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Edited Transcript of FTAI earnings conference call or presentation 2-Nov-18 12:00pm GMT

Q3 2018 Fortress Transportation and Infrastructure Investors LLC Earnings Call

New York Nov 16, 2018 (Thomson StreetEvents) -- Edited Transcript of Fortress Transportation and Infrastructure Investors LLC earnings conference call or presentation Friday, November 2, 2018 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

* Devin Patrick Ryan

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

* Justin Trennon Long

Stephens Inc., Research Division - MD

* Matthew Boyd Preston

Barclays Bank PLC, Research Division - Research Analyst

* 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 Third Quarter 2018 Fortress Transportation and Infrastructure Investors LLC Earnings Conference Call. (Operator Instructions) As a reminder, this conference is being recorded.

I would now like to introduce your host for today's conference, 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. I would like to welcome you to the Fortress Transportation and Infrastructure Third Quarter 2018 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 our 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 reconciliation of those measures to the most directly comparable GAAP measures can be found in the earnings 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 review the disclaimers on -- 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 the call, I'm pleased to announce our 14th dividend as a public company and our 29th consecutive dividend since inception. The dividend of $0.33 per share will be paid on November 27, based on a shareholder record date of November 16.

Now let's discuss the numbers. The key metrics for us are adjusted EBITDA and FAD or funds available for distribution. Adjusted EBITDA for Q3 2018 was $58.8 million compared to Q2 of 2018 of $52.2 million and Q3 of 2017 of $37.8 million.

FAD was $43.6 million in Q3 versus $44.8 million in Q2 of 2018 and $73.6 million in Q3 of 2017. Normalized FAD without sale proceeds were $39.6 million in Q3 versus $24.4 million in Q2 and $16.7 million in Q3 of last year.

During the third quarter, the $43.6 million FAD number was comprised of $71.6 million from our equipment leasing portfolio, negative $10 million from our infrastructure business and negative $18 million from corporate. The overall infrastructure number improved from the prior quarter by $1.2 million, primarily due to improved results at ports and terminals. Corporate FAD was slightly higher than Q2, primarily due to an increase in interest expense, resulting from a new $300 million bond issuance we did in September and offset by lower corporate expenses.

Now let me turn to aviation first. Our aviation business continues to exceed our expectations for both growth and profitability. Aviation adjusted EBITDA was $72.5 million versus last quarter of $64.8 million. As such, our actual annualized aviation EBITDA, excluding gains on sale, is now approximately $290 million per year, a new record.

We closed on $110 million of new investments in Q3, or approximately $300 million year-to-date through September 30. And we've also closed another $60 million since September 30 and expect to close approximately an additional $200 million in Q4, bringing total new investments for 2018 to more than $500 million, our best year ever. We now expect our run rate aviation FAD to be approximately $350 million per annum after closing all these LOIs over the next 2 quarters, up from $315 million last quarter. As with Q2, most of the equipment that we closed on in Q3 was already on lease. And as such, we should again expect to see growth in aviation EBITDA and FAD in Q4 of this year.

The engine market showed continued strength in Q3, and we continue to believe that the conditions creating this tight market are highly likely to continue for at least the next 3 to 5 years. We currently own 135 engines and 62 aircraft. And as a reminder because we focus on older aircraft by design, over 80% of the value of the aircraft fleet is engine value. So approximately 90% of our aviation portfolio by asset value is engines. And we have chosen to focus on the engines that power the 757, the 767, the A320 and the 737NG aircraft, which are, in our opinion, the best of the best, and the market agrees with us. Lease rates on these engines in which we specialize are up.

The factors driving this market growth are: One, overall growth in global passenger air travel and e-commerce growth driving higher air cargo volumes have increased. In August 2018, revenue per passenger miles grew at 6.4% year-over-year, above the 5% to 6% per annum historical average. Second, large numbers of 737 and A320 engines are now coming up on their first major shop visit, which requires more spare engines. Third, increase in mandated inspections as a result of regulatory directives; and fourth, the life extension of 757s, 767s and 747 engines, due to these aircraft being proven moneymakers, extremely reliable and freighter convertible; and fifth, the tight supply of independent maintenance capacity and parts availability results in cost inflation for major shop visits, which is primarily parts and labor, which means the engine replacement values go up. To that point, the costs of CFM56-5B, 7B engine shop visit is projected to double over the next 10 years.

