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Edited Transcript of FTAI earnings conference call or presentation 3-May-19 12:00pm GMT

Q1 2019 Fortress Transportation and Infrastructure Investors LLC Earnings Call

New York May 11, 2019 (Thomson StreetEvents) -- Edited Transcript of Fortress Transportation and Infrastructure Investors LLC earnings conference call or presentation Friday, May 3, 2019 at 12:00:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Alan John Andreini

Fortress Transportation and Infrastructure Investors LLC - IR

* Joseph P. Adams

Fortress Transportation and Infrastructure Investors LLC - Chairman & CEO

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Conference Call Participants

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* Ariel Luis Rosa

BofA Merrill Lynch, Research Division - Associate

* Christian F. Wetherbee

Citigroup Inc, Research Division - VP

* David Michael Zazula

Barclays Bank PLC, Research Division - Research Analyst

* Devin Patrick Ryan

JMP Securities LLC, Research Division - MD and Senior Research Analyst

* Justin Trennon Long

Stephens Inc., Research Division - MD

* Robert Hudson Salmon

Wolfe Research, LLC - Research Analyst

* Robert James Dodd

Raymond James & Associates, Inc., Research Division - Research Analyst

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Presentation

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Operator [1]

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Good day, ladies and gentlemen, and welcome to the Fortress Transportation and Infrastructure Investors LLC First Quarter 2019 Earnings Conference Call. (Operator Instructions) As a reminder, this conference call is being recorded.

I would now like to introduce your host for today's conference, Mr. Alan Andreini. Sir, you may begin.

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Alan John Andreini, Fortress Transportation and Infrastructure Investors LLC - IR [2]

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Thank you, operator. I would like to welcome you to the Fortress Transportation and Infrastructure First Quarter 2019 Earnings Call. Joining me here today are Joe Adams, our Chief Executive Officer; and Scott Christopher our Chief Financial Officer. We have posted an investor presentation and press release on our website, which we encourage you to download if you have not already done so. Also, please note that this call is open to the public in listen-only mode and is being webcast. In addition, we will be discussing some non-GAAP financial measures during the call today, including FAD. The reconciliations of these measures to the most directly comparable GAAP measures can be found in the earning supplement.

Before I turn the call over to Joe, I would like to point out that certain statements made today will be forward-looking statements, including regarding future earnings. These statements by their nature are uncertain and may differ materially from actual results. We encourage you to is review the disclaimers in our press release and investor presentation regarding non-GAAP financial measures and forward-looking statements and to review the risk factors contained in our quarterly report filed with the SEC.

Now I would like to turn the call over to Joe.

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Joseph P. Adams, Fortress Transportation and Infrastructure Investors LLC - Chairman & CEO [3]

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Thank you, Alan. To start today, I'm pleased to announce our 16th dividend as a public company and our 31st consecutive dividend since inception. The dividend of $0.33 per share will be paid on May 28, based on a shareholder record date of May 17. The key metrics for us are adjusted EBITDA and FAD or funds available for distribution.

Adjusted EBITDA for Q1 2019 was $66.3 million compared to Q4 of 2018 of $63.1 million and Q1 of 2018 of $48.1 million. FAD was $70.2 million in Q1 versus $57.7 million in Q4 of 2018 and $34.4 million in Q1 of 2018.

During the first quarter, the $70.2 million FAD number was comprised of $101.1 million from our equipment leasing portfolio and negative $4.1 million from our infrastructure business and negative $26.8 million from corporate.

Starting now with Aviation. The macros for the industry overall continue to be impressive with 2018 revenue cash per kilometer miles or RPKs, up 6.5% over 2017. And our Aviation business had another good quarter. Adjusted EBITDA in Q1 was approximately $74.2 million or $296.8 million annualized, up from $286.1 million annualized in Q4.

During Q1, we closed $105.3 million in new investments and we ended Q1 with over $190 million in signed letters of intent, which together with our existing assets should generate approximately $380 million in annual EBITDA when everything is closed.

Aviation was able to maintain our targeted return of 25% EBITDA to invested capital in Q1, even though we "lost" EBITDA of approximately $5 million in Q1, resulting from downtime due to the transitioning of 5 aircraft on to 6-year leases with new operators and due to 14 engines being inducted for shop visits in Q1. Both of these are great long-term outcomes, which will be better reflected in future quarters. And we're expecting strong EBITDA growth in Q2 and beyond without any gains from asset sales.

