largest independent "last mile" natural gas and electricity connections provider, comprised of approximately 2.5 million connections. In South America, our electricity distribution franchise area is in the Boyacá province of Colombia, a region that is approximately 150 kilometres north of the capital, Bogotá.

Strategic Position

        Our regulated distribution operations are critical to the markets in which they are located. In the U.K., our system is currently a market leader in terms of new gas and electricity connection sales, and total installed connections among independent utilities. Our South American regulated distribution operations provide reliable power to approximately 450,000 customers.

        Our regulated distribution operations generate stable cash flow in the geographies in which we operate. Our U.K. operation has a diverse customer base throughout England, Scotland and Wales, which underpins its cash flow. Our U.K. customers consist primarily of large energy retailers who serve residential and business users. Our South American regulated distribution operations provide power to a customer base that is primarily residential, with nearly 100% urban electrification and 92% rural electrification in the areas we service.

Regulatory Environment

        Our U.K. regulated distribution operations compete with other connection providers to secure contracts to construct, own and operate connections to the home for six product lines which include: natural gas, electricity, water, fibre, district heating and smart meters. Once connections are established, we charge retailers rates that are based on the tariff of the distribution utility with which we are interconnected. These tariffs are set on the basis of a regulated asset base. The connection rate is typically adjusted annually and provides inflation protection as it escalates at inflation minus a factor determined by the U.K. regulator. During the first 20 years after the commissioning of a connection, the gas connection rate is subject to a cap and floor that escalates by an inflation factor. Connections revenue does not vary materially with volume transported over our system.

        Our South American distribution business earns an annuity return on the replacement cost of its systems plus a charge to cover operating expenses. Our rates are determined every five years. Our current regulated return is in excess of 13%. Between rate reviews, revenues are adjusted by an inflation factor. This effectively results in a real return on our regulated asset base in excess of 13%. Since the regulatory framework is based on replacement cost, we are positioned to capture volume over time as the appreciation in the rate base can at times exceed the amount of capital we need to reinvest to sustain operations. The majority of revenues earned in our South American regulated distribution business do not fluctuate with volumes.

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Growth Opportunities

        We believe that our regulated distribution operations will be able to grow organically in each of the regions in which we operate. Opportunities for growth in the U.K. are driven by new gas, electricity and fibre connections, through leveraging and cross-selling certain bundled service offerings and by establishing new product lines such as water and district energy to existing customers. There are further prospects for growth with the opening up of the fibre and water markets to independent connections providers, with the continuing recovery in the housing market and by participating in the U.K. smart meter roll out program. During 2016, we adopted approximately 450,000 smart meters from a U.K. energy retailer, with a contract to adopt approximately 250,000 additional meters by June 2017. In South America, our regulated distribution operations have an operating license which allows us to expand vertically into the generation, transmission, and retail sectors. The business is located in a region that is home to emerging industrial industries and is experiencing strong economic growth, which will drive the need for further build-out of our distribution system and regional expansion of the transmission system. We believe we are well positioned for future growth opportunities.

Electricity Transmission Operations

        Our electricity transmission operations are comprised of approximately 11,200 kilometres of operating transmission lines in North and South America. Our North American electricity transmission operations consist of approximately 600 kilometres of 345 kilovolt ("kV") transmission lines in Texas. Our South American electricity transmission system is comprised of approximately 10,600 kilometres including approximately 67% of Chile's high voltage transmission grid and approximately 700 kilometres of 60 kV to 220 kV transmission lines in Peru.

        Additionally, we expect to invest $300 million in 4,200 kilometres of greenfield transmission development in Brazil, to be commissioned over the next five years, in projects that were recently awarded to us under government auctions. These are attractive 30-year concession assets that earn inflation indexed cash flows under an availability-based regulatory framework. In October 2016, we sold our Ontario electricity transmission operation which was comprised of approximately 560 kilometres of 44 kV to 230 kV transmission lines.

Strategic Position

        Our electricity transmission operations occupy key positions in the markets in which we operate. In North America, our transmission lines facilitate the delivery of wind power to population centers as part of Texas' competitive renewable energy zone program. In Chile, our operations constitute the backbone of the country's high-voltage transmission system. These operations extend from the city of Arica in the north of Chile to the island of Chiloé in the south, serving 98% of the population of the country. Our Peruvian operations are located near Lima which is experiencing strong economic growth and demand for electricity. In Brazil, our lines under development are located in the northeast and center east including in the states of Bahia, Ceará, Rio Grande do Norte, Piauí and Paraiba. These lines will support the region's growing demand for electricity and facilitate the delivery of power from renewable generation resources to population centers in the South.

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        All of our electricity transmission operations benefit from stable long-term cash flows. Our Texas operations have a broad customer base with revenues assessed on system-wide demand and collected on a state-wide basis mitigating our volume and credit risk. Currently, approximately 70% of our Chilean and Peruvian electricity transmission revenues are subject to the regulatory framework, whereas the remaining 30% of revenues are derived from a number of long-term transmission contracts, primarily serving hydro-electric power generators. These contracts have a pricing framework that is similar to the applicable regulatory framework (as discussed below), and following their expiration, a majority of this contracted revenue will convert to the regulatory framework. In Brazil, we earn inflation protected revenue streams with no volume risk that commence upon completion of construction under 30-year concession agreements which expire between 2044 and 2046.

Regulatory Environment

        All of our electricity transmission operations are located in regions with stable regulatory environments. In Chile, regulated revenues are determined every four years based on a pre-tax 10% annuity real rate of return on replacement cost of the existing transmission system plus annual payments that provide for recovery of operational, maintenance and administrative costs. Between rate reviews, both revenue components are adjusted by a multi-component inflation factor. This effectively results in a 10% pre-tax, real return on our regulated asset base. Since the Chilean regulatory and contractual frameworks are based on replacement cost, we are positioned to capture volume over time as the appreciation in the rate base can at times exceed the amount of capital we need to reinvest to sustain operations. This transmission system has no material volume risk. Beginning in 2020, regulated revenues will be determined using a floating after-tax real return subject to a 7% floor which currently approximates a 9.1% pre-tax return.

        The regulatory environment in Peru is similar to Chile with revenues determined every four years based on a pre-tax 12% annuity real rate of return on replacement cost of the existing transmission system plus annual payments that provide for recovery of operational, maintenance and administrative costs. Between rate reviews, both revenue components are adjusted by a multi-component inflation factor. This effectively results in a 12% pre-tax, real return on our regulated asset base. Since the regulatory framework is based on replacement cost, we are positioned to capture volume over time as the appreciation in the rate base can at times exceed the amount of capital we need to reinvest to sustain operations. Furthermore, this system has no volume risk.

        In Brazil, the electric transmission industry is regulated by the Brazilian Electricity Regulatory Agency ("ANEEL"). Transmission lines are auctioned by ANEEL, which grants the right to construct, maintain and operate the transmission lines under a concession agreement. Concessions are awarded for a period of 30 years based on the lowest regulated revenue ("RAP") bid by the market. RAP is adjusted for inflation annually and updated every four to five years to reflect changes in operating costs and capital costs.

        Our Texas transmission business operates under a historical cost of services regulatory regime overseen by the Public Utility Commission of Texas. Based on a September 2015 rate case, our Texas transmission business is allowed to earn a 9.6% return on equity which is deemed to be 40% of our rate base. Our rate base is equal to the historic cost of the system's assets plus any capital expenditures less depreciation and other deductibles. Our operating revenues do not fluctuate with usage of our system but do fluctuate based on total system peak annual electric loads, which are measured by the Electric Reliability Council of Texas, a not-for-profit corporate entity that is responsible for the day to day operation of Texas' electrical system.

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Growth Opportunities

        We believe that attractive growth opportunities exist for all of our electricity transmission operations.

        Chile has electricity generation that is a long distance away from population centers. Upgrades and expansions of the electricity transmission system will be required to connect new electricity generation to load centers to satisfy increased electricity demand resulting from economic growth. As of December 31, 2016, the approved capital expenditure backlog of our Chilean transmission system was approximately $591 million and is comprised of projects that have been awarded to us for which expenditures have not yet been made. Securing our first asset in Peru will serve as a foothold to pursue further growth opportunities.

        Our concessions in Brazil are required for the expansion of the region's transmission system grid to connect new electricity generation resources, including wind located in the northeast and hydro in the north to satisfy growing demand. We believe that due to the geographic location of our concessions, there are opportunities to secure system reinforcements which will generate incremental RAP as well as secure new concessions at upcoming auctions.

        Generation in Texas is expected to be developed in the western area of the state which is away from population centers in the east. In addition, strong economic growth and an aging infrastructure will drive the need for further expansions and upgrades of the existing transmission system. We are favourably positioned to take advantage of these opportunities due to our geographical location in west Texas as well as our incumbent status.

Regulated Terminal Operations

        Our regulated terminal operation is comprised of a port facility that exports metallurgical and thermal coal mined in the central Bowen Basin region of Queensland, Australia, which is a high quality and low cost source of predominately metallurgical coal. Our terminal is one of the world's largest export terminals, accounting for approximately 20% of global seaborne metallurgical coal exports and 6% of total global seaborne coal exports.

        The regulated terminal operation generates revenues under a regulatory regime that provides us with take-or-pay contracts. These contracts include: (i) a capacity charge that is allocated to users based on the percentage of total capacity for which they contract and (ii) a fixed and variable handling charge associated with operating and maintaining the terminal. The capacity charge is paid by users irrespective of their use of our terminal facility. The handling charge (both fixed and variable) is structured to be a complete pass through of the costs charged for terminal operations and maintenance. In the event that any user no longer requires their capacity, the regulatory regime re-socializes this capacity amongst the other users at the end of each regulatory period, thereby providing protection for the full recovery of capital investments.

Strategic Position

        The Bowen Basin is a high quality, low cost, prolific series of metallurgical coal deposits, where there are few cost efficient options to access export markets other than through our terminal operations. We have take-or-pay contracts with some of the world's largest mining companies that operate in the Bowen Basin. Our regulated terminal operation is substantially contracted through 2019. Existing customers hold evergreen options to extend their capacity by a further five years and based on their past actions are expected to exercise renewal options for most of our regulated terminal operation's contracted capacity.

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Regulatory Environment

        The terminal's operation is regulated by the Queensland Competition Authority ("QCA"). The previous regulatory period was set for five and a half years ending June 30, 2016, with the next regulatory period set for five years ending June 30, 2021. The QCA utilizes a return on regulated asset base methodology to calculate our revenue requirement. Our coal terminal's rate base increases with inflation and capital expenditures and decreases by depreciation. Our previous weighted average cost of capital allowed by the QCA was approximately 9.9% and based on the proposed access agreement, the QCA has indicated the weighted average cost of capital allowed over the next regulatory period will be 5.8%. We are currently operating under a transitional pricing arrangement until the QCA approves the new access arrangements and pricing. Once approved, pricing will be backdated to July 1, 2016.

Growth Opportunities

        Over the past 30 years, our terminal's capacity has been expanded from 15 mtpa to 85 mtpa to meet ongoing customer demand. Potential exists to further grow our operations to facilitate future mine expansions in the Bowen Basin. Our coal terminal has completed feasibility studies which show the viability of significant further expansions within the terminal precinct which could take capacity well in excess of 100 mtpa.

Transport

Overview

        Our transport segment is comprised of open access systems that provide transportation, storage and handling services for freight, bulk commodities and passengers, for which we are paid an access fee. Profitability is based on the volume and price achieved for the provision of these services. This operating segment is comprised of businesses with price ceilings as a result of regulation, such as our rail and toll road operations, as well as unregulated businesses, such as our ports. Transport businesses typically have high barriers to entry and, in many instances, have very few substitutes in their local markets. While these businesses have greater sensitivity to market prices and volume than our utilities segment, revenues are generally stable and, in many cases, are supported by contracts or customer relationships. The diversification within our transport segment mitigates the impact of fluctuations in demand from any particular sector, commodity or customer. Approximately 80% of our transport segment's Adjusted EBITDA is supported by contractual revenues.

        Our objectives for our transport segment are to provide safe and reliable service to our customers and to satisfy their growth requirements by increasing the utilization of our assets and expanding our capacity in a capital efficient manner. If we do so, we will be able to charge an appropriate price for our services and earn an attractive return on the capital deployed. Our performance can be measured by our revenue growth and our Adjusted EBITDA margin.

        Our transport segment is comprised of the following:

Rail

    Sole provider of rail network in south of Western Australia with approximately 5,500 kilometres of track and operator of approximately 4,800 kilometres of rail in South America.

Toll Roads

    Approximately 3,600 kilometres of motorways in Brazil, Chile, Peru and India.

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Ports

    36 terminals in North America, U.K., Australia and across Europe.

Rail

        Our Australian rail network is comprised of a below rail access provider, with over 5,500 kilometres of track and related infrastructure in the south of Western Australia under a long-term lease with the State Government. There are approximately 33 years remaining on this lease and this rail system is a crucial transport link in the region. Our Australian rail operation's revenue is derived from access charges paid by rail operators or underlying customers. Stability of revenue is underpinned by rail transport being a relatively small yet essential component of the overall value of the commodities and freight transported, as well as the strong contractual framework that exists with rail operators' customers.

        Our Brazilian rail operations are part of an integrated system with transshipment terminals, rail, port terminal operations, and over 20,000 locomotives and wagons. They provide below and above rail services for approximately 4,800 kilometres of track. Our Brazil rail operates under concession contracts that establish productivity standards, volume goals and price caps. Additional revenue is earned by offering complimentary services including inland transshipment terminals and port services, which for the most part are not subject to any tariff regimes.

Strategic Position

        Our Australian rail network is the only freight rail network providing access to the region's six State Government-owned ports for minerals and grain, as well as interstate intermodal terminals. The majority of our customers are leading commodity exporters with the top 10 customers contributing approximately 90% of track access revenue, through long dated contracts.

        Our Brazilian rail operations span nine states and operate in three main corridors serving Brazil's center-north, center-east and center-southeast regions, including the most important agricultural and industrial regions in the country. Main sources of revenue are derived from grains, sugar, fertilizer, industrial and steel sectors and are generated from a diversified customer base.

Regulatory Environment

        In Western Australia, the Economic Regulatory Authority ("ERA") is the independent economic regulator, responsible for the gas, electricity, water and rail industries. For the rail industry, an access regime exists with the ERA determining the revenue ceiling and floor boundaries by track segment for parties to negotiate within. These boundaries are established using a methodology based on a regulated rate of return on asset replacement value. Across the majority of the network, current revenue is well below the regulated ceiling. As a result, no contracted revenue is currently exposed to reduction under this access regime. Our Australian rail network operates its track on an open access basis consistent with the rail access regime and its lease obligations.

        Our Brazilian rail concessions are governed by Brazil's transportation regulator, Agência Nacional de Transportes Terrestres ("ANTT"), which is also responsible for the tariff regime in that country. In addition, we access rail networks controlled by Vale S.A., Brazil's largest mining company, in an arrangement governed by long-term agreements. The regulatory regime requires concession holders to provide open access to all track users. Since most of our port operations are privately held, they are not subject to regulated tariffs and are able to move third party cargos with no regulatory pricing limitations.

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Growth Opportunities

        Our Australian rail operation is a critical component of the logistics chain in its region. In many cases, it is the only mode of transportation for freight that is economically viable. As a result, the business is well positioned to benefit from the development of new agriculture or mining projects, which would require access to the rail network to transport to port for export markets.