We continue to feel good about our approach to the engine leasing market and the value of everything we own. We are reaching new highs in profitability, volume and deal flow. And every quarter, I become more convinced that our unique portfolio of engine repair and maintenance products and practices provides us with a sustainable competitive advantage and extremely attractive financial returns from the largest commercial engine market in the world.

And in 2018, we're seeing these results in our financials by, one, applying our better parts sourcing strategies; two, using module swaps between engines; and third, actively managing our maintenance and repair organization buying power, our MRO buying power. Applying these practices has produced savings this year of tens of millions of dollars, one reason why EBITDA and ROE yields have increased this quarter to 29.6% and 16.7%, respectively, on an unlevered basis.

While we continue to utilize and perfect these products over our growing engine fleet, and we expect to see a continuation of this trend in 2019, beginning in 2020, we expect to have further improvements when our advanced engine repair joint venture will have its first commercial products available. In other words, the best is yet to come.

Turning now to offshore, as we discussed on last quarter's call, we are in the process of positioning our advanced construction vessel, The Pride, in the more profitable and less-oversupplied well intervention market. The vessel completed its most recent project in May of 2018 and is currently in a shipyard in Singapore undergoing repair and maintenance. We are using the vessel's time in the yard to undertake and repair and prepare for modifications for well intervention. As a result of this work being done on The Pride, our 2018 results will reflect lower utilization on the asset.

Turning now to Jefferson. Before going into the operating details of Jefferson, I want to point out that we now own 80% of this asset, and as such in the quarter, took 80% of the losses. However, when Jefferson turns positive, which we expect will occur in Q4 of this year, we'll be taking 80% of the profits.

We feel good about Jefferson going positive in Q4 for several reasons. One, we only had our Canadian crude-by-rail business in 1 month of this quarter, September, whereas we will have all 3 months in Q4. Second, we had downtime in refined products due to scheduled necessary construction, which is now complete. And we expect to average 25,000 barrels a day in Q4 and expect to be able to handle 40,000 barrels per day in Q1 of 20 -- starting in Q1 of 2019. Third, there were onetime charges in Q3, totaling approximately $350,000. And finally, the seasonality of the ethanol business, which is usually slow in Q3, is ramping up in Q4 and looks like it will be our best ethanol quarter ever.

Now let me talk about the operating highlights at Jefferson. Pipeline apportionment in Canada is becoming more acute and as more crude production comes online. Crude-by-rail is a very attractive business for terminals like Jefferson 3 to 4 years ago when WTI versus WTS spreads reached $30 a barrel. Those spreads are now in excess of $40 a barrel, which is even better. When train capacity and rail car capacity, while there are issues this time around, we made good choices 2 quarters ago and secured capacity. And in fact, we expect to be able to increase that capacity by another 2 trains per month later this quarter.

While Jefferson's location and rail connectivity give it the ability to be a flexible asset, such as what we did in refined products and ethanol, it's the perfect asset to exploit the crude-by-rail opportunity today. And that's exactly what is happening now. And with the recent cancellation of the Trans Mountain pipeline, crude-by-rail is expected to be an important part of the Canadian crude logistics for at least the next 3 to 5 years, if not longer.

Let me conclude on Jefferson with 2 points: First, the strategic position and macro drivers could not be better. Second, with the ramp-up in all the products and related activity, Jefferson will now produce positive EBITDA from operations in Q4, which we expect to grow significantly over the coming years.

With excellent rail connectivity from KCS, UP and BN and the prime location in one of the largest refinery markets in the world, Jefferson is widely regarded as one of the top crude-by-rail terminals in North America. With pipeline constraints in several producing regions, including Canada, crude-by-rail will be a major profit driver at Jefferson going forward.

And the refineries in the Gulf are experiencing a strong economic climate also by having access to multiple discounted crude supplies in North America and proximity to growing end markets with state-of-the-art plants and equipment. As such, multiple capacity expansions in the region will drive growth for needed storage and trans-shipment volume. Additional growth will be driven by exports of refined products to Mexico by rail and crude exports by water, and Jefferson is exceptionally well positioned to compete effectively for all of this business.