And speaking of gains from asset sales, we have begun the process of harvesting some of the $400 million in value of our portfolio over its carrying cost and recycling capital, and anticipate posting $20 million or more in gains in Q2.

Our strategic position in the commercial aftermarket engine sector also continues to advance meaningfully. Our proprietary advanced engine repair is progressing well and we anticipate launching the first products in early 2020. We've grown and further developed our parts supply engine overhaul partnerships with Chromalloy for the CF6-80C2 engine and AAR for the CFM56 engine and this quarter, we added a new partnership with United for the Pratt 4000 engine. This new airline and MRO relationship will undoubtedly expand to other assets and products and we're extremely excited about the potential size and strategic importance to our franchise.

Turning now to offshore. The offshore marine industry remains in a position of significant oversupply, but there are promising signs of recovery now. Offshore spending is expected to grow in 2019, up 4% year-over-year, marking the first year of CapEx growth since the downturn nearly 5 years ago. At the same time, Subsea Tree Awards are expected to triple in volume between their low in 2016 and 2019.

As we mentioned previously, we are in the process of transitioning the Pride away from the general inspection repair and maintenance market into well intervention. A new tower, which is needed for well intervention should be delivered to us in February of 2020, and in between, we should see intermittent utilization of the Pride over the course of this year.

Turning now to infrastructure and Jefferson. Jefferson had a decent quarter in Q1 from a financial perspective, in spite of headwinds from a tighter WTI versus WCS spread caused by temporary production curtailment ordered by the Alberta government. With production now rising again, and no new pipelines on horizon, spreads are increasing out today to $12 per barrel and to $15 to $20 a barrel for Q3 and Q4 of this year. As such, we expect crude from Canada volumes to grow nicely over the balance of this year and next.

In addition to the Canadian heavy, we've also started this month a test program to bring waxy crude in by rail, which seems quite promising for locking in long-term crude-by-rail supply and offtake contracts.

Our capacity took a big step up this month with 815,000 barrels coming online, which is fully contracted for between 3 to 5 years. And we are in negotiations with third parties for an additional 1.4 million barrels of new storage beginning Q4 of this year. Importantly, for future volume growth, we have now commenced construction of 3 pipeline projects, which we expect will be completed in early 2020. They are 1 inbound crude pipe, 1 outbound crude pipe and multiple refined products and crude connections with the neighboring refinery.

As part of this pipeline expansion, we plan to add another 2 million barrels of storage, bringing the total to over 6 million barrels and another deep-water dock, all for a total investment of approximately $250 million, which we expect to finance with all non-recourse debt at Jefferson in the latter half of this year.

With this phase completed by mid-2020, the terminal should comfortably be generating $100 million of EBITDA with top tier customers contracted and outstanding growth prospects ahead.

Refined products to Mexico is experiencing nice growth as well. The terminal expansion was recently completed and we should see volumes grow from 15,000 barrels per day in Q1 to 30,000 barrels per day in Q3 and up to 60,000 barrels per day next year.

Now let's turn to the Central Maine & Quebec Railroad. CMQR is off to a good start in 2019. When we normalize Q1 of 2018 by taking out 45G tax credits and onetime detour haulage and we compare it to Q1 of this year, we see EBITDA going from $600,000 in Q1 of 2018 to $1.2 million in Q1 of 2019 or a 100% increase. Carloads without the detour haulage went from 6,290 in Q1 of 2018 to 7,200 in Q1 of 2019 or a 15% increase year-over-year. In addition to these improving operating results, we commenced our car cleaning operation in Q1 of this year. We have combined skilled operators with a new semiautomatic -- semiautomated car cleaning technology to give us one of the fastest turnaround times in the industry at 30 to 45 days. And as a result, our backlog of orders is building up nicely.

So with the ramp in the car cleaning operation and with the recently signed new haulage agreement, which will add approximately 6,000 incremental carloads this year, we have started the process of exploring the sale of the CMQR and feel confident that CMQR will produce $10 million in annual adjusted EBITDA in 2019 before any potential buyer synergies.