        Our Brazilian rail business is undergoing an approximately R$3 billion capital investment program to upgrade and expand, allowing it to capture volume growth by attracting cargo volumes that currently are transported by trucks, a higher cost alternative. This business is focused on improving network connectivity in the system by capturing the growing demand for integrated transportation services in Brazil. In addition, over R$2 billion has been invested in a port terminal expansion project to be delivered in 2017 that is located at Latin America's largest port. The project is adding three berths to handle over 14 mtpa of grain and sugar exports and fertilizer imports, which will significantly benefit our rail operation by increasing volumes, improving our strategic position as an integrated logistics provider. Future projects include the purchase of locomotives and wagons, and improvements to rail infrastructure including inland terminals, railway and yards.

Toll Roads

        Our toll road operations are comprised of urban and interurban toll roads in Chile, Brazil, Peru and India. Our Chilean operations include 33 kilometres of free flowing roads that form a key part of the ring road network of Santiago. Our Brazilian operations comprise approximately 3,250 kilometres of inter-urban toll roads, located in the Southeast and South regions of Brazil crossing or connecting the states of São Paulo, Rio de Janeiro, Minas Gerais, Espírito Santo, Parana and Santa Catarina. Our Peruvian operations consist of 96 kilometres of existing roads and the greenfield construction of 19 kilometres of new roads, which together form three segments that are key transportation arteries in Lima. Our Indian operations include approximately 240 kilometres of existing roads which form part of India's most important national highways. Our toll road portfolio have concessions that began operations between 1998 and 2008, they operate under long-term concessions, with staggered maturities and an average remaining term of approximately 14 years.

        Our toll roads are expected to generate stable, growing cash flows as a result of their strategic locations, the favourable long-term economic trends in the countries we operate in and inflation-indexed tariffs. These markets have all experienced significant economic growth over the last 20 years, leading to increased motorization rates and trade, which has driven increases in traffic volumes. We expect these trends to continue in the long-term, resulting in significant future traffic growth on our roads.

Strategic Position

        Our Chilean toll road is a key artery in Santiago's urban road network as it connects the affluent business center of east Santiago with Chile's international airport, the Port of Valparaiso and the north of Chile. The primary users of the road are commuters getting to and from work. Conversely, our Brazilian toll roads are part of the inter-urban Brazilian toll road network, whose traffic is a mix of heavy industrial users and cars. Our roads are used in the transportation of goods in states of Brazil, which represent approximately 65% of Brazilian GDP. Our Peruvian toll roads are key arteries within Lima's road network that connect 23 districts and serve as the main access to the city from the north, south and east regions. Our Indian toll roads span the country and include some of India's most important national highways.

        Our toll roads are critical infrastructure for the economies of Chile, Brazil, Peru and India, with few viable alternative routes available. Building new competing routes would be limited by environmental restrictions, difficulty to expropriate urban land and physical restrictions.

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Regulatory Environment

        Our Chilean assets are governed by the Ministerio de Obras Publicas ("MOP"). Chile has an established concession program which has been in place for more than 20 years. To date, 82 concession agreements have been awarded, representing a total investment of approximately $19 billion within the country. Specifically, the ministerial regime for urban toll roads allows operators to raise tariffs annually at a level equal to inflation + 3.5% with additional increases in the form of congestion premiums, which can be up to three times the base tariff during congested periods.

        Our Brazilian assets are governed by Agência Reguladora de Serviços Públicos Delegados de Transporte do Estado de São Paulo ("ARTESP") and ANTT, the São Paulo State and Federal regulators, respectively. The country has a widely developed toll road program, both at the Federal and State level, which has been in place for approximately 15 years. As of 2016, there were 59 motorway concessions in Brazil totaling over 19,000 kilometres. Brazilian concession agreements provide operators with annual tariff increases indexed to inflation and additional investments not considered in the initial concession agreements are compensated with real tariff increases or an extension of the concession period.

        The concession for our Peruvian toll roads was granted by the Municipalidad Metropolitana de Lima ("MML") and is supervised by MML's municipal arm, Fondo Metropolitano de Inversiones ("Invermet"). Invermet is responsible for overseeing maintenance, conservation, and construction activities. The concession agreement includes tariff increases in excess of inflation until the end of 2018 when construction is completed, at which point tariffs will be linked to inflation.

        Our Indian assets are governed by the National Highways Authority of India, which has been operational for over 20 years and has responsibility to develop, maintain and manage the national highways vested or entrusted to it by the Central Government of India. Revenues at four of the five toll roads are derived from annuity concession payments, while the other earns revenue from traffic linked toll road tariffs. The annuity concession payments provide stable and predictable cash flows from a government related entity while the toll road tariffs are linked to inflation which is expected to benefit from India's growing economy.

Growth Opportunities

        We believe that long-term growth in the South American and Indian economies will trigger increases in traffic volumes. Coupled with tariff increases from inflation and congestion tariffs, this should drive significant future cash flow growth for our toll road businesses. In addition, Brazil, Chile and Peru are seeking to increase their respective paved road network by expanding existing roads and developing new roads. These planned expansions should present opportunities for us to invest additional capital in these attractive markets, given the scale of our existing network.

Ports

        Our port operations are located primarily in U.K., Australia, North America, and across Europe. Our U.K. port is one of the largest operators in the country by volume and is a statutory harbor authority ("SHA") for the Port of Tees and Hartlepool in the north of the U.K. Our U.K. port's status as the SHA gives it the right to charge vessel and cargo owners conservancy tariffs (toll-like dues) for use of the River Tees. At our U.K. port, our revenue is primarily generated from port handling services for bulk and container volumes. In addition, approximately 25% of our revenue is earned from conservancy and pilotage tariffs. Furthermore, we have a freehold land base of approximately 2,000 acres that is strategically located in close proximity to our port, which generates income from long-term property leases that account for approximately 10% of our revenue.

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        Our Australian port operations were acquired in 2016 as part of the Asciano transaction. Our operations include gateway container terminals in Australia's four largest container ports, a regional city port, and storage, handling and logistics operations at over 80 locations throughout Australia and New Zealand. The container terminal operations handled approximately 3.2 million Twenty-Foot Equivalent Units ("TEUs") in 2016, with the storage, handling and logistics businesses handling over 19 million tonnes of bulk and general cargo, 11 million tonnes of forestry products and over 600,000 vehicles per annum.

        Our North American port operation is comprised of gateway container terminals in the ports of Los Angeles and Oakland, which operate under long-term terminal leases with the Los Angeles and Oakland port authorities. These terminals handled almost 1.2 million TEUs in 2016. In North America, our revenue is generated from port handling services for container volumes. A significant portion of our volumes are underpinned by a long-term minimum volume guarantee arrangement provided by our partner in this business, Mitsui O.S.K. Lines, Ltd.

        Our European port operations are comprised of a portfolio of concessions in key strategic locations throughout Europe that handle heavy dry bulk, specialty dry bulk, liquid bulk, general cargo and containers. Our European port operations handle approximately 44 mtpa of cargo. At our European operations, we benefit from diversified operations with over 50 different types of products handled at 22 port terminals located throughout seven European countries.

Strategic Position

        Our port operations are strategically located. In the U.K., Teesport is a large, deep-water port located in a well-developed industrial area in Northern England. The SHA status, as well as the established infrastructure which includes rail and road access, create barriers to entry for potential competitors.

        Our Australian container port terminals operate under long-term leases, with over 165 hectares of land within the ports of Melbourne, Sydney, Brisbane and Fremantle, the four largest container ports by TEU in Australia. Our storage, handling and logistics business benefits from diversification both geographically, with operations at over 80 sites across Australia and New Zealand, and by goods and services, handling bulk and general cargo, forestry products and vehicles for a diversified customer base.

        Our North American port operations are located in the ports of Los Angeles and Oakland, the largest import terminal and the largest export terminal in North America, respectively. These deep-water ports are in close proximity to irreplaceable, land-side infrastructure for intermodal and transloading services and are capable of handling the largest vessels currently in service.

        Our European port operations are located in 22 port terminals across continental Europe and consist of 500 hectares of long-term port concessions and over 30 kilometres of quay length. With substantial infrastructure that is often integrated with our customers' facilities, including cranes, berths, warehouses, inloading and outloading equipment, our European port operations are protected by significant barriers to entry. Additionally, our operations provide logistical services for our customers that would be difficult for potential competitors to replicate.

        Our U.K., Australian and North American port operations have a number of long-term contracts with established parties, including large multinational corporations. The majority of our revenues are derived from customers with significant investment in industrial infrastructure at or within close proximity to these ports. Our Australian port operations' main customers represent major shipping lines who utilize the multiple ports located nationally. Our European port operations mainly serve industrial customers in the immediate vicinity of our terminals under varied contract terms. Many key customers have been long-term customers continuously for between 10 and 30 years.

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Regulatory Environment

        Our U.K. port is unregulated, but its status as the SHA for the River Tees provides the statutory right to collect conservancy tariffs (toll-like dues) payable by ships using the river and the requirement to maintain navigability of the waterway. The port has the statutory authority to set tariffs which are determined through consultancy with users of the river and indexed to inflation. Our North American, European and Australian port operations conduct business in an unregulated environment.

Growth Opportunities

        Our U.K. port's flexible, multi-purpose capacity positions it to benefit from numerous growth initiatives. The ongoing expansion of our container handling facilities, in addition to improvements in our rail capacity, have driven new customer contracts for container cargo and positioned our U.K. port to be the main entry point for container cargo destined for the northern England market. Similarly, our sizeable freehold land base, strategic location and extensive port infrastructure, has enabled us to attract new energy-related customers, which are investing significant capital to build new plant and equipment on our land. As these new investments are commissioned, our U.K. port will benefit from increased property rental income, cargo handling revenue and conservancy fees.

        Our North American port operations are undergoing a significant modernization project in Los Angeles that is expected to approximately double capacity and increase efficiency. Once complete, this project will make our terminal in Los Angeles one of the lowest cost and most automated terminals in North America with surplus capacity to facilitate future volume growth. Our terminal in Oakland is also undergoing an expansion of its facilities, which will almost double its capacity and significantly enhance its ability to service incremental demand.

        In Australia and Europe, our port operations are well positioned to capitalize on increasing demand for bulk and general commodities as well as cross-selling opportunities with existing customers.

Energy

Overview

        Our energy segment is comprised of systems that provide transportation, storage and distribution services. Profitability is based on the volume and price achieved for the provision of these services. This operating segment is comprised of businesses that are subject to regulation, such as our natural gas transmission business whose services are subject to price ceilings, and businesses that are essentially unregulated like our district energy business. Energy businesses typically have high barriers to entry as a result of significant fixed costs combined with economies of scale or unique positions in their local markets. Our energy segment is expected to benefit from forecasted increases in demand for energy. Although these businesses have greater sensitivity to market prices and volume than our utilities segment, revenues are typically contracted with varying durations and are relatively stable.

        Our objectives for our energy segment are to provide safe and reliable service to our customers and to satisfy their growth requirements by increasing the utilization of our assets and expanding our capacity in a capital efficient manner. If we do so, we will be able to charge an appropriate price for our services and earn an attractive return on the capital deployed. Our performance can be measured by our revenue growth, our Adjusted EBITDA margin and our growth in AFFO.

        Our energy segment is comprised of the following:

Transmission and Storage Operations

    Approximately 15,000 kilometres of natural gas transmission pipelines.

    Approximately 300 billion cubic feet ("bcf") of natural gas storage in the U.S. and Canada.

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District Energy Operations

    Delivers heating and cooling to customers from centralized systems including heating plants capable of delivering 2,870,000 pounds per hour of steam heating capacity, centralized gas distribution and cogeneration for heating, cooling and energy, 261,000 tons of contracted cooling capacity, as well as approximately 16,500 customer connections for natural gas, water and wastewater services.

Transmission and Storage Operations

        Our transmission and storage operations include approximately 15,000 kilometres of natural gas transmission and pipeline systems in the U.S. and significant natural gas storage capacity in the U.S. and Canada.

        Our natural gas transmission pipelines comprise one of the largest systems in the U.S., extending from the Gulf Coast in Texas and Oklahoma to Chicago. The majority of revenues are generated under contracts and are well positioned to benefit from forecasted increases in demand for clean energy.

        Our natural gas storage facilities are needed to reallocate excess natural gas supply from periods of low demand to periods of high demand. Our assets are located in key North American natural gas producing and consuming regions providing access to multiple end-use markets.

Strategic Position

        Our North American natural gas transmission system is the largest provider of natural gas transmission to the Chicago and northern Indiana markets and has significant interconnectivity with local distribution companies, natural gas liquefaction facilities, industrial users and gas-fired power plants. The system is also well connected to other pipelines accessing additional downstream markets, which increases demand for our transportation and storage services.

        We operate or contract for more than 300 bcf of working gas capacity at our natural gas storage facilities. We have eight facilities that are connected at strategic points on the North American natural gas transmission network and provide access to multiple end-use markets and provide us and our customers with substantial liquidity to buy and sell natural gas. Our facilities are located in the U.S. and Canada.

Regulatory Environment

        Our transmission and storage operations are subject to varied regulation that differs across our regions of operation. Our North American natural gas transmission system and our natural gas storage facility in Texas are regulated by FERC under the Natural Gas Act of 1938. FERC provides a regulated framework for shippers and natural gas pipeline owners to reach commercial agreement with customers without regulatory intervention under a maximum rate regime, and there is no periodic rate case obligation.

        Our Canadian natural gas storage facilities are regulated by the Alberta Energy and Resources Conservation Board, which provides operational and environmental oversight. Our Californian natural gas storage facilities are subject to California Public Utilities Commission oversight. Our Oklahoma facility is regulated by the Oklahoma Corporation Commission. These facilities are not subject to any economic regulation.

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Growth Opportunities

        Within our North American natural gas transmission operations we are progressing a number of organic growth opportunities that will expand our service offerings through capital projects supported by long-term contracts. Growth projects currently underway include expansion to provide additional deliverability to the Gulf Coast market and a new pipeline supporting the export market to Mexico. The projects will be constructed between 2017 and 2019. In late 2016, a growth project to expand the capacity of our system in the Chicago market was completed, with the incremental contracted revenue associated with the project commencing at the same time. In addition to projects under contract and their future add-on growth opportunities, this business is well positioned to take advantage of changing dynamics in the North American natural gas market.

        Ownership of natural gas storage facilities is highly fragmented and we expect to continue to transact opportunistically in the marketplace. We believe that with the prolonged period of low natural gas prices and storage spreads there is an opportunity to act as an industry consolidator at attractive valuations.

District Energy

        Our North American district energy operations are located in seven cities and consist of heating plants capable of delivering 2,870,000 pounds per hour of steam heating capacity, produced from six gas-fired steam plants and 261,000 tons of contracted cooling capacity, sourced from deep lake water systems and a variety of other conventional chilling technologies. These operations provide steam heating in key markets such as downtown Toronto, Ontario, in the medical district of New Orleans, Louisiana and in the central business district of Seattle, Washington. District cooling services are provided through an innovative deep lake cooling system in Toronto and from mechanical chilling operations in key markets such as Chicago, Illinois, Houston, Texas, and New Orleans.

        Our Australian district energy operations provide heating, cooling and energy solutions and distributed natural gas, water and wastewater services, in the states of Tasmania, New South Wales and Victoria. The natural gas network includes over 800 kilometres of pipeline, bringing approximately 100 million cubic meters of natural gas to homes and businesses each year, with availability to provide this service to approximately 59,000 commercial and residential customers.