And lastly, beginning in 2020, we expect to have inbound and outbound pipeline connectivity such that we can offer the most comprehensive array of capabilities in one of the best markets in North America. We began to see some of this in the Q3 financials but crude-by-rail, where we arranged the full logistics, didn't begin until September with 3 trains. And we'll ramp up to 4 trains in November and, hopefully, to 6 by December.

In addition, based on contracts recently executed, we'll handle significant volume for third parties through the terminal in November and December of this year. Furthermore, when the additional 800,000 barrels of tanks currently under construction come online in Q2 2019, we'll have a meaningful growth in throughput capacity, which we expect to have committed shortly to a local refinery for a multiyear term. And we have begun construction on an additional 1.4 million barrels of crude storage, which will come online year-end 2019, which will bring total storage at Jefferson to over 4 million barrels. In short, I'm more convinced than ever that we control the perfect asset at precisely the perfect time and the perfect location to take advantage of these strong macros.

Turning now to the Central Maine & Québec Railroad. The railroad continues to perform at or above our expectations. Ryan Ratledge and his team have done a terrific job. Total revenue increased 7.9% year-over-year, primarily due to increased line haul volumes. We did however see a slight drop in EBITDA due to ramp-up expenses for the car cleaning operation, which we will begin -- will be operational this quarter, the fourth quarter. And we had a onetime charge for a derailment.

While the CMQR continues to perform well and its prospects continue to improve, we've not found any additional short-line acquisitions that we like due to very high prices. As such, if we're unable to grow that business through acquisitions, it's increasingly likely that we will evaluate our alternatives in 2019.

Turning to Repauno now. This was our first full season of butane operations, and the cavern is currently 100% utilized. And this business is functioning exactly as we planned. The dock construction is on time and on budget and will be delivered as planned in December of this year.

We are now completing the engineering for the direct rail-to-ship operation, and we've started negotiations with multiple parties regarding the shipment of butane and propane to commence late 2019.

This interim solution to the natural gas liquids to Europe is a direct result of the acute need which exists today. We expect to operate this way in 2020 and 2021, prior to having additional cavern storage availability, with fixed offtake agreements that should generate approximately $25 million to $30 million in annual EBITDA for a $70 million additional investment.

Moving to Long Ridge. The frac sand business at Long Ridge continues to exceed our expectations. We've already processed 550,000 tons of frac sand this year in 2018, and we expect frac sand to contribute about $3 million of EBITDA this year and $6 million to $7 million next year.

Turning to the power plant. We have now fully negotiated all the power purchase agreements, the PPA, needed to cover 100% of the output of the 485 megawatt power plant. These PPAs are 7 to 10 years in duration, and they're with investment-grade counterparties and are ready to be executed and will be locked in when we close the financing. We're finalizing the terms of the approximately $600 million of nonrecourse debt, which we expect to close this quarter.

With the PPAs and the financing coming together, as planned, we're targeting a sale of 49% interest in the plant for Q1 of 2019. And the bottom line is, the power plant project is looking good, as we had hoped. While we expect to sell up to 49% of the power plant, we will continue to own 100% of the terminal, which means we'll own 100% of both frac sand and the NGL natural gas liquids operation.

And now let me talk about the NGLs there. We are working to aggregate supplies from local fractionators, which will be railed to Repauno, our terminal in New Jersey, and loaded onto ships destined for Europe under long-term offtake contracts. By arranging and managing more of the supply chain, we intend to capture more of the economics. As is the case with Jefferson, we have 2 assets in Long Ridge and Repauno that are perfectly positioned, both in terms of location and capabilities, to take advantage of strong demand growth from Europe.

So in conclusion, aviation continues to outperform both our return and volume expectations. And further, I believe our offering becomes more unique and value-added every quarter. As such, I feel comfortable that we will be able to grow this business for many years to come while averaging a better-than-unlevered 15% ROE and a 25% EBITDA return.