Turning now to Repauno. The next big development project in infrastructure for us involves executing long-term natural gas liquids or NGL export agreements at Repauno. And the macro environment for that couldn't be better. As a direct result of growing North American crude and natural gas production and no growth in domestic NGL consumption, NGL exports have grown from 100,000 barrels a day 10 years ago to 1.1 million barrels a day currently. Thus export terminal capacity, particularly, on the East Coast is in very high demand. We are actively involved in negotiations for Phase 1 commitments, which would be operational in 2020. Phase 2 volumes would be begin in 2022 when additional cavern storage would be available to us. Phase 1 capital and annual EBITDA are estimated to be approximately $60 million and $20 million, respectively, and Phase 2 $500 million and $150 million, respectively. This feels very similar to where we were a year ago, with Long Ridge Tower and we're hoping for a similarly great outcome.

Now on Long Ridge. We have begun the process of selling a 50% ownership interest in Long Ridge power plant. We've hired a banker and are contacting potential buyers. While still early, given initial indications, including from some unsolicited inbound calls, we feel good about being able to realize value of $200 million to $250 million and close that by the end of Q3 this year. The frac sand operation there is off to a good start in 2019 as well. For Q1, we transloaded 220,000 tons of frac sand, a 44% increase from Q4 and drilling activity in the Utica and Marcellus is robust and with Long Ridge being the only terminal in the Appalachian basis with both unit train and barge capability, Long Ridge is well positioned to benefit from that activity.

So in conclusion, Aviation continues to grow, while maintaining its strong return profile. We continue to widen the moat with new partnerships and products to make it even harder for anyone to copy what we do. In short, the engine business just keeps getting better and better. As to infrastructure, our 3 ports are all ramping at an accelerating pace. We set out to build infrastructure at a 3 to 4x EBITDA multiple, to have it trade publically at 12 to 13x EBITDA multiple and to sell, if we choose, at 15 to 17x EBITDA multiple and we are well on our way to achieving those goals.

Development takes time, but it's worth it. In summary, Q1 was our best financial quarter ever with adjusted EBITDA of $66.3 million and positive EBITDA from infrastructure, again. Of equal or greater importance from the value creation perspective, this was our best quarter ever. Our engine business is poised to capitalize on new products and expanding industry partnerships, including with United Airlines. And our visibility into future cash flows has never been better and all signs indicate the drag from infrastructure is over.

Jefferson's expanding and integrated relationships with local refineries, Long Ridge's execution of long-term power offtakes and Repauno's engagement with multiple long-term NGL producers and purchasers has put us on a clear path to long-term value creation and EBITDA growth.

With that, I'll turn the call back over to Alan.

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Alan John Andreini, Fortress Transportation and Infrastructure Investors LLC - IR [4]

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Thank you, Joe. Operator, you may now open the call to Q&A.

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Questions and Answers

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Operator [1]

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(Operator Instructions) Our first question comes from Justin Long with Stephens.

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Justin Trennon Long, Stephens Inc., Research Division - MD [2]

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So to start, Joe, you seem to have a lot more confidence in the ramp at Jefferson. We've been waiting for this asset to inflect positively for a while. So can you just talk about the level of visibility to that $100 million EBITDA projection that you discussed earlier?

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Joseph P. Adams, Fortress Transportation and Infrastructure Investors LLC - Chairman & CEO [3]

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Sure. And yes, I think that observation is correct. A couple of reasons. One is, as I mentioned, the new tanks should come online 800,000 barrels and it came online in April. It is fully committed and contracted for the next 3 to 5 years. And so, that provides a minimum revenue commitment for those, but in addition to that, when somebody rents the tank that means they're going to do something with it. So in addition to that, you will see volumes coming in most likely by rail and some other means to get it in and it also goes out by barge or ultimately by pipe. So those tanks will get used and generate additional revenue.

Secondly, crude-by-rail from Canada starting last year, I think, a number of producers and many people realized there's not enough pipeline takeaway capacity, so they began the process of getting commitments and buying railcars, obtaining rail rates from the railroads and rail slots and committing to terminal loading capability in Canada. So a lot of those programs are now just about to start up -- and starting up in the summer. And so that means volumes by rail will be coming to the Gulf coast and we see ourselves being able to get some of that volume obviously, not all of it, but a decent amount, and having the new storage available and the new storage coming online puts us really in a very good position to get that. So we see -- we have a pretty good visibility on future crude-by-rail from Canada volumes for this year and next.