Strategic Position

        Our district energy business in North America provides essential heating and cooling services to commercial customers, governments, hospitals and major sporting arenas in Toronto, Houston, New Orleans, Chicago and Seattle. Our Australian district energy business is comprised of an established natural gas distribution and retail business, supplying approximately 15,400 residential, commercial and industrial customers currently connected to our network in Tasmania and New South Wales. We are also operating and developing projects to supply natural gas and/or thermal energy, as well as distributed water and wastewater services, to residential and commercial customers. In most cases our district energy businesses offer the only feasible source of energy to customers who are connected to our network. In addition, we are able to realize synergies across this segment through the sharing of best practices for customer contracting and due diligence, financing strategies, as well as sharing back office functions in our North American and Australian businesses.

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Regulatory Environment

        Our district energy business in Toronto is governed by the Ontario Public Utilities Act of 1913 and Toronto District Heating Corporation Act, 1998. However, the business is not subject to rate regulation but receives the rights of a utility in Ontario, allowing it unrestricted access to its network of underground pipes in downtown Toronto. Our district energy business in Australia is currently not subject to any economic regulation. In Houston, Chicago, New Orleans and Seattle, our operations are enabled by long term franchise agreements with the respective municipalities.

Growth Opportunities

        We have significant organic growth opportunities in our various district energy businesses, primarily through system expansions in North America. In particular, our Toronto deep lake water cooling system provides chilled water by pumping cold water from the depths of Lake Ontario. As a result of significant historical investment, this system has low variable costs. The system currently has excess capacity during non-peak periods of demand, and we will seek to connect incremental interruptible load to the system at limited capital cost. The district energy industry in North America is highly fragmented, providing significant opportunities to grow our business through acquisitions. The Australian district energy business is developing into a multi-asset energy and water provider, offering combined services for heating, cooling and energy as well as distributed water and wastewater services.

        There are significant barriers to entry in these businesses, as there are limited opportunities for customers to support competing businesses once connected to our systems. Once a system is established, we are well positioned to capture further organic growth opportunities.

Communications Infrastructure

Overview

        Our communications infrastructure segment provides essential services and critical infrastructure to the media broadcasting and telecom sectors. These services and access to infrastructure are contracted on a long-term basis with tariff escalation mechanisms. Our telecommunications customers pay upfront and recurring fees to lease space on our towers to host their equipment. Our broadcasting customers pay us fees for transmitting television and radio content to end users.

        The key objective for this segment is to capture benefit from increased demand for densification from mobile network operators and to acquire towers and other infrastructure that are non-core to such operators. Our performance can be measured by the growth in our Adjusted EBITDA.

        The segment is comprised of approximately 7,000 multi-purpose towers and active rooftop sites and 5,000 kilometres of fibre backbone located in France.

        These operations generate stable, inflation-linked cash flows underpinned by long-term contracts (typically 10 years in telecommunications and five years in broadcasting) with large, prominent customers in France.

        In addition to the operations above, on December 21, 2016, we signed an agreement to acquire an interest in a telecommunications tower business from Reliance Communications Limited in India. The telecommunications tower business has a pan-India presence across all 22 telecom circles including metro and rural areas, with expected revenues which are 70% contracted under long-term "take-or-pay" agreements. Our expected investment is 29% of the total transaction, through a Brookfield-sponsored infrastructure fund. This expected investment represents approximately $200 million of the approximately $600 million total consideration payable on closing. Completion of this transaction is subject to certain closing conditions and regulatory approvals.

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Strategic Position

        Our business is the leading independent communications infrastructure operator in France. Its sites cover the entire French territory, with some in the very best locations, which enable us to be a leader across all of the segments in which we operate. Its scale in telecommunications sites makes it the number one independent tower operator in France and a preferred partner of mobile network operators. In television, it covers the French population with approximately 97% coverage in one of Europe's largest television markets. In radio, we are the reference provider for services in France with approximately 55% share of FM analog radio frequencies.

Regulatory Environment

        In the television business, a small proportion of the sites (currently approximately 70) are considered to be non-replicable because either (i) they benefit from a remarkable location, often on an elevated point or area where the construction of a second tower is in practice very complex, (ii) equipment attachment height is greater than 100 meters or (iii) a set of exceptional circumstances prevent the site from being replicated. On these sites the regulator considers the business to have significant market power and as a result regulates the prices that can be charged. In total these regulated revenues account for approximately 40% of our television broadcast revenues. On the residual television sites, deemed replicable, access prices are subject to a price floor and cap established by the regulator. Our telecommunications site hosting operations are unregulated with pricing determined directly with the users of our infrastructure.

Growth Opportunities

        We see growth opportunities in the telecom infrastructure segment as mobile network operators are expected to increase the coverage and capacity of their networks to support four main trends: (i) growing wireless data usage, (ii) next evolution of wireless standards, (iii) increased mobile network operator competition through network quality and reliability, and (iv) minimum spectrum license coverage obligations. We believe that the size and scope of our portfolio positions us to take advantage of these favourable trends through construction and acquisition of additional assets.

        We are also participating in a French government-led initiative to provide lower population density areas in France with access to ultra-fast broadband through the deployment of fibre to the home networks. Investments in these networks present a unique opportunity for our business to leverage its existing assets and technical expertise operating a high-speed fibre backbone.

Acquisition Strategy

        Over the past few years, we have established operating segments with scale in the utility, transport, energy and communications infrastructure sectors. As we look to grow our businesses, we will primarily target acquisitions that utilize existing operating segments to acquire high quality assets that we can actively manage to achieve a total return of 12 to 15% per annum, and extend our operations into new geographies in which Brookfield has a presence. We intend to utilize existing liquidity and capital recycling program to fund acquisitions and prudently access capital markets. As we grow our asset base, we will primarily target acquisitions in the following infrastructure sectors:

    Utilities: electricity transmission, regulated electricity, gas and water distribution and regulated or contracted terminal operations;

    Transport: railroads, ports, toll roads and airports;

    Energy: oil and gas pipelines and gathering and storage systems and district energy systems; and

    Communications infrastructure: telecommunications towers.

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        An integral part of our acquisition strategy is to participate with institutional investors in Brookfield-sponsored consortiums for single asset acquisitions and as a partner in or alongside Brookfield-sponsored partnerships that target acquisitions that suit our profile. We will focus on consortiums and partnerships where Brookfield has sufficient influence or control to deploy our operations oriented approach. Brookfield has a strong track record of leading such transactions.

        Brookfield has agreed that it will not sponsor transactions that are suitable for us in the infrastructure sector unless we are given an opportunity to participate. See Item 7.B "Related Party Transactions—Relationship Agreement". Since Brookfield has large, well-established operations in real estate and renewable power that are separate from us, Brookfield will not be obligated to provide us with any opportunities in these sectors. In addition, since Brookfield has granted an affiliate the right to act as the exclusive vehicle for Brookfield's timberland acquisitions in Eastern Canada and the Northeastern U.S., we will not be entitled to participate in timberland acquisitions in those geographic regions.

Intellectual Property

        Our partnership, as licensee, has entered into a Licensing Agreement with Brookfield pursuant to which Brookfield has granted us a non-exclusive, royalty-free license to use the name "Brookfield" and the Brookfield logo in connection with marketing activities. Other than under this limited license, we do not have a legal right to the "Brookfield" name or the Brookfield logo. Brookfield may terminate our Licensing Agreement immediately upon termination of our Master Services Agreement and it may be terminated in the circumstances described under Item 7.B "Related Party Transactions—Licensing Agreements."

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4.C    ORGANIZATIONAL STRUCTURE

Organizational Charts

        The chart below presents a summary of our ownership and organizational structure. Please note that on this chart all interests are 100% unless otherwise indicated and "GP Interest" denotes a general partnership interest and "LP Interest" denotes a limited partnership interest. These charts should be read in conjunction with the explanation of our ownership and organizational structure below and the information included under Item 4.B "Business Overview," Item 6.C "Board Practices" and Item 7.B "Related Party Transactions."

GRAPHIC

(1)
Brookfield's general partner interest is held through Brookfield Infrastructure Partners Limited, a Bermuda company that is indirectly wholly-owned by Brookfield Asset Management, an Ontario corporation.

(2)
Brookfield's limited partnership interest in the Holding LP, held in Redeemable Partnership Units, is redeemable for cash or exchangeable for our units in accordance with the Redemption-Exchange Mechanism, which could result in Brookfield eventually owning approximately 29.5% of our partnership's issued and outstanding units on a fully exchanged basis (including the issued and outstanding units that Brookfield currently also owns). See Item 10.B "Memorandum and Articles of Association—Description of the Holding LP's Limited Partnership Agreement—Redemption—Exchange Mechanism."

(3)
Brookfield has provided an aggregate of $20 million of working capital to certain Holding Entities through a subscription for preferred shares. See Item 4.C "Organizational Structure—The Holding LP and Holding Entities".

(4)
The Service Provider provides services to the Service Recipients pursuant to the Master Services Agreement.

(5)
On March 12, 2015, our partnership issued five million Series 1 Preferred Units to the public and acquired five million Holding LP Series 1 Preferred Units. On December 8, 2015, our partnership issued five million Series 3 Preferred Units to the public and acquired five million Holding LP Series 3 Preferred Units. On August 2, 2016, our partnership issued ten million Series 5 Preferred Units to the public and acquired ten million Holding LP Series 5 Preferred Units. On January 19, 2017, our partnership issued twelve million Series 7 Preferred Units to the public and acquired twelve million Holding LP Series 7 Preferred Units.

(6)
As of December 31, 2016, our partnership had outstanding 259,450,045 units. An equal number of Managing General Partner Units are held by our partnership in the Holding LP.

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Our Partnership

        We own and operate high quality, long-life assets that generate stable cash flows, require relatively minimal maintenance capital expenditures and, by virtue of barriers to entry and other characteristics, tend to appreciate in value over time.

        Our partnership is a Bermudian exempted limited partnership that was established on May 21, 2007 and spun off from Brookfield on January 31, 2008. See Item 4.D "Property, Plant and Equipment" for information regarding our partnership's head office.

        Our partnership's sole material asset is its managing general partnership interest and preferred limited partnership interest in the Holding LP. Our partnership serves as the Holding LP's managing general partner and has sole authority for the management and control of the Holding LP. Our partnership anticipates that the only distributions that it will receive in respect of our partnership's managing general partnership interest and preferred limited partnership interest in the Holding LP will consist of amounts that are intended to assist our partnership in making distributions to our unitholders in accordance with our partnership's distribution policy, to our preferred unitholders in accordance with the terms of our preferred units and to allow our partnership to pay expenses as they become due. The declaration and payment of cash distributions by our partnership is at the discretion of our General Partner. Our partnership is not required to make such distributions and neither our partnership nor our General Partner can assure you that our partnership will make such distributions as intended.

Brookfield and the Service Provider

        Brookfield has an approximate 29.5% interest in our partnership on a fully exchanged basis. Our partnership and the other Service Recipients have each appointed affiliates of Brookfield Asset Management as their Service Provider to provide certain management, administrative and advisory services, for a fee, under the Master Services Agreement.

        Brookfield is a global asset management company focused on property, renewable energy, infrastructure and private equity assets with approximately $250 billion of assets under management, 63,000 operating employees and over 700 investment professionals worldwide. Brookfield's strategy is to combine best-in-class operating segments and transaction execution capabilities to acquire and invest in targeted assets and actively manage them in order to achieve superior returns on a long-term basis.

        To execute our vision of being a leading owner and operator of high quality infrastructure assets that produce an attractive risk-adjusted total return for our unitholders, we will seek to leverage our relationship with Brookfield and in particular, its operations-oriented approach, which is comprised of the following attributes:

    strong business development capabilities, which benefit from deep relationships within, and in-depth knowledge of, its target markets;

    technical knowledge and industry insight used in the evaluation, execution, risk management and financing of development projects and acquisitions;

    project development capabilities, with expertise in negotiating commercial arrangements (including offtake arrangements and engineering, procurement and construction contracts), obtaining required permits and managing construction of network upgrades and expansions, as well as greenfield projects;

    operational expertise, with considerable experience optimizing sales of its products and structuring and executing contracts with end users to enhance the value of its assets; and

    development and retention of the highest quality people in its operations.

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        Our partnership does not employ any of the individuals who carry out the current management of our partnership. The personnel that carry out these activities are employees of Brookfield, and their services are provided to our partnership or for our benefit under the Master Services Agreement. For a discussion of the individuals from Brookfield's management team that are expected to be involved in our infrastructure business, see Item 6.A "Directors and Senior Management—Our Management."

Our General Partner

        Our General Partner serves as our partnership's general partner and has sole authority for the management and control of our partnership, which is exercised exclusively by its board of directors in Bermuda. Our partnership's managing general partnership interest in the Holding LP, which consists of Managing General Partner Units, entitles our partnership to serve as the Holding LP's managing general partner, with sole authority for management and control of the Holding LP, which is exercised exclusively through the board of directors of our General Partner.

        See also the information contained in this annual report on Form 20-F under Item 3.D "Risk Factors—Risks Relating to Our Partnership Structure," Item 3.D "Risk Factors—Risks Relating to our Relationship with Brookfield," Item 6.A "Directors and Senior Management," Item 7.B "Related Party Transactions," Item 10.B "Memorandum and Articles of Association—Description of Our Units, Preferred Units and Our Limited Partnership," Item 10.B "Memorandum and Articles of Association—Description of the Holding LP's Limited Partnership Agreement" and Item 7.A "Major Shareholders."

The Holding LP and Holding Entities

        Our partnership indirectly holds its interests in operating entities through the Holding LP and the Holding Entities. The Holding LP owns all of the common shares of the Holding Entities. Brookfield has provided an aggregate of $20 million of working capital to certain Holding Entities through a subscription for preferred shares of such Holding Entities. These preferred shares are entitled to receive a cumulative preferential dividend equal to 6% of their redemption value as and when declared by the board of directors of the applicable Holding Entity and are redeemable at the option of the Holding Entity, subject to certain limitations, at any time after the tenth anniversary of their issuance. Except for the preferred share of our primary U.S. Holding Entity, which is entitled to one vote, the preferred shares are not entitled to vote, except as required by law.

Infrastructure Special LP

        The Infrastructure Special LP is entitled to receive incentive distributions from the Holding LP as a result of its ownership of Special Limited Partner Units of the Holding LP. See Item 7.B "Related Party Transactions—Incentive Distributions."

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Significant Subsidiaries

        The following table sets forth for each of our partnership's significant subsidiaries, the jurisdiction of incorporation and the percentage ownership held by our partnership.

 
   
   
  Ownership
Interest
  Voting
Interest
 
Defined Name
  Name of entity   Jurisdiction of
Organization
  2016
%
  2016
%
 

Holding LP

  Brookfield Infrastructure L.P.   Bermuda     70 (1)   100  

Australian rail operation

  Brookfield Rail Holdings No. 1 Pty Ltd   Australia     100 (2)   100  

Regulated terminal operations

  DBCT Management Pty Ltd   Australia     71 (2)   100  

U.K. regulated distribution operations

  Brookfield Utilities UK Holdings Limited   United Kingdom     80 (2)   80  

South American transmission operation

  ETC Holdings Limited   Chile     28 (2)   28  

North American natural gas transmission operation

  Natural Gas Pipeline Company of America LLC   United States     50 (2)   50  

(1)
Ownership interest held directly by our partnership.

(2)
Ownership interest held indirectly by the Holding LP.