As of this call, everything we see indicates that infrastructure has entered positive EBITDA territory in Q4 and beyond. And with infrastructure turning positive, you should expect to see our rate of EBITDA growth accelerate in 2019 as these long-lead-time projects begin to realize their potential. In short, I've never felt better about the current state of our business and more optimistic than ever about our prospects.

With that, I'll turn the call back 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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Operator [5]

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

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

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So we're continuing to see really strong results from aviation. So I wanted to get your updated thoughts on how you see this segment progressing longer term. What are you targeting for the optimal size of this business? And what we do you see as a reasonable target for profitability?

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

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Well, as I've said before, we don't like to budget investment volumes. But I would say, overall, the market opportunity is bigger. And I can give you a couple of -- couple ways I think about it is today, if you just look at the engines that are on the 737s and the A320s today that are on aircraft that are 10 years or older, there's about 10,000 of those engines. And that tends to be our target market. And most of those engines are serviced in the aftermarket, in other words, not by the original equipment manufacturers. That market itself is going to grow from about 10,000 engines today to about 20,000 engines over the next 10 years. So it's a huge market now, and it's going to grow every year. So -- and the cost of shop visits is going to go up. So just on the asset side alone, my belief is that our relevant market opportunity is quite a bit bigger than we originally expected.

But again, I'm not -- I don't want to say a precise number of what we're going to invest because we're very returns-driven. And as I mentioned, our return profile is -- we're exceeding our return profile right now, and so I'd like to keep doing that.

The other thing that we've really just started to scratch the surface on is I think the -- our portfolio of products, which we think we can deliver $1 million to $2 million of savings per shop visit, we've just begun to try to figure out how to market that to other parties, like airlines and others who are desperately looking for solutions to an increase in maintenance costs. And so we believe that we'll be able to approach a market that we hadn't really previously thought about, which is partnering or working with airlines, to share some of the benefits and the savings and to grow our nonasset-based component of our business. And so that's a whole new area of opportunity that I think we're just beginning to realize we could capitalize on. So I think that the growth opportunity for the 2 of those is actually quite a bit bigger than I would've said a year ago.

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Justin Trennon Long, Stephens Inc., Research Division - MD [8]

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Okay, that's helpful. And secondly, I was wondering if you could review some of the numbers around the power plant. You just talked about it briefly. But since we're getting closer to that opportunity materializing, could you help us think about the capital flows as you sell the 49% minority stake? And eventually, what the EBITDA opportunity looks like based on the percentage ownership that you're going to retain?

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Joseph P. Adams, Fortress Transportation and Infrastructure Investors LLC - Chairman & CEO [9]

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Sure. So we do have pretty good visibility. We've negotiated most of the structure and the terms of the contract. So we expect that the completed power plant will produce between probably $115 million and $120 million of annual EBITDA. And if you look at comparable transactions in the space using a 12 multiple, in some cases higher, is not an unrealistic assumption. So you could see when the plant is ready to deliver, the total value of, call it, $1.4 billion to $1.5 billion. That's out in 2021, so that's 2.5 years out. So if you had $600 million of debt on that, that would be worth $800 million to $900 million for the equity. And if you factor in time, value of money, and you discount that back to the first quarter of this year, we think it could -- that equity value could be $400 million to $500 million. And thus, 49% of it would be worth half of that.

So very nice economics. And again, we think there's upside in that power plant, so we think we should -- we could potentially get a higher multiple, given that we have the ability to substitute on tenant on-site users into the -- to increase the profitability. But we'll see about that. But I think there could be upside as well, and we're still going to own half of it, and we'll have taken all of our money out of the whole -- and paid for the whole terminal.

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Operator [10]

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Your next question comes from Chris Wetherbee with Citi.

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Christian F. Wetherbee, Citigroup Inc, Research Division - VP [11]

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I wanted to start on Jefferson and maybe touch a little bit on the crude-by-rail economics. So maybe 2 questions. First, I know you only got a month of the new deal, so we're going to see a full sort of quarter run rate, run rated around that. Can you give us some sense of maybe what that business sort of looks like from a revenue perspective? And then, as you think about how the economics of crude-by-rail has maybe evolved for you at Jefferson, spreads certainly have blown out to pretty meaningful levels at this point. And I'm curious if what we used to contemplate for the appropriate economics for Jefferson back when you guys came public during the first sort of wave of crude-by-rail has evolved and changed materially, given sort of how pronounced those spreads are in 2018/2019?