And then, thirdly, as I mentioned, the pipelines -- having pipelines available gives you ratable flow, so you get regular take-or-pay contracts. You have crude flowing every day through the terminal. It's also very efficient. So it gives -- it puts you in a very good competitive position to do additional services like blending. And so we see additional upside from having those types. It's not really reflected today in any of the numbers. So I think for those reasons, we feel very good about the -- that past chapter on Jefferson is closed and the new chapter of positive EBITDA is open. So...

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Justin Trennon Long, Stephens Inc., Research Division - MD [4]

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Great. That's helpful. And, secondly, I wanted to ask about the partnership that was just announced with United. Can you talk a little bit more in detail about what this entails? And any thoughts around the financial impact you expect both this year and maybe longer-term?

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Joseph P. Adams, Fortress Transportation and Infrastructure Investors LLC - Chairman & CEO [5]

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Sure. So it's a partnership where we're buying some engines from United and then we're going to be doing the maintenance work at United's maintenance MRO shop in San Francisco, a total of, I believe, 16 engines now, Pratt 4000 engines. And so what it enables us to do is -- the positive for us is we can buy engines and overhaul them much more cheaply than we could do it by buying them in the open market. So it's an embedded gain in each one of those engines as we finish the work.

United also benefits because they get to consume some used serviceable material, which is an added benefit to them, and it's attractive cost for both of us and it generates third-party work for them. So it's a very nice template for other assets. And so when I mentioned that we're very excited about it, United has lots of airplanes and lots of engines. They have nearly 600 CFM56 engines and over 200 V2500 engines. And so, the Pratt deal is a nice place to start, but we don't see it as the end, we see it as the beginning.

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Justin Trennon Long, Stephens Inc., Research Division - MD [6]

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Helpful. And any thoughts around the financial impact this year?

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Joseph P. Adams, Fortress Transportation and Infrastructure Investors LLC - Chairman & CEO [7]

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I think we'll see higher returns on those incremental engines, unless we decide to monetize them and we could see gains if we do sell some of them. So I wouldn't -- I don't have a specific number from that.

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Operator [8]

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And the next question comes from Devin Ryan with JMP Securities.

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Devin Patrick Ryan, JMP Securities LLC, Research Division - MD and Senior Research Analyst [9]

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Maybe a follow-up here just on Aviation. You mentioned some sales expected in the second quarter, I think it was $20 million plus. Can you just maybe help us with what's the base of assets that, that's off? I am assuming, just given that number, it's probably a pretty large implied gain. So any help there and then just in terms of thinking about kind of gains going forward. Maybe talk a little bit about what's driving those in the portfolio? Is it depreciation schedules or just kind of where you purchase the assets? And then, related just how you're thinking about kind of the ability to turn over the portfolio? How much should we think potentially could be turned over, over maybe the next couple of years?

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Joseph P. Adams, Fortress Transportation and Infrastructure Investors LLC - Chairman & CEO [10]

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Sure. So to start with, I mentioned $20 million gains. The assets that we are targeting have a book value of less than $50 million, so we're looking at under $50 million of book value with a gain of -- in excess of $20 million. And I think that's kind of representative. We've talked in the past about having assets that are appraised at $1.5 billion and carry on in the books at $1.1 billion, so it could be even slightly better ratio than that. I think the thought process as we mentioned is, I think, we're pretty good at buying assets cheaply and then adding value, and we're finding buyers who are willing to pay us prices that we -- at a cap rate that we wouldn't invest at. So it's effectively just monetizing that and then we believe we can do that over and over again. So I think that it's the program for us now. It's obviously not something that would happen every single quarter, but I think we could see a regular asset sale program that we will do every year. So it could be $100 million or so of book value that we could do that with. So I feel very good about that.

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Devin Patrick Ryan, JMP Securities LLC, Research Division - MD and Senior Research Analyst [11]

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Okay. Very helpful. Terrific. And then, maybe just a follow-up here on some of the asset sales outside of Aviation. So CMQR, it sounds like the process has started at Long Ridge and moving forward, maybe just help us little bit with timing of when you expect there will actually be something hard there where you have a time frame of kind of a closing? And should we think about the capital coming in for the most part getting recycled back into Aviation? Or are there other material business needs where capital would go? Or would you even reduce debt?