4.D   PROPERTY, PLANT AND EQUIPMENT

        Our partnership's principal office and its registered office is at 73 Front Street, Hamilton HM 12, Bermuda, and is subject to a lease expiring on December 31, 2018. We do not directly own any real property.

        See also the information contained in this annual report on Form 20-F under Item 3.D "Risk Factors—Risks Relating to Our Operations and the Infrastructure Industry—All of our infrastructure operations may require substantial capital expenditures in the future," "—Investments in infrastructure projects prior to or during a construction or expansion phase are likely to be subject to increased risk," "—All of our operating entities are subject to changes in government policy and legislation,", Item 5 "Operating and Financial Review and Prospects—Management's Discussion and Analysis of Financial Condition and Results of Operations" and Item 18 "Financial Statements" regarding information on Property, Plant and Equipment on a consolidated basis.

ITEM 4A.    UNRESOLVED STAFF COMMENTS

        Not applicable.

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ITEM 5.    OPERATING AND FINANCIAL REVIEW AND PROSPECTS

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS ("MD&A")

Performance Targets and Key Measures

        We target a total return of 12% to 15% per annum on the infrastructure assets that we own, measured over the long-term. We intend to generate this return from the in-place cash flow from our operations plus growth through investments in upgrades and expansions of our asset base, as well as acquisitions. If we are successful in growing our funds from operations per unit, we will be able to increase distributions to unitholders. Furthermore, the increase in our FFO per unit should result in capital appreciation (see "Reconciliation of Non-IFRS Financial Measures" on page 101 for more detail). We also measure the growth of FFO per unit, which we believe is a proxy for our ability to increase distributions to unitholders. In addition, we have performance measures that track the key value drivers for each of our operating segments. See "Segmented Disclosures" on page 86 for more detail.

Performance Measures Used by Management

        To measure performance, we focus on net income, an IFRS measure, as well as certain non-IFRS measures, including funds from operations ("FFO"), adjusted funds from operations ("AFFO"), adjusted EBITDA ("Adjusted EBITDA") and adjusted earnings ("Adjusted Earnings"), along with other measures.

FFO

        We define FFO as net income excluding the impact of depreciation and amortization, deferred income taxes, breakage and transaction costs, and non-cash valuation gains or losses. FFO is a measure of operating performance that is not calculated in accordance with, and does not have any standardized meaning prescribed by, International Financial Reporting Standards ("IFRS") as issued by the International Accounting Standards Board ("IASB"). FFO is therefore unlikely to be comparable to similar measures presented by other issuers. FFO has limitations as an analytical tool. Specifically, our definition of FFO may differ from the definition used by other organizations, as well as the definition of funds from operations used by the Real Property Association of Canada ("REALPAC") and the National Association of Real Estate Investment Trusts, Inc. ("NAREIT"), in part because the NAREIT definition is based on U.S. GAAP, as opposed to IFRS.

AFFO

        We define AFFO as FFO less capital expenditures required to maintain the current performance of our operations (maintenance capital expenditures). AFFO is a measure of operating performance that is not calculated in accordance with, and does not have any standardized meaning prescribed by, IFRS. AFFO is therefore unlikely to be comparable to similar measures presented by other issuers and has limitations as an analytical tool.

Adjusted EBITDA

        In addition to FFO and AFFO, we focus on Adjusted EBITDA, which we define as net income excluding the impact of depreciation and amortization, interest expense, current and deferred income taxes, breakage and transaction costs, and non-cash valuation gains or losses. Adjusted EBITDA is a measure of operating performance that is not calculated in accordance with, and does not have any standardized meaning prescribed by, IFRS. Adjusted EBITDA is therefore unlikely to be comparable to similar measures presented by other issuers. Adjusted EBITDA has limitations as an analytical tool.

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Adjusted Earnings

        We also focus on Adjusted Earnings, which we define as net income attributable to the partnership, excluding the impact of depreciation and amortization expense from revaluing property, plant and equipment and the effects of purchase price accounting, mark-to-market on hedging items and disposition gains or losses. Adjusted Earnings is a measure of operating performance that is not calculated in accordance with, and does not have any standardized meaning prescribed by, IFRS. Adjusted Earnings is therefore unlikely to be comparable to similar measures presented by other issuers. Adjusted Earnings has limitations as an analytical tool.

        We believe our presentation of FFO, AFFO, Adjusted EBITDA and Adjusted Earnings are useful to investors because it supplements investors' understanding of our operating performance by providing information regarding our ongoing performance that excludes items we believe do not directly affect our core operations. Our presentation of FFO, AFFO, Adjusted EBITDA and Adjusted Earnings also provide investors enhanced comparability of our ongoing performance across periods.

        In deriving FFO, AFFO and Adjusted EBITDA, we add back depreciation and amortization to net income. Specifically, in our financial statements we use the revaluation approach in accordance with IAS 16, Property, Plant and Equipment, whereby depreciation expense is determined based on a revalued amount, thereby reducing comparability with our peers who do not report under IFRS as issued by the IASB or who do not employ the revaluation approach to measuring property, plant and equipment. We add back deferred income taxes on the basis that we do not believe this item reflects the present value of the actual tax obligations that we expect to incur over our long-term investment horizon. We add back non-cash valuation gains or losses recorded in net income as well as breakage and transaction costs as these items are not reflective of our on-going sustainable performance.

        To provide a supplemental understanding of the performance of our business and to enhance comparability across periods and relative to our peers we utilize Adjusted EBITDA. Adjusted EBITDA excludes the impact of interest expense and current income taxes to assist in assessing the operating performance of our business by eliminating for the effect of its current capital structure and tax profile.

        While FFO provides a basis for assessing current operating performance, it does not take into consideration the cost to sustain the operating performance of our partnership's asset base. In order to assess the long-term, sustainable operating performance of our businesses, we observe that investors take into account the impact of maintenance capital expenditures to derive AFFO, in addition to FFO.

        In deriving Adjusted Earnings we add back depreciation due to the revaluation of property, plant and equipment and acquisition accounting. As we own capital assets with finite lives, depreciation and amortization expense recognizes the fact that we must maintain or replace our asset base in order to preserve our revenue generating capability. We observe that certain of our investors view depreciation based on historical cost as a more relevant proxy of the expenditures necessary to maintain the service capacity of our assets. Adjusted Earnings also does not include mark-to-market on hedging items recorded in net income or disposition gains or losses. We add back mark-to-market on hedging items recorded in net income as these indicate a point in time approximation of value on long-term positions. We also add back disposition gains or losses as these items are not reflective of the ongoing performance of our underlying operations.

        For further details regarding our use of FFO, AFFO, Adjusted EBITDA and Adjusted Earnings, as well as a reconciliation of net income to these measures, see the "Reconciliation of Non-IFRS Financial Measures" section of this MD&A.

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Distribution Policy

        Our objective is to pay a distribution per unit that is sustainable on a long-term basis while retaining sufficient liquidity within our operations to fund recurring growth capital expenditures, debt repayments and general corporate requirements. We currently believe that a payout of 60% to 70% of our FFO is appropriate over the long-term.

        In light of the current prospects for our business, the Board of Directors of our General Partner approved an 11% increase in our annual distribution to $1.74 per unit, or 43.5 cents per unit quarterly, starting with the distribution to be paid in March 2017. This increase reflects the forecasted contribution from our recently commissioned capital projects, as well as the expected cash yield on acquisitions that we closed in the past year. Since the spin-off, we have increased our quarterly distribution from $0.18 per unit to $0.435 per unit, a compound annual growth rate of 12%. We target 5% to 9% annual distribution growth in light of the per unit FFO growth we foresee in our operations.

Basis of Presentation

        Our consolidated financial statements are prepared in accordance with International Financial Reporting Standards ("IFRS"), as issued by the International Accounting Standards Board ("IASB"). Our consolidated financial statements include the accounts of Brookfield Infrastructure and the entities over which it has control. Brookfield Infrastructure accounts for investments over which it exercises significant influence or joint control, but does not control, using the equity method.

        Our partnership's equity interests include units held by public unitholders and the Redeemable Partnership Units held by Brookfield. Our units and the Redeemable Partnership Units have the same economic attributes in all respects, except that the Redeemable Partnership Units provide Brookfield the right to request that its units be redeemed for cash consideration. In the event that Brookfield exercises this right, our partnership has the right, at its sole discretion, to satisfy the redemption request with our units, rather than cash, on a one-for-one basis. As a result, Brookfield, as holder of Redeemable Partnership Units, participates in earnings and distributions on a per unit basis equivalent to the per unit participation of the limited partnership units of our partnership. However, given the redeemable feature referenced above, we present the Redeemable Partnership Units as a component of non-controlling interests.

        When we discuss the results of our operating segments, we present Brookfield Infrastructure's proportionate share of results for operations accounted for using consolidation and the equity method, in order to demonstrate the impact of key value drivers of each of these operating segments on our partnership's overall performance. As a result, segment revenues, costs attributable to revenues, other income, interest expense, depreciation and amortization, deferred taxes, fair value adjustments and other items will differ from results presented in accordance with IFRS as they (1) include Brookfield Infrastructure's proportionate share of earnings (losses) from investments in associates attributable to each of the above noted items, and (2) exclude the share of earnings (losses) of consolidated investments not held by Brookfield Infrastructure apportioned to each of the above noted items. However, net income for each segment is consistent with results presented in accordance with IFRS. See "Reconciliation of Operating Segments" on page 105 for a reconciliation of segment results to our partnership's statement of operating results in accordance with IFRS.

        On September 14, 2016, we completed a three-for-two split of our units by way of a subdivision of units (the "Unit Split"), whereby unitholders received an additional one-half of a unit for each unit held, resulting in the issuance of approximately 115 million additional units. All historical per unit disclosures have been adjusted to effect for the change in units due to the Unit Split.

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Critical Accounting Policies and Estimates

        The preparation of financial statements requires management to make critical judgments, estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses that are not readily apparent from other sources, during the reporting period. These estimates and associated assumptions are based on historical experience and other factors that are considered to be relevant. Actual results may differ from these estimates.

        The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognized in the period in which the estimate is revised if the revision affects only that period or in the period of the revision and future periods if the revision affects both current and future periods.

        Critical judgments made by management and utilized in the normal course of preparing Brookfield Infrastructure's consolidated financial statements are outlined below.

Financial instruments

        Critical judgments associated with the partnership's financial instruments pertain to the assessment of the effectiveness of hedging relationships. Brookfield Infrastructure performs hedge effectiveness testing on an ongoing basis with a forward-looking evaluation of whether or not the changes in the fair value or cash flows of the hedging item are expected to be highly effective in offsetting the changes in the fair value or cash flows of the hedged item over the term of the relationship, conversely our partnership performs a retrospective hedge effectiveness test evaluating whether the changes in fair value or cash flows from the hedging item has been highly effective in offsetting changes in the fair value or cash flows of the hedged item since the date of designation. Estimates and assumptions used in determining the fair value of financial instruments are equity and commodity prices; future interest rates; the credit worthiness of the company relative to its counterparties; the credit risk of the company's counterparties relative to the company; estimated future cash flows; and discount rates.

Revaluation of property, plant and equipment

        Property, plant and equipment is revalued on a regular basis. The critical estimates and assumptions underlying the valuation of property, plant and equipment are set out in Note 12, "Property, Plant and Equipment" in our financial statements included in this annual report on Form 20-F. Our partnership's property, plant, and equipment is measured at fair value on a recurring basis with an effective date of revaluation for all asset classes of December 31, 2016 and 2015. Brookfield Infrastructure determined fair value under the income method with due consideration to significant inputs such as the discount rate, terminal value multiple and overall investment horizon.

Impairment of goodwill, intangibles with indefinite lives and investment in associates and joint ventures

        Our partnership assesses the impairment of goodwill and intangible assets with indefinite lives by reviewing the value-in-use or fair value less costs of disposal of the cash-generating units to which goodwill or the intangible asset has been allocated. Brookfield Infrastructure uses the following critical assumptions and estimates: the circumstances that gave rise to the goodwill, timing and amount of future cash flows expected from the cash-generating unit; discount rates; terminal capitalization rates; terminal valuation dates; useful lives and residual values.

        The impairment assessment of investments in associates and joint ventures requires estimation of the recoverable amount of the asset.

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        Other estimates utilized in the preparation of our partnership's financial statements are: depreciation and amortization rates and useful lives; recoverable amount of goodwill and intangible assets; ability to utilize tax losses and other tax measurements.

Recently adopted accounting standard amendments

        Brookfield Infrastructure applied, for the first time, certain amendments to Standards applicable to Brookfield Infrastructure that became effective January 1, 2016. The impact of adopting these amendments on our partnership's accounting policies and disclosures are as follows:

IAS 16 Property, Plant, and Equipment ("IAS 16") and IAS 38 Intangible Assets ("IAS 38")

        IAS 16, Property, Plant, and Equipment ("IAS 16") and IAS 38, Intangible Assets ("IAS 38") were both amended by the IASB as a result of clarifying the appropriate amortization method for intangible assets of service concession arrangements under IFRIC 12, Service Concession Arrangements ("SCAs"). The IASB determined that the issue does not only relate to SCAs but all tangible and intangible assets that have finite useful lives. Amendments to IAS 16 prohibit entities from using a revenue-based depreciation method for items of property, plant, and equipment. Similarly, the amendment to IAS 38 introduces a rebuttable presumption that revenue is not an appropriate basis for amortization of an intangible asset, with only limited circumstances where the presumption can be rebutted. Guidance is also introduced to explain that expected future reductions in selling prices could be indicative of a reduction of the future economic benefits embodied in an asset. Amendments to IAS 16 and IAS 38 were applied prospectively resulting in no material impact on Brookfield Infrastructure's consolidated financial statements.

(s)   Future Changes in Accounting Policies

Standards issued, but not yet adopted

IFRS 15 Revenue from Contracts with Customers—("IFRS 15")

        IFRS 15, Revenue from Contracts with Customers ("IFRS 15") specifies how and when revenue should be recognized as well as requiring more informative and relevant disclosures. The Standard also requires additional disclosures about the nature, amount, timing and uncertainty of revenue and cash flows arising from customer contracts. The Standard supersedes IAS 18, Revenue, IAS 11, Construction Contracts and a number of revenue-related interpretations. IFRS 15 applies to nearly all contracts with customers: the main exceptions are leases, financial instruments and insurance contracts. IFRS 15 must be applied for periods beginning on or after January 1, 2018 with early application permitted. An entity may adopt the Standard on a fully retrospective basis or on a modified retrospective basis. Brookfield Infrastructure is currently evaluating the impact of IFRS 15 on its consolidated financial statements, including the method of initial adoption.

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IFRS 9 Financial Instruments—("IFRS 9")

        In July 2014, the IASB issued the final publication of the IFRS 9 standard, superseding the current IAS 39, Financial Instruments: Recognition and Measurement standard. This standard establishes principles for the financial reporting of financial assets and financial liabilities that will present relevant and useful information to users of financial statements for their assessment of the amounts, timing and uncertainty of an entity's future cash flows. This new standard also includes a new general hedge accounting standard which will align hedge accounting more closely with an entity's risk management activities. It does not fully change the types of hedging relationships or the requirement to measure and recognize ineffectiveness, however, it will provide more hedging strategies that are used for risk management to qualify for hedge accounting and introduce more judgment to assess the effectiveness of a hedging relationship. The standard has a mandatory effective date for annual periods beginning on or after January 1, 2018, with early adoption permitted. Brookfield Infrastructure is currently evaluating the impact of IFRS 9 on its consolidated financial statements.