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

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Yes. I think they have. And basically, on the crude-by-rail side, there's 2 types of business that we do: One is where we arrange the entire logistics chain. And actually, what we do is we work with the producers in Canada and then simultaneously execute sales in the Gulf, so we can capture a much bigger piece of the economics. And as you point out, given the spread widening, it's quite a bit better than the other business which we do, which is really a more of a traditional terminal relationship, where you charge a fixed price per barrel to unload crude that somebody else owns.

So in the fourth quarter, we'll do both of those. But by far the most profitable business is where we arrange the whole supply chain. And that's why I mentioned, we only did 3 trains in September. We expect to do 4 in November, hopefully, 6 by December and then all of next year. And I don't think we're forecasting revenues yet on that. It's -- I'll just say, it's quite good but we're not going into detail at the moment on that. But that's really the -- that's the evolution, and it's quite a positive development.

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Christian F. Wetherbee, Citigroup Inc, Research Division - VP [13]

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Okay. But it's fair to say that given the spread, there is some benefit of the spreads that can accrue to Jefferson.

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

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Absolutely.

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Christian F. Wetherbee, Citigroup Inc, Research Division - VP [15]

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Okay. Got it. Wanted to follow up on your comments around the NGL loadings, I think Long Ridge to Repauno. It seems like an interesting business considered it's captured between 2 of your assets. So I just wanted to see if you could expand a little bit on that opportunity. Sort of what it looks like from a volume perspective? Maybe what it could become?

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Joseph P. Adams, Fortress Transportation and Infrastructure Investors LLC - Chairman & CEO [16]

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Sure. So as I mentioned, we're looking at loading directly from rail to ship, starting in 2020. And that is -- what we found is there's a tremendous amount of demand from Europe for propane, primarily from these PDH -- the PDH plants that have come online. And a number of them have started up, and they're looking for supply sources. And when they look around the world, you could source from the Gulf of Mexico or from the Middle East. And there's only one other option from the East Coast, and that's the Mariner East Marcus Hook terminal, and that has had fits and starts with getting its pipeline online.

And so the East Coast -- first of all the Marcellus is the cheapest -- one of the cheapest sources of propane in the world. And so if you want to get Marcellus propane, you either get it through the East Coast, which is closer, shorter and cheaper or you go through Gulf, which is longer and slower. So we like faster and cheaper and, therefore, if we arrange the full supply chain, we should be able to again capture a bigger portion of the economics. And we see very, very strong demand for long-term contracts also. This is a -- when these plants are constructed and built, they're meant to run. So people need supply, and they need diversification of supply. So it's a very good fit for long-term contracts.

So -- and the volumes in 2020 and 2021, before we have larger caverns available, we'll be looking probably at a unit train a day sort of max. But that could generate $25 million to $30 million of EBITDA in those 2 years. And then, as we mentioned previously, we're very optimistic about the availability of underground granite storage cavern. We've done the engineering and, what's the right word, geological work to know that we can use that. So in 2022, we expect to have millions of barrels of storage, which will allow us to increase the throughput significantly. And as we've said previously, 3 million barrels of storage should produce roughly $150 million of EBITDA. So that's kind of the trajectory of that business, which we feel pretty good about.

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Christian F. Wetherbee, Citigroup Inc, Research Division - VP [17]

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Okay. That's very helpful. Then one last one, if you'll let me. On the rail side, CMQR, I guess, generally, you've been in the process of acquiring assets. Feels like maybe that's an opportunity to potentially divest as you move forward. Let's just sort of play that out, assuming that does happen. Places to put the cash, the capital to work, is it primarily aviation because the yields there are just really, really strong? Or would that tend to stay -- that infrastructure capital tend to stay within infrastructure?

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Joseph P. Adams, Fortress Transportation and Infrastructure Investors LLC - Chairman & CEO [18]

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No, I mean, I think that if we do sell that, we might -- as I mentioned, we could also sell a half interest in Repauno. We'd be generating cash from infrastructure. So -- and the project expansions at Repauno, I think we can 100% finance with debt. So I don't see a big need of equity for infrastructure. It would more likely go into aviation.