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Joseph P. Adams, Fortress Transportation and Infrastructure Investors LLC - Chairman & CEO [12]

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Sure. So as I mentioned in my remarks, I think, our goal for the power plant is in Q3, by the end of Q3 to close it. And I would say CMQR, my hope would be this year, in the calendar year. With respect to the capital, most likely, it'll be invested in Aviation. To the extent that we don't have Aviation investment opportunities we like, we would reduce debt.

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Devin Patrick Ryan, JMP Securities LLC, Research Division - MD and Senior Research Analyst [13]

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Got it. And then, to be clear on Long Ridge. When you say closed, you mean actually closed on the capital or close on an announced transaction?

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Joseph P. Adams, Fortress Transportation and Infrastructure Investors LLC - Chairman & CEO [14]

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Both.

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Operator [15]

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And our next question comes from Chris Wetherbee with Citi.

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Christian F. Wetherbee, Citigroup Inc, Research Division - VP [16]

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I wanted to follow-up on the United transaction, certainly seems like a really interesting one. I guess, the question I have is sort of, how does this either open the door or potentially close the door to other relationships with carriers in this space? I don't know if you need to be exclusive to 1 airline per say or how do you think about sort of building of these types of relationships more broadly across the space? Are there other opportunities to do that?

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Joseph P. Adams, Fortress Transportation and Infrastructure Investors LLC - Chairman & CEO [17]

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Yes, there are. And I think, it's a door opener. It's quite -- it's a very credibility enhancing transaction, I think, for us and for the program. So I think and there's other aspects to that, the deal that we haven't disclosed, so I think, it'd be interesting to other airlines. And so if you're looking at -- if airlines are trying to figure out how to reduce their cost per available seat mile, which I believe almost every airline in the world is thinking about doing then they will be interested in this, what we're doing with United. So I think it opens lots of doors and it doesn't -- United is somewhat unique in that they have a big MRO operation and looking to build third-party business. That's not -- every airline in the world doesn't have that. So I don't see that as being a deterrent to anybody else to do business with us. It's simply -- and I think it's just a good template.

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Christian F. Wetherbee, Citigroup Inc, Research Division - VP [18]

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Okay. And I don't want to get ahead of myself, but just when you think about sort of the development of those types of relationships with other airlines, how do you think about it? Is that a sort of a multiyear window, sort of, this is the beginning, it can see stretch out over a period of time? Can you do stuff a little quicker? Just want to get a rough sense of how you're thinking about the timing of the opportunity?

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Joseph P. Adams, Fortress Transportation and Infrastructure Investors LLC - Chairman & CEO [19]

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I think I can -- I mean for me, the window for -- if you look at the fleets that we're targeting, the big one is the 737-800 NGs and the A320s. And those fleets, the aftermarket opportunity, as we've said before, grows. It almost doubles over the next 10 years. So really the ideal opportunity time frame for us to develop all that is in the next 2 to 3 years. And that's -- I think we find as we go out and talk to people that there is pretty broad agreement on the other side that, that's also the case. This is the time to get in now. 3 years from now, it'll be too late.

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Christian F. Wetherbee, Citigroup Inc, Research Division - VP [20]

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Okay. Okay. That makes sense. And just want to get specific when you're thinking about infrastructure, it sounds like you turned the corner there. You said the drag is over, should we assume that infrastructure is positive from a FAD perspective going forward from 2Q on? Is that what you're -- is that's what you're suggesting when you made that statement?

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Joseph P. Adams, Fortress Transportation and Infrastructure Investors LLC - Chairman & CEO [21]

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Well, EBITDA. I think FAD is, a little bit less an acquisition debt service at the level. So I would say definitely EBITDA, but we'll have to look more closely at FAD as it develops.

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Christian F. Wetherbee, Citigroup Inc, Research Division - VP [22]

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Okay. Okay. That's helpful. And then when you think -- last question from me just on Jefferson. Curious about the refined product opportunity, the exports into Mexico, wanted to get a sense on how that looked in the quarter? And then what your expectations are for that going forward through the rest of 2019?