IFRS 16 Leases—("IFRS 16")

        The International Accounting Standards Board has published a new standard, IFRS 16. The new standard brings most leases on-balance sheet for lessees under a single model, eliminating the distinction between operating and finance leases. Lessor accounting however remains largely unchanged and the distinction between operating and finance leases is retained. IFRS 16 supersedes IAS 17, Leases and related interpretations and is effective for periods beginning on or after January 1, 2019, with earlier adoption permitted if IFRS 15 has also been applied. Brookfield Infrastructure is currently evaluating the impact of IFRS 16 on its consolidated financial statements.

Amendments and Interpretations, not yet adopted

IAS 7 Statement of Cash Flows—("IAS 7")

        In January 2016, the IASB issued amendments to IAS 7, effective for annual periods beginning January 1, 2017. The IASB requires that the following changes in liabilities arising from financing activities are disclosed (to the extent necessary): (i) changes from financing cash flows; (ii) changes arising from obtaining or losing control of subsidiaries or other businesses; (iii) the effect of changes in foreign exchange rates; (iv) changes in fair values; and (v) other changes. Brookfield Infrastructure is currently evaluating the impact of the IAS 7 amendments on its consolidated financial statements.

IFRIC 22 Foreign Currency Transactions—("IFRIC 22")

        In December 2016, the IASB issued IFRIC 22, effective for annual periods beginning January 1, 2018. The interpretation clarifies that the date of the transaction for the purpose of determining the exchange rate to use on initial recognition of the related asset, expense or income (or part of it) is the date on which an entity initially recognizes the non-monetary asset or non-monetary liability arising from the payment or receipt of advance consideration. The interpretation may be applied either retrospectively or prospectively. Brookfield Infrastructure is currently evaluating the impact of the IFRIC 22 interpretation on its consolidated financial statements, including the method of initial adoption.

5.A    OPERATING RESULTS

Consolidated Results

        In this section we review our consolidated performance and financial position as of December 31, 2016 and 2015 and for the years ended December 31, 2016, 2015 and 2014. Further details on the key drivers of our operations and financial position are contained within the review of operating segments.

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        The following table summarizes the financial results of Brookfield Infrastructure for the years ended December 31, 2016, 2015 and 2014.

 
  Year ended
December 31
 
US$ MILLIONS, EXCEPT PER UNIT INFORMATION
  2016   2015   2014  
Summary Statements of Operating Results
 

Revenues

  $ 2,115   $ 1,855   $ 1,924  

Direct operating costs

    (1,063 )   (798 )   (846 )

General and administrative expenses

    (166 )   (134 )   (115 )

Depreciation and amortization expense

    (447 )   (375 )   (380 )

Interest expense

    (392 )   (367 )   (362 )

Share of earnings from investments in associates and joint ventures

    248     69     50  

Mark-to-market on hedging items

    74     83     38  

Other income (expense)

    174     54     (1 )

Income tax (expense) recovery

    (15 )   4     (79 )

Net income

    528     391     229  

Net income attributable to our partnership(1)

    474     298     184  

Net income per limited partnership unit

  $ 1.13   $ 0.69   $ 0.45  

(1)
Includes net income attributable to non-controlling interests—Redeemable Partnership Units held by Brookfield, general partner and limited partners.

2016 vs. 2015

        For the year ended December 31, 2016, we reported net income of $528 million, of which $474 million is attributable to our partnership. This is compared to net income of $391 million in the year ended December 31, 2015, of which $298 million was attributable to our partnership.

        Revenues for the year ended December 31, 2016 were $2,115 million, which increased by $260 million compared to the year ended December 31, 2015. Our utilities segment contributed additional revenue of $72 million due to inflation indexation and various growth initiatives primarily at our U.K. regulated distribution operation. Our transport operations contributed an additional $276 million of revenue, primarily due to inflationary tariff increases, higher volumes at our Chilean toll roads and the initial contribution from recently completed acquisitions of toll roads in India and Peru as well as an Australian ports business. Revenue from organic growth initiatives within our district energy business and the expansion of our North American gas storage business contributed to incremental revenue of $92 million in our energy segment. These items were partially offset by the impact of foreign exchange of $96 million, a $25 million impact of a regulatory rate reset at our Australian regulated terminal operation, a $16 million impact of tariff relief extended to one of our clients at our Australian rail operation and a $43 million decrease due to the sale of our New England electricity transmission, European energy distribution and Ontario electricity transmission businesses in August 2015, May 2016 and October 2016, respectively.

        Direct operating expenses for the year ended December 31, 2016 were $1,063 million, which increased by $265 million compared to the year ended December 31, 2015. The current period includes $56 million of incremental costs resulting from our aforementioned organic growth initiatives and $279 million of incremental costs related to acquisitions completed during the last 12 months, partially offset by the impact of foreign exchange of $37 million and $33 million associated with our capital recycling initiatives completed over the past year.

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        General and administrative expenses for the year ended December 31, 2016 were $166 million, which increased by $32 million compared to the year ended December 31, 2015. This line item primarily consists of the base management fee that is paid to Brookfield, which is equal to 1.25% of our partnership's market value plus net recourse debt. The base management fee increased from prior year due to a larger market capitalization driven by the unit issuances over the last 12 months to fund investments and a higher unit price. General and administrative expenses also include certain public company expenditures relating to the ongoing operations of our partnership which were consistent with the same period of 2015.

        Depreciation and amortization expense for the year ended December 31, 2016 was $447 million, which increased by $72 million compared to the year ended December 31, 2015. Depreciation and amortization expense increased by $96 million due to higher asset values resulting from our annual revaluation process, capital expenditures and acquisitions completed over the past year, partially offset by the impact of foreign exchange of $24 million.

        Interest expense for the year ended December 31, 2016 was $392 million, which increased by $25 million compared to the year ended December 31, 2015. Interest expense increased by $36 million as a result of the aforementioned acquisitions. We also incurred additional interest expense of $14 million associated with two corporate medium term note issuances completed in March and October of 2015. These increases were partially offset by the impact of foreign exchange, which decreased our interest expense by $15 million during the period and a $10 million decrease due to the sale of our New England electricity transmission, European energy distribution and Ontario electricity transmission businesses in August 2015, May 2016 and October 2016, respectively.

        Earnings from investments in associates for the year ended December 31, 2016 were $248 million, which increased by $179 million compared to the year ended December 31, 2015. The increase is predominantly associated with $100 million of income earned on the privatization of our Brazilian toll road operations in May 2016, $22 million of income earned on the sale of a non-core subsidiary of our Brazilian toll road operations in August 2016, and $22 million of deferred tax recoveries recorded at our European telecommunications infrastructure operation as a result of favourable changes in tax laws and additional contribution from increased ownership in our Brazilian toll road operation and our North American natural gas transmission business.

        Mark-to-market gains on hedging items for the year ended December 31, 2016 were $74 million compared to $83 million for the year ended December 31, 2015. Both the current and comparative periods consist primarily of revaluation gains relating to foreign exchange hedging activities at the corporate level.

        Other income for the year ended December 31, 2016 totaled $174 million compared to $54 million for the year ended December 31, 2015. Current period balances include dividend income received, break fee and a disposition gain of a combined $163 million associated with our toehold interest in Asciano Limited, a $24 million gain associated with mark-to-market gains on our pre-existing interest in the senior notes of our North American gas storage businesses acquired in July 2016, fair value adjustments of $12 million associated with our U.K. port operation and income of $40 million earned on financial assets purchased over the last 12 months. The gains were offset by $44 million of transaction costs related to acquisitions and dispositions completed during the past 12 months and inflation indexation on our Chilean peso denominated debt of $21 million. The comparative period primarily consists of a gain associated with the sale of our New England electricity transmission business.

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        Income tax expense for the year ended December 31, 2016 was $15 million compared to a recovery of $4 million for the year ended December 31, 2015. The expense in the period was due to revaluation gains resulting from our annual revaluation process, which increases our deferred tax obligation. The recovery in the prior period related to a decrease in the U.K. tax rate, which reduced the future tax obligation associated with our U.K. business.

2015 vs. 2014

        For the year ended December 31, 2015, we reported net income of $391 million, of which $298 million is attributable to our partnership. This is compared to net income of $229 million in the year ended December 31, 2014, of which $184 million was attributable to our partnership.

        Revenues for the year ended December 31, 2015 were $1,855 million, which decreased by $69 million compared to the year ended December 31, 2014. Revenue from acquisitions completed in the second half of 2014 within our U.S. district energy and gas storage businesses contributed $79 million, while organic growth initiatives within our Canadian and Australian district energy businesses contributed incremental revenue of $18 million. Our utilities segment contributed additional revenue of $42 million as results benefitted from inflation indexation and various growth initiatives primarily at our U.K. regulated distribution operation. Our transport operations contributed an additional $36 million of revenue, primarily due to higher rates at our Australian rail operation, inflationary tariff increases at our South American toll roads and higher volumes at our U.K. port operations. These increases were more than offset by the impact of foreign exchange, as the U.S. dollar strengthened relative to most currencies in which we operate, which reduced our revenue in U.S. dollar terms by $244 million.

        Direct operating expenses for the year ended December 31, 2015 were $798 million, which decreased by $48 million compared to the year ended December 31, 2014. This was driven by $52 million of operating expenses representing the full year impact of district energy and gas storage businesses acquired in the second half of 2014, an additional $28 million of costs resulting from the expansion of our systems through organic growth initiatives and higher volumes at our transport operations. These increases were more than offset by the impact of foreign exchange, which reduced our expenses in U.S. dollar terms by $128 million.

        General and administrative expenses for the year ended December 31, 2015 were $134 million, which increased by $19 million compared to the year ended December 31, 2014. These expenses are primarily comprised of the base management fee that is paid to Brookfield, which is equal to 1.25% of our partnership's market value plus net recourse debt. This figure also includes certain public company expenditures relating to the on-going operations of our partnership. The base management fee increased as compared to the same period in 2014 as a result of an increase in market capitalization and recourse debt throughout 2015.

        Depreciation and amortization expense for the year ended December 31, 2015 was $375 million, which decreased by $5 million compared to the year ended December 31, 2014. Depreciation and amortization expense increased by $26 million due to the impact of acquisitions of district energy and gas storage businesses completed in 2014, and $19 million attributable to higher asset values resulting from our annual revaluation process and capital expenditures over the past year. These increases were offset by the impact of foreign exchange, which reduced our expenses in U.S. dollar terms by $50 million.

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        Interest expense for the year ended December 31, 2015 was $367 million, which increased by $5 million compared to the year ended December 31, 2014. Interest expense increased by $12 million as a result of the aforementioned acquisitions, in addition to higher non-recourse borrowings primarily associated with organic growth initiatives, which contributed incremental interest expense of $22 million. We also incurred additional interest expense of $18 million associated with our two corporate medium term note issuances completed in March and October of 2015. These increases were partially offset by the impact of foreign exchange, which decreased our interest expense in U.S. dollar terms by $47 million during the period.

        Earnings from investments in associates for the year ended December 31, 2015 were $69 million, which increased by $19 million compared to the year ended December 31, 2014. The increase is due to the $28 million contribution from the acquisition of our European telecommunications infrastructure operation, completed in March of 2015, and the full-year contribution from our Brazilian rail operations that was acquired in August of 2014. Our results also benefitted from numerous organic growth initiatives across the business that contributed an additional $11 million, resulting from increased volumes across a number of our businesses. These items were offset by the impact of foreign exchange.

        Mark-to-market gains on hedging items for the year ended December 31, 2015 were $83 million compared to $38 million for the year ended December 31, 2014. Both the current and comparative period consist primarily of revaluation gains relating to foreign exchange hedging activities at the corporate level. The gains recognized in the current and comparative period are the result of lower hedged rates on various currency contracts we had in place relative to the spot rates at period end.

        Other income for the year ended December 31, 2015 totaled $54 million compared to a loss of $1 million for the year ended December 31, 2014. The current period includes a $63 million gain associated with the disposition of our New England electricity transmission business. The comparative period primarily consists of losses associated with inflation indexation of our Chilean peso denominated non-recourse borrowings.

        Income tax recovery for the year ended December 31, 2015 was $4 million compared to an expense of $79 million for the year ended December 31, 2014. The recovery in the current period was caused by a decrease in the U.K. corporate tax rate, which reduced the future tax obligation associated with our U.K. businesses. The expense in the prior period was due to revaluation gains resulting from our annual revaluation process, which increases our deferred tax obligation.

        The following table summarizes the statement of financial position of Brookfield Infrastructure for the years ended December 31, 2016 and December 31, 2015.

 
  As of  
US$ MILLIONS
  December 31, 2016   December 31, 2015  
Summary Statements of Financial Position Key Metrics
 

Cash and cash equivalents

    $     786     $     199  

Total assets

    21,275     17,735  

Corporate borrowings

    1,002     1,380  

Non-recourse borrowings

    7,324     5,852  

Limited Partners' capital

    4,611     3,838  

General Partner capital

    27     23  

Non-controlling interest—Redeemable Partnership Units held by Brookfield

    1,860     1,518  

Non-controlling interest—in operating subsidiaries

    2,771     1,608  

Preferred Unitholders

    375     189  

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        Total assets were $21,275 million at December 31, 2016, compared to $17,735 million at December 31, 2015, an increase of $3,540 million. The acquisitions of our Australian ports, Indian and Peruvian toll roads and North American gas storage operations during 2016 increased total assets by $2,648 million. Total assets also increased by $512 million as a result of revaluation gains recorded, primarily at our U.K. regulated distribution business and European telecommunications infrastructure operations. In addition, total assets increased due to capital injections into our equity accounted North American gas transmission operation and Brazilian toll roads of $312 million and $467 million respectively, and $323 million of cash on hand as result of the equity issuance in December 2016. These increases were offset by a $418 million decline in assets due to the sale of our European energy distribution business and the sale of our Ontario electricity transmission businesses in May 2016 and October 2016, respectively, as well as by the impact of depreciation of most foreign currencies in which we operate against the U.S. dollar, which reduced our asset base by $304 million.

        Corporate borrowings were $1,002 million at December 31, 2016, compared to $1,380 million at December 31, 2015, a decrease of $378 million. The decrease is due to repayment of our corporate credit facility of $407 million, partially offset by a $29 million increase in our Canadian dollar denominated corporate debt due to the strengthening of the Canadian dollar against the U.S. dollar since December 31, 2015.

        Non-recourse borrowings were $7,324 million at December 31, 2016, compared to $5,852 million at December 31, 2015, an increase of $1,472 million. The increase is attributable to the debt assumed in conjunction with acquisitions completed over the past 12 months of $1,161 million and subsidiary borrowings, net of repayments, of $422 million for the year ended December 31, 2016. This was partially offset by a $111 million decrease of debt balances denominated in foreign currencies which have weakened relative to the U.S. dollar since December 31, 2015.

        Partnership capital was $6,498 million at December 31, 2016, compared to $5,379 million at December 31, 2015, an increase of $1,119 million. This increase was mainly driven by $730 million of net proceeds from partnership units issued in December 2016 and comprehensive income attributable to our partnership of $983 million, partially offset by $594 million in distributions paid, net of units issued as part of our dividend reinvestment plan.

        Preferred unitholders equity was $375 million at December 31, 2016, compared to $189 million at December 31, 2015. The increase was a result of the net proceeds of $186 million from the issuance of the Series 5 Preferred Units in August 2016.