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Operator [19]

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Your 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 [20]

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And first question on Long Ridge. So just given that you've already negotiated all the output, I'd just love some perspective around when you would maybe think about trying to increase the capacity there and really the process around that. I know we've spoken about that before.

And then, kind of the second part of it is, with respect to the sale of up to a 49% interest, appreciate the perspective on the potential value. Are those conversations already occurring around that, just given kind of where you are on the negotiations of the output? And then any sense for demand? And would those be financial buyers or strategic buyers?

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

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So there's a lot of people that invest in power plants infrastructure. It's a popular infrastructure category. So there's a pretty ready market of buyers. It's both domestic and foreign. So it's a relatively known universe. It's not a pioneering activity so -- and we've had preliminary conversations. But -- until you have everything buttoned up and you're signed, it's not really fruitful to have more detailed conversations. So we're sort of -- it's all hands on deck to get this thing closed this quarter, and then we'll turn to the equity side. But we have -- we're not uneducated about what we think the process will be and the counterparties could be.

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Devin Patrick Ryan, JMP Securities LLC, Research Division - MD and Senior Research Analyst [22]

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Got it. Okay, that's very helpful. And then just Jefferson, just given what's going on in Canada and just the broader macros that you walked through. I mean, there's a lot of -- you have balls in the air and a lot of things that you should be excited about. I'm just curious with everything that's kind of been moving in your favor from a macro perspective, if the opportunity is there to maybe accelerate some of the development -- I know we've kind of walked through an outline, a time line on recent calls just around kind of that asset being kind of developed bigger picture, and how that will evolve. I mean, can you accelerate? And what can you accelerate just based on how positive the macros have been?

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

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We can, and we certainly -- when we're engaged with refineries in the area and customers and exporters, we certainly present an opportunity for them to take advantage of that. One thing is dock space on the Gulf is pretty limited, so we have -- we've started construction on the second deepwater dock. And almost all these items are -- it's almost always 6 to 9 months, 12 months lead time, so it's -- you have to really do a lot of the work in advance before you're ready. But yes, the dock space is a big asset.

We've also got plans in development where we're doing the engineering and permitting for additional 2 deepwater docks. And we can present that as well as the pipeline capacity, the available land, the storage. We have a very complete offering. So I think, yes, we can accelerate. And we will accelerate, if the situation -- if the right circumstances come up. And it's important to be able to go into meetings ready to -- saying, we've done the work, and we're prepared. Because otherwise, people tend to be a bit -- a little bit dismissive if you've got a long list of things that are open.

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Devin Patrick Ryan, JMP Securities LLC, Research Division - MD and Senior Research Analyst [24]

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Yes, got it. Okay, great. Just last quick one here, just in aviation. Just for our models, on the utilization rates, can you remind us just how we should we thinking? I know there's a lot of moving parts and the macros have been quite good there. But just as we're thinking about over the next year or so, kind of a good utilization rate on both sides to be thinking about, I guess, particularly on the engine side.

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Joseph P. Adams, Fortress Transportation and Infrastructure Investors LLC - Chairman & CEO [25]

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I mean, we've always targeted 50% to 75%, and we're at the high end of that range, which is good. But it will fluctuate with acquisitions. So if we acquire a large number of engines in the quarter, it takes time to put some of those out. It also is a function of how many shops are -- how many engines are in the shop. So -- the numbers are not that sensitive to utilization, so from a returns point of view. So we're not really that keyed into it, to be -- to say it that way, it's not the big driver. So we want to have good engines at a good price and have availability, and that's really the main thing.

And the aircraft should be in the 90s. You shouldn't -- aircraft have time-based maintenance. So you don't want them sitting around. Engines, it doesn't matter as much. If you put an engine in a warehouse and it stays there for 3 months, it comes out with the same number of hours and cycles available. There's no time-based maintenance on an engine.

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Operator [26]

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Your next question comes from Brandon Oglenski from Barclays.