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Joseph P. Adams, Fortress Transportation and Infrastructure Investors LLC - Chairman & CEO [23]

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Sure. So I think first quarter is 15,000 barrels a day. And we should be in the 20,000s in Q2 and then I'm hopeful that we'll be in Q3 in the 30,000 barrels a day range. And then, part of the pipeline project, that we mentioned, would allow us to go over 40,000 barrels a day up to potentially 60,000 in 2020. And if you look at the, for instance, I think, Exxon has 200 stations under the Mobil brand open today and I believe they have stated their goal is to double that to 400 by the end of the year. So it's a pretty -- and Mexico is an enormous market. It's 700,000 or 800,000 barrels per day of imported gasoline and diesel into the country. So it's -- globally it's one of the biggest markets. It might be the biggest market as far as I know, but it's enormous. So it's a long-term. It's both a short-term and a long-term opportunity for us.

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Operator [24]

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And our next question comes from Rob Salmon with Wolfe Research.

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Robert Hudson Salmon, Wolfe Research, LLC - Research Analyst [25]

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A couple of follow-up questions on Jefferson and then one on the dividend. I guess, Joe, if we're thinking about the -- that ramp up to 40,000 to 60,000 barrels a day of refined product as we look out to 2020, could you give us a sense of kind of the time line when you're expecting that? Is that a year-end number? Or kind of should we be thinking about the beginning of the year? And then, also for the third quarter, when should we be getting to that run rate of 30,000 barrels?

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Joseph P. Adams, Fortress Transportation and Infrastructure Investors LLC - Chairman & CEO [26]

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I think that in the third quarter, we should be at that run rate for most of the quarter, I believe. That's the current outlook. The 60,000, I would not assume happens on 1/1/2020, I would say, more likely middle. If we got to that, it would be middle of 2020, that's when we would have pipeline connectivity available. And that's not a guarantee either, I'm just saying we'll have the capability to do that. And based on the way things have gone, it feels like that's likely, but it's certainly not guaranteed at this point.

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Robert Hudson Salmon, Wolfe Research, LLC - Research Analyst [27]

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Understand. There's always a little bit of uncertainty there. Frankly, the volumes at Jefferson, particularly, the roughly almost 40% sequential increase in crude throughput was surprising just given that the spreads have tightened. Could you give us a sense of what drove that sequential increase? And how you guys are thinking about volumes as you lookout, given the additional 800,000 barrels that came on in the month of April?

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Joseph P. Adams, Fortress Transportation and Infrastructure Investors LLC - Chairman & CEO [28]

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Sure. So as I mentioned, the Canadian producers and shippers and everyone who started the process is really gearing up to go back to crude-by-rail last year. And so there were a lot of commitments that people made in terms of obtaining railcars, negotiating rail slots from CN and CP and getting loading capacity. And all of those decisions are made on multiyear committed basis. And they're paying -- those producers are paying for that whether they use it or not. So actually, when you look at the marginal cost of crude-by-rail versus pipe, you can justify it at its lowest spread is $8 to $10 a barrel. Some people say $8.

So in that circumstance, those volumes are going to move by rail. And that's, I think, it's a little less of a -- you have less ability to just turn it on and turn it off every quarter. So that's why I feel that for the next several years, we see a fair amount of volume that's lined up pointed at the Gulf of Mexico. And so, I think that it feels pretty good that we're going to see a decent share of that, given that we invested in the new tanks that came online in April and the new tanks that are coming online in December. You have to have storage available to be able to handle that, so we're in a good position to do that. And then in addition, we started the process of adding the pipeline inbound and outbound so that will facilitate blending on the inbound side and also facilitate growing the volumes on the outbound side. So I think we're as well positioned for that as we could be.

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Robert Hudson Salmon, Wolfe Research, LLC - Research Analyst [29]

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Really helpful there. Kind of final one on the dividend. The FAD ex sales coverage, it was pretty stable at 1.5x, clearly, you've highlighted an improving infrastructure outlook with the profitability improvements we're seeing at Jefferson and the additional barrels that are coming online, how should we think about kind of a potential dividend increase as the cash flows ramp here?