SEGMENTED DISCLOSURES

        In this section, we review the results of our principal operating segments: utilities, transport, energy and communications infrastructure. Each segment is presented on a proportionate basis, taking into account Brookfield Infrastructure's ownership in operations accounted for using the consolidation and equity methods, whereby our partnership either controls or exercises significant influence or joint control over its investments. See "Discussion of Segment Reconciling Items" on page 108 for a reconciliation of segment results to our partnership's statement of operating results in accordance with IFRS.

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Utilities Operations

Results of Operations

        The following table presents our proportionate share of the key metrics of our utility segments:

 
  Year ended December 31  
US$ MILLIONS
  2016
  2015
  2014
 

Funds from operations (FFO)

  $ 399   $ 387   $ 367  

Maintenance capital expenditures

    (15 )   (13 )   (14 )
               

Adjusted funds from operations (AFFO)

  $ 384   $ 374   $ 353  
               

Return on rate base(1),(2)

    11%     11%     11%  
               

(1)
Return on rate base is Adjusted EBITDA divided by time weighted average rate base.

(2)
Return on rate base excludes impact of connections revenues at our U.K. regulated distribution operation.

        The following table presents our utilities segment's proportionate share of financial results:

 
  Year ended December 31  
US$ MILLIONS
  2016
  2015
  2014
 

Revenue

  $ 684   $ 698   $ 736  

Costs attributable to revenues

    (160 )   (174 )   (217 )
               

Adjusted EBITDA

    524     524     519  

Interest expense

    (130 )   (142 )   (158 )

Other income

    5     5     6  
               

Funds from operations (FFO)

    399     387     367  

Depreciation and amortization

    (154 )   (153 )   (155 )

Deferred taxes and other items

    (83 )   (24 )   (58 )
               

Net income

  $ 162   $ 210   $ 154  
               

        The following table presents our proportionate Adjusted EBITDA and FFO for the businesses in this operating segment:

 
  Adjusted EBITDA   FFO  
US$ MILLIONS
  2016
  2015
  2014
  2016
  2015
  2014
 

Regulated Distribution

  $ 257   $ 228   $ 200   $ 213   $ 183   $ 158  

Electricity Transmission

    135     140     147     105     112     116  

Regulated Terminal

    132     156     172     81     92     93  
                           

Total

  $ 524   $ 524   $ 519   $ 399   $ 387   $ 367  
                           

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        The following table presents the roll-forward of our rate base:

 
  Year ended
December 31
 
US$ MILLIONS
  2016
  2015
 

Rate base, start of period

  $ 4,018   $ 4,118  

Dispositions

    (162 )   (38 )

Capital expenditures commissioned

    226     234  

Inflation and other indexation

    63     97  

Regulatory depreciation

    (44 )   (53 )

Foreign exchange and other

    (313 )   (340 )
           

Rate base, end of period

  $ 3,788   $ 4,018  
           

        The following table presents the roll-forward of our proportionate share of capital backlog and capital to be commissioned:

 
  Year ended December 31  
US$ MILLIONS
  2016
  2015
  2014
 

Capital backlog, start of period

  $ 452   $ 397   $ 300  

Additional capital project mandates

    793     341     395  

Less: capital expenditures

    (428 )   (258 )   (242 )

Foreign exchange and other

    (56 )   (28 )   (56 )
               

Capital backlog, end of period

    761     452     397  

Construction work in progress

    225     124     101  
               

Total capital to be commissioned

  $ 986   $ 576   $ 498  
               

2016 vs. 2015

        For the year ended December 31, 2016 our regulated distribution operations generated Adjusted EBITDA of $257 million and FFO of $213 million compared to $228 million and $183 million, respectively, in 2015. This increase was primarily attributable to the performance of our U.K. regulated distribution business that benefitted from an increased rate base, inflation indexation and the initial contribution from our smart meter acquisition, which were partially offset by the impact of foreign exchange.

        For the year ended December 31, 2016 our electricity transmission operations generated Adjusted EBITDA of $135 million and FFO of $105 million compared to $140 million and $112 million, respectively, in 2015. Adjusted EBITDA and FFO decreased compared to the prior year as the impact of inflation indexation and additions to our rate base were more than offset by the impact of foreign exchange and the sale of our New England and Ontario electricity transmission businesses in August 2015 and October 2016, respectively.

        For the year ended December 31, 2016 our regulated terminal reported Adjusted EBITDA of $132 million and FFO of $81 million compared to $156 million and $92 million, respectively, in 2015. Adjusted EBITDA and FFO decreased from the prior year as the benefits of inflation indexation and additions to our rate base were more than offset by the impacts of the regulatory rate reset effective July 1, 2016 and foreign exchange.

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        Depreciation and amortization expenses increased to $154 million for the year ended December 31, 2016, compared to $153 million for the same period in 2015. Depreciation and amortization expense was relatively consistent with 2015 levels as the impact of higher asset values as a result of our annual revaluation process were partially offset by foreign exchange.

        Deferred taxes and other items for the year ended December 31, 2016 were a loss of $83 million compared to a loss of $24 million for the same period in 2015. The variance is due to higher mark-to-market losses on hedging items at our U.K. regulated distribution operation in the current period and a gain on sale of our New England electricity transmission business recorded in the third quarter of 2015.

        As of December 31, 2016, total capital to be commissioned into rate base was $986 million compared to $576 million as of December 31, 2015. The capital to be commissioned relates to projects that have been awarded or filed with regulators with anticipated commissioning into rate base in the next two to three years. The total capital to be commissioned as of December 31, 2016 includes smart meter installations and connections added to our backlog at our U.K. regulated distribution business, the acquisition of 4,200 kilometres of greenfield transmission lines in our Brazil transmission business, and system upgrades and expansions at our Chilean transmission business. Our U.K. regulated distribution business, Chilean electricity transmission operations and Brazil transmission system are the largest contributors at $530 million, $210 million and $230 million, respectively.

2015 vs. 2014

        For the year ended December 31, 2015 our regulated distribution operations generated Adjusted EBITDA of $228 million and FFO of $183 million compared to $200 million and $158 million, respectively, in 2014. Results increased year-over-year primarily due to record connections activity at our U.K. regulated distribution business, additions to our rate base and inflation indexation.

        For the year ended December 31, 2015 our electricity transmission operations generated Adjusted EBITDA of $140 million and FFO of $112 million compared to $147 million and $116 million, respectively, in 2014. Adjusted EBITDA and FFO decreased slightly as inflation indexation and additions to rate base were offset by the impact of foreign exchange and the sale of our New England electricity transmission business in August 2015.

        For the year ended December 31, 2015 our regulated terminal reported Adjusted EBITDA of $156 million and FFO of $92 million compared to $172 million and $93 million, respectively, in 2014. Adjusted EBITDA and FFO decreased from prior year as the benefits of inflation indexation and additions to rate base were offset by the impact of foreign exchange as our hedged rate declined compared to prior year. This was partially offset at the FFO level by the favourable impact of foreign exchange on our Australian dollar denominated interest expense.

        Depreciation and amortization decreased to $153 million for the year ended December 31, 2015, compared to $155 million for the same period in 2014. The decrease of $2 million from 2014 is primarily due to the impact of foreign exchange, mostly offset by higher depreciation expense from additions to our regulated asset base and higher asset values as a result of our annual revaluation process.

        Deferred taxes and other items for the year ended December 31, 2015 was a loss of $24 million compared to a loss of $58 million for the same period in 2014. The variance is associated with a deferred tax recovery due to a favourable change in U.K. tax law offset by lower mark-to-market gains on hedging items at our U.K. regulated distribution business.

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        As of December 31, 2015, total capital to be commissioned into rate base was $576 million compared to $498 million as of December 31, 2014. The total capital to be commissioned increased as capital project mandates awarded were partially offset by capital expenditures made during the period and the impact of foreign exchange. Our U.K. regulated distribution business and Chilean transmission system are the largest contributors at approximately $400 million and $150 million, respectively.

Transport Operations

Results of Operations

        The following table presents our proportionate share of the key metrics of our transport segment:

 
  Year ended December 31  
US$ MILLIONS
  2016
  2015
  2014
 

Growth capital expenditures

  $ 319   $ 297   $ 332  

Adjusted EBITDA margin(1)

    48%     49%     48%  

Funds from operations (FFO)

    423     398     392  

Maintenance capital expenditures

    (88 )   (72 )   (80 )
               

Adjusted funds from operations (AFFO)

  $ 335   $ 326   $ 312  
               

(1)
EBITDA margin is calculated based on net of construction revenues and costs which are incurred at our Peruvian toll road operation during the construction of our toll roads.

        The following table presents our transport segment's proportionate share of financial results:

 
  Year ended December 31  
US$ MILLIONS
  2016
  2015
  2014
 

Revenues

  $ 1,247   $ 1,143   $ 1,238  

Cost attributed to revenues

    (650 )   (588 )   (639 )
               

Adjusted EBITDA

    597     555     599  

Interest expense

    (157 )   (142 )   (173 )

Other expenses

    (17 )   (15 )   (34 )
               

Funds from operations (FFO)

    423     398     392  

Depreciation and amortization

    (253 )   (217 )   (250 )

Deferred taxes and other items

    36     (46 )   (39 )
               

Net income

  $ 206   $ 135   $ 103  
               

        The following table presents proportionate Adjusted EBITDA and FFO for each business in this operating segment:

 
  Adjusted EBITDA   FFO  
US$ MILLIONS
  2016
  2015
  2014
  2016
  2015
  2014
 

Rail

  $ 270   $ 292   $ 270   $ 206   $ 231   $ 201  

Toll Roads

    239     180     248     152     111     140  

Ports

    88     83     81     65     56     51  
                           

Total

  $ 597   $ 555   $ 599   $ 423   $ 398   $ 392  
                           

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        The following table presents the roll-forward of our proportionate share of capital backlog and capital to be commissioned:

 
  Year ended December 31  
US$ MILLIONS
  2016
  2015
  2014
 

Capital backlog, start of period

  $ 467   $ 655   $ 373  

Impact of acquisitions, net of disposals

            242  

Additional capital project mandates

    533     316     412  

Less: capital expenditures

    (319 )   (297 )   (332 )

Foreign exchange and other

    40     (207 )   (40 )
               

Capital backlog, end of period

    721     467     655  

Construction work in progress

    349     110     77  
               

Total capital to be commissioned

  $ 1,070   $ 577   $ 732  
               

2016 vs. 2015

        For the year ended December 31, 2016, our rail business generated Adjusted EBITDA of $270 million and FFO of $206 million compared to $292 million and $231 million, respectively, in 2015. Adjusted EBITDA and FFO decreased as the benefit from increased tariffs in South America was more than offset by lower agricultural volumes in Brazil, the impact of a tariff relief package extended to one of our clients in Australia and foreign exchange movements.

        For the year ended December 31, 2016, our toll roads contributed Adjusted EBITDA of $239 million and FFO of $152 million compared to $180 million and $111 million, respectively, in 2015. The current period Adjusted EBITDA and FFO benefitted from an 11% increase in average tariffs, increased ownership in our Brazilian toll road business, strong traffic volumes on our Chilean toll roads and contributions from our recent investments in Peru and India. These positive results were partially offset by lower vehicle traffic in Brazil and foreign exchange movements.

        For the year ended December 31, 2016, our port operations reported Adjusted EBITDA of $88 million and FFO of $65 million compared to $83 million and $56 million, respectively, in 2015. Adjusted EBITDA and FFO increased versus the prior year due to the acquisition of our Australian ports business in August 2016 and contribution from new contracts signed at our U.K. port terminal, partially offset by lower volumes at our European port operations.

        Depreciation and amortization increased to $253 million for the year ended December 31, 2016, up from $217 million in 2015. The increase in depreciation expense arose from acquisitions during the past 12 months, expansionary capital expenditure programs and higher asset values as a result of our annual revaluation process.

        Deferred taxes and other items for the year ended December 31, 2016 were a gain of $36 million compared to a loss of $46 million for the same period in 2015. The increase is predominately associated with the $100 million gain recorded on the privatization of our Brazil toll road operations in May 2016 with our partner in the business, as the fair value of the incremental ownership interest exceeded consideration paid.

        As of December 31, 2016, total capital to be commissioned into rate base was $1,070 million compared to $577 million as of December 31, 2015. We expect enhancements to our networks over the next two to three years to expand capacity and support additional volumes, leading to cash flow growth over the long term. Included in this balance is the port of Santos expansion project currently over 95% complete at our Brazilian rail operation, and several lane duplication projects at our Brazilian toll road operations.

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2015 vs. 2014

        For the year ended December 31, 2015, our rail business generated Adjusted EBITDA of $292 million and FFO of $231 million compared to $270 million and $201 million, respectively, in 2014. Adjusted EBITDA and FFO increased versus prior year as a result of improved agricultural volumes and a full year contribution from our South American rail operation acquired in the third quarter of 2014, as well as increased volumes and inflationary rate increases at our Australian operation. These increases were partially offset by the impact of foreign exchange.

        For the year ended December 31, 2015, our toll roads contributed Adjusted EBITDA of $180 million and FFO of $111 million compared to $248 million and $140 million, respectively, in 2014. Adjusted EBITDA and FFO decreased versus prior year as the benefit of regulatory tariff increases and stronger light vehicle volumes were more than offset by the impact of foreign exchange. In local currency, toll road Adjusted EBITDA was 5% higher than prior year.

        For the year ended December 31, 2015, our port operations reported Adjusted EBITDA of $83 million and FFO of $56 million compared to $81 million and $51 million, respectively, in 2014. Adjusted EBITDA and FFO have increased versus the prior year as benefits from the delivery of the first phase of the automation project at our North American container terminal and increased container volumes at our U.K. port operation were partially offset by the impact of foreign exchange.

        Depreciation and amortization decreased to $217 million for the year ended December 31, 2015, down from $250 million in 2014. The $33 million decrease versus 2014 is due to foreign exchange, which more than offset incremental depreciation from our South American rail acquisition in the third quarter of 2014.

        Deferred taxes and other expenses for the year ended December 31, 2015 were $46 million compared to $39 million for the same period in 2014. The $7 million increase versus the prior year was due to the acquisition of our South American rail business in August 2014 and higher inflation indexation on our Chilean peso denominated debt.

        As of December 31, 2015, total capital to be commissioned into rate base was $577 million compared to $732 million as of December 31, 2014. The total capital to be commissioned decreased as capital project mandates awarded were more than offset by capital expenditures made during the period and the impact of foreign exchange. Our Brazilian toll road business and Brazilian rail operation are the largest contributors to our capital to be commissioned over the next two to three years at approximately $325 million and $150 million, respectively.

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Energy Operations

Results of Operations

        The following table presents our proportionate share of the key metrics of our energy segment:

 
  Year ended December 31  
US$ MILLIONS
  2016
  2015
  2014
 

Growth capital expenditures

  $ 67   $ 27   $ 37  

Adjusted EBITDA margin(1)

    56%     48%     45%  

Funds from operations (FFO)

    175     90     68  

Maintenance capital expenditures

    (61 )   (45 )   (37 )
               

Adjusted funds from operations (AFFO)

  $ 114   $ 45   $ 31  
               

(1)
Adjusted EBITDA margin is Adjusted EBITDA divided by revenues.