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Matthew Boyd Preston, Barclays Bank PLC, Research Division - Research Analyst [27]

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This is actually Matt on for Brandon. Just on Jefferson, a quick question and crude-by-rail. Since crude-by-rail can be volatile at times and some of the rails have kind of moved toward obtaining longer-term multiyear deals and contracts, is that something you can do at Jefferson potentially to keep things more stable and going forward?

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

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Yes, and we're very much focused on it. We like the current opportunity that we've -- it's been -- that is available to us now. But we're also thinking very -- all the time about how do we lock that in for a multiyear period. And so I think that, that's going to be -- that will be something we're going to focus a lot on in 2019. There could be -- from Canada, there's also other regions where rail has a natural advantage. So we are -- that's one of our great assets at the terminal, and we're trying to maximize and leverage that.

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Matthew Boyd Preston, Barclays Bank PLC, Research Division - Research Analyst [29]

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Okay. Great. And another quick follow-up on aviation. Profitability has improved, and it sounds like a lot of the improvements are structural in nature. So is it fair to assume that given other puts and takes, but -- can we assume this level of profitability going forward? And could it improve further?

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

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I think the trend line is improved. But I wouldn't promise every quarter that it's going to be this good. So I do think that directionally, we're trending the right way. But I'd hesitate to say, every quarter you could expect this so...

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Operator [31]

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Your next question comes from Ariel Rosa with Bank of America Merrill Lynch.

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

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Let me start out because nobody else has asked it. What are thoughts or what's the outlook for raising the dividend in 2019?

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

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So last quarter -- last call we said, we expected to achieve 2:1 coverage between Q4 of this year and Q2 of next year. And so I would maintain that. I think it's probably most -- highest probability would be we hit that in Q1 of 2019, and then we'll look from there as to when to raise the dividend.

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

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Okay. But as you hit 2x coverage, I mean, if I think back couple of years, I mean, it sounded like it was a pretty high certainty. So I mean, obviously, nothing's certain but it sounds like 2019, it's pretty reasonable to expect that to start to move up. Is that fair? Or am I kind of jumping the gun there?

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

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No, I think it's fair.

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

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Okay. Terrific. And then, second question, wanted to ask about kind of exposure to aviation and the pace at which you're adding assets there. Obviously, 2018 was a terrific year in terms of putting capital to work in that space. Does that rate start to slow down in 2019? Or do you think it kind of continues apace with where you're at?

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

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Well, as I mentioned earlier, I think the opportunity -- the growth opportunity is bigger. So -- but I can't promise every year you'll find the same number of deals that hit the return profile. But the opportunity set, I think, is larger. So I'm hopeful that we'll end up doing even more. But it's very hard to budget on the investment side because it takes 2 to tango.

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

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Okay. Fair. And then just last question for me, Joe. We've seen a little bit of heightened volatility in the market recently, and it seems like conditions in some geographies maybe are starting to raise a couple of questions. Has that impacted the availability of partner capital? Or when you go out and have conversations with people, is that changing the nature of the dialogue at all? Or is it still kind of too early to tell?

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

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I would say, no. I mean, from my observations, the public markets are much more volatile than the private markets. The private market is still flush with cash. People have a lot of money, and I haven't seen any decline because of the stock market volatility, which -- thank God, October's over but it seems like the private capital is still in abundant supply.

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Operator [40]

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Your next question comes from Robert Dodd with Raymond James.

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Robert James Dodd, Raymond James & Associates, Inc., Research Division - Research Analyst [41]

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In the attempt to back you into a corner, Joe, with some numbers, obviously, your normalized FAD in the quarter, $39.6 million. If infrastructure is breakeven alone in the fourth quarter, that adds $10 million. The pace that aviation is on with the LOIs you've signed and hit the run rate growth in EBITDA, et cetera, it looks to me that you -- something would have to go wrong for you not to hit double coverage of the dividend from FAD in the fourth quarter so if -- with that in mind, I think Q1 for sure, Q4 probably. What then is the process -- and obviously, I realize it's a board decision, for deciding on when to change the dividend? I mean, would you expect the board to put a little bit of a lag in just for conservatism? Or you hit 2x, it's going up.