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Joseph P. Adams, Fortress Transportation and Infrastructure Investors LLC - Chairman & CEO [30]

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While we feel like we'll be close to our targeted 2:1 coverage in Q2, so and then we'll have to see from there how it -- what we feel like the growth rate is. But definitely, it's -- it feels like we've got sequential growth for a while here. So...

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Operator [31]

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And our next question comes from Ariel Rosa with Bank of America.

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Ariel Luis Rosa, BofA Merrill Lynch, Research Division - Associate [32]

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Congrats on all the progress that's going on. Joe, just wanted to get your thoughts first on any impact from IMO 2020 and how that might evolve particularly over at Jefferson?

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Joseph P. Adams, Fortress Transportation and Infrastructure Investors LLC - Chairman & CEO [33]

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I think the refineries are going to do well and they're investing in more production. So to that extent, we're not a direct beneficiary, but I would call it an indirect beneficiary. So it's good for us if Exxon and Motiva are making money and expanding.

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Ariel Luis Rosa, BofA Merrill Lynch, Research Division - Associate [34]

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Yes. That make sense. Okay. Great. Shifting a little bit in terms of the -- the partnership with United and bigger picture in terms of, how do you see the repair business evolving? Maybe you could talk about how you see the Aviation segment developing in terms of the mix between maintenance and repair services versus leasing revenue? And if you're thinking has kind of changed relative to where it was maybe a year ago on how those 2 opportunities sets kind of play out?

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Joseph P. Adams, Fortress Transportation and Infrastructure Investors LLC - Chairman & CEO [35]

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Yes. I'm very excited about where we are right now and our ability to really create value by having a permanent advantage in managing shop visits for less than other people can do. And so I've talked about that for many years, these are sort of barriers to entry or widening the moat or barrier to entry, competitive advantage, whatever. How we monetize that is twofold, one is, you monetize it by getting higher returns on your leased assets, which we're doing, and I think we'll see that continue to grow. And then as we get better and further into this, we're going to try to figure out how to monetize it on a fee basis. And we haven't totally figured that out yet, but I'd say we are a lot closer to figuring it out than we were. And the market size in this aftermarket repair business over the next, as I said, 3 to 5 years, the growth is enormous. And you talk to any MRO shop out there, they're are all very busy. Part prices are high, used service material is tough to get. All those conditions just make the circumstances of what we're doing, we're ideal -- an ideal partner to help people solve those problems and I'm sure, we're going to figure out how to monetize that.

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Ariel Luis Rosa, BofA Merrill Lynch, Research Division - Associate [36]

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Any thought on how the revenue split between leasing versus maintenance and repair services could evolve overtime?

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Joseph P. Adams, Fortress Transportation and Infrastructure Investors LLC - Chairman & CEO [37]

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Well, I mean, a long time ago, I said, our goal is, let's say we do $400 million of EBITDA from leasing, I would love to have a $100 million of EBITDA from services on top of that. That's my personal goal.

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Ariel Luis Rosa, BofA Merrill Lynch, Research Division - Associate [38]

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On top of the $400 million?

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Joseph P. Adams, Fortress Transportation and Infrastructure Investors LLC - Chairman & CEO [39]

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Yes.

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Ariel Luis Rosa, BofA Merrill Lynch, Research Division - Associate [40]

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Got it. Okay. Great. That's really helpful. And then, just last question from me. Obviously, a lot of great development projects in the pipeline. Let me just pick your brain a little bit on risk of a downturn and what steps you guys are taking to kind of mitigate the potential impact that could have to FTAI and its cashless streams? I hear you're kind of putting in place some longer term contracts at Jefferson, just your broader thoughts on how a downtown might impact the various lines of business? And what steps you guys can take maybe in advance to just protect yourself against some of those impacts?

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Joseph P. Adams, Fortress Transportation and Infrastructure Investors LLC - Chairman & CEO [41]

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Sure. That's a good question. And certainly, the assets we have are very diversified, right? So we have, in one sense if oil prices go up, that's good for Jefferson and energy in general, which we have couple of plays there. And then, on the other side, if energy prices go down, Aviation benefits. So I think we've got some diversification across that. We are trying to get longer term contracts and you remember, at Long Ridge we have 8.5-year power purchase agreements in place, which we put for the power plant. We're lengthening relationships at Jefferson, new contracts, we're trying and pushing for 3 and sometimes 5 years. On Repauno, which is really a natural gas liquids play, which really has no correlation with any other play in the portfolio, there we're trying to get 5-year contracts as well. So I think pushing out the contractual coverage and having diversification for different asset is the best protection we can get.