        The following table presents our energy segment's proportionate share of financial results:

 
  Year ended December 31  
US$ MILLIONS
  2016
  2015
  2014
 

Revenues

  $ 496   $ 349   $ 311  

Cost attributed to revenues

    (220 )   (183 )   (172 )
               

Adjusted EBITDA

    276     166     139  

Interest expense

    (109 )   (79 )   (71 )

Other income

    8     3      
               

Funds from operations (FFO)

    175     90     68  

Depreciation and amortization

    (128 )   (90 )   (76 )

Deferred taxes and other items

    43         12  
               

Net income

  $ 90   $   $ 4  
               

        The following table presents proportionate Adjusted EBITDA and FFO for each business in this operating segment:

 
  Adjusted EBITDA   FFO  
US$ MILLIONS
  2016
  2015
  2014
  2016
  2015
  2014
 

Energy Transmission, Distribution & Storage

  $ 225   $ 118   $ 111   $ 131   $ 49   $ 45  

District Energy

    51     48     28     44     41     23  
                           

Total

  $ 276   $ 166   $ 139   $ 175   $ 90   $ 68  
                           

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        The following table presents the roll-forward of our proportionate share of capital backlog and capital to be commissioned:

 
  Year ended December 31  
US$ MILLIONS
  2016
  2015
  2014
 

Capital backlog, start of period

  $ 181   $ 73   $ 30  

Additional capital project mandates

    37     151     84  

Less: capital expenditures

    (67 )   (27 )   (37 )

Foreign exchange and other

    (4 )   (16 )   (4 )
               

Capital backlog, end of period

    147     181     73  

Construction work in progress

    37     37     21  
               

Total capital to be commissioned

  $ 184   $ 218   $ 94  
               

2016 vs. 2015

        For the year ended December 31, 2016, our energy transmission, distribution and storage operations generated Adjusted EBITDA of $225 million and FFO of $131 million compared to $118 million and $49 million, respectively, in 2015. Adjusted EBITDA and FFO increased versus prior year as a result of our increased ownership, the impact of de-leveraging and higher transportation volumes, all at our North American natural gas transmission operation. Results also benefited from the recent acquisition of Niska Gas Storage which closed in July of this year.

        For the year ended December 31, 2016, our district energy business contributed Adjusted EBITDA of $51 million and FFO of $44 million compared to $48 million and $41 million, respectively, in 2015. Adjusted EBITDA and FFO increased versus the prior year as a result of adding over 1,400 residential connections across the business and the contribution from a tuck-in acquisition completed in Houston during the second half of 2016.

        Depreciation and amortization increased to $128 million for the year ended December 31, 2016, up from $90 million in 2015. The increase is primarily due to additional depreciation as a result of our annual revaluation process, increased ownership in our North American natural gas transmission business and acquisitions completed over the past 12 months.

        Deferred taxes and other items for the year ended December 31, 2016 were a gain of $43 million compared to $nil for the same period in 2015. The current year balance includes non-recurring gains, partially offset by losses related to hedging activities in our gas storage operations during the current period.

        As of December 31, 2016, total capital to be commissioned is $184 million compared to $218 million as of December 31, 2015. We completed the Chicago market expansion project at our North American natural gas transmission business during the fourth quarter of 2016 and are seeing increasing demand for gas transportation from the north end of our system to markets in the south. Our first expansion to the south is scheduled to be in service during the fourth quarter of 2018 and is the first of several expansions of this nature that could materialize over the next five years. Across our businesses, we expect enhancements to our systems over the next two to three years that will expand capacity to support additional volumes, leading to cash flow growth over the long term. Capital to be commissioned includes $100 million within our energy transmission, distribution and storage operations and $80 million in our district energy business.

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2015 vs. 2014

        For the year ended December 31, 2015, our energy transmission, distribution and storage operations generated Adjusted EBITDA of $118 million and FFO of $49 million compared to $111 million and $45 million, respectively, in 2014. Adjusted EBITDA and FFO increased from 2014 to 2015 as the segment benefitted from higher transportation volumes at our North American natural gas transmission operation.

        For the year ended December 31, 2015, our district energy business contributed Adjusted EBITDA of $48 million and FFO of $41 million compared to $28 million and $23 million, respectively, in 2014. Adjusted EBITDA and FFO increased compared to the year ended December 31, 2014 as a result of contributions from new district energy systems that were acquired in the third quarter of 2014, the completion of organic growth projects, such as the Louisiana State University medical center project, new customer connections and renewal of existing customers at favourable rates.

        Depreciation and amortization increased to $90 million for the year ended December 31, 2015, up from $76 million for the same period in 2014, respectively. The increase is primarily due to additional depreciation as a result of our annual revaluation process and acquisitions in our district energy business, partially offset by the impact of foreign exchange.

        Deferred taxes and other expenses for the year ended December 31, 2015 was $nil compared to $12 million of income for the same period in 2014. The decrease of $12 million compared to the prior year is due to the benefit from a reduction in our gas storage obligation recognized in 2014 with the acquisition of our U.S. gas storage business.

        As of December 31, 2015, total capital to be commissioned into rate base was $218 million compared to $94 million as of December 31, 2014. The total capital to be commissioned increased as capital project mandates awarded were partially offset by capital expenditures made during the period and the impact of foreign exchange. Capital to be commissioned includes approximately $140 million within our energy transmission, distribution and storage operations and approximately $80 million in our District Energy businesses.

Communications Infrastructure Operations

Results of Operations

        The following table presents our proportionate share of the key metrics of our communications infrastructure segment:

 
  Year ended December 31  
US$ MILLIONS
  2016
  2015
  2014
 

Growth capital expenditures

  $ 29   $ 15   $  

Adjusted EBITDA margin(1)

    56%     54%      

Funds from operations (FFO)

    77     60      

Maintenance capital expenditures

    (9 )   (6 )    
               

Adjusted funds from operations (AFFO)

  $ 68   $ 54   $  
               

(1)
Adjusted EBITDA margin is Adjusted EBITDA divided by revenues.

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        The following table presents our communications infrastructure segment's proportionate share of financial results:

 
  Year ended December 31  
US$ MILLIONS
  2016
  2015
  2014
 

Revenues

  $ 163   $ 123   $  

Cost attributed to revenues

    (72 )   (57 )    
               

Adjusted EBITDA

    91     66      

Interest expense

    (12 )   (6 )    

Other expenses

    (2 )        
               

Funds from operations (FFO)

    77     60      

Depreciation and amortization

    (74 )   (46 )    

Deferred taxes and other items

    24     1      
               

Net income

  $ 27   $ 15   $  
               

        For the year ended December 31, 2016, our communications infrastructure segment generated Adjusted EBITDA and FFO of $91 million and $77 million, respectively, versus $66 million and $60 million, respectively, in the prior year. Adjusted EBITDA increased compared to the prior year due to the full year contribution of the business which was acquired at the end of the first quarter of 2015, the benefit of additional points of presence in the second half of 2016 and inflationary revenue increases. FFO increased compared to the prior year as the aforementioned items were partially offset by higher interest costs associated with the long-term financing put in place in the first half of 2016.

        Depreciation and amortization increased to $74 million for the year ended December 31, 2016, up from $46 million for the same period in 2015, respectively. The increase is primarily due to a full year's ownership of the business and additional depreciation as a result of our annual revaluation process over the past 12 months.

        Deferred taxes and other items for the year ended December 31, 2016 were a gain of $24 million compared to a gain of $1 million for the same period in 2015. The $23 million variance is mainly attributable to the benefit from a decrease in the French income tax rate enacted during 2016.

        As of December 31, 2016, total capital to be commissioned into rate base was $40 million compared to $30 million as of December 31, 2015. Increase in total capital to be commissioned reflects more than 700 towers to be constructed over the next 12 months.

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Corporate and other

        The following table presents the components of Corporate and Other, on a proportionate basis for the twelve months ended:

 
  Year ended December 31  
US$ MILLIONS
  2016
  2015
  2014
 

General and administrative costs

  $ (8 ) $ (8 ) $ (8 )

Base management fee

    (158 )   (126 )   (107 )
               

Adjusted EBITDA

    (166 )   (134 )   (115 )

Other income

    84     34     26  

Financing costs

    (48 )   (27 )   (14 )
               

Funds from operations (FFO)

    (130 )   (127 )   (103 )

Deferred taxes and other items

    119     65     26  
               

Net loss

  $ (11 ) $ (62 ) $ (77 )
               

2016 vs. 2015

        General and administrative costs for the year ended December 31, 2016 were consistent with the comparative periods.

        Pursuant to our Master Services Agreement, we pay Brookfield an annual base management fee equal to 1.25% of our market value plus net recourse debt. The base management fee increased from prior year due to a larger market capitalization from capital raised in the last 12 months to fund new investments and a higher unit price.

        Other income includes interest and distribution income as well as realized gains or losses earned on corporate financial assets. The increase during the year ended December 31, 2016 versus the comparative period is primarily due to investments made in higher yielding financial assets during the past 12 months.

        Corporate financing costs include interest expense and standby fees on our committed credit facility and corporate medium term notes, less interest earned on cash balances. Financing costs increased year-over-year due to increased borrowings used to finance new investments.

        Deferred taxes and other items for the year ended December 31, 2016 were a gain of $119 million compared to a gain of $65 million in 2015. The current period balance includes a gain on our Asciano toehold investment, partially offset by the impact of foreign exchange on our hedging program compared to last year. The comparative period consisted primarily of revaluation items relating to foreign exchange hedging activities at the corporate level.

2015 vs. 2014

        General and administrative costs for the year ended December 31, 2015 were consistent with the comparative periods.

        Pursuant to our Master Services Agreement, we pay Brookfield an annual base management fee equal to 1.25% of our market value plus net recourse debt. The base management fee increased from prior year due to a larger market capitalization from capital raised in the last 12 months to fund new investments and a higher unit price.

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        Other income includes interest and distribution income as well as realized gains earned on corporate financial assets. The increase during the year ended December 31, 2015 versus the comparative period is primarily due to incremental interest income generated on corporate financial assets acquired over the past 12 months.

        Corporate financing costs include interest expense and standby fees on our committed credit facility and corporate medium term notes, less interest earned on cash balances. Corporate financing costs for the year ended December 31, 2015 increased versus 2014 due to higher draws on our credit facility used to bridge finance new investments during 2015 and interest on corporate medium term notes issued in March and October 2015.

        Deferred taxes and other expenses for the year ended December 31, 2015 were $65 million of income compared to $26 million of income in 2014. The $39 million variance is due to incremental mark-to-market gains related to our foreign currency hedging program in 2015.

SELECTED STATEMENT OF OPERATING RESULTS AND FINANCIAL POSITION INFORMATION

        To measure performance, we focus on net income, an IFRS measure, as well as certain non-IFRS measures, including but not limited to FFO, AFFO, Adjusted EBITDA and Adjusted Earnings. We define FFO as net income excluding the impact of depreciation and amortization, deferred income taxes, breakage and transaction costs, and non-cash valuation gains or losses. We define AFFO as FFO less capital expenditures required to maintain the current performance of our operations (maintenance capital expenditures). We define Adjusted EBITDA as net income excluding the impact of depreciation and amortization, interest expense, current and deferred income taxes, breakage and transaction costs, and non-cash valuation gains or losses. We define Adjusted Earnings as net income attributable to our partnership, excluding the impact of depreciation and amortization expense from revaluing property, plant and equipment and the effects of purchase price accounting, mark-to-market on hedging items and disposition gains or losses.

        Along with net income and other IFRS measures, FFO and Adjusted EBITDA are key measures of our financial performance that we use to assess the results and performance of our operations on a segmented basis. AFFO is also a measure of operating performance, and represents the ability of our businesses to generate sustainable earnings. Adjusted Earnings is a measure of operating performance used to assess the ability of our businesses to generate recurring earnings which allows users to better understand and evaluate the underlying financial performance of our partnership.

        Since they are not calculated in accordance with, and do not have any standardized meanings prescribed by IFRS, FFO, AFFO, Adjusted EBITDA and Adjusted Earnings are unlikely to be comparable to similar measures presented by other issuers and have limitations as analytical tools. Specifically, our definition of FFO may differ from the definition used by other organizations, as well as the definition of funds from operations used by the Real Property Association of Canada ("REALPAC") and the National Association of Real Estate Investment Trusts, Inc. ("NAREIT"), in part because the NAREIT definition is based on U.S. GAAP, as opposed to IFRS.

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        For further details regarding our use of FFO, AFFO, Adjusted EBITDA and Adjusted Earnings, as well as a reconciliation of net income to these measures, see the "Reconciliation of Non-IFRS Financial Measures" section of this MD&A.

 
  Year ended December 31  
 
  2016
  2015
  2014
 
US$ MILLIONS, EXCEPT PER UNIT INFORMATION
 
Key Metrics
 

Net income(1)

  $ 474   $ 298   $ 184  

Net income per limited partnership unit(2)

    1.13     0.69     0.45  

Funds from operations (FFO)

    944     808     724  

Per unit FFO(3)

    2.72     2.39     2.30  

Adjusted funds from operations (AFFO)(4)

    771     672     593  

Adjusted EBITDA(5)

    1,322     1,177     1,142  

Adjusted earnings(6)

    657     461     350  

Adjusted earnings per unit(3)

    1.66     1.18     0.97  

Distributions per unit

    1.55     1.41     1.28  

Payout ratio(7)

    67%     68%     62%  

(1)
Net income attributable to limited partners, non-controlling interest attributable to redeemable partnership units and the general partner.

(2)
Average number of limited partnership units outstanding on a time weighted average basis for the year were 244.7 million (2015: 238.9 million 2014: 225.4 million).

(3)
Average units outstanding during the year of 347.2 million (2015: 337.4 million, 2014: 315.1 million).

(4)
AFFO is defined as FFO less maintenance capital expenditures. Refer to the "Reconciliation of Non-IFRS Financial Measures" section of this MD&A for a reconciliation from net income to AFFO.

(5)
Adjusted EBITDA is defined as net income excluding the impact of depreciation and amortization, interest expense, current and deferred income taxes, breakage and transaction costs, and non-cash valuation gains or losses. Refer to the "Reconciliation of Non-IFRS Financial Measures" section of this MD&A for a reconciliation from net income to Adjusted EBITDA.

(6)
Adjusted Earnings is defined as net income attributable to our partnership, excluding the impact of depreciation and amortization expense from revaluing property, plant and equipment and the effects of purchase price accounting, mark-to-market on hedging items and disposition gains or losses. Refer to the "Reconciliation of Non-IFRS Financial Measures" section of this MD&A for a reconciliation from net income to Adjusted Earnings.

(7)
Payout ratio is defined as distributions paid per unit (inclusive of GP incentive and preferred unit distributions) divided by FFO.

        For the year ended December 31, 2016, FFO totaled $944 million ($2.72 per unit) compared to FFO of $808 million ($2.39 per unit) in 2015 and FFO of $724 million ($2.30 per unit) in 2014. FFO increased by 14% and 18% on a per unit basis compared to 2015 and 2014, respectively as a result of organic growth across most of our businesses and incremental earnings on capital that we deployed over the past two years partially offset by the impact of foreign exchange. The distributions paid during 2016 represented a payout ratio of 67%, which is within our long-term target range of 60-70%.