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Joseph P. Adams, Fortress Transportation and Infrastructure Investors LLC - Chairman & CEO [42]

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I don't know yet. I think we'll -- it's going to be a combination of looking at the -- forward looking, I think, is really what will drive it. So you'll look ahead and you'll say, how do you feel about the backlog and the prospects? So I would think that would be a bigger factor than just the single math.

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Robert James Dodd, Raymond James & Associates, Inc., Research Division - Research Analyst [43]

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Got it. Got it. Got it. Appreciate that. So that kind of leads into the next question, also, kind of a follow-up. Obviously, with potentially selling 49% of Long Ridge, that's $200 million to $250 million of potential capital. CMQR, maybe at some point in '19. You'd also discussed on prior calls that maybe offshore after The Pride is done with its repurposing, maybe that could be on the block if you can't find additional acquisitions or get the returns up there. That's potentially $300 million, $400 million in capital that could be coming back to the business, that could obviously be reinvested in aviation. But aviation, to a large degree, I think can -- has shown its ability to self-fund in a lot ways. So what's the calculus on -- to your point, the existing infrastructure projects don't need equity? But maybe if you make a large additional initiative, maybe starting a new project, what's the calculus on -- with that amount of capital coming in, do you do that? Do you add something new with the other ones going so well? And if you do, obviously, that's got the potential to initially be cap -- to be cap negative if you start a new initiative. So what's the balance there?

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

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It's -- you know it's a returns driven, as we've always been. And I think the experience we've had in these repurposing of brownfield sites, I think has been quite good. And I see it as a bit of a niche in the market. And Repauno and Long Ridge are both good examples. They're very low acquisition costs. Nobody had any idea really what to do with them. And sort of through an application of a pretty -- a process, we've come up with some really good investment opportunities. So I see the potential for more of that but I wouldn't -- I'm not saying we have anything lined up yet. We're really focused on execution first. So -- but that's an opportunity of which I see things that could present themselves after we have achieved some of these milestones. So other than that, if we don't see what we -- something we like that is good return, we'll figure out how to give the money back or something. We're not going to invest it just to invest it.

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Operator [45]

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(Operator Instructions) Your next question comes from Rob Salmon with Wolfe Research is.

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Robert Hudson Salmon, Wolfe Research, LLC - Research Analyst [46]

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The first question I have is, there's been kind of increased talk regarding some of the lease accounting changes that will be coming into effect in '19, and we're just kind of curious how we should be thinking about the potential impact on aviation, given the age of your engine and aircraft assets that you have. I'm really not sure how much of an impact it will have in terms of the deferred maintenance. But any sort of kind of preliminary thoughts will be helpful for us as we're trying to gear our models for next year.

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Joseph P. Adams, Fortress Transportation and Infrastructure Investors LLC - Chairman & CEO [47]

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Yes, we don't think it has any impact on us. So we've been monitoring it. But the primary group that will be impacted would be airlines, as they'd have to put -- formally put lease obligations on the balance sheet. But in my experience, airlines and airline analysts have been doing that for 30 years. They've been capitalizing rent and doing adjusted leverage ratio anyway. And so -- and the big benefit for airlines is really that you get 100% financing on an extremely high capital-intensive business. So I don't see -- we don't see any decrease in interest in leasing from airlines, and we don't think it has any impact on our financials.

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Robert Hudson Salmon, Wolfe Research, LLC - Research Analyst [48]

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Okay. Yes. My question is more geared at the P&L and in terms of the deferred maintenance revenue recognition. But it sounds like it's really not a needle mover for you guys.

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

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No. We've been monitoring it. We don't see anything.

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Robert Hudson Salmon, Wolfe Research, LLC - Research Analyst [50]

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And then, Joe, kind of follow-up question here is with regard to the portfolio. Can you give us an update in terms of, including the $600 million, how much nonrecourse debt FTAI currently has, just so we're kind of thinking about the right debt-to-equity coverage as we're looking at the model?

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

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Right now, we count it all basically as balance sheet debt. The first nonrecourse debt that we would sort of exclude would be the Long Ridge financing.

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Operator [52]

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And I'm showing no further questions at this time. I'd like to turn the call back over to Alan Andreini for closing remarks.

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

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Thank you, operator, and thank you all for participating in today's conference call. We look forward to updating you after Q4.

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Operator [54]

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