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Operator [42]

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And our next question comes from Brandon Oglenski with Barclays.

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David Michael Zazula, Barclays Bank PLC, Research Division - Research Analyst [43]

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This is David Zazula on for Barclays. With the $190 million LOI, you mentioned, can you just talk about what that impact might look like in terms of capital commitments? And where you're comfortable taking leverage based on that?

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Joseph P. Adams, Fortress Transportation and Infrastructure Investors LLC - Chairman & CEO [44]

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Sure. So we're watching leverage. We've got obviously the additional investments in Aviation, we'll push that up on the one hand and then the assets sales we'll push that down on the other hand. So we're trying to manage it appropriately and we'll have the need for some additional financing this year, which the markets -- high-end market's very, very robust now again. And so we've got a number of different ideas on that but we are cognizant of leverage creeping up and we want to make sure, we're prudent on that.

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David Michael Zazula, Barclays Bank PLC, Research Division - Research Analyst [45]

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Great. And I kind of -- of the ideas of the equity portion of that, could you just discuss what some of the ideas on how you want to consider funding the equity portion of the capital commitment?

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Joseph P. Adams, Fortress Transportation and Infrastructure Investors LLC - Chairman & CEO [46]

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Well as I mentioned, we've got asset sales going on, which will generate cash. We haven't really earmarked anything beyond that.

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Operator [47]

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(Operator Instructions) Our next question comes from Robert Dodd with Raymond James.

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Robert James Dodd, Raymond James & Associates, Inc., Research Division - Research Analyst [48]

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On the Aviation business, but from kind of a different angle, obviously, you gave us the indication of run rate EBITDA when the LOIs and the existing book has done $380 million. Can you tell -- can you give us a little bit more detail on a, what that -- does that include, for example, the United engines coming out of the shop visits and obviously that takes a little while, but and then being put into service? And could you give us some of the other businesses, you give us longer term expectations on Jefferson, for example, $100 million by the mid-2020. On Aviation with the advanced repair coming in at 2020, any indication you can give us on what you'd expect for EBITDA from kind of the combined all of those Aviation initiatives kind of mid-2021 and 2020?

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Joseph P. Adams, Fortress Transportation and Infrastructure Investors LLC - Chairman & CEO [49]

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Well, we don't budget new investments. So those happen when we see good deals. As I mentioned what we have now is signed deals, which will -- if we closed everything, it will be $380 million of EBITDA annualized. We've always targeted a new investments to generate 25% of invested capital and annual EBITDA. And I'd see that trending up, so I think, over the next few quarters that we should beat that number. So -- but that's all the guidance we really give in terms of, it's very hard to budget new investments.

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Robert James Dodd, Raymond James & Associates, Inc., Research Division - Research Analyst [50]

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Fair comment here, but I mean obviously advanced engine repair is a -- it's been a long-running project. It's not a new investment as such. But I take your point. And then, just going back to the question about funding. On timing-wise, obviously, you've got a number of asset sales coming towards the end of the year, some on Aviation, during the next quarter. Do you feel comfortable on that leverage taking it up just in the short term to fund the LOIs with a view to then reducing it later? Or would there be a greater consideration of the obviously non-debt financing sources depending on timing of those LOIs versus the asset sales?

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Joseph P. Adams, Fortress Transportation and Infrastructure Investors LLC - Chairman & CEO [51]

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Yes. I think we're comfortable taking the leverage up knowing that -- having confidence in the asset sales a little bit, but we're also being mindful that we needed to be prudent and not take it up too high.

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Operator [52]

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Thank you. I'm not showing any further questions at this time. I would now like to turn the call back over to Alan Andreini for any closing remarks.

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Alan John Andreini, Fortress Transportation and Infrastructure Investors LLC - IR [53]

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Thank you all for participating in today's conference call. We look forward to updating you after Q2.

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Operator [54]

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Ladies and gentlemen, thank you for participating in today's conference. This does conclude today's program, and you may all disconnect. Everyone have a wonderful day.