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        The following tables present selected statement of operating results and financial position information by operating segment on a proportionate basis:

 
  Year ended December 31  
 
  2016
  2015
  2014
 
US$ MILLIONS
 
Statement of Operating Results
 

Net income (loss) by segment

                   

Utilities

  $ 162   $ 210   $ 154  

Transport

    206     135     103  

Energy

    90         4  

Communications Infrastructure

    27     15      

Corporate and other

    (11 )   (62 )   (77 )
               

Net income

  $ 474   $ 298   $ 184  
               

Adjusted EBITDA by segment

                   

Utilities

  $ 524   $ 524   $ 519  

Transport

    597     555     599  

Energy

    276     166     139  

Communications Infrastructure

    91     66      

Corporate and other

    (166 )   (134 )   (115 )
               

Adjusted EBITDA

  $ 1,322   $ 1,177   $ 1,142  
               

FFO by segment

                   

Utilities

  $ 399   $ 387   $ 367  

Transport

    423     398     392  

Energy

    175     90     68  

Communications Infrastructure

    77     60      

Corporate and other

    (130 )   (127 )   (103 )
               

FFO

  $ 944   $ 808   $ 724  
               


 
  As of  
 
  December 31,
2016
  December 31,
2015
 
US$ MILLIONS
 
Statement of Financial Position
 

Total assets by segment

             

Utilities

  $ 4,605   $ 4,723  

Transport

    6,160     5,338  

Energy

    3,032     2,744  

Communications Infrastructure

    933     824  

Corporate and other

    (510 )   (196 )
           

Total assets

  $ 14,220   $ 13,433  
           

Net debt by segment

             

Utilities

  $ 2,798   $ 2,721  

Transport

    2,611     2,118  

Energy

    1,468     1,735  

Communications Infrastructure

    392     386  

Corporate and other

    453     1,094  
           

Net Debt

  $ 7,722   $ 8,054  
           

Partnership capital by segment

             

Utilities

  $ 1,807   $ 2,002  

Transport

    3,549     3,220  

Energy

    1,564     1,009  

Communications Infrastructure

    541     438  

Corporate and other

    (963 )   (1,290 )
           

Partnership capital

  $ 6,498   $ 5,379  
           

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RECONCILIATION OF NON-IFRS FINANCIAL MEASURES

        We focus on FFO to measure operating performance, along with IFRS measures such as net income. In addition, we also assess AFFO, Adjusted EBITDA and Adjusted Earnings.

        These measures are not calculated in accordance with, and do not have any standardized meanings prescribed by, IFRS and are therefore unlikely to be comparable to similar measures presented by other issuers.

        FFO, AFFO, Adjusted EBITDA and Adjusted Earnings have limitations as analytical tools. Therefore FFO, AFFO, Adjusted EBITDA and Adjusted Earnings should not be considered as the sole measures of our performance and should not be considered in isolation from, or as a substitute for, analysis of our results as reported under IFRS.

        Net income attributable to our partnership is the most directly comparable IFRS measure to FFO, AFFO, Adjusted EBITDA and Adjusted Earnings. We urge you to review the IFRS financial measures within the MD&A and to not rely on any single financial measure to evaluate our partnership.

        We define FFO as net income excluding the impact of depreciation and amortization, deferred income taxes, breakage and transaction costs, and non-cash valuation gains or losses.

        FFO has limitations as an analytical tool:

    FFO does not include depreciation and amortization expense; because we own capital assets with finite lives, depreciation and amortization expense recognizes the fact that we must maintain or replace our asset base in order to preserve our revenue generating capability;

    FFO does not include deferred income taxes, which may become payable if we own our assets for a long period of time; and

    FFO does not include breakage and transaction costs or non-cash valuation gains, losses and impairment charges.

        FFO is a key measure that we use to evaluate the performance of our operations and forms the basis for our partnership's distribution policy.

        When viewed along with our IFRS results, we believe that FFO provides a more complete understanding of factors and trends affecting our underlying operations. FFO allows us to evaluate our businesses on the basis of cash return on invested capital by removing the effect of non-cash and other items.

        We add back depreciation and amortization to remove the implication that our assets decline in value over time since we believe that the value of most of our assets will be sustained over time, provided we make all necessary maintenance expenditures. We add back deferred income taxes because we do not believe this item reflects the present value of the actual cash tax obligations we will be required to pay, particularly if our operations are held for a long period of time. We add back non-cash valuation gains or losses recorded in net income as they are non-cash and indicate a point-in-time approximation of value on items we consider long-term. We also add back breakage and transaction costs as they are capital in nature.

        In addition, we focus on adjusted funds from operations or AFFO, which is defined as FFO less capital expenditures required to maintain the current performance of our operations (maintenance capital expenditures). While FFO provides a basis for assessing current operating performance, it does not take into consideration the cost to sustain the operating performance of our partnership's asset base. In order to assess the long-term, sustainable operating performance of our businesses, we observe that in addition to FFO, investors use AFFO by taking into account the impact of maintenance capital expenditures.

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        We also focus on Adjusted EBITDA which we define as net income excluding the impact of depreciation and amortization, interest expense, current and deferred income taxes, breakage and transaction costs and non-cash valuation gains or losses. Adjusted EBITDA provides a supplemental understanding of the performance of our business and enhanced comparability across periods and relative to our peers. Adjusted EBITDA excludes the impact of interest expense and current income taxes to remove the effect of the current capital structure and tax profile in assessing the operating performance of our businesses.

        Adjusted Earnings is a measure that can be used to evaluate the performance of our operations, defined as net income attributable to our partnership, excluding any incremental depreciation and amortization expense associated with the revaluation of our property, plant and equipment and the impact of purchase price accounting, mark-to-market on hedging items and disposition gains or losses. While we believe that maintenance capital expenditures are the best measure of the cost to preserve our revenue generating capability, we acknowledge that investors may view historical depreciation as a more relevant proxy. Adjusted Earnings also excludes mark-to-market on hedging items recorded in net income or disposition gains or losses as we believe these items are not reflective of the ongoing performance of our underlying operations.

        When viewed with our IFRS results, we believe that Adjusted Earnings provides a supplemental understanding of the performance of our underlying operations and also gives users enhanced comparability of our ongoing performance relative to peers in certain jurisdictions and across periods.

        The following table reconciles net income attributable to our partnership, the most directly comparable IFRS measure, to FFO and AFFO, non-IFRS financial metrics:

 
  Year ended December 31  
US$ MILLIONS, EXCEPT PER UNIT AMOUNTS(1)
  2016
  2015
  2014
 

Net income attributable to partnership(2)

  $ 474   $ 298   $ 184  

Add back or deduct the following:

                   

Depreciation and amortization

    609     506     481  

Deferred income taxes

    (5 )   (53 )   (2 )

Mark-to-market on hedging items

    (17 )   (63 )   (39 )

Valuation (gains) losses and other

    (117 )   120     100  
               

FFO

    944     808     724  

Maintenance capital expenditures

    (173 )   (136 )   (131 )
               

AFFO

  $ 771   $ 672   $ 593  
               

(1)
See Item 5 "Operating and Financial Review and Prospects—Management's Discussion and Analysis of Financial Condition and Results of Operations—Other Relevant Measures—Reconciliation of Operating Segments" for a detailed reconciliation of Brookfield Infrastructure's proportionate results to our partnership's consolidated statements of operating results.

(2)
Net income attributable to partnership includes net income attributable to non-controlling interest—Redeemable Partnership Units held by Brookfield, general partner and limited partners.

        The difference between net income attributable to partnership and FFO is primarily due to depreciation and amortization expenses of $609 million (2015: $506 million, 2014: $481 million), deferred tax recovery of $5 million (2015: $53 million, 2014: $2 million), mark-to-market gains on hedging items of $17 million (2015: $63 million, $39 million) and valuation gains of $117 million (2015: losses of $120 million, 2014: losses of $100 million).

        The difference between net income attributable to partnership and AFFO is mostly due to the aforementioned items in addition to maintenance capital expenditures of $173 million (2015: $136 million, 2014: $131 million).

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        The following table reconciles net income attributable to our partnership, the most directly comparable IFRS measure, to Adjusted EBITDA, a non-IFRS measure. Adjusted EBITDA is presented based on our proportionate share of results in operations accounted for using the consolidation and the equity methods.

 
  Year ended December 31  
US$ MILLIONS(1)
  2016
  2015
  2014
 

Net income attributable to partnership(2)

  $ 474   $ 298   $ 184  

Add back or deduct the following:

                   

Depreciation and amortization

    609     506     481  

Deferred income taxes

    (5 )   (53 )   (2 )

Mark-to-market on hedging items

    (17 )   (63 )   (39 )

Reversal of impairment charge and other

    (117 )   120     100  

Interest expense

    456     396     416  

Other (income) expense

    (78 )   (27 )   2  
               

Adjusted EBITDA

  $ 1,322   $ 1,177   $ 1,142  
               

(1)
Please see Item 5 "Operating and Financial Review and Prospects—Management's Discussion and Analysis of Financial Condition and Results of Operations—Other Relevant Measures—Reconciliation of Operating Segments" for a detailed reconciliation of Brookfield Infrastructure's proportionate results to our partnership's consolidated statements of operating results.

(2)
Net income attributable to partnership includes net income attributable to non-controlling interest—Redeemable Partnership Units held by Brookfield, general partner and limited partners.

        The difference between net income attributable to partnership and Adjusted EBITDA is primarily due to depreciation and amortization expenses of $609 million (2015: $506 million, 2014: $481 million) and interest expense of $456 million (2015: $396 million, 2014: $416 million).

        The following table reconciles net income attributable to our partnership, the most directly comparable IFRS measure, to Adjusted Earnings, a non-IFRS financial metric:

 
  Year ended December 31  
US$ MILLIONS
  2016
  2015
  2014
 

Net income attributable to partnership(1)

  $ 474   $ 298   $ 184  

Add back or deduct the following:

                   

Depreciation and amortization expense due to application of revaluation model and acquisition accounting

    300     248     205  

Mark-to-market on hedging items

    (17 )   (63 )   (39 )

Gain on sale of subsidiaries or ownership changes

    (100 )   (22 )    
               

Adjusted earnings

  $ 657   $ 461   $ 350  
               

(1)
Net income attributable to partnership includes net income attributable to non-controlling interest—Redeemable Partnership Units held by Brookfield, general partner and limited partners.

        The difference between net income attributable to partnership and Adjusted Earnings is due to depreciation and amortization expense attributable to application of the revaluation model and acquisition accounting of $300 million (2015: $248 million, 2014: $205 million), mark-to-market gains on hedging items of $17 million (2015: $63 million, 2014: $39 million) and gains on the sale of subsidiaries or changes in ownership of $100 million (2015: $22 million, 2014: $nil).

        Net income per limited partnership unit is the most directly comparable IFRS measure for per unit FFO and Adjusted Earnings per unit.

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        The following table reconciles net income per limited partnership unit, the most directly comparable IFRS measure, to FFO per unit, a non-IFRS financial metric:

 
  Year ended December 31  
US$ MILLIONS, EXCEPT PER UNIT AMOUNTS(1)
  2016
  2015
  2014
 

Net income per limited partnership unit(2)

  $ 1.13   $ 0.69   $ 0.45  

Add back or deduct the following:

                   

Depreciation and amortization

    1.75     1.50     1.53  

Deferred income taxes

    (0.01 )   (0.16 )   (0.01 )

Mark-to-market on hedging items

    (0.05 )   (0.19 )   (0.12 )

Valuation losses (gains) and other

    (0.10 )   0.55     0.45  
               

Per unit FFO(3)

  $ 2.72   $ 2.39   $ 2.30  
               

(1)
See Item 5 "Operating and Financial Review and Prospects—Management's Discussion and Analysis of Financial Condition and Results of Operations—Other Relevant Measures—Reconciliation of Operating Segments" for a detailed reconciliation of Brookfield Infrastructure's proportionate results to our partnership's consolidated statements of operating results.

(2)
During 2016, on average there were 244.7 million limited partnership units outstanding (2015: 238.9 million, 2014: 225.4 million).

(3)
During 2016, on average there were 347.2 million units outstanding (2015: 337.4 million, 2014: 315.1 million).

        The following table reconciles net income per limited partnership unit, the most directly comparable IFRS measure, to Adjusted Earnings per unit, a non-IFRS financial metric:

 
  Year ended December 31  
US$ MILLIONS, EXCEPT PER UNIT AMOUNTS
  2016
  2015
  2014
 

Net income per limited partnership unit(1)

  $ 1.13   $ 0.69   $ 0.45  

Add back or deduct the following:

                   

Depreciation and amortization expense due to application of revaluation model & acquisition accounting

    0.86     0.74     0.65  

Mark-to-market on hedging items

    (0.05 )   (0.18 )   (0.13 )

Gains on sale of subsidiaries or ownership changes

    (0.28 )   (0.07 )    
               

Adjusted earnings per unit(2)

  $ 1.66   $ 1.18   $ 0.97  
               

(1)
During 2016, on average there were 244.7 million limited partnership units outstanding (2015: 238.9 million, 2014: 225.4 million).

(2)
During 2016, on average there were 347.2 million units outstanding (2015: 337.4 million, 2014: 315.1 million).

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OTHER RELEVANT MEASURES

        The following section contains information to assist users in the calculation of the enterprise value of our partnership.

Enterprise Value

        We define Enterprise Value as the market value of our partnership plus preferred units and proportionate debt, net of proportionate cash.

        The following table presents Enterprise Value as of December 31, 2016, 2015 and 2014:

 
  Year ended December 31  
US$ MILLIONS
  2016
  2015
  2014
 

Partnership units outstanding, end of period(1),(2)

    369.5     345.1     315.2  

Price(3)

  $ 33.4719   $ 25.2876   $ 27.9141  
               

Market capitalization

    12,368     8,727     8,799  

Preferred units(4)

    375     189      

Proportionate net debt(5)

    7,722     8,054     6,657  
               

Enterprise value

  $ 20,465   $ 16,970   $ 15,456  
               

(1)
Adjusted for 3-for-2 unit split effective September 14, 2016.

(2)
Includes limited partner, general partner and redeemable partnership units held by Brookfield.

(3)
Market value of our partnership is calculated based on the price per unit referencing the volume weighted average of the trading price of our units on the New York Stock Exchange for the last five trading days of a period.

(4)
Preferred units on Brookfield Infrastructure's Consolidated Statement of Financial Position.

(5)
Please see Item 5.B "Liquidity and Capital Resources" for a detailed reconciliation of Brookfield Infrastructure's proportionate net debt to our partnership's consolidated debt on the Consolidated Statement of Financial Position.

Reconciliation of Operating Segments

        Adjusted EBITDA, FFO and AFFO are presented based on our proportionate share of results in operations accounted for using consolidation and the equity method whereby we either control or exercise significant influence over the investment respectively, in order to demonstrate the impact of key value drivers of each of these operating segments on our overall performance. As a result, segment depreciation and amortization, deferred income taxes, breakage and transaction costs, and non-cash valuation gains or losses are reconciling items that will differ from results presented in accordance with IFRS as these reconciling items (1) include our proportionate share of earnings from investments in associates attributable to each of the above-noted items, and (2) exclude the proportionate share of earnings (loss) of consolidated investments not held by us apportioned to each of the above-noted items.

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        The following tables present each segment's results in the format that management organizes its segments to make operating decisions and assess performance. Each segment is presented on a proportionate basis, taking into account our ownership in operations accounted for using the consolidation and equity method whereby we either control or exercise significant influence over the investment, respectively. These tables reconcile our proportionate results to our partnership's consolidated statements of operating results on a line by line basis by aggregating the components comprising the earnings from our investments in associates and reflecting the portion of each line item attributable to non-controlling interests. See "Discussion of Segment Reconciling Items" on page 108 for a reconciliation of segment results to our statement of operating results in accordance with IFRS.

 
  Total attributable to Brookfield Infrastructure    
   
   
 
 
  Contribution
from
investments
in